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					                                   IMPORTANT NOTICE
This document is a free translation of Verallia’s Document de base dated April 18, 2011. This
free translation (the “Translation”) is provided for your convenience only and may not be
reproduced, redistributed or passed on, directly or indirectly, to any other person or published
in whole or in part for any purpose. This Translation has been delivered personally to you on
the basis that you are a person into whose possession the Translation may be lawfully
delivered in accordance with applicable laws. It does not contain all of the information that an
offering document would contain and does not purport to contain all information that may be
required to evaluate Verallia and/or its financial position and in particular it is subject to
revision, amendment and updating. No representation, express or implied, is given by or on
behalf of Verallia as to the accuracy or completeness of the information contained in the
Translation.
IN THE EVENT OF ANY AMBIGUITY OR CONFLICT BETWEEN
CORRESPONDING STATEMENTS OR OTHER ITEMS CONTAINED HEREIN,
THE FRENCH LANGUAGE “DOCUMENT DE BASE” SHALL PREVAIL.
None of Verallia, any of its advisors or representatives or any of their respective officers,
directors, employees or affiliates, or any person controlling any of them assume any liability
or responsibility for any loss however arising, directly or indirectly, from any use of the
Translation and any such liability is hereby expressly disclaimed. In particular none of
Verallia, any of its advisors or representatives or any of their respective officers, directors,
employees or affiliates, or any person controlling any of them assume any liability or
responsibility whatsoever in respect of any difference between the Translation and Verallia’s
Document de base or any final international offering circular.
This Translation does not constitute or form part of any offer to sell or the solicitation of an
offer to purchase securities, nor shall it or any part of it form the basis of, or be relied on in
connection with, any contract or commitment whatsoever. Persons into whose possession this
Translation may come are required by Verallia to inform themselves about and to observe any
restrictions as to the distribution of this Translation.
You shall not treat the translation as advice relating to legal, taxation or investment matters,
and you must make your own assessments concerning these and other consequences of the
various investments, including the merits of investing and the risks.
You have been delivered this Translation on the basis that you have confirmed the foregoing
to the sender.
THIS DOCUMENT IS A TRANSLATION FOR INFORMATION PURPOSES ONLY OF THE
FRENCH LANGUAGE “DOCUMENT DE BASE” DATED AS AT THE DATE OF THIS
DOCUMENT, PREPARED BY VERALLIA. IN THE EVENT OF ANY AMBIGUITY OR
CONFLICT BETWEEN CORRESPONDING STATEMENTS OR OTHER ITEMS CONTAINED IN
THESE DOCUMENTS, THE FRENCH LANGUAGE “DOCUMENT DE BASE” SHALL PREVAIL.




                                      French société anonyme
                                 with share capital of €51,009,200
                   Headquarters: 18, avenue d’Alsace, 92400 Courbevoie, France
                          Registration no. R.C.S. Nanterre 432 604 031




                                   DOCUMENT DE BASE
                               (REGISTRATION DOCUMENT)




[Intentionally omitted]




Copies of the French language version of the Document de Base are available free of charge from
Verallia, 18, avenue d’Alsace, 92400 Courbevoie, France. It may also be downloaded from the
Verallia website (http://www.verallia.com) and the Autorité des marchés financiers website
(http://www.amf-france.org).




2
                                                     TABLE OF CONTENTS

1.       PERSONS RESPONSIBLE ......................................................................................................... 3
1.1      PERSON RESPONSIBLE FOR THE DOCUMENT DE BASE...................................................................... 3
1.2      DECLARATION BY THE PERSON RESPONSIBLE FOR THE DOCUMENT DE BASE .................................. 3
1.3      PERSON RESPONSIBLE FOR FINANCIAL INFORMATION ..................................................................... 3
2.       STATUTORY AUDITORS ......................................................................................................... 4
2.1      PRINCIPAL STATUTORY AUDITORS .................................................................................................. 4
2.2      ALTERNATE STATUTORY AUDITORS ................................................................................................ 4
3.       SELECTED FINANCIAL INFORMATION............................................................................. 5
3.1      GROUP OVERVIEW ........................................................................................................................... 5
3.2      SELECTED FINANCIAL INFORMATION .............................................................................................. 5
4.       RISK FACTORS .......................................................................................................................... 9
4.1      MAIN RISKS ..................................................................................................................................... 9
4.1.1    Risks related to the Group’s business sector .................................................................................. 9
4.1.2    Risks related to the Group’s operations ....................................................................................... 16
4.1.3    Risks related to the status of the Verallia holding company and dividend payments from
         subsidiaries................................................................................................................................... 23
4.1.4    Risks related to the Group’s relationship with Saint-Gobain....................................................... 23
4.1.5    Market risks .................................................................................................................................. 27
4.1.6    Insurance risk ............................................................................................................................... 31
4.1.7    Legal risks .................................................................................................................................... 31
4.1.8    Competition risk ........................................................................................................................... 33
4.1.9    Risks related to taxes and social security contributions ............................................................... 33
4.1.10   Intellectual property risks ............................................................................................................ 34
4.2      THE GROUP’S RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM ........................................... 34
4.2.1    General approach to risk management and internal control ....................................................... 34
4.2.2    Industrial and environmental risk management ........................................................................... 35
4.2.3    Energy and raw material risk management ................................................................................. 36
4.2.4    Market risk management .............................................................................................................. 37
4.2.5    Insurance risk management.......................................................................................................... 39
4.2.6    Legal risk management ................................................................................................................ 39
5.       INFORMATION ABOUT THE COMPANY AND GROUP ................................................. 40
5.1      GROUP HISTORY AND RESTRUCTURING ......................................................................................... 40
5.1.1    Company name ............................................................................................................................. 40
5.1.2    Trade and Companies Registry .................................................................................................... 40
5.1.3    Company date of incorporation and lifetime ................................................................................ 40
5.1.4    Headquarters, legal form, and governing law.............................................................................. 40
5.1.5    Company history .......................................................................................................................... 40
5.1.6    Group Restructuring..................................................................................................................... 43
5.2      CAPITAL EXPENDITURES ............................................................................................................... 49
5.2.1    The Group’s main capital expenditures (CapEx) over the past three years ................................. 49
5.2.2    Main capital expenditures in progress ......................................................................................... 51
5.2.3    Main planned capital expenditures and capital expenditures for which management has made a
         firm commitment ........................................................................................................................... 51
6.       BUSINESS OVERVIEW ........................................................................................................... 53
6.1      GENERAL OVERVIEW..................................................................................................................... 53
6.2      VERALLIA’S COMPETITIVE STRENGTHS ......................................................................................... 55
6.3      PRESENTATION OF THE MARKET AND COMPETITIVE POSITION ....................................................... 70
6.4      STRATEGY: TARGETED GROWTH COMBINING OPERATIONAL EXCELLENCE WITH PROFITABILITY,
         BOTH SOURCES OF HIGH AND RECURRING CASH FLOW................................................................... 75
6.5      PRESENTATION OF THE GROUP’S LINES OF BUSINESS .................................................................... 79
6.5.1    The Group’s products and services .............................................................................................. 80
6.5.2    Western and Eastern Europe glass packaging business............................................................... 89
6.5.3    United States glass packaging business ..................................................................................... 103
6.5.4    South America glass packaging business ................................................................................... 108
6.6      DEPENDENCY FACTORS ............................................................................................................... 112
6.7      INDUSTRIAL AND ORGANISATION POLICY .................................................................................... 113



                                                                           i
6.7.1    Procurement and supplies .......................................................................................................... 113
6.7.2    Production .................................................................................................................................. 114
6.7.3    Sales and marketing policies ...................................................................................................... 117
6.8      LEGISLATIVE AND REGULATORY ENVIRONMENT ......................................................................... 117
6.8.1    Legislation and regulations in Member States of the European Union...................................... 117
6.8.2    Legislation and regulations in the United States........................................................................ 122
6.9      ENVIRONMENTAL POLICY – SUSTAINABLE DEVELOPMENT .......................................................... 124
6.10     IT SYSTEMS ................................................................................................................................. 128
7.       ORGANISATIONAL STRUCTURE AND INTRA-GROUP RELATIONS ...................... 130
7.1      SIMPLIFIED ORGANISATION CHART ............................................................................................. 130
7.2      DESCRIPTION OF SUBSIDIARIES AND SHAREHOLDINGS ................................................................ 130
7.3      RELATIONS BETWEEN THE COMPANY AND ITS SUBSIDIARIES ...................................................... 130
7.4      DIRECTORSHIPS HELD BY THE COMPANY'S CORPORATE OFFICERS IN SUBSIDIARIES .................... 131
8.       PROPERTY, PLANT AND EQUIPMENT ........................................................................... 132
8.1      MAJOR PROPERTY, PLANT AND EQUIPMENT, EXISTING AND PLANNED ......................................... 132
8.2      ENVIRONMENTAL ISSUES THAT MAY INFLUENCE THE USE OF PROPERTY ASSETS......................... 134
9.       REVIEW OF FINANCIAL POSITION AND RESULTS .................................................... 135
9.1      PRESENTATION OF THE COMBINED FINANCIAL STATEMENTS ..................................................... 135
9.1.1    General presentation of the Group............................................................................................. 135
9.1.2    Presentation of the Combined Financial Statements.................................................................. 135
9.1.3    Segment reporting ...................................................................................................................... 137
9.1.4    Factors with a material impact on the Group's results .............................................................. 137
9.1.5    Summary of the main accounting policies .................................................................................. 142
9.1.6    Highlights of the period .............................................................................................................. 147
9.2      ANALYSIS OF THE COMBINED INCOME STATEMENTS ................................................................... 147
9.2.1    Explanation of the main income statement items ....................................................................... 147
9.2.2    Comparison of fiscal years ended December 31, 2010 and 2009 .............................................. 151
9.2.3    Comparison of fiscal years ended December 31, 2009 and 2008 .............................................. 157
10.      CASH AND CAPITAL RESOURCES ................................................................................... 164
10.1     GENERAL INFORMATION ............................................................................................................. 164
10.2     COMBINED CASH FLOW FOR 2010, 2009 AND 2008 ..................................................................... 164
10.2.1   Net cash from operating activities .............................................................................................. 165
10.2.2   Net cash from investing activities ............................................................................................... 166
10.2.3   Net cash from financing activities .............................................................................................. 167
10.3     LIQUIDITY AND SOURCES OF FINANCING ..................................................................................... 167
10.4     SOURCES OF FINANCING .............................................................................................................. 168
10.5     OFF-BALANCE SHEET COMMITMENTS .......................................................................................... 170
10.6     DERIVATIVES .............................................................................................................................. 171
10.7     RECEIVABLES SECURITISATION PROGRAMMES ............................................................................ 172
11.      RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES ................................. 173
11.1     RESEARCH AND DEVELOPMENT: INNOVATION FOR THE CUSTOMER AND THE ENVIRONMENT ...... 173
11.1.1   Innovation in products and services ........................................................................................... 174
11.1.2   Innovation in materials .............................................................................................................. 175
11.1.3   Innovation in glass melting and forming processes ................................................................... 175
11.2     TRADEMARKS, PATENTS AND MODELS ........................................................................................ 175
11.2.1   Patents ........................................................................................................................................ 175
11.2.2   Trademarks................................................................................................................................. 176
11.2.3   Models ........................................................................................................................................ 177
11.2.4   Domain names ............................................................................................................................ 177
12.      TREND INFORMATION ....................................................................................................... 178
12.1     RECENT DEVELOPMENTS ............................................................................................................. 178
12.2     OUTLOOK .................................................................................................................................... 178
13.      PROFIT FORECASTS OR ESTIMATES ............................................................................. 180
13.1     ASSUMPTIONS ............................................................................................................................. 180
13.2     GROUP PROFIT FORECASTS FOR 2011 .......................................................................................... 180
13.3     ESTIMATED NET DEBT AS OF THE DATE OF THE ADMISSION TO TRADING OF THE COMPANY'S
         SHARES ON THE NYSE EURONEXT REGULATED EXCHANGE IN PARIS ......................................... 182
13.4     STATUTORY AUDITORS' REPORT ON THE PROFIT FORECASTS ....................................................... 182



                                                                           ii
14.      ADMINISTRATIVE AND MANAGEMENT BODIES ....................................................... 184
14.1     COMPOSITION OF SUPERVISORY AND MANAGEMENT BODIES ...................................................... 184
14.1.1   Chairman of the Board of Directors and executive management............................................... 184
14.1.2   Members of the Board of Directors ............................................................................................ 184
14.1.3   Biographies ................................................................................................................................ 186
14.1.4   Statement regarding corporate officers and senior executives................................................... 188
14.2     CONFLICTS OF INTEREST WITHIN ADMINISTRATIVE AND MANAGEMENT BODIES ......................... 189
15.      COMPENSATION AND BENEFITS ..................................................................................... 190
15.1     COMPENSATION AND BENEFITS GRANTED TO EXECUTIVE OFFICERS ............................................ 190
15.2     TOTAL EXPENSES RECOGNISED OR PROVISIONS BOOKED BY THE COMPANY OR ITS
         SUBSIDIARIES FOR PAYMENT OF PENSIONS, RETIREMENT OR OTHER BENEFITS TO CORPORATE
         OFFICERS ..................................................................................................................................... 193
15.3     CONSIDERATION GRANTED BY THE COMPANY OR ITS SUBSIDIARIES IN RESPECT OF
         CONTRACTUAL COMMITMENTS MADE TO CORPORATE OFFICERS ................................................. 193
15.4     COMPENSATION AND TERMINATION BENEFITS ............................................................................ 194
16.      PRACTICES OF THE ADMINISTRATIVE AND MANAGEMENT BODIES ................ 195
16.1     OFFICES HELD BY MEMBERS OF THE ADMINISTRATIVE AND MANAGEMENT BODIES .................... 195
16.2     INFORMATION ON SERVICE AGREEMENTS ENTERED INTO BETWEEN CORPORATE OFFICERS AND
         THE COMPANY OR ANY ONE OF ITS SUBSIDIARIES ....................................................................... 195
16.3     BOARD PRACTICES ...................................................................................................................... 195
16.3.1   Meetings of the Board of Directors ............................................................................................ 195
16.3.2   Powers of the Board of Directors ............................................................................................... 196
16.4     CORPORATE GOVERNANCE .......................................................................................................... 196
16.4.1   Corporate governance statement ............................................................................................... 196
16.4.2   Application of corporate governance principles to administrative and management bodies..... 197
16.4.3   Information on the Financial Statements Committee and the Appointments and Compensation
         Committee................................................................................................................................... 199
16.4.4   Internal control .......................................................................................................................... 202
17.      EMPLOYEES ........................................................................................................................... 203
17.1     EMPLOYMENT DATA.................................................................................................................... 203
17.1.1   Breakdown .................................................................................................................................. 203
17.1.2   Employment ................................................................................................................................ 204
17.1.3   Working conditions and human resources policy ....................................................................... 204
17.1.4   Training ...................................................................................................................................... 206
17.2     STOCK OPTIONS ........................................................................................................................... 206
17.3     EMPLOYEE PROFIT-SHARING ....................................................................................................... 207
17.4     PENSIONS AND OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONS ............................................. 207
17.5     SHARE OWNERSHIP OF CORPORATE OFFICERS AND TRANSACTIONS CARRIED OUT BY MEMBERS
         OF THE BOARD OF DIRECTORS ON THE COMPANY’S SHARES ....................................................... 207
18.      MAJOR SHAREHOLDERS ................................................................................................... 208
18.1     MAJOR SHAREHOLDERS .............................................................................................................. 208
18.2     VOTING RIGHTS OF MAJOR SHAREHOLDERS ................................................................................ 208
18.3     CONTROL OF THE COMPANY ....................................................................................................... 209
18.4     AGREEMENTS THAT MIGHT BRING ABOUT A CHANGE OF CONTROL ............................................. 209
19.      RELATED PARTY AGREEMENTS ..................................................................................... 210
19.1     MAIN AGREEMENTS WITH RELATED PARTIES .............................................................................. 210
19.2     STATUTORY AUDITORS’ SPECIAL REPORT ON RELATED PARTY AGREEMENTS OVER THE PAST
         THREE YEARS .............................................................................................................................. 210
19.2.1   Statutory Auditor’s special report on related party agreements for the year ended December 31,
         2010 ............................................................................................................................................ 210
19.2.2   Statutory Auditor’s special report on related party agreements for the year ended December 31,
         2009 ............................................................................................................................................ 211
19.2.3   Statutory Auditor’s special report on related party agreements for the year ended December 31,
         2008 ............................................................................................................................................ 212
20.      FINANCIAL INFORMATION CONCERNING THE ISSUER'S ASSETS, LIABILITIES,
         FINANCIAL POSITION, PROFITS AND LOSSES ............................................................ 213
20.1     COMBINED FINANCIAL STATEMENTS IN ACCORDANCE WITH IFRS FOR THE FISCAL YEARS
         ENDED DECEMBER 31, 2010, DECEMBER 31, 2009 AND DECEMBER 31, 2008 ............................. 213




                                                                           iii
20.2    AGE OF LATEST VERIFIED FINANCIAL INFORMATION ................................................................... 213
20.3    STATUTORY AUDITORS' REPORT ON THE COMBINED FINANCIAL STATEMENTS .......................... 213
20.4    AUDITORS' FEES .......................................................................................................................... 214
20.5    DIVIDEND POLICY ....................................................................................................................... 214
20.5.1  Dividends paid in respect of the last three fiscal years .............................................................. 214
20.5.2  Dividend policy .......................................................................................................................... 214
20.5.3  Time-barring of dividends .......................................................................................................... 215
20.6    LITIGATION AND ARBITRATION................................................................................................... 215
20.6.1  Commercial and industrial property disputes ............................................................................ 215
20.6.2  Competition proceedings ............................................................................................................ 215
20.6.3  Environmental litigation............................................................................................................. 216
20.6.4  Litigation relating to asbestos .................................................................................................... 217
20.6.5  Other legal disputes.................................................................................................................... 218
20.6.6  Legal disputes relating to Saint-Gobain ..................................................................................... 218
20.7    SIGNIFICANT CHANGES IN THE ISSUER'S FINANCIAL OR TRADING POSITION ................................. 218
21.     ADDITIONAL INFORMATION ........................................................................................... 219
21.1    GENERAL INFORMATION CONCERNING SHARE CAPITAL .............................................................. 219
21.1.1  Share capital (article 6 of the Articles of Association)............................................................... 219
21.1.2  Non-equity securities .................................................................................................................. 219
21.1.3  Shares held in treasury by the Company or for its account........................................................ 219
21.1.4  Other securities providing access to share capital..................................................................... 219
21.1.5  Pledges, guarantees and collateral given on Verallia shares and/or on the securities held by
        Verallia. ...................................................................................................................................... 219
21.1.6 Authorised but unissued share capital........................................................................................ 219
21.1.7 Share capital of Group companies which is under option or agreed to be put under option ..... 219
21.1.8 History of share capital over the past three years ...................................................................... 219
21.2    ARTICLES OF ASSOCIATION......................................................................................................... 220
21.2.1 Corporate purpose (article 3 of the Articles of Association)...................................................... 220
21.2.2 Stipulations relating to the Board of Directors and senior management ................................... 220
21.2.3 General Shareholders’ Meetings (article 18 of the Articles of Association) .............................. 224
21.2.4 Provisions of the Articles of Association or other provisions that might have for their effect to
        delay, postpone or prevent a change of control ......................................................................... 225
21.2.5 Ownership threshold disclosures and identification of shareholders (article 7 of the Articles of
        Association) ................................................................................................................................ 225
21.2.6 Change in share capital ............................................................................................................. 226
21.2.7 Form of the shares (article 7 of the Articles of Association) ...................................................... 226
22.     MATERIAL CONTRACTS .................................................................................................... 227
22.1    TRANSITION AGREEMENTS ......................................................................................................... 227
22.1.1 Cooperation Agreements ............................................................................................................ 227
22.1.2 Credit Facility ............................................................................................................................ 230
22.1.3 Trademark License Agreement ................................................................................................... 230
22.2    AGREEMENTS CONCERNING CHANGES IN THE SCOPE OF CONSOLIDATION OF THE GROUP AND
        ITS RESTRUCTURING .................................................................................................................... 231
22.2.1 Extension of Vertec Agreement to SG Vidros ............................................................................. 231
22.2.2. SG Vidros Agreement ................................................................................................................. 231
22.3    FINANCING AGREEMENT ............................................................................................................. 232
23.     THIRD-PARTY INFORMATION, STATEMENTS BY EXPERTS AND
        DECLARATIONS OF INTEREST ........................................................................................ 233
24.     DOCUMENTS AVAILABLE TO THE PUBLIC ................................................................. 234
25.     INFORMATION ON OWNERSHIP INTERESTS .............................................................. 235
GLOSSARY ............................................................................................................................................ 236
APPENDIX: IFRS COMBINED FINANCIAL STATEMENTS FOR THE FINANCIAL YEARS
        ENDED 31 DECEMBER 2010, 31 DECEMBER 2009 AND 31 DECEMBER 2008. ......... 239




                                                                            iv
                                        IMPORTANT NOTICE


In this Document de Base, the expressions “Verallia” and the “Company” refer to the company Verallia
S.A.. The “Group” means the group comprised of the Company and all its subsidiaries and ownership
interests after the Restructuring Transactions described in Section 5.1.6. “Compagnie de Saint-Gobain”
refers to the company Compagnie de Saint-Gobain and the expression“Saint-Gobain” refers to the group
comprised of Compagnie de Saint-Gobain and all its subsidiaries and ownership interests after the
Restructuring Transactions described in Section 5.1.6. Simplified organisational charts of the Group
before and after the Restructuring Transactions are also provided in Section 5.1.6.
Investors’ attention is drawn to the fact that the official completion of all Restructuring Transactions
(apart from the contribution of Saint Gobain Containers Inc., or “SGCI”, which had already been
completed when this Document de Base was registered) is subject to the non-retroactive condition
subsequent of the admission to trading of the Company’s shares on the NYSE Euronext regulated
exchange in Paris. Therefore the effective transfer of ownership of the assets and securities sold or
contributed, the finalisation of the corresponding sale and contribution transactions, and the completion
of any share issues that the Company may carry out for the purposes of a swap transaction as part of the
Restructuring Transactions will occur only on the date the Company’s shares are admitted to trading on
this exchange. A description and provisional schedule of the Restructuring Transactions are provided in
Section 5.1.6. In addition, the information provided in Sections 16 and 21 about the Company’s share
capital and the appointment of certain Board Members is subject to the corresponding resolutions being
passed at the Company’s General Shareholders’ Meeting before the Company’s shares are admitted to
trading on the NYSE Euronext regulated exchange in Paris, and some of these resolutions are subject to
the non-retroactive condition subsequent of the shares being listed. In order to provide investors with the
accounting and financial information needed to assess the Group’s financial position after the
Restructuring Transactions (as the term is defined below), this Document de Base includes the Group’s
combined financial statements (the “Combined Financial Statements”) for the fiscal years ended
December 31, 2010, December 31, 2009, and December 31, 2008, prepared according to the
International Financial Reporting Standards (“IFRS”) as adopted by the European Union. The
Combined Financial Statements are not necessarily representative of what the Group’s financial position,
assets, liabilities, and profits would have been if it had been independent of Saint-Gobain as of January 1,
2008.
This Document de Base contains information about the Group’s markets, the size of its markets, and its
competitive positioning. Unless otherwise indicated, this information is based on Group estimates and is
provided solely for informational purposes. Group estimates are based on information obtained from its
customers, its suppliers, trade organisations, and other stakeholders in the markets in which the Group
operates. Although the Group believes its estimates to be reliable as of the registration date of this
Document de Base, the Group cannot guarantee that the data on which its estimates are based are
accurate and exhaustive, or that its competitors define the markets in which they operate in the same
manner.
This Document de Base contains forward-looking information generally indicated by the use of the future
or conditional tense and by words such as “considers”, “estimates”, “forecasts”, “believes”, “expects”,
“plans”, “targets,” “schedules,” “wishes”, “aims”, “intends”, “anticipates”, “should”, “may”, and
“could”, as well as the negative form of such words and other similar expressions. This forward-looking
information includes all items that do not correspond to historical data, and cannot be considered as a
guarantee of the Group’s future performance.
Investors should carefully consider all of the risk factors described in Section 4. Other risks not yet
identified or not considered material by the Group as of the date this Document de Base was registered
could also have an adverse impact. The occurrence of one or more of these risks could have a material
adverse effect on the Group’s operations, financial position, assets, liabilities, profits, image, outlook, and
ability to achieve its objectives.
For the purposes of this Document de Base, the regions below are defined as follows:
    •    “Western Europe” refers collectively to France, Spain, Portugal, Italy, and Germany;
    •    “Eastern Europe” refers collectively to Russia and the Ukraine;
    •    “Europe” (when not preceded by an adjective as in “central Europe”) refers collectively to
         Western Europe and Eastern Europe;


                                                      1
    •   “United States” refers collectively to the United States of America;
    •   “North America” refers collectively to the United States and Canada;
    •   “South America” refers collectively to Brazil, Argentina, and Chile; and
    •   “Latin America” refers collectively to South America, Bolivia, Colombia, Costa Rica, Cuba, the
        Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua,
        Panama, Paraguay, Peru, Uruguay, and Venezuela.
These regions may not necessarily correspond to the regions used in market research or other third-party
data provided in this Document de Base; in such situations, the data are cited without using the terms
defined above.
The sales and EBITDA data provided in this Document de Base for the fiscal years ended December 31,
2006 and 2007 are taken from the Group’s combined financial statements for those years. These combined
financial statements were generated for internal management purposes and were not prepared using the
same presentation methods as those used for the Packaging Division in Saint-Gobain’s 2006 and 2007
consolidated financial statements. The Plastic Pumps and Small Bottles businesses sold in 2006 and
2007, respectively, were classified as businesses held for sale and were recognised on a separate line item
in the income statement in order to give a more faithful view of the Group’s results. In addition, between
2006 and 2007, the Group decreased its stake in Samin from 50.98% to 20% and since December 31,
2007 has treated Samin as an equity-accounted associate in its combined financial statements, whereas
Samin is a fully-consolidated entity in Saint-Gobain’s 2007 consolidated financial statements.
A glossary of the main terms and abbreviations used in this Document de Base can be found at the end of
this document.




                                                    2
1.    PERSONS RESPONSIBLE

1.1   Person responsible for the Document de Base

Jérôme Fessard, the Company’s Chief Executive Officer.

1.2   Declaration by the person responsible for the Document de Base

“I declare that, having taken all reasonable care to ensure that such is the case, the information
contained in this Document de Base is, to the best of my knowledge, in accordance with the
facts and contains no omissions likely to affect its import.

I have obtained a completion letter (lettre de fin de travaux) from the statutory auditors stating
that they have reviewed the financial and accounting information provided in this Document de
Base and that they have read the document in its entirety.

The IFRS Combined Financial Statements for 2008, 2009, and 2010 provided in Section 20.1
have been audited by statutory auditors and their report, provided in Section 20.3, ‘Statutory
auditors’ report on the Combined Financial Statements,’ expresses an unqualified opinion with
no matters to report.

The statutory auditors have also reviewed the profit forecasts provided in Section 13, and their
report on these forecasts, provided in Section 13.4, ‘Statutory Auditors’ Report on the profit
forecasts,’ expresses an unqualified opinion with no matters to report.”

Courbevoie, April 18, 2011

Jérôme Fessard, Chief Executive Officer

1.3   Person responsible for financial information

Claire Moses
Head of Investor Relations
Les Miroirs
18, avenue d’Alsace
92400 Courbevoie
France
Tel.: +33 147 62 38 00
E-mail: claire.moses@saint-gobain.com




                                                3
2.    STATUTORY AUDITORS

2.1   Principal statutory auditors

PricewaterhouseCoopers Audit
Represented by Rémi Didier and Olivier Destruel
63, rue de Villiers
92208 Neuilly-sur-Seine
France

Appointed by the ordinary general shareholders’ meeting on May 7, 2010 for the remainder of
its predecessor’s term, which expires at the ordinary general shareholders’ meeting to be held to
approve the financial statements for the year ending December 31, 2011.

KPMG Audit, a division of KMPG S.A.
Represented by Jean-Paul Vellutini
1, cours Valmy
92923 Paris La Défense Cedex
France

Appointed by the combined general shareholders’ meeting on February 28, 2011 for a term of
six years expiring at the ordinary general shareholders’ meeting to be held to approve the
financial statements for the year ending December 31, 2016.

2.2   Alternate statutory auditors

Yves Nicolas
63, rue de Villiers
92208 Neuilly-sur-Seine Cedex
France

Appointed by the ordinary general shareholders’ meeting on May 7, 2010 for the remainder of
his predecessor’s term, which expires at the ordinary general shareholders’ meeting to be held to
approve the financial statements for the year ending December 31, 2011.

KPMG Audit IS S.A.S.
Represented by Jay Nirsimloo
Immeuble Le Palatin
3, cours du Triangle
92939 Paris La Défense Cedex
France

Appointed by the combined general shareholders’ meeting on February 28, 2011 for a term of
six years expiring at the ordinary general shareholders’ meeting to be held to approve the
financial statements for the year ending December 31, 2016.




                                                4
3.     SELECTED FINANCIAL INFORMATION

3.1    Group overview

The Group manufactures glass packaging (bottles and jars) for food and beverages, and regards
itself as the leading global supplier of wine bottles for still and sparkling wine, bottles and
decanters for spirits, and jars for foodstuffs. The Group is the world’s second-largest supplier
for all market segments combined.1

The Group was created from Compagnie de Saint-Gobain’s glass packaging business set up in
the early 20th century.

Compagnie de Saint-Gobain has been making glass packaging for centuries. It was born from
Manufacture Royale des Glaces, a French glass manufacturer founded in 1665 at the initiative
of King Louis XIV’s finance minister, Jean-Baptiste Colbert. As the glass packaging business
grew, it became a branch, then a division (the Packaging division) following Saint-Gobain’s
recent restructuring into four divisions: Innovative Materials, Construction Products, Building
Distribution, and Packaging.

The Group designs, manufactures, and sells glass bottles and jars mainly for the food and
beverage industry, including for beer, spirits, and still and sparkling wines. The Group also has
a small tableware business in South America.

The Group generated €3.6 billion of net sales in 2010 for a business income of €0.4 billion, and
produced some 25 billion glass bottles and jars. Key figures for the fiscal years ended December
31, 2008 and 2009 are provided in Section 3.2.

The Group has around 15,000 employees and has a commercial presence in 46 countries.2 As of
the registration date of this Document de Base, the Group had 59 production plants spanning all
of its activities in 13 countries, including 47 glass production sites in 11 countries in Europe, the
United States, and South America.

3.2    Selected financial information

The tables below give excerpts of the Company’s audited Combined Financial Statements
(income statement, balance sheet, and cash flow statement) for the fiscal years ended December
31, 2008, December 31, 2009, and December 31, 2010.

These Combined Financial Statements were prepared according to the International Financial
Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (IASB)
and adopted by the European Union on December 31, 2010. They present the combined assets,
liabilities, income, and expenses directly attributable to the Group for the years ended December
31, 2000, 2009, and 2010. The full Combined Financial Statements are provided in Section 20.1
and were audited by PricewaterhouseCoopers Audit; the corresponding audit reports are
provided in Section 20.3.




1
  Sources: Group estimates based on sales data given in the Form 10-Q filed by Owens-Illinois with the
United States Securities and Exchange Commission on January 26, 2011 and on the Ardagh website.
2
  Countries in which the Group generated net sales of at least €880,000 in 2010, based on the countries in
which the products were actually sold and not where they were made (contrary to the definition of “Net
sales” used for the Combined Financial Statements in Section 9). The French Overseas Departments and
Territories are considered to be countries.


                                                    5
Because the Group has only one main business activity (glass packaging), its segment
information is presented by region (Europe, the United States, and South America) and by
market segment (still wines, sparkling wines, spirits, food, beer, other bottles, etc.).

Compagnie de Saint-Gobain has not generated consolidated financial statements for segregating
the Group’s current business scope. Thus the Combined Financial Statements for fiscal years
ended December 31, 2008, December 31, 2009, and December 31, 2010 were prepared using
the Saint-Gobain consolidation packages for each operating entity of the Group.

The Combined Financial Statements are not necessarily representative of what the Group’s
profit or loss, assets, liabilities, and financial position would have been if it had been
independent of Saint-Gobain as of January 1, 2008 (see Sections 4, 9, 10, and 22).

The data in the Combined Financial Statements differ from the historical financial information
published by Compagnie de Saint-Gobain for the Saint-Gobain Packaging Division due to the
accounting restatements related mainly to pension liabilities in the United States (see Section
9.1.5) and the IFRS 2 expense (see Section 9.1.5 for the accounting treatment of share-based
payments).

The data provided below should be considered in light of the accounting methods for the
Combined Financial Statements described in Section 9, the information in Section 10, and the
notes to the financial statements provided in Section 20 and Section 22.


Key figures from the audited IFRS combined income statements for fiscal years ended
December 31, 2008, December 31, 2009, and December 31, 2010

    In millions of euros            2010                      2009                      2008

Net sales                           3,553                     3,445                     3,547


Operating income                     432                       434                       439


EBITDA3                              667                       654                       647

Business income                      402                       392                       426


Net income of the                    242                       309                       313
combined entities




3
 Operating income after adding back depreciation and amortisation on tangible and intangible assets (see
Note 24 to the Group’s 2010 IFRS Combined Financial Statements).


                                                   6
Key figures from the audited IFRS combined balance sheets for fiscal years ended December
31, 2008, December 31, 2009, and December 31, 2010

                                December 31,             December 31,             December 31,
    In millions of euros            2010                     2009                     2008

      ASSETS
Non-current assets                    1,856                    1,782                  1,809

Current assets                        1,299                    1,244                  1,316

Total assets                          3,155                    3,026                  3,125

     EQUITY &
   LIABILITIES
Total equity                          1,339                    1,376                  1,324

Non-current liabilities               676                      612                    737

Current liabilities                   1,140                    1,038                  1,064

Total equity and                      3,155                    3,026                  3,125
liabilities



Key figures from the audited IFRS combined cash flow statements for fiscal years ended
December 31, 2008, December 31, 2009, and December 31, 2010

                                                  December 31,         December 31,   December 31,
               In millions of euros
                                                      2010                 2009           2008

Cash flow from operations4                              488                496                533

Net cash from operating activities                      541                509                455

Net cash from (used in) investing                      (278)              (199)             (310)
activities

Net cash from (used in) financing                      (244)              (327)             (166)
activities

Net increase (decrease) in cash and cash                19                 (17)               (21)
equivalents

Net effect of exchange rate changes on                   4                  1                 (10)
cash and cash equivalents
Cash and cash equivalents at beginning of               50                 66                 97




4
    Defined in Note 24 to the Group’s 2010 IFRS Combined Financial Statements.


                                                   7
year
Cash and cash equivalents at end of year                   73                  50                  66


Regional breakdown of the Group’s fiscal year ended December 31, 2010 combined net sales5

                                                Eastern
                                                Europe
                      United States               3.3%
                         32.7%




                                                                Western Europe
                                South America                   (including Poland)
                                  8.5%                           55.5%




Breakdown by market segment of the Group’s fiscal year ended December 31, 2010 combined
                                      net sales6

                                          Excluding
                     Other              bottles and jars
                                               6.5%                       Still wines
                 bottles 7.9%
                                                                              29.5%




    Beer 18.9%




                                                                                        Sparkling wines
                                                                                           7.3%
                                Foodstuffs
                                                                    Spirits 10.4%
                                19.5%




5
    Based on external sales
6
    Based on external sales


                                                      8
4.      RISK FACTORS

The Group operates in a continuously-changing environment that involves numerous risks,
including some that are beyond the Group’s control. The risks that the Group believes to be
material to its business as of the registration date of this Document de Base are described below.
The occurrence of one or more of these risks could have a material adverse effect on the
Group’s operations, financial position, assets, liabilities, profits, image, and/or outlook. Other
risks not yet identified or not considered material by the Group as of the registration date of this
Document de Base could also have an adverse impact.

4.1     Main risks

4.1.1    Risks related to the Group’s business sector

The Group could incur significant costs to remain in compliance with environmental, public
health, and safety regulations.

The Group operates in a sector subject to strict environmental, public health, and safety
legislation and regulations. These laws and regulations, which differ across countries, relate
mainly to pollution, industrial waste treatment (for gases, wastewater, and all other kinds of
waste), audits of production plants and their operating conditions, any necessary production site
remediation (especially soil remediation), packaging waste treatment, noise pollution, the
production, storage, handling, transportation, and treatment of hazardous waste, and more
generally any public health and food safety risks. A description of the main laws and regulations
that the Group must comply with in each of the major countries in which it operates is provided
in Section 6.8. In particular, the glass-making industry is subject to regulations governing
carbon dioxide, nitrogen oxide, sulphur oxide, and particle emissions. The Group must also
obtain several types of permits and authorisations (including environmental, public health, and
safety permits) that may be renewed, amended, suspended, and/or possibly revoked by
governments or regulators.

The Group has incurred and will continue to incur significant costs (through capital
expenditures and operating expenses) to comply with existing laws and regulations, and it is
likely that these costs will rise substantially in the future. For example, the Group recently made
a large investment to install electronic air filters to treat flue gas at its production plants in
Western Europe that were not yet equipped in accordance with EU requirements. Similarly, in
order to comply with U.S. Environmental regulations, and with the U.S. Environmental
Protection Agency (“EPA”) requests, the Group must make important capital expenditures to
install or replace electronic air filters and/or other equipment to reduce air emissions at its plants
in the United States. The Group, through its U.S. subsidiary SGCI, has negotiated a Global
Consent Decree with the EPA to bring SGCI in line with the country’s best practices regarding
air protection in the United States and relating to nitrogen oxide, sulphur oxide, and particle
emissions. This Consent Decree was reached after several years of negotiations with the EPA
and the U.S. Department of Justice (“DOJ”), and was approved by the courts on 7 May 2010.
The Group plans to spend up to $112 million over ten years (excluding the operating costs of
the new equipment) to meet the Consent Decree’s requirements (see Section 20.6.3).

The Group may decide to install electronic air filters at other plants that do not yet have them
(plants in Argentina and Eastern Europe), which could lead to additional capital expenditures
and operating costs. Moreover, the installed electronic air filters may not operate as expected;
for instance, some filters recently installed in plants in France, Spain, and Italy do not cut
emissions low enough to comply with regulations, and in December 2010 Spanish regulators
initiated emissions control audits at four Group sites. Installed electronic air filters could also
become inadequate following a change in the applicable regulations.


                                                  9
The Group’s production plants use a great deal of cooling water, meaning that the Group is
exposed to the risk of water shortages in regions subject to water stress (e.g., the plants in
Montblanc and Seville, Spain, and Rosario, Chile). Changes in water regulations and/or
legislation could cause the Group to have to make large capital expenditures.

If the Group is unable to comply with applicable regulations or to obtain or keep the permits and
authorisations necessary for its operations, or if it incurs civil and/or criminal liability regarding
the environment, public health, or safety, the Group’s reputation could be damaged and it could
incur large costs (including site remediation and shutdown costs) or administrative or criminal
penalties, or it could be required to pay compensation for damages caused to third parties,
Group employees, or the environment, which could have a material adverse effect on the
Group’s operations, financial position, assets, liabilities, profits, and outlook.

The Group could incur significant costs due to the fact that some of its production sites are
located in metropolitan areas.

The Group could find it more difficult to obtain, renew, or keep the permits and authorisations
necessary for its operations due to the growing urban development of some of the sites where
the Group’s production plants are located. This applies in particular to some of the Group’s
older sites like the ones in Agua Branca, Brazil (within the São Paulo metropolitan area),
Kamyshin, Russia, and Seattle, USA. This could prompt governments to impose stricter
operating conditions (like restrictions on traffic), to tighten the criteria for obtaining or renewing
permits and authorisations, to refuse to grant or renew permits and authorisations, or to
expropriate the sites in order to support their urban development projects.

The occurrence of such events could give rise to additional operating costs for the Group or
could cause a partial or complete shutdown of its operations at the sites in question, which could
lead to substantial shutdown or transfer costs, lost sales, and the need to build new production
plants or upgrade old ones.

There is no guarantee that the Group would receive full or partial compensation if such an event
were to occur. For instance, the Agua Branca production site, which the Group rents, could be
expropriated and/or the Group could be forbidden from carrying out some or all of its current
operations at the site, and as of the registration date of this Document de Base, the Group cannot
give an estimate of what (if any) compensation it would receive in such an event.

If the Group is unable to obtain or keep the permits and authorisations necessary to operate its
production plants in metropolitan areas or if it is no longer able to operate them under
satisfactory economic conditions, or if it incurs civil and/or criminal liability regarding the
environment, public health, or safety due to its operations at these plants, the Group could
experience a material adverse impact on its operations, financial position, assets, liabilities,
profits, and image.

The legislative and regulatory environments in which the Group operates are likely to
change.

A change in or tightening of the regulations applicable to the Group’s operations or the
interpretation or application of these regulations by the competent authorities could give rise to
substantial additional costs or capital expenditures for the Group, as was the case following the
passage of new environmental liability legislation based on the polluter pays principle set forth
in EU Directive 2004/35/EC (see Section 6.8.1.2).

New regulations such as those related to recycling or returnable containers could give rise to
additional costs or logistical constraints for some Group customers, which could in turn decide


                                                  10
to scale back or stop their use of glass packaging. This could cause the Group to reduce,
suspend, or terminate the production of some types of products or shut down one or more of its
production plants, with no assurance that it would be able to offset the corresponding losses or
restart a plant that would have been shut down. Regulatory changes could also affect the
Group’s prices, margins, capital expenditures, and operations, especially if these regulations
lead to significant or structural changes in the food packaging market that could affect the
Group’s share of the glass market, production volumes, or production costs. Any one or more of
the events described above could have a material adverse effect on the Group’s operations,
financial position, assets, liabilities, profits, and outlook.

For example, given the growing concerns about climate change (which could lead to legislation
requiring companies to inform consumers about the environmental impacts of their products)
and the consequences of greenhouse gas emissions, new environmental regulations applicable to
the Group’s operations are likely to be passed with a view to reducing greenhouse gas emissions
and improving the energy efficiency of manufacturing processes and logistics. Several such
initiatives have already been implemented or proposed (or will soon be proposed) in numerous
countries and regions, especially in the United States and Europe, both on an EU level as well as
by individual member states. Starting in 2013, production plants in the EU will face tougher
requirements under the European Union Emission Trading System (EU ETS) for greenhouse
gases, set up by the Emissions Trading Directive (see Section 6.8.1.2). From that year on, free
allowances will be calculated using specific benchmarks for individual product categories,
established according to the average performance of the most efficient production plants in the
EU. This means that most of the Group’ production sites will have to buy some of their
emission allowances on the market, which could result in substantial costs for the Group.
Similarly, the transposition and implementation of the proposed Industrial Emissions Directive
could require the Group to further implement “best available techniques,” which in the case of
nitrogen oxide (NOx) emissions could necessitate the installation of catalytic DeNOx systems at
some of its plants (see Section 6.8.1.2). The Group feels that such regulations could be passed in
the United States in the short- or medium-term, but at this point the Group cannot predict what
effect they will have on its financial position, assets, liabilities, profits, and outlook. If such
regulations are passed, the Group would have to make the investments needed to control its
emissions and energy use so as to comply with the new regulations.

Environmental concerns could lead national governments and the EU to pass other regulations
that could impose obligations on the Group and have a material adverse effect on its operations,
financial position, assets, liabilities, profits, and outlook. For instance, under EU Directive
94/62/EC on packaging and packaging waste, bottles in the EU cannot contain more than 100
ppm of heavy metals—except for bottles made from recycled glass, which are allowed to
exceed this limit (see Section 6.8.1.1). However this exemption does not apply to bottles
decorated with enamels containing heavy metals, even in tiny amounts. Therefore, since it may
be difficult to comply with the 100 ppm limit, the Group may decide not to apply decorations
containing heavy metals to its bottles made from recycled glass so that these bottles remain
eligible for the aforementioned exemption.

Similarly, in the United States, certain state-level regulations cap the concentration of some
heavy metals in packaging to 100 ppm, with an exemption for packaging made from recycled
materials (see Section 6.8.2). However this exemption has expired in some states, so the
Group’s bottles made from recycled glass with a heavy metal concentration of above 100 ppm
may not be compliant with the regulations in these states as of the registration date of this
Document de Base, which could have an adverse effect on the Group’s operations, financial
position, assets, liabilities, profits, and image.




                                                11
The Group is exposed to fluctuations in energy prices.

The Group’s manufacturing processes use a great deal of energy and natural resources,
especially natural gas, electricity, and fuel oil (see Section 9.1.4.4). The furnaces used to make
glass operate continuously with a melting temperature of around 1,550°C. Therefore higher
energy prices drive up the cost of producing glass packaging. The same holds true for shipping
costs for the Group’s products and raw materials. Given the very nature of glass packaging and
the raw materials and cullet used to make it, shipping costs (for products and raw materials)
account for a large portion of glass packaging’s end price—and are obviously affected by the
cost of fuel.

For instance, energy prices were highly volatile in fiscal year 2007 and skyrocketed in 2008,
especially the price of natural gas in the U.S. and fuel oil in Europe, which drove up the Group’s
production and shipping costs in those regions. Since 2009 gas prices have moved differently in
different regions; they fell in the U.S. but rose in Europe in 2010. Fuel oil prices declined in
2009 but jumped higher in 2010.

Some of the Group’s contracts with its customers, especially in the United States since the 2005
and 2006 fiscal years (see Section 6.5.3), have various energy price indexation or inflation
adjustment mechanisms that allow the Group to recover some or all of the cost increases (and
decreases) in its sales prices, although with a time lag. In general the Group enters into formal
medium- or long-term contracts with only a limited number of its most important customers; the
Group’s other agreements are less formal and most of them do not have price indexation or
adjustment clauses. The Group negotiates cost pass-through clauses with its customers when
orders are placed or contracts are renewed, so spikes in production costs are typically recovered
only partially (if at all) and with a time lag. Therefore the Group cannot guarantee that it will be
able to instantly recover all production cost increases as a result of contract negotiations.

The Group uses hedging instruments to cover some of the risks related to energy prices when
contractual price indexation mechanisms cannot be put in place (see Section 4.2.3). However
the Group cannot guarantee that these hedges and indexation mechanisms will cover all of the
additional costs arising from future increases in natural gas, electricity, and fuel oil prices.
Although these hedges offer short-term protection against fluctuations in natural gas and fuel oil
prices, they do not attenuate the long-term effect of global structural energy price increases
during periods of business growth.

The Group’s energy price risk could be amplified by volatility in the exchange rates for its
payment currencies, particularly the U.S. dollar.

Therefore, any significant increase and/or volatility in natural gas, electricity, and fuel oil prices
could have a material adverse effect on the Group’s operations, financial position, assets,
liabilities, profits, and outlook.

The Group is exposed to fluctuations in raw materials prices.

The Group’s manufacturing processes also use a large amount of raw materials for the
production of glass. These raw materials include varying amounts of glass sand, limestone,
natural and synthetic soda ash, and cullet (recycled glass). Prices of soda ash have risen
markedly over the past few years as a result of an imbalance between supply and demand. The
price of cullet jumped an average of 3.5% in Western European countries (excluding Germany)
and 3% in the United States between 2008 and 2010. Some of the rises in raw materials prices
could be due to increased supplier concentration, which was the case for soda ash; this
phenomenon could intensify and spread to other raw materials used by the Group.




                                                  12
Cullet prices tend to vary considerably from one region to another as a result of different
regulations and cost factors for collecting and recycling used glass as well as different distances
between cullet supply centres and production sites. For example, glass collection and recycling
in France is government regulated and supported through grants to assist remote sites, which has
encouraged glass collection and given glass makers a stable, affordable supply. In Germany,
cullet prices shot up in 2008 after the country’s recycling industry was liberalized, before easing
back down in 2010. Thus new glass collection and recycling regulations could have a major
effect on cullet availability and its cost for the Group.

Although some of the Group’s contracts include mechanisms to protect against higher raw
materials prices, any significant increase in the prices of the raw materials it uses to make glass
or cullet could have a material adverse effect on Group’s operations, profits, and outlook.

The Group had no raw materials hedging agreements in place as of the registration date of this
Document de Base (see Section 4.2.3).

The Group’s business is dependent on consumer spending habits and levels in its three main
regional production markets and on demand for wines and spirits in Asia.

The Group’s business consists of making the glass packaging used for food and beverages
consumed by individuals on a regular or occasional basis. This business is sensitive to changes
in the economic climate and consumer habits. Most of the Group’s products are sold in Europe,
the United States, and South America (which are also its production regions), although some
products are sold indirectly in Asia—a region with high demand for wine and spirits. A
slowdown or recession in the economies of any of these regions could shrink demand for the
Group’s products, especially high-end products, and/or put downward pressure on their prices,
which could have a material adverse effect on the Group’s operations, profits, and outlook. For
example, volumes sold in fiscal years 2008 and 2009 tumbled in Spain as a result of a sharp
drop in domestic consumer spending, and in France due to a plunge in the volume of wines and
spirits exported to emerging countries. Spain was able to gain market share of the wine export
market in 2010, with a parallel increase in demand for glass packaging in the country, whereas
France remained handicapped by the contraction in its domestic market and lack of
competitiveness (in marketing and prices) in export markets.

The Group feels that there is nevertheless little correlation between the economic climate and
demand for the everyday and/or essential foodstuffs for which it manufactures packaging. The
Group believes that this weak correlation reflects the fact that demand for everyday foodstuffs is
less sensitive to economic cycles than consumer spending as a whole (which is also linked to
population growth), and because of certain regional and/or microeconomic factors like the
substitution of other materials for glass or an increase or decrease in the use of returnable
containers. However, the Group feels that there is a greater correlation between the economic
climate and demand for high-end or occasionally-purchased products, which also carry higher
margins for the Group. An economic recession could reduce demand for these products and
have a material adverse effect on the Group’s operations, profits, and outlook. An economic
slowdown would have a greater effect on countries in which the Group’s products are produced
than on those in which they are consumed (e.g., French exports of champagne and spirits).

The Group’s business could also be affected by shifts in household consumption patterns, which
could arise from changes in lifestyles, nutritional preferences, new legislation, social trends, and
public health and safety issues (e.g., Russia’s initiative to reduce alcohol consumption and the
banning of glass bottles in certain public areas in some European countries). Alcohol




                                                 13
consumption has been falling in mature markets like France, where it shrank nearly 15%
between 1999 and 20097 as a result of measures to prevent alcoholism.

The Group faces competition from producers of other types of packaging and is exposed to
the risk that packaging made from other materials will be used as a substitute for glass
packaging.

The Group competes against producers of other types of packaging, which differ according to
market segment. Aluminium and tin can producers compete against the Group in the beer and
soft drink segments, producers of rigid plastic and supple plastic (liners)—including producers
of packaging in polyethylene terephthalate (“PET”)—are the main competitors in the bottled
water and soft drink segments; aseptic carton producers challenge the Group in the juice and
milk segments; and “bag-in-box” makers rival the Group in the wines segment. Other
competitors include producers of other forms of packaging such as those for draught beer,
coffee capsules, and individual distributors.

In mature markets like those in Western Europe and the United States, glass packaging
producers have competed and will continue to compete against producers of other types of
packaging, with varying intensity depending on the market. In regional markets, this
competition has led to a steady decline in demand for the Group’s products since the 1970s,
especially in the soft drinks, fruit juice, and mineral water segments. This coupled with direct
competitors in the glass packaging market (see Section 4.1.2, under the heading “The Group
faces intense competition from other glass packaging producers”) has resulted in and could
again result in excess capacity in some countries, and consequently lower volumes and/or prices
for varying lengths of time.

Factors that could favour the substitution of other types of packaging for glass packaging
include the relative prices of different types of packaging, availability of different types of
packaging in sufficient quantities, and perceived benefits for food and beverage producers and
consumers.

Glass stands apart from other packaging materials in that it fits in with sustainable development
principles (see Section 6.2). Moreover, glass packaging is the only type of food packaging that
does not bring food into contact with plastic, meaning that the food is not likely to be
“contaminated” by plastic—a material made from petrochemicals8. All other types of packaging
bring the contents (liquid or solid) into contact with plastic since the material is used for either
the package or the package lining. The Group believes that it also benefits from the fact that
consumers associate products packaged in glass with higher quality, and feels that this perceived
value protects it to some extent against the substitution of glass by other materials. However this
advantage could be eroded by technological advancements and investments by the producers of
non-glass packaging. The Group cannot guarantee that glass packaging will continue to benefit
from this perceived value or that some consumers will not eventually prefer other materials.

Some of the Group’s customers have used and may continue to use non-glass packaging for
their products due to changing consumer lifestyles or other reasons (notably marketing), leading
these customers to promote other types of packaging in some markets. A shift in the preferences




7
  Source: The FranceAgriMer Stats 2009 study (available on http://www.onivins.fr) of wine consumption
of people over the age of 14 between 1994 and 2009, with statics per person and for the overall
population; the statistics cited above cover the period from 1999 to 2009.
8
  Source: FEVE website (www.feve.org) under “Glass and health”.


                                                 14
of consumers or the Group’s customers away from glass packaging could significantly reduce
sales and/or prices of this packaging.

The Group believes that the risk of other types of packaging being substituted for glass
packaging remains low in the wines and spirits segments for the short- and medium-term.
However the Group feels that this risk is higher for some beer and food products, which could
have a material adverse effect on the Group’s operations, financial position, assets, liabilities,
profits, and outlook.

An interruption in the operations at any of the Group’s production plants could have a
material adverse effect on the Group’s operations, financial position, assets, liabilities,
profits, and outlook.

The Group’s production processes involve high fixed costs and run continuously, meaning that
the furnaces must be maintained at high temperatures 24 hours a day. Extended disruptions to
the supply of energy or the materials needed to operate the furnaces could lead to a deterioration
in or loss of the production facility. Despite the expert skills used to design and operate the
Group’s furnaces and plants, the Group cannot guarantee that unplanned interruptions—due for
example to human error, disruptions in the supply of energy or raw materials, malicious acts,
acts of terrorism, damage, natural disasters (such as droughts, fires, and floods), or a force
majeure event—will not occur. Some regions in which the Group operates, like South America
and the Ukraine, experience frequent disruptions in energy supply. In Argentina the government
may impose gas rationing during periods when gas is in short supply, such as in the winter.
Therefore, the Group has set up a gas oil logistics system that ensures the furnaces can continue
to run to some extent during disruptions, but this system increases the Group’s operating costs.

Any interruption in the Group’s manufacturing processes could prevent the Group from being
able to fill certain orders, and/or could cause the Group to lose customers and revenue—while
still having to pay high fixed costs. The Group could also need to make unplanned capital
expenditures, such as to repair a furnace following an accidental spill of molten glass (like at the
Dunkirk, USA plant in 2009) or the collapse of the refractory slabs in a furnace’s combustion
chambers (like at the Bad Wurzach, Germany plant in December 2010). Such repairs could cost
several tens of millions of euros depending on the furnace size. Such interruptions could have a
material adverse effect on the Group’s operations, financial position, assets, liabilities, profits,
and outlook.

An increasing number of the Group’s customers are relocating some of their operations to
lower-cost countries, which could have a material adverse effect on the Group’s operations,
financial position, assets, liabilities, profits, and outlook.

Glass packaging is sold mainly in regional markets because of its high shipping costs (due to its
relatively high weight and volume). Therefore, glass packaging producers typically build their
plants near customers’ production sites (e.g., in wine-making regions and regions with large
breweries). However, the packaging operations for some foods and beverages could be relocated
to a region other than where they are produced, such as to a region with greater demand and/or
lower packaging costs. Production activity could also slow down in one region while picking up
in another, prompting the partial or total relocation of production sites—meaning that the
packaging operations would be relocated as well.

Customers that have relocated their packaging and possibly production operations could decide
to buy their glass packaging from a competitor located in the new region. This could cause the
Group to have to close some of its production plants and open new plants closer to its
customers’ relocated sites, meaning that the Group would be faced with the challenges of setting
up operations in emerging countries (see Section 4.1.2 under the heading “The Group operates
in emerging countries with specific risks”).


                                                 15
The Group closely monitors its customers’ relocation decisions and incorporates these factors
into its growth strategy. However, an abrupt increase in customer relocations could have a
material adverse effect on the Group’s operations, financial position, assets, liabilities, profits,
and outlook.

4.1.2   Risks related to the Group’s operations

Supply and demand imbalances could affect the prices of the Group’s products. The Group
could also be impacted by the time needed to adjust production facilities accordingly.

The Group’s sales in regional markets depend heavily on the relationship between glass
packaging production capacity and demand. This relationship is most relevant on a regional
level because the high shipping costs of glass packaging make it difficult to sell excess capacity
in distant markets.

Any new production capacity in a given market could cause a significant imbalance between
supply and demand in that market, since supply would increase suddenly while demand would
probably grow more steadily over time. Such an imbalance coupled with the largely regional
nature of the Group’s markets could put pressure on prices until demand adjusts to the new
supply, which would adversely impact the Group’s sales and financial performance. Such
adverse effects could also result from a drop in demand, as was the case in Russia where the
drought and fires in the summer of 2010 devastated the Group’s customers’ crops and
consequently their demand for food packaging.

On the other hand, some events could trigger a sharp increase in packaging demand, like new
legislation that favours the use of certain types of packaging. However the Group’s production
plants already operate continuously (with five shifts working 365 days a year) and have a
limited ability to accommodate sudden fluctuations in demand. Moreover, additional capacity
requires a large investment and takes considerable time to install and start-up. Customers that
are unable to procure glass packaging due to the Group’s temporary inability to meet an abrupt
increase in orders may decide to purchase other types of packaging from the Group’s
competitors. Such an event could have a material adverse effect on the Group’s operations,
financial position, assets, liabilities, profits, and outlook.

The Group’s business could be bolstered by situations where demand for glass packaging
exceeds supply (or is perceived to exceed supply, prompting companies to build up inventories
as a precaution), such as the situation that occurred in Western Europe in 2007 and part of 2008.
However, such situations would be only temporary and could turn around abruptly as customers
deplete downstream inventory, competitors install new production capacity, or demand drops
off. Such an event could have a material adverse effect on the Group’s operations, profits, and
outlook.

The Group may decide to scale up or scale down its production facilities in some regions to
respond to significant fluctuations in supply or demand. These fluctuations could lead the Group
to temporarily or permanently shut down certain furnaces or plants, which could entail
significant costs. Alternatively, the Group may also decide to expand some of its plants or
install new furnaces, which typically takes 15 to 18 months. The Group could find that after
such expansions the additional capacity is no longer suitable for the new market conditions. For
example, in the fiscal year ended December 31, 2009 the Group closed plants in Waxahachie,
USA and Jerez, Spain, and temporarily shut down a furnace in the Ukraine (while ensuring that
the furnace could be started-up again quickly when business picked back up). In Russia, the
Group shut down two small furnaces that were nearing extinction and built a new-generation
furnace, but the start-up of the new furnace was pushed back from December 2009 to July 2010.



                                                 16
In France, the Group reconfigured the production capacity at its Vauxrot plant in 2011 which
led to the shutdown of a furnace.

Any scale up or scale down of the Group’s production facilities that does not subsequently
allow the Group to better respond to fluctuations in supply and demand could have a material
adverse effect on the Group’s operations, profits, and outlook.

The Group faces intense competition from other glass packaging producers.

The Group competes against other international and regional glass packaging producers. A
discussion of the Group’s main competitors is provided in Section 6.3.

The Group could face competition from companies based in countries like China, Egypt, and
other Middle Eastern countries that export glass packaging at low prices when there is excess
supply in their domestic markets or when exchange rates or other economic factors (like
shipping costs) make it favourable. Despite the generally regional nature of the glass packaging
market, such exports could have a material adverse effect on the Group’s operations, profits,
and outlook.

The Group competes with other glass packaging producers on price, quality, delivery times,
payment conditions, associated services (like packaging decoration), innovation, and ability to
meet changing customer needs.

Competition in this market puts downward pressure on the Group’s prices and makes it difficult
for the Group to pass on increases in production costs. Competition also increases the risk that
customers will not renew their contracts with the Group or will break their commercial ties with
the Group, and makes it more difficult for the Group to find new customers. These factors could
have a material adverse effect on the Group’s operations, profits, and outlook.

New, counter-cyclical production capacity came online in fiscal years 2008 and 2009 in
Germany, France, the Iberian Peninsula, the Ukraine, and Russia, and in fiscal year 2010 in Italy
and Portugal. Additional capacity could also be built on the outskirts of the Group’s regional
markets, like in the Mediterranean rim (across from southern Europe) and Mexico (which
borders the United States).

Any inability by the Group to compete effectively against other glass packaging producers
could have a material adverse effect on the Group’s operations, assets, liabilities, profits, and
outlook.

Some of the Group’s customers could begin producing their own glass packaging.

Some of the Group’s customers could decide to produce their own glass packaging in order to
meet their glass packaging needs and lower their purchasing costs, which could affect the
Group’s sales and business strategy. For example, in 2007 one of the Group’s major brewery
customers in Brazil decided to build its own glass packaging production plant. By vertically
integrating its business, this brewer introduced new capacity into the market that caused a
potentially long-lasting imbalance between supply and demand in this segment. Other
companies, including brewers in the United States and the Netherlands, spirits producers in the
Ukraine and Russia, and wine makers in the United States, have also vertically integrated. The
continued vertical integration of the Group’s customers could have a material adverse effect on
the Group’s operations, profits, and outlook.




                                               17
A part of the Group’s sales are concentrated with a few customers and the Group’s business
could suffer if it is unable to maintain commercial relationships with these customers.

A large part of the Group’s net sales in certain markets come from only a handful of customers,
especially in the United States and South America. Several of the Group’s customers, especially
major food and alcohol producers, have consolidated in the past few years—like the 2008
merger between InBev and Anheuser-Busch (both major Group customers) to form ABInbev—
and this trend could continue. At the time of the merger Anheuser-Busch was the Group’s
biggest customer in terms of net sales, and has now been replaced by ABInbev.

Consolidation among the Group’s customers could lead these customers to concentrate their
glass packaging purchases, which could benefit one of the Group’s competitors. For instance, a
Group customer could decide to buy glass packaging from another producer (i.e., a Group
competitor) based on the close relationship that one of the customer’s strategic partners has with
the other producer. The Group’s concentrated customer base could put pressure on the Group’s
prices or make the Group dependent (or increase its dependency) on key accounts in markets
where they make up a substantial portion of the Group’s net sales. This consequently increases
the risk that the Group would lose a significant amount of sales if a key account decided to end
its commercial relationship with the Group or not to renew its contract with the Group. The
Group tries to schedule maintenance on the furnaces dedicated to a given customer during the
period when the contract for that customer is up for renegotiation, so as to be able to effectively
manage the use of its production facilities.

For example, for the fiscal year ending December 31, 2010 the Group’s top ten customers
accounted for €984 million of net sales, or 28% of the year’s total net sales. By region, these top
ten customers accounted for 62% of sales in the United States, 16% in South America, and 10%
in Europe.

Some of the risk related to the Group’s customer concentration in the United States is mitigated
by the fact that the Group has signed multi-year contracts ranging from 18 months to seven
years with around 67% of its customers in terms of U.S. net sales in fiscal year 2010.

The Group generally maintains long-standing relationships with its main customers, but it
cannot guarantee that its contracts with these customers (or any customer) will be renewed. For
sales contracts, this risk appears only periodically when the contracts are up for renewal. In
2007 the Group renewed its main contract with ABInbev for seven years; some of its contracts
with other large customers will be up for renewal during the next three years. The Group cannot
guarantee that if these contracts are renewed, they will be done so under favourable terms and
conditions.

Some of the Group’s contracts could be terminated under certain circumstances, such as if the
Group fails to meet its contractual obligations.

The loss of one or more of its large customers, a significant reduction in sales to a key account,
or a significant change in the terms and conditions of a contract with a key account could have a
material adverse effect on the Group’s operations, profits, and outlook.

A large amount of the Group’s sales are done through informal agreements.

Consistent with common practice in most of the Group’s markets, the Group has informal sales
agreements with many of its small- and medium-sized customers in Europe and South America
as well as with some large customers. These agreements are typically pricing agreements that
are periodically renegotiated or informal, flexible partnership agreements lasting from one to
three years.



                                                18
Most of the Group’s sales agreements in the United States are highly formalised, multi-year
contracts with firm commitments regarding purchasing volumes. However, most of the Group’s
sales agreements in Europe and South America are less formalised and often consist of “letters
of award” specifying the price for a given order. Sales agreements in Europe are typically
negotiated annually with customers giving an estimate of the volume they intend to purchase
without entering into a firm commitment. In South America, letters of award are usually given
for a few months, again without a firm commitment on volumes.

While this gives the Group greater flexibility, it also means that the rights and obligations of
each party are less-clearly defined, making arguments and disputes more likely in the event of a
disagreement—which could have a material adverse effect on the Group’s operations, profits,
and outlook.

The Group operates in emerging countries with specific risks.

Although most of the Group’s net sales are generated in OECD9 member states, it also operates
in emerging countries, mainly in Eastern Europe and South America.

The Group’s operations in these countries are generally exposed to higher risks than those in
OECD countries. Additional risks include: greater GDP volatility; greater political and
economic instability (with higher and more volatile inflation); informal, unregulated trade;
frequent (and sometimes major) changes to regulations; imperfect application of regulations;
possible nationalisation or expropriation of private property (without sufficient compensation to
build identical facilities elsewhere); difficulty collecting payments from customers; difficulty
retaining staff; labour unrest; large fluctuations in interest and exchange rates; risk of war, social
unrest, and acts of terrorism; changes in tax rules or legal enforcement of contracts; and
currency controls or other unfavourable government interventions or restrictions (such as tax
withholdings, limits on dividends or other income from foreign subsidiaries, and taxes on
payments or investments by foreign subsidiaries).For example, heavy inflationary pressure in
Argentina prompted the government to implement a price freeze, which handicapped the
Group’s pricing policy in the country. In the Ukraine, the Group has not been able to stabilise its
relationship with a minority shareholder or exercise its usage rights for its production site due to
the complicated legislation in the country and the difficulty enforcing it. The Group’s Ukrainian
subsidiary will have to amend its articles of association following new laws passed in the
country; these amendments could challenge the Group’s pre-emptive right to acquire assets
from the minority shareholder. The Ukrainian government increased pressure on this
subsidiary—especially in terms of taxes and legal matters—ahead of the country’s 2010
presidential election. In both Russia and the Ukraine the crisis has made it difficult for some
customers to pay the Group and has caused other customers to go bankrupt.

Although the Group’s emerging market operations are not concentrated in a single country,
unfavourable events or circumstances in any one of these countries could have a material
adverse effect on the Group’s business and could require the Group to have to recognise
provisions and/or impairments, which could have a material adverse effect on the Group’s
financial position, assets, liabilities, profits, and outlook.




9
    Organisation for Economic Co-operation and Development


                                                  19
The risks inherent to the Group’s acquisitions could have an adverse effect on its operations,
profits, and outlook.

The Group could acquire other companies in its industry in order to become more competitive,
expand its business, and meet growing demand in new markets as well as existing markets
(especially in emerging countries). For instance, in 2008 the Group acquired a Russian
company, ZAO Kamyshinsky Steklotarny Zawod (KSZ), located near Volgograd. The Group is
also in the process of acquiring Alver and its production facilities at the Tebessa, Algeria site;
the Algerian government decided to privatise this site in November 2007 (see Section 5.2.2.1).
Any future acquisition could require the Group to make significant investments, issue shares, or
increase its debt. The Group could experience problems integrating acquired companies for
reasons related to the political environment, the departure of key staff, difficulty hiring key new
staff, and/or the assumption of the acquired company’s liabilities (especially environmental). In
2008 the Group faced such problems in the Ukraine when many of its domestic employees were
poached by another company, and in Russia the Group had trouble building up its staff (see the
section below titled “The Group is dependent on its ability to hire and retain key managers and
qualified personnel”). Any future acquisition may require significant attention from the Group’s
management team. In addition, any necessary investments in share capital or human resources
(management, qualified operators and technicians, etc.) may not achieve the expected
operational synergies and could disrupt the Group’s operations. These difficulties could have a
material adverse effect on the Group’s operations, profits, and outlook.

Faulty work by a subcontractor or the failure of one of the Group’s quality control systems
could result in a contaminated, faulty, or noncompliant product, which could have a material
adverse effect on the Group’s operations, financial position, assets, liabilities, profits, image,
and outlook.

Although the Group has thorough quality control measures in place (see Sections 4.2 and 6.7.2),
if one of its products were to be out of compliance with the corresponding product
specifications due to an accidental or intentional contamination of the raw materials, a problem
with the production equipment, or human error, the Group could incur significant costs in order
to take the necessary corrective measures and could also be subject to damage to its image or
the image of its brands. These actions could involve suspending the production of certain
products and/or recalling the products and/or asking the Group’s customers to recall their
products along the entire distribution chain—including among end consumers. The Group could
then be required to compensate its direct customers - other companies along the distribution
chain - and/or indirect customers - end consumers - for any damages, which could include
bodily injury (if, for example, the Group’s packaging fails to withstand the pressure from
carbonated beverages). In some countries the Group’s customers, other companies along the
distribution chain, or end consumers could obtain a court order for the Group to pay
compensation even if the Group is not negligent or at fault. The Group could also be subject to
regulatory investigations, a market withdrawal, an injunction to withdraw a product from the
market, and/or legal proceedings if it introduces a new product deemed dangerous, fails to
notify regulators of a safety problem, or fails to take corrective measures.

In some countries certain companies in the distribution chain sell reused bottles that may not
have been designed for this purpose, which increases the risk of proceedings being initiated
against the Group.

Any problem with the quality or safety of a Group product could generate negative publicity,
damage the Group’s reputation, and make the Group lose market share—which could have a
material adverse effect on the Group’s operations, financial position, assets, liabilities, profits,
image, and outlook.



                                                 20
The Group’s production plants are exposed to operating dangers and some sites are exposed
to an increased risk of natural disasters due to their location.

The Group’s manufacturing processes involve working with molten materials at very high
temperatures using heavy equipment and machinery, which present risks such as industrial
accidents, spills of molten glass (such as at the Dunkirk, USA plant in 2009), explosions, fires,
and environmental hazards like accidental emissions of pollution or dangerous substances
(including in flue gas). Some of the Group’s production sites are also exposed to an increased
risk of natural disasters due to their location. Such events could cause unexpected interruptions
in the Group’s operations, the partial or total destruction of production facilities, environmental
pollution, and, in the worst of cases, bodily injury or death to Group employees and/or people
living near the Group’s production sites. New legislation and jurisprudence could prompt an
increase in demands for compensation by Group employees who have contracted an illness that
could be linked to the Group’s operations, such as the Group’s use of asbestos to protect its
employees and equipment from heat (see Section 4.1.7).

Four of the Group’s production sites (in California, Washington state, Chile, and Argentina)
have a high risk of earthquakes. The earthquake in Chile in February 2010 had only a minor
effect on the Group’s plant in the country.

The Group’s site in Neuburg, Germany is classified as a “low threshold” site under EU
Directive 96/82/EC of December 9, 1996 on the control of major-accident hazards involving
dangerous substances (also known as the Seveso II Directive) because of the LPG stored at the
site. Following the transposition into German law of this Directive, the Group introduced
specific hazard prevention and safety plans (both internal and external) at the site.

Incidents like those above, especially at the Neuburg site and sites located near metropolitan
areas (like the Agua Branca, Brazil site within the São Paulo metropolitan area) could subject
the Group to civil, administrative, or criminal liability and have a material adverse effect on the
Group’s operations, financial position, assets, liabilities, profits, image, and outlook. In addition,
the Group’s insurance policies may not cover all the losses from such an incident and their
prices could rise considerably or become prohibitive, and any subsequent incidents may not be
covered under the same conditions.

The Group’s older production sites could incur large environmental liabilities.

Some of the Group’s sites have been making and decorating glass for decades, either within the
Group (i.e., glass packaging production sites that the Group built) or outside the Group (i.e.,
sites that the Group acquired after they had already been running for some time). Some of the
sites were used for heavy industry, such as sites in Germany and Russia that were used to make
or store military equipment. The building materials and/or equipment at some Group sites,
especially those in Russia and the Ukraine, may contain asbestos due to their age and/or
location, and may have contaminated soil or groundwater. Therefore, they could represent an
environmental liability for the Group, and could result in very costly obligations to remove or
isolate the contaminated substances. In the United States and certain other countries, the current
or former owners, operators, or users of contaminated sites—including sites owned by third
parties or sites where waste may have been sent—could be held responsible for these costs,
without even an investigation being done into whether the operations causing the contamination
are at fault or in breach of the law. When the El Monte, California plant was shut down and sold
in 2007, the former owner had to pay for its full decontamination. The same owner is also
paying for the decontamination underway at the Carteret, New Jersey site which was closed in
2005. However the Group may be required to pay such costs in the future. The Group
recognises “provisions for environmental risks” to cover expenses related to environmental
protection, site remediation, and site clean-up (see Note 17 to the Combined Financial
Statements).


                                                  21
The Group’s environmental liabilities could materialise during the operation of a Group site or
if a Group site is sold or shut down. Such an event could have a material adverse effect on the
Group’s operations, financial position, assets, liabilities, profits, image, and outlook.

Labour disputes could have a material adverse effect on the Group’s operations, profits, and
image.

The Group’s operations may be disrupted by labour disputes such as strikes, walkouts, and other
acts of protest, which could also have a material adverse effect on the Group’s operations,
profits and image. A substantial number of hours are typically lost to strikes every year in
France.

The Group has negotiated numerous collective labour agreements in the countries where its
plants are located, in line with Group’s commitment to maintaining healthy labour relations.
Some of these agreements, such as those in the United States, must be renegotiated periodically.
These negotiations have caused and could continue to cause labour tension or strikes when the
parties involved have difficulty agreeing on mutually-acceptable terms and conditions. Labour
negotiations such as those for collective agreements and wage bargaining rounds could result in
the Group having to pay higher salaries and benefits, which would increase the Group’s
operating costs.

The Group is dependent on its ability to hire and retain key managers and qualified
personnel.

The Group’s business depends on its ability to hire and retain key managers and other
employees as well as qualified personnel. The departure of such individuals (as happened in the
Ukraine in 2007 when several qualified technicians left following the Zorya acquisition) could
have a material adverse effect on the Group’s operations, financial position, assets, liabilities,
profits, image, and outlook. The Group could also find it difficult to hire and retain key
employees due to the location of some sites, like those in Russia and the Ukraine.

The Group’s regional operations and resulting highly-decentralised, global organisational
structure could lead to inefficiencies.

The regional or even local nature of the Group’s operations and its vast global footprint
(including new sites in Eastern Europe) necessitate a highly-decentralised organisational
structure with a considerable amount of delegated responsibility.

The Group has internal control procedures in place, but these procedures (especially at newly-
acquired entities) may not yet be fully implemented. Therefore the Group cannot guarantee that
certain inefficiencies, which could have a material adverse effect on the Group’s operations,
profits, and outlook, will not arise as a result of a failure to follow these procedures.

The Group’s operations require large capital expenditures that the Group may have trouble
financing.

The Group’s operations require large capital expenditures, such as to build new plants or
upgrade and maintain existing plants. The Group may be unable to finance such expenditures if
it does not generate enough cash from operations or if its available credit lines are too small.

As of the registration date of this Document de Base, the Group feels that its cash flow from
operations, cash on hand, and credit lines are sufficient to meet its capital expenditure needs
(see Section 5.2).



                                                22
However, if the Group is unable to meet its capital expenditure needs for whatever reason, it
may not be able to maintain or expand its production capacity, which could have a material
adverse effect on the Group’s operations, financial position, assets, liabilities, profits, and
outlook.

4.1.3   Risks related to the status of the Verallia holding company and dividend payments
        from subsidiaries

Verallia, the Group’s parent company, is a company whose articles of association were
modified for the purpose of the IPO of Saint-Gobain’s Packaging Division and to which the
shares of SGE, Vicasa, SGCI, and Vidros have been or will be transferred (see Section 5.1.6).
Therefore Verallia’s main assets consist or will consist of direct or indirect ownership interests
in these subsidiaries, which will generate the Group’s cash flow.

In this regard, Verallia’s revenue will mainly come from dividends from its direct subsidiaries,
from services performed on behalf of or for the benefit of subsidiaries, and interest on and
repayments of intra-group loans from subsidiaries. As a result, Verallia’s financial statements
will only partially reflect the Group’s performance from one year to the next and will not
necessarily demonstrate the same trends as those seen in the consolidated financial statements.

The subsidiaries’ ability to provide income to Verallia may be hindered by fluctuations in their
business operations or by changes in regulatory limits. Dividends or payments from these
subsidiaries may be restrained by subsidiaries’ other obligations like those related to loan
agreements, or by tax constraints that make such payments more difficult or expensive. As of
the registration date of this Document de Base, these constraints primarily concern tax
withholdings in South American and Eastern European countries, which accounted for 11.8% of
the Group’s net sales for the fiscal year ended December 31, 2010.

An increase in such constraints or new regulations that limit dividend payouts, especially if they
occur simultaneously in several countries, could impact the Company’s ability to pay dividends
or repay its loans, which could have a material adverse effect on the Company’s operations,
financial position, assets, liabilities, profits, and outlook.


4.1.4   Risks related to the Group’s relationship with Saint-Gobain

The section below sets out the material risks to which the Group believes it is exposed as a
result of the spin-off from Saint-Gobain.

                 4.1.4.1   Risks related to the spin-off from Saint-Gobain

The financial statements in this Document de Base are not necessarily representative of what
the Company’s financial position, assets, liabilities, and profits would have been if it had been
an independent entity during the years covered by the financial statements, or of the
Company’s future operations and results.
Saint-Gobain has not generated financial statements for the businesses in the Group’s scope, so
for this Document de Base the Company has provided Combined Financial Statements for the
fiscal years ended December 31, 2008, 2009, and 2010 (see Section 20). The accounting
methods used to prepare these Combined Financial Statements are provided in Section 9. These
Combined Financial Statements are not necessarily representative of what the Company’s
financial position, assets, liabilities, and profits would have been if it had been independent of
Saint-Gobain during the three years for which financial statements are provided, or of the
Company’s future operations and results. More specifically:




                                                23
•       The Combined Financial Statements include costs for services historically provided by
        Saint-Gobain; these costs may differ from those that the Group would have incurred if it
        had operated as an independent entity;

•       Saint-Gobain has been providing the Group’s working capital and overall financing in
        accordance with Saint Gobain’s cash management policy. After the Company’s shares
        are admitted to trading on the NYSE Euronext regulated exchange in Paris, Saint-
        Gobain will continue to provide the Group’s financing under the terms of a Credit
        Facility that will be agreed between Verallia and Compagnie de Saint-Gobain (see
        Section 22.1.2). Compagnie de Saint-Gobain can stop providing financing to the Group
        at any time (subject to a notification period to be described in the Note d’Opération)
        under the terms of this Credit Facility. If Compagnie de Saint-Gobain makes such a
        decision, the Group will draw on external financing that will be set up before the
        Company’s shares are admitted to trading on the NYSE Euronext regulated exchange in
        Paris, which could result in higher borrowing costs for the Group. The terms and
        conditions of this third-party credit facility are provided in Section 10.4; and

•       Broadly speaking, the Group’s cost structure, management, financing, and operations
        could be affected by its separation from Saint-Gobain (see the paragraphs below and
        Section 22).

The Group could face difficulties in making the changes necessary to operate as an
independent entity.
As of the registration date of this Document de Base, the Group operates under a parent
company, Compagnie de Saint-Gobain, which handles the central support and administrative
functions in areas such as risk management, research and development, auditing, internal
controls, information and telecommunication systems, human resources, cash management, and
certain accounting, financial, legal, and tax functions.
After the Company’s shares are listed on the NYSE Euronext regulated exchange in Paris,
Saint-Gobain will continue to handle some of these functions for the Group for either
predetermined transition periods or for as long as Compagnie de Saint-Gobain directly or
indirectly owns more than 50% of the Company’s shares or voting rights. If Compagnie de
Saint-Gobain ceases to own a majority stake in Verallia, Compagnie de Saint-Gobain will
continue to provide these services for contractually-specified transition periods depending on
the type of service being provided (see Section 22). Therefore, the Group will have to develop
(possibly with the assistance of Saint-Gobain) the ability to perform the functions currently
being handled by Saint-Gobain before the transition periods expire. This will involve setting up
the appropriate support and administrative functions and hiring the necessary staff. The Group
may have difficulty setting up its own support functions and information systems, hiring or
retaining the necessary personnel, and/or negotiating agreements with new partners under
similar terms and conditions as those agreed upon with Saint-Gobain. This may distract
management from the task of running the business, which could have a material adverse effect
on the Group’s operations, financial position, assets, liabilities, profits, and outlook.




                                               24
The Group may incur high costs related to the spin-off from Saint-Gobain.
After the spin-off from Saint-Gobain the Group will have to cover some or all of the costs
related to developing and maintaining the in-house support functions previously handled by
Saint-Gobain. The Group cannot guarantee that the costs of running its own functions will not
be higher than the fees charged by Saint-Gobain. The Group will also incur new costs such as
those related to promoting its own brand or to its status as a publicly traded company. The
Company could incur new or additional costs related to the change of name, the renewal of
existing contracts, or the negotiation of new contracts necessary for its operations.
The Group will continue to pool purchases with Saint-Gobain (see Section 22.1.1.2) for as long
as Compagnie de Saint-Gobain directly or indirectly owns more than 50% of the Company’s
shares or voting rights, and then for a period of three years (which can be extended) starting on
the date on which Compagnie de Saint-Gobain ceases to own a majority stake in the Company.
The Group cannot guarantee that it will continue to benefit from the same purchasing
conditions—especially those related to economies of scale—if and when it ceases to pool its
purchases with Saint-Gobain.

As a result of the admission to trading of the Company’s shares on the NYSE Euronext
regulated exchange in Paris, the Company’s retirement benefit obligations for its employees
in the United States could be higher than the amounts recognised in the Group’s financial
statements.

After the Company’s shares are admitted to trading on the NYSE Euronext regulated exchange
in Paris, the Group will set up a defined benefit plan for all current and former employees of its
U.S. subsidiaries. This will involve transferring the corresponding Saint-Gobain retirement plan
assets and liabilities to the new Verallia plan. The amount of liabilities to transfer will be
calculated starting from the day the Company’s shares are admitted to trading on the NYSE
Euronext regulated exchange in Paris based on the retirement benefit obligations for all the
Company’s current and former U.S. employees. The amount of assets to transfer will be
calculated in accordance with U.S. retirement plan legislation, including Section 4044 of the
1974 Employee Retirement Income Security Act (ERISA). However, the accounting methods
outlined in Section 4044 of ERISA are not the same as those used in preparing the Group’s
combined financial statements, which are in accordance with IFRS. For example, the actuarial
assumptions made under IFRS may differ from those used by the trustees for the procedure in
accordance with Section 4044 of ERISA. This procedure also results in a review of the
individual situation of each employee concerned by the pension plan, taking account in
particular of their length of service, age and wage category in the allocation of plan assets.This
may take several months given the complexity of the Company’s pension plans. This allocation
may differ from the accounting allocation of fund assets in the combined financial statements,
based on a flat-rate breakdown (with pension liabilities 66% covered by plan assets in the
combined financial statements for the fiscal year ended December 31, 2010). As a result, the
Group may need to recognise a positive or negative valuation difference on the transferred
assets, which could have an effect on the Group’s financial position, profits, and outlook (see
sensitivity analysis of the estimated rate of return on pension funds in Note 15 of the Notes to
the Combined Financial Statements).

The cost of retirement plans in the United States and the amount of the corresponding
funding obligations could rise sharply due to factors beyond the Group’s control, such as
changes in the discount rate used to calculate retirement plan liabilities or lower returns on
invested retirement plan assets.

The Group’s profits could be significantly affected by increases in the costs and funding
obligations of its U.S. retirement plans. After the Saint-Gobain retirement plan assets and
liabilities are transferred to the new Verallia plan, the new Verallia plan is expected to be under-


                                                 25
funded. The Group’s retirement plan costs and funding obligations could rise considerably if the
return on the plan assets is lower than the increase in the plan liabilities. Factors that could
influence the Group’s funding obligations include future returns on assets, the interest rate used
to calculate the funding amount, the level of plan benefits, the ability of investments to obtain
the expected returns, and changes in legislation on retirement plan funding. These factors could
have a material adverse effect on the Group’s financial position, profits, and outlook.

The Group may encounter difficulties when it stops using the “Saint-Gobain” brand.

The Group’s companies have traditionally used the Compagnie de Saint-Gobain brand, giving
them a privileged status among customers and employees due to the brand’s strong reputation
and association with high quality. However, on April 15, 2010 the Group adopted the Verallia
brand internationally for its glass packaging production business and plans to market under this
brand in the future.
Nevertheless, the Group will continue to use Compagnie de Saint-Gobain’s proprietary brands
during a transition period. Under the Brand Licence Agreement that will be agreed between the
Company and Compagnie de Saint-Gobain, the Group will retain the right to use the Saint-
Gobain brand free of charge as long as Compagnie de Saint-Gobain directly or indirectly owns
more than 50% of the Company’s shares or voting rights. If Compagnie de Saint-Gobain ceases
to own a majority stake in Verallia, then the Group can use the brand for up to 12 months after
the date on which Compagnie de Saint-Gobain ceases to own a majority stake in Verallia.
However due to legislation in Brazil governing operating rights, the Group’s Brazilian
subsidiary, SG Vidros, will be able to use the brand for as long as SG Vidros is required to keep
this company name to retain its right to operate on Saint-Gobain sites in Brazil. Saint-Gobain
will allow the Group to continue to use the abbreviation “SG” and any brand name including
“SG” that appears on its glass packaging for a period of ten years after the date on which
Compagnie de Saint-Gobain ceases to directly or indirectly own more than 50% of the
Company’s shares or voting rights.
In any case, the Group will have to spend considerable time and money to build awareness of its
new brand, generate customer loyalty to its new brand, and build the brand recognition and
strong reputation needed in the job market to ensure employee loyalty. The Group may not be
able to achieve these objectives before losing the right to use the Saint-Gobain brand free of
charge in its company names, equipment, assets, and domain names, which could have a
material adverse effect on the Company’s operations, financial position, assets, liabilities,
profits, image, and outlook.


                 4.1.4.2   Risks related to the Verallia share ownership structure

Compagnie de Saint-Gobain will be the Company’s majority shareholder and will be able to
control most corporate decisions.

As of the registration date of this Document de Base, Compagnie de Saint-Gobain is the
Company’s main shareholder, either directly or through its subsidiaries (see Section 18).
Compagnie de Saint-Gobain will retain ownership of the majority of the Company’s shares and
voting rights after the Restructuring Transactions (as defined below) and after the Company’s
shares are admitted to trading on the NYSE Euronext regulated exchange in Paris. Therefore
Compagnie de Saint-Gobain will, in its sole discretion, be able to approve resolutions proposed
at ordinary general shareholders’ meetings and in some cases at extraordinary general
shareholders meetings and consequently to make important decisions for the Company such as
appointing members of senior management, approving full-year financial statements, setting
dividend payments, authorising financial transactions, amending the articles of association, and
approving strategic transactions such as mergers. A more detailed description of the control of
the Company is provided in Section 18.3.


                                                26
In addition, after its shares are listed on the NYSE Euronext regulated exchange in Paris, the
Company will retain significant operational ties to Saint-Gobain through Cooperation
Agreements, the Credit Facility, the Trademark License Agreement, and lease agreements (as
such contracts and agreements are described in Section 22). The termination or expiration of
any one of these contracts or agreements, such as at the end of a transition period, could have a
material adverse effect on the Company’s operations, financial position, assets, liabilities,
profits, and outlook. In addition, conflicts of interest, including some related to the contracts and
agreements described in Section 22, may arise between the Company and Compagnie de Saint-
Gobain.

4.1.5   Market risks

                  4.1.5.1   Interest rate risk

As of the registration date of this Document de Base, the Group’s exposure to interest rate risk
stems mainly from its net borrowings from Compagnie de Saint-Gobain (see Sections 10.4 and
22).

The Group had €327 million of net debt at December 31, 2010, including €287 million of net
borrowings from Saint-Gobain (net internal debt) and €40 million of net borrowings from
several different credit institutions (net external debt).

As of the registration date of this Document de Base, Saint-Gobain’s Treasury and Finance
Department manages the interest rate risk relating to the Group’s debt according to the method
described in Section 4.1.5.3, “Liquidity risk”. For most of the derivative hedging instruments set
up by Group companies, the counterparty is Saint-Gobain.

The interest rate risk on the Group’s aggregate debt is managed with the primary goal of locking
in the Group’s medium-term borrowing costs and eventually lowering the Group’s annual
interest expense. The Group’s policy specifies which derivatives can be used as hedging
instruments; these derivatives include interest rate swaps, options, and forward interest rate
agreements. These instruments are negotiated over the counter with counterparties having at
least the minimum credit rating specified in Saint-Gobain’s policy.

The agreement on services that Saint-Gobain will provide to Group entities, the Credit Facility,
the Cash Agreement, and the Financing Agreement described in Section 22 will enable the
Group to manage its interest rate risk after the Company’s shares are listed on the NYSE
Euronext regulated exchange in Paris, as indicated in Sections 4.2.4.1 and 22.

The following table gives the fixed-rate vs. variable-rate breakdown of the Group’s external
debt at December 31, 2008, 2009, and 2010 based on the Group’s IFRS Combined Financial
Statements.

                                 External debt
                               excluding interest                          Cash and        Net
                                                           Accrued
                                                                             cash        external
                               Fixed       Variable        interest
In millions of euros                                                      equivalents      debt
                                rate         rate
2010                                 25               87              1           (73)          40
2009                                 35               86              1           (50)          72
2008                                 38               87              2           (66)          61

The Group’s exposure to interest rate fluctuations arises from its variable-rate borrowings from
credit institutions, and this exposure, less cash and cash equivalents, totalled €14 million at
December 31, 2010. Based on this amount, a 50 basis point change in the interest rate on these


                                                 27
borrowings would alter the amounts recognised in the Group’s income statement by less than
€100,000.

The Group’s net borrowings from Saint-Gobain at December 31, 2010 consisted of around
€122 million of fixed-rate loans and €165 million of variable-rate loans. These borrowings are
to be replaced by a financing agreement between Verallia and Saint-Gobain (see Section 10.4)
and intra-group loans between Verallia and most of its direct and indirect subsidiaries (see
Section 22).

                  4.1.5.2   Currency risk

Some of the Group’s assets, liabilities, income, and expenses are denominated in currencies
other than the euro and must be converted into euros at the applicable exchange rate for
purposes of generating the Group’s financial statements (which are presented in euros).
Therefore fluctuations in exchange rates can influence the amounts recorded for these items in
the Group’s financial statements even if their values, as denominated in their original
currencies, remain unchanged. Such foreign currency conversions have led to and could
continue to lead to significant fluctuations in the Group’s profits from one period to another (see
Section 9.1.4.5).

Apart from this foreign currency conversion effect, the Group’s profits are not significantly
affected by fluctuations in exchange rates since most of the Group’s income and expenses are
transacted in the same currency due to the regional or local nature of its markets.

However capital expenditures in South American and Eastern European countries, where
equipment must often be imported from Western Europe, are sensitive to fluctuations in
exchange rates.

As of the registration date of this Document de Base, the Group’s currency risk is managed
through Saint-Gobain’s currency risk management policy. Part of this policy consists of hedging
transactions, including commercial transactions, carried out by Group entities in currencies
other than their functional currencies, in order to respond to fluctuations in exchange rates.
Group companies may use options and forward foreign exchange agreements to hedge their
exposure from such transactions (either recognised or forecast). In the case of options, Group
companies contract exclusively with Saint-Gobain, which executes these hedges on the Group
companies’ behalf.

Most of the Group’s forward foreign exchange agreements have short terms, typically of
approximately three months. However, if an order is hedged, the forward foreign exchange
agreement could extend up to two years.

When the Group receives an order from one of its companies, it contracts a hedging agreement
with Saint-Gobain or with the corresponding Saint-Gobain national delegation cash pool, or
failing that, one of the company’s banks.

These currency risk hedging efforts may prove to be insufficient to protect the Group against
volatile or unexpected movements in exchange rates arising from economic or market
conditions.

The following table gives a breakdown of the Group’s external debt and accrued interest by
currency and type of interest rate (fixed or variable) at December 31, 2010.




                                                28
         External debt                                After management transactions
         In millions of euros                         Variable   Fixed      Total
         EUR (Eurozone)                                     28         6          34
         USD (United States)                                42         0          42
         RUB (Russia)                                       12         0          12
         CLP (Chile)                                         5        19          24
         Total                                              87        25         112
         Accrued interest                                                          1
         Total with accrued interest                                             113
         Cash and cash equivalents                                              (73)
         Net external debt with accrued interest                                  40

The following sensitivity analysis shows the effect of a 10% increase in the EUR and USD
exchange rates on the net income of Group subsidiaries exposed to currency risk on the basis of
unhedged commercial positions.

          In millions of euros                             Net gain or loss
          EUR                                              0
          USD                                              -0.4

As at December 31, 2010, a 10% decrease of the above currencies would have the same effect
but in the opposite direction, all else being equal.

Most of the Group’s net borrowings from Saint-Gobain are denominated in euros (€150
million), with the rest in U.S. dollars (€132 million or $177 million) and Polish zlotys (€5
million).

The agreement on services that Saint-Gobain will provide to Group entities, the Credit Facility,
the Cash Agreement, and the Financing Agreement described in Section 22 will enable the
Group to manage its currency risk after the Company’s shares are listed on the NYSE Euronext
regulated exchange in Paris, as indicated in Sections 4.2.4.2 and 22.

                 4.1.5.3   Liquidity risk

Saint-Gobain’s Treasury and Finance Department manages the liquidity risk on the Group’s
overall debt. Most of the long-term financing for Group companies comes from Compagnie de
Saint-Gobain or the Saint-Gobain national delegation cash pools, and most of the short-term
financing comes from Saint-Gobain or the national cash pools.

The Group’s liquidity risk is managed so as to ensure that the Group’s long-term financing will
be renewed and to eventually lower the Group’s annual borrowing costs. The Group’s long-term
debt is maintained at a high percentage of total net debt and is structured so that the various
financing instruments mature (and must be renewed) in different years.

Most of the long-term financing source comes from bond issues. The Group also has medium-
term notes, a perpetual bond, non-voting shares, bank loans, and lease financing through Saint-
Gobain.

Saint-Gobain’s short-term debt consists primarily of French, Euro, and U.S. commercial paper,
securitised receivables, and bank advances. Its financial assets consist mainly of marketable
securities, cash and cash equivalents.




                                               29
Saint-Gobain also has secured lines of credit in the form of syndicated loans to ensure the
liquidity of its financing.

The Group is not in default on any payments on its consolidated debt as of the registration date
of this Document de Base, nor was it in default on any payments on its combined debt as of
December 31, 2010.

Given the financial structure that will be put in place as part of the admission to trading of the
Company’s shares on the NYSE Euronext regulated exchange in Paris, as described in Section
10.4, the Group does not feel that it will be exposed to increased liquidity risk.

The agreement on services that Saint-Gobain will provide to Group entities, the Credit Facility,
the Cash Agreement, and the Financing Agreement described in Section 22 will enable the
Group to manage its liquidity risk after the Company’s shares are listed on the NYSE Euronext
regulated exchange in Paris, as indicated in Sections 4.2.4.3 and 22.

The following table gives the payment schedule for the Group’s external debt for the years 2011
to 2015 and beyond as of December 31, 2010.

 In millions of euros                            < 1 year    1–5 years    > 5 years     Total
 Other long-term debt                                   23           18            2            43
 Accrued interest                                        1            -            -             1
 Borrowings of <1 year and creditor banks               69            -            -            69
 Cash and cash equivalents                            (73)            -            -        (73)
 Net external debt                                      20           18            2            40

Of the Group’s €287 million of net borrowings from Saint-Gobain, €165 million is due in less
than one year and most of the remaining €122 million matures between 2012 and 2015.

As of the registration date of this Document de Base, the Group feels that the financial structure
that will be put in place as part of the admission to trading of the Company’s shares on the
NYSE Euronext regulated exchange in Paris (see Section 10.4) will shield the Group from
liquidity risk and give it the resources needed to cover its upcoming loan payments.

                 4.1.5.4   Risk on equity investments and other financial securities

Apart from its 96.7% ownership stake in the German company SG Oberland, the Group has no
direct or indirect ownership interests in companies whose shares are traded on regulated or
organised exchanges. Since SG Oberland is fully consolidated into Saint-Gobain Emballage’s
combined financial statements, the Group is not exposed to equity risk.

However, following the contribution and sale of Saint-Gobain Emballage shares to Verallia (see
Section 5.1.6.2), Verallia could be required under German law to make a public tender offer for
all SG Oberland shares that Saint-Gobain Emballage does not already own (i.e., 3.3% of SG
Oberland’s total shares) after the Restructuring Transactions (as defined in Section 5.1.6.2) are
completed.

Verallia and its major shareholders after the Restructuring Transactions (i.e., SG Cristaleria,
Spafi, and Vertec) plan to request an exemption from this requirement after the Restructuring
Transactions are completed, in accordance with applicable law.




                                                30
4.1.6   Insurance risk

The Group feels that it is adequately covered by Saint-Gobain’s insurance policies against the
industrial risks it faces (see Section 4.2.5). However in some cases the Group may be required
to make large compensation payments that are not covered by these insurance policies or to
make large expenditures that are not reimbursed or insufficiently reimbursed by these insurance
policies, especially in the context of environmental risks and natural disasters.

As part of the admission to trading of the Company’s shares on the NYSE Euronext regulated
exchange in Paris, the Group will, over the 18 months after the shares are listed, gradually phase
itself out of Compagnie de Saint-Gobain’s insurance policies and purchase its own polices in
line with the market’s best practices (see Sections 4.2.5 and 22.1.1). The cost of purchasing and
implementing these policies could be higher than the insurance costs that the Group pays as of
the registration date of this Document de Base. Unfavourable changes in the political climate,
insurance market, or Group claims rate, as well as safety problems or natural disasters in any of
the countries in which the Group operates, could have a material adverse effect on the insurance
coverage available and could lead to higher premiums or the exclusion of certain events from
the Group’s policies, which could have a material adverse effect on the Group’s operations,
financial position, assets, liabilities, and profits.

4.1.7   Legal risks

During their ordinary course of business, the Group’s companies could be involved in legal,
administrative, criminal, or arbitration proceedings, especially concerning civil liability,
competition, industrial, fiscal, or intellectual property, the environment, and discrimination. A
discussion of the most significant litigation matters in process (or about which the Group has
been notified) is provided in Section 20.6. Some of these proceedings involve or could involve
claims for large payments from one or more Group companies. The corresponding provisions
that the Group recognises in its financial statements could prove to be insufficient, which would
have a material adverse effect on its operations, financial position, assets, liabilities, and profits.

New proceedings, stemming from existing proceedings or otherwise, related to risks already
identified by the Group or to new risks, could be initiated against a Group entity. An
unfavourable outcome in one or more of these proceedings could have a material adverse effect
on the Group’s operations, financial position, assets, liabilities, and profits.

Risks related to occupational disease claims resulting from the materials and/or operations at
Group production sites.

The Group’s glass-making operations require its employees to work with hot elements and
thermal radiation very carefully, in order to protect their own safety and to preserve plant
equipment. In the past, the glass industry—like many industries using high-temperature
processes—used asbestos-containing materials, primarily protective equipment, until
technological advancements made it possible for the asbestos to be replaced by other materials.
The Group began removing asbestos-containing materials from its sites in Western Europe and
the United States in the mid-1990s, including protection equipment for both its employees and
its production facilities. Some of the buildings at the Group’s older sites were partially
constructed with asbestos cement, and the cost of upgrading or repairing these buildings proved
to be high due to the strict regulations governing the disposal of asbestos-containing materials.

In some of the emerging countries in which the Group operates, the Group may find itself taking
ownership of sites that still contain asbestos due to the slow pace of regulatory reform in these
countries. This has been and will continue to be especially true in Russia and the Ukraine, where
the use of such equipment is still legal. The Group’s purchasing policies in these countries
forbid the purchase of asbestos-containing equipment and the Group uses best efforts to remove


                                                  31
from its sites any equipment that might contain asbestos (although this process could take
several years).

The Group has received compensation claims for occupational diseases resulting from exposure
to asbestos at Group sites, such as under the “employer’s gross negligence” clause applicable in
France. Such compensation would be in addition to the coverage provided by the social security
systems in the countries where the Group operates and into which the Group pays social
security contributions. The Group’s social security contributions could rise considerably due to
the higher costs faced by these systems. A detailed description of the legal proceedings
currently underway is provided in Section 20.6. The Group’s provision for legal proceedings
under France’s “employer’s gross negligence” clause totalled €113,600 as of December 31,
2010. In the United States the Group had a $10,000 provision for asbestos-related risk
recognised in its accounts as of December 31, 2010, as part of its total provision for worker’s
compensation (the asbestos provision makes up only a small percentage of the Group’s total
worker’s compensation provision).

In France, Group employee representatives have filed a request with the French Ministry of
Labour, Health, and Employment to include the Group’s sites on an official list of asbestos
manufacturing, spraying, and insulation sites—which would mean that employees working at
these sites would have a right to early retirement pay for asbestos workers. An investigation
related to the Group’s Cognac site is already underway (see Section 20.6.4) and workers’
committees at three other sites have asked the sites’ Occupational Health & Safety Committees
to prepare a filing. If any such request results in the addition of a Group site to the French
Labour Ministry’s list, any employee that has worked at that site during the period covered by
the investigation would have the right to retire at age 50 under certain conditions. Therefore, if a
site is added to the Ministry’s list, a significant portion of the employees at that site could leave
during the four years after the site is added to list. This means the Group would have to cope
with the departure of a large number of employees, taking with them their know-how, and
would have to pay early retirement benefits as well as any other compensation or benefits
required by law or by any jurisdiction to which the matter would be referred to by the relevant
employees.
Although the Group has an occupational health and safety policy aimed at improving the
working conditions at all its sites, workplace-related claims (apart from those related to
asbestos) have been filed against the Group in the past and more could be filed in the future.
These claims could be related to the noise generated by the Group’s forming machines (such as
the claims that have already been filed in Brazil), the use of glass sand in the Group’s glass
making processes, and the use of glass decorating materials that may contain heavy metals or
solvents. Claims could also be filed against the Group for occupational diseases resulting from
substances found at certain Group production sites; such claims could relate to asbestos-related
illnesses (as mentioned above), silicosis, or legionellosis. An increasing number of claims could
also be filed against the Group for repetitive strain injuries. Any such claims that result in
damages being awarded could have a material adverse effect on the Group’s operations,
financial position, assets, liabilities, and profits.

Risks related to the failure to comply with environmental regulations.

The Group is subject to international, national, and local environmental regulations due to the
nature of its business. These regulations primarily concern the Group’s production sites as well
as the recycling of its products.

The Group has been and remains involved in various legal proceedings and pre-litigation cases
stemming from government accusations of environmental regulation violations.




                                                 32
In 2005 the U.S. EPA and other U.S. government agencies accused the Group’s U.S. subsidiary,
Saint-Gobain Containers Inc. (SGCI), of violating the federal Clean Air Act and similar state air
emissions regulations. The Group reached an amicable agreement with the parties concerned
that included a Global Consent Decree with the EPA, which was approved by the competent
courts in May 2010 (see Section 20.6.3).

In 2006 and 2007 the Group hired an outside company to install (as part of a turnkey service)
electric air filters at its Spanish sites as well as some sites in France and Italy, in order to comply
with particle emission regulations. However these filters proved faulty, so the Group initiated
pre-litigation proceedings against the supplier and general contractor. At some sites the filter
installation work ran far behind schedule with significant filter defects and non-conformities,
while at other sites, including some in Spain, the filters still cannot be put into service. Spanish
regulators have issued injunctions for the Group to bring the electric air filters at these latter
sites into compliance.

Other environmentally-related legal proceedings in which the Group is involved are discussed in
Section 20.6.3.

If the Group fails to comply with environmental regulations, it could be subject to fines and/or
criminal sanctions or be required to temporarily or permanently shut down one or more of its
sites, which would have a material adverse effect on its operations, financial position, assets,
liabilities, profits, and image.

4.1.8   Competition risk

In February 2008 the French authorities initiated an investigation into alleged anticompetitive
practices in the selling of glass bottles to the wine industry (see Section 20.6.2).

Further, in August 2007 the European Commission indicated that it would investigate
complaints it had received from professional trade unions of what they described as significant
supply disruptions in bottles, particularly in Belgium (see Section 20.6.2). Allegations of
collusion among glassmakers continued to appear in the French press in 2008. These allegations
came mainly from wine makers who believed that supply shortages of glass bottles were
organised by bottle suppliers, prompting wine makers to build up large amounts of bottle
inventory as a precaution. This desire for expanded inventory resulted in artificially high
demand, which dropped sharply as wine makers ran down their bottle inventory in mid-2008.
As of the registration date of this Document de Base, the Group had not been informed of any
legal proceedings that had been initiated against it.

These legal proceedings and investigations, or any future legal proceeding or investigation
(including those targeting the glass packaging recycling industry) involving a Group entity, that
could be initiated by a third party, the European Commission, or any other regulatory or
governmental body could have an unfavourable outcome for the Group, which would have a
material adverse effect on its financial position, assets, liabilities, profits, outlook, image, and
reputation.

4.1.9   Risks related to taxes and social security contributions

The Group has a policy of complying with the tax and social security laws and regulations that
are applicable internationally as well as those that apply in each country in which it operates.
However some of these laws and regulations could be sources of risk if they are imprecise or
difficult to interpret, or if local governments change their interpretation of them.

Group companies may be subject to tax and social security audits by local governments as part
of their ordinary course of business.


                                                  33
4.1.10 Intellectual property risks

The Group’s business relies on a portfolio of patents, brand names, models, intellectual and
industrial property rights, confidentiality agreements, business secrets, and specialised know-
how. The Group feels that its ability to develop new products and processes is integral to its
continued success. Any failure by the Group to adequately protect its intellectual property rights
could have a material adverse effect on its operations, profits, and outlook.

The Group’s efforts to protect its intellectual property rights may turn out to be ineffective.
Patent applications filed by others either before or after the Group has filed its own patents
could challenge the validity or scope of the Group’s intellectual property rights. Some of the
Group’s competitors may violate the Group’s intellectual property rights or allege that the
Group has violated their own intellectual property rights (see Section 20.6.1), which could lead
to legal proceedings. If the Group is unable to obtain adequate international protection of its
intellectual property rights or if it receives an unfavourable ruling in a legal dispute, it could
become less competitive in international markets, which in turn would limit its growth prospects
and future sales.

4.2     The Group’s risk management and internal control system

4.2.1    General approach to risk management and internal control

The Group’s risk management and internal control functions have traditionally been handled by
Saint-Gobain, but after the Company’s shares are admitted to trading on the NYSE Euronext
regulated exchange in Paris, the Group will have to manage these functions on its own. The
Group is currently setting up a risk management and internal control department modelled after
the one used by Saint-Gobain, using the same software as Compagnie de Saint-Gobain.
Compagnie de Saint-Gobain has trained some Group employees (hired specifically for this
purpose) on this software. The Group uses an Internal Control Reference Framework (ICRF)
that has been distributed to and implemented by all its subsidiaries. This Framework includes a
manual describing the main risks and the corresponding internal controls for 17 different
processes (including purchasing, management control, marketing and production). The end of
each chapter of the manual contains a matrix summarising the risks related to the process
covered in that chapter. Saint-Gobain’s internal auditing department along with the team of
Group employees will train the relevant staff at the Group’s operating entities. This department
should be fully operational within six months after the Company’s shares are admitted to trading
on the NYSE Euronext regulated exchange in Paris. The Group will be required to follow the
same risk management and internal control procedures and be subject to the same obligations as
it was under Saint-Gobain for as long as Compagnie de Saint-Gobain directly or indirectly owns
more than 50% of the Company’s shares or voting rights.

The Group has hired qualified personnel in order to ensure an adequate structure for
implementing a risk management and internal control system for all the risks to which it is
exposed. The Group will continue to apply the main risk management and internal control
principles used by Saint-Gobain for as long as Compagnie de Saint-Gobain is Verallia’s
majority shareholder, directly or indirectly owning more than 50% of the Company’s shares or
voting rights. Nevertheless the Group will develop its own risk management and internal control
skills and procedures, rules, and methods. To do so, it will be able to draw on the know-how
and assistance of Saint-Gobain, including access to its reporting applications and documentation
relating to procedure, for as long as Compagnie de Saint-Gobain directly or indirectly owns
more than 50% of Verallia’s shares or voting rights.

The Group’s current risk management and internal control system—as well as the system that
will be set up as part of the admission to trading of the Company’s shares on the NYSE


                                                34
Euronext regulated exchange in Paris—aims to prevent events that could have a material
adverse effect on the Group’s operations, financial position, assets, liabilities, profits, outlook,
and image. It is also designed to support the Group’s acquisition strategy by establishing
common processes for acquired companies and identifying the risks specific to their operations.

As a step towards setting up its own risk management and internal control department, the
Group has formed an internal control committee (the “Internal Control Committee”) led by
the Company’s Chief Executive Officer and comprised of the Chief Financial Officer, the
Senior Vice-President of Management Control and Purchasing, the Chief Legal Officer, and the
Senior Vice-President of Human Resources. The Internal Control Committee oversees the
Group’s risk management and internal control and outlines the main pillars and objectives of the
Group’s risk management and internal control policy. The Group’s finance department
coordinates the work related to risk management and internal control while adhering to the
policy decisions made by the Internal Control Committee, which in turn ensures the proper
implementation of its policy. The Group has also hired two auditors into the finance department;
they will lead the department’s risk management and internal control efforts on issues such as
auditing assignments and surveys (based on the Group’s Internal Control Manual), risk
management and internal control procedures, contacts with counterparts at local entities, and
ensuring that measures have been properly implemented.

Risks are managed according to broad subject areas (including purchasing, research and
development and legal affairs) corresponding to the Group’s various functions and departments.
The finance department works with department and function managers to develop and
implement self-assessment and internal control surveys.

The Chief Executive Officer of each Group company is responsible for carrying out annual self-
assessments at that company using Action & Control Tracking Tool (ACTT) software. If the
self-assessments indicate that corrective measures are needed, the corresponding managers will
outline and implement company-level action plans with specific deadlines. The Group’s finance
department reviews and compiles the results of the self-assessments performed by each
company and ensures that any corresponding action plans have been implemented effectively
and in accordance with predetermined objectives. The finance department may also decide to
carry out internal audits.

The Group’s risk management and internal control system involves an iterative process whereby
procedures and self-assessment surveys are regularly updated as part of a cycle of continual
improvement.

4.2.2   Industrial and environmental risk management

The Group’s exposure to industrial and environmental risks is discussed in Sections 4.1.1 and
4.1.2.

The Group’s Environment, Hygiene, and Safety (“EHS”) policy is based on respect for
individuals and the environment, and is one of the main principles governing Compagnie de
Saint-Gobain’s activities.

As of the registration date of this Document de Base, the Group follows the EHS policy
developed by Compagnie de Saint-Gobain. This policy sets forth the key elements of the EHS
management system and is described in the EHS Manual, which outlines all of the tools and
principles common to the entire Group. This policy sets forth the approach to be followed to
reach Compagnie de Saint-Gobain and Saint-Gobain’s overall environmental, accident
prevention, and occupational disease prevention objectives. It is based on three key steps:
identifying risks; taking preventative measures; and assessing the policy’s implementation and
effectiveness.


                                                 35
The Group also follows the health and safety risk prevention standards set forth by Compagnie
de Saint-Gobain’s EHS department.

For example, the Group is aware that its glass making processes generate a considerable amount
of noise (from cooling systems, forming machines, furnaces, etc.), so it has adopted the Noise
Standard developed by Compagnie de Saint-Gobain in 2004 in order to identify and assess the
potential sources of noise in the workplace.

The Group has also adopted Compagnie de Saint-Gobain’s Toxic Agent Standard to identify,
assess, eliminate, or limit potential employee exposure to toxic agents (including the mineral
dust and other chemicals involved in its manufacturing processes) at its production sites.

On a European level, FEVE (the European Glass Container Federation, of which the Group is a
member) has signed the “Social Dialogue Agreement on Workers’ Health Protection through
the Good Handling and Use of Crystalline Silica and Products Containing It”. The Group has
implemented action plans at all of its sites in Western Europe to reduce employee exposure, and
reviews progress on these plans each year. The best practices at these sites are used to develop
measures to be adopted by other Group sites around the world.

The Group’s European sites are also taking steps to comply with the European Commission
regulation on the Registration, Evaluation, Authorisation, and Restriction of Chemicals
(REACH) (see Section 6.8.1.3). The Group’s efforts under REACH to establish an inventory of
the chemicals at each European site and gradually eliminate the use of dangerous chemicals
have also been expanded to all non-European sites.

The Group’s industrial risk policy is focused on two elements: (i) prevention through
independent audits performed annually at each site, with audit reports containing
recommendations for personnel and equipment; and (ii) protection through risk mitigation plans
including objectives for short- and medium-term capital expenditures, management actions, and
new procedures or processes.

4.2.3   Energy and raw material risk management

The Group’s exposure to energy and raw material risks is discussed in Section 4.1.1.

As of the registration date of this Document de Base, the Group has hedging agreements in
place for certain of its purchases of natural gas in the United States and fuel oil in Europe (for
purchases not covered by contractual price increase mechanisms or by hedging agreements in
the U.S. that the Group has set up on behalf of its customers) in order to reduce its exposure to
energy price fluctuations. These hedging agreements were entered into with the backing of
Compagnie de Saint-Gobain.

Under the agreement on services that Saint-Gobain will provide to Group entities (see Section
22.1.1), the Group will be able to continue to use, for up to nine months after the Company’s
shares are listed on the NYSE Euronext regulated exchange in Paris, those natural gas and fuel
oil hedging instruments that Compagnie de Saint-Gobain has entered into with external
counterparties as of the registration date of this Document de Base and that the Group has the
right to use.

Once the Cash Agreement described in Section 22.1.1.1 goes into effect, the Group can continue
to use the hedging instruments of Compagnie de Saint-Gobain but will have to act directly as
the instructing party (since Compagnie de Saint-Gobain will act only on behalf of Verallia,
contrary to the situation as of the registration date of this Document de Base whereby
Compagnie de Saint-Gobain is the instructing party for external counterparties). The Group will


                                                36
no longer be able to use Compagnie de Saint-Gobain’s hedging instruments if the Credit
Facility described in Section 22.1.2 expires or is terminated.

The Group plans to set up its own hedging instruments with top-tier financial institutions of its
choosing.

The following tables show, as of December 31, 2010, the Group’s energy purchasing and selling
agreements for the next few years.

                                                                                                              Intended purpose
                            Notional (nominal) amount
Energy source                                                              Total          Market value    (personal use, hedging, or
                             for the year of maturity
                                                                                                                   trading)
Fuel oil                    2011            2012         2013
Unit of measurement     Thousand EUR                                    Thousand EUR      Thousand EUR
Forward purchasing
                           22,454            0            0                22,454            +3,485                Hedging
agreement



                                                                                                              Intended purpose
                                Notional (nominal) amount                                      Market
Energy source                                                                  Total                       (personal use, hedging,
                                 for the year of maturity                                      value
                                                                                                                 or trading)
Natural gas                 2011                 2012              2013
Unit of measurement                                                                           Thousand
                        Thousand USD       Thousand USD                    Thousand USD
                                                                                                USD
Forward purchasing
                           39,264.9              610.6              0         39,875.6         -5,397.9           Hedging
agreement


As of the registration date of this Document de Base, the Group does not have hedges in place
for its raw materials, which it purchases locally under terms and conditions negotiated with its
or Saint-Gobain’s suppliers. After the Company’s shares are listed on the NYSE Euronext
regulated exchange in Paris, the Group’s purchasing will be carried out through a Pooled
Purchasing Agreement (see Section 22). If this Agreement is terminated the Group will
purchase its raw materials directly (i.e., without pooling with Saint-Gobain).

4.2.4    Market risk management

                      4.2.4.1    Interest rate risk management

The Group’s exposure to interest rate risk is discussed in Section 4.1.5.1.

The Group’s finance department manages the interest rate risk on the Group’s overall net debt
with the primary goal of locking in the Group’s medium- and long-term borrowing costs and
eventually lowering the Group’s medium- and long-term interest expense. The Group has the
appropriate software in place to manage this risk.

The Group has specified the derivatives that can be used as hedging instruments; these
derivatives include interest rate swaps, options (e.g., caps, floors, and swaptions), and forward
interest rate agreements.

Under the agreement on services that Saint-Gobain will provide to Group entities (see Section
22.1.1.1), the Group will be able to use, for up to nine months after the Company’s shares are
listed on the NYSE Euronext regulated exchange in Paris, the hedging instruments set up by
Compagnie de Saint-Gobain to cover interest rate risk and that the Group has the right to use as
of the registration date of this Document de Base. The Group will be able to use these hedging
instruments on request for occasional transactions that expose the Group to interest rate risk.

Once the Cash Agreement described in Section 22.1.1.1 goes into effect, the Group can continue
to use the hedging instruments of Compagnie de Saint-Gobain but will have to act directly as
the instructing party (since Compagnie de Saint-Gobain will act only on behalf of Verallia,


                                                              37
contrary to the situation as of the registration date of this Document de Base whereby
Compagnie de Saint-Gobain is the instructing party for external counterparties). The Group will
no longer be able to use Compagnie de Saint-Gobain’s hedging instruments if the Credit
Facility described in Section 22.1.2 expires or is terminated.

The Group plans to set up its own hedging instruments with financial institutions of its
choosing.

                  4.2.4.2   Currency risk management

The Group’s exposure to currency risk is discussed in Section 4.1.5.2.

Under the agreement on services that Saint-Gobain will provide to Group entities (see Section
22.1.1.1), the Group will be able to use, for up to nine months after the Company’s shares are
listed on the NYSE Euronext regulated exchange in Paris, the hedging instruments set up by
Compagnie de Saint-Gobain to cover currency risk and that the Group has the right to use as of
the registration date of this Document de Base. The Group will be able to use these hedging
instruments on request for occasional transactions that expose the Group to currency risk.

Once the Cash Agreement described in Section 22.1.1.1 goes into effect, the Group can continue
to use the hedging instruments of Compagnie de Saint-Gobain but will have to act directly as
the instructing party (since Compagnie de Saint-Gobain will act only on behalf of Verallia,
contrary to the situation as of the registration date of this Document de Base whereby
Compagnie de Saint-Gobain is the instructing party for external counterparties). The Group will
no longer be able to use Compagnie de Saint-Gobain’s hedging instruments if the Credit
Facility described in Section 22.1.2 expires or is terminated.

The Group plans to set up its own hedging instruments with financial institutions of its
choosing.

                  4.2.4.3   Liquidity risk management

The Group’s exposure to liquidity risk is discussed in Section 4.1.5.3.

As of the registration date of this Document de Base, Saint-Gobain—the Group’s main source
of financing —provides the Group with the liquidity it needs. Nevertheless the Group will set
up an alternative financing agreement to cover its liquidity needs should Saint-Gobain no longer
be in a position to do so (see Section 10.4).

The Group manages its liquidity risk so as to ensure that its financing will be renewed and to
lower its annual borrowing costs. It maintains its long-term debt at a high percentage of total net
debt and structures the Group’s financing so that the various instruments mature (and must be
renewed) in different years. The Group will also seek to diversify its sources of financing by
tapping different markets, such as the bond market.

After an initial, non-renewable transition period of nine months after the Company’s shares are
listed on the NYSE Euronext regulated exchange in Paris, the Group will have to manage its
own cash needs (see Section 22.1.1.1). Therefore it plans to set up a Group-level cash
management department including a treasurer (who has already been appointed), a steering
committee, and a cash management service headed by the treasurer. The cash management
service will be responsible for managing the Group’s daily cash needs and generating cash flow
forecasts. Group subsidiaries will retain their local cash management departments to manage
their own daily cash needs and generate their own cash flow forecasts; these local departments
will work with the Group-level cash management department. To help the Group set up its own
cash management department, the Company will enter into a Cash Agreement with Compagnie


                                                38
de Saint-Gobain under which Verallia will become the single point of contact with Saint-Gobain
(the Group’s main financer) and will take over the cash management for all its subsidiaries. This
Cash Agreement, described in Section 10.4, will terminate when the Credit Facility between the
Company and Compagnie de Saint-Gobain expires.

4.2.5   Insurance risk management

The Group’s exposure to insurance risk is discussed in Section 4.1.6.

As of the registration date of this Document de Base, the Group’s main risks are covered by
Saint-Gobain’s insurance policies, which are contracted by Compagnie de Saint-Gobain. These
policies cover civil liability (before and after deliveries), property damage and subsequent
operating losses, worker’s compensation in the U.S., and a variety of other risks.

As part of the admission to trading of the Company’s shares on the NYSE Euronext regulated
exchange in Paris, the Group will, over the 18 months after the shares are listed, gradually phase
itself out of Saint-Gobain’s insurance policies (including those for civil liability, damages, and
worker’s compensation) and purchase its own polices in line with the market’s best practices
(see Section 22.1.1). To do this, the Group will be able to draw on the support of Compagnie de
Saint-Gobain’s Insurance and Risk Department, especially for negotiations with insurance
companies.

4.2.6   Legal risk management

The Group’s exposure to legal risk is discussed in Section 4.1.7.

The Group operates in a complex international market with complicated, demanding regulatory
requirements, and therefore pays careful attention to the management of its legal risks.

As of the registration date of this Document de Base, the legal departments of the Group and
other Saint-Gobain entities keep track of all significant regulatory changes that could affect the
Group and recommend the corresponding procedures and measures to implement in response to
such changes. The departments also help operations managers on legal issues related to their
business negotiations and agreements.

The Group’s legal department also handles any legal proceedings concerning the Group, in
association with certain other Saint-Gobain legal departments. Additionally, the Group’s legal
department participates in company training programmes alone or jointly with other Compagnie
de Saint-Gobain departments.

As part of the admission to trading of the Company’s shares on the NYSE Euronext regulated
exchange in Paris, the Group plans to hire additional staff into its legal department. The Group
will continue to receive assistance from other Saint-Gobain legal departments until this
additional staff is hired (see Section 22.1.1.1).




                                                39
5.      INFORMATION ABOUT THE COMPANY AND GROUP

5.1     Group history and restructuring

5.1.1    Company name

The Company’s name is Verallia.

5.1.2    Trade and Companies Registry

The Company is registered with the Nanterre Trade and Companies Registry (RCS Nanterre)
under number 432 604 031.

5.1.3    Company date of incorporation and lifetime

The Company was incorporated on August 30, 2000 for a lifetime of 99 years. The Company
will begin operating after the Restructuring Transactions described in Section 5.1.6.2 are
completed.

5.1.4    Headquarters, legal form, and governing law

The Company’s headquarters is located at 18, avenue d’Alsace, 92400 Courbevoie, France
(telephone number +33 147 62 38 00).

The Company is a French public limited company (société anonyme) with a Board of Directors
and is governed by Book II of the French Code de commerce.

5.1.5    Company history

                                                Saint-Gobain’s glass packaging business was born
                                                from a long glass making tradition dating back to
                                                the Manufacture Royale des Glaces in the 17th
                                                century. Saint-Gobain started making glass
                                                packaging or “hollow glass” in 1918 when it
                                                bought a stake in Verreries à Bouteilles du Nord,
                                                and was a key player in the industry evolution
                                                throughout the 20th century as it transformed from
                                                a largely craftsman-dominated industry with
                                                fragmented workshops to — after the introduction
                                                of the first machines in 1925 — the automated,
                                                capital-intensive industry that it is today.

The glass packaging business was run by Compagnie de Saint-Gobain until 1972 when it was
transferred to Saint-Gobain Emballage, which became the head of the French division
coordinating the glass packaging production operations of Saint-Gobain’s various companies.

Over the past few years the Group has refocused its operations on its traditional glass bottle and
jar-making business while continuing to pursue its acquisition strategy. This refocusing has
included the sales of its plastic pump and small bottles businesses: the Group sold its plastic
pumps business, comprised of SG Calmar Incorporated and its subsidiaries, to MeadWestvaco
in 2006, and its small bottles business, comprised of Saint-Gobain Desjonquères and its
subsidiaries, to Cougard Investissement in 2007. As part of this latter transaction Saint-Gobain
Emballage acquired a minority ownership stake in Cougard Investissement, which was
reclassified as a Saint-Gobain subsidiary in March 2008. In 2007, the Group also sold a 30.98%



                                                40
stake in Samin, a sand supplier and household glass collection and recycling services provider,
to a Compagnie de Saint-Gobain subsidiary, reducing the Group’s stake in Samin to 20%.

Key dates

1972           Compagnie de Saint-Gobain transfers its European glass bottle and jar making
               business to Saint-Gobain Emballage.
1987           The Group acquires Vidreira do Mondego’s production facilities at Figueira da
               Foz, Portugal.
1989           The Group acquires a 73% ownership stake in the Italian company Vetri (which
               becomes SG Vetri), eventually increasing its stake to 75% in 1990.
1991           The Group acquires a controlling 60% ownership stake in Oberland Glas AG of
               Germany (which becomes SG Oberland).
1995           The Group obtains a foothold in the U.S. with a 58% ownership stake in Ball
               Foster Glass, a company created from the merger of the glass packaging
               divisions of Ball Glass Corp, Foster Forbes, and Pechiney International.
               The Group increases its ownership stakes in Vetri and SG Oberland to 99% and
               88%, respectively.
1996           The Group increases its ownership stake in Ball Foster Glass.
1998           The Group acquires a 60% ownership stake in Rayen Cura, an Argentine wine
               bottle maker located in Mendoza.
               The Group acquires the 90% of the French company VOA-Verrerie d’Albi that
               it does not already own, and increases its ownership stake in SG Oberland to
               96.6%.
               The Group’s Spanish subsidiary Vicasa brings online a new plant in Montblanc,
               Spain.
2001           The Group acquires a majority ownership stake in Saga Décor and a 75%
               ownership stake in French company Thierry Bergeon Embouteillage.
2005           The Group acquires majority ownership stakes of 79.7% in Zorya, a Ukrainian
               company, and 99.8% in Euroverlux, a Polish glass packaging decoration
               business.
               The Group acquires, through a share capital increase, a 60.6% ownership stake
               in KMS of Russia and a 7.32% stake in its holding company, STI.
               The Group sells SG Oberland’s glass brick making business to Solaris GmbH.
2006           The Group buys out Saga Décor’s minority shareholders.
2006           The Group acquires a 51% ownership stake in BO Glass Containers SA in Chile
               (which becomes SG Envases SA).
               The Group sells SG Calmar Incorporated (the Group’s plastic pump business) to
               MeadWestvaco.
               The Group sells Futronic GmBH, a German manufacturer of IS machine parts,
               to Jetter AG.




                                              41
2007                The Group sells Gijon-Fabril, a mould manufacturer, to Buxanti.
                    The Group becomes the full owner of STI and buys minority interests in KMS.
                    The Group sells its ownership stake in Saint-Gobain Desjonquères and its
                    subsidiaries (the Group’s small bottle making business) to Cougard
                    Investissement and acquires a 20% ownership stake in Cougard Investissement.
                    The Group later sells some of its Cougard Investissement shares to an operating
                    partner in July 2007, reducing its ownership stake in Cougard to 19.9%.
                    The Group sells a 30.98% ownership stake in Samin, a sand supplier and
                    household glass collection and recycling services provider, to a Saint-Gobain
                    subsidiary, reducing the Group’s ownership stake in Samin to 20%.
                    The Group increases its ownership stake in Zorya to 93.4% through a share
                    capital increase.
                    The Group buys out Euroverlux’s minority shareholders
2008                The Group sells its ownership stake in Cougard Investissement to a Compagnie
                    de Saint-Gobain subsidiary in March 2008.
                    The Group acquires a 95.51% ownership stake in Russian company
                    Kamyshinsky (KSZ) and buys minority interests in KMS
                    The Group increases its ownership stake in Zorya to 96.68% through a share
                    capital increase.
                    The Group sets up Black Sea Packaging Glass in Russia in order to acquire the
                    occupancy rights to land slated for industrial purposes in the Krasnodar wine-
                    making region.
2009                The Group sets up an Indian subsidiary, Accuramech Industrial Engineering,
                    which acquired a business specialised in the sourcing and inspection of IS
                    machine parts.
2010                The Group sets up Vetreco, an Italian glass recycling company 40%-owned by
                    SG Vetri, 30%-owned by Ardagh, and 30%-owned by Zignano Vetro10.

Reclassification of ownership interests between Group companies and Saint-Gobain companies

The Group spun off SG Vidros in July 2008 by transferring all of its businesses, except its
packaging business to another Saint-Gobain company. In December 2008, SG Vidros absorbed
its Brazilian holding company, Peslogro, through a merger transaction. Compagnie de Saint-
Gobain owned 99.9% of SG Vidros after this transaction was completed.

The Group redistributed some of its ownership interests in Spain and Portugal to Saint-Gobain
companies between 2007 and 2009, the most significant being SG Cristaleria’s August 2009
repurchase of the 5% ownership stake held by SG Vicasa.

The Group sold its 16.19% ownership stake in Saint-Gobain Recherche to BPB Placo SAS on
March 25, 2011.




10
     Stated ownership percentages are in terms of shares and voting rights.


                                                      42
5.1.6      Group Restructuring

                        5.1.6.1     Simplified Group organisational structure as of the registration
                                    date of this Document de Base11.

                                                            Compagnie de
                                                            Saint-Gobain
                   20.52%


                   99.99%*                            99.83%*                            99.99%*                        99.96%*

              Vertec                         SG Cristaleria                     Spafi (France)              SG Vidros (Brazil)
             (France)                           (Spain)
                                                                                         99.99%*
                   79.48%                             99.91%*
                                                                                   Verallia
          Saint-Gobain                     SG Vicasa (Spain)                       (France)               •Inversiones SG
        Emballage (France)                                                                                (Chile), fully-owned
                                                                                         100%             •SG Envases (Chile),
                                                                                                          51%-owned by
                                        •Montblanc (Spain),                                               Inversiones SG
                                        fully-owned                              SGCI (United
     •VOA (France), fully-                                                         States)
                                        •Vicasa (Spain),
     owned                              41.03%-owned**
     •Salomon (France)                  •Mondego (Portugal),                •GPS America (United
     and its 88.77%-owned               fully-owned                         States), fully-owned
     subsidiary TBE
                                        •Rayen Cura
     •Saga Décor (France),              (Argentina), 60%-
     fully-owned                        owned
     •Euroverlux (Poland),
     fully-owned
     •Accuramech (India),
     99.9%-owned
     •SG Vetri (Italy),
     99.98%-owned, and its
     subsidiaries
     •SG Oberland
     (Germany), 96.67%-
     owned, and its
     German, Russian, and
     Ukrainian subsidiaries


*Minority interests are held by the Board Members of the corresponding company. Other share ownerships for the following
companies are:
- Vertec: Spafi owns one Vertec share.
- Compagnie de Saint-Gobain indirectly owns 99.83% of SG Cristaleria, Compagnie de Saint-Gobain owns 16.35% of SG
Cristaleria directly, International Saint-Gobain owns 45.54% of SG Cristaleria, Saint-Gobain Produits Pour la Construction owns
30.35% of SG Cristaleria, and Spafi owns 7.59% of SG Cristaleria.
- Spafi: Vertec owns five Spafi shares.
- SG Vidros: SG Assessoria e Administracao owns 85,622 SG Vidros shares.
- SG Vicasa: Banque Fédérale du Crédit Mutuel owns four SG Vicasa shares and minority shareholders own 1,145 shares (or 0.09%
of the company).
- Verallia: Odol and Vertec each own one Verallia share and four shares have been lent under a French Prêt de Consommation
agreement.

** SG Vicasa is responsible for the management of Vicasa even though it has only a 41% stake.




11
  The percentages given in the chart correspond to the percentage of shares (which equals the percentage
of voting rights) owned in the corresponding company.


                                                               43
                  5.1.6.2   Restructuring Transactions

As part of the admission to trading of the Company’s shares on the NYSE Euronext regulated
exchange in Paris, Compagnie de Saint-Gobain will restructure its packaging business and
transfer control of the companies and assets involved in this business to the Company.

This restructuring will involve a certain number of transactions (the “Restructuring
Transactions”) which are described below. Some of these transactions have already been
completed as of the registration date of this Document de Base; the others will be completed by
0:00 Paris time on the first day that the Company’s shares are listed on the NYSE Euronext
regulated exchange in Paris (the “Completion Date”).

The main Restructuring Transactions are as follows.

In the United States:

-   Spafi transferred its shares in SG Containers Inc. (SGCI) to Verallia through a contribution
    in kind (the “SGCI Contribution”) not subject to French laws governing company spin-
    offs. This transaction was completed on July 16, 2010 with retroactive effect dating back to
    April 30, 2010.

In France:

-   Vertec will transfer all of its shares in Saint-Gobain Emballage (SGE) to Verallia (the “SGE
    Share Contribution”) through a contribution in kind not subject to French laws governing
    company spin-offs. Compagnie de Saint-Gobain will sell all of its shares in Saint-Gobain
    Emballage to Verallia (the “SGE Share Sale”) through a share sale agreement. The SGE
    Share Contribution and the SGE Share Sale together constitute the “SGE Share
    Reclassification”.

In Spain:

-   SG Cristaleria will transfer all of its shares in SG Vicasa to Verallia through a contribution
    in kind (the “Vicasa Share Contribution”) not subject to the French laws governing
    company spin-offs.

In Brazil:

-   Compagnie de Saint-Gobain will sell its shares in SG Vidros to Verallia (the “Vidros Share
    Sale”).

Verallia will refund the contribution premiums and other Group companies will pay out
dividends and reserves before the Restructuring Transactions take place (see Section 9.1.2.3).


                  5.1.6.3   Terms and conditions of the Restructuring Transactions

Restructuring Transactions already completed as of the registration date of this Document de
Base

The SGCI Share Contribution, which consists of a contribution in kind of 100 SGCI shares by
Spafi to the Company, was completed on July 16, 2010 with retroactive effect dating back to
April 30, 2010.




                                               44
This contribution was carried out in accordance with the common law provisions for
contributions in kind set forth in articles L. 225-147 et seq. of the French Code du commerce but
was not subject to the laws governing company spin-offs set forth in articles L. 236-16 to
L. 236-21 of the French Code de commerce. The SGCI shares were contributed with all
financial rights attached, including the right to any dividend, interim dividend, reserve, or other
form of payment to shareholders approved after the contribution was made.

The SGCI shares were contributed to Verallia at their net book value of €637,115,000 in
accordance with CRC Regulation 2004-01 of May 4, 2004 as amended by CRC Regulation
2005-09 of November 3, 2005, applicable to contributions between companies controlled by the
same entity.

In exchange for the SGCI Share Contribution, Spafi received 3,185,575 newly-issued Verallia
shares, which accounted for 99.99% of Verallia’s shares and voting rights after the share issue.

In his audit of the SGCI Share Contribution, Philippe Souchal, the auditor appointed by the
Nanterre Commercial Court on May 7, 2010, concluded that the 100 SGCI shares comprising
SGCI’s share capital were not overvalued and that their value was at least equal to that of the
Odele share capital increase.

The Company’s shareholders approved the SGCI Share Contribution at the general
shareholders’ meeting on July 16, 2010.

Restructuring Transactions that will be completed by the Completion Date

The terms and conditions of the Restructuring Transactions are summarised below; the
guarantees that Compagnie de Saint-Gobain provided to the Group as part of these Transactions
are described in Section 22.

-    SGE Share Reclassification12

         o   SGE Share Contribution

Under the SGE Share Contribution, Vertec will transfer all of its 1,286,071 shares in Saint-
Gobain Emballage (SGE) to Verallia.

This contribution will be carried out according to the common law provisions for contributions
in kind set forth in articles L. 225-147 et seq. of the French Code du commerce but will not be
subject to the laws governing company spin-offs set forth in articles L. 236-16 to L. 236-21 of
the French Code de commerce. The SGE shares will be contributed with all financial rights
attached, including the right to any dividend, interim dividend, reserve, or other form of
payment to shareholders approved after the Completion Date.

It is contemplated that the SGE shares will be contributed to Verallia at their net book value in
accordance with CRC Regulation 2004-01 of May 4, 2004 as amended by CRC Regulation
2005-09 of November 3, 2005 applicable to contributions between companies controlled by the
same entity.




12
  As a result of the SGE Share Reclassification, Verallia could be required to make a public tender offer
for all SG Oberland shares not owned by SGE (see Section 4.1.5.4).


                                                    45
As compensation for the SGE Share Contribution, Vertec will receive newly-issued Verallia
shares.

The SGE Share Contribution must be approved by the Company’s shareholders, and will be
voted on at a general shareholders’ meeting held before the Autorité des marchés financiers
approves the prospectus submitted by the Company for the admission of its shares to trading on
the NYSE Euronext regulated exchange in Paris. The SGE Share Contribution will go into
effect on the Completion Date provided that all the conditions set forth in Section 5.1.6.5 have
been met.

        o   SGE Share Sale

Under the SGE Share Sale, Compagnie de Saint-Gobain will sell all of its 331,964 shares in
Saint-Gobain Emballage to Verallia. After the SGE Share Sale and SGE Share Contribution are
completed Verallia will be the full owner of SGE.

The SGE Share Sale will be carried out through share sale agreements executed by the parties
before the Autorité des marchés financiers approves the prospectus submitted by the Company
for the admission of its shares to trading on the NYSE Euronext regulated exchange in Paris.
The SGE Share Sale be effective from the Completion Date provided that all the conditions set
forth in Section 5.1.6.5 have been met.

The SGE shares will be sold at market value, which will be calculated using an EBITDA
multiple based on peer valuations and recent transactions.

-   Vidros Share Sale

Under the Vidros Share Sale, Compagnie de Saint-Gobain will sell all SG Vidros shares in issue
to the Company, such that after the transaction the Company will be the full owner of SG
Vidros.

This share sale will be carried out through an agreement executed by the parties before the
Autorité des marchés financiers approves the prospectus submitted by the Company for the
admission of its shares to trading on the NYSE Euronext regulated exchange in Paris. The
Vidros Share Sale will be effective from the Completion Date provided that all the conditions
indicated in Section 5.1.6.5 below have been met.

The SG Vidros shares will be sold at market value, which will be calculated using an EBITDA
multiple based on peer valuations and recent transactions.

-   Vicasa Share Contribution

Under the Vicasa Share Contribution, SG Cristaleria will transfer all 1,335,691 SG Vicasa
shares in issue to the Company through a contribution in-kind. This contribution will be carried
out according to the common law provisions for contributions in kind set forth in articles
L. 225-147 et seq. of the French Code du commerce but will not be subject to the laws
governing company spin-offs set forth in articles L. 236-16 to L. 236-21 of the French Code de
commerce. The Vicasa shares will be contributed with all financial rights attached, including the
right to any dividend, interim dividend, reserve, or other form of payment to shareholders
approved after the Completion Date.

It is contemplated that the SG Vicasa shares will be contributed at their net book value in
accordance with CRC Regulation 2004-01 of May 4, 2004, as amended by CRC Regulation
2005-09 of November 3, 2005, applicable to contributions between companies controlled by the
same entity.


                                               46
In exchange for the Vicasa Share Contribution, SG Cristaleria will receive newly-issued
Verallia shares.

The Vicasa Share Contribution must be approved by the Company’s shareholders, and will be
voted on at a general shareholders meeting held before the Autorité des marchés financiers
approves the prospectus submitted by the Company for the admission of its shares to trading on
the NYSE Euronext regulated exchange in Paris. The Vicasa Share Contribution will go into
effect on the Completion Date provided that all the conditions indicated in Section 5.1.6.5
below have been met.

                   5.1.6.4   Simplified Group organisational structure after the Restructuring
                             Transactions13

The following chart gives the Group’s simplified organisational structure after the Restructuring
Transactions have been completed.




13
  The percentages given in the chart correspond to the percentage of shares (which equals the percentage
of voting rights) owned in the corresponding company. Additional information on the Group’s
organisational structure and the Company’s shareholders are given in Section 7.


                                                   47
                                                             Compagnie de
                                                             Saint-Gobain
               99.83 %*                                                                                           99.99%*
                                                                      99.99 %*

                     SG Cristaleria                              Spafi                                      Vertec
                        (Spain)                                 (France)                                    (France)

                                                                     12.5%
                                26.7%                                                               60.8%
                                                               Verallia
            99.99%                            99.91%*                                  100%                              99.96%*


       SG Emballage                     SG Vicasa (Spain)                   SGCI (United States)                   SG Vidros (Brazil)
          (France)



                                      •Vicsa (Spain),                      •GPS America (United
    •VOA (France), fully-             41.03%-owned**                       States), fully-owned                  •Inversiones SG
    owned                             •Mondego (Portugal),                                                       (Chile), fully-owned
    •Salomon (France)                 fully-owned                                                                •SG Envases (Chile),
    and its 88.77%-owned              •Montblanc (Spain),                                                        51%-owned by
    TBE subsidiary                    fully-owned                                                                Inversiones SG
    •Saga Decor (France),             •Rayen Cura
    fully-owned                       (Argentina), 60%-
    •Euroverlux (Poland),             owned
    fully-owned
    •Accuramech (India),
    99.9%-owned
    •SG Vetri (Italy),
    99.98%-owned, and its
    subsidiaries
    •SG Oberland
    (Germany), 96.67%-
    owned, and its
    German, Russian, and
    Ukrainian subsidiaries


*Minority interests are held by the Board Members of the corresponding company. Other share ownerships for the following
companies are:
- Vertec: Spafi owns one Vertec share.
- Compagnie de Saint-Gobain indirectly owns 99.83% of SG Cristaleria: Compagnie de Saint-Gobain owns 16.35% of SG
Cristaleria directly, International Saint-Gobain owns 45.54% of SG Cristaleria, Saint-Gobain Produits Pour la Construction owns
30.35% of SG Cristaleria, and Spafi owns 7.59% of SG Cristaleria.
- Spafi: Vertec owns five Spafi shares.
- SG Vidros: SG Assessoria e Administracao owns 85,622 SG Vidros shares.
- SG Vicasa: Banque Fédérale du Crédit Mutuel owns four SG Vicasa shares and minority shareholders own 1,145 shares (or 0.09%
of the company).

** SG Vicasa is responsible for the management of Vicasa even though it has only a 41% stake.


                          5.1.6.5       Conditions subsequent

The SGE Share Reclassification, the Vicasa Share Contribution, and the Vidros Share Sale are
subject to the following non-retroactive conditions subsequent:

-      The Autorité des marchés financiers’ approval of the prospectus submitted by the Company
       for the admission of its shares to trading on the NYSE Euronext regulated exchange in
       Paris;

-      Shareholders’ approval (at a general shareholders’ meeting) of the Vicasa Share
       Contribution and the SGE Share Contribution;




                                                               48
-     Euronext Paris’ decision to authorise admission to trading of the Company’s shares on the
      NYSE Euronext regulated exchange in Paris; and

-     The admission to trading of the Company’s shares on the NYSE Euronext regulated
      exchange in Paris.

The resolutions that must be approved by shareholders to carry out the Restructuring
Transactions will be proposed at an extraordinary general shareholders’ meeting held before the
Autorité des marchés financiers approves the prospectus submitted by the Company for the
admission of its shares to trading on the NYSE Euronext regulated exchange in Paris. All of the
Company’s shareholders have agreed to vote in favour of these resolutions.

                   5.1.6.6     Transition Agreements

The Company has entered into transition agreements (the “Transition Agreements”) with
Compagnie de Saint-Gobain under which Compagnie de Saint-Gobain will continue to provide
certain services to the Company during a transition period after the Company’s shares are
admitted to trading on the NYSE Euronext regulated exchange in Paris and the Company is
spun off from Saint-Gobain. The primary terms and conditions of these agreements are provided
in Section 22.

5.2     Capital expenditures

5.2.1    The Group’s main capital expenditures (CapEx) over the past three years

Based on the Group’s Combined Financial Statements (as defined in Section 9 and provided in
Section 20), the Group’s capital expenditures totalled €269 million in 2010, against €260
million in 2009 and €285 million in 2008. These capital expenditures comprised non-recurring
industrial capital expenditures, maintenance, and non-industrial capital expenditures as
indicated in the following table.


In millions of euros                                              2010          2009          2008
Non-recurring industrial CapEx                                      26            41               43
Of which:
Environment                                                          6             9               22
Growth and flexibility                                              20            32               21
Maintenance                                                        236           215              239
Of which:
Furnace renovation                                                 132           111              127
Capitalised heavy maintenance                                       58            54               65
Market adaptations and productivity                                 36            37               37
    Market adaptations                                              10             5                8
    Quality                                                          8             8                6
    Productivity                                                    18            24               23
Environment and safety                                              10            13               10
Non-industrial CapEx*                                                7             4                3
Total CapEx                                                        269           260              285
*Including intangible assets




                                                49
Non-recurring industrial capital expenditures

The Group’s non-recurring industrial capital expenditures consist primarily of:

•    Occasional purchases of electric air filters and other air emissions control equipment for
     plants in Europe and the United States in order to comply with EU environmental
     regulations in Europe and EPA agreements in the United States (see Sections 6.8 and
     20.6.3); and

•    Investments in growth and flexibility initiatives such as:

         o   Growth: New production lines and capacity increases as part of furnace
             renovations. The Group may decide to take advantage of furnace renovation work
             to expand a furnace’s size and therefore increase its production capacity if demand
             is expected to be strong;
         o   Flexibility: Systems that would enable the Group to respond more quickly to
             customer demand, such as the “bulk to case” logistics system in the United States
             whereby finished goods are stored in bulk and automatically placed in shipping
             cases when customers place an order (see Section 6.5.1.3).

Maintenance

The Group’s maintenance expenditures relate primarily to furnace renovations and heavy
maintenance. Although the Group’s research and development work has expanded the useful
lives of its furnaces to 10, 12, or even 14 years, they must still be renovated periodically (since
the molten glass in the furnaces wears down the refractory slabs).

The following table gives the main renovation work on the Group’s furnaces over the past three
years.14

                                         2010                          2009                     2008
Type of renovation             Partial          Total        Partial          Total   Partial          Total

France                           2               1             1               1         2              1
Iberian Peninsula                1               0             1               0         0              2
Italy                            2               1             1               0         0              1
Germany                           1              1             0               1         0              0
Ukraine                          0               0             0               0         0              0
Russia                            0              2             0               0         0              1
Total Europe                     6               5             3               2         2              5
United States                    2               2             1               3         2              1
Brazil                            2              0             0               0         0              1
Argentina                        0               0             0               0         1              0
Chile                            0               0             0               0         0              0
Total South America              2               0             0               0         1              1
Total                            10              7             4               5         5              7

The cost of building an entire plant (furnace, mixing equipment, distribution canal, feeder lines,
blowing machines, annealing lehrs, and inspection and palletization equipment) is typically
around €40 million to €60 million, depending on the number of production lines, machine sizes,




14
  Renovation expenses are spread over several years and indicated in the year that the renovation work is
completed.


                                                        50
and utility and transportation connections (water, gas, electricity, roads, railways, etc.). The cost
of completely renovating a furnace (and its associated equipment if needed) generally ranges
from €10 million to €20 million, and furnaces typically need to be renovated after 10 or 12 years
of operation. A partial renovation costs €2 million to €6 million and could extend a furnace’s
useful life, making it a potentially worthwhile investment.

Non-industrial capital expenditures

The Group’s non-industrial capital expenditures are related mainly to intangible assets, such as
the roll out of the ISIS application developed by SAP.

5.2.2   Main capital expenditures in progress

                  5.2.2.1   Capital expenditures related to acquisitions in Algeria

The Algerian government has selected the Group’s Italian subsidiary, SG Vetri, to take over
glass packaging maker Alver (part of the state-owned company Enava) and the Tebessa glass
packaging business owned by Banque Extérieure d’Algérie (a commercial bank controlled by
the Algerian government) under a privatisation scheme, in accordance with Resolutions 04/81
and 03/81 adopted by the Algerian government’s equity investment board on November 24,
2007. Alver, based in Oran, is one of Algeria’s leading state-owned glass packaging producers
and distributors. The company generated around €7.0 million of net sales in 2010 and had 474
employees at end-2010.

Discussions are underway with Alver’s majority shareholder to implement the decisions.

If the majority shareholder so agrees, SG Vetri will purchase these two businesses for €11.3
million. As part of the acquisitions the Group will commit to making the investments needed to
increase these businesses’ production capacity and plant efficiency; the Group also plans to set
up an employee training programme. The capital expenditures and training programme costs are
expected to total around €28.5 million, and will be spread out between 2011 and 2014.

Alver will be the acquirer of the Tebessa glass packaging division, giving it two sites: one in
Oran and one in Tebessa. Alver plans to target the local market, which the Group expects to
grow.

5.2.3   Main planned capital expenditures and capital expenditures for which
        management has made a firm commitment

The following sections describe the maintenance and non-recurring industrial capital
expenditures that the Group has planned for 2011 and 2012. The Group plans to pay for these
expenditures using its available resources and the financing that will be set up as part of the
admission to trading of the Company’s shares on the NYSE Euronext regulated exchange in
Paris (see Section 10.4).




                                                 51
                   5.2.3.1    Main planned capital expenditures

    •    Non-recurring industrial capital expenditures

The Group plans to continue investing in systems to reduce its plants’ air emissions; this will
include installing electric air filters at its U.S. plants, renovating an electric air filter at a plant in
Brazil, and installing equipment at a plant in Argentina. The Group expects to spend €25.4
million on electric air filters and other environmental protection equipment in 2011-2012,
compared with €22 million in 2008, €9 million in 2009, and €6 million in 2010 (for all Group
sites).

The Group plans to add new capacity at a pace in line with past trends. The primary capacity
expansions scheduled for 2011 and 2012 concern a plant in Argentina and the upgrading of the
plant in Kamyshin, Russia.

The Group also plans to invest in biomass research and development in 2011 and 2012.

The acquisitions underway in Algeria will result in significant capital expenditures over the next
few years as the Group builds new production capacity in line with the level of performance
seen at its other plants (see Section 5.2.2.1).

    •    Maintenance

Furnaces typically need to be renovated either partially or totally as they reach the end of their
useful lives, which can range from 10 to 12 (or in some cases 14) years. Due to the ages of the
Group’s existing furnaces, the Group will have to spend a considerable amount of money on
furnace renovations in 2011 and 2012. However this investment will limit the increase in future
maintenance costs as production volumes grow sharply over the coming years.

    •    Non-industrial capital expenditures

The Group is in the process of rolling out the ISIS information system (developed by SAP) at all
Group companies; the application is scheduled to be installed in the United States in January
2011 and in Russia in 2012. The Group is also installing CRM software at its sales and
marketing departments (see Section 6.10).

                   5.2.3.2    Capital expenditures for which management has made a firm
                              commitment

Apart from the planned capital expenditures mentioned above, the Group’s management has
made no other firm capital expenditure commitments as of the registration date of this
Document de Base.




                                                    52
6.    BUSINESS OVERVIEW

6.1   General overview

                             Verallia offers a full range of glass packaging products for the entire food
                             and beverage industry. The Group regards itself as the global leader in
                             bottles for still and sparkling wine, bottles and decanters for spirits, and jars
                             for foodstuffs. All segments combined, the Group is the second-largest
                             international player in its field15.

                             The company began as a glass packaging business launched during the 20th
                             century by Compagnie de Saint-Gobain. With its origins in the Manufacture
                             Royale des Glaces founded in 1665 at the initiative of King Louis XIV’s
                             finance minister, Jean-Baptiste Colbert, Compagnie de Saint-Gobain is a
                             long-standing glass maker. The Group designs, produces and sells glass
                             bottles and jars mainly for the food and beverage industry and in particular
                             for the packaging of still and sparkling wines, spirits, beer and food. The
                             Group also owns a tableware business in South America.

                           For the fiscal year ending December 31, 2010, the Group reported net sales
                           of €3.6 billion, business income of €0.4 billion and produced some
                           25 billion glass bottles and jars. In 2008 and 2009, reported net sales were
                           €3.5 billion and €3.4 billion respectively, with a stable business income of
                           €0.4 billion each year. Over these periods, Group sales in volume terms
were 7,740 kT in 2010, 7,782 kT in 2009 and 8,159 kT in 2008. This compares to 8,117 kT sold in 2007
and 7,903 kT in 2006.

With approximately 15,000 employees worldwide, the Group has a commercial presence in 46 countries
and owns 47 glass-making facilities in 11 countries throughout Western and Eastern Europe, the United
States, and South America.

The Group’s main business sectors are still wines, sparkling wines (champagne, mousseux, etc.), beer,
alcohol, spirits, fruit juices, soft drinks, mineral waters, oils, baby foods, solubles, dairy products and
desserts. Moreover, the Group supplies most of the major food and beverage producers.

As the Group has only one business activity (glass packaging), its segment information is presented on
two levels: by region (Europe, the United States, and South America) on a primary basis and by market
segment on a secondary basis.

The Group regards itself as the global leader in glass packaging for premium products (still and
sparkling wines, spirits and foodstuffs) which it considers to be the most profitable and as one of the
two main players in glass packaging.

One of the Group’s strengths is its ability to offer both “strength” and “proximity”:
   - the strength of a global leader equipped with efficient, innovative production equipment and a
        network capable of competing with other major international players; and
   - the proximity of a local partner with the needs of its local customers at heart.




15
  Source: Group estimates based on sales data in the Form 10-Q filed by Owens-Illinois with the United States
Securities and Exchange Commission on January 26, 2011 and on the Ardagh website.


                                                     53
The Group is active in regional markets with low cyclicality. Management believes that the Group has a
strong potential to generate recurring profits and cash flow thanks to its presence in attractive regions,
solid sales base in its regional markets, broad and efficient manufacturing network, recognised technical
expertise, keen aptitude in product innovation and experienced management team.

The Group’s strategy is to provide a wide range of glass packaging aimed at showcasing its customers’
products. Thanks to its joint development capabilities and technical innovation, the Group is well-
equipped to meet its customers’ needs and specific requests as well as their high expectations in terms
of quality and service.

The Group also endeavours to minimise the environmental impact of its operations and products in the
countries in which it is present. The Group considers glass to be the best packaging material in terms of
sustainable development as it can be recycled an infinite number of times. Glass is an eco-friendly
packaging solution that maximises the value of products and the wellbeing of consumers, while
minimising the ecological impact.

The Group intends to continue its expansion, by strengthening its position as a leader in markets where
it already has manufacturing facilities, and establishing itself as a key player in other attractive regions.
This profitable and sound growth strategy involves consolidating the Group’s positioning in premium
products, strengthening its commercial positions, and constantly improving its operational
performance—all while paying particular attention to sustainable development and the eco-friendliness
of its products.

The graphs below give the breakdown of the Group’s 2010 net sales by region and market segment.


                     Regional breakdown of the Group’s 2010 combined net sales 16


                             South             Eastern
                            America            Europe
                             8.5%               3.3%




                      United States
                       32.7%                                     Western
                                                                 Europe
                                                                  55.5%
                                                          (including Poland)




16
        Based on external sales.


                                                     54
                 Breakdown by market segment of the Group’s 2010 combined net sales



                                                  Excluding
                         Other              Bottles & Jars
                                                   6.5%               Still wines
                     bottles 7.9%
                                                                             29.5%




        Beer 18.9%




                                                                                     Sparkling wines
                                                                                          7.3%
                               Foodstuffs                          Spirits 10.4%
                                   19.5%




6.2   Verallia’s competitive strengths

The glass packaging industry is a capital-intensive one, requiring the use of furnaces that burn
continuously, day and night. The ability to profitably and intensively produce a wide range of durable
products, including various shaped bottles and jars tailored to diverse regional markets, requires a
certain know-how. This know-how can only be acquired through experience, coupled with significant
investments.

These characteristics alone constitute an advantage to the players in this industry who have the benefit
of solid experience in the field.

From this perspective, the Group believes that it is particularly well-positioned in its competitive
environment. It has inherited the age-old glass making tradition and has always made technological
excellence a priority.

The Group is a global player in glass packaging, one of the main segments in rigid packaging. The
Group combines strength and proximity through its size and its international network, which allows it to
share best practices and exploit synergies on a regular, rapid basis, as well as its strong local presence in
its markets, which provides the crucial responsiveness needed to meet customers’ needs.

The Group believes that it has a strong potential for growth thanks to its unique strategic positioning and
its acquisition strategy in attractive regions. The Group’s operational excellence programme, solid
financial performance, ability to generate a high, regular cash flow stream, and experienced
management team also support its growth strategy.




                                                              55
6.2.1   The Group is a global leader in glass packaging, combining strength on a global scale with
        proximity to local markets

One of only two global players in the glass packaging business, with a commercial presence in 46
countries and glass-making facilities in 11 countries

With its origins in a glass-making group with more than three centuries of manufacturing experience,
the Group is the world’s second-largest producer of glass packaging for the food and beverage
industries.

In 2010 the Group generated net sales of €3.6 billion and produced around 25 billion glass bottles and
jars.

The Group has a commercial presence in 46 countries and owns 47 glass-making facilities in 11
countries. The Group strives to maintain its status as the number one or number two market player in
each of the local markets in which it operates while remaining attentive to the needs of all its customers,
regardless of their size.

The Group’s technological strength allows the Group to produce quality products with flexible,
environmentally friendly production facilities

The Group’s technology allows it to develop, produce and sell a large range of products that are tailored
to meet the needs of local markets. The strong performance of these production facilities and their
ability to adapt to different markets is essential considering the high investment costs for glass-making
equipment.

The Group believes that its efficiency in this respect is grounded in the optimal use of equipment,
meeting the highest standards in the markets in which it operates.

The Group’s equipment is also productive and flexible, which allows the Group to better meet its
customers’ needs. Heavy machinery has been standardised, which gives Verallia the freedom to shift the
production of a range of products from one production line to another and even from one site to another.
Moreover, this use of versatile machinery means that between two and four different types of items can
be produced on the same production line. This flexibility makes the Group more responsive to its
customers’ requests.

The Groupis also committed to implementing an environmental policy aimed at reducing the impact of
its operations on the environment (see Section 6.9).

A leading position in high value-added products

The Group operates in certain segments, such as still and sparkling wines, spirits and foodstuffs, that it
believes are the most promising in the long-term. These segments value innovation and favour the
development of unique high value-added products (premium products). The Group’s track record of
innovation allows it to further develop these premium products and services.

The Group believes that it is the world leader in these products, which represented 67% of total net sales
in 2010. For the fiscal year ended December 31, 2010, sales of these products accounted for 72% of the
Group’s total net sales in Europe, 61% of total net sales in the United States and 53% of total net sales
in South America.

The Group systematically attempts to identify such premium products in all the other segments in which
it operates (such as beer and mineral water).




                                                    56
A diversified customer base, built on strong and long-standing relationships and a high standard of
service and quality

The Group’s proven industrial know-how has allowed it to establish solid relationships with a large
share of its customers, giving it an important competitive advantage.

The Group’s technical know-how, which is specific to the glass packaging industry, its production
facilities and its flexibility allow it to meet the needs of the premium products market. Moreover, the
Group’s international standing allows it to deliver high-quality products to its key accounts all over the
world.

Indeed, glass packaging markets place a strong importance on responsiveness, quality and the ability to
co-develop products. Management believes that the Group has all three characteristics thanks to its
efficient production processes. These features make for long-lasting relationships with customers, even
when contractual arrangements are not very formally set out.

During the current economic crisis, some of the Group’s competitors chose to adopt a competitive
positioning in terms of pricing. The Group, however, believes that many customers see reliability and
their supplier’s capacity to remain a long-term partner as more important than the possibility to provide
a one-off supply, given the importance of such factors as health and safety, quality, reliability, and
continuity of supply.

Thanks to its strong regional presence, the Group benefit from a balanced customer base. The Group’s
top ten customers accounted for 28% of combined net sales in 2010, with the other 72% divided among
some 10,000 customers.17.

The Group’s customer base for premium products is particularly well-balanced between larger accounts
and other customers, consisting of both major players in the wines and spirits and food industries as well
as with smaller regional and local producers.

Good exposure to new growth markets that offer strong development potential

The Group benefits from the dynamic growth in emerging markets which boosts both its direct product
sales and indirect sales via its customers’ exports to these markets:

     -   For the fiscal year ended December 31, 2010, emerging markets18, in particular Latin America
         and Eastern Europe, accounted for €489 million of the Group’s direct net sales by destination19,
         i.e., 13.8% of total Group net sales (this percentage is even higher when accounting for net sales
         by region indirectly generated in emerging markets);

     -   Indirectly, via exports of the Group’s premium products by its customers to these markets, most
         significantly exports of spirits, sparkling wines and fine wines (such as cognac and champagne
         from France).




17
   Estimate based on active buyers between 2008 and 2010.
18
   The term “emerging markets” refers to all countries in which the Group sells products except for the United
States, Canada, France, the Iberian Peninsula, Italy, Germany, the UK, Ireland, the Benelux countries,
Scandinavia, Austria, and Switzerland.
19
   Net sales by destination is based on countries in which the Group’s products are actually sold and not where
they are made (contrary to the definition of “Net sales” used for the Combined Financial Statements in Chapter 9).


                                                        57
6.2.2   With its stability and potential for growth, glass packaging has a promising future

Glass has a very favourable image thanks to its purity and its capacity to be recycled an infinite number
of times. This is especially true when compared with other packaging materials such as metal, plastic
and cardboard. Glass is a material that the Group classifies as “ecological” and on which it has built
an ambitious sustainable development strategy

Thanks to its unique recyclable properties and its reputation as a pure substance, glass appears to be a
material with strong potential at a time when environmental responsibility is becoming increasingly
valued by consumers. Glass offers a long-lasting alternative to competing materials that can present a
risk of interaction between the container and its contents.

For these reasons, the Group participates in advertising campaigns run by trade associations, such as the
“Glass has Nothing to Hide” campaign run by FEVE (the European Container Glass Federation) to
illustrate the pure properties of glass. Not only does glass comply with packaging recycling
requirements, but it can also be recycled an infinite number of times in a closed loop (100% of the glass
collected can be recycled). Thus, a used bottle becomes a new bottle with the same properties and
advantages, leading to further benefits for the environment such as more energy savings, less
consumption of natural resources and less waste (see Section 6.9). Glass collection loops can therefore
be established that allow a single bottle to be used up to 40 times and then recycled. After use, glass
becomes a packaging waste that can be and is in many countries, re-used as raw material by local
communities. Glass recycling rates, based on national glass consumption, have thus reached more than
67% on average in Europe20, compared to just 31% in the United States21 where the Glass Packaging
Institute’s target is that new bottles are composed of 50% recycled glass by 201322. According to the
Group, these figures leave a considerable margin for improvement.

Sustainable development is at the heart of the Group’s strategy. The Group aims to provide innovative
solutions to the food and beverage industry that incorporate the values of sustainable development, be it
ecological, economic or social, while maximising value for customers and the wellbeing of consumers.

The Group’s business and communication plan is therefore structured around three pillars (glass, the
glass-making process and eco-friendly products) and three values (ecology, showcasing customers’
products, and the wellbeing of consumers). The Group has taken comprehensive measures in order to
limit its industrial emissions and continues to implement them at a robust pace (see Section 6.9).

At the same time, the Group is committed to reducing the impact of the glass-making process on the
environment through its ongoing strict industrial and environmental policy, coupled with ambitious
research and development programmes.

The Group has made considerable efforts, especially in Europe, to reduce the energy consumption of its
furnaces as well as the nitrogen oxide and carbon monoxide emissions from its operations. The fossil
fuel consumption of the Group’s furnaces in France has thus been reduced by some 30% since the
1970s23. In all countries, the use of recycled glass to replace unexploited raw materials has increased
markedly over the last few years. The Group is in the process of implementing performance guidelines
that will allow each production site to evaluate its performance based on key indicators: energy
consumption, share of renewable energies, emissions of nitrogen oxide (NOx), sulphur oxide (SOx) and
particles, water consumption, percentage of waste recycled and percentage of cullet used. These
indicators will help identify best practices and develop operational strategies. Beyond providing these




20
   Source: FEVE estimates based on 2009 data.
21
   Source: Glass Packaging Institute (GPI), based on a study of 2009 data compiled by the EPA.
22
   Source: Glass Packaging Institute (GPI), http://www.gpi.org/recycle-glass/environment/
23
   Source: Group estimates based on furnace usage in France, excluding VOA.


                                                       58
performance indicators, the guidelines will illustrate the Group’s strategy in terms of using renewable
energy to replace fossil fuel-based energy. This strategy is reinforced by various R&D programmes (see
Section 11.1). In order to further increase the amount of recycled glass used in the furnaces, consumer
glass collection schemes must also be developed. The Group already invests in advertising campaigns,
both alone and in partnership with trade associations. Moreover, Verallia is active in sorting projects in
Eastern Europe and the United States aimed at sorting household glass by colour to favour the use of
light-coloured cullet in the furnaces.

The Group remains convinced that reducing negative impacts on the environment goes hand-in-hand
with increasing the value of glass and thus the attractiveness of glass packaging to consumers. It has
therefore created the ECOVA range of eco-friendly products. The production process used for the
products in this range reduces the environmental impact all throughout the lifecycle of each product (see
Section 6.5.1.3).

A strong competitive position in glass thanks to material for premium products

The Group believes that competition from producers of packaging made from other materials is weaker
in the premium products segment. These competitors vary depending on the target market. For example,
the producers of aluminium and tin cans are the Group’s main competitors in the beer and soft drink
markets. Producers of rigid plastic and supple plastic (liner) (notably producers of packaging in
polyethylene terephthalate (PET)) are the main competitors in the water and soft drink markets. Aseptic
carton producers challenge the Group in the juice and milk markets, whereas rivals in the wine market
are “bag-in-box” makers. Producers of other forms of packaging include those for draught beer, coffee
capsules and individual distributors.

Glass packaging has the advantage of being positively perceived by customers and consumers thanks to
a combination of ecological virtues and the facts that it can be easily used to showcase products and that
it contributes to the wellbeing of consumers. Glass often comes out top in opinion polls24 as consumers’
preferred form of packaging: it is perceived as the packaging that best protects the health and wellbeing
of its users, that has a neutral, pure and aesthetic image and that also has environmental benefits because
it is fully and infinitely recyclable. A study carried out by FEVE showed that 84% of Europeans would
like to see more glass packaging, 70% would like to buy more products packaged in glass, 42% would
be prepared to pay more for glass-packaged products and 82% would like to see companies expand their
use of glass packaging25. In the same study, 88% of individuals polled believe that glass protects health
better than plastic.

According to the Group, the risk of substitution in the glass packaging industry is fairly low, especially
in the premium products on which the Group is particularly focused, due to the favourable image that
glass has with consumers.




24
   This was the case in the 2010 opinion poll carried out for the Glass Packaging Institute (GPI) in the United
States and in the large-scale survey conducted in 12 European countries by FEVE in 2009.
25
   In October 2010, FEVE, in conjunction with national glass industry associations, launched the “Nothing"
advertising campaign in 12 European countries (France, Germany, Poland, the UK, Italy, Greece, Austria, the
Czech Republic, Switzerland, Spain, the Netherlands, and Slovakia) to coincide with the unveiling of a new
website, www.nothingisgoodforyou.fr. This website explains why glass is the best and most reliable form of
packaging and offers consumers their own “Nothing” bottle or jar. At the launch of this campaign, Friends of
Glass issued the results of a survey conducted in 19 European countries by TNS.


                                                      59
The Group’s packaging business is less cyclical than that of other industries as it is fuelled by demand
for packaging for everyday products with low price elasticity

The Group’s business is centred on packaging for the food and beverage industries. According to the
Group, demand is therefore less cyclical than in other industries as the price of everyday consumer
products is less impacted by shifts in the economy.

Recently, however, patterns have been varied. The glass packaging industry saw strong demand in 2007
and in the first half of 2008, due mostly to certain customers stockpiling as a result of a fear of shortages
in regional markets. According to the Group, this caused the whole industry to increase production
levels to maximum capacity.

Starting at the end of 2008 and continuing into 2009, the economic crisis led to a drop in demand in
certain markets such as France, Spain and Russia. In these countries, Group sales in 2010 confirmed this
trend. Nonetheless, this trend, which had a fairly limited impact on the Group, did not prevent the Group
from improving its economic performance (see Section 9.2.2), demonstrating the Group’s strong
resilience.

The Group’s direct and indirect presence in emerging markets provides attractive growth opportunities
in economies where consumer habits are evolving towards those of Western economies

The rapid improvement in the standards of living in emerging markets, and the change in consumer
habits that comes with it, have a positive effect on the Group’s business. For example, exports of up-
market products to certain countries (such as Brazil, Russia, India and China) are increasing. Thus, in
2010, Asia became the top importer of cognac in the world (4.42 million cases26). These changes in
consumer habits, especially the improvement in the quality of food and growing consumer attention
paid to sustainable development, are all structural growth factors that have a positive impact on the
Group’s business.

Technological, logistic and capital constraints in the industry underscored by the need for a solid track
record

The glass packaging production business requires a considerable level of up-front investment along with
a command of the necessary technologies and know-how, and involves high fixed costs. As a result,
factories must run at full capacity in order to ensure a satisfactory return on investment.

Each market requires a regional presence in order to meet local characteristics, display necessary
flexibility, produce stringent output volumes, and limit logistics costs as well as the business’ ecological
footprint. A regional presence allows bottling sites to be located near customers and provides the
capacity to efficiently meet customers’ needs.

According to the Group, its size, regional coverage and broad experience therefore gives it a significant
advantage in the industry.




26
  Source: Press release issued by the Bureau National Interprofessionnel du Cognac (the French trade association
for cognac) on January 17, 2011.


                                                       60
6.2.3   The Group’s growth model, based on global coverage and a strong local presence, sets it apart
        from the rest of the sector.

The breadth of the Group’s global operations allows it to answer customers’ needs worldwide, to
benefit from new development opportunities and to reduce risk

The Group is present throughout Western and Eastern Europe, the United States and South America and
therefore benefits from the characteristics and advances in each of these markets as well as from a
structural smoothing effect when one region experiences an economic slowdown.

Moreover, the Group can capitalise on the complementary characteristics of the regions in which it
operates. Thus, the group has a strong industrial base and solid sales positions in mature markets
(Western Europe and the United States), which in general benefit from high and stable levels of glass
packaging consumption. In these markets, growth is especially fuelled by changes in consumer habits or
by the development of niche products.

The Group is also increasing its presence in emerging markets, in particular South America and Eastern
Europe, which have attractive growth potential in the Group’s strategic product segments.

An industrial model which combines the technological capacities of a world leader with a decentralised
and flexible organisation that is capable of answering the needs of local consumers

The Group believes that it successfully combines an international network and its synergies with a
strong local presence that allows it to be close to its customers.

The Group’s sales teams, made up of some 400 dedicated employees, provide a sales presence in 46
countries.

On the operations front, the Group has a large network of glass-making sites in 11 different countries.
The 47 production sites, based in Europe, the United States and South America, report to six
coordinated technical development and innovation centres, including three with research and
development operations (see Section 11). This reporting structure provides a technical organisation that
combines a strong local base, certain overarching skills and a high level of standardisation. The Group
applies its best practises across the whole of its industrial network.

The Group is able to pay particular attention to its customers thanks to its network of production sites
that are close to its customers, its regional bases and its expert knowledge of local markets. The Group
aims to minimise its ecological footprint and logistical costs, offer the level of flexibility demanded by
customers and guarantee the satisfaction and well-being of the final consumer. Moreover, this proximity
allows the Group to profit from on-going innovation via the joint-development of products with its
customers.

The decentralised nature of the Group allows it to have minimal central structures but still benefit from
the positive aspects of a global network. This structure also favours sustainable development projects in
the countries in which the Group is present, bringing together employees, food and beverage companies,
customers, consumers, local authorities recycling players and providers of goods and services, in
particular energy and raw materials (including cullet and recycled household glass).

The Group’s global positioning allows it to optimise its operational synergies: sustainable development,
industrial policy, purchases, branding, key account marketing, R&D and IT systems

The Group’s size, its capacity to compete on a global basis and its knowledge of the local characteristics
of the markets in which it operates, allow it to generate operational and industrial synergies.




                                                    61
Thus the Group is able to participate in sustainable development programmes and adhere to its industrial
and innovation policies. The Group can optimise purchases, benefit from a global brand name, provide
comparable service to all its major accounts and carry out R&D programmes.

A specialised economic model focused on the customer

The Group’s global presence helps it better serve the needs of its major accounts as well as its local
customers. At the same time, the Group’s marketing strategy allows each of its subsidiaries to partner
with their customers in joint-development projects that are adapted to their markets, creating long-
standing partnerships. These projects are implemented with the aim of adapting the Group’s products to
each customer’s individual needs. The Group is therefore actively involved in ventures with its major
accounts, as well as with its smaller customers, to identify projects and services that offer the best value
added for each customer.

In order to identify and then respond to these specific needs, the Group relies on its highly independent
local teams in Europe, the United States and South America.

These positive features are gradually helping the Group transform its relationship with its customers
from a purely product-based approach towards a service- and solutions-based approach. According to
the Group, this approach is aimed at setting it apart from the competition and developing long-standing
relationships.

A wide range of products adapted to each segment

The Group aims to provide its customers with a wide range of products that are adapted to their needs.
In addition to the various shapes and sizes of containers available in each market, the Group uses its
production facilities to offer a wide variety of shades, finishes and decorations that allow customers to
personalise their standard models. The Group’s wide range of products and customisable offerings allow
it to appeal to the widest possible range of key customers.


6.2.4   Sustained and profitable growth; the Group has a consolidated industrial platform and benefits
        from strong growth prospects, especially through its acquisition strategy in attractive growth
        regions

The Group has a proven track record in implementing its growth policy in buoyant markets

Over the past five years, Group net sales have increased by 6.9% despite challenging economic
conditions. The Group showed particular resilience in 2009 and 2010. In 2009, net sales only declined
slightly (down 2.9% compared to 2008) and despite this drop, operating margin and EBITDA were
above their 2008 levels, a feat given that 2008 was a year of record sales. In 2010, Group net sales
returned to pre-crisis levels, with a year-on-year increase of 3.1%.

The Group has launched an acquisition strategy in France and abroad, aimed at both supporting its
multi-national customers and gaining market share in its regional markets by acquiring companies that
already have significant market share. The Group’s growth strategy in high-growth regions is reinforced
by its ability to successfully integrate regional players into its operations.




                                                     62
In mature markets, the Group is a leading player and its solid experience guarantees favourable long-
term prospects

In France, the Group has been in existence since 1918 and has grown primarily through acquisitions.
Today the Group considers itself a co-leader in the glass making market27. The proximity of its French
network to the major still and sparkling wine-producing regions is a major asset. The Group’s wide
range of products and well-established business relationships make it a heavyweight supplier in the
wine-making industry.

The Group opened its first factory in Spain in 1904 under the name Vicasa. In 1987, it reinforced its
presence in the Iberian Peninsula market with the acquisition of Mondego in Portugal. The Group
considers itself to be one of three leading players 28 in this market in which it also benefits from
proximity to wine-making and agricultural regions. This long history makes the Group a benchmark
player in the region for both local producers and larger market participants.

The Group entered the Italian market with its acquisition of Vetri in 1989, making it the second-largest
player in the Italian market29.

The acquisition of a stake in Oberland in 1991 allowed the Group to become the second-largest glass
packaging manufacturer in Germany30.

After this timeline of European expansion, the Group branched out into the United States in 1995, with
the acquisitions of Foster Forbes (Péchiney International’s glass packaging subsidiary) and Ball Glass’
glass packaging operations. These acquisitions enabled the Group to create Ball Foster Glass, which
later became SG Containers. Today, the Group is the second-largest glass packaging manufacturer
(bottles and jars) in the United States and considers itself a leading player in the market for packaging
for still wines31. During the past ten years, the Group has implemented industrial streamlining allowing
it to improve its profitability and radically modify its sales practises by reducing its exposure to
fluctuations in energy and raw material costs.




27
   Source: Group estimates based on data published by IWSR – Vinexpo in March 2010, by Euromonitor in March
2010, by France AgriMer Infos in June 2010, the CIVC (Comité Interprofessionnel du Vin de Champagne) in July
2010, BIB in June 2010, Douanes in September 2010 and data in the Form 10-Q filed by Owens-Illinois with the
United States Securities and Exchange Commission on January 26, 2011.
28
   Source: Group estimates based on data published by the ANFEVI in December 2009, Nielsen in December 2009
and March 2010, the Consejo Regulador del Vino de Jerez in December 2009, the Consejo Regulador del Vino de
Brandy in December 2009 and the Asociación de Cerveceros de España in December 2009.
29
   Source: Group estimates based on data published by IRI Infoscan in August 2010, ISMEA in June 2010, ISTAT
in June 2010, Assovetro in June 2010, in Beverfood’s 2009/2010 report and in Assobira’s 2010 report and data in
the Form 10-Q filed by Owens-Illinois with the United States Securities and Exchange Commission on January
26, 2011.
30
   Source: Group estimates based on data published by BV Glas in September 2010 and by Statistiches Bundesamt
Deutschland in August 2010.
31
   Source: Group estimates based on data published by Euromonitor in March 2009, the Craft Brewing Statistics of
February 2009, the US Glass Industry report issued by Minimax in January 2010, in the Impact Databank Table 6-
17, in the National Agricultural Statistics Service Table 2-1, in the Gomberg Report No. 12 dated 5 March 2010
and data in the Form 10-Q filed by Owens-Illinois with the United States Securities and Exchange Commission on
January 26, 2011.


                                                      63
In rapidly growing emerging markets, the Group has adopted a policy of acquiring the existing sales
presence of other market participants

        South America: the Group has an historical presence in Brazil and has expanded into Argentina
        and Chile through acquisitions

The Group is long-established in Brazil and has an industrial network covering the centre and the south
of the country. Group net sales in Brazil for the fiscal years ended December 31, 2008, December 31,
2009 and December 31, 2010 remained relatively stable despite the economic crisis and profitability in
its entire bottle and jar segments remained unchanged thanks to its industrial efficiency. In Brazil, the
Group enjoys close and long-standing relationships with all of its customers, whether large or small.

The Group has also established a leading position in the wine segment in Argentina, to benefit from the
growth potential of Argentinian wines (exports of which were up 17% during 201032) and continue to
establish partnerships with its international customers that also have a presence in this wine-making
region. The Group believes that this market has consolidation potential and provides opportunities for
expanding into new segments (such as jars). The Group is in the process of investing in a third large-
capacity furnace in the country.

More recently, the Group has expanded into the still wine segment in Chile, through a greenfield
project. The Group believes that growth opportunities for new entrants in this market are significant,
especially if it rolls out its product range (shapes, colours, types) in the market.

        Promising position in Eastern Europe

Between 2005 and 2008, the Group increased its presence in the Eastern European food and beverage
and wine-making region based around the Black Sea. This expansion was achieved through the
acquisitions of Zorya in Ukraine and of KMS and Kamyshin in Russia.

The Group’s net sales in this region were €116 million for the fiscal year ended December 31, 2010
despite the fact that the Group only entered the region in 2005.

In Russia, the Group has focused its efforts on the South of the country and in the wine bottle and food
jar segments where it believes it has a leading position. This region should see strong growth in coming
years, boosted by its proximity to the Black Sea region where tourism is developing rapidly and will
continue to develop with the hosting of the Winter Olympics in 2014. The Group has modern
production facilities and a strong market position in this region and there are possibilities to develop its
up-market and extra-white glass ranges. There are numerous other development opportunities in this
market, that could be realised through the commissioning of new capacity.

In Ukraine, the Group expanded in 2005 by acquiring a majority stake in Zorya, a company that has a
strong position in the bottle, spirits and food jars segments. Its production facilities are modern and
conform to Western standards. Zorya Ukraine is also “interoperable” with the Group’s German
subsidiary. Its location near the Polish border and the competitive cost base in Ukraine provides the
company with strong export potential (to places such as Poland, the Baltic States and Belarus). This
large farming country offers development potential for the Group, in particular in the food jar market.
Development opportunities also abound in the wine-making region in the Southeast of the country.




32
  Source: Extract from the Argentina Wine and Grape Juice Export report published by Caucasia (the growth in
exports mentioned above is based on sales volumes (in dollars) of bottled wine between January 2010 and
December 2010).


                                                     64
In prospective markets, the Group has preselected the regions exhibiting the strongest growth, as well
as their significant local players and most profitable segments. This background research will allow the
Group to easily expand into such markets when the opportunity arises.

The Group’s new acquisition targets are local players in growth regions. These players are focused on
the most profitable glass packaging segments and on developing new, high-volume products to benefit
from growing consumption in these regions. Expansion in these regions could also be achieved through
the creation of new capacity.

In line with this strategy, the Group is interested in the New Winemaking World markets, such as South
America and South Africa.

The Group is also interested in the Mediterranean basin due to its numerous demographic, economic and
cost advantages. As of the registration date of this Document de Base, the Group was taking part in the
privatisation of two glass making facilities in Algeria (see Section 5.2.2.1).

In Asia, the Group is keeping a close eye on developments in the rapidly evolving Indian and Chinese
markets. In July 2009, the Group acquired the glass-making equipment business of Accuramech in
India, with the aim of developing its spirits bottle market in this country (see Section 6.5.1.4). In China,
the Group has formed a partnership with a Chinese company to supply moulds for all of its subsidiaries.
This partnership provides the Group with an opportunity to observe and learn more about the Chinese
market.

6.2.5   The Group’s operating excellence programme is organised according to four key principles

An excellent operational performance reinforces the Group’s position as leader

The Group’s production facilities are flexible and efficient and are supported by its technical and
technological know-how. These facilities are composed of 47 glass-making sites in Western and Eastern
Europe, the United States and South America and are capable of producing some 25 billion bottles and
jars each year.

The Group’s international presence allows it to adjust levels of production across factories, and even
between countries, in order to optimise the use of its industrial capacity. The Group can also exploit
other significant synergies, especially in terms of purchasing goods, services and assets
(e.g. international tenders, consolidation, standardisation, purchasing in low cost countries) as well as IT
systems (global roll out of SAP software).

For each of its production sites, the Group invests in high-quality, cutting edge technology. Continuous
optimisation measures help improve industrial efficiency in terms of investments and production costs.
Strategic programmes aimed at improving the Group’s industrial and environmental performance and
reducing recurrent investment costs have been put in place to boost these optimisation efforts.

Over the past three years, the Group has set up an optimisation programme centered around four aspects
of its business:
- production (Enterprise Excellence);
- investments;
- purchases;
- innovation.

Enterprise Excellence

The Group has adapted its production facilities to better meet customers’ needs, especially by
concentrating on its ability to competitively produce small or medium-sized ranges. This has led to
gains in productivity, efficiency and quality. The E2 programme (Enterprise Excellence), aimed at


                                                     65
constantly improving the Group’s industrial and environmental performance, has played an important
role in these gains, by promoting several areas for improvement (team, availability, flexibility, security,
quality, environment and innovation). For each category, a specific methodology has been provided to
all subsidiaries worldwide, best practises are regularly shared in each field, and feedback is routinely
sought. Numerous key indicators are in place, for example:

    •   the frequency of production changes: up 11% in 2010 (compared to 2009), this indicator reflects
        the flexibility and quality of service of the group’s production facilities;
    •   the number of accidents in the workplace leading to sick leave (down 14% between 2009 and
        2010): this indicator follows the “security” category and shows the progress made in 2010 and
        the Group’s strong commitment in this area;
    •   the percentage of cullet used in recycled glass (up 2.6 basis points between 2009 and 2010): a
        key indicator in the “environment” category. As this figure increases, the consumption of fossil
        fuels and the level of CO2 emissions drop, leading to reduced environmental impact and a lower
        cost of sales.

Investment efficiency

The Group has its own technological expertise and industrial know-how. An example of this is the
design of its furnaces, which allows the Group to control its production facilities in an energy-efficient
and environmentally-friendly way. The Group also designs, produces and sells forming machines,
placing its industrial know-how in direct competition with the market by acquiring a part of its
equipment from third parties while maintaining a non-core business (see Section 6.5.1.4).

In terms of industrial investments, the Group has launched a strategy based on optimising the design of
its equipment and standardising its uses across production facilities, which provides economies of scale
and offers high interoperability. The Group can thus optimise its production capacities by shifting
production from one site, furnace, or machine to another, thereby improving the Group’s ability to
respond to changing market conditions. This strategy also helps to spread standardising best practises
throughout the Group, while always keeping in mind their impact on the environment.

This ongoing investment efficiency programme should allow the Group to further streamline production
costs over the lifetime of its production facilities. A detailed analysis of investments, based on the
classification of industrial assets, has highlighted improvement drivers for future investments. From
here, the Group aims to, decrease initial investment costs as well as the operating costs of its industrial
assets, while respecting the Group’s high standards of quality and its environmental and security
policies.

Optimising purchasing costs

The purchasing program is aimed at optimising the Group’s costs related to the purchase of goods,
services and assets. This program relies on technical teams and purchasing teams working closely
together when placing orders. Ten global work groups, organised by purchase category, have been
established in order to implement all possible cost reductions (such as globalisation, purchases in
countries where prices are the lowest such as India or China, standardisation, optimisation and
suppliers’ quality control).

In line with this strategy, the Group acquired the company Accuramech in Pune, India, which
specialises in the purchasing of metal spare parts. As the Group continues to standardise and pool its
spare parts, it will increasingly rely on this entity for spare parts for its forming machines. The Group’s
long-term vision is for this company to produce and build complete sub-units. The Group has also
signed an agreement with a Chinese company to supply moulds for all its subsidiaries.




                                                    66
Innovation

The Group considers innovation in all its forms (materials, processes, products, services) as a key
component of its strategy and its responsiveness to customers’ requests.

For this reason, the Group has implemented an innovation programme, based on three values:
    •    sustainable development,
    •    value/differentiation,
    •    quality/customer satisfaction.

This programme relies on:

    •   key skills in glass melting, glass chemistry, quality control, the decoration and treatment of
        products, modelling (processes/products);
    •   its own R&D teams in specialised centres in France, Germany and the United States that are
        part of the Group’s technical and development centres;
    •   research and development in collaboration with Saint-Gobain (see Section 22.1.1.3);
    •   partnerships with universities and research institutes in the three above-mentioned countries;
    •   two seminars a year: research and development, innovation/marketing;
    •   project management based on the Group’s Stage Gate development process;
    •   a steering committee at the Group’s executive committee level.

The Group’s current flagship R&D projects are described in Section 11.

6.2.6   A solid operating performance that has consistently improved over 2008-2010 and which offers
        good prospects even in spite of the financial crisis

The Group has managed to improve its operating margins despite a challenging economic climate

The period between 2008 and 2010 was extremely difficult for the glass packaging industry. Verallia’s
total net sales progressed moderately (annual average growth rate of 0.2%) due to a drop in volume.
Nevertheless, the Group managed to maintain its operating margin at a high level, improve margins and
EBITDA and increase its cash flow.

Improvements in productivity and flexibility thanks to the constant modernisation of production
facilities and the roll out of more efficient production techniques for the Group as a whole

The Group strives permanently to enhance productivity by keeping up to date with modern technology
and improving the flexibility of its production facilities. The know-how of each of its glass-making sites
is shared at the Group level and best practises are rolled out globally.

An ability to overcome the impact of the financial crisis by optimising production capacity

In line with its E2 programme, aimed at improving the Group’s industrial and environmental
performance, Verallia has implemented a specific methodology to ensure optimal production with
controlled costs.

Best practices shared on a Group-wide basis have helped improve standards in the seven areas set out in
the E2 programme, while respecting the Group’s high standards of quality and its environmental and
security policies.

In a challenging economic climate, the Group showed impressive resilience in 2009 and 2010 despite
the fact that 2010 operations were affected by external factors other than the financial crisis, such as the
drought accompanied by violent fires in Russia and a tense pre-election period in Ukraine.



                                                     67
The negative impact of weaker demand in 2009 and 2010 was mitigated by the Group’s ability to adapt
its production by planning capacity shutdowns (timed to correspond with planned maintenance
whenever possible). This practice allowed the Group to control inventories while maintaining high cash
flow levels. In 2009 and 2010, the Group made, or started to make, structural adjustments to its
production capacity where necessary, notably in France, Spain, Ukraine and the United States. Measures
to reduce costs, optimise and slightly increase existing capacity (densification) were taken at the same
time, allowing the Group to make these adjustments with barely any impact on profitability.

Cost pass-through clauses and energy surcharge clauses aimed at protecting the Group and its profits
from volatile production costs

In the United States, the Group reported net sales of €1,162 million in the fiscal year ended December
31, 2010, of which €990 million with its 29 biggest customers, i.e. 85%. The Group estimates that all of
the net sales generated with these customers were covered by special energy surcharge clauses which
protect against changes in energy costs. Moreover, the Group generated net sales of €1,038 million with
its 31 biggest customers, i.e. 89% of its U.S. sales, of which all were covered, according to the Group,
by cost pass-through clauses which protect against inflation in production costs. These clauses allowed
the Group to markedly improve the profitability of its U.S. business, progressively bringing it up to the
performance levels of its European operations.

Passing on increases in production costs, such as energy and raw material costs, in a period when these
costs were highly volatile, allowed the Group to improve profitability, to cover its investments and
ensure growth.

The use of these clauses has also been extended to all contracts with a term of more than one year in
South America and Europe (which are less common than in the United States). In Europe, the inclusion
of energy surcharge clauses in annual contracts (which are more standard in this region) is spreading,
especially in France and Italy.

6.2.7      The Group has solid and regular cash flow capabilities

High cash flow generation

The Group’s operations generate regular, high cash flow which allows it to self-finance acquisitions and
growth. This ability to generate cash flow should also allow the Group to cover the interest on its debt.
Rating agency(ies) S&P (and Moody’s) has (have) confirmed its (their) intention, subject to the
completion of Restructuring Transactions, to award Verallia an investment grade rating at the
Admission Date. The financial crisis scarcely affected the Group’s cash flow generation because of the
flexibility of the Group’s production facilities. Thus, the Group generated cash flow of €1,505 million
between 2008 and 2010 (see Section 10). Indeed, 2009 and 2010 were record years for the Group in
terms of cash flow generation, despite a challenging economic climate, owing to improvements in
performance and profit.
                                                                 33
The Group’s EBITDA margin before capital expenditure                  increased from 10.3% of net sales in 2008 to
11.4% of net sales in 2010.

Management believes that the Group’s good short- and long-term cash flow prospects are due to its
marketing strength, the flexibility of its production facilities as well as strict control of capital
expenditure and capital requirements.




33
     These investments correspond to capital expenditure.


                                                            68
A healthy financial position which provides strategic flexibility

The Group’s corporate culture has always been focused on cost control, productivity gains and
optimising cash flow in order to keep improving the liquidity generated by its business. Initiatives aimed
at optimising the Group’s investments include improving the industrial efficiency of its furnaces and
lengthening their service life, as well as increasing their production via, for example, the densification of
production lines. The Group has been rated investment grade by rating agency (ies) S&P (and
Moody’s), subject to the completion of Restructuring Transactions, based on its net debt at the date on
which its shares are listed on the NYSE Euronext regulated exchange in Paris (see Section 10.4).

The Group intends to maintain this policy and enhance it in order to finance both organic growth and
acquisitions.

The Group’s strong presence in developed markets provides stability and good visibility on its cash
flow. Moreover, the Group’s industrial investment strategy is clearly mapped out over the long term.

6.2.8   The Group has an experienced management team that strives to share its values with its
        employees.

The Group’s management team is composed of qualified individuals with operational experience in
different product and geographic segments.

The Group’s management team is composed of qualified individuals with varied operational experience
in glass packaging and has successfully contributed to the Group’s performance in the past three years.
This team has the necessary qualities and capabilities to manage a multinational group and is highly
experienced in terms of mergers and acquisitions, as can be seen in recent years with acquisitions and
disposals, for instance in Russia, Ukraine, Poland and Chile.

The management team relies on experienced senior managers that are entrusted with major
responsibilities within the Group’s largely decentralised management structure. Management also
depends on the Group’s strong corporate culture that has helped lead Verallia to its leadership position
in the global market place.

A local network of experienced managers – strong values

To better meet local and international customers’ needs, the Group has, and intends to continue to, put
in place a managerial and sales structure that combines strength and proximity. In each of the Group’s
segments, a global contact person coordinates commercial partnerships and negotiations with large
multinationals, while local sales, marketing and technical representatives contribute their local know-
how to respond to customers’ requests, notably in terms of products, services and joint-development
projects.

At the same time, the Group has established local teams in each country that are well established in their
markets and can offer a wide range of services to local customers which even include a mobile bottling
service for the wine industry. In 2010, nearly 400 people worked in the Group’s sales teams.

Moreover, the Group strives to share its strong values with its employees: professional commitment, the
respect of others, integrity, loyalty and solidarity.

Interests in line with those of shareholders

The variable part of management’s compensation is based on both quantitative and qualitative annual
targets. In the event of an initial public offering, it is planned that a long-term motivation programme
will be set up for Verallia’s management team in order to ensure that Verallia’s management and
Verallia’s shareholders have aligned interest in the Group’s financial performance.


                                                     69
6.3   Presentation of the market and competitive position

The following section presents a general overview of the glass packaging market and the Group’s main
competitors. A more detailed presentation of the Group’s businesses by market can be found in Section
6.5. Unless otherwise indicated, information in this Document de Base concerning market share and
size, segments by product, as well as the Group and its competitors’ positions in these markets and
segments are Group estimates and are provided for informational purposes (see the introductory note to
this Document de Base).

A market with players of varying sizes and structures

The Group is one of only two global players in the glass packaging market. It is the second-largest glass
packaging player in the world in terms of net sales and volume, behind American company Owens-
Illinois. Other international competitors with more limited operations include Ardagh in Northern
Europe and Vitro in Central America. The Group’s markets are, for the most part, local ones, mainly
due to transport costs in this business, and the Group therefore faces competition from numerous local
glass packaging producers. Moreover, the Group is sometimes confronted with competition from
foreign imports, generally when these importers’ own markets face overcapacity or when logistics costs
or changes in the exchange rate allow.

Due to the local nature of the markets, companies in this sector install their production sites near food
and beverage production and packaging sites (in wine-making regions, or near large brewers for
example). This historical trend still stands.

In the Western European glass packaging market, the Group’s main competitors are Owens-Illinois in
France, Italy and Germany; Saverglass in France; Vidrala, Barbosa & Almeida and Santos Barosa in
Spain and Portugal; Ardagh, Wiegand, Ernstthal, Noelle von Campe and Agenda Glas (greenfield) in
Germany; Vetropack in Germany and Italy; and Zignago Vetro in Italy.

In terms of other European markets, the Group’s other glass packaging competitors include RusCam
Kuban (Sisecam group), Ugros Produckt, Aktis, Iristonsteklo, RusSteklo as well as Rasko in Russia;
and Volnogorsk Youla and Vetropack Hostomel in Ukraine.

The Group’s main competitors in the United States are Owens-Illinois, Anchor Glass and Vitro (imports
from Mexico).

In South America, the Group’s main competitors are Owens-Illinois (which acquired CIV in 2010) and
Vidrio Porto in Brazil; Cattorini Hermanos and Owens-Illinois (which acquired Cristallerios Rosario in
2010) in Argentina; and Cristal Chile and Cristal Toro in Chile. Moreover, the Group also competes
with small local glass packaging producers (see Section 4.1.2).

The Group can compete with these local players (whose number vary depending on the degree of
consolidation in each market) thanks to its manufacturing strength, decentralised structure, proximity to
its markets and wide range of unique products, while also offering the services of an international group
to its large global customers.

The Group is constantly adapting to changes in its markets

The balance between glass packaging supply and demand largely depends on changes in production
capacity in each market. The companies present in the sector therefore adapt to changes in this balance
by adjusting their prices and/or capacity and production facilities in each market. In some cases,
changes to the balance between supply and demand can lead to imports and exports to and from other
markets. This balance can be affected by time lags linked to the opening of new production capacity,



                                                   70
which is generally between 15 and 18 months, or inversely by temporary capacity shutdowns for partial
repairs (a few days or weeks) or full-scale maintenance (a few weeks or months).

In mature markets, such as Western Europe and the United States where demand growth rates are
moderate, overcapacity has been known to decrease profitability for the players in the sector,
particularly when the resulting heightened competition leads to price cuts. In 2009 and 2010, the Group
has therefore been carrying out industrial restructuring, particularly in the United States, Spain and
Ukraine in 2009, and in France in 2011, which has reabsorbed the Group’s overcapacity in these
markets and/or made production facilities more profitable, thus maintaining competitiveness. These
restructuring measures have in most cases been accompanied by measures to reduce fixed costs and/or
to slightly increase production capacity at existing sites without adjusting fixed costs, in order to
increase operational efficiency.

Overall market trends

The Group’s markets are influenced by general factors common to the whole sector. The main ones,
according to the Group, are:

•   Population growth and an increase in wealth. This in turn increases the number of potential
    consumers and/or consumption volumes of products for which the Group provides glass packaging
    (in households and/or in cafes, hotels and restaurants);

•   Changes in marketing trends and changes in consumer preferences. This can lead to changes in the
    sales policies and strategies of the sector’s customers in terms of the type of packaging they use for
    their products;

•   In emerging markets presenting strong growth in consumption of glass packaging, this is based
    primarily on commodity or semi-commodity products. Conversely, consumption in mature markets
    is favoured by high-end products;

•   The increasing importance of taking into account collective and individual choices on matters of
    sustainable development;

•   Changes in consumer lifestyle, with people becoming more environmentally aware ,leading them to
    increase or decrease their consumption of certain products, thus indirectly shifting the balance
    between supply and demand for glass packaging;

•   Fluctuations in production and sales costs for glass packaging and in particular the cost of raw
    materials, energy and transport;

•   Changes in technology and regulatory constraints, making glass packaging more or less attractive;

•   Consolidation among the sector’s customers or within the sector itself; and

•   The location of packaging facilities near the areas in which the products are consumed, including
    transporting certain products in bulk.

Competition which extends to producers of packaging in other materials

The Group competes with producers of different types of packaging in different markets. For example,
the producers of aluminium and tin cans are the Group’s main competitors in the beer and soft drink
markets. Rigid plastic and supple plastic (liner) producers (notably producers of packaging in
polyethylene terephthalate (PET)) are the main competitors in the water and soft drink markets. Aseptic
carton producers challenge the Group in the juice and milk markets, whereas the Group’s rivals in the



                                                   71
wine market are “bag-in-box” makers. Producers of other forms of packaging include those for draught
beer, coffee capsules and individual distributors. For the moment, the substitution of glass packaging
with packaging made from other materials is fairly limited. Glass packaging has the advantage of being
positively perceived by customers and consumers thanks to a combination of ecological virtues, the fact
that it can be easily used to showcase products and that it contributes to the well-being of consumers.
Glass often comes out top in opinion polls34 as consumers’ preferred form of packaging: it is perceived
as the packaging that best protects the health and well-being of its users, that has a neutral, pure and
aesthetic image and that also has environmental benefits (fully and infinitely recyclable). A study
carried out by FEVE showed that 84% of Europeans polled would like to see more glass packaging and
that 42% would be prepared to pay more for glass-packaged products35.

Market segment trends

              Still and sparkling wines

The still and sparkling wine market is a key market for the Group. It is influenced by consumer trends in
“traditional” countries (such as France, Spain and Italy) as well as those of “new consumers” (like the
United States, the UK and emerging markets, notably the BRIC countries). These trends have an
influence on exports from historical producing countries such as France, Spain and Italy as well as from
the New Winemaking World (in particular Argentina, Chile, Australia and South Africa). In terms of
structure, the market for still and sparkling wines in the New Winemaking World is growing whereas
wine consumption is stagnating or even decreasing in the more “traditional” countries. The still and
sparkling wine market in France has been hit by these trends, which in turn impacted demand for glass
packaging in this country.

The luxury wine and champagne markets (in particular in traditional wine producing countries) suffered
during the recent financial crisis, especially in France and Spain. In the market for sparkling wine and
its glass packaging, the Group has seen a recovery in 2010 (except for in champagne for France). In the
market for still wine and its packaging, the Group believes that wine importing countries were the worst
hit, while wines from the New Winemaking World resisted the crisis well and have already seen their
export figures start to rise again (for example, Argentinian wine exports were up 6% year-over-year in
200936). In terms of exports, Spain and in particular Italy regained market share in 2010 (which in turn
increased the demand for glass packaging in these countries). France, however, was penalised by the
structural collapse of its domestic market and a continuing lack of competitiveness (marketing/prices) in
terms of exports.

Glass remains the benchmark material in the still wine market and the Group believes that it will remain
the preferred container in sparkling wines thanks to product image, wine-making processes,
requirements in terms of withstanding pressure and its exceptional organoleptic qualities. The wine




34
   For example, this was the case in the 2010 opinion poll carried out for the Glass Packaging Institute (GPI) in the
United States, and in the large-scale survey conducted in 12 European countries by FEVE in 2009.
35
   In October 2010, FEVE, in conjunction with national glass industry associations, launched the “Nothing"
advertising campaign in 12 European countries (France, Germany, Poland, the UK, Italy, Greece, Austria, the
Czech Republic, Switzerland, Spain, the Netherlands, and Slovakia) to coincide with the unveiling of a new
website, www.nothingisgoodforyou.fr. This website explains why glass is the best and most reliable form of
packaging and offers consumers their own “Nothing” bottle or jar. At the launch of this campaign, Friends of
Glass issued the results of a survey conducted in 19 European countries by TNS which showed that 84% of
Europeans would like to see more glass packaging, 70% would like to buy more products packaged in glass to
promote its use as a packaging material, 42% claimed that they would be prepared to pay more for glass-packaged
products and 82% would like to see companies expand their use of glass packaging.
36
   Source: Official figure released by the Instituto Nacional de Vitivinicultura in November 2010.


                                                         72
market is not very consolidated37 (except for in the United States) and wine growing remains a dynamic
market made up of numerous small, independent players.

In the still and sparkling wine segments, the Group believes that the risk of substitution is limited due to
consumers’ preference for glass and the image of quality associated with this packaging, the existence
of glass bottling infrastructure and the capacity to contain the pressure of sparkling wines. The Group
nonetheless competes with producers of other types of packaging, such as the Bag-in-box in the down-
market still wines segment brick pack containers, especially in places such as Argentina, Spain, Portugal
and Scandinavia; and, to a lesser extent, bottles in Polyethylene Terephthalate (PET).

               Spirits

Worldwide spirits production is a highly consolidated market, with growth coming essentially from the
BRIC countries. Cognac and brandies have rediscovered valuable export niches (in neat form and in
cocktails). This market is characterised by an upscale packaging, similar to that seen in the perfume
market (see Section 6.5.1.3), which allows the Group to profit from the flexibility of its production
facilities and its ability to jointly develop products with customers. In terms of customers, the sector is
highly consolidated38, with global spirits brand names owned by a limited number of companies. In each
region, numerous local spirit brands remain independent and active in the market. Some of the Group’s
designs have experienced great commercial success.

On a global scale, the market for spirits, which are not essential products, suffered in 2008 and 2009
from the effects of the financial crisis (notably in the BRIC countries and in premium products). In
countries such as Russia, sales were also affected by increases in excise duty. However, the Group
believes that this segment has shown its capacity to rebound as, despite this period of high volatility, a
return to growth was seen in the last quarter of 2010. The segment has numerous sources of growth
including clear spirits, especially vodkas.

The risk of substitution appears limited in the spirits segment, notably due to producers’ desire to
maintain the image and recognition of their brands with glass bottles that are often personalised. Certain
non-standard sized containers (such as those holding more than one litre, pocket flasks and miniatures)
are packaged in Polyethylene Terephthalate (PET), notably in the United States, but in limited quantities
and in down-market segments.

           Foodstuffs

The market for food jars is composed of numerous niche markets which vary depending on the eating
habits of each country. These niche markets include traditional jams and yoghurts, baby food, certain
types of sauces and jarred foods and soluble products. In general, the use of glass jars is fairly stable as
compared to other materials and growth in this segment mirrors growth in consumption. The technical
arguments for using glass, such as sterilisation and the possibility of cooking contents at high
temperatures coupled with possibilities in terms of innovation, set these products clearly apart on
supermarket shelves.

In the food packaging segment, substitution is mainly in jars and bottles for condiments, sauces and
dairy products where consumers are more indifferent to the use of Polyethylene Terephthalate (PET).
However, the competitiveness of glass for small containers, the unsuitability of plastic for certain
techniques in the food industry, such as sterilisation and cooking at high temperatures, and the
development of niche markets where the use of glass is associated with a product’s image of quality or




37
     Source: Pernod Ricard Press Kit February 2011, IWRS 2010 and Company’s estimates
38
     Source: Pernod Ricard Press Kit February 2011, IWRS 2010 and Company’s estimates


                                                      73
innovation (such as packaging for spreads), allow glass packaging to maintain, and even increase, its
market share in this segment. Conversely, in featured or premium segments, glass is often used as a
substitute for other types of packaging. In 2009 and 2010, changes in consumer habits due to the
difficult economic context had varying impacts on the food packaging segment. For example, more
people ate meals at home, which increased purchases of foodstuffs in jars. However, this trend was
offset by a tendency to purchase more plastic containers which have a reputation for being cheaper.
Consolidation of the customer base in this segment is moderate39.

On the whole, due to the wide range of glass packaging used by the food industry, the financial crisis
had a fairly limited impact on the Group’s business in this segment. However, this overall stability hides
contrasting situations in particular niches. For example, in France, glass continued to lose market share
for the packaging of baby foods, but gained market share in jams and spreads. In Russia, droughts and
numerous fires in 2010 greatly reduced the size of harvests during the high season for food production
and the number of food jars needed to package these crops therefore also dropped.

                Beer

The beer market is highly consolidated40. Beer consumption has dropped in developed markets but has
continued to increase in emerging markets, especially in the BRIC countries. However, glass is the
packaging favoured by brewers looking to take their products up-market, especially in developed
markets, to improve the image of a market in which one brand had little to differentiate itself from
another, until now.

However, sales and marketing policies, along with cost restraints related to the economic climate or
changes in strategy, may lead some of the Group’s customers to substitute glass packaging, which has a
premium positioning, with more commodity-like packaging such as tin cans (see Section 4.1). In the
beer packaging segment, glass remains the favoured packaging of brewers in the premium beer growth
segment that wish to make their products stand out from the crowd with an up-market image underlining
the distinctive taste of their beers. This is especially true for specialty, or craft, brewers. Other
competing forms of beer packaging in this segment include the mini-barrel and draught beer. Plastic
packaging has never really managed to break into this market and its use remains insignificant except
for specific occasions (such as large group events in the United States) and for large volumes, notably in
the Russian and Ukrainian market. Finally, aluminium bottles, which are more expensive to produce, are
limited to the super-premium segment.

In general, consumption of beer, which is a relatively basic and mass consumer product, remained fairly
stable during 2009 and 2010.

                Other

In other markets, mainly that for non-alcoholic beverages, packaging made from other materials has
already been largely substituted for glass packaging. There remains a small risk of substitution in the
fruit juice segment, but glass packaging is still well placed for small containers and up-market products.
High value niches are starting to be seen in markets such as bottled water, energy drinks, olive oils and
even soft drinks.




39
     Source: Euromonitor report (March 2011)
40
     Source: Bank of America – Merrill Lynch – Research note 2010


                                                       74
6.4       Strategy: targeted growth combining operational excellence with profitability, both sources of
          high and recurring cash flow

The Group’s strategy is based on three key assets embodied by the Verallia brand that was launched in
April 2010:

      • One vision: a leader in the development of innovative glass packaging solutions for the food
        and beverage industries;
    •   An operating model that has proven itself: Strength and Proximity;
    •   Constant values: professional commitment, respect for others, integrity, as well as respect for
        the environment and the health and safety of employees;
Drawing on these assets, the Group intends to continue to grow and reinforce its position as a leading
player in the development of innovative glass packaging solutions for the food and beverage industries.

The Group aims to position itself as a leading player in each targeted segment (still and sparkling wines,
spirits, foodstuffs) and in each segment where it is already present. The Group thus intends to maintain
or strengthen its position as leader or joint leader in all the regions in which it is present and to gain the
same position in the regions in which it plans to install production facilities.

The Group’s targeted and profitable growth strategy is based on the its fundamentals and is illustrated
by:
    •  its market position with respect to products that are packaged in high-value added containers
       which offer differentiation and growth prospects,
    •  growth in the most attractive and profitable markets, such as the New Winemaking World, the
       Mediterranean, Black Sea and Aral Sea regions,
    •  constant efforts to optimise volumes, prices, product/customer mix and costs in order to
       maximise the Group’s long-term profit and cash flow generation.

By implementing this strategic vision, the Group aims to:
    - boost growth in targeted markets and regions,
    - achieve operational excellence;
    - ensure the profitability of its operations, allowing it to generate high and recurring cash flow.


The Group aims to continue to increase profits, by targeting attractive regions

               o   The Group believes that it is a world leader in wines, spirits and foodstuffs; it intends to
                   maintain this position and become a leader or joint leader in each country in which it is
                   present

According to the Group, its business strategy has made it a leader in glass packaging for the wine, spirits
and foodstuffs markets in Western and Eastern Europe, the United States and South America (Brazil,
Argentina and Chile). Moreover, this strategy has allowed it to reinforce its presence in the jars market
in almost all the countries in which it is present. The Group also pays close attention to opportunities in
all glass packaging segments and positions itself in the most profitable niche markets (such as the up-
market brands of specialty beer, mineral water, olive oil and dry mixes).




                                                       75
In general, the Group favours high value-added market segments with low substitution risks, in which
the glass packaging that it develops, produces and decorates has value and differentiation potential
compared to competition from both glass and other material packaging producers. With this in mind, by
optimising its industrial (bottles, jars and decoration) and sales resources, the Group will continue to
develop its “Selective/Line” business unit, which encompasses the creation, production, decoration and
sale of premium bottles, notably in the luxury wine and spirits markets. This initiative relies on its
production facilities that have strong know-how in the premium bottles segment, its decoration facilities
and all of the Group’s expertise and services (see Section 6.5.1.3).

            o   The Group intends to continue to target development in attractive regions

In the coming years, Verallia aims to continue to implement its profitable development strategy in high
growth regions, through the acquisition of well-positioned local producers in areas experiencing strong
growth, the building of new production facilities and the establishment of new partnerships. As of the
registration date of this Document de Base, the Group had already started to implement this strategy,
with priority given to:

    • the New Winemaking World, including North and South America;

    • the agricultural and wine-making region around the Black Sea;

    • the southern part of the Mediterranean basin where both domestic and export markets are
      booming, logistics are good and prices competitive.

In line with this strategy, the Group has developed a strong industrial and sales presence in Argentina
(where, as of the registration date of this Document de Base, a third furnace was being built) and also in
a greenfield operation launched in 2006 in Chile where, in just two and a half years, the group has its
new furnace running at full capacity.

The Group has also established itself in Eastern Europe between 2005 and 2008 via the acquisitions of
Zorya in Ukraine as well as KMS and then Kamyshin in Russia. These three subsidiaries are well-
positioned in local growth markets (spirits, wine and jars) and have solid export potential to
neighbouring countries.

The Group’s participation in the privatisation of two glass-making companies in Algeria is also part of
this strategy (see Section 5.2.2).

Finally, the Group has indirectly developed its sales presence in emerging Asian markets, notably
China, via the export of premium products (mainly fine wines, spirits and luxury sparkling wines) by its
customers to these regions.

In the medium term, the Group aims to develop its presence in the following strategic markets:

    •   Central America, in order to reinforce links between its strong positions in North and South
        America;

    •   High-growth emerging markets in Asia-Pacific: in July 2009 the Group acquired glass-making
        equipment supplier Accuramech in India, its first facility in this country which will be used as a
        starting point for potential expansion and development (see Section 6.5.1.4). The Group has
        also formed a partnership with a Chinese company to supply moulds for all of its subsidiaries
        and has started to prospect the Chinese market for expansion options in the next few years,
        similar to the Indian strategy, i.e. establishing a bridgehead in this country with a view towards
        future development.




                                                    76
          However, the Group will only open or acquire facilities in these countries if the levels of
          consumption of premium products in their local markets justify producing packaging for these
          products locally.

The Group intends to continue to develop its operational excellence

Generally, the Group’s strategy aimed at positioning itself in luxury products and optimising its
industrial performance means it favours the quality of its products and services (without affecting
profitability) over continuously increasing capacity and volumes. The Group intends to continue in this
manner in order to optimise its operations, which it believes can enable it to improve its pricing policy,
mainly by means of its capacity for innovation.

The quest for operational excellence is focused on four overarching projects related to production,
purchasing, investment and innovation (see Section 6.2.5). The Group intends to continue to develop its
industrial potential: that is, its technological know-how as well as its ability to innovate and organise
production.

Verallia’s operational excellence programme should allow the Group to continue to enhance the
flexibility and productivity of its production facilities, notably by improving the organisation of its
production and programming techniques. Improving the Group’s ability to produce limited editions and
make rapid changes to production lines (production facility flexibility) will allow it to greatly enhance
the quality of service provided and inventory management, and at the same time increase profitability,
thus making it better equipped to meet customers’ requests for more differentiation and increased
responsiveness.

Moreover, in line with its overarching investment efficiency programme, the Group aims to increase
synergies between different entities within the Group by standardising, modularising and optimising its
equipment with a view to decrease individual investment costs (on comparable specifications) as well as
production costs over the lifetime of the production facility41 (see Section 6.2).

As well as these two guiding strategies (industrial excellence and investment efficiency), the Group will
continue to optimise purchasing costs, in terms of goods, services and assets (see Section 6.2).

Finally, the Group has drawn on its expertise to develop innovative and profitable products and
solutions that also minimise its ecological footprint. This means efficient R&D programmes, such as the
development of furnaces that use non-fossil fuel and energy from sustainable sources that was underway
as of the registration date of this Document de Base; the ability to produce limited editions; initiatives in
cooperation with its partners, such as the use of customers’ waste as an energy source or as raw
materials; and lastly a fresh image for the public and economic players based on the Group’s new brand
name.


The Group intends to further increase the profitability of its operations to boost its cash flow
generation

               o   The Group aims to further improve the profitability of its operations

To bring overall profit levels in line with those in the most profitable regions, the Group will continue to
rely on its global expertise which is constantly enriched by its local market experience.




41
     TCO: “Total Control of Ownership”


                                                      77
Historically, the Group managed to improve the performance of its operations in the United States,
where both energy and raw material costs rocketed in 2005 and 2006. In this period, there was
overcapacity in the glass packaging sector and therefore competition was tough, prices dropped and cost
increases could not be passed on to the Group’s customers.

In this context, the Group has implemented a policy for long-term contracts renegotiations with its
customers, in order to include cost pass-through clauses that protect the Group against inflation of
production costs (see Section 6.2.6). The Group intends to continue to apply this policy in the next few
years. For all future negotiations, the Group aims to maintain this cost pass-through policy via
contractual clauses in the United States and changes to contracts in Europe.

            o   The Group intends to increase the level cash flow levels generated by its business

The Group’s corporate culture has always been focused on cost control, productivity gains and
optimising cash flow in order to continue improving the liquidity generated by its business. The Group
intends to maintain this policy and enhance it in order to:
    - finance both organic growth and acquisitions;
    - guarantee a solid financial structure, providing it with requisite strategic flexibility; and
    - generate attractive shareholders’ profit.

In the past three years, the main source of increasing cash generation was the steady improvement in
EBITDA (see Section 9.2.1.5).

The Group has also adopted measures to decrease its working capital requirements (WCR).

Production planning optimisation is currently underway with the gradual roll-out of a new IT system to
manage production on all sites. This tool will allow the Group to better manage industrial constraints
while maintaining a high level of customer service. Moreover, a number of initiatives have been
launched, such as “bulk to case” (see Section 6.5.1.3). Other measures in collaboration with the head of
procurement and the various heads of industry are aimed at optimising and reducing the stock of spare
parts and moulds. The Group’s efforts are focused on procurement (low-cost sourcing and
standardisation) and on technical and logistic improvements (for example, pooling back-up stocks). The
Group is also working on optimising its credit management in order to accelerate the collection of
receivables and reduce the processing times of litigation, thus reducing the Group’s credit risk. The
Group believes that these measures will allow it to continue to optimise its future cash flow.

Likewise, the Group has significantly optimised capital expenditures and will continue to do so in future
years (see paragraph above “The Group intends to continue to optimise its operations”).

The Group relies on values that allow it to develop its business and relationships with all its
stakeholders

The Group aims to be socially responsible and carry out its business with respect for the values of
sustainable development. The ecological, aesthetic and wellness virtues of glass contribute to its success
as a packaging material. The Group strives to maintain these virtues throughout the life cycle of a glass
product (see the paragraph entitled “Glass has a very favourable image thanks to its purity and its
capacity to be recycled an infinite number of times. This is especially true when compared with other
packaging materials such as metal, plastic and cardboard. Glass is a material that the Group classes as
“ecological” and on which it has built an ambitious sustainable development strategy” in Section 6.2.2).

The Group also aims to share these strong values with its employees and associates them with the
success of its business, which it believes depends on all of its employees adhering to and feeling proud
of these historical values which include: professional commitment, the respect of others, integrity,
loyalty and solidarity. For this reason, the Group aims to implement measures to reward as many
employees as possible for the success of the business, via different mechanisms in each country in


                                                    78
which it is present, including profit sharing schemes and shares in the Group as part of its initial public
offering.

6.5   Presentation of the Group’s lines of business

The Group is specialised in glass packaging (bottles and jars) for the entire food and beverage industry.
The Group regards itself as the global leader in bottles for still and sparkling wine, bottles and decanters
for spirits, and jars for foodstuffs. All segments combined, the Group is the second-largest international
glass packaging supplier42. The Group is also leader or joint leader in each country in which it is
present.

The Group is also a major player in the beer bottle and non-alcoholic beverage bottle segments.

The Group produces glass packaging in 11 countries, in Western and Eastern Europe (France, Italy,
Germany, Spain, Portugal, Russia and Ukraine), in the United States and in South America (Brazil,
Argentina and Chile).

The Group is also present in Poland, where it carries out a part of its bottle decoration business (see
Section 6.5.1.3) and in India via Accuramech, acquired in July 2009, which produces spare parts for
machines.




42
  Source: Group estimates based on revenue data in the Form 10-Q filed by Owens-Illinois with the United States
Securities and Exchange Commission o
n January 26, 2011 and on the Ardagh website.


                                                      79
                               Verallia’s production facilities and sales presence




        Country in which the Group has manufacturing facilities (13 countries in total)*
        Country in which the Group has a sales presence (46 countries in total)
        Country in which the Group has no manufacturing facilities or sales presence

* of which eleven countries have glass-making facilities.



The breakdown of total Group net sales by region is available in Section 6.1 of this Document de Base.

The Group reported net sales of €3.5 billion in the fiscal year ended December 31, 2008, €3.4 billion in
Dececember 31, 2009 and €3.6 billion in December 31, 2010.

6.5.1     The Group’s products and services

                    6.5.1.1     Presentation of main products: bottles and jars

The Group offers a wide range of products in each segment in which it is present. This range combines
standard products with made-to-order ones designed in collaboration with the Group’s customers and
tailored to their needs (joint-development).

Bottles for still wines

As far as glass packaging product markets go, the still wine market is a traditional one, but one that is
nonetheless changing in terms of both supply and demand. The Group therefore offers a comprehensive
range of bottles in various shapes and sizes adapted to each local market which allows it to expand its
product range in response to two strong market trends: the establishment and up-scaling of traditional
wines and the emergence of new wines.




                                                            80
                                            The Group also offers a range of glass colours allowing
                                            customers to make their message to consumers stand out
                                            from the crowd. For example, as well as the traditional
                                            green bottle, the Group has developed other colours
                                            adapted to its markets, such as the “tradiver” colour, a
                                            luxury dark green shade with a filter that protects the
                                            organoleptic properties of wine.




More recently, the Group has developed new shades such as the “blue” shade, other pastel colours and
made-to-order colours, mainly in Western Europe, for customers that are looking for more originality.

                      As well as its wide range of colours, the Group also offers a large
                      selection of bottle sizes, that differ according to the market, including
                      17.5 cl (“aviation” sized), 37.5 cl, 50 cl and 75 cl, each with varying
                      finishes. The Group thus allows its customers to provide consumers
                      with packaging that keeps up to date with changes in consumption and
                      lifestyle. For example, in France, the Group has recently stepped up its
                      development of small containers due to an increase in demand.




                      In 2009, two still wine bottles produced by the Group in the United States won awards in
                      the 20th Clear Choice Awards (the Silver Palm Cabernet Sauvignon bottle manufactured
                      by White Rocket Company and the new eco-friendly Revolution bottle manufactured by
                      Bronco Wine Company). These awards are given each year by the Glass Packaging
                      Institute and honour consumer product goods packaged in glass based on innovation,
                      package design and shelf impact.


                      In 2010, the Tentacle Syrah bottle manufactured by Eight Arms Cellar and produced by
                      the Group also received a Clear Choice Award.




                                                    81
Bottles for sparkling wines (champagnes, crémants, semi-sparkling wines, mousseux) and ciders

                         The Group offers a large range of standard products to bottle champagne,
                         semi-sparkling wine, crémants, mousseux, cider and their foreign equivalents
                         (Sekt, Spumante, Prosecco, Cava, etc.).

                         The Group produces packaging in varied sizes according to each market,
                         ranging from very small bottles (18.7 cl) to large capacity bottles such as the
                         Magnum (1.5 litres), Jeroboam (3 litres), Methuselah (6 litres) and even the
                         Nebuchadnezzar (15 litres). The majority of the Group’s production, however,
                         focuses on the 75 cl bottle which, in the majority of markets in which the
                         Group is present, is the standard size for these beverages.




For each bottle type and market, the Group offers a large choice of finishes, shapes (including each
market’s more traditional silhouettes) and colours (such as flint, green, blue and tradiver). This choice
allows each customer to personalise its regular products and to use a specific design for its limited
editions.

As well as the its standard products, the Group offers tailor-made packaging designed in cooperation
with the customer, particularly using embossment and/or decorating techniques to better meet marketing
needs.

For its Premium ranges, the Group relies on the know-how of its “Selective/Line” team (see Section
6.5.1.3).

Packaging for spirits

In this market, the Group offers a large range of standard products to its customers. However, the
majority of sales are high value-added personalised products (glass finishes, tailor-made, innovative
decoration, etc.).

The container sizes vary, according to the market, between 3 cl and 4.5 litres, giving customers access
to a wide range of products.

The Group also offers, according to the market, different shades of glass (such as flint, extra-flint, green,
dead leaf and amber) and a large range of original shapes, allowing customers to vary the view that
consumers have of their products.

As can be seen through the wide selection of packaging offered to customers, the Group has made the
development of its product ranges its main priority.




                                                     82
                                                        The Group works closely with its customers,
                                                        offering them a varied and personalised range
                                                        of products tailored to their needs.

                                                        This is possible thanks to the Group’s research
                                                        of glass making techniques which can be seen
                                                        through its know-how of the delicate
                                                        colouring, decoration and creation of new
                                                        bottle shapes.




Verallia’s desire to offer varied, tailor-made, luxury products to its customers, led the Group to create
the “Selective/Line” brand (see Section 6.5.1.3). This business unit deals with the creation, production,
decoration and sale of premium bottles mostly for the spirits market, but also for still and sparkling
wines.



                                     Smirnoff’s Premium Malt Mixed Drinks bottle, created by the Group’s
                                     U.S. subsidiary, received a Clear Choice Award from the Glass
                                     Packaging Institute in 2010.




Glass    Packaging      Institute
Burwell Photography

Beer bottles

The Group produces a standard range of beer bottles in different sizes and colours.

To better meet customers’ needs, the Group has separated its products into different types of finish,
allowing the choice of glass packaging to be included in a product’s overall sales strategy. According to
bottle type, the Group also offers different types of stoppers adapted to various forms of beer
consumption and to different markets.

Moreover, to complement its standard range of bottles, as is the case with its other products, the Group
shares its innovative and creative skills with its customers to jointly develop specific products,
especially highly personalised designs for their leading products.




                                                   83
                                The Bitburger bottle received the prestigious “red dot”, one of the most highly
                                coveted awards in the world of designing. Bitburger Braugruppe, its design
                                agency and the Group’s German subsidiary worked together to create this
                                new 50 cl beer bottle which won an award in the Communication design
                                category. Each year, the Design Zentrum Nordrhein Westfalen presents the
                                “red dot design award” to products and businesses that stand out on an
                                international scale in terms of design quality. This year, the panel of experts
                                chose winners among 6,112 creations from 42 countries. The winners of the
                                “red dot award” in the Communication design category are listed in the
                                “International Yearbook Communication Design 2009/2010”.




Jars for solid and liquid foodstuffs

The Group offers, according to each market, a wide range of standard jars for foodstuffs.

This range is extremely varied, with jars of different shapes and sizes and with different types of lids.


                                                           The Group is mainly present in the
                                                           following markets:

                                                           -   baby food;

                                                           -   dairy products;

                                                           -   soluble food products;

                                                           -   jam, honey and spreads;

                                                           -   condiments, sauces and vinegars;
                                                               and

                                                           -   vegetables, meat, seafood and soup
                                                               (“preserves”).


In this sector, where the type of produce to be packaged varies greatly from one customer to another, the
Group’s innovation and creativity allows it to offer a wide range of both standard and tailor-made
products.


                              The Group’s innovation and creativity, as well as its ability to design products
                              in collaboration with its customers to better meet their needs, were recently
                              rewarded. Two of the jars produced by the Group in the United States won
                              Clear Choice Awards in 2009 (Trader Point Creamery’s Fromage Blanc jar and
                              Frito-Lay, Inc.’s Tostitos Chunky Salsa sauce jar). In 2010, B&G Foods’ B&M
                              baked beans jar also received an award. These awards are given each year by
                              the Glass Packaging Institute and honour consumer product goods packaged in
                              innovative glass containers.
Glass Packaging Institute
Burwell Photography




                                                      84
In this sector in particular, the Group complies with strict regulations in terms of food safety. Verallia
has therefore long invested to ensure that all of its teams comply with quality standards (HACCP
(Hazard Analysis Critical Control Point - see Section 6.7.2) and/or ISO 22000). The Group also controls
the quality of its products using visual, mechanical, video and light beam technology to check the neck
area (for good closure), dimensions and glass thickness and appearance. Any container that does not
comply with the Group’s quality standards is automatically rejected and returned to the furnace to be re-
melted.

Bottles for non-alcoholic beverages

The Group offers a wide range of standard bottles for non-alcoholic beverages, providing its customers
with containers adapted to the patterns of consumption of their products which include cordials, fruit
juices, lemonades and oils.

The Group’s products come in a range of colours and finishes according to each model and market.

For special occasions (Christmas and New Year’s, anniversary editions, etc.), the Group also creates
personalised ranges in collaboration with some of its customers.

The Group also offers a standard range of glass packaging for oils, including round and square shapes
and in different sizes and colours. Some of these products are part of the “Selective/Line” range (see
Section 6.5.1.3).


                     The Lurisia Bolle e Stille bottle, produced by the Group in Italy won the award for the
                     Best Bottle in Glass in the 2009 Beverage Innovation Awards. This award, for which 50
                     countries present their innovations, takes into account numerous criteria: the bottle’s
                     design, the complexity of its production, its shape and label, technical innovation and the
                     brand’s positioning strategy.

                     The Group’s German subsidiary was nominated for the 2010 German Packaging award
                     for its new eco-friendly returnable Gerolsteiner mineral water bottle and also won the
                     2010 prize for innovation awarded by the German environment protection agency
                     (Deutsche Umwelthilfe e.V - DUH) and the foundation for returnable packaging (Stiftung
                     Initiative Mehrweg, SIM) for its VdF returnable one litre fruit juice bottle.

                     The Group’s U.S. subsidiary also received a Clear Choice Award in 2010 for Old
                     Orchard Brands’ “Very cherre” cherry juice bottle.




 Glass Packaging
     Institute
     Burwell
  Photography

                   6.5.1.2   Glass tableware and kitchenware

Through its Brazilian subsidiary Vidros/Santa Marina, the Group designs, produces and sells glass
tableware and kitchenware worldwide (“Tableware”). The Group produced a total of 48 kT of
tableware in the fiscal year ending December 31, 2010. The Group’s tableware products are divided into
two categories sold to retail customers: a range of glassware for the table (bowls, salad bowls,
containers, and more generally all glass dishes) marketed under the Duralex and Colorex brand names,
and a range of glass containers for oven use marketed under the Marinex brand. In 2010, the Group



                                                       85
adopted Marinex as its umbrella brand name, with three sub-brands, (Marinex Table (blue logo),
Marinex Oven (red logo) and Marinex Kitchen (green logo)). For information concerning the Group’s
protection of trademarks, see Section 11.



With the exception of the drinking glasses segment, in which the Group has not developed a major
presence Vidros/Santa Marina’s catalogue has a large range of products in different shapes and colours,
including up-market, innovative products such as flameproof glass with a non-stick coating that can be
used in both traditional ovens and microwaves.

                  6.5.1.3   High value-added services

As well as its core glass packaging production business, Verallia offers customers a range of high value-
added services tailored to their marketing and economic needs. Thus, the Group helps customers
showcase their products with its eco-conceived products and glass packaging decoration services.
Verallia is also developing technical solutions such as mobile bottling and related services which make
customers’ packaging processes easier.

                                               −   Eco-conception (ECOVA – ECO series)

                                           The Group’s eco-conceived products are a central part of
                                           its sustainable development policy. Across the world, the
                                           Group’s companies are launching eco-conceived bottles
                                           and jars that combine aesthetics and showcasing the
                                           products with respect for the environment.

                                           These products allow the world’s food and beverage
                                           brands, the Group’s customers, to design image-enhancing
                                           products that are attractive to consumers while
                                           guaranteeing a reduction in the impact on the environment
                                           of each container over its lifetime: from the raw material
                                           stage through to the consumer (including selective waste
                                           sorting) and lastly through to the recycling phase.

Since 2009, the eco-conceived ranges have been successfully launched, mainly under the brand name
ECOVA (ECOlogy and VALuation) in France, Spain, Argentina, Chile, Brazil, Portugal and Italy and
under the brand name ECO series in the United States. These products are aimed at the still and
sparkling wine market and the beer market and are adapted in each country by the local sales and
marketing teams to the needs of the local market. Since its launch, over 200 million bottles in the ECO
Series range have been sold by the Group’s U.S. subsidiary in the beer bottle and still wine segments.

Like all other glass packaging produced by the Group, the eco-conceived ranges benefit from the
environmental advantages of glass as a neutral, strong material, that is fully and infinitely recyclable as
well as the improvements that the Group has made to the glass-making process: optimising energy
consumption, increasing the percentage of recycled glass used in the furnaces and thus reducing CO2
emissions related to the extraction of raw materials and the production and transportation of products.




                                                    86
                         The new ECOVA ranges were among the innovations named “ADICT by SIAL 2009”
                         (Alimentation Design Innovation Creation Tendances), by an independent jury composed
                         of professionals from the world of innovation, marketing, food, consumption, design and
                         packaging.
                         ADICT by SIAL is a day dedicated to innovation in the food industry and features
                         numerous debates on creation, sharing success and exploring new ideas. The SIAL trade
                         show (Salon International de l’Agroalimentaire) brings together international players in
                         the food and beverage industries.

Joint-development

The Group develops new glass packaging products in collaboration with its customers thanks to its own
research and design offices (see Section 6.2 and Section 11). The Group therefore provides its
customers with a varied and innovative range which, as of the registration date of this Document de
Base, included more than 900 new products43. The Group’s design tools are network-based (especially
for computer-assisted design tools) and for joint-development projects can interact directly with
customers’ networks.

In 2010 for example, the Spanish company Mineraqua called on Verallia to create a mineral water bottle
for its new premium range “22 de Peñaclara”. The Group also designed Vranken Pommery’s new
Billette rosé wine bottle and the Comité Interprofessionnel des Vins de Cahors called on Saint-Gobain
Emballage to design the new “Cahors Malbec” bottle. Verallia’s German subsidiary was nominated for
the 2010 German Packaging award for its new eco-designed Gerolsteiner returnable mineral water
bottle. Also in 2010, in Portugal, a new wine bottle was developed for Aliança-Vinhos du Portugal’s
Casal Mendes Verde et Rosé wines and in Brazil the group collaborated on the launch of a new milk
bottle with the Vitalatte dairy.

Glass packaging decoration

The Group’s glass decoration business is mainly carried out by its subsidiary Saga Décor, which is a
major Western European player in glass bottle decoration. The Group’s Polish subsidiary Euroverlux, a
player in the Central European spirits market, also specialises in glass bottle decoration. In the fiscal
year ended December 31, 2010, the Group produced some 85 million bottles.

The Saga Décor and Euroverlux subsidiaries, which specialise in bottle finishing, employ glass
decoration techniques such as satin-finishing, acid-etching, screen-printing and pad printing. The Group
strives to constantly improve its production and decoration techniques to maintain its competitive
advantage (see Section 11). For example, Saga Décor has recently developed screen-printing techniques
using luminescent enamels that react to black light, which contributes high added value to bottles
distributed in night-time settings. The Group strives to minimise the impact of its decoration business on
the environment by, for example, using lead-free enamels.




43
     A new product is a model that has been on the market for less than two years.


                                                          87
Selective/Line

                                        In response to increasing demand for luxury glass bottles,
                                        Verallia created a business and brand called “Selective/Line”
                                        aimed at the Group’s most demanding international
                                        customers in the still and sparkling wine, spirits and mineral
                                        water markets. The trademark was registered in March 2008.
                                        This business unit combines the Group’s best development
                                        and production qualities and has its own sales structure.
                                        “Selective/Line” offers a range of luxury models and jointly
                                        develops complex models, most of which are decorated, in
                                        collaboration with its customers. “Selective/Line” draws
                                        chiefly on the technical capacity of two glass manufacturers,
                                        VOA and Cognac in France, and two glass decoration units,
                                        Saga Décor in France and Euroverlux in Poland.

Shipping case management in the United States

The Group also adapts to its customers’ needs by providing packaging services for their final products.

For example, in the United States, for the majority of its customers, the Group manages the preparation
of personalised shipping cases in which the bottles and jars are packed before being sent to the
customer, who in turn use the same cases to ship their filled bottles and jars to their customers. The
bottles are thus removed from the shipping cases by the Group’s customers to be filled and are then put
back in the same shipping cases to be sent to the final customer. Bottles are usually packed directly at
the end of the production chain. Therefore, to optimise working capital requirements and increase
responsiveness to customers’ requests, the Group’s U.S. subsidiary has recently implemented a “bulk to
case” system in its Seattle factory and Fairfield warehouse. This automated system allows the Group to
first package the bottles on palettes (“bulk”) and then place them is personalised cases (“case”) as and
when requested by the customer. This system has improved inventory levels (inventory is now almost
exclusively stored on palettes) as well as the responsiveness and quality of the service provided to
customers, for whom shipping cases are filled on demand.

Mobile bottling

In France, the Group has 13 mobile bottling units allowing wine to be bottled directly at the vineyard.
Although this business is not significant compared to the Group’s other businesses, it nonetheless
contributes to the Group’s strategy in terms of proximity to its customers, especially in the wine-making
sector (notably Bordeaux wines), and helps it maintain a position as joint leader in the French wine
packaging market.




                                                   88
                 6.5.1.4    Machine business

                                        The Group also produces industrial equipment to form glass
                                        packaging (“Machine business”). In 2010, the Machine
                                        business generated net sales of €45.3 million (based on total
                                        sales). This business is run from two main production plants,
                                        one in Germany and the other in the Unites States. The latter’s
                                        main function is to provide technical assistance for the Group’s
                                        U.S. and South American factories and to supply spare parts.
                                        As of the fiscal year ended December 31, 2010, the Group
                                        employed 143 people in its Machine business, of which 82 in
                                        Europe and 61 in the United States. As well as these two “IS
                                        machine” production plants, in 2009 the Group founded the
                                        company Accuramech Industrial Engineering Pvt. Ltd.
                                        (“Accuramech”) in Pune, India, which acquired business assets,
                                        with the aim of designing, sub-contracting production of and
                                        carrying out quality control on machine components and spare
                                        parts. In the long-term, Accuramech should be able to supply
sub-units for IS machines at competitive prices.

Moreover, the Group also subcontracts to companies in Central Europe and Germany.

The Group also designs, produces and sells forehearths (which distribute gobs, or drops of molten
glass), complete forming machines and conveyors that transfer products to the annealing lehr, to both
the Group’s glass packaging production facilities and external customers. This business relies on the
Group’s R&D department which uses 3D design software (CAD) to compile statistics, carry out virtual
assembly and devise documentation.

In recent years, around one third of total Machine business sales were to customers outside of the glass
packaging market, mostly in Western and Eastern Europe, but also in Asia. Moreover, the Group
purchases 50% of its equipment from its competitors in the Machine business. This twin sales approach
allows the Group to measure and improve the competitiveness of its Machine business in terms of both
machine production costs and technological innovation.

The Machine business provides the Group with technological independence in terms of equipment
supplies on a market which is fairly consolidated with notably the world leader Emhart and three of its
competitors (Owens-Illinois, Ardagh and Vitro). The Group believes that this gives it a strategic
advantage.

6.5.2   Western and Eastern Europe glass packaging business

                  6.5.2.1   General discussion

European glass packaging market

In Europe, the Group is present in the Western and Eastern European glass packaging markets, each of
which has different growth prospects. The boundaries between these markets are not totally
impermeable and the Group occasionally carries out one-off import and export operations between the
two regions when market conditions, economic conditions and customers’ demands require this or make
such operations attractive.

The Group net sales in Europe reached €2,092 million for the fiscal year ended December 31, 2010.




                                                   89
                                             Breakdown of business in Europe

                                                                                  France
                                                                                  • Number of sites/furnaces: 7/16
                                                                                  • Employees: 2,363




                                                                                  Iberian Peninsula
                                                                                  • Number of sites/furnaces: 7/12
                                                      Western Europe*             • Employees: 1,359
                                              - Number of sites/furnaces: 24/50
                                              - Employees: 6,540



                                                                                  Italy
                                                                                  • Number of sites/furnaces: 6/11
                                                                                  • Employees: 1,202



                      Europe*

         - Number of sites/furnaces: 27/59                                        Germany
         - Net sales: €2,092m                                                     • Number of sites/furnaces: 4/11
         - Employees: 8,566
                                                                                  • Employees: 1,500




                                                                                  Russia
                                                                                  • Number of sites/furnaces: 2/6
                                                       Eastern Europe             • Employees: 1,470

                                              - Number of sites/furnaces:3/9
                                              - Employees: 2,026


                                                                                  Ukraine
                                                                                  • Number of sites/furnaces: 1/3
                                                                                  • Employees: 556




* including Poland.

The sales mentioned above correspond to sales generated in the fiscal year ended December 31, 2010 by all the Group’s
operations in Europe (glass packaging, decoration, Machine Business). These figures are stated in millions of euros and are
based on regional sales excluding intra-group sales44 of Western Europe, Eastern Europe and Europe respectively. Poland,
where the Group has one site dedicated to bottle decoration (see Section 6.5.1.3) has been added to the Western Europe region
and as of December 31, 2010 this site employed 116 persons.

The sites mentioned in the figure above correspond to the Group’s glass making facilities as of the fiscal year ended December
31, 2010 and do not include facilities for the group’s bottle decoration or machine businesses, which are not significant in
terms of net sales.

The number of employees cited above corresponds to the number of employees as of December 31, 2010 in all the Group’s
businesses (glass packaging, decoration, Machine Business).




44
  Regional sales excluding intra-group sales correspond to total sales generated in a region (including intra-group
sales between this region and another region) but exclude intra-group sales within the same region.


                                                                   90
                Breakdown by market segment of the Group’s 2010 combined net sales
                                in Western and Eastern Europe45
                                         Excluding
                                   Bottles & Jars
                         Other                                  Still wines
                                          6.8%
               Beer     bottles                                        30.7%
                10%        11.6%




                                                                               Sparkling wines
                      Foodstuffs
                                                     Spirits                        11.8%

                      17.6%                             11.5%




Western European glass packaging market

The Western European glass packaging market, the Group’s historical market, is a mature market that
nonetheless continues to offer new opportunities. The Group has a presence in France, Italy, Germany
and the Iberian Peninsula (Spain and Portugal), and this market is referred to from here on as “Western
Europe”.

This region was seriously impacted by the financial crisis due to a decrease in the consumption of non-
essential commodities and a sharp drop in exports, especially wine. The Group managed to overcome
these unfavourable market conditions thanks to its stringent pricing measures, its wide product range
and by optimising capacity and controlling costs. Since 2010, volumes in this region have gradually
begun to rise again, with the exception of the French markets (see Section 6.5.2.2).

In Western Europe, the majority of the Group’s pricing agreements with its customers are fixed on an
annual basis.

Eastern European glass packaging market

In Eastern Europe, the Group has a presence in the glass packaging market in two regions which have
good long-term growth prospects: Russia and Ukraine (this market is referred to from here on as
“Eastern Europe”). At the end of 2008 and during 2009, this market suffered from the financial crisis,
notably in terms of consumption, which was affected by both economic trends and the states’ tendencies
to combat alcoholism and increase excise duty (tax on alcohol). Following a period of recession, the
Group nonetheless believes that this market saw a modest return to growth in 2010, with the exception
of jars for foodstuffs. Furthermore, consumption seems to be shifting gradually towards more premium
products, to the detriment of commodity products. This segment was affected in the summer of 2010 by
a particularly dry climate and a number of fires which, together, drastically reduced harvests during the
high season for food production, and as a consequence the need for jars to package them.




45
        Based on external sales


                                                        91
The Group has also identified new sources of growth in this region, notably through developing exports
to Poland, Belarus and Moldova.

In this market, the majority of the Group’s pricing agreements with its customers are fixed on an annual
basis.

                  6.5.2.2   France

General discussion

                                The Group has been present in France since 1918 and has developed its
                                network primarily through acquisitions.

                                As of December 31, 2010, the Group had 2,363 employees and owned
                                seven glass plants and 16 glass furnaces in France. The Group’s main
                                French markets are packaging for still and sparkling wines, spirits, and
                                jars for foodstuffs. In 2010, the Group produced a total of
                                approximately 1,384 kT of jars and bottles in the country.




The French glass packaging market totalled around 3,170 kT in 201046. The Group is the joint leader in
France in terms of aggregate sales, along with the American company Owens-Illinois47. Together, these
two players account for more than half of this market.

In France, the Group generates the majority of its net sales in the still and sparkling wine segment,
where it is a leading player.

The Group views the French glass packaging market as a mature one in which it is able to bring several
key assets to bear: facilities that are located near customers, a wide range of products and long-standing
partnerships with major winemakers.

In 2009 and 2010, this market was significantly affected by the effect of the financial crises and by an
increase in exports from Germany and the Iberian Peninsula. Additionally, a decline in the consumption
of alcoholic beverages and plummeting French wine exports have posed recent challenges for the
Group. The financial crisis has brought to light France’s loss of export competitiveness as compared
with the countries in the New Winemaking World, Italy and Spain. At the same time, a drop in volumes
in Europe, especially in Germany and the Iberian Peninsula, has led glass packaging producers in these
countries to greatly increase their exports to France, causing Group sales volumes to drop by around
55 kT between 2009 and 2010. In 2008 and 2009, the Group was forced to interrupt capacity for long
periods of time and, in 2010, launched measures including the closure of one furnace at the Vauxrot site,
in order to reconfigure capacity to better align with market needs.




46
       Source: Group estimates based on data published by IWSR-Vinexpo in March 2010, Euromonitor in
March 2010, France Agrimer Infos in June 2010, CIVC in July 2010, BIB in June 2010 and Douanes in September
2010.
47
       Source: Group estimates based on data published by IWSR-Vinexpo in March 2010, Euromonitor in
March 2010, France Agrimer Infos in June 2010, CIVC in July 2010, BIB in June 2010 and Douanes in September
2010 and data in the Form 10-Q filed by Owens-Illinois with the United States Securities and Exchange
Commission on January 26, 2011.


                                                    92
The Group’s main market segments

             Still wines

The Group is a leader in the still wines segment.

The Group’s customers include large multinationals and smaller local players. In the fiscal year ended
December 31, 2010, the Group’s top ten customers by net sales accounted for approxiamately one-third
of its French net sales in this segment.

The Group’s product offerings in this segment are combined with a broader, global service platform that
it offers to winemakers. These services include mobile bottling units, which provide a made-to-order
service and reinforce the Group’s relationship with customers. The Group believes that its strong
foothold in this segment should help mitigate the effects of decelerating still wine consumption in
France (due to changes in legislation and consumer habits) and a declining French wine exports (for
structural reasons), both of which were accentuated by the financial crisis that stretched from the end of
2008 to mid-2010. The Group aims to stabilise sales volumes by offering a differentiated range of
products and services and by leveraging its proximity to its customers in all segments.

In terms of substitution risks, the Group has seen an increase in “bag-in-box” packaging for still wines,
mainly in the mass retailing and entry-level product markets.

             Sparkling wines

The Group is a leader in the sparkling wines segment.

The Group’s top six customers in terms of net sales accounted for nearly half of its French net sales in
this segment in the fiscal year ended December 31, 2010.

The Group maintains an entire a production facility exclusively dedicated to this segment and offers
attractive products (a wide range of containers and colours) and decoration services. The Group can
also, as and when needed, draw on production from its other French facilities to adapt to changes in
demand. This segment suffered from a sharp slowdown in 2009 and 2010, notably in champagne
exports.

Verallia nonetheless believes that it is well positioned to benefit from the likely rebound in this premium
segment in 2011. The Group has a strong position in mousseux (including in champagnes), a segment
which has demonstrated remarkable growth over the past several years and which was not as adversely
affected by the financial crisis.


             Spirits

The Group’s customer base in this market is highly consolidated, with the Group’s top four customers
by net sales accounting for about half of its French net sales in this segment in the fiscal year ended
December 31, 2010.

Between 2005 and 2008, growth in this segment was driven by strong global demand for French spirits,
such as Cognac and “French vodkas”. This growth stopped dead in 2009 due a drop in demand linked to
the financial crisis, notably in emerging markets. The first signs of a rebound, however, surfaced in
2010 (driven largely by the Group’s international customers) and have continued to multiply since then.

The Group has reinforced its presence and development in the high value-added spirits segment mainly
through joint development projects with its customers to design innovative packaging for their products,




                                                    93
including their decoration. The “Selective/Line” brand has been integral to the Group’s success in this
area.


             Foodstuffs

The Group’s customer base in foodstuffs is slightly more consolidated than in other segments. The
Group’s top five customers by net sales accounted for more than half of its French net sales in this
segment in the fiscal year ended December 31, 2010.

The Group believes that the jars sector in France could be affected by the planned offshoring of certain
foodstuffs production sites and with them the packaging sites that use glass jars (especially for baby
foods and spices). Moreover, changes in consumer habits due to the financial crisis, such as the rise of
discount products that are not packaged in glass, could also affect the jars sector. The Group nonetheless
believes that this segment could benefit from the development of new niche sectors where Verallia’s
innovation and creativity will serve it well. The Lagnieu production facility, which is dedicated
exclusively to the production of jars, is one of the very first European glass-making facilities to obtain
ISO 22000 certification (see Section 6.7.2). This status allows the Group to better answer customers’
needs by combining technology with high food safety standards in order to offer innovative products.

These strengths meant that the economic slowdown in 2009 and 2010 had only a slight impact of the
Group’s business in this sector in 2010.

             Beer and Other bottles

On the French market, the Group is also present in the beer (mainly premium beers) and non-alcoholic
beverage segments, as well as in the bottle decoration business via its subsidiary Saga Décor (see
Section 6.5.1.3).

                 6.5.2.3   Iberian Peninsula

General discussion

                                   The Group has been present in Spain since 1904 through its
                                   subsidiary Visca and in Portugal since 1987 through Mondego.

                                   In the Iberian Peninsula, as of December 31, 2010 the Group
                                   employed 1,359 persons in seven main production facilities. The
                                   Group owns 12 furnaces (ten in Spain and two in Portugal),
                                   allowing it to operate in a full range of glass packaging segments.
                                   In 2010, the Group produced a total of approximately 1,024 kT of
                                   jars and bottles in the region.

The glass packaging market in the Iberian Peninsula totalled around 2,685 kT in 2010. All segments
combined, the Group believes that it is market leader in this region48.

In the Iberian Peninsula, the majority of the Group’s net sales come from still and sparkling wine
bottles, spirits bottles and jars.




48
        Source: Group estimates based on data published by ANFEVI in December 2009, Nielsen in December
2009 and March 2010, the Consejo Regulador del Vino de Jerez in December 2009, the Consejo Regulador del
Vino de Brandy in December 2009 and the Asociación de Cerveceros de España in December 2009.


                                                    94
According to the Group, the Iberian Peninsula’s glass packaging market is a mature one. The period
from the end of 2008 through to the beginning of 2010 was difficult for this region – particularly in
Portugal due to the economic crisis - especially in the wine segment (where exports plummeted and
household consumption slowed), but the Group adapted well by closing the Jerez production facility at
the end of 2009 and transferring certain lines of business to its Seville site. Since the second half of
2010, the glass packaging market in this region has seen a progressive return to growth, owing primarily
to a renewed surge in wine exports and in the food jar segment business. In this context, the Group has
profited from alterations made to its capacity across production sites. In 2010, the Group’s competitor
Barbosa & Almeida built a new furnace and this increase in capacity may create heightened competitive
pressure on the Group in the Iberian Peninsula market and, via exports to France, in the French market.
The high standard of production quality in the Iberian Peninsula market and the high cost of transporting
merchandise from the Middle East renders the competitive impact of players importing low-cost
products from the Middle East quite minimal.

The Group’s well-established local network will allow it to develop its strategy of locating itself near its
customers, which include local producers as well as subsidiaries of food and beverage multi-nationals in
the wine, spirits and jars for foodstuffs segments.

The Group’s main market segments

             Still and sparkling wines

The Group is a leader in the still wines segment, largely as a result of its wide product range and the
flexibility of its production facilities. It is also present in sparkling wines, mainly cava, in which it also
has a highly consolidated customer base.

In the fiscal year ended December 31, 2010, the Group’s top ten customers by net sales accounted for
more than one third of net sales in the Iberian Peninsula market in this segment.

Following a significant drop in exports in 2009, the still wines segment saw a return to growth in 2010
(with sales volumes up 5.9% year-on-year) mainly due to a resurgence in export levels.

             Spirits

The Group’s customer base in spirits is highly consolidated and is composed mainly of three large
international brands with high export activities. These three customers alone accounted for 42% of
Group net sales in this segment in the Iberian Peninsual market in 2010. The fiscal year ended
December 31, 2010 saw a return to growth in this segment, fuelled by the Group’s international
customers choosing to bottle their spirits in Spain. Business therefore improved, with sales volume up
2.5% year-on-year in 2010. The Group believes that it benefits from close relationships with its main
customers in the joint development of new models.

             Foodstuffs

The Group is a leading player in this segment, where it has strengthened its position in premium
products.

In the fiscal year ended December 31, 2010, the Group’s top ten customers by net sales accounted for
less than half of its net sales in this segment in the Iberian Peninsula market. A feature of this market is
its unique, local sub-segments (such as olives) where Spanish exports have begun to flourish again since
the beginning of 2010. The Group has a production facility dedicated to this segment in Azuqueca.




                                                      95
             Beer and Other bottles

The Group also has glass packaging operations in the Iberian Peninsula, in the beer bottle segment (a
market where the Group’s customer base is highly consolidated), bottles for soft drinks and olive oil.

                  6.5.2.4   Italy

General discussion

                            The Group has been present in Italy since 1989, following its acquisition
                            of Vetri.

                            In Italy, as of December 31, 2010, the Group employed 1,202 persons in
                            its six main production facilities and owned 11 furnaces, allowing it to
                            operate in a full range of glass packaging segments. In the fiscal year
                            ended December 31, 2010, the Group produced a total of some 1,077 kT
                            of jars and bottles in Italy.

The Italian glass packaging market (bottles and jars) totalled around 3,518 kT in 201049. All segments
combined, the Group is the second-largest player in the country by net sales, behind American company
Owens-Illinois50.

In the Italian market, the majority of the Group’s net sales are in the still and sparkling wine bottle
segments, where it is a leading player, as well as in spirits and foodstuffs.

The glass packaging market in Italy experienced difficulties from the end of 2008 onwards, especially in
the wine bottle sector. However, the Group was resilient and believes that it is well positioned to benefit
from the return to sales growth seen in 2010 which points to stable consumption figures in Italy
(competitor Balsamo opened new capacity in 2011). This return to growth is due, according to the
Group, to the ability of the Italian wine-making sector, like the food and beverage industry, to defend its
export market share in terms of volumes and prices. In a market where proximity to its customers is a
major advantage, the Group believes it is favourably positioned, with production facilities in the North
of the country. Moreover, the Group’s brand image is extremely strong because of the quality of its
services, its wide product range and its flexibility.

In Italy, the Group also owns Ecoglass, a cullet treatment company founded in 1994. Ecoglass aims to
improve the quality of cullet and increase the amount used in the Group’s Italian furnace. By keeping
costs of producing cullet low, Ecoglass gives the Group a competitive advantage. In the summer of
2010, the Group also created Vetreco, a joint venture with Argagh Italia (30% owner) and Zignago
Vetro (30% owner) in which it holds a 40% ownership stake. The creation of this joint venture was
approved by the Italian competition authority and is aimed at creating a treatment facility for used glass
collected in the South of Italy in order to increase the amount of quality cullet available.




49
         Source: Group estimates based on data published by IRlinfoscan in August 2010, ISMEA in June 2010,
ISTAT in June 2010, Assovetro in June 2010, in Beverfood’s 2009/2010 report and in Assobira’s 2010 report.
50
         Source: Group estimates based on data published by IRlinfoscan in August 2010, ISMEA in June 2010,
ISTAT in June 2010, Assovetro in June 2010, in Beverfood’s 2009/2010 report and Assobira’s 2010 report and on
data in the Form 10-Q filed by Owens-Illinois with the United States Securities and Exchange Commission on
January 26, 2011.


                                                     96
The Group’s main market segments

             Still and sparkling wines

The Group is a leader in both the still and sparkling wine segments. The Group’s top five customers by
net sales accounted for approximately one quarter of its Italian net sales in these segments in 2010.

The Group aims to reinforce its position in this market by offering to all of its customers varied services
and high value-added products with flexible production facilities (Italian winemakers are keen to
develop innovative, new designs and products offering good value for money).

             Spirits

The Group’s top three spirits customers by net sales accounted for about one quarter of its Italian net
sales in this segment in the fiscal year ended December 31, 2010. The Group’s customers consist, on the
one hand, of large multi-nationals operating in this segment, including in exports and, on the other hand,
local “niche” producers.

             Foodstuffs

The Group is a leader in the foodstuffs packaging segment in Italy.

The Group’s top three customers by net sales accounted for less than a third of its Italian net sales in this
segment in the fiscal year ended December 31, 2010.

             Beer

The Group’s customer base in this segment is highly consolidated, with the Group’s top four customers
by net sales accounting for almost all of its Italian net sales in this segment in the fiscal year ended
December 31, 2010. The Group has adopted an up-scaling strategy with the goal of better positioning
itself in higher value-added components of this segment.

             Other bottles

The Group also has glass packaging operations in Italy in non-alcoholic beverages (such as bottles for
fruit juice and mineral water), tomato sauce (Passata) and olive oil.

                    6.5.2.5   Germany

General discussion

                              The Group has been present in Germany since its 1991 acquisition of a
                              majority ownership stake in Oberland, a company listed on the Frankfurt,
                              Stuttgart, Munich and Berlin-Bremen stock exchanges. As of the
                              registration date of this Document de Base, the Group owned 96.7% of the
                              share capital and voting rights of Oberland.

                              In Germany, as of December 31, 2010, the Group employed 1,500 persons
                              and owned four glass making facilities and 11 furnaces, allowing it to
                              operate in a full range of glass packaging segments. In 2010, the Group
                              produced a total of approximately 936 kT of jars and bottles in Germany.




                                                     97
The German glass packaging market (bottles and jars) totalled around 2,814 kT in 201051. The Group is
the second-largest player in the country by net sales, behind only Ardagh52.

In the German market, the majority of the Group’s net sales are generated in the jar and beer bottle
segments, in which the Group is a leading player. The Group is also present in the still and sparkling
wine bottle segment (in particular, the Group has significant operations in the sekt bottle market).

A wave of consolidation has swept through the German glass packaging market in recent years. Owens-
Illinois acquired BSN Glasspack in 2004 and Ardagh acquired Heye in 2003 and Rexam (which itself
had already acquired Lüner and Nienburg) in 2007. The Group’s main competitors in Germany are
Ardagh, Owens-Illinois and local company Wiegand. Other competitors in this market are mostly small-
and medium-sized companies (notably Ernstthal, Noelle von Campe, Thüringer and Weck) and
exporters from Central Europe (particularly Poland). In 2010, a new player, Agenda Glas, emerged in
the German market, opening a new production facility in Saxony-Anhalt with the help of regional public
authorities.

In recent years, the German market has flourished, driven by:

-    changes in legislation regarding non-reusable German glass in 2006 which paradoxically increased
     demand for packaging made from non-reusable glass (notably in the beer segment). This had not
     been the intention of legislators;

-    the development of new bottling sites for bulk wine imports and the resulting increase in demand
     for glass packaging on the domestic market and for re-exportation. These two events put an end to
     overcapacity in this market which had been created in part by mass substitution of glass packaging
     at the end of the 1990s and beginning of 2000s mostly in juices, soft drinks and mineral water and
     that led to high export figures and pressure on prices; and

-    the increase in volumes seen in 2007 and 2008 resulted in certain players (Ernstthal, Noelle von
     Campe, Agenda Glas) investing in extra capacity during 2009 and 2010, again leading to
     overcapacity and heightened price pressure in 2010.

Therefore, the German glass packaging market is now primarily an export market, mostly to Western
European countries, as local production volumes are higher than local demand requires. The market was
hit hard by the financial crisis in 2009 and has seen imports from Eastern European countries increasing
in recent years. The Group believes that the overall market saw a return to moderate growth in 2010,
driven principally by wines (including the packaging of wines imported in bulk), spirits and, to a lesser
extent, certain non-alcoholic beverages.

In recent years the price of cullet has risen sharply and the availability thereof is more limited in the
German market. Previously, GGA (Gesellschaft für Glasrecycling und Abfallvermeidung), a company
made up of all the German glass making players, managed the collection and distribution of cullet.
However, when the DDS (Deutsches Duales System, which manages Germany’s “Green Dot”
programme) and the collection and treatment of household waste were privatised, the German
competition authorities found that the cullet collection and distribution system constituted a cartel and
banned GGA from continuing to buy cullet on behalf of its shareholders as of 2008. Access to cullet for
glass packaging producers has therefore become more difficult, and prices have generally been higher in




51
       Source: Group estimates based on data published by BV-Glas in September 2010 and Statistiches
Bundesamt Deutschland in August 2010.
52
       Source: Group estimates based on data published by BV-Glas in September 2010 and Statistiches
Bundesamt Deutschland in August 2010.


                                                   98
2008 and 2009 in Germany than in other Western European countries. The Group nonetheless believes
that the balance between supply and demand has started to stabilise and this price difference is
narrowing in 2010.

The Group’s main market segments

             Foodstuffs

With an entire production facility dedicated to foodstuffs packaging, the Group is a leader in this
segment.

The Group’s top three customers by net sales accounted for around one third of its German net sales in
this segment during the fiscal year ended December 31, 2010. These three customers primarily service
the export markets.

The Group relies on its innovation and quality of service to drive growth in this segment, particularly by
branching out into new business areas, such as glass packaging for dairy products, local specialities,
vegetables and ready-to-eat meals.

             Still and sparkling wines

The Group’s top ten customers by net sales accounted for approximately three quarters of its German
sales in this segment in 2010.

The Group believes that still and sparkling wine glass packaging prices in Germany have been, and are
kept low by the strong historical competition in the market and a lack of product differentiation.

The recent trend of bulk imports of wine from the New Winemaking World to be bottled in Germany
and possibly re-exported provides the Group with a variety of exciting opportunities for growth and
diversification.

             Beer

The Group is a leader in the beer bottle segment.

The Group’s customer base in this segment is very fragmented, especially in the southern half of the
country. Nonetheless, a significant share of Group net sales is generated by a few large, well-known
brand names, including an international customer based in the Benelux region. The Group’s top three
customers by net sales accounted for more than half of its German sales in this segment in the fiscal
year ending December 31, 2010.

Despite a drop in German beer consumption in 2008 due to the financial crisis, the Group was resilient
in 2009 and 2010, largely because of high export levels and its strong presence in the fragmented beer
market, especially in the south of Germany.

The German market is unique due to the number of returnable glass bottles in circulation (despite a
recent reversal in trends). Returnable bottles are so frequently used that they require regular replacement
due to wear and tear. The Group’s logistical know-how as regards this return process (returned bottles
are automatically packed in plastic cases) has allowed it to provide a unique service to breweries.

The Group enjoys a stable relationship with local customers and solid business operations.




                                                    99
             Other bottles

The Group also has glass packaging operations in Germany in bottles for non-alcoholic beverages
(notably juice and mineral water), a segment that, like the rest of the German market, is characterised by
a high percentage of returnable bottles.

                  6.5.2.6    Russia

General discussion


                                   The Group has been present in the south of Russia since 2005
                                   following its acquisition of a majority ownership stake in KMS.
                                   The acquisition of KSZ in 2008 significantly increased the Group’s
                                   presence in Russia (see Section 5.1.5).

                                   In Russia, as of December 31, 2010, the Group employed 1,470
                                   persons and operated two sites with six furnaces in total. In the
                                   fiscal year ended December 31, 2010, the Group produced some
                                   306 kT of glass bottles in this country.



The Group’s Russian glass making facilities are deliberately situated in the south of Russia, where the
Group primarily serves the still and sparkling wines and foodstuffs segments at the heart of the large
winemaking and food producing region which borders the Black Sea.

Russia is a regionally segmented market (beers and spirits packaging in and around Moscow and Saint-
Petersburg; wine, spirits, foodstuffs and mineral water packaging in the Caucasus) but one which is
highly competitive and where imports are limited to premium products. The Group aims to distinguish
itself from competitors on the basis of its strong international brand image, its production facilities that
are constantly being modernised and the quality of its products. The Group also relies on its historical
presence in Russia (KMS has been in existence for more than 100 years).

The Group decided to focus on developing specific market segments (in particular wine, mineral water,
foodstuff and spirits) in the south of Russia, a winemaking and farming region with solid growth
prospects compared to other parts of the country (notably Moscow, Saint-Petersburg, the Urals and
Siberia, where competition has become more intense).

The Group reinforced its position in Russia with its 2008 acquisition of KSZ, a leading Russian player
in jars. The Group has also decided to modernise its Russian production facilities to better meet the
needs of the market and its customers. As part of this modernisation, in 2010, the Group built a new
furnace at its KMS facility to replace two smaller, out-of-date furnaces.

Finally, the Group is studying other development opportunities in Russia, including further acquisitions
and the addition of new capacity.

With this in mind, in 2010 the Group acquired occupancy rights for industrial land in the winemaking
region of Krasnodar (by the Black Sea) that could be used for future industrial facilities.




                                                    100
The Group’s main market segments

             Still and sparkling wines

The Group’s customer base in this segment is mainly concentrated in the southern part of Russia,
notably in the winemaking region of Krasnodar. The Group’s top ten customers by sales accounted for
the majority of its Russian net sales in this segment in the fiscal year ended December 31, 2010.

Competition has intensified in Russia with SISECAM opening a new furnace in Krasnodar in 2010 and
planning to build a second furnace in the future.

The Group aims to reinforce its position in this region by attracting new customers from central Russia
and other countries in the Commonwealth of Independent States (CIS), and by focusing on the quality
of its products and its tailor-made approach to customers’ needs (colours, pricing policies, etc.).

             Foodstuffs

In 2008, the Group acquired KSZ, a leading Russian player in the production of jars, as part of its
strategy to reinforce its presence in Russia. This acquisition enabled the Group to diversify its business
in this growth market in which consumer habits are changing, as indicated by an increase in the
consumption of glass packaged products and favourable growth prospects for products such as baby
food.

The Group enjoyed strong results in 2009, but 2010 saw an exceptional period of drought, as well as
violent fires during the high season for food production. These disasters almost completely obliterated
the year’s harvest and had an extremely negative impact on demand for glass packaging, especially jars.

             Spirits

The Group intends to develop KZS production of bottles for spirits, notably vodka, thanks to this
facility’s flint glass production potential. The Group’s prospects in this market should improve
following the ignition of a new furnace to produce flint and green glass at the KMS facility in the
summer of 2010.

Government incentives to reduce alcohol consumption and raise taxes on alcohol sales have constrained
the Group’s development and sales in this segment in 2010.

             Other bottles

The Group is also present in the market for mineral water bottles, a segment where glass is the favoured
material. The customer base in this segment remains very fragmented, such that a local producer can
stand out from its competitors. The Mineralny Vody site (KMS) is situated at the heart of a region
renowned for its natural springs and hydrotherapy.




                                                   101
                 6.5.2.7   Ukraine

General discussion

                                        The Group has been present in Ukraine since its 2005
                                        acquisition of a majority ownership stake in Zorya.

                                        In Ukraine, as of December 31, 2010, the Group employed
                                        556 persons on one site and owned three furnaces (of which
                                        one is offline), giving it access to the two flint glass
                                        packaging segments in which it is present (spirits and
                                        foodstuffs). In 2010, the Group produced approximately
                                        139 kT of jars and bottles in this country.


The Ukrainian glass packaging market as a whole is very competitive and has not yet undergone a high
level of consolidation. Additionally, the market is fairly closed to imports. The balance between supply
and demand is sometimes tilted temporarily, affecting the ability of players in the market to adjust
volumes and/or pass on cost increases to their customers. The spirits segment, in which the Group has a
strong presence and offers a wide product range, is currently undergoing another period of competitive
pressure. This pressure is mainly due to the addition of new production capacity by the Group’s
competitors, increased excise duties and a slowdown in local consumption notably due to alcohol-
prevention policies and/or spirit exports. The Group therefore took one of its furnaces offline in 2009
and plans to restart it once demand improves. The upturn in the Ukrainian economy in 2010 allowed the
Group to operate its two active furnaces at full capacity in an environment of glass packaging price
increases. The Group believes that its location in the North West of Ukraine, near the Polish and
Belarussian borders, provides solid growth prospects both locally and in neighbouring countries
(Poland, Hungary, Belarus and Moldova).

To keep pace with developments in the Ukrainian market, especially in terms of exports, the Group has
established an efficient production facility and is very experienced in certain growth segments (notably
jars).

The Group’s main market segments

            Spirits

In this segment, the Group’s customer base over the past three years has been limited. In 2007, the
Group therefore successfully implemented a policy to widen its customer base in order to reduce the
high concentration of its sales amongst its top three customers in the segment. The Group’s strategy in
this segment is to develop a sales presence in premium vodka, by providing a wide range of products,
including decorated packaging, and to continue to diversify and consolidate its portfolio of local
customers. The Group’s top ten customers by net sales accounted for around 97% of Zorya’s net sales in
this segment as of December 31,2010.




                                                  102
              Foodstuffs

The Ukraine is a large agricultural nation where the economy’s full potential has not yet been reached.
This reality is mainly due to the political instability in the country up until 2009. The potential growth in
demand in this segment comes from a growing food and beverage industry and demand from
international customers. The Group believes that the renewed political stability in Ukraine since 2010
should allow it to benefit from development opportunities, notably in jars where demand is rising.
Indeed, the Group has always, since its establishment in Ukraine, considered the jar segment as a
strategic. The Group offers a standard range of products to its customers as well as an increasing
number of personalised products in line with the highest European standards.

6.5.3   United States glass packaging business

General discussion


                                                The Group has been present in the United States since
                                                1995 when Ball Foster Glass (which later became SG
                                                Containers Inc.) was created following the acquisition of
                                                Foster Forbes and of Ball Corp.’s glass making business
                                                (see Section 5.1.6).



As of December 31, 2010, the Group had 4,395 employees in the United States and owned 13 glass
plants and 29 glass furnaces across ten different states. This gives the Group a presence in the four glass
packaging segments that account for the majority of its business. For the fiscal year ending December
31, 2010, the Group produced a total of some 2,371 kT of jars and bottles in the United States.

The U.S. glass packaging market (bottles and jars) totalled around 7,560 kT53 in the fiscal year ended
December 31, 2010. All segments combined, the Group is the second-largest player in this market,
behind the American company Owens-Illinois54. It is made up of three divisions (SOA): Wines, FBS
(Food, Beverages and Spirits) and Beer.

In the United States, the Group generated 36% of its fiscal year 2010 net sales in the beer bottle
segment, where it is the second largest market player55. Bottles for still wines (where the Group believes
itself to be the U.S. leader) and jars for foodstuffs together accounted for 52% of total U.S. net sales for
the fiscal year ending December 31, 2010.




53
          Source: Group estimates based on data published by Euromonitor in March 2009, the Craft Brewing
Statistics of February 2009, the US glass industry report issued by Minimax in January 2010, the Impact
Databank–Table 6-17, the National Agricultural Statistics Service–Table 2-1 and the Gomberg Report No.12 dated
5 March 2010.
54
          Source: Group estimates based on data published by Euromonitor in March 2009, the Craft Brewing
Statistics of February 2009, the US glass industry report issued by Minimax in January 2010, the Impact
Databank–Table 6-17, the National Agricultural Statistics Service–Table 2-1, the Gomberg Report No. 12 dated 5
March 2010 and data in the Form 10-Q filed by Owens-Illinois with the United States Securities and Exchange
Commission on 26 January 2011).
55
          Source: Group estimates based on data published in the Craft Brewing Statistics of February 2009, in the
US glass industry report issued by Minimax in January 2010, in the Impact Databank–Table 6-17, by
Euromonitor in March 2009, in the National Agricultural Statistics Service–Table 2-1, in the Gomberg Report No.
12 dated 5 March 2010 and on Owens-Illinois’ website.


                                                       103
                                  Breakdown by market segment of the
                            Group’s 2010 combined sales in the United States56
                                                              Excluding
                                          Other              Bottles & Jars
                                          bottles                   0.4%          Still wines
                                              2.4%                                    25.2%
                         Beer
                         35.8%




                                                                                  Spirits
                                                                                     9.7%
                                                              Foodstuffs
                                                                26.5%




For the fiscal year ending December 31, 2010, U.S. Group net sales reached €1,162 million57 (versus
€1,087 million in 2009 and €1,011 million in 2008) based on an exchange rate of 1.33 USD/EUR in
2010, 1.39 USD/EUR in 2009 and 1.47 USD/EUR in 200858.

The Group has been present in the United States since 1995 when it acquired Foster Forbes, Pechiney
International’s glass making subsidiary, and Ball Corp’s glass packaging business. These acquisitions
enabled the Group to create Ball Foster Glass, which later became SG Containers. In the past 10 years,
the Group has streamlined its U.S. business, reducing the number of production sites from 23 to 13 to
increase the return on its investment. Thanks to such measures, the Group has a solid, competitive
position in a market where packaging made from other materials has already been largely substituted for
glass packaging (especially in the soft drink, juices and large capacity jar segments). The Group’s U.S.
business is divided into three divisions that correspond to three operating entities: Wine – three
production facilities; Beer – five production facilities; and Jars, Spirits and Other Beverages – five
production facilities. The Group aims to reinforce its positions in these segments (in particular in wine
where the group is the market leader) and to maintain its number two position in the beer bottle market59
(for both standard beers and speciality, or craft, beers).

As of December 31, 2010, the Group had contracts ranging in term from 18 months to seven years with
67% of its customers (based on 2010 net sales). Following the surge in energy prices in the United
States in 2005 and 2006, the Group, when negotiating new contracts or renewing existing ones, now




56
         Based on external sales.
57
         Net sales generated in 2010 by all of the Group’s US operations (glass packaging and machines).These
sales are stated in millions of euros and are based on consolidated sales within US borders (i.e., excluding intra-
group sales on US territory).
58
         Source: Group.
59
         Source: Group estimates based on data published in the Craft Brewing Statistics of February 2009, in the
US glass industry report issued by Minimax in January 2010, in the Impact Databank–Table 6-17, by Euromonitor
in March 2009, in the National Agricultural Statistics Service–Table 2-1, in Gomberg Report –No. 12 dated 5
March 2010 and on Owens-Illinois’ website.


                                                       104
includes predetermined price increase mechanisms to protect against cost hikes, especially for energy
prices which are extremely volatile in the United States. The Group estimates that some 89% of the net
sales generated in this market in fiscal year 2010 were covered by cost pass-through clauses, which
protect against inflation in production costs. These clauses are now mandatory in all of the Group’s
contracts lasting more than one year. Moreover, 85% of the Group’s 2010 net sales were covered by
energy surcharge clauses, which protect against fluctuations in energy costs.

As of the registration date of this Document de Base, the Group’s main competitors in the United States
were Owens-Illinois and Anchor. In some sectors, the Group competes with local niche players (such as
Leone Industries, Kelman Bottles and Arkansas Glass), foreign companies (like Vitro and Fevisa of
Mexico and certain Chinese producers) and, indirectly, with producers of consumer products that have
their own glass packaging operations (such as Gallo, a subsidiary of the Gallo wine-making company,
and Longhorn Glass Corp, a subsidiary of brewer ABInbev). The Group is a leader in its market
segments (especially in glass packaging for still wines) and has considerable experience in custom-made
products, developed in collaboration with its customers. The Group believes that its production capacity
is well-suited to the size of its market and is in line with its strategy of focusing on certain segments
(wine, jars and spirits) and favouring profitability and differentiation on high-end bottles over volumes
on basic products in the beer segment. As far as the Group is aware, its competitors are not planning any
capacity increases as of the registration date of this Document de Base. Indeed, the trend in recent years
has been more towards reducing capacity. For example, Cameron Family Glass closed its glass making
factory in 2009 due to a furnace failure before it was even fully operational. This facility was sold in
2010 and could either be restarted in the near future or transformed to produce other types of goods.

The Group’s U.S. volumes have stabilised over the past three years (2008-2010) and its financial
performance has improved steadily despite the economic crisis.

The Group’s main market segments

             Beer

The Group believes it is the second-largest player in this segment60.

The Group’s customer base in the beer segment is very limited as two beer producers accounted for
some three-quarters of the U.S. beer market in 201061. Further sector consolidation in recent years saw
the mergers of SABMiller with Molson Coors and of InBev with Anheuser-Busch, which resulted in the
creation of ABInbev.

In this very competitive segment, the Group is the main supplier of ABInbev, the leading brewer in the
U.S. market. Due to the size of this supply contract, the two companies’ activities are closely
intertwined through an historical contractual partnership. In fiscal year 2010, net sales to ABInbev
accounted for the majority of the Group’s U.S. net sales in this segment. A significant share of the
Group’s production capacity in the United States is dedicated to this customer. Considering the size of
this customer, a long-term contract is essential for the Group. To that end, it has negotiated a seven-year
contract with ABInbev which runs until 2013 when the Group has major maintenance planned on the




60
        Source: Group estimates based on data published in the Craft Brewing Statistics of February 2009, in the
US glass industry report issued by Minimax in January 2010, in the Impact Databank–Table 6-17, by Euromonitor
in March 2009, in the National Agricultural Statistics Service–Table 2-1, in Gomberg Report No. 12 dated 5
March 2010, and on Owens-Illinois’ website.
61
        Source: Group estimates based on data published in the Craft Brewing Statistics of February 2009, in the
US glass industry report issued by Minimax in January 2010, in the Impact Databank–Table 6-17, by Euromonitor
in March 2009, in the National Agricultural Statistics Service–Table 2-1, in the Gomberg Report No. 12 dated 5
March 2010, and on Owens-Illinois’ website.


                                                      105
furnaces dedicated to this customer. This contract includes cost pass-through clauses, including one for
the cost of natural gas.

The Group also has shorter-term contracts with craft brewers, which also generally include similar cost
pass-through clauses. These small, independent traditional breweries accounted for a minor percentage
of the Group’s net sales as of the registration date of this Document de Base, but this percentage is
gradually growing.

Sales and marketing policies along with cost constraints related to the economic climate or changes in
strategy may lead some of the Group’s customers to substitute more commodity-like packaging such as
tin cans (see Section 4.1) for glass packaging, which has a premium positioning. This is particularly true
in the United States, due to changes in consumer habits in wake of the economic crisis, and this trend is
set to continue.

The Group is therefore working actively to develop and market new tailor-made products for its
customers. For example, the Group has developed a range of products specially targeted to the craft beer
market, a segment it considers to be very promising.

Indeed, the Group was the first in its industry to apply an eco-friendly concept to beer packaging with
the “ECO” line for ABInbev.

The Group’s efficient, flexible production facilities allow it to be responsive to its customers’ needs in
terms of product containers and their packaging. SG Containers thus delivers on demand bottles
automatically pre-packed in customers’ own shipping cases, either for a single line or as part of the
“bulk to case” system (see Section 6.5.1.3).

             Still wines

The Group believes it is the leader in this segment.

The Group is one of the main suppliers to the largest U.S. wine producers62. The Group’s top three
customers in terms of net sales accounted for about two-thirds of its U.S. sales in the segment in fiscal
year 2010.

Although the volume of imports in this segment remains quite low at this time, the market is
increasingly faced with imports from Mexico and, to a lesser extent, China. The Group has therefore
chosen to focus on high-quality, tailor-made products fabricated at its two production facilities: one in
Madera to supply Californian vineyards, and the other in Seattle to supply vineyards in Oregon and
Washington state.

At the Seattle site, the Group has formed a partnership with a cullet producer, in line with its sustainable
development policy. The ECO Series range is targeted specifically to the wine segment.

At the Fairfield distribution site and the Seattle production site, the Group has implemented a “bulk to
case” system (see Section 6.5.1.3).




62
        Excluding the Gallo wine producer, which has its own packaging facility.


                                                       106
            Foodstuffs

The Group’s top six customers in terms of sales in this segment accounted for almost two-thirds of its
total U.S. net sales in fiscal year ended December 31, 2010. The customer base in this segment is varied,
comprised of multinationals along with national and smaller local producers.

There is a risk that this segment of glass packaging will be replaced by other materials, especially
plastic, due to the challenging economic climate and customers’ marketing strategies. In view of this,
the Group aims to enhance its product range for the U.S. foodstuffs market by pro-actively developing
products that emphasize the environmental friendliness and sustainability of glass as a packaging
material. The Group also plans to secure sales contracts with guaranteed production volumes (“take or
pay” contracts).

            Spirits

In this segment, the Group’s top five customers in terms of net sales accounted for the majority of its
U.S. spirits packaging sales in fiscal year ended December 31, 2010.

Spirits producers are constantly looking to invent new products and concepts. This segment provides the
Group with growth opportunities in terms of joint-development and innovation with its customers to
produce tailor-made products. The risks of glass packaging being replaced by other forms of packaging
in this segment mainly concern containers of atypical volumes (more than 1.5 litres or less than 0.5
litres), where the Group believes glass is already being replaced by plastic packaging.


            Other bottles

The Group also supplies glass packaging for non-alcoholic beverages. In this market, the majority of the
Group’s net sales are generated with niche producers and the remainder with large market players
(makers of soft drinks, energy drinks, etc.).




                                                   107
6.5.4    South America glass packaging business

General discussion

In South America, the Group has seven production sites and eight active furnaces (of which two
produce tableware) based in three countries, Brazil, Argentina and Chile. This market is referred to from
here on as “South America”.

In 2010, Group net sales in South America reached €302 million. In 2008 and 2009, Group net sales
were €243 million and €241 million respectively.

                                         Breakdown of business in South America



                                                             Brazil

                                                             • Number of sites/Furnaces: 5/5
                                                               o.w. 2/2 dedicated to Tableware
                                                             • Employees: 1,043




                       South America                         Argentina

           - Number of sites/Furnaces: 7/8                   • Number of sites/Furnaces: 1/2
           - Net sales: €302m                                • Employees: 350
           - Employees: 1,579




                                                             Chile

                                                             • Number of sites/Furnaces: 1/1
                                                             • Employees: 186




The net sales mentioned above correspond to sales generated in 2010 by all the Group’s operations in South America
(including tableware). These figures are stated in thousands of euros and are based on regional sales excluding intra-group
sales63 of Brazil, Argentina, Chile and South America respectively.

The sites mentioned in the figure above correspond to the Group’s glass making facilities at December 31, 2010 (including the
tableware business).

The number of employees cited above corresponds to the number of employees at December 31, 2010. For Brazil, the number
of employees includes employees in the tableware business at December 31, 2010.




63
  Regional sales excluding intra-group sales corresponds to total sales generated in a region (including intra-group
sales between this region and another region) but excludes intra-group sales within the same region.


                                                            108
                Breakdown by market segment of the Group’s 2010 combined net sales
                                       in South America64


                                               Other
            Tableware 27.3%                    0.5%                         Still wines
                                                                                  37.6%




                                                                           Sparkling wines
                                                                                4.1%
                              Beer 15.7%
                                                Foodstuff         Spirits 5.5%
                                                  5.7%
             Beverages 3.6%



The glass packaging segments in which the Group is present in South America showed good resilience
during the financial crisis (a slight fall in 2008 followed by a rebound as of 2009) and offer promising
growth prospects.

In this market, the majority of the Group’s pricing agreements with its customers are fixed on an annual
basis. However, at the beginning of 2008, the Group signed a five year contract with ABInbev, its main
customer in this region and the leading brewer in Brazil. This contract includes an annual price index
clause, which takes into account changes in raw material and energy prices.

                  6.5.4.1     Brazil

General discussion

                                       The Group has been present in Brazil since 1960 via its subsidiary
                                       Vidros.

                                       In Brazil, as of December 31, 2010, the Group employed 1,043
                                       persons and owned five glass making facilities and five furnaces,
                                       giving it access to the main five glass packaging segments in
                                       which it is present. In the fiscal year ended December 31, 2010,
                                       the Group produced a total of some 250 kT of jars and bottles in
                                       this country.


In Brazil, the Group generates the majority of its net sales in glass packaging for beer, where it has a
leading position, and spirits. The Group is also a leading player in glass packaging for still and sparkling
wines and generates 8.5% of its net sales in jars for foodstuff.




64
        Based on external sales.


                                                       109
In this country, the Group’s main goal is to develop its local network and strives to remain a key player
thanks to its pricing policy and product quality and by maximising local synergies.

In 2007, the Group’s main customer in Brazil, ABInbev, decided to develop its own glass packaging
business with the aim of covering around half of its packaging needs. At the beginning of 2008, the
Group signed a five year contract to supply glass bottles to ABInbev and one of its furnaces is almost
entirely dedicated to production for this customer.

The Group’s main market segments

             Still and sparkling wines

The Group is a leading player in these segments.

The Group’s top five customers in terms of sales accounted for about half of its Brazilian net sales in
these segments in 2010.

According to the Group, the bottles for still and sparkling wine markets were fairly stable between 2008
and 2010. During this period, the increase in consumption was mainly covered by imports of
Argentinian and Chilean wines, in both bottles and in bulk, which were boosted by the recent rise in the
Brazilian real.

             Spirits

The Group’s presence in this segment is limited due to its low levels of flint glass production, the high
rate of returnable glass bottles and the existence of an informal economy.

The Group believes that the risk of glass packaging being replaced by Polyethylene Terephthalate (PET)
packaging is high in this segment, especially for the bottling of low-end un-aged “cachaça”. The Group
has therefore chosen to position itself on luxury products in this segment, where it believes that glass
remains the favoured material.

             Foodstuffs

The Group’s top six customers in terms of sales accounted for a little more than half of its Brazilian net
sales in this segment in the fiscal year ended December 31, 2010.

Between 2008 and 2010, the Group performed well in this segment, with a 24.7% increase in volumes,
helped by its solid relationships with both local and global customers and its know-how in the field.

             Beer

The Group is a leading player in this segment.

The Group generated most of its Brazilian net sales in this segment with its two main customers.

This segment is characterised by the high percentage of returnable glass bottles. Considering the size of
the two main brewers in this market, the Group’s glass packaging volumes are subject to significant
fluctuation governed by when brewers renew their returnable bottle “pools”.

             Tableware

The Group is a leader in glass containers for the oven in both Brazil and its main export markets.




                                                   110
The Group’s tableware business has two dedicated furnaces, one in Agua Branca and the other in
Canoas, which can produce soda-lime glass, which is sometimes also tempered, for tableware and
borosilicate glass for ovenware. Production from these sites is not only aimed at the local market, and
exports generated 25% of tableware net sales in the fiscal year ended December 31, 2010. At the same
time, competition in tableware includes Chinese imports in glass and other materials, and products made
from materials such as porcelain and ceramic.

The Group has various distribution networks for its tableware products, in descending order of size:
specialist retailers, mass retailers, wholesalers and other (contract catering, specialist shops, etc.).

                  6.5.4.2   Argentina

General discussion

                            The Group has been present in Argentina since 1998 via its subsidiary
                            Rayen Cura (40% owned by the Chilean diversified holding company
                            Cristalerias Chile).

                            In Argentina, as of December 31, 2010, the Group employed 350 persons
                            and owned one glass making facility and two furnaces. The Group is only
                            present in the still and sparkling wine packaging segments and produced
                            a total of some 172 kT of bottles in this country in the fiscal year ended
                            December 31, 2010.


In Argentina, the Group is a leading player in the still and sparkling wine segments where it generates
all of its net sales.

The Group’s main market segments

The Group’s top ten customers in terms of net sales accounted for about two thirds of its Argentinian net
sales in the fiscal year ended December 31, 2010.

The Group believes that these segments have strong development potential, thanks to sustained growth
in the Argentinian still and sparkling wine market in recent years, notably in terms of exports65 and their
move up market. In 2009 and 2010, these exports continued to rise steadily despite the global financial
crisis.

Despite difficulties relating to the availability of certain energy sources, restricting regulations in terms
of cost control and strong inflation rates, the Group believes that the sharp increase seen in bottled
Argentinian wine exports in recent years, which has been accompanied by demand for more diversity in
glass packaging (to better meet the needs of markets where Argentinian wines are imported), provides
promising growth prospects.

Therefore, the Group has decided to build a new furnace as of the beginning of 2011 to better compete
with the recent presence of Owens-Illinois in this market (the American company acquired Cristalleria
de Rosario in 2010 and increased its production capacities) and to profit from the growth in this market,
in both Argentina and Chile.




65
      Source: Group estimates based on data published by the Instituto Nacional de Vitivinicultura in
November 2010.


                                                     111
Indeed, until recently, the Group met part of the Argentinian market’s needs with imports from its
subsidiary in Chile. As capacity at its Chilean plant is now absorbed by local demand, the Group intends
to profit from its new investment in Argentina to boost growth in Chile from 2012.

Due to the volume of exports, the Argentinian wine segment has taken an eco-design approach to
packaging, in which the Group participates, in order to reduce the global ecological footprint of the
business.

                  6.5.4.3    Chile

General discussion

                     The Group has been present in Chile since 2006 via its subsidiary SG Envases of which
                     it owns 51% of share capital. The rest is owned by a Chilean partner.

                     In Chile, as of December 31, 2010, the Group employed 186 persons on one production
                     site. The Group owns one furnace in this country giving it access to the still wine glass
                     packaging market. In the fiscal year ended December 31, 2010, the Group produced a
                     total of some 67 kT of bottles in this country.




In Chile, the Group generates the majority of its net sales in the glass packaging for still wines segment,
with a small percentage coming from bottles for sparkling wine.

The Group’s main market segments

The Group believes that its recent arrival in the Chilean market has provided opportunities for growth
that has allowed it to gradually, over a period of just over two years, reach its maximum production
capacity.

In Chile, the Group has developed the same eco-design approach as in Argentina (see Section 6.5.4.2).
By optimising its production facilities, the Group intends to continue to develop on this market by
implementing local synergies and a policy providing value for money.

6.6   Dependency factors

The Group’s main dependency factors are described in Section 4.1.




                                                    112
6.7     Industrial and organisation policy

                                       Simplified operational organisation chart

                                                          CEO
                                                     Jérôme Fessard                CFO – Management Reporting –
          Human Ressources                                                                Procurement – IT
         Robert de Vaucorbeil                                                               Eric Placidet

                  Legal                                                                 Strategic Initiatives
              Alice Mouty                                                                 Doris Birkhofer

           Communication /                                                                R&D/Technical
       Sustainable Development                                                          Nicolas Yatzimirsky
            Olivia Grégoire
                                                                                       International Business
                                                                                           Development
                                                                                          Michel Toussaint



             United Sates                                Europe                            Latin America
           Joseph R. Grewe                           Jérôme Fessard                       Americo Denes

                                                    Southern Europe &
                Beer                                  Mediterranean                          Brazil
           Robert J. Ganter                          Michel Toussaint                     Americo Denes

    Spirits, Non-alcoholic beverages                 Iberian Peninsula
                                                                                            Tableware
                 Foodstuff                            Michel Toussaint
                                                                                           Denis Simonin
           Philip D. Mc Pherson
                                                          Italy
              Wine                                     Antonio Lui                         Argentina
                                                                                          Walter Formica
         Emmanuel Auberger
                                                          France
                                                    Nicolas Yatzimirsky                        Chile
                                                                                           Claudio Bastos
                                                        Germany
                                                     Stefan Jaenecke

                                                     Eastern Europe
                                                     Wolfgang Brauck


6.7.1      Procurement and supplies

The Group’s main procurement and supply costs include the following, in decreasing order of amounts
that they represent for the Group:

•     Energy (fuel, gas, electricity);
•     Raw materials (mainly soda ash and glass sand but also cullet);
•     Transport of final products (mainly road haulage);
•     Packaging (cases, plastic films, pallets, cartons, corrugated sheets) ;
•     Industrial equipment; and
•     Moulds.

As of the registration date of this Document de Base, the Group’s procurement and supply is managed
by the procurement division. This division is composed of a director, who coordinates all of the Group’s
purchasing, and he is assisted by buyers, each in charge of a class of strategic investment (of which
certain have the role of operational buyer within the procurement division of a subsidiary or a country in
which the Group has production facilities). The Group’s procurement division usually coordinates the
purchasing of the most strategic products.




                                                           113
The Group also has procurement divisions within its subsidiaries or in countries where the Group has
production facilities. These divisions, as a rule, are in charge of operating purchases (such as transport
of packaging). Some purchases made by the Group’s various companies are pooled by region, and this
is usually managed by the Group’s procurement division (notably for energy, raw materials and general
operating expenses).

Certain purchases, notably those of a strategic nature or where economies of scale can be made, are, as
of the registration date of this Document de Base, pooled with the purchases of Compagnie de Saint-
Gobain. Under the Pooled Purchasing Agreement, the Group and Compagnie de Saint-Gobain will
continue to pool certain categories of purchases for as long as Compagnie de Saint-Gobain directly or
indirectly holds more than 50% of the Company’s share capital or voting rights and during an initial
period of three years (with the possibility of extension) from the date when Compagnie de Saint-Gobain
loses its majority shareholding interest as indicated above, so as both parties can continue to benefit
from economies of scale, particularly for purchases of soda ash and energy in the countries in which this
pooled purchasing agreement exists and can be extended (see Section 22).

6.7.2   Production

The production of glass packaging requires knowledge of technically complex industrial processes
which require the use of heavy equipment. The production of hollow glass mainly consist of
transforming, by melting at extremely high temperatures, the various materials used in the composition
of glass into a mix of vitrifiable liquid, that is then formed using various forming techniques (blow and
blow/press and blow).

The Group masters this fundamental glass making know-how and owns high-performing production
facilities with, as of the registration date of this Document de Base, annual production capacities of
some eight million tonnes of glass. In the fiscal year ended December 31, 2010, this represented around
25 billion bottles and jars.

The bottle and jar glass-making cycle

The glass making process is divided into three main steps:

-   The melting of raw materials and cullet:

Once mixed, the raw materials and cullet are melted in furnaces and heated to a temperature of around
1,550°C. It takes around 24 hours for the raw materials entering the furnace to be converted into molten
glass. The extremely high temperatures involved in the melting process mean that production is around-
the-clock, with furnaces operating 24 hours a day and seven days a week. As well as safety concerns,
the temperatures reached raise environmental issues as the molten glass gobs emit high levels of carbon
dioxide and fumes which are evacuated by chimneys.

-   The hot end - glass forming and treatment:

The molten glass is then carried through a series of forehearths, at a temperature of between 1,100°C
and 1,550°C, to the forming machines. Forming consists of creating a hollow glass object by first
pressing the molten glass with a metal plunger and then blowing with compressed air. The molten glass
enters the forming machine as a segment of glass called a “gob”, whose weight, shape and temperature
is precisely controlled. This gob is then blown twice (blow and blow process), first in a blank mould
which transforms it into an intermediate hollow pocket shape, then in a finishing mould to give the
product its final shape. The whole forming cycle only takes a few seconds and the bottles and jars are
still at temperatures of around 600°C when they come out of the machine. To ensure the solidity of the
freshly formed glass containers they undergo a heat treatment and are cooled in a controlled way inside
a tunnel furnace known as an annealing lehr. This process takes between 50 minutes and two hours. To
make the bottles and jars scratch resistant, they are also treated with surface coatings. When they are


                                                   114
still hot, before entering the lehr, they are coated with a fine layer of tin oxide and when cooled at the
lehr exit a wax coating is applied. These treatments are compatible with the use of the bottles and jars to
package foodstuff.

-   The cold end – glass inspection and packaging:

To ensure the quality of its products, each item is checked using various inspection techniques,
depending on the market and the product, which use visual, mechanical, video and light beam
technology. These techniques are used to check the neck area (for good closure), the dimensions, glass
thickness and appearance of the products. Any container that does not come up to standard is
automatically rejected and returned to the furnace to be re-melted. As they leave the production line, the
products are packed on pallets.
        Unloading of raw
        materials    and
        cullet                                         Mixer                          1. Raw materials (sand,
                                                                            Furnace   sodium, limestone, feldspar,
                                                                                      etc.) and recycled glass are
                                                                                      mixed and then melted in a
                                                                                      furnace.
                                                                                      2. Molten glass gobs are blown
                                                                                      in a mould.
                                                                                      3. The product is then annealed
                           Cradles                                                    and inspected.

                                       Storage silos
                                                                                                   Forehearth




                 Packaging equipment    Inspection equipment         Annealing lehr     Forming machine


Bottle and jar production facilities and industrial processes

The Group’s production facilities include 47 glass making sites that are mostly located near its main
customers’ packaging sites and house around one hundred glass furnaces in total that operate around the
clock. The efficiency of these facilities, which the Group believes are of the highest standards, depend
on them being used in optimal conditions. For example, the Group’s glass making furnaces are among
the most efficient equipment in the glass making industry in terms of energy consumption and service
life.

The performance of the equipment used is measured in terms of productivity and flexibility. By
standardising heavy machinery by product family, the Group can shift the production of a product range
from one production line to another and even from one site to another. The use of versatile equipment
also allows the Group to produce between two and four different types of article on the same production
line. Thanks to the flexibility of its production facilities, the Group aims to be responsive and reduce its
stock of finished products. The standardisation of machinery by product family also generates technical
synergies (transfer of best practises and know-how from one site to another, etc.) and decreases the
number of spare parts.

The performance of production facilities and their adaptation to different markets is of prime importance
in terms of industrial equipment investment costs.

The Group strives to constantly improve its production facilities and industrial processes. Furnaces are
designed in-house at CTC, its technical centre at Chalon-sur-Saône in France, in collaboration with


                                                               115
Saint-Gobain Conception Verrière. Forming machines are also produced by the Group’s German and
U.S. subsidiaries GPS, which provide a third of its equipment. This allows the Group to keep up to date
with new developments in terms of glass-making equipment.

The Group’s quality standards policy

The Group has enforced high quality, traceability and customer satisfaction management standards in all
the regions in which it is present. Quality certification varies depending on whether standards are set by
an external body (which is notably the case in Europe), certain large customers (notably in the United
States) or by the Group’s own team that strive to ensure quality standards are met. The Group has
invested for a while now to ensure that all of its teams comply with quality standards, including
guaranteeing the existence of written procedures common to all sites as well as the traceability of any
modifications made. The Group therefore carries out audits each year to make sure that environmental,
hygiene and safety standards are respected.

The main standards and practises currently applied by the Group include:

    •   ISO 14001: This standard specifies requirements for an environmental management system
        (EMS) to develop and implement a policy and objectives which take into account legal
        requirements and information about significant environmental aspects.

    •   ISO 9001: This standard specifies requirements for a quality management system which allows
        the consistent provision of products that meet customer and applicable statutory and regulatory
        requirements and includes processes for continual improvement of the system.

    •   ISO 22 000: This standard guarantees the ability to control food safety hazards for the consumer
        throughout the production process. This standard specifies requirements for a food safety
        management system (FSMS) which allows management to ensure the efficient implementation
        and continual updating of its food risk policy aimed at providing products that are safe for the
        consumer and in line with customer and regulatory requirements.

    •   HACCP (“Hazard Analysis Critical Control Point”): This system identifies, evaluates and
        controls significant food safety hazards. The HACCP principles are included in the ISO 22 000
        standard.

    •   OHSAS 18001 (“Occupational Health and Safety Assessment Systems”): This management
        system aims to reduce health and safety risks in the workplace.

    •   Customer certification (United States): This is an audit carried out following guidelines drawn
        up based on ISO regulations and the implication and motivation of the Group’s teams.

The Group is currently developing an environmental management policy which consists of complying
with legislation concerning environmental impacts. Thus, as of the registration date of this Document de
Base, more than 65% of the Group’s glass making facilities (including its Brazil site) had obtained
ISO 14001 certification. In Western Europe, 80% of the Group’s sites had obtained this certification.

In Western Europe and South America, all of the Group’s sites had obtained ISO 9001 certification
which was delivered by external bodies.

As of December 31, 2010, 20 of the Group’s sites were ISO 22 000 certified, a standard that is part of
the HACCP principle. The Group’s French facilities were the first production sites for glass packaging
for the food industry to obtain ISO 22 000 certification in Europe.




                                                   116
In the United States, the Group and its customers’ demands in terms of quality are mainly based on
labels delivered by customers or by the Group, as opposed to ISO certification. Two main quality labels
are currently enforced at the Group’s U.S. production facilities:

      •    The certification issued by the Group’s main customer in terms of net sales in the glass
           packaging for beer segment which is based on standard quality requirements. This certification
           is in place in half of the Group’s U.S. production facilities which carry “Select Status” or
           “Certified Status” labels; and

      •    The certification issued by the Group itself, SG 9000 (which has a “Gold” and “Silver” level of
           certification), which guarantees the quality of manufacturing processes at the facilities that do
           not produce any products for the Group’s abovementioned customer.

The Group is currently modernising its production facilities in emerging markets. Acquisitions made by
the Group in emerging markets often require one-off industrial investments aimed at improving the
“EHS” level of the sites. For example, Zorya’s site in Ukraine obtained ISO 14001 certification in 2009.

Past and future Group investments aimed at bringing production facilities up to standard and in line with
environmental requirements are detailed in Section 5.2.

6.7.3      Sales and marketing policies

The Group’s main business is centred on the development, production and sale of glass packaging for
the food and beverage industries.

In terms of marketing, and in general, it is important that all of the Group’s companies can offer its
customers a service adapted to the local market. This requires efficient equipment in terms of local
standards.

These policies are implemented based on each market’s background, trends and sensitivities and the
marketing and product development of each of the Group’s companies are based on these policies. The
Group’s multi-national customers (i.e. customers who purchase from the Group in more than one
country) represented just 30% of total Group net sales in 2010. The rest of the Group’s customer base
was composed of customers in the Group’s various local markets.

To better meet the needs of these multi-national customers, the Group has implemented a sales policy
that combines strength with proximity (see Section 6.2). The Group believes that its understanding of
local markets, customers’ expectations and competition allow it to better adapt its price, product and
service policy to obtain the best performance. This can be seen notably through the wide and varying
range of products and services (see Section 6.5.1.1).

Finally, due to increasing demand for high value-added products in the spirits segment, the Group set up
a special sales unit, called “Selective/Line”, which produces and decorates luxury bottles. This business
unit has its own sales and marketing team which works closely with the Group’s local teams.

6.8       Legislative and regulatory environment

6.8.1      Legislation and regulations in Member States of the European Union

                    6.8.1.1   Regulations for packaging products

Health regulations

The Group, in its role as a producer of packaging for food products, is subject to European regulations
aimed at protecting consumer health.


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             Contact with food

EC regulation n° 1935/2004 dated 27 October 2004 deals with the sanitary security of materials and
items that come into contact with both liquid and solid foodstuffs and aim to guarantee high levels of
consumer health and interests.

This regulation deals with materials and items destined to come into contact with foodstuffs or which
are already in contact with foodstuff. This regulation is therefore particularly aimed at packaging.

This regulation states that packaging must be sufficiently inert. Thus, materials and items must be
manufactured in line with good manufacturing principles so that, under normal or foreseeable conditions
of use, they are sufficiently inert to preclude substances from being transferred to food in quantities
large enough to endanger human health or to bring about an unacceptable change in the composition of
the food or a deterioration in its organoleptic properties. In terms of extractable limits, in certain
countries glass is subject to the directive relating to ceramic articles, in particular Directive 84/500/EEC,
which was modified by Directive 2005/31/EC, which lays down limits for the extractable quantities of
lead and cadmium.

The commercialisation of packaging destined to come into contact with foodstuffs that does not abide
with regulations is prohibited.

For glass packaging producers, labels that guarantee the traceability of packaging are applied at the end
of the production cycle, when products are stored on pallets. This makes the inspection of products and
the removal of defective items easier.

             Packaging hygiene

The Group is also subject to European regulations regarding packaging hygiene. EC regulation
n° 852/2004 dated April 29, 2004 lays down general hygiene regulations that apply to all foodstuffs and
states that packaging material must not present a risk of chemical, bacterial or physical contamination of
this foodstuff.

The regulation also stresses that every food business operator along the food chain should ensure that
food safety is not compromised. This includes the storage of packaging and the process of packaging
foodstuff.

So that each of the Group’s companies complies with these regulations, a HACCP methodology has
been implemented which includes documentation that identifies and evaluates significant food risk
factors. On a voluntary basis, some of the Group’s companies have obtained ISO 22 000 certification for
their internal procedures. Twenty of the Group’s production facilities are currently ISO 22 000 certified.

Environmental regulations

In its role as a producer of packaging, the Group is subject to regulations governing packaging and
packaging waste enacted with the aim of protecting the environment.

The European Parliament and Council Directive 94/62/EC of 20 December 1994 on packaging and
packaging waste (hereafter referred to as the “Packaging and Packaging Waste Directive”, adapted in
France by decree no. 96-1008 of November18, 1996 and decree no. 98-638 of July 20, 1998, codified by
articles R. 541-13 et seq and R. 543-42 et seq of the environmental code, and in all the European
countries in which the Group has industrial facilities, aims to harmonise national legislation governing
packaging and packaging waste to decrease their impact on the environment.




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To do so, the Packaging and Packaging Waste Directive sets out guidelines for the prevention of
packaging waste, its reuse, recycling and recoverability. These requirements apply to the production and
composition of the packaging as well as its reusable or recoverable features.

The Group should notably keep the mass and volume of its packaging to the minimum possible within
security and hygiene standards, while maintaining the needed functionality and respecting customers’
expectations in terms of quality. The Group should also produce packaging in such a way that it can be
reused or recovered, including recycled. Directive 2004/12/EC amending the Packaging and Packaging
Waste Directive, adapted in France by decree no. 2005-1472 of November 29, 2005, sets the target that,
as of December 31, 2008, 60% by weight of glass packaging in the Member States of the EU is
recycled. To encourage recycling, the European Commission adopted decision 2001/171/EC of
February 19, 2001 establishing the conditions for a derogation for glass packaging of the 100 ppm level
in relation to the heavy metal concentration levels established in Directive 94/62/EC on packaging and
packaging waste. However, this 100 ppm concentration level can only be exceeded because of the
addition of recycled materials. Decision 2006/340/EC of May 8, 2006 prolonged this derogation without
any further expiry date.

This recovery and recycling of packaging is carried out through glass packaging collection schemes that
vary from one country to another. The main collection and recycling schemes in force in the Member
States of the European Union where the Group has production facilities are described below.

             France

The Packaging and Packaging Waste Directive, and its application orders codified in the environmental
code, favour recycling and packaging recoverability.

The schemes in place distinguish between household and non-household waste.

The collection and recycling scheme for household waste in France was established, even before the
Packaging and Packaging Waste Directive, by the modified law no. 75-633 of July 15, 1975 regarding
the disposal of waste and the collection of material and its application order n° 92-377 of April 1, 1992
(included in the environmental code under articles R. 543-53 et seq). This law obliges all producers that
package, either themselves or via a third party, their products in view of commercialisation, to provide
waste-disposal schemes to households for this packaging. The producer can delegate the provision of
this scheme to a company authorised by the public authorities in exchange for financial payment. In
return, the two authorised companies in France (Eco-Emballages and Adelphe) provide financial aid to
local authorities to set up selective household packaging waste collection schemes.
These authorised companies coordinate between the companies that commercialise packaged products,
the local authorities that are in charge of setting up waste collection and treatment schemes, and the
recycling professionals.

The Chambre Syndicale des Verreries Mécaniques de France (“CSVMF”), the French glass industry
federation, undertakes to take charge of all the glass packaging waste collected by the local authorities
as part of a framework partnership with the authorised companies. The CSVMF nominates the glass
makers who recover the glass based on its collection zone.

The glass makers execute the commitment made by the CSVMF by signing a recovery guarantee
contract with local authorities. They recover the glass packaging collected by the local authorities,
transport it and transform it into cullet through the intermediary of cullet treatment centres.

The collection and recycling scheme for non-household waste is outlined in directive no. 94-609 of July
13, 1994 (included in the environmental code under articles R. 543-66 et seq). Under this scheme, the
Group has three options for recovering its waste: either itself at an authorised installation, dispose of its
waste with an operator of an authorised installation, or dispose of its waste with an authorised third
party.


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             Germany

In Germany, the Packaging Ordinance (Verpackungsverordnung) of 1991, which was last amended in
2009, obliged glass packaging producers to recycle their used packaging. This obligation can be
subcontracted to a collective recycling scheme. DSD (Duales System Deutschland GmbH) is one of the
largest collective recycling companies in Germany.

Until 2007, all German hollow glass producers had shares in GGA (Gesellschaft für Glasrecycling und
Abfallvermeidung mbH), a company which supplied them with cullet and which itself obtained the
majority of its used glass from DSD. However, on 31 May 2007, the German competition authorities
(Bundeskartellamt) deemed that the cullet collection and distribution system constituted a cartel and
banned GGA from continuing to buy cullet on behalf of its shareholders as of 2008.

As a result, as of this date, glass producers are obliged to buy cullet without passing via GGA and can
purchase this recycled glass from DSD and other suppliers in the market.

             Spain

Spain’s recycling system is governed by law no. 11/1997 of April 24, 1997 on packaging and packaging
waste and this country has a centralised glass bottle collection system. The body in charge of the
collection and recycling of glass is not-for-profit organisation Ecovidrio. In 2003, Ecovidrio was
condemned by the Tribunal de Defensa de la Competencia for fragmenting the cullet market and
abusing its dominant position. In July 2010, the Comision nacional de la Competencia (subject to an
appeal of this decision by Ecovidrio) fined the organisation €1 million for impeding free competition
and obliged it to conform with the management system set out in the individual authorisation
(“Autorizacion Singula”) which had been approved on April 22, 2005 by the Spanish competition
authority.

             Portugal

Portugal has also enforced a glass collection and recycling scheme. According to Decree Law 366-A/97
of December 20, 1997, amended by law no. 162/2000 of June 27, 2000 and law no. 92/2006 of May 25,
2006, glass packaging producers are obliged to recycle at least 60% of glass packaging consumed on
Spanish soil. This obligation to collect and recycle glass can be subcontracted to a third party.

             Italy

In Italy, legislative decree number 22/97 dictates obligations in terms of glass collection and recycling
in Italy. Based on this decree, Co.Re.Ve (the glass recovery consortium), was created in October 1997
and is charged with collecting and recycling used glass.

                     6.8.1.2   Regulations for the glass making industry

The Group is also subject to regulations aimed at managing the emissions of pollutants. Council
Directive 96/61/EC of September 24, 1996 concerning integrated pollution prevention and control (the
“IPPC Directive”), aimed at preventing or reducing emissions in the air, water and land, including
measures concerning waste, outlines the authorisation process for industrial activities that present risks
to the environment. The IPPC Directive is applicable to glass making facilities that have melting
capacities of more than 20 tonnes per day and is therefore valid for businesses such as the one run by the
Group. In order for a permit to operate to be authorised, the Group’s facilities should be operated in
such a way that the “best available techniques” are implemented. These “best available techniques” are
presented in a reference document (“BREF” document) for the glass making industry issued by the
European Commission, and mainly concern emissions from the melting process, such as the emission of
dust, nitrogen oxide and sulphur dioxide. They aim to, when possible, prevent pollution, ensure an




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efficient use of energy, prevent and limit accidents, and restore sites to their original states once glass
making activities have ended.

This authorisation process is outlined in French law in the specific provisions relating to facilities listed
for the prevention of pollution, risks and nuisances (articles L. 511-1 et seq of the environmental code).
In France, the Group is also subject to the departmental orders of May 14, 1993 and March 12, 2003
relative to the glass making industry which serve, among other purposes, to fix emission limits for dust
and sulphur dioxide in pursuance of IPPC Directive 96/61/EC.

Directive 2010/75/EU “IED” (Industrial Emission Directive) of November 24, 2010 was formally
adopted on November 8, 2010 by the EU Council. This directive is a recast of the IPPC directive.

Moreover, Directive no. 2003/87/EC of the European Parliament and of the Council of October 13,
2003, establishing a scheme for Greenhouse Gas Emission Allowance Trading within the Community
(GGEAT directive), known as the “Emissions Trading Scheme” (ETS), introduced greenhouse gas
emission quotas for CO2 emissions only.

The ETS aims to reduce the emission of gas pollutants in the air by creating an EU Community-based
trading system in greenhouse gas emission allowances. The European glass making industry is referred
to in annex I of this directive.

The Emission Trading Scheme states that each Member State should develop a National Allocation Plan
(NAP) fixing the total emissions allowance for a given period (1st period: 2005-2007; 2nd period: 2008-
2012) and the breakdown of this allowance by site.

The Emissions Trading Scheme was transposed to French law by the enactment decree N° 2004-832 of
August 19, 2004, included in the environmental code under articles R. 229-5 et seq, the breakdown of
quotas for the 2005-2007 period was defined in the order of February 25, 2005 which was modified by
the order of November 28, 2006, and the breakdown for the 2008-2012 period was defined in the order
of May 31, 2007 which was modified by the order of June 28, 2007.

For the third period, between 2013 and 2020, the Emissions Trading Scheme was amended by directive
29/2009/EC that defines the gradual reduction in the quantity of allowances issued and modifies the
allocation system for free allowances by introducing a European system based on benchmarks by
product. The directive also sets out guidelines for industrial sectors that are deemed to be exposed to a
significant risk of carbon leakage, that is, sectors affected by the fact that other developed markets and
other parties with high greenhouse gas emissions outside of the European Union do not participate in an
ambitious international climate change agreement. The hollow glass sector answers the criteria set out
by the European Commission to be considered as an exposed activity, and is therefore eligible for free
carbon credits, which cannot exceed the reference level calculated based on the average performance of
the most efficient installations in the European Union. EU commission regulation 1031/2010 of
November 12, 2010 establishing a scheme for greenhouse gas emission allowances trading for the 2013-
2020 period is pursuant to this directive.

Based on current draft regulations and the assumption made by EU institutions in terms of the market
price for carbon credits (30€/tonne of equivalent CO2), the Group believes that at March 1, 2011 the
reinforcement of the Emissions Trading Scheme could cost the Group around €5 million in 2013 (taking
into account carbon credit reserves accumulated by December 31, 2012), some €12 million per year in
2014 and 2015, then around €16 million for each consequent year.

Finally, the Group is subject to Directive 2004/35/EC of the European Parliament and of the Council of
April 21, 2004 on environmental liability with regard to the prevention and remedying of environmental
damage.




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This directive notably allows all Member States full discretion to decide whether or not to introduce a
mandatory national financial security system. In the EU countries in which the Group is present, as of
the registration date of this Document de Base, only Portugal and Spain had introduced such a system.

In Portugal, Decree Law 147/2008 in force since January 1, 2010, states that the mandatory financial
security system can be in the form of an insurance policy which, as of the registration date of this
Document de Base, is the Group’s legal liability insurance policy. In Spain, this security was made
mandatory by law 26/2007 of October 23, 2007 which requires that industrial operators have a
mandatory financial security system to cover their environmental liability which is proportionate to the
degree of risk their business represents to the environment. This law nonetheless states that the
implementation of this disposition is subject to the adoption, as of April 30, 2010, of an additional
regulation outlining the calendar for and the conditions surrounding the implementation of a financial
security system by the concerned companies, but this regulation has still not been adopted.

                 6.8.1.3   Regulations regarding chemical substances

EC regulation no 1907/2006 of the European Parliament and of the Council of December 18, 2006
concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), updates
regulations in effect in the European Union concerning chemical substances.

This regulation imposes a series of requirements for all producers that come into contact with chemical
substances aimed at protecting human health while also maintaining the competitiveness of the chemical
industry and improving information for consumers.

Since June 1, 2007, when the REACH regulation came into effect, the Group has an obligation to
inform regarding risks linked to substances used. For example, the Group must communicate
information down the supply chain such as a declaration that the substance is not subject to
authorisation or details of any restriction imposed.

Since June 1, 2008, companies must register each chemical substance or chemical preparation with the
European Chemicals Agency. The first registration deadline was on November 30, 2010. This first stage
affects substances that are produced or imported in high volumes (>1,000 tonnes/year) and hazardous
substances.

EC commission regulation 987/2008 which amends annex IV of the REACH regulation sets out criteria
which allow glass packaging produced by the Group to be classed in the category of substances that are
exempt from registration.

As a downstream user, the Group has communicated its use of substances to its suppliers so that the
latter are covered in their registration dossier.

The Group keeps a close eye on changes to the list of substances that are subject to authorisation or
restrictions in order to fulfil, where necessary, its obligation to communicate with its customers.

6.8.2   Legislation and regulations in the United States

                 6.8.2.1   Environmental and conformity regulations

Regulations regarding the protection of the environment

The Group’s business in the United States is subject to environmental regulations at federal, state and
local levels. The Group must therefore conform to the laws in the states in which it is present as well to
all federal, state and local regulations which are aimed at implementing the main federal environmental
laws listed below:




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    •   The federal law governing water pollution (the “Clean Water Act” or “CWA”), establishes the
        basic structure for regulating discharges of pollutants into the waters of the United States,
        notably from industrial activities;

    •   The federal law governing air cleanliness (the “Clean Air Act” or “CAA”), which regulates
        emissions of hazardous air pollutants by imposing (at the expense of industrial players) the
        control and monitoring of these emissions. This can involve the installation of expensive
        pollutants control systems (such as purification systems, electronic air filters and catalytic and
        non-catalytic treatment systems);

    •   The federal law governing the disposal of solid waste and hazardous waste (the “Resource
        Conservation and Recovery Act” or “RCRA”), which covers the whole life cycle of waste from
        its production, to its treatment, storage and finally to its removal; and

    •   The law governing the reuse and clean-up of polluted sites (the “Comprehensive Environmental
        Response, Compensation, and Liability Act”, also called “CERCLA” or the “Superfund”),
        which, in terms of the obligation to clean up polluted industrial sites, enforces a strict principle
        of liability on past and present owners of a site, but also on the industrial players that have
        disposed of their waste on that site.

The Group must therefore ensure that its business conforms to the above-mentioned environmental
regulations and that it is able to prove this. For the Group’s activities, these regulations apply to the
construction of new furnaces, changes to existing furnaces, maintenance to furnaces that have been
stopped (including cleaning of residue emitted by the furnaces and of their chrome bricks), the disposal
of effluents used in the production cycle, the control of atmospheric emissions (such as greenhouse gas
emissions), the presence or use of certain types of metals in the glass packaging, as well as the
management of raw materials and waste.

Considering the Group’s past operations in the United States, it may be obliged to clean up land and/or
launch land reclamation projects on sites that it owns or currently exploits (or sites that it has previously
owned or exploited) as well as on sites on which it has disposed of or treated waste (see Section 4) for
which the Group or its predecessors are referred to as “potentially responsible parties” or “PRP” in
CERCLA or similar state legislation. The Group may also be liable for investigation or land reclamation
costs of sites owned or exploited by third parties to which the Group, or its predecessors, sent waste for
recycling or disposal, waste which contributed to the pollution of the site.

As of the registration date of this Document de Base, the above has had, or is likely to have, no
significant impact on the Group’s business, results, financial situation or assets.

The Group has already been subject to numerous lawsuits from federal, state and local authorities
accusing it of violation of environmental laws. For example, in 2005, the Group initiated talks with the
EPA, the U.S. Department of Justice (DOJ) and other local environmental agencies for a settlement
agreement to resolve the Group’s alleged violations of the “Clean Air Act”. These talks resulted in the
negotiation of a Global Consent Decree (GCD) which was finalised on May 7, 2010 (see Section 4.1.1
and the sub-section entitled “The Group could incur significant costs to remain in compliance with
environmental, public health, and safety regulations”).

Laws and recent events relative to recycling and the reuse of glass packaging

In the United States, the sale of glass packaging is subject to a number of laws, including state
provisions (like in the States of Oregon and California) on recycled glass that impose a set of standards
and obligations. U.S. state and federal legislators are particularly interested in glass packaging
regulations and the Group keeps a close eye on any changes to these regulations.




                                                     123
Thus, as well as glass recycling laws, some twenty U.S. states have adopted laws limiting the presence
of certain heavy metals (lead, mercury, cadmium and hexavalent chromium) in packaging. These laws
are based on the “Model Toxics in Packaging Legislation” that was established by the CONEG (the
Coalition of Northeastern Governors) in 1989 and which limits the total sum amount of all four metals
in packaging to 100 ppm (and also bans their voluntary addition). A few exceptions exist. Notably, the
legislation states that this limit can be increased to 200 ppm when recycled materials are added to
packaging. The majority of U.S. states whose legislation is based on the “Model Toxics in Packaging
Legislation” have added this exception clause, but in general they have set a time limit. Thus, the limit
of the total sum amount of these heavy metals in the U.S. states where the exemption clause has expired
has been reduced to 100 ppm for packaging made of recycled materials (legislation in these states is
therefore more restrictive than the “Model Toxics in Packaging Legislation”).

Between 1971 and 2002, eleven U.S. states voted laws on returnable glass bottles. In general, these laws
stated that consumers are obliged to pay a small deposit (usually between five and ten U.S. cents
according to the state and the size of the packaging) to the sales outlet. When the consumer takes the
used packaging to a glass collection point, the deposit is returned.

For the moment, the Group does not believe that these laws have a significant impact on sales of this
type of packaging in the states in which they are imposed. However, the Group, both in its role as a
member of the Glass Packaging Institute and independently, has launched discussions with certain state
governments and the federal government to promote the adoption of new laws on returnable glass
bottles with the aim of increasing the availability of recycled glass that can then be used to produce new
glass packaging. Although glass recycling schemes are widely supported and are in keeping with
sustainable development measures, these initiatives are often opposed by numerous parties (such as tips,
waste collection companies and some consumers of beverages in glass bottles).

Finally, the Group has recently observed demand from numerous industrial players for reusable
packaging, notably wine bottles. This trend is closely observed by the Glass Packaging Institute and the
Group and particular attention is being paid to the risk related to producers’ responsibility for faulty
products if the reuse of packaging was to develop.

                 6.8.2.2   Health regulations

The Group is subject to U.S. Food and Drug Administration (FDA) regulations concerning food contact
substances and packaging.

The Group is also subject to a range of federal and state regulations regarding the health and safety of
employees, which mostly come from the 1970 Occupational Safety and Health Act (OSH act). These
regulations include conditions imposing preventative measures for health risks linked to crystalline
silica and to other operations and materials. These standards are completed by interpretations and
regulations issued by the U.S. Department of Labor’s Occupational Safety and Health Administration
(OSHA).

6.9   Environmental policy – sustainable development

The Group strives to apply a sustainable development policy to all of its operations be it social,
ecological or economic. The Group’s strategy therefore unites social and environmental responsibilities
in response to sustainable development issues.

This will is reflected in the Group’s responsible development approach which applies to the Group’s
management and environmental practices, as well as to the way it conducts business and to its
relationship with its customers.

Sustainable development is a priority for the Group in its efforts to promote packaging and reduce its
emissions.


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The Group’s sustainable development strategy is based on Saint-Gobain’s Principles of Conduct and
Action. The Group’s companies are thus invited to take active measures to respect the environment and
ensure the highest standards of workplace health and safety.

Sustainable development measures are implemented in all subsidiaries and are co-ordinated at the
Group level by the head of Marketing and Sustainable Development, the head of EHS and the head of
R&D.

The Group’s strategy is therefore based on voluntary participation aimed at improving safety in the
workplace and is centred on three sustainable development axis, its material (glass), its products and its
process.

             Glass, a neutral and inert material that is fully and infinitely recyclable

Glass stands apart from other packaging materials in that it fits in with sustainable development
principles. Moreover, glass packaging is the only type of food packaging that does not bring food into
contact with plastic, meaning that the food is not likely to be “contaminated” by plastic—a material
made from petrochemicals.

The Group’s marketing strategies are based on promoting glass to consumers and opinion leaders in the
packaging industry. These initiatives are carried out in collaboration with trade associations and directly
by the Group. The main themes of these initiatives include inciting consumers to recycle and providing
information on its benefits for the environment; the purity of glass and its ability to preserve the taste
and organoleptic qualities of the products it packages.

For example, the Group partakes in programmes launched by the Glass Packaging Institute (GPI) in the
United States which for the past two years has organised a “Recycle Glass Week” and also runs a
website called “keep it organic” (www.keepitorganic.org) which promotes the association. In Europe,
the FEVE (the European Container Glass Federation of which the Group is a member) has set up a
consumer blog called “Friends of Glass”. In 2010, a new campaign dedicated to glass and the well-being
of consumers was launched aimed at promoting the purity of glass and its health benefits in food
safety66. On top of this, the Group also invests locally with, for example, SGCI running a programme in
U.S. schools to promote recycling. In numerous countries, the Group has set up partnerships with art
and design schools to improve future designers’ knowledge of glass and promote it as a modern and
aesthetic material.

Glass is a fully and infinitely recyclable packaging material which makes it a popular choice in terms of
the environment. Thus, a used bottle can be used to manufacture a new bottle without any loss of
material quality or quantity, making recyclability one of the main characteristics of the material.

The use of cullet as part of the Group’s environmental strategy is increasing steadily. For some of the
Group’s products, cullet can represent 95% of raw material used.

The use of cullet however has two main limits: shortages (or partial shortages) in certain countries and
the difficulty in obtaining clean cullet that has not been contaminated by foreign bodies.

The use of cullet in the glassmaking process has the following main ecological advantages:




66
   The FDA regards glass as the only packaging material generally recognised as safe (GRAS classification)
(source: Glass Packaging Institute (GPI)).


                                                    125
-    Energy savings, since the collected glass melts at a lower temperature than raw natural products,
     and so more easily and faster67;

-    Less CO2 emitted into the atmosphere68;

-    Less consumption of natural resources, as the cullet replaces the raw materials (silica sand,
     limestone and sodium carbonate) used in the composition of glass; each metric tonne of cullet used
     reduces the amount of unexploited raw materials used by 1.2 metric tonnes69;

-    Less waste and maximum recovery of household waste avoiding its disposal in landfills or
     incinerators.

Recycling is one of the focal points of the Group’s environmental policy. The majority of the Group’s
facilities recycle all their own production waste and, when possible, provide an outlet for household
cullet.

All these initiatives have been developed in response to the growing expectations of the consumer-
citizen who is now highly committed to the economic and ecological challenges of recycling, within the
context of the highly topical issue of sustainable development.

In Western Europe, there is now a true ecological chain:

-    Consumers deposit glass in collection containers or bins;

-    The glass is collected and transported to treatment centres;

-    The glass is sorted and freed of its impurities to be made into cullet;

-    Delivered to glass plants, the cullet is melted again to manufacture new glass packaging (bottles,
     jars, etc.);

-    The new glass packaging is filled in bottling plants; and

-    Returned to the distribution circuit, the packaging is delivered to stores and bought by consumers.

The Group strives to promote this concept in the countries in which it is present and thus participates in
programmes aimed at increasing the collection of used household glass. For example, the Group’s
Brazilian subsidiary has launched a recycling project in Grand São Paulo, to collect used bottles in the
state’s restaurants, supermarkets, bars and shopping centres. In the United States, the Group’s U.S.
subsidiary, SGCI, has recently created an animation aimed at primary school children which presents
the glassmaking process by guiding children through a glass manufacturing facility, and underlining the
benefits of glass and the importance of recycling for the environment. The Group also supports
consumer marketing campaigns run by trade associations, such as the “Friends of Glass” campaigns in
Europe that promotes the qualities of glass packaging and its advantages for the environment.




67
   Increasing by 10% the amount of cullet used to produce glass reduces by 2-3% the energy needed to chemically
transform raw materials into glass (source: Glass Packaging Institute (GPI)).
68
   Increasing by 10% the amount of cullet used to produce glass reduces particle emissions by 8%, nitrogen oxide
emissions by 4% and sulphide oxide emissions by 10%. 6 tonnes of cullet used to produce glass also reduces CO2
emissions by 1 tonne (source: Glass Packaging Institute (GPI)).
69
   Group estimates based on furnace usage.


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             Products that contribute to sustainable development

In 2009, the Group successfully launched a range of eco-designed products, mainly under the ECOVA
brand name (ECOlogy and VAluation) in France, Spain, Argentina, Chile, Brazil, Portugal and Italy and
under the ECO series brand name in the United States. These products are mainly aimed at the still and
sparkling wine markets (see Section 6.5.1.3).

             The Group’s environmental policy

Respect for the environment is one of the Group’s major focal points. The Group’s environmental
policy, within the context of its sustainable development policy, aims to conserve natural resources and
constantly reduce the impact of its operations on the environment.

The policy is mainly based on reducing carbon dioxide (CO2), nitrogen oxide (NOx), sulphur oxide
(SOx) and dust emissions; reducing water consumption and improving the quality of discarded water;
the selective sorting of all production waste; and managing environmental risks thanks to tried and
tested environmental management systems.

One of the Group’s priorities is to obtain ISO 14001 certification at all of its glass making sites. As of
the registration date of this Document de Base, more than 65% of the Group’s glass making facilities
worldwide had obtained this certification and some 80% of its Western European sites (see
Section 6.7.2)

             Reducing the impact of emissions on the environment

The Group is aware of the risks to the environment presented by the emissions of gases and other
substances by its operations and has for many years adopted an environmental policy aimed at reducing
the pollutants released into the atmosphere by its furnaces. These pollutants come from the
decomposition of raw materials and the combustion of fossil fuel (gas or oil) used to heat the furnaces at
temperatures of more than 1,600° C. These pollutants are mainly composed of nitrogen oxide (NOx)
from the oxidation at high temperatures of furnace air, sulphur oxide (SOx) from the oxidation of
sulphur contained in fossil energy for heating (mainly oil), sulphurs in the mix of vitrifiable liquid and
dust particles.

The main measures taken regarding the Group’s furnaces in the past 20 years have decreased NOx
emissions by nearly half.

The Group has also taken measures over the years to reduce SOx emissions. This is done by using low
sulphur fuel oil or substituting oil with gas and by increasing the share of cullet used.

In the majority of the countries in which it is present the Group has recently made large investments to
install electronic air filters to treat flue gas and significantly lower particle emissions. Thus all of the
Group’s facilities in Western Europe and Brazil are equipped with electronic air filters. However, some
filters recently installed at plants in France, Spain and Italy do not cut emissions low enough to comply
with regulations (see Section 4.1.1).

In response to the threat that climate change represents for the planet, the Group has been focused on
lowering greenhouse gas emissions, notably CO2 emissions, mainly through decreasing its use of fossil
fuel energy and increasing the rate of cullet used in its furnaces. The Group is committed to lowering
energy consumption through investments and R&D programmes by constantly modernising its
production facilities, sharing best practises in terms of energy consumption and developing lower
energy-consuming furnaces. Finally, the Group has launched an R&D project aimed at substituting
fossil fuel energies with renewable energy sources (see Section 11.1).




                                                    127
The Group actively promotes the benefits of recycling glass in all the regions in which it is present with
the aim of using more cullet in its furnaces and thus further lowering CO2 emissions.

SGCI is committed to the “Climate Leaders” programme. This is an industry-government partnership
coordinated by EPA, the U.S. environmental protection agency, which works with companies to
develop comprehensive climate change strategies. Thanks to this programme, SGCI has pledged to
reduce its greenhouse gas emission by 16% for each tonne of glass shaped and produced between 2007
and 2012.

Following efforts made by the Group in the United States, the EPA named SGCI as a partner of the year
in the 2009 ENERGY STAR awards for its energy management and reduction of greenhouse gas
emissions.

             Reducing water consumptions

The Group mainly uses water to cool facilities that operate at high temperatures. To optimise its use of
water, the Group aims to limit the amount used at its plants by installing closed water circuits at all of its
facilities. Used water is also systematically treated before being disposed of. The Group’s Argentinian
subsidiary has recently invested in a used water treatment plant which allows it to lower its fresh water
and electricity consumption. In the United States, the Group’s Port Allegany plant in Pennsylvania has
installed a new cooling water collection system which has significantly reduced the amount of used
water at the plant and its impact on the town’s sewerage system.

             Waste management

The majority of the Group’s production facilities have their own waste disposal units where waste is
stored by category before being evacuated. The ultimate goal is to reuse all of the waste generated by
the Group’s operations, thus avoiding landfill disposal. The Group’s Germany subsidiary currently
manages to reuse more than 90% of the waste generated by its facilities.

The Group’s commitment in this domain can be seen through its strict waste management, water and
fume treatment programmes, participation in household glass sorting schemes in Europe and the United
States and R&D in renewable energies. Between 2004 and 2009, the Group invested more than
€156 million in its EHS policy (Environment, Hygiene and Safety).

To continue to improve performances in this field, the Group has implemented a scorecard system
which will allow each production site to evaluate its performance based on key indicators (see Section
6.2).

6.10 IT systems

The Group’s IT systems include various software and IT applications to produce consolidated financial
data, manage accounts, management reporting, procurement and cash management agreements, pay
employees and manage payslips. In certain fields, and as of the registration date of this Document de
Base, these IT systems depend on Saint-Gobain’s IT systems, infrastructure and support structure (see
Section 22).

As part of the Group’s growth was through acquisitions, the Group used and, in some cases, still uses
different IT systems in different countries.

In the past ten years, the Group’s IT strategy has focused on harmonising and pooling these systems.
This is mostly complete for management tools and for computer assisted design tools and is currently
underway for industrial IT systems and web applications (Intranet/Internet).




                                                     128
In 2001, the Group decided to develop an international system called ISIS (Intercompany Shared
Information System), based on the SAP software package, for the IT systems that manage inventories,
procurement, sales, production, accounts and management reporting. All of the Group’s glassmaking
companies use this system, except for its Russian subsidiary where its roll out is planned for the
beginning of 2012. This shared system allows the Group to apply the same business model when
justified and also manage IT costs thanks to the pooling of applications and teams.

For computer assisted design, all of the Group’s companies, except for those in the United States, use
the same software (“Pro Engineer”) which facilitates exchanges between design departments.

The Group’s Web applications have also been standardised using document management and archiving
tools such as the “Alfresco” software and portal management tools that allow the Group to share and
reuse applications. The Group is also currently rolling out a common customer relationship management
software (CRM) in all of its sales departments.

For industrial IT systems, a common tool to monitor production and the quality control of bottles and
jars (“SIL”) has been rolled out in the majority of the Group’s production facilities. In 2008, the
decision was made to expand the standardisation and pooling of industrial IT systems to cover all of the
production facilities’ IT needs. Since then, the Group has been developing automated production
solutions to provide historical production data and put reusable data online for production management
and for ISIS. A “Maintenance Plan” module to manage maintenance schedules is also being rolled out.

The Group believes that the IT systems that are currently in place provide a homogenous and efficient
application base which will make future improvements and roll outs in other fields easier, and guarantee
a strict control of IT spending.




                                                  129
7.        ORGANISATIONAL STRUCTURE AND INTRA-GROUP RELATIONS

7.1       Simplified organisation chart

The Group's simplified organisation charts as of the registration date of this Document de Base and
following the Restructuring Transactions are presented in Section 5.1.6 of this document.

7.2       Description of subsidiaries and shareholdings

A description of the Group's subsidiaries and shareholders is provided in Note 30 of the notes to the
Combined Financial Statements (see Section 20.1 et seq.). Verallia is the Group's holding company.

7.3       Relations between the Company and its subsidiaries

The Group is divided into three geographical business units: Europe, the United States and South
America. Each business unit is headed by a Business Unit Director, who is responsible for coordinating
the various companies in its region and reporting to the Group's Chief Executive Officer.

At Group level, there are a number of central departments, including the research and development and
technical department, finance, procurement, human resources, legal, international business development
and communications.

The Group also has two operating committees:

      -    an executive committee comprising the Business Unit Directors, the Chief Financial Officer, the
           head of management reporting, procurement and IT, the head of human resources, the head of
           the research and development and technical department, the head of international business
           development, the head of the legal department and the head of strategic initiatives; and
      -    a steering committee, corresponding to the executive committee plus the heads of the Group's
           main subsidiaries and the head of the legal department.

In addition to conventional financial and legal functions, the role of the Group's central departments is
to ensure optimisation of the Group’s resources, particularly in matters of procurement, IT, production
policy and human resources.

Each company develops a five-year plan, a yearly budget and a budget update three times a year, and
has to present any investment proposals or decisions that may impact the Group's future or financial
position for approval.

The heads of the Group's subsidiaries benefit from a high level of autonomy in conducting local
operations, in particular as regards business relations with their customers and production activities.
Subsidiaries' reporting systems are structured so as to give the Group's senior management the
information needed to make strategic decisions and monitor local operations whose management is
delegated to them.

The information below concerns existing relations or those that will be formed in the near future
between the Company and its subsidiaries. Details about historic relations between the Company and its
affiliates are provided in Section 19 of this document.

Cooperation Agreements

With a view to the admission of the Company’s shares to trading on the NYSE Euronext regulated
exchange in Paris, Cooperation Agreements are to be signed between Compagnie de Saint-Gobain and
the Company (see Section 22).



                                                     130
Centralised cash management

As of the registration date of this Document de Base, Compagnie de Saint-Gobain is responsible for the
Group's cash management, and will continue to have this responsibility in Western Europe and the
United States for a transitional period of no more than nine months from the date the Company's shares
are first admitted to trading on the NYSE Euronext regulated exchange in Paris (see Section 22). It is
agreed that by the end of this nine-month period, the Group shall have implemented management tools
allowing it to oversee its own cash management. Within this framework, the Company is to sign a cash
management agreement with Compagnie de Saint-Gobain, under which Verallia will become the only
point of contact for Saint-Gobain - the Group's main creditor - and will be responsible for the
organisation and cash management of all of its subsidiaries. This Cash Management Agreement will end
upon the termination of the Credit Agreement to be signed between Compagnie de Saint-Gobain and the
Company (see Section 22.1.2).

Tax consolidation

As of January 1, 2012, the Group plans to create a tax consolidation group in France between the
Company and the subsidiaries in which it holds a stake of at least 95%. The creation of this tax
consolidation group will result in the signing of tax consolidation agreements between the Company and
each of the companies falling within the scope of tax consolidation. A tax consolidation exit agreement
will also be signed between the French subsidiaries exiting the integrated group Compagnie de Saint-
Gobain with the parent company integrating Compagnie de Saint-Gobain. The various exiting
companies will be taxed individually for 2011.

7.4   Directorships held by the Company's corporate officers in subsidiaries

See Section 14.1.




                                                  131
8.       PROPERTY, PLANT AND EQUIPMENT

8.1      Major property, plant and equipment, existing and planned

Information about the main industrial facilities and production plants operated by the Group as of
December 31, 2010 is provided in the table below.The capacities stated below correspond to the
volumes of bottles and jars produced during the year ended December 31, 2010.
                                                                    Capacity     Furnaces        Occupancy status
                                                                   by country
 Country       City/Region/State   Activity                      (in thousands
                                                                 of tonnes per
                                                                      year)
                     Albi          Bottle production
                                                                                    2                   Owner
                    Chalon         Bottle production and
                                                                                    3                   Owner
                                   decoration
                    Cognac         Bottle production
     France                                                                         3                  Owner
                    Lagnieu        Jar production                   1,384
                                                                                    2                  Owner
                     Oiry          Bottle production
                                                                                    1                  Owner
               Pont Ste Maxence    Bottle decoration
                                                                                     -                 Owner
                 Saint-Romain      Bottle production
                                                                                    3            Lease (Crédit bail)
                    Vauxrot        Bottle production
                                                                                    2                  Owner
                 Total France                                                       16
                  Azuqueca         Bottle and jar production                        2                   Owner
                    Burgos         Bottle and jar production                        2                   Owner
     Spain        Mont Blanc       Bottle production                                1                   Owner
                    Seville        Bottle and jar production         801            2                   Owner
                    Telde70        Bottle and jar production                        1                   Owner
                   Zaragoza        Bottle and jar production                        2                   Owner

                  Total Spain                                                       10
 Portugal       Figueira da Foz    Bottle and jar production         223            2                   Owner
                Total Portugal                                                      2
                   Carcare         Bottle production                                1                   Owner
                     Dego          Bottle production                                3                   Owner
     Italy      Gazzo Veronese     Bottle and jar production                        2                   Owner
                    Lonigo         Bottle production                1,077           2                   Owner
                    Pescia         Bottle production                                1                   Owner
                  Villa Poma       Bottle and jar production                        2                   Owner

                  Total Italy                                                       11
                 Bad Wurzach       Bottle and jar production                        3                   Owner
Germany
                    Essen          Bottle and jar production                        3                   Owner
                                                                     936
                   Neuburg         Bottle and jar production                        3                   Owner
                    Wirges         Bottle production                                2                   Owner
                Total Germany                                                       11
     Poland       Euroverlux       Bottle decoration                   -             -                  Owner
                 Total Poland                                          -             -
                                                                                            - Land: owner of part and
               Mineral’Nie Vody                                                             holder of perpetual right of
     Russia                        Bottle production                                3
                    (KMS)                                            306                    use for part71
                                                                                            - Plant: owner
                  Kamyshin         Bottle and jar production                        3                    Owner
                 Total Russia                                                       6




70
  41%-owned by the Group.
71
  During the Soviet era, this right was equivalent to a right of ownership as regards use of the land. These rights of
use are still recognised at the date of the Document de Base.


                                                           132
                                                                   Capacity     Furnaces          Occupancy status
                                                                  by country
 Country    City/Region/State     Activity                      (in thousands
                                                                of tonnes per
                                                                     year)
                                                                                               Perpetual right to use the
                                                                                    3          land; owner of the plant
                  Rivne                                                         (including
 Ukraine                          Bottle and jar production         139
                                                                                    one
                                                                                mothballed
                                                                                 in 2009)
              Total Ukraine                                                         3
               Burlington         Bottle and jar production                         2                  Owner
                                                                                                       Owner
                  Dolton          Bottle and jar production                         3                  Owner
                                                                                             Owner/Tenant (option to buy)
                 Dunkirk          Bottle and jar production                         2
                                                                                               for a nominal amount)
               Henderson          Bottle and jar production                         2                  Owner
                 Lincoln          Bottle and jar production        2,371            1                  Owner
 United          Madera           Bottle production                                 2                  Owner
 States          Milford          Bottle production                                 2                  Owner
                 Pevely           Bottle production                                 2                  Owner
              Port Allegany       Bottle and jar production                         2                  Owner
                 Ruston
                                  Jar and bottle production                         2                   Owner
                  Sapulpa         Bottle production                                3                    Owner
                  Seattle         Bottle production                                4                    Owner
                  Wilson          Bottle and jar production                        2                    Owner
            Total United States                                                    29
                                  Glassware and jar and
               Agua Branca                                                          2                   Tenant
                                  bottle production
  Brazil
               Campo Bom          Bottle production                 250             1                   Owner
              Porto Ferreira      Bottle production                                 1                   Owner
            Sta Marina Canoas     Glassware                                         1                   Owner
                Total Brazil                                                        5
Argentina        Mendoza             Bottle production              172             2                   Owner
             Total Argentina                                                        2
  Chile           Rosario            Bottle production               67             1                   Owner
                Total Chile                                                         1
 Total
                    --                       --                    7,726           96                      --
 Group



On December 22, 2010, SG Vidros transferred to Saint-Gobain Participações Ltda, then a wholly-owned
subsidiary of SG Vidros, the real estate assets on which the Agua Branca unit is run. 100% of the
company’s shares were sold on December 29, 2011 to SG Do Brasil and SG Do Brasil leases these
assets to SG Vidros (see Section 22.2.2).

On March 23, 2011, SG Vicasa transferred the real estate assets owned in Jerez to SG Cristaleria. A
lease contract was signed on the same date between SG Vicasa and SG Cristaleria.

As of the registration date of this Document de Base, the Group also occupied the premises of its
headquarters, belonging to Compagnie de Saint-Gobain. Under the terms of the Transitional Services
Agreement (TS Agreement), as long as Compagnie de Saint-Gobain holds, directly or indirectly, more
than 50% of the Company's share capital or voting rights and, if applicable, for a period of up to nine
months from the date that Compagnie de Saint-Gobain ceases to hold a majority stake, the Group will
continue to lease its offices from Compagnie de Saint-Gobain (see Section 22). At the end of this
transitional period, the Company plans to relocate.




                                                          133
8.2   Environmental issues that may influence the use of property assets

Information about environmental issues that may affect the use of real estate assets is provided in
Sections 4.1.2, 6.8 and 6.9 of the Document de Base.




                                                  134
9.      REVIEW OF FINANCIAL POSITION AND RESULTS

All of the following information, relating to the Company's financial position and results, is taken from
the Combined Financial Statements (as defined in the introduction to the Document de Base) and should
be read in conjunction with the Document de Base in its entirety and the Combined Financial Statements
and the Notes to the Combined Financial Statements provided in Section 20.

9.1     Presentation of the Combined Financial Statements

9.1.1    General presentation of the Group

The Group specialises in glass packaging (bottles and jars) for all food and beverages, and is the world’s
second-largest supplier in this market72. It regards itself as the leading global supplier of wine bottles for
still and sparkling wine, bottles and decanters for spirits, and jars for foodstuffs.

The Group generated net sales of €3,553 million in 2010, compared with €3,445 million in 2009 and
€3,547 million in 2008, representing a fall of 2.9% between 2008 and 2009 and growth of 3.1% between
2009 and 2010. Net sales generated by the Group over the last three years are in line with the levels
achieved in 2007 and 2006, of €3,397 million and €3,323 million respectively. The ratio between net
sales and tonnes produced by the Group (see Section 6.1) therefore increased by 2.2% between 2006
and 2010.

With a high quality management team and around 15,000 employees worldwide, the Group enjoys a
commercial presence in 46 countries and has 47 glass production sites in 11 countries in Western and
Eastern Europe, the United States, and South America. Because of the regional nature of its markets, the
Group has divided its activities into three geographical business units: Europe, the United States and
South America.

9.1.2    Presentation of the Combined Financial Statements

                   9.1.2.1   Basis for preparation of the analysed financial statements

In order to give a financial overview of the Group's activities, the combined financial statements -
prepared in accordance with IFRS - have been prepared and presented in a form compatible with the
form that will be adopted in the future consolidated financial statements to be published by the Group.

These Combined Financial Statements were prepared according to the International Financial Reporting
Standards (“IFRS”) as adopted by the European Union on December 31, 2010. These financial
statements have also been prepared in accordance with IFRS as issued by the International Accounting
Standards Board (IASB). They reflect assets, liabilities, income, expenses and cash flow directly
attributable to the Group for the years ended December 31, 2010, 2009, and 2008. They are provided in
Section 20.1 and were audited by PricewaterhouseCoopers Audit; the corresponding audit reports are
provided in Section 20.3.

Compagnie de Saint-Gobain has not published consolidated financial statements for the businesses in
the Group’s current scope, so the Combined Financial Statements for the years ended December 31,
2010, 2009 and 2008 were prepared using the Saint-Gobain consolidation packages for each Group
operating entity, namely the four parent companies of the Saint-Gobain Packaging Division: Verallia




72
  Source: Group estimates based on sales data given in the Form 10-Q filed by Owens-Illinois with the United
States Securities and Exchange Commission on 28 October 2010 and on the Ardagh website.


                                                     135
SA (which owns SGCI – United States), SG Emballage, both based in France, SG Vicasa (Spain) and
SG Vidros SA (Brazil), and their subsidiaries.

The data in the Combined Financial Statements differ from the historical financial information given by
Compagnie de Saint-Gobain for the Saint-Gobain Packaging Division due to the accounting
restatements related mainly to the scope of consolidation and the IFRS 2 expense (see Section 9.1.5 for
the accounting treatment of share-based payments).

                  9.1.2.2   Changes in the scope of consolidation over the last three years

In 2008, the Group acquired a Russian company - ZAO Kamyshinsky Stecklotarny Zawod
("Kamyshinsky") - based near Volgograd. This company has been fully consolidated since July 2008.

                  9.1.2.3   Events that may impact the Combined Financial Statements in the future

The Combined Financial Statements are not necessarily representative of what the Group’s financial
position or performance would have been if it had been independent as of January 1, 2008. In particular,
the Combined Financial Statements do not reflect certain events or operations that may occur as a result
of the admission to trading of the Company's shares on the NYSE Euronext regulated exchange in Paris,
which may impact the Group's financial structure (see Note 1 of the Notes to the Combined Financial
Statements), notably:

−   the first-time application of IFRS 1 to the first consolidated financial statements of a listed
    company;

−   the allocation of assets transferred to cover the Group's pension liabilities in the United States in
    accordance with U.S. legislation (Section 4044 of ERISA). The Combined Financial Statements
    comprise all pension liabilities relating to the Group's subsidiaries in the United States, but only an
    estimate of the level of these commitments funded on the basis of assessments made in preparing
    the consolidated financial statements of Compagnie de Saint-Gobain. The process of allocating
    assets transferred on the basis of U.S. legislation (Section 4044 of ERISA) will begin with the
    admission to trading of the Company's shares on the NYSE Euronext regulated exchange in Paris.
    This process usually takes several months;

−   changes to the Group's financing structure once its shares are admitted to trading on the NYSE
    Euronext regulated exchange in Paris, as described in Section 10.4. The counterparty to these
    changes in the financing structure is reflected in combined equity.

In the combined financial statements for the fiscal year ended December 31, 2010, the Group presents
positive combined net equity of €1,299 million. When the repositioning of shares in subsidiaries
resulting in the creation of Verallia is complete (see Section 5.1.6), equity will be brought back down to
close to zero.

This particularity is the result of the recognition of the repositioning of subsidiaries under parent
company Verallia. The Restructuring Transactions, whether in terms of the contributions or disposals
made by Saint-Gobain in favour of Verallia, do not constitute business combinations within the scope of
application of IFRS 3 as revised, as they are done under "joint control".

Furthermore, contributions at net book value do not impact equity.

Transfers of assets between Saint-Gobain and Verallia are reflected in Verallia's financial statements by
a €0.6 billion increase in debt, to the benefit of shareholder Saint-Gobain, deducted from equity as the
shares held were not neutralised in the Combined Financial Statements.




                                                   136
Lastly, dividend payouts and repayments of contribution premiums prior to the IPO result in a reduction
in equity of €0.8 billion, with a corresponding increase in debt.

To summarise, together with the Group’s pre-existing net debt (€0.3 billion at December 31, 2010 and
around €0.4 billion as of the Listing Date, taking account of changes in the first half of 2011), the asset
sales, dividend payouts and repayments of contribution premiums described above will result in total
estimated net debt of €1.8 billion as of the date the Company’s shares are listed for admitted to the
NYSE Euronext regulated exchange in Paris (see Section 10.4).

A table summarising the transition in net debt and equity between the 2010 combined financial
statements and the estimated consolidated financial statements as of the Listing Date is provided in
Section 10.4.

−   the estimated future impact on the Group's cost structure of its separation from Saint-Gobain,
    particularly in terms of general operating expenses and procurement costs, as described in Section
    13; and

−   future expenses relating to the share award plan and other options.

9.1.3   Segment reporting

Segment reporting is presented by geographical segment, distinguishing between business units in
Europe, the United States and South America. This breakdown is in keeping with the breakdown of
operating responsibilities. Lastly, geographical segments are based on activities by the country of origin
of production and not by the country of destination of sales.

Europe covers all countries in Western and Eastern Europe in which the Group operates, namely France,
Germany, Spain, Italy, Portugal, Poland, Russia and Ukraine. If the acquisition in Algeria described in
Section 5.2.2.1 goes ahead, the Group's operations in Algeria would in future be attached to the Europe
business unit.

The United States covers all operations in the United States of America.

South America covers Brazil, Argentina and Chile.

9.1.4   Factors with a material impact on the Group's results

                  9.1.4.1   Changes in the balance between supply and demand

Changes in the balance between supply and demand for glass packaging have a material impact on the
Group's results. The adjustments made necessary by changes in this balance are made on a local or
regional level, the latter representing the majority of the Group's activities. These adjustments may
relate to prices or production capacity. While the ad hoc use of imports or exports by the Group or its
competitors may temporarily address changes in the balance between supply and demand, the
effectiveness of this is nevertheless limited because of the high level of transportation costs. If the
imbalance is structural and requires the creation of additional capacity, the imbalance may last for 15 to
18 months, the time generally needed to invest in production (enlarging production facilities or
commissioning new furnaces).

                  9.1.4.2   Impact of changes in supply on results

The creation of new capacity in a regional market may transitionally result in supply of glass bottles and
jars exceeding demand. This surplus may cause tensions in prices, making it difficult to factor the
production costs incurred by the Group into selling prices, which may therefore have a negative impact
on operating income. In the event of overcapacity, an adjustment in capacity resulting in the temporary


                                                    137
or definitive closure of furnaces may be necessary, and thereby give rise to considerable exceptional
costs for the Group.

Meanwhile, as was the case for example in the first half of 2008, if supply is considered by market
operators to be insufficient relative to demand, this may result in purchases with a view to building up
inventories by way of precaution, triggering real surplus demand. However, such a scenario of
undercapacity, which the Group endeavours to remedy as best possible so as not to penalise its
customers, is more favourable to factoring higher production costs into selling prices.

The start of the economic crisis, which affected the Group's markets from the second half of 2008,
rapidly brought this situation to an end, and the inventory reductions that followed resulted in
overcapacity from the second half of the year.

This production overcapacity was amplified in 2009, particularly in Europe, because of the slowdown in
consumer spending as well as previous overcapacity, which resulted in new production capacity being
brought into service while demand was falling. This situation led to longer temporary suspensions of
furnaces than in previous years, particularly in the fourth quarter of 2009.

In 2010, although the balance between supply and demand was re-established in some regions such as
the United States and South America, the Group continued to face problems with overcapacity in other
regions such as France, which again led to the temporary suspension of furnaces.

                  9.1.4.3   Impact of changes in demand on results

Demand for bottles and jars in the markets served by the Group has a direct impact on the Group's sales
volumes and selling prices. Demand is sensitive to a number of general factors, primarily population
growth, living standards, economic growth, changes in lifestyles and consumer habits, and even
regulations. A description of the main general factors affecting demand for the Group's products is
provided in Section 6.3. Demand is also sensitive to the Group's ability to offer its customers high
service standards as well as innovative and high quality products. It may also be affected by
substitutions in certain market segments.

A large proportion of the Group's production costs are fixed, mainly depreciation, some energy and
maintenance costs, and the majority of staff costs. Any changes in the level of use of production
facilities therefore have a material impact on the Group's results.

In 2008, after a very favourable first half of the year, demand slowed down in the second half of the
year.

This slowdown was confirmed in 2009, when consumer spending dipped sharply, particularly on wines
and spirits, with a particularly significant reduction in Europe.

In 2010, Western Europe - apart from France - saw a gradual increase in volumes. Volumes grew at a
modest rate in Eastern Europe despite difficult conditions such as problems with issuing excise stamps
on alcohol, exceptionally dry weather conditions, violent fires in Russia and political instability in
Ukraine. Volumes remained more or less stable in the United States, while in South America demand
continued to grow with the development of countries in the region and their exports (e.g. Argentinean
wines).

                  9.1.4.4   Changes in production cost factors

The Group pays close attention to changes in the cost of sales, with a unit production cost indicator in
euros per tonne. This unit cost is calculated at the start of the year for the Group's main products on the
basis of a standard cost, determined on the basis of a budget estimate. Differences between this standard
cost and the actual production cost are adjusted during the year in the cost of sales.


                                                    138
The unit production cost, which contains a significant proportion of fixed costs, is highly sensitive to
fluctuations in production. Costs are also highly sensitive to changes in energy and raw materials prices,
which make up a large proportion of the Group's production costs. Operating purchases are made
mainly in the currency of the country in which the Group's companies operates. Forex differences
therefore do not have a material impact, apart from in the Ukraine and to a lesser extent in Russia, on
top of the impact of currency translation in the Combined Financial Statements.

The Group's production costs comprise fixed costs and variable costs, primarily:

−   raw materials costs (silica, soda ash, limestone) and cullet (recycled class), most of which are
    variable;

−   energy costs (natural gas, fuel, electricity) for melting and non-melting activities, some of which are
    fixed (relating to the need to keep furnaces at melting temperature) and some of which are variable
    (relating to production itself);

−   staff costs, most of which are fixed;

−   packaging materials (mainly cardboard boxes, pallets, plastic films) and other production costs,
    most of which are variable;

−   transportation costs relating to purchases, most of which are variable;

−   costs relating to the depreciation and maintenance of production plants, most of which are fixed;
    and

−   costs relating to the manufacturing of moulds, most of which are variable.

    •   Raw materials costs

The price of buying raw materials depends on market conditions, relations with suppliers, purchasing
volumes and purchasing terms negotiated in coordination with Saint-Gobain for strategic materials. The
purchase price also varies significantly both over time and depending on the region concerned.

An imbalance between supply and demand in the soda ash market over the last few years has
contributed to a significant increase in the price of soda ash.

Meanwhile, cullet prices vary widely from one region to the next, mainly because of regulatory and
financial disparities concerning the collection and recycling of used glass, as well as cullet supply
centres being far away from production plants. In Germany, for example, following the deregulation of
the recycling industry, the price of cullet began to rise sharply in 2008. It is now tending to stabilise but
at a higher level than before. In the United States, the price of cullet and its availability depends on the
specific regulatory conditions in each State.

    -   Energy costs

In the past, energy costs have depended not only on market prices but also on the hedging policy
implemented by Saint-Gobain. While expenses relating to purchases of raw materials are fully variable,
expenses relating to energy costs are partly fixed because of the need to keep furnaces at a certain
temperature so as not to damage them. According to the mix of energy sources used (electricity, fuel,
gas) and the country, the Group's energy costs - including transportation costs - vary without exception
within an average range of around 15-30% of the total production cost. The purchase price for energy
also varies significantly both over time and depending on the region concerned.



                                                     139
The Group had to cope with a very sharp rise in energy costs in 2008, particularly in natural gas in the
United States and fuel in Europe. This had a negative impact on manufacturing and transportation costs
in these regions, although this was attenuated thanks to the purchasing of hedging for fuel and energy
surcharge mechanisms provided by some contracts, particularly in the United States.

The upward trend in energy costs and related expenses - such as packaging and transportation - was
temporarily reversed in 2009 against the backdrop of the decline in energy demand on the back of the
economic crisis.

Since 2009, the development of gas prices has been contrasting, with a fall in the United States and a
sharp increase in Europe in 2010. Meanwhile, having fallen in 2009, fuel prices rose significantly in
2010 in the regions in which the Group operates.

The Group is endeavouring to pass on these increases in its costs - particularly energy costs - in its
selling prices. Some contracts negotiated by the Group with its customers - mainly in the United States
since 2005 and 2006 (see Section 6.5.3) - contain various indexation mechanisms based on energy
prices or adjustment mechanisms relating to inflation, which generally allow it to pass on all or some of
these price rises (and price falls) in selling prices, although with a time lag. The Group therefore
estimates that around 85% of its net sales generated in the United States during the fiscal year ended
December 31, 2010 were covered by specific energy surcharge clauses (protection against fluctuations
in energy costs). Outside the United States, the Group only signs formal medium or long-term contracts
in a small number of cases, with some of its most important customers in terms of net sales. The other
agreements signed by the Group are less formal and therefore most of the agreements signed by the
Group do not contain indexation or adjustment clauses. Passing on increases in the Group's production
costs is therefore the object of commercial negotiations with customers when placing orders or renewing
contracts and there may be a certain time lag and these price rises may only be partly passed on, if at all.

The Group hedges some of the risks relating to energy costs if contractual indexation mechanisms are
not in place (see Section 4.2.3). This hedging offers short-term protection against fluctuations in natural
gas and fuel prices, but does not attenuate the long-term effect of the global structural rise in energy
prices during periods of growth in economic activity.

    -   Staff costs

The proportion of staff costs in production costs can vary considerably depending on the production
region, particularly between developed countries and emerging markets - which have lower costs - even
though the difference is tending to decrease in general. Note that staff costs are higher as a proportion of
net sales in the United States than in Europe because of the labour employed for the product packaging
process (predominance of cardboard in the United States and pallets in Europe).

                      9.1.4.5   Changes in exchange rates

A significant proportion of the Group's assets, liabilities, income and expenses are in currencies other
than the euro, mainly the U.S. dollar, the Brazilian real and the Russian rouble (see Section 4.1.5.2). In
order to prepare the Group's financial statements - denominated in euros - these assets, liabilities,
income and expenses need to be translated at the applicable exchange rates. As a result, changes in the
euro against other currencies lead to currency translation differences that affect the amount of the line
items concerned in the Group's financial statements, even though the value remains the same in the
original currency. Therefore, when the euro rises against local currencies, the amount translated into
euros of profits generated in local currencies decreases. When the euro falls against local currencies, the
amount translated into euros of profits generated in local currencies increases.

In addition to the currency translation effect, the Group's results are not materially impacted by the
effect of changes in exchange rates insofar as the Group's expenses and operating revenues are generally


                                                    140
in the same currency. This is due to the regional or local nature of the Group's markets. Occasionally,
the Group uses the currency hedging implemented by Saint-Gobain when it believes that significant
financial transactions may result in a currency risk (see Section 4.2.4.2). However, the level of
investment of countries in South America or Eastern Europe that need to import capital goods produced
in Western Europe is sensitive to fluctuations in exchange rates.

Section 4.1.5.2 presents the breakdown by currency of the Group's financial assets and liabilities,
commitments in foreign currencies and exchange rate hedging instruments as at December 31, 2010, as
well as the Group's estimate of the impact of a 1% increase or decrease in the exchange rates of all of
these currencies relative to the currency used for preparing the financial statements.

                   9.1.4.6   Changes in applicable regulations

The Group's operations are subject to restrictive legislative and regulatory conditions in terms of
protecting the environment, public health and safety. The Group has had to incur and will continue to
incur significant costs - in terms of both capital expenditure and operating expenses - in order to meet
legal and regulatory requirements and these costs are likely to increase significantly in the future (see
Section 4.1.1). The potential impact of these regulations on demand for glass packaging also has an
indirect influence on the Group's level of activity. The main regulations that apply to the Group in the
main countries in which it operates are presented in Section 6.8.

                   9.1.4.7   Capital expenditure

The Group operates in a highly capital intensive industry that requires permanent investment in order to
maintain and/or increase production capacity, update its assets and technology and comply with
regulations.

The main recurring investments relate to the rebuilding of furnaces (see Section 5.2.1). Although the
Group's research and development efforts have allowed it to increase their life span to up to 10 to 12
years or even 14 years in certain cases, its furnaces still need to be rebuilt periodically, as the refractory
bricks they are built with wear way on contact with molten glass and energy consumption increases as
furnaces become worn down. The Group has to arbitrate between drawing on its capital - which it is in
its interests to delay - and the energy consumption and the risk of spills at a furnace, which naturally
increase the older it gets. The Group invested a total of €261 million in 2010, €259 million in 2009,
€283 million in 2008, €295 million in 2007 and €282 million in 2006, broken down as follows:

−   In Europe, the Group invested €162 million in 2010, €164 million in 2009, €181 million in 2008,
    €175 million in 2007 and €183 million in 2006;
−   In the United States, the Group invested €76 million in 2010, €77 million in 2009, €73 million in
    2008, €85 million in 2007 and €86 million in 2006;
−   In South America, the Group invested €23 million in 2010, €18 million in 2009, €29 million in
    2008, €35 million in 2007 and €13 million in 2006.


Since 2008, the Group has had an operating excellence programme in place, which since 2010 has
included a component relating to expenditure, based on optimising the design and standardisation of its
equipment, allowing it to benefit from economies of scale and a high level of flexibility (see Section
6.2.5).

                   9.1.4.8   Changes to the scope of consolidation

In order to become more competitive and support its growth, the Group may acquire companies in the
sector. At the same time, the Group may sell some of its operations or even close down its production
plants or furnaces if it wants to withdraw from a particular business sector or in order to adapt its
capacity to demand. The frequency of acquisitions and asset sales varies and depends on the expansion


                                                     141
opportunities offered to the Group and the development of its strategic decisions in the light of market
conditions.

Over the last three years, the Group has acquired Kamyshinsky, a south Russian company
manufacturing mainly sauce jars and also bottles (fully consolidated as of July 1, 2008). The Group has
also initiated the process to privatise EPE Alver and the production assets of the Tebessa plant in
Algeria (see Section 5.2.2.1 "Acquisitions in Algeria").

                  9.1.4.9   Seasonality

The Group's net sales, costs and operating income are affected by a certain level of seasonality and are
therefore generally higher in the first half of the year, mainly because of increased demand for
containers for water, beer and other refreshing drinks during the period with a view to greater
consumption during the hottest time of the year in the northern hemisphere and the building up of
inventories by the Group's customer, particularly in the wine-growing industry, for bottling their
production.

                  9.1.4.10 Spin-off from Saint-Gobain

As stated in Section 9.1.2.3, the changes needed for the Group to be able to operate independently and
the costs resulting from its spin-off from Saint-Gobain, or thereafter, are not reflected in the Combined
Financial Statements and will impact its future results. These changes, as well as their estimated future
financial impact on the Group, are described in Sections 13 and 22.

The Combined Financial Statements as presented in this document reflect the Group's historic situation,
at the end of which the Group benefits from a number of services provided by Saint-Gobain (described
in Section 9.2.1.3) that are necessary to its operations and are billed by the latter.

9.1.5   Summary of the main accounting policies

The Combined Financial Statements have been prepared in accordance with international accounting
standards ("IFRS") as adopted by the European Union as at December 31, 2010. These financial
statements have also been prepared in accordance with IFRS as issued by the International Accounting
Standards Board (IASB).

The new standards, interpretations and amendments of existing standards and applicable to accounting
periods beginning on or after January 1, 2011 have not been adopted in advance by the Group (see Note
2 of the Notes to the Combined Financial Statements).

In order to prepare the financial statements in accordance with IFRS, certain assumptions and
accounting estimates need to be made. The accounting methods set out below are those that require the
greatest use of estimates and judgements by the Group's management. Details of the Group's accounting
methods are provided in the Notes to the Combined Financial Statements in Section 20.

•   Net sales recognition


Net sales generated by the sale of goods or services is recognised net of rebates, discounts and sales
taxes (i) when the risks and rewards of ownership have been transferred to the customer, or (ii) when the
service has been rendered, or (iii) by reference to the stage of completion of the services to be provided.




                                                    142
•    Potential voting rights and share purchase commitments

Potential voting rights conferred by call options on minority interests (non-controlling interests) are
taken into account in determining whether the Group exclusively controls an entity only when the
options are currently exercisable.

When calculating its percentage interest in controlled companies, the Group considers the impact of
cross put and call options on minority interests in the companies concerned. This approach gives rise to
the recognition in the financial statements of an investment-related liability (included within “Other
liabilities”) corresponding to the present value of the estimated exercise price of the put option, with a
corresponding reduction in minority interests and combined equity attributable to equity holders of the
parent. Changes in the value of the liability are recognised in combined equity.

•    Goodwill

When an entity is acquired by the Group, the identifiable assets, liabilities, and contingent liabilities of
the entity are recognised at their fair value within twelve months and retrospectively at the acquisition
date.

The final acquisition price (referred to as “consideration transferred” in IFRS 3R), including the
estimated fair value of any earn-out payments or other future consideration (referred to as “contingent
consideration”), should be determined in the 12 months following the acquisition. Under IFRS 3R, any
adjustments to the acquisition price beyond this 12-month period are recorded in the income statement.
As of January 1, 2010, all acquisition-related costs, i.e. costs that the acquirer incurs to effect a business
combination such as fees paid to investment banks, attorneys, auditors, independent valuers and other
consultants, are no longer capitalised as part of the cost of the business combination, but are recognised
as expenses as incurred.

In addition, starting from January 1, 2010, goodwill is recognised only at the date that control is
achieved (or joint control is achieved in the case of proportionately consolidated companies or
significant influence is obtained in the case of entities accounted for by the equity method). Any
subsequent increase in ownership interest is recorded as a change in combined equity without adjusting
goodwill. In the case of a business combination achieved in stages, the transaction is affected globally at
the date control is reached.

Goodwill is recorded in the combined balance sheet as the difference between the acquisition-date fair
value of (i) the consideration transferred plus the amount of any minority interests and (ii) the
identifiable net assets of the acquiree. Minority interests are measured either as their proportionate
interest in the net identifiable assets or at their fair value at the acquisition date.

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of
the assets and liabilities of the acquired entity. If the cost of the acquisition is less than the fair value of
the net assets and liabilities acquired, the difference is recognised directly in the income statement.

•    Impairment of property, plant and equipment, intangible assets and goodwill

Property, plant and equipment, goodwill and other intangible assets are tested for impairment on a
regular basis. These tests consist of comparing the asset’s carrying amount to its recoverable amount.
Recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use,
calculated by reference to the present value of the future cash flows expected to be derived from the
asset.

For property, plant and equipment and amortisable intangible assets, an impairment test is performed
whenever net sales from the asset decline or the asset generates operating losses due to either internal or
external factors, and no significant improvement is forecast in the annual budget or the business plan.


                                                      143
For goodwill and other intangible assets, an impairment test is performed at least annually based on the
five-year business plan. Goodwill is reviewed systematically and exhaustively at the level of each cash-
generating unit (CGU) and where necessary more detailed tests are carried out. The Group has three
reporting segments: Europe, South America and the United States. A CGU is a reporting sub-segment,
generally defined as a core business of the segment in a given geographical area. It reflects the manner
in which the Group organises its business and analyses its results for internal reporting purposes.

The method used for these impairment tests is consistent with that employed by the Group for the
valuation of companies acquired in business combinations or acquisitions of equity interests. The
carrying amount of the CGUs is compared to their value in use, corresponding to the present value of
future cash flows excluding interest but including tax. Cash flows for the fifth year of the business plan
are rolled forward over the following two years. For impairment tests of goodwill, normative cash flows
(corresponding to cash flows at the mid-point in the business cycle) are then projected to perpetuity
using a low annual growth rate (generally 1%, except for emerging markets or businesses with a high
organic growth potential where a 1.5% rate may be used). The discount rate applied to these cash flows
corresponds to Saint-Gobain's average cost of capital (7.25% in 2010, 7.25% in 2009 and 7.5% in 2008)
plus a country risk premium where appropriate depending on the geographic area concerned. The
discount rates applied in 2010 and 2009 were 7.25% for Europe and the United States and 8.75% for
South America.

The recoverable amount calculated using a post-tax discount rate gives the same result as a pre-tax rate
applied to pre-tax cash flows.

Different assumptions measuring the method’s sensitivity are systematically tested using the following
parameters:

    •   0.5-point increase or decrease in the annual average rate of growth in cash flows projected to
        perpetuity;
    •   0.5-point increase or decrease in the discount rate applied to cash flows.

When the annual impairment test reveals that the recoverable amount of an asset is less than its carrying
amount, an impairment loss is recorded.

Impairment losses on goodwill can never be reversed through income. For property, plant and
equipment and other intangible assets, an impairment loss recognised in a prior period may be reversed
if there is an indication that the impairment no longer exists and that the recoverable amount of the asset
concerned exceeds its carrying amount.

•   Employee benefits

The Group's employees subscribe to defined benefit plans, defined contribution plans and benefits other
than pensions. These plans are in principle specific to each country and some of them are managed and
funded by Saint-Gobain. The assets and liabilities of these plans and funds managed and funded by
Saint-Gobain are combined with other Saint-Gobain activities. For the purposes of preparing the
Combined Financial Statements, the Group has applied reasonable allocation assumptions to determine
the portion of plan assets, liabilities and costs that can be allocated to the Group in accordance with IAS
19. In this respect, SGCI's pensions, including plan assets and their contribution for each period, are
centralised within a U.S. subsidiary of Saint-Gobain and have been allocated to said company in its
combined equity. Following the IPO, the final value of the plan assets to be allocated to SGCI under
ERISA Section 4044 could differ from that stated in the Combined Financial Statements.




                                                    144
        Defined benefit plans

After retirement, the Group’s former employees are eligible for pension benefits in accordance with the
applicable laws and regulations in the respective countries in which the Group operates. There are also
additional pension obligations in certain Group companies, both in France and other countries.

In France, employees receive length-of-service awards on retirement based on years of service and the
calculation methods prescribed in the applicable collective bargaining agreements.

The Group’s obligation for the payment of pensions and length-of-service awards is determined at the
balance sheet date by independent actuaries, using a method that takes into account projected final
salaries at retirement and economic conditions in each country. These obligations may be financed by
pension funds, with a provision recognised in the balance sheet for the unfunded portion.

The effect of any plan amendments (past service cost) is recognised on a straight-line basis over the
remaining vesting period or immediately if the benefits are already vested.

Actuarial gains or losses reflect year-on-year changes in the actuarial assumptions used to measure the
Group’s obligations and plan assets, experience adjustments (differences between the actuarial
assumptions and what has actually occurred), and changes in legislation. They are recognised in
combined equity as they occur.

In the United States, Spain and Germany, retired employees receive benefits other than pensions, mainly
concerning healthcare. The Group’s obligation under these plans is determined using an actuarial
method and is covered by a provision recorded in the balance sheet.

Provisions are also set aside on an actuarial basis for other employee benefits, such as jubilees or other
long service awards, deferred compensation, specific welfare benefits, and termination benefits in
various countries. Any actuarial gains and losses relating to these benefits are recognised immediately.

The Group has elected to recognise the net financial expense for these obligations and the expected
return on plan assets as financial expense or income.

        Defined contribution plans

Contributions to defined contribution plans are expensed as incurred.

        Share-based payments

Stock options

Some of the Group's employees benefit from stock options on shares of Compagnie de Saint-Gobain.

The cost of stock option plans is calculated and reflected in the Combined Financial Statements using
the Black & Scholes option pricing model.

The following parameters are used:

−   volatility assumptions that take into account the historical volatility of the Compagnie de Saint-
    Gobain share price over a rolling 10-year period, as well as implied volatility from traded share
    options. Periods of extreme share price volatility are disregarded;
−   assumptions relating to the average holding period of options, based on observed behaviour of
    option holders;
−   expected dividends, as estimated on the basis of historical information dating back to 1988;



                                                   145
−   a risk-free interest rate corresponding to the yield on long-term government bonds;
−   the effect of any stock market performance conditions is taken into account in the initial
    measurement of the plan cost under IFRS 2.

The cost calculated using this method is recognised in the income statement over the vesting period of
the options, ranging from three to four years.

For options exercised for new shares, the sum received when the options are exercised is recorded in
“combined equity” net of directly attributable transaction costs.

Group Savings Plan (“PEG”)

Saint-Gobain has introduced a Group Savings Plan for its employees, including employees of the
Group. Within the framework of the conventional plan, employees can choose a plan term of five or 10
years. Employees cannot sell their shares during this period, apart from in the usual case of early
withdrawals. The method used by the Group to calculate the costs corresponding to its employees takes
into account the fact that shares granted to employees under the plan are subject to a five or 10-year
lock-up. The lock-up cost is measured and deducted from the 20% discount granted by Saint-Gobain on
employee share awards. The calculation parameters are defined as follows:

−   the exercise price, as set by the Board of Directors of Compagnie de Saint-Gobain, corresponds to
    the average of the opening share prices quoted over the 20 trading days preceding the date of grant,
    less a 20% discount;

−   the grant date of the options is the date on which the plan is announced to employees. For Saint-
    Gobain, this is the date when the plan’s terms and conditions are announced on the Saint-Gobain
    intranet site;

−   the interest rate used to estimate the cost of the lock-up feature of employee share awards is the rate
    that would be charged by a bank to an individual with an average risk profile for a general purpose
    five or 10-year consumer loan repayable at maturity.

In 2008, Saint-Gobain also launched a leveraged Group Savings Plan ("leveraged PEG"). This plan,
with a 15% discount, allows employees who subscribe to benefit from the capital gain attached to 10
shares for each share subscribed. The plan costs calculated under IFRS 2 relating to Group employees
are calculated and reflected in the Combined Financial Statements in the same way as for the
conventional Group Savings Plan, but valuing the specific benefit provided by the option given to
employees to benefit from the same market conditions as Saint-Gobain. There was no "leveraged PEG"
in 2009 and 2010.

This cost is recognised in full at the end of the subscription period.

Performance share grants

Saint-Gobain set up a worldwide share grant plan in 2009 whereby each Group employee was awarded
seven shares, and performance share plans in 2009 and 2010 for certain categories of employees. These
plans were subject to eligibility criteria based on the grantee’s period of service with the Group and
performance criteria. The plan costs calculated under IFRS 2 relating to Group employees as reflected in
the Combined Financial Statements take into account these criteria and the lock-up feature. They are
determined after deducting the present value of forfeited dividends and are recognised over the vesting
period, which ranges from two to four years depending on the country.




                                                     146
9.1.6    Highlights of the period

As stated above, the Group acquired Kamyshinsky in 2008, which has been fully consolidated since
July 2008.

In 2009, as a result of restructuring measures (described in Section 9.2.2.6), measures to adapt
production to demand and inventory management measures, the Group decided to temporarily suspend
production of a total of 506,000 tonnes (16,000 tonnes excluding glassware). Such suspensions
represented just 205,000 tonnes in 2010, with inventories remaining at a low level in all of the regions in
which the Group operates.

9.2     Analysis of the combined income statements

The summary income statement is shown below. A full presentation of the income statement is provided
in Section 20. 1.

                                                              2010              2009             2008
(In millions of euros)



Net sales                                                           3,553            3,445             3,547
Cost of sales                                                     (2,905)          (2,810)           (2,912)
Selling, general and administrative expenses including
                                                                     (216)             (201)            (196)
research
Operating income                                                      432                434             439
Other business income and expense                                     (30)              (42)             (13)
Business income                                                       402                392             426

Net financial income (expense)                                        (29)              (28)              (7)
Share in net income of associates                                        3                 1                3
Income tax                                                           (134)             (109)            (109)
Net income before income from held-for-sale
                                                                      242               256              313
operations
Pre-tax income from held-for-sale operations                            0                53                0
Combined net income                                                   242               309              313
Net income attributable to equity holders of the parent               235               303              305
Minority interests                                                      7                 6                8

9.2.1    Explanation of the main income statement items

                   9.2.1.1   Net sales

Net sales are generated from the sale of finished glass packaging products (bottles, jars, glassware and
decorative products), machines, accessories - relating mainly to sales of packaging of finished products
(pallets and sandwich plates) and associated services.

Because of local characteristics such as economic conditions, consumer behaviour and market structure,
momentum differs in each of the countries in which the Group operates. These factors have a significant
influence on the size and number of customers, the type of products sold and even the existence of
specific market segments.

In each country, depending on specific local characteristics, the Group has endeavoured to establish
itself in selected segments such as still and sparkling wines, spirits and food products, in which it




                                                     147
considers itself world market leader. It believes that these are the most robust segments in the long term
and the most suited to the development of a unique range of products and complementary services.

Variations in net sales relate primarily to the following factors:

−   variations in the volume of net sales (in thousands of tonnes of glass sold during each period)
    because of variations in demand for products and market activity;

−   the sales mix, i.e. the composition of sales by end market (beer bottles, still wine bottles, spirits
    bottles, sparkling wine bottles, glass jars etc.);

−   variations in the selling prices of products (including general price variations relating to local
    market conditions and specific price variations such as those intended to pass on variations in all or
    some production costs and reductions, as well as discounts for rapid payment);

−   variations in exchange rates between the euro and the currency used by the subsidiary concerned in
    preparing its financial statements, affecting the subsidiary's net sales after translation for
    consolidation purposes;

−   changes in the scope of consolidation, relating primarily to acquisitions or asset sales.

                   9.2.1.2   Cost of sales

Cost of sales comprises all costs directly or indirectly related to the production of sales. This concerns
primarily the cost of raw materials (silica, soda ash, calcium), cullet (recycled glass), energy (electricity,
fuel, gas), other direct production costs (mainly wage costs, depreciation of production equipment,
maintenance and packaging costs) and indirect production costs relating to the production of sales
(general plant operating costs). The cost of sales also includes variable selling expenses, such as
commission fees paid to sales representatives, transportation costs, foreign exchange differences or even
impairment of inventories and trade accounts receivable.

The raw materials purchased by the Group are primarily silica and soda ash. Energy costs include fuel
(mainly in Europe) and natural gas (mainly in the United States).

As of the registration date of this Document de Base, certain raw materials, energy purchases,
transportation services, interim employment services and spare parts were purchased by the Group via
dedicated units at Saint-Gobain (in particular GIE Saint-Gobain Achats). On the occasion of the Group's
IPO, a Pooled Purchasing Agreement was signed between Compagnie de Saint-Gobain and the Group to
ensure the continued pooling of certain purchases. The terms of the agreement are described in Section
22.1.1.2.

Wage costs include all employee costs relating to the production process, including salaries, social
security charges, bonuses, and costs related to incentive plans and employee profit-sharing.

Depreciation and amortisation of property, plant and equipment and intangible assets ratio relates to
buildings, installations, equipment and other fixed assets used in the production process, the change in
which depends on the level of investment made by the Group. Note that moulds are regarded as
inventories in the Combined Financial Statements, and their wear-and-tear is recognised in cost of sales
as they are used. Indirect production costs are also included in the cost of sales, including fixed costs
relating to production plants.

Operating purchases are generally made in the currency of the country in which the Group's companies
operate, with the exception of Ukraine. Foreign exchange differences therefore do not have a material
impact other than the impact of currency translation in the Group's Combined Financial Statements.



                                                     148
As regards transportation costs, as a general rule the Group charters means of transport to deliver
products to its customers. These costs are billed back to customers. The Group often includes an
indexation mechanism in contracts with its customers in order to bill back additional fuel costs,
calculated on the basis of a benchmark index and an estimate of the proportion of fuel in carriers' costs.
In certain countries such as France, this adjustment is made at the bottom of the invoice by the carriers
themselves.

                  9.2.1.3   Selling, general and administrative expenses including research

Selling, general and administrative expenses concern all costs relating to executive management,
marketing, finance and accounting, human resources and research activities. They comprise mainly staff
costs (sales representatives, administrative staff and research staff), advertising costs, fees and other
general expenses, such as the leasing of premises. The Group incurs costs relating to its holding
company activities, some of which correspond to services invoiced by Compagnie de Saint-Gobain,
which are partly billed back to other Group companies. The Combined Financial Statements therefore
include costs relating to the services provided by Saint-Gobain within the framework of the general
assistance agreement, under which Saint-Gobain provides various services such as taxation,
authoritative accounting literature, cash management, legal assistance and internal audit services. The
Group recognises costs relating to services provided by local delegations of Saint-Gobain on a local
level in the countries in which it operates in respect of the functional support given to its subsidiaries.

Research costs include technical staff costs, costs relating to services provided by Saint-Gobain
Recherche and GIE Saint-Gobain Conceptions Verrières, and costs relating to patent applications.

Within the framework of the Company's IPO, the Group and Saint-Gobain agreed to terminate the
general assistance agreement, which will be replaced on a transitional basis by a Transitional Services
Agreement and a Technical Agreement concerning research and development. The terms of these
agreements are described in Section 22.

Some research and development costs can be capitalised insofar as the costs incurred in respect of major
development projects for the design and testing of new or improved products are treated as intangible
assets when it is likely that the project will be a success given its commercial and technical feasibility,
and when the costs can be reliably quantified. These costs are written down on a straight-line basis from
the time the products go on sale, with a profit expected over a period of not more than five years.
However, as of December 31, 2010, no such projects were included in assets.

                  9.2.1.4   Operating income

Operating income used by the Group to measure the performance of its activities and has been used as
its key management indicator for many years. Foreign exchange gains and losses are included in
operating income, as are changes in the fair value of financial instruments that do not qualify for hedge
accounting when they relate to operating items. It does not include items such as impairment losses,
gains on asset sales and restructuring costs.

                  9.2.1.5   EBITDA

EBITDA represents earnings before interest, taxes, depreciation and amortisation. The transition from
Group operating income to Group EBITDA is made as follows:




                                                    149
        (In millions of euros)                           2010                 2009                2008

Operating income                                          432                  434                 439
Depreciation and amortisation                             235                  220                 208
EBITDA                                                    667                  654                 647

EBITDA is not a measurement of performance defined by IFRS, but is defined in the Combined
Financial Statements (see Notes 2 and 24). It should not be considered as an alternative to business
income or net income (as calculated in accordance with IFRS) to measure the Group's operating
performance. EBITDA corresponds to cash flow from ordinary activities and can be used to measure the
Group's ability to meet its cash requirements. EBITDA for the fiscal years ended December 31, 2010,
2009 and 2008 should be assessed relative to EBITDA for the fiscal years ended December 31, 2007
and 2006, at €584 million and €505 million respectively. This breaks down as follows:

−   In Europe, EBITDA amounted to €409 million in 2010, €437 million in 2009, €473 million in 2008,
    €433 million in 2007 and €363 million in 2006;
−   In the United States, EBITDA amounted to €196 million in 2010, €172 million in 2009, €117
    million in 2008, €101 million in 2007 and €84 million in 2006;
−   In South America, EBITDA amounted to €62 million in 2010, €45 million in 2009, €57 million in
    2008, €50 million in 2007 and €58 million in 2006.

The Group's EBITDA is therefore included in the Document de Base in order to allow for analysis in
comparison with other companies in the sector that report their EBITDA. However, insofar as the
definition of EBITDA frequently differs from one company to the next, the presentation of the Group's
EBITDA in this Document de Base could not be compared with EBITDA as reported by other
companies in the sector.

                  9.2.1.6   Other business income and expense

Other business income and expense comprises costs relating to restructuring, suspensions and closures
of production plants, capital gains and losses on asset sales and exceptional impairment of assets.

For the fiscal years ended December 31, 2008, 2009 and 2010, this item concerns primarily the
restructuring in the United States, Spain and France described in Section 9.2.2.6.

                  9.2.1.7   Business income

Business income corresponds to sales less selling, administrative and marketing expenses, research and
development costs and other operating expenses. Business income does not include financial expenses
(described below).

                  9.2.1.8   Net financial income (expense)

Net financial income (expense) corresponds primarily to financial income from the investing of cash
and cash equivalents after financial expenses, including in particular interest paid on borrowings from
banks (South America and Eastern Europe) or Saint-Gobain (Western Europe and the United States)
within the framework of the financing of the Group's activities by Saint-Gobain. Net financial income
(expense) also includes dividends from non-consolidated companies. The impact on net financial
income (expense) of the Group's debt structure implemented after the admission to trading of its shares
on the NYSE Euronext regulated exchange in Paris is described in Section 10.




                                                  150
9.2.2    Comparison of fiscal years ended December 31, 2010 and 2009


                                                                                                                 Change 2010
                                                        % of 2010 net                              % of
(In millions of euros)                     2010                                 2009                               vs. 2009
                                                            sales                              2009 net sales
                                                                                                                     (%)

Net sales                                     3,553             100%                3,445               100%            +3.1%
Cost of sales                               (2,905)             (81.8)            (2,810)               (81.6)          +3.4%
Selling,       general      and
administrative         expenses              (216)                (6.1)                (201)             (5.8)             +7.5%
including research
Operating income                                  432             12.2                  434              12.6           (0.5%)

Other business income and
                                               (30)               (0.9)                 (42)             (1.2)         (28.6%)
expense
Business income                                   402             11.3                  392              11.4           +2.6%

Net       financial      income
                                               (29)               (0.8)                 (28)             (0.8)          +3.6%
(expense)
Share in net income of
                                                    3              0.1                    1              n.m.               n.m.
associates
Income tax                                   (134)                (3.8)                (109)             (3.2)         +22.9%
Net income before income
                                                  242              6.8                  256                7.4          (5.5%)
from held-for-sale operations
Pre-tax income from held-for-
                                                    0             n.m.                   53                1.6              n.m.
sale operations
Combined net income                               242              6.8                  309                9.0         (21.7%)
Net income attributable to
                                                  235              6.6                  303                8.8         (22.4%)
equity holders of the parent
Minority interests                                  7              0.2                    6                0.2         +16.7%


                    9.2.2.1    Net sales


     (In millions of euros)             2010                    2009               Change               Change (%)

Europe                                         2,092                   2,122                    (30)              (1.4%)
United States                                  1,162                   1,087                    +75               +6.9%
South America                                    302                     241                    +61              +25.3%
Eliminations                                      (3)                     (5)                     +2             +40.0%
Net sales                                      3,553                   3,445                    108               +3.1%

The Group generated net sales of €3,553 million in 2010 compared with €3,445 million in 2009, a year-
on-year increase of €108 million or 3.1%. Of this amount, €100 million relates to currency effects. As
regards the remainder, net sales growth at Group level reflects a very slight fall in volumes (down
0.3%), which was more than offset by a slightly higher price/mix73 of sales (+0.7%).




73
  At constant exchange rates and on a like-for-like basis, net sales can vary as a result of changes in selling
volumes or a price/mix effect. The price/mix effect is the result of a change in selling prices for the same product


                                                          151
The strong performance in the United States follows on from the trend observed by the Group since
2008, while its performance in South America made up for the slight decline in Europe.

Europe

   (In millions of euros)                2010                   2009              Change               Change (%)
Net sales                                       2,092                  2,122                  -30               (1.4%)


Activities in Europe contributed €2,092 million to Group net sales in 2010 compared with €2,122
million in 2009, a fall of €30 million or 1.4% relative to 2009, with a favourable currency effect of €10
million. Volumes fell by 1.8% relative to 2009 but the price/mix of sales remained stable (+0.1%).

Western Europe

In a highly competitive environment, overall volumes in Western Europe fell slightly relative to 2009,
but the price/mix of sales remained more or less stable.

Net sales declined in France because of a reduction in volumes as a result of a sluggish wine market
(still wines and champagne) and lower consumption of alcoholic drinks, as well as a drop in exports
relating to France becoming less competitive against countries in the "New Winemaking World", but
also against Spain and Italy. The price/mix of sales remained generally stable relative to 2009. The
volume of glass jars remained in line with 2009.

Net sales increased significantly in Italy thanks to considerable improvement in volumes, driven
primarily by the export wine market, while consumption in the domestic market - impacted by the
economic crisis - fell sharply. The price/mix of sales was down relative to 2009.

In Spain and Portugal, net sales rose slightly in 2010 primarily as a result of the robust level of wine
exports, as well as slight growth in volumes in the domestic market in Spain, particularly in wines.

Germany was penalised by market over-capacity and fierce competition, with net sales down primarily
because of lower volumes in nearly all segments in 2010. The price/mix of sales was down relative to
2009.

Eastern Europe

Net sales in Eastern Europe as a whole fell in 2010 with a sharp drop in volumes, partly offset by a
positive price/mix effect relating to more rigorous pricing.

Volumes fell significantly in Russia, mainly as a result of external events. Spirits sales in Russia were
penalised by government delays in issuing excise stamps on alcohol, which curbed demand for glass
bottles. In addition, dry weather and fires in Russia at the peak of the food production season led to
much poorer harvests, and consequently much weaker demand for glass jars.




sold to the same customer ("pure price" effect) or a change in the customer mix (sale of the same article to
different customers at different prices) or a change in the product mix (sale of different articles at different prices).




                                                          152
In Ukraine, market conditions remained difficult in 2010 with continuing overcapacity, a further rise in
excise duties and an increase of over 40% in alcohol prices as of September 1, 2010. However, the
Group saw signs of recovery in the domestic market at the end of 2010, with stabilisation in economic
conditions following the elections. The Group sustained a sharp fall in sales in 2010 but achieved an
upturn at the end of the year against the backdrop of price rises implemented since September. Exports
from Ukraine to Poland were also penalised by unfavourable exchange rate fluctuations between the
Ukrainian currency and the Polish zloty.

United States

  (In millions of euros)           2010              2009              Change           Change (%)
Net sales                               1,162              1,087                +75             +6.9%

Activities in the United States contributed €1,162 million to Group net sales in 2010 compared with
€1,087 million in 2009, an increase of €75 million or 6.9% relative to 2009, with a favourable currency
effect of €55 million.

In U.S. dollars, net sales generated in the United States totalled USD 1,542 million in 2010, an increase
of USD 27 million or 1.8% relative to 2009.

This increase in net sales in dollars was almost entirely the result of growth in volumes. Volumes
benefited from brisk demand and the reallocation of beer volumes to the Group relating to contract
renegotiations with one of its main customers.

South America

  (In millions of euros)           2010              2009              Change           Change (%)
Net sales                                 302               241                 +61            +25.3%

Activities in South America contributed €302 million to Group net sales in 2010 compared with €241
million in 2009, an increase of €61 million or 25.3% relative to 2009, with a favourable currency effect
of €35 million. The increase in sales at constant exchange rates was due to volume growth of 3.3% and
also an increase in the price/mix of sales of 7.6%.

In Brazil, net sales increased in the local currency, mainly as a result of a price/mix effect. Volumes rose
slightly in 2010 despite problems with product availability in the fourth quarter of the year following the
spill at the Porto Ferreira furnace - which affected primarily glass jars - and the loss of the contract with
ABInbev to supply one litre beer bottles.

In Argentina, net sales increased significantly as a result of robust volume growth and also the price/mix
effect. These robust volumes were partly thanks to the domestic market, as well as exports with the
success of Argentinean wines.

In Chile, net sales remained more or less stable in the local currency, with the increase in the price/mix
of sales completely making up for the decline in volumes. However, this fall in volumes masks strong
growth in volumes in the domestic market concomitantly with a fall in intra-group sales volumes
between Chile and Argentina because of increased local demand in Chile.




                                                     153
                  9.2.2.2     Cost of sales


     (In millions of euros)           2010                  2009            Change             Change (%)

  Cost of sales                          (2,905)              (2,810)                (95)              +3.4

The Group's cost of sales totalled €2,905 million in 2010 compared with €2,810 million in 2009, a year-
on-year increase of €95 million or 3.4%. This increase relates primarily to an unfavourable currency
effect of €83 million, mainly due to the U.S. dollar and the Brazilian real. At constant exchange rates,
costs rose by just 0.4% thanks to limited growth in production costs and the favourable impact of the
streamlining of production facilities over the last few years, allowing for a reduction in production but
with less use of temporary production suspensions (205,000 tonnes in 2010 compared with 522,000
tonnes in 2009).

In Europe, the cost of sales remained stable in 2010 relative to 2009, while net sales fell by 1.4%.
Countries in Eastern Europe were subject to significant inflation in energy costs, which was offset by
the reduction in raw materials and energy costs (mainly soda ash and electricity) in Western Europe.
However, the cost of sales rose in France despite a reduction in sales volumes, relating partly to
temporary suspensions - primarily at the Vauxrot plant - which weighed down margins.

In the United States, the cost of sales rose at a slower rate than net sales in 2010, at 5.7% versus 6.9%.
In keeping with previous years, the Group continued to optimise its production facilities in 2010, with
facilities working at full capacity and temporary suspensions limited to just 2,000 tonnes in 2010
compared with 75,000 tonnes in 2009. Control of costs was also due to the significant reduction in
natural gas prices in 2010.

In South America, the cost of sales rose at a slower rate than net sales in 2010. The rise in the cost of
sales related primarily to significant inflation in energy costs (fuel and electricity), as well as
transportation and packaging costs.

                  9.2.2.3     Selling, general and administrative expenses including research


   (In millions of euros)             2010                   2009            Change              Change (%)

Selling, general and
administrative expenses                       (216)                 (201)               (15)                  7.5
including research

Selling, general and administrative expenses including research totalled €216 million in 2010 compared
with €201 million in 2009, a year-on-year increase of €15 million or 7.5%. Selling, general and
administrative expenses including research represented 6.1% of net sales generated by the Group in
2010 compared with 5.8% in 2009.

This increase in selling, general and administrative expenses including research was partly due to an
unfavourable currency effect of €7 million. At constant exchange rates, the increase is mainly due to
costs relating to a number of strategic initiatives, in particular optimising the design of equipment and
their standardisation, reinforcement of marketing and research and development activities, advertising
campaigns to boost sales, communications relating to the new Verallia brand and sustainable
development, as well as the end of the global SAP software roll-out.




                                                      154
                    9.2.2.4     Operating income

  (In millions of                                                                            Change
                              2010     % of net     2009       % of net        Change
      euros)                                                                                  (%)
                                        sales                   sales
Europe                           269    12.9             302         14.2            (33)        (10.9)
United States                    122    10.5             104          9.6              18          17.3
South America                     41    13.6              28         11.6              13          46.4
Operating income
                                 432     12.2            434          12.6            (2)          (0.5)

Operating income came to €432 million in 2010 compared with €434 million in 2009, a fall of 0.5%.
Excluding the favourable currency effect, 2010 operating income was down €12 million or 2.8%
relative to 2009. Under difficult economic conditions, the Group kept sales and income at a high level,
more or less stable relative to 2009. Operating income nevertheless deteriorated slightly to 12.2%
compared with 12.6% in 2009, as the slightly more significant increase in the price/mix of sales in the
second half of the year was unable to make up fully for the decline in volumes in Europe over the full
year, and - to a lesser extent - the rise in energy costs (see Section 4.1.1. “The Group is exposed to
fluctuations in energy prices”).

Europe

Operating income in Europe came to €269 million in 2010 compared with €302 million in 2009, a fall
of €33 million or 10.9% relative to 2009, representing 12.9% of total net sales generated in Europe in
2010 compared with 14.2% in 2009.

In Western Europe, this deterioration related mainly to France due to the impact of temporary
suspensions, primarily at the Vauxrot plant, and industrial action, and also Germany, which saw a
decline in volumes and a certain amount of pressure on prices relating mainly to overcapacity.
Meanwhile, Spain and Portugal saw considerable improvement, with restructuring having a positive
impact in Spain (closure of the Jerez plant in late November 2009). Operating income also increased in
Italy with a favourable effect relating to the rise in volumes.

In Eastern Europe, operating income was up in Ukraine in 2010 thanks to efforts to control costs and the
stable price/mix of sales. In Russia, however, operating income fell sharply because of the decline in
volumes, exceptional weather conditions and a spill at a furnace at the end of its life at Kamyshinsky.

United States

Operating income in the United States came to €122 million in 2010 compared with €104 million in
2009, an increase of €18 million or 17.3% relative to 2009. This represents record operating margin of
10.5% achieved by the Group in the United States in 2010, compared with 9.6% in 2009. The Group
believes that this performance was the result of efforts to optimise operations and plans of action
implemented in previous years, in particular the strategy of passing on increases in production costs in
selling prices within the framework of contracts negotiated by the Group with its customers (see Section
6.5.3).

In U.S. dollars, operating income generated in the United States totalled USD 162 million in 2010, an
increase of USD 17 million or 11.7% relative to 2009.

South America

Operating income in South America came to €41 million in 2010 compared with €28 million in 2009, a
significant increase of €13 million or 46.4% year-on-year, including a currency effect of €3 million.
Operating margin in South America was therefore 13.6% in 2010 compared with 11.6% in 2009.


                                                   155
In Argentina, operating income rose sharply thanks to a solid sales performance - with furnaces working
at full capacity - and an increase in the price/mix of sales exceeding inflation in costs.

In Brazil, operating income only increased slightly due to the detrimental effect of the spill at the Porto
Ferreira furnace and the resulting capacity losses.

In Chile, operating income increased thanks to the reduction in intra-group transfers with Argentina and
volume growth in the domestic market, generating higher margins. This was therefore the first year that
positive operating income was achieved.

                  9.2.2.5    EBITDA


   (In millions of                    % of net                   % of net                     Change
                             2010                     2009                        Change
        euros)                         sales                      sales                        (%)
 Europe                      409       19.6           437         20.6             (28)        (6.4)
 United States               196       16.9           172         15.8              24         14.0
 South America                62       20.5           45          18.7              17         37.8
 EBITDA                      667       18.8           654         19.0              13          2.0

The Group generated EBITDA of €667 million in 2010 compared with €654 million in 2009, up 2%.
EBITDA margin was 18.8% in 2010 compared with 19% in 2009.

                  9.2.2.6    Other business income and expense


    (In millions of euros)           2010                 2009           Change            Change (%)

Other business income and
expense                               (30)                (42)               12               28.6

The main items for 2010 include restructuring costs of €19 million relating primarily to France (Vauxrot
plant) and Spain (Jerez logistics platform). Capital losses on asset sales (or scrapping) amounted to €6
million divided between the United States, France and Brazil. Impairment of assets totalled €3 million.
Acquisition-related costs of €2 million were recognised in Italy within the framework of the proposed
acquisitions in Algeria (see Section 5.2.2.1).

The main items for 2009 included restructuring costs of €27 million relating primarily to Spain (in
particular the closure of the Jerez plant) and the United States (in particular the closure of the
Waxahachie plant), in addition to the impairment of assets at closed plants.

The majority of the restructuring costs described above relate to the optimisation of production capacity
in France, Spain and the United States.

                  9.2.2.7    Net financial income (expense)

The Group reported a net financial expense of €29 million in 2010 compared with €28 million in 2009.
This comprises mainly interest expenses relating to the Group's debt (see Section 10.3).

The financial cost of pensions net of estimated returns on fund assets had an impact of €8 million on the
Group's net financial expenses in 2010 compared with €12 million in 2009.




                                                    156
                  9.2.2.8   Income tax

The Group's income tax totalled €134 million in 2010, an increase of €25 million or 22.9% relative to
2009, mainly because of the growing proportion of pre-tax income generated in the United States, non-
recurring items that reduced the tax charge in 2009 (reversal of the provision for deferred tax on tax
losses in the United States), as well as the classification of the CVAE tax ("Cotisation sur la Valeur
Ajoutée des Entreprises" or contribution for enterprise added value) as income tax in 2010.

The Group's effective tax rate was 35.9% in 2010 compared with 29.9% in 2009.

                  9.2.2.9   Share in net income of associates

The share in net income of associates came to €3 million in 2010 compared with €1 million in 2009, an
increase of €2 million or 200%. This corresponds to income from Samin (Société d’Exploitation des
Sables et Minéraux – France), Vetreria Etrusca Srl (Italy) and Thierry Bergeon Embouteillage (France).

                  9.2.2.10 Net income

Combined net income totalled €242 million in 2010 compared with €309 million in 2009, the latter
figure including income of €53 million from the sale of SG Cristaleria shares held by SG Vicasa and
sold on to SG Cristaleria. Net income before income from held-for-sale operations came to €242 million
in 2010 compared with €256 million in 2009, a fall of €14 million.

9.2.3   Comparison of fiscal years ended December 31, 2009 and 2008

                                                                                        Change 2009
                                          2009      % of 2009      2008     % of 2008
(In millions of euros)                                                                    vs. 2008
                                                    net sales               net sales
                                                                                            (%)

Net sales                                 3,445          100%      3,547     100%           (2.9)
Cost of sales                            (2,810)         (81.6)   (2,912)    (82.1)         (3.5)
Selling, general and administrative
                                         (201)           (5.8)    (196)       (5.5)          2.6
expenses including research
Operating income                          434            12.6      439        12.4          (1.1)

Other business income and expense         (42)           (1.2)     (13)       (0.4)         n.m.
Business income                           392            11.4      426        12.0          (8.0)

Net financial income (expense)            (28)           (0.8)     (7)        (0.2)         n.m.
Share in net income of associates          1             n.m.       3         n.m.          n.m.
Income tax                               (109)           (3.2)    (109)       (3.0)          0.0
Net income before income from
                                          256             7.4      313          8.8         (18.2)
held-for-sale operations
Pre-tax income from held-for-sale
                                           53             1.6       0                       n.m.
operations
Combined net income                       309             9.0      313          8.8         (1.3)
Net income attributable to equity
                                          303             8.8      305          8.6         (0.7)
holders of the parent
Minority interests                         6              0.2       8           0.2         (25.0)




                                                   157
                  9.2.3.1   Net sales


   (In millions of euros)           2009                 2008           Change            Change (%)

Europe                              2,122                2,297           (175)                (7.6)
United States                       1,087                1,011            76                   7.5
South America                        241                  243             (2)                 (0.8)
Eliminations                         (5)                  (4)             (1)                (25.0)
Net sales                           3,445                3,547           (102)                (2.9)

The Group generated net sales of €3,445 million in 2009 compared with €3,547 million in 2008, down
€102 million or 2.9% year-on-year. On a like-for-like basis, sales benefited from a positive currency
effect of €12 million.

The fall in net sales relates primarily to the decline in sales in Europe, where the Group generates the
majority of its net sales. Meanwhile, net sales in the United States rose by 7.5% to €76 million thanks to
growth in volumes and higher prices, as well as a favourable currency effect. In South America, net
sales were subject to an unfavourable currency effect, masking growth in sales in the local currency,
which nevertheless includes the impact of inflation.

Overall, the fall in net sales in 2009 relates to a sharp drop in volumes in almost all countries,
particularly in the first half of the year, although with a general increase in the price/mix of sales,
reducing (in Europe) or even cancelling out (in the United States and South America) the impact of
lower volumes. This increase in price/mix of sales nevertheless decreased gradually in the course of
2009, with a very limited increase in the fourth quarter. Over the full year, volumes fell by 5.6% and the
price/mix of sales increased by 1.8%.

Europe


   (In millions of euros)           2009                 2008           Change            Change (%)
Net sales                           2,122                2,297           (175)                (7.6)



Activities in Europe contributed €2,122 million to Group net sales in 2009 compared with €2,297
million in 2008, a fall of €175 million or 7.6% year-on-year, with a favourable currency effect of €33
million. Volumes fell by 8.1% overall, in line with the market line, but the price/mix of sales rose by
1.0%. Sales also benefited from the acquisition of Kamyshinsky, fully consolidated as of July 2008,
which had a favourable impact of 0.9%. These amounts should be considered relative to the Group’s net
sales in Europe for the fiscal years ended December 31, 2007 and 2006, of €2,118 million and €1,941
million respectively.

In 2009, the Group continued with its process initiated in 2008 of including energy surcharge
mechanisms in its contractual relations.

Western Europe

The fall in sales in Western Europe relates primarily to the significant reduction in volumes as a result
of weak demand, impacted by the economic crisis.

In France, net sales were down because of much lower volumes, mainly in wine and spirits bottles, with
the price/mix of sales remaining more or less stable.



                                                   158
In Italy, the decline in net sales was mainly due to a reduction in sales volumes, primarily in wine
bottles and jars, with a slightly positive price/mix effect.

Net sales were also down in Spain and Portugal, In Spain, volumes fell sharply in all segments apart
from beer bottles. The price/mix effect nevertheless remained favourable, although sales of wine bottles
were affected by very fierce competition in pricing. Volumes were also lower in Portugal, particularly
for beer bottles, although this was almost offset by the significant increase in the price/mix of sales.

In Germany, net sales fell on the back of a decline in volumes, particularly in beer bottles, while the
glass jars market remained stable. This fall was partly offset by a favourable price/mix effect. However,
against the backdrop of the general economic crisis, Germany proved more resilient than France, Italy
and Spain.

Eastern Europe

Russia and Ukraine were hard hit by the economic crisis and changes in exchange rates.

In Russia, net sales increased as 2009 included the acquisition of Kamyshinsky over the full year, fully
consolidated as of July 2008. Kamyshinsky achieved slight growth in volumes in 2009 - with a
significant increase in bottles but a fall in jars - and a sharp rise in the price/mix of sales. Kavminsteklo
(KMS) sustained a sharp fall in net sales due to a severe decline in volumes, partly offset by an increase
in the price/mix, against the backdrop of changes in competitive conditions with a rival setting up a new
business in the region.

In Ukraine, net sales were down with a sharp fall in volumes in beer and spirits bottles - with a market
subject to overcapacity - affecting mainly exports, which in October 2009 resulted in the mothballing of
a small-capacity furnace.

United States

   (In millions of euros)            2009                  2008           Change            Change (%)
Net sales                                   1,087                 1,011              76                  7.5

Activities in the United States contributed €1,087 million to Group net sales in 2009 compared with
€1,011 million in 2008, an increase of €76 million or 7.5% year-on-year, with a favourable currency
effect of €57 million. These amounts should be considered relative to the Group’s sales in the United
States for the fiscal years ended December 31, 2007 and 2006, of €1,052 million and €1,152 million
respectively.

In U.S. dollars, net sales generated in the United States totalled USD 1,515 million in 2009, an increase
of USD 28 million or 1.9% relative to 2008. Sales therefore rose in dollars thanks to an increase in the
price/mix of sales and volumes remaining more or less stable.

Sales proved very resilient in 2009, with volumes holding up well in the fourth quarter in particular (up
1.8%), mainly in the wine and food segments, while spirits and beer bottles saw a fall. Despite the
decline in sales of beer bottles, the Group managed to improve the price/mix of sales by 7.5% in this
segment in the United States in 2009.

South America

   (In millions of euros)            2009                  2008           Change            Change (%)
Net sales                                    241                   243               (2)               (0.8)



                                                     159
Activities in South America contributed €241 million to Group net sales in 2009 compared with €243
million in 2008, a fall of €2 million or 0.8% relating to a very unfavourable currency effect of €13
million, masking growth in net sales in the local currency in all countries. These amounts should be
considered relative to the Group’s net sales in South America for the fiscal years ended December 31,
2007 and 2006, of €227 million and €230 million respectively.

In Brazil, net sales expressed in euros were down very slightly but up significantly in the local currency.
During 2009, the Group sustained an overall fall in sales volumes of glass bottles and jars, relating
mainly to beer and spirits bottles but also glassware. Meanwhile, volumes of wine bottles and jars
increased. This weaker performance in terms of volumes was more than offset by a significant increase
in the price/mix of sales in all segments of bottles and jars.

In Argentina - where external sales are mainly focused on the still and sparkling wine bottles segment –
net sales expressed in euros were also down, but up significantly in the local currency. Non-Group sales
and volumes fell, with a sharper fall in sparkling wines. This weaker performance in terms of volumes
was more than offset by a significant increase in the price/mix of sales, despite the government's policy
of controlling prices, which affected the Group's ability to pass on inflation in costs in selling prices.

In Chile, where the Group began operations in 2007, net sales increased. Volumes rose with strong sales
growth in the domestic market and a significant reduction in internal sales to the subsidiary of the Rayen
Cura Group in Argentina.

                  9.2.3.2   Cost of sales


   (In millions of euros)           2009                  2008           Change            Change (%)

Cost of sales                           (2,810)             (2,912)                102                (3.5)

The Group's cost of sales totalled €2,810 million in 2009 compared with €2,912 million in 2008, down
3.5% relative to 2008, while net sales fell by 2.9% in 2009 relative to 2008.

The cost of sales in Europe fell by 7.3% in 2009 relative to 2008, slightly below the drop in net sales of
7.6%. In order to adapt to the economic crisis in 2009, the Group had to adjust its production capacity
with temporary suspensions (404,000 tonnes in 2009 compared with 56,000 tonnes in 2008) in all
countries in which the Group operates, which had an unfavourable impact on the cost of sales given the
high cost of these suspensions. The limited increase in cost of sales was due to the reduction in energy
costs, particularly in the second half of the year (with a concomitant reduction in contractual "energy
surcharges" applied to customers).

In the United States, the cost of sales increased by €23 million or 2.5% between 2008 and 2009 as a
result of an unfavourable currency effect. In U.S. dollars, the cost of goods sold fell by USD 38 million
or 2.8%, while net sales rose by 7.5% over the same period. This favourable development was due to the
reduction in temporary suspensions (75,000 tonnes in 2009 compared with 110,000 in 2008) relating to
the optimisation of production facilities, with the suspension of the Waxahachie plant in late 2008
(closed in 2009). The reduction in the cost of sales in dollars also relates to improved production
efficiency and lower energy costs from the start of 2009.

The cost of sales in South America rose by €8 million or 4.4% in 2009 relative to 2008, while net sales
fell by €2 million. This was mainly due to the increase in temporary suspensions (45,000 tonnes in 2009
compared with 28,000 tonnes in 2008).




                                                    160
                  9.2.3.3    Selling, general and administrative expenses including research


   (In millions of euros)             2009                 2008               Change           Change (%)

Selling, general and
administrative expenses                      (201)                (196)                (5)                     2.6
including research

Selling, general and administrative expenses including research totalled €201 million in 2009 compared
with €196 million in 2008, an increase of €5 million.

This increase - more or less in line with inflation - masks the Group's control of costs and optimisation
of its facilities, with the implementation of strategic or structural projects such as enhancing its
procurement skills base, spending on research and monitoring to improve its production performance
and the SAP software roll-out. In addition, selling, general and administrative expenses were also
affected by the consolidation of Kamyshinsky in Russia over 12 months in 2009.

General expenses represent a small portion of net sales (5.8% of the Group's 2009 net sales) and the
Group believes that they are generally well controlled.

                  9.2.3.4    Operating income

                                        % of net                          % of net
(In millions of euros)      2009                           2008                        Change        Change (%)
                                         sales                             sales
Europe                      302          14.2              343             14.9         (41)          (12.0)
United States               104           9.6               56              5.5           48            85.7
South America                28          11.6               40             16.5         (12)          (30.0)
Operating income            434          12.6              439             12.4          (5)           (1.1)

The Group generated operating income of €434 million in 2009 compared with €439 million in 2008,
down €5 million or 1.1% year-on-year. Operating margin was 12.6% in 2009 compared with 12.4% in
2008 - the Group's best performance in five years - as a result of its rigorous policy of managing
procurement costs and various initiatives to improve its production performance launched in 2008 (see
Section 6.2.5).

Despite the decline in volumes, according to the Group, this performance highlights the relevance of its
"strength and proximity" business model and the success of the policy of maintaining selling prices, the
roll-out of its manufacturing excellence programmes and improvements in its production policy (see
Section 6.2.). This was also due to a significant reduction in production costs, in particular energy costs.

The Group saw a strong rebound in operating income in its activities in the United States.

Europe

In Europe, the Group generated operating income of €302 million in 2009 compared with €343 million
in 2008, down €41 million or 12.0% relative to 2008. Operating margin in Europe was therefore 14.2%
in 2009 compared with 14.9% in 2008.

In Western Europe, this slight deterioration in operating income in 2009 related primarily to France,
Italy and Spain, where the decline in sales volumes had a direct impact on margins, with lower volumes
necessitating temporary suspensions. However, this is in comparison with an exceptional year in 2008.
Meanwhile, the Group improved its performance in Germany in 2009, benefiting from a favourable
price/mix effect.



                                                     161
In Eastern Europe, operating income sustained a sharper fall in 2009 in all countries in the region, with
an operating loss in Ukraine.

United States

The Group generated operating income of €104 million in the United States in 2009 compared with €56
million in 2008, an increase of €48 million or 85.7% year-on-year. Operating margin in the United
States was therefore 9.6% in 2009 compared with 5.5% in 2008.

In U.S. dollars, operating income generated in the United States totalled USD 145 million in 2009, an
increase of USD 63 million or 76.8% relative to 2008.

This strong growth was mainly thanks to a significant reduction in production costs, in particular energy
and transportation costs, as well as improvement in the price/mix of sales. The Group also continued to
optimise its production facilities in the United States, with the closure of the Waxahachie plant in 2009,
a reduction in temporary suspensions and better yields than in 2008.

Lastly, measures taken over the last two years to streamline the customer portfolio and the renegotiation
of contracts are gradually improving the Group's overall profitability.

South America

In South America, the Group generated operating income of €28 million in 2009 compared with €40
million in 2008, down €12 million or 30.0% relative to 2008. Operating margin in South America was
therefore 11.6% in 2009 compared with 16.5% in 2008.

In Brazil, the glass bottles and jars business - while still highly profitable - saw severe deterioration in
margins in 2009, mainly as a result of the reduction in volumes. Margins failed to improve for
glassware, also because of the unfavourable currency effect between the Brazilian real and the U.S.
dollar and other currencies, curbing exports for this business line, which also faces competition from
countries with low production costs.

In Argentina, the slight fall in operating income - which remained at a very high level - was mainly
caused by the Group's difficulties in passing on the increase in costs in its selling prices due to the price
controls implemented by the government.

                    9.2.3.5    EBITDA


  (In millions of                       % of net                    % of net
                              2009                         2008                      Change       Change (%)
       euros)                             sales                      sales
Europe                    437           20.6          473           20.6             (36)           (7.6)
United States             172           15.8          117           11.6               55            47.0
South America              45           18.7           57           23.5             (12)          (21.1)
EBITDA                    654           19.0          647           18.2                7             1.1

The Group generated EBITDA of €654 million in 2009 compared with €647 million in 2008, a year-on-
year increase of €7 million or 1.1%. EBITDA margin was 19.0% in 2009 compared with 18.2% in 2008.




                                                     162
                  9.2.3.6   Other business income and expense


   (In millions of euros)            2009                2008               Change        Change (%)

Other business income and
                                      (42)               (13)                 (29)             n.m.
expense

Other business income and expense represented an expense of €42 million in 2009 compared with an
expense of €13 million in 2008.

The main items for 2009 are described in Section 9.2.2.6.

The main items for 2008 relate to the United States, with expenses relating to the suspension of the
Waxahachie plant and a provision for exceptional impairment of assets at the plant, as well as the
decontamination of the Carteret site.

                  9.2.3.7   Net financial income (expense)

The Group reported a net financial expense of €28 million in 2009 compared with €7 million in 2008,
representing an increase of €21 million.

This includes interest expenses relating to the Group's debt, which decreased from €24 million in 2008
to €15 million in 2009.

In the United States, pensions net of estimated returns on plan assets also had a negative impact on net
financial expense of €12 million, compared with a negative impact of €1 million in 2008.

Lastly, net financial expense also reflects the significant reduction in dividends from non-consolidated
shares (€4 million in 2009 compared with €22 million in 2008) paid by SG Cristaleria.

                  9.2.3.8   Income tax

Income tax totalled €109 million in 2009, in line with the level of 2008.

The Group's effective tax rate was 29.9% in 2009, up relative to 2008, when the effective tax rate was
just 26.0%, mainly because of a deferred tax reversal of €14 million in Italy following the cancellation
of the revaluation of fixed assets.

                  9.2.3.9   Share in net income of associates

The share in net income of associates came to €1 million in 2009 compared with €3 million in 2008, a
fall of €2 million or 67%. This corresponds to net income from Samin, Vetreria Etrusca Srl and Thierry
Bergeon Embouteillage.

                  9.2.3.10 Net income

Net income before income from held-for-sale operations came to €256 million in 2009 compared with
€313 million in 2008, down €57 million or 18.2% relative to 2008. However, combined net income was
€309 million in 2009 compared with €313 million in 2008, a fall of just €4 million or 1.3%, thanks to
the favourable impact of the capital gain on the sale of SG Cristaleria shares in Spain.




                                                   163
10.    CASH AND CAPITAL RESOURCES

10.1   General information

The Group's business model generates high net operating cash flow. The Group generated net cash from
operating activities of €455 million in the year ended December 31, 2008, €509 million in the year
ended December 31,2009 and €541 million in the year ended December 31, 2010.

The Group's main capital requirements relate to its working capital requirement, operating investments
and the payment of dividends.

In order to ensure its organic growth and growth through acquisitions, the Group intends to meet its
capital requirements primarily by using cash flow from operating activities and, if applicable, through
borrowing.

The table below shows the Group's net debt:

In millions of euros                                                     2010          2009           2008

Gross debt                                                                 482           415           510
Cash, cash equivalents and loans to Saint-Gobain                         (155)         (166)         (176)
Net debt                                                                   327           249           334


The change in net debt relates primarily to the following:

In millions of euros                                                    2010          2009           2008

Net cash from operating activities                                        541           509           455
Investments                                                             (287)         (255)         (329)
Divestments                                                                 8            55            18
Dividends paid (including change in dividends payable)                  (329)         (224)         (259)
Impact of money market movements and other changes                       (11)            (0)         (12)
Change in net debt                                                       (78)            85         (127)

On the date of the admission to trading of the Company's shares on the NYSE Euronext regulated
exchange in Paris (hereinafter referred to as the "Admission Date"), it is planned that almost all of the
Group's debt will be taken on by Saint-Gobain in the form of an intra-group financing arrangement.
Before the Admission Date, the Group is also planning to implement an external financing arrangement
replicating the structure and terms of the intra-group financing agreement before the Admission Date
(see Section 10.4).

10.2 Combined cash flow for 2010, 2009 and 2008



In millions of euros                                                    2010          2009           2008

Cash flow from operations                                                488            496           533

Changes in working capital requirement                                     51            19           (43)
Changes in deferred taxes and provisions for other liabilities              2            (6)          (35)



                                                   164
In millions of euros                                                     2010          2009           2008
and charges
Net cash from operating activities                                        541           509            455

Investments                                                             (287)          (255)         (329)
Divestments                                                                 8             55            18
(Increase) decrease in loans and deposits                                   1              1             1
Net cash used in investing activities                                   (278)          (199)         (310)

Dividends (including change in dividends payable)                       (329)          (224)         (259)
Changes in financial liabilities and short-term borrowings                 85          (103)            93
Net cash used in financing activities                                   (244)          (327)         (166)

Net increase (decrease) in net cash                                        19           (17)           (21)

Impact of money market movements on net cash                                4              1           (10)
Cash and cash equivalents at start of period                               50             66             97
Cash and cash equivalents at end of period                                 73             50             66

10.2.1 Net cash from operating activities

Net cash from operating activities came to €541 million in 2010, a significant increase compared with
€509 million in 2009, which itself was up relative to €455 million in 2008.

                                                                        2010           2009          2008
In millions of euros
Net income attributable to equity holders of the parent                   235           303            305
Share of minority interests in net income                                    7            6               8
Share in net income of associates, net of dividends received               (2)            0             (2)
Depreciation, amortisation and impairment of assets                       239           229            211
Gains and losses on disposals of assets                                     6             6              6
Unrealised gains and losses arising from changes in fair                    3             5              5
value and share-based payments
Pre-tax income from held-for-sale operations                               -           (53)             -
Cash flow from operations                                                488           496            533

Changes in inventories                                                   (10)            19           (53)
Changes in trade accounts receivable and payable, and other
                                                                           61              2            27
accounts receivable and payable
Changes in tax receivable and payable                                      0            (2)           (17)
Changes in working capital requirement                                    51            19            (43)
Changes in deferred taxes and provisions for other liabilities             2            (6)           (35)
and charges
Net cash from operating activities                                        541           509            455


The Group's cash flow from operations came to €488 million in 2010, down slightly relative to €496
million in 2009 despite slightly higher business income in 2010 due to a much higher tax charge than in
2009 (+€25 million; see Section 9.2.2.8). Cash flow from operations decreased by €37 million in 2009
relative to 2008, mainly as a result of the increase in restructuring costs (€27 million), particularly in
Spain.




                                                   165
In 2010, cash relating to the working capital requirement rose relative to 2009, with a significant
increase in trade accounts payable. Similarly, cash relating to the working capital requirement also
improved significantly in 2009 thanks to the favourable development of inventories in the United States
and Brazil.

Net cash from operating activities therefore reached a new record of €541 million in 2010, an increase
of €86 million or 18.9% relative to 2008, relating primarily to the optimisation of its working capital
requirement.

This demonstrates the Group's resilience and its ability to absorb the impact of an economic slowdown,
primarily by means of restructuring and optimising its production facilities, as well as cost-cutting
measures and optimised management of its working capital requirements.

Note that the operating working capital requirement74 was €442 million as of December 31, 2010, equal
to 12.4% of net sales, compared with €463 million as of December 31, 2009 (13.4% of net sales) and
€444 million as of December 31, 2008 (12.5% of net sales).

Over the last three years, the Group has been in a position to finance all of its purchases of property,
plant and equipment and intangible assets thanks to recurring cash from operating activities.

10.2.2 Net cash from investing activities

Net cash used in investing activities in 2010 relates primarily to purchases of property, plant and
equipment.

                                                                               2010           2009            2008
In millions of euros

Purchases of property, plant and equipment and intangible
                                                                              (268)           (260)           (285)
assets
Increase (decrease) in amounts due to suppliers of fixed
                                                                               (22)               2               2
assets
Investments in affiliates net of cash acquired                                    -             (1)            (45)
Increase (decrease) in investment-related liabilities                             3               4             (1)
Investments                                                                   (287)           (255)           (329)
Disposals of property, plant and equipment and intangible
                                                                                   9              3               3
assets
Disposals of investments in affiliates                                           (1)             52              15
Divestments                                                                        8             55              18
(Increase) decrease in loans and deposits                                          1              1               1
Net cash from (used in) investing activities                                  (278)           (199)           (310)

Purchases of property, plant and equipment and intangible assets increased slightly to €268 million in
2010 from €260 million in 2009, which itself constitutes a significant reduction relative to €285 million
in 2008, which was affected by non-recurring investments concerning electrofilters in Western Europe.




74
   The operating working capital requirement corresponds to the working capital requirement arising from the
operating cycle. It comprises inventories, trade accounts receivable, trade accounts payable and other receivables
and other operating receivables and payables (credit balances on trade accounts receivable, debit balances on trade
accounts payable, social security receivables and payables, tax receivables and payables excluding corporation
taxes, and lastly suspense accounts and operating accruals).


                                                       166
Amounts due to suppliers of fixed assets decreased by €22 million in 2010 relative to 2009, primarily in
Germany and Italy as a result of reconstructions of furnaces in late 2009 and early 2010.

Investments in affiliates in 2008 corresponded to the acquisition of Kamyshinsky in Russia.

Proceeds from the sale of investments in affiliates corresponded to the sale of SG Cristaleria shares by
SG Vicasa (€53 million) in 2009 and the sale of shares in Cougard (a business line of Saint-Gobain
Desjonquères, €14 million) in 2008.

10.2.3 Net cash from financing activities


In millions of euros                                                    2010            2009            2008


Dividends paid                                                          (324)           (217)           (242)
Dividends paid to minority shareholders of consolidated                   (3)             (5)             (7)
subsidiaries
Increase (decrease) in dividends payable                                  (2)             (2)            (10)
Increase (decrease) in bank overdrafts and other short-term               68              54               51
debt
Increase (decrease) in long-term debt                                      17           (157)              42
Net cash from (used in) financing activities                            (244)           (327)           (166)

In 2010, long-term debt and bank overdrafts and other short-term debt (gross debt excluding the impact
of currency effects) rose by €85 million relative to 2009, primarily in the United States as a result of the
payment of an exceptional dividend.

In 2009, gross debt - excluding the impact of currency effects - decreased significantly relative to 2008
(-€157 million in long-term debt partly offset by a €54 million increase on short-term debt), mainly
because of the €74 million reduction in debt in the United States as a result of improved profitability and
the reduced working capital requirement in this country.

In 2008, gross debt - excluding the impact of currency effects - increased by €83 million, partly as a
result of the acquisition of Kamyshinsky for €60 million.

Each year, particularly in 2008, 2009 and 2010, the Group's companies pay out high dividends,
generally corresponding to full net income. Dividends therefore constitute a major component of net
cash used in financing activities.

10.3 Liquidity and sources of financing

As of the registration date of this Document de Base, the Group's financing consisted primarily of debts
towards Saint-Gobain, as well as external bank borrowings.

                                December 31, 2010            December 31, 2009            December 31, 2008
In millions of euros                    Saint-                      Saint-                            Saint-
                            External             Total External                 Total External                  Total
                                       Gobain                      Gobain                            Gobain
Long-term debt (1)               20       122       142       35         81      116            42      228      270
Short-term borrowing (2)         24          -       24       29          -        29           27         -      27
Bank overdrafts and other
short-term          bank         30       247       277       23       212       235            28      155      183
borrowings



                                                    167
                                 December 31, 2010           December 31, 2009           December 31, 2008
In millions of euros                     Saint-                      Saint-                       Saint-
                             External             Total External               Total External                 Total
                                        Gobain                      Gobain                       Gobain
Securitisations                   39          -        39     35          -        35       30         -        30
Total: Short-term debt and
                                  69       247        316     58       212        270       58       155       213
bank overdrafts (3)
Total gross debt (1) + (2)
                                 113       369        482    122       293        415      127       383       510
+ (3)
Cash, cash equivalents
                                 (73)      (82)      (155)   (50)     (116)      (166)    (66)     (110)      (176)
and loans to Saint-Gobain
Total net debt including
                                  40       287        327     72       177        249       61       273       334
accrued interest

Net debt came to €327 million in 2010, an increase of 31.3% compared with 2009 as a result of
exceptional dividends paid by SG Containers Inc.

In 2009, net debt was €249 million, down 25.4% relative to 2008 almost entirely because of
improvement in net income and the reduction in the Group's working capital in the United States.

As at December 31, 2010, the Group's external debt (hereinafter referred to as "Existing External Debt")
comprised credit facilities granted in the local currency to certain Group subsidiaries in the United
States, Russia, Brazil and Chile of a total of €52 million. With the exception of the securitisation
programme in the United States, from which it intends to withdraw (see Section 10.7), the Group
intends to keep these credit facilities after the Admission Date.

External debt of €113 million corresponds to gross debt per country specific to each subsidiary and
taken out in the local currency. This debt was taken out as follows:
    - For some of the Group’s subsidiaries on a local level, because of forex control regulations
        relating to currencies such as the rouble, the Chilean peso and the real;
    - For the Group’s U.S. subsidiary, because of its belonging to a securitisation programme taken
        out by Saint-Gobain for the benefit of its U.S. subsidiaries alone;
    - For the Eurozone, mainly because of bank balances in debit at the end of the fiscal year or the
        signing of lease contracts.

Therefore, as regards the Eurozone, this debt has not resulted in any specific financial covenants. The
Group’s U.S. subsidiary should cease to participate in the Saint-Gobain securitisation programme once
its share capital is no longer wholly owned by Saint-Gobain, directly or indirectly. Lastly, as regards the
loan taken out by the Group’s Chilean subsidiary, the agreement contains a change of ownership clause
but which applies only in the case of a change of direct ownership and not indirect ownership. The
covenant taken out concerns equity, which should be above a minimum level set at the end of each
fiscal year.

10.4 Sources of financing

Taking account of the Restructuring Transactions described in Section 5.1.6, the Group is aiming for net
debt of around €1,800 million at the Admission Date. Rating agency(-ies) S&P (and Moody's) has
(have) confirmed their intention - subject to completion of the Restructuring Transactions - to give
Verallia an investment grade rating on the Admission Date, with a rating of Baa3 with a stable outlook
from Moody’s and BBB- with a stable outlook from Standard and Poor’s.

The table below shows the transition in net debt and equity between the 2010 combined financial
statements and the estimated consolidated financial statements as of the Admission Date.




                                                       168
In billions of euros                                                          Net debt      Group equity



Combined financial statements as of 31 December 2010                                  0.3           1.3

Dividends from Group subsidiaries before repositioning (a)                            0.2           (0.2)
Refunding of Verallia contribution premiums (b)                                       0.6           (0.6)
Repositioning of shares (c)                                                           0.6           (0.6)
Other movements (d)                                                                   0.1            0.1

Estimated consolidated financial statements as of the Listing Date                    1.8           0.0
    (a) SG Emballage, SG Vidros and SG Vicasa will pay out an estimated total of €0.2 billion in
        dividends prior to their repositioning under the Verallia holding company.
    (b) Verallia will refund the contribution premium resulting from the contribution in kind of SGCI
        shares by Spafi in the amount of €0.6 billion.
    (c) As regards the repositioning of shares, details of the Restructuring Transactions are provided in
        Section 5.1.6. The SG Emballage shares held by Compagnie de Saint-Gobain and the SG
        Vidros shares will be sold to Verallia for a total of €0.6 billion.
    (d) Other movements comprise ordinary transactions affecting the Group’s net debt and equity
        apart from items that cannot be anticipated such as translation adjustments and actuarial gains
        or losses.

Estimated net debt of €1.8 billion as of the Admission Date will then be covered by the various credit
lines described below.

At the Admission Date, the Group's financing - with the exception of Existing External Debt - will be
fully taken on by Saint-Gobain, representing a maximum of €2,200 million (the “Credit Facility”, see
Section 22). This intra-group financing - the definitive terms of which are described in the Note
d'Opération - will be structured as follows:

    -   a tranche A of €800 million with a maturity of three years;
    -   a tranche B of €800 million with an initial maturity of three years which may be extended twice
        by one year, subject to the agreement of Saint-Gobain, just before the first and second
        anniversaries of the credit facility;
    -   a €600 million revolving credit facility with a maturity of five years in order to ensure
        reasonable liquidity to finance the working capital requirement and other short-term needs.

Under the terms of the planned intra-group financing arrangement, Saint-Gobain has the option to ask
for repayment at any time from the time that Compagnie de Saint-Gobain holds, directly or indirectly,
less than 50% of the Company's share capital or voting rights. Consequently, it is planned that before
the Listing Date, the Group will take out an external syndicated loan (the “Credit Facility”, see Section
22) from a number of international financial institutions structured in the same way as the intra-group
financing arrangement (apart from the option of asking for repayment at any time), namely:

    -   a tranche A of €800 million with a maturity of three years;
    -   a tranche B of €800 million with an initial maturity of three years which may be extended twice
        by one year, subject to the agreement of the bank syndicate, just before the first and second
        anniversaries of the credit facility;
    -   a €600 million revolving credit facility with a maturity of five years.

The cost of the intra-group financing arrangement will be such that the total cost of the Group's
financing (cost of intra-group financing plus cost of bank financing) will be similar to the cost that
would have been incurred if the Group had obtained financing directly from banks. Obtaining financing
from the outset from Saint-Gobain and not from banks will therefore have a neutral impact for the
Group in terms of financial expense.


                                                      169
On the basis of the principles described above, the cost of debt financing after the Admission Date is
estimated at an average of around 4% a year. For 2011, given the expected financing cost until the
Admission Date, the Group expects a cost of debt of around €50 million.

More detailed information concerning the syndicated loan, intra-group financing and Existing External
Financing as described above, as well as their precise impact on the Group's financing costs, will be
provided in the Note d'Opération.

10.5 Off-balance sheet commitments

The information concerning the off-balance sheet commitments presented below is taken from the
Group's Combined Financial Statements (Note 25 of the Notes to the Combined Financial Statements).

Obligations under finance leases

Non-current assets acquired under finance leases (mainly equipment and machinery in 2010) are
recognised as an asset and a liability in the combined balance sheet.

In millions of euros                                December 31, December 31,             December
                                                           2010         2009               31, 2008
Future minimum lease payments
Due within 1 year                                               12              13              12
Due in 1 to 5 years                                              3              11              23
Due beyond 5 years                                               -               -               -
Total                                                           15              24              35

•    Obligations under operating leases

The Group leases equipment, vehicles and office, manufacturing and warehouse space under various
non-cancellable operating leases. Lease terms generally range from 1 to 9 years. The leases contain
rollover options for varying periods of time and some include clauses covering the payment of real
estate taxes and insurance. In most cases, management expects that these leases will be rolled over or
replaced by other leases in the normal course of business.


Future minimum payments due under non-cancellable operating leases are as follows:

                              Total        Payments due          Total       Total
    In millions of euros   Decembe Within 1 In 1 to 5 Beyond 5 Decembe Decembe
                           r 31, 2010 year    years     years  r 31, 2009 r 31, 2008
Operating leases
Future minimum lease
                                   63          22          33           8            47        55
payments
Total                              63          22          33           8            47        55

•    Non-cancellable purchase commitments

Non-cancellable purchase commitments include commitments to purchase raw materials, energy and
services, including vehicle leasing commitments, and firm orders for property, plant and equipment.




                                                 170
                                  Total        Payments due          Total    Total
    In millions of euros       Decembe Within 1 In 1 to 5 Beyond 5 Decembe Within 1
                               r 31, 2010 year    years     years  r 31, 2010 year
Non-cancellable purchase
commitments
 - Non-current assets                     0              0                0                  0                 0              21
 - Raw materials and
                                          3              1                2                  0                 0              13
energy
 - Services                              33          19                  13                  1             43               44
 - Other                                 33          14                  18                  1             74               67
Total                                    69          34                  33                  2            117              145

Between 2008 and 2010, non-cancellable purchase commitments decreased significantly. The more
significant reduction in purchase commitments relating to services and other purchases in 2010
concerned a number of countries. In Spain, a gas supply contract was revised and its duration shortened.
In Russia, an amendment to a gas supply contract also reduced the Group's commitments. In Brazil, a
selling agreement with to a customer was suspended. Lastly, in France, contracts were revised for the
outsourcing of shipping.

In 2008, non-cancellable purchase commitments related primarily to furnace repairs in France, with raw
materials purchase commitments of €13 million relating to Ukraine.

•     Guarantee commitments

The Group granted warranties amounting to €4 million in 2010 (€5 million in 2009 and €2 million in
2008).

In 2010, the Group received guarantees amounting to €1 million (€0 million in 2009 and €1 million in
2008)

•     Commercial commitments

                                 Total                   Payments due                             Total               Total
    In millions of euros     December 31,     Within 1       In 1 to 5        Beyond 5           December          December 31,
                                 2010          year           years            years              31, 2009             2008

Security for borrowing                    0          0               0                   0                 1                    1
Other      commitments
                                         53          2               2               49                   50                  48
given
Total                                    53          2               2               49                   51               49

10.6 Derivatives

As of December 31, 2010, the Group’s only derivatives were energy and commodity swaps. The fair value of
derivatives carried in assets amounted to €3 million (December 31, 2009: €5 million; December 31, 2008: €0
million) and that of derivatives carried in liabilities stood at €4 million (December 31, 2009: €2 million; December
31, 2008: €36 million due to a reduction in fuel and gas hedging in a number of countries).


The fair value of financial instruments is generally determined by reference to the market price resulting
from transactions on a national stock market or over-the-counter market.

When no listed market price is available, fair value is based on estimates calculated by financial
discounting or other techniques.



                                                          171
•   Forward foreign exchange contracts and currency options

Forward foreign exchange contracts and currency options are used to hedge foreign currency
transactions, particularly commercial transactions (purchases and sales) and investments.

•   Energy and commodity swaps

Energy and commodity swaps are used to hedge the risk of changes in the price of certain energy
purchases used in Group companies’ operating activities, particularly fuel in Europe and natural gas in
the United States.

10.7 Receivables securitisation programmes

The Group has a receivables securitisation programme in the United States managed by SG Receivables
Corp., a subsidiary of Saint-Gobain. As this contract does not transfer the risk to the financial
organisation, it is not deconsolidated from receivables and is kept in the Group's net debt. This
programme is due to be closed at the Admission Date.

This programme amounted to €39 million at December 31, 2010 compared with €35 million at
December 31, 2009 and €30 million at December 31, 2008. The difference between the face value of the
sold receivables and the sale proceeds is treated as a financial expense, and amounted to €1 million for
each of the years from 2008 to 2010.




                                                  172
 11.       RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES

 11.1 Research and development: innovation for the customer and the environment

 Innovation constitutes an ongoing challenge for the Group's companies within the broader context of the
 Group’s focus on establishing an up-market position for its products and the sale of products and
 services, using effective and environmentally-friendly production facilities that offer a high level of
 added value.

 Innovation within the Group is centred around three main principles addressed within the framework of
 a structural project (see Section 6.2):

       •    sustainable development (including recycling), assessed throughout the life cycle of the Group's
            products;
       •    value creation and differentiation achieved through the Group's products and services;
       •    quality of products and services in order to satisfy the expectations of the Group's customers.

 Innovation within the Group also applies on three levels: innovation in products and services,
 innovation in materials and innovation in processes, all of which relate to research and development.

 The Group’s innovation policy is based on:

       •    key skills in glass melting, glass chemistry, quality control, the decoration and treatment of
            products, modelling (processes/products);
       •    R&D teams in dedicated research centres in France, Germany and the United States that form
            part of the Group’s technical and development function;
       •    research and development in collaboration with Saint-Gobain (see Section 22.1.1.3);
       •    partnerships with universities and research institutes in France, Germany and the United States;
       •    two seminars a year: one on research and development, and the other addressing innovation and
            marketing;
       •    project management based on the Group’s Stage Gate development process; and
       •    a steering committee at the Group’s executive committee level.


 The Group's research and development expenditures for the fiscal years ended December 31, 2008,
 2009 and 2010 were €8 million, €7 million and €7 million respectively.



                              Transforming a customer need into an       Coming up with personalised new designs and
Innovation in products
                           innovative and manufacturable glass product                 related services




                                   Improving glass properties                  Integrating more added value
    Innovation in
                                 and offering new functionalities              into products
      materials



                                                                              Improving production by consuming
    Innovation in                  Glass forming and melting                            less fossil fuel
      processes




                                                          173
11.1.1 Innovation in products and services

The Group has 10 research and design offices operating as a network, covering all of the regions in
which it operates, based at the following sites: Albi (France), Chalon (France), Bad Wurzach
(Germany), Dego (Italy), Kamyshinky (Russia), Madrid (Spain), Mondego (Portugal), Zorya (Ukraine),
Muncie (United States), São Paulo (Brazil) and Mendoza (Argentina).

These teams come up with new designs at the request of their customers and/or marketing teams. The
work of these teams entails transforming innovative ideas into glass products that can be manufactured
and sold at competitive prices, and often also entails joint development with the Group's customers.

The Group is therefore able to offer its customers new ranges of articles on a fairly regular basis.

                                       Exemplifying this product and service innovation policy is
                                       the "Selective/Line" global product line, up-market range of
                                       products targeted primarily at the spirits, wines, beers and
                                       mineral water markets. Selective/Line draws chiefly on the
                                       technical capacity of one glass manufacturer, Verrerie d'Albi
                                       (VOA) in France, and two glass decoration units.




                                        The second major concern in product and services
                                        innovation is designing products and services that are
                                        environmentally friendly.
                                        It is with this in mind that the Group launched the ECOVA
                                        range of "eco-compatible" bottles, which are lighter and
                                        therefore more energy-efficient to produce than regular
                                        bottles, and which feature an elegant shape (see Section
                                        6.5.1.3). Thanks to this range, the Group is able to meet
                                        demand for more environmentally-friendly products without
                                        sacrificing the quality and prestige of glass containers.




In addition, according to the Group, the range of standard
products and the significant number of "bespoke" products
developed by the Group are indicative of its capacity for
flexibility and technical innovation (See Section 6.5.1).

Certain additional designs requiring specific technical
innovations are developed at the customer's request.




                                                    174
11.1.2 Innovation in materials

The Group is working on developing the performance and properties of glass used as a packaging
material for food and drink products. This project requires the support of experienced chemical
engineers specialising in studying and analysing glass composition. This work is done in collaboration
with the research teams at Saint-Gobain, which make their testing and simulation tools available to the
Group. This long-standing collaboration is set to continue within the framework of the Transition
Agreements (see Section 22).

For example, in Germany, the Group sells a white glass with an anti-UV barrier as part of its beer
market offerings.

The Group is also working on the surface treatment of glass containers, and has developed a technique
for the heat sealing of bottle caps. This surface treatment of glass meets the customer’s need for
packaging, mainly food jars, to be both waterproof and easy to open.

11.1.3 Innovation in glass melting and forming processes

In addition to the composition of glass, the Group is pursuing research and development activities
relating to the strategic production processes of glass melting and forming.

Using modelling tools, the Group is working to optimise its "hot" and "cold" processes. The purpose of
research and development activities relating to glass forming is to improve the operation of some
forming machinery by optimising heat exchanges during forming operations.

Research and development activities relating to glass melting operations aim to improve furnace
performance, with the main goal of reducing greenhouse gas emissions by optimising firing. These
research activities are still conducted in collaboration with research teams at Saint-Gobain, as well as
with university laboratories and independent research organisations. The research and development
collaboration with Saint-Gobain will continue within the framework of the Transition Agreements
following the first-time admission to trading of the Company’s shares on the NYSE Euronext regulated
exchange in Paris (see Section 22).

In addition, the Group is committed to research and development pertaining to the use of non-fossil and
renewable energy sources (biomass) to power glass furnaces, and the formation of partnerships with
potential suppliers of these energy sources. Saint-Gobain Oberland is currently looking into a project to
transform vegetable waste into biogas at a German plant.

The Group has also launched an ambitious research programme to transform waste from the farming of
vineyards into synthetic gas for the melting of glass containers. A pilot project incorporating this
research has been launched at a plant in France.

Using biomass energy helps to cut carbon dioxide fossil fuel emissions from production plants and also
contributes to reducing the environmental impact through waste recovery in the region in which the
emissions are located.

11.2 Trademarks, patents and models

11.2.1 Patents

The Group has an industrial protection policy that protects its inventions and ideas using one of three
possible solutions:

    •   Applying for a patent, which presents advantages in terms of the legal protection afforded but
        exposes the Group to high costs, particularly when applying for international patent protection;


                                                   175
    •   Applying for a "Soleau envelope", which presents the advantages of low costs and a high level
        of confidentiality, but does not allow the Group to oppose the development of the same
        application by a rival; and

    •   The sale of the invention or transfer of rights of use by a partner in the case of equipment not
        expected to be subject to absolute exclusivity.

As of the registration date of this Document de Base, the Group had approximately 85 patent families in
effect or in process, most of which were obtained or applied for in a number of countries, representing a
total of over 300 patents.

For example, the Group owns the following patents:

    •   "Strengthening Process", designed to protect an original coating system that increases
        mechanical strength of glass bottles and jars and therefore allows for reduced surface thickness
        and weight;

    •   "Anti-UV clear bottles", providing UV protection for products with sensitive contents in clear
        bottles;

    •   "Lubrication robot" to reduce operators' exposure to physical agents (in particular heat and
        noise) during routine operations using forming machinery; and

    •   "Vertical Finish Mould Cooling", which aims to protect an original air cooling propulsion
        system using vertical moulds in order to cool the entire mould (including the neck ring mould),
        while also limiting installation costs and energy waste.

The Group can also use certain patents developed within the framework of GIE Saint-Gobain PM
Recherche and Saint-Gobain Recherche, subsidiaries of Compagnie de Saint-Gobain. Licence
agreements have been negotiated within the framework of the Transition Agreements to allow the
Group to continue to use them (see Section 22).

11.2.2 Trademarks

Trademark protection does not represent a fundamental challenge for the Group because of the
characteristics of the industry in which it operates, an expertise-based industry with business-to-business
products targeted at industrial customers. Apart from the Verallia brand - which is the central brand for
the Group's communications - trademark protection therefore only really concerns the glassware
products manufactured by the Group, which are targeted directly at consumers. In this respect, SG
Vidros owns most of the trademarks associated with the Group's glassware activities (Colorex, Duralex,
Marinex, etc.).

The Group owns the Duralex brand in Brazil and has the right to sell products under this name in
Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, French Guiana, Peru, Paraguay, Surinam,
Uruguay and Venezuela. The Colorex brand has identical protection and is also protected in a number of
countries in Central America. The Marinex brand is protected in more than 80 countries worldwide.

The Group also benefits from a brand licence that enables it to use the "Saint-Gobain" name temporarily
or in some cases permanently (see Section 22).

Lastly, the Group applied for protection for the Verallia and ECOVA brand names in 2008.




                                                    176
11.2.3 Models

The Group's policy for protecting intellectual property rights associated with the models it uses depends
on the type of model used:

    •   When the Group was the original creator of the model and believes that it is sufficiently
        original, an application can be made to protect the model. This is the case for example, with
        standard models that may be proposed to all customers and developed by the Group for its own
        marketing needs.

    •   When the Group is limited to using models designed by the customer, the intellectual property
        rights related to these models are generally owned by the customer.

        In this scenario, the Group nevertheless retains ownership of the moulds used in the
        manufacturing of these models, which constitutes effective protection in the development of
        technically complex models. Furthermore, it can negotiate the granting of exclusive production
        rights.

11.2.4 Domain names

The Group has a policy of registering and obtaining licences to use and manage the domain names
needed to conduct its business activities. As of the registration date of this Document de Base, the
Group owned or had a licence allowing it to use a broad portfolio of domain names, both active and
inactive, enabling it to list its products and services and share its communications with a wide audience.

Some domain names containing the name "Saint-Gobain" are subject to a transitional licence to use this
name (see Section 22) in order to redirect internet users' requests to domain names using the Group's
new name.




                                                   177
12.   TREND INFORMATION

The forward-looking statements presented below are not forecasts but simply objectives resulting from
the strategic guidelines set out in action plans for the entire Group.

They are based on data and assumptions which the Group's management believes to be reasonable but
may evolve or be revised as a result of uncertainties related to the legal, economic, financial,
competitive, fiscal or regulatory environment. In addition, the occurrence of certain risks as described in
Section 4 "Risk factors" could have an impact on the Group's operations, financial position, results and
outlook, as well as its ability to achieve its targets. Achievement of these targets will also require the
Group to successfully implement the strategy set out in Section 6.4 "Strategy".

The Group therefore makes no undertaking and gives no warranty as to the achievement of the
objectives described in this section and makes no undertaking to publish any updates to these objectives.

12.1 Recent developments

During 2010, the Group demonstrated the relevance and resilience of its "strength and proximity"
business model under difficult economic conditions, with cost tensions and volatile demand threatening
to continue into 2011. It managed to maintain its financial performance thanks primarily to rigorous
management of its operating expenses.

The Group generated EBITDA of €667 million in 2010, an increase of 2% relative to 2009. Cash flow
from operations came to €488 million in 2010 compared with €496 million in 2009.

EBITDA75 margin was 18.8% in 2010 compared with 19.0% in 2009.

The Group achieved further net sales growth in the first quarter of 2011, driven by both volume growth
and further improvement in prices.

12.2 Outlook

The Group believes that it presents a real competitive advantage thanks to its position as world market
leader in the three segments of wines, spirits and foodstuffs, as well as its proven operating model based
on "strength and proximity".

This competitive position has been reinforced by heavy investment over the last three years, primarily in
equipment in order to reduce its impact on the environment, and successful optimisation of its
production capacity through the various restructuring measures carried out mainly in the United States,
Spain and France.

The Group is also planning to consolidate its market-leading position by continuing with its policy of
targeted acquisitions in developing markets, particularly in emerging markets.

On the basis of the financial statements for the year ended December 31, 2010, showing net sales of
€3,553 million, the Group is aiming to achieve organic net sales growth of an average of 3-5% a year
between now and 2013, above pre-crisis levels, with a significant price/mix component as a result of the
ongoing strategy of focusing on high value-added segments.




75
   EBITDA corresponds to French GAAP EBE (thus including share compensation expense, excluding income
from associates and restructuring expense).


                                                    178
Achieving this net sales growth target depends on the continuing implementation of the Group's strategy
as described in Section 6.4 and on recovery in operations in certain countries that have been hardest hit
by the financial crisis, such as France and Germany, as well as Eastern Europe, which has been
negatively impacted by major external factors such as severe droughts in Russia and the unstable
political climate in Ukraine.

On the basis of the combined financial statements for the year ended December 31, 2010, showing
EBITDA of €667 million, the Group is aiming to achieve strong EBITDA growth over the period from
2011 to 2013, with EBITDA margin of around 20% in 2013.

In order to achieve this, the Group is planning to capitalise on the following drivers:

        -   Continuation of the "Operational excellence" programme centred around four aspects of its
            business: production (Enterprise Excellence), procurement, investment and innovation;

        -   Providing updated operating facilities thanks to sustained investment over the last three
            years, resulting in optimal capacity for production facilities, particularly by maximising the
            capacity of its furnaces. The Group is due to carry out two major programmes to increase
            capacity over the period in France and Italy, and will bring a third furnace into service in
            Argentina to meet growth in the wines market, particularly exports;

        -   The development of cost pass-through and energy surcharge clauses in multi-year customer
            contracts in order to ensure control of costs against volatile production costs, particularly
            energy and raw materials costs;

        -   The continuing reorganisation and optimisation of all of the Group's central functions,
            within the framework of the gradual spin-off from Saint-Gobain (see the description of the
            Transition Agreements in Section 22), under the most favourable cost conditions possible.

In view of the Group's operating expenditure between 2008 and 2010, medium-term expenditure will
comprise mainly investment in maintenance and growth (see Section 5.2 "Capital expenditure"). Taking
account in particular of the Group's plan to optimise its capital expenditure, its aim is to keep total
capital expenditure below €300 million a year over the period from 2011 to 2013, although with a
higher proportion of investment in growth and innovation.

The Group also benefits from a significant capacity to generate net cash flow from its operations.

Lastly, the Group has set itself the target of a dividend payout rate of around 40% of net income.

All of these factors should allow the Group to increase its financial strength gradually and be able to
carry out targeted acquisitions in the fastest-growing countries. This policy will be pursued while paying
particular attention to the potential value creation of acquisitions. The Group will be vigilant in selecting
and reviewing the various acquisition opportunities that arise and will favour targets allowing it to
implement the following drivers:

        -   Confirming its market-leading position in premium products and enhancing its global
            geographical coverage;

        -   Establishing its presence in its three business segments (wines, spirits, food jars) in
            emerging markets, giving priority to the "New Winemaking World", the Mediterranean
            Basin, Central and Eastern Europe (in particular the Black Sea) and Asia.




                                                     179
13.   PROFIT FORECASTS OR ESTIMATES

The forecasts presented below have been prepared in accordance with the provisions of Commission
Regulation (EC) No. 809/2004 of April 29, 2004 and the CESR's recommendations on profit forecasts
or estimates.

These forecasts are based on data, assumptions and estimates which the Group's management believes
to be reasonable but which may evolve or be revised due to uncertainties related to the economic,
financial, fiscal, competitive and regulatory environment or to other factors of which the Group was
unaware as of the registration date of this Document de Base. In addition, the occurrence of certain risks
described in Section 4 "Risk factors" could have an impact on the Group's operations, financial position
and results, as well as its ability to achieve its targets and consequently on the forecasts set out below.
The Group makes no undertaking and gives no warranty as to the achievement of the forecasts set out in
this section.

13.1 Assumptions

The Group has based its forecasts on the combined financial statements relating to the year ended
December 31, 2010, making the following assumptions:

        -   No change in the accounting principles used by the Group to prepare its combined financial
            statements for the year ended December 31, 2010;

        -   Almost no significant change in the scope of the Group's business activities and
            consolidation at December 31, 2011 relative to December, 31 2010;

        -   No change due to the occurrence of one or more of the regulatory, legal or fiscal risks
            described in Section 4 "Risk factors";

        -   Not taking account of the potential impact of the final allocation of pension fund assets in
            the United States in accordance with the Section 4044 of ERISA procedure;

        -   A return to growth in certain European countries (primarily Germany and Eastern Europe)
            and further growth in South America;

        -   The level of operating expenses and capital expenditure assessed according to operating
            requirements as estimated by the Group as of the registration date of this Document de
            Base. This takes account of cost-cutting plans allowing for increased productivity and
            manufacturing performance. Operating expenses also take account of the impact of the
            restructuring and the optimisation of the Group’s central functions within the framework of
            the gradual spin-off from Saint-Gobain, as described in Section 22. This should result in an
            overall lower cost of these functions for Verallia as of 2011 relative to 2010, mainly due to
            the fact that some functions were already in place at Verallia, while the service was still
            partly provided by Compagnie de Saint-Gobain or its delegations;

        -   Taking account of financial expenses relating to the repositioning of the Group's
            subsidiaries under the parent company and new net debt as of the IPO (see Section 10.4);

        -   A euro/dollar exchange rate of USD/EUR 1.40;

        -   Energy costs based on a price per barrel of USD 100.

13.2 Group profit forecasts for 2011

Based on the assumptions set out above, the Group believes that:


                                                    180
Net sales growth - on a like-for-like basis and at constant exchange rates - for the year ending December
31, 2011 should pick up in line with the medium-term target for average organic growth of 3-5% a year,
thanks in particular to the significant priority given to improving the product mix and the sales mix.

The main positive factors that should contribute to this growth are:

        -   In general, a return to growth in the spirits market in Europe and the beer market in the
            United States, as well as the solid resilience of the wines market in mature countries. The
            Group's sales volumes are expected to increase in South America and to a lesser extent in
            Europe, while volumes are expected to remain stable or even decrease slightly in the United
            States;

        -   The significant increase in selling prices in South America and price rises in Europe and the
            United States.

Under continuing difficult and uncertain general market conditions, with cost tensions and demand
remaining volatile, the Group believes that it has the means to demonstrate its resilience once again,
generating EBITDA of at least €700 million in 2011. The main factors that should contribute to this
growth are:

        -   Economic recovery and continuing expansion in the countries in which the Group operates;

        -   Greater optimisation of production facilities, with fewer temporary suspensions;

        -   Continuation of the "Operational excellence" programme centred around four aspects of the
            Group's business: production (Enterprise Excellence), procurement, investment and
            innovation;

        -   Control of costs in the face of volatile production costs, particularly energy and raw
            materials, thanks to cost pass-through and energy surcharge clauses in customer contracts.
            However, this control may be partly called into question if these costs rise or if there is a
            delay due to delays in the implementation of cost pass-throughs and surcharges (see Section
            6.2);

        -   The initial benefits of the restructuring of the Vauxrot plant in France;

        -   The initial effects of the optimisation of all of the Group's central functions within the
            framework of the gradual spin-off from Saint-Gobain; and

        -   Keeping depreciation and amortisation in line with historic trends.

In addition to operations, the other variables for 2011 are:

        -   A share in net income of associates in line with that of 2010;

        -   Exceptional expenses including restructuring costs, expected to be between €10 and €15
            million;

        -   An expected average debt financing cost after the IPO of 4%;

        -   An expected tax rate of around 35%;

        -   And a share of net income attributable to minority interests in line with that of 2010.



                                                    181
13.3 Estimated net debt as of the date of the admission to trading of the Company's shares on the
     NYSE Euronext regulated exchange in Paris

The Group's net debt was €327 million at December 31, 2010. Taking account of the Restructuring
Transactions, it is expected to increase to €1,800 million as of the date of the admission to trading of the
Company's shares on the NYSE Euronext regulated exchange in Paris.

13.4 Statutory auditors' report on the profit forecasts

This is a free translation into English of the statutory auditors’ report issued in the French language
and is provided solely for the convenience of English speaking readers. This report should be read in
conjunction with, and is construed in accordance with, French law and professional auditing standards
applicable in France.

                                               VERALLIA

              STATUTORY AUDITORS’ REPORT ON THE PROFIT FORECASTS

PricewaterhouseCoopers Audit                                              KPMG Audit
Crystal Park                                                              Immeuble KPMG
63, rue de Villiers                                                       1, cours Valmy
92208 Neuilly-sur-Seine Cedex                                             92923 Paris La Défense


M. Pierre-André de Chalendar
Chairman of the Board of Directors

Verallia S.A.
Les Miroirs
18, avenue d’Alsace
92400 Courbevoie


To the Chairman of the Board of Directors,

In our capacity as Statutory Auditors and in accordance with Commission Regulation (EC) n°809/2004,
we have prepared this report on the profit forecasts of Verallia included in Section 13 of its Document
de Base registered with the AMF on April 18, 2011.

These forecasts and underlying significant assumptions were prepared under your responsibility, in
accordance with the requirements of Commission Regulation (EC) n°809/2004 and the CESR’s
recommendations on forecasts.

Our role is to express, in accordance with the terms required by Annex I, item 13.2 of Commission
Regulation (EC) n°809/2004, our conclusions on the appropriateness of the preparation of these
forecasts.

We conducted our work in accordance with professional auditing standards generally accepted in
France. Our work included an assessment of the procedures implemented by management to prepare the
forecasts, as well as the performance of procedures to obtain assurance about whether the accounting
policies applied are consistent with those used for the preparation of the historical financial information
of Verallia. They also involved collecting information and explanations we deemed necessary in order
to obtain reasonable assurance about whether the forecasts are appropriately prepared on the basis of the
specified assumptions.



                                                    182
We remind you that, as this concerns forecasts, which are uncertain by nature, actual results may differ
significantly from the forecasts presented and so, we do not express any conclusion as to the potential
realization of these forecasts.

In our opinion:
-       The forecasts have been properly prepared on the basis indicated,
-       The accounting basis used for the purposes of these forecasts is consistent with the accounting
policies applied by Verallia to prepare its combined financial statements.

This report has been prepared solely for use in connection with the public offering in France and in
other countries in the European Union where the prospectus approved by AMF (Autorité des marchés
financiers) would be filed and may not be used for any other purpose.

Neuilly-sur-Seine and Paris La Défense, April 18, 2011


                                           The Statutory Auditors


      PricewaterhouseCoopers Audit                                         KPMG Audit
                                                                    Department of KPMG S.A.

   Rémi Didier          Olivier Destruel                                  Jean-Paul Vellutini




                                                    183
14.     ADMINISTRATIVE AND MANAGEMENT BODIES

The Company is a société anonyme with a Board of Directors. Management of the Company is thus
entrusted to a Board comprising nine directors, including three independent directors on the date of
admission of the Company’s shares to trading on the NYSE Euronext regulated exchange in Paris. A
summary of the main provisions of the draft Articles of Association and of the Internal Rules of the
Board of Directors approved by the Company’s Board on 14 March 2011 and on 29 March 2011
respectively, is provided in Section 16 and Section 21.2.2 of this Document de Base.

14.1 Composition of supervisory and management bodies

14.1.1 Chairman of the Board of Directors and executive management

Under article 13 of the Company’s of the Articles of Association, executive management is carried out
under the responsibility of the Chairman of the Board who, in that case, has the title of Chairman &
Chief Executive Officer, or else by the Chief Executive Officer.

By a decision dated 29 March 2011, the Board of Directors decided to separate the functions of Chief
Executive Officer and Chairman.

As of the registration date of this Document de Base, Mr Jérôme Fessard holds the position of Chief
Executive Officer and Mr Pierre-André de Chalendar, that of Chairman of the Board of Directors.

14.1.2 Members of the Board of Directors

 Member of the        Date first appointed    Date term expires           Current main           Current main         Other directorships
Board of Directors                                                      position within the   position outside the      and positions
  (professional                                                              Company               Company
    address)

Pierre-André     de        29 March 2011                   General         Chairman of the     Director, Chairman     • Director of Saint-
Chalendar                                           Shareholders’        Board of Directors     & Chief Executive       Gobain
(Les Miroirs                                   Meeting in 2015 to                                        Officer of     Corporation
18 avenue d'Alsace                           approve the financial                            Compagnie de Saint-     • Director of GIE
92400 Courbevoie)                               statements for the                                         Gobain       SGPM Recherche
                                                fiscal year ending                                                    • Director of Veolia
                                              December 31, 2014                                                         Environnement
Jérôme Fessard             29 March 2011                   General         Chief Executive         Senior Vice-       • Chairman of the
(Les Miroirs                                        Shareholders’                  Officer         President of         Board of
18 avenue d'Alsace                             Meeting in 2015 to                                 Compagnie de          Directors and
92400 Courbevoie)                            approve the financial                               Saint-Gobain, in       Chief Executive
                                                statements for the                                 charge of the        Officer of Saint-
                                                fiscal year ending                               Packaging Sector       Gobain
                                              December 31, 2014                                                         Emballage
                                                                                                                      • Director of SG
                                                                                                                        Vicasa
                                                                                                                      • Member of the
                                                                                                                        Supervisory
                                                                                                                        Board of SG
                                                                                                                        Oberland
                                                                                                                      • Director of SG
                                                                                                                        Mondego
                                                                                                                      • Director of SG
                                                                                                                        Containers, Inc
Jean-Pierre Floris         29 March 2011                   General                                 Senior Vice-       • Chairman of the
(Les Miroirs                                        Shareholders’                                  President of         Board of
18 avenue d'Alsace                             Meeting in 2015 to                                 Compagnie de          Directors of
92400 Courbevoie)                            approve the financial                               Saint-Gobain, in       S.E.P.R
                                                statements for the                                charge of the       • Director of
                                                fiscal year ending                                  Innovative          S.E.P.R.
                                              December 31, 2014                                  Materials Sector     • Chairman of
                                                                                                                        Saint-Gobain
                                                                                                                        Sekurit France
                                                                                                                      • Chairman and




                                                                  184
                                                                          Director of Saint-
                                                                          Gobain Advanced
                                                                          Ceramics
                                                                          Corporation
                                                                      •   Chairman & CEO
                                                                          of Saint-Gobain
                                                                          Ceramics &
                                                                          Plastics, Inc
                                                                      •   Director of SG
                                                                          Performance
                                                                          Plastics
                                                                          Corporation
                                                                      •   Chairman of the
                                                                          Board of
                                                                          Directors of
                                                                          Saint-Gobain
                                                                          Glass France
                                                                      •   Director of Saint-
                                                                          Gobain Glass
                                                                          France
                                                                      •   Director of Saint-
                                                                          Gobain
                                                                          Euroveder Italia
                                                                          S.P.A.
                                                                      •   Director of Saint-
                                                                          Gobain Sekurit
                                                                          Italia S.R.L.
                                                                      •   Director of SG
                                                                          Mexico (Sekurit)
                                                                      •   Director of Saint-
                                                                          Gobain Sekurit
                                                                          Benelux S.A.
                                                                      •   Director of Sage
                                                                          Electrochromics
                                                                          Inc
                                                                      •   Director of
                                                                          Grindwell Norton
                                                                          Lt
                                                                      •   Director of
                                                                          Hankuk Glass
                                                                          Industries Inc
                                                                      •   Director of SG
                                                                          Hanglas Sekurit
                                                                          (Shangai) Co.,
                                                                          Ltd (SGHSS)
                                                                      •   Director of Saint-
                                                                          Gobain KK
                                                                      •   Director of Saint-
                                                                          Gobain
                                                                          Abrasives, Inc
                                                                      •   Director of Saint-
                                                                          Gobain Glass
                                                                          India Ltd
                                                                      •   Director of
                                                                          Vetrotech Sg
                                                                          North America
                                                                          Inc
                                                                      •   Director of
                                                                          Inversiones BPB
                                                                          Chile Ltda
                                                                      •   Member of the
                                                                          Supervisory
                                                                          Board of Saint-
                                                                          Gobain Autoglas
                                                                          Gmbh
                                                                      •   Member of the
                                                                          Supervisory
                                                                          Board of Saint-
                                                                          Gobain Glass
                                                                          Deutschland
                                                                          Gmbh

Laurent Guillot   29 March 2011        General      Chief Financial   • Chairman of
(Les Miroirs                      Shareholders’          Officer of     International



                                              185
18 avenue d'Alsace                     Meeting in 2015 to             Compagnie de Saint-      Saint-Gobain
92400 Courbevoie)                    approve the financial                       Gobain      • Director of
                                        statements for the                                     International
                                        fiscal year ending                                     Saint-Gobain
                                      December 31, 2014                                      • Chairman of
                                                                                               Spafi
                                                                                             • Chairman of
                                                                                               Vertec
                                                                                             • Director of Saint-
                                                                                               Gobain PAM
                                                                                             • Director of Saint-
                                                                                               Gobain Benelux
                                                                                             • Alternate Director
                                                                                               of GIE Saint-
                                                                                               Gobain Pont A
                                                                                               Mousson
                                                                                               Archives
                                                                                             • Director of Saint-
                                                                                               Gobain (China)
                                                                                               Investment Co.,
                                                                                               Ltd
Claire Pedini        29 March 2011                 General                   Senior Vice-    • Director of
(Les Miroirs                                Shareholders’                     President of     Arkema
18 avenue d'Alsace                     Meeting in 2015 to             Compagnie de Saint-
92400 Courbevoie)                    approve the financial            Gobain, in charge of
                                        statements for the              Human Resources
                                        fiscal year ending
                                      December 31, 2014
Jean-François        29 March 2011                 General                    Senior Vice-   • Director of
Phelizon                                    Shareholders’                     President of     International
(Les Miroirs                           Meeting in 2015 to             Compagnie de Saint-      Saint-Gobain
18 avenue d'Alsace                   approve the financial            Gobain, in charge of   • Director of Saint-
92400 Courbevoie)                       statements for the              Internal Audit and     Gobain PAM
                                        fiscal year ending                Internal Control
                                      December 31, 2014

It is specified that as of the registration date of this Document de Base, Compagnie de Saint-Gobain,
which holds indirect control of the Company, has committed to having three independent directors
appointed (in accordance with the criteria described in Section 16.4.2.), by no later than May 30, 2011.

14.1.3 Biographies

Pierre-André de Chalendar

Born in April 1958, a graduate of ESSEC business school and of the École Nationale d’Administration
(ENA), and a former senior civil servant (Inspecteur des Finances), Pierre-André de Chalendar joined
Compagnie de Saint-Gobain on November 1, 1989 as Vice-President, Corporate Planning.

European Abrasives Director between 1992 and 1996, Global Abrasives Director from 1996 to 2000, he
went on to become the General Delegate for the United Kingdom and the Republic of Ireland from 2000
to 2002. In 2003, Pierre-André de Chalendar was appointed Senior Vice President of Compagnie de
Saint-Gobain in charge of the Building Distribution Sector.

Appointed Chief Operating Officer of Compagnie de Saint-Gobain in May 2005 and elected to the
Board in June 2006, he has served as Chief Executive Officer of Compagnie de Saint-Gobain since June
7, 2007. On June 3, 2010, he was appointed Chairman & Chief Executive Officer of Compagnie de
Saint-Gobain. He is also a director of Veolia Environnement.

Within Saint-Gobain, he is also a director of Saint-Gobain Corporation and of GIE SGPM Recherche.
As of the registration date of this Document de Base, Pierre-André de Chalendar owns one Verallia
share.




                                                         186
Jérôme Fessard

Born in August 1954, Jérôme Fessard graduated from the École Polytechnique and the engineering
school École des Ponts et Chaussées and holds a Master of Science from MIT. From 1980 to 1986, he
was successively head of the industrial development division of the DRIRE (regional directorate for
industry and research) for the Ile de France region, deputy secretary general of the Comité du Fonds
Industriel de Modernisation (1983) and technical advisor to the Economy, Finance and Budget Ministry
(1985).

Jérôme Fessard joined Poliet group in 1986, and was appointed head of Point P for the Loire region in
1987, and then of the Ile de France region in 1989. In 1992, he was made a member of the Poliet group
Executive Committee and Chairman of the Management Board of Stradal.

At the end of 1997 he was appointed Chairman of the Management Board of Oberland (Packaging
Sector), then Chairman of the Management Board of Raab Karcher and member of the Operating
Committee of the Building Distribution Sector in July 2000. In February 2003, Jérôme Fessard was
appointed Director of the Packaging Sector. Since 2004, he has served as Senior Vice-President of
Saint-Gobain in charge of the Packaging Sector. As of the registration date of this Document de Base,
Jérôme Fessard owns one Verallia share.

Jean-Pierre Floris

Born in July 1948, civil engineer qualified at the Paris Ecole de Mines with a master’s degree in
Economic Systems Planning (Stanford University), Jean-Pierre Floris was the Manager of Saint-
Gobain’s Mers plant, then the Manufacturing Director of Saint-Gobain Desjonquères (1982-1985),
before becoming President of the Bottling and Plastic Capping activities of Carnaud group (1985-1996).
He returned to the Saint-Gobain Group in 1996, as Director of Bottling in the Packaging Sector and
Chairman & CEO of Saint-Gobain Desjonquères.

He was successively appointed General Delegate in Spain, Portugal and Morocco (2003), General
Delegate in Brazil, Argentina and Chile (2004), Senior Vice-President of the Flat Glass and High-
Performance Materials sectors (2007), and Director of the Flat Glass Sector on September 1, 2007. Jean-
Pierre Floris has been a Senior Vice-President of Compagnie de Saint-Gobain since March 1, 2008.

Since January 1, 2009, he has taken responsibility for the Innovative Materials Sector (High-
Performance Materials and Flat Glass). As of the registration date of this Document de Base, Jean-Pierre
Floris owns one Verallia share.

Laurent Guillot

Born in September 1969, Laurent Guillot is a graduate of Ecole Polytechnique and the Ecole Nationale
des Ponts et Chaussées engineering school. He also holds a post-graduate degree in macro-economics
from Université Paris I. He began his career in 1996 with the Finance Ministry, initially as head of the
energy unit in the Forecasting Department, then as head of the Central Africa unit within the Treasury
Department's International Division. In 1999, he was appointed technical advisor to the Minister of
Infrastructure, Transport and Housing, first on maritime issues and then on budgetary, financial and
industrial issues.

He joined Compagnie de Saint-Gobain in June 2002 as Vice-President, Corporate Planning. He was
appointed Director of the Abrasives Construction Products business in 2004, and Director, High-
Performance Refractories and Director, Diesel Particulate Filters in 2005. In January 2007, he was
appointed General Delegate to Brazil, Argentina and Chile. Since April 1, 2009, he has served as Chief
Financial Officer of Saint-Gobain. As of the registration date of this Document de Base, Laurent Guillot
owns one Verallia share.



                                                  187
Claire Pedini

Born in 1965, Claire Pedini holds a Hautes Etudes Commerciales (HEC) degree and a master’s degree
in Media Management from Ecole Supérieure de Commerce de Paris (ESCP).

She started her career in 1988 at Total as Corporate Controller (1988-1990), before assuming
responsibility for the admission to trading of Total on the New York Stock Exchange (1991-1992), and
becoming Head of Investor Relations (1992-94), Head of Press Office (1994-1997) and Vice-President
in charge of new information technologies (1997-1998).

In 1998, she joined Alcatel as Director of Financial Information and Shareholder Relations (1998-2000)
and was appointed successively Vice President, Investor Relations and Public Affairs (2001-2003),
Deputy Chief Financial Officer (2004-05), Senior Vice President, Human Resources (2006), Senior
Vice President, Human Resources and Corporate Communications (2006-2007), Senior Vice President,
Human Resources, Corporate Communications and Real Estate (2007-2009) and Alcatel-Lucent
Executive Vice President for Human Resources and Transformation (2009-2010). She was member of
the Alcatel-Lucent Management Committee since 2006.

Since June 1, 2010, Claire Pedini is Senior Vice President in charge of Human Resources for
Compagnie de Saint-Gobain. As of the registration date of this Document de Base, Claire Pedini owns
one Verallia share.

Jean-François Phelizon

Born in April 1946, holding a PhD in Economic Science and graduated from the HEC Business School,
Jean-François Phelizon was Chief Financial Officer of the Delegation in Spain (1983-1985), Chief
Financial Officer of the Paper-Wood sector (1985-1989), Chief Executive Officer of Lembacel (1987-
1989) and Chief Executive Officer of La Cellulose du Pin (1988-1989). He was then appointed Chief
Financial Officer of Compagnie de Saint-Gobain (1989-2000).

Senior Vice-President of Compagnie de Saint-Gobain since June 1, 1998, he was then appointed Chief
Executive Officer of Saint-Gobain Corp and General Delegate to the USA and Canada (2000-2007). On
September 1, 2007, Jean-François Phelizon was appointed Senior Adviser to the Chief Executive
Officer. Since October 1, 2008, he is Senior Vice President in charge of Internal Audit and Internal
Control. As of the registration date of this Document de Base, Jean-François Phelizon owns one Verallia
share.

14.1.4 Statement regarding corporate officers and senior executives

To the best of the Company’s knowledge, as of the registration date of this Document de Base:

-     there are no family relationships between the Company’s corporate officers and senior
      executives;

-     no corporate officer, or senior executive of the Company has, within the past five years, (i) been
      found guilty of fraud, (ii) become associated with a bankruptcy, sequestration or liquidation or
      (iii) been incriminated and/or subject to an official public sanction issued by a statutory or
      regulatory authority (including designated professional bodies); and

-     no corporate officer or senior executive has been prevented by a court from serving as a member
      of an administrative, management or supervisory body of an issuer of securities or from taking
      part in managing or conducting the business of an issuer within the past five years.




                                                  188
14.2 Conflicts of interest within administrative and management bodies

As of the registration date of this Document de Base and to the best of the Company’s knowledge, there
are no existing or potential conflicts between the Company’s interests and the personal interests or other
duties of the persons identified in Section 14.1 of this Document de Base.

To the best of the Company’s knowledge, no agreement of any kind has been entered into with any
shareholders, customers, suppliers or other persons under the terms of which one of the members of the
Company’s Board of Directors has been appointed or elected to such office.

Other than the rules described in Section 16.4.2 on the prevention of insider trading, no restriction has
been accepted by the members of the Board concerning the transfer of their ownership interest in the
Company.




                                                   189
15.     COMPENSATION AND BENEFITS

15.1 Compensation and benefits granted to executive officers

The compensation of the executive officers listed below includes compensation paid by the Company or
its subsidiaries and, for Mr Jérôme Fessard, compensation received as an employee of Compagnie de
Saint-Gobain.

Total compensation, stock options and performance shares awarded to the Chief Executive
Officer

(in EUR)                                                                                                2009               2010

Jérôme Fessard – Chief Executive Officer
Compensation for the year (see Table 2 for details)                                                  824,307            781,447
Value of stock options granted during the year (see Table 3 for details)                             352,013            116,640
Value of performance shares granted during the year (see Table 5 for details)                         77,834            137,241
TOTAL
                                                                                                    1,154,154          1,035,328


As of the registration date of this Document de Base, the Company and its subsidiaries have not paid
compensation to Mr Pierre-André de Chalendar for the years 2009 and 2010. Mr Pierre-André de
Chalendar not having held any executive office within the Company in the years 2009 and 2010, he did
not receive any compensation on this basis from Compagnie de Saint-Gobain.

Total compensation of the Chief Executive Officer
(in EUR)                                                                        2009                            2010

Jérôme Fessard – Chief Executive Officer                       Amounts owed        Amounts paid     Amounts owed     Amounts paid
Fixed compensation                                                   499,763             499,763          502,403         502,403
Variable bonus                                                       220,500             211,500          275,000         220,500
Exceptional bonus                                                    100,000                    0               0         100,000
Directors’ attendance fees                                                 0                    0               0                0
Benefits-in-kind:
     -     accommodation                                                               4,044            4,044            4,044
                                                                         4,044
     -     company car

TOTAL
                                                                       824,307            715,307          781,447         826,947


Mr Fessard’s variable bonus is determined on the basis of quantitative targets (such as the operating free
cash flow (OFCF) and return on capital employed (ROCE) of the Packaging Division) and of his
personal contribution to certain efforts (such as safety measures, growth in emerging markets and
sustainable development).

An exceptional bonus is a bonus that is paid at the discretion of Compagnie de Saint-Gobain’s senior
management.
Table of directors’ attendance fees and other compensation received by non-executive directors

No directors’ attendance fees or other compensation was paid by the Company to corporate officers for
years 2009 and 2010.

As of the registration date of this Document de Base, the Company and its subsidiaries have not paid
any compensation to Mr Pierre-André de Chalendar for the years 2009 and 2010. Mr Pierre-André de
Chalendar not having held any executive office within the Company in the years 2009 and 2010, he did
not receive any compensation on this basis from Compagnie de Saint-Gobain.




                                                                 190
Compagnie de Saint-Gobain stock options76 granted during the year to the Chairman and the Chief
Executive Officer (by the Company or any Saint-Gobain company)

                                             Plan date       Type of       Value (based      Number        Exercise        Exercise
                                                             option         on method       of options      price           period
                                                                               used to       granted
                                                                          prepare Saint-      during
                                                                             Gobain’s        the year
                                                                           consolidated
                                                                              financial
                                                                            statements)
Pierre-André de Chalendar - Chairman
                                            18 Nov.            Not               561,600       130,000      €35.19**     18 Nov. 2014
                                            2010            specified*                                                    17 Nov. 2020

Jérôme Fessard – Chief Executive
Officer                                        18 Nov.         Not
                                                            specified*           116,640        27,000      €35.19**     18 Nov. 2014
                                                  2010
                                                                                                                          17 Nov. 2020
* The type of option (exercisable for new or existing shares) will be determined by the Board of Directors of Compagnie de Saint-Gobain by
no later than the start of the exercise period, and any options that may have been exercised previously shall be for new shares.
** The exercise price of the options exercisable for Compagnie de Saint-Gobain shares granted in November 2010 was set at 100% of the
average share price for the 20 trading days preceding their grant date, i.e., €35.19.

The exercise of these options is subject to eligibility criteria based on the grantee’s period of service and
performance conditions summarised below:

       -   the grantee is an employee or corporate officer of a Saint-Gobain company on the date of
           exercise of the options, barring specific cases such as death, category 2 or 3 disability, no-fault
           dismissal, mutually-agreed contract termination, retirement, intra-Saint-Gobain mobility, or sale
           of the grantee’s host company outside Saint-Gobain;

       -   the relative performance of the trading price of Compagnie de Saint-Gobain shares in relation to
           a stock market index with a 50%/50% spread between CAC 40 and a basket of eight listed
           companies (NSG, 3M, Imerys, CRH, Travis Perkins, Wolseley, Owens Corning and Rockwool)
           operating in one or more of the same business lines as Saint-Gobain.

The share’s performance on the stock market will be calculated by comparing the average trading price
in the last 3 months preceding November 18, 2010 to that in the last 3 months preceding November 18,
2014. The two performance values are then compared and, following the four-year vesting period, the
options may be exercised or not in accordance with the following criteria:

       -   if the Compagnie de Saint-Gobain share price outperforms the index by 20% or more, all of the
           options will be exercisable;
       -   if the Compagnie de Saint-Gobain share price outperforms the index by between +10% and
           +20%, only 75% of the options will be exercisable;
       -   if the Compagnie de Saint-Gobain share price performance is between -10% and +10% in
           relation to the index, only 50% of the options will be exercisable;
       -   if the Compagnie de Saint-Gobain share price underperforms the index by between -20% and -
           10%, only 25% of the options will be exercisable;
       -   if the Compagnie de Saint-Gobain share price underperforms the index by 20% or more, none
           of the options will be exercisable.




76
     Verallia did not grant any stock options during the year ended December 31, 2010.


                                                                   191
Compagnie de Saint-Gobain options exercised during the year by the Chairman and the Chief Executive
Officer

No option was exercised for new or existing shares in 2010.

Performance shares granted to the Chairman and the Chief Executive Officer (by the Company77 or any
Saint-Gobain company)

                                             Plan   Number of       Value (based   End of     End of lock-   Performance
                                             date     shares         on method     vesting     up period      conditions
                                                     granted            used to    period
                                                    during the       prepare the
                                                       year         consolidated
                                                                    Saint-Gobain
                                                                       financial
                                                                     statements)
Pierre-André de Chalendar – Chairman           18
                                                                                   30 March      30 March
                                             Nov.       20,000           538,200                                       *
                                                                                       2013          2015
                                             2010
Jérôme     Fessard   –   Chief   Executive     18
                                                                                   30 March      30 March
Officer                                      Nov.         5,100          137,241                                       *
                                                                                       2013          2015
                                             2010

* The eligibility criteria for performance shares is subject to period of service and performance
conditions summarised below:

       -   the grantee has been an employee or corporate officer of a Saint-Gobain company throughout
           the entire vesting period, barring specific cases such as death, category 2 or 3 disability, no-fault
           dismissal, mutually-agreed contract termination, retirement, intra-Saint-Gobain mobility, or sale
           of the grantee’s host company outside Saint-Gobain;

       -   Compagnie de Saint-Gobain achieves its ROCE (return on capital employed) target – excluding
           the Packaging Sector.

The vesting of the shares will be calculated as follows for each of the years 2011 and 2012.

For 2011, within a limit of 50% of the total grant:

       -   if the ROCE exceeds 10.5%, the entire conditional performance share grant will vest with the
           employees;
       -   if the ROCE is comprised between 10% and 10.5%, only 75% of the conditional performance
           share grant will vest;
       -   if the ROCE is comprised between 9% and 9.99%, only 50% of the conditional performance
           share grant will vest;
       -   if the ROCE is comprised between 8.5% and 8.99%, only 25% of the conditional performance
           share grant will vest;
       -   if the ROCE is less than 8.5%, none of the shares will vest.

For 2012, within a limit of 50% of the total grant:

       -   if the ROCE exceeds 12%, the entire conditional performance share grant will vest;
       -   if the ROCE is comprised between 11% and 12%, only 75% of the conditional performance
           share grant will vest;




77
     Verallia did not grant any performance shares during the year ended December 31, 2010.


                                                                  192
      -    if the ROCE is comprised between 10% and 10.99%, only 50% of the conditional performance
           share grant will vest;
      -    if the ROCE is comprised between 9% and 9.99%, only 25% of the conditional performance
           share grant will vest;
      -    if the ROCE is less than 9%, none of the shares will vest.

Performance shares granted to the Chairman and the Chief Executive Officer for which the lock-up period
ended during the year

No performance shares became available in 2010 as a result of the lock-up period ending during the
year.
Historical information about stock option grants

                                                                      2007                 2008                2009                 2010
Issuer of the options exercisable for new or existing            Compagnie de         Compagnie de        Compagnie de         Compagnie de
shares                                                           Saint-Gobain         Saint-Gobain        Saint-Gobain         Saint-Gobain
Date of General Shareholders’ Meeting                             7 June 2007          7 June 2007         4 June 2009          4 June 2009
Date of Board meeting                                            22 Nov. 2007         20 Nov. 2008        19 Nov. 2009         18 Nov. 2010
Total shares under option                                          3,673,000            3,551,900           1,479,460            1,144,730
Adjustment to the number of shares under option(1)                  383,133              375,614               N/A                  N/A
Adjusted number of shares under option                             4,056,133            3,927,514           1,479,460            1,144,730
Of which: options granted to corporate officers                     331,725              276,439             200,000              157,000
Pierre-André de Chalendar                                           221,150              193,507             200,000              130,000
Jêrôme Fessard                                                       49,759               49,760              33,750               27,000
Starting date of exercise period                                 23 Nov. 2011         21 Nov. 2012        20 Nov. 2013         19 Nov. 2014
Expiry date of exercise period                                   21 Nov. 2017         19 Nov. 2018        18 Nov. 2019         17 Nov. 2020
Exercise price(1)                                                    €64.72               €25.88              €36.34               €35.19
Number of shares acquired                                              0                    0                   0                    0
Cumulative number of cancelled or forfeited options                 138 460               55 288                0                    0
Options outstanding at 31 Dec. 2009(1)                             3,917,673            3,872,226           1,479,460            1,144,730

(1)   Following the 23 March 2009 share capital increase for cash of Compagnie de Saint-Gobain carried out by issuing and allocating stock
      warrants, the number of options per grantee and the exercise price were adjusted in accordance with applicable regulations (article
      R228-91 of the Code of Commerce) in order to preserve the grantee’s rights. The new exercise price was determined by taking into
      account the number of shares issued per existing share (2 new shares for 7 existing shares), the issue price of the new shares (€14) and
      the cum rights share price, corresponding to the weighted average price for the three trading days preceding the rights issue, i.e. 18, 19
      and 20 March 2009.
      On this basis, the original exercise price was multiplied by 0.904363 to calculate the new price and the number of options was multiplied
      by 1.10575 so that the total value of option holders’ rights (number of options multiplied by the exercise price) was the same before and
      after the adjustment.


Tables showing the options granted to and exercised by the ten employees (of the Company or the
companies included within the scope of the option plan) who received the greatest number of options
are provided in Section 17.2 of this Document de Base.

15.2 Total expenses recognised or provisions booked by the Company or its subsidiaries for payment
     of pensions, retirement or other benefits to corporate officers

The provisions booked by the Company or its subsidiaries to cover payment of pensions, retirement or
other benefits to corporate officers totalled €1.9 million as of December 31, 2010.

15.3 Consideration granted by the Company or its subsidiaries in respect of contractual commitments
     made to corporate officers

None.




                                                                      193
15.4 Compensation and termination benefits

During 2010                Employment        Supplementary    Termination benefits   Non-compete indemnity
                             contract         pension plan
                          (suspended for
                         duration of term)
                          Yes         No     Yes         No     Yes         No         Yes          No
Jérôme Fessard – Chief
Executive Officer                     X      X                               X                       X




                                                   194
16.   PRACTICES OF THE ADMINISTRATIVE AND MANAGEMENT BODIES

The rules governing the practices of the Company’s administrative and management bodies featured
below, which shall apply as from and subject to the non-retroactive condition subsequent of the
admission to trading of the Company’s shares on the NYSE Euronext regulated exchange in Paris, stem
from the draft Articles of Association and from the Company’s Internal Rules, as respectively approved
by the Company’s Board of Directors on 14 March 2011 and on 29 March 2011. The Company’s
Articles of Association were adopted at the Company’s General Shareholders’ Meeting on 29 March
2011, subject to the non-retroactive condition subsequent of the admission to trading of the Company’s
shares on the NYSE Euronext regulated exchange in Paris.

16.1 Offices held by members of the administrative and management bodies

Information on the date of expiry and terms of office of the members of the Board of Directors is
provided in Section 14.1.2 of this Document de Base.

16.2 Information on service agreements entered into between corporate officers and the Company or
     any one of its subsidiaries

As of the registration date of this Document de Base, there are no service agreements between the
Company or any one of its subsidiaries and the members of the administrative and management bodies
providing for entitlement to any benefits at the end of any such agreement.

16.3 Board practices

16.3.1 Meetings of the Board of Directors

The rules governing the meetings and discussions of the Board are set out in articles 10 and 11 of the
Company’s Articles of Association, and featured at Section 21.2.2.1 of this Document de Base.

The Internal Rules of the Board of Directors, adopted on 29 March 2011 subject to the non-retroactive
condition subsequent of the admission to trading of the Company’s shares on the NYSE Euronext
regulated exchange in Paris, set out the main rules for the organisation and practices of the Board, as
featured below.

Board meetings:

The Board shall hold 5 scheduled meetings per year.

Directors shall be sent the draft minutes of every meeting together with the meeting notice for the next
meeting. The minutes are approved at that meeting and the final minutes are transmitted together with
the meeting notice for the next meeting.

Except for meetings held to prepare the financial statements, the consolidated financial statements and
annual management report, directors taking part in a Board meeting through videoconferencing or
telecommunication means permitting their identification and guaranteeing their effective participation in
the Board meeting in respect of which the deliberations are broadcast without interruption, shall be
deemed to be present for purposes of calculating quorum and majority requirements.

Prior and permanent information for directors:

Every month, directors shall be sent a confidential management document prepared for them, as well as
selected financial analyses and press cuttings relating to the Group. Prior to each meeting, the directors
are provided with copies of the presentations to be made during the meeting.



                                                   195
The Company’s draft annual report and the interim and annual consolidated financial statements and the
annual financial statements of the Company shall be communicated to the directors before the meetings
where they are to be reviewed.

Between meetings, directors receive copies of all press releases issued by the Company along with
relevant information about material transactions carried out by the Company.

The directors have the right to ask for any and all documents that they consider necessary to make an
informed contribution to the Board’s discussions; this request is made to the Chairman of the Board of
Directors and to the Chief Executive Officer, who may submit it for decision by the Board.

Directors may ask to meet senior executives of the Company with or without any executive directors
being present; in this last case, after notifying the Chairman of the Board and the Chief Executive
Officer, who may submit the request to the Board for decision.

16.3.2 Powers of the Board of Directors

The powers of the Board of Directors are set out in article 12 of the Company’s Articles of Association
and featured at Section 21.2.2.1 of this Document de Base.

The Internal Rules of the Board of Directors specify the powers of the Board, as stated below.

In addition to issues that fall within its remit as specified in the applicable laws and regulations and the
Company’s Articles of Association, the Board of Directors may examine the following matters:

        -    at least once a year the Board reviews and decides on the Group’s overall strategy; and

        -    all capital expenditure, restructuring, disposals, acquisitions, and financial investment and
             divestment projects individually representing over €35 million, along with any material
             transactions that falls outside the Company’s stated strategy must be submitted to the
             Board for prior approval.

In case of urgency preventing the Board from being called in a timely manner to examine these
transactions, the Chairman shall inform directors about these transactions by any means in view of
obtaining their opinion.

The Board’s practices are reviewed during at least one meeting a year and an assessment of its
organisation and practices is conducted periodically with the guidance of the Appointments and
Compensation Committee. That assessment shall be included in the agenda of a subsequent Board
meeting.

Every year, following the report by the Appointments and Compensation Committee, the Board of
Directors shall review the situation of every director in terms of the independence criteria set out in the
AFEP-MEDEF corporate governance code for listed companies and present the conclusions of its
review to the shareholders in the annual report.

Directors may meet, during or after a meeting, outside the presence of corporate officers so as to assess
the performance of the corporate officers and consider the future of the Company’s executive
management.

16.4 Corporate governance

16.4.1 Corporate governance statement

Out of a concern with transparency and providing information to the public, the Company plans to


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comply with the corporate governance principles defined in the recommendations issued by the
Association Française des Entreprises Privées (AFEP) and the Mouvement des Entreprises de France
(MEDEF) in the AFEP-MEDEF corporate governance code for listed companies.

In this context, the Board of Directors adopted Internal Rules on 29 March 2011, subject to the non-
retroactive condition subsequent of the admission to trading of the Company’s shares on the NYSE
Euronext regulated exchange in Paris, determining the Board’s composition, organisation and practices
(see Section 16.3) and committees created within it as well as the rights and obligations of the directors,
as summarised below.

16.4.2 Application of corporate governance principles to administrative and management bodies.

Independent Directors:

In accordance with the AFEP-MEDEF corporate governance code for listed companies, a third of the
members of the Board are appointed from independent personalities with no specific interest in the
Company. As of the registration date of this Document de Base, these independent directors have not yet
been appointed. Compagnie de Saint-Gobain, which holds indirect control of the Company, has
committed to having three independent directors appointed (in accordance with the criteria set out
below), by no later than 30 May 2011.

A director shall be deemed independent if satisfying the following criteria:

        -    is not an employee or corporate officer of the Company, an employee or director of its
             parent company or of a company consolidated within the Company and has not served in
             that capacity during the past five years;

        -    is not a corporate officer of a company in which the Company directly or indirectly holds a
             seat as a director or in which an employee is appointed as such or a corporate officer of the
             Company (currently holding such a position or within the past five years) holds a seat as
             director;

        -    is not directly or indirectly related to a significant customer, supplier, corporate banker, or
             investment banker of the Company or of the Group, or for whom the Company or the
             Group accounts for a significant part of its business;

        -    has no close family ties with a corporate officer of the Company;

        -    has not, during the past five years, served as an auditor of the Company; and

        -    has not been a director of the Company for more than twelve years.

Directors representing key shareholders of the Company or of its parent company may be deemed
independent when they do not control the Company. Above a threshold of 10% of share capital and
voting rights, the Board, acting upon the report of the Appointments and Compensation Committee,
shall systematically review whether qualification as an independent director is met having regard to the
composition of the Company’s share capital and the existence of a potential conflict of interest.

Separation of functions of Chief Executive Officer and Chairman:

By decision dated 29 March 2011, the Board of Directors decided to separate the functions of Chief
Executive Officer and Chairman. As of the registration date of this Document de Base, Mr Jérôme
Fessard holds the office of Chief Executive Officer and Mr Pierre-André de Chalendar, that of
Chairman of the Board.




                                                    197
Directors’ duties and obligations:

In view of French securities regulations, directors are qualified as “permanent insiders” in the Internal
Rules of the Board of Directors and as such are required to comply with the laws and regulations
concerning insider trading.

Directors are also prohibited from trading directly or indirectly in the Company’s shares or in derivative
instruments that have Company’s shares as the underlying, during the 45 days preceding the Board
meetings at which the annual and interim consolidated financial statements are reviewed and the day
after these meetings (referred to as “negative windows”). Every year, directors are provided with a
precise timeframe of the “negative windows” by the Board’s corporate secretary.

In accordance with French securities legislation, directors must disclose to the Autorité des marchés
financiers details of all of their transactions in the Company’s shares. Directors are recommended to
hold their shares in registered form.

As well as complying with the duty of discretion imposed by law, directors are under a general duty to
treat as strictly confidential all documents and information communicated to them before or after
meetings, and all matters discussed during Board meetings, for as long as they have not been made
public. Directors must also avoid any actual or potential conflicts of interest, whether direct or indirect,
but if such a situation were nonetheless to arise, they must so inform the Chairman and the Chief
Executive Officer, and refrain from the discussion or vote on the matters concerned.

Directors’ attendance fees:

The Board of Directors allocates directors’ annual attendance fees granted by the General Shareholders’
Meeting. The Board’s Internal Rules, summarised below, specify the basis on which these fees are to be
allocated among the directors.

The Board of Directors allocates directors’ annual attendance fees granted by the General Shareholders’
Meeting. Pursuant to the decision in effect, the allocation is made as follows:

        -    the Chairman, Chief Executive Officer and directors representing Saint-Gobain on the
             Board of Directors of Verallia do not receive any attendance fees;

        -    the other directors each receive a fixed amount of €15,000 per year and €2,000 for each
             Board meeting attended during the year;

        -    in addition, the Chairmen and members of the Audit Committee and of the Appointments
             and Compensation Committee (except for those representing Saint-Gobain on the Board of
             Directors) each receive a fixed amount of €3,500 and of €2,000 per year, respectively, and
             €1,500 for each Committee meeting attended during the year;

        -    for directors who are elected or retire/resign from the Board during the year, the fixed fee is
             prorated to the actual period served;

        -    the fees are paid in two half yearly instalments in arrears, with any balance available from
             the annual amount distributed at the beginning of the next year based on each director’s
             attendance rate at the prior year’s Board meetings.

Other provisions:

The Internal Rules also allow for directors, if they deem this necessary, to benefit from additional
training about the Group’s businesses and activities.




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Upon their appointment, members of the Audit Committee may benefit from, if they deem this useful,
information on the accounting, financial or operational aspects of the Group’s activities.

They also stipulate that directors must attend General Shareholders’ Meetings unless legitimately
impeded.

16.4.3 Information on the Financial Statements Committee and the Appointments and
       Compensation Committee

Committees of the Board of Directors, whose members are appointed by the Board, prepare
presentations of the issues submitted to the Board in their respective areas as set forth below.

To perform their duties, Board committees may request the commissioning of technical reports by
outside experts – the costs of which are paid by the Company - and consult Company executives after
notifying the Chairman of the Board and the Chief Executive Officer who may refer the request to the
Board for a decision. Board committees shall report to the Board on opinions and information obtained.

The chairman of each committee shall appoint a person to act as its corporate secretary.

The Audit Committee

Formation:

The Audit Committee is set up by the Board of Directors which shall determine, in compliance with the
applicable laws, its composition, remit, duties and practices, and appoint its chairman and members.

Composition:

The Audit Committee is composed of at least three non-executive directors, of which at least two
qualify as independent directors under the criteria defined by the AFEP-MEDEF corporate governance
code for listed companies. At least one of these independent directors has specific skills in financial and
accounting matters.

Remit:

Acting under the responsibility of the members of the Board of Directors, the Audit Committee shall
regularly report to the Board on the performance of its duties, work, conclusions and proposals, and
within the scope of the matters falling within its remit, shall give its opinion to the Board and make any
useful observations and recommendations in view of the Board’s discussions and shall inform the Board
of any difficulty it may encounter.

The Audit Committee is not vested with any decision-making power of its own.

Duties:

Pursuant to the Internal Rules of the Board of Directors, adopted on 29 March 2011 subject to the non-
retroactive condition subsequent of the admission to trading of the Company’s shares on the NYSE
Euronext regulated exchange in Paris, the Audit Committee has the following duties:

          -   Without prejudice to the matters within the remit of the Board of Directors, the Audit
              Committee is in charge of overseeing:

              • the processes used to prepare financial information;
              • the effectiveness of internal control and risk management systems;



                                                    199
             • the work performed by the Statutory Auditors on the financial statements of the
                Company and the Group;
             • the independence of the Statutory Auditors.

        -    Ensures that (i) any questions relating to the preparation and control of accounting and
             financial information are followed up and (ii) the accounting policies used to prepare the
             financial statements are both appropriate and applied consistently from one period to the
             next, and that the internal procedures used to collect and control accounting and financial
             information provide the necessary assurance in this regard.

        -    Reviews the interim and annual consolidated financial statements and the annual financial
             statements of the Company, as presented by senior management prior to their examination
             by the Board of Directors.

        -    Reviews the scope of consolidation and the reasons why certain companies have been
             excluded.

        -    Reviews material risks and off-balance sheet commitments, based on an explanatory report
             drawn up by the Chief Financial Officer.

        -    Receives updates from senior management of the organisation and operation of the risk
             management system.

        -    Reviews the Company’s internal control action plan and receives updates at least once a
             year on the plan’s results.

        -    Makes recommendations concerning the organisation of the internal audit function and
             receives a copy of the internal audit programme as well as executive summaries of the
             internal audit reports.

        -    Reviews the external auditors’ work plan and conclusions as well as the post-audit report
             prepared by the auditors concerning their main observations and the accounting options
             selected for the preparation of the financial statements.

        -    Conducts the auditor selection process, issues an opinion on the proposed statutory audit
             fee budget, submits the results of the selection process to the Board and puts forward
             candidates to be appointed by the shareholders.

        -    Reviews the audit-related advisory and other services that the auditors and members of
             their network are authorised to provide to the Company and other Group companies under
             auditor independence rules.

        -    Obtains from the auditors the breakdown of the fees paid to them and the members of their
             network by the Group over the past year, by category of service, and reports to the Board
             its opinion concerning the auditors' independence

Operation:

The Audit Committee meets at least three times a year. Its meetings are held before Board meetings held
to review the interim and annual consolidated financial statements and the annual financial statements of
the Company.

In performing its duties, the committee may hold one-to-one discussions with the Statutory Auditors,
the Chief Financial Officer, the Vice-Presidents in charge of Finance, as the case may be, and the Senior



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Vice-President in charge of Internal Audit & Internal Control, without the presence of senior
management.

The Appointments and Compensation Committee

Formation:

The Appointments and Compensation Committee is set up by the Board of Directors, which determines
its composition, remit, duties and practices, and appoints the chairman and the members.

Composition:

The Appointments and Compensation Committee is composed of a minimum of three non-executive
directors, of which at least two, including the chairman, qualify as independent directors under the
criteria defined by the AFEP-MEDEF corporate governance code for listed companies.

Remit:

The Appointments and Compensation Committee reports to the Board of Directors on its work,
conclusions and proposals and, within the scope of the matters falling within its remit, shall give its
opinion to the Board and make any useful observations and recommendations in view of the Board’s
discussions.

The Appointments and Compensation Committee is not vested with any decision-making power of its
own.

Duties:

Pursuant to the terms of the Internal Rules of the Board of Directors, adopted on 29 March 2011 subject
to the non-retroactive condition subsequent of the admission to trading of the Company’s shares on the
NYSE Euronext regulated exchange in Paris, the Appointments and Compensation Committee’s has for
its duties to:

          -   Make proposals to the Board of Directors in all cases where one or more seats on the Board
              fall vacant or the terms of one or more directors are due to expire. The Committee
              organises the procedure to select candidates for election as independent directors, in
              accordance with the AFEP-MEDEF corporate governance code for listed companies.

          -   Reviews annually each director’s situation in relation to the independence criteria set out in
              the AFEP-MEDEF code, and reports its conclusions to the Board of Directors.

          -   Recommends candidates to the Board in the event that the position of Chairman of the
              Board of Directors falls vacant for whatever reason.

          -   Reviews proposals by the Chairman of the Board of Directors for the appointment of a
              Chief Executive Officer and/or one or more Chief Operating Officers, and reports its
              conclusions to the Board.

          -   Makes recommendations to the Board of Directors concerning the Chairman’s
              compensation package, including pension benefits and the criteria to be applied to
              determine his variable bonus, as well as the other aspects of his position.

          -   Makes recommendations on the same issues for the Chief Executive Officer and/or the
              Chief Operating Officer(s).



                                                     201
        -    Discusses the Group’s overall stock option policy and whether the options should be
             exercisable for new or existing shares, and reviews senior management’s proposals
             concerning stock option plans for corporate officers and/or Group employees.

        -    Makes recommendations concerning stock option grants to the Chairman of the Board of
             Directors, the Chief Executive Officer and/or other members of senior management of the
             Group.

        -    Makes presentations to support the Board of Directors’ consideration of corporate
             governance issues and leads periodic assessments of the Board of Directors’ organisation
             and practices.

Operation:

The Appointments and Compensation Committee meets at least once a year. Its meetings are held
before Board meetings held to review the matters falling within its remit.


16.4.4 Internal control

As a société anonyme whose shares are not admitted to trading on a regulated market, the Company was
under no obligation to issue a report on internal control in respect of the years ended December 31,
2010, December 31, 2009 and December 31, 2008.

As from admission of the Company’s shares to trading on the NYSE Euronext regulated exchange in
Paris, the Company plans to implement the internal control and risk management process described in
Section 4.2. Accordingly, the Chairman of the Board of Directors shall prepare, in application of article
L. 225-37 of the Code de Commerce, a report on the conditions of preparation and organisation of the
work of the Board as well as of the internal control procedures (see Section 4.2.1).




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17.   EMPLOYEES

17.1 Employment data

17.1.1 Breakdown

At December 31, 2010, the Group had 14,540 employees within its scope of consolidation.

At that date, approximately 59% of employees were employed in Europe (of which approximately 16%
in France), approximately 11% in South America and approximately 30% in the United States.

The table below shows the trend, over the past three years, of the Group’s headcount by geographic
area:

                                                        Headcount at December 31
       Geographic area                              2010         2009        2008
       Western Europe*                              6,540        6,541       6,714
       Eastern Europe                               2,026        2,442       2,740
       USA                                          4,395        4,403       4,586
       South America                                1,579        1,531       1,467
       Total                                       14,540        14,917     15,507


* The headcount for Poland is included in that for Western Europe.

The drop in headcount recorded in 2009 results from the closing of 2 plants, in the USA and in Spain, as
well as a drop across all of the other locations as a result of the crisis, with the exception of South
America, where hires had to be made to replace subcontracting due to a change in local laws.

The drop in headcount recorded in 2010 is essentially due to the reduction in headcount in Russia and in
the Ukraine as a result of restructuring.

The table below shows the trend, over the past three years, of the breakdown of the headcount by socio-
professional category (SPC):

                                                        Headcount at December 31

       Breakdown of headcount by SPC                2010         2009        2008
       Senior technicians, supervisors and
                                                    3,989        3,837       3,862
       managers
       Operators, administrative employees and
                                                   10,551        11,080     11,645
       technicians
       Total                                       14,540        14,917     15,507

The Group has seen a regular increase in the percentage of senior technicians, supervisors and managers
as a result of the use of continually improved production processes (which increased from 24.9% in
2008 to 27.4% in 2010), as well as a reduction in the headcount of operators, administrative employees
and technicians (which declined from 75.1% in 2008 to 72.6% in 2010) due to the increasing
automation of production processes.



                                                  203
The table below shows the trends, over the past three years, of the breakdown of the headcount by type
of employment contract:


       Breakdown of headcount by type of employment contract 2010              2009   2008

       Permanent contracts                                            87.3% 81.7% 86.5%

       Fixed-term contracts                                            4.5% 5.0% 5.6%
       Temporary staff                                                 8.2% 13.3% 7.9%
       Total                                                           100% 100% 100%

17.1.2 Employment

The table below shows trends in employment within the Group over the past three years:

       Employment                    2010                2009          2008
       Departure rate
                                    11.9%            12.2%            11.9%
       Resignation rate
                                     2.8%             2.6%             4.2%
       Recruitment rate
                                     9.6%             8.4%            10.5%
       Percentage          of
       permanent contracts           5.8%             4.9%             6.1%

       Percentage        of
       disabled employees /
                                     1.9%             1.9%             1.6%
       average headcount


The Company considers that the resignation rate within the Group is low.

17.1.3 Working conditions and human resources policy

The Group attaches great importance to employment-related issues, and in particular health and safety at
the workplace, staff motivation, high quality social dialogue, promoting diversity and participation in
local community life.

The human resources management policy is a key part of the Group’s strategy. It aims at anticipating
the Group’s needs in terms of competencies, ensuring that critical posts are filled, creating the
conditions for employee adherence to the objectives of the Company and of its Group and responding to
their expectations, taking their professional projects into account as well as working conditions. This is
the context in which principles of conduct and action, established by Compagnie de Saint-Gobain, have
been adopted and implemented by the Group.

These take the form of five behavioural principles (professional commitment, respect for others,
integrity, loyalty and solidarity) and four principles of conduct (respect for the law, the environment,
occupational health and safety and employee rights).

The Group’s policy aims at active measures to reduce workplace accidents and occupational diseases.




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The table below shows the trends, over the past three years, in workplace safety:

       Workplace safety                                  2010          2009            2008
       Number of fatal accidents (staff)                  0              0               2
       Incident rate                                     2.9%          3.4%            3.8%
       Severity rate                                     0.2%          0.1%            0.2%

The Group has experienced a reduction in the incident rate of workplace accidents.

Between 2008 and 2010, the number of workplace accidents having resulted in lost working time
dropped by almost 21%.

Also, the number of reported workplace accidents (with or without any lost time) also dropped during
that same period by more than 30%.

To achieve that objective, the Group implements technical solutions aiming at reducing workstation
hazards. The Group also works to progressively change collective and individual behaviours so as to
encourage employees to work in a safer way, through prevention actions using tools such as SMAT
(“Safety Management Audit Tool”) or through observation of unsafe situations or conditions, by rolling
out across the Group the “5S” method, which is based on the following principles: sort, set in order,
shine, standardize and sustain.

The Group has also implemented “4 cardinal rules to save lives” to increase awareness of certain major
risks and responsibility among employees.

In addition to safety rules and regulations applicable locally, the Group has introduced a certain number
of safety standards, for instance dealing with the commissioning of equipment, work at a height, the
control of subcontractors, specific work permits and protection of moving equipment.

The management, control and improvement of the EHS management systems was effected via audits
and the progressive deployment of Health and Safety certifications (OHSAS 18001) across all industrial
plants.

In the field of workplace health, the Group places special focus on the following three issues in
connection with its industrial process:

-     The use of certain hazardous or potentially hazardous substances (such as, for example,
      crystalline silica or refractory fibres)

Cognizant there may be a possible exposure to mineral dust or chemical substances or products that may
be used in creating high-technology products, the Group applies the Toxic Agent Standard (TAS) for the
purposes of identifying, assessing, eliminating or controlling potential sources of exposure to toxic
agents in the workplace (see Section 4.2.2).

-     Movement and posture issues (workstation ergonomics)

The main known workplace health problems stem from risks inherent in handling operations,
movements and postures and repetitive movements of the upper limbs. The Group is attentive to, based
on a risk assessment by ergonomics specialists, implementing solutions so as to reduce those risks, in
particular by installing new equipment doing away with lifting and handling, introducing new assisted
handling systems, awareness training and adapted warming-up programs. For example, as part of its
“ergonomics” plan, the Lagnieu plant in France has organised warm-up up sessions before physical


                                                   205
exertion for staff at the “hot end” of the manufacturing changeover side. These 10-minute warm-up
sessions are headed by two internal instructors. They are held before the production changeover and
allow reducing the risk of injuries and problems when handling moulds.

-     Exposure to noise and heat

The Group’s business processes involve multiple and varied sources of noise (cooling systems, forming
machinery, furnaces, etc.). In 2004, Compagnie de Saint-Gobain established NOS (Noise Standard).
NOS was adopted by the Group to detect and assess potential exposure to noise in the workplace (see
Section 4.2.2). For instance, so as to guarantee improved micro-climatic conditions for staff working in
the “cold end”, an air cooling system was installed at the Lonigo plant in Italy. This system ensures air
renewal and reduces the temperature in that area. It is the first system of this type installed in a Group
plant in Italy. At the “hot end” of the plant in Pescia (Italy), a booth was installed in a central area. It
covers three separate areas corresponding to three IS machines. This system allows the operator to carry
out quality controls under improved climatic and acoustic conditions.

17.1.4 Training

The table below presents trends in training over the past three years:

    Training                                                 2010               2009                2008
    Percentage of workforce trained                         84.6%              83.9%               70.0%
    Proportion of managers and
    non-managers trained
    Managers                                                90.4%              92.5%               89.4%
                (1)                        (2)
    STech/Sup. + Op/Admin/Tech.                               84%              83.1%               68.2%
    Training costs as a % of total payroll                   2.5%               2.9%               2.8%
    Number of training hours per employee                     52.2               41.7               39.6
    Percentage per type of training:
                                                             42%               40.7%               43.6%
    Technical
                                                            18.5%              24.8%               29.4%
    EHS
                                                             7%                6.0%                5.2%
    Management
                                                            2.6%               3.0%                3.2%
    Language
                                                            29.9%              25.5%               18.6%
    Other
        1.   Senior technicians and supervisors.
        2.   Operators, administrative employees and technicians. The Group trains a significant percentage of its staff and
             places special emphasis on technical training in its fields of business, as well as environmental, health, hygiene
             and safety training. Overall, this training represents more than two thirds of the training hours within the Group
             every year.

17.2 Stock options

The Group does not have any stock option plans.

However, some of the Group’s employees and corporate officers were eligible to participate in the stock
option plans set up by Compagnie de Saint-Gobain (for detailed information on those plans and on the
eligible corporate officers, see Section 15 of this Document de Base). Within the Group, there are thus
71 grantees of Compagnie de Saint-Gobain stock options, and 76 grantees of Compagnie de Saint-
Gobain performance shares in respect of the fiscal year ended December 31, 2010.



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17.3 Employee profit-sharing

The table below shows the amounts paid out by the Group in France for 2008, 2009 and 2010 within the
framework of mandatory and voluntary profit-sharing agreements set up within the French companies of
the Group (in thousands of EUR):

                                         2011                     2010                        2009
                                (on the basis of 2010)   (on the basis of 2009)      (on the basis of 2008)

    Mandatory profit-
    sharing                            2,090                     3,674                      5,346

    Voluntary profit-
    sharing                            5,822                     6,533                      7,237



17.4 Pensions and other post-employment benefit obligations

A description of the scheme for pensions and other post-employment benefit obligations is provided in
note 15 of the Company’s annual combined financial statements.

17.5 Share ownership of corporate officers and transactions carried out by members of the Board of
     Directors on the Company’s shares

As of the registration date of this Document de Base, corporate officers hold the following ownership
interests in the Company’s share capital:

        Corporate officer                                Percentage of share
                                      Number of shares                            Percentage of voting rights
           (function)                                          capital
    Pierre-André de
    Chalendar
    (Chairman of the Board of                 1                   n/s                        n/s
    Directors)
    Jérôme Fessard
    (Chief Executive Officer)                 1                   n/s                        n/s
    Jean-Pierre Floris
    (Director)                                1                   n/s                        n/s
    Laurent Guillot
    (Director)                                1                   n/s                        n/s
    Claire Pedini
    (Director)                                1                   n/s                        n/s
    Jean-François Phelizon
    (Director)                                1                   n/s                        n/s

Each of the corporate officers will hold 30 shares in the Company on the date Verallia’s new Articles of
Association come into effect, adopted subject to the non-retroactive condition precedent of the first-time
listing of the Company’s shares on the NYSE Euronext regulated exchange in Paris, in accordance with
Article 9 of the Articles of Association (see Section 21.2.2.1).




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18.    MAJOR SHAREHOLDERS

18.1 Major shareholders

As of the registration date of this Document de Base, Compagnie de Saint-Gobain, through its 99.99%-
held subsidiary Spafi, holds 99.99% of the Company’s share capital and voting rights.

Following the Restructuring Transactions (see Section 5.1.6) and admission of the Company’s shares to
trading on the NYSE Euronext regulated exchange in Paris, Compagnie de Saint-Gobain shall indirectly
retain the majority of the share capital and voting rights in the Company. As such, the Company shall
remain, following admission, a subsidiary of Compagnie de Saint-Gobain, within the meaning of article
L. 233-1 of the French Code de Commerce, and will be fully consolidated. The table below summarises
the changes in the Company’s estimated ownership structure after the Restructuring Transactions but
before the admission of its shares to trading on the NYSE Euronext regulated exchange in Paris:


                                                                                        Rights
                                                                                      providing
                 Shareholder             % ownership              % voting rights
                                                                                    access to share
                                                                                        capital
             Vertec1                          60.8%                    60.8%              n/a
             Spafi2                           12.5%                    12.5%              n/a
             Cristaleria3                     26.7%                    26.7%              n/a
             Other4                            n/s                      n/s               n/a
             Total                            100%                     100%               n/a
1
  Vertec is a 99.99%-held subsidiary of Compagnie de Saint-Gobain.
2
  Spafi is a 99.99%-held subsidiary of Compagnie de Saint-Gobain.
3
  Cristalleria is a 99.83%-held subsidiary of Compagnie de Saint-Gobain.
4
  Directors.

Compagnie de Saint-Gobain is the ultimate holding company of Saint-Gobain, one of the top hundred
industrial groups worldwide, currently employing close to 190,000 people across 64 countries and
posting consolidated net sales in 2010 of €40.1 billion.

Through its numerous subsidiaries, Compagnie de Saint-Gobain produces, transforms and distributes
materials as varied as glass, ceramics, plastics and iron. It is organised in operational terms around 4
sectors: (i) the “Innovative Materials” sector (Flat Glass and High-Performance Materials); (ii) the
“Construction Products” sector specialised in interior and exterior solutions (thermal and acoustic
insulation, wall facings, roofing products and piping); (iii) the “Building Distribution” sector; and (iv)
the “Packaging” sector which, following the Restructuring Transactions, will be brought together in
Verallia.

Compagnie de Saint-Gobain is now listed on the Paris, London, Frankfurt, Zurich, Brussels and
Amsterdam exchanges.

The French language version of the Document de Base of Compagnie de Saint-Gobain can be consulted
on the Compagnie de Saint-Gobain website (www.saint-gobain.com) and the Autorité des marchés
financiers website (www.amf-france.org).

18.2 Voting rights of major shareholders

Every share in the Company carries a voting right. The Company’s Articles of Association do not
contain any provisions on double voting rights.




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18.3 Control of the Company

As of the registration date of this Document de Base, Compagnie de Saint-Gobain was the Company’s
main shareholder, either directly or through its subsidiary Spafi. Compagnie de Saint-Gobain will retain,
directly or indirectly, the majority of the Company’s shares and voting rights after the Restructuring
Transactions (see Section 5.1.6) and after the Company’s shares are listed on the NYSE Euronext
regulated exchange in Paris. Therefore, Compagnie de Saint-Gobain will, in its sole discretion, be able
to approve resolutions proposed at ordinary general shareholders’ meetings, and in some cases at
extraordinary general shareholders’ meetings (such as in case of a low participation rate at meetings),
and consequently to make important decisions for the Company such as appointing members of senior
management, approving full-year financial statements, setting dividend payments, authorising financial
transactions, amending the Articles of Association, and approving strategic transactions such as
mergers.

The Company’s management structure and the corporate governance measures described in Section 16
of this Document de Base, and in particular the presence on the Board of at least one-third independent
directors and the chairing of committees by an independent director, is aimed at assuring that control of
the Company is not “abused” within the meaning of Commission Regulation (EC) No 809/2004 dated
April 29, 2004.

Verallia’s material contracts, as described in Section 22, are with its main shareholder.

18.4 Agreements that might bring about a change of control

None.




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19.   RELATED PARTY AGREEMENTS

19.1 Main agreements with related parties

Intra-group agreements that may be entered into in the future are detailed in Section 7.3 of this
Document de Base, and agreements entered into with Compagnie de Saint-Gobain or its subsidiaries are
detailed in Section 22. No such agreements have been entered into between the Company and related
parties since January 1, 2008 (see Section 19.2).

19.2 Statutory Auditors’ special report on related party agreements over the past three years

The Statutory Auditors’ special reports on the related party agreements entered into by ODELE
(Verallia’s former name) over the past three years are presented below.

19.2.1 Statutory Auditor’s special report on related party agreements for the year ended
       December 31, 2010

      This is a free translation into English of the statutory auditor’s report issued in the French
      language and is provided solely for the convenience of English speaking readers. This report
      should be read in conjunction with, and construed in accordance with, French law and
      professional auditing standards applicable in France.

                                              ODELE SA
                    SPECIAL REPORT ON RELATED PARTY AGREEMENTS
                  (General Shareholders’ Meeting to approve the financial statements
                               for the year ending December 31, 2010)

Odele SA
Les Miroirs
18, avenue d'Alsace
92400 Courbevoie

To the Shareholders,

In our capacity as Statutory Auditor of your company, we hereby report to you on related party
agreements.

We are required to report to shareholders, based on the information provided to us, on the main terms
and conditions of agreements that have been disclosed to us or that we have identified during the course
of our work, without commenting on their relevance or substance and without our responsibility
including the identification of any undisclosed agreements. Under the provisions of article R.225-31 of
the Code de Commerce, it is the responsibility of shareholders to determine whether the agreements are
appropriate and should be approved.

We are also required, when applicable, to provide you with a report on the information required under
article R. 225-31 of the Code de Commerce on agreements previously approved by the General
Shareholders’ Meeting that remained in force during the past year.

We performed our procedures in accordance with professional standards applicable in France.




                                                  210
Agreements submitted for approval by the General Shareholders’ Meeting

We were not notified of any agreement authorised during the past year that should be submitted for
approval by the General Shareholders’ Meeting in application of the provisions of article L. 225-38 of
the Code de Commerce.

Agreements previously authorised by the General Shareholders’ Meeting

We were not notified of any agreement previously authorised by the General Shareholders’ Meeting that
remained in force during the past year.

Neuilly-sur-Seine, February 11, 2011

The Statutory Auditor
PricewaterhouseCoopers Audit

Rémi Didier

19.2.2 Statutory Auditor’s special report on related party agreements for the year ended
       December 31, 2009

      This is a free translation into English of the statutory auditor’s report issued in the French
      language and is provided solely for the convenience of English speaking readers. This report
      should be read in conjunction with, and construed in accordance with, French law and
      professional auditing standards applicable in France.

                                            ODELE SA

                          Société Anonyme with share capital of €38,112.25
                           Headquarters: Les Miroirs 18 avenue d'Alsace
                                        92400 Courbevoie


                     STATUTORY AUDITOR’S SPECIAL REPORT
                        ON RELATED PARTY AGREEMENTS
        TO THE ORDINARY GENERAL SHAREHOLDERS’ MEETING ON MAY 7, 2010
                           Year ended December 31, 2009

In our capacity as Statutory Auditor of your Company, we hereby report to you on the related party
agreements of which we have been informed. Our responsibility does not include identifying any
undisclosed agreements.

We were not informed of any agreement covered by article L. 225-40 et seq. of the Code de
Commerce.

                                        Paris, April 22, 2010

                                          Patrick Poligone
                                          Statutory Auditor




                                                 211
19.2.3 Statutory Auditor’s special report on related party agreements for the year ended
       December 31, 2008


      This is a free translation into English of the statutory auditor’s report issued in the French
      language and is provided solely for the convenience of English speaking readers. This report
      should be read in conjunction with, and construed in accordance with, French law and
      professional auditing standards applicable in France.

                                           ODELE SA

                         Société Anonyme with share capital of €38,112.25
                          Headquarters: Les Miroirs 18 avenue d'Alsace
                                       92400 Courbevoie


                    STATUTORY AUDITOR’S SPECIAL REPORT
                       ON RELATED PARTY AGREEMENTS
       TO THE ORDINARY GENERAL SHAREHOLDERS’ MEETING ON MAY 26, 2009
                          Year ended December 31, 2008

In our capacity as Statutory Auditor of your Company, we hereby report to you on the related party
agreements of which we have been informed. Our responsibility does not include identifying any
undisclosed agreements.

We were not informed of any agreement covered by article L. 225-40 et seq. of the Code de
Commerce.


                                        Paris, 11 May 2009

                                         Patrick Poligone
                                         Statutory Auditor




                                                212
20.   FINANCIAL INFORMATION CONCERNING THE ISSUER'S ASSETS, LIABILITIES,
      FINANCIAL POSITION, PROFITS AND LOSSES

20.1 Combined Financial Statements in accordance with IFRS for the fiscal years ended December 31,
     2010, December 31, 2009 and December 31, 2008

The Company's Combined Financial Statements prepared in accordance with IFRS for the fiscal years
ended December 31, 2010, December 31, 2009 and December 31, 2008 are provided in the appendices
to this Document de Base.

20.2 Age of latest verified financial information

The latest financial information verified by PricewaterhouseCoopers Audit was for the fiscal year ended
December 31, 2010.

20.3 Statutory Auditors' report on the Combined Financial Statements

This is a free translation into English of the statutory auditor’s report issued in the French language
and is provided solely for the convenience of English speaking readers. This report should be read in
conjunction with, and construed in accordance with, French law and professional auditing standards
applicable in France.

                                           VERALLIA SA

                          STATUTORY AUDITOR’S REPORT ON THE
                            COMBINED FINANCIAL STATEMENTS

                          (Years ended December 31, 2010, 2009 and 2008)

                          STATUTORY AUDITOR’S REPORT ON THE
                            COMBINED FINANCIAL STATEMENTS

                          (Years ended December 31, 2010, 2009 and 2008)


To the President of Board of Directors
VERALLIA SA
"Les Miroirs"
18, avenue d'Alsace
92400 Courbevoie

To the President of Board of Directors,

In our capacity as the Statutory Auditor of Verallia SA (hereafter the “Company”) and in response to
your request in connection with the planned listing of the shares of the Company on the Euronext Paris
market, we have audited the accompanying combined financial statements of the Company, as of
December 31, 2010, 2009 and 2008 and for the three years ended (hereafter the “Combined Financial
Statements”). These Combined Financial Statements have been prepared in accordance with the notes 1
and 2 to the Combined Financial Statements discussing how the International Financial Reporting
Standards as adopted by the European Union have been applied.
The Combined Financial Statements have been approved by the Board of Directors. Our role is to
express an opinion on these Combined Financial Statements based on our audit.
We conducted our audit in accordance with professional standards applicable in France. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the Combined
Financial Statements are free of material misstatement. An audit involves performing procedures, using


                                                    213
sampling techniques or other methods of selection, to obtain audit evidence about the amounts and
disclosures in the Combined Financial Statements. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made, as well as the overall
presentation of the Combined Financial Statements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, the Combined Financial Statements give, in all material respects, a true and fair view of
the assets and liabilities and of the financial position of the combined persons and entities as of
December, 31 2010, 2009 and 2008 and of the results of their operations for each of the three years then
ended, in accordance with the notes 1 and 2 to the Combined Financial Statements discussing how the
International Financial Reporting Standards as adopted by the European Union have been applied.


                                                         Neuilly-sur-Seine, March 18, 2011

                                                             One of the Statutory Auditors
                                                            PricewaterhouseCoopers Audit


                                                           Rémi Didier          Olivier Destruel

20.4 Auditors' Fees

   In € millions                                                            PricewaterhouseCoopers               KPMG
                                                                                    Amount                       Amount
                                                                       2010           2009         2008   2010    2009    2008
Audit
—     Statutory Auditors, Certification, review of the
individual and consolidated financial statements
                                                         Issuer         0             0             0      0        0      0
                                     Fully consolidated subsidiaries   0.7           0.8           0.8    0.6      0.6    0.5
Total                                                                  0.7           0.8           0.8    0.6      0.6    0.5
—     Other diligence measures and services directly related to the
auditors’ assignment
                                                         Issuer         0             0             0      0        0      0
                                   Fully consolidated subsidiaries     0.1           0.2           0.1     0       0.1     0
Total                                                                  0.1           0.2           0.1    0.0      0.1    0.0
                                                    Sub-total          0.9           1.0           0.9    0.6      0.6    0.5
Other services         provided by the networks to          fully
consolidated subsidiaries
—    Legal, tax, employees                                              0             0             0      0       0       0
—    Other (specify if more than 10% of audit fees)                     0             0             0      0       0       0

                                                    Sub-total           0             0             0      0        0      0
                             TOTAL                                     0.9           1.0           0.9    0.6      0.6    0.5



20.5 Dividend policy

20.5.1 Dividends paid in respect of the last three fiscal years

The Company has not paid any dividends in respect of the last three fiscal years.

20.5.2 Dividend policy

For future years, the Company plans to implement a policy of paying dividends to its shareholders,
which may correspond to around 40% of its consolidated net income.
This target does not constitute a commitment by the Company. The amount of dividends will be
determined taking account of general business conditions, the Company's results, its financial position,




                                                                              214
the interests of its shareholders and any other factors deemed relevant by the Company's Board of
Directors.
Furthermore, the Company does not intend to pay any dividends prior to the admission to trading of its
shares on the regulated NYSE Euronext market in Paris.

20.5.3 Time-barring of dividends

Dividends not claimed within five years of their payment date shall lapse and become the property of
the State.

20.6 Litigation and Arbitration

In the ordinary course of its business activities, the Group is involved in a number of legal, arbitration
and administrative proceedings. Only the proceedings and legal disputes considered by the Group to be
the most significant are described below.

Provisions are only booked for costs that may arise as a result of these proceedings if they are likely and
the amount can be quantified or estimated within a reasonable range. In the latter case, the amount of
provisions booked is determined on a case-by-case basis. As of December 31, 2010, the Group had
booked provisions of €6 million in its Combined Financial Statements for legal disputes, claims and
other legal and tax risks.

To the Company's knowledge and as of the registration date of this Document de Base, there are no
other government, legal or arbitration proceedings - including any proceedings that the Company knows
are pending or pose a threat - that could have or have had, during the last 12 months, a material impact
on the financial position, assets and profitability of the Company and/or Group.

20.6.1 Commercial and industrial property disputes

        •    SAV

Société Autonome De Verreries (SAV), a competitor of SGE, holds a figurative trademark for a colour
(so-called "antique" colour protected by SAV) filed in 1980 that has since been renewed to designate
unworked or semi-worked glass. SAV issued a summons against SGE in 1997 for trademark
infringement and unfair competition relating to SGE’s selling bottles under the name "antique". A ruling
was given in 2006 in which SAV's claims of infringement were dismissed but its claim of unfair
competition was upheld. SGE stopped using the name "antique" following this ruling. However, in a
decree of November 26, 2010, the Paris Court of Appeal revoked the ruling on first hearing, declaring
the SAV trademark to be null and void and dismissing SAV's claims of infringement and unfair
competition. SAV appealed in January 2011.

20.6.2 Competition proceedings

        •    DGCCRF78 investigation

In France, customers of the Group or Owens-Illinois in the wine-making industry reported to the
DGCCRF that they had suffered numerous supply problems with glass bottles in 2006 and 2007, as well
as similar and concomitant price increases. On February 21, 2008, the DGCCRF for the Provence-
Alpes-Côte-d’Azur region launched an investigation relating to marketing practices in the sale of glass
bottles for the wine-making industry, and on March 31, 2008 it requested authorisation to carry out




78
     French Competition and Fraud Office (Direction générale de la concurrence, de la consommation et de la répression des fraudes)



                                                                      215
visits and seizures, notably at the premises of Owens-Illinois and of SGE in Courbevoie and
Montpellier. In its request for authorisation to carry out visits and seizures, the DGCCRF provided
information that these companies had acted in concert with a view to hindering price fixing through
open market competition by artificially supporting price increases, limiting or controlling production
and outlets and to carve up the markets. The President of the Montpellier Court of First Instance gave an
order authorising these visits and seizures, which took place on April 22, 2008. SGE made several
appeals contesting the lawfulness of this order and the occurrence of visits and seizures, with two
appeals now pending before the Final Court of Appeal (Cour de Cassation). As of the registration date
of this Document de Base, the Group had not been informed of any follow-ups by the DGCCRF in its
investigation and no provisions have been booked for this case.

    •   Allegations made by professional trade unions to the European Commission

The press reported that as of August 2007, two professional trade unions - the European Federation of
Wine and Spirit Importers and Distributors and the Fédération Belge des Vins et Spiritueux (the
"Unions") - alerted the European Commission to what they described as significant supply disruptions
in bottles, particularly in Belgium. According to the Unions, this shortage of glass bottles may have
been organised jointly by the three main glass companies operating in Europe, including the Group. A
spokesperson for the European Commission stated on August 30, 2007 that the Commission's
departments would review the Union's allegations closely. The Group reacted to these allegations by
issuing a press release in September 2007, as well as directly contacting its customers and their
professional organisations, explaining that the situation was due to an unexpected rise in demand in
Western Europe in 2007 and not due to an anti-competitive agreement.

In a letter made public on April 25, 2008, European Parliament member Werner Langen asked the
European Commission about the follow-ups given to the letters sent by the Unions in 2007.

As of the registration date of this Document de Base, the Group had not been informed of the start of
any proceedings.

20.6.3 Environmental litigation

    •   United States

In 2005, the U.S. Environmental Protection Agency (the "EPA") and other State environmental agencies
accused one of the Group's U.S. subsidiaries, Saint-Gobain Containers Inc. (SGCI), of violating the
Clean Air Act at its U.S. plants. The agencies accused SGCI of contravening the provisions of the Clean
Air Act by failing to install better control technologies to minimise polluting air emissions when
changing furnaces at its U.S. plants over the last 20 years. In September 2005, the EPA formally invited
SGCI to enter into talks with the various agencies mentioned above to negotiate an amicable solution in
lieu of action for failing to fulfil its obligations. Although the Group rejected any liability, it chose to
take part in the proposed negotiations, which began at the end of 2005 and resulted in the adoption of a
Global Consent Decree between the Group (via SGCI) and the EPA, which was approved by the courts
on 7 May 2010. In order to comply with the agreement, which aims to bring SGCI into line with best
practices relating to air protection in the United States (in particular concerning nitrogen oxide, sulphur
oxide and dust emissions), the Group is planning to invest an estimated maximum of USD 112 million
(excluding operating costs for installations) over a period of 10 years. Under the terms of the agreement,
SGCI will also pay the EPA a fine of USD 1.15 million for infractions and a fine of USD 100,000 for
each of the 11 states concerned by the Consent Decree - representing a total of USD 1.1 million - as
well as USD 250,000 to the state of Oklahoma to carry out an environmental project. In total, these
amounts payable total USD 2.5 million. As of the registration date of this Document de Base, USD
1.925 million of this amount had been paid to the EPA, the state agencies concerned and the state of
Oklahoma. The remaining USD 575,000 owed to the EPA is due to be paid by May 2011.




                                                    216
In connection with this, the Group concluded settlement agreements with the EPA in 2005 concerning its Madera
plant in California and with the Puget Sound Clean Air Agency in 2007 concerning its Seattle plant in the State of
Washington. These agreements include punitive damages clauses (clauses pénales) in case the Group violates its
obligations thereunder.

SGCI also responded to a request for information from the EPA in September 2008 concerning the existence of
possible emissions from the Seattle plant, which is located next to a river. To date, there has not been any follow-
up to this.

    •    Ukraine

The Group's Ukrainian subsidiary, Zorya, contested a ruling given in 2010 at the request of the
Ukrainian State Department for Civil Protection and Industrial Safety in Rivne to include the Zorya
plant on a list of "potentially risky sites". This classification would require Zorya to sign agreements
with the civil protection services and implement enhanced safety measures.

20.6.4 Litigation relating to asbestos

At present there are a number of lawsuits and proceedings against the Group relating to the use of
asbestos-containing materials. These are primarily in France and the United States, where - as in a
number of other manufacturing industries working at high temperatures - asbestos contained in certain
components was previously used in two main forms:

    •   In individual heat protection equipment used by some employees working close to high
        temperatures, presented at the time of their use as the most effective mode of protection in the
        light of applicable regulations; and
    •   On a very ad hoc basis for the insulation of some melting and "hot end" materials used in the
        manufacturing process, as well as some protective materials for mechanical components coming
        into contact with hot glass or bottles. The Group mainly insulated its equipment using refractory
        materials.

As of the registration date of this Document de Base, around 15 cases of occupational diseases caused
by asbestos-containing materials were being heard in France, with four cases subject to an application
for recognition of gross negligence by the employer. Since 2005, one of the Group's plants in Cognac,
France, has been subject to proceedings with the aim of including it in the list of facilities with asbestos
construction, spraying and lagging, which could entitle workers who have been exposed to asbestos
there to early retirement under the scheme implemented in France. On May 11, 2010, the Bordeaux
Administrative Court of Appeal revoked the Poitiers Administrative Court's ruling of March 11, 2009
and the decision of January 9, 2007 of the French Employment Ministry, which refused to allow the
request to classify the plant, as the Court believed that lagging operations constituted a significant
portion of the Cognac facility's activities. A (non-suspensive) appeal has been lodged by SGE with the
Council of State. A new investigation of the case took place and was ended in October 2010, with the
Cognac case due to go before the French Occupational Accident and Disease Commission (CATMP –
Commission des accidents du travail et des maladies professionnelles), which will give its opinion on
whether or not the site is to be classified.

In the United States, claims have been made by employees and former employees of SGCI relating to
compensation for occupational accidents and diseases under the Workers' Compensation system. As of
December 31, 2010, of the 199 claims outstanding, three relate to asbestos. SGCI has also been taken to
court by third parties, primarily employees of sub-contractors, alleging that they were exposed to
asbestos when carrying out works at its premises. Three such legal proceedings are currently in progress
- two of which were inactive as of the registration date of this Document de Base - with a possible fourth
on the horizon.

The Group cannot predict the outcome of these legal proceedings with certainty or give any guarantees
in this regard. The amounts that the Group may incur are difficult to quantify.


                                                        217
20.6.5 Other legal disputes

Tax proceedings - In December 2010, the Group's French subsidiary Saint-Gobain Emballage received
notification of a tax adjustment of €2.7 million, relating primarily to the tax deductibility of VAT on
costs relating to the sale of a shareholding.

Employee proceedings - The Group is also involved in various lawsuits relating to employment law. For
several years, the Group has faced a number of lawsuits in Brazil filed by individuals or public
authorities relating to the observance of employment law, such as payment for overtime, reviews of
recruitment rates according to the hardship and packed lunches, almost systematically instituted by
employees at the end of their employment contract or by sub-contractors' employees, who are authorised
by law to take action against the principal company if their employer collapses. Therefore, at the end of
December 2010, total provisions of €7 million had been booked for around 300 legal proceedings, half
of which have been initiated by employees and half by sub-contractors' employees, and some of which
followed the closure of a furnace at the Agua Branca plant in 2007. The Group is taking the necessary
measures to limit the risk of legal action through its human resources policy and its selection and control
of sub-contractors, including reducing the number of sub-contractors used.

In France, the Group is also involved in a legal proceeding in which temporary employees at a facility
have demanded the amendment of their employment contracts. Lastly, SGCI is defendant in legal
proceedings in which employees have made allegations of discrimination on the basis of their race,
ethnic origin, religion, gender, age, disability or criminal convictions.

Although the Group believes that the risk of having to pay out significant amounts in respect of these
legal disputes is limited, it cannot predict the outcome of these proceedings with certainty or provide
any guarantees, as some are actions in principle that may impact other sites. As a result, the amounts
that the Group may incur are difficult to quantify.

20.6.6 Legal disputes relating to Saint-Gobain

As part of the Restructuring, the Group has kept SG Vidros S.A., which in addition to its glass container
activities, has other activities connected to Saint-Gobain. SG Vidros S.A. is defendant in a number of
major legal disputes relating to these activities. Within the framework of the Compensation Agreement
(see Section 22), Compagnie de Saint-Gobain has agreed to compensate the Group and/or its
subsidiaries in full in respect of these legal disputes and any other losses relating to activities connected
to Saint-Gobain.

20.7 Significant changes in the issuer's financial or trading position

There have not been any significant changes in the Company's financial or trading position since the
closing date of the 2010 fiscal year.




                                                     218
21.     ADDITIONAL INFORMATION

21.1 General information concerning share capital

21.1.1 Share capital (article 6 of the Articles of Association)

Share capital is represented by common shares.

As of the registration date of this Document de Base, share capital is set at €51,009,200.00.

It is divided into 3,188,075 shares with a par value of €16 each, all fully paid up and of the same class.

21.1.2 Non-equity securities

None.

21.1.3 Shares held in treasury by the Company or for its account

As of the registration date of this Document de Base, neither the Company, nor its subsidiaries hold any
shares of the Company in treasury or for their own account.

21.1.4 Other securities providing access to share capital

None.

21.1.5 Pledges, guarantees and collateral given on Verallia shares and/or on the securities held by
       Verallia.

None.

21.1.6 Authorised but unissued share capital

Prior to approval of the prospectus by the Autorité des marchés financiers, the Board of Directors is
required to call a General Shareholders’ Meeting so as to submit a series of resolutions to it aimed at
granting the Board of Directors the necessary authority and powers to increase or decrease the
Company’s share capital.

21.1.7 Share capital of Group companies which is under option or agreed to be put under option

None.

21.1.8 History of share capital over the past three years

On July 16, 2010, following a decrease in the Company’s share capital by setoff against a loss
carryforward which brought the share capital down to €31,721.66, followed by a share capital increase
of €8,278.34 by setoff against a claim and increase in the par value of the shares, bringing share capital
to €40,000, the Company’s share capital was increased by €50,969,200, through the creation of
3,185,575 new shares as part of the contribution to the Company of all of the SGCI shares (see Section
5.1.6.3 of this Document de Base). As a result, the Company’s share capital went from €40,000, divided
into 2,500 shares with a par value of €16 each, to €51,009,200, divided into 3,188,075 shares with a par
value of €16 each. No other change has been made to the Company’s share capital in the past three
years.




                                                    219
21.2 Articles of Association

The provisions described below are from the Company’s draft Articles of Association that were
submitted for approval by General Shareholders’ Meeting on 29 March 2011. All of the shareholders
having approved the drafts, these new Articles of Association shall enter into force on the initial date of
admission of the Company’s shares to trading on the NYSE Euronext regulated exchange in Paris.

21.2.1 Corporate purpose (article 3 of the Articles of Association)

The Company’s corporate purpose, both in France and in other countries, is as follows:
the management and enhancement of the Company’s present and future assets, and the carrying out
toward this end of all necessary transactions, either indirectly or directly, particularly in the following
areas:

    -   the manufacturing, processing, transformation of hollow glass bodies for use in packaging in
        particular, including bottles and industrial jars, glassware, as well as any related or
        complementary products;
    -   the purchasing, commercial representation, consignment and sale of bottles, industrial jars, and
        other packaging materials, in particular glass, caps and other similar, complementary or related
        products;
    -   the processing, transformation and sale of all by-products or derivatives;
    -   the supply and acquisition of any services in relation therewith, and the rental or leasing of all
        types of equipment;
    -   the performance or participation in the performance of all research; the exploitation of the
        research results for its own account or together with others; the protection of processes and
        techniques developed by any means, including through the filing of patent applications;
    -   the acquisition, use, licensing or grant of all patents and licenses for patents, trademarks,
        models, rights with respect to domain names and other intellectual property rights and all
        resulting studies and technical or commercial support transactions; the supply of equipment
        corresponding to the technology licensed and, more generally, the supply of equipment in
        connection with glassworks;
and, more generally, any industrial, business, financial, real or personal property transactions that may
be directly or indirectly related to the aforesaid corporate purpose or any similar purpose.
The Company may carry out, in any form, the transactions within its corporate purpose, in particular
through French or foreign subsidiaries or ownership interests, it may take part in the setting up of any
companies, associations, foundations or groupings of any type, or join such organisations set up by
other parties; it may perform any asset contributions and subscribe for, purchase or exchange securities
or other ownership rights.

21.2.2 Stipulations relating to the Board of Directors and senior management

                  21.2.2.1 Board of Directors

Membership of the Board of Directors (article 9 of the Articles of Association)

The Company is administered by a Board of Directors made up of at least three members and not more
than nine, except in the event of a merger where this limit is waived in accordance with applicable
regulations.

Each director must own at least 30 shares.



                                                    220
The General Shareholders’ Meeting elects and re-elects the directors, and may remove them from office.

Directors are elected for a term of office of up to four years, subject to the restrictions concerning age
limits. Their re-election is subject to the same restrictions.

A director’s term of office expires at the close of the Ordinary General Shareholders’ Meeting called to
approve the financial statements for the year preceding the year of expiry.

The age limit for directors or permanent representatives of directors who are legal entities is 70. A
director who reaches the age limit steps down at the close of the General Shareholders’ Meeting called
to approve the financial statements for that year.

Should one or more seats on the Board become vacant due to the death or resignation of one or more
directors, the Board of Directors may appoint directors to serve on a provisional basis in the period to
the next General Shareholders’ Meetings. Such appointments are subject to approval by the next
Ordinary General Shareholders’ Meeting.
Should the appointed director not be approved by the General Shareholders’ Meeting, the decisions and
actions of the Board in the preceding period would nonetheless remain valid.

A director appointed as a replacement for another remains on the Board only for the remainder of his or
her predecessor’s term.

Powers of the Board of Directors (article 12 of the Articles of Association)

The Board of Directors determines and monitors the implementation of the Company’s overall business
strategy, examines any and all matters related to the efficient operation of the business and makes
decisions about any and all issues concerning the Company, within the limits of the Company’s
corporate purpose and except for those issues which, by law, can only be decided on by the shareholders
in a general meeting. The Board also performs any and all controls and verifications that it considers
appropriate; it makes any and all decisions and exercises any and all powers that fall within its remit
under applicable regulations and the Company’s Articles of Association.

The Company’s Chairman or the Chief Executive Officer is required to provide each director with all
documents and information necessary to fulfil his or her duties or responsibilities.

The decisions of the Board of Directors shall be carried out either by the Chairman, the Chief Executive
Officer or a Chief Operating Officer, or by any person specifically appointed by the Board for that
purpose.

The Board may give special authority to one or more directors or to any other person, who may or may
not be a shareholder, to fulfil one or several specific purposes, and may or may not authorise said person
to delegate all or part of their authority to another person.

The Board of Directors may set up committees of the Board to examine matters submitted to them by
the Board or its Chairman.

Chairman of the Board of Directors (articles 11 and 14 of the Articles of Association)

The Board of Directors shall elect one person from among its members to act as Chairman, and if it
deems it appropriate, one or more individuals as Vice-Chairmen, for a period to be decided by the
Board, provided that it does not exceed the Chairman’s or Vice-Chairman’s term as a director.

The Chairman of the Board organises and directs the Board's work and reports to the shareholders
thereon at general meetings. He ascertains that the Company's corporate bodies are operating properly


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and, more specifically, ensures that the directors are in a position to fulfil their duties and
responsibilities. The term of office of the Chairman of the Board, when the Chairman is not also the
Chief Executive Officer, expires at the close of the General Shareholders’ Meeting called to approve the
financial statements for the year when the Chairman reached the age of 68.

Board meetings and deliberations (articles 10 and 11 of the Articles of Association)

Board meetings are called by the Chairman as often as deemed necessary to the Company's interest, and
the agenda may be set either when the meeting is called or at the meeting itself.

The Chief Executive Officer may request that the Chairman call a Board meeting, stipulating an agenda
for the meeting.

A minimum of one third of the directors may request that the Chairman call a Board meeting, stipulating
an agenda for the meeting.

Notices of Board meetings can be served by any means, including oral notification.

Board meetings are held at Company headquarters or at any other venue indicated in the notice of
meeting.

To the extent permitted by law, Board meetings may be held using videoconference or other
telecommunication means. Directors taking part in meetings via these means will be deemed to be in
attendance for the calculation of the quorum and for majority voting. The Chairman of the Board of
Directors, or otherwise the author of the notice of meeting, will inform the persons invited of the means
to be used for the meeting.

Board meetings are chaired by the Chairman. If the Chairman is not present or unable to chair the
meeting, a Vice-Chairman will perform this function. Failing this, the Board will designate a chairman
for the meeting from among its members.

The Board appoints a secretary, who need not be a Director or shareholder.

At least half of the Board members must be present for decisions taken at Board meetings to be valid.
Decisions are reached by a majority of directors present or represented.

In the event of split decision, the chairman of the meeting has a casting cote.

Upon request from the Chairman, the Board may invite any person that it sees fit to take part in its
meetings.

Any Director may be represented by a fellow director. The proxy, which can be valid for only one
meeting, may be given by letter or by any authorized means of telecommunication. The holder of the
proxy may not have more than two votes, his or hers included.

Directors, as well all persons attending Board meetings, are required to preserve the confidentiality of
any information presented during the meeting.

Minutes of Board meetings and copies or extracts of said minutes are prepared and certified copies are
made in accordance with the applicable regulations.




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Compensation (article 16 of the Articles of Association)

Directors may receive, as compensation for their work, a fixed annual fee distributed in the form of
attendance fees. The overall amount of this fee is set by the General Shareholders’ Meeting and remains
in effect until it is altered.
The Board of Directors distributes the amount of these attendance fees among its members based on the
rules and proportions it has set.
The Board of Directors determines the compensation of the Chairman of the Board of Directors, of the Vice-
Presidents, the Chief Executive Officer and the Chief Operating Officer(s).


                 21.2.2.2 Executive Management

Executive management of the Company (article 13 of the Articles of Association)

The Board of Directors decides how to organize the executive management of the Company. The
function of Chief Executive Officer, responsible for the general management of the Company, may
either be held by the Chairman, in which case he or she shall hold the title of Chairman and Chief
Executive Officer, or by another person serving as Chief Executive Officer.

The Board of Directors may decide to limit the period during which said decision shall apply.
If the Board decides to combine the functions of Chairman of the Board and Chief Executive Officer,
the provisions of these Articles of Association and of applicable legislation shall also be applicable to
the Chairman.
The Chairman of the Board of Directors or the Chief Executive Officer are authorised to sign the
compliance statement whenever this document is required, in their own name as well as on behalf of the
directors and, if applicable, on behalf of the Chief Operating Officers.

    -   Chief Executive Officer – Chief Operating Officers (article 15 of the Articles of Association)

The Board of Directors appoints a Chief Executive Officer, who need not be one of its members, and
sets his or her term of office, which may not exceed his or her term as Director, if applicable. The Chief
Executive Officer attends Board meetings and has the widest powers to act in all circumstances in the
name and on behalf of the Company, within the limits of the corporate purpose and except for those
matters which, by law, can only be decided on by the shareholders in a general meeting or by the Board
of Directors. He or she represents the Company in its dealings with third parties. The Company shall be
bound by the actions of the Chief Executive Officer even if such actions are beyond the scope of the
corporate purpose, unless the Company can prove that a third party knew that the action concerned was
beyond the scope of the corporate purpose or had constructive knowledge thereof in view of the
circumstances. The publication of the Articles of Association alone may not be deemed to constitute
evidence of such knowledge. The Board of Directors may limit the powers of the Chief Executive
Officer, but such limits shall not be valid against claims by third parties. The Chief Executive Officer
may delegate certain powers to other persons. The Chief Executive Officer may be removed from office
by the Board of Directors at any time. Compensation may be payable to the Chief Executive Officer if
he or she is unfairly removed from office, except where the Chief Executive Officer is also the
Chairman of the Board of Directors. The Chief Executive Officer's term of office ends at the latest at the
close of the General Shareholders' Meeting to approve the financial statements for the year in which he
or she reaches the age of 65.

Where recommended by the Chief Executive Officer, the Board of Directors may appoint one or more
persons as Chief Operating Officer(s), up to the maximum number authorised by the law, to assist the
Chief Executive Officer. The Board of Directors shall determine jointly with the Chief Executive
Officer the terms of office and the powers of the Chief Operating Officers; if the latter are directors,



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their term of office as Chief Operating Officers may not outlast their term as directors. Chief Operating
Officers have the same powers as the Chief Executive Officer in relation to third parties. Chief
Operating Officers may be removed from office upon recommendation from the Chief Executive
Officer, under the same conditions as those applicable to the latter. The Chief Operating Officers' terms
of office end at the latest at the close of the Annual Shareholders' Meeting to approve the financial
statements for the year in which they reach the age of 65.

    -   Rights attached to shares (article 8 of the Articles of Association)

Each share grants a right to ownership of the Company’s assets, and of the liquidating dividend, that is
equal to the proportion of share capital it represents.

Whenever the exercise of a right requires ownership of a certain number of shares, shareholders that do
not own the required number of shares may choose, if appropriate, to set up a pooling arrangement so as
to reach the required number.

Each share grants the right to vote at General Shareholders’ Meetings in accordance with the conditions
laid down in these Articles of Association.

Ownership of a share is deemed to imply acceptance of the Company’s Articles of Association and of
the decisions of General Shareholders’ Meetings.

21.2.3 General Shareholders’ Meetings (article 18 of the Articles of Association)

General Shareholders’ Meetings are called in accordance with the provisions of applicable legislation.

General Shareholders’ Meetings are held at Company headquarters or at any other venue indicated in
the notice of meeting.

Under the conditions defined by applicable legislation, any shareholder can send in documents for proxy
voting or remote voting either in paper form or, subject to a decision by the Board of Directors
mentioned in the notice of meeting and invitation, by any form of electronic communication. In
accordance with the law, any shareholder can send in his or her proxy form for any General
Shareholders’ Meeting by any form of electronic communication. Documents for proxy or remote
voting sent in paper form must be received by the Company or its registrar no later than three days
before the date of the General Shareholders’ Meeting, unless the Board of Directors decides to reduce
this period. Proxies/remote voting forms sent by electronic communication must be received by the
Company or its registrar no later than 3:00 pm Paris time the day before the General Shareholders’
Meeting.

Under the conditions defined by applicable legislation, any shareholder can, subject to a decision by the
Board of Directors mentioned in the notice of meeting and invitation, take part and vote in any General
Shareholders’ Meeting using an electronic communication system. This shareholder will then be
deemed to be in attendance for the calculation of the quorum and for majority voting.

The electronic signature on the electronic admission card request/proxy/remote voting form must
comply with the reliability standards specified in the first sentence of the second paragraph of article
1316-4 of the Code Civil, by using an identification process such a user ID and a password to guarantee
that the signature relates to the form.

Public broadcasting of the General Shareholders’ Meeting via any electronic communication system is
authorised, subject to a decision by the Board of Directors mentioned in the notice of meeting and
invitation.




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Any shareholder may attend a General Shareholders’ Meeting in person or by means of a representative,
subject to having their shares recorded in a securities account in accordance with legal requirements
concerning the attendance of shareholders at General Shareholders’ Meetings.

Any shareholder who has voted remotely or given proxy or requested an admission card or an
attendance certificate may sell all or some of their shares at any time.

If the sale takes place more than three business days before the General Shareholders’ Meeting, at zero
hour Paris time, the Company or its registrar will cancel or adjust (as appropriate) the remote vote, the
proxy, the admission card or the attendance certificate. To this end, the financial intermediary that
manages the shareholder’s securities account shall notify the Company or its registrar of the sale and
provide all necessary information.

Sales or other transactions carried out less than three business days before the General Shareholders’
Meeting, at zero hour Paris time, by any method, should not be reported by the financial intermediary
and will not be taken into account by the Company or its registrar.

A shareholder may be represented in accordance with the law. Legal entities which hold shares may be
represented at meetings by their legal representatives or by any other person so designated by the legal
representative.

General Shareholders’ Meetings are chaired by the Chairman of the Board of Directors, or if the latter is
not present by a Vice-Chairman. If neither the Chairman nor a Vice-Chairman are present, the Board of
Directors may designate one of its members to chair the meeting. Failing this, the General Shareholders’
Meeting itself will designate a chairman for the meeting.

The two shareholders present who hold the greatest number of votes and who accept this function act as
scrutinizers.

The officers of the meeting appoint a corporate secretary, who need not be a shareholder.

An attendance registrar is kept in accordance with applicable legislation.

To be valid, copies or extracts of the minutes of the General Shareholders’ Meeting must be certified by
the Chairman of the Board of Directors, the Chief Executive Officer, or by the Corporate Secretary.

At all General Shareholders’ Meetings, voting rights are exercisable by the beneficial owner of the
shares. Each shareholder has a number of voting rights corresponding to the number of shares held,
without limitation.

Voting by mail is subject to conditions and restrictions laid down in legal and regulatory provisions.

21.2.4 Provisions of the Articles of Association or other provisions that might have for their effect
       to delay, postpone or prevent a change of control

The Articles of Association do not contain any provisions of a nature to delay, postpone or prevent a
change of control of the Company.

21.2.5 Ownership threshold disclosures and identification of shareholders (article 7 of the
       Articles of Association)

1/   Any individual or legal entity, acting alone or in concert, that holds directly or indirectly, as
     defined in articles L.233-9 and L.233-10 of the Code de Commerce, a number of securities
     representing at least one percent of the Company’s share capital or voting rights, or any multiple of
     this percentage, is required to disclose to the Company the number of shares and voting rights held,


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     by registered letter with return receipt requested, within four trading days of the crossing of each of
     these thresholds. The same obligation applies when the number of securities held directly indirectly
     falls below one of these thresholds;
2/   Violation of the disclosure requirement described above may be sanctioned by the withdrawal of
     voting rights exceeding the undeclared fraction, meaning that these voting rights can no longer be
     exercised or delegated, for any General Shareholders’ Meetings held for a period of two years from
     the date of disclosure of the undeclared holding in accordance with the requirements of item 1
     above, if one or more shareholders holding at least three percent of share capital or voting rights so
     request and this is included in the minutes of the General Shareholders’ Meeting.
The Company can request information relating to the composition of shareholdings and the owners of
its shares in accordance with applicable legislation.

21.2.6 Change in share capital

No provision exists in the Articles of Association concerning changes in share capital that are stricter
than the law.

21.2.7 Form of the shares (article 7 of the Articles of Association)

Fully paid-up shares may be held in registered or bearer form, at the option of the shareholder.
However, as long as the shares have not been fully paid up, they must be in registered form.
Shares are recorded in an account in accordance with the conditions and procedures set by applicable
laws.
The shares are freely transferrable in accordance with applicable legislation.




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22.       MATERIAL CONTRACTS

The Group companies have not entered into any material contracts outside the ordinary course of
business in the past two years (see Section 18.3). In view of the admission of the Company’s shares to
trading on the NYSE Euronext regulated exchange in Paris, the companies of the Group and Saint-
Gobain will enter into, prior to the admission to trading of the Company’s shares, the following
agreements: (i) agreements entered into in the scope of the spin-off of the Group’s business from that of
Saint-Gobain, (ii) certain agreements concerning changes in the Group’s scope of consolidation and its
restructuring (specifically as part of the Group’s decision to channel its resources into its historical core
business of glass packaging production). As of the date of registration of the Document de Base, the cost
of services provided by Saint-Gobain to Verallia within the framework of the aforementioned
agreements (as described in more detail below) is estimated at approximately €25 million per year once
they come into effect (see Section 13.1 for a description of the expected positive impact of the gradual
spin-off from Saint-Gobain on operating expenses). The Company will also enter into a financing
agreement with a number of international financial institutions (the “Financing Agreement”). The
signing of the agreements referred to above is the result of independent negotiations between teams at
Saint-Gobain and the Group’s teams. Their signing is in accordance with the corporate interest of the
parties and will be subject to the prior authorisation of the Board of Directors of the Company (at its
Board meeting scheduled during May 2011) and of Compagnie de Saint-Gobain (at its Board meeting
scheduled on 19 May 2011), as well as the general shareholders’ meetings of the Company and
Compagnie de Saint-Gobain in accordance with the provisions of Articles L. 225-38 et seq. of the
French Commercial Code.

22.1      Transition Agreements

So as to preserve the continued synergy existing between the Group and Compagnie de Saint-Gobain
and facilitate the Group’s transition towards greater independence, the Company and Compagnie de
Saint-Gobain will enter into, prior to the admission of the Company’s shares to trading on the NYSE
Euronext regulated exchange in Paris, five transition agreements:

      -   three master cooperation agreements (the “Cooperation Agreements”);

      -   a credit facility (the “Credit Facility”); and

      -   a trademark license agreement (the “Trademark License Agreement” referred to, together
          with the Credit Facility and the Cooperation Agreements as the “Transition Agreements”).

The Transition Agreements will lay down the guiding principles to govern future cooperation between
the Group and Compagnie de Saint-Gobain as from the admission to trading of the Company’s shares
on the NYSE Euronext regulated exchange in Paris.

All of these Transition Agreements will be entered into subject to the non-retroactive condition
subsequent of such listing.

22.1.1 Cooperation Agreements

The Company and Compagnie de Saint-Gobain will enter into, prior to the admission of the Company’s
shares to trading on the NYSE Euronext regulated exchange in Paris, three Cooperation Agreements:

      -   an agreement covering services provided to the entities of the Group by Compagnie de Saint-
          Gobain (the “Transitional Services Agreement” or the “TS Agreement”);

      -   an agreement to maintain pooled purchases between the Group and Compagnie de Saint-Gobain
          to permit the Group to continue to benefit from better pricing terms in the scope of the pooling
          of its purchases with Saint-Gobain (the “Pooled Purchasing Agreement”);


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    -   an agreement to maintain the research and technical development services with certain entities
        of Compagnie de Saint-Gobain (the “Technical and Research Agreement”).

The Cooperation Agreements will be entered into for terms varying according to the nature of the
services involved (see Sections 22.1.1.1 to 22.1.1.3 below). These agreements will apply to all of the
entities of the Group and all of the subsidiaries of Compagnie de Saint-Gobain. Each of these entities
will thus be able to directly benefit from the rights granted under the Transition Agreements to their
parent company (Verallia or Compagnie de Saint-Gobain, as the case may be) or, conversely, provide
services on behalf of its parent company in line with the terms of the Cooperation Agreements.

                  22.1.1.1 Transitional Services Agreement

Under the terms of the TS Agreement, the Group and Compagnie de Saint-Gobain will continue to
cooperate during a transitional period of a term varying according to the nature of the services
concerned, in the following fields:

IT and telecommunication services – In this area, the TS Agreement will provide that the majority of the
services currently provided to the Group by Compagnie de Saint-Gobain (including telecom services
and infrastructure services such as e-mail, server hosting, mobility tools and certain applications that are
currently shared with other Saint-Gobain entities) will continue to be provided to the Group for a period
of 12 months from the date when the Compagnie de Saint-Gobain asks the Group to leave Saint-
Gobain’s IT organisation or no longer holds, directly or indirectly, more than 50% of the Company’s
share capital or voting rights.

However, these services, or at least some of these services, may continue to be provided at the Group’s
request, beyond the 12-month period at a cost-plus 30% basis, if such extension proves necessary to
enable the Group to set up a secured telecommunication network and migrate the IT tools and services it
uses outside Saint-Gobain’s IT organisation.

The Group will continue to be a member of the economic interest group GIE DSI Groupe (which is in
charge of IT and telecommunications services within Saint-Gobain) for as long as Compagnie de Saint-
Gobain directly or indirectly holds more than 50% of the Company’s share capital or voting rights. The
Group has agreed to leave this economic interest group once Compagnie de Saint-Gobain no longer has
a majority shareholding interest in the Company.

Human resources – In this area, the TS Agreement will provide for the maintenance, for as long as
Compagnie de Saint-Gobain directly or indirectly holds more than 50% of the Company’s share capital
or voting rights and, if applicable, for an additional period of up to 12 months thereafter, of the services
provided by Compagnie de Saint-Gobain to the Group in relation to payslips, healthcare and pension
plans, EHS (Environment, Health and Safety) services, management of expatriates, access to some of
Saint-Gobain’s training programs (it being specified that the scope of the services maintained may vary
depending on the countries and services concerned, in accordance with the terms of the TS Agreement).

Financial – In this field, the TS Agreement will provide that the Group will continue, for as long as
Compagnie de Saint-Gobain directly or indirectly holds more than 50% of the Company’s share capital
or voting rights and, if applicable, for an additional period of up to 6 months thereafter, to rely on some
of Saint-Gobain’s expertise (in particular in the field of internal control and risk management (see
Section 4.2) and in the field of the preparation of consolidated financial statements).

Cash management: The TS Agreement will also provide for continued use by the Group, for a
maximum period of 9 months following the date of admission to trading of the Company’s shares on the
NYSE Euronext regulated exchange in Paris, of Compagnie de Saint-Gobain’s cash-management tools
in the countries of Western Europe and in the United States. The Group will agree to set up its own
management tools so as to handle its own cash management by no later than the expiry of this 9-month


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period. To this end, the Company will enter into a cash management agreement with Compagnie de
Saint-Gobain (the “Cash Agreement”) pursuant to which Verallia will become the single point of
contact for Saint-Gobain (the Group’s main debtor, see Section 10.4) and handle the organisation and
management of the cash of all of its subsidiaries. The term of the Cash Agreement shall be coincidental
with that of the Credit Facility entered into between Compagnie de Saint-Gobain and the Company (see
Section 22.1.2 and Section 7.3).

Hedging instruments: The TS Agreement will also provide that the Group will also continue to have
access, for up to a maximum of 9 months from the date of admission to trading of the Company’s shares
on the NYSE Euronext regulated exchange in Paris, to the fuel oil and natural gas hedging instruments
set up by Compagnie de Saint-Gobain with external counterparties to which the Group has access as of
the registration date of this Document de Base. During this period, the Group may also, at its request
and for periodic transactions involving exposure to foreign exchange and/or interest rate risk, to rely on
the hedging instruments put in place by Compagnie de Saint-Gobain to cover that type of risk.

At the end of this maximum period of 9 months, the Group can continue to rely on the hedging
instruments of Compagnie de Saint-Gobain but will have to act directly as the instructing party (since
Compagnie de Saint-Gobain will only act on behalf and for the account of Verallia, contrary to the
situation as of the registration date of this Document de Base where Compagnie de Saint-Gobain is the
instructing party for the external counterparties). Access to these hedging instruments will end
automatically and coincidentally upon expiration or termination of the term of the Credit Facility (see
Section 22.1.2).

Insurance – In this area, the TS Agreement will provide for progressive withdrawal by the Group from
Compagnie de Saint-Gobain’s main insurance programs (such as the “Property & Casualty”, “Liability”
and “Workers Compensation” programs), over a period of 18 months as from the admission to trading
of the Company’s shares on the NYSE Euronext regulated exchange in Paris. Correlatively, the Group
will set up its own insurance cover in line with best market practices. The Group will benefit from
support from Compagnie de Saint-Gobain’s Risk and Insurance Department in its negotiations with
insurers for the introduction of such insurance cover.

Tax and Legal – In this area, the TS Agreement will provide for the Group’s continued right to benefit,
for as long as Compagnie de Saint-Gobain directly or indirectly holds more than 50% of the Company’s
share capital or voting rights, from services by Saint-Gobain’s tax and legal departments.

Real estate – For as long as Compagnie de Saint-Gobain directly or indirectly holds more than 50% of
the Company’s share capital or voting rights and, if applicable, for an additional period of up to 9
months thereafter, the Group will continue to rent the premises of its headquarters from Compagnie de
Saint-Gobain on the same terms as those in effect as of the registration date of this Document de Base.

                  22.1.1.2 Pooled Purchasing Agreement

As of the registration date of this Document de Base, Compagnie de Saint-Gobain manages the
purchases necessary for the operations of its subsidiaries (including the Group) mainly through an
economic interest group, GIE Saint-Gobain Achats. This centralised organisation allows the different
entities of Saint-Gobain to pool some of their purchases and thereby benefit from better pricing terms.

As of the registration date of this Document de Base, the Group makes more specific use of this pooled
purchasing arrangement for certain raw materials (such as sodium carbonate or sand), energy resources
(gas, fuel oil, electricity), purchase transportation services, industrial equipment, supplies of standard or
non-standard parts and non-operating overheads. Conversely, the Group centralises purchase orders for
certain purchases of Saint-Gobain entities (for instance, for certain purchases in Italy and in the United
States).




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Under the Pooled Purchasing Agreement, which will be entered into, prior to the admission of the
Company’s shares to trading on the NYSE Euronext regulated exchange in Paris, between the Company
and Saint-Gobain Achats, for as long as Compagnie de Saint-Gobain directly or indirectly holds more
than 50% of the Company’s share capital or voting rights, the Group will continue to take part in the
pooled purchasing system organised by Saint-Gobain and will remain a member of the economic
interest group GIE Saint-Gobain Achats. The Group will thus have access to Saint-Gobain’s
procurement tools, such as a common procurement platform, and the pricing terms granted to Saint-
Gobain. The scope of the pooled purchasing, such as existing between the Group and Compagnie de
Saint-Gobain, as of the registration date of this Document de Base, will remain unchanged (except for
plastic film, which will be procured by the Group without any pooling arrangement with other Saint-
Gobain entities, as from the admission to trading of the Company’s shares on the NYSE Euronext
regulated exchange in Paris and for pallets and cardboard boxes, which will be purchased by the Group
without any pooling arrangements with other Saint-Gobain entities, as from January 1, 2012). Under the
Pooled Purchasing Agreement and for so long as it remains in effect, the Group will continue to
centralise purchase orders for certain purchases by Saint-Gobain entities, as indicated above.

It shall be agreed that if Compagnie de Saint-Gobain ceases to directly or indirectly hold more than 50%
of the Company’s share capital or voting rights, the Pooled Purchasing Agreement will survive for all
purchases of raw materials and energy for an initial period of three years (with the possibility of
extension) from the date when Compagnie de Saint-Gobain loses its majority shareholding interest as
indicated above. For other categories of purchases, depending on the category, they may be excluded
from the Pooled Purchasing Agreement either at the request of both parties, or at the sole request of the
Group, provided it gives 12 months’ notice.

                    22.1.1.3 Technical and Research Agreement

In the area of research and technical development in the glassworks sector, Compagnie de Saint-Gobain
has set up a centralised organisation that is primarily based on two economic interest groups, SGCV
(Saint-Gobain Conceptions Verrières) and SGPM Recherche, and a research centre (Saint-Gobain
Recherche). As of the registration date of this Document de Base, the Group relies both on Saint-
Gobain’s centralised organisation and on its own research and technical development centres (see
Section 11).

Under the Technical and Research Agreement that will be entered into between the Company and Saint-
Gobain for a term of five years as from the admission to trading of the Company’s shares on the NYSE
Euronext regulated exchange in Paris, the Group will continue, in addition to its own organisation, to be
able to benefit from SGCV’s development efforts, in particular as regards the design and operation of
furnaces as well as from SGR’s search, analysis, competitive watch and patent management services.
However, forming and surface treatment services will be provided by SGR for a term of 2 years. The
Technical and Research Agreement will also allow for the possibility of organising cross-licensing
between the Group and Saint-Gobain, for a term to be set depending on the licences and that may
exceed that of the Technical and Research Agreement, so as to allow both the Group and Saint-Gobain
to dispose of the licences necessary to conduct their business operations. During the term of the
Technical and Research Agreement, the Group will continue to take part in Saint-Gobain’s cross-
functional research programme.

22.1.2 Credit Facility

See Section 10.4.

22.1.3 Trademark License Agreement

Under the Trademark License Agreement, which will be entered into prior to the admission of the
Company’s shares to trading on the NYSE Euronext regulated exchange in Paris, between Saint-Gobain
and the Company, the Group will benefit, at no cost to it and for so long as Compagnie de Saint-Gobain


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directly or indirectly holds more than 50% of the Company’s share capital or voting rights and, as the
case may be, for an additional period of up to 12 months thereafter, from a continued right to use the
Saint-Gobain trademark in company names, equipment, assets and domain names. Compagnie de Saint-
Gobain will also grant a royalty-free trademark license to SG Vidros covering the use of the “Saint-
Gobain” trademark and the “SG” acronym in its company name, and this licence shall continue in effect
for so long as SG Vidros is required to keep its company name so as to maintain its operating rights at
its locations in Brazil.

Under the Trademark License Agreement, Compagnie de Saint-Gobain will also commit to allowing the
Group to continue to be able to make free use of the acronym “SG” or any other acronym including
“SG” for display on its glassworks production for a period of 10 years from the date when Compagnie
de Saint-Gobain ceases to directly or indirectly hold more than 50% of the Company’s share capital or
voting rights.

22.2    Agreements concerning changes in the scope of consolidation of the Group and its restructuring

22.2.1 Extension of Vertec Agreement to SG Vidros

An agreement (the “Vertec Agreement”) was signed on March 28, 2008 by the Group’s French
subsidiary (SGE) and Vertec. This agreement provides for a guarantee in connection with the agreement
for the shares and assets purchase and sale agreement in Saint-Gobain Group’s small bottles business
that was entered into on February 17, 2007 among SG Vicasa, SG Vidros, SGE and Cougard Holding
(the “Purchase and Sale Agreement”). Under the Vertec Agreement, Vertec agrees to indemnify SGE
and SG Vicasa for any Loss (within the meaning of the Purchase and Sale Agreement) that might be
claimed against them under that agreement and, more generally, any sum that might be incurred by or
claimed against SGE and/or SG Vicasa under the Purchase and Sale Agreement.

As part of the Restructuring Transactions following which SG Vidros will become a subsidiary of the
Company, the Vertec Agreement will be extended, prior to admission of the Company’s shares to
trading on the NYSE Euronext regulated exchange in Paris, to SG Vidros (which will benefit from this
agreement on the same terms and conditions as those applicable to SGE and SG Vicasa).

22.2.2 SG Vidros Agreement

The Group’s Brazilian subsidiary (SG Vidros) and Saint-Gobain will enter into, before the admission of
the Company’s shares to trading on the NYSE Euronext regulated exchange, an agreement on the
principles and conditions of indemnification of SG Vidros by Saint-Gobain, in the scope of the changes
in the Group’s scope of consolidation and its restructuring. The main transactions concerned are the
following:

    −   the partial split of SG Vidros by transferring all its businesses except its packaging business to
        another Saint-Gobain company (see Section 5.1.5) (the “Split”);

    −   the sale by that same subsidiary to Saint-Gobain of 100% of the shares of Saint-Gobain
        Participações Ltda, which owns various properties including the real estate assets on which the
        Agua Branca unit is run by SG Vidros (located in the city of São Paulo) (see Section 8.1) (the
        “Real Estate Sale”);

    −   the sales by SG Vidros, before the Split, of assets deemed to be non-strategic by Saint-Gobain,
        in particular the sale of the small bottles business operated on the Agua Branca site (the
        “Businesses Sold”).

Under the agreement (the “SG Vidros Agreement”), Saint-Gobain has agreed to indemnify SG Vidros,
provided SG Vidros complies with the notice and management conditions contained therein, for any



                                                   231
sum incurred by this entity or claimed against it on the basis of the transactions listed above. This
commitment therefore covers:

    −   in the scope of the Split, the possible consequences of any recourse, action or claim based on the
        industrial operations conducted by SG Vidros other than in connection with the packaging
        business;

    −   in the scope of the Businesses Sold, the possible consequences of any recourse, action or claim
        that may be made against SG Vidros on the basis of a liability attached to the conduct of the
        Businesses Sold and listed in the SG Vidros Agreement.

As part of that agreement, the parties also plan to sign leases that will be appended thereto, covering
inter alia:

    −   the rental of the land and buildings at the industrial operations site of the Agua Branca plant
        located within the São Paulo metropolitan area covered by the Real Estate Sale. The initial term
        of this lease should run until August 2017, whereupon it should be renewable for a ten-year
        period;

    −   the rental of the parking spaces needed for that site so as to satisfy the requirements under its
        permit to operate;

    −   the rental of the premises of the headquarters of SG Vidros. This lease should run for as long as
        Compagnie de Saint-Gobain holds, directly or indirectly, more than 50% of the Company’s
        share capital or voting rights and, if applicable, for a period of up to nine months from the date
        that Compagnie de Saint-Gobain ceases to hold a majority stake. At the end of this period, SG
        Vidros plans to relocate its headquarters.

As a consequence of the Real Estate Sale, it is also planned that Saint-Gobain will be substituted for SG
Vidros in the lease signed in 2007 between the Brazilian subsidiary of Cougard Investissement (acquirer
of Saint-Gobain’s small bottles businesses– see Section 5.1.5) and SG Vidros.

22.3    Financing Agreement

See Section 10.4.




                                                   232
23.   THIRD-PARTY   INFORMATION,     STATEMENTS   BY   EXPERTS   AND
      DECLARATIONS OF INTEREST

Not applicable.




                                   233
24.   DOCUMENTS AVAILABLE TO THE PUBLIC

The Company’s Articles of Association, minutes of General Shareholders’ Meetings and other statutory
documents, as well historical financial information and any valuation or statement made by an
independent expert at the Company’s request that are required to be held available to shareholders in
accordance with applicable regulations, may be consulted at Verallia’s headquarters.

After the Company’s shares are listed on the NYSE Euronext regulated exchange in Paris, regulated
information pursuant to the provisions of the General Regulation of the Autorité des marchés financiers
will also be available on Verallia’s website (http://www.verallia.com).




                                                  234
25.   INFORMATION ON OWNERSHIP INTERESTS

The list of companies included in the scope of the Combined Financial Statements is provided in note
30 of the Combined Financial Statements.




                                                235
                               GLOSSARY

ARS               ISO currency code for the Argentine peso.

Bag-in-box        Means, the supple packaging liner equipped with a tap and used
                  inside three-to ten-litre boxes for selling and conserving wine.

Blank mould       Refers to the mould used in the production of hollow glass which
                  is used to transform the material into a hollow partially-formed
                  container.

BRIC              Refers to the group of emerging countries composed of Brazil,
                  Russia, India and China.

BRL               ISO currency code for the Brazilian real.

CLP               ISO currency code for the Chilean peso.

Cullet            Means, the crushed glass added to the raw materials used in the
                  production of glass.

Eastern Europe    See the definition provided in Section 6.5.2 of this Document de
                  Base.

EHS               Refers to the “Environment, Hygiene and Safety” policy.

Europe            See the definition provided in Section 6.5.2 of this Document de
                  Base.

Euroverlux        Refers to the company Euroverlux Sp. z o.o.

External sales    Means, sales to third parties (including exports) with the
                  exception of sales to other companies within the Group.

Finishing         Means, the decoration of glass using various techniques.

Finishing mould   Refers to the mould used in the production of hollow glass that is
                  used to give the product its final shape.

Forehearths       Fireproof distribution channels that take glass from a furnace to
                  forming machines. Forehearths allow conditioning of glass at the
                  right temperature corresponding to the viscosity level necessary
                  to work with the glass.

Forming           Means, the technique through which a compact mass of molten
                  glass (gob) is transformed into a hollow shape using a metal
                  plunger or blown air.

Gob               Means, a compact mass of molten glass.

GPS               Refers to the company GPS Glasproduktions-Service GmbH.

GPS America       Refers to Marion Glass Equipment and Technology Company,
                  Inc.



                                      236
Greenfield             Refers to a project to construct a new factory.

Inversiones SG         Refers to the company Inversiones Saint-Gobain Chile Limitada.

IS Machine             A molten glass forming machine, standard in the industry, made
                       up of sections that work in parallel. An IS machine normally
                       consists of between 6 and 16 sections and can form
                       simultaneously 1, 2, 3 or 4 containers in each section– these are
                       referred to as “single, double, triple or quadruple gob”. A
                       machine with 10 forming sections that produces two gobs each is
                       abbreviated as an IS 10 DG, and has 10 x 2 = 20 finishing
                       moulds.

KMS                    Refers to Saint-Gobain Kavminsteklo, a closed joint-stock
                       company.

KSZ                    Refers to ZAO Kamyshin Glass Works.

Melting                Means, the first step in the melting of glass in production
                       furnaces.

Mothballing            A mothballed furnace refers to a furnace that has been stopped
                       but that can be restarted.

New Winemaking World   Refers to non-European wine producing and export countries and
                       states (namely South Africa, Argentina, Australia, California,
                       Chile and New Zealand).

One-way glass          Means, bottles for which no recycling system has been
                       implemented.

Orobanche              Refers to the company Orobanche S.A.S.

Pad printing           Means, a glass decorating technique based on decal
                       transfers (multi-coloured motifs printed with enamels or
                       precious metals).

PET                    Refers to polyethylene terephthalate, a rigid, transparent plastic
                       used in packaging.

PLN                    ISO currency code for the Polish zloty.

Rayen Cura             Refers to the company Rayen Cura S.A.I.C.

Returnable glass       Means, bottles for which a recycling system has been
                       implemented.

RUB                    ISO currency code for the Russian rouble.

Saga Décor             Refers to the company Saga Décor S.A.S.

Net sales              Refers to, unless otherwise stated, “Net sales” as defined in the
                       combined financial statements and described in Section 9.2.1.1.




                                            237
Satin-finishing      Means, a decoration technique that consists of making glass
                     opaque via a chemical treatment (acid bath) or an electrostatic
                     and thermal treatment (sand blasting).

Screen-printing      Refers to a decoration technique that uses ceramic enamels to
                     vary the thickness, colour and substance of the glass.

Segment or Sector    Means, interchangeably, one of the Group’s main markets (e.g.,
                     sparkling wines glass packaging) or a sub-category of one such
                     markets (e.g. Mousseux sparkling wines glass packaging ).

SG Containers Inc.   Refers to the company Saint-Gobain Containers, Inc.
(SGCI)

SG Cristaleria       Refers to the company Saint-Gobain Cristaleria S.A.

SG Envases           Refers to the company Saint-Gobain Envases S.A.

SG Mondego           Refers to the company Saint-Gobain Mondego S.A.

SG Montblanc         Refers to the company Saint-Gobain Montblanc S.A.

SG Vetri             Refers to the company Saint-Gobain Vetri S.p.A.

SG Vicasa            Refers to the company Saint-Gobain Vicasa S.A.

SG Vidros            Refers to the company Saint-Gobain Vidros S.A.

SGE                  Refers to the company Saint-Gobain Emballage S.A.

Sleeving             Refers to the glass decorating technique that consists of
                     placing a pre-printed plastic sleeve on packaging using the hot
                     melt process.

South America        See the definition provided in Section 6.5.4 of this Document de
                     Base.

Tableware            Means, a category of glass products that includes table and
                     culinary ware.

Total sales          Means, all sales; i.e., both external sales and intragroup sales.

UAH                  ISO currency code for the Ukrainian hryvnia.

United States        Refers to the United States of America.

VOA                  Refers to the company V.O.A. - Verrerie d'Albi.

Western Europe       See the definition provided in Section 6.5.2 of this Document de
                     Base.

Zorya                Refers to the company Consumers - SKLO Zorya, a closed joint-
                     stock company.




                                          238
APPENDIX: IFRS COMBINED FINANCIAL STATEMENTS FOR THE
FINANCIAL YEARS ENDED 31 DECEMBER 2010, 31 DECEMBER 2009
AND 31 DECEMBER 2008.

COMBINED BALANCE SHEET

(in EUR million)                                                               Dec.31, 2010   Dec.31, 2009   Dec.31, 2008
                                                                      Notes


                                ASSETS
Goodwill                                                                (4)            249            235            243
Other intangible assets                                                 (5)             12              3              4
Property, plant and equipment                                           (6)          1,540          1,473          1,444
Investments in associates                                               (7)             17             16             16
Available-for-sale and other securities                                 (8)              7              7             59
Deferred tax assets                                                    (16)             15             33             31
Other non-current assets                                                (9)             16             15             12

Non-current assets                                                                   1,856          1,782          1,809

Inventories                                                            (10)            648            617            632
Trade accounts receivable                                              (11)            405            379            428
Current tax receivable                                                                  29             11              9
Other receivables                                                      (11)             62             71             71
Loans to Saint-Gobain entities                                         (20)             82            116            110
Cash and cash equivalents                                              (20)             73             50             66

Current assets                                                                       1,299          1,244          1,316

Total Assets                                                                         3,155          3,026          3,125

                      EQUITY AND LIABILITIES
Combined equity                                                                      1,299          1,341          1,288
Minority interests                                                                      40             35             36

Total equity                                                                         1,339          1,376          1,324

Long-term debts                                                        (20)             20             35             42
Financial debts due to companies Saint Gobain                          (20)            122             81            228
Provisions for pensions and other employee benefits                    (15)            390            393            380
Deferred tax liabilities                                               (16)             99             70             60
Other non-current liabilities and provisions                           (17)             45             33             27

Non-current liabilities                                                                676            612            737

Current portion of long-term debt                                      (20)             24             29             27
Current portion of other liabilities                                   (17)             27             17             15
Trade accounts payable                                                 (18)            458            403            460
Current tax liabilities                                                                 16             11             12
Other payables and accrued expenses                                    (18)            299            308            337
Short-term debt and bank overdrafts                                    (20)             69             58             58
Short-term debt due to companies Saint Gobain                          (20)            247            212            155

Current liabilities                                                                  1,140          1,038          1,064

Total Equity and Liabilities                                                         3,155          3,026          3,125



The accompanying notes are an integral part of the combined financial statements.




                                                             239
COMBINED INCOME STATEMENT

(in EUR million)
                                                                           Notes      2010      2009      2008


Net sales                                                                   (29)     3,553     3,445     3,547
Cost of sales                                                               (10)    (2,905)   (2,810)   (2,912)
Selling, general and administrative expenses including research             (23)      (216)     (201)     (196)

Operating income                                                                      432       434       439

Other business income                                                       (23)         0         0        0
Other business expense                                                      (23)       (30)      (42)     (13)

Business income                                                                       402       392       426

Borrowing costs, gross                                                                 (18)      (16)     (27)
Income from cash and cash equivalents                                                    1         1        3

Borrowing costs, net                                                                   (17)      (15)     (24)

Other financial income                                                                   1         5       24
Other financial expense                                                                (13)      (18)      (7)

Net financial expense                                                                  (29)      (28)       (7)

Share in net income of associates                                            (7)        3         1         3
Income taxes                                                                (16)     (134)     (109)     (109)

Net income before result on discontinued activities                                   242       256       313

Net income on discontinued activities                                       (3)          0       53          0

Net income                                                                            242       309       313


             Attributable to equity holders of the Group                              235       303       305
             Minority interests                                                         7         6         8




The accompanying notes are an integral part of the combined financial statements.




                                                                  240
COMBINED STATEMENT OF RECOGNIZED INCOME AND EXPENSE

                                                                                                                     Minority
                                                                                       Combined equity
                                                                                                                     interests         Total equity
(in EUR million)                                                                Before tax effect     Tax effect

2008
Net income                                                                                     411          (106)                 8             313
Translation adjustments                                                                        (56)                              (3)            (59)
Changes in fair value of financial instruments                                                 (36)             12                              (24)
Changes in actuarial gains and losses                                                         (140)             55                              (85)
Income and expense recognized directly in equity                                             (232)             67            (3)              (168)
Total recognized income and expense for the year                                                179           (39)             5                 145

2009
Net income                                                                                     409          (106)                 6             309
Translation adjustments                                                                          14                              (2)              12
Changes in fair value of financial instruments                                                   38           (13)                                25
Changes in actuarial gains and losses                                                          (25)              9                              (16)
Gains and losses on available-for-sale financial assets recycled to the
                                                                                               (53)                                             (53)
income statement
Income and expense recognized directly in equity                                              (26)            (4)            (2)               (32)
Total recognized income and expense for the year                                               383          (110)              4                277

2010
Net income                                                                                     366          (131)                 7             242
Translation adjustments                                                                          50                               1               51
Changes in fair value of financial instruments                                                  (3)             1                                 (2)
Changes in actuarial gains and losses                                                          (34)            14                               (20)
Income and expense recognized directly in equity                                                13            15                  1               29
Total recognized income and expense for the year                                               379          (116)                 8              271




The accompanying notes are an integral part of the combined financial statements.




                                                                          241
COMBINED CASH FLOW STATEMENT

(in EUR million)                                                                                              Notes
                                                                                                                         2010     2009       2008



Net income attributable to equity holders of the Group                                                                    235      303        305

Minority interests in net income                                                                                              7       6           8
Share in net income of associates, net of dividends received                                                   (7)          (2)       0         (2)
Depreciation, amortization and impairment of assets                                                            (23)        239     229         211
Gains and losses on disposals of assets                                                                        (23)           6       6           6
Unrealized gains and losses arising from changes in fair value and share-based payments                                       3       5           5
Net income of discontinued activities                                                                          (3)            0    (53)           0
Changes in inventories                                                                                         (10)       (10)       19       (53)
Changes in trade accounts receivable and payable, and other accounts receivable and payable                  (11) (18)       61       2         27
Changes in tax receivable and payable                                                                          (16)           0     (2)       (17)
Changes in deferred taxes and provisions for other liabilities and charges                                   (16) (17)        2     (6)       (35)

Net cash from operating activities                                                                                        541      509        455


Purchase of property, plant and equipment [2010 : (261), 2009 : (259), 2008 : (283)] and intangible assets    (5) (6)    (268)    (260)      (285)

Increase (decrease) in amounts due to suppliers of fixed assets                                                           (22)        2          2
Acquisitions of shares in combined companies, net of cash acquired                                             (1)           0      (1)       (45)
Increase in investments-related liabilities                                                                    (17)          3        4          4
Decrease in investments-related liabilities                                                                    (17)          0        0        (5)
                                                 Investments                                                             (287)    (255)      (329)
Disposals of property, plant and equipment and intangible assets                                              (5) (6)        9        3          3
Disposals of shares in combined companies, net of cash divested                                                (1)         (1)       52         15
                                                 Divestments                                                                 8       55         18
Increase in loans and deposits                                                                                 (9)         (1)      (1)          0
Decrease in loans and deposits                                                                                 (9)           2        2          1


Net cash from (used in) investing activities                                                                             (278)    (199)      (310)

Dividends paid                                                                                                  (*)      (324)    (217)      (242)
Dividends paid to minority shareholders of combined subsidiaries                                                (*)        (3)      (5)        (7)
Increase (decrease) in dividends payable                                                                                   (2)      (2)       (10)
Increase (decrease) in bank overdraft and other short-term debt                                                             68       54         51
Increase in long-term debt                                                                                                  51       65         73
Decrease in long-term debt                                                                                                (34)    (222)       (31)

Net cash from (used in) financing activities                                                                             (244)    (327)      (166)


Increase (decrease) in cash and cash equivalents                                                                            19     (17)       (21)

Net effect of exchange rate changes on cash and cash equivalents                                                             4       1        (10)

Cash and cash equivalents at beginning of year                                                                              50      66          97
Cash and cash equivalents at end of year                                                                                    73      50          66


(*) References to the combined statement of changes in equity.


Income tax paid amounted to €81 million in 2010 (2009: €102 million; 2008: €137 million). Interest paid net of interest received from non-
Saint-Gobain entities amounted to €9 million in 2010 (2009: €7 million; 2008: €10 million). Dividends received totaled €0 million in 2010
(2009: €4 million; 2008: €23 million).

The accompanying notes are an integral part of the combined financial statements.




                                                                           242
COMBINED STATEMENT OF CHANGES IN EQUITY

                                                                                          (in EUR million)
                                                                                 Cumulative
                                                                Fair value                                            Minority
                                                  Equity                         translation       Combined equity                      Total equity
                                                                 reserves                                             interests
                                                                                 adjustment


At January 1, 2008                                     1,380                 1                 8              1,389               35            1,424

Income and expense recognized directly in
equity                                                  (73)            (36)             (56)                 (165)               (3)           (168)
Net income for the year                                 305                                                    305                 8             313
Total recognized income and expense for the
year                                                    232             (36)             (56)                  140                 5             145
Dividends paid                                         (242)                                                  (242)               (7)           (249)
Share-based payments                                      3                                                       3                                3
Other                                                    (2)                                                    (2)                3               1

At December 31, 2008                                   1,371            (35)              (48)                1,288               36            1,324

Income and expense recognized directly in
equity                                                  (82)             38               14                   (30)               (2)            (32)
Net income for the year                                 303                                                    303                 6             309
Total recognized income and expense for the
year                                                    221             38                14                   273                 4             277
Dividends paid                                         (217)                                                  (217)               (5)           (222)
Share-based payments                                      3                                                       3                                3
Other                                                    (6)                                                    (6)                               (6)

At December 31, 2009                                   1,372                 3            (34)                1,341               35            1,376

Income and expense recognized directly in
equity                                                  (19)             (3)              50                    28                 1              29
Net income for the year                                 235                                                    235                 7             242
Total recognized income and expense for the
year                                                    216              (3)              50                   263                 8             271
Dividends paid                                         (324)                                                  (324)               (3)           (327)
Share-based payments                                      2                                                       2                                2
Other                                                    17                                                     17                                17

At December 31, 2010                                   1,283                 0             16                 1,299               40            1,339



The accompanying notes are an integral part of the combined financial statements.




                                                               243
NOTES TO THE COMBINED FINANCIAL STATEMENTS

NOTE 1 – OVERVIEW OF THE COMBINED FINANCIAL STATEMENTS

The business

The combined financial statements are those of the Saint-Gobain Packaging Sector, which comprises
four parent companies – Verallia SA (holding to be publicly traded), SG Emballage SA, French
companies, SG Vicasa and SG Vidros located respectively in Spain and Brazil – and their subsidiaries,
together referred to as the “Group”.

The Group manufactures glass containers for the food industry. It is a global business with strong
positions in Western and Eastern Europe, the United States and South America.

The organizational chart below illustrates the overall structure of the business, the first row of the chart
corresponding to the Packaging Sector parent companies and the second row to the subsidiaries included
in the scope of combination at December 31, 2010.


    Vertec and Cie de               SG Cristaleria             Cie de Saint-                     Spafi
      Saint-Gobain                     (Spain)                   Gobain                        (France)
        (France)                                                (France)




           SG                      SG VICASA                    SG VIDROS                   VERALLIA
     EMBALLAGE                       and its                      (Brazil)                   SA and its
         and its                   subsidiaries              and its Chilean                   North
      subsidiaries                   (Spain,                  subsidiaries                   American
        (France,                    Portugal,                                               subsidiaries:
          Italy,                    Argentina)                                                  SG
       Germany,                                                                           CONTAINERS
     Russia, Poland,                                                                       INC and GPS
       Ukraine)                                                                               and GPS




                                                     244
Basis of presentation of the combined financial statements

The combined financial statements present all of the assets, liabilities, income, expenses and cash flows
of the Group. The following subsidiaries are fully combined:

                Entity                   Country                    % interest

                                                           2010       2009        2008
SG Containers Inc.                  United States         100.00%   100.00%      100.00%
GPS America                         United States         100.00%   100.00%      100.00%
Verallia SA                         France                100.00%       -           -
SG Emballage                        France                100.00%   100.00%      100.00%
Saga Décor                          France                100.00%   100.00%      100.00%
VOA-Verreries d'Albi                France                100.00%   100.00%      100.00%
Salomon (Ets René)                  France                100.00%   100.00%      100.00%
SG Oberland (*)                     Germany               96.67%     96.67%      96.67%
GPS Glas Produktions Service        Germany               96.67%     96.67%      96.67%
Euroverlux                          Poland                100.00%   100.00%      100.00%
Kavminsteklo                        Russia                91.70%     91.17%      90.08%
Zao Kamyshinsky Steklotarny         Russia                92.33%     92.33%      92.33%
Consumers Sklo – Zorya              Ukraine               93.46%     93.46%      93.46%
SG Vetri S.P.A.                     Italy                 99.99%     99.99%      99.99%
Vicasa (Societe)                    Spain                 100.00%   100.00%      100.00%
SG Mondego SA                       Portugal              100.00%   100.00%      99.99%
Vidrieras Canarias (“Vicsa”)        Spain                 41.03%     41.03%      41.03%
Rayen-Cura SAIC                     Argentina             60.00%     60.00%      60.00%
Inversiones SG Chili                Chile                 100.00%   100.00%      100.00%
SG Envases                          Chile                 100.00%   100.00%      100.00%
SG Vidros Conditionnement           Brazil                100.00%   100.00%      100.00%


(*) The Group holds 96.67% of the common stock of SG Oberland, the remaining shares of which are
publicly traded on the Frankfurt, Munich and Stuttgart stock exchanges.

Disposals

No combined entities were sold in 2008, 2009 or 2010.

Acquisitions

In 2008, SG Oberland acquired 95.51% of Zao Kamyshinsky Steklotarny, a Russian manufacturer of
clear glass bottles and jars for the food industry, for €60 million. Zao Kamyshinsky Steklotarny has
been fully combined since July 1, 2008.




                                                    245
Combination principles

In the absence of a specific IFRS governing combined financial statements, the Group has defined the
accounting principles and policies used to prepare these financial statements (see below), mainly based
on Regulation CRC 99-02, section VI, of the French Accounting Standards Board (Comité de la
Réglementation Comptable). The purpose of this note is to describe how IFRS, as adopted by the
European Union as of 31 December 2010, have been applied to prepare the historical combined
financial statements.

Regarding the initial public offering of a minority shareholding of Verallia SA and to present a
consistant financial overview of the Group’s scope of operations, the combined financial statements
have been prepared based on the Saint-Gobain consolidated financial statements and reflect the financial
position and results of the Group in accordance with IAS 27. They do not necessarily reflect what the
Group’s results and financial position would have been had it operated independently of Saint-Gobain
during the periods presented.

As explained above, the combined financial statements present all of the assets, liabilities, income,
expenses and cash flows of the Group. The companies within the scope of combination all operate
within Saint-Gobain. Consequently, the combined financial statements include:

    •   The management fees billed by Saint-Gobain to the Group, corresponding to its share of
        corporate overheads, administrative and other expenses.
    •   Costs relating to stock option grants, performance share grants and share purchases carried out
        under Saint-Gobain’s Group Savings Plan. The methods used to allocate these costs are
        described in Notes 12, 13 and 14.
    •   Assets and liabilities attributable to the Group that are managed and centralized in Saint-
        Gobain’s accounts. These assets and liabilities mainly include pension and other employee
        benefit obligations, as well as certain tax assets and liabilities. The difference between the assets
        and liabilities allocated to the Group and the amounts recorded in Saint-Gobain’s accounts has
        been recorded as an adjustment to combined equity.
        In preparing the combined financial statements, the Group has used reasonable assumptions to
        determine the portion of hedging instruments, liabilities and costs attributable to the Group
        under IAS 19. SG Containers pension obligations, including plan assets and their contribution in
        each period, which are managed by a Saint-Gobain company in the United States, have been
        allocated to that company by adjusting combined equity. Following the initial public offering,
        the final value of the funds allocated to SG Containers pursuant to ERISA 4044 regulations may
        be different from the amount presented in these combined financial statements.
    •   Given that most of the Group’s financing needs are met by Saint-Gobain, its finance costs,
        financial assets and financial liabilities do not necessarily reflect what the Group’s financial
        position would have been if it had operated independently during the period (see Notes 20 and
        21 on net debt and financial instruments). The Group’s net borrowings from Saint-Gobain are
        presented in debt.
    •   Lastly, certain Group companies, as subsidiaries of Saint-Gobain, are members of local tax
        groups. As a result, their income tax expense (or benefit) does not reflect the income tax
        expense (or benefit) that would have been reported by the Group if it had operated
        independently of Saint-Gobain during the period.

The Group’s combined equity corresponds to the sum of equity of the member entities, after eliminating
the shares of subsidiaries held by the Group’s parent companies.


Goodwill of companies within the scope of combination corresponds to the goodwill calculated for the
purpose of preparing Saint-Gobain’s consolidated financial statements, and has not been remeasured.




                                                    246
The combined financial statements are presented in euros, which is the Group’s presentation currency.
All amounts are stated in million euros, unless otherwise specified.




                                                 247
NOTE 2 - ACCOUNTING PRINCIPLES AND POLICIES

BASIS OF PREPARATION

The combined financial statements have been prepared in accordance with the International Financial
Reporting Standards (IFRS) adopted for use in the European Union at December 31, 2010,
corresponding to the IFRS issued by the International Accounting Standards Board (IASB).

The combined financial statements have been prepared using the historical cost convention, except for
certain assets and liabilities that have been measured using the fair value model as explained in these
notes.

The standards, interpretations and amendments to published standards applicable for the first time in
2010 (see the table below) do not have a material impact on the Group’s combined financial statements.
In particular, the revised version of IFRS 3 (IFRS 3R) and the amendments to IAS 27 (IAS 27A)
concerning business combinations, which have been applied prospectively, do not have a material
impact on the 2010 combined financial statements.

The Group has not early adopted any new standards, interpretations or amendments to published
standards that are applicable for financial years beginning on or after January 1, 2011 (see the table next
page).


ESTIMATES AND ASSUMPTIONS

The preparation of combined financial statements in compliance with IFRS requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements, as well as the
reported amounts of income and expenses during the period. These estimates and assumptions are based
on past experience and on various other factors, including the prevailing economic environment. Actual
amounts may differ from those obtained through the use of these estimates and assumptions.

The main estimates and assumptions described in these notes concern the measurement of employee
benefit obligations (Note 15), provisions for other liabilities and charges (Note 17), asset impairment
tests (Note 2), deferred taxes (Note 16), share-based payments (Notes 12, 13 and 14) and financial
instruments (Note 21).




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SUMMARY OF NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS TO PUBLISHED STANDARDS

 Standards, interpretations and amendments to existing standards applicable in 2010

 IFRS 3R and IAS
                     Business Combinations and Consolidated and Separate Financial Statements
 27A
 Amendments to
                     Financial Instruments: Recognition and Measurement – Eligible Hedged Items
 IAS 39
 IFRS 1R             First-Time Adoption of International Financial Reporting Standards (Restructured IFRS 1)
 Amendments to
                     Group Cash-settled Share-based Payment Arrangements
 IFRS 2
 IFRIC 12            Service Concession Arrangements
 IFRIC 15            Agreements for the Construction of Real Estate
 IFRIC 16            Hedges of a Net Investment in a Foreign Operation
 IFRIC 17            Distributions of Non-Cash Assets to Owners
 IFRIC 18            Transfers of Assets from Customers
                     Annual improvements to IFRS
 Standards, interpretations and amendments to existing standards early adopted in 2010
 Amendments to
                     Classification of Rights Issues
 IAS 32
 IAS 24R             Related Party Disclosures
 Amendment       to
                     Prepayments of a Minimum Funding Requirement
 IFRIC 14
 Amendment       to
                     Additional Exemptions for First-time Adopters
 IFRS 1
 IFRIC 19            Extinguishing Financial Liabilities with Equity Instruments
                     Annual improvements to IFRS

Standards adopted by the European Union may be consulted on the European Commission website, at
http://ec.europa.eu/internal_market/accounting/ias/index_en.htm




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SCOPE AND METHODS OF COMBINATION


Scope of combination

The Group’s combined financial statements include the accounts of the Saint-Gobain Packaging
Sector’s parent companies – Verallia SA, SG Emballage, SG Vicasa and SG Vidros – and of all
companies controlled by them, as well as those of jointly controlled companies and companies over
which the Group exercises significant influence at December 31, 2010.

Significant changes in the Group’s scope of combination during 2010 are presented in Note 1 and a list
of the principal combined companies at December 31, 2010 is provided in Note 30.


Combination methods

Companies over which the Group exercises exclusive control, either directly or indirectly, are fully
combined.

Companies over which the Group directly or indirectly exercises significant influence are accounted for
by the equity method.


Business combinations

The Group has applied IFRS 3R and IAS 27A on a prospective basis starting from January 1, 2010. As a
result, business combinations completed prior to that date are recognized under the previous versions of
IFRS 3 and IAS 27.

        •   Goodwill

When an entity is acquired by the Group, the identifiable assets and liabilities of the entity are
recognized at their fair value. Any adjustments to provisional values as a result of completing the initial
accounting are recognized within twelve months and retrospectively at the acquisition date.

The final acquisition price (referred to as “consideration transferred” in IFRS 3R), including the
estimated fair value of any earn-out payments or other deferred consideration (referred to as “contingent
consideration”), is determined in the twelve months following the acquisition. Under IFRS 3R, any
adjustments to the acquisition price beyond this twelve-month period are recorded in the income
statement. As from January 1, 2010, all costs directly attributable to the business combination, i.e. costs
that the acquirer incurs to effect a business combination such as professional fees paid to investment
banks, attorneys, auditors, independent valuers and other consultants, are no longer capitalized as part of
the cost of the business combination, but are recognized as expenses as incurred.

In addition, starting from January 1, 2010, goodwill is recognized only at the date that control is
achieved (or significant influence is obtained in the case of entities accounted for by the equity method).
Any subsequent increase in ownership interest is recorded as a change in equity attributable to the
equity holders of the Group without adjusting goodwill. In the case of a business combination achieved
in stages, the transaction is affected globally at the date control is reached.

Goodwill is recorded in the combined balance sheet as the difference between the acquisition-date fair
value of (i) the consideration transferred plus the amount of any minority interests and (ii) the
identifiable net assets of the acquiree. Minority interests are measured either as their proportionate
interest in the net identifiable assets or at their fair value at the acquisition date. Goodwill represents the


                                                      250
excess of the cost of an acquisition over the fair value of the Group’s share of the assets and liabilities of
the acquired entity. If the cost of the acquisition is less than the fair value of the net assets and liabilities
acquired, the difference is recognized directly in the income statement.

        •    Step acquisitions and partial disposals

When the Group acquires control of an entity in which it already held an equity interest, the transaction
is treated as a step acquisition (an acquisition in stages), as follows: (i) as a disposal of the previously-
held interest, with recognition of any gain or loss in the combined financial statements, and (ii) as an
acquisition of the entire interest, with recognition of the corresponding goodwill (on both the old and
new acquisitions).

When the Group disposes of part of an equity interest, leading to the loss of control (with a minority
interest retained), the transaction is also treated as both a disposal and an acquisition, as follows: (i) as a
disposal of the entire interest, with recognition of any gain or loss in the combined financial statements,
and (ii) as an acquisition of the retained non-controlling (minority) interest, measured at fair value.

        •    Potential voting rights and share purchase commitments

Potential voting rights conferred by call options on minority interests (non-controlling interests) are
taken into account in determining whether the Group exclusively controls an entity only when the
options are currently exercisable.

When calculating its percentage interest in controlled companies, the Group considers the impact of

cross put and call options on minority interests in the companies concerned. This approach gives rise to

the recognition in the financial statements of an investment-related liability (included within “Other

liabilities”) corresponding to the present value of the estimated exercise price of the put option, with a

corresponding reduction in minority interests and equity attributable to equity holders of the parents.

Any subsequent changes in the fair value of the liability are recognized by adjusting equity.




        •    Minority interests


Up to December 31, 2009, transactions with minority interests were treated in the same way as

transactions with parties external to the Group. As from January 1, 2010, changes in minority interests

(referred to as “non-controlling interests” in IFRS 3R) are accounted for as equity transactions between

two categories of owners of a single economic entity in accordance with IAS 27A. As a result, they are

recorded in the statement of changes in equity and have no impact on the income statement or balance

sheet, except for changes in cash and cash equivalents.




                                                       251
Non-current assets and liabilities held for sale – Discontinued operations

Assets and liabilities that are immediately available for sale and for which a sale is highly probable, in
the twelve following months, are classified as non-current assets and liabilities held for sale. When
several assets are held for sale in a single transaction, they are accounted for as a disposal group, which
also includes any liabilities directly associated with those assets.

The assets, or disposal groups held for sale, are measured at the lower of carrying amount and fair value
less costs to sell. Depreciation ceases when non-current assets or disposal groups are classified as held
for sale. When the assets held for sale are combined companies, deferred tax is recognized on the
difference between the combined carrying amount of the shares and their tax basis, in accordance with
IAS 12.

Non-current assets and liabilities held for sale are presented separately on the face of the combined
balance sheet, and income and expenses continue to be recognized in the combined income statement on
a line-by-line basis. Income and expenses arising on discontinued operations are recorded as a single
amount on the face of the combined income statement.




                                                    252
At each balance sheet date, the value of the assets and liabilities is reviewed to determine whether any
provision adjustments should be recorded due to a change in their fair value less costs to sell.


Intragroup transactions

All material intragroup balances and transactions are eliminated in the combined financial statements.
Balances and transactions with Saint-Gobain entities that are not members of the Group are not
eliminated, but are treated as related party balances and transactions.


Translation of the financial statements of foreign companies

The combined financial statements are presented in euros, which is the Group’s presentation currency.

Assets and liabilities of subsidiaries outside the euro zone are translated into euros at the closing
exchange rate and income and expense items are translated using the average exchange rate for the
period, except in the case of significant exchange rate volatility.

The Group’s share of any translation gains or losses is included in equity under “Cumulative translation
adjustments” until the foreign operations to which they relate are sold or liquidated, at which time they
are taken to the income statement if the transaction results in a loss of control or recognized directly in
the statement of changes in equity if the change in ownership interest does not result in a loss of control.


Foreign currency transactions

Foreign currency transactions are translated into the Group’s presentation currency using the exchange
rates prevailing at the transaction date. Assets and liabilities denominated in foreign currencies are
translated at the closing rate and any exchange differences are recorded in the income statement. As an
exception to this principle, exchange differences relating to loans and borrowings between Group
companies are recorded, net of tax, in equity under “Cumulative translation adjustments”, as in
substance they are an integral part of the net investment in a foreign subsidiary.




                                                    253
BALANCE SHEET ITEMS


Goodwill

See the section above on business combinations.


Other intangible assets

Other intangible assets primarily include patents, brands, software, and development costs. They are
measured at historical cost less accumulated amortization and impairment.

Costs incurred to develop software in-house – primarily configuration, programming and testing costs –
are recognized as intangible assets. Patents and purchased computer software are amortized over their
estimated useful lives, not exceeding 20 years for patents and 3 to 5 years for software.

Research costs are expensed as incurred. Development costs meeting the recognition criteria under IAS
38 are included in intangible assets and amortized over their estimated useful lives (not to exceed 5
years) from the date when the products to which they relate are first marketed.

Concerning greenhouse gas emissions allowances, a provision is recorded in the combined financial
statements to cover any difference between the Group’s emissions and the allowances granted.


Property, plant and equipment

Land, buildings and equipment are carried at historical cost less accumulated depreciation and
impairment.

Cost may also include incidental expenses directly attributable to the acquisition, such as transfers from
equity of any gains/losses on qualifying cash flow hedges of property, plant and equipment purchases.

Material borrowing costs incurred for the construction and acquisition of property, plant and equipment
are included in the cost of the related asset.

Property, plant and equipment are considered as having no residual value, as most items are intended to
be used until the end of their useful lives and are not generally expected to be sold.

Property, plant and equipment other than land are depreciated using the components approach, on a
straight-line basis over the following estimated useful lives, which are regularly reviewed:

•   Major factories and offices                                                      30-40 years
•   Other buildings                                                                  15-25 years
•   Production machinery and equipment                                                5-16 years
•   Vehicles                                                                           3-5 years
•   Furniture, fixtures, office and computer equipment                                4-16 years

Government grants for purchases of property, plant and equipment are recorded under “Other payables”
and taken to the income statement over the estimated useful lives of the relevant assets.




                                                   254
Finance leases and operating leases

Assets held under leases that transfer to the Group substantially all of the risks and rewards of
ownership (finance leases) are recognized as property, plant and equipment. They are recognized at the
commencement of the lease term at the lower of the fair value of the leased property and the present
value of the minimum lease payments.

Property, plant and equipment acquired under finance leases are depreciated on a straight-line basis over
the shorter of the estimated useful life of the asset – determined using the same criteria as for assets
owned by the Group – or the lease term. The corresponding liability is shown in the balance sheet net of
related interest.

Rental payments under operating leases are expensed as incurred.


Non-current financial assets

Non-current financial assets include available-for-sale and other securities, as well as other non-current
assets, which primarily comprise long-term loans and deposits.

Investments classified as “available-for-sale” are carried at fair value. Unrealized gains and losses on
these investments are recognized in equity, unless the investments have suffered an other-than-
temporary or material decline in value, in which case an impairment loss is recorded in the income
statement.


Impairment of property, plant and equipment, intangible assets and goodwill

Property, plant and equipment, goodwill and other intangible assets are tested for impairment on a
regular basis. These tests consist of comparing the asset’s carrying amount to its recoverable amount.
Recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use,
calculated by reference to the present value of the future cash flows expected to be derived from the
asset.

For property, plant and equipment and amortizable intangible assets, an impairment test is performed
whenever revenues from the asset decline or the asset generates operating losses due to either internal or
external factors, and no improvement is forecast in the annual budget or the business plan.

For goodwill and other intangible assets, an impairment test is performed at least annually based on the
five-year business plan. Goodwill is reviewed systematically and exhaustively at the level of each cash-
generating unit (CGU). A CGU is a reporting segment, generally defined as a core business of the
segment in a given geographical area. It reflects the manner in which the Group organizes its business
and analyzes its results for internal reporting purposes. A total of three main CGUs, corresponding to
Europe, the United States and South America, have been identified by the Group (3 CGUs at December
31, 2010).

The method used for these impairment tests is consistent with that employed by the Group for the
valuation of companies acquired in business combinations or acquisitions of equity interests. The
carrying amount of the CGUs is compared to their value in use, corresponding to the present value of
future cash flows excluding interest but including tax. Cash flows for the fifth year of the business plan
are rolled forward over the following two years. For impairment tests of goodwill, normative cash flows
(corresponding to cash flows at the mid-point in the business cycle) are then projected to perpetuity
using a low annual growth rate (generally 1%, except for South America where a 1.5% rate may be
used). The discount rate applied to these cash flows corresponds to Saint-Gobain average cost of capital
(7.25% in 2010, 7.25% in 2009 and 7.5% in 2008) plus a country risk premium where appropriate


                                                   255
depending on the geographic area concerned. The discount rates applied in 2010 and 2009 were 7.25%
for Europe and the United States and 8.75% for South America.




                                               256
The recoverable amount calculated using a post-tax discount rate gives the same result as a pre-tax rate
applied to pre-tax cash flows.

Different assumptions measuring the method’s sensitivity are systematically tested using the following
parameters:
    • 0.5-point increase or decrease in the annual average rate of growth in cash flows projected to
        perpetuity;
    • 0.5-point increase or decrease in the discount rate applied to cash flows.

When the annual impairment test reveals that the recoverable amount of an asset is less than its carrying
amount, an impairment loss is recorded.

Based on projections at December 31, 2010, a 0.5-point decrease in projected average annual growth in
cash flows to perpetuity for all the CGUs would not lead to any impairment of intangible assets.
Similarly, a 0.5-point increase in the discount rate applied to the same CGUs would not lead to any
impairment of intangibles.

Impairment losses on goodwill can never be reversed through income. For property, plant and
equipment and other intangible assets, an impairment loss recognized in a prior period may be reversed
if there is an indication that the impairment no longer exists and that the recoverable amount of the asset
concerned exceeds its carrying amount.


Inventories

Inventories are stated at the lower of cost and net realizable value. The cost of inventories includes the costs
of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present
location and condition. It is generally determined using the weighted-average cost method, and in some
cases the First-In-First-Out (FIFO) method. Cost of inventories may also include the transfer from equity of
any gains/losses on qualifying cash flow hedges of foreign currency purchases of raw materials.

Net realizable value is the selling price in the ordinary course of business, less estimated costs to completion
and costs to sell. No account is taken in the inventory valuation process of the impact of below-normal
capacity utilization rates.

The molds used in the manufacturing process are included in inventories and are tested for impairment
every year by estimating their remaining useful life based on the units-of-production method and expected
future use.


Operating receivables and payables

Operating receivables and payables are stated at nominal value as they generally have maturities of less
than three months. Provisions for impairment are established to cover the risk of total or partial non-
recovery.

For trade receivables transferred under securitization programs, the contracts concerned are analyzed
and if substantially all the risks associated with the receivables are not transferred to the financing
institutions, they remain on the balance sheet and a corresponding liability is recognized in short-term
debt.




                                                      257
Net debt

    •   Long-term debt
Long-term debt includes lease liabilities, other long-term financial liabilities and the fair value of
derivatives qualifying as interest rate hedges.

As a result, participating securities are classified as debt and not as quasi-equity. At the balance sheet
date, long-term debt is measured at amortized cost. Premiums and issuance costs are amortized using
the effective interest method.

    •   Short-term debt
Short-term debt includes the current portion of the long-term debt described above, short-term financing
programs such as commercial paper or “billets de trésorerie” (French commercial paper), bank
overdrafts and other short-term bank borrowings, as well as the fair value of credit derivatives not
qualifying for hedge accounting. At the balance sheet date, short-term debt is measured at amortized
cost, with the exception of derivatives that are held as hedges of debt. Premiums and issuance costs are
amortized using the effective interest method.

    •   Cash and cash equivalents
Cash and cash equivalents mainly consist of cash on hand, bank accounts and marketable securities that
are short-term, highly liquid investments readily convertible into known amounts of cash and subject to
an insignificant risk of changes in value. Marketable securities are measured at fair value through profit
or loss.

Further details about long- and short-term debt are provided in Note 20.


Foreign exchange, interest rate and commodity derivatives (swaps, options, futures)

The Group uses interest rate, foreign exchange and commodity derivatives to hedge its exposure to changes
in interest rates, exchange rates and commodity prices that may arise in the normal course of business.

In accordance with IAS 32 and IAS 39, all of these instruments are recognized in the balance sheet and
measured at fair value, irrespective of whether or not they are part of a hedging relationship that
qualifies for hedge accounting under IAS 39.

Changes in fair value of both derivatives that are designated and qualify as fair value hedges and
derivatives that do not qualify for hedge accounting are taken to the income statement (in business
income for foreign exchange and commodity derivatives qualifying for hedge accounting, and in net
financial expense for all other derivatives). However, in the case of derivatives that qualify as cash flow
hedges, the effective portion of the gain or loss arising from changes in fair value is recognized directly
in equity, and only the ineffective portion is recognized in the income statement.

    •   Fair value hedges
Most interest rate derivatives used by the Group to swap fixed rates for variable rates are designated and
qualify as fair value hedges. These derivatives hedge fixed-rate debts exposed to a fair value risk. In
accordance with hedge accounting principles, debt included in a designated fair value hedging
relationship is remeasured at fair value. As the effective portion of the gain or loss on the fair value
hedge offsets the loss or gain on the underlying hedged item, the income statement is only impacted by
the ineffective portion of the hedge.




                                                    258
    •   Cash flow hedges
Cash flow hedge accounting is applied by the Group mainly for derivatives used to fix the cost of future
investments in financial assets or property, plant and equipment, future purchases of gas and fuel oil
(fixed-for-variable price swaps) and future purchases of foreign currencies (forward contracts). The
transactions hedged by these instruments are qualified as highly probable. The application of cash flow
hedge accounting allows the Group to defer the impact on the income statement of the effective portion
of changes in the fair value of these instruments by recording them in a special hedging reserve in
equity. The reserve is reclassified into the income statement when the hedged transaction occurs and the
hedged item affects income. In the same way as for fair value hedges, cash flow hedging limits the
Group’s exposure to changes in the fair value of these price swaps to the ineffective portion of the
hedge.


    •   Derivatives that do not qualify for hedge accounting
Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized in the
income statement. The instruments concerned mainly include cross-currency swaps; gas, currency and
interest rate options; currency swaps; and futures and forward contracts.


Fair value of financial instruments

The fair value of financial assets and financial liabilities quoted in an active market corresponds to their
quoted price, classified as Level 1 in the fair value hierarchy defined in IFRS 7. The fair value of
financial assets and financial liabilities not quoted in an active market is established by a recognized
valuation technique such as reference to the fair value of another recent and similar transaction, or
discounted cash flow analysis based on observable market data, classified as Level 2 in the IFRS 7 fair
value hierarchy.

The fair value of short-term financial assets and liabilities is considered as being the same as their
carrying amount due to their short maturities.


Employee benefits

The Group’s employees are entitled to pension benefits under defined benefit and defined contribution
plans as well as other benefits. Some of these plans are managed and financed by Saint-Gobain, in which
case the corresponding assets and liabilities are combined with those of Saint-Gobain’s other operations.

    •   Defined benefit plans

After retirement, the Group’s former employees are eligible for pension benefits in accordance with the
applicable laws and regulations in the respective countries in which the Group operates. There are also
additional pension obligations in certain Group companies, both in France and other countries.

In France, employees receive length-of-service awards on retirement based on years of service and the
calculation methods prescribed in the applicable collective bargaining agreements.

The Group’s obligation for the payment of pensions and length-of-service awards is determined at the
balance sheet date by independent actuaries, using a method that takes into account projected final
salaries at retirement and economic conditions in each country. These obligations may be financed by
pension funds, with a provision recognized in the balance sheet for the unfunded portion.

The effect of any plan amendments (past service cost) is recognized on a straight-line basis over the
remaining vesting period, or immediately if the benefits are already vested.


                                                    259
Actuarial gains or losses reflect year-on-year changes in the actuarial assumptions used to measure the
Group’s obligations and plan assets, experience adjustments (differences between the actuarial
assumptions and what has actually occurred), and changes in legislation. They are recognized in equity
as they occur.

In the United States, Spain and Germany, retired employees receive benefits other than pensions, mainly
concerning healthcare. The Group’s obligation under these plans is determined using an actuarial
method and is covered by a provision recorded in the balance sheet.

Provisions are also set aside on an actuarial basis for other employee benefits, such as jubilees or other
long-service awards, deferred compensation, specific welfare benefits, and termination benefits in
various countries. Any actuarial gains and losses relating to these benefits are recognized immediately.

The Group has elected to recognize the interest costs for these obligations and the expected return on
plan assets as financial expense or income.

    •   Defined contribution plans

Contributions to defined contribution plans are expensed as incurred.

    •   Share-based payments

Stock Options

The cost of stock option plans is calculated using the Black & Scholes option pricing model.

The parameters are defined as follows:

    •   Volatility assumptions that take into account the historical volatility of the share price over a
        rolling 10-year period, as well as implied volatility from traded share options. Periods of
        extreme share price volatility are disregarded.
    •   Assumptions relating to the average holding period of options, based on observed behavior of
        option holders.
    •   Expected dividends, as estimated on the basis of historical information dating back to 1988.
    •   A risk-free interest rate corresponding to the yield on long-term government bonds.
    •   The effect of any stock market performance conditions is taken into account in the initial
        measurement of the plan cost under IFRS 2.

The cost calculated using this method is recognized in the income statement over the vesting period of
the options, ranging from three to four years.

For options exercised for new shares, the sum received by the Group when the options are exercised is
recorded in combined equity for the portion representing the par value of the shares, with the balance –
net of directly attributable transaction costs – recorded under “Share-based payments”.




                                                   260
Group Savings Plan (“PEG”)

The method used by Saint-Gobain to calculate the costs of its Group Savings Plan takes into account the
fact that shares granted to employees under the plan are subject to a five- or ten-year lock-up. The lock-
up cost is measured and deducted from the 20% discount granted by the Group on employee share
awards.

The calculation parameters are defined as follows:

    •    The exercise price, as set by the Board of Directors of Compagnie de Saint-Gobain, corresponds
         to the average of the opening share prices quoted over the 20 trading days preceding the date of
         grant, less a 20% discount.
    •    The grant date of the options is the date on which the plan is announced to employees. For
         Saint-Gobain, this is the date when the plan’s terms and conditions are announced on Saint-
         Gobain’s intranet.
    •    The interest rate used to estimate the cost of the lock-up feature of employee share awards is the
         rate that would be charged by a bank to an individual with an average risk profile for a general
         purpose five- or ten-year consumer loan repayable at maturity.

Leveraged plan costs are calculated under IFRS 2 in the same way as for non-leveraged plans, but also
take into account the advantage accruing to employees who have access to share prices with a volatility
profile adapted to institutional investors.

The cost of the two plans was recognized in full at the end of the subscription period, during the first
half of the year.

Performance share grants

Saint-Gobain set up a worldwide share grant plan in 2009 whereby each Group employee was awarded
seven shares, and performance share plans in 2009 and 2010 for certain categories of employees. These
plans are subject to eligibility criteria based on the grantee’s period of service with the Group. The plan
costs calculated under IFRS 2 take into account the eligibility criteria, the performance criteria – which
are described in Note 14 – and the lock-up feature. They are determined after deducting the present
value of forfeited dividends on the performance shares and are recognized over the vesting period,
which ranges from two to four years depending on the country.


Equity

As indicated in Note 1, combined equity is equal to the sum of the equity of the entities included in the
scope of the combined financial statements.


Other current and non-current liabilities and provisions

    •    Provisions for other liabilities and charges

A provision is booked when (i) the Group has a present legal or constructive obligation towards a third
party as a result of a past event, (ii) it is probable that an outflow of resources will be required to settle
the obligation, and (iii) the amount of the obligation can be estimated reliably.

If the timing or the amount of the obligation cannot be measured reliably, it is classified as a contingent
liability and reported as a commitment (see Note 25).




                                                     261
Provisions for other material liabilities and charges whose timing can be estimated reliably are
discounted to present value.
    • Investment-related liabilities

Investment-related liabilities correspond to put options granted to minority shareholders of subsidiaries
and liabilities relating to the acquisition of shares in Group companies, including additional purchase
consideration. They are reviewed on a periodic basis and any subsequent changes in their fair value of
minority shareholder puts are recognized by adjusting equity.




                                                   262
INCOME STATEMENT ITEMS


Revenue recognition


Revenue generated by the sale of goods or services is recognized net of rebates, discounts and sales

taxes (i) when the risks and rewards of ownership have been transferred to the customer, or (ii) when the

service has been rendered, or (iii) by reference to the stage of completion of the services to be provided.

Operating income

Operating income is a measure of the performance of the Group’s business and has been used by the
Group as its key external and internal management indicator for many years. Foreign exchange gains
and losses are included in operating income, as are changes in the fair value of financial instruments that
do not qualify for hedge accounting when they relate to operating items.


Other business income and expense

Other business income and expense mainly include movements in provisions for claims and litigation
and environmental provisions, gains and losses on disposals of assets, impairment losses, restructuring
costs incurred upon the disposal or discontinuation of operations and the costs of workforce reduction
measures.

Business income

Business income includes all income and expenses other than borrowing costs and other financial
income and expense, the Group’s share in net income of associates, and income taxes.

Net financial expense

Net financial expense includes borrowing and other financing costs, income from cash and cash
equivalents, interest cost for pension and other post-employment benefit plans, net of the return on plan
assets, other financial income and expense such as exchange gains and losses and bank charges.

Income taxes

Current income tax is the estimated amount of tax payable in respect of income for a given period,
calculated by reference to the tax rates that have been enacted or substantively enacted at the balance
sheet date, plus any adjustments to current taxes recorded in previous financial periods.

Deferred taxes are recorded using the balance sheet liability method for temporary differences between
the carrying amount of assets and liabilities and their tax basis. Deferred tax assets and liabilities are
measured at the tax rates expected to apply to the period when the asset is realized or the liability
settled, based on the tax laws that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets are recognized only if it is considered probable that there will be sufficient future
taxable income against which the temporary difference can be utilized. They are reviewed at each
balance sheet date and written down to the extent that it is no longer probable that there will be
sufficient taxable income against which the temporary difference can be utilized.


                                                    263
No deferred tax liability is recognized in respect of undistributed earnings of subsidiaries that are not
intended to be distributed.

Deferred taxes are recognized as income or expense in the income statement, except when they relate to
items that are recognized directly in equity, in which case the deferred tax is also recognized in equity.


Recurring net income


Recurring net income corresponds to income after tax and minority interests but before capital gains or
losses, asset impairment losses, material non-recurring provisions and the related tax and minority
interests.
The method used for calculating recurring net income is explained in Note 24.

Earnings per share


Earnings per share cannot be calculated because the Group is not held by a single legal entity whose
shares could be used for the calculation.




                                                   264
PERFORMANCE INDICATORS


Return on capital employed
Return on capital employed (ROCE) corresponds to annualized operating income adjusted for changes
in the scope of combination, expressed as a percentage of total assets at the period-end. Total assets
include net property, plant and equipment, working capital, net goodwill and other intangible assets, but
exclude deferred tax assets arising from non-amortizable land.


EBITDA


EBITDA corresponds to operating income before depreciation and amortization.
The method used for calculating EBITDA is explained in Note 24.


Cash flow from operations


Cash flow from operations corresponds to net cash generated from operating activities before the impact
of changes in working capital requirement, changes in current taxes and movements in provisions for
other liabilities and charges and deferred taxes. Cash flow from operations is adjusted for the effect of
material non-recurring provision charges.


The method used for calculating cash flow from operations is explained in Note 24.


Cash flow from operations before tax on capital gains and losses and non-recurring provisions


This item corresponds to cash flow from operations less the tax effect of asset disposals and of non-
recurring provision charges and reversals.


The method used for calculating cash flow from operations before tax on capital gains and losses and
non-recurring provisions is explained in Note 24.


SEGMENT INFORMATION


In compliance with IFRS 8, segment information is given by geographical area, reflecting the Group’s
internal presentation of operating results. Segment information is consistent for the three exercises.




                                                   265
NOTE 3 – ASSETS AND LIABILITIES HELD FOR SALE – DISCONTINUED OPERATIONS

SG Cristaleria shares valued at €53 million in 2008 were sold to a Saint-Gobain subsidiary for the same
amount in 2009 (see Note 8).
The disposal gain amounted to €53 million after taking into account the recycling to the income
statement of cumulative gains and losses initially recorded in equity.




                                                  266
NOTE 4 – GOODWILL

(in EUR million)
                                    2010   2009   2008


At January 1
 Gross value                        313    324    309
 Accumulated impairment             (78)   (81)   (76)
Net                                 235    243    233

Movements during the year
 Changes in Group structure          (1)            4
 Impairment
 Translation adjustments             15     (8)     6
Total                                14     (8)    10

At December 31
 Gross value                        333    313    324
 Accumulated impairment             (84)   (78)   (81)
Net                                 249    235    243




                              267
NOTE 5 – OTHER INTANGIBLE ASSETS

(in EUR million)                           Patents         Software       Other         Total



At January 1, 2008
 Gross value                                          2           26               2             30
 Accumulated amortization and impairment             (2)         (22)             (2)           (26)
Net                                                   0            4               0              4



Movements during the year
 Changes in Group structure                                           1                           1
 Acquisitions                                                         1           1               2
 Disposals                                                                                        0
 Translation adjustments                                                                          0
 Amortization and impairment                                      (3)                            (3)
Total movements                                      0            (1)             1               0

At December 31, 2008
 Gross value                                          2           25              1              28
 Accumulated amortization and impairment             (2)         (22)                           (24)
Net                                                   0            3              1               4


Movements during the year
 Changes in Group structure                                                       (1)            (1)
 Acquisitions                                                         1                           1
 Disposals                                                                                        0
 Translation adjustments                                           1                              1
 Amortization and impairment                                      (2)                            (2)
Total movements                                      0             0              (1)            (1)

At December 31, 2009
 Gross value                                          2           27                             29
 Accumulated amortization and impairment             (2)         (24)                           (26)
Net                                                   0            3              0               3



Movements during the year
 Changes in Group structure                                           1           2               3
 Acquisitions                                                         7                           7
 Disposals                                                                                        0
 Translation adjustments                                           1                              1
 Amortization and impairment                                      (2)                            (2)
Total movements                                      0             7              2               9

At December 31, 2010
 Gross value                                          2           36               3             41
 Accumulated amortization and impairment             (2)         (26)             (1)           (29)
Net                                                   0           10               2             12




                                                268
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

(in EUR million)                                    Lands         Buildings    M achinery   Assets      Total
                                                                                  and       under
                                                                               equipment construction


At January 1, 2008
 Gross value                                              51            551        2,745        154       3,501
 Accumulated depreciation and impairment                  (3)          (282)      (1,847)                (2,132)
Net                                                       48            269          898        154       1,369

Movements during the year
 Changes in Group structure and reclassifications            6           10           24                     40
 Acquisitions                                                1            8           53        221         283
 Disposals                                                  (1)          (2)          (7)                   (10)
 Translation adjustments                                    (1)         (12)         (14)         (3)       (30)
 Depreciation and impairment                                            (21)        (187)                  (208)
 Transfers                                                               24          242        (266)         0
Total movements                                             5             7          111         (48)        75

At December 31, 2008
 Gross value                                              57            580        2,926        106       3,669
 Accumulated depreciation and impairment                  (4)          (304)      (1,917)                (2,225)
Net                                                       53            276        1,009        106       1,444

Movements during the year
 Changes in Group structure and reclassifications                         4            5         (9)          0
 Acquisitions                                                             5           31        223         259
 Disposals                                                  (2)          (1)          (5)                    (8)
 Translation adjustments                                                  5           (2)          2          5
 Depreciation and impairment                                            (27)        (200)                  (227)
 Transfers                                                               18          143        (161)         0
Total movements                                             (2)           4          (28)         55         29

At December 31, 2009
 Gross value                                              55            608        2,974        161       3,798
 Accumulated depreciation and impairment                  (4)          (328)      (1,993)                (2,325)
Net                                                       51            280          981        161       1,473

Movements during the year
 Changes in Group structure and reclassifications                        11           48        (61)         (2)
 Acquisitions                                                            10           35        217         262
 Disposals                                                  (3)          (6)          (4)                   (13)
 Translation adjustments                                     2           13           36           5         56
 Depreciation and impairment                                            (23)        (213)                  (236)
 Transfers                                                  3            16          208        (227)         0
Total movements                                             2            21          110         (66)        67

At December 31, 2010
 Gross value                                              58            643        3,264          95      4,060
 Accumulated depreciation and impairment                  (5)          (342)      (2,173)                (2,520)
Net                                                       53            301        1,091          95      1,540



At December 31, 2010, total property, plant and equipment acquired under finance leases amounted to
€39 million (December 31, 2009: €44 million; December 31, 2008: €49 million) (see Note 25).




                                                    269
NOTE 7 – INVESTMENTS IN ASSOCIATES

(in EUR million)
                                                             2010       2009      2008


At January 1
 Equity in associates                                          9          9         6
 Goodwill                                                      7          7         7
Investments in associates                                     16         16        13

Movements during the year
 Changes in Group structure                                    (1)
 Translation adjustments
 Transfers, share issues and other movements                                        1
 Dividends paid                                                (1)       (1)       (1)
 Share in net income of associates                              3         1         3
Total movements                                                 1         0         3

At December 31
 Equity in associates                                         10          9         9
 Goodwill                                                      7          7         7
Investments in associates                                     17         16        16




Net sales recorded in the individual financial statements of associates totaled €73 million in 2010 (2009:
€69 million; 2008: €81 million) and their aggregate net income totaled €5 million (2009: €4 million;
2008: €8 million). At December 31, 2010, total assets and liabilities of these companies amounted to
€109 million and €61 million, respectively (December 31, 2009: €61 million and €67 million; December
31, 2008: €69 million and €35 million).




                                                   270
NOTE 8 – AVAILABLE-FOR-SALE AND OTHER SECURITIES

All available-for-sale securities had been sold as of December 31, 2010. They included shares in
Cougard Investment held by SG Emballage up to January 1, 2008 and sold in 2008 to a Saint-Gobain
subsidiary for their net carrying amount of €14 million, and SG Cristaleria shares valued at €53 million
in 2007 and 2008 and sold to a Saint-Gobain subsidiary for the same amount in 2009.

Other securities consist of non-strategic investments held by Group companies, mainly in France and
Germany.




                                                  271
NOTE 9 – OTHER NON-CURRENT ASSETS

(in EUR million)                                   Capitalized     Pension plan   Total
                                                    loans and       surpluses
                                                     deposits


At January 1, 2008
 Gross value                                                10                3           13
 Provisions for impairment in value                                                        0
Net                                                         10                3           13

Movements during the year
 Changes in Group structure                                                                0
 Increases / (decreases)                                     (1)                          (1)
 Movements in provisions for impairment in value                                           0
 Translation adjustments                                                                   0
 Transfers and other movements                                                             0
Total movements                                              (1)              0           (1)

At December 31, 2008
 Gross value                                                 9                3           12
 Provisions for impairment in value                                                        0
Net                                                          9                3           12

Movements during the year
 Changes in Group structure                                                               0
 Increases / (decreases)                                     (1)              3           2
 Movements in provisions for impairment in value                                          0
 Translation adjustments                                     1                            1
 Transfers and other movements                                                            0
Total movements                                              0                3           3

At December 31, 2009
 Gross value                                                 9                6           15
 Provisions for impairment in value                                                        0
Net                                                          9                6           15

Movements during the year
 Changes in Group structure                                                               0
 Increases / (decreases)                                     (1)              2           1
 Movements in provisions for impairment in value                                          0
 Translation adjustments                                                                  0
 Transfers and other movements                                                            0
Total movements                                              (1)              2           1

At December 31, 2010
 Gross value                                                 8                8           16
 Provisions for impairment in value                                                        0
Net                                                          8                8           16




                                                    272
NOTE 10 – INVENTORIES

(in EUR million)                              December 31,      December 31,   December 31,
                                                     2010              2009           2008

Gross value
 Raw materials                                           285             262            269
 Work in progress                                          7               6              5
 Finished goods                                          388             382            388
Gross inventories                                        680             650            662

Provisions for impairment in value
 Raw materials                                           (21)           (22)           (21)
 Work in progress                                                                       (1)
 Finished goods                                          (11)           (11)            (8)
Provisions for impairment in value                       (32)           (33)           (30)

Net                                                      648             617            632


In 2010, cost of sales came to €2,905 million (2009: 2,810 million; 2008: €2,912 million).

Impairment losses on inventories recorded in the 2010 income statement totaled €10.7 million (2009:
€9.6 million; 2008: €7.6 million). Impairment reversals, due to increases in the net realizable value of
inventories, amounted to €2.5 million in 2010 (2009: €0.8 million; 2008: €2.2 million) and were
recorded as a deduction from impairment losses for the year.




                                                   273
NOTE 11 – TRADE AND OTHER ACCOUNTS RECEIVABLE

(in EUR million)                             December 31,   December 31,   December 31,
                                                    2010           2009           2008
Gross value                                           418            391           440
Provisions for impairment in value                   (13)           (12)           (12)
Trade accounts receivable                            405            379            428
Advances to suppliers                                   5              4              5
Prepaid payroll taxes                                   1              1              2
Other prepaid and recoverable taxes (other
than income tax)                                       23            27              24
Other                                                  33            39              40
Other receivables                                      62            71              71


The change in impairment provisions for trade accounts receivable in 2010 reflects €5 million in
additions (2009: €5 million; 2008: €2 million) and €5 million in reversals (2009: €5 million; 2008: €2
million) – resulting from recoveries as well as write-offs. Bad debt write-offs were not material in the
periods presented.

Trade and other accounts receivable are mainly due within one year, with the result that their carrying
amount approximates fair value.
Related party receivables are presented in Note 26.
Details of receivables securitization programs in the United States are provided in Note 20.

Past-due trade receivables are regularly monitored and analyzed, provisions are set aside when
appropriate. Net past-due receivables amounted to €40 million at December 31, 2010 (December 31,
2009: €26 million and December 31, 2008: €35 million), including €3 million over three months past-
due.

The Group considers that its exposure to concentrations of credit risk is limited due to its broad
customer base and global presence.

Note that one of the Group’s customers represented more than 10% of total revenue in 2010,
contributing roughly €430 million (December 31, 2009: €380 million).




                                                            274
NOTE 12 – STOCK OPTION PLANS

Saint-Gobain Stock Option plans

Compagnie de Saint-Gobain has stock option plans available to certain employees.

Compagnie de Saint-Gobain stock options have been issued to employees who work or have worked in the
Group. These options are tracked, by grantee, at the level of Saint-Gobain. However, no stock options have
been issued for shares of the Group’s main parent companies or their subsidiaries.

Stock options are exercisable for Compagnie de Saint-Gobain shares at a price based on the average share
price for the 20 trading days preceding the grant date. Since 1999, no stock options have been granted at a
discount to the average price.

Since the November 2007 plan, all stock options are subject to a four-year vesting period. Under earlier
plans, the vesting period was three years for non-residents in France and four years for tax residents.
Options must be exercised within ten years of the date of grant. All rights to options are forfeited if the
holder leaves the Group, unless expressly agreed otherwise by both the Chairman and Chief Executive
Officer of Compagnie de Saint-Gobain and the Appointments Committee of the Board of Directors.

All options granted between 2001 and 2002 were exercisable for existing shares, while those granted
between 2003 and 2007 were exercisable for new shares. For the 2008, 2009 and 2010 plans, the origin of
the shares will be determined at the latest at the end of the four-year vesting period. If an option holder were
to die or any of the events provided for in the General Tax Code were to occur during the four-year vesting
period, only options exercisable for new shares would vest.

Until 2008, options granted were subject to a performance condition for certain categories of grantees. The
2009 and 2010 plans are subject to performance conditions for all grantees. For options granted in 2010,
these vesting conditions are based on stock market performance.




                                                      275
Movements relating to stock options held by the 77 grantees employed by the Group as of November 18,
2010 and outstanding in 2008, 2009 and 2010 are summarized below:

                                                                                                            Average
                                                                                    4 euros per
                                                                                                      exercise price
                                                                                   value shares
                                                                                                          (in euros)

Options outstanding at January 1, 2008                                                  672,600
Options granted                                                                         168,800                   28.62
Options exercised
Options forfeited

Options outstanding at December 31, 2008                                                841,400
                                                   (1 )
Adjustment for effects of March 23 rights issue                                           89,112
Options granted                                                                           85,700                  36.34
Options exercised
Options forfeited

Options outstanding at December 31, 2009                                              1,016,212

Options granted                                                                           67,020                  35.19
Options exercised                                                                          (885)
Options forfeited

Options outstanding at December 31, 2010                                              1,082,347

(1)
  Following the March 23, 2009 capital increase for cash carried out by issuing and allocating stock warrants, the number of
options per grantee was adjusted in accordance with the applicable regulations in order to preserve the grantees’ rights.


Stock option expense recorded in the Group’s combined income statement amounted to €1.3 million in
2010 (2009: €1.7 million; 2008: €2.1 million).
The fair value of options granted in 2010 amounted to €0.3 million.

The table below summarizes information about stock options outstanding at December 31, 2010.


                                                                                                                            Total options
                                      Options exercisable                              Options not exercisa ble
                                                                                                                             outstanding
      Grant da te                                           Weighted ave rage                                                                     Type of options
                    Exercice price (en                                           Exercice price (en
                                       Number of options    contractual life (in                    Number of options N umber of options
                          euros)                                                       euros)
                                                                 months)
         2001             36.37                    9,741           11                                                                 9,741 Purchase
         2002             21.28                   23,894           23                                                                23,894 Purchase
         2003             32.26                   96,984           35                                                                96,984 Subscription
         2004             39.39                  143,878           47                                                               143,878 Subscription
         2005             41.34                  154,162           59                                                               154,162 Subscription
         2006             52.52                  152,061           71                                                               152,061 Subscription
         2007                                                      83                64.72                        162,235           162,235 Subscription
         2008                                                      95                25.88                        186,672           186,672 Subscription or purchase
        2009                                                      107                36.34                         85,700            85,700 Subscription or purchase
        2010                                                      119                35.19                         67,020            67,020 Subscription or purchase
        Total                                    580,720                                                          501,627         1,082,347



At December 31, 2010, 580,720 stock options were exercisable (at an average price of €41.36) and
501,627 options (average price €41.47) had not yet vested.




                                                                        276
NOTE 13 – GROUP SAVINGS PLAN (“PEG”)

The PEG Group Savings Plan is an employee stock purchase plan open to all Saint-Gobain employees
in France and in most other countries where Saint-Gobain does business. Eligible employees must have
completed a minimum of three months’ service with Saint-Gobain. The purchase price of the shares, as
set by the Chief Executive Officer of Saint-Gobain on behalf of its Board of Directors, corresponds to
the average of the opening share prices quoted over the 20 trading days preceding the pricing date.

In 2010, Compagnie de Saint-Gobain issued 383,532 new shares with a par value of €4 (2009: 941,252
shares; 2008: 440,839 shares) to Group members.

In some years, as well as the standard plans, leveraged plans are offered to employees in countries
where this is allowed under local law and tax rules.


Standard plans

Under the standard plans, eligible employees are offered the opportunity to invest in Saint-Gobain stock at a
20% discount. The stock is subject to a five or ten-year lock-up, except following the occurrence of certain
events. The compensation cost recorded in accordance with IFRS 2 is measured by reference to the fair
value of a discount offered on restricted stock (i.e. stock subject to a lock-up). The cost of the lock-up for
the employee is defined as the cost of a two-step strategy that involves first selling the restricted stock
forward five or ten years and then purchasing the same number of shares on the spot market and financing
the purchase with debt. The borrowing cost is estimated at the rate that would be charged by a bank to an
individual with an average risk profile for a general purpose five- or ten-year consumer loan repayable at
maturity (see Note 2 for details of the calculation).

The standard plan cost recorded in the Group’s combined income statement amounted to €0.3 million in
2010 (2009: €1.1 million; 2008: €1.1 million), net of the lock-up cost for employees of €2.4 million
(2009: €3.4 million; 2008: €2.6 million).

The following table shows the main features of the standard plans, the amounts invested in the plans and
the valuation assumptions applied in 2010, 2009 and 2008.

                                                           2010        2009          2008
                      Plan characteristics
Grant date                                             29 March      23 March     22 February
Plan duration (in years)                                5 or 10       5 or 10       5 or 10
Benchmark price (in euros)                               35.87         19.74         51.75
Purchase price (in euros)                                28.70         15.80         41.41
Discount (in %)                                         20.00%        20.00%        20.00%
Total discount on the grant date (in %) (a)             20.12%        28.11%        22.05%
Employee investments (in EUR million)                     11            15            16
Total number of shares purchased                        383,532       941,252      397,318
                    Valuation assumptions
Interest rate paid by employees (1)                        6.33%      7.09%         7.57%
5-year risk-free interest rate                          2.29%          2.73%        3.61%
Repo rate                                               0.25%          1.35%        0.25%
Lock-up discount (in %) (b)                            17.73%         22.92%       17.17%
Total cost to the Group (in %) (a-b)                    2.39%          5.19%        4.88%

(1)
  A 0.5-point decline in borrowing costs for the employee would have not have a material impact on
2010 cost as calculated in accordance with IFRS 2.




                                                     277
Leveraged plan

Under the leveraged plan set up in 2008, eligible employees are offered the opportunity to invest in
Saint-Gobain stock at a 15% discount. The yield profile of the leveraged plan is different from that of
the standard plans, as a third-party bank tops up the employee’s initial investment, essentially
multiplying by ten the amount paid by the employee. The bank’s intervention secures the initial funding,
secures the yield for the employee and increases the indexation on a leveraged number of directly
subscribed shares.

The plan costs are calculated under IFRS 2 in the same way as for non-leveraged plans (see Note 2), but
also take into account the advantage accruing to employees who have access to share prices with a
volatility profile adapted to institutional investors.

The leveraged plan cost recorded in the Group’s combined income statement amounted to €0.1 million
in 2008, net of the lock-up cost for employees and the opportunity gain of €0.3 million.

No leveraged plans were set up in 2010 or 2009.

The following table shows the main features of the leveraged plan, the amounts invested in the plan and
the valuation assumptions applied in 2008.

                                                          2008
                       Plan characteristics
Grant date                                           22 February
Plan duration (in years)                                  5
Benchmark price (in euros)                              51.75
Purchase price (in euros)                               43.99
Discount (in %)                                        15.00%
Total discount on the grant date (in %) (a)            17.18%
Employee investments (in EUR million)                     2
Total investment in the plan (in EUR million)            19
Total number of shares purchased                       43,521
                    Valuation assumptions
Interest rate paid by employees (1)                       7.57%
5-year risk-free interest rate                            3.61%
Repo rate                                                 0.25%
                                         (2 )
Retail/institutional volatility spread                    5.50%
                              (3)
Lock-up discount (in %) (b)                           15.00%
Opportunity gain (in %) (c)                            1.62%
Total cost to the Group (in %) (a-b+c)                 3.80%

(1)
      A 0.5-point decline in borrowing costs for the employee would have had no impact on the 2008 cost
      as calculated in accordance with IFRS 2 because the lock-up cost would still exceed the discount.
(2)
      A 0.5-point increase in the retail/institutional rate spread would not have had a material impact on
      the 2008 cost as calculated in accordance with IFRS 2.
(3)
      The interest rate used to calculate the lock-up cost is capped at the discount percentage.




                                                    278
NOTE 14 – PERFORMANCE SHARE PLANS

Various performance share plans have been set up since 2009. As of December 31, 2010, three such
plans were outstanding:

•   A worldwide plan authorized by Saint-Gobain’s Board of Directors on November 19, 2009 whereby
    eligible employees and officers of the Group in France and abroad were each awarded seven
    performance shares. The eligibility criterion is subject to a period of service within the Group and to
    a performance criterion. In all, a total of 81,087 performance shares may vest, as follows:
    - For eligible Group employees in France, Spain and Italy, the vesting period will end on March
        29, 2012 and the shares will be delivered on March 30, 2012. The vesting period will be
        followed by a two-year lock-up, such that the shares may not be sold until March 31, 2014
        except in the case of the grantee’s death or disability.
    - For eligible Group employees in all other countries, the vesting period will end on March 30,
        2014 and the shares will be delivered on March 31, 2014. No lock-up period will apply.

•   A performance share plan for eligible employees and officers of the Group in France and abroad
    authorized by Saint-Gobain’s Board of Directors on November 19, 2009. The eligibility criterion is
    subject to a period of service within the Group and to a performance criterion. In all, an estimated
    31,610 performance shares may vest under the plan, on the same basis as those granted under the
    plan described above.

•   A performance share plan for eligible employees and officers of the Group in France and abroad
    authorized by Saint-Gobain’s Board of Directors on November 18, 2010. The eligibility criterion is
    subject to a period of service within the Group and to a performance criterion. In all, an estimated
    40,940 performance shares may vest under the plan, as follows:
    - For eligible Group employees in France, the vesting period will end on March 29, 2013 and the
        shares will be delivered on March 30, 2013. The vesting period will be followed by a two-year
        lock-up, such that the shares may not be sold until March 31, 2015 except in the case of the
        grantee’s death or disability.
    - For eligible Group employees outside France, the vesting period will end on March 30, 2015
        and the shares will be delivered on March 31, 2015. No lock-up period will apply.


The table below shows changes in the number of performance share rights:

                                                                 Number of
                                                                    rights

Number of performance share rights at January 1, 2009                     0
Performance share rights granted in November 2009                   112,697
Shares issued/delivered                                                   0
Lapsed and canceled rights                                                0

Number of performance share rights at December 31, 2009             112,697

Performance share rights granted in November 2010                    40,940
Shares issued/delivered                                                   0
Lapsed and canceled rights                                                0

Number of performance share rights at December 31, 2010             153,637



The fair value of the performance shares corresponds to the Saint-Gobain share price on the grant date
less (i) the value of dividends not payable on the shares during the vesting period, and (ii) as for the
PEG, less the lock-up discount on restricted stock (i.e. stock subject to a four-year lock-up), which has




                                                        279
been estimated at around 30%. The compensation cost is recognized over the vesting period of the
performance shares, ranging from two to four years.
The cost recorded in the Group’s combined income statement for the 2009 plans amounted to €0.8
million in 2010 (2009: €0.1 million).




                                              280
NOTE 15 – PROVISIONS FOR PENSIONS AND OTHER EMPLOYEE BENEFITS

(in EUR million)                                                        December 31,    December 31,    December 31,
                                                                               2010            2009            2008
Pensions                                                                        289             299             284
Length-of-service awards                                                          25              26              25
Post-employment healthcare benefits                                               40              36              36

Total provisions for pensions and other post-employment benefit
obligations                                                                      354             361             345

Healthcare benefits                                                               22              18              21
Long-term disability benefits                                                      5               5               5
Other long-term benefits                                                           9               9               9


Provisions for pensions and other employee benefits                              390             393             380




The following table shows defined benefit obligations under pension and other post-employment benefit
plans and the related plan assets:

(in EUR million)                                                        December 31,    December 31,    December 31,
                                                                               2010            2009            2008

Provisions for pensions and other post-employment benefit obligations            354             361             345
Pension plan surpluses                                                            (8)             (6)             (3)
Net pension and other post-employment benefit obligations                       346             355             342




                                                                281
Changes in pension and other post-employment benefit obligations are as follows:

(in EUR million)                         Pension and Fair value of   Other      Net pension
                                          other post-  plan assets           and other post-
                                         employment                            employment
                                                                                     bene fit
                                              benefit
                                                                                 obligations
                                          obligations

At January 1, 2008                              712          (541)     37              208

Movements during the year
 Service cost                                    14                                      14
 Interest cost / return on plan assets           42           (41)                        1
 Employer contributions                                       (15)                      (15)
 Actuarial gains and losses                       5          135                       140
 Translation adjustments                         31           (21)                       10
 Benefit payments                               (40)           32                        (8)
 Past service cost                                                                        0
 Changes in Group structure                      (8)            8                         0
 Curtailments / settlements                                                               0
 Other                                                                 (8)               (8)
Total movements                                  44            98      (8)             134

At December 31, 2008                            756          (443)     29              342
Movements during the year
 Service cost                                    15                                      15
 Interest cost / return on plan assets           46           (34)                       12
 Employer contributions                                       (11)                      (11)
 Actuarial gains and losses                      41           (16)                       25
 Translation adjustments                        (22)           13                        (9)
 Benefit payments                               (44)           36                        (8)
 Past service cost                                                                        0
 Changes in Group structure                      (1)            1                         0
 Curtailments / settlements                      (1)                                     (1)
 Other                                                                (10)              (10)
Total movements                                  34           (11)    (10)               13

At December 31, 2009                            790          (454)     19              355
Movements during the year
 Service cost                                    16                                      16
 Interest cost / return on plan assets           48           (40)                        8
 Employer contributions                                       (67)                      (67)
 Actuarial gains and losses                      47           (13)                       34
 Translation adjustments                         48           (28)                       20
 Benefit payments                               (52)           42                       (10)
 Past service cost                                1                                       1
 Changes in Group structure                                                               0
 Curtailments / settlements                      (2)                                     (2)
 Other                                                                 (9)               (9)
Total movements                                 106          (106)     (9)               (9)

At December 31, 2010                            896          (560)     10              346




                                                   282
The following tables show the funded status of pension and other post-employment benefit obligations
by geographical area:

                                                          Other Western
           December 31, 2010                France          European    North America   Total
                                                            countries

             (in EUR million)


Defined benefit obligation - funded plans            16             56           698            770
Defined benefit obligation - unfunded
plans                                                11             79            36            126

Fair value of plan assets                            13             64           483            560

Deficit / (surplus)                                  14             71           251            336

Insured plans                                                                                   10

Net pension and other post-employment benefit obligations                                       346

                                                          Other Western
           December 31, 2009                France          European    North America   Total
                                                            countries

             (in EUR million)


Defined benefit obligation - funded plans            16             64           587            667
Defined benefit obligation - unfunded
plans                                                11             80            32            123

Fair value of plan assets                            11             70           373            454

Deficit / (surplus)                                  16             74           246            336

Insured plans                                                                                   19

Net pension and other post-employment benefit obligations                                       355

                                                          Other Western
           December 31, 2008                France          European    North America   Total
                                                            countries

             (in EUR million)


Defined benefit obligation - funded plans            15             63           563            641
defined benefit obligation - unfunded
plans                                                10             73            32            115

Fair value of plan assets                             8             67           368            443

Deficit / (surplus)                                  17             69           227            313

Insured plans                                                                                   29

Net pension and other post-employment benefit obligations                                       342




                                                                  283
Description of defined benefit plans

The Group’s main defined benefit plans are as follows:

In France, in addition to length-of-service awards, there are three defined benefit plans all of which are
final salary plans. These plans were closed to new entrants by the companies concerned between 1969
and 1997.
In Germany, retirement plans provide pensions and death and disability benefits for employees. These
plans have been closed to new entrants since 1996.
In the United States, the Group participates in two defined benefit pension plans for hourly and salary
employees sponsored by affiliates of Saint-Gobain. Effective January 1, 2001, salaried new hires
participate in a cash balance pension plan. Effective April 1, 2008, new hourly employees subject to the
collective bargaining agreement which covers most employees participate in a cash balance pension
plan.

Provisions for other long-term employee benefits amounted to €36 million at December 31, 2010
(December 31, 2009: €32 million; December 31, 2008: €35 million), and covered all other employee
benefits, notably long-service awards in France, jubilees in Germany and employee benefits in the
United States. This related defined benefit obligation is generally calculated on an actuarial basis using
the same rules as for pension obligations.


Measurement of pension and other post-employment benefit obligations

Pensions and other post-employment benefit obligations are determined on an actuarial basis using the
projected unit credit method, based on estimated final salaries.

The Group’s total pension and other post-employment benefit obligations amounted to €896 million at
December 31, 2010 (December 31, 2009: €790 million; December 31, 2008: €756 million).


Plan assets

For defined benefit plans, plan assets have been progressively built up by contributions, primarily in the
United States. Contributions paid by the Group totaled €67 million in 2010 (2009: €11 million; 2008:
€15 million). The actual return on plan assets came to €53 million for the year (2009: positive return of
€50 million; 2008: negative return of €94 million).

The fair value of plan assets – which came to €560 million at December 31, 2010 (December 31, 2009:
€454 million; December 31, 2008: €443 million) – is deducted from the Group’s projected benefit
obligation, as estimated using the projected unit credit method, in order to calculate the unfunded
obligation to be covered by a provision.

Plan assets are mainly composed of equities (50%) and bonds (29%), with the remaining 21% invested
in other asset classes.

Projected contributions to pension plans for 2011 are estimated between €30 and €100 million.




                                                   284
Actuarial assumptions used to measure projected benefit obligations and plan assets

Assumptions related to mortality, employee turnover and future salary increases take into account the
economic conditions specific to each country and company.

The assumptions used in 2010 for the main plans were as follows:
(in %)                                   France Other European     United
                                                   countries        states



Discount rate                             4.75%            4.75%    5.50%
Salary increase                           2.40%   1.90% to 2.70%    3.00%
Expected return on plan assets            5.00%   4.15% to 5.25%    8.75%
Inflation rate                            1.80%   1.50% to 1.90%    2.00%


The assumptions used in 2009 for the Group’s main plans were as follows:

(in %)                                   France Other European     United
                                                   countries        states



Discount rate                             5.00%            5.00%    6.00%
Salary increase                           2.40%   2.75% to 3.25%    3.00%
Expected return on plan assets            5.00%   3.50% to 5.25%    8.75%
Inflation rate                            1.90%   1.90% to 2.75%    2.20%


The assumptions used in 2008 for the Group’s main plans were as follows:

(in %)                                   France Other European     United
                                                   countries        states



Discount rate                             6.25%            6.25%    6.25%
Salary increase                           2.40%   2.75% to 3.25%    3.00%
Expected return on plan assets            5.00%   3.50% to 5.25%    8.75%
Inflation rate                            2.00%   1.90% to 2.75%    2.00%


Discount rates were set by region or country based on observed bond rates at December 31, 2010.

A 0.5-point decrease in the discount rate would lead to an increase in defined benefit obligations of
around €1 million for the French plans, €8 million for plans in other European countries and €53 million
for the US plans. A 0.5-point increase in the inflation rate would lead to an overall increase in projected
benefit obligations of €23 million.

The same assumptions concerning mortality, employee turnover and interest rates are used to determine
the Group’s defined benefit obligations for other long-term employee benefits. In the United States,
retirees’ healthcare costs are projected to rise by 9% per year.

Expected rates of return on plan assets are estimated by country and by plan, taking into account the
different classes of assets held by the plan and the outlook in the various financial markets. In 2010,
firm financial markets, particularly in the second half, led to an actual return on plan assets of €53
million versus an expected return of €40 million. A 50 bps change in the estimated return on plan assets
would have a €3 million impact on profit for the year.




                                                    285
Actuarial gains and losses

In 2006, the Group elected to apply the option available under IAS 19 and to record in equity actuarial
gains and losses and the change in the asset ceiling. In 2010, €34 million was recognized in equity
(increase in provisions). This amount corresponds to €47 million in actuarial differences, including a €5
million (0.6%) negative experience adjustment (corresponding to the effects of differences between
previous actuarial assumptions and what has actually occurred), less the €13 million decrease in the
defined benefit obligation resulting from an increase in plan assets.

The defined benefit obligation, asset ceiling and experience adjustments recognized since the
application of the option available under IAS 19 are as follows:

(in EUR million)                                            2010    2009          2008          2007        2006
Defined benefit obligation                                   896     790           756           712         802
Fair value of plan assets                                    560     454           443           541         589
Plan (surplus) / deficit                                     336     336           313           171         213




Plan surpluses and the asset ceiling

When plan assets exceed the defined benefit obligation, the excess is recognized in other non-current
assets under “Plan surplus” (see Note 9).


Contributions to insured plans

This item corresponds to amounts payable in the future to insurance companies under externally funded
pension plans for Group employees in Spain and totaled €10 million at December 31, 2010 (December
31, 2009: €19 million; December 31, 2008: €29 million).


Employee benefits expense

The cost of the Group’s pension and other post-employment benefit plans (excluding other employee
benefits) is as follows:

(in EUR million)                                            2010     2009          2008
Service cost                                                   16       15            14
Interest cost                                                  48       46            42
Return on plan assets                                        (40)     (34)          (41)
Pensions, length-of-service aw ards and other post-
employment benefits                                           24       27            15

Employee contributions                                         0        0             0

Total                                                         24       27            15




                                                      286
Additional information about defined contribution plans

Contributions to defined contribution plans for 2010 represented an estimated €72 million (2009: €61
million; 2008: €61 million), including €62 million for government-sponsored basic pension schemes
(2009: €52 million; 2008: €52 million), €8 million for government-sponsored supplementary pension
schemes, mainly in France (2009 and 2008: €8 million), and €2 million for corporate-sponsored
supplementary pension plans (2009 and 2008: €1 million).




                                                287
NOTE 16 – CURRENT AND DEFERRED TAXES

The pre-tax income of combined companies is as follows:

(in EUR million)                                                          2010            2009             2008


Net income                                                                242             309              313
Less :
   Net income of discontinued activities                                    0              53                 0
   Share in net income of associates                                        3               1                 3
   Income taxes                                                          (134)            (109)            (109)
Pre-tax income of combined companies                                       373             364              419



Income tax expense breaks down as follows:

(in EUR million)                                                          2010            2009             2008

Current taxes                                                              (82)           (100)            (120)
France                                                                     (25)            (29)             (38)
Outside France                                                             (57)            (71)             (82)
Deferred tax                                                               (52)             (9)               11
France                                                                      (3)             (4)              (3)
Outside France                                                             (49)             (5)               14
Total income tax expense                                                  (134)           (109)            (109)




In light of the non-deductible nature of certain expenses incurred during the period, income tax expense
for 2010 represented 35.9% of the net pre-tax income of combined companies (2009: 29.9%; 2008:
26.0%).
The effective tax rate breaks down as follows:

(in %)                                                                    2010            2009             2008

Tax rate in France                                                         34.4            34.4             34.4
Impact of tax rates outside France                                        (1.1)           (1.6)            (2.7)
Capital gains and losses and asset impairments                              0.3             0.1            (0.1)
Effect of changes in future tax rates                                       0.0             0.0            (0.1)
Non recurring changes in deferred tax                                       0.0           (3.4)            (3.3)
Other deferred, CVAE, IRAP and miscellaneous taxes                          2.3             0.4            (2.2)
Effective tax rate                                                         35.9            29.9             26.0




                                                     288
In the balance sheet, changes in the net deferred tax liability break down as follows:

(in EUR million)                                                                                       Net deferred tax
                                                                                                               liability

At January 1, 2008                                                                                                  106

        Deferred tax expense / (benefit)                                                                           (11)
        Changes in deferred taxes on actuarial gains and losses recognized in accordance with                      (55)
        IAS 19 (Note 15)
        Translation adjustment                                                                                       (2)
        Impact of changes in Group structure and other                                                               (9)

At December 31, 2008                                                                                                 29

        Deferred tax expense / (benefit)                                                                               9
        Changes in deferred taxes on actuarial gains and losses recognized in accordance with                        (9)
        IAS 19 (Note 15)
        Translation adjustment                                                                                       (1)
        Impact of changes in Group structure and other                                                                 9

At December 31, 2009                                                                                                 37

        Deferred tax expense / (benefit)                                                                             52
        Changes in deferred taxes on actuarial gains and losses recognized in accordance with                      (14)
        IAS 19 (Note 15)
        Translation adjustment                                                                                       (3)
        Impact of changes in Group structure and other                                                                12

At December 31, 2010                                                                                                 84



The table below shows the principal components of the net deferred tax liability:

(in EUR million)                                                                December 31, 2010 December 31, 2009 December 31, 2008


Deferred tax assets                                                                             (15)                (33)         (31)
Deferred tax liabilities                                                                         99                   70          60
Net deferred tax liability                                                                       84                   37          29


Pensions                                                                                    * (82)                 (118)        (112)
Depreciation and amortization, accelerated capital allowances and tax-driven
                                                                                                219                 179          159
provisions
Tax loss carry forwards                                                                         (43)                (15)          (2)
Other                                                                                           (10)                 (9)         (16)
Total                                                                                             84                  37           29



* Deferred tax assets on pension and other post-employment benefit obligations have been reduced by €35 million
due to the deduction from 2010 of estimated pension contributions.




                                                                          289
The split by country of the net deferred tax liability is as follows:

(in EUR million)                                                December 31, 2010 December 31, 2009 December 31, 2008

 United States                                                                  0              (24)              (21)
 Brazil                                                                       (6)               (5)               (2)
 Chile                                                                        (4)               (3)               (2)
 Other                                                                        (5)               (1)               (6)
Deferred tax assets                                                          (15)              (33)              (31)
 France                                                                        29                23                17
 Spain                                                                         19                19                16
 Germany                                                                       18                17                18
 United States                                                                 16                 0                 0
 Other                                                                         17                11                 9
Deferred tax liabilities                                                       99                70                60
Net deferred tax liability                                                     84                37                29




In France, the taxe professionnelle local business tax has been replaced, from 2010, by the contribution
économique territoriale (CET), a two-part tax. The portion of the tax assessed on the value created by
the business (cotisation sur la valeur ajoutée des entreprises – CVAE) has been included in income tax
for the period in accordance with IAS 12, because it is assessed on revenues net of expenses.




                                                     290
NOTE 17 – OTHER CURRENT AND NON-CURRENT LIABILITIES AND PROVISIONS
(in EUR million)                                                Provision for    Provision for     Provision for   Provision for    Provision for       Investment-     Total
                                                                  claims and     restructuring   personnel costs      customer              other related liabilities
                                                                    litigation           costs                       warranties    contingencies


At January 1, 2008
 Current portion                                                                           2                 4               7                 3                  3             19
 Non-current portion                                                       5                                 5                                 3                 15             28
Total                                                                      5               2                 9               7                 6                 18             47

Movements during the year
 Additions                                                                                 1                 3               4                 3                                11
 Reversals                                                                                (1)                               (2)               (1)                               (4)
 Utilizations                                                                             (1)                (2)            (4)               (2)                               (9)
 Other (included reclassification and translation adjustment)                                                                                 (1)                (2)            (3)
Total movements                                                            0              (1)                1              (2)               (1)                (2)            (5)

At December 31, 2008
 Current portion                                                                           1                 5               5                 3                  1             15
 Non-current portion                                                       5                                 5                                 2                 15             27
Total                                                                      5               1                10               5                 5                 16             42

Movements during the year
 Additions                                                                                 9                  6              3                 4                                 22
 Reversals                                                                                                   (2)            (1)               (4)                                (7)
 Utilizations                                                                             (7)                (3)            (2)               (2)                               (14)
 Other (included reclassification and translation adjustment)                                                 1                                                   6               7
Total movements                                                            0               2                  2              0                (2)                 6               8

At December 31, 2009
 Current portion                                                                           3                 8               4                 1                  1             17
 Non-current portion                                                       5                                 4               1                 2                 21             33
Total                                                                      5               3                12               5                 3                 22             50

Movements during the year
 Additions                                                                                11                  3              5                 4                                23
 Reversals                                                                                (1)                (1)            (1)                                                 (3)
 Utilizations                                                                             (2)                (2)            (4)               (1)                               (9)
 Other (included reclassification and translation adjustment)                                                 3                                                   8             11
Total movements                                                            0               8                  3              0                 3                  8             22

At December 31, 2010
 Current portion                                                                          11                10               4                 1                  1             27
 Non-current portion                                                       5                                 5               1                 5                 29             45
Total                                                                      5              11                15               5                 6                 30             72




                                                                         291
Provisions for environmental risks
Provisions for environmental risks cover costs relating to environmental protection measures, as well as
site rehabilitation and clean-up costs.


Provisions for restructuring costs
Provisions for restructuring costs came to €11 million at December 31, 2010 (December 31, 2009: €3
million; December 31, 2008: €1 million). The provisions primarily concern France.


Provisions for personnel costs
These provisions primarily cover indemnities due to employees that are unrelated to the Group’s
reorganization plans.


Provisions for other contingencies
At December 31, 2010, provisions for other contingencies amounted to €6 million (December 31, 2009:
€3 million; December 31, 2008: €5 million) and mainly concerned France (December 31, 2010: €3
million; December 31, 2009 and 2008: €0 million), Italy (December 31, 2010, 2009 and 2008: €1
million) and Germany (December 31, 2010, 2009 and 2008: €1 million).


Investment-related liabilities
In 2010 and 2009, changes in investment-related liabilities primarily concerned put options granted to
minority shareholders and additional purchase consideration, in particular for the SG Envases
acquisition in Chile.




                                                  292
NOTE 18 – TRADE AND OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

(in EUR million)                             December 31,   December 31,   December 31,
                                                    2010           2009           2008
Trade accounts payable                               458            403             460
Customer deposits                                    16             17              17
Payable to suppliers of non-current assets            83            103            100
Grants received                                        3              4              3
Accrued personnel expenses                           104             94             86
Accrued taxes other than on income                    26             27             29
Other                                                 67             63            102
Total other payables and accrued expenses            299            308            337


Trade and other accounts payable are due mainly within one year, with the result that their carrying
amount approximates fair value.




                                                     293
NOTE 19 – RISK FACTORS

MARKET RISKS (LIQUIDITY, INTEREST RATE, FOREIGN EXCHANGE, ENERGY, RAW MATERIALS AND
CREDIT RISKS)



Liquidity risk on financing

The Group’s overall exposure to liquidity risk on net debt is managed by the Treasury and Financing
Department of Saint-Gobain. Except in special cases, all of the Group companies’ long-term financing
needs and the majority of their short-term financing needs are met by Compagnie de Saint-Gobain or by
the national delegations’ cash pools.

The main objective of liquidity risk management processes is to guarantee that the Group’s financing
sources will be rolled over and to optimize annual borrowing costs. Long-term debt therefore
systematically represents a high percentage of overall debt. At the same time, the maturity schedules of
long-term debt are set in such a way that replacement capital markets issues are spread over time.

Medium-term notes are the main source of long-term financing used by Saint-Gobain, along with bonds.
However it also uses perpetual bonds, participating securities, bank borrowings, and lease financing.

Short-term debt is composed mainly of borrowings under French Commercial Paper (“Billets de
Trésorerie”) programs and, from time-to-time, Euro Commercial Paper and US Commercial Paper
programs, but also includes receivables securitization programs and bank overdrafts. Short-term
financial assets comprise marketable securities and cash equivalents.

To maintain secure sources of financing, Saint-Gobain has various confirmed syndicated lines of credit.

A breakdown of long- and short-term debt is provided by type and maturity in Note 20. Details of
amounts, currencies, and acceleration clauses of the Group’s financing programs and confirmed credit
lines are also discussed in Note 20.


Interest rate risks

The Group’s overall exposure to interest rate risk on net debt is managed by the Treasury and Financing
Department of Saint-Gobain using the same financing structures and methods as for liquidity risk.
Where subsidiaries use derivatives to hedge interest rate risks, their counterparty is generally Saint-
Gobain.

The Group’s overall exposure to interest rate risk on combined debt is managed primarily with the
objective of fixing the cost of medium-term debt and optimizing annual borrowing costs. According to
Group policy, the derivative financial instruments used to hedge these risks comprise interest rate
swaps, options and forward rate agreements. These instruments are traded over the counter with
counterparties meeting a minimum credit rating requirement under Saint-Gobain’s finance policy.




                                                  294
Foreign exchange risk

The currency hedging policies described below could be inadequate to protect the Group against
unexpected or sharper than expected fluctuations in exchange rates resulting from economic and
financial market conditions.

Foreign exchange risks are managed at the level of Saint-Gobain by hedging commercial transactions
carried out by Group entities in currencies other than their functional currencies. The Group’s
companies use options and forward contracts to hedge exposures arising from current and future
commercial transactions. The subsidiaries set up options exclusively through Saint-Gobain, which then
takes a reverse position on the market.

Most forward contracts have short maturities, of around three months. However, forward contracts taken
out to hedge firm orders may have terms of up to two years.

Wherever possible, foreign exchange risks are hedged with Saint-Gobain upon receipt of the orders sent
by the Group’s companies, or with Saint-Gobain’s local delegations’ cash pools. In other cases, hedges
are contracted with the subsidiaries’ banks.


Energy and raw materials risk

The Group is exposed to the risk of changes in the price of raw materials used in its products and in
energy prices. The energy hedging programs may be inadequate to protect the Group against significant
or unforeseen price swings that could result from the prevailing financial and economic environment.

The Group limits its exposure to energy price fluctuations by using swaps and options to hedge part of
its fuel oil and natural gas purchases. The swaps and options are mainly contracted in the functional
currency of the entities concerned.

Hedges of gas and fuel oil purchases are managed by a steering committee comprising members of the
Saint-Gobain Finance Department, Saint-Gobain Purchasing Department (SG Achats) and the relevant
Saint-Gobain Delegations.

Hedges of energy purchases (excluding fixed-price purchases negotiated directly with suppliers by
Saint-Gobain’s Purchasing Department), are arranged by Saint-Gobain’s Treasury and Financing
Department (or with its Delegations’ treasury departments) in accordance with instructions received
from SG Achats.

The Saint-Gobain steering committee does not manage hedges because:
• The volumes involved are not material, or
• There are no international price indexes used by local players in the geographical areas concerned,
   and transactions are therefore based on either administered prices or strictly national indexes.

In both of these cases, local purchasing units manage energy risk primarily through fixed-price
purchases.

Saint-Gobain may from time to time enter into contracts to hedge purchases of other commodities, in
accordance with the principles outlined above for energy purchases.

There can be no guarantee that raw materials that are not hedged as explained above will not be subject
to sudden, considerable or unforeseen fluctuations.




                                                  295
Credit risk

Saint-Gobain is the Group’s counterparty in all transactions involving credit risk exposure.

Note 21 provides details of the Group’s exchange rate and energy hedges. It also provides a breakdown
of debt by currency and interest rate (fixed or variable), as well as the interest rate repricing schedule.




                                                    296
NOTE 20 – NET DEBT

Long- and short-term debt


Long- and short-term debt due to Saint-Gobain and other third parties breaks down as follows:




Net debt due to Saint-Gobain


(in EUR million)                                                               2010         2009       2008
Long-term debt                                                                  122              81     228
Short-term borrowing                                                            247             212     155
Total gross debt                                                                369             293     383
Short-term loan                                                                 (82)        (116)      (110)
Total net debt, including accrued interest due to Saint-Gobain                  287             177     273




Net debt due to other third parties


(in EUR million)                                                               2010         2009       2008
Non current portion of long-term debt                                             20             35      42
Current portion of long-term debt                                                 24             29      27
     Bank overdraft and other short-term bank borrowings                          30             23      28
     Securitizations                                                              39             35      30
Short-term debt and bank overdrafts                                               69             58      58
Total gross debt                                                                113             122     127
Cash and cash equivalents                                                       (73)            (50)    (66)
Total net debt, including accrued interest                                        40             72      61




                                                  297
Long-term debt repayment schedule (excluding debt due to Saint-Gobain)


Long-term debt at December 31, 2010 can be analyzed as follows by maturity:


                                                             Within      1 to 5    Beyond
(in EUR million)                                Currency                                      Total
                                                             1 year      years     5 years
                                                   All
Other long-term debt                                               23         18         2         43
                                                currencies
Accrued interest                                                    1                               1
Total                                                              24         18         2         44

Long-term debt at December 31, 2009 can be analyzed as follows by maturity:


                                                             Within      1 to 5    Beyond
(in EUR million)                                Currency                                      Total
                                                             1 year      years     5 years
                                                   All
Other long-term debt                                               28         31         4         63
                                                currencies
Accrued interest                                                    1                               1
Total                                                              29         31         4         64

Long-term debt at December 31, 2008 can be analyzed as follows by maturity:


                                                             Within      1 to 5    Beyond
(in EUR million)                                Currency                                      Total
                                                             1 year      years     5 years
                                                   All
Other long-term debt                                               25         42         0         67
                                                currencies
Accrued interest                                                    2                               2
Total                                                              27         42         0         69



Bank overdrafts and other short-term borrowings

At December 31, 2010, this item includes €16 million in bank overdrafts (December 31, 2009: €11
million; December 31, 2008: €18 million) and €14 million in local short-term bank borrowings taken
out by subsidiaries and accrued interest on short-term debt (December 31, 2009: €12 million; December
31, 2008: €10 million).


Receivables securitization programs

The Group has a receivables securitization program concerning the US-based company SG Containers
Inc. The associated risk may not be fully transferred to the financial institution concerned. This program
is managed by SG Receivables Corporation, a Saint-Gobain company.

The program concerned €39 million at December 31, 2010 (€35 million at December 31, 2009; €30
million at December 31, 2008).


                                                   298
The difference between the face value of the sold receivables and the sale proceeds is treated as a
financial expense, and amounted to €1 million in 2010 (2009 and 2008: €1 million).




                                                299
NOTE 21 - FINANCIAL INSTRUMENTS

Derivatives

As of December 31, 2010, the Group’s only derivatives were energy and commodity swaps. The fair
value of derivatives carried in assets amounted to €3 million (December 31, 2009: €5 million; December
31, 2008: €0 million) and that of derivatives carried in liabilities stood at €4 million (December 31,
2009: €2 million; December 31, 2008: €36 million).


The fair value of financial instruments is generally determined by reference to the market price resulting
from transactions on a national stock market or over-the-counter market.


When no listed market price is available, fair value is based on estimates calculated by financial
discounting or other techniques.


          Forward foreign exchange contracts and currency options

Forward foreign exchange contracts and currency options are used to hedge foreign currency
transactions, particularly commercial transactions (purchases and sales) and investments.


          Energy and commodity swaps

Energy and commodity swaps are used to hedge the risk of changes in the price of certain purchases
used in Group companies’ operating activities, particularly energy (fuel and natural gas) purchases.




Impact on equity of financial instruments qualifying for hedge accounting

At December 31, 2010, the combined cash flow hedging reserve carried in equity in accordance with
IFRS had a balance of €0 million (December 31, 2009: credit balance of €3 million; December 31,
2008: debit balance of €35 million).


Embedded derivatives

The Group regularly analyzes its contracts in order to separately identify financial instruments classified
as embedded derivatives under IFRS. At December 31, 2010, no embedded derivatives deemed to be
material at Group level were identified.



Group debt structure


The weighted average interest rate on total debt (excluding debt due to Saint-Gobain) under IFRS was
3.18% at December 31, 2010, 3.76% at December 31, 2009 and 4.28% at December 31, 2008.




                                                    300
Gross debt by currency and interest rate


The table below presents the breakdown by currency and by interest rate (fixed or variable) of the
Group’s gross debt at December 31, 2010.


Gross debt      denominated    in   foreign
                                                      After hedging
currencies
                                              Variable
(in EUR million)                                        Fixed rate    Total
                                                rate
EUR                                                  28          6        34
USD                                                  42          0        42
RUB                                                  12          0        12
CLP                                                   5         19        24
UAH                                                   0          0         0
Total                                                87         25       112
Accrued interests                                                          1
Total gross debt                                                         113


The table below presents the breakdown by currency and by interest rate (fixed or variable) of the
Group’s gross debt at December 31, 2009.


Gross debt      denominated    in   foreign
                                                      After hedging
currencies
                                              Variable
(in EUR million)                                        Fixed rate    Total
                                                rate
EUR                                                  38          9        47
USD                                                  38          0        38
RUB                                                   7          0         7
CLP                                                   0         26        26
UAH                                                   3          0         3
Total                                                86         35       121
Accrued interests                                                          1
Total gross debt                                                         122

The table below presents the breakdown by currency and by interest rate (fixed or variable) of the
Group’s gross debt at December 31, 2008.


Gross debt      denominated    in   foreign
                                                      After hedging
currencies
                                              Variable
(in EUR million)                                        Fixed rate    Total
                                                rate
EUR                                                  51          5        56
USD                                                  35          7        42
RUB                                                   0          6         6
CLP                                                   0         20        20
UAH                                                   1          0         1
Total                                                87         38       125
Accrued interests                                                          2


                                               301
Total gross debt         127




                   302
Interest rate repricing schedule for debt


The table below shows the interest rate repricing schedule at December 31, 2010 for gross debt.


                                    Total    Within 1        1 to 5   Beyond 5
(in EUR million)                                year         years       years
December 31, 2010                     113          93            18          2
December 31, 2009                     122          87            31          4
December 31, 2008                     127          85            42          0




                                                  303
NOTE 22 - FINANCIAL ASSETS AND LIABILITIES

Financial assets and liabilities are classified as follows in accordance with IFRS 7:

(in EUR million)                                         Notes   December 31,   December 31,   December 31,
                                                                        2010           2009           2008
Loans and receivables                                                    475            459            508
 - Trade and other accounts receivable                    (11)           467            450            499
 - Loans and deposits                                      (9)             8              9              9
Available-for-sale financial assets                                        7              7             59
 - Available-for-sale and other securities (a)            (8)              7              7             59
Financial assets at fair value through profit or loss                     73             50             66
 - Derivatives recorded in assets (b)                     (21)             0              0              0
 - Cash and cash equivalents (c)                          (20)            73             50             66
Financial liabilities at amortized cost                                  870            833            924
 - Trade and other accounts payable                       (18)           757            711            797
 - Long and short-term debt                               (20)           113            122            127
Financial liabilities at fair value                                        0              0              0
 - Long and short-term debt (d)                           (20)             0              0              0
 - Derivatives recorded in liabilities (b)                (21)             0              0              0


(a) Available-for-sale financial assets are generally measured at historical cost except for securities
    traded in an active market which are measured at the year-end market price, corresponding to Level
    1 in the fair value hierarchy under IFRS 7.
(b) Derivatives consist only of interest rate swaps and forward foreign exchange contracts. The fair
    value of these instruments is measured using the discounted cash flows method, corresponding to
    Level 2 in the fair value hierarchy under IFRS 7.
(c) Marketable securities included in cash and cash equivalents consist of mutual fund units measured
    at their net asset value, corresponding to Level 1 in the fair value hierarchy under IFRS 7.
(d) Long- and short-term debt is measured at fair value using the discounted cash flows method,
    corresponding to Level 2 in the fair value hierarchy under IFRS 7.




                                                        304
NOTE 23 – BUSINESS INCOME BY EXPENSE TYPE

(in EUR million)                                                  2010       2009         2008

Net sales                                                       3,553       3,445       3,547

Personnel costs
      Salaries and payroll taxes                                 (718)      (682)        (660)
      Share-based payments (a)                                      (2)        (3)         (3)
      Pensions                                                     (25)       (21)        (20)
Depreciation and amortization                                    (235)      (220)        (208)
        (b)
Other                                                           (2,141)    (2,085)     (2,217)

Operating income                                                  432        434          439

Gains on disposal of assets                                         0          0            0
Other business income                                               0          0            0

                      (c)
Restructuring costs                                                (19)       (27)         (4)
Losses on disposal of assets and scrapped assets                    (6)        (6)         (6)
Impairment of assets and other business expenses                    (5)        (9)         (3)
Other business expense                                             (30)       (42)        (13)

Business income                                                   402        392          426

(a)
          Details of share-based payments are provided in Notes 12, 13 and 14.
(b)
          This corresponds to transport costs, raw materials costs and other production costs. This item also includes
          net foreign exchange gains and losses, representing almost a nil amount in the three years presented. In
          2010, research and development costs recorded under operating expenses amounted to €7 million (2009: €7
          million; 2008: €8 million).
(c)
          Restructuring costs in 2010 mainly consisted of employee termination benefits in an amount of €11 million
          (2009: €23 million; 2008: €3 million).




                                                          305
NOTE 24 – RECURRING NET INCOME – CASH FLOW FROM OPERATIONS – EBITDA

Recurring net income totaled €243 million in 2010 (2009: €264 million; 2008: €311 million).

The difference between net income and recurring net income (attributable to equity holders of the parents)
corresponds to the following items:

(in EUR million)                                                                     2010             2009             2008

Net income attributable to equity holders of the Group                                   235                 303              305

Less :
Gains and losses on disposals of assets                                                     (6)               (6)              (6)
Net income on discontinued activities                                                        0                53                0
Impairment of assets and other business expenses                                            (5)               (9)              (3)
Tax impact                                                                                   2                 1                3
Impact of minority interests                                                                 1                 0                0

Recurring net income attributable to equity holders of the Group                         243                 264              311



Cash flow from operations for 2010 amounted to €488 million (2009: €496 million; 2008: €533 million).
Excluding tax on capital gains and losses, cash flow from operations came to €486 million in 2010 (2009:
€495 million; 2008: €530 million). These amounts are calculated as follows:

(in EUR million)                                                           2010             2009             2008

Net income attributable to equity holders of the Group                            235              303              305

Minority interests in net income                                                     7               6                 8
Share in net income of associates, net of dividends received                       (2)               0               (2)
Depreciation, amortization and impairment of assets                               239              229              211
Gains and losses on disposals of assets                                              6               6                 6
Unrealized gains and losses arising from changes in fair value and
                                                                                    3                5                5
share-based payment
Net income on discontinued activities                                               0              (53)               0

Cash flow from operations                                                         488              496              533

 Tax on capital gains and losses                                                   (2)              (1)              (3)

Cash flow from operations before tax on capital gains and losses                  486              495              530




EBITDA amounted to €667 million in 2010 (2009: €654 million; 2009: €647 million), calculated as
follows:

(in EUR million)                                                            2010             2009             2008

Operating income                                                                  432               434              439

Depreciation and amortization                                                     235               220              208


EBITDA                                                                            667               654              647




                                                                     306
NOTE 25 – COMMITMENTS

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 20 and 21,
respectively.


The Group has no other material commitments.




           •       Obligations under finance leases

Non-current assets acquired under finance leases are recognized as an asset and a liability in the
combined balance sheet.


At December 31, 2010, €15 million of future minimum lease payments due under finance leases
concerned equipment and machinery. Total assets under finance leases recognized in combined assets
amounted to €39 million at December 31, 2010 (December 31, 2009: €44 million; December 31, 2008:
€49 million).


(in EUR million)                               December 31,          December 31,         December 31,
Future minimum lease payments                                 2010               2009                  2008
 Due within 1 year                                              12                 13                    12
 Due in 1 to 5 years                                             3                 11                    23
 Due beyond 5 years                                              0                  0                     0

Total                                                           15                   24                  35




           •       Obligations under operating leases

The Group leases equipment, vehicles and office, manufacturing and warehouse space under various non-
cancelable operating leases. Lease terms generally range from 1 to 9 years. The leases contain rollover
options for varying periods of time and some include clauses covering the payment of real estate taxes and
insurance. In most cases, management expects that these leases will be rolled over or replaced by other
leases in the normal course of business.

In 2010, rental expense was €28 million, of which €13 million for property leases and €12 million for
equipment leases.


Future minimum payments due under non-cancelable operating leases are as follows:


(in EUR million)                                Total                         Payments due                        Total        Total
                                                2010          Within 1 year    In 1 to 5 years   Beyond 5 years   2009         2008
   Operating leases
   Rental expense                                       63              22                 33                 8           47           55
   Future leases




                                                        307
Non-cancelable purchase commitments

Non-cancelable purchase commitments include commitments to purchase raw materials and services,
including vehicle leasing commitments, and firm orders for property, plant and equipment.

(in EUR million)                            Total                         Payments due                        Total     Total
                                            2010          Within 1 year    In 1 to 5 years   Beyond 5 years   2009      2008
   Non-cancelable purchase commitments
    - Non-current assets                         0                  0               0                 0            0         21
    - Raw material                               3                  1               2                 0            0         13
    - Services                                  33                 19              13                 1           43         44
    - Other                                     33                 14              18                 1           74         67
                                            _______           _______          _______           _______      _______   _______
Total                                           69                 34              33                 2          117       145



           •       Guarantee commitments

In 2010, the Group granted warranties, amounting to €4 million at December 31, 2010 (December 31,
2009: €5 million; December 31, 2008: €2 million).
The Group also receives guarantees, amounting to €1 million at December 31, 2010 (December 31,
2009: €0 million; December 31, 2008: €1 million).


           •       Commercial commitments

(in EUR million)                            Total                         Payments due                        Total     Total
                                            2010          Within 1 year    In 1 to 5 years   Beyond 5 years   2009      2008
   Commercial commitments
   Security for borrowing                        0                  0               0                  0            1         1
   Other commitments given                      53                  2               2                49           50         48
                                            _______           _______          _______           _______      _______   _______
Total                                           53                  2               2                 49           51        49




           •       Other commitments

Greenhouse gas emissions allowances granted to Group companies under the 2008-2012 plan represent
approximately 2.3 million metric tons of CO2 emissions per year.


The 2008, 2009 and 2010 allowances are above the greenhouse gas emissions for those years and,
consequently, no provision has been recorded in this respect in the Group accounts.




                                                    308
NOTE 26 – RELATED-PARTY TRANSACTIONS

For the purpose of the combined financial statements, related parties include Compagnie de Saint-Gobain,
its subsidiaries not included in the Group’s scope of combination and those by the equity method.

Balances and transactions with associates and with Saint-Gobain subsidiaries that are not part of the
Group

(in EUR million)                                 2010              2009           2008
   Assets
Financial receivables                                       3                1             1
Inventories                                                 2                2             1
Short-term receivables                                      6               12             6
Loans to Saint-Gobain entities                             82              116           110

   Liabilities
Financial debts due to companies Saint-Gobain            122                81           228
Short-term debts                                          33                29            65
Short-term debts due to companies Saint-Gobain           247               212           155

   Expenses
Purchases                                                  66              77            72

   Income
Sales                                                          3            9            12



In 2010, transactions with Saint-Gobain companies that are not part of the Group mainly concerned loans
extended to SG Vicasa and SG Mondego through the Saint-Gobain Delegations’ cash pools (see Note 19)
and loans received from SG Oberland, SG Emballage, SG Vetri and SG Containers through the same
system.


NOTE 27 – EXECUTIVE COMMITTEE COMPENSATION

The expense recorded in relation to compensation and benefits paid to the members of the Group’s
Executive Committee breaks down as follows:

(in EUR million)                                     2010          2009          2008
  Attendee fees                                          0.0         0.0          0.0
  Direct and indirect compensation (gross) :
          - Fixed portion                                2.2         2.1          2.0
          - Variable portion                             1.1         1.0          0.8
  Expense relating to stock options                      0.7         0.7          0.9
  Termination benefits                                   0.0         0.0          0.0
  Total                                                  4.0         3.8          3.7

(1)
   Including compensation and benefits-in-kind paid by Compagnie de Saint-Gobain and subsequently
billed directly or indirectly to the Group.

Employers’ social security contributions relating to the above compensation represented an estimated €1.2
million in 2010 (2009 and 2008: €1.1 million).

Pension obligations for the members of the Group’s Executive Committee totaled €2.9 million at December
31, 2010 (December 31, 2009: €2.5 million; December 31, 2008: €2.2 million).
Estimated pension costs were not material.


                                                   309
NOTE 28 – EMPLOYEES

(Average number of employees)                              2010         2009     2008

Fully integrated companies
 Managers                                                 1,320         1,301    1,260
 Administrative employees                                 2,641         2,556    2,652
 Other employees                                         10,818     11,443      11,835
Total                                                    14,779     15,300      15,747




At December 31, 2010, the total number of Group employees was 14,540.




                                                 310
NOTE 29 – SEGMENT INFORMATION

Segment information is presented as follows:
        • Europe
        • United States
        • South America

Management uses several different internal indicators to measure operational performance and to make
resource allocation decisions. These indicators are based on the data used to prepare the combined
financial statements and meet financial reporting requirements. Intragroup (“internal”) sales are
generally carried out on the same terms as sales to external customers and are eliminated in
combination. The accounting policies used are the same as those applied for combined financial
reporting purposes, as described in Note 2.


(in EUR million)                    Europe **       North America South America   Other *    Total



                 2010


External sales                            2,090             1,161          302                 3,553
Internal sales                                2                 1                      (3)         0
Net sales                                 2,092             1,162          302         (3)     3,553
Operating income / (loss)