refer- ence do2005 cu- ment Contents

3 CHAIRMAN’S MESSAGE 35 CONSOLIDATED FINANCIAL STATEMENTS 5 CHIEF EXECUTIVE OFFICER’S MESSAGE 35 Consolidated income statement 6 MANAGEMENT REPORT OF THE BOARD 36 Consolidated balance sheet OF DIRECTORS FOR 2005 38 Consolidated cash flow statement 7 Comparison of key figures: 2004 – 2005 40 Consolidated statement of changes in equity 8 Dividends 41 Notes to the financial statements 9 Group performance by category 88 Statutory Auditors’ report on the consolidated 11 Group performance by geography financial statements

13 Management of currency and interest rate risks 89 STATUTORY ACCOUNTS

14 Investor Relations 89 Income statement

15 Prospects for 2006 and strategy 90 Balance sheet

15 Risks and opportunities 92 Cash flow statement

15 Research and development 93 Notes to the Company’s financial statements

15 Performance goals 106 Statutory Auditors’ report on the financial statements

15 Share capital 107 Auditors’ special report on related party transactions

16 Share repurchase program – cancelled shares 109 CORPORATE GOVERNANCE

17 Senior Management Compensation 109 Chairman’s report on the Board of Directors functioning and on the internal control procedures implemented 20 Mandates of the Company Officers by the Company 22 Workforce information 116 Auditors’ report on the Chairman’s report 26 Environmental Data 118 GENERAL INFORMATION 33 Annexe of the management report of the Board Structure based on the Commission Regulation (CE) of Directors about financial authorizations n°809/2004 (Cf. Cross Reference Table)

This is a free translation of the reference document. The French version of the reference document was filed with the A.M.F. Autorité des Marchés Financiers (Paris Stock Exchange Authorities) on April 19, 2006, in accordance with Articles 212-13 of the A.M.F.’s General Regulations. It may be used in support of financial transactions only if accompanied by a prospectus approved by the A.M.F. The reference document (in French) may be obtained as follows on the web site for the A.M.F. (www.amf-France.org) and on the BIC corporate site (www.bicworld.com). A copy of this document can also be obtained, without charge, by calling Investor Relations for SOCIÉTÉ BIC, in France +33 1 45 19 52 26 or by sending a letter to SOCIÉTÉ BIC, 14 rue Jeanne d’Asnières, 92611 Clichy Cedex.

Contents 1 2 Chairman’s message Chairman’s message

Ladies, Gentlemen, Dear Shareholders, In 2006 and beyond our Corporate Vision will continue to guide our Our Group faced significant challenges in 2005 as retail price efforts – We offer simple, inventive and reliable choices for everyone, pressure converged with raw material cost pressure creating a diffi- everywhere, every time. We will continue to focus on product develop- cult trading environment. The price pressure came from our retail ment that meets the needs and desires of more demanding consu- customers who responded to the Hard Discounters by placing mers. Examples can be seen in our stationery business with a increased focus on their First Price and Private Label initiatives. two-in-one ballpoint and highlighter, called Duo™ in the United States The cost pressure came from rising commodity prices that weighed and Briefing™ in Europe, as well as Easy Clic™, an ingenious fountain on our margins. pen for children that is easy and fun to use, and cleaner as well. In lighters our unyielding commitment to quality and safety has set us I am very proud to report that our team successfully navigated these apart from competitors and will continue to strengthen our leadership challenges and registered sales growth, market share growth position. In shavers we continue to invest in the new product develop- and profit margin growth across our three core categories. ment activity that has generated our recent success in triple-blades. Group net income reached a record level of nearly 157 million euro. This performance is evidence of the talent and resourcefulness We have set ambitious targets for future sales and profit growth in of our people, and the strength of the BIC® brand. Thanks to our our three categories. Achieving these targets will require an ingenious teamwork, our consistently reliable product quality and our strong approach in new product development and a continued commitment brand identity, we grow stronger for the future. to our shared value of teamwork. I am confident that the ingenuity of our teams will accelerate innovation and new product launches and This is my final letter as Chief Executive Officer, as, on my continue our rate of organic growth. We actively pursue external recommendation, the Board of Directors unanimously approved growth through acquisitions or alliances. Our financial strength will the separation of the functions of Chairman and Chief Executive allow us to take full advantage of these opportunities, while conti- Officer, and named Mario Guevara to the latter position, effective nuing to increase the dividends we return to our shareholders. March 1, 2006. I will remain as Chairman of the Board. Mario, who joined the BIC Group in 1992, and has been a member of the Board Once again, I want to thank my colleagues worldwide for their since 2001, was Chief Operating Officer from March 10, 2004 to valuable contribution to the Group’s success in 2005, and to February 28, 2006. Mario and I have worked closely together over express my confidence and pride in working with them. My thanks the past several years preparing this transition. He has earned my go also to our customers, consumers and shareholders for their complete confidence to lead our Group and recommend to the continued belief, support and loyalty. Board necessary adjustments to our strategy. Bruno Bich Chairman of the Board

Chairman’s message 3 4 Chief Executive Officer’s message Chief Executive Officer’s message

Ladies, Gentlemen, Dear Shareholders, than in 2004, while our single-blade sales continued to decline at I am honored to write to you today as Chief Executive Officer of the high single digits. BIC Group, after completing two years as Executive Vice-President As part of our geographic expansion strategy into the Asian market- and Chief Operating Officer. My message is one of gratitude for place, a new BIC stationery production facility was established your support, as well as appreciation to our BIC teams around the in China in November 2005. BIC’s direct presence will allow us to world for their diligence in upholding the BIC promise of quality and better understand how to manufacture quality products in China value. and develop products specifically for Asia. An example is the NS Fine™ ball pen, a classic fine point with a nickel silver point and The year 2005 was characterized by sales growth in all three of our tropical ink, which is adapted to warm and humid climates. stationery, lighter and shaver categories in a highly competitive consumer marketplace. Overall, worldwide sales for the Group In my new role as Chief Executive Officer of the BIC Group, I am were up 6.5% on a comparative basis. As promised, we improved firmly committed to our philosophy of “Honor the Past, Invent the our Income From Operations (IFO) margins in all three categories, Future.” We have a very strong foundation on which to build the while focusing on controlling our operating expenses through cost future success of our Company, and I am confident in the talents reduction initiatives and productivity gains. of our BIC employees to help us invent the future and continue our growth. New products accounted for 25% of Group sales, confirming our strategy of maintaining the strength of our core products, while In 2006, we are facing our share of challenges, particularly in the investing in research and development for line extensions and new stationery category. The marketplace is becoming increasingly products. more price sensitive, with competitive pressures from both private label products and branded companies. We believe our greatest On a comparative basis, 2005 sales were up 3.9% in stationery, answer to these challenges lies in our commitment to quality and 12.5% in lighters and 9.2% in shavers. For the full year 2005, all in the development of new products and product line extensions, regions but Europe grew in the stationery category, with a particu- as well as aggressive marketing and promotional programs based larly strong performance in Latin America. Overall, BIC continued on the inherent strength of the BIC® brand. to gain market share in the stationery market, which we estimate to be flat or slightly declining. The Americas drove the performance I thank my colleagues around the BIC world for their dedication in our lighter category, where sales grew at double-digit rates, and to our vision and day-to-day practice of the BIC values, and I thank we posted a record year of more than one billion lighters sold you, our shareholders and our customers, for your continued around the world. Our portfolio of triple-blade shavers accounted support and trust. for 28% of our shaver sales worldwide in 2005, versus 20% in 2004. Mario Guevara Twin-blade sales were slightly down in 2005, but at a lower pace Chief Executive Officer

Chief Executive Officer’s message 5 Lorem ipsum lorem Management report of the Board of Directors for 2005

Ladies, Gentlemen, Dear Shareholders, • In the lighter category, BIC remained strong in both North and In this report, your Board of Directors presents a summary of the Latin America, with increased sales and market share gains. Group’s activities during the fiscal year 2005 and discusses its However, the declining trend in Europe continued as a result of prospects for the future. Asian competition. • In an intensely competitive marketplace, the BIC® shaver cate- BIC is a world leader in the stationery, lighter and shaver markets. gory continued to show a positive sales trend. BIC’s triple-blade Our products are sold in more than 160 countries. Channels of dis- franchise accounted for 28% of the Group’s total shaver cate- tribution include stationery stores, office product companies, mass- gory net sales for the full year 2005, compared with 20% for the merchandisers, convenience stores, wholesalers and cash-and-carry full year 2004. Our triple-blade segment grew faster than the one- outlets. piece market triple-blade segment. The Group’s development strategy has three major elements, all • Effective January 1, 2005, BIC adopted the International Financial aimed at meeting the needs and desires of today’s increasingly Reporting Standards (IFRS), a mandatory requirement for European global customers and consumers: Union listed companies. BIC had previously reported its results 1. continuous improvement of our classic products, with selective under French GAAP (Generally Accepted Accounting Principles). expansion of the geographic areas in which they are sold; As a result of the transition to IFRS, and in accordance with IAS 18, 2. development of new value-added products; and Revenue, expensed costs under French GAAP were reclassified 3. sustained efforts to improve productivity. against net sales. These costs were promotional allowances, BIC Group’s reporting and operational highlights for the year 2005 coupon redemption and cash discounts granted to customers. can be briefly summarized as follows: These reclassified items represented a total of approximately • BIC achieved sales growth of 6.5% on a comparative basis(1), in 122 million euro for the full year 2004. line with its target growth of above 6%, and delivered higher nor- • Foreign currency fluctuations (primarily the US Dollar and the malized Income From Operations (IFO) growth than sales growth. Brazilian Real) had a slightly negative impact on sales for the 1st New products and line extensions accounted for 25% of BIC Half of 2005 (-1.4 points). However, the strengthening of both Group sales. these currencies against the euro in the 2nd Half had a positive • In stationery products, BIC gained market share, growing 3.9% impact on sales (+2.2 points) for the full year 2005. on a comparative basis, in a market which we estimate to be flat • The USA restructuring plan announced in April 2004 is proceed- or slightly declining and becoming more price sensitive. ing on schedule at the Company’s facility in Milford, Connecticut, • As part of our geographic expansion strategy into the Asian mar- USA. Shaver production ended in September 2005 and ballpoint ketplace, a new BIC stationery production facility was established pen manufacturing was partially shut down in 2005 and is in China in November 2005. expected to be completed by the end of 2006. The majority of

Management report 6 of the Board of Directors manufacturing operations at the Sheaffer Pen facility in Fort Around the world, BIC continues to invest in brand name develop- Madison, Iowa, USA, are on schedule to shut down in May 2006, ment, making the most of this precious asset to strengthen its recog- as originally planned. However, to ensure continued service to nition and reputation among customers and consumers in both our customers, we have extended the timeline for complete clo- developed and emerging markets. Our goal is to produce efficiently sure of the Sheaffer facility. Fountain pen assembly and adminis- at lower cost, either in-house with our own technologies or, to a lesser trative operations will remain in the Fort Madison area, with extent, by outsourcing to increase flexibility or to take advantage of approximately 40 employees, until such time as they can be con- new technologies. This strategy is tied closely with our commitment solidated within BIC’s operations. The Group began to benefit to achieving exceptional customer service, with increased productivity from the cost reductions related to this restructuring in the 2nd and efficiency in every aspect of our multinational operations. Half of 2005. Total annualized savings, estimated at 25 million US Dollar, will be realized beginning 2007.

Comparison of key figures: 2004 – 2005

BIC GROUP CHANGE 2005/2004 ON A COMPARATIVE in million euro (under IFRS) 2004 2005 AS REPORTED BASIS(1)

Sales 1,264.9 1,380.8 + 9.2% + 6.5%

Gross profit 624.9 674.1 + 7.9% + 5.4%

Income from operations 172.6 238.4 + 38.2% + 34.4%

Financial income/(costs) 4.2 (0.1) N.S. N.S.

Income before tax 176.8 238.3 + 34.7% + 31.6%

Income tax expense (62.8) (81.6) + 30.1% + 28.1%

Minority interest (0.2) (0.1) – 40.0% – 19.9%

Group net income 113.9 156.5 + 37.4% + 33.7%

Earnings per share (in euro) 2.15 3.11 + 44.4% + 40.4%

Number of shares* 52,882,591 50,330,582

* Average number of shares outstanding net of treasury shares. (1) In 2005, comparative basis excludes the additional sales and results of the recently acquired companies BIC Kosaido KK in Japan (consolidated from April 1, 2004), as well as Stypen (consolidated from June 1, 2004). Comparative basis means at comparable perimeter and at constant currencies. Constant currency figures are calculated by translating the current year figures at prior year monthly average exchange rates.

Management report of the Board of Directors 7 Management report of the Board of Directors

Total Group sales were 1.381 billion euro, up 9.2% from 2004. 2005 ing expenses. As we did for the 1st Half 2005 Results, we present a net sales were positively impacted by foreign exchange effects, parti- normalized income from operations, which excludes USA restructur- cularly the strengthening of the US Dollar and the Brazilian Real, which ing and real estate gains. In 2005, the normalized income from oper- account for approximately 63% of the Group’s total net sales. The ations was 241 million euro, up 17.6% from 2004. The normalized result was a cumulative positive impact on the Group’s growth as of operating margin increased 1.3 points versus 2004, to 17.5% of sales. December 31, 2005. Income before tax increased by 34.7%, from 177 million euro in 2004 The three core business lines of the Group are stationery products, to 238 million euro in 2005 (margin increase 3.3 points). Again, the lighters and shavers. They represent 96% of BIC Group sales. non-recurring USA restructuring, of which costs were 40 million euro

st nd The change of perimeter (acquisitions of BIC Kosaido KK and Stypen (7 million euro in the 1 Half, 33 million euro in the 2 Half of 2004), in 2004) had an impact on sales growth of 0.5 points. On a compar- is the key driver of the increase. ative basis, i.e., excluding the additional sales from the integration of In 2005, the Group’s effective tax rate was at 34.3% versus 35.5% in these companies and at constant currencies, the Group’s sales 2004. increased by 6.5%. Group net income increased from 114 million euro in 2004 to 157 mil- Consolidated income from operations was 238 million euro, up 38.2% lion euro in 2005, a 37.4% increase over 2004, primarily due to the from 2004. The operating margin increased from 13.6% of sales in non-recurring USA restructuring (26 million euro after tax in 2004). 2004 to 17.3% in 2005. This improvement was mainly due to the non- Total net income before adjustment for minority interest was 157 mil- recurring costs of the USA restructuring, combined with lower operat- lion euro in 2005 compared with 114 million euro in 2004.

Dividends

The Board of Directors of SOCIÉTÉ BIC proposes the distribution of dividends primarily as a function of the Company’s earnings, its invest- ment policy, as well as comparisons with peer companies in the same sector. BIC does not foresee a material change in this distribution pol- icy of dividends. The Board will propose a net dividend of 1.15 euro per share at the Annual Shareholders’ meeting on May 24, 2006. The pay-out ratio would be 37% in 2005 under IFRS, 42% under IFRS in 2004 (35% if based on Normalized EPS). The dividends paid for the last three fiscal years were as follows under French GAAP:

NET DIVIDEND SHAREHOLDER DIVIDED BY NET DIVIDEND TAX BENEFIT TOTAL EARNINGS YEAR (in euro) (in euro) (in euro) PER SHARE

2004 0.90 0.20 1.10 47%

2003 0.80 0.40 1.20 39%

2002 0.80 0.40 1.20 36%

In June 2005, BIC also distributed a special dividend of 1.00 euro per share. The Company has a strong balance sheet. After the repurchase of shares and the payment of dividend, closing cash and cash equivalents was 103 million euro in 2005, compared with 160 million euro in 2004. It is specified that during full year 2005, the Board of Directors made capital reductions, following share cancellations, and capital increases to take into account shares issued following the exercise of stock-options. As of December 31, 2005, the common stock was down 5.7 mil- lion euro compared with December 31, 2004.

Management report 8 of the Board of Directors Group performance by category

BIC Group net sales and income from operations by product category 2004 - 2005 (in million euro)

718.3 • NET SALES 674.5 (+ 6.5%) • INCOME FROM OPERATIONS

372.7 (+15.7%) 322.1 238.7 213.7 (+11.7%) 103.6 120.4 (+25.6%) 51.1 71.1 (+45.7%) 95.9 20.4 54.6 (–6.3%) (6.0) 9.7 (+111.4%) (4.0) ns

2004 2005 2004 2005 2004 2005 2004 2005 STATIONERY LIGHTERS SHAVERS OTHER PRODUCTS

BIC Group income from operations (IFO) and Normalized IFO by product category 2004 - 2005

120.4 119.1 IFO 103.6 106 • 95.7 95.9 95.1 • NORMALIZED IFO*

71.1

18.4 20.4 22.0 9.7 (4.0) (4.3) (6.0) (6.0)

2004 2005 2004 2005 2004 2005 2004 2005 STATIONERY LIGHTERS SHAVERS OTHER PRODUCTS

* Excluding USA restructuring and real estate gains.

Management report of the Board of Directors 9 Management report of the Board of Directors

STATIONERY Sales grew at double-digit rates in North and Latin America. Performance was driven by new sleeve designs and cases, includ- Stationery represents a market of over 7 billion euro (BIC’s estimate at ing BIC® Comfort lite™ lighter and case/BIC® Case Grip and the the manufacturer selling price level) that was flat to slightly declining in BIC® C2™ Metal lighter and case. 2005. BIC’s worldwide market share is about 10% in value terms. The Group continued its successful fight against counterfeit prod- As reported, sales were up 6.5%, to 718 million euro and up 3.9% ucts, particularly in South America (Brazil, Argentina and Paraguay). on a comparative basis in value (+5% in volume). Sales grew in every region on a comparative basis, except in Total lighter profitability was driven mainly by the performance in Europe, with a particularly strong performance in Latin America. In North and Latin America. Overall, the operating margin was 32.3% addition, despite a flat to declining marketplace, both Europe and of net sales, up 2.5 points over 2004. The normalized IFO margin North America experienced market share gains. The category has was 31.9% in 2005. become increasingly more price sensitive. This is due to the con- The European Commission will adopt a Decision requiring all tinued growth of private label and the price pressure from branded lighters placed on the market in the EU to be “child-resistant”, fol- companies. lowing a positive opinion by Member State experts in the General Growth was driven by classic and added-value ball pen segments, Product Safety Committee. The Commission will be launching a mechanical pencils, as well as permanent markers and BIC® Wite-Out® joint project with Member States’ customs and market surveillance and Tipp-Ex® correction tape segments. Overall, BIC’s new products authorities to ensure full implementation. BIC will be part of this joint and product line extensions accounted for approximately 25% of sta- project. tionery sales. Ensuring full implementation is key for: Sales in the imprinted advertising business increased in 2005 on a 1. Consumer safety, and comparative basis in every region. BIC continues to introduce new 2. The European lighters industry, which is fully respecting ISO 9994 product lines for the imprinted advertising business, which have and will fully respect “child-resistant” rules. proven successful. Overall, the operating margin increased to 14.4% of net sales ver- BIC has already made the necessary capital investments in this sus 10.5% in 2004. The strong increase was mainly due to the non- technology and is well prepared for this transition. The Group has recurring USA restructuring. The normalized IFO margin was been selling “child-resistant” lighters, in accordance with local gov- 14.8%, up 0.6 points versus 2004. The imprinted business con- ernment standards, in North America, Australia and New Zealand tributed favorably to the stationery category margin. for several years.

LIGHTERS SHAVERS

BIC’s worldwide market share, in value terms, is about 35% (BIC’s BIC has about 20%, in value terms, of the one-piece wet shaving estimate). market in the United States and Europe (AC Nielsen, IRI and BIC’s estimate). As reported, sales were up 15.7% to 373 million euro. On a compar- ative basis, sales showed growth of 12.5% in value (+12% in volume), As anticipated, in 2005 we experienced intense competition in the despite continued strong competition from low-priced and low quality triple-blade segment and aggressive increases in promotional Asian products, most of which do not meet ISO safety standards. spending by competitors. Overall, BIC® shaver sales increased by 11.7%, to 239 million euro. On a comparative basis, sales In Europe, BIC launched a communication campaign towards the increased by 9.2% in value and 1% in volume. trade, similar to the one done in the early 2000’s in the US. The aim is to communicate the quality and the safety of BIC® lighters Consumer preference for triple-blade shavers drove sales in this versus low-priced and low quality Asian imports. The first phase, category, especially in North America where the triple-blade mar- May-June 2005, BIC sent an information letter to more than ket share grew versus a year ago to 42% of the one-piece seg- 250,000 retailers across Europe. Based on the positive reaction, ment (versus 22% in Europe). BIC® Soleil® growth was very positive, BIC launched in February 2006 a newsletter (to be published every aided by the addition of the new BIC® Soleil® Scent™/Twilight™ four months) to the same 250,000 retailers. shaver launched in both Europe and the USA.

Management report 10 of the Board of Directors BIC® Soleil®’s shaver products appealed strongly to women, parti- and ergonomics. We will also continue to focus on improving cularly in the US, which has the largest women’s shaving market our blades. in the world today. The successful 1st Half 2005 launch of BIC 3™ in Europe and BIC® Comfort 3® Advance™ shaver in the U.S., com- OTHER PRODUCTS bined with sales for the BIC® Comfort 3®, also drove performance Other product sales include mainly BIC Sport sales, pantyhose in the overall category. sales in Greece, Austria and Ireland, and DAPE 74 Distribution Triple-blade sales accounted for 28% of the Group’s total shaver sales. This also includes battery and magnet sales. category sales worldwide. BIC’s twin-blade franchise decreased BIC Sport sales (surf, windsurf boards and kayaks) were 18 million slightly for the full year 2005, while single-blade sales continued to euro, almost flat versus 2004. Kayak sales increased double-digit decline but at a lower pace. versus 2004. Income from operations was at break-even in 2005, The operating margin in this category was up 4.0 points, to 8.5% in spite of the launching of this business in the United States. of net sales compared with 4.5% in 2004. This increase reflected BIC Sport is stronger in Europe, particularly in France. In 2005, BIC the strong performance of our triple-blade shaver portfolio and the Sport launched the Yakka™, an innovative kayak that can be folded non-recurring cost of the USA restructuring. The normalized IFO and stored in a small space for easy transport. The Yakka™ has margin was 9.2%, up 0.6 points versus 2004. been very well received by retailers and was recognized for its inno- The manufacturing consolidation, announced in April 2004, will vative design by a leading boating magazine. improve our future shaver manufacturing efficiencies from 2006. The best opportunity for BIC Sport is to grow its market share in North Competitive pressure will remain strong in this category, with America, which represents 80% of kayak sales worlwide. The current a relentless drive toward product innovation, particularly in design market share of BIC Sport in North America is 3%.

Group performance by geography BIC Group sales by geography 2004 - 2005

CHANGE 2005/2004

ON A COMPARATIVE (in million euro, under IFRS) 2004 2005 AS REPORTED BASIS

Europe 427.4 425.3 – 0.5% – 1.9%

North America and Oceania 580.7 644.2 + 10.9% + 10.2%

Latin America 173.4 219.8 + 26.7% + 14.3%

Middle East, Africa and Asia 83.4 91.5 + 9.7% + 8.3%

TOTAL 1,264.9 1,380.8 + 9.2% + 6.5%

Management report of the Board of Directors 11 Management report of the Board of Directors

EUROPE barrel. Lighter sales are mostly represented by the electronic BIC® lighters, primarily in Japan. The Europe region now includes Western and Eastern Europe. In November 2005, BIC opened its own stationery production facil- Sales in Europe of 427 million euro were slightly down (- 0.5%) as ity in China. It is located in Pudong, in the export processing zone reported compared to 2004, and down 1.9% on a comparative of Jinquiao, in the suburbs of Shanghai. The initial investment is basis (flat in volume). The difference was mainly due to the consol- approximately 3 million euro and the facility is expected to be idation of Stypen. staffed with about 100 employees. BIC’s direct presence with a The growth of the discount retail segment in this region, combined factory in China will allow management to better understand man- with the continued emergence of private label products in a slow ufacturing in this region, as well as develop the Asian marketplace. economy, has caused the consumer to become increasingly more Income from operations in this region improved, primarily due to price sensitive in all three categories in which BIC operates. the sales increase and operational efficiencies. However, BIC gained market share in the consumer stationery busi- ness over its competitors during the back-to-school period and NORTH AMERICA AND OCEANIA also saw improved trends across Europe with its BIC® Kids and BIC® Velleda® product lines. The BIC® Kids portfolio features a com- The North America and Oceania region includes the USA, Canada, plete line of felt pens, coloring pencils and crayons dedicated to Australia and New Zealand. children, and BIC® Velleda® items include dry wipe boards and Sales in North America and Oceania region increased 10.9% as whiteboard markers. BIC® Cristal® Gel was also the number one reported, while on a comparative basis they increased by 10.2% selling gel pen in Europe in 2005. (and +5% in volume). Sales in all three categories increased on a Lighter sales were essentially flat compared to 2004, despite the comparative basis. The strengthening of the US Dollar against the nd continued pressure of competition from low-priced and low quality euro in the 2 Half of 2005 positively impacted the Group’s sales products from Asia and the growth of the discount retail in Western performance in this region. Europe. The stationery consumer business was strong, driven by both clas- Shaver sales were flat as well. Triple-blade shaver sales growth off- sic and added-value products with BIC gaining market shares in set the decline of single- and twin-blades. Sales of BIC® Soleil® the US in all channels, but with sales essentially flat in Canada and strengthened in the region and the newest offering for women, Oceania. The growth of private label has caused the category to BIC® Soleil® Scent™ shavers, also performed well. In 2005, the become increasingly more price sensitive. This trend was most BIC® 3 Sensitive shaver was introduced in Europe to address apparent during the back-to-school season in the US. consumer price sensitivity and offer “triple-blade performance at a Lighter sales achieved double-digit growth due to increased distri- twin-blade price.” bution, visibility, improved branding and active communication and Our management team is addressing the challenges and growth education of customers regarding BIC’s long-standing reputation opportunities in all three categories to bring growth back in this region. for quality and value. Performance was driven by the launch of new sleeve designs and case products, including the BIC® C2™ Metal In this region, income from operations decreased due to higher pro- lighter and case. duction costs, mainly as a result of material price increases. In our shaver category, North America once again led the market MIDDLE EAST, AFRICA AND ASIA trend toward triple-blade products. The triple-blade segment had a value share of over 42% for the full year 2005 in the US com- Sales in Middle East, Africa and Asia, which reached 92 million euro pared to 22% in Europe. For 2005, growth in North America was compared with 83 million euro in 2004, were up 9.7% as reported driven by the success of the BIC® Soleil® and BIC® Soleil® Twilight™ and +8.3% on a comparative basis (+10% in volume). shavers for women, as well as sales from BIC®’s men’s portfolio, Stationery products in this region include the NS Fine™ ball pen which includes the newest offering, BIC® Comfort 3® Advance™ and the BIC® BU2®, a retractable ballpoint pen with a transparent shaver.

Management report 12 of the Board of Directors In this region, income from operations continued to increase due BIC manages foreign exchange risks in order to protect profitabi- to the strong performance of the three categories. lity and enhance liquidity and security and does not engage in any speculative transactions. Corporate Treasury is not a profit center LATIN AMERICA and reports the status of its FOREX hedges to Senior Management on a monthly basis, splitting the transactions matured and non- The Latin America region includes Mexico, Central America and matured, and the related FOREX results. South America. Since 2000, the Group has annualized FOREX hedging, permitting The increase in sales was 26.7% as reported, while on a compar- subsidiaries to bring their exposure close to zero while all risks are ative basis sales increased by 14.3% (and by 7% in volume). centralized at parent company level, except for non-convertible In 2005, we successfully focused on regaining price points lost currencies. A regular reporting process common for all subsidiaries because of devaluation in 2004. allow the identification of FOREX positions for each currency and During the year 2005, the Brazilian currency revaluated against the their forward-looking evolution within the year. SOCIÉTÉ BIC euro (+20%). The valuation of the Brazilian currency against the US consolidates subsidiaries’ foreign exchange risk and hedges the Dollar was also strong (+21%). residual risk on financial markets. Stationery, lighters and shavers all showed an increase in sales as The most important risk remains the US Dollar-Euro rate and for reported and on a comparative basis in this region. 2006, the commercial flows which represent purchases and intra- group sales, are fully hedged. Growth in the stationery category was driven by classic BIC® Cristal® ball pen, BIC® Evolution™ pencils, correction pro- As soon as a transaction is traded on the financial markets, Group ducts, coloring products and glues. Treasury qualifies the hedge in relation to its year of maturity and the nature of flows hedged, commercial or financial. All the hedg- In lighters, we continued to benefit from the aggressive fight against ing products used comply with Cash Flow Hedge qualification as counterfeit products in Brazil. In 2005, we introduced lighters with defined by IAS 39. Thus, Group Treasury does not use any prod- new sleeve designs. uct with leverage or deactivate effect that could create a position Shaver growth was driven by BIC® Comfort Twin shaver, with at the reverse of the natural sense of the Group exposure. BIC® Comfort 3® and BIC® Soleil® shaver also contributing to the The portfolio of financial instruments benefits from a specific real positive sales trend in the region, despite an increased competitive time survey by Group Treasury, which also provides a monthly environment. mark-to-market evaluation of each position, in compliance with Income from operations for this region increased, mainly driven by IAS 39 requirements. the performance of the stationery and the lighter categories. All hedging contracts are set up with top-level banking institutions, making counterpart risk very low. The Long Term Standard & Management of currency Poor’s ratings of our counterparts are from A+ to AA. and interest rate risks In countries where it is not possible to centralize the risk as described above, foreign exchange exposure is coordinated by HEDGING FOREIGN EXCHANGE RISKS ON INTERNATIONAL Group Treasury and local management. Such exposure is mainly MARKETS concentrated in Brazil and South Africa. These subsidiaries locally produce most of the products sold on their national market, but As BIC has a presence in over 160 countries, business is subject also import some components manufactured inside the Group. to fluctuations in financial markets. Our foreign exchange (FOREX) Local hedging is set up, after Group Treasury approval, for 2006, risk management policy is to hedge transactions in foreign curren- with coverage at 100% for Brazil, for example. cies through options and forwards contracts. The Group does not hedge against FOREX conversion variations arising in the consoli- HEDGING INTEREST RATE RISKS dation of foreign affiliates, except for intra-group dividends. Direct and equity investments are also usually carried out in local The exposure to interest rates fluctuations is very limited. All the local currencies. funding needs are directly indexed on a short-term variable rate.

Management report of the Board of Directors 13 Management report of the Board of Directors

Borrowers’ positions are absolutely non-significant at Group level, major sustainability indexes. The listings in sustainability indexes are the and are too timely limited to require any relevant hedging. result of evaluations completed at the end of 2005 by the British organi- zation EIRIS (Ethical Investment Research Services) and the European Investor Relations Corporate Social Responsibility rating agency VIGEO, respectively. The inclusion of BIC in these indexes is an acknowledgment of the The Investor Relations department is dedicated to answer Group’s worldwide commitment to corporate governance, ethics, all inquiries from individual and institutional investors alike. and social and environmental responsibility programs. This distinc- Shareholder and general, financial and economic information tion marks a key milestone for BIC’s sustainable development poli- regarding SOCIÉTÉ BIC is available via the Company’s internet cy, which is an integral part of the Group’s strategy. website: http://www.bicworld.com or by addressing an email to [email protected] or 2006 FINANCIAL INFORMATION CALENDAR [email protected]. January 10, 2006: BIC listed in two major sustainability Over the past several years, institutional investors have taken an indexes increased stake in the capital of BIC, clearly demonstrating the keen th interest they have in our Company. Their interest is further January 19, 2006: 4 Quarter and Full Year 2005 Net Sales enhanced by our more proactive financial communication policy. January 24, 2006: New organization of the BIC Group Throughout the year, BIC holds meetings with analysts and institutional March 1, 2006: Full Year 2005 Results investors through road shows in the major financial marketplaces. April 13, 2006: 1st Quarter 2006 Net Sales At the individual investor level, BIC has reinforced its proactive com- May 24, 2006: Shareholders’ meeting munication. In line with our objective, we issued two shareholders’ nd st newsletters in 2005, focusing on strategy, new products and July 20, 2006: 2 Quarter and 1 Half 2006 Net Sales results, with an updated calendar. It is a four-page document, September 6, 2006: 1st Half 2006 Results issued twice yearly, that includes key figures, the Chairman’s mes- October 12, 2006: 3rd Quarter and 9 Months 2006 sage, a focus on new products and details about BIC shares. Net Sales In our April 2005 Newsletter, we added a specific page on transi- BIC issues financial press releases at least six times per year: tion to IFRS, presenting the key impacts. The feedback from indi- vidual investors continues to be very positive. • Four for quarterly net sales After initiating its first meeting dedicated to its individual investors • Two for earnings, 1st Half and Full Year in October 2004, BIC organized two meetings in 2005 outside of The Company purchases advertising space in several French Paris: one in Lyon in June and one in Marseille in November. In economic and financial publications to ensure the largest possible total, approximately 700 individual investors attended the two meet- distribution of its financial information. ings. We have already scheduled two meetings for 2006: one in Lille, in June 2006, and one in Paris, in November 2006. LIST OF PRESS RELEASES REGARDING FULL YEAR 2005 We launched a corporate ad in the 1st Quarter of 2005 in the form April 14, 2005: 1st Quarter 2005 Net Sales of a brochure that was distributed to 168,000 individual investors to communicate BIC’s international presence, BIC’s strengths and May 19, 2005: Shareholders’ meeting to make individual investors aware that BIC is also a listed com- July 21, 2005: 2nd Quarter and 1st Half 2005 Net Sales pany they could invest in. September 8, 2005: 1st Half 2005 Results We also created a toll-free number from France for individual investors October 13, 2005: 3rd Quarter and 9 Months 2005 Net Sales at the end of 2004: 0 800 10 12 14 and in 2005 received many more calls than in 2004, specifically as a result of the corporate ad. December 15, 2005: SOCIÉTÉ BIC cancels 190,040 shares th BIC Group is listed in the Eurolist Euronext Paris, SBF120 index and January 19, 2006: 4 Quarter and Full Year 2005 Net Sales more recently in the FTSE4Good Europe and ASPI Eurozone, two March 1, 2006: Full Year 2005 results

Management report 14 of the Board of Directors Prospects for 2006 and strategy Our marketing teams are delivering programs, including advertising and promotional support, that speak directly to today’s consumers We will continue to focus our sales, marketing, design and manu- in their local marketplaces, meeting their specific needs. Our portfo- facturing expertise on developing products that strengthen the BIC® lio is more diverse than ever – from the NS Fine™ ball pen made brand equity and meet the unique needs of consumers in different especially for the Asian marketplace, to the BIC C2™ Metal lighter parts of the world. and case, to the lavender-scented handle of BIC® Soleil® Scent™ The Group’s objective for 2006 is to grow sales at approximately shaver for women. 4% on a comparative basis. Our goal is to grow at a rate compara- ble or better than today’s multinational consumer product compa- Research and development nies who compete in similar markets. Research and development functions are organized by category. To achieve our objectives, our strategy remains focused on delive- In 2005, there were about 130 employees located in Europe and ring quality and value to the consumer, as well as outstanding servi- North America in these functions. Each year, BIC invests approxi- ce to our retail customers. mately 2% of sales for research and development of new products that will drive sales growth. Risks and opportunities

In summary, we foresee the major challenges for 2006 to be: Performance goals • the growth of private label products, particularly in the stationery Sales growth, higher margins and strong cash generation are the category; principal indicators of the Group’s performance. Our focus is to grow sales at approximately 4% on a comparative basis, while managing the • a slow European economy and continued growth of the discount challenges of raw material increases and the impact of currency retail segment in this region; fluctuations. • an uncertain world economy; • foreign currency fluctuations; Share capital • uncertainties of oil, energy and raw material prices. As of December 31, 2005, the subscribed capital amounts to While many of these issues are outside of our control, we will make 192,413,159.34 euro divided into 50,369,937 shares of 3.82 euro every effort to minimize these risks by continuing to reduce opera- each, the par value. The registered shares held for more than two ting expenses and improve cost efficiencies in all aspects of our years carry double voting rights. operations. In addition, SOCIÉTÉ BIC holds 380,720 of these shares, acquired As always, we believe that our greatest opportunity for growth at the average price of 45.44 euro in accordance with Articles remains the strength of the BIC® brand, illustrated by the milestone L.225-208 and L.225-209 of the French commercial Code, which we celebrated this year by selling our 100 billionth BIC® ballpoint pen. represent 0.76% of the share capital.

Management report of the Board of Directors 15 Management report of the Board of Directors

SOCIÉTÉ BIC owned shares

AS OF DECEMBER 31, 2005

AVERAGE NUMBER OF ACQUISITION PRICE PURPOSE OF THE REPURCHASE SHARES (in euro) % CAPITAL

Hedging of stock-options plans Art. L.225-208 and Art. L.225-209 C. com (2) 175,970 44.69 0.35

Hedging for free shares grants 69,320 46.03 0.14

Optimization of the investments Art. L.225-209 C. com 135,430 46.12 0.27

TOTAL (1) 380,720 45.44 0.76

Shares cancelled in 2005 (3) 1,808,435

Shares repurchased in 2005 (Art. L.225-209 C. com*) (4) 1,633,452

The 2005 share repurchase program received the French Stock Exchange approval (visa AMF): 05-299. (1) BIC Corporation holds in addition as of December 31, 2005, 50,060 SOCIÉTÉ BIC shares to hedge its own stock-options plans representing 0.10% of the share capital. (2) Of which 700 shares related to invalid options as of December 31, 2005, due to employees leaving the Group. (3) Cf. Note 17 to the consolidated financial statements. (4) Excluding liquidity agreement implemented in October 2004 and renewed in December 2005. * C. com: French commercial Code (Code de commerce).

Share capital breakdown

To the Company’s knowledge, as of December 31, 2005, the shareholders who hold more than one-twentieth, one-tenth, three-twentieths, one-fifth, one-quarter, one-third, one-half, two-thirds, eigtheen-twentieths or nineteen-twentieths of the share capital and/or of the voting rights of the Company were as follows:

AS OF DECEMBER 31, 2005

% OF SHARES % OF VOTING RIGHTS (1) NAME NUMBER OF SHARES (APPROX.) (APPROX.)

MBD 12,000,000 23.8 32.7

Bich Family excluding MBD 9,354,961 18.6 25.4

Mrs Édouard Buffard 2,227,111 4.4 6.1

Silchester International Investors 5,240,000 10.4 7.1

Franklin Templeton 3,650,932 7.3 5.0

(1) As of December 31, 2005, number of voting rights amounts to 73,487,461.

Share repurchase program – cancelled shares

During the fiscal year 2005, SOCIÉTÉ BIC purchased a total amount of 1,633,452 shares at the average rate of 43.82 euro on the basis of the article L.225-209 of the French commercial Code, excluding the liquidity agreement. Shares were repurchased in order to optimize the financial and asset management of the Company. In addition, the Board of Directors’ meeting held on March 2, 2005, as authorized by the Annual Shareholders’ meeting on June 3, 2004 and the Board of Directors’ meetings held on May 19, 2005, July 20, 2005 and December 14, 2005 as authorized by the Annual Shareholders’ meeting on May 19, 2005, decided to proceed successively to cancel 197,075 shares, 721,320 shares, 700,000 shares and 190,040 shares. 1,808,435 shares were then cancelled during the fiscal year 2005. During the last 24 months, SOCIÉTÉ BIC cancelled 3,850,635 shares, 7.64% of the share capital as of December 31, 2005.

Management report 16 of the Board of Directors Senior Management Compensation

For fiscal year 2005, total compensation and benefits in kind awarded by SOCIÉTÉ BIC or by companies it controls, as defined in Article L.233- 16 of the French commercial Code, to the members of the Board of Directors and Senior Management of SOCIÉTÉ BIC in accordance with their functions (including Senior Management functions) or their employment contracts were as follows:

GROSS REMUNERATION AND BENEFITS IN KIND FOR FISCAL YEAR 2005

SOCIÉTÉ BIC (in euro) SUBSIDIARIES (in USD)

MEMBERS OF THE BOARD OF DIRECTORS BASE BONUS BENEFITS BASE BONUS BENEFITS AND SENIOR MANAGEMENT SALARY IN KIND SALARY IN KIND

Bruno Bich (1) 204,158 289,884 384,000 518,400 33,030 (€308,831) (€416,921) (€26,564)

François Bich (2) 327,593 199,504

Marie-Aimée Bich-Dufour (3) 210,063 99,013 3,336

Mario Guevara (4) 488,500 475,000 19,700 (€392,874) (€382,017) (€15,844)

Gilles Pélisson 20,000

Marie-Henriette Poinsot 20,000

Olivier Poupart-Lafarge 20,000

Antoine Treuille 24,000

Frédéric Rostand 25,000

Marie-Pauline Chandon-Moët 15,000

(1) The 2005 bonus of the Chairman/CEO was based on five criteria proposed by the Compensation Committee and authorized by the Board of Directors at the beginning of 2005: Group net sales, net income, net cash from operating activities, BIC share performance versus SBF 120 and individual objectives. In 2005, the actual bonus payout represented 90% of the bonus target. Sales target and BIC share performance versus SBF 120 had been exceeded; net cash from operating activities target has not been achieved; 83% of the individual objectives have been achieved. In 2005, Mr Bruno Bich had the following benefits: a Company car and life insurance. He was also eligible for the retirement plan dedicated to the executive managers of the Company in the United States (Supplementary Executive Retirement Plan.) In addition, Mr Bruno Bich did not receive any attendance fees for the mandates he had within the Group. (2) The 2005 bonus was based on net sales, operating income, net income of the Group lighters category and on the Group net cash from operating activities (for a total of 70% of the bonus) and on personal objectives (for 30% of the bonus.) The personal and team objectives of the Group Lighter category had been exceeded and the actual bonus payout of Mr François Bich represented 110% of its bonus target, which reflect the lighter performance of the year. Mr François Bich was eligible for the retirement plan dedicated to the executive managers of BIC in France. In addition, Mr François Bich did not receive any attendance fees for the mandates he had within the Group. (3) The 2005 bonus was based on Group net sales, operating income, net income and net cash from operating activities (for a total of 70% of the bonus) and on personal objectives (for 30% of the bonus.) The personal and Group objectives had been achieved according to expectations except for the net cash from operating activities. In 2005, the actual bonus payout of Mrs Marie-Aimée Bich-Dufour represented 95% of the bonus target. Mrs Marie-Aimée Bich-Dufour had a Company car and was eligible for the retirement plan dedicated to the executive managers of BIC in France. In 2005, Mrs Marie-Aimée Bich-Dufour had received stock-options and 3-year performance-based free shares. In addition, Mrs Marie-Aimée Bich-Dufour did not receive any attendance fees for the mandates she had within the Group. (4) The 2005 bonus of Mario Guevara was based on five criteria proposed by the Compensation Committee and authorized by the Board of Directors at the beginning of 2005: Group net sales, operating income, net income, net cash from operating activities and personal objectives. In 2005, the actual bonus payout represented 95% of the bonus target. Sales, operating income, net income and personal objectives have been achieved; net cash from operating activities had not been achieved. In 2005, Mr Mario Guevara had the following benefits: a Company car, life insurance and specialized assistance for tax preparation. He was also eligible for the retirement plan dedicated to the executive managers of the Company in the United States (Supplementary Executive Retirement Plan.) In 2005, Mr Mario Guevara had received stock-options and 3-year performance-based free shares. In addition, Mr Mario Guevara did not receive any attendance fees for the mandates he had within the Group. Amounts in US Dollar were translated into euro by using the average exchange rate for FY 2005 (1 EUR = 1.2434 USD). (See Note 1.10 to the Consolidated Financial Statements.)

Management report of the Board of Directors 17 Management report of the Board of Directors

The following members of the Board of Directors and Senior Management were also attributed stock-options and free shares during the financial year 2005:

NUMBER OF AVERAGE OPTIONS WEIGHTED ALLOCATED/SHARES PRICE WITHOUT STOCK-OPTIONS GRANTED TO COMPANY OFFICERS SUBSCRIBED DISCOUNT PLAN AND OPTIONS EXERCISED BY THE LATTER BENEFICIARY OR BOUGHT (in euro) VESTING DATE NUMBER

Options granted during the financial Mario Guevara 15,000 50.01 Dec. 13, 2015 8 year to each Company Officer by the issuer and by any company in the Group Marie-Aimée Bich-Dufour 5,000 50.01 Dec. 13, 2015 8

Options exercised during the financial year by each Director N/A

NUMBER OF SHARES GRANTED/ DATE OF FREE SHARES GRANTED TO COMPANY OFFICERS ACQUISITION SHARES THE BOARD PLAN AND SHARES TRANSFERRED TO THE LATTER BENEFICIARY CONDITIONS TRANSFERRED OF DIRECTORS NUMBER

Free shares granted during the Mario Guevara 2,650 May 19, 2005 1 financial year to each Company On performance 2,650 Dec. 14, 2005 2 Officer by the issuer and by any conditions, company in the Group (main grant) Marie-Aimée Bich-Dufour within three years 2,650 May 19, 2005 1 2,650 Dec. 14, 2005 2

Free shares granted during the Mario Guevara Within seven years, 9% of May 19, 2005 1 financial year to each Company under presence and main grant Officer by the issuer and by any shares conservation company in the Group conditions (secondary grant) 9% of Dec. 14, 2005 2 main grant

Free shares transferred during the N/A financial year to each Company Officer

Management report 18 of the Board of Directors GROSS REMUNERATION AND BENEFITS IN KIND FOR FISCAL YEAR 2004

SOCIÉTÉ BIC (in euro) SUBSIDIARIES (in USD)

MEMBERS OF THE BOARD OF DIRECTORS BASE BONUS BENEFITS BASE BONUS BENEFITS AND SENIOR MANAGEMENT SALARY IN KIND SALARY IN KIND

Bruno Bich (1) 207,688 255,195 384,000 499,200 33,030 (€309,054) (€401,771) (€26,584)

François Bich (2) 321,169 164,921

Marie-Aimée Bich-Dufour (3) 190,966 84,617 3,336

Mario Guevara (4) 436,965 450,000 19,700 (€351,682) (€362,173) (€15,855)

Gilles Pélisson 19,500

Marie-Henriette Poinsot 22,000

Olivier Poupart-Lafarge 22,000

Antoine Treuille 23,500

Frédéric Rostand 22,000

Marie-Pauline Chandon-Moët 14,500

(1) The 2004 bonus of the Chairman/CEO was based on five criteria (with same weight) proposed by the Compensation Committee and authorized by the Board of Directors at the beginning of 2004 : Group net sales, net income, net cash from operating activities, share performance versus SBF 120 and individual objectives. In 2004, the bonus payout represented 87% of the bonus target. In 2004, Mr Bruno Bich had the following benefits: a Company car and life insurance. He was also eligible for the retirement plan dedicated to the executive managers of the Company in the United States (Supplementary Executive Retirement Plan.) In addition, Mr Bruno Bich did not receive any attendance fees for the mandates he had within the Group. (2) The 2004 bonus was based on Group lighters category’s net sales, operating income, net income and inventory levels (for a total of 70% of the bonus) and on personal objectives (for 30% of the bonus.) The personal and team objectives of the Group Lighter category had been exceeded. Mr François Bich was eligible for the retirement plan dedicated to the executive managers of the Company in France. In addition, Mr François Bich did not receive any attendance fees for the mandates he had within the Group. (3) The 2004 bonus was based on Group net sales, operating income, net income and inventory levels (for a total of 70% of the bonus) and on personal objectives (for 30% of the bonus.) The personal and Group objectives had been achieved according to expectations. Mrs. Marie-Aimée Bich-Dufour had a Company car and was eligible for the retirement plan dedicated to the executive managers of the Company in France. In addition, Mrs. Marie-Aimée Bich-Dufour did not receive any attendance fees for the mandates she had within the Group. (4) The 2004 bonus was based on five criteria: Group net sales, operating income, net income, net cash from operating activities and personal objectives. All objectives have been achieved. In 2004, Mr Mario Guevara had the following benefits: a Company car, life insurance and specialized assistance for tax preparation. He was also eligible for the retirement plan dedicated to the executive managers of the Company in the United States (Supplementary Executive Retirement Plan.) In addition, Mr Mario Guevara did not receive any attendance fees for the mandates he had within the Group. Amounts in US Dollar were translated into euro by using the average exchange rate for FY 2004 (1 EUR = 1.2425 USD). (See Note 1.10 to the Consolidated Financial Statements)

NUMBER OF OPTIONS AVG. STOCK-OPTIONS GRANTED TO COMPANY ALLOCATED/SHARES WEIGHTED OFFICERS AND OPTIONS EXERCISED SUBSCRIBED PRICE VESTING PLAN BY THE LATTER IN 2004 BENEFICIARY OR BOUGHT (in euro) DATE NUMBER

Option granted during the financial year Mario Guevara 12,000 36.76 Dec. 14, 2014 7 to each Company Officer by the issuer and by any company of the Group Marie-Aimée Bich-Dufour 5,000 36.76 Dec. 14, 2014 7

Options exercised during the financial N/A year by each Director

Management report of the Board of Directors 19 Management report of the Board of Directors

Mandates of the Company Officers Chief Executive Officer and Director Mario Guevara Purchase or sale of BIC shares by members of the Board of Directors, 46 years old, Mexican nationality the Management Board or the Supervisory Board: related individual declarations according to Articles 222-14 and 222-15 of the AMF’s Date of election as Director: Annual Shareholders’ meeting of General Regulations are available on the AMF’s internet website. May 22, 2001 Last mandate renewed at the Annual Shareholders’ meeting of BOARD OF DIRECTORS June 3, 2004, until Annual Shareholders’ meeting in 2007, for fis- cal year 2006. Chairman of the Board of Directors Bruno Bich Main directorships: 59 years old, dual nationality, French and American Chief Executive Officer of SOCIÉTÉ BIC since March 1, 2006 Date of election as Director: Annual Shareholders’ meeting of Executive Vice President and Chief Operating Officer of SOCIÉTÉ June 2, 1986 BIC from March 10, 2004 to February 28, 2006 Last mandate renewed at the Annual Shareholders’ meeting of General Manager for North, Central and South America and June 3, 2004, until the Annual Shareholders’ meeting of 2007 for Oceania from 2001 to March 10, 2004. fiscal year 2006. Other Group directorships: Main directorships: – President and Chief Operating Officer of BIC Corporation (USA) Chairman of the Board of Directors of SOCIÉTÉ BIC since March 1, – President and Chief Executive Officer of Ergo Pen, Inc. (USA) 2006 – President of BIC USA Inc. (USA), Furtuna Holding Co. Ltd. (British Chairman and Chief Executive Officer of SOCIÉTÉ BIC from Virgin Islands), GLNA, Inc. (USA), Tritec International Co. (USA), May 27, 1993 to February 28, 2006 Astor Blade Corp. (USA) Other Group mandates: – Executive Vice-President and Chief Operating Officer of BIC – Permanent representative for SOCIÉTÉ BIC in BIC Services (France) International Co. (USA) – Chairman and Chief Executive Officer of BIC Corporation (USA) – Chairman of the Board of BIC de Venezuela CA (Venezuela), BIC Chile SA (Chile) – Chairman and President of BIC International Co. (USA) – Director of the Board of BIC Corporation (USA), BIC Sport USA – Chairman of the Board of BIC Graphic Europe SA (Spain), Inc. (USA), BIC USA Inc. (USA), Ergo Pen, Inc. (USA), Furtuna Sheaffer (Hong Kong) Co. Ltd. (Hong-Kong), BIC Philippines Inc. Holding Co. Ltd. (British Virgin Islands), GLNA, Inc. (USA), BIC de (Philippines), BIC Product (Thailand) Ltd. (Thailand) Venezuela CA (Venezuela), BIC Chile SA (Chile), BIC Colombia – Director of the Board of BIC Iberia SA (Spain), BIC Graphic Europe SA (Colombia), Tritec International Co. (USA), BIC Kosaido KK SA (Spain), BIC Portugal SA (Portugal), BIC Corporation (USA), BIC (Japan) International Co. (USA), BIC Australia Pty. Ltd. (Australia), BIC (NZ) Ltd. (New Zealand), BIC Stationery (Shanghai) Co. Ltd. (China), Executive Vice-President and Director Shanghai Sheaffer-Wingsung Stationery Co. Ltd. (China), Sheaffer François Bich (Hong Kong) Co. Ltd. (Hong-Kong), Nihon BIC Co. Ltd. (Japan), 56 years old, French nationality BIC Kosaido KK (Japan), BIC GBA Sdn. Bhd. (Malaysia), BIC Date of election as Director: September 30, 1977 at the Annual Product (Singapore) Pte. Ltd. (Singapore), BIC Product (Asia) Pte. Shareholders’ meeting of May 29, 1978, last mandate renewed at Ltd. (Singapore), BIC Philippines Inc. (Philippines), BIC Product the Annual Shareholders’ meeting of May 28, 2003 (Korea) Ltd. (South Korea), BIC Product (Thailand) Ltd. (Thailand) – Managing Director of BIC GmbH (Germany), BIC Verwaltungs Expiration date of mandate as Director: Annual Shareholders’ meet- GmbH (Germany) ing of 2006, for fiscal year 2005.

Directorships of non-BIC Group companies: Main directorships: – Member of the Board of Directors of Altadis (Spain) and Kosaido Date of election as Executive Vice-President: December 15, 1988 Co. Ltd. (Japan) General Manager Lighters

Management report 20 of the Board of Directors Other Group directorship: Main directorship: – President of Société du Briquet Jetable 75 "B.J. 75" (France) Director of Strategic planning of the Options Group (France)

Directorship of non-BIC Group companies: Directorships of non-BIC Group companies: – Chairman of Supervisory Board of MBD (France) – Director of the Board of Tosniop SA (France) and Ferrand SA (France) – Director of the Supervisory Board of Options SA (France) Directors Marie-Pauline Chandon-Moët Olivier Poupart-Lafarge 38 years old, French nationality 63 years old, French nationality Date of election as Director: Annual Shareholders’ meeting of Non-affiliated Director May 28, 2003 Date of election as Director: Annual Shareholders’ meeting of Expiration date of mandate as Director: Annual Shareholders’ meet- May 25, 2000 ing in 2006, for fiscal year 2005. Last mandate renewed at the Annual Shareholders’ meeting of Main directorship: May 28, 2003, until Annual Shareholders’ meeting in 2006, for fiscal year 2005. General Manager Europe of Real Estate for BIC Group Member of the Audit Committee Directorships of non-BIC Group companies: Main directorships: – Director of Supervisory Board of MBD (France) – Chairman of the Board of Directors of Ferrand SA (France) Executive Vice-President of Bouygues Group (France) since 2002 General Manager for Strategies and Finances of Bouygues (France) Gilles Pélisson from 1984 to 2002 48 years old, French nationality Other directorships: Non-affiliated Director – Director of the Board of Bouygues (France), Bouygues Telecom Date of election as Director: Annual Shareholders’ meeting of (France), Télévision Française 1 (TF1) (France), SDCM (France), May 22, 2001 Colas (France) Last mandate renewed at the Annual Shareholders’ meeting – Permanent representative of the company Bouygues in its affili- of June 3, 2004, until Annual Shareholders’ meeting in 2007, for ates Bouygues Immobilier (France) and Bouygues Construction fiscal year 2006. (France) Chairman of the Compensation Committee Frédéric Rostand Main directorships: 43 years old, French nationality Chief Executive Officer of Accor (France) since January 9, 2006 Non-affiliated Director Chairman and Chief Executive Officer of Bouygues Telecom Date of election as Director: Annual Shareholders’ meeting of May (France) from 2004 to October 2005 28, 2003 Chief Executive Officer of Bouygues Telecom (France) from 2001 Expiration date of mandate as Director: Annual Shareholders’ meet- to 2004 ing in 2006, for fiscal year 2005. Directorships of non-BIC Group companies: Member of the Audit Committee – Director of the Board of Accor (France) Member of the Compensation Committee – Chairman of Supervisory Board of ESSEC Main directorships: Marie-Henriette Poinsot Chairman of the Directory Board of Saint Louis Sucre SA (France) 44 years old, French nationality Director of the Directory Board of Südzucker AG (Germany) Date of election as Director: Annual Shareholders’ meeting of Directorships of non-BIC Group companies: May 21, 1997 – Permanent representative of the company Saint Louis Sucre SA Last mandate renewed at the Annual Shareholders’ meeting of May 28, (France) as President of the “SAS” in Société Française 2003, until Annual Shareholders’ meeting in 2006, for fiscal year 2005. d’Organisation et de Participation (France), Saint Louis Sucre Member of the Compensation Committee International (France)

Management report of the Board of Directors 21 Management report of the Board of Directors

– Vice-President of the Supervisory Board of COFA (ex Financières – President of Charter Pacific Corporation (USA) Ryssen), Slaska Spolka Cukrowa SA (Poland) – Director of the Board of Partex Corporation (USA) and Harris – Permanent representative of Saint Louis Sucre SA in the company Interactive, Inc. (USA) Société Nouvelle des Sucreries de Châlons-sur-Saône (France) Executive Vice-President – Director of the Board of Distillerie Ryssen (France), Raffinerie Tirlemontoise (Belgium), Eastern Sugar BV (Netherlands) Marie-Aimée Bich-Dufour 47 years old, French nationality Antoine Treuille Date of election as Executive Vice-President: 1995 57 years old, French nationality General Counsel Non-affiliated Director Date of election as Director: Annual Shareholders’ meeting of Other Group directorships: May 21, 1997 – Director of the Board of BIC Services (France), BIC Portugal SA Last mandate renewed at the Annual Shareholders’ meeting of (Portugal), BIC Iberia SA (Spain), BIC Violex SA (Greece), Sheaffer May 28, 2003, until Annual Shareholders’ meeting in 2006, for fis- (Hong Kong) Co. Ltd. (Hong Kong), Shanghai Sheaffer-Wingsung cal year 2005. Stationery Co. Ltd. (China), BIC Stationery (Shanghai) Co., Ltd. (China), BIC India Pte. Ltd. (India), BIC Products Pte. Ltd. (India), Chairman of the Audit Committee BWI Manufacturing India Pte. Ltd. (India), Nihon BIC Co. Ltd. Main directorship: (Japan), BIC Kosaido KK (Japan), BIC Malaysia Sdn. Bhd. Executive Managing Director of Mercantile Capital Partners (USA) (Malaysia), Mondial Sdn. Bhd. (Malaysia), BIC-GBA Sdn. Bhd. (Malaysia), BIC Product (Singapore) Pte. Ltd. (Singapore), BIC Other Directorships: Product (Asia) Pte. Ltd. (Singapore), BIC Product (Korea) Ltd. – Director of the Board of Eramet (France) (South Korea), BIC Product (Thailand) Ltd. (Thailand)

Workforce information

WORKFORCE

For the year ending December 31, 2005, the BIC workforce totaled 8,474 permanent and 792 temporary employees worldwide. Changes in staff numbers by region are shown below:

2005 workforce by geography

CHANGE BIC GROUP 2003 2004 2005 2005/2004

Europe 4,015 3,995 3,986 (9)

North America and Oceania 2,132 2,030 1,988 (42)

Latin America 2,000 2,050 2,053 + 3

Middle East, Africa and Asia 559 575 447 (128)

Total permanent workforce in full-time equivalent 8,706 8,650 8,474 (176)

Temporary workforce 687 942 792 (150)

Total in full-time equivalent 9,393 9,592 9,266 (326)

Management report 22 of the Board of Directors Permanent workforce by geography September 2005, 60% of the employees that left the Company accepted voluntary retirement packages. For the others, the 8,706 8,650 8,474 Human Resources Department created a specific program incorpo- 559 (6%) 575 (7%) 447 (5%) rating a contact plan with more than 100 local companies to iden- 2,000 (23%) 2,050 (24%) 2,053 (24%) tify available positions in the region, and training in interview techniques. 2,132 (24%) 2,030 (23%) 1,988 (23%) Permanent employees (in France, with a permanent employment contract) represent 91% of the total workforce. Temporary workers 4,015 (46%) 3,995 (46%) 3,986 (47%) declined in 2005 at 9% of the workforce, split among temporary staff, fixed-period contracts and school and university interns. 2003 2004 2005 Temporary workers are located essentially in France, Greece and the US. They are employed in production (77% of temporary staff), EUROPE NORTH AMERICA AND OCEANIA • • sales support (8%) and distribution (9%), essentially as a result of • LATIN AMERICA • MIDDLE EAST, AFRICA AND ASIA the highly seasonal characteristics of BIC’s activities.

In 2005, the number of permanent employees declined by 176. This Women accounted for 42% of Group permanent staff in 2005 i.e., decline is mainly explained by the industrial rationalization in North a 2-points advance on 2004. Women account for 39% of the work- America (partially offset by expansion of the distribution warehouse force in the Europe – Africa – Middle East area, 47% in North in Charlotte, South Carolina), the reorganization of the Asian mar- America and 42% in Latin America. They account for 39% of pro- keting subsidiaries (-79) and our unit in Botswana (Africa). duction and R&D staff and 47% in other functions.

Permanent workforce by division Group

8,706 8,650 8,474

1,682 (19%) 1,677 (19%) 1,671 (19%)

1,660 (19%) 1,654 (19%) 1,586 (19%) WOMEN MEN 42% 58%

5,364 (62%) 5,319 (62%) 5,217 (62%)

2003 2004 2005 Managers account for around 22% of permanent Group staff: 27% • LOGISTICS, MARKETING AND ADMINISTRATIVE SERVICE of these managers are women (13% of directors/senior executives). • SALES FORCE AND CUSTOMER SERVICES PRODUCTION AND R&D For the BIC Group, the main characteristic of a manager is that • he/she coordinates a range of resources for which he/she is responsible, with a degree of autonomy and responsibility necessa- ry for achievement of objectives at least annually. Management can In the entities affected by job cuts, the Group systematically imple- concern a team, a project, a process, a technique or a client or ments special plans for assistance and support for employees supplier portfolio. The average age of BIC managers is 41 (42 for affected: measures to identify in-house solutions (analysis of rede- men and 38 for women) and average service of 8 years. ployment offers within the Group, assistance with international relo- cation) and measures to pinpoint solutions outside the Group Voluntary turnover in the Group workforce reached 6% in 2005, (measures to assist redundant employees with the search for a new compared with 7% in 2004, 5% in 2002 and 2003, 7% in 2001 and job: outplacement and financial measures). For example, in the 9% in 2000. This decline reflects staff cut-back plans in the US that Milford-US plant, where a shaver production unit was closed in incorporate specific programs encouraging voluntary departures.

Management report of the Board of Directors 23 Management report of the Board of Directors

Voluntary staff turnover in 2004 and 2% in 2003. The Human Resources Department has increased the awareness of the issue among management of its companies by releasing figures at Group level providing a compar- ative analysis of detailed results at each company. Action plans 9% have also been implemented; these incorporate attendance bonuses, for example. 2000 7% 7% 6% 2001 5% 5% 2004 DISABLED EMPLOYEES 2005 In 2005 disabled workers at the Group’s largest sites totaled 105 2002 2003 (excluding outsourced contracts). They numbered 61 in Europe, 28 in South America and 16 in North America.

For recruitment purposes, over recent years the Group has devel- REMUNERATION oped a mobility and active internal promotion policy, which is The average annual cost (including payroll taxes) of each Group backed by career management tools (Individual Development Plan, employee totaled 43,200 euro in 2005 i.e., a 6.5% increase on Succession Plan, talent accelerators, et cetera) that are used effi- 2004. At constant exchange rates, costs rose by 5% compared ciently. In 2005, 82% of the four top manager levels were promoted with 2004. Overall, this rise reflects: internally, up from 80% in 2004. Development of an in-house job offer system also encouraged and increased internal candidates at • An increase in average gross salary (up 2.2%); all levels. • A 13% increase in variable remuneration: 2004 having improved In addition, the Group recruited some 650 external candidates in on the preceding year, a higher bonus payout became possible; 2005. No external recruitment difficulties have been encountered • Higher payroll taxes, and other benefits (up 8.7%, due entirely to thanks to introduction of innovative, qualitative tools (Internet a new accounting standard for stock-options and shares, other address: [email protected]), which enhances aware- expenses having declined slightly). ness of the Company in the international employment market, and An essential element in the BIC Group’s remuneration policy is collaboration with specialist recruitment companies with interna- acknowledgement of the performance of individuals and work tional reputations. In-house, over recent years the Group has rein- teams. Thus, for managers, salary increases reflect individual merit, forced managers’ expertise in recruitment techniques and has except in certain countries with legal obligations regarding general developed a more efficient selection procedure. increases. Variable remuneration relating to performance repre- sents an average of 15% of Group managers’ gross base salaries. ORGANIZATION OF WORK Differing remuneration levels between employees are justifiable. Methods of work organization and working hours adjustment are They reflect responsibilities, experience, performance, and poten- determined on the basis of each site’s projections of production tial, and take the specifics of local markets into account. requirements and customer services. BIC strives constantly to improve organization methods. In 2005, a complete analysis of the external competitiveness of managers’ base salaries was commissioned. For the 50 countries Overtime is strictly measured and managed in the establishments in which BIC operates, HayGroup supplied market median data for that have recourse to this practice. each BIC level. Results showed that, on average, BIC managers Absenteeism (excluding on-site accidents and maternity) declined are positioned slightly higher than their local market median, in line further in 2005, to a Group average of 1.7%, down from 1.9% with Group remuneration policy.

Management report 24 of the Board of Directors 104 104 • BIC employees took an active part in the entire project. They were 103 102 asked to describe on how these values are part of daily life in their 100 100 100 100 units. On this basis, plans of action were prepared and are being implemented. • When asked about BIC values at work, 75% of the respondents

EUROPE NORTH LATIN TOTAL have expressed that the BIC values are applied at BIC (i.e., no AMERICA AMERICA gap or a limited gap between the values and what is effectively • MARKET MEDIAN • BIC lived at work). The value of simplicity has been identified as the first improvement opportunity. The BIC Group values its differences and does not tolerate any dis- • As a consequence of these measures, specific training has been crimination such as relating to race, religion, sex or age. developed to help employees understand BIC’s values and help them to put them into practice daily. This training will be available PROFESSIONAL RELATIONS AND SUMMARY to managers and employees who might have identified gaps on OF LABOR AGREEMENTS some values for their teams. In 2004, BIC USA Inc. announced that, in an effort to consolidate worldwide operations, the Company had made a decision to close Training and development its ballpoint pen and single-blade shaver manufacturing operations For BIC, the mission of the “training and development” function is: in Milford, Connecticut, USA, and to close its Sheaffer Pen facility • inculcate the entire Group with BIC’s culture and values; in Fort Madison, Iowa, USA. In 2004, BIC thus negotiated and • improve the efficiency of BIC’s operations and managers; concluded a plant closure agreement with the unions representing the hourly-paid workers, United Steelworkers of America (USWA) • detect and develop the expertise of BIC’s future leaders. at Milford, and United Auto Workers (UAW) at Fort Madison. These objectives are achieved through the active involvement of In September 2005, the single-blade shaver operation in Milford has managing directors and operating management in the personnel been closed. At end-2005, 111 employees (of the 400 job cuts management process, and through BIC University. in the entire plan) had effectively left BIC. Training: improve the operating capacity of teams and their man- In these difficult conditions, management and union representatives agers with BIC University. are working together to find solutions that should be satisfactory BIC University, the corporate training center created in 1998, aims compromises between the economic necessities of the company to develop strong leadership skills, in line with BIC values, to facili- and BIC’s responsibilities to its employees. tate more effective team work across geographies and functions In Europe, the year was also marked by reorganizations in pro- and to bring managerial and technical tools to support BIC’s busi- duction and distribution companies. BIC announced the closure of ness. BIC University’s program offers trainings in 3 continents, on its Greek pantyhose production unit, which concerned around a global and local basis. 60 people. Efficient labor relations management led to redeploy- In 2005, more than 13,000 days of training were provided within ment of all the employees in shaver production units. the Group, against a reported total of 10,300 in 2004.

HUMAN RESOURCES DEVELOPMENT AND TRAINING Training themes in 2005

FOREIGN LANGUAGES Vision and Values IT 8% In 2005, BIC decided to up-date its vision and values. A major 9% communications and training project was launched throughout the TECHNICAL HR TRAINING Group: MGT. 40% • 140 “Values in Action” meetings have been held by 200 “ambassa- 10%

dors” in some 60 Group units. More than 7,300 employees attended. INDIVIDUAL DEVELOPMENT • 13,000 booklets translated into 16 languages, 4,600 posters and 5% 15,000 cards were distributed. BIC CULTURE COMPANY • BIC employees were able to meet Leadership Team members during 24% MANAGEMENT these meetings. A video on Group values was viewed at each unit. 4%

Management report of the Board of Directors 25 Management report of the Board of Directors

Individual development: identify and train tomorrow’s leaders SCOPE AND CHOICE OF INDICATORS

BIC strongly encourages the development of employees’ talents SOCIÉTÉ BIC has chosen to broaden the scope of this report and skills, with a stated desire to favor internal promotion (82% of beyond that outlined in Article 116 of the Law on New Economic the positions in the three management staff levels are filled inter- Regulations, which prescribes the environmental data required from nally). Close attention is paid to “high potential“, a critical resource publicly traded companies. for the company’s future. In 2006, a new process will be launched In order to supply pertinent information in conformity with the law, to record the skills and know-how of BIC’s key employees, follow- BIC supplies worldwide consolidated data whenever it is available ing which a plan of action will be drawn up to ensure long-term and relevant. retention of these skills. At the same time, a new “Individual devel- opment plan” process will be launched, focused on employees’ val- Indicators were chosen to provide greater clarity for all data provi- ues and competencies, with the objective of boosting their ded. Indicators were selected to reflect the Group’s activities and performance in the short term and, thus, their “employability”. the impact of those activities on the environment. The information presented here represents consolidated data CHARITIES from all subsidiary factories, French and foreign, unless only local In 2005, BIC donated 1.3 million euro to its French subsidiaries’ data is available, or if this data is more relevant than consolidated charities, as defined in article R432-2 of the Labor Code. data. This report includes all industrial plants of the BIC Group that manufacture finished or semi-finished products for sale to the Environmental Data general public, our engineering companies and the main BIC warehouses.

BIC AND THE ENVIRONMENT COMPANY INTERNAL ENVIRONMENTAL MANAGEMENT. Ethical conduct toward our employees, consumers, customers, CAPACITIES FOR REDUCING ENVIRONMENTAL RISKS suppliers and shareholders is a fundamental and pervasive opera- BIC’s overall approach to environmental protection is outlined in a ting principle within the BIC Group. Accordingly, BIC has main- document entitled “Environmental, Health and Safety policy for the tained a long-standing commitment to protecting the environment, BIC Group” signed by BIC’s Chairman and Chief Executive Officer as well as safeguarding the health and welfare of our employees, in April 2005. neighbors and consumers. Among other commitments, this policy obligates all BIC factories We recognize that nearly every aspect of a manufacturing business, to implement environmental management systems. The BIC Group including the production, distribution, and end disposal of a pro- has prepared a detailed set of requirements for a management sys- duct and its packaging, has the potential to impact the environ- tem that meets the unique needs of our factories, but is purposely ment, human health or safety. designed to achieve continuous improvement of environmental It is clearly our responsibility to minimize those impacts. The chal- performance. The Group has also developed a formal guidance lenge is to develop solutions that protect people and the environ- program to assist our plants that do not currently have a manage- ment and allow us to maintain the product quality and value that ment system in successful design and implementation. consumers demand. BIC accepts this responsibility and this chal- Four BIC factories with no formal environmental management sys- lenge. tem were chosen as pilot sites during 2005 and are currently “test- Our approach is to collaborate with our employees, suppliers, driving” the Group environmental management system and customers and consumers to identify, assess and minimize guidance program. the environmental, health and safety impacts resulting from The feedback and results from these pilot facilities is being used our manufacturing operations, our products, and our product to refine the BIC Group requirements and guidance program. After packaging. these final improvements, BIC will begin implementation of envi- This is the second year BIC has published a sustainable develop- ronmental management systems at all BIC-owned facilities around ment report. the world in 2006. Completion is expected by December 2007.

Management report 26 of the Board of Directors ENVIRONMENTAL EVALUATION OR CERTIFICATION TRAINING AND INFORMATION ON THE ENVIRONMENT AND SAFETY The BIC Group has directed all BIC factories to establish an envi- ronmental management system compliant with an internal Group In 2005, BIC launched a campaign to raise employee awareness standard. Individual factories are free to exceed this Group stan- of its sustainable development program. This included presenta- dard, where appropriate, as long as they maintain a focus on conti- tions to site management and the distribution of brochures printed nuous improvement of environmental performance. in national languages. Presentations were given jointly by members of site management teams and members of the sustainable deve- ISO 14001 certification is not implemented in the whole Group but lopment Committee. Newly hired employees also learn about sus- only for selected factories that have chosen this way to make tainable development through the “Welcome to BIC” orientation progress. However, we do not promote nor forbid the usage of this program given by BIC University. The new BIC Group Environmen- certification. tal, Health & Safety (EH&S) policy was communicated to all facto- MEASURES TAKEN, WHERE APPLICABLE, TO ENSURE THAT ries. OPERATIONS ARE IN CONFORMITY WITH APPLICABLE LAWS The BIC Group does not maintain an independent measure of train- AND REGULATIONS CONCERNING THE ENVIRONMENT ing-days devoted to EH&S issues at our plants. EH&S training is The plants maintain routine and periodic controls intended integrated into the 5,292 man-days of technical training completed to ensure compliance with local regulatory requirements. These in 2005. controls are carried out internally, or with the assistance of an inde- pendent external company. An action plan is established to correct EXPENSES FOR PREVENTING CONSEQUENCES TO THE ENVIRONMENT any identified compliance issues. The implementation of the Group environmental management sys- Investment budgets related to the environment are an integral part tem will further assist plants with regulatory compliance. of the annual budgets of all factories.

CONTINGENCY PLANS SET UP TO DEAL WITH POLLUTION PROVISIONS AND GUARANTEES FOR ENVIRONMENTAL RISKS ACCIDENTS WITH CONSEQUENCES OUTSIDE OF THE PLANTS The Company has insurance to cover its installations for potential Emergency prevention and response plans have been established civil liability. The Company has environmental liability and civil liabi- in locations where there is an identified risk of an accident with lity insurance in the event of injury or damage to third-parties. consequences outside plant boundaries. In addition, the Company carries mandatory insurance for its In particular, our SEVESO plants have a “Plan d’Opération Interne.” employees, as well as property damage and business interruption Outside of France, many plants have equivalent emergency plans. insurance for its buildings and business personal property. For example, our plants in the United States and New Zealand In particular, our high-threshold SEVESO plant has constituted the maintain an “Emergency Response Plan.” financial guarantees with banking act of guarantee, according to For our high-threshold SEVESO plant, we have a major hazard pre- regulations. vention policy and have implemented a safety management system COMPENSATION PAID DURING THE FISCAL YEAR to prevent major accidents, in conformity with the ministerial decree UNDER COURT ORDER of May 10, 2000, transposition in French law of the European Council directive 96/82/EC. None.

Management report of the Board of Directors 27 Management report of the Board of Directors

ACTIONS TAKEN TO REPAIR DAMAGE TO THE ENVIRONMENT Whenever feasible, our R&D teams explore alternate scenarios for minimizing environmental impact by varying the materials used, No significant activities were necessary in 2005. production processes, manufacturing location, or by optimizing the product profile. As a result, BIC® pens offering several design CONSUMPTION OF WATER RESOURCES options will be ecodesigned using this process. Annual water consumption normalized to production BIC Group (cubic meters/tonne) WASTE

Annual production of hazardous waste 49 normalized to production 43 BIC Group (tonne/tonne) 38 0.0365 0.0333 0.0308 2003 2004 2005

Total water consumption for the BIC Group decreased between 2003 2004 2005 2004 and 2005, despite a significant increase in reported produc- tion. Water-use efficiency, represented by consumption per tonne 2005 hazardous waste treatment of production, has decreased by 23% since 2003. BIC Group (% of total expressed in tonne) The 2005 reduction is due to a more efficient use of cooling water by one of our main water-consuming plants. This one plant’s consumption represents 65% of the total water consumption for OTHER RECYCLED TREATMENTS/ 10% the BIC Group. Since most of the water is used only for cooling, DISPOSAL the environmental impact is very low. 31% Most BIC facilities achieved significant improvements in water-use efficiency as a direct result of programs implemented to reduce their water consumption. Examples of 2005 initiatives included: the use of treated sanitary wastewater or the collection of rainwater for INCINERATED irrigation of outside gardens, as well as the use of closed loop LAND DISPOSAL WITH ENERGY 14% RECOVERY cooling systems to reduce water consumption. 44%

CONSUMPTION OF RAW MATERIALS Note: “Other treatments/Disposal” represent all other forms of waste treatment, including incineration without energy recovery. We are committed to optimizing the quantity of raw materials ne- The amount of hazardous waste generated per tonne of produc- cessary to manufacture and sell our products. tion decreased by approximately 15% since 2003. This is a result In 2005, we initiated an ecodesign method for stationery products. of local initiatives. For example, our factory in Spain improved the This is a preventive approach that enables us to integrate environ- efficiency of a pickling process, which significantly reduced the mental concerns, beginning with the product design stage. generation of resulting hazardous waste.

Management report 28 of the Board of Directors Annual production of non hazardous waste normalized CONSUMPTION OF ENERGY RESOURCES INCLUDING, to production IF APPLICABLE, MEASURES TAKEN TO IMPROVE ENERGY BIC Group (tonne/tonne) EFFICIENCY AND USE OF RENEWABLE ENERGY SOURCES

0.1678 Annual energy consumption normalized to production 0.1637 0.1601 BIC Group (Giga joule/tonne)

18.17 16.39 15.99 2003 2004 2005

2003 2004 2005 2005 non hazardous waste treatment BIC Group (% of total expressed in tonne)

OTHER TREATMENTS/ DISPOSAL The BIC Group has achieved a 12% reduction in energy consumed 1% per tonne of production compared to 2003.

LAND DISPOSAL Some examples of plant initiatives in 2005 to reduce energy 33% consumption included: more efficient use of air compressors and RECYCLED air-conditioning systems in one of our American facilities, the sub- 57% stitution of a continuous-duty electric boiler with an on-demand nat- ural gas boiler and the installation of a programmable controller for the office heating system at our plant in Spain. INCINERATED WITH ENERGY RECOVERY CONDITIONS FOR USE OF GROUNDS 8% In Europe and the USA, as part of the industrial restructuring resul-

Note: “Other treatments/Disposal” represent all other forms of waste treatment, including ting in the closing of factories, BIC has ensured that the plants incineration without energy recovery. involved were cleaned up appropriately. In 2005, there was a slight decrease in the generation of non-haz- Between 1999 and 2005, BIC carried out studies of the soil and ardous waste as normalized to production. Recycling programs subsoil, although most plants were not subject to any such compul- have been a useful tool to manage non-hazardous waste at many sory examination. BIC plants. For example, starting in 2005 in Brazil, cardboard boxes and wood pallets that were used to pack incoming raw materials Such studies of longtime European plants demonstrate that our are returned to suppliers so they can be reused. business does not have a significant impact on soil and subsoil.

Management report of the Board of Directors 29 Management report of the Board of Directors

For French plants subject to specific regulatory requirements, the in our BIC Group Code of Conduct. This commitment is being mon- policy for preventing the risk of soil pollution is an integral part of itored by a self-assessment process in our factories. the BIC operating plan. BIC expects its contract manufacturers to commit to the same Code of Conduct. Although BIC derives only 10% of its sales from AIR, WATER AND SOIL RELEASE THAT SERIOUSLY AFFECTS outsourced products, mainly in the stationery business, BIC has THE ENVIRONMENT. MEASURES TAKEN TO LIMIT THE implemented a specific program to monitor how the Code of EFFECTS ON BIOLOGICAL BALANCE, NATURAL HABITATS, AND PROTECTED ANIMAL AND PLANT SPECIES Conduct is actually implemented by contract manufacturers. Since 2000, BIC has established a Corporate Social Responsibility The nature of our manufacturing operations, primarily molding and Program that is an integral part of the qualification process for our assembly of plastic products, should result in a relatively low local new products manufactured by contract manufacturers. environmental impact as compared to what many think of as typi- Participation in BIC’s Social Responsibility Program – which cal “heavy” manufacturing. Nevertheless, our sustainable develop- includes compliance with BIC’s Code of Conduct for Contract ment program is requiring all BIC plants to measure, assess and Manufacturers and factory assessments by an independent exter- reduce any potentially significant environmental impacts. nal monitoring agency – is mandatory for all BIC contract manu-

NOISE AND ODOR IMPACT facturers. In 2005, the BIC Group CSR Program has been expanded to local and regional contract manufacturers which man- The odor impact is not considered significant in our activities. ufacture BIC® products for local markets only. As far as noise impact is concerned, measures are taken within the BIC views Corporate Social Responsibility as a partnership with its property limits in the context of local regulations. In the event that contract manufacturers to further shared values. We develop this noise pollution is identified, we will assess the situation and imple- partnership by motivating improvement, setting goals and seeking ment appropriate corrective actions. commitment to improvement rather than termination. BIC seeks to work with those contract manufacturers who show a commitment SUBCONTRACTING AND THE MANNER IN WHICH by responding promptly and providing a detailed and honest plan THE COMPANY MAKES SURE ITS SUBCONTRACTORS for improvement. AND ITS SUBSIDIARIES RESPECT THE FUNDAMENTAL INTERNATIONAL LABOR ORGANIZATION CONVENTIONS Principles of BIC Code of Conduct BIC derives 90% of its sales from products manufactured in its own • Safe and Healthy Work Environment factories. • Fair Wages and Reasonable Working Hours As a leading global consumer products company, BIC is commit- • No Child Labor ted to conducting its range of business activities from manufactur- • No Forced Labor ing to marketing and sales in a socially responsible manner. The BIC Group Code of Conduct is a set of business and social prin- • No Discrimination ciples describing our commitment to work with contract manufac- • Freedom of Association turers who share a commitment to these principles. • Legal Compliance The major BIC plants are located in Brazil, France, Greece, Mexico, • No Animal Testing South Africa, Spain and the United States. All BIC factories conduct their operations in a manner which is con- • Environmental Responsibility sistent with the business and social principles that are formalized • Publication

Management report 30 of the Board of Directors SUBSIDIARIES AWARENESS OF THE IMPACT OF THEIR Themes for activities supporting local communities BUSINESS ON REGIONAL DEVELOPMENT AND LOCAL Distribution according to an internal POPULATIONS estimation of the value of activities

In the vast majority of cases, BIC subsidiaries initiate local com- MISC. munity involvement programs and activities. This guarantees better 30% understanding of local needs and the most efficient use of BIC con- tributions. Most importantly, this approach is a direct, pragmatic EDUCATION way to improve the quality of life in regions where BIC employees 59% live and work. In 2005, more than 100 community activities and programs were undertaken in the countries where BIC has opera- HEALTH tions. 11% Contributions in the form of product donations are attractive to local community organizations. In response to basic needs, such as writ- Distribution according to the number of activities ing and personal hygiene, BIC® products are often considered basic MISC. commodities for the disadvantaged people or people caught in a 43% state of emergency. Some BIC Group subsidiaries also demonstrate corporate citizen- ship through financial support and active employee participation in philanthropic organizations.

HEALTH EDUCATION 14% 43%

Management report of the Board of Directors 31 Management report of the Board of Directors

Assessment of activities in 2005 among 15 subsidiaries:

TYPE OF NUMBER OF PROGRAM ACTIVITIES EXAMPLES OF ACTIVITIES AMONG BIC GROUP SUBSIDIARIES

Product donations 107 • France: donation of writing and shaving products for some 50 initiatives to meet local philanthropic humanitarian goals: support for schools, aid for the homeless, support for development projects in Africa • South Africa: within the framework of the bilateral operation of the Department of Education, annual donations of writing instruments to disadvantaged children • Romania: thousands of shavers donated to hospitals, Carol Davila and Cantacuzino • BIC Graphic Europe: 19 activities worldwide involving product donations and support of local or international NGOs including UNICEF: Latin America, Myanmar, Malawi, Senegal, Western Sahara, The Gambia, Equatorial Guinea Financial aid for 27 • USA (BIC Corporation): financial support to more than 50 organizations philanthropic organizations since 1997. The Milford United Way, part of an international network of local organizations for emergency aid, was the main beneficiary in 2005. • USA (BIC Corporation): sponsorship and organization of the summer games cycling event for Special Olympics, Connecticut on the BIC Corporation campus in Milford • USA (BIC Graphic): financial support through the Pinellas Education Foundation. Employees participated in the Susan B. Komen “Race for the Cure” breast cancer 5 km running to raise funds for the fight against breast cancer • Canada: financial support for United Way Toronto, and Kids Help Phone, a program to help adolescents in difficulty Public relations for philanthropic 11 • Canada: “Be Incredibly Creative” program whose goal is to stimulate or educational programs the creative writing skills of schoolchildren. More than 85% of teachers involved said that the program was scholastically beneficial for their students. • Argentina: visits to 200 schools and distribution of products • Spain: organization of a joint promotion: for each lighter specially marked for the occasion, a donation of 0.07 euro was made to the NGO WWF/ADENA Employee volunteer work 10 • Mexico: complete renovation of a retirement home for women undertaken by 120 employees • Guatemala: following Hurricane Stan, a food and clothing drive was organized to help the victims • USA (BIC Corporation): through employee participation in the “Penguin Plunge” a winter swimming event, funds have been raised to benefit Special Olympics Connecticut for the past six years. • USA (BIC Corporation): through the Community Service Volunteer fund, food and clothing were collected and distributed Other 6 • Ecuador: financing for the reconstruction of a school in a disadvantaged neighborhood • Guatemala: organization for the annual presentation of the ballet, The Nutcracker Suite, with the national ballet of Guatemala, with free admission for orphans and disadvantaged families

Management report 32 of the Board of Directors Annexe of the management report of the Board of Directors

AUTHORIZATIONS OF CAPITAL INCREASE AT THE CLOSING OF 2005 FINANCIAL YEAR

SOCIÉTÉ BIC has, at December 31, 2005, he following authorizations which were granted by the Annual Shareholders’ meetings:

DATE OF THE TERM AND LIMIT USE OF THE (in million euro) MAXIMUM AMOUNT AUTHORIZATION DATE OF VALIDITY AUTHORIZATION

I – Authorization of capital increase with the shareholders’pre-emptive right of subscription Shares or various securities or share warrants 50 June 3, 2004 26 months Not used Aug. 2, 2006

II – Authorization of capital increase without the shareholders’ pre-emptive right of subscription Shares or various securities or share warrants 50 June 3, 2004 26 months Not used Aug. 2, 2006

III – Authorizations of capital increase in favour of employees and Company Officers Free grant of shares’ subscriptions’ options Legal May 19, 2005 38 months Not used limitations Jul. 18 2008

Issue of shares as part of an 3% of the share June 3, 2004 5 years Not used employee savings capital June 2, 2009

Options of subscription of shares Legal May 28, 2003 38 months Used limitations July 27, 2006 (306,296 shares)

Management report of the Board of Directors 33 34 Consolidated financial statements Lorem ipsum lorem Consolidated financial statements

Consolidated income statement (IFRS) for the year ended December 31, 2005

NOTES (in thousand euro) DEC. 31, 2004 DEC. 31, 2005

3 Net sales 1,264,863 1,380,750 4 Cost of goods (640,004) (706,600)

Gross profit 624,859 674,149

4 Distribution costs (205,934) (225,653) 4 Administrative expenses (136,086) (137,765) 4 Other operating expenses (80,128) (77,826) 5 Other operating income and expense (30,138) 5,506

Income from operations 172,573 238,412

6 Finance costs (97) (5,596) 6 Other finance revenue/(expenses) 4,370 5,472

Income before tax 176,846 238,287

7 Income tax expense (62,771) (81,649) Net income from continued operations 114,075 156,638 Net income from discontinued operations 0 0

Income before minority interest 114,075 156,638

19 Minority interest (184) (111) GROUP NET INCOME 113,891 156,528

8 Earnings per share (in euro) 2.15 3.11 8 Diluted earnings per share (in euro)* 2.15 3.10 8 Number of shares outstanding 52,882,591 50,330,582 net of treasury shares

* Diluted items are options for subscribing for new shares.

Consolidated financial statements 35 Consolidated financial statements

Consolidated balance sheet (IFRS) for the year ended December 31, 2005

ASSETS NOTES (in thousand euro) DEC. 31, 2004 DEC. 31, 2005

10-1, 10-2 Property, plant and equipment 360,270 367,545 10-3 Investment properties 8,529 20,988 11 Goodwill 173,978 186,691 12 Intangible assets 29,092 30,054 Equity investments 72 79 14 Other non-current assets 19,894 28,934 23 Deferred tax assets 95,044 103,711 24-1 Derivative financial instruments 0 34

Non-current assets 686,879 738,036

15 Inventories 255,190 318,070 Income tax advance payments 7,822 13,308 16 Trade and other receivables 281,831 346,711 Other current assets 12,433 15,840 24-1 Current derivative financial instruments 0 0 CF Other current financial assets 0 16,128 16 Cash and cash equivalents 178,971 112,006 10-4 Assets held for sale* 3,001 0

Current assets 739,248 822,063

TOTAL ASSETS 1,426,127 1,560,099

* Assets held for sale have been reclassified from non-current assets to current assets. CF: See Consolidated cash flow statement.

36 Consolidated financial statements EQUITY AND LIABILITIES NOTES (in thousand euro) DEC. 31, 2004 DEC. 31, 2005

17 Share capital 196,905 190,769 Accumulated profits 808,365 826,923 Translation reserve (12,250) 52,356 Cash flow hedge derivatives 0 (3,941) Group Shareholders’ equity 993,020 1,066,106 19 Minority interest 1,532 1,315

Shareholders’ equity 994,552 1,067,421

20 Non-current borrowings 2,418 769 22 Retirement benefit obligation 118,472 129,742 21 Provisions 21,339 29,622 23 Deferred tax liabilities 24,891 16,601 24-1 Non-current hedging contracts 0 5

Non-current liabilities 167,120 176,739

Trade and other payables 99,092 109,597 20 Current borrowings 18,972 23,979 Current tax due 22,349 38,846 Accrued expenses 124,042 136,433 24-1 Current hedging contracts 0 7,084

Current liabilities 264,455 315,939

TOTAL EQUITY AND LIABILITIES 1,426,127 1,560,099

Consolidated financial statements 37 Consolidated financial statements

Consolidated cash flow statement (IFRS) for the year ended December 31, 2005

NOTES (in thousand euro) DEC. 31, 2004 DEC. 31, 2005

OPERATING ACTIVITIES PL Net income 113,891 156,528 Adjustments to reconcile net income to net cash: PL Minority interest 184 111 4,10,11, 12, 21,22 Amortization and provisions (excluding provisions on current assets) 105,685 88,476 24-1 Hedging 389 18, SHEQ Recognition of share-based payments 2,005 3,389 7,23 Deferred tax variation (19,047) (6,982) 5,10,12 (Gain)/Loss from disposal of fixed assets 306 (4,188)

Cash flows 203,024 237,723

BS (Increase)/Decrease in net current working capital 7,921 (79,035) 6 Financial expense/(profit) (4,286) 6 Interests (paid)/received 4,088 (60) 7 Income tax expense 83,278 87,756 Income tax paid (77,771) (75,788) NET CASH FROM OPERATING ACTIVITIES 216,254 170,602

INVESTING ACTIVITIES Proceeds on disposal of other investments 98 5,(a) Proceeds on disposal of property, plant and equipment 13,063 18,910 10, 12 Purchases of property, plant and equipment (61,316) (80,442) Purchases of marketable securities 24 12 Purchases of patents and trademarks (8,517) (9,695) Proceeds on disposal/(Purchase) of BIC shares booked in temporary cash investments 800 14 Other investment expenditures (39) (584) (b) Acquisition of subsidiaries (3,061) NET CASH FROM INVESTING ACTIVITIES (59,046) (71,713)

FINANCING ACTIVITIES SHEQ, (c) Dividends paid (63,480) (76,283) 19, (d) Minority interest buy back (1,748) (79) 20 Borrowings/(Repayments) (12,899) (1,737) 26 Repayments of obligations under finance leases (419) (2) (e) Purchase of financial instruments (1,249) (f) (Purchase)/Sale of other current financial assets (16,128) 17, (g) Increase in treasury shares (85,633) (58,110) NET CASH FROM FINANCING ACTIVITIES (164,179) (153,588)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (6,971) (54,699)

BS Opening cash and cash equivalents 157,610 160,127 (h) Exchange difference 9,488 (1,938) BS CLOSING CASH AND CASH EQUIVALENTS 160,127 103,490

38 Consolidated financial statements Cash and cash equivalents include cash, cash equivalents and bank overdrafts. (a) The proceeds on disposal of property, plant and equipment include in 2005 the sale of the BIC Corporation building in Milford for 11.3 mil- lion euro before related costs (14 million US Dollar), the residual amount of the Italian office sales for 2.8 million euro, part of the sale of the Cabreuva plant in Brazil for 2.8 million euro as well as the sale of Asian offices for 0.9 million euro. The proceeds on disposal of proper- ty, plant and equipment included in 2004 part of the Italian offices sale for 8.3 million euro as well as the sale of Ballograf manufacturing operations for 2.7 million euro. (b) Acquisition of subsidiaries in 2004 was related to the impact on the Group treasury of Stypen Group for -3.5 million euro and BIC Kosaido KK for +0.4 million euro. (c) The dividends paid mainly represent the dividends paid by SOCIÉTÉ BIC to its shareholders (cf. note 9). (d) SOCIÉTÉ BIC proceeded to the minority buy back of BIC Holdings South Africa on April 29, 2004 for 1.5 million euro. (e) SOCIÉTÉ BIC has paid in 2005 some option premium for 1.2 million euro. (f) SOCIÉTÉ BIC has purchased in 2005 some monetary mutual funds with a sensitivity above 0.5 for 16.1 million euro (classification done according to the 2005 AMF recommandation) (g) SOCIÉTÉ BIC has bought in 2005, 1,704,520 shares for 74.8 million euro and sold 69,883 shares for 3.1 million euro. 359,526 options have been exercised in the year 2005 and SOCIÉTÉ BIC has received 13.6 million euro. In 2004, 2,373,903 shares had been bought back by SOCIÉTÉ BIC for a total amount of 85.8 million euro and sold 5,255 shares for 0.2 million euro). No option had been exercised in year 2004. (h) The exchange difference includes a hedging loss on US Dollar dividends in 2005 for 3 million euro. The exchange difference included a hedging benefit on US Dollar dividends in 2004 for 11 million euro. PL: See Consolidated income statement. SHEQ: See Consolidated statement of changes in equity. BS: See Consolidated balance sheet.

Consolidated financial statements 39 Consolidated financial statements

Consolidated statement of changes in equity (IFRS) for the year ended December 31, 2005

CASH FLOW TRANSLATION HEDGE ACCUMULATED NOTES (in thousand euro) SHARE CAPITAL RESERVE DERIVATIVE PROFITS TOTAL

Balance at January 1, 2004 205,953 0 - 832,301 1,038,254

Increase/(Decrease) in share capital (7,801) (65,947) (73,748) Exchange differences arising on translation of overseas operations (12,250) (12,250) 18 Recognition of share-based payments 2,005 2,005 Other 55 Treasury shares (1,247) (10,638) (11,885) Group net income for the period 113,891 113,891 9 Dividends paid (63,252) (63,252)

Balance at January 1, 2005 196,905 (12,250) - 808,365 993,020

Effect of changes in accounting policy 9,961 (1,213) 8,748

Balance at January 1, 2005 restated 196,905 (12,250) 9,961 807,152 1,001,768

Decrease in share capital (1) (6,908) (69,550) (76,458) Increase in share capital (2) 1,170 10,236 11,406 Exchange differences arising on translation of overseas operations (3) 64,890 64,890 18 Recognition of share-based payments 3,394 3,394 Other (5) (5) 24-1 Gain/(Loss) on cash flow hedge (13,902) (13,902) Treasury shares (399) (284) - (4,937) (5,620) Group net income for the period 156,528 156,528 9 Dividends paid (75,896) (75,896)

Balance at December 31, 2005 190,769 52,356 (3,941) 826,923 1,066,106

(1) On March 2, 2005, May 19, 2005, July 20, 2005 and December 14, 2005 the Board of Directors, authorized by the Annual Shareholders’ meeting of June 3, 2004 and May 19, 2005 has decided to cancel a total of 1,808,435 shares. (2) Following the exercice of stock-options (subscription plan), the share capital has been increased by 306,296 shares. (3) Main items impacting the translation reserve variance for the period are the following: US Dollar + 32 million euro, Brazilian Real + 20 million euro, Mexican Peso + 9 million euro.

40 Consolidated financial statements Note 1. Presentation of consolidated a Lease” was issued but will only be effective for annual periods financial statements beginning on or after January 1, 2006. The Group anticipates that the adoption of these Interpretations in Approval of the financial statements the future periods will have no material impact on the consolidated financial statements of the Group. The BIC Group’s consolidated financial statements for 2005 have been approved by the Board of Directors’ meeting of February 28, As a reminder, the Group has decided to apply IAS 32/39, Financial 2006 and are submitted for approval to the Annual Shareholder’s Instruments, from January 1, 2005 without comparative disclo- meeting held on May 24, 2006. sures. This alternative is compliant with IFRS 1, First Time Adoption. The impact of IAS 32/39 application is developed in note 24-2. 1- ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis, except for the valuation of certain financial instruments. The 1-1 General principal accounting policies are set below. According to the European regulation n°1606/2002 of July 19, 2002, the consolidated financial statements of BIC Group have 1-3 Basis of Consolidation been prepared in accordance with accounting principles as defined The consolidated financial statements incorporate the financial sta- by the International Accounting Standards Board (IASB). The inter- tements of SOCIÉTÉ BIC and entities controlled by SOCIÉTÉ BIC national standards include the IFRS (International Financial (its subsidiaries). Reporting Standards) and the IAS (International Accounting Control is achieved where SOCIÉTÉ BIC has the power to govern Standards), as well as their interpretations. the financial and operating policies of an entity so as to obtain bene- The full-year consolidated financial statements have been prepared fits from its activities. using the measurement and recognition rules defined in all IAS/IFRS The results of subsidiaries acquired or disposed of during the year standards existing at that date. are included in the consolidated income statement from the effec- The opening balance sheet at transition date (January 1, 2004), tive date of acquisition or up to the effective date of disposal, as according to IFRS 1 “First application of the IFRS” is part of the appropriate. notes 31-1 and 31-2. Where necessary, adjustments are made to the financial statements The reconciliations between the financial statements as of of subsidiaries to bring their accounting policies in line with those December 31, 2004 prepared respectively under French and IFRS used by other members of the Group. principles are disclosed in the notes 30-1 to 30-4. All intra-group transactions, balances, income and expenses are eliminated on consolidation. 1-2 Adoption of new and revised International Financial Reporting Standards Minority interest in the net assets of consolidated subsidiaries is The Group has anticipated the adoption of new revised Standards identified separately from the Group’s equity therein. Minority inter- and Interpretations, listed below, issued by the IASB and the est consists of the amount of those interests at the date of the ori- International Financial Reporting Interpretations Committee (IFRIC) ginal business combination and the minority’s share of changes in of the IASB that are relevant to its operations and effective for equity since the date of the combination. Losses applicable to the accounting periods beginning on January 1, 2004. The impact of minority in excess of the minority’s interest in the subsidiary’s equity adoption of these standards and interpretations has been expan- are allocated against the interest of the Group except to the extent ded in the notes 31-1 and 31-2: that the minority has a binding obligation and is able to make an additional investment to cover the losses. – share-based payments (IFRS 2);

– goodwill (IFRS 3); 1-4 Business combinations The acquisition of subsidiaries is accounted for using the purchase – excess of acquirer’s interest in the net fair value of acquiree’s method. The cost of the acquisition is measured at the aggregate identifiable assets, liabilities and contingent liabilities over cost of of the fair values, at the date of exchange, of assets given, liabili- acquisition (previously known as negative goodwill) (IFRS 3). ties incurred or assumed, and equity instruments issued by the At the closing date of these financial statements, the Interpretations Group in exchange for control of the acquiree, plus any cost directly related to IFRIC 4 “Determining whether an Arrangement contains attributable to the business combination.

Consolidated financial statements 41 Notes to the consolidated financial statements

The acquiree’s identifiable assets, liabilities and contingent liabilities of the investment. Any excess of the Group’s share of the net fair that meet the conditions for recognition under IFRS 3 are recogni- value of the identifiable assets, liabilities and contingent liabilities zed at their fair values at the acquisition date, except for assets (or over the cost of acquisition, after reassessment, is recognized disposal groups) that are classified as held for sale in accordance immediately in profit or loss. with IFRS 5 “Non-Current Assets Held for Sale and Discontinued Where a Group entity transacts with an associate of the Group, Operations,” which are recognized and measured at fair value less profit and losses are eliminated to the extent of the Group’s inter- cost to sell. est in the relevant associate. Goodwill arising from an acquisition is recognized as an asset and initially measured at cost, which is defined as the excess of the cost 1-6 Goodwill of the business combination over the Group’s interest in the net fair Goodwill arising from the acquisition of a subsidiary or a jointly value of the identifiable assets, liabilities and contingent liabilities controlled entity represents the excess of the cost acquisition over recognized. If, after reassessment, the Group’s interest in the net the Group’s interest in the net fair value of the identifiable assets, fair value of the acquiree’s identifiable assets, liabilities and contin- liabilities and contingent liabilities of the subsidiary or jointly control- gent liabilities exceeds the cost of the business combination, the led entity recognized at the date of acquisition. Goodwill is initially excess is recognized immediately in profit or loss. recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. The interest of minority shareholders in the acquiree is initially mea- sured at the minority’s proportion of the net fair value of the assets, For the purpose of impairment testing, goodwill is allocated to each liabilities and contingent liabilities recognized. of the Group’s cash-generating units expected to benefit from the The Group did not opt for a retrospective application of IFRS 3. synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or 1-5 Investments in associates more frequently when there is an indication that the unit may be An associate is an entity over which the Group has significant impaired. If the recoverable amount of the cash-generating unit is influence and that is neither a subsidiary nor an interest in a joint less than the carrying amount of the unit, impairment loss is first venture. Significant influence is the power to participate in the finan- allocated to the reduction of carrying amount of any goodwill allo- cial and operating policy decisions of the investee but is not control cated to the cash generating unit and then to the other assets of or joint control over the policies. the unit prorated on the basis of the carrying amount of each asset The results and assets and liabilities of associates are incorporated in the unit. An impairment loss recognized for goodwill is not rever- in these financial statements using the equity method of accoun- sed in a subsequent period. ting, except when the investment is classified as held for sale, in On disposal of a subsidiary or jointly controlled entity, the attribu- which case it is accounted for under IFRS 5 Non-Current Assets table amount of goodwill is included in the determination of the pro- Held for Sale and Discontinued Operations. Under the equity fit or loss disposal. method, investments in associates are carried in the consolidated The Group’s policy for goodwill arising on the acquisition of an balance sheet at cost as adjusted for post-acquisition changes in associate is described under “Investments in associates” above. the Group’s share of the net assets of the associates, less any impairment in the value of individual investments. Losses of an 1-7 Assets held for sale associate in excess of the Group’s interest in that associate (which Assets and disposal group of assets are classified as held for sale includes any long-term interest that, in substance, form part of the if their carrying amount will be recovered through a sale transac- Group’s net investment in the associate) are not recognized. tion continuing use. This condition is regarded as met only when Any excess of the cost of acquisition over the Group’s shares of the sale is highly probable and the asset (or disposal group of the net fair value of the identifiable assets, liabilities and contingent assets) is available for immediate sale in its present condition. liabilities of the associate recognized at the date of acquisition is Management must be committed to the sale, which should be recognized as goodwill. The goodwill is included within the carrying expected to qualify for recognition as a completed sale within one amount of the investment and is assessed for impairment as part year from the date of classification.

42 Consolidated financial statements Assets (and disposal groups) classified as held for sale are mea- Rentals payable under operating leases are charged to profit and sured at the lower of the assets previous carrying amount and fair loss on a straight-line basis over the term of the relevant lease. value less costs to sell. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the 1-8 Revenue recognition lease term. Revenue is measured at the fair value of the counterpart received or receivable and represents amounts receivable for goods and ser- 1-10 Foreign currencies vices provided in the normal course of business, net of discounts The individual financial statements of each Group entity are presen- and sales related taxes. Revenue is recorded as follow: ted in the currency of the primary economic environment in which – sales of goods are recognized when goods are delivered and title the entity operates namely its functional currency. For the purpose has passed, of the consolidated financial statements, the result and financial position of each entity are expressed in a common currency. The – interest income is accrued on time basis, by reference to the prin- euro is the functional currency of SOCIÉTÉ BIC as well as the pre- cipal outstanding and the effective interest rate applicable, which sentation currency for the consolidated financial statements. is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net In preparing the financial statements of the individual entities, tran- carrying amount, sactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevai- – dividend income from investments is recognized when sharehol- ling on the dates of the transactions. At each balance sheet date, der’s rights to receive payment have been established. monetary items denominated in foreign currencies are retranslated Considering the nature of BIC Group’s activities, interest and divi- at the rate prevailing on the balance sheet date. Non-monetary dends received are disclosed as financial income in the consolida- items that are measured in terms of historical cost in a foreign cur- ted profit and loss statement. rency are not retranslated. Non-monetary items that are measured at fair value are translated using the exchange rates prevailing at 1-9 Leasing the date of the measurement. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership Exchange differences arising from the settlements of monetary to the lessee. All other leases are classified as operating leases. items, and on the retranslation of monetary items, are included in profit or loss for the period. The Group as lessor In order to hedge its exposure to certain foreign exchange risk, the Rental income from operating leases is recognized on a straight- Group enters into forward contracts and options (see note 1-20 for line basis over the term of the relevant lease. Initial direct cost incur- details of the Group’s accounting policies regarding derivative finan- red in negotiating and arranging an operating lease are added to cial instruments). the carrying amount of the leased asset and recognized on a For the purpose of presenting consolidated financial statements, straight-line basis over the lease term. The Group is only involved the assets and liabilities of the Group’s foreign operations (including as lessor in operating leases on land and buildings disclosed in the comparatives) are expressed in euro using exchange rates prevai- balance sheet as investment properties. ling on the balance sheet date. Income and expenses items (inclu- The Group as lessee ding comparatives) are translated at the average exchange rates Assets held under finance leases are recognized as assets of the for the period, unless exchange rates fluctuated significantly during Group at their fair value at the inception of the lease or, if lower, at that period, in which case the exchange rates at the dates of the the present value of the minimum lease payments. The correspon- transactions are used. Exchange differences arising, if any, are clas- ding liability to the lessor is included in the balance sheet as a finance sified as equity and transferred to the Group’s translation reserve. lease obligation. Minimum lease payments are appointed between Such translation differences are recognized in profit or loss in the finance charges and reduction of the lease obligation so as to period in which the foreign operation is disposed of. achieve a constant periodic rate of interest on the remaining balance The following exchange rates were used to translate the financial sta- of the liability. Finance charges are charged to profit and loss. tements of the main foreign subsidiaries, excluding euro countries.

Consolidated financial statements 43 Notes to the consolidated financial statements

The following schedule shows euro equivalents of one unit of foreign currency (for instance: average December 2005 is 0.80 euro = 1 US Dollar).

CURRENCIES AVERAGE 2004 AVERAGE 2005 DEC. 31, 2004 DEC. 31, 2005

US Dollar 0.80 0.80 0.73 0.85 Australian Dollar 0.59 0.61 0.57 0.62 Canadian Dollar 0.62 0.66 0.61 0.73 Swiss Franc 0.65 0.65 0.65 0.64 Chinese Renminbi 0.10 0.10 0.09 0.11 British Pound 1.47 1.46 1.42 1.46 Hong Kong Dollar 0.10 0.10 0.09 0.11 Indian Rupee 0.02 0.02 0.02 0.02 Japanese Yen 0.01 0.01 0.01 0.01 Korean Won 0.00 0.00 0.00 0.00 Malaysian Ringgit 0.21 0.21 0.19 0.22 New Zealand Dollar 0.53 0.57 0.53 0.58 Philippine Peso 0.01 0.01 0.01 0.02 Polish Zloty 0.22 0.25 0.24 0.26 Swedish Krona 0.11 0.11 0.11 0.11 Singapore Dollar 0.48 0.48 0.45 0.51 South African Rand 0.12 0.13 0.13 0.13 Argentinian Peso 0.27 0.28 0.25 0.28 Brazilian Real 0.28 0.33 0.28 0.36 Mexican Peso 0.07 0.07 0.07 0.08

Goodwill and fair value adjustment arising on the acquisition of a value of plan assets are amortized over the expected average foreign entity are treated as assets and liabilities of the foreign entity remaining working lives of the participating employees. Past ser- and translated at the closing rate. vices cost is recognized immediately to the extent that the benefit is already vested, and otherwise is amortized on a straight-line basis 1-11 Borrowing costs over the average period until the benefit becomes vested. This All borrowing costs are recognized in profit or loss in the period in treatment, called “the corridor method” was chosen by BIC Group. which they are included. The retirement benefit obligation recognized in the balance sheet 1-12 Government grants represents the present value of the defined benefit obligation adjus- Government grants are recognized in profit or loss over the periods ted for unrecognized actuarial gains and losses and unrecognized necessary to match them with related costs and deducted in repor- past services cost, and reduced by the fair value of plan assets. ting the related expense. Any asset resulting from this calculation is limited to actuarial losses and past services cost, plus the present value of available refunds 1-13 Retirement benefit costs and reduction in future contributions to the plan. Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed reti- 1-14 Taxation rement benefit plans are dealt with as payments to defined contribu- Income tax expense represents the sum of the tax currently payable tion plans where the Group’s obligation under the plans are equivalent and deferred tax. to those arising in a defined contribution retirement benefit plan. The tax currently payable is based on taxable profit for the year. For defined benefit retirement plans, the cost of providing is deter- Taxable profit differs from profit as reported in the income statement mined using the Projected Units Credit Method, with actuarial because it excludes items of income or expense that are taxable or valuations being carried out for each balance sheet date. Actuarial deductible in other years and it further excludes items that are never gains and losses that exceed 10 percent of the greater of the pre- taxable or deductible. The Group’s liability for current tax is calcula- sent value of the Group’s defined benefit obligation and the fair ted using tax rates that have been enacted at the balance sheet date.

44 Consolidated financial statements Deferred tax is recognized on differences between the carrying same basis as other property assets, commences when the assets amount of assets and liabilities in the financial statements and the are ready for their intended use. corresponding tax bases used in the computation of taxable pro- Fixture and equipment are stated at cost less accumulated depre- fit, and is accounted for using the balance sheet liability method. ciation and any accumulated impairment losses. Deferred tax liabilities are generally recognized for all taxable tem- Depreciation is charged so as to write off the cost or valuation of porary differences and deferred tax assets are recognized to the assets, other than land and properties under construction, over extent that it is probable that the profits will be available against their estimated useful life, using the straight-line method. which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary differences Assets held under finance leases are depreciated over their expec- arise from goodwill or from the initial recognition (other than in a ted useful life on the same basis as owned assets or, where shor- business combination) of other assets and liabilities in a transaction ter, on the term of the relevant lease. that affects neither the taxable profit nor the accounting profit. The gain or loss arising on the disposal or retirement of an item of Deferred tax liabilities are recognized for taxable temporary diffe- property, plant and equipment is determined as the difference bet- rences arising from investments in subsidiaries and associates, and ween the sales proceeds and the carrying amount of the asset and interest in joint ventures, except when the Group is able to control is recognized in profit or loss. the reversals of the temporary differences and it is probable that The depreciation method is the straight-line method, on the follo- the temporary differences will not reverse in the foreseeable future. wing basis: The carrying amount of deferred taxes is reviewed at each balance Buildings 25 years sheet date and reduced to the extent that it is no longer probable Fixtures, machinery and equipment 5 to 8 years that sufficient taxable profits will be available to allow all or part of Vehicles 3 to 5 years the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply 1-16 Investment property in the periods when the liability is settled or the asset realized. Investment property, which is held to earn rentals and/or for capi- Deferred tax is charged or credited to profit or loss, except when tal appreciation, is stated at its cost at the balance sheet date, less it relates to a transaction or an event directly credited or charged depreciation and impairment losses if any. to equity, in which case the deferred tax is also dealt with equity. Investment property is depreciated according to the same method Deferred tax assets and liabilities are offset when there is a legally as property, plant and equipment. enforceable right to offset current tax assets against current tax lia- 1-17 Intangible assets bilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax Internally-generated intangible assets - assets and liabilities on a net basis. research and development expenditure BIC Sport, Bima 83, BIC Écriture 2000, BIC Services, Conté, Expenditure on research activities is recognized as an expense in Société Immobilière BIC Clichy, Société Immobilière Valiton the period in which it is incurred. Gesnouin, BIC Rasoirs, Société du Briquet Jetable 75, BIC Graphic An internally-generated intangible asset arising from the Group deve- France, BIC Assemblage, BIC Technologies, Compagnie de Moulages, lopment is recognized only if all of the following conditions are met: DAPE 74 Distribution and Stypen are part of SOCIÉTÉ BIC tax Group. - an asset is created that can be identified; 1-15 Property, plant and equipment - it is probable that the asset created will generate future econo- Land and building held for use in the production or supply of goods mic benefits; and or services, or for administrative purposes, are in the balance sheet - the development cost of the asset can be measured reliably. at their historical cost, less any subsequent accumulated depre- Internally-generated intangible assets are amortized on a straight- ciation and subsequent accumulated impairment losses. Some line basis over their estimated useful life. Where no internally gene- property, plant and equipment have been revalued according to the rated intangible asset can be recognized, development expenditure first adoption of IFRS (IFRS 1). is charged to profit or loss in the period in which it is incurred. Depreciation is charged to profit or loss. Properties in the course of construction for production, rental or administrative purposes, or Patents and trademarks for purposes not yet determined, are carried at cost, less any reco- Patents and trademarks are measured initially at purchase cost and gnized impairment losses. Depreciation of these assets, on the are amortized on a straight-line basis over their estimated useful lives.

Consolidated financial statements 45 Notes to the consolidated financial statements

1-18 Impairment of tangible and intangible assets between the asset’s carrying amount and the present value of esti- At each balance sheet date, the Group reviews the carrying amount mated future cash flows, actualized at the effective interest rate cal- of its tangible and intangible assets to determine whether there is culated at initial recognition of the receivables. any indication that those assets have suffered an impairment loss. - Investments If any, the recovarable amount of the assets is estimated to calcu- Investments are recognized and derecognized on a trade basis late, if necessary, the amount of the impairment. Where it is not where the purchase or sale of an investment is under a contract possible to estimate the recoverable amount of an individual asset, whose terms require delivery of the investment within the timeframe the Group estimates the recoverable amount of the cash-genera- established by the market concerned, and are initially measured at ting unit to which the asset belongs. fair value, plus directly attributable cost. Recoverable amount is the higher of fair value less cost to sell and After initial recognition, investments the Group has the positive inten- value in use. In assessing value in use, the estimated future cash tion and ability to hold to maturity (Held-to-maturity investments) are flows are discounted to their present value using a pre-tax discount measured at amortized cost using the effective interest method, less rate that reflects current market assessment of the time value of any impairment loss booked to reflect unrecoverable amounts. An money and the risk specific to the asset. impairment loss is recognized in profit or loss when there is objective If the recoverable amount of an asset (or cash generating unit) is evidence that the financial asset is impaired and the amount of the estimated to be less than its carrying amount, the carrying amount loss is measured at the difference between the asset’s carrying of the asset (cash-generating unit) is reduced to its recoverable amount and the present value of estimated future cash flows dis- amount. An impairment loss is recognized immediately in profit or counted at the financial asset’s original effective interest rate. The pre- loss, unless the relevant asset is carried at a revalued amount, in viously recognized impairment loss is reversed in a subsequent period which case the impairment loss is treated as a revaluation decrease. if the amount of the impairment loss decreases and the decrease can Where an impairment loss subsequently reverses, the carrying be related objectively to an event occuring after the impairment was amount of the asset (cash-generating unit) is increased to the revi- recognized. The reversal shall not result in a carrying amount of the sed estimate of its recoverable amount, but so that the increased financial asset that exceeds what the amortized cost would have been carrying amount does not exceed the carrying amount that would had the impairment not been recognised at the date the impairment have been determined had no impairment loss been recognized for is reversed. The amount of the reversal is recognized in profit or loss. the asset (cash-generating unit) in prior years. A reversal of an Investments other than those held to maturity are classified as either impairment loss is recognized immediately in profit or loss unless the investments hold for trading (temporary cash investment) or as avai- relevant asset is carried at a revalued amount, in which case the lable-for-sale (equity investment), and are measured at subsequent reversal of the impairment loss is treated as a revaluation increase. reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are 1-19 Inventories included in profit or loss for the period. Inventories are stated at the lower of cost and net realizable value. Cost comprises direct material and, where applicable, direct labor For available-for-sale investments, gains and losses arising from costs and those overheads that have been incurred in bringing the changes in fair value are recognized directly in equity, until the secu- inventories to their present location and condition. Cost is calculated rity is disposed of or is determined to be impaired at which time the using the weighted average method. Net realizable value represents cumulative gain or loss previously recognized in equity is included the estimated selling price less all estimated costs of completion and in the profit or loss for the period. Impairment losses recognized in cost to be incurred in marketing, selling and distribution. profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment 1-20 Financial instruments losses recognized in profit or loss for debt instruments classified as Financial assets and financial liabilities are recognized on the available-for-sale are subsequently reversed if an increase in the fair Group’s balance sheet when the Group becomes a party to the value of the instrument can be objectively related to an event occur- contractual provisions of the instrument. ring after the recognition of the impairment loss.

- Trade receivables - Cash and cash equivalents Trade receivables are measured at initial recognition at fair value. Cash and cash equivalents comprise cash on hand, demand depo- Appropriate allowances for estimated unrecoverable amounts are sits, and other short-term highly liquid investments that are readily recognized in profit or loss when there is objective evidence that convertible to a known amount of cash and are subject to an insi- the asset is impaired. The allowance is measured as the difference gnificant risk of changes in value.

46 Consolidated financial statements - Financial liabilities and equity instruments on the derivative that had previously been recognized in equity are Financial liabilities and equity instruments issued by the Group are included in the initial measurement of the asset or liability . classified according to the substance of the contractual arrange- For hedges that do not result in the recognition of an asset or a lia- ments entered into and the definitions of a financial liability and an bility, amounts deferred in equity are recognized in profit or loss in equity instrument. An equity instrument is any contract that evi- the same period in which the hedged item affects profit or loss. dences a residual interest in the assets of the Group after deduc- Hedge accounting is discontinued when the hedging instrument tion of all its liabilities. The accounting policies adopted for specific expires or is sold, terminated, or exercised, or no longer qualifies financial liabilities and equity instruments are set out below. for hedge accounting. At that time, any cumulative gain or loss on - Bank borrowing the hedging instrument recognized in equity is retained in equity Interesting-bearing bank loans and overdrafts are initially measured at until the forecasted transaction occurs. fair value, and are subsequently measured at amortized cost, using the If the forecasted transaction is no longer expected to occur, the net effective interest rate method. Any difference between the proceeds cumulative gain or loss recognized in equity is transferred to profit (net of transaction costs) and the settlement of redemption of borro- or loss for the period. wing is recognized in profit or loss over the term of the borrowing in Derivatives embedded in other financial instruments or other non accordance with the Group’s accounting policy for borrowing costs. financial host contracts are treated as separate derivatives when - Trade payable their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with Trade payable are initially measured at fair value, and subsequently unrealized gains or losses reported in profit or loss. None were measured at amortized cost, using the effective interest rate method. contracted within BIC Group in 2004 and 2005. - Equity instruments 1-21 Provisions Equity instruments issued by the Company are recorded at the pro- ceeds received, net of direct issue costs. Provisions are recognized when the Group has a present obliga- tion as a result of a past event, and it is probable that the Group - Derivative financial instruments and hedge accounting will be required to settle that obligation. Provisions are measured The Group’s activities expose it primarily to the financial risk of at the directors’ best estimate of the expenditure required to settle changes in foreign exchange and interest rates. the obligation at the balance sheet date, and are discounted to pre- sent value where the effect is material. The Group uses derivative financial instruments (primarily foreign currency forward contracts) to hedge its risk associated with foreign 1-22 Share-based payments currency fluctuations relating to certain firm commitments and fore- The Group issues equity-settled share-based payment to certain casted transactions. The Group designates these as cash flow employees. Equity-settled share-based payments are measured at hedges of foreign currency. fair value (excluding the effect of non market-based vesting condi- The use of financial derivatives is governed by the Group’s policies tions) at the date of grant. This fair value is expensed on a straight- approved by the Board of Directors, which provide written principles line basis over the vesting period, based on the Group’s estimate on the use of financial derivatives consistent with the Group’s risk of the share that will eventually be vested and adjusted for the effect management strategy. The Group does not use derivative financial of non-market-based vesting conditions. instruments for speculative purposes. Fair value is measured using the method given in note 18. The Derivative financial instruments are initially booked at fair value of expected life used in the model has been adjusted, based on mana- received counterpart on the contract date and are remeasured to gement’s best estimates, for the effect of non-transferability, exer- fair value at subsequent reporting dates. They are disclosed in the cise restrictions and behavioral considerations. balance sheet in current assets for the part within one year and in 1-23 Estimates and judgments non-current assets for the part beyond one year. In preparing the consolidated financial statements, BIC Group has The effective part of changes in the fair value of derivative financial to make estimates and assumptions that impact the consolidated instruments that are designated as hedges of future cash flows is financial statements and amounts reported in some financial notes. recognized directly in equity and the ineffective portion is recognized BIC Group regularly reviews these estimates and assumptions in immediately in profit or loss. order to take into account past experience as well as changes in If cash flow hedge of a commitment or forecasted transaction the economic environment. The results of this review could lead to results in the recognition of an asset or a liability, then, at the time publishing in future consolidated financial statements different the asset or liability is recognized, the associated gains or losses amounts than those previously disclosed.

Consolidated financial statements 47 Notes to the consolidated financial statements

Note 2-1. Change in Group structure

As of December 2005, BIC UK Ltd. has sold its BIC Botswana investment (70%) to the minority interest and two new companies have been created: BIC Stationery (Shanghai) Manufacturing Co. Ltd. and BIC Slovakia SRO.

Note 2-2. Business and geographical segments

BUSINESS SEGMENTS

The Group is currently organized into operating divisions by product category: manufacture and distribution of stationery, lighters, shavers and other products. These divisions are the basis on which the Group reports its primary segment information.

NET SALES INCOME FROM OPERATIONS (in million euro) DEC. 31, 2004 DEC. 31, 2005 DEC. 31, 2004 DEC. 31, 2005

Stationery products 675 718 71 104 Lighters 322 373 96 120 Shavers 214 239 9 20 Other 54 51 (4) (6) TOTAL 1,265 1,381 172 238

The bridge from income from operations to net income does not include income or expense directly attached to a business segment.

OTHER INFORMATION

STATIONERY (in thousand euro) PRODUCTS LIGHTERS SHAVERS OTHER TOTAL

Dec. 31, 2005

Capital additions 26,375 12,117 20,582 31,063 90,137 Depreciation and amortization in profit and loss of segment assets (31,121) (11,610) (18,139) (14,434) (75,304) Impairment losses recognized in profit or loss (2,900) - (670) - (3,570)

Dec. 31, 2004

Capital additions 18,847 7,944 24,105 16,003 66,899 Depreciation and amortization in profit and loss of segment assets (43,127) (12,085) (16,943) (18,220) (90,375) Impairment losses recognized in profit or loss (6,584) (812) (2,362) (117) (9,875)

BALANCE SHEET STATIONERY (in thousand euro) PRODUCTS LIGHTERS SHAVERS OTHER TOTAL

Dec. 31, 2005

Segment assets 612,022 307,449 325,001 62,584 1,307,056 Assets not allocated by products: 253,043 Bank balances and cash 55,274 Temporary cash investments 56,732 Other financial current assets 16,128 Investment properties 20,988 Other investments 175 Assets held for sale and discontinued operations 0 Derivative financial instruments 34 Deferred tax assets 103,711 TOTAL ASSETS 1,560,099

48 Consolidated financial statements STATIONERY (in thousand euro) PRODUCTS LIGHTERS SHAVERS OTHER TOTAL

Dec. 31, 2005

Segment liabilities 205,254 130,260 90,171 19,751 445,437 Liabilities not allocated by products: 47,241 Current hedging contracts 7,084 Current borrowings except finance lease 23,382 Non-current hedging contracts 5 Deferred tax Liabilities 16,601 Non-current debt except finance lease 169 TOTAL LIABILITIES 492,678

STATIONERY (in thousand euro) PRODUCTS LIGHTERS SHAVERS OTHER TOTAL

Dec. 31, 2004

Segment assets 578,315 216,915 283,597 61,755 1,140,582 Assets not allocated by products: 285,545 Bank balances and cash 41,164 Temporary cash investments 137,807 Investment properties 8,529 Assets held for sale and discontinued operations 3,001 Deferred tax assets 95,044 TOTAL ASSETS 1,426,127

STATIONERY (in thousand euro) PRODUCTS LIGHTERS SHAVERS OTHER TOTAL

Dec. 31, 2004

Segment liabilities 199,429 92,028 82,176 12,782 386,415 Liabilities not allocated by products: 45,160 Current borrowings except finance lease 18,522 Deferred tax Liabilities 24,891 Non-current debt except finance lease 1,747 TOTAL LIABILITIES 431,575

Consolidated financial statements 49 Notes to the consolidated financial statements

GEOGRAPHICAL SEGMENTS

The Group’s operations are principally located in Europe, North America and Latin America. The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/services:

NET SALES BY GEOGRAPHICAL MARKET (in million euro) DEC. 31, 2004 DEC. 31, 2005

Europe 427 425 North America and Oceania 581 644 Latin America 173 220 Middle East, Africa and Asia 84 92 TOTAL 1,265 1,381

OPERATING ASSETS BY GEOGRAPHICAL MARKET

(inventories, tangible and intangible assets, investment properties, non-current assets held for sale, trade and other receivables, other current assets excluding financial items)

(in million euro) DEC. 31, 2004 DEC. 31, 2005

Europe 562 588 North America and Oceania 231 292 Latin America 141 206 Middle East, Africa and Asia 24 27 TOTAL 958 1,113

Note 3. Revenue

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Continuing operations: Net sales 1,264,863 1,380,750 Other income from operations items Freight recharged to customers 8,664 9,191 Rent on the investment properties 420 914 Royalties income 5 125 Finance items Interest income 4,482 5,208 Dividends -- TOTAL 1,278,434 1,396,187

Discontinued operations --

50 Consolidated financial statements Note 4. Operating expenses

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Raw materials and consumables used and change in inventory 293,739 337,640 Staff costs 365,063 395,370 Amortization expense 85,041 79,818 Other operating expenses 319,006 330,461 (Gain)/Loss on operational foreign currency translation (696) 4,555 TOTAL 1,062,153 1,147,844

Other operating income (expense) are not included in the total amount and are disclosed in note 5. Research and development costs expen- sed for the year 2005 amount to 23.2 million euro versus 24.3 million euro for full year 2004.

Note 5. Other operating income and expense

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Royalties income/(expense) (88) 50 Freight recharged to customers 8,664 9,191 Other (174) 438

Other recurring operating income and expense 8,402 9,679

Restructuring US Project (40,190) 25 Gain from disposal of fixed assets 7,894 4,455 Indonesia restructuring (800) Other restructuring expenses (2,930) (3,698) Impairment expenses (3,312) (4,155)

Other non-recurring operating income and expense (38,538) (4,173)

Other operating income and expense (30,138) 5,506

Other non recurring operating income/expense as of December 31, - a gain on sale of property, plant and equipment of 8.0 million euro 2005 include: (mainly related to the sale of the Italian office for 4.1 million euro; - gain on sale of property, plant and equipment mainly related to Milford 2.2 million euro for BIC Nordic AB and a gain on sale of the Conté building for 3.2 million euro and Cabreuva (Brazil) for 1 million euro. à Paris trademark by SOCIÉTÉ BIC for 1.5 million euro), - Europe restructuring costs (Netherlands, France and Greece) for - additional costs related to Europe and Africa change in adminis- 3.6 million euro and Indonesia for 0.8 million euro. trative and finance management structure for 2.9 million euro, - impairment of stationery machines for 2.8 million euro and of shaver - the impairment of the intellectual property rights for 2.3 million machines for 0.6 million euro. euro from the Amerikids company,

- impairment of investment property for 0.6 million euro. - the excess of acquirer’s interest in the net fair value of acquiree’s Other non recurring operating income/expense as of December 31, identifiable assets, liabilities and contingent liabilities over costs of 2004 included: Stypen acquisition for 3.7 million euro, - the impact to BIC Group for the USA restructuring of 40.2 mil- - the impairment of DAPE 74 Distribution and Indonesian subsidiary lion euro, goodwill for 3.4 and 1.4 million euro respectively.

Consolidated financial statements 51 Notes to the consolidated financial statements

Note 6. Finance costs/revenue

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Interest income from cash and cash equivalents 4,482 5,208 Interest on bank deposits 30 66 Revaluation of temporary cash investments (142) (32) Net gain/(loss) on disposal of marketable securities and investments 0 230

Income/(Expense) from cash and cash equivalents 4,370 5,472

Interest expense (3,223) (4,048) Hedging instruments revaluation 0 (389) Net financial FOREX difference 3,126 (1,159)

Finance costs (97) (5,596)

FINANCE (COSTS)/REVENUE 4,273 (124)

Excluding the net financial FOREX difference, net finance income recorded in 2005 remains stable compared to 2004. In 2005, the “Internal Revenue Service” (IRS) in the US has reimbursed damages for delay of 0.9 million euro, booked in financial income. The net financial foreign exchange loss is mainly due to option premium for 2.2 million euro. The net finance revenue in 2004 was mainly impacted by the decrease of the interest rates, the decrease in net debt and the reimbursement of damages for delay of the “Inland Revenue” in England for 0.7 million euro. The foreign exchange income was mainly due to the hedge Euro/Dollar related to intercompany current accounts denominated in Dollar. No hedge premium were recorded in 2004.

Note 7. Income tax expense

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Current tax: Domestic 19,519 20,925 Foreign 63,759 66,831

83,278 87,756

Deferred tax (note 23) (20,507) (6,107)

Income tax expense 62,771 81,649

Domestic income tax is 34.9% for the fiscal year 2005 (2004: 35.39%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

52 Consolidated financial statements The charge for the year can be reconciled to the profit per the income statement as follows:

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Income before tax 176,846 238,287 Tax rate 35.4% 34.9%

Theorical tax charge 62,586 83,162

Effects of: - differences of tax rates (1,533) (3,016) - income taxed at reduced rate (3,016) (782) - permanent differences 14,010 12,835 - intercompany accruals elimination (61) (1,620) - tax assets not activated on tax losses 1,955 1,589 - tax assets activated on prior year losses (7,412) (672) - tax credits (3,774) (9,746) - foreign exchange differences 16 (101)

Income tax expense 62,771 81,649

Effective tax rate 35.49% 34.27%

No deferred tax assets have been recognized on the unused tax losses of 33.6 million euro at December 31, 2005. The amount was 35 mil- lion euro at December 31, 2004. The amount related to permanent differences in 2005 principally relates to BIC Corporation dividends withholding tax (3.9 million euro) and to the 5% of dividends received taxed in France at the standard tax rate under the French affiliation privilege regime (1.5 million euro).

Note 8. Earnings per share

Earnings per share and the diluted earnings per share correspond to Group net income divided by the relevant number of shares. In 2004, as the Group had not anticipated the adoption of IAS 32/39, the number of shares used was a weighted average number of shares outstanding during the year less the number of shares held in treasury stock and unallocated or to be cancelled, if any. In 2005, the number of shares used is a weighted average number of shares outstanding during the year less the number of shares held in treasury stock hold by SOCIÉTÉ BIC, deducted of the shareholders’ equity and the 50,060 shares hold by BIC Corporation. The number of shares used to calculate the diluted earnings per share is the weighted average number of ordinary shares potentially in circulation during the period, i.e., the number of shares used for the basic earnings per share, adjusted with the dilutive effect of stock- options.

Consolidated financial statements 53 Notes to the consolidated financial statements

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Earnings Group net income 113,891 156,528 Number of shares used for the calculation of the earnings per share Weighted average number of ordinary shares for the purposes of basic earnings per share 52,882,591 50,330,582 Dilutive effect of stock-options 23,253 209,272 Weighted average number of ordinary shares for the purposes of the diluted earnings per share 52,905,844 50,539,854 If the standard IAS 32/39 has been anticipated by the Group in 2004, the number of shares would be: Weighted average number of ordinary shares for the purposes of basic earnings per share 52,541,924 Weighted average number of ordinary shares for the purposes of the diluted earnings per share 52,565,177 Difference (340,667)

Note 9. Dividends

For the year 2004, the shareholders received an interim dividend of 0.4 euro per share on November 3, 2004. The shareholders received the balance of 0.5 euro for a total net dividend of 0.9 euro per share combined with a special dividend of 1.0 euro per share on May 27, 2005. For the year 2003, the shareholders received, on June 3, 2004, a dividend of 0.8 euro per share.

Note 10-1. Property, plant & equipment

LAND & MACHINERY & CONSTRUCTION OTHER TOTAL (in thousand euro) BUILDINGS EQUIPMENT IN PROGRESS FIXED ASSETS

GROSS VALUE

At January 1, 2004 303,548 809,108 25,368 27,030 1,165,054

Additions 2,582 27,052 29,494 2,669 61,797 Acquired on acquisition of a subsidiary 3,163 8,991 3 854 13,011 Exchange differences (5,625) (19,955) (197) (120) (25,897) Disposals (14,995) (52,971) (405) (6,845) (75,216) Transfers 1,547 21,563 (23,110) 0 0 Transfers to investment properties (1,488) (1,488) Transfers to assets held for sale (5,961) (5,961)

At January 1, 2005 282,771 793,788 31,153 23,588 1,131,300

Additions 1,752 26,012 38,250 3,223 69,237 Exchange differences 13,807 57,989 1,600 594 73,990 Disposals (21,613) (28,847) (570) (4,341) (55,371) Transfers 5,705 29,760 (35,806) 341 Transfers to investment properties (4,655) (4,655)

At December 31, 2005 277,767 878,702 34,627 23,405 1,214,501

The land and building of Milford (USA) have been disposed in 2005. Gain on this operation amounts to 3.2 million euro. The gross value of the property, plant and equipment includes 4.3 million euro of finance lease assets as of December 31, 2005 (3.9 million euro as of December 31, 2004).

54 Consolidated financial statements Note 10-2. Property, plant & equipment

LAND & MACHINERY & CONSTRUCTION OTHER TOTAL (in thousand euro) BUILDINGS EQUIPMENT IN PROGRESS FIXED ASSETS

DEPRECIATION AND IMPAIRMENT LOSS

At January 1, 2004 138,511 606,697 16,997 762,205

Operating charge for the period 13,638 57,569 2,616 73,823 Impairment loss 1,032 8,843 9,875 Exchange differences (2,975) (17,173) (116) (20,264) Disposals (7,552) (50,888) (3,295) (61,735) Acquired on acquisition of a subsidiary 590 9,938 420 10,948 Transfer to investment properties (888) (888) Transfer to assets held for sale (2,934) (2,934)

At January 1, 2005 139,422 614,986 16,622 771,030

Operating charge for the period 11,896 56,208 2,635 70,739 Impairment loss 835 2,318 3,153 Exchange differences 6,477 45,403 426 52,306 Disposals (14,752) (28,497) (3,825) (47,074) Transfer to investment properties (3,198) (3,198) Other transfers (25) 25

At December 31, 2005 140,655 690,443 15,858 846,956

NET VALUE

At December 31, 2005 137,112 188,259 34,627 7,547 367,545

At December 31, 2004 143,349 178,802 31,153 6,966 360,270

The net value of the property, plant and equipment includes 0.8 million euro of finance lease assets as of December 31, 2005 (1 million euro as of December 31, 2004).

Consolidated financial statements 55 Notes to the consolidated financial statements

Note 10-3. Investment property

(in thousand euro) LAND & BUILDINGS

GROSS VALUE

At January 1, 2005 15,374

Additions 11,289 Exchange differences 901 Transfers 4,655

At December 31, 2005 32,219

DEPRECIATION AND IMPAIRMENT LOSS

At january 1, 2005 6,845

Operating charge for the period 363 Impairment loss 585 Exchange differences 240 Transfers from PP&E 3,198

At December 31, 2005 11,231

NET VALUE

At December 31, 2005 20,988

At December 31, 2004 8,529

Investment properties mainly concern Germany (13.3 million euro) and USA (12.8 million euro, including Shelton acquisition in 2005 for 11.2 million euro (13.9 million US Dollar)). An impairment of 0.6 million euro has been booked related to the investment property in Germany. The fair value of the Group’s investment property as of December 31, 2005 is based on an internal valuation of valuated surfaces with transac- tion price for similar properties or of the market price. For each investment property, fair value exceeds net booked value. Global fair value amounts to 25.5 million euro. None of the Group investment property has been pledged. The property rental income earned by the Group from its investment properties amounts to 0.9 million euro in 2005 (0.4 million euro in 2004). Rental payments due for the coming years are as follows: - 1.7 million euro within 1 year, - 2.9 million euro between 2 years and 5 years, - 2.8 million euro beyond 5 years. Main direct operating expenses arising on the investment properties in the period, except depreciation, correspond to insurance and main- tenance costs and amount to 0.4 million euro in 2005.

56 Consolidated financial statements Note 10-4. Assets held for sale

(in thousand euro)

GROSS VALUE

At January 1, 2005 5,901

Exchange differences 1,079 Disposals (6,980)

At December 31, 2005 0

DEPRECIATION AND IMPAIRMENT LOSS

At January 1, 2005 2,900

Exchange differences 526 Disposals (3,426)

At December 31, 2005 0

NET VALUE

At December 31, 2005 0

At December 31, 2004 3,001

At the end of December 2004, assets held for sale included: - Cabreuva land and building in Brazil for 2.6 million euro, - Shanghai-Sheaffer Wingsung Stationery Co. Ltd. land and building in China for 0.4 million euro. These assets were sold during the 1st Half of 2005. The gain on disposal of Cabreuva amounts to 1 million euro.

Consolidated financial statements 57 Notes to the consolidated financial statements

Note 11. Goodwill

(in thousand euro)

GROSS VALUE

At January 1, 2004 181,785

Exchange differences (6,382) Acquisitions 3,188 Disposal of subsidiary 0

At January 1, 2005 178,591

Exchange differences 12,991 Acquisitions (74) Disposal of subsidiary (86)

At December 31, 2005 191,422

AMORTIZATION AND IMPAIRMENT LOSS

At January 1, 2004 0

Exchange differences (170) Disposal of subsidiary 0 Impairment loss 4,783

At January 1, 2005 4,613

Exchange differences 118 Disposal of subsidiary 0 Impairment loss 0

At December 31, 2005 4,731

NET VALUE

At December 31, 2005 186,691

At December 31, 2004 173,978

The above includes net goodwill on the acquisition of BIC Violex SA of 57.9 million euro and BIC Corporation for 111.7 million euro as of December 31, 2005. Upon transition to IFRS, goodwill will no longer be amortized in accordance with IFRS 3 “Business combinations.” Before January 1, 2004, goodwill was amortized using the straight-line method over a period, determined on a case-by-case basis, not exceeding 20 years. All goodwill are tested for impairment at least annually. The impairment test methodology is based on a comparison between the recoverable amount of each of the Group’s cash generating unit with the cash generating units’ net asset carrying value (including goodwill). The cash generating units are at the level of the subgroup holding the goodwill. These cash generating units are largely independent of the consolida- ted Group; so their sizes are smaller than the geographical segment as defined by IAS 14 “Segment reporting.” Such recoverable amounts are mainly determined using discounted cash flows over three years with an infinite rate and a discounted resi- dual value using the constantly growing perpetuity method. The discount rate used is the Group’s weighted average cost of capital stated

58 Consolidated financial statements between 9.4% and 17.6% (10% and 15% in 2004) before tax. The assumptions used concerning sales growth and residual values are rea- sonable and in line with market data available for each cash generating unit. Further impairment tests are carried out in case of triggering events indicating a potential impairment. In 2004, the DAPE 74 Distribution goodwill as well as the goodwill on our Indonesian subsidiary have been fully depreciated for 3.4 and 1.4 million euro respectively.

Note 12. Intangible assets

SOFTWARE TRADEMARKS RESEARCH & (in thousand euro) & PATENTS DEVELOPMENT OTHER TOTAL

GROSS VALUE

At January 1, 2005 37,179 37,962 10,624 1,111 86,876

Additions 3,535 1,051 129 16 4,731 Internally generated 4,964 - - - 4,964 Exchange differences 1,329 4,111 318 74 5,832 Disposals (637) (1,187) (14) - (1,838)

At December 31, 2005 46,370 41,937 11,057 1,201 100,565

AMORTIZATION AND IMPAIRMENT LOSS

At January 1, 2005 18,024 32,093 6,968 699 57,784

Charge for the period 6,159 2,243 777 44 9,223 Impairment loss - 417 - - 417 Exchange differences 1,037 3,488 318 24 4,867 Disposals (610) (1,156) (14) - (1,780)

At December 31, 2005 24,610 37,085 8,049 767 70,511

NET VALUE

At December 31, 2005 21,760 4,852 3,008 434 30,054

At December 31, 2004 19,155 5,869 3,656 412 29,092

Software: Research and development: Software internally generated in 2005 principally relates to invest- SOCIÉTÉ BIC capitalized 0.1 million euro in 2005 related to deve- ments linked to the upgrade of the information systems and to their lopment costs on new stationery products. implementation in European subsidiaries. SOCIÉTÉ BIC had capitalized in 2003 1.7 million euro related to deve- lopment costs on new writing technology and new stationery products. Trademark and patents: SOCIÉTÉ BIC capitalized in 2002 2.3 million euro related to develop- SOCIÉTÉ BIC acquired in 2002 the intellectual property rights for ment costs for ink technologies. These development costs were incur- 6.8 million euro from the company Amerikids. Amortization began red in the US and France and have been amortized in 2003 when new in 2003 and the amount was fully amortized in 2004 for 4.5 mil- products incorporating this new technology were manufactured. lion euro. SOCIÉTÉ BIC had previously booked in research and development 5.2 million euro in 2001 related to a stationery production line stopped in 2004. These costs were fully amortized in 2004 for 2.1 million euro.

Consolidated financial statements 59 Notes to the consolidated financial statements

Note 13. Consolidated subsidiaries

The main operating companies at December 31, 2005 are as follows:

PLACE OF PROPORTION OF INCORPORATION OWNERSHIP NAME OF (OR REGISTRATION) INTEREST (DIRECT SUBSIDIARY AND OPERATION OR INDIRECT) PRINCIPAL ACTIVITY

FRANCE BIC Clichy SNC Clichy 100.0% Holding company BIC Services SA Clichy 99.9% Services Bima 83 SASU Clichy/Cernay 100.0% Manufacturing consumer products Société du Briquet Jetable 75 SASU Clichy/Redon 100.0% Manufacturing consumer products DAPE 74 Distribution SASU Paris 100.0% Distribution of consumer products Électro Centre SAS Velars-sur-Ouche 92.8% Manufacturing consumer products BIC Technologies SA (EX SO.BI.TU) Clichy 99.9% Manufacturing consumer products BIC Rasoirs SASU Verberie 100.0% Manufacturing consumer products BIC Sport SASU Vannes 100.0% Manufacturing and distribution of consumer products Conté SASU Boulogne-sur-Mer 100.0% Manufacturing consumer products BIC Graphic France SASU Clichy 100.0% Manufacturing and distribution of consumer products BIC Écriture 2000 SASU Clichy/Montevrain 100.0% Manufacturing consumer products Voiles Gateff SAS La Garde 90.0% Manufacturing and distribution of consumer products SI Valiton Gesnouin SASU Clichy 100.0% Real estate SI BIC Clichy SASU Clichy 100.0% Real estate Stypen SASU Joigny 100.0% Manufacturing and distribution of consumer products EUROPE BIC Deutschland GmbH & Co. OHG Germany 100.0% Distribution of consumer products BIC Erzeugnisse GmbH Germany 100.0% Holding company BIC Verwaltungs GmbH Germany 100.0% Holding company BIC GmbH Germany 100.0% Holding company A. Hauser GmbH & Co., KG Germany 100.0% Distribution of consumer products A. Hauser Verwaltungsgesellschaft mbH Germany 100.0% Distribution of consumer products BIC (Austria) Vertriebsgesellschaft mbH Austria 100.0% Distribution of consumer products BIC Belgium SPRL Belgium 99.2% Distribution of consumer products BIC Iberia SA Spain 100.0% Manufacturing and distribution of consumer products BIC Graphic Europe SA Spain 100.0% Manufacturing and distribution of consumer products Stypen United Brands España SA Spain 100.0% Manufacturing and distribution of consumer products BIC Violex SA Greece 100.0% Manufacturing and distribution of consumer products BIC (Ireland) Ltd. Ireland 100.0% Distribution of consumer products BIC Italia SPA Italy 99.9% Distribution of consumer products BIC Netherlands BV Netherlands 99.2% Distribution of consumer products BIC Polska SP ZOO Poland 100.0% Distribution of consumer products BIC Portugal SA Portugal 100.0% Distribution of consumer products BIC (Romania) Marketing & Distribution SRL Romania 100.0% Distribution of consumer products BIC UK Ltd. United Kingdom 100.0% Distribution of consumer products BIC Slovakia SRO Slovakia 100.0% Distribution of consumer products BIC CIS Russia 100.0% Distribution of consumer products BIC Nordic AB Sweden 100.0% Manufacturing and distribution of consumer products Société BIC (Suisse) SA Switzerland 100.0% Distribution of consumer products BIC Ukraine Ukraine 100.0% Distribution of consumer products

60 Consolidated financial statements PLACE OF PROPORTION OF INCORPORATION OWNERSHIP NAME OF (OR REGISTRATION) INTEREST (DIRECT SUBSIDIARY AND OPERATION OR INDIRECT) PRINCIPAL ACTIVITY

NORTH AMERICA BIC Inc. Canada 100.0% Distribution of consumer products BIC Corporation United States 100.0% Holding company BIC USA Inc. United States 100.0% Distribution of consumer products BIC Consumer Products Manufacturing Co. Inc. United States 100.0% Manufacturing consumer products BIC Graphic USA Manufacturing Co. Inc. United States 100.0% Manufacturing consumer products Sheaffer Manufacturing LLC United States 100.0% Manufacturing and distribution of consumer products BIC Sport North America Inc. United States 100.0% Manufacturing and distribution of consumer products Wite out Products Inc. United States 100.0% Manufacturing and distribution of consumer products Furtuna Holding British Virgin Islands 100.0% Holding company Xenia Insurance Bermuda 100.0% Insurance coverage OCEANIA BIC Australia Pty. Ltd. Australia 100.0% Distribution of consumer products BIC (NZ) Ltd. New Zealand 100.0% Distribution of consumer products LATIN AMERICA BIC Argentina SA Argentina 60.0% Distribution of consumer products BIC Brasil SA Brazil 100.0% Distribution of consumer products BIC Graphic Brasil Ltda. Brazil 100.0% Distribution of consumer products BIC Amazonia SA Brazil 100.0% Manufacturing and distribution of consumer products BIC Chile SA Chili 100.0% Distribution of consumer products BIC Colombia SA Colombia 100.0% Distribution of consumer products BIC Ecuador SA Ecuador 100.0% Manufacturing and distribution of consumer products BIC de Guatemala SA Guatemala 100.0% Distribution of consumer products No Sabe Fallar SA de CV Mexico 100.0% Manufacturing and distribution of consumer products BIC Uruguay SA Uruguay 100.0% Distribution of consumer products BIC Nelgor Uruguay 100.0% Holding company BIC de Venezuela CA Venezuela 100.0% Distribution of consumer products ASIA Shanghai-Sheaffer Wingsung Stationery Co. Ltd. China 75.0% Distribution of consumer products BIC Stationery (Shanghai) Co. Ltd. China 100.0% Distribution of consumer products BIC Stationery (Shanghai) Manufacturing Co. Ltd. China 100.0% Manufacturing and distribution of consumer products BIC Product (Korea) Ltd. South Korea 100.0% Distribution of consumer products BIC India Pvt.Ltd. India 100.0% Distribution of consumer products PT Buana Inti Cakrawala Indonesia 100.0% Distribution of consumer products BIC Kosaido KK Japan 100.0% Distribution of consumer products BIC GBA Sdn. Bhd. Malaysia 95.0% Distribution of consumer products BIC Product (Singapore) Pte. Ltd. Singapore 100.0% Distribution of consumer products BIC Product (Asia) Pte. Ltd. Singapore 100.0% Distribution of consumer products BIC Product (Thailand) Ltd. Thailand 100.0% Distribution of consumer products AFRICA BIC (South Africa) Pte. Ltd. South Africa 100.0% Manufacturing consumer products BIC Holdings South Africa (Pty.) Ltd. South Africa 100.0% Holding company BIC Malawi Pty. Ltd. Malawi 100.0% Distribution of consumer products BIC Mozambique Ltd. Mozambique 100.0% Distribution of consumer products BIC Zambia Ltd. Zambia 100.0% Distribution of consumer products

Consolidated financial statements 61 Notes to the consolidated financial statements

Note 14. Other non-current assets

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Other investments 309 175 Guarantee deposits 10,295 12,359 Deferred pensions 1,509 1,014 Other non-current assets 7,781 15,386 TOTAL 19,894 28,934

Note 15. Inventories

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Raw materials 53,892 73,308 Work-in-progress 52,991 67,478 Finished Goods 169,193 196,189

Total Gross 276,076 336,975

Raw materials 2,269 2,612 Work-in-progress 1,019 2,063 Finished Goods 17,598 14,230

Total Depreciation 20,886 18,905

TOTAL NET 255,190 318,070

Note 16. Other assets & credit risk

Trade and other receivables comprise amounts receivable for the sale of goods of 347 million euro as of December 31, 2005 vs 282 million euro as of December 31, 2004. Trade and other receivables are short-term assets, with maturity dates within twelve months. An allowance of 22 million euro has been accounted for estimated unrecoverable amounts from the sale of goods as of December 31, 2005 (21 million euro as of December 31, 2004). This allowance has been determined by reference to past default experience and based on the current economic environment. The Group considers that the carrying amount of trade and other receivables approximates to their fair value. Bank balances and cash comprise cash and short-term deposits held by the Group Treasury. The carrying amount of these assets approxi- mates to their fair value.

CREDIT RISK

The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables. The credit risk on liquid funds and derivative financial instruments is limited because the counterparts are banks with high credit-ratings assi- gned by international credit-rating agencies. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparts and customers.

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Cash equivalents: temporary cash investments 137,807 56,732 Bank balances and cash 41,164 55,274

Cash and cash equivalents 178,971 112,006

62 Consolidated financial statements Note 17. Share capital

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Authorized, issued and fully paid 198,152 192,414 Repurchase of shares of the Company (1,247) (1,646)

Share capital 196,905 190,769

The share capital of SOCIÉTÉ BIC is 192,413,159.34 euro divided into 50,369,937 shares of 3.82 euro each, the par value. The registered shares held for more than two years carry double voting rights. In addition, SOCIÉTÉ BIC held 380,720 of these shares, acquired at the average price of 45.44 euro in accordance with the articles L.225- 208 and L.225-209 of the French commercial Code, which represent 0.76% of the share capital.

SOCIÉTÉ BIC OWN SHARES AND REPURCHASE OF SHARES OF THE COMPANY

AS OF DECEMBER 31, 2005 AVERAGE PRICE PURPOSE OF THE REPURCHASE NUMBER OF SHARES (in euro) % CAPITAL(1)

Hedging of stock-option plans art L. 225-208 and art L. 225-209 C. com (3) 175,970 44.69 0.35% Hedging of free shares grants 69,320 46.03 0.14% Optimization of the investments art L. 225-209 C. com 135,430 46.12 0.27% TOTAL (2) 380,720 45.44 0.76%

(1) Share capital as of December 31, 2005: 50,369,937 shares (2) BIC Corporation holds in addition, as of December 31, 2005, 50,060 shares SOCIÉTÉ BIC to hedge its own stock-option plans representing 0.10% of the share capital. (3) Of which 700 shares related to unvalid options as of December 31, 2005, due to employees leaving the Group. SOCIÉTÉ BIC obtained at the Annual Shareholder’s meeting on May 19, 2005 to renew its shares repurchase program. This program recei- ved the French Stock Exchange approval (visa AMF) n°05-299.

Number of shares(4) purchased in 2005: 1,633,452 - program AMF 04-386 743,412 - program AMF 05-299 890,040 Average rate for the purchases in 2005 (in euro) 43.82 (4) Excluding the liquidity contract implemented in October 2004 and renewed in December 2005.

BOARD MARCH 2, 2005 BOARD MAY 19, 2005 BOARD JULY 20, 2005 BOARD DECEMBER 14, 2005 NUMBER OF SHARES AUTHORIZED GM AUTHORIZED GM AUTHORIZED GM AUTHORIZED GM CANCELLED IN 2005 TOTAL OF JUNE 3, 2004 OF MAY 19, 2005 OF MAY 19, 2005 OF MAY 19, 2005

- program AMF 04-386 866,295 145,775 720,520 - program AMF 05-299 890,040 700,000 190,040 - shares hold in order to hedge share option plans (1998 and 1999) which are invalid due to employees leaving the Group 52,100 51,300 800 0 0 TOTAL 1,808,435 197,075 721,320 700,000 190,040

During the last 24 months, SOCIÉTÉ BIC cancelled 3,850,635 shares, 7.64% of the share capital as of December 31, 2005.

Consolidated financial statements 63 Notes to the consolidated financial statements

To the Company knowledge as of December 31, 2005, the shareholders who hold more than one-twentieth, one-tenth, three-twentieths, one-fifth, one-quarter, one-third, one-half, two-thirds, eighteen-twentieths or nineteen-twentieths of the share capital and/or of the voting rights of the Company were as follows:

DEC. 31, 2005 DEC. 31, 2005 % OF SHARES % OF VOTING RIGHTS (approx.) (approx.)

MBD 23.8% 32.7% Bich Family excluding MBD 18.6% 25.4% Mrs Édouard Buffard 4.4% 6.1% Silchester International Investors 10.4% 7.1% Franklin Templeton 7.3% 5.0%

Note 18. Share-based payments GRANT OF SHARE OPTION PLANS

All granted plans are equity settled plans.

Group stock-option plans As authorized at the Annual Shareholders’ meeting of May 28, 2003, on December 14, 2005, the Board of Directors granted stock-options on 427,850 shares to 575 managers and employees of SOCIÉTÉ BIC or its subsidiaries, at a strike price of 50.01 euro. The options cannot be exercised until three years after the date of the award.

BREAKDOWN BY PLAN PLAN N°1 PLAN N°2 PLAN N°3 PLAN N°4 PLAN N°5 PLAN N°6 PLAN N°7 PLAN N°8

Annual Shareholders’ meeting date May12,1998 May12,1998 May12,1998 May12,1998 May12,1998 May 28, 2003 May 28, 2003 May 28, 2003 Board of Directors’ meeting date Dec.16,1998 Dec.16,1999 Dec.18,2000 Dec.13, 2001 Dec.10,. 2002 Dec.17, 2003 Dec.15, 2004 Dec.14, 2005 Number of beneficiaries 148 223 539 551 564 555 563 575 Number of shares available for purchase 173,800 180,350 - Number of shares available for subscription 376,150 367,700 375,000 377,550 370,450 427,850 Among which, number of shares available to be subscribed or purchased by current members of the leadership management team as of Dec. 31, 2005 26,100 28,100 58,600 60,100 68,100 80,000 65,500 64,500 Date from which options may be exercised Dec.17, 2001 Dec.17, 2002 Dec.19, 2003 Dec.14, 2004 Dec.11, 2005 Dec.18, 2006 Dec.16, 2007 Dec.15, 2008 Option expiration date Dec.16, 2008 Dec.16, 2009 Dec.17, 2010 Dec.12, 2011 Dec. 9, 2012 Dec.16, 2013 Dec.14, 2014 Dec.13, 2015 Exercise price (in euro)* 51.13 40.83 41.03 36.57 30.93 36.96 36.76 50.01 Number of options exercised at Dec. 31, 2005 0 53,230 104,959 154,727 46,610 0 0 0 Total number of cancelled options as of Dec. 31, 2005 64,050 61,600 114,300 74,500 54,450 29,350 13,100 0 Total number of remaining options as of Dec. 31, 2005 109,750 65,520 156,891 138,473 273,940 348,200 357,350 427,850

* No discount on the exercise price.

64 Consolidated financial statements As stated in the notes to the consolidated financial statements, the standard IFRS 2 has been applied to all grants of equity instruments approved after November 7, 2002 that were unvested as of January 1, 2005. The standard therefore applies to share options plans granted in 2002, 2003 and 2004, as well as to the new plan granted in 2005.

Estimated fair value of options granted and impact on the income statement (staff costs) as of December 31, 2005

AWARD DATE PLAN FAIR VALUE - BINOMIAL MODEL DEC. 31, 2004 DEC. 31, 2005

2002 2,939,403 952,629 988,135 2003 3,122,588 1,010,216 1,073,630 2004 3,028,778 42,880 1,010,938 2005 4,855,071 0 75,324 TOTAL 13,945,840 2,005,725 3,148,027

Assumptions for fair value calculation of share options plans according to binomial model

PLAN N°5 PLAN N°6 PLAN N°7 PLAN N°8

Expected volatility 33.00% 34.00% 35.00% 36.00% Risk free rate 3.93% 3.76% 3.05% 3.14% Expected dividend yield 1.60% 1.60% 1.60% 1.60% Expected life in years * 5.62 & 5.15 5.79 & 5.37 5.85 & 5.43 5.81 & 5.37

* First figure is for French people, second one for people from other countries.

FREE SHARES GRANT

As authorized at the Annual Shareholders’ meeting of May 19, 2005, on May 19, 2005 and December 14, 2005, the Board of Directors gran- ted a total of 69,320 free shares. Those grants are subject to performance objectives. Those grants are split into two steps: – two main grants for a total of 63,600 shares that will be eventually transfered on May 19, 2008 and March 14, 2009 respectively, – two secondary grants for a total of 5,720 shares that will be eventually transfered on May 19, 2012 and March 14, 2013 respectively. The valuation of those free shares grants has been processed according to IFRS 2 standard.

Estimated fair value of shares granted and impact on the income statement (staff costs) as of December 31, 2005

FREE SHARES PLAN PLAN FAIR VALUE BINOMIAL MODEL DEC. 31, 2005

May 19, 2005 1,387,636 221,799 Dec. 14, 2005 1,647,206 24,509 TOTAL 3,034,842 246,308

Consolidated financial statements 65 Notes to the consolidated financial statements

Note 19. Minority interest

(in thousand euro)

At January 1, 2004 2,057

Dividends paid (251) Other movements (67) Exchange differences (3) Purchase of minority interest in subsidiaries (388) Net income for the year 184

At December 31, 2004 1,532

Dividends paid (386) Disposal of susidiaries (203) Exchange differences 315 Purchase of minority interest in subsidiaries (54) Net income for the year 111

At December 31, 2005 1,315

This item represents minority interest in the net assets and income of fully consolidated subsidiaries. On April 20, 2005, BIC Iberia SA purchased the 15.1% of minority interest in Stypen United Brands España SA. On September 1, 2004, SOCIÉTÉ BIC purchased the 24% minority interest in BIC Product (Singapore) Pte. Ltd. On April 29, 2004, SOCIÉTÉ BIC purchased the 5% minority interest in South Africa (around 0.4 million euro). Now, Argentina (1.1 million euro) represents the larger part of the total amount of minority interest.

Note 20. Borrowings

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Bank loans/overdrafts 21,390 24,748 The borrowings are payable as follows: On demand or within one year 18,972 23,979 In the second to fifth year inclusive 2,388 581 After 5 years 30 188 TOTAL 21,390 24,748

Amount due for settlement within 12 months (shown under current liabilities) 18,972 23,979 Amount due for settlement after 12 months (shown under non-current liabilities) 2,418 769

The amount due for settlement within 12 months includes bank overdrafts of 8.5 million euro in December 2005 and 6.7 million euro in December 2004. Bank loans within one year mainly concern Brazil (7.5 million euro), Malaysia (2.6 million euro), Russia (1.7 million euro) and Thailand (1.2 mil- lion euro). Related interest rates amount from 4% to 19%. Bank loans beyond one year mainly correspond to obligations under financial leases. The percentage breakdown in borrowings after 12 months is as follows: Europe 41%, North America 56% and other 3%, and for those within 12 months: Europe 42%, Latin America 33%, Asia 20% and other 5%.

66 Consolidated financial statements Note 21. Provisions

WARRANTY, WORKERS’ (in thousand euro) LITIGATION COMPENSATION AND OTHER RISKS TOTAL

At January 1, 2004 12,373 9,035 21,408

Additional provisions 1,870 4,354 6,224 Utilized during the period (1,878) (2,021) (3,899) Unused amounts reversed (645) (1,408) (2,053) Exchange differences (616) (252) (868) Reclassification to current liabilities and employee benefits 501 26 527

At December 31, 2004 11,605 9,734 21,339

Additional provisions 4,577 9,750 14,327 Utilized during the period (4,259) (4,063) (8,322) Unused amounts reversed (174) (196) (370) Exchange differences 1,308 1,340 2,648

At December 31, 2005 13,057 16,565 29,622

The litigation provision is mainly represented by BIC Corporation product liability provision for 3.3 million euro and distributor risk for 5.2 mil- lion euro as of December 31, 2005. The others risks are mainly tax risks and workers’ compensation in the USA. The litigation provision was mainly represented by BIC Corporation product liability provision for 3.4 million euro and distributor risk for 4.7 million euro as of December 31, 2004.

Consolidated financial statements 67 Notes to the consolidated financial statements

Note 22. Pension and other employee benefits

22-1. CHANGE IN THE NET OBLIGATION OF DEFINED BENEFITS PLANS

OTHER BENEFIT TOTAL EMPLOYEE (in thousand euro) PENSION PLAN BENEFITS

Present value of obligation

Opening balance at January 1, 2005 256,328 46,461 302,789

Total period costs: 23,729 4,333 28,062 Service costs 7,144 1,650 8,793 Interest costs 15,031 2,684 17,715 Actuarial gain/(loss) recognized 62 - 62 Past service costs 1,492 - 1,492 Benefits paid (12,684) (2,213) (14,897) Actuarial gain/(loss) on obligation 18,652 (741) 17,911 Exchange differences 30,262 7,275 37,537

Closing balance at December 31, 2005 A 316,287 55,115 371,402

Fair value of plan assets

Opening balance at January 1, 2005 183,083 - 183,083

Total period costs: 13,717 - 13,717 Return on assets 13,833 - 13,833 Actuarial gain/(loss) recognized (117) - (117) Past service cost - - - Benefits paid (10,968) (2,187) (13,155) Contributions paid 10,689 2,187 12,877 Actuarial gain/(loss) on obligation 377 - 377 Exchange differences 22,945 - 22,945

Closing balance at December 31, 2005 B 219,844 - 219,844

Unrecognized actuarial Gain and loss

Opening balance at January 1, 2005 9,137 (6,394) 2,743

Total period costs: 1,552 770 2,321 Actuarial gain/(loss) recognized 70 169 239 Past service costs 1,482 601 2,083 Actuarial gain/(loss) on obligation 15,589 (741) 14,848 Actuarial gain/(loss) on plan assets 2,173 - 2,173 Exchange differences 1,726 (981) 746

Closing balance at December 31, 2005 C 30,176 (7,346) 22,830

Net liability in the balance sheet December 31, 2005 D=A-B-C 66,267 62,461 128,728 Net liability in the balance sheet December 31, 2004 64,108 52,855 116,963

68 Consolidated financial statements NOTE 22-2. FUNDED/UNFUNDED OBLIGATIONS

OTHER (in thousand euro) PENSION BENEFIT PLAN TOTAL

December 31, 2004 Fair value of funded obligations 251,069 - 251,069 Fair value of plan assets 183,084 - 183,084 Excedent of obligations over assets 67,985 - 67,985 Fair value of unfunded obligations 5,260 46,461 51,721 Actuarial gain/loss and past service cost non recognized 9,137 (6,394) 2,743

Net Value in the balance sheet 64,108 52,855 116,963 - Asset 1,509 - Liability 118,472

December 31, 2005 Fair value of funded obligations 311,903 - 311,903 Fair value of plan assets 219,843 - 219,843 Excedent of obligations over assets 92,060 - 92,060 Fair value of unfunded obligations 4,383 55,115 59,498 Actuarial gain/loss and past service cost non recognized 30,176 (7,346) 22,830

Net Value in the balance sheet 66,267 62,461 128,728 - Asset 1,014 - Liability 129,742

NOTE 22-3. PERIOD COSTS

ACTUARIAL OBLIGATION ASSET GAIN/LOSS TOTAL TOTAL TOTAL OTHER OTHER OTHER OTHER EMPLOYEE (in thousand euro) PENSION BENEFIT PLAN PENSION BENEFIT PLAN PENSION BENEFIT PLAN PENSION BENEFIT PLAN BENEFITS

December 31, 2004 Service costs 8,128 1,839 8,128 1,839 9,967 Interest costs 14,374 2,559 14,374 2,559 16,933 Return on assets 13,773 - (13,773) - (13,773) Gain/(Loss) recognized (113) - 164 - (586) 78 309 (78) 231 Past service costs 7,333 487 1,509 - 628 725 5,196 (238) 4,958 TOTAL PERIOD COSTS YEAR 2004 29,722 4,885 15,446 - 42 803 14,234 4,082 18,316

In 2004, total period costs included non recurring expenses amounting to 7.6 million euro related to BIC Corporation restructuring.

Consolidated financial statements 69 Notes to the consolidated financial statements

ACTUARIAL OBLIGATION ASSET GAIN/LOSS TOTAL TOTAL TOTAL OTHER OTHER OTHER OTHER EMPLOYEE (in thousand euro) PENSION BENEFIT PLAN PENSION BENEFIT PLAN PENSION BENEFIT PLAN PENSION BENEFIT PLAN BENEFITS

December 31, 2005 Service costs 7,144 1,650 7,144 1,650 8,793 Interest costs 15,031 2,684 15,031 2,684 17,715 Return on assets 13,833 - (13,833) - (13,833) Gain/(Loss) recognized 62 - (117) - 70 169 109 (169) (60) Past service costs 1,492 - - - 1,482 601 9 (601) (591) TOTAL PERIOD COSTS YEAR 2005 23,729 4,333 13,717 - 1,552 770 8,460 3,563 12,023

The actuarial assumptions used to calculate the benefit obligations vary according to the economic conditions of the country in which the plan is located. They were adjusted according to the actual interest rate and the mortality table. Defined benefit plans are mainly related to the US. Assumptions used by BIC Corporation for the calculation are the following: – weighted average long term rate of return on plan assets: 8.5% in 2005, 2004 and expected in 2006. – rate of compensation increase: 4% – discount rate: 5.68% at December 31, 2005 and 5.75% at December 31, 2004.

Note 23. Deferred tax

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Deferred tax liabilities (24,891) (16,601) Deferred tax assets 95,044 103,711

Net position 70,153 87,110

The movement of the year in the Group’s deferred tax position was as follows:

(in thousand euro) DEC. 31, 2005

At the beginning of the year 70,153

Deferred tax income/(charge) for the period 6,107 Reclassification from current to deferred tax in the balance sheet (1,994) Booked in shareholders’ equity 3,204 Acquisition of subsidiaries 0 Exchange differences 9,640

At the end of the year 87,110

70 Consolidated financial statements Origin of deferred tax:

(in thousand euro)

Deferred tax calculated on temporary differences 101,717 Deferred tax assets activated on tax losses 1,994

Deferred tax assets 103,711

Note 24-1. Financial instruments The fair value of interest rate derivatives is the amount the Group would receive (or pay) to settle outstanding contracts at the closing date, taking into account any unrealized gains or losses based on DERIVATIVES AND HEDGE ACCOUNTING current interest rates and the quality of the counterparty on each The financial risk management is concentrated at the SOCIÉTÉ BIC contract at the closing date. level, and managed by the Group Treasury. This department is not Derivatives are reported in the balance sheet as current if they a profit center. Based on regular information collected from the mature within 12 months and non-current otherwise. subsidiaries, the identification of the FOREX exposure is centrali- zed, and the hedging policy is to hedge the net position currency HEDGE ACCOUNTING by currency on a yearly basis. An update of all the positions is trans- The treatment of derivatives designated as hedging instruments mitted to management each month and detailed by currency, pro- depends on the type of hedging relationship: duct (forward, options,...), and purpose (commercial flows or - cash flow hedge, dividends). In case of local constraints that would not permit the centralization at optimum conditions, the hedges are done locally - hedge of a net investment in a foreign operation. under the strict control of the Group Treasury. The Group clearly identifies the hedging instrument and the hedged item as soon as the hedge is set up, and formally docu- RISKS ments the hedging relationship stating the hedging strategy, the risk hedged and the method used to determine the effectiveness of the To manage its exchange rate exposure, the Group uses forward hedge. This documentation is subsequently updated, such that the foreign currency contracts, currency swaps and, to a lesser extent, effectiveness of the designated hedge can be demonstrated. currency options. Forward foreign currency contracts are recogni- zed as hedges insofar as they are designated as such. These Hedge accounting uses specific measurement and recognition hedges may cover the net investment of the Group in certain foreign methods for each category of hedge: entities, foreign currency receivables or debts, or firm foreign cur- - Cash flow hedges: no adjustment is made to the value of the hed- rency commitments. ged item; only the hedging instrument is adjusted to fair value. Interest rate exposure is very limited. All local financing needs are Following this adjustment, the effective portion of the change in directly indexed to a variable interest rate base. Borrower’s posi- fair value attributable to the hedged risk is recorded, net of taxes, tions are not significant enough on too short periods to require any in equity, while the ineffective portion is included in the income hedging on rate risk. statement. The cumulative amount included in equity is transfer- red to the income statement when the hedged item has an impact MEASUREMENT AND PRESENTATION on net income. - Hedge of net investment in a foreign operation: the hedging instru- Derivatives are initially recognized at fair value. This fair value is sub- ment is adjusted to fair value. Following this adjustment, the effec- sequently reviewed at each closing date. tive portion of the change in fair value attributable to the hedged The fair value of forward exchange contracts is based on market exchange risk is recorded, net of taxes, in equity, while the ineffec- conditions. The fair value of currency swaps is determined by dis- tive portion is included in the income statement. The cumulative counting future cash flows, using closing-date market rates (ex- amount included in equity is transferred to the income statement at change and interest rates). the date of liquidation or sale of the net investment.

Consolidated financial statements 71 Notes to the consolidated financial statements

Following amounts have been booked at fair value of derivatives during the year 2005 (in thousand euro):

P&L IMPACT - NOTE 6 EQUITY IMPACT - NOTE HEDGED NET FINANCIAL INCOME STATEMENT OF CURRENT NON-CURRENT CURRENT NON-CURRENT ITEMS (COSTS) CHANGES IN EQUITY ASSETS ASSETS LIABILITIES LIABILITIES

Commercial flows (1,438) (15,783) - 34 (6,926) (5) Net investment 1,049 (5,569) - - (158) - Deferred tax 135 7,451 - -

Total (254) (13,902) 0 34 (7,084) (5)

72 Consolidated financial statements Note 24-2. Opening balance sheet IAS 32/39

JAN. 1, 2005 OPENING IAS 32/39 JAN. 1, 2005 ADJUSTMENT RESTATED

Property, plant and equipment 360,270 360,270 Investments properties 8,529 8,529 Goodwill 173,978 173,978 Intangible assets 29,092 29,092 Equity investments* 72 72 Other non-current assets 19,894 17,046 36,940 Deferred tax assets 95,044 650 95,694

Non-current assets 686,879 17,696 704,575

Inventories 255,190 255,190 Other current assets 20,255 20,255 Trade and other receivables 281,831 281,831 Temporary cash investments 137,807 (1,745) 136,062 Bank balances and cash 41,164 41,164 Assets held for sale** 3,001 3,001

Current assets 739,248 (1,745) 737,503

TOTAL ASSETS 1,426,127 15,951 1,442,078

Share capital 196,905 196,905 Accumulated profits 808,365 (1,213) 807,152 Translation reserve and cash flow hedge derivatives (12,250) 9,961 (2,289) Minority interest 1,532 1,532

Shareholders’ equity 994,552 8,748 1,003,300

Non-current borrowings 2,418 2,418 Retirement benefit obligation 118,472 118,472 Provisions 21,339 21,339 Deferred tax liabilities 24,891 5,340 30,231 Non-current hedging contracts 0 1,863 1,863

Non-current liabilities 167,120 7,203 174,323

Trade and other payables 99,092 99,092 Current borrowings 18,972 18,972 Accrued expenses 146,391 146,391

Current liabilities 264,455 0 264,455

TOTAL EQUITY AND LIABILITIES 1,426,127 15,951 1,442,078

*According to IAS1, Equity investements are on a separate line of the balance sheet. Other investments for 309 thousand euro have been reclassified in other non-current assets. ** Assets held for sale have been reclassified from non-current assets to current assets.

Consolidated financial statements 73 Notes to the consolidated financial statements

Note 25. Off-balance sheet avals and guarantees

The following schedule summarizes the off-balance sheet avals and guarantees for the Group. All significant items are disclosed in this schedule. No other security for assets or registered shares is to be reported.

GUARANTY ISSUED

ISSUING MATURITY PURPOSE OF DEC. 31, DEC. 31, GUARANTOR GUARANTEE BENEFICIARY DATE DATE THE GUARANTY CURRENCY 2004 2005

SOCIÉTÉ BIC BIC CORP. State of Jan. 19, 2000 Advance notice Social USD 450,000 450,000 Connecticut of 2 months security workers’ before payment compensation cancellation of guarantee the guarantee SOCIÉTÉ BIC BIC CORP. 680 fifth Mar. 3, 2000 Aug. 31, 2010 New York USD 720,000 780,000 avenue office lease Associates LP guarantee SOCIÉTÉ BIC BIC CIS Société Sept. 20, 2005 Security for USD - 2,000,000 Générale a credit line Vostok SOCIÉTÉ BIC BIC FGP Tacitly Payment of SEK - 18,385,341 Nordic AB renewable pensions

GUARANTY RECEIVED

ISSUING MATURITY PURPOSE OF DEC. 31, DEC. 31, GUARANTOR GUARANTEE BENEFICIARY DATE DATE THE GUARANTY CURRENCY 2004 2005

Natexis BJ75 Préfecture Aug. 27, 2001 Aug. 28, 2006 Environmental EUR 137,204 137,204 Banques d’Ille et Vilaine guarantee Populaires Société Conté Les Douanes June 1, 1997 Tacitly Deposit that EUR 60,979 60,979 Générale de Dunkerque renewable allow Conté to buy Ethyl Alcohol Banca Intesa BIC Ministère June 8, 1998 Commercial EUR 365,115 321,133 Italia SPA des finances guarantee Banca Intesa BIC Ministère Sept. 30, 1999 - VAT EUR 622,339 622,339 Italia SPA des finances June 2, 2000 Dec. 31, 2005 reimbursement EUR 613,357 613,357 July 20, 2001 Dec. 31, 2005 guarantee EUR 235,966 235,966 Banca Nazionale BIC Tregi Union Dec. 16, 2004 July 15, 2005 Guarantee EUR 2,790,000 - del Lavoro Italia SPA SPA of the payment of the remaining part of the sale of the building San Paulo IMI BIC REPE Italia1 July 13, 2005 Sept. 30, 2006 Lease EUR - 255,360 Italia SPA SRL guarantee Société SOCIÉTÉ Les douanes Caution EUR - 45,735 Générale BIC de Paris Ouest for removal BNP SOCIÉTÉ BNPP Mumbai June 30, 2004 Security for INR 17,000,000 17,000,000 Paribas BIC a credit line BNP SOCIÉTÉ BNPP Labuan Oct. 29, 2004 Security for MYR14,000,000 14,000,000 Paribas BIC a credit line

74 Consolidated financial statements OTHER OFF BALANCE SHEET ITEMS Note 26. Obligations under financial leases

Following the termination of Kamalpoor distribution contract Finance leases represent a non significant portion of the Group’s pro- in December 2002, SOCIÉTÉ BIC has committed to pay during perty, plant and equipment (less than 1%). 15 years to this company 8% of its United Arab Emirates stationery The fair value of the Group’s lease obligations approximates to their net sales with an annual minimum of 60 thousand US Dollar and carrying amount. an annual maximum of 120 thousand US Dollar. Also, the new retai- The Group’s obligations under finance leases are secured by the ler of this zone is taking responsibility for half of the cost. lessor’s charge over the leased assets.

Note 27. Operating lease arrangements

THE GROUP BIC AS LESSEE

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Lease payments under operating leases recognized as an expense in the year 5,272 5,107

At the balance sheet date, the Group BIC has outstanding commitments under non-cancellable operating leases, which fall due as follows:

(in thousand euro) DEC. 31, 2004 DEC. 31, 2005

Within one year 5,219 5,216 In the second to fifth years inclusive 10,010 12,158 After five years 2,909 4,458 TOTAL 18,138 21,832

Operating lease payments primarily represent rentals payable by the Group for some of its office properties.

THE GROUP BIC AS LESSOR

See note 10-3 on investment property.

Consolidated financial statements 75 Notes to the consolidated financial statements

Note 28. Contingent liabilities disputes which, in the opinion of management, after consultation with their advisors, would have a material adverse impact on the BIC CORPORATION USA consolidated financial statements.

BIC Corporation has significant contingent liabilities with respect to pending litigation, claims and disputes, principally relating to its ligh- Note 29. BIC USA restructuring update ters, which arise in the ordinary course of business. In the 1st Half of 2004, the BIC Group has decided to close its BIC® While the ultimate liability with respect to the above matters, inclu- ballpoint pen and BIC® shaver manufacturing operations in Milford, ding any additional liability not provided for, is not presently deter- Connecticut, USA, and its Sheaffer® manufacturing facility in Fort minable, it is the opinion of management, after consultation with Madison, Iowa, USA. The shutdown of these manufacturing ope- counsel to the Corporation, that any liabilities resulting therefrom rations, which could be completed by the end of 2006, would will not have an adverse material effect on the Corporation’s conso- impact approximately 400 positions. lidated financial position or on its results of operations. 51 million US Dollar (40 million euro) have already been recorded in “Other operating income/expense” as of December 31, 2004. OTHER BIC GROUP COMPANIES During the year 2005, no expenses have been recorded in “Other As of December 31, 2005, neither SOCIÉTÉ BIC nor its other operating income/expense” but 7.2 million euro related to US subsidiaries had any significant pending litigation, claims or restructuring have been booked in cost of goods.

76 Consolidated financial statements Note 30-1. Bridge of consolidated income statement for the year ended December 31, 2004 from French GAAP to IFRS

FRENCH GAAP RECLASSIFI- OTHER IFRS (in thousand euro) DEC. 31, 2004 CATIONS DIFFERENCES DEC. 31, 2004

Net sales 1,386,421 (121,558) 0 1,264,863 Cost of goods (644,727) (17) 4,740 (640,004)

Gross profit 741,694 (121,575) 4,740 624,859

Distribution costs (310,870) 103,522 1,413 (205,934) Administrative expenses (137,892) 36 1,771 (136,086) Other operating expenses (77,798) (2,599) 269 (80,128) Other operating income and expense (30,138) 0 (30,138)

Income from operations 215,134 (50,754) 8,193 172,573

Finance income/(costs) - net (7,770) 7,770 0 Finance costs (97) 0 (97) Finance revenue 4,370 0 4,370 Income from associates 0 0 0 Other income/(Other expenses) (33,949) 33,949 0 0 Goodwill amortization (13,904) 4,762 9,142 0

Income before tax 159,511 0 17,335 176,846

Income tax expense (60,406) (2,365) (62,771) Net income from continued operations 99,105 0 14,970 114,075 Net profit/loss from discontinued operations 0 0 0 Income before minority interest 99,105 0 14,970 114,075

Minority interest (184) 0 (184) GROUP NET INCOME 98,921 0 14,970 113,891

Earnings per share (in euro) 1.87 0.28 2.15 Diluted earnings per share (in euro)* 1.83 0.33 2.15

Number of shares outstanding 52,882,591 0 52,882,591 net of treasury shares

* Diluted items are options for subscribing for new shares.

MAIN RECLASSIFICATIONS:

• In accordance with IAS 18, revenue is recognized at the fair value of the consideration received or to be received. The standard application leads to the reclassification of the following main items in reduction of sales: - promotional and advertising allowances for 98 million euro included in operating expenses under French GAAP, - coupons redemption for 10 million euro included in operating expenses under French GAAP, - cash discounts granted to customers for 13 million euro included in finance expenses under French GAAP. • In accordance with IAS 1, no extraordinary result should be maintained, meaning that reclassification of other income and expenses to income from operations is required. As of December 31, 2004, the reclassification is mainly related to US restructuring.

Consolidated financial statements 77 Notes to the consolidated financial statements

MAIN IMPACTS ON CONSOLIDATED INCOME STATEMENT

• In accordance with IFRS 3, goodwill is no longer amortized but annually tested for impairment. Amortization stoppage on goodwill has a positive impact of 9 million euro in 2004 on net income. DAPE 74 Distribution and Indonesia goodwill impairment are still included in 2004 IFRS net income. • In accordance with IFRS 2, staff expenses computed on a actuarial basis for the benefits granted to stock-options plan impacts operating expenses. An expense of 2 million euro has been booked acccordingly in 2004. • As BIC Group recognized all actuarial differences arising from pension plans valuation stocked in the corridor (IFRS 1 - IAS 19) at the tran- sition date, 2004 actuarial amortization have been re-computed. This process leads to a decrease of staff expenses of 8 million euro. • Since part of the goodwill has been reclassified from intangible assets to goodwill as of January 1, 2004, the related depreciation has been reversed in 2004, thus favorably impacting 2004 by 2 million euro.

Note 30-2. Bridge of consolidated balance sheet for the year ended December 31, 2004 from French GAAP to IFRS

ASSETS FRENCH GAAP IFRS NOTES (in thousand euro) DEC. 31, 2004 DEC. 31, 2004 VAR DEC. 2004

1 & 2 Property, plant and equipment 376,533 360,270 (16,263) 2 Investments properties 0 8,529 8,529 1 & 4 Goodwill 128,254 173,978 45,724 1 Intangible assets 78,235 29,092 (49,143) Equity investments 72 72 0 Other non-current assets 18,385 19,894 1,509 1 & 3 Deferred tax assets 66,037 95,044 29,007

Non-current assets 667,516 686,879 19,363

Inventories 255,190 255,190 0 Income tax advance payments 7,822 7,822 0 5 Trade and other receivables 304,219 281,831 (22,388) Other current assets 12,433 12,433 0 Cash and cash equivalents 178,971 178,971 0 Assets held for sale 0 3,001 3,001

Current assets 758,635 739,248 (19,387)

TOTAL ASSETS 1,426,151 1,426,127 (24)

1. Derecognition of internally generated intangible assets (brands and similar items) arising from past minority interest buy-backs and reclas- sification to goodwill of related amounts net of tax. 2. Separate presentation of investment properties in accordance with IAS 40. Refer to note 10-3. 3. Deferred tax assets variance mainly comes from the full recognition of all actuarial gains and losses unrecognized related to employee benefits (IFRS 1 - IAS 19) and derecognition of internally generated intangible assets (refer to point 1). 4. In accordance with IFRS 3, goodwill is no longer amortized but annually tested for impairment. 5. Presentation of customers’ balances net of credit notes (customer rebates ) to be issued.

78 Consolidated financial statements Note 30-3. Bridge of consolidated balance sheet for the year ended December 31, 2004 from French GAAP to IFRS

EQUITY AND LIABILITIES FRENCH GAAP IFRS NOTES (in thousand euro) DEC. 31, 2004 DEC. 31, 2004 VAR DEC. 2004

Share capital 196,905 196,905 - Accumulated profits 1,044,200 808,365 (235,835) 6 Translation reserve (196,152) (12,250) 183,902 Group shareholders’ equity 1,044,953 993,020 (51,933) Minority interest 1,532 1,532 -

Shareholders’ equity 1,046,485 994,552 (51,933)

Non-current borrowings 2,418 2,418 - 7 Retirement benefit obligation 26,075 118,472 92,397 Provisions 20,819 21,339 520 3 Deferred tax liabilities 43,511 24,891 (18,620)

Non-current liabilities 92,823 167,120 74,297

Trade and other payables 100,846 99,092 (1,754) Current borrowings 18,972 18,972 - Current tax due 22,349 22,349 - 5 Accrued expenses 144,676 124,042 (20,634)

Current liabilities 286,843 264,455 (22,388)

TOTAL EQUITY AND LIABILITIES 1,426,151 1,426,127 (24)

6. Reclassification to reserves of FOREX differences due to subsidiaries’ financial statements translation prior to January 1, 2004 (IFRS 1). 7. Full recognition of all actuarial gains and losses unrecognized related to employee benefits (IFRS 1 - IAS 19) as of January 1, 2004 and recomputation of related actuarial amortization in 2004.

Consolidated financial statements 79 Notes to the consolidated financial statements

Note 30-4. Consolidated cash flow statement in French GAAP and IFRS for the year ended December 31, 2004

FRENCH GAAP IFRS (in thousand euro) DEC. 31, 2004 DEC. 31, 2004 VAR DEC. 2004

OPERATING ACTIVITIES Net income 98,921 113,891 14,970 Adjustments to reconcile net income to net cash: Minority interest 184 184 Amortization and provisions (excluding provisions on current assets) 124,992 105,685 (19,307) Recognition of share-based payments 2,005 2,005 Deferred tax variation (21,379) (19,047) 2,332 (Gain)/Loss from disposal of fixed assets 306 306

Cash flows 203,024 203,024

(Increase)/Decrease in net current working capital 13,230 7,921 (5,309) Financial expense/(profit) (4,286) (4,286) Interests (paid)/received 4,088 4,088 Income tax expense 83,278 83,278 Income tax paid (77,771) (77,771) NET CASH FROM OPERATING ACTIVITIES 216,254 216,254

INVESTING ACTIVITIES Proceeds on disposal of other investments Proceeds on disposal of property, plant and equipment 13,063 13,063 Purchases of property, plant and equipment (61,316) (61,316) Purchases of marketable securities 24 24 Purchases of patents and trademarks (8,517) (8,517) Proceeds on disposal/(purchase) of BIC shares booked in temporary cash investments 800 800 Other investment expenditures (39) (39) Acquisition of subsidiaries (3,061) (3,061) NET CASH FROM INVESTING ACTIVITIES (59,046) (59,046)

FINANCING ACTIVITIES Dividends paid (63,480) (63,480) Minority interest buy back (1,748) (1,748) Borrowings/(Repayments) (12,899) (12,899) Repayments of obligations under finance leases (419) (419) Increase in treasury shares (85,633) (85,633) NET CASH FROM FINANCING ACTIVITIES (164,179) (164,179)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (6,971) (6,971)

Opening cash and cash equivalents 157,610 157,610 Exchange difference 9,488 9,488 CLOSING CASH AND CASH EQUIVALENTS 160,127 160,127

80 Consolidated financial statements Note 31-1. Opening IFRS balance sheet

ASSETS FRENCH GAAP IFRS (in thousand euro) DEC. 31, 2003 ADJUSTMENTS NOTES RECLASS. NOTES JAN. 1, 2004

Property, plant and equipment 417,287 1,892 1 (16,330) a,b 402,849 Investments properties 0 8,135 b 8,135 Goodwill 142,945 38,840 a 181,785 Intangible assets 91,186 (53,310) a 37,876 Equity investments 398 398 Other non-current assets 19,963 808 2 20,771 Deferred tax assets 52,443 30,445 1,2 (950) c 81,938

Non-current assets 724,222 33,145 (23,615) 733,752

Inventories 241,899 241,899 Other current assets 23,539 23,539 Trade and other receivables 287,160 (15,212) d 271,948 Cash and cash equivalents 181,099 181,099 Assets held for sale 0 0

Current assets 733,697 0 (15,212) 718,485

TOTAL ASSETS 1,457,919 33,145 (38,827) 1,452,237

Consolidated financial statements 81 Notes to the consolidated financial statements

COMMENTS

Adjustments

The adjustments column is mainly related to opening equity adjustments, which are disclosed in note 31-3 under the equity reconciliation. (1) Spanish and Portuguese tangible assets value based on a past legal revaluation values used as “deemed cost.” The impact of this option on opening equity is K€ 1,325 and the counterpart is: - Tangible assets: increase net value of K€ 1,892; - Deferred tax asset: decrease of K€ 567. (2) Past unrecognized actuarial differences included in the corridor impact in equity: in accordance with IFRS 1, First Time Adoption option, there are no more unrecognized actuarial differences arising from defined benefit plans and the counterpart to equity is: - Increase of retirement benefits obligation of K€ 104,755; - Booking of a plan asset for K€ 808 disclosed as other non-current assets; - Deferred tax asset: increase of K€ 31,012.

Reclassifications

(a) Despite the option elected by BIC Group not to restate past business combinations before January 1, 2004, IFRS 1, First Time Adoption of IFRS, requires to derecognize past assets that do not comply with the asset definition under IFRS. When minority interest related to BIC Corporation and BIC Violex SA were bought back, part of the goodwill was allocated in these sub- sidiaries’ accounts to the use by these subsidiaries of a BIC® trademark and a logo. These assets are not compliant with the definition of intangible assets under IFRS and have been reclassified as goodwill as of January 1, 2004. - Intangible assets reclassification: K€ 61,505 - Impact on past deferred tax liabilities: (K€ 22,665) - Net impact on goodwill: K€ 38,840 (b) IAS 1, Financial Statements presentation requires to report on a separate line of the balance sheet assets investments properties that are held to be rented or increase capital invested rather than for use or sale as operating activities. BIC Group has reclassified K€ 8,135 at transition date from tangible assets to a new line investment properties. (c) This reclassification is related to the option according to IAS 12, Income Tax, to compensate deferred tax assets and liabilities when there is a legally enforceable right that allows this presentation, and so long as these assets and liabilities concern similar taxes to be paid to the same tax authorities. Related to this option, K€ 950 assets and liabilities related to BIC UK Ltd. have been compensated at transition date. (d) Trade and other receivables should reflect the economic value, which means that credit notes should be deducted from accounts recei- vable, whereas under French rules, these items were reported as a liability. The new presentation is thus impacted by the reclassification of K€ 15,212 credit notes from trade and other payables to trade and other receivables.

82 Consolidated financial statements Note 31-2. Opening IFRS balance sheet liabilities

EQUITY AND LIABILITIES FRENCH GAAP IFRS (in thousand euro) DEC. 31, 2003 ADJUSTMENTS NOTES RECLASS. NOTES JAN. 1, 2004

Share capital 205,953 205,953 Accumulated profits 1,085,111 (71,610) 1,2 (181,200) g 832,301 Translation reserve (181,200) 181,200 e 0 Minority interest IFRS 2,057 2,057

Group Shareholders’ equity 1,109,864 (71,610) 2,057 1,040,311 Minority interest 2,057 (2,057) f 0

Shareholders’ equity 1,111,921 (71,610) 0 1,040,311

Non-current borrowings 3,576 1,288 g 4,864 Retirement benefit obligation 14,929 104,755 2 119,684 Provisions 21,408 21,408 Deferred tax liabilities 49,893 (23,615) a,c 26,278

Non-current liabilities 89,806 104,755 (22,327) 172,235

Trade and other payables 83,289 83,289 Current borrowings 28,653 (1,288) g 27,365 Accrued expenses 144,250 (15,212) d 129,038

Total current liabilities 256,192 0 (16,500) 239,692

TOTAL EQUITY AND LIABILITIES 1,457,919 33,145 (38,827) 1,452,237

(e) The cumulative translation for all foreign operations at a deemed zero balance and the reclassification of the related amount as retained earnings for the IFRS opening has been booked. This reclassification for K€ 181,200 has no impact on the total equity. (f) This reclassification is related to minority interest now being reported as part of consolidated retained earnings, as required by IFRS 1, presentation of financial statements. (g) The presentation of financial debt according to current/non-current leads to reclassify part of the BIC Brasil SA debt; i.e., K€ 1,288; in non-current liabilities whereas it was previously part of current liabilities.

Note 31-3 Opening equity reconciliation

The following impacts related to equity have been booked as of January 1, 2004, IFRS transition date:

Equity as of Dec 31, 2003 - French GAAP 1,109,864 Minority interest reclassification within equity (1) 2,057 Recognition of actuarial gain/losses formerly within the corridor (2) (103,947) Tangible assets revaluation in Spain and Portugal - IFRS deemed cost (3) 1,892 Tax impact of IFRS adjustments 30,445 Actuarial gain and losses on employee benefits 31,012 Tangible assets revaluation in Spain and Portugal (567)

Equity as of Jan 1, 2004 - IFRS 1,040,311

Consolidated financial statements 83 Notes to the consolidated financial statements

COMMENTS:

(1) According to IFRS, minority interest are part of BIC Group equity, whereas they were separately disclosed under French GAAP. (2) IFRS 1, First Time Adoption of IFRS, permit to impact opening equity with the past unrecognized actuarial differences stocked in a corridor, if IAS 19 method, Employee Benefits, was already applied under French GAAP. As this is the case for BIC Group, this option was elected. Impacts on other lines of the opening balance sheet are as follows: - Increase of retirement benefits obligation of K€ 104,755; - Booking of a plan asset for K€ 808. This adjustment on equity is decreased by a related deferred tax impact of K€ 31,012. (3) As permitted per IFRS 1, First Time Adoption of IFRS, Spanish and Portuguese tangible assets for which opening amounts are based on a past legal revaluation values used as “deemed cost.” The impact of this option on opening equity is the revaluation difference related to these tangible assets, i.e., K€ 1,892, decreased by the related deferred tax for K€ 567. In addition to these items impacting the total opening equity, a reclassification related to the presentation of the cumulative transla- tion differences for all foreign operations at a deemed zero balance and the reclassification of the related amount as retained ear- nings for the IFRS opening has been booked. This reclassification for K€ 181,200 has no impact on the total equity.

Note 32-1. Consolidated income statement (French GAAP) for the year ended December 31, 2004

(in thousand euro) DEC. 31, 2003 DEC. 31, 2004

Net sales 1,360,137 1,386,421 Cost of goods (617,519) (644,727)

Gross profit 742,618 741,694

Distribution costs (317,918) (310,870) Administrative expenses (141,208) (137,892) Other operating expenses (74,500) (77,798)

Income from operations 208,992 215,134

Finance income/(costs) - net (8,873) (7,770) Income from other investments Income from associates 646 0 Other income/(expenses) (10,415) (33,949) Goodwill amortization (11,297) (13,904)

Income before tax 179,052 159,511

Income tax expense (68,319) (60,406)

Income before minority interest 110,733 99,105

Minority interest (410) (184) GROUP NET INCOME 110,323 98,921

Earnings per share (in euro) 2.03 1.87 Diluted earnings per share (in euro)* 1.99 1.83 Number of shares outstanding 54,393,854 52,882,591 net of treasury shares

* Diluted items are options for subscribing for new shares.

84 Consolidated financial statements Note 32-2. Consolidated balance sheet (French GAAP)

ASSETS (in thousand euro) DEC. 31, 2003 DEC. 31, 2004

Property, plant and equipment 417,287 376,533 Goodwill 142,945 128,254 Intangible assets 91,186 78,235 Equity and other investments 398 381 Prepayments, loans and deposits 19,963 18,076 Deferred tax assets 52,443 66,037

Non-current assets 724,222 667,516

Inventories 241,899 255,190 Other current assets 23,539 20,255 Trade and other receivables 287,160 304,219 Temporary cash investments 144,794 137,807 Bank balances and cash 36,305 41,164

Current assets 733,697 758,635

TOTAL ASSETS 1,457,919 1,426,151

Note 32-3. Consolidated balance sheet (French GAAP)

EQUITY AND LIABILITIES (in thousand euro) DEC. 31, 2003 DEC. 31, 2004

Share capital 205,953 196,905 Accumulated profits 1,085,111 1,044,200 Translation reserve (181,200) (196,152)

Shareholders’ equity 1,109,864 1,044,953

Minority interest 2,057 1,532

Long-term borrowings 3,576 2,418 Retirement benefit obligation 14,929 26,075 Provisions for risks and charges 21,408 20,819 Deferred tax liabilities 49,893 43,511

Non-current liabilities 89,806 92,823

Trade and other payables 83,289 100,846 Short-term borrowings 28,653 18,972 Accrued expenses 144,250 167,026

Current liabilities 256,192 286,843

TOTAL EQUITY AND LIABILITIES 1,457,919 1,426,151

Consolidated financial statements 85 Notes to the consolidated financial statements

Note 32-4. Consolidated cash flow statement (French GAAP)

(in thousand euro) DEC. 31, 2003 DEC. 31, 2004

OPERATING ACTIVITIES Net income 110,324 98,921 Adjustments to reconcile net income to net cash: Minority interest 410 184 Amortization and provisions (excluding provisions on current assets) 102,131 124,992 Deferred tax variation (3,844) (21,379) (Gain)/Loss from disposal of fixed assets (14,331) 306

Cash flows 194,690 203,024

(Increase)/Decrease in net current working capital 3,578 13,230 NET CASH FROM OPERATING ACTIVITIES 198,268 216,254

INVESTING ACTIVITIES Dividends received from equity investments and other investments 3,466 Proceeds on disposal of subsidiaries 3,832 Proceeds on disposal of property, plant and equipment 24,458 13,063 Purchases of property, plant and equipment (60,740) (61,316) Purchases of marketable securities (11) 24 Purchases of patents and trademarks (8,438) (8,517) Proceeds on disposal/(purchase) of BIC shares booked in temporary cash investments 800 Other investment expenditures (32) (39) Acquisitions of subsidiaries (1,232) (3,061) NET CASH FROM INVESTING ACTIVITIES (38,697) (59,046)

FINANCING ACTIVITIES Dividends paid (43,345) (63,480) Minority interest buy back (156) (1,748) Borrowings/(Repayments) (5,776) (12,899) Repayments of obligations under finance leases (422) (419) Increase in treasury shares (71,159) (85,633) New bank loans raised NET CASH FROM FINANCING ACTIVITIES (120,858) (164,179)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 38,713 (6,971)

Opening cash and cash equivalents 118,529 157,610 Exchange difference 368 9,488 CLOSING CASH AND CASH EQUIVALENTS 157,610 160,127

86 Consolidated financial statements Note 32-5. Consolidated statement of changes in equity (French GAAP)

TRANSLATION TREASURY ACCUMULATED (in thousand euro) SHARE CAPITAL RESERVE SHARES PROFITS TOTAL

Balance at January 1, 2003 218,517 (115,190) (30,898) 1,107,714 1,180,143

Increase/(Decrease) in share capital (12,564) 30,898 (89,493) (71,159) Exchange differences arising on translation of overseas operations (66,010) (66,010) Other (105) (105) Group net income for the period 110,324 110,324 Dividends paid (43,329) (43,329)

Balance at January 1, 2004 205,953 (181,200) - 1,085,111 1,109,864

Increase/(Decrease) in share capital (7,801) (65,947) (73,748) Exchange differences arising on translation of overseas operations (14,952) (14,952) Other - - - 5 5 Treasury shares (1,247) (10,638) (11,885) Group net income for the period 98,921 98,921 Dividends paid (63,252) (63,252)

Balance at December 31, 2004 196,905 (196,152) - 1,044,200 1,044,953

Consolidated financial statements 87 Auditors’ report

Auditors’ report on the consolidated financial statements

YEAR ENDED DECEMBER 31, 2005

This is a free translation into English of the statutory auditors’ report issued in French and is provided solely for the convenience of English speaking users. The statutory auditors’ report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the opinion on the consolidated financial statements and includes an explanatory paragraph dis- cussing the auditors’ assessments of certain significant accounting and auditing matters. These assessments were considered for the pur- pose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated financial statements. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.

To the Shareholders, II - JUSTIFICATION OF OUR ASSESSMENTS

Following our appointment as statutory auditors by your Annual In accordance with the requirements of article L.823-9 of the Shareholders’ meeting, we have audited the accompanying conso- French commercial Code (Code de commerce) relating to the jus- lidated financial statements of SOCIÉTÉ BIC for the year ended tification of our assessments, we bring to your attention the follo- December 31, 2005. wing matters: The consolidated financial statements have been approved by the Notes 1-6 and 1-13 to the consolidated financial statements pre- Board of Directors. Our role is to express an opinion on these finan- sent the accounting rules and methods adopted with respect to the cial statements, based on our audit. These financial statements net carrying amount of goodwill and pension costs. We verified the have been prepared for the first time in accordance with IFRSs as appropriateness of these accounting methods and of the informa- adopted by the European Union. They include comparative infor- tion presented in notes 11 and 22 to the consolidated financial sta- mation restated in accordance with the same standards in respect tements and examined the consistency of data and assumptions of fiscal year 2004, except for IAS 32 and IAS 39 which, in accor- adopted and the documentation supplied. On this basis we asses- dance with the option provided by IFRS 1, have been applied as sed the reasonableness of estimates made. from January 1, 2005. These assessments were made in the context of our audit of the I - OPINION ON THE CONSOLIDATED FINANCIAL consolidated financial statements taken as a whole, and therefore STATEMENTS contributed to the opinion we formed which is expressed in the first We conducted our audit in accordance with professional standards part of this report. applicable in France. Those standards require that we plan and per- form the audit to obtain reasonable assurance about whether the III – SPECIFIC VERIFICATION consolidated financial statements are free of material misstatement. In accordance with professional standards applicable in France, we An audit includes examining, on a test basis, evidence supporting have also verified the information given in the Group’s management the amounts and disclosures in the financial statements. An audit report. We have no matters to report as to its fair presentation and also includes assessing the accounting principles used and signifi- its consistency with the consolidated financial statements. cant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit Paris and Neuilly-sur-Seine on March 3, 2006 provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of The Auditors the Group as of December 31, 2005 and of the results of its ope- rations for the year then ended in accordance with IFRSs as adop- BDO Marque & Gendrot Deloitte & Associés ted by the European Union. Joël Assayah Dominique Jumaucourt

88 Consolidated financial statements Lorem ipsum lorem Statutory accounts

Income statement (French GAAP)

NOTES (in thousand euro) DEC. 31, 2003 DEC. 31, 2004 DEC. 31, 2005

12 Net sales 363,711 417,363 452,481 Change in inventories of finished goods and work in progress (604) 1 (1) Reversal of depreciation and provision, transfer of charges 7,376 610 2,334 13 Other income 44,738 40,881 48,298

Operating revenues 415,221 458,855 503,112

Purchases of goods and changes in inventories 229,417 268,047 286,326 Purchases of raw materials, other consumables and changes in inventories 6,454 5,908 5,573 Other purchases and external charges 124,819 132,886 137,924 Taxes and similar payment 1,468 2,162 1,938 14 Payroll costs 1,683 2,216 1,813 Depreciations and provisions 17,453 16,211 12,421 Other expenses 151 261 539

Operating expenses 381,445 427,691 446,534

NET OPERATING INCOME 33,776 31,164 56,578

15 NET FINANCIAL INCOME 116,888 157,704 98,552

16 NON RECURRING INCOME/(EXPENSE) (7,669) (2,585) (6,843)

17 à 19 Income tax 15,898 15,177 17,264 NET INCOME 127,097 171,106 131,023

Statutory accounts 89 Statutory accounts

Balance sheet as of December 31, 2005 (French GAAP)

DEC. 31, 2003 DEC. 31, 2004 DEC. 31, 2005

ASSETS DEPREC., AMORT. NOTES (in thousand euro) NET NET GROSS AND PROVISIONS NET

Research and development expenses 5,295 2,402 9,568 6,892 2,676 Patents and similar rights 28,097 20,388 46,410 27,239 19,171 Intangible assets under construction 4,533 7,569 6,164 6,164

3-4 Intangible assets 37,925 30,359 62,142 34,131 28,011

Lands 1,680 1,680 1,680 1,680 Buildings 3,874 3,285 13,233 11,015 2,218 Industrial and technical plants 133 1,767 27,375 25,192 2,183 Other tangible assets 3,958 3,766 9,344 5,541 3,803 Fixed assets under construction 3,671 1,899 4,426 2,937 1,489 Advances and prepayments 105 0 116 116

3-4 Tangible assets 13,421 12,397 56,174 44,685 11,489

24 Investments 592,231 596,943 654,289 46,084 608,205 6-7 Loans to equity investments 2,949 2,897 898 898 3 Other long-term investment securities 118 118 251 164 87 6 Other long-term investments 372 12,288 10,022 10,022

3-5 Long-term investments 595,670 612,246 665,460 46,248 619,212

Non-current assets 647,016 655,002 783,776 125,064 658,712

Raw materials and supplies 15 0 0 Work-in-process - goods 0 1 792 792 0 Semi-finished and finished goods 0 0 283 132 151 Consumables 21,480 23,884 32,267 3,084 29,183

Inventories 21,495 23,885 33,342 4,008 29,334

Advances and prepayments 584 448 420 420 6-7 Trade receivables and related accounts 91,939 97,835 111,750 3,186 108,564 6-7 Other receivables 95,149 106,965 129,067 8,732 120,335 8 Financial investments 133,674 126,232 81,770 81,770 Cash and cash equivalents 8,208 6,638 10,149 10,149 Prepayments and accrued income 6 Prepaid expenses 3,231 2,373 1,800 1,800 9 Unrealized gains and losses on foreign exchange 4,412 4,804 833 833

Current assets 358,692 369,180 369,131 15,926 353,205

TOTAL ASSETS 1,005,708 1,024,182 1,152,907 140,990 1,011,917

90 Statutory accounts LIABILITIES & SHAREHOLDERS' EQUITY AFTER APPROPRIATION BEFORE APPROPRIATION OF EARNINGS OF EARNINGS NOTES (in thousand euro) DEC. 31, 2003 DEC. 31, 2004 DEC. 31, 2005 DEC. 31, 2005

Share capital 205,953 198,151 192,413 192,413 Share premium, merger contribution 1,663 1,685 11,921 11,921 Legal reserve 22,410 22,410 22,410 22,410 General reserve 295,305 295,305 225,756 225,756 Retained earnings 206,380 214,298 288,832 215,297 Net income for the year 0 0 0 131,023

10 Shareholder's equity 731,711 731,849 741,332 798,820

11 Provisions for contingencies 11,114 13,827 14,686 14,686

Provisions for contingencies and losses 11,114 13,827 14,686 14,686

6 Bank overdrafts 4,977 2,714 2,752 2,752 6 Other borrowings 130,897 97,085 104,661 104,661

Financial liabilities 135,874 99,799 107,413 107,413

6-7 Trade payables and related accounts 62,325 74,729 65,203 65,203 6 Tax and employee-related liabilities 48,735 84,257 71,331 13,843 6 Other liabilities 7,461 9,794 9,938 9,938 Deferred income 105 1,852 1,590 1,590

Operating liabilities 118,626 170,632 148,062 90,574

Accruals and deferred income Unrealized gains and losses on foreign exchange 8,383 8,075 424 424

Liabilities 262,883 278,506 255,899 198,411

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 1,005,708 1,024,182 1,011,917 1,011,917

Statutory accounts 91 Statutory accounts

Cash flow statement (French GAAP)

NOTES (in thousand euro) DEC. 31, 2003 DEC. 31, 2004 DEC. 31, 2005

OPERATING ACTIVITIES Net income 127,097 171,106 131,023 Dividends received (112,649) (144,167) (90,547) Amortization and provision 18,980 19,291 15,543 (Gain)/Loss on the disposal of fixed assets (5,681) (1,424) (112)

Cash flow 27,747 44,806 55,907

(Increase)/Decrease in net current working capital 110 5,154 (41,770) NET CASH FROM OPERATING ACTIVITIES 27,857 49,960 14,137

INVESTING ACTIVITIES 15 Dividends received from subsidiaries 112,649 144,167 90,547 Fixed assets disposal 6,454 2,001 318 Acquisition of fixed assets (3,776) (3,552) (4,389) Acquisition of intangible assets (5,774) (7,432) (6,899) Acquisition of treasury shares (71,160) (85,633) (58,110) Other investing expenses 77 (31) (148) 24-2 Acquisition of subsidiaries (8,924) (5,900) (11,318) NET CASH FROM INVESTING ACTIVITIES 29,546 43,620 10,001

FINANCING ACTIVITIES Dividends paid (43,256) (63,252) (75,896) Repayments of loans (4,100) (4,087) New intercompany loans 8,193 52 1,999 Movement in current account 40,894 (38,518) 11,226 NET CASH FROM FINANCING ACTIVITIES 1,731 (105,805) (62,671)

NET INCREASE/DECREASE IN CASH 59,134 (12,225) (38,533)

Cash and cash equivalent - opening 72,930 132,064 119,839 CLOSING CASH AND CASH EQUIVALENT 132,064 119,839 81,306

92 Statutory accounts Notes to the Company’s financial b) Property, plant and equipment statements Property, plant and equipment are valued at their purchase price or production cost. Depreciation is calculated on a straight-line basis over periods depending on the asset type: 1. SIGNIFICANT EVENTS OF THE YEAR • Buildings 25 years No significant events are to be mentioned for the financial year • Fixtures and fittings 8 to 10 years 2005. • Industrial plant, machinery and fittings 2 to 8 years

2. ACCOUNTING PRINCIPLES, RULES AND METHODS • Vehicles 3 years • Office and IT equipment, furniture 3 to 8 years The financial statements are prepared according to French account- ing regulations applicable for the year ended December 31, 2005. c) Fixed assets evaluation They have been drawn up according to the basic accounting prin- Each year, SOCIÉTÉ BIC checks on the net realizable value of its ciples of: assets. • going concern, If the carrying amount of fixed assets exceeds the net realizable value of the asset, an impairment charge is recorded. • consistency,

• appropriate cut-off. d) Long-term investments Long-term investments are recorded at the value they were brought The French regulation n°2002-10 by the “Comité de la into assets, except for equity investments purchased prior to Réglementation Comptable” on amortization and impairment of December 31, 1976 which have been revalued in accordance with assets has been implemented since January 1st, 2005 on SOCIÉTÉ legislation (note n°5). BIC financial statements. This change has any impact on the share- holders’ equity. The useful depreciation was reviewed in order to An impairment is booked when the current value of an investment bring the accounting useful depreciation into line with the economic is less than its purchase cost. life. The impact of the change was a decrease of around 561 thou- The current value is determined in reference to shareholders’ equity sand euro for the depreciation of the financial year. of the relevant investment, adjusted to take in consideration the The French regulation n°2004-06 by the “Comité de la Réglemen- importance of the Company to the Group and its development and tation Comptable” on definition, valuation, entering, amortization profit perspectives. and assets depreciation has been implemented since January 1st, In addition, BIC shares purchased following the article L. 225-209 of 2005 on SOCIÉTÉ BIC financial statements. the French “Code de commerce”, not intended exclusively for stock- options plans or in order to regulate the stock market price, are The items presented in the accounts are valued on a historical cost recorded within long-term investments. Treasury stocks are valued basis, with the exception of those items detailed in d) below. at purchase cost and an impairment is booked at year-end when the The main accounting rules and methods adopted are the following: probable trading value (based on the average shares market price during the last month of the fiscal year or the exercise price of the a) Intangible assets options for which they were purchased) is less than purchase cost. Research and development expenditures are capitalized when major applied research and development projects in progress e) Inventory and work-in-process (above 500,000 euro) can be clearly defined, costs separately iden- Consumables are valued at purchase cost, including incidental tified and reliably measured, and the project has a significant expenses, in accordance with the weighted-average cost method. chance of commercial profitability. Capitalized research and devel- Inventory provisions are booked, when necessary, to reduce inven- opment expenditures are depreciated on a straight-line basis over tory value to the market value. a period of 3 to 5 years from the production date. Research and development expenditures not satisfying these criteria are f) Receivables and payables accounted in charges in the fiscal year. Receivables and payables are recorded at nominal value. Patents and technical processes recorded in this heading are amor- Receivables are written down by way of provision, when appropri- tized over their period of protection or use. ate, to take in consideration recovery risks.

Statutory accounts 93 Notes to the company’s financial statements

Foreign currency denominated receivables and payables are trans- or in order to regulate the stock market price according to article lated at the official closing exchange rate. L. 225-208 and L. 225-209 of the French “Code de commerce”. Treasury stocks are valued at purchase cost. An impairment pro- Unrealized losses on foreign exchange are booked as assets with vision is booked at year-end when the probable trading value a related provision for foreign exchange risk. Unrealized profits on (based on the average stock market price during the last month of foreign exchange are booked as liabilities. the fiscal year or the exercise price of the options for which they By now, profit and loss on foreign exchange for current account were purchased) is less than purchase cost. are directly impacting the Profit and Loss account without any effects on assets and liabilities. h) Provisions for contingencies and losses Provisions for contingencies and losses are liabilities for which matu- g) Financial investments rity or amounts are not valuated precisely. Provisions for contingencies Financial investments are composed of investments in transferable and losses are calculated with the best estimation of needed funds to securities, and BIC shares bought back under stock-options plans close the liability.

NOTES TO THE BALANCE SHEET

3. NON-CURRENT ASSETS

GROSS VALUE AS OF ADDITIONS DISPOSALS GROSS VALUE AS (in thousand euro) DEC. 31, 2004 OF DEC. 31, 2005

Research and development expenses 8,506 1,062 9,568 Other intangible assets 48,533 6,024 1,984 52,573 TOTAL INTANGIBLE ASSETS (1) 57,039 7,086 1,984 62,141

Land 1,680 1,680 Buildings 14,063 12 842 13,233 Industrial and technical plant 26,750 991 366 27,375 Other tangible assets 10,735 754 2,145 9,344 Fixed assets under construction 4,326 2,680 2,580 4,426 Advances and prepayments 0 248 132 116 TOTAL TANGIBLE ASSETS 57,554 4,685 6,065 56,174

Investments (2) 643,008 11,318 37 654,289 Loans to equity investments 2,897 1,999 898 Other long-term investment securities 251 251 BIC shares (3) 11,885 2,440 9,445 Loans and other long-term investments 403 174 577 TOTAL LONG-TERM INVESTMENTS 658,444 11,492 4,476 665,460

(1) The increase of intangible assets is mostly due to the capitalisation of development of a writing instrument product (1.1 million euro) and development of two main softwares (respectively 2.2 and 1.1 million euro). (2) Investments are detailed in note 24. (3) 69,320 shares for the hedging of free shares grants and 135,430 shares for the optimisation of the investments according to article L. 225-209 C. com.

94 Statutory accounts 4. DEPRECIATION AND AMORTIZATION

DEPREC. AND AMORT. CHARGE RELEASES DURING DEPREC. AND AMORT. (in thousand euro) AS OF DEC. 31, 2004 FOR THE YEAR THE YEAR AS OF DEC. 31, 2005

Research and development expenses 6,104 788 6,892 Patents and similar rights 20,576 4,524 407 24,693 TOTAL INTANGIBLE ASSETS 26,680 5,312 407 31,585

Buildings 10,778 850 613 11,015 Industrial and technical plant 24,983 514 305 25,192 Other PP&E 6,969 664 2,092 5,541 TOTAL PP&E 42,730 2,028 3,010 41,748

5. REVALUATION DIFFERENCES

ASSET REVALUATIONS

CURRENT AMOUNT PRIOR YEAR YEAR DEPRECIATION INCLUDED (in thousand euro) GROSS DEPRECIATION DEPRECIATION AT THE YEAR END IN CAPITAL

Equity investments 32,743 0 0 0 32,743 TOTAL 32,743 0 0 0 32,743

6. MATURED ASSETS AND LIABILITIES ANALYSIS

A - Assets

1 YEAR MORE THAN NOTES INCL. ASSOC. (in thousand euro) GROSS OR LESS 1 YEAR RECEIV. UNDERTAKINGS

Loans to equity investments 898 898 898 Other long-term investments 10,022 10,022 9,446 Trade receivables and related accounts 111,750 111,750 11,652 50,660 Other receivables 129,067 129,067 103,657 Prepayments 1,800 1,800 TOTAL 253,537 252,639 898 11,652 164,661

B- Liabilities

1 YEAR MORE THAN NOTES INCL. ASSOC. (in thousand euro) GROSS OR LESS 1 YEAR RECEIV. UNDERTAKINGS

Bank borrowings 2,752 2,752 Other borrowings 104,661 104,511 150 104,456 Trade payables and related accounts 65,203 65,203 35,982 Tax and employee-related liabilities 13,843 13,843 Other liabilities 9,938 9,938 355 Prepaid Income 1,590 1,590 1,380 TOTAL 197,987 197,837 150 0 142,173

Statutory accounts 95 Notes to the company’s financial statements

7. AFFILIATES’ INFORMATION

Net value (in thousand euro) AFFILIATES

Assets Equity investments 654,289 Other long-term investments 9,446 Loans to equity investments 898 Trade receivables and related accounts 50,660 Other receivables 103,657 Liabilities Other long-term loan and investments 104,456 Trade payables and related accounts 35,982 Other debts 355 Prepaid expenses 1,380

8. FINANCIAL INVESTMENTS

Net value (in thousand euro) AMOUNT

Investments BIC shares 7,864 Securities (1) 73,906 TOTAL 81,770

(1) Relating to low-risk short term securities.

9. TRANSLATION ADJUSTMENTS

Unrealized losses on foreign exchange are recorded as a provision for contingencies and losses (833 thousand euro). The provision’s decrease is due to the losses on current account charged in the profit and loss account.

10. SHAREHOLDER’S EQUITY

10.1 Share capital The share capital is 192,413 thousand euro divided into 50,369,937 shares of 3.82 euro each, the par value. The registered shares held for more than two years carry double voting rights. To the knowledge of the Company, as of December 31, 2005, shareholders known to hold more than one-twentieth, one-tenth, three-twen- tieths, one-fifth, one-quarter, one-third, one-half, two-thirds, eighteen-twentieths or nineteen-twentieths of the share capital and/or of the voting rights of the Company were as follows:

% OF SHARES % OF VOTING RIGHTS (APPROX.) (APPROX.)

Bich Family including MBD 42.4% 58.1% Mrs Édouard Buffard 4.4% 6.1% Silchester International Investors 10.4% 7.1% Franklin Templeton 7.3% 5.0%

As of December 31, 2005, SOCIÉTÉ BIC held 380,720 BIC shares classified as follow: (1) Financial assets: 69,320 shares for the hedging of free shares grants and 135,430 shares for the optimisation of the investments according to article L. 225-209 C. com. (2) Security trading: 175,970 shares to cover stock-options plans.

96 Statutory accounts 10.2 Movements in shareholders’ equity

(in thousand euro)

SHAREHOLDERS’ EQUITY AS OF DECEMBER 31, 2004 (BEFORE APPROPRIATION) (1) 808,746

Dividend distribution with respect to fiscal year 2004 75,896 SHAREHOLDERS’ EQUITY AS OF DECEMBER 31, 2004 (AFTER APPROPRIATION) 732,850

Share capital's increase (2) 1,170 Share capital's reduction (3) (6,908) Share premium (2) 10,236 General reserve (3) (69,551) Net income for the year 131,023 SHAREHOLDERS’ EQUITY AS OF DECEMBER 31, 2005 (BEFORE APPROPRIATION) 798,820

(1) Shareholders’ equity as of December 31, 2004 includes down payment on dividends paid in November 2004 for 20,673 thousand euro. (2) Share capital’s increase relates to 306,296 subscription’s options exercised during 2005. (3) During the year 2005, SOCIÉTÉ BIC cancelled 1,808,435 shares. Following this operation, the issued capital is 50,369,937 shares with a nominal value of 3.82 euro.

11. PROVISIONS

RELEASES RELEASES AS OF CHARGE FOR DURING THE YEAR DURING THE YEAR AS OF (in thousand euro) DEC. 31, 2004 THE YEAR (USED) (NOT USED) DEC. 31, 2005

Risk Iran 1,013 1,013 Risk Cuba 3,001 3,001 Risk Affiliates 4,500 4,500 FOREX losses 4,804 3,971 833 Sheaffer (Hong Kong) Co. Ltd. (1) 2,500 1,760 740 Hedging of shares grants 3,444 3,444 Other provisions for contingencies (2) 2,509 512 1,866 1,155 PROVISIONS FOR CONTINGENCIES AND LOSSES 13,827 8,456 7,597 0 14,686

(1) Debt waiver to Sheaffer (Hong Kong) Co. Ltd. (2) Included 1,785 thousand euro as a reverse for the provision done for Tax control closed during the year.

AS OF CHARGE FOR RELEASES AS OF (in thousand euro) DEC. 31, 2004 THE YEAR DURING THE YEAR DEC. 31, 2005

Fixed assets 6,785 3,136 80 9,841 Investments 46,065 1,419 1,400 46,084 Other long-term investment securities 133 31 164 Work-in-process - goods 792 792 Semi-finished and finished goods 0 132 132 Consumables 2,482 602 3,084 Trade receivables 2,824 362 3,186 Other trade receivables 8,549 183 8,732 Other provisions for depreciation (1) 2,253 2,253 0 PROVISIONS FOR DEPRECIATION 69,883 5,865 3,733 72,015

(1) Reversal of provision on BIC investment.

Statutory accounts 97 Notes to the company’s financial statements

NOTES TO THE INCOME STATEMENT

12. SALES BREAKDOWN

The net sales can be analyzed as follows:

2003 2004 2005 (in thousand euro) FRANCE EXPORT TOTAL FRANCE EXPORT TOTAL FRANCE EXPORT TOTAL

Stationery 80,462 117,521 197,983 81,944 156,719 238,663 86,409 167,693 254,102 Lighters 19,431 74,562 93,993 16,493 85,390 101,883 16,358 99,091 115,449 Shavers 27,729 37,850 65,579 27,840 41,833 69,673 28,489 48,051 76,540 Other 81 6,075 6,156 7,144 7,144 15 6,375 6,390 TOTAL 127,703 236,008 363,711 126,277 291,086 417,363 131,271 321,210 452,481

13. OTHER INCOME

Other revenues are mainly composed of royalties (20,512 thousand euro) and management fees (19,761 thousand euro) invoiced to affiliates.

14. MANAGEMENT COMPENSATION

(in thousand euro) 2004 2005

Administrative bodies 123 123 Management bodies 1,162 1,250

Note: SOCIÉTÉ BIC has no salaried employees as of December 31, 2005. Two members of the management bodies have the same additional retirement plan as the BIC managers in France while the third member has an additional retirement plan as the BIC managers in US.

15. FINANCIAL INCOME

Net financial income amounts to 98,552 thousand euro (including 90,547 thousand euro of dividends received from affiliates) and is detailed as follows:

(in thousand euro) 2003 2004 2005

Dividends received 112,649 144,167 90,547 Interest income 3,085 2,424 2,539 Net reversal of provision (836) (1,583) (203) Foreign exchange gain and loss 4,082 14,314 7,687 Other (2,092) (1,618) (2,018) FINANCIAL INCOME 116,888 157,704 98,552

98 Statutory accounts 16. NON-RECURRING INCOME AND EXPENSE

The non-recurring income and expense breaks down as follows:

(in thousand euro) 2003 2004 2005

Capital gains/(losses) on asset disposals 5,697 1,424 (68) Provision for contingencies (net of reversal) (2,546) (1,820) (5,012) Provision on Conté® brand (2,546) Debt waiver (7,376) (2,800) (460) Loss on absorption (28) Other tax impact 1,515 Compensation for contract breaking (3,343) Other (101) 639 (272) NON RECURRING INCOME AND EXPENSE (7,669) (2,585) (6,843)

17. INCOME TAX

NET INCOME NET INCOME (in thousand euro) BEFORE TAX TAX CHARGES AFTER TAX

Income before tax and non-recurring operations 155,130 (17,931) 137,199 Non-recurring income and expense (6,843) 667 (6,176) TOTAL 148,287 (17,264) 131,023

18. TAX GROUPING

SOCIÉTÉ BIC is the parent company of a tax Group composed by the following companies as of December 31, 2005: BIC Sport, Bima 83, BIC Écriture 2000, BIC Services, Conté, Société Immobilière BIC Clichy, Société Immobilière Valiton Gesnouin, BIC Rasoirs, Société du Briquet Jetable 75, BIC Graphic France, BIC Assemblage, BIC Technologies, Compagnie de Moulages, DAPE 74 Distribution and Stypen. As parent company, SOCIÉTÉ BIC books in its accounts the gain or loss related to the effects of the tax consolidation. For this purpose, SOCIÉTÉ BIC has recorded in 2005 a loss amounting to 43,936 euro.

19. MAIN INCREASES/DECREASES IN THE DEFERRED TAX BASE

(in thousand euro) AS OF DEC. 31, 2005

Organic 887 Provisions for contingencies 5,951 Provision on trade receivables 1,306 Provision on stocks 3,084 FOREX losses 3,539 Other 1,076 TOTAL 15,843

DECREASE IN DEFERRED TAX LIABILITIES (5,450)

Statutory accounts 99 Notes to the company’s financial statements

NOTES TO THE OFF-BALANCE SHEET COMMITMENTS

20. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The following are SOCIÉTÉ BIC main off-balance sheet financial instruments:

Currency derivatives Hedge Nominal different from euro are converted to euro at December 31, 2005 closing rates. The mark to market of the hedges is computed according to international banking standards in terms of inputs (Spot, yield curve, volatility curve) and pricing models.

Forward Portfolio Detail

HEDGING SUPPORT NOMINAL (€) MARK TO MARKET (€) MATURITY INSTRUMENT

Commercial Flows 2006 159,236,786 (6,775,920) 2006 Forward Commercial Flows 2007 2,625,750 (13,666) 2007 Forward Loans/Borrowings 13,333,837 4,571 2006 Currency Swaps TOTAL 175,196,373 (6,785,016)

Options Portfolio Detail

HEDGING SUPPORT NOMINAL (€) MARK TO MARKET (€) MATURITY INSTRUMENT

Commercial Flows 2006 161,245,919 (611,985) 2006 Options Commercial Flows 2007 1,689,617 (3,180) 2006 Options TOTAL 162,935,536 (615,165)

As of December 31, 2005, SOCIÉTÉ BIC has contracted: • derivatives contracts (forwards and options) maturing in 2006 and 2007 for an equivalent of 324.9 million euro. These contracts hedge, on a basis of forecasted cash flows, the Group foreign currency transactions risks. The foreign currency transactions are denominated in US Dollar, British Pound, Canadian Dollar, Australian Dollar, New-Zealand Dollar, Japanese Yen, Swiss Franc, Danish Krone, Polish Zloty. The fair market value of these contracts amounts to negative 7.4 million euro; • currency swaps for an equivalent of 13.3 million euro, in connection with the inter company debt and deposit. The fair market value of these contracts is close to zero. The EUR/USD hedging amounts to 74% of the total hedging (cash flows and dividends). For the year 2006, the foreign currency exposure transaction is hedged with a ratio above 90%.

Interest rate derivatives As of December 31, 2005, there are not interest rate derivatives.

100 Statutory accounts 21. COMMITMENTS

21.1 Guarantees

Guarantees issued

ISSUING MATURITY PURPOSE OF GUARANTOR GUARANTEE BENEFICIARY DATE DATE CURRENCY AMOUNT THE GUARANTY

SOCIÉTÉ BIC BIC Corporation State of Jan. 19, Advance notice USD 450,000 Social Connecticut 2000 of 2 months security worker's before payment compensation cancellation guarantee commission of the guarantee SOCIÉTÉ BIC BIC Corporation 680 fifth March 3, USD 780,000 New York avenue 2000 Office lease associates LP guarantee SOCIÉTÉ BIC BIC CIS Société Sept. 20, USD 2,000,000 Security Générale 2005 for a Vostok credit line SOCIÉTÉ BIC BIC Nordic AB FGP Tacitely SEK 18,385,341 Payment renewable of pensions

Guarantees received

ISSUING MATURITY PURPOSE OF GUARANTOR GUARANTEE BENEFICIARY DATE DATE CURRENCY AMOUNT THE GUARANTY

BNP Paribas SOCIÉTÉ BIC BNPP June 30, INR 17,000,000 Security Mumbai 2004 for a credit line BNP Paribas SOCIÉTÉ BIC BNPP Oct. 29, MYR 14,000,000 Security Labuan 2004 for a credit line Société Générale SOCIÉTÉ BIC Les douanes EUR 45,735 Removal de Paris credit Ouest guarantee

In addition, no asset of SOCIÉTÉ BIC was pledged as of December 31, 2005.

21.2 Other commitments Following the breakdown of a distribution contract with Kamaploor in December 2002, SOCIÉTÉ BIC engaged itself to pay, for a fifteen years period, to this company, 8% of its sales of stationery done in the United Arab Emirates zone, with an annual minimum of 60 thousand US Dollar and an annual maximum of 120 thousand US Dollar. Also, the new retailer of this zone is taking in charge half of the cost.

Statutory accounts 101 Notes to the company’s financial statements

Other information

22. STOCK MARKET PRICE

(in euro) DECEMBER 31, 2004 DECEMBER 31, 2005

BIC shares 37.00 50.25

23. STOCK-OPTION PLANS

Using the authorization given during the Annual Shareholders’ meeting of May 28, 2003, the Board of Directors in its meeting of December 14, 2005 granted subscription options to 575 Senior Management and employees of BIC and its subsidiaries entitling them to subscribe for 427,850 shares at a price of 50.01 euro. These options may not be exercised before the end of three years following the date of the award.

PLAN 1 PLAN 2 PLAN 3 PLAN 4 PLAN 5 PLAN 6 PLAN 7 PLAN 8

Date of the General Meeting May 12, 1998 May 12, 1998 May 12, 1998 May 12, 1998 May 12, 1998 May 28, 2003 May 28, 2003 May 28, 2003 Date of the Board Meeting Dec 16, 1998 Dec 16, 1999 Dec 18, 2000 Dec 13, 2001 Dec 10, 2002 Dec 17, 2003 Dec 15, 2004 Dec 14, 2005 Award date Dec 16, 1998 Dec 16, 1999 Dec 18, 2000 Dec 13, 2001 Dec 10, 2002 Dec 17, 2003 Dec 15, 2004 Dec 14, 2005 Number of beneficiaries 148 223 539 551 564 555 563 575 Number of options for buying existing shares 173,800 180,350 Number of stock subscription options 376,150 367,700 375,000 377,550 370,450 427,850 Among which, number of shares available to be subscribed or purchased by current members management team 26,100 28,100 58,600 60,100 68,100 80,000 65,500 64,500 Date from which options may be exercised Dec 17, 2001 Dec 17, 2002 Dec 19, 2003 Dec 14, 2004 Dec 11, 2005 Dec 18, 2006 Dec 16, 2007 Dec 16, 2008 Option expiring date Dec 16, 2008 Dec 16, 2009 Dec 17, 2010 Dec 12, 2011 Dec 9, 2012 Dec 16, 2013 Dec 14, 2014 Dec 14, 2015 Exercise price (EUR) 51.13 40.83 41.03 36.57 30.93 36.96 36.76 50.01 Number of options exercised as of Dec. 31, 2005 0 53,230 104,959 154,727 46,610 0 0 0 Number of options for buying existing shares or subscribing for new shares cancelled as of Dec. 31, 2005 64,050 61,600 114,300 74,500 54,450 29,350 13,100 0 Number of last options for buying existing shares or subscribing for new shares as of Dec. 31, 2005 109,750 65,520 156,891 138,473 273,940 348,200 357,350 427,850

M Bruno and François Bich were not granted any options under the above stock-options plans. As of December 31, 2005, members of administrative and management bodies held stock-subscriptions and purchase-options entitling them to a total of 451,000 shares.

102 Statutory accounts 24. EQUITY INVESTMENTS

24.1. Subsidiaries and participating interests

NUMBER OF SHARES (in euro) S: Shares P: Parts % INTEREST NET BOOK VALUE NET LOANS COMMON STOCK

I - French subsidiaries Compagnie de Moulages SARL 65,000 P 100 1,478,761 0 990,600 EUR BIC Assemblage SARL 1,000 P 100 15,245 0 15,240 EUR BIC Services SA 69,541 S 99 1,042,612 0 1,061,085 EUR BIMA 83 SASU 23,689 S 100 5,550,661 0 355,335 EUR BIC Technologies SA 69,944 S 99 2,743,988 0 2,134,300 EUR BIC Rasoirs SASU 8,750 S 100 6,128,497 0 399,875 EUR Électro-Centre SAS 3,708 S 92 636,475 0 60,960 EUR Société du Briquet Jetable 75 SASU 2,954,600 S 100 40,568,296 0 45,028,104 EUR BIC Sport SASU 489,750 S 100 5,701,593 0 1,812,075 EUR Voiles Gateff SAS 2,250 S 90 0 0 38,100 EUR BIC Clichy SNC 2,500 P 99 37,818 0 38,200 EUR BIC Graphic France SASU 5,000 S 100 315,904 0 76,200 EUR Stypen SASU 151,500 S 100 1,702,518 0 2,121,000 EUR Conté SASU 5,465,181 S 100 34,270,085 0 27,325,905 EUR BIC Écriture 2000 SASU 3,202,500 S 100 51,302,021 0 39,198,600 EUR SI BIC Clichy SASU 65,595 S 100 2,498,167 0 997,044 EUR SI Valiton Gesnouin SASU 748,440 S 100 18,777,264 0 14,295,204 EUR DAPE 74 Distribution SASU 70,000 S 100 0 0 1,070,000 EUR TOTAL 172,769,905 0

II - Foreign subsidiaries BIC Belgium SPRL - Belgium 2,778 S 100 1,657,805 0 2,550,000 EUR BIC (Austria) Vertriebsgesellschaft mbH - Austria - S 100 381,123 0 109,009 EUR BIC Erzeugnisse GmbH - Germany 2 P 100 0 0 664,679 EUR BIC Verwaltungs GmbH - Germany 2 P 100 0 0 25,600 EUR BIC GmbH - Germany 2 P 100 0 0 25,564 EUR Société BIC (Suisse) SA - Switzerland 1,995 S 100 558,573 0 2,000,000 CHF BIC UK Ltd. - England 12,000,000 S 99 7,759,655 0 1,500,000 GBP BIC Iberia SA - Spain 2,052,143 S 100 50,962,254 0 12,333,391 EUR BIC Portugal SA - Portugal 464,675 S 100 2,574,586 0 2,323,575 EUR BIC Italia SPA - Italy 4,999,583 S 99 4,055,129 0 5,150,000 EUR BIC Violex SA - Greece 13,895,505 S 51 13,692,742 0 16,225,000 EUR BIC Slovakia SRO - Slovakia 1 P 100 444,502 0 17,300,000 SKK BIC (Romania) Marketing & Distribution SRL - Romania 370,455 S 100 1,341,688 0 3,704,550 RON BIC Corporation - United States 22,769,073 S 100 318,192,042 0 5,774,578 USD BIC International Co. - United States 100 S 100 1 0 1 USD BIC Brasil SA - Brazil 297,640,078 S 100 12,909,900 0 130,366,354 BRL BIC Argentina SA - Argentina 9,000 S 60 1,670,288 0 15,000 ARS BIC Polska SP ZOO - Poland 485,430 P 100 3,230,667 0 24,271,500 PLN BIC CIS - Russia 410,000 S 100 165,502 0 4,305,000 RUR Sheaffer (Hong-Kong) Co. Ltd. - China 7,799,999 P 100 0 898,317 7,800,000 HKD BIC Stationery (Shanghai) Co. Ltd. - China - S 100 223,039 0 200,000 USD BIC Stationery (Shanghai) Manufacturing Co. Ltd. - China - S 100 2,737,680 0 3,300,000 USD

Statutory accounts 103 Notes to the company’s financial statements

NUMBER OF SHARES (in euro) S: Shares P: Parts % INTEREST NET BOOK VALUE NET LOANS COMMON STOCK

II - Foreign subsidiaries Shanghai Sheaffer - Wingsung Stationery Co. Ltd. - China - S 75 550,000 0 4,000,000 USD BIC Philippines Inc. - Philippines 149,995 S 100 0 0 12,010,000 PHP BIC Product (Singapore) Pte. Ltd. - Singapore 297,000 S 99 0 0 300,000 SGD BIC Product (Asia) Pte. Ltd - Singapore 5,627,602 S 100 1,398,122 0 5,627,602 SGD Nihon BIC Co. Ltd. - Japan 8,926 S 89 1,003,999 0 100,000,000 JPY BIC Kosaido KK - Japan 400 S 100 2,550,763 0 195,000,000 JPY BIC India Pvt. Ltd. - India 8,087,395 S 100 0 0 80,873,960 RPS Ball Point Manufacturing Co. - Iran 90 S 45 0 0 16,000,000 IRR BIC Product (Korea) Ltd. - South Korea 345,320 S 100 342,247 0 1,726,600,000 KRW BIC Product (Thailand) Ltd. - Thailand 999,993 S 100 0 0 49 000 000 BHT PT Buana Inti Cakrawala - Indonesia 289,999 S 100 0 0 29,000,000,000 IDR Mondial Sdn. Bhd. - Malaysia 1,140,000 S 30 339,901 0 3,800,000 MYR BIC GBA Sdn. Bhd. - Malaysia 1,195,000 S 95 0 0 1,260,000 MYR TOTAL 428,742,208 898,317

III - Foreign participations interests BIC Amazonia SA - Brazil 60,013,997 S 29 4,948,857 0 126,090,000 BRL BIC Holdings South Africa Pty. Ltd. - South Africa 41,860 S 5 1,522,934 0 8,372 RAN BIC Nordic AB - Sweden 18,000 S 16 220,990 0 11,029,500 SEK TOTAL 6,692,781 0

Net sales, net income and shareholders’ equity other than common stock of subsidiaries are not provided for commercial and industrial strate- gic reasons.

24.2. Analysis of movements in equity investments (in thousand euro)

EQUITY INVESTMENTS (NET) AS OF DECEMBER 31, 2004 596,943

Acquisitions, stock issues, creations and disposals in 2005 Increase of capital BIC Rasoirs SASU – France 5,600 Increase of capital BIC Kosaido KK – France 2,461 Creation of BIC Clichy SNC – France 38 Creation of BIC Slovakia SRO - Slovakia 445 Creation of BIC Stationnery (Shangai) Manufacturing Co. Ltd. - China 2,738 Charges to/(releases of) provisions in 2005 BIC Portugal SA - Portugal 500 BIC Polska SP ZOO - Poland (1,400) PT Buana Inti Cakrawala - Indonesia 920 EQUITY INVESTMENTS (NET) AS OF DECEMBER 31, 2005 608,205

104 Statutory accounts Additional Information on the Company financial statements

Five years financial summary

(in euro) 2001 2002 2003 2004 2005

1 - Shareholders’ equity Share capital 211,230,720 218,516,977 205,952,534 198,151,330 192,413,159 Number of shares outstanding 55,296,000 57,203,397 53,914,276 51,872,076 50,369,937 Number of bonds convertible into shares ---- - 2 - Net results Net sales 347,441,528 378,852,148 363,711,216 417,363,108 452,480,612 Net income before tax, deprec., amort. and provisions 21,616,149 166,437,693 153,850,894 205,287,114 159,603,201 Income tax 11,168,570 15,383,543 15,897,865 15,177,740 17,264,557 Net income after tax, deprec., amort. and provisions 95,125,385 125,256,748 127,097,242 171,105,343 131,022,492 Dividend distribution 35,554,725 43,830,989 42,906,381 97,569,226 57,487,600 3 - Per share data Net income after tax, but before deprec., amort. and provisions 0.19 2.64 2.56 3.66 2.83 Net income after tax, deprec., amort. and provisions 1.72 2.19 2.36 3.30 2.60 Dividend per share 0.65 0.80 0.80 1.90 1.15 4 - Payroll Non-employeed staff 3333 3 Total payroll 1,148,242 1,364,687 1,215,348 1,172,805 1,286,971 Social welfare benefits (social security, social works) 423,750 533,001 467,405 1,043,566 526,308

Statutory accounts 105 Auditors’ report

Auditors’ report on the financial statements

This is a free translation into English of the statutory auditors’ report issued in French and is provided solely for the convenience of English speaking users. The statutory auditors’ report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the opinion on the Company financial statements and includes an explanatory paragraph discussing the auditors’ assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the Company financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the Company financial statements. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applica- ble in France.

YEAR ENDED DECEMBER 31, 2005

To the Shareholders, II. JUSTIFICATION OF OUR ASSESSMENTS

In accordance with our appointment as auditors at your Annual Pursuant to Article L.823-9 of the French commercial Code (Code Shareholders’ meeting, we hereby report to you for the year ended de commerce) governing the justification of our assessments, we December 31, 2005 on: bring to your attention the following matters: - the audit of the accompanying financial statements of SOCIÉTÉ BIC, Note 2 d) to the financial statements presents the accounting rules - the justification of our assessments, and methods adopted with respect to the valuation of long-term investments. We verified the appropriateness of accounting meth- - the specific procedures and disclosures required by law. ods and values in use attributed to equity investments. These financial statements have been approved by the Board of These assessments were performed as part of our audit approach Directors. Our role is to express an opinion on these financial state- for the financial statements taken as a whole and contributed to the ments, based on our audit. expression of the unqualified opinion in the first part of this report. I. OPINION ON THE FINANCIAL STATEMENTS III. SPECIFIC VERIFICATION We conducted our audit in accordance with professional standards We have also performed the other procedures required by law, in applicable in France. Those standards require that we plan and per- accordance with professional standards applicable in France. form the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit We have no comment to make as to the fair presentation and consis- includes examining, on a test basis, evidence supporting the tency with the financial statements of the information given in the Board amounts and disclosures in the financial statements. An audit also of Directors’ report and in the documents addressed to shareholders includes assessing the accounting principles used and significant with respect to the financial position and the financial statements. estimates made by management, as well as evaluating the overall Pursuant to the law, we have verified that the Board of Directors’ financial statement presentation. We believe that our audit provides report contains the appropriate disclosures as to the identity of and a reasonable basis for our opinion. percentage interests and votes held by shareholders. In our opinion, the financial statements give a true and fair view of the financial position and the assets and liabilities of the Company Paris and Neuilly-sur-Seine on March 3, 2006 as of December 31, 2005 and the results of its operations for the year then ended in accordance with accounting principles gener- The Auditors ally accepted in France. BDO Marque & Gendrot Deloitte & Associés Without qualifying the above opinion, we would draw your attention to Joël Assayah Dominique Jumaucourt Note 2 to the financial statements presenting a change in accounting method resulting from first-time application of Comité de la Réglemen- tation Comptable Regulations n° 2002-10 and n° 2004-06.

106 Statutory accounts Auditors’ special report on related party transactions

This is a free translation of the original text in French for information purposes only. It should be understood that the agreements reported on are only those provided by the French commercial Code and that the report does not apply to those related party transactions described in IAS 24 or other equivalent accounting standards.

YEAR ENDED DECEMBER 31, 2005

To the Shareholders, Board of Directors meeting of May 19, 2005 In accordance with our appointment as auditors of your company, Director concerned: Mr François Bich we hereby report on related party transactions. Executive Vice-President concerned: Mrs Marie-Aimée Bich-Dufour Pursuant to Article L.225-40 of the French commercial Code (Code Adoption of a complementary pension plan (to replace the plan in de commerce), the following agreements, previously authorized force since 1986). Beneficiaries of the plan comprise “grade 6” sen- by the Board of Directors of your Company, have been brought to ior executives and Company Officers, who are members of the our attention. Group Management Committee and who will terminate their career The terms of our engagement do not require us to identify such with the Group. other agreements, if any, but to communicate to you, based on The pension paid will be equal to 1.25% of the final remuneration information provided to us, the principal terms and conditions of per year of plan membership, subject to a maximum of 20 years, those agreements brought to our attention, without expressing an representing a maximum pension of 25%. opinion on their usefulness and appropriateness. It is your respon- sibility, pursuant to Article 92 of the decree of March 23, 1967, to Board of Directors meeting of May 19, 2005 assess the interest involved in respect of the conclusion of these Director concerned: Mr Bruno Bich agreements for the purpose of approving them. Waiver of a receivable of € 1,760,000 payable to SOCIÉTÉ BIC by We conducted our procedures in accordance with professional Sheaffer (Hong Kong) Co. Ltd. standards applicable in France; those standards require that we agree the information provided to us with the relevant source Paris and Neuilly-sur-Seine on March 3, 2006 documents. The Auditors We hereby inform you that the following agreements were previ- BDO Marque & Gendrot Deloitte & Associés ously authorized by the Board of Directors in 2005: Joël Assayah Dominique Jumaucourt

Statutory accounts 107 Corporate 108 governance Lorem ipsum lorem Corporate governance

Chairman’s report on the Board of Directors functioning and on the internal control procedures implemented by the Company

Dear Shareholders, developed in 2003. SOCIÉTÉ BIC abides by the rules of good cor- You will find hereafter the requested information in compliance with porate governance as defined by the Viénot I & II and Bouton reports. the articles L.225.37 and L.225.68 of the French commercial Code, a) Missions as a result of the new law of Financial Security (LSF) n°2003-706 The Board of Directors has the role of determining the strategic dated August 1, 2003. objectives of the Company, overseeing their implementation, and ensuring the smooth operation of the Company and regulation of 1. Composition and functioning of the businesses that relate to it. Board of Directors, Management Board The Board of Directors has to give its opinion on matters that can and Supervisory Board have a significant impact on the development, the strategy or the operation of the Group. 1.1. COMPOSITION OF BOARD OF DIRECTORS, In order to carry out its mission well, the Board of Directors of MANAGEMENT BOARD AND SUPERVISORY BOARD SOCIÉTÉ BIC is kept informed on a regular basis regarding the Cf. Management report. activity of each category, as well as the financial and treasury situ- ations and the liquidity of the Company. 1.2. FUNCTIONING OF BOARD OF DIRECTORS, MANAGEMENT Therefore, the Rules of Procedures make provision for the rules of BOARD AND SUPERVISORY BOARD information of the Board of Directors on the financial situation of the Rules of Procedures formalizing the missions, the organization and the Company, and the obligation on the Director to inform himself/her- ethical principles that guide the actions of the Board of Directors were self is provided for in the Charter of deontology of the Director.

Corporate governance 109 Corporate governance

Directors were informed of rules concerning restrictions and/or pro- • In February/March, to review the previous year’s financial state- hibitions of intervention of the Directors on operations on the shares ments and approve the upcoming annual budget; of the Company for which they have information not yet made pub- • In May, after the Annual Shareholders’ meeting to review the lic, at the Board of Directors approving the accounts of 2004. Those activity of the Company since the beginning of the fiscal year; rules were formalized on a written support. • In September, for the half-year results; The Rules of Procedures make also provision for operations that • In December, to analyze the activity and the first estimated fiscal must be in any case be first authorized by the Board of Directors. year results. (Title I, Section 2, Article 2.2.). Other meetings of the Board of Directors are organized any time b) Formation that it is required by the Group’s activity. Number of these meet- The Rules of Procedures holds that “the Board endeavours to be ings serve to provide the Board with regular and accurate infor- composed of at least one third of independent Directors (…)”. mation and thus, to ensure environment for good corporate (Title 1, Section 1). governance. Therefore, four of the nine members of the Board of Directors of As per the Chairman and Chief Executive Officer’s request, the SOCIÉTÉ BIC are independent Directors of the Board within the Executives Vice Presidents and the Leadership Team members, the meaning of the Bouton report, i.e. not maintaining any relation of statutory auditors or any other person having a particular skill as to any kind with the Company, its Group or its direction, which can the matters included in the agenda, are authorized to attend the compromise the exercise of their independence of judgment. whole or part of the Board meeting. In addition, the Board of Directors of SOCIÉTÉ BIC is represented During the year 2005, the Board of Directors of SOCIÉTÉ BIC met by three nationalities, helping the BIC Group benefit from an inter- six times. The average rate of effective attendance of the members national vision. was 82%. The Directors are elected for 3 years and are re-eligible, subject to d) Assessment the enforcement of the statutory provisions relating to the age limit Regarding the evaluation of the Board of Directors, the Rules of fixed at 65 years. Procedures make provision for that once per annum, the Board of The Rules of Procedures also provide that “the number of Directors Directors will devote a point of its agenda to a discussion on its related to the Company by a contract of employment cannot operation. This evaluation makes it possible to give a progress exceed one the third of the Directors in function” It also provides report on the procedures of the Board of Directors in order to that any Director must be a shareholder and holds, beyond the only increase its efficiency, and to ensure that the important questions statutory requirements, 500 actions. are suitably prepared and discussed. (Title I, Section 3, Article 3.3.). The dissociation of the functions of Chairman of the Board and At the beginning of 2006, an evaluation of the Board of Directors Chief Executive Officer was decided at the Board of Directors of based on the 2005 fiscal year, has been conducted through a ques- February 28, 2006. This dissociation is effective since March 1, tionnaire that was sent to each Director. This questionnaire was 2006. mainly related to the composition of the Board of Directors, the access to the Board members’ information, to the quality and effi- c) Functioning ciency of the discussions held within the Board of Directors, as well The Board of Directors is assisted by two committees of experts, as to the role and performance of the committees of experts. This the Audit Committee and the Compensation Committee. These evaluation made it possible to acknowledge that it was neither nec- Committees meet several days prior to the Board Meeting which essary to modify the rules of procedure, nor to further formalize the allows the management team to recommend any necessary cor- rules of operation of the Board of Directors. rective measures to be reviewed at the Board Meeting. Invitation and notification to Board members for upcoming meet- 1.3. COMMITTEES SET UP BY THE BOARD OF DIRECTORS, ings are always confirmed in writing. THE MANAGEMENT BOARD OR THE SUPERVISORY BOARD. The Board of Directors meets at least four times a year in ordinary Two committees of experts, the Audit Committee and the Compen- session, in particular: sation Committee assist the Board of Directors.

Corporate 110 governance Audit Committee • Details and level of base remuneration plus annual variables for Antoine Treuille – Chairman (non-affiliated Director) the Chairman/CEO and the three Managing Directors; Frédéric Rostand (non-affiliated Director) • Determination the annual target used to calculate their variable remuneration; Olivier Poupart-Lafarge (non-affiliated Director) • Homogenization of the principles of supplementary pension The Audit Committee was created in 1997. Its primary mission is regimes of senior managers throughout the world; to ensure that the accounting principles applied to the Company’s consolidated and statutory accounts comply with current standards • Principles and amounts of stock-option awards; and are consistently applied, and to ensure that the internal con- • Principles and amounts of free share awards determined by per- solidation procedures and controls yield financial statements that formance, in addition to determination of three-year targets that fairly represent business results. govern these awards. The Audit Committee is responsible for providing its opinion on The Committee also gave its opinion on the remuneration of the nomination of external auditors, as well as attesting to the quality Senior Management team and remuneration policy of other man- of the auditors’ work and their independence. agers. This includes verifying there is no potential conflict of interest between the auditors and the Company. 2. Internal control procedures During 2005, the Audit Committee met two times in the presence implemented by the Company of its President and of the other members and had a conference call. Representatives from both audit firms attended the meetings. 2.1. INTERNAL CONTROL OBJECTIVES RELATED Some of the meeting discussions were conducted with members TO THE OVERALL COMPANY of the management team, and others in the absence of manage- Internal control is defined as a process, effected by the Board of ment. Directors, management and other personnel, designed to provide Among other tasks, the Committee reviewed new communications reasonable assurance regarding the achievement of objectives, in related to the internal control requirements by the new law of the following three areas: Financial Security (LSF) and the Company’s implementation plan to • Effectiveness and efficiency of operations; meet these requirements. The Audit Committee also monitored the implementation of International Financial Reporting Standards (IFRS • Reliability of financial reporting; 2005)*. The Committee was also involved in the preparation and • Compliance with applicable laws and regulations. review of the Reference Document. The first addresses an entity’s business objectives, including perfor- * Previously known as International Accounting Standards (IAS). mance, profitability goals and safeguarding of resources. The se- Compensation Committee cond relates to the preparation of reliable published financial Gilles Pélisson – Chairman (non-affiliated Director) statements, including full, interim and condensed financial state- ments and selected financial data derived from such statements, Marie-Henriette Poinsot such as earnings releases, reported publicly. The third deals with Frédéric Rostand (non-affiliated Director) complying with those laws and regulations to which the entity is The Compensation Committee, created in 2001, is responsible for subject. These distinct but overlapping areas address specific examining the remuneration of senior officers and managers and needs, while ensuring continuity of procedures. making proposals to the Board of Directors. This responsibility The internal control process can be considered effective for each includes Group salary policy, benefits, stock-option plans and free entity and in the three areas listed above, respectively, if the Board share awards. of Directors and management have reasonable assurance that: During 2005, the Compensation Committee met three times, with all • They are able to measure clearly the achievement of the Compa- members present. The Committee’s activity focused specifically on: ny’s operational objectives;

Corporate governance 111 Corporate governance

• Published financial statements are being prepared reliably; Rick McEttrick, North America and Oceania • Applicable laws and regulations are being complied with. Edgar Hernandez, Latin America • Representatives of the categories of products: One of the objectives of the internal control process is to prevent Bruno Vanhaelst, Stationery (Finance & Marketing) and control the risks resulting from the Company’s activity and the Patrice Franquenk, Stationery (R&D and Manufacturing) risks of mistakes or fraud, in particular in the accounting and finance Ed Dougherty, Shavers fields. Like any control process, it cannot provide an absolute guar- antee that these risks are completely eliminated. Category General Managers are directly responsible for Manufac- turing, New Product Development, Research and Quality Assuran- The internal control process in the Group is decentralized in order ce. In addition, Category Managers are responsible for developing to ensure better control within operations, whereas some key func- and proposing each Category’s long-term strategy. tions are centralized by nature of their underlying risks such as Legal (intellectual property, trademarks and patents, anti-counterfeit 2.2.2. Presentation of summary information on the internal measures). Treasury functions are also centralized in order to control procedures implemented by the Group ensure better control. The internal control procedures provide a reasonable assurance to the managers on the achievement of their operational objectives, 2.2. ORGANIZATION OF INTERNAL CONTROL PROCEDURES on the reliability of financial information and compliance with appli- AT GROUP LEVEL: PARTICIPANTS, SPECIFIC STRUCTURE(S) cable laws and regulations. IN CHARGE/RESPECTIVE ROLES AND INTERACTIONS The BIC Group endeavors, in all its activities, to adhere to the funda- Internal control implemented by the Group is a whole part of its mental values of ethical behavior towards its employees, consu- organization. mers, customers, suppliers and shareholders. 2.2.1. The structures driving internal control In an increasingly international environment, the Leadership Team within the Group are the following ensures that these fundamental values are understood and shared The Board of Directors of SOCIÉTÉ BIC, which represents the by all employees of the Group. shareholders, acts in all circumstances in the interest of the Since 1998, the values of the Group have been posted at all Group Company. It must also review and approve the Company’s strate- locations so that employees can share these values. In 2005, the gic objectives. Group Vision and Values were updated and presented to all The Leadership Team, under the direction of Mario Guevara, Chief employees. Executive Officer of SOCIÉTÉ BIC since March 1, 2006 and Chief A Group Code of Ethics exists and is available for all employees. Operating Officer of SOCIÉTÉ BIC from March 10, 2004 to February The Leadership Team validates the Group Code of Ethics, the pro- 28, 2006, is comprised of 12 executives whose main goal is to put cedures and policies, and cascades them throughout the Group. in place the strategy of the Company as defined by the Board. It is The Leadership Team also puts in place the operational tools that also responsible for defining the implementation and the supervi- emphasize the importance of ethics in the workplace on a day-to- sion of the means to achieve the objectives. day basis. In addition to François Bich, Executive Vice-President and General It also monitors the quality of the internal control process and the Manager lighters and Marie-Aimée Bich-Dufour, Executive Vice- implementation of risk coverage. President and General Counsel, the Leadership Team members include: The Leadership Team also ensures, with the Group CFO’s support, that indicators are consolidated in order to measure the operational • Representatives of transverse functions: performance against the budget and, if necessary, focus on the vari- François Eyssette, Director of Human Resources ances and corrective measures that may need to be implemented. Jim DiPietro, Chief Financial Officer In addition to the budget, forecasts are prepared and revised three Jack Teague, General Manager BIC Graphic times during the year to monitor the budget achievement and under- • Operational representatives responsible for continents: stand any current marketplace dynamics. A strategic planning Nicolas Paillot, Europe, Middle East and Africa process is in place to help identify future growth opportunities.

Corporate 112 governance 2.2.3. Internal control procedures related to the • The consolidated financial information is validated by the Group preparation and processing of finance information CFO. Significant issues are reviewed with the Chairman and Chief The accounting and financial information given to the shareholders Executive Officer and the Chief Operating Officer; is generated through the following organization: the finance teams • The Audit Committee validates this information and provides the of the subsidiary companies, under the control of their own finance Board of Directors with a report if necessary; and operations directors, report information to the continent finance • The auditors are involved in the validation of the production teams who then report to the Group. The calendar and the format process of financial information. of this Group reporting, as well as the accounting rules, are decided and communicated by the finance headquarters of the Group and The Internal Control & Audit (IC&A) Department are documented in the Group Accounting Manual. This reported In January 2004, the Group established the Internal Control and information is audited by the local auditors who prepare review Audit department (IC&A). The IC&A department focuses on: reports. • Business cycle and process reviews at the BIC subsidiaries as Cost controllers work closely with operations and report to local well as at the Corporate level; management and functionally to the finance organization. • Testing of the controls in place to ensure their effectiveness and The Group developed a Controller’s Manual of policies and proce- efficiency; dures in 2000 that were presented to the finance directors of the • Coordination with functional managers for the continuous subsidiaries. In 2005, the review and update of key policies conti- upgrade of the Controller’s Manual; nued. This review is ongoing, with key policies and procedures updated and validated by functional managers as needed. When a • Issuance of guidance and recommendations for improvement to new policy is created or an update or enhancement is made to an existing processes, including the sharing of Group best practices. existing policy, the information is communicated via an “Internal IC&A presents the review schedule to the external auditors each Control Bulletin” posted on the employee intranet and is also casca- year, provides updates and shares the resulting reports from site ded by the Leadership Team to all subsidiaries. reviews. In addition, IC&A coordinates with Group Finance and the This Controller’s Manual of policies and procedures provides a spe- external auditors to ensure coverage of any specific areas during cific section on follow-up and authorization procedures for off-bal- the site reviews. ance sheet items. It also includes policies related to capital Internal Control update as of Dec. 31, 2005 expenditures with approval procedures and thresholds, for non-cur- rent assets, cash and cash equivalents and inventory management. In 2005, reviews were conducted at 8 locations throughout the Group. Some of the main areas of focus were Sales, Purchasing, The reporting procedures within the Group are the following: Payroll and Fixed Assets. The Internal Control & Audit (IC&A) • The Group finance information system allows preparation of sta- department also coordinated with Information Technology (IT) to tutory consolidations and management consolidations within the expand the scope of the reviews. As an example, this year a review same reference frame; of user access rights was added to the site review process. Some core sections of the Internal Control Self Assessment Questionnaire • The Group also uses a detailed sales reporting system. A monthly (completed by all sites in 2004) were updated and sent to the main reconciliation is prepared between the sales reporting and finan- sites being reviewed prior to the onsite visit. cial information systems. Every variance is explained; These visits consisted of walkthroughs of key processes and tests • The Group financial information system is used in all the sub- of the related controls in place to check their design, implementa- sidiary companies, which allows an analysis at each level of tion and operational effectiveness. No significant issues were iden- reporting (subsidiaries, continents, Group or by category of prod- tified as a result of the reviews. ucts) starting from the same source data and according to the same report format; An IC&A report was developed and issued at the end of each site review. The report includes a summary of the review, including a • The Group internal financial information is analyzed monthly and description of best practices when applicable. The main section of compared with the budget at the subsidiaries level and the the report consists of control or efficiency improvement recom- Leadership Team also reviews on a monthly basis the consoli- mendations, management response, action plans, implementation dated data and the related analysis; dates and responsibilities. The IC&A report is a good communica- • An analysis is done between the budget and the strategic plan tion tool and plays an important role in the continuous improvement and is reviewed by the Leadership Team; of controls within the Group.

Corporate governance 113 Corporate governance

Each subsidiary completed a risk assessment in December 2005. Management of interest rate exposure This has been an annual requirement since December 2003. It high- Cf. Management report and Note 24 of the consolidated financial lights principal and potential risks faced locally at every subsidiary. statements The risk assessment is also completed at the category manufactu- ring level (stationery products, lighters and shavers) to ensure 2.3.2. Legal risks cross-coverage throughout the Group. To the knowledge of the Company, there is no information (rules, The Group’s principal risks are identified in section 2.3 Issuer’s authorizations, confidentiality, dependence links, tax measures, dis- Risks. pute and arbitrage) or exceptional fact susceptible to have or hav- All general managers and finance directors of the subsidiaries ing had in recent past a significant impact on the financial situation, signed a letter attesting that the internal controls in place are the result, the activity and the assets of the Company and the comprehensive and operate adequately to manage the operations. Group. In the letter, they also attest to the reliability of the financial informa- tion reported and compliance with relevant laws and regulations. 2.3.3. Environment-related risks This is also an annual requirement and has been in place since The main industrial and environmental risks are related to the stora- December 2003. ge and use of dangerous, flammable and non-flammable products and substances. Among those, are: If necessary, the general manager of the subsidiary provides the detail of the areas presenting non-significant weaknesses for which • Gas for lighters in France, Spain, the United States and Brazil; corrective actions will be in place in 2006 to allow a reasonable • Solvents for correction fluids in the United States, for permanent confidence for the achievement of the operational goals, the relia- markers and dry-wipe markers in France and the United States; bility of the financial information reported and compliance with rele- vant laws and regulations. All of the letters have been collected for • Solvents chlorinated for the industrial cleaning processes. 2005 and no major issues were identified. SOCIÉTÉ BIC fully integrates a concern for the environment and A summary of the work prepared during 2005 has been presented safety management in its daily activities. to the Leadership Team, Audit Committee and Board of Directors. 1. A constant attention is paid to the protection and the safety The analysis includes a summary of the Internal Control attestation of the storage areas for gas and solvents. Suitable technical letters signed by each country General Manager and lists a time- controls and equipment are in place to minimize risk from the line for improvements to be made, a summary of the risk analysis physicochemical properties of the substances. Priority is given and controls, and action plans for 2006. to the use of fire prevention systems and suitable equipment for Action Plan for 2006 fire control. A rotation schedule has been developed to ensure that all sites and 2. Risk studies are carried out in the Group factories; procedures key processes are reviewed approximately every three years. The are established to identify, evaluate, and prevent incidents and schedule for 2006 has been finalized and was presented to the accidents. Audit Committee. The IC&A department will continue to focus on 3. The work force is trained according to the specific risks related process and efficiency improvements, testing of operational effec- to their activities. tiveness of key controls and enhancing the overall review process. An IC&A site review procedure has been written to ensure there is 4. SOCIÉTÉ BIC is committed to continuous improvement of its clear understanding of the roles and responsibilities for these facilities, equipment, industrial processes and procedures to reviews. In addition, the IC&A department will maintain its coordi- control the risks generated by its activities. nation role for the continuous upgrade of the Controller’s Manual. The industrial activities of the BIC sites are subject to the require- ments of the local regulations relating to environmental protection. 2.3. ISSUER’S RISKS Compliance with these requirements is part of the daily manage- ment procedures of the sites. In addition, BIC does not foresee any 2.3.1. Market risks significant provisions for environmental risks. In any eventuality, BIC Exchange rate risk management considers the costs related to reparations of this type should not Cf. Management report have any material impact on the Group’s results.

Corporate 114 governance 2.3.4. Insurance – Coverage of any risks to which USD 1 million, which is the amount of the deductible for each indi- the issuer may be exposed vidual case. BIC is covered by: The sole captive insurance company held by the Group is Xenia • Insurance for “Civil Responsibility” including environmental risk Insurance Company Limited, which is a wholly owned captive of related to gradual pollution and accidental pollution; BIC Corporation. Xenia was created as a means to provide covera- ge for certain risks which are not covered by traditional insurance. • Insurance for operational damages and loss that covers all the BIC Corporation is insured by Xenia Insurance Company Limited, sites. via three contracts. The first issues product liability certificates of Management believes that coverage and limits of these policies are insurance for BIC' s customers. The second one is a finite reinsu- appropriate. rance policy that covers excess employment practices liability, envi- The objective of the Company’s property and liability program is ronmental liability, patent infringement, punitive damages, product to develop a uniformly high level of risk management and insurance recall, Florida windstorm and unforeseen events. The third contract protection for all of the BIC operating entities. This, in turn, will is a "DIC/DIL" policy that provides coverage for property and/or protect the corporate assets and earnings against insurable perils casualty events that are not covered or payable under any existing and controllable risks. BIC Corporation policies.

BIC believes in the risk management process as a means of protec- 2.3.5. Other special risks ting its assets from the adverse effects of accidental loss. That is, As a result of the international reputation of BIC brands and pro- the practice of identification, analysis and management of all risks ducts, counterfeits of its most well-known products circulate princi- in relation to its operations. This discipline of risk management pally throughout Africa, the Middle East, Eastern Europe and South is expected to be practiced at all levels of the organization. America. In those areas where it is able to exercise effective loss prevention These counterfeits, mostly of low quality, are mainly produced in and loss control, BIC retains a portion of the risk. While BIC relies Asia. on its proactive philosophy of managing risk for the protection of The Group continues its long fight against these counterfeit pro- its assets, it nonetheless purchases insurance to protect against ducts and maintains its vigilance through its anti-counterfeiting catastrophic loss, or in some cases, the probable exposure to loss, department, and by working in close cooperation with the autho- when taking into account its risk control programs. rities (Police, Customs, etc.) and local partners (lawyers, private The global cost estimate of the BIC Group policy insurance investigators, intellectual property protection associations, etc.). amounts to approximately 6 million euro. The total amount covered In 2005, we have noted a stabilization of the phenomenon, resul- by the property damage/business interruption insurance amounts ting from BIC’s anti-counterfeiting expertise as well as from a to approximately 3 billion euro. greater awareness of the authorities about this curse and the about It is BIC's intent to control risk through effective management significant means that should be implemented to fight against. techniques, as well as insurance, in order to meet its long-range One of our main concerns is the need to adapt our strategy to the objectives of continuous operation, growth and profit. new “trends” of the counterfeiters who seem now to focus more By meeting the above criteria, BIC' s assets and profitability should on our products’ “design” then on our trademark and BIC® logo. be protected to the greatest extent possible. This implies a more technical and legal fight. Litigation related to product liability is primarily in the United States. Our aggressive strategy protects our brand image and our eco- Provisions to cover the risk related to those liabilities are limited to nomic interests.

Corporate governance 115 Auditor’s report

Auditors’ report prepared pursuant to Article L.225-235 of the French commercial Code on the report prepared by the Chairman of the Board of Directors of SOCIÉTÉ BIC with respect to the internal control procedures for the preparation and treatment of financial and accounting information

This is a free translation of the original French text for information purposes only.

YEAR ENDED DECEMBER 31, 2005

Dear Shareholders, - obtaining an understanding of the objectives and general organ- In our capacity as statutory auditors of SOCIÉTÉ BIC, and pursuant ization of internal control, as well as the internal control proce- to Article L.225-235 of the French commercial Code, we hereby dures relating to the preparation and treatment of financial and report to you on the report prepared by the Chairman of your accounting information, as set out in the Chairman’s report; Company in accordance with Article L.225-37 of the French com- - obtaining an understanding of the underlying work performed to mercial Code for the year ended December 31, 2005. support the information given in the report. The Chairman reports, in particular, on the conditions for the On the basis of our procedures, we have no comment to make on the preparation and organization of the Board of Directors’ work and information given in respect of the internal control procedures relating the internal control procedures implemented by the Company. to the preparation and treatment of financial and accounting informa- It is our responsibility to report to you our observations on the infor- tion, set forth in the report of the Chairman of the Board of Directors, mation and assertions set out in the Chairman’s report on the inter- prepared in accordance with the last paragraph of Article L.225-37 of nal control procedures relating to the preparation and treatment of the French commercial Code. financial and accounting information. We performed our procedures in accordance with professional Paris and Neuilly-sur-Seine on March 3, 2006 guidelines applicable in France. These require us to perform proce- dures to assess the fairness of the information set out in the The Auditors Chairman’s report on the internal control procedures relating to the preparation and treatment of financial and accounting information. BDO Marque & Gendrot Deloitte & Associés These procedures notably consisted of: Joël Assayah Dominique Jumaucourt

Corporate 116 governance Corporate governance 117 Lorem ipsum lorem General information

1. Person responsible The mandate of Deloitte & Associés as statutory auditors is in place for a period of six fiscal years and has been renewed at the General Shareholders’ meeting on May 19, 2005. It will expire in 2011 at 1.1. NAME AND FUNCTION the General Shareholders’ meeting confirming the accounts for fis- Bruno Bich cal year 2010, which close December 31, 2010. Chairman of the Board of Directors BDO Marque & Gendrot Represented by Mr Joël Assayah 1.2. DECLARATION BY RESPONSIBLE PERSON 23, rue de Cronstadt

This is a free translation into English of the Chairman’s certification issued in French and 75015 Paris - France is provided solely for the convenience of English-speaking readers. Tel.: + 33 1/72 29 60 00 “I certify that I have taken all reasonable care to ensure that the BDO Marque & Gendrot was appointed as statutory auditor for information contained in this reference document is, to the best of SOCIÉTÉ BIC for the first time at the Extraordinary General Meeting my knowledge, accurate and does not omit any material fact. of shareholders on May 19, 2005. I have received a letter from the statutory auditors, confirming that The mandate of BDO Marque & Gendrot as statutory auditors is in they have completed, in accordance with the professional stan- place for a period of six fiscal years and will expire in 2011 at the dards applicable in France, the work necessary to verify the infor- General Shareholders’ meeting confirming the accounts for fiscal mation related to the financial condition and the financial statements year 2010, which close December 31, 2010. included in this reference document. The auditors also confirmed that they have reviewed the document in its entirety.” Substitute auditors: April 19, 2006 Société BEAS was appointed as substitute auditor for the first time at the General Meeting of shareholders on May 19, 2005. The man- Bruno Bich date will continue for the same period as that of Deloitte & Associés. Chairman of the Board Mr Patrick Giffaux was appointed as substitute auditor for the first 2. Statutory auditors time at the General Meeting of shareholders on May 19, 2005. The mandate will continue for the same period as that of BDO Marque & Gendrot. 2.1. NAMES AND ADDRESSES 2.2. CHANGE OF STATUTORY AUDITORS The statutory and consolidated accounts for SOCIÉTÉ BIC repre- sented in reports by the accounting firm of and partner: Mr Alain Lainé Deloitte & Associés 2, rue du Colonel Moll Represented by Mr Dominique Jumaucourt 75017 Paris - France 185, avenue Charles de Gaulle Tel.: +33/1 53 81 93 00 92200 Neuilly-sur-Seine - France Tel.: + 33 1/40 88 28 00 The mandate of Mr Alain Lainé as statutory auditor, in place for a period of six fiscal years, has expired in 2005, at the General Deloitte & Associés was appointed as statutory auditor for SOCIÉTÉ Shareholders’ meeting confirming the accounts for fiscal year BIC for the first time at the Extraordinary General Meeting of share- 2004, which close December 31, 2004 and has not been holders on May 4, 1999. renewed.

General 118 information 2.3. FEES OF THE AUDITORS AND THE MEMBERS OF THEIR NETWORKS

Joint audit firms yearly audit fees included in the Group income statement.

BDO MARQUE DELOITTE & ASSOCIÉS ALAIN LAINÉ & GENDROT (in thousand euro) 2004 2005 2004 2005

Audit Fees:

Statutory accounts – recurring 1,448 1,521

Audit du pro forma IFRS 212

Statutory accounts 1,448 1,733 23 50

Other audit services 933 180 0 0

Sub-total 2,381 1,913 23 50

Non audit services:

Tax and Legal (1) 1,372 1,626 0 0

Information technology 0 0 0 0

Internal audit 0 0 0 0

Other non audit services 72 19 0 0

Sub-total 1,444 1,645 0 0

TOTAL 3,825 3,558 23 50

(1) “Tax compliance” missions have been mainly carried out in foreign subsidiaries.

3. Selected financial information

3.1. SELECTED HISTORICAL FINANCIAL INFORMATION OVER THE PAST THREE FINANCIAL YEARS

3.1.1. Production volumes over the past three financial years

PRODUCTION TRENDS in billion of units 2003 2004 2005

Stationery products 4.646 4.959 5.235 Lighters 0.923 0.978 1.098 Shavers 2.164 2.125 2.142

Since 2002, the BIC Group has launched more than 280 new products* and line extensions, including more than 210 in the stationery category.

* The BIC Group defines a product as a new one during the year of its launch and during the three following years.

General information 119 General information

3.1.2. Net Sales over the past three financial years 5.1.2. Place of registration of the issuer Cf. Management report. and registration number

5.1.2.1. Place of registration: Nanterre 3.2. SELECTED FINANCIAL INFORMATION FOR INTERIM PERIODS 5.1.2.2. Registration number: 552 008 443 Nanterre Not applicable (1980 B 00863)

4. Risk factors 5.1.2.3. APE Code: 741J Holding services 366E Other manufacturing activities

4.1. MARKET RISKS 5.1.3. Date of incorporation and length of life of the issuer 5.1.3.1. Date of incorporation: March 3, 1953 Exchange rate risk management Cf. Management report 5.1.3.2. Date of expiration: March 2, 2052 Unless dissolution occurs prior to or decided at an Extraordinary Management of interest rate exposure Shareholders’ meeting. Cf. Management report and Note 24 of the consolidated financial statements. 5.1.4. Domicile and legal form of the issuer

4.2. LEGAL RISKS 5.1.4.1. Domicile: 14 rue Jeanne d’Asnières - 92110 Clichy, France

Cf. Section 2.3.2 of the Chairman’s report on the Board of Directors 5.1.4.2. Legal form: Limited Company (Société anonyme) functioning and the internal control procedures implemented by the Company. 5.1.4.3. Legislation governing the issuer “Société anonyme” governed by French law, and in particular by 4.3. ENVIRONMENT-RELATED RISKS the French commercial Code and the decree n°67-236 dated Cf. Section 2.3.3 of the Chairman’s report on the Board of Directors March 23, 1967. functioning and the internal control procedures implemented by the 5.1.5. Important events in the development of the issuer Company. business

4.4. INSURANCE – COVERAGE OF ANY RISKS TO WHICH THE No event to report apart from those mentioned below in § 6.1.1. ISSUER MAY BE EXPOSED Nature of operations.

Cf. Section 2.3.4 of the Chairman’s report on the Board of Directors 5.2. INVESTMENTS functioning and the internal control procedures implemented by the Company. 5.2.1. Issuer’s principal investments

4.5. OTHER SPECIAL RISKS 5.2.1.1. Over the past few years: The primary investments by the BIC Group were the following: Cf. Section 2.3.5 of the Chairman’s report on the Board of Directors functioning and the internal control procedures implemented by the The BIC Group organized its manufacturing activities in two areas: Company. • First in continued quality improvement for each production line, including investments in manufacturing processes and new tech- 5. Information about the issuer nologies. • Secondly, in the specialization of focused production sites by 5.1. HISTORY AND DEVELOPMENT OF THE ISSUER product category. In the last three years, investments of this type have been made in Europe, with the increased production capac- 5.1.1. Legal and commercial name of the issuer ity of Conté® manufacturing and the construction of a state-of- 5.1.1.1. Legal name: SOCIÉTÉ BIC the-art stationery products facility which represents the production of seven different factories. The total capital expendi- 5.1.1.2. Commercial name: BIC ture was 43 million euro.

General 120 information In the area of financial investments, the BIC Group, via its subsidiary sion of its own name. In 1953, Marcel Bich and Édouard Buffard BIC Corporation acquired in 2001 51% of the share capital of BIC create SOCIÉTÉ BIC to manufacture and distribute the BIC® ball- Violex SA, of which SOCIÉTÉ BIC already held 49%. point pens.

BIC Violex SA is specialized in the design and manufacture of As of the following year, SOCIÉTÉ BIC undertakes the conquest of blades and shavers and is a critical center for technology, research the foreign markets: in 1954 in Italy, in 1956 in Brazil, 1957 in and development for this product category. England and in all the sterling area. In 1958, the Company repur- The BIC Group’s global ownership of BIC Violex SA capital rose to chased the Waterman Pen Company and started the conquest of 93% and the gross outlay for this transaction was 57 million euro. the North-American market, developing in parallel the Africa and This ownership rose to 100% in 2002 following the repurchase of the Middle East areas. BIC Corporation minority interest described as follows: On November 15, 1972, SOCIÉTÉ BIC is quoted on the “Bourse To simplify the Group structure, the Board of Directors of SOCIÉTÉ de Paris” and in 1973, BIC diversifies its activities and launches the BIC, gathered on March 26, 2002, approved the repurchase of the BIC® lighter with adjustable flame. Its reliability and its quality make 14% of the shares of its American subsidiary, BIC Corporation, which an immediate success of them. After revolutionizing the stationery it did not still hold. This acquisition of minority interest, with members & lighter market habits, BIC is the first to launch in 1975 a one- of the Bich family, was paid by the issue of 3,369,688 new shares piece shaver. of SOCIÉTÉ BIC and for 38.3 million euro. This operation was real- ized on the basis of an evaluation of BIC Corporation made by BNP In 1981, the Group diversifies in the leisure’s industry with its sub- Paribas, who delivered a certificate of equity, to which a discount of sidiary company BIC Sport, specialized in the windsurf boards. about 15% was applied. This deal was presented for to the approval To widen its range of stationery, BIC purchases in 1992 the of the shareholders during the General Assembly of SOCIÉTÉ BIC of American brand of correction products Wite-Out®, then in 1997 the May 28, 2002. brand Tipp-Ex®, European leader of correction products. The same In 2004, we acquired our distributor in Japan and Stypen in France. year, the Group also becomes purchaser of Sheaffer®, the top range brand of writing instruments. 5.2.1.2. Regarding 2005 cf. Management report. For the past few years, the BIC Group has been carrying out both a strategy of diversification of its ranges by launching new prod- 5.2.2. Issuer’s principal investments in progress ucts, and a conquest of foreign markets by establishing in Central Not applicable Europe, Eastern Europe and Asia. Hence, in 2004 BIC acquired its Japanese distributor, Kosaido Shoji. This acquisition is an impor- 5.2.3. Issuer’s principal future investments tant step in BIC Group’s development in Japan, the world’s sec- Not applicable ond largest stationery and shaver market. BIC also penetrated a new market segment in stationery, the refillable school fountain pen, 6. Business overview with the acquisition of Stypen in France in May 2004. Regarding 2005, cf. Management report. 6.1. PRINCIPAL ACTIVITIES 6.1.1.2. Description of the issuer’s main activities 6.1.1. Nature of operations BIC is a world leader in stationery products, lighters and shavers. 6.1.1.1. Brief history and development of the Group structure BIC products are sold in more than 160 countries. Channels of dis- over the past few years tribution include stationery stores, office product companies, mass- In 1950 in Clichy, Marcel Bich improves the process of a ballpoint merchandisers, convenience stores, wholesalers and cash-and- pen invented by Hungarian Laslo Biro. Associated since 1945 with carry outlets. BIC has a strong presence in many of the mature Édouard Buffard in a company of penholders, he then decides to markets, as well as in emerging markets throughout the world. It is launch this product of revolutionary writing on the French market. the Company mission to offer consumers of the world affordably He names it "pointe BIC®" in a shortened and easily memorable ver- priced products to simplify their lives.

General information 121 General information

6.1.2. New products or services 6.5. Basis of statements made by the issuer regarding its Cf. Management report. competitive position Cf. Management report. 6.2. PRINCIPAL MARKETS

Cf. Management report. 7. Organizational structure

6.3. EXCEPTIONAL FACTORS 7.1. DESCRIPTION OF THE GROUP Not applicable Brief history and development of the Group structure are disclosed 6.4. Dependence of the issuer on patents or licences, above in § 6.1.1.1. industrial, commercial or financial contracts or new 7.2. SIGNIFICANT SUBSIDIARIES manufacturing processes Not applicable Cf. Note 13 of the consolidated financial statements.

8. Property, plant and equipment

8.1. EXISTING MATERIAL TANGIBLE FIXED ASSETS, INCLUDING LEASED PROPERTIES, AND ANY MAJOR ENCUMBRANCES THEREON

COUNTRY USE LOCATION OWN/LEASE

Brazil Factories Cajamar Lease Manaus Own

China Factory Shanghai Lease

France Offices Clichy Own

Warehouses St-Ouen-l'Aumône Lease

Factories Boulogne-sur-Mer Own Cernay Own Longueil Sainte-Marie Own Montévrain Own Redon Own Samer Own Vannes Own

Greece Factory Anixi Own

Mexico Factory Mexico City Own

Spain Factory Tarragone Own

USA Offices Bentonville, AR Lease Clearwater, FL Lease Danbury, NY Lease Mission Viejo, CA Lease New York, NY Lease Shelton, CT Own

Offices, Factory Clearwater, FL Own Fort Madison, IA Own Fountain Inn, SC Own Gaffney, SC Own Milford, CT Own

Factories Clearwater, FL Own St. Petersburg, FL Own

Warehouses Cerritos, CA Lease Charlotte, NC Lease Charlotte, NC Own

Major related encumbrances correspond to depreciation and rents.

General 122 information 8.2. ENVIRONMENTAL ISSUES THAT MAY AFFECT THE 11. Research and development, ISSUER’S UTILISATION OF THE TANGIBLE FIXED ASSETS. patents and licences Not applicable Cf. Management report. 9. Operating and financial review 12. Trend information

9.1. FINANCIAL CONDITION 12.1. MOST SIGNIFICANT RECENT RENDS IN PRODUCTION, Cf. Management report. SALES AND INVENTORY, AND COSTS AND SELLING PRICES SINCE THE END OF THE LAST FINANCIAL YEAR TO THE DATE 9.2. OPERATING RESULTS OF THE REGISTRATION DOCUMENT

Cf. Management report. 9.2.1. Significant factors, including unusual, materially affecting the issuer’s income from operations 12.2. KNOWN TRENDS, UNCERTAINTIES, DEMANDS, Cf. Management report. COMMITMENTS OR EVENTS THAT ARE REASONABLY LIKELY TO HAVE A MATERIAL EFFECT ON THE ISSUER’S PROSPECTS 9.2.2. Explication of material changes in net sales Cf. Management report. Not applicable

9.2.3. Any governmental, economic, fiscal, monetary 13. Profit forecasts or estimates or political policies or factors that have affected or could materially affect, directly or indirectly, Not applicable the issuer’s operations Cf. Management report. 14. Administrative, Management, and Supervisory Bodies and Senior 10. Capital resources Management

10.1. INFORMATION ON CAPITAL RESOURCES 14.1. NAMES, BUSINESS ADDRESSES Cf. Equity and liabilities. AND FUNCTIONS IN THE ISSUER Cf. Management report. 10.2. SOURCES, AMOUNTS AND NARRATIVE DESCRIPTION OF CASH FLOWS 14.2. ADMINISTRATIVE, MANAGEMENT Cf. Consolidated cash flow statement. AND SUPERVISORY BODIES AND SENIOR MANAGEMENT CONFLICTS OF INTERESTS 10.3. BORROWINGS REQUIREMENTS There is no conflict of interest between any duties to the issuer, of AND FUNDING STRUCTURE the persons referred to in item 14.1., and their privative interests Cf. Note 20 of the consolidated financial statements. and/or other duties.

10.4. INFORMATION REGARDING ANY RESTRICTIONS 15. Remuneration and benefits ON THE USE OF CAPITAL RESOURCES THAT HAVE AFFECTED OR COULD MATERIALLY AFFECT, DIRECTLY OR INDIRECTLY, THE ISSUER’S OPERATIONS 15.1. AMOUNT OF REMUNERATION PAID AND BENEFITS IN KIND GRANTED BY THE ISSUER AND ITS SUBSIDIARIES Not applicable Cf. Management report. 10.5. ANTICIPATED SOURCES OF FUNDS NEEDED TO FULFIL COMMITMENTS REFERRED TO IN ITEMS 5.2.3. 15.2. AMOUNT SET ASIDE OR ACCRUED BY THE ISSUER (FUTURE INVESTMENTS) AND 8.1. (ENCUMBRANCES OR ITS SUBSIDIARIES TO PROVIDE PENSION, RETIREMENT ON TANGIBLE FIXED ASSETS) OR SIMILAR BENEFITS

Not applicable Cf. Notes 22-1 to 22-3 of consolidated financial statements.

General information 123 General information

16. Board practices 16.4. COMPLIANCE WITH THE COUNTRY’S OF INCORPORATION CORPORATE GOVERNANCE REGIME Cf. Section I of the Chairman’s report on the Board of Directors 16.1. DATE OF EXPIRATION OF THE CURRENT functioning and the internal control procedures implemented by the TERM OF OFFICE Company. Cf. Management report. 17. Employees 16.2. MEMBERS OF THE ADMINISTRATIVE, MANAGEMENT OR SUPERVISORY BODIES’ 17.1. NUMBER OF EMPLOYEES AND BREAKDOWN SERVICE CONTRACTS WITH THE ISSUER BY MAIN CATEGORY OF ACTIVITY OR ANY OF ITS SUBSIDIARIES Cf. Management report. Not applicable

17.2. SHAREHOLDINGS AND STOCK-OPTIONS 16.3. INFORMATION ABOUT THE ISSUER’S AUDIT COMMITTEE AND REMUNERATION COMMITTEE 17.2.1. Stock-options plans Two committees of experts, the Audit Committee and the Compen- Cf. Management report. sation Committee assist the Board of Directors. 17.2.2. Free shares grants Audit Committee Cf. Management report. Cf. Section I of the Chairman’s report on the Board of Directors functioning and the internal control procedures implemented by the 17.3. ARRANGEMENTS FOR INVOLVING THE EMPLOYEES Company. IN THE CAPITAL OF THE ISSUER

Compensation Committee 17.3.1. Agreements for profit sharing Cf. Section I of the Chairman’s report on the Board of Directors No plan in conformance with the issuer (SOCIÉTÉ BIC has no functioning and the internal control procedures implemented by the salaried employees) but every subsidiary can have its own agree- Company. ment according to the applicable law.

17.3.2. Stock-options

STOCK-OPTIONS GRANTED TO THE BALANCED TEN HIGHEST PAID EMPLOYEES TOTAL NUMBER OF ATTRIBUTED AVERAGE AVERAGE WHO ARE NOT COMPANY OFFICERS, OPTIONS/OF SIGNED PRICE DATE OF NUMBER AND OPTIONS EXERCISED OR BOUGHT SHARES (in euro) MATURITY OF PLAN

Options granted during the exercise by the issuer and by any company included in the perimeter of allocation of the options, to ten employees of the issuer and any company included in this perimeter, receiving the highest number of options so granted 47,500 50.01 Dec. 13, 2015 8

Options held on the issuer and the companies concerned 8,500 40.83 Dec. 16, 2009 2 previously, raised, during the year, by the ten employees of 17,650 41.03 Dec. 17, 2010 3 the issuer and these companies, receiving the highest number 20,650 36.57 Dec. 12, 2011 4 of so bought or signed options 6,000 30.93 Dec. 9, 2012 5 Total: 52,800

Cf. Note 18 of the consolidated financial statements.

General 124 information 18. Major Shareholders in previous reference documents, which have been duly filed with the A.M.F. Autorité des Marchés Financiers (Paris Stock Exchange Authorities) (respectively n°R.04-0047 and n°D.05-0376). They are 18.1. PERSON OTHER THAN A MEMBER OF also available on the website of the Group. THE ADMINISTRATIVE, MANAGEMENT OR SUPERVISORY BODIES WHO, DIRECTLY OR INDIRECTLY, HAS AN INTEREST 20.5. AGE OF LATEST FINANCIAL INFORMATION IN THE ISSUER’S CAPITAL OR VOTING RIGHTS WHICH IS NOTIFIABLE UNDER THE ISSUER’S NATIONAL LAW Not applicable

Cf. Management report, share capital. 20.6. INTERIM AND OTHER FINANCIAL INFORMATION

Cf. Management report. 18.2. MAJOR SHAREHOLDERS WITH DIFFERENT VOTING RIGHTS Quarterly financial information has not been audited. Half Year, annual and transitory to IFRS financial information have Cf. Management report, share capital. been audited and auditors’ reports have been published in the B.A.L.O. Bulletin des annonces légales obligatoires. 18.3. MEASURES IN PLACE TO ENSURE THAT CONTROL IS NOT ABUSED 20.7. DIVIDEND POLICY

Not applicable Cf. Management report.

18.4. ARRANGEMENT WHICH MAY AT SUBSEQUENT DATE 20.8. LEGAL AND ARBITRATION PROCEEDINGS RESULT IN A CHANGE IN CONTROL OF THE ISSUER Cf. Section 2.3.2 of the Chairman’s report on the Board of Directors Not applicable functioning and the internal control procedures implemented by the 19. Related parties transactions Company. 20.9. SIGNIFICANT CHANGE IN THE ISSUER’S 19.1. NATURE AND EXTENT OF ANY TRANSACTION FINANCIAL OR TRADING POSITION

Cf. Auditors’ report on related party transactions. No significant event has occurred since the end of the last financial period. 19.2. AMOUNT OR PERCENTAGE TO WHICH RELATED PARTY TRANSACTIONS FORM PART 21. Additional information OF THE NET SALES OF THE ISSUER

Not applicable 21.1. SHARE CAPITAL

20. Financial information concerning the 21.1.1. Issued capital issuer’s assets and liabilities, financial Cf. Management report. position and profits and losses 21.1.2. Shares not representing capital Not applicable 20.1. HISTORICAL FINANCIAL INFORMATION 21.1.3. Shares held by or on behalf of the issuer itself Cf. Consolidated financial statements and related notes. or by its subsidiaries Cf. Note 20.4 General information Cf. Management report.

20.2. PRO FORMA FINANCIAL INFORMATION 21.1.4. Convertible securities, exchangeable securities Not applicable or securities with warrants Not applicable 20.3. FINANCIAL STATEMENTS 21.1.5. Acquisition rights and/or obligation over authorized Cf. Consolidated financial statements. but unissued capital Not applicable 20.4. AUDITING OF HISTORICAL ANNUAL FINANCIAL INFORMATION 21.1.6. Capital or member of the Group under option or Audited historical annual financial information and related auditors’ agreed conditionally or unconditionally to be put under option report for financial years 2003 and 2004 have been presented Not applicable

General information 125 General information

21.1.7. Share capital evolution over the past three years TOTAL SHARES SHARE OUTSTANDING AT AMOUNT CAPITAL CONCLUSION OF DATE OPERATION (in euro) (in euro) THE OPERATION

January 1, 2003 218,516,976.54 57,203,397

2003 (Jan. 13 Cancellation of treasury shares, Board Meeting) as authorized by ESM of May 28, 2002 (3,613,280.70) 214,903,695.84 56,257,512

2003 (March 19 Cancellation of treasury shares, Board Meeting) as authorized by ESM of May 28, 2002 (5,610,724.32) 209,292,971.52 54,788,736

2003 (May 28 Cancellation of treasury shares, Board Meeting) as authorized by ESM of May 28, 2003 (1,672,468.58) 207,620,502.94 54,350,917

2003 (Sep. 10 Cancellation of treasury shares, Board Meeting) as authorized by ESM of May 28, 2003 (1,667,968.62) 205,952,534.32 53,914,276

2004 (June 3 Cancellation of treasury shares, Board Meeting) as authorized by Board Meeting of June 3, 2004 (1,487,721.92) 204,464,812.40 53,524,820

2004 (Dec. 15 Cancellation of treasury shares, Board Meeting) as authorized by Board Meeting of June 3, 2004 (6,313,482.08) 198,151,330.32 51,872,076

2005 (March 2 Issue of treasury shares following shares’ Board Meeting) subscriptions, in accordance with stock-options plans of 2000 and 2001 82,703.00 198,234,033.32 51,893,726

2005 (March 2 Cancellation of treasury shares, Board Meeting) as authorized by Board Meeting of June 3, 2004 (752,826.50) 197,481,206.82 51,696,651

2005 (May 19 Cancellation of treasury shares, Board Meeting) as authorized by Board Meeting of May 19, 2005 (2,755,442.40) 194,725,764.42 50,975,331

2005 (Jul. 20 Cancellation of treasury shares, Board Meeting) as authorized by Board Meeting of May 19, 2005 (2,674,000.00) 192,051,764.42 50,275,331

2005 (Dec. 14 Cancellation of treasury shares, Board Meeting) as authorized by Board Meeting of May 19, 2005 (725,952.80) 191,325,811.62 50,085,291

2005 Issue of treasury shares following shares’ subscriptions, in accordance with stock-options plans of 2000, 2001 and 2002. This share capital increase has been established by the Board Meeting at Feb. 28, 2006 1,087,347.72 192,413,159.34 50,369,937

• ESM: Extraordinary Shareholders’ Meeting.

General 126 information 21.2. MEMORANDUM AND ARTICLES OF ASSOCIATION Furthermore, in the event of a capital increase, through the incor- poration of reserves, profits or share premiums, the double voting Memorandum and articles of association can be consulted at the right may be conferred, at the time of issue, upon the nominative headquarter of the Company. shares allotted to a shareholder at no charge due to former shares 21.2.1. Issuer’s object and purpose for which he enjoys this right.” Extract (Article Three) – “Object” 21.2.4. Action necessary to change the rights “The Company’s object, in all countries, is the purchase, sale, com- of holders of the shares missioning, brokerage, representation, importing & exporting of all Not applicable products, and in particular of all which is used for writing. And generally speaking all personal, real estate, financial, industrial 21.2.5. Condition governing the manner in which or commercial operations pertaining directly or indirectly to the fore- Extraordinary and Annual Shareholders’ meetings going object or to all similar or related products or to products apt are called and conditions of admission to further the extension or development thereof. Extract (Article fifteen) – “Shareholders’ meetings” The company may carry out all operations falling within its object, “Shareholders’ meetings are convened, and deliberate on the either alone and for its own account, or for the account of third par- conditions stipulated by law and the enactments in force. ties, as representative, licensee or intermediary, for the commis- Any shareholder may take part, personally or by proxy, in the sioning, brokerage, subcontracting, as lessee, farmer, manager, or Shareholders’ meetings, upon presenting proof of his identity and in a joint venture or partnership, in any form whatsoever.” of the ownership of his shares, in the form either of a nominative Legal documents and information relating to the Company are avail- registration, or the depositing of his bearer shares in the places able for review at the headquarters offices, cf. § 24. Documents on mentioned in the notice of the meeting. The period during which display. these formalities must be performed expires five days prior to the date on which the meeting is scheduled to convene.” 21.2.2. Members of the administrative, management and supervisory bodies 21.2.6. Provision that would have an effect of delaying, Cf. § 16. Board practices. deferring or preventing a change in control of the issuer 21.2.3. Rights, preferences and restrictions attached to Not applicable each class of the existing shares 21.2.7. Indication governing the ownership threshold Double voting rights above which shareholder ownership must be disclosed (This article was introduced in the articles of association at the Extract from “articles of association” (Article eight bis) – Extraordinary Shareholders’ meeting of June 26, 1972). “Ownership Threshold” “A voting right which is double the right conferred on the other (Article introduced into the articles of association at the Ordinary and shares, in light of the portion of the share capital they represent, is Extraordinary General Shareholders’ meeting on May 12, 1998). attributed to all the fully paid-up shares for which proof is provided of a nominative registration for at least two years in the name of the “Any individual or company holding either a share of the capital or same shareholder. of the voting rights equal or superior to 2% and, from this thresh- old, any additional holding which is a multiple of 1%, shall notify to Any share converted to a bearer share or the ownership of which the Company the number of shares said individual or company has, is transferred loses the aforementioned double voting right. by registered mail with return receipt requested. This notification Nonetheless, a transfer following death, the liquidation of the com- shall be made within the two weeks a threshold is met. munity estate of two spouses or a donation among the living in favor of a spouse or a relative entitled to inherit does not cause the This requirement applies as well, in the same conditions and timing, loss of the right acquired and does not interrupt the two-year period when the holding in the share capital decreases and becomes infe- referred to above. rior to a threshold percentage indicated above.

General information 127 General information

Declaration upon attaining ownership threshold must take into 23. Third party information and statement consideration the sum total of shares owned by companies holding by experts and declaration of any interest more than 50% directly or indirectly, of the declaring Company.” Not applicable In case of non-compliance with this provision, and upon a request, duly registered in the minutes of the Shareholders’ meeting, from 24. Documents on display one or more shareholders holding at least 2% of the share capital of the Company and/or of its voting rights, all the shares exceeding - Memorandum and articles of association: the threshold which should have been declared will be deprived Cf. Note 21.2 General information of their voting rights at any shareholders’ meeting until notification - 2006 Financial Information calendar and list of press releases of compliance. regarding Full Year 2005: Cf. Management report 21.2.8. Conditions governing changes in he capital, where - Financial historic information: such conditions are more stringent than is required by law. 2003 and 2004 reference documents are available on the AMF Not applicable website (www.amf-france.org), number R04-0047 and D05-0376 respectively and on the SOCIÉTÉ BIC website (www.bicworld.com). 22. Material contracts 25. Information on holdings Not applicable Cf. Note 13 of consolidated financial statements.

General 128 information Lorem ipsum lorem Cross reference table

IN ACCORDANCE WITH THE COMMISSION REGULATION (CE) N°809/2004 PAGES

1. PERSON RESPONSIBLE

1.1. Name and function 118 1.2. Declaration by responsible person 118 2. STATUTORY AUDITORS

2.1. Names and addresses 118 2.2. Change of statutory auditors 118 2.3. Fees of the auditors and the members of their networks 119 3. SELECTED FINANCIAL INFORMATION

3.1. Selected historical financial information over the past three financial years 6-13; 119-120; 125 3.2. Selected financial information for interim periods 120 4. RISK FACTORS

4.1. Market risks 13-14 4.2. Legal risks 114 4.3. Environment-related risks 114 4.4. Insurance – Coverage of any risks to which the issuer may be exposed 115 4.5. Other special risks 115 5. INFORMATION ABOUT THE ISSUER

5.1. History and development of the issuer 120 5.2. Investments 48; 120-121 6. BUSINESS OVERVIEW

6.1. Principal activities 6-13; 121-122 6.2. Principal markets 9 6.3. Exceptional factors 122 6.4. Dependence of the issuer on patents or licences, industrial, commercial or financial contracts or new manufacturing processes 122 6.5. Basis of statements made by the issuer regarding its competitive position 9-11 7. ORGANIZATIONAL STRUCTURE

7.1. Description of the Group 121-122 7.2. Significant subsidiaries 60-61; 103-104

Cross reference table 129 Cross reference table

PAGES

8. PROPERTY, PLANT AND EQUIPMENT

8.1. Existing material tangible fixed assets, including leased properties, and any major encumbrances thereon 54-56; 122 8.2. Environmental issues that may affect the issuer’s utilisation of the tangible fixed assets. 26-30; 123 9. OPERATING AND FINANCIAL REVIEW 9.1. Financial condition 6-13 9.2. Operating results 9-11 10. CAPITAL RESOURCES 10.1. Information on capital resources 36-37 10.2. Sources, amounts and narrative description of cash flows 38-39 10.3. Borrowings requirements and funding structure 66 10.4. Information regarding any restrictions on the use of capital resources that have affected or could materially affect, directly or indirectly, the issuer’s operations 123 10.5. Anticipated sources of funds needed to fulfil commitments referred to in items 5.2.3. (future investments) and 8.1. (encumbrances on tangible fixed assets) 123 11. RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES 15; 51; 59

12. TREND INFORMATION 12.1. Most significant recent rends in production, sales and inventory, and costs and selling prices since the end of the last financial year to the date of the registration document 3; 5; 15 12.2. Known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the issuer’s prospects 123 13. PROFIT FORECASTS OR ESTIMATES 123

14. ADMINISTRATIVE, MANAGEMENT, AND SUPERVISORY BODIES AND SENIOR MANAGEMENT 14.1. Names, business addresses and functions in the issuer 20-22 14.2. Administrative, Management and Supervisory Bodies and Senior Management conflicts of interests 123 15. REMUNERATION AND BENEFITS 15.1. Amount of remuneration paid and benefits in kind granted by the issuer and its subsidiaries 17-19 15.2. Amount set aside or accrued by the issuer or its subsidiaries to provide pension, retirement or similar benefits 17-19 16. BOARD PRACTICES 16.1. Date of expiration of the current term of office 20-22 16.2. Members of the administrative, management or supervisory bodies’ service contracts with the issuer or any of its subsidiaries 124 16.3. Information about the issuer’s Audit Committee and Remuneration Committee 110-111 16.4. Compliance with the country’s of incorporation corporate governance regime 109 17. EMPLOYEES 17.1. Number of employees and breakdown by main category of activity 22-23 17.2. Shareholdings and stock-options 18 17.3. Arrangements for involving the employees in the capital of the issuer 124 18. MAJOR SHAREHOLDERS 18.1. Person other than a member of the administrative, management or supervisory bodies who, directly or indirectly, has an interest in the issuer’s capital or voting rights which is notifiable under the issuer’s national law 16 18.2. Major shareholders with different voting rights 16; 127 18.3. Measures in place to ensure that control is not abused 125 18.4. Arrangement which may at subsequent date result in a change in control of the issuer 125

Cross reference 130 table PAGES

19. RELATED PARTIES TRANSACTIONS 19.1. Nature and extent of any transaction 107 19.2. Amount or percentage to which related party transactions form part of the net sales of the issuer 125 20. FINANCIAL INFORMATION CONCERNING THE ISSUER’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES 20.1. Historical financial information 125 20.2. Pro forma financial information 125 20.3. Financial statements 35-87; 89-105 20.4. Auditing of historical annual financial information 88; 106; 125 20.5. Age of latest financial information 125 20.6. Interim and other financial information 14 20.7. Dividend policy 8 20.8. Legal and arbitration proceedings 114 20.9. Significant change in the issuer’s financial or trading position 125 21. ADDITIONAL INFORMATION 21.1. Share capital 15-16; 125-127 21.2. Memorandum and articles of association 127-128 22. MATERIAL CONTRACTS 128

23. THIRD PARTY INFORMATION AND STATEMENT BY EXPERTS AND DECLARATION OF ANY INTEREST 128

24. DOCUMENTS ON DISPLAY 14; 127-128

25. INFORMATION ON HOLDINGS 60-61

INVESTOR RELATIONS 14 RUE JEANNE D’ASNIÈRES 92611 CLICHY CEDEX – FRANCE TEL: 33 (0) 1 45 19 52 26 EMAIL: [email protected]

LIMITED COMPANY CAPITAL: EURO 192,413,159.34 DIVIDED INTO 50,369,937 SHARES OF EURO 3.82 QUOTED ON EUROLIST EURONEXT PARIS ISIN: FR0000120966 MNEMONIC: BB CONTINUOUS QUOTATION 552.008.443 REGISTERED IN NANTERRE, FRANCE

Cross reference table 131

refer- ence

do2005 cu- 92611 ClichyCedex(France) www.bicworld.com SOCIÉTÉ BIC ment

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