999 Annual Report · (1) Member until the close of the Annual Meeting of May 26, 2000. (2) Re-appointment proposed at the above Meeting. C ONSEIL DE SURVEILLANCE(SUPERVISORYB OARD)

1 9 9 9

99

9 AnnualReport

A n n u a lR e p o r t

A n n u a lR e p o r t

(1) Member until the close of the Annual Meeting of May 26, 2000.

(2) Re-appointment proposed at the above Meeting.

C O N S E I L D E S U R V E I L L A N C E ( S U P E R V I S O R Y B O A R D )

Eric Bourdais de Charbonnière

François Grappotte

Daniel Michelin (1)

Pierre Michelin

Grégoire Puiseux (2)

Edouard de Royère

C O M M I S S A I R E S A U X C O M P T E S ( S T A T U T O R Y A U D I T O R S )

Stéphane Marie

Dominique Paul

Jacques Zaks, deputy for M. Marie

Pierre Dufils, deputy for M. Paul

C O M P A G N I E G É N É R A L E D E S É T A B L I S S E M E N T S M I C H E L I N

Michelin et Cie. - Société en commandite par actions, capital stock EUR269,431,746

Registered office: 12, cours Sablon, CLERMONT-FERRAND (Puy-de-Dôme), FRANCE.

855 200 887 R.C.S: Clermont-Ferrand

ST O C K H O L D E R S E R V I C E S

Jacques-Henry Thonier12, cours Sablon, 63000 Clermont-Ferrand, France

Tel. +33 473 98 59 00 : Fax +33 473 98 59 04(In France only, freephone 0800 00 02 22)

F I N A N C I A L C O M M U N I C AT I O N S

Eric Le CorrePlace des Carmes-Déchaux, 63000 Clermont-Ferrand, FranceTel. +33 473 32 77 92 - +33 145 66 10 04: Fax +33 473 32 27 16

IN T E R N E T W E B S I T E S

http://www.michelin.frhttp://www.michelin.com

SIMAN

This document is a translation.The original, which is in French, is the authoritative version.

Edouard Michelin

François Michelin

René Zingraff

A S S O C I É S C O M M A N D I T É S ( G E N E R A L P A R T N E R S )

Edouard Michelin

François Michelin

René Zingraff

Société auxiliaire de Gestion « S.A.G.E.S. »

G É R A N T S ( M A N A G I N G P A R T N E R S )

Edouard Michelin

François Michelin

René Zingraff

C o n t e n t s

The Michelin Groupand Selected data 4

1999 business background 10

Documentation for the Annual Meeting of Stockholders,May 26, 2000

Annual Meet ing

Managing Partners’ Report 14Main Group developments 14

Capital investments 20Research and development 20

New products 24Compagnie Générale des Établissements Michelin 28

Operations and financial results of associated companies 29Consolidated financial statements 42

2000 outlook 43Propositions 43

Independent Auditors’ general report 46

Independent Auditors’ special report 47

Supervisory Board’s report 48

Financial statements 51Company financial statements in EUR 51Company financial statements in FRF 65

Consolidated financial statements in EUR 79Independent Auditors’ report

on the consolidated financial statements 91Consolidated financial statements in FRF 93

Photos : © Marc Tulane - © DPPI - © MICHELIN - © MICHELIN / Pierre Chambon - © Pininfarina

3

4

R

Mo re t h a n 80 m a n u f a c t u r i n g f a c i l i t i e s i n 1 9 c o u n t r i e s

48 i n Eu r o p e

7 i n G e r m a n y4 i n Sp a i n

25 i n F ra n c e2 i n Hu n g a r y4 i n I t a l y1 i n Po l a n d4 i n t h e Un i t e d K i n g d o m1 i n Sw e d e n

21 i n No r t h Am e r i c a

4 i n C a n a d a15 i n t h e U . S . A .2 i n Me x i c o

4 i n S o u t h Am e r i c a

2 i n B ra z i l2 i n C o l o m b i a

7 i n A s i a

1 i n C h i n a1 i n Ja p a n1 i n t h e Ph i l i p p i n e s4 i n T h a i l a n d

2 i n A f r i c a

1 i n A l g e r i a1 i n Ni g e r i a

6 r u b b e r p l a n t a t i o n s2 i n B ra z i l4 i n Ni g e r i a

Te c h n o l o g y c e n t e r sE u ro p eU . S . A .Ja p a n

Commercial of f ices in more than 170 countries

The Michelin Group in 1999

5

■ 32,000 products marketed

■ Daily production:

830,000 t i re s

65,000 i n n e r t u b e s

m o re t h a n 4 m i l l i o n k i l o m e t e r s o f c a b l e

95,000 w h e e l s

75 ,000 m a p s a n d g u i d e s

6

1999 1998

130,434 127,241

Average number of employees

Organizat ion summary

Consol idated Income Statement , main i tems

Compagnie Générale des Établissements Michelin (France)

Michelin North America, Inc. (United States)Michelin Aircraft Tire Corporation (United States)Michelin North America (Canada), Inc. (Canada)Michelin Tyre Public Ltd Co. (United Kingdom)Michelin Reifenwerke KgaA (Germany)Michelin Kronprinz Werke GmbH (Germany)Neumáticos Michelin S.A. (Spain)Società per Azioni Michelin Italiana (Italy)Stomil-Olsztyn S.A. (Poland) (1)Taurus Rubber Company Ltd (Hungary)Taurus Agricultural Tyres Ltd (Hungary)Uniroyal S.A. de C.V. (Mexico)Sociedade Michelin de Participaçóes Indústriae Comércio Ltda (Brazil)Industria Colombiana de Llantas S.A. (Colombia)Michelin (Nigeria) Ltd (Nigeria)Michelin Siam Co. Ltd (Thailand)

Siam Tyre Phrapradaeng Co. Ltd (Thailand)Siam Tire Industry Co. Ltd (Thailand)The Siam Steel Cord Co. (Thailand)Michelin Okamoto Tire Corporation (Japan)Michelin Shenyang Rubber Components Co. Ltd (China)Michelin Shenyang Tire Co. Ltd (China)Michelin Shenyang Truck Tire Co. Ltd (China)Michelin Shenyang Light Truck & Passenger Tire Co. Ltd(China)MSF Tire and Rubber, Inc. (Philippines)Michelin Recherche et Technique S.A. (Switzerland)Michelin Americas Research & Development Corporation(United States)Commercial companies and theEuromaster dealerships in Europe

(1) Quoted on the Warsan Stock Exchange.

Compagnie Financière Michelin

(Switzerland)

Manufacture Françaisedes Pneumatiques Michelin

(France)

Pardevi(France)

Industrial,sales and research

companies outside France

Other industrial and commercial companies

in France

Stockholding inPeugeot S.A.

1999 1998 1999 1998

(in millions) EUR EUR FRF FRF

Net sales 13,763 12,486 90,280 81,900

Trading income 1,233 1,073 8,089 7,040 Financial expense (245) (220) (1,610) (1,442)Exceptional income (loss) (353) 46 (2,317) 303Consolidated net income 182 574 1,197 3,763of which: Group 154 536 1,013 3,513

Dividend per share (before tax credit) o 0.71 o 0.64 F 4.65 F 4.19

Selected data

7

Net salesby geographic area – in EUR billion

Trading income and net incomeas % of net sales

Total financial debt (including subordinated debt)

/ Stockholders’ fundsas %

Operating cash flowas % of net sales

95 96 97 98 99

Net capital investmentsin EUR billion(in FRF billion)

Stock description

Par value: EUR2Quotation: Paris stock exchange, monthly settlement marketMin. dealing quantity: 1SICOVAM code: 12 126CAC 40 indexMONEP: continuous quotation

Number of shares issued at December 31 (1):

1995 1996 1997 1998 1999

Shares 115,231,094 120,130,905 136,892,968 137,715,873 134,715,873

Share price (2)

1995 1996 1997 1998 1999

(in FRF) (in FRF) (in FRF) (in FRF) in EUR(in FRF)

High 232.90 282.00 403.00 408.90 49.49 (324.63)

Low 185.00 192.30 274.80 187.00 30.30 (198.76)

Last trading day of preceding year (closing price)194.30 195.30 280.10 303.00 34.07

(223.50)

Last trading day of year (closing price)195.30 280.10 303.00 223.50 39.00

(255.82)

Change on year 0.51% 43.42% 8.18% - 26.24% 14.47%

Consolidated earnings per share

Net income after taxes, Group share

1995 1996 1997 1998 1999

FRF24.26 FRF24.07 FR28.36 FRF25.51 EUR1.15FRF7.52

Note: The earnings per share is calculated by dividing annual income by the number of shares issued at the end of the year.

(1) Total consists of A capital, A jouissance and B shares, grouped into a single category June 15, 1999.(2) Was B share up to and including June 14, 1999.

Comparison, Michelin share (2) and the CAC 40 index

8

Michelin on the stock marketMarket capitalization at December 31, 1999: EUR5,253,919,047 (FRF34.5 billion)

91999 Tour de France - Casino team on Michelin.

Economic s i tuation

Having slackened in 1998, worldwide econo-mic activity picked up in 1999, particularly inthe second half of the year.

The United States economy sustained a growthtrend for the eighth year in succession and inthe euro zone countries, there was a recovery inthe second half of the year, fueled by an upliftin consumer expenditures. Japan emerged fromits recession of 1998 but, mainly as the result ofbudgetary measures, posted only weak econo-mic growth.

In other Asian countries and less than two yearsafter the 1997 depression, the economiesbenefited from a rebound in exports andregained a buoyant growth trend, particularlySouth Korea and Thailand.

Latin American countries, whose economieswere affected in 1998 by the Asian crisis, hadto cope with financial and monetary problems,mainly following the sharp devaluation of theBrazilian real at the start of the year. The situa-tion varied from one country to another: con-tinuation of deep recession in Argentina and abetter-than-expected recovery in Brazil.

10

Despite the problems which ensued followingthe devaluation of the ruble in 1998, some cen-tral and eastern European countries managedto sustain economic growth. Examples werePoland and Hungary where exports were stimu-lated by European demand.

A general recovery of the economic situation indeveloping countries, chiefly in Asia, led to anacceleration in world trade despite a collapse inthe demand from Latin American countries.The growth in international commerce wasgreater than that of the world production ofgoods and services.

On foreign exchanges 1999 marked the intro-duction of the euro, the parity of which has fal-len against the principal currencies, notablyagainst the US dollar where it fell by 15% in theyear. Despite very low interest rates and weakJapanese economic growth the yen, paradoxi-cally, appreciated by 30% against the euro andby more than 12% against the dollar.

Main industrializedcountries Southeast Asia

Central andeastern Europe Latin America

GDP growth

1998 1999 2000(est.) (prov.)

1998 1999 2000(est.) (prov.)

1998 1999 2000(est.) (prov.)

1998 1999 2000(est.) (prov.)

Source : OECD, Consensus Forecast

1999Business background

the market segment for trucks of over 16 tonnes.North American truck production followed themarket trend and posted double figure growthfor the third successive year, 19% for 1999.

11

1999 was a generally good year for the auto-motive industry with total production, allvehicles, up by 5%. North America was themain source of growth for both light vehicles,which includes passenger cars and light utilities,and for trucks.

Light vehicles

The strength of demand for this type ofvehicle in the United States, where sales beatthe record level of 1986, led to an increase of9.5% in North American production. Sport-utility vehicles, up by 16%, were the mainelement of this growth, while passenger carswere up by 3%.

For the second consecutive year and despite aslight pick up at the year-end, sales marketsand production in South America were down.In Brazil, production was down by 15% andnew registrations by 18% whereas in Argen-tina, which suffered from a drop in exports,production was down more than 30%.

Light vehicle sales in Western Europe, havingestablished a record level in 1998, againincreased by more than 5% despite a slowingdown towards the end of 1999. Production,although higher than in 1998, increased byonly 2%.

East European light vehicle sales were up inexcess of 10%, but with sharp contrasts:more than 20% growth in Poland and Hun-gary and varying degrees of downturn in theother countries.

The appreciation of the yen handicappedexports in Japan and this, combined withstagnation in the home market, caused a fur-ther drop, of more than 1%, in vehicle pro-duction. Production and sales were up sharp-ly in the other Asian countries, notably SouthKorea and Thailand.

Heavy vehicles

1999 was an exceptional year for truck sales inthe United States. Increasing each year since1997, sales were up by 23%, and by 25% in

Light vehicle production (million units)

Truck production (thousand units)

North AmericaWestern EuropeJapan

North AmericaWestern EuropeJapan

The automotive industr y

World tire markets continued to expand in1999 at a moderate rate, between 2 and 3%,with experience varying according to geographic

12

zone and type of product. As in previousyears, North American markets registered thestrongest growth. In Europe, market expansionwas maintained but at a more modest pace.Except for Japan, Asian tire markets were instrong recovery while in South America, onlythe Brazilian market recorded good performan-ce. As the result of difficult trading conditions,tire markets in Africa and the Middle Eastremained depressed.

Light vehicle tires

The North American original equipment mar-ket, adversely affected in 1998 by strikes in theauto industry, resumed strong growth, expan-ding by 9%. This was particularly marked inthe pick-ups, sport-utility and luxury perfor-mance sectors. Growth in the replacementmarket was very buoyant, but at the moremodest rate of 4%.

European markets remained strong, althoughthere were contrasts between segments:demand for very high performance tires withthe highest speed ratings and also that forwinter tires, grew at a much faster pace thanthe market overall. Sales of small dimensiontires now account for less than one-half of themarket.

0

50

100

150

200

250

300

350

400

1993 1994 1995 1996 1997 1998 1999(est.)

Tire markets (million units)

North America

Europe

Japan

Asia excl. Japan

South America

Rest of the world

Having been relatively unaffected in 1998,South American truck tire markets plummeted,leading to a drop of 17% in production. Brazilhas the largest truck manufacturing capacity inthe region and its exports fell by 40%.

In Western Europe, new types of financing ledto an acceleration of the vehicle replacementcycle and the market was up by more than10%. Truck production, which was up sharplyin 1998, was maintained at a high level.

Trends in eastern and central Europe werevaried. Following its fall in the economic down-

turn of 1998 there was a recovery in Russiantruck production, but there were further falls inthe other countries.

Asian production collapsed in 1998 but most ofthe countries have since resumed growth, thisbeing particularly marked in South Korea andIndia. Japanese markets reached their lowestpoint for thirty years and production was againdown.

The t ire industr y

The market prices of raw materials used in tireand wheel manufacture were down in 1999, by3% overall on the prior year, despite a recoveryin most of the prices apparent in the secondhalf-year.

Features of the year were the dissolution ofINRO, the International Natural Rubber Organi-zation, and strong volatility in the market priceof natural rubber. The trend was one of fallingprices until August, following the pattern of thepast four years. There was then a sharp jumplasting until November, followed again by fallingprices and finishing the year at a level slightlylower than for 1998. Despite the marked pricefluctuations, the average price for the year intotal was more than 10% down on the precedingyear.

Synthetic rubber prices were up slightly, beingonly partially affected by the explosion in crudeoil prices, which on average were up by 35% inthe year. Prices of the other raw materialsremained flat, or were down slightly on the pre-vious year.

Raw mater ials

13

The steel used in wheel manufacture fell sharp-ly in price, relative to 1998.

Natural rubberSingapore price (Cents/kg)

In Japan the market stayed flat in both originalequipment and replacement. Other Asian mar-kets, particularly South Korea and Thailand,posted strong growth. Tire sales in South Americawere down, with an especially sharp drop inoriginal equipment, suffering repercussionsfrom the depressed auto sector. Experience inreplacement markets was somewhat better,mainly in the Mercosur countries and Brazil inparticular.

Truck tires

Save for Japan, truck tire markets were gen-erally very buoyant.

The exceptionally strong performance of theoriginal equipment market in North America

was linked essentially to sales of long-haul trac-tor units. Progress in the replacement marketwas slightly less, but still reflected the dyna-mism of the economy.

Market evolution in Europe differed accordingto country. Tire demand was up in westernEurope whereas in eastern and central Euro-pean countries, economic problems springingfrom the situation in Russia adversely affecteddemand.

Asia is the largest world market for truck tiresand again, experience was varied. In Japan,replacement sales were flat but there was amarked decline in original equipment. Othercountries witnessed a distinct recovery in repla-cement sales.

Michel in GroupManaging Par tners’ repor t

Main Group developments

M a n a g i n g P a r t n e r s ’ r e p o r t

Edouard Michelin François MichelinRené Zingraff

Ladies and Gentlemen,

We have pleasure in presenting the Company’s annual report for 1999.

A feature of 1999 was good sales performanceand, on an unchanged scope of consolidation,sales volume increased 5.2% compared withthe prior year.

In North America, a strong increase of 12% insales volume, again on a constant basis, wasdue to the combined impact of the region'seconomic growth and gains in market shares.

In Europe the market was generally favorableand, having weakened in the first half of theyear, sales picked up, boosted by the success ofthe new line of winter tires. Sales registered avolume increase of 1% over the preceding year.

In South America, despite recession, salesvolume grew more than 6% on a like-for-likebasis due to the strong performance of the Bra-zilian replacement market for truck tires.

In the Asian-Pacific region, despite flat salesin Japan, volume sales rose by nearly 9% as theresult of strong growth, principally in Thailand,Australia, South Korea and China.

In Africa and the Middle East, negativelyimpacted by the economic consequences of thedecline in raw material prices, Group sales fell11%.

In the passenger car and light truck tirecategories, markets registered modest growthof approximately 3% in Europe and a slightlystronger performance, exceeding 5%, in NorthAmerica. Market demand has shifted to top-of-the-line products. In North America, the largerdimension tires destined for pick-ups and sport-utility vehicles, whose sales have increased sig-nificantly, registered strong growth. In Europe,

14

Annual Meetingof Stockholders


snow tires account for 20% of the market andtheir sales increased by more than 13%, whilehigh-performance tires were up 15%, nearlyfive times the rate for the total market. In Asia,excluding Japan, original equipment marketsimproved sharply while in South America, onlythe Brazilian replacement market registeredgrowth.

In this context, Group sales worldwide increased3% in volume and benefited above all from thestrong performance of the North Americanreplacement market, where volumes increased10%, with gains in market share. At the start ofthe year the Group suffered from a lack of pro-duction capacity in Europe for top-of-the-linetires and this weighed against performance.Programs to convert the manufacturing chainswill only be completed during the course of2000. In the top-of-the-line segment, the saleof tires with the highest speed ratings andthose for rim sizes exceeding 16 inches surged30%. The multibrand strategy, based primarilyon strengthening the BFGoodrich and Kléberbrands, was extended in 1999. This strategyincludes amongst other things, a repositioningof prices, renewal of the product lines, widerpublicity and a new distribution approach.Finally, winter tires sales rose sharply, 22% involume terms.

In the other markets, sales in Brazil got off to anexcellent start while those in Asia posted asharp turnaround.

Truck tire sales in Europe increased 0.5% inoriginal equipment and by 4.9% in replace-ment. There was a sharp contrast between thegrowth in Western Europe and the decline inEastern Europe, caused by the difficult economicsituation. In North America, the original equipmentmarket registered very strong growth of 14.6%while replacement was up by slightly more than4%. In Asia, the Japanese original equipmentmarket, which began to decline in 1996, con-tinued its downward trend, while the replacementmarket remained flat; the other markets ofthe region were characterized by a return togrowth.

Total Group sales volume increased 6%, boostedby strong performances in North America,particularly in the original equipment market,where sales benefited from measures taken torectify past product shortages and enabledsignificant gains in market shares. In Europe,sales increased moderately while, with theexception of Japan, Asian markets grewsharply.

15

Michelin High Performance:Pilot Sport - Pilot Primacy - Pilot Exalto.


The Group continued to expand its retreadingbusiness in North America. At year-end, 32retreading centers were operational, represent-ing 8% of the US market thus the Group is wellplaced, not only as a product supplier but alsoas a service provider and a preferred partnerwith major vehicle fleet operators. The acquisitionof Tire Centers, LLC (T.C.L.), a leading independentdistributor with 17 retreading locations, fits intothis strategy. In South America the Group doubledits network of franchised retreaders.

For earthmover tires, both the original equip-ment markets and activity in mining declinedsignificantly, as a consequence of the fall in oreprices.

In this environment, as much difficult as competitive,total Group sales tonnage continued to grow,by nearly 6%, with an increase of 11.6% forthe replacement market alone. For the fourthconsecutive year, sales registered a particularlystrong performance for the very large tires, upnearly 19%.

The Group improved its market shares signifi-cantly in all of the replacement markets, notablyin North America, South America and Australia.

In original equipment, the Group maintained orslightly improved its already strong positions inEurope and North America.

Sales growth enabled the Group to implementplans for a new manufacturing unit for the largerearthmover sizes, at Lexington, South Carolina.

Capital investments that were made led toincreases in production capacity and a reduc-tion of manufacturing costs.

In addition, major investments were devoted tothe launch of new products and primarily thosedestined for the new generations of dumpertrucks with a capacity of over 300 tons, forwhich Michelin is today the number one sup-plier in the market.

For agricultural tires, the Group continued, inconditions that were frequently difficult, todevelop its activities in most markets. Salesvolume increased 2% over the prior year dueto strong growth in sales of tires for drivewheels. Extending the multibrand strategy wasparticularly important for this category which,with six different brands, covers all market seg-ments.

In Western Europe, Group sales to manufacturersincreased sharply, mainly under the Michelinbrand, in a market down 4%. Replacementmarket sales reflected the weak growth of themarket, though the Stomil-Olsztyn brand regis-tered good performance.

16

New truck tire A2 Energy line.

XDR earthmover tire on large dump truck.


In North America, the crisis in the agriculturalsector had a strong effect on the original equip-ment market, down 30%, and Group salesdeclined in proportion. The replacement marketwas down slightly and there, the Group achievedgood performance with sales up by more than20%, through the BFGoodrich and Michelinbrands.

In the other world markets, sales increased bymore than 18%, principally through the Siam-tyre and Michelin brands in Asia and Taurus inSouth America and the Middle East. Sales inAfrica fell sharply.

On the manufacturing front, the flexibility andresponsiveness of plants was used to improvereaction to customer demand; measures toreduce production costs continued.

For two-wheel tires, there was considerablecontrast in the situation depending on theproduct.

The motorcycle market has been very buoyantfor the last two years, due to the consumer

interest in smaller-engined units, which cannow be used in most European countrieswithout the need to have a specific driverslicense. At the same time, the market formotorcycles with larger engines is growingsharply. In these conditions, Group sales wereup strongly, by nearly 9% in volume terms,enabling it to strengthen its positions in stra-tegic markets such as the US, Germany and theUK, as well as with Japanese manufacturers.The development of products using new tech-nologies contributed significantly to this perfor-mance.

For bicycles, Group sales volume declinedsharply in a flat market, by more than 10% inrelation to 1998. Because of the extremelystrong competition from imports of Asian origin,a restructuring plan was launched in 1999,concentrating on top-of-the-line products andsuppressing standard tire manufacture. As partof the plan, it was decided that Wolber wouldcease operations and these would be regroupedon a single site at Clermont-Ferrand, manu-facturing mid-market and top-of-the-range tirelines.

17

In central and eastern Europe, commercial per-formance was adversely affected by thedeteriorating economic situation, especially fororiginal equipment where Group sales fellsharply. The replacement market was also down,chiefly for the Stomil-Olsztyn and Taurus brands.

In the matter of aircraft tires, Michelin con-tinued its expansion in a highly competitivegrowth market which is converting to radialproducts. Group sales increased more than12% in Europe and North America, with an

XM108 agricultural tire.

Wildgripper tire

18


even stronger performance in Asia. The militarysector was particularly dynamic. Total salesincreased more than 14% over the prior yearand the sales growth was accompanied by mar-ket share gains, with Michelin confirming itspole position in radial tires.

Significant gains in industrial productivity wereachieved. Part of the tire production for thegeneral aviation sector was transferred fromthe Norwood plant in the US to Nong Khae,Thailand, where there already exists a conven-tional and radial retreading facility. The US plantis now concentrating on conventional largedimension tires and the modernization of itsequipment will continue. In France, the produc-tion of radial tires reached a record level at theBourges plant while in Italy, the manufacture ofinner tubes for smaller tires started up atCuneo.

Elsewhere, Michelin Aircraft Tire SwitzerlandLtd was set up in April 1999 and its activities inconventional tire retreading contributed to thegrowth of Group sales to European airlines.

In the field of suspension systems, the threeprincipal activities have developed favorably.

European markets for car and truck wheelswere up in 1999, in an environment characteri-

zed by strong pressures on sales prices. Miche-lin sales performed well, with modest growth inoriginal equipment market shares and inwheels for car winter tires. Aluminum wheelsales were hampered by production capacitylimitations, despite the investments that werein progress. An industrial reorganization planhas been implemented to improve productivityand a search for suitable partnerships is con-tinuing, to keep in step with the global expan-sion of European clients and to develop the Paxand Single projects.

The antivibration activity, a key area for sus-pension systems, continued its active devel-opment in conditions which featured industrialconcentration and cooperation agreementsbetween companies. Michelin and the Germangroup Woco announced an agreement at thebeginning of March 2000, to lead to the crea-tion of a worldwide joint-venture, Woco Miche-lin AVS (Anti Vibration Systems). The comple-mentary nature of the technical andcommercial activities of the two groups willenable the new company to respond effective-ly to customers worldwide, supported by therequired capacity for innovation in the area ofanti-vibration systems for the automotiveindustry.

The fitted assemblies activity continued itsdevelopment, chiefly through Eurofit, a jointventure between Michelin and Continentalwhich led to the creation in 1999 of two newcenters, at Valenciennes in France and Vigo inSpain. An industrial assembly line has also beendesigned and set up for the Pax system. Miche-lin strengthened its presence in the suspensionsystems field by developing, in cooperationwith the Vallourec company, a rear suspensionunit which uses rubber components to absorbvibrations transmitted from the running surface.

®

New manufacturing process for steel wheels.

19


In the primary products field the natural rub-ber operations performed well in Brazil, wherethe devaluation of the real made local produc-tion more competitive. Processed productionincreased 27% due in part to bringing more ofthe E. Michelin Ltda. plantation on stream inthe Mato Grosso, where an additional 1,000hectares were tapped and, for the rest, to thepurchase of non-processed rubber from localplanters. In Nigeria, renovation of the fourplantations continued, with the planting ofapproximately 300,000 trees on an area of 640hectares.

For synthetic rubber, the production capacity ofthe line for the special elastomers used in motorcompetition was doubled, to meet increaseddemand.

In textile reinforcements, better use of recently-acquired capacity in central Europe enabled a

doubling of the production of carcass fabrics inPoland and a tripling in Hungary. At the sametime, a new unit for the manufacture of wovenfabric started up at Trento, with equipmentbased on new technology.

Tourism services continued to develop. Salesof paper products grew 2% in volume, exceed-ing 18 million copies, including mainly foreignlanguage tourist guide publications for anincreasing number of destinations throughoutthe world. Development was particularly strongfor digital products. The number of itinerariesprepared on-line, on the Internet and Minitelsites in France, reached 10 million, up 10% onthe prior year.

International sales, which account for 40% ofthe total, along with digital products, remainthe two principal spheres of development.

In the increasingly competitive maps and touristguide markets, the title Michelin Editions duVoyage (Michelin Travel Publications) has beenchosen to show clearly to customers that thisactivity, while being a publishing company, isnevertheless part of the Michelin Group. Thisdesignation will be used progressively for allpublications.

This new concept permits significant reductionsin weight, size and cost in relation to the stan-dard solutions currently in use.

Diversity of materials in the Product Line for primary products.


Continuing the 1998 pattern, the investmentprograms were mainly concerned with:

- passenger car and light truck tires: improvingthe balance between production capacity andmarket needs, chiefly by the conversion of pro-duction chains in Europe for top-of-the-rangetires (with higher speed ratings and largerdiameters) and, in North America, for largertires. Investment to create new capacity con-tinued in Brazil,

- truck tires: increases in production capacity inNorth America and Europe, responding to verybuoyant market demand, and extendingretreading activities, chiefly in North America,

- various Product Lines and the TechnologyCenter,

- renovation of buildings and reorganizing loca-tions, mainly in Paris and Clermont-Ferrand,France,

- acquisition of buildings formerly owned byour partner Okamoto at the Ohta plant, Japan,

- installation of new information systems andcomputer equipment.

During the year, some companies disposed ofassets that were of no further use to their busi-ness.

Capital investment in tangible and intangibleassets, net of related disposals, totaled

EUR1.13 billion, 4% higher than that for 1998although clearly a lower rate of growth than inpreceding years.

20

Capital investments

Research and Development

The tire is a complex assembly which has to beimproved constantly to keep pace with the evo-lution of road vehicles, namely: improved safety,the introduction of electronics into control systemsfor braking and stability, new “clean” vehicles,noise reduction and protection of the environment.

Michelin is a major player in this developmentand works in close collaboration with auto

manufacturers worldwide, preparing thevehicles of the future. In recent years, thismethod of working has given rise to someextremely innovative products, developed atthe very highest scientific level by teams ofresearchers and designers at the TechnologyCenter, their work aided by particularly powerfulstudy methods:

Refurbishment at the Carmes,Clermont-Ferrand site.Construction of a conservatory to houserubber trees in a tropical environment.


- nuclear magnetic resonance, spectroscopyand microscopy, to analyze materials in thegreatest possible detail,

- modeling using constantly evolving software,and the power to calculate at a speed of morethan 30 billion floating-point operations persecond,

- equipment to analyze tire behavior in the labora-tory and the means to road-test on vehiclesrunning up to 1.8 billion kilometers per year.

The following examples perhaps illustrate thecapacity to bring these innovations to fruition:

1. The Pax system

• Weight reduction: is a main objective forthe upcoming months. Extensive programsunder way have already reduced the mass ofthe various components (wheel, tire andsupport). The support has been redesigned forlightness, with no loss in its capability. In 1999,for the Pax system equivalent of a 205/65R15tire, the weight of the support was reduced by35%, or 2.8 kilograms. The objective, to havefour Pax system assemblies weighing no morethan five traditional assemblies, was achieved in1999. In the support ring for the tire size quoted,for example, the aim was to realize a lighteningof 20% in year 2000 and more in 2002. Weightreduction is among the priorities for automanufacturers.

• An opportunity for new vehicle design:outside of its inherent attributes, the Pax sys-tem gives new freedom to vehicle chassisdesigners. Suppression of the spare wheel freesup space but in addition, it means that thefront and rear wheels need not be the same.The Pininfarina MetroCubo concept car is a verygood illustration of the new opportunities pro-vided by the Pax system:

- more space for passengers in the front and,by virtue of smaller front tires, a reducedturning circle, giving greater urban mobility,

- considerably improved compatibility withthe new methods of propulsion (all-electric,hybrid…) with wider rear tires permittingcentering of the load further towards the rear.

In view of the growing interest of auto makers,Michelin and Pirelli signed a developmentagreement for the Pax system in February 1999.Michelin is convinced that this technology hasconsiderable potential to respond to theincreasing demand for innovative solutions.

2. Truck tires

• The high grip concept: to design a truck tirethat at the same time gives considerably improvedwet grip and a good balance between wearand rolling resistance is a real challenge. Thedetermining factor for this improvement is theformulation of a rubber mixing for the tiretread, together with a heavily-grooved treadpattern that will last the life of the tire. Miche-lin’s High Grip tires fitted to its High Safetyconcept vehicle give a reduction of 35% inbraking distance in wet conditions comparedwith a standard vehicle fitted with normalMichelin tires.

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MetroCubo concept car.


• The anti-splash concept: the loss of visibilitycaused by water spray thrown out by trucks inwet conditions is of major concern to highwayusers. Drawing inspiration from aeronauticalpractice, the Michelin anti-splash concept lies ina new tire profile with a flange situated at thepoint where the tread meets the sidewall. Thisnew development effectively suppresses thespray ejected by the tire and, in its field, won afirst prize for innovation and safety, awardedjointly to Renault and Michelin by a trademagazine.

• The new Extra Wide Single tire: the aim isto replace twinned tires with a single, less bulkyassembly, for the reasons:

– to reduce the physical size of the assemblyby 20% and lower its rolling resistance,

– to give vehicle constructors more room

between the tires, thus more freedom in newvehicle design.

There is already a firm application for thisproject in Europe where the Irisbus company isto use 495/45R22.5 tires in its Civis project,replacing twinned tires. With this arrangementthe central aisle can be widened by nearly40 centimeters, for increased passengercomfort, and it also allows the vehicle’s electricmotor to be positioned between the wheels.

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3. Earthmover tires, the newlow-pressure technology

Michelin has used the low pressure technologyto overcome two problems: reduce penetrationsand improve tire life in comparison with the stan-dard 100 series tire. With this method, the tireoperates at a lower pressure, with a reduced dia-meter, without losing load-speed capability andwithout causing abnormal wear in the bead area.

The principle of the technology lies in:

– optimizing the contact area – reducing itslength and increasing its width – and this, in onerotation of the tire, reduces the time in whichthe tire tread is in contact with the ground, andleads to a diminution of heat build-up,

– changing the layout of the bead area, for a

Extra Wide Single tire in North America.


better distribution of the stresses,

– lowering the aspect ratio, together with anincrease in the density of steel cable in the car-cass fabric.

There are currently three sizes available and,given the potential of this technology, otherswill follow.

4. Suspension systems

A new avenue of innovation concerns replace-ment of the metal shock absorbers and suspen-sion of a motor car by rubber components. At theFrankfurt Motor Show in October 1999, Michelinexhibited a new rear axle for passenger cars, withthe suspension and anti-roll control in rubber:two coaxial tubes linked together by rubber rings,each being fixed to an arm, replacing the torsionbar. As for the metal springs normally found inthe suspension, these are replaced by rubber tor-sion springs, integral with the arms. A much sim-pler assembly, it performs the functions of direc-tional control, anti-roll and suspension with aconsiderable gain in comfort, because of thevibration-damping qualities of the rubber.

5. Computer software to increasethe potential for innovation.

Michelin has commenced a project to renovatethe whole of the software it uses in the design(CAD), manufacturing (CAM) and engineering(CAE) of tires and curing molds. The benefitsthat are expected to accrue are a reduction ofdelays in the design process, increased capacityfor innovation and a shortening of the time tobring ideas to the market.

The project is supported by a collaboration withIBM and Dassault-Systems and the strategicapplications to be used in all of the Group’sProduct Lines are prepared with Catia software.

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As an alternative to the traditional axle, it is cer-tainly innovative. 50% lighter, less bulky, 30%cheaper, it turns the usual approach taken byvehicle manufacturers on its head. In collabora-tion with the Auto Components division of Val-lourec, several very promising projects are cur-rently under way with major auto manufacturers.

The continuous effort put into research anddevelopment by Michelin gives it an exceptionaltechnological independence, for the tire itselfand for the raw materials and semi-finished pro-ducts used in its manufacture. This freedomenables the Group to explore the potential thatthe tire possesses for development and to visual-ize new solutions to give users enhanced safety,comfort and handling, while always respectingthe environment.

New concept for a rear axle.

Tire design using Catia software.


Passenger car and light trucktires

In North America, the Michelin brand con-firmed its position in the original equipmentmarket by winning its 22nd JD Power TireSatisfaction Award, based on a satisfactionindex derived from a wide range of tires coveringalmost all types of vehicles. The Pilot Sport linefor high performance sports cars had a success-ful North American introduction in spring 1999.The year also saw the launch of the PilotXGTH4 line, manufactured using the new C3Mprocess, in the sports vehicles segment forAmerican models. In addition, the Arctic Alpintire was selected as the best snow tire by awidely-read consumer magazine.

The BFGoodrich brand won its first award for JDPower product quality with its Radial Long TrailT/A light truck tire, destined for the originalequipment market and quoted by a user maga-zine as the best tire for sport-utility vehicles. Thefollowing products were introduced:

- the Radial Long Trail T/A line, used in originalequipment for the Nissan Xterra, designated bythe press as the best sport-utility vehicle of theyear,

- the g-Force T/A KD line, named Best Ultra-High Performance Tire by AutomobileMagazine, has been rounded out by the g-ForceT/AKDW line, with improved wet gripcapability,

- the first tire with a colored tread, theScorcher T/A, was launched in 3 colors and9 sizes for sport-utility vehicles.

The Uniroyal brand continued to build on thesuccess of its air retention technology, launch-ing the Laredo NailGard tire for light trucks. TheTiger Paw AWP and NailGard lines launched in1998 received the award for best productfor consumer use, qualifying them for the"Good Housekeeping Seal of Approval", adistinction which has never before been con-ferred on a tire.

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New products

Scorcher T/A line.


25

In Europe, the Michelin brand was extendedwith the addition of new lines:

- the Michelin Pilot Primacy was launched fororiginal equipment, offering the best perfor-mance compromise for high mileage users,

- more dimensions are available in the MichelinPilot Sport line.

The winter tire line was enhanced with theaddition of the new Michelin Alpin, a snow tirewith improved performance on wet surfacesand also Michelin Pilot Alpin V, the first snowtire on the market with this speed index.

Finally, the Michelin Agilis line for utility vehicleswas extended with its Snow-Ice, in the wintertire segment.

The strengthening of the Kléber line continued:a new high performance tire, Dynaxer, wasintroduced for powerful saloons, providingthem with an excellent balance between com-fort and grip on wet surfaces.

Under the BFGoodrich trademark, its expertisein the area of mixed use 4x4 tires was demon-strated by the All Terrain T/AKO product whichoffers exceptional qualities of grip and tire life.

In South America, a feature of the Michelin brandin 1999 was the introduction in the replacementmarket of the XT-AS, the first tire from the Groupspecially designed for South American markets.With this new line, Michelin is the first manufactureroffering asymmetric technology to the generalpublic, used until now only for luxury vehicles. Inaddition to excellent grip and handling, the XT-AShas been reinforced to give an even better resis-tance to the conditions of local use. The productwas very well received by auto manufacturers andsince its introduction, sales have increased signifi-cantly in the Mercosur markets.

For the other brands, South America benefitedmainly from product improvements made inEurope and in North America.

In Asia, the Michelin brand Pilot Sport, importedfrom Europe, was launched in the replacementmarket. The product is very well regarded andenables the Group to round out its sports lineoffering with a new, very high performanceproduct.

In the luxury and comfort vehicles segment,central to the brand, the new Vivacy line, spe-cially adapted for Asian markets, had a success-ful launch.

For small and medium-sized saloons a new Certisline, asymmetric, speed index of H instead of T,with performance especially targeted for comfortand low noise, was favorably received by themarket.

Finally, the new Maxi-Ice, destined for the Japa-nese market, beats its predecessor with improvedperformance on ice.

Under the BFGoodrich trademark, the 2000product offering has been completed by thenew line developed in Asia, Monterra T/A, andfrom Europe, the Profiler G range.

Michelin Alpin tire.


26

Truck tires

Group strategy is to offer distributors and usersa comprehensive range of products and ser-vices. In Europe and North America, in mediumand large fleet operations a requirement isemerging for outsourcing tire management.Responding to this demand, the Group has ini-tiated several service agreements in partnershipwith its distributors, covering the installation ofinformation systems, allowing better manage-ment, and information for customers.

In North America, the launch of the new DriveXDA2 line, providing improved wet grip,enabled the Group to maintain its undisputedleadership in the low rolling resistance long-haul tire segment. Renewal of the Y lines withthe XZY2 and XDY2 tread patterns reinforcedMichelin's advance in the on/off-road segment.

In South America, the product line has beensignificantly enhanced by the pivotal E2 Line,with taper seat beads and specifically adaptedto local conditions, to be sold in a user segmentwhich represents more than 35% of the mar-ket. In the motorway sector, the new XZA2with flat seat beads was launched in Argentinaand Brazil, providing a better response to therequirements of users operating in less deman-ding conditions.

In Europe, the introduction of the new A2Energy puts Michelin at the forefront in thematter of reducing fuel consumption. In thefast-growing segment for long-haul use low

rolling resistance tires, savings of up to 6% infuel and an improvement of up to 35% in tiremileage were achieved, compared with the tra-ditional A tire line. In the on/off-road segment,the line was enhanced by the launch of theXZY2 which provided a boost to sales in a high-ly competitive market. In the large fleet servicefield, several contracts were concluded withEuropean companies, operating in logistics andurban transportation.

In Japan, the line was rounded out by the addi-tion of the XJW4 in the multi-purpose segmentand the XJDD, a very specific tire for on/off-road use in this country.

In Asia, where conventional tires still accountfor the majority, the performance of these tireswas optimized with a new line in Thailand andPhilippines.

Earthmover tires

Having introduced the first low-pressuretechnology tires in 1998, for the world's largestdumper trucks used in open-cast mines,Michelin was in 1999 the first manufacturer tomarket a line of four sizes using this technology.The tires are matched to each class of giantdumpers, with payloads from 210 to morethan 320 tonnes.

In the mining sector a new tread pattern, inprocess of commercialization, has also beenintroduced in certain clients’ operations, forlarge dumper trucks in the under 210 tonnesclass. This tread pattern, known as XDR,improves tire life by 20% compared with thetire it replaces. Customers are able to reduceoperating costs significantly and the Group hasbeen able to increase sales in this market seg-ment.

Truck tire retreading workshop.


27

Another feature of 1999 was the developmentof new tire sizes and tread patterns for the othermarket segments, such as quarrying operationsand civil works. The launch of the X-Quarry, spe-cially adapted for trucks working in quarries, andthe XZSL, for compact mini loaders, illustratesthe Group's capacity to innovate.

Agricultural tires

In 1999, the Group extended the range of sizesin the Michelin MegaXBib line and improved thecharacteristics of the tire, with increased loadcapacities and new tread patterns designed forharvesters operating in difficult terrain. The newXM108 tire was developed in response to marketdemand for lower operating cost and reducedsoil compaction. The tire combines an improve-ment in all aspects of performance with excellent

durability. In addition, new dimensions wereadded to enhance the XM28 and Agribib lines forthe North American markets.

Under the Kléber brand, twolines were launched in tube-less versions, the SuperVigneand the Super50, and new

dimensions were created in the Traker,Super11L, Super3 and Super Lug lines.

The BFGoodrich and Stomil-Olsztyn lineswere expanded and a tubeless version of theTaurus Point 8 was developed.

Two-wheel tires

The Group introduced new products formotorcycles, acclaimed by the specialty worldpress, which have become a reference point inthe highly competitive sphere of motorcyclesport. The new tires are in the Pilot line: thePilot Race, designed for race tracks, and thePilot Sport, for road racing. These two productsbenefit from completely new Michelin technol-ogy, namely the Delta radial structure, deriveddirectly from experience in competition andachieved following major investments in researchand development.

For bicycles, Michelin's objective has been tostress the technological differences to countercompetition from low-priced products. It isagainst this backdrop that new products havebeen introduced: the Michelin Axial, a high-quality cyclosport tire with two-componentsilica tread; the mountain bike Wildgripper, acommercial version based on tires developedfor the World Cup; the Tubeless, an innovationfor bicycles, with a first application in cross-country and finally, inner tubes with the newlatex AirComp.

For scooters the Group has used its technologyto develop tires with high added-value. A first

result of this policy was thelaunch of the Goldstandard,derived from motorcycle expe-rience, to equip high-poweredscooters.

Wildgripper tire section.

Michelin MegaXBib.

The Company’s accounts showed net income for the financial year of EUR247,399,260.17, adiminution of 7 million compared with the 1998 figure of EUR254,410,770.22.

Trading income, at EUR109.4 million, was up by 17.5 million on the figure of 91.9 million for1998. It includes an increase of EUR24.2 million in royalties, the principal source of tradingrevenue, and an increase of 6 million in external charges, mainly related to research expenses.

Financial income was flat at EUR131.8 million for the year against 133 million for 1998. Thestability was, however, the combined result of an increase of EUR10.8 million in dividendsreceived from subsidiaries and a provision of 10.6 million for the depreciation of treasurystock.

These different factors explain the change in Ordinary income, EUR241.2 million comparedwith 224.9 million in 1998.

There was exceptional income of EUR38.2 million. It arose mainly from the writing-back ofprovisions for depreciation of the holding in Manufacture Française des Pneumatiques Miche-lin, the write-back being made possible by la Manufacture’s financial results

The charge for taxes on income was EUR32 million.

Three million shares were canceled from treasury stock, for the total sum ofEUR112,148,433.43 in capital stock and premiums paid in excess of par. The cancellation wasdecided on September 7, 1999 and effective from October 7, 1999.

Compagnie Générale des Établ issements Michel in


28

Compagnie Financière Michel in

During the year 1999, Compagnie FinancièreMichelin continued to oversee the manage-ment of its equity holdings in affiliated compa-nies, which increased by SFR356.8 million. Theincrease was the result of investments, in Swissfrancs, in Asia (156.5 million), North America(158.5 million), South America (26.6 million),Africa (9.1 million) and Europe (6.1 million).

Michel in in Europe

France

La Manufacture’s total net sales excluding taxesreached FRF2.5 billion, up 1.6% over 1998.Export sales, which accounted for 55.5% oftotal sales, increased 2.3%. In the domesticmarket, sales of tires, wheels and tourism ser-vices increased 1.3%.

Sales to original equipment increased in thetruck and agricultural categories while those ofpassenger car and especially light truck registeredsharp declines.

In the replacement market, unit sales of newtruck tires outperformed the market. This good

Operations and f inancial resultsof associated companies


29

performance was achieved notably through thelaunch of a new generation of the MichelinEnergy line, which responds to the demands oftransporters to reduce costs. In addition, pro-gressive implementation of the multibrandstrategy, mainly by the distribution of Taurusand Stomil-Olsztyn brands, enabled the companyto operate in all market segments.

Sales of light truck tires just about kept pacewith the strong market growth.

In contrast, passenger car tire sales registered adecline, particularly significant in the “summer”category, due to several factors: insufficientlycompetitive production costs, the need toincrease presence in the new and rapidly expan-ding distribution networks and a need to improvecapacity, to deliver top-of-the-range Michelin-branded products. Steps were taken to remedythis situation.

Net income for the period, following the impactof extraordinary income, was FRF974.6 millioncompared with FRF980.4 million in 1998.

Net sales of Pneumatiques Kléber were FRF2.9billion versus 2.89 billion in 1998, sales remain-ing flat following two successive periods ofgrowth. With exceptional income of FRF17.2million, the company’s net income was signifi-cantly up on the previous year.

United Kingdom

Following an increase of 2% in 1999, domesticproduction of passenger cars was the highestfor 27 years. This result was achieved throughexports, which represented nearly two-thirds ofproduction, while sales in the domestic marketdeclined 2%. The production of utility vehicleswas down 16% for light trucks and 4x4 and by4% for trucks, due to a decline in exports andnew registrations.Bassens plant – synthetic rubber production.


In the replacement market for car tires, downoverall by 3.9%, company sales increased signi-ficantly thanks to implementation of the Euro-pean multibrand strategy. For truck tires, salesdeclined in a market which was relativelystable. As a result of the strength of the poundsterling, the company had to reduce the salesprices of its products to remain competitivewith imports.

Production at the Ballymena plant of truck tiresdestined for the US market was increased in1999. Elsewhere, the production of car tireswas reduced in the second half of the period,due to high inventories for this category.

Net sales registered only a modest increase, dueto pressure on prices in the replacement market.The net result deteriorated significantly andthere was a loss, accentuated by the expense ofhigh inventories, an increase in logistics costsand provisions for expense associated with thereorganization plan announced in January 2000,designed to increase productivity.

Germany

Having achieved record levels in 1998, automo-tive production declined 0.7% for passengercars and small utility vehicles while trucks andbuses increased 0.3%. Total new registrationsincreased 2.3%, breaking down 2% for lightvehicles and 10% for trucks and buses. Exports,which grew sharply in 1998, continued toincrease in 1999, but at the slightly slower rateof 4.7%. This performance was neverthelessstill sufficient to lift exports to their best level ofthe decade.

In the original equipment tire market, Group salesdeclined in car and light truck while achieving

30

sustained growth in truck. Replacement marketsales increased significantly in all categories.Total net sales for Michelin Reifenwerke KgaAincreased more than 3%.

Plant output continued to increase, principallyin the light truck and truck categories, reachinga record level.

Manufacturing costs improved, from a combi-nation of increased production and efficientcost management.

Capital investments were up sharply, directedprimarily towards expansion of the truck tiremanufacturing facilities in the Karlsruhe andHomburg plants as well as the modernizationof production equipment for top-of-the-linetires for cars at the Bad Kreuznach plant. Inaddition, major investments were devoted tothe extension of the distribution platform.

Due to the impact of provisions for early retire-ments and reorganization, the company’s netincome was down on the previous year.

Spain

As in 1998, the Spanish automotive marketagain achieved a new record, supported bystrong economic growth and the success of thePrever plan. Passenger car sales rose 18% andtrucks 20%. Vehicle production, nearly 80% ofwhich is destined for export, grew modestly forlight vehicles and was unchanged for trucks.Only the bus segment registered strong growthin production and exports.

The growth of the Spanish tire replacementmarket for car and light truck was in line withtrend for the rest of Europe and the companyconsolidated its position, thanks to its brandstrategy. Truck tire sales in replacement outper-


formed the market, boosted by an improvedavailability of products and the multibrand strategy.

In original equipment, Michelin’s car tire saleswere down in total, as the company concen-trated on more profitable market segments.Truck tire sales volume increased, leading togains in market share.

Exports were up for all product categories.

Neumáticos Michelin, S.A. posted an increaseof 5.8% in net sales, driven by strong growth inboth domestic sales and exports.

Production increased significantly in relation tothe previous year, enabling the company toabsorb increased personnel expenses withoutcompromising productivity. Capital investmentsalso increased significantly.

Net income which, as for previous years, is aftercharging the expenses of redundancy plans forprior periods, was higher than in 1998.

Italy

In 1999, as in the previous period, the auto-mobile market was handicapped by the cancel-lation, in July 1998, of the government incen-tive designed to promote the purchase ofpassenger cars. In consequence, new car salesfell 1%. In contrast, registrations of light utilityvehicles increased 8% and those for trucks12.5%. For the entire period, automotive pro-duction registered a modest increase over1998.

In this context, sales to automotive manufactu-rers by Società per Azioni Michelin Italianarecorded a small increase. The replacementmarket was expanding and tire sales increasedsignificantly, for both light utility vehicles andtrucks.

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With volume growth of sales in the domesticand export markets, the company registered anincrease in net sales of 2.4%.

Tire production was maintained at the level ofthe previous year thanks to the assistance pro-vided by other Michelin companies in supplyingthe Italian plants with rubber mixings, followinga fire which partially destroyed the Cuneo sitein August 1999. The damage was covered byinsurance and a decision was taken to recon-struct the production facilities destroyed.Reconstruction of the raw materials prepara-tion area will be carried out progressively and,in the case of the rubber mixings workshop, thefirst production groups resumed operation inNovember 1999.

Cost reduction measures continued and capitalinvestments were less than the previous year.

Profit in the period was up sharply on 1998,due to the impact of significant exceptionalincome from capital gains on the disposal ofindustrial buildings which were no longerrequired.

Belgium andthe Netherlands

In Belgium, the manufacturing and assembly oflight vehicles posted a decline as in 1998,whereas the car market grew by more than 8%.

In the Netherlands, passenger car sales alsoincreased significantly, reaching a record levelwhile the increase in vehicle production wasless significant than in prior years.

In the original equipment market, Group salesdeclined slightly although by contrast, the pre-paration and export sales of fitted units wereup sharply.


In the replacement market, Group sales of pas-senger car tires were up, following the markettrend. For truck, also in line with the generalmarket, sales remained stable. The launch ofthe new Michelin Energy line had a favorablereception.

Sales of the two commercial companies, Miche-lin Belux S.A. and Michelin Nederland N.V.,were up and their operations were profitable.

Other West Europeancountries

In the Nordic countries where winter tiresrepresent nearly half the market, Group salesbenefited from the launch of the new MichelinHiver tire line, and also from a change in Swe-dish legislation making specific equipmentmandatory for driving in winter conditions. TheGroup strengthened its positions in the princi-pal truck tire markets.

In Greece, the reduction of taxes on small-engined vehicles contributed to strong growthof the auto market. In contrast, passenger carand light utility vehicle tire sales were down.

Group sales in the domestic market and alsoexports to Bulgaria benefited from the excellentperformance of truck tire sales, which doubled.

In Portugal, the year saw fierce price competi-tion in a market characterized by contrastingtrends in the different product categories.

For passenger car tires, the replacement marketremained flat because of a sharp increase innew car sales. Group sales remained stable,however, thanks to the success of its multi-brand policy.

For light truck tires, the market grew byapproximately 4% and Group sales were upsharply, resulting in significant gains in marketshares.

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In a weak truck tire market, Michelin sales wereabove target by a wide margin, setting a newrecord.

In Switzerland, the Group strengthened itspositions in a passenger car-light truck tire mar-ket which declined 3.5%. Winter tire sales rosesharply thanks to the success of the new Miche-lin Alpin line. In a stable truck tire market, Groupsales were impacted significantly by procure-ment difficulties.

The reorganization of the sales force by productline within multibrands was completed.

Total sales and net income for Michelin in Swit-zerland showed a clear improvement over1998.

In Austria, exports of light vehicles and trucksrose 30%, with a corresponding growth in pro-duction for these two types of vehicles.

In the original equipment tire market, the com-pany registered a significant increase in sales oftruck while those for passenger car were downsharply.

The passenger car tire replacement market wasup slightly and company sales were maintainedas the result of strong growth in the winter tiresegment, which represents almost 50% ofsales. This performance was due chiefly to thenew Michelin Hiver Alpin tire line which wasfavorably received by the market.

The company recorded an improvement in netincome.

Central and east European countries

In Poland, economic growth declined in 1999,resulting in depreciation of the Zloty which inturn led to the renewal of inflation. The auto-


motive industry was characterized by contras-ting trends, depending on the type of vehicle.Light vehicle production was up, as new carregistrations surged 22%, while trucks andagricultural vehicles registered a decline.

The tire market for original equipment reflectedthe general trend of the auto industry. In repla-cement, passenger car tire sales were up 18%while those for light trucks plummeted morethan 30%.

Company sales, expressed in tonnage, increased3.4% in relation to 1998. The decline in domes-tic sales of nearly 15% was offset by a jump of25% in export sales. This performance benefi-ted from the launch in the replacement marketof the Kormoran Impulser line for cars and lighttrucks, the success of steel-reinforced radialtires for trucks and the development of a multi-brand strategy for the agricultural segment.Total sales increased by more than 12% overthe previous year.

The company commenced the final phase ofthe planned industrial investment, to modern-ize its installations and improve productivity. Intotal, the investment plan amounted toEUR150 million and it commenced in 1996. Allof the production capacities for car and lighttruck tires have been installed and additionaltruck tire building and finishing equipmentbecame operational. Construction of a newwarehouse was begun to cater for the sharprise in output. Although net income was dis-tinctly better than 1998, primarily as the resultof a writing back of provisions, profitability hasnot yet improved sufficiently.

Within this context, Stomil-Olsztyn S.A.announced measures in February 2000 to reor-ganize its personnel, to achieve a better responseto customer and market needs. These measuresconcern all activities on the Olsztyn industrial

33

site and are designed to increase the flexibilityof production facilities and improve productivity.

In Hungary, in an environment characterizedby sustained economic growth, the auto indus-try performed well and new car registrationsand production were up sharply.

Tire markets posted strong growth for both carand truck.

Domestic sales of truck tires by Taurus RubberCompany Ltd were negatively impacted by thefinancial difficulties of certain major clients,fierce competition from Russian tire importsand a lack of awareness of the Taurus brand inthe export market. As result of these factors, itwas not possible to maintain market shares in1999. Production, which is exclusively ofconventional tires, was reduced in consequenceand this illustrated the plant’s excellent flexi-bility.

1500

2000

2500

3000

1993 1994 1995 1996 1997 1998 1999(est.)

ProductionSales

Eastern and central European vehicle production and sales(‘000 units – all vehicles)

34


Agricultural tire sales of Taurus Agricultural TyreLtd registered strong export growth under theMichelin and Kléber brands, while sales of theBFGoodrich brand destined for the US marketdeclined due to the general downturn there inthe agricultural sector. Continuing the 1998pattern, capital investments concerned chieflythe extension of agricultural tire productioncapacities for the Michelin and Kléber brands atthe Nyíregyháza site.

Net sales of the Hungarian companies, includ-ing the sales company Michelin MagyarországKft, were up sharply, with the net result turningpositive in 1999.

In Slovenia, Czech Republic and Slovakia, theGroup developed its business through its com-mercial companies and generally strengthenedits market positions, by virtue of its multibrandproduct lines.

A European strategy was announced last Sep-tember, designed to strengthen Group competi-tiveness in this region and confirm its position asmarket leader, with the objective of improvingproductivity by a minimum of 20% over threeyears. This objective will be achieved throughthe development of product lines and servicestogether with the multibrand strategy, respond-ing to customer demand and thus regain marketshares, particularly in the more dynamic segments.In consequence, there will be a restructuring ofall areas of activity in Europe which could implythe closure of sites and the cessation of certaintechnical activities or services. This is expected toresult in the suppression of approximately7,500 jobs in Europe, a reduction of personnelin the order of 10%.

Euromaster

In the European tire distribution market, whichperformed well in 1999, competition hasincreased sharply following the creation of newgroups and numerous acquisitions involvingautomotive manufacturers and auto equipmentsuppliers. In this competitive environment,Euromaster has continued with a strong devel-opment of its vehicle services, demonstrating itscommitment to become a major player in thisdynamic and profitable sector.

During the year, Euromaster continued the reor-ganization and specialization of its commercialteams, and of the network of service centers bymarket. This reorganization has been accompa-nied by the launch of new European services,such as Mobile Service Units in France whichprovide on-site home maintenance for vehicles,or the Call Centers in the UK, as well as newservices such as fixed price maintenance.

The direct take-over of certain accounts bymanufacturers on the one hand and on theother, the strategic decision of the company towithdraw from certain low profit markets, led toa strong decline in the sales to wholesale distri-butors in 1999. There were positive trends, main-

Euromaster home service.

★★ ★

35


ly related to normal maintenance and services.

Consolidated net sales increased 2%. Theimprovement in the gross margin continued tooutpace sales and net income increased sharp-ly, aided by a better performance in certaincountries, such as France and Spain, and despi-te the downward trend in the unit price of tires.

In year 2000, the company will continue withmaximizing efficiency in the current network of1,300 service centers, the systematic pursuit ofstrategic partnerships, the rationalization ofpurchasing and the development of qualityassurance in the services activity.

Michel in in Nor thAmer ica

With sales of 16.9 million light vehicles in 1999,the US beat the previous record set in 1986.Light utility vehicles, which includes four-wheeldrives, vans and delivery vans, once againgained market share, to represent 48.5% oflight vehicle sales compared with 47.6% in1998. Passenger car sales, which had beendeclining since 1995, rose 6.8%. In Canadaand Mexico, markets were also up respectively8% and 5%. In this favorable environment, theproduction of light vehicles increased by nearly10% in North America, with 3% for passengercars and 16% for light utility vehicles. The paceof truck sales, which picked up in 1997 in theUS, accelerated in 1999, increasing nearly 23%to reach a record level of over 500,000 vehiclessold. Total North American truck productionfollowed the market trend, increasing 19%.

The original equipment tire market, directlyrelated to the performance of the automotivemanufacturers, increased by more than 9% forpassenger car-light truck. The key segmentsbenefiting from this trend were, as in prior

years, tires for sport-utility vehicles and pick-ups, also the more powerful luxury vehicles,and they posted strong growth. Truck tire saleswere also up strongly, by 14.6%, mainly fortractor units rather than trailers.

Passenger car and light truck tire sales in thereplacement market increased by more than4%, with manufacturers’ brands representingnearly 55% of the market compared with 48%in 1991. Sales in the sport-utility vehicle seg-ment increased sharply. Truck tire replacementmarket sales increased 4.2%, reflecting anincrease in the transportation of goods by road.

Group sales volume increased 11% in relationto the previous year.

The strongest growth was in the truck tire cat-egory, a result of the measures taken by the Groupto resolve the problems of stock shortages.Increases exceeded 20% for original equipmentand 10% for replacement, accompanied bygains in market share. Within the framework ofits policy of associating services with products,the first Team contracts were concluded. Theseare three-way agreements between Michelin, adistributor and a transporter by which the latteris relieved of responsibility for tire management.

Passenger car and light truck tire sales, whichdeclined in 1998, rose sharply in 1999. Replace-ment market sales were up by more than 10%due to the performance of the Michelin, BFGoo-drich and Uniroyal brands and significant gains inmarket share were achieved. Sales in the originalequipment market were below the market trendas a result of the Group’s decision to take a selec-tive approach in order to free up capacity for thereplacement market.

In 2000, Michelin, a pioneer in electronic com-merce with tire distributors, will launch private

36


sales of colored tires via theInternet. The tires are tailor-made under the BFGoodrichtrademark.

The Group continued todevelop its retreading acti-vities in North Americawith the acquisition in Aprilof the company Tire Cen-ters, LLC (T.C.L.), anauthorized Michelin dealerfor the last 12 years, whichrecently obtained a franchisefrom Michelin RetreadTechnologies. The T.C.L.distribution network coversthe whole of the UnitedStates. At the end of 1999,there were 32 retreadingcenters in the US using theMichelin process.

A major five-year capital investments program wasannounced by the Group for the South Carolina

plants, to increase produc-tion capacity and adapt theinstallations to changes inproduct demand. A newunit will be built at Ander-son and this will significantlyboost production capacityfor rubber mixings.

Total production in NorthAmerican plants increased6% and production costsimproved. Due to thestrong volume of businessand the acquisition ofT.C.L., Group sales in NorthAmerica increased sharplyin 1999. Net income alsoincreased significantly, thegoodwill on the T.C.Lacquisition being amort-ized over a number of yearsin the company accounts.

Michel in in SouthAmer ica

1999 was characterized by the sharp devalua-tion of the Brazilian real at the beginning of theperiod and this also affected other countries inthe region, Argentina in particular. There was inaddition a recession in Colombia and Venezue-la, this affecting economic activity and, inconsequence, the transportation sector.

The repercussions of the economic malaise onthe automotive industry were again very signifi-cant in 1999. Argentina, which managed toescape the consequences in 1998, registered astrong decline of 17% in its market and aneven sharper fall in production.

Brazil

Despite a modest improvement in the secondhalf of the year, total auto production fell 15%for the year; 15% for light vehicles, 40% for

BFGoodrich Scorcher tires,available on the Internet.

Retreading in North America

37


trucks and 30% for buses. The Brazilian marketregistered a total decline of 18%, breakingdown 18% for light vehicles, 4% for trucks and32% for buses. Exports plummeted by morethan 30%, due to the region’s economic diffi-culties.

For the passenger car and light truck tire cat-egory, production using the C3M technologystarted at the Resende site and the first saleswere made to automotive manufacturers, thesetires being destined for the South Americanmarket. In the replacement market, Group salesregistered strong growth and outperformed themarket, notably as a result of the launch of theMichelin XT-AS for passenger cars, the first tirefrom the Group designed specifically for SouthAmerican markets.

Group sales of truck tires benefited from therenewal of its product lines, as new productsspecifically adapted to local requirements wereintroduced. The company strengthened its posi-tions in the replacement market and successful-ly maintained shares in the original equipmentmarket. At the Campo Grande plant, productiv-ity improvements and the implementation ofnew curing techniques led to significant reduc-tions in the cost of sales. The production ofBFGoodrich brand tires destined for the USmarket began during the year.

Total sales volume increased sharply althoughsales and net income in dollar terms registereda decline on 1998. The financial results of theplantations improved, principally as the result ofhigher government subsidies in 1999.

Retreading activities developed significantlythroughout South America. At year-end, 22franchised retreading centers were operationaland new openings are planned in year 2000,in Venezuela, Peru, Argentina, Colombia andBrazil.

Three commercial offices were opened, in Peru,Venezuela and Ecuador. They recorded losses,due to heavy start-up costs.

In Argentina, the economic situa-tion was particularly difficult as aresult of the devaluation of the real,which penalized exporters. Theautomotive market declined 17%and auto production by more than30%. In these circumstances, Grouptire sales for passenger cars andlight trucks achieved strong growthin the replacement market.

In Colombia, Icollantas continuedits integration into the Group. Whilethere was a profit at operating level,heavy financial expenses affectedthe net result.

Michel in in Asia

Japan

For the third year in succession the Japaneseautomobile market, excluding mini-vehicles,remained flat in 1999. During the period carsales fell 8% and light trucks 10%. The truckand bus market fell 8%. Imports increasedslightly, to 278,200 vehicles, although theyremain at a modest level.

Because of the weakness of the domestic mar-ket and of exports to Asia and South America,automotive production fell in 1999 to its lowestlevel in 20 years, falling below the threshold of10 million vehicles. Light vehicles declined1.5% and trucks 20%.

The original equipment tire market reflectedthe general trend of the automotive sector: cartire sales increased 1% while for truck, thedecline was approximately 18%.

The replacement market registered an overallimprovement for the first time in two years, up3% on 1998.

In original equipment, the volume of Grouppassenger car and light truck tire sales decreasedby more than 3%, with a consequent drop in

1500

2000

2500

3000

3500

1993 1994 1995 1996 1997 1998 1999(est.)

ProductionSales

South American vehicle productionand sales(‘000 units - all vehicles)


revenue although there was a sharp increase inthe Group’s share of the Japanese market.Nihon Michelin Tire Co., Ltd recorded a loss.

In the replacement market, Group passenger carand light truck tire sales declined nearly 10% involume, the result of a redirection of commercialpolicy towards the more profitable segments.Volumes exported to other Group companiesincreased by more than one-third in relation to1998. Under the combined impact of increased

production volume and measurestaken to rationalize production,manufacturing costs were signifi-cantly reduced. In addition, effortsmade by the commercial and logis-tics divisions contributed to a signifi-cant reduction of finished goodsinventories and also to a reduction insales and marketing expenses. Allthese measures led to a recovery inthe net result of Michelin OkamotoTire Corporation - Michelin Tire SalesCorporation, though it remained indeficit in difficult trading conditions.

The development of truck businesswas negatively impacted by themajor crisis affecting this sector. In astrongly declining original equip-ment market, the company achiev-ed a significant increase in sales; inthe replacement market, sales volu-me posted a more modest increase.

With sales prices stable, net sales increased bynearly 6%. Commercial expenses were reducedand this contributed to a significant improve-ment in the financial performance of MichelinTruck and Bus Tire Corporation, which never-theless remained in significant deficit.

38

Thailand

In a generally favorable economic climate,automotive production, which had fallen sharp-ly in the previous two years, more than doubledin 1999, bolstered by strong growth of nearly50% in the domestic market and exports.

The original equipment tire market more or lessfollowed the trend of the auto industry:volumes doubled in the car and light truck cat-egory, with more modest growth for truck tires.The replacement market registered a totalincrease of approximately 20%

Against this backdrop, Michelin Siam GroupCo. Ltd sales increased sharply. The most signi-ficant increases concerned passenger car andlight truck tire sales to original equipment,where the company increased its market share.In the replacement market, the best perfor-mances were achieved in the truck category,with sales growth outperforming the market.Export volume declined and the share of exportsales in the company’s total sales, which hadincreased sharply over the last three years,declined in 1999. In total, net sales increasedmore than 6% in relation to 1998.

Aircraft tire manufacture – Nong Khae plant.

0

1000

2000

3000

4000

5000

6000

1993 1994 1995 1996 1997 1998 1999(est.)

Asia excl. Japanof which:South KoreaThailand

Asian vehicle sales (excl. Japan)(‘000 units – all vehicles)


To meet market demand, output was increasedsignificantly, notably for radial tires. Gains inproductivity were achieved and productioncosts were again reduced, which contributed tostrong growth in net income for all of the Thaicompanies, including the manufacture ofmolds and metal cable.

The Philippines

In contrast with other Asian countries, theautomotive market failed to resume a growthtrend and total new registrations fell by morethan 7%, with a decline of more than 20% forcars.

The tire market was up by close to 20%, break-ing down into an increase of 23% for the repla-cement market and a modest drop for originalequipment.

The commercial activities of the company resultedin an increase of 18.6% in sales volume,primarily from increased exports, while sales inthe domestic market were down in the face ofstrong pressure on sales prices. Net sales regis-tered a modest increase compared with 1998.

To meet market demand, production levelswere increased significantly. The fall in rawmaterial prices, the optimization of industrialfacilities and productivity gains led to reduc-tions in production cost. Sales and logisticsexpenses declined as did financial expense.These factors contributed to improved financialperformance although the net result continuedto be in deficit.

South Korea

The economy registered a spectacular turna-round, with GDP rising 8.5% in 1999, afterdeclining 5.8% in 1998.

The automotive industry in turn benefited fromthis trend, with a surge in domestic demand

39

and growth in exports boosting production, upnearly 45%.

Group sales to original equipment benefitedfrom this favorable trend, returning to their pre-economic crisis level. In the replacement mar-ket, passenger car and light truck tire salesincreased 25% while truck tire sales surged86%. Sales of earthmover tires were also signi-ficantly ahead of the previous year.

After several years of losses, Michelin KoreaCo., Ltd posted a modest profit in 1999 thanksto the high level of sales, a cost reduction planand the favorable exchange rate of the Won inrelation to the US dollar.

Taiwan

Economic growth was strong in 1999 and com-petition was particularly fierce in the tire sectorwhere the range of products on offer wasconsiderably increased, a result of other Asiancountries seeking new markets to escapedomestic depression. To extend its activity inthis market, Michelin set up a commercial com-pany, Michelin Chun Shin Ltd, to market its pro-ducts, work formerly entrusted to a local importer.Henceforth only delivery and distribution will beoutsourced.

The retreading center, Treadmaster Taiwan Ltdposted an 18% increase in business and recor-ded a profit.

China

Compared with past years, economic growthslowed down in 1999 although, with a GDPincrease in of 7%, it was clearly stronger thanin other Asian countries.

Benefiting from the launch of new models, theautomotive market grew 11% for lightvehicles. Production, destined principally for thedomestic market, followed this trend.


40

The tire market was also buoyant and wascharacterized by a sharp increase in the use ofradial tires for cars and light trucks while fortrucks, radial penetration remained low at 20%.

In a highly competitive environment, Groupsales volume increased sharply, by 52% for pas-senger car and light truck and by 76% fortruck, although market shares remain low.

The Michelin Shenyang Tire Co., Ltd plant con-tinued to build up car tire production whileMichelin Shenyang Truck Tire Co., Ltd com-menced truck tire production. The excellentproduct quality of the Chinese manufacturesenabled the export of nearly 60% of the pro-duction to Africa and the Middle East.

The three joint ventures now in operation signi-ficantly trimmed their start-up losses, in partthrough the contribution from exports.

Hong-Kong

Relative to the 1997-1998 crisis period the eco-nomic situation stabilized, and even improvedmodestly.

Automotive and tire markets improved, thoughbusiness had not yet returned to its pre-crisislevels.

In this context, Group sales increased slightly inrelation to 1998, primarily for the passenger carand light truck category.

The financial results of Michelin Asia (Hong-Kong) Ltd. have deteriorated, however, nega-tively impacted by its commercial activities inthe Asian region.

Australia

In a climate of sustained economic growth,new registrations of passenger cars and lighttrucks set a new record. They were primarilylow-cost imported vehicles, however, and this

explains the weakness of tire demand in thereplacement market. For trucks, new vehicleregistrations declined as result of the introduc-tion of a value-added tax, which bolstered thedemand for replacement tires, up nearly 4%.

Michelin registered a sales volume increase of36% in the car and light truck category, a resultof the implementation of a distribution strategyfor Michelin and BFGoodrich brands. Theincrease in truck tire sales was 22%, mainlyMichelin brand, which benefits from excellentmarket awareness. Earthmover tire salesincreased by more than 4%, benefiting fromgrowth in demand in the large dumper segment.

In total, Michelin sales and earnings in Australiaboth increased.

In Southeast Asia, sales of passenger car, lighttruck and truck tires returned to the growthlevels existing before the economic downturn.

Michel in in the rest ofthe world

Nigeria

Economic reforms were implemented in 1999and these caused a slowdown of activity in thesecond half of the year.

Fuel shortages were reduced but other factorsadversely affected the activity of the company:massive tire imports from Asia, strong down-ward competitive pressure on sales prices and aslowdown in demand from the constructionand civil engineering sectors. A major programto renew product lines was initiated, to beintroduced in 2000.

Against this backdrop, there was a fall in thecompany’s domestic sales volume while exportsremained stable, having increased sharply in1998.


41

Activities in the field of tire distribution con-tinued to expand with the opening of four newTire Service Centers, bringing their number to59 at year-end.

The reorganization initiated in 1998 continuedand the main result was a reduction in person-nel numbers. Capital investments were mark-edly higher and concerned primarily the startup of new equipment for passenger car tiremanufacture.

In total, net sales and earnings of the Nigerianoperations were down in relation to the prioryear.

A feature of the activities inthe natural rubber spherewas a 12% increase in pro-duction from the planta-tions, part of which wasexported, and by a moremodest increase of 5% inthe production of proces-sed rubber. As a result ofthe decline in average saleprices, net sales declinedslightly in relation to 1998.The program for renewal ofthe plantations continued,with the replanting oftrees, maintenance ofimmature areas and themodernization of proces-sing facilities.

Algeria

The industrial activities of Société d'Applica-tions Techniques et Industrielles, suspended forseveral years, could not be resumed during theyear because of the difficult situation in Algeria.Maintenance of the industrial installations con-tinued, together with a commercial presence,

pending a possible re-start of the plant. By vir-tue of the commercial operations of the com-pany, there was an increase in tire imports fromother Michelin companies.

Other countries

In the African and Middle Eastern countries,1999 was a difficult year due to turmoil in cer-tain countries, to a persistent fall in rawmaterial prices in the first half of the year andto strong competition from Asian products.Overall, the number of tires sold by the Groupin this region was down by more than 10%.

In South Africa, equippingthe commercial agency tonormal Michelin standardsin respect of informationsystems, logistics and thefitting-out of buildings wascompleted. There was amodest increase in netsales, with good prospectsfor 2000.

In Turkey, the activities ofthe agency established in1996 continued to registerstrong growth, despiteeconomic crises whichhave hit hard in regionswhich import the compa-ny’s products, principallyRussia and the Balkans. Netsales were nevertheless upby approximately 10%.

In Djibouti a commercial company was estab-lished, managing a forwarding agency appoin-ted by Michelin, to facilitate trade in the devel-oping Ethiopian market and in the neighboringEast African markets.

42


The consolidated income statement shows net sales of EUR13.76 billion compared with 12.49billion in 1998, up by 10.2%. The increase includes the consolidation of Tire Centers, LLC, ofWilmington, United States, acquired in April 1999.

Trading income was up by EUR159.9 million, at 1.23 billion against 1.07 billion for 1998.

Net financial expense was EUR245.4 million, an increase of 25.5 million on the 219.9 millionfor the prior year. At constant parities the increase was 17 million and was due to a rise in theaverage level of debt, partially offset by lower borrowing costs.

These different factors explain the change in Ordinary income, EUR987.7 million comparedwith 853.4 million in 1998.

There was an exceptional loss of EUR353.2 million against income of 46.3 million for 1998.The principal reason for this was an exceptional provision of 370 million for the estimatedexpenses associated with implementation of the plan to improve the company’s competitiveposition in Europe, announced last September.

Depreciation of goodwill was up by EUR58 million and consisted mainly of an immediatewrite-off of goodwill on the acquisition of Tire Centers, LLC, a sum of 56.8 million.

Taxes on income were EUR374.3 million compared with 307.6 million for 1998. The taxationcharge does not reflect the fiscal implications of the exceptional provisions as the corporatetax rate is based on current results.

Net income was EUR182.5 million compared with 573.7 million in 1998.

Operating cash flow was EUR1.55 billion compared with 1.25 billion for the prior year.

Net capital investments in tangible and intangible fixed assets were EUR1.13 billion comparedwith 1.09 billion for 1998.

Consolidated Stockholders’ equity totaled EUR4.29 billion at December 31,1999 comparedwith 4.21 billion at the end of 1998. The increase of 86 million came mainly from the year’sincome together with positive adjustments from translation of the balance sheets of theGroup’s overseas affiliates, offset by distributions approved in 1999 and the effects of the can-cellation of three million of the Company’s shares.

Net financial debt, EUR2.75 billion at December 31,1998, was up by 1.05 billion to 3.80 bil-lion at December 31, 1999. After accounting for distributions paid during the year, the increa-se was due mainly to net capital investments and higher working capital requirements, theseexceeding the operating cash flow.

Consolidated Financial Statements

43


For the year 2000, despite an expected weakening of original equipment demand in NorthAmerica, overall tire demand should continue to improve both in Europe and North Ameri-ca. In most of the other markets, tire demand should again trend upwards, principally in Asia.Against this backdrop the Group has established objectives of 4% sales volume growth andan operating margin of 9.5%.

These objectives fall within the Group’s commitment to a strategy for lasting and profitableworldwide growth.

2000 outlook

Proposit ions

We request your approval of the business operations as shown in the financial statements putbefore you, before voting on the allocation of net income, EUR247,399,260.17, as indicatedat the beginning of this report.

After a transfer of EUR1,749,595.21 to the legal reserve, making it equal to one-tenth ofcapital stock, and deduction of EUR1,824,786.36, the share attributable to the General Part-ners per the Articles, the remainder of EUR243,824,878.60 is supplemented by earnings ofEUR23,235,724.81 brought forward giving an amount of EUR267,060,603.41 available fordistribution.

Our account of the activities of the enterprise – which are constantly spreading across theworld – illustrates how the tire market has become global. The Company’s growth has beensupported by the development of our multi-brand sales policy, which gives a better responseto the variety of customer expectations. These developments necessitate significant capitalinvestments, that we select with considerable care, and these are the foundation for the future.Despite the fall in consolidated income which, as we have stated, was the result of exceptionalexpenses, we wish to continue increasing the dividend.

In consequence we propose, from available funds of EUR267,060,603.41, a total distributionof EUR115,415,768.83 which, after reserving EUR19,767,499 for tax on distributions, willallow payment of a dividend of EUR0.71 per share with a tax credit of EUR0.36 giving tostockholders taking advantage of the tax credit a total return of EUR1.07 per share.

Dividend entitlement arises May 30, 2000 from which date the shares will be quoted ex the1999 dividend.

The balance of the funds available for distribution, EUR151 644 834.58 is to be allocated asfollows:

• to the special reserve for long-term capital gains an amount of EUR74 681 618.14,

• to ‘Other reserves’ EUR40 000 000 and the balance, EUR36,963,216.44, to retained earn-ings carried forward.

44


Treasury stock does not have dividend rights and a sum corresponding to the dividend whichwould have been paid on the shares held at the above date will be transferred to the balan-ce of earnings carried forward.

Dividends paid and tax credits relating to the three prior accounting periods are summarizedbelow.

TOTAL REVENUE PER SHARE

A CAPITAL STOCK(1)

DividendTax

CreditTotal Dividend

Taxcredit

Total

A JOUISSANCE AND B STOCK (1)Financialyear

Dividenddistribution

1996 396 469 486.50 3.40 1.70 5.10 3.30 1.65 4.95

1997 520 230 778.40 3.90 1.95 5.85 3.80 1.90 5.70

1998in FRF 679 325 016.58 4.33 2.16 6.49 4.20 2.10 6.30

in EUR 103 562 431.16 0.66 0.33 0.99 0.64 0.32 0.96

The mandate of M. Grégoire Puiseux as a member of the Conseil de surveillance expires atthe close of the Annual Meeting. M. Puiseux is eligible for re-election.

In addition, M. Daniel Michelin’s mandate also expires at the close of the Annual Meeting andhe has indicated to us that he does not wish it to be renewed. M. Daniel Michelin has beena member of the Conseil de surveillance for twenty years and Chairman since 1992 andthroughout this period he has shown a deep understanding of the Company’s ethics. He hasalso worked towards the development of the enterprise and has had a constant regard forthe common interests of stockholders, personnel and customers.

The authority that you gave last year for the Company to intervene on the stock exchangewith a view to the price regularization of its own shares was used in 1999 and 4,492,247shares were purchased at an average price of EUR41.38, and 85,000 shares were sold at anaverage price of EUR40.33. Further, as indicated earlier in our report, three million shareswere cancelled during the year.

We request your authorization, for a period of eighteen months, of a program to purchase

(1) Shares grouped into a single category, June 15, 1999.

(in FRF)

45


Company shares, to a maximum limit of 10% of capital stock. The purpose of the programis the regularization of the share price, the delivery of shares by way of exchange or for pay-ment and in particular within the framework of financial operations such as developmentactivities or upon the issue of securities giving access to capital, arbitrage with dividend pay-ments and finally, taking account of the authorization given by the Special Meeting of Stock-holders held June 11 last, the possible cancellation of shares in order to optimize stockhol-ders’ funds and earnings per share.

This stock could at any time be acquired, sold, exchanged or transferred, either on the stockexchange, by private agreement or otherwise, by all methods and chiefly by the transfer ofblocks, by options or by the use of derivatives.

We propose to retain the same price criteria as previously, EUR76 for the maximum purchaseprice and EUR38 for the minimum sale price.

Finally, we ask you to authorize, for a period of five years, the issue of bonds to a limit ofEUR1.25 billion nominal value, or its equivalent in other currency. This authorization replacesthe one already existing.

We invite you to adopt the resolutions put forward for your approval.

Clermont-Ferrand, France, March 10, 2000

Edouard MICHELIN François MICHELIN René ZINGRAFF

46


In accordance with the mandate given to us by your Annual Meeting of Stockholders, for thefinancial year ended December 31, 1999 we report below on:

- the results of our audit work on the annual accounts of Compagnie Générale desÉtablissements Michelin, established in euros, as set out in this report and,

- the specific verifications and information required by law.

Your Managing Partners are responsible for the preparation of the annual financialstatements. It is our responsibility, based upon our audit, to express an opinion on thesestatements.

I. — OPINION ON THE ANNUAL FINANCIAL STATEMENTS

We have conducted our audit in accordance with accepted professional standards; thesestandards require us to apply such auditing procedures as provide reasonable assurance thatthe financial statements are free from material mis-statements. An audit includesexamination, on a test basis, of the relevant elements which support the informationcontained in the financial statements. It also includes an assessment of the accountingprinciples used, the significant estimates made in the preparation of the financial statementsand in addition, their overall presentation. We believe that our audit provides a reasonablebasis for our opinion.

In our opinion the annual accounts have been properly prepared in accordance with statutoryrequirements and present fairly, in all material respects, the financial result of the year'soperations, the financial situation and the assets and liabilities of your Company at the endof the financial year.

II. — SPECIFIC VERIFICATIONS AND INFORMATION

Applying accepted professional standards, we have also carried out the specific verificationsrequired by law.

We have no comments to make on the accuracy of the information provided in yourManaging Partners’ report and in the financial documentation sent to stockholders, or on theconformity of this information with the financial statements.

Paris, France, March 17, 2000

Dominique PAUL Stéphane MARIE

Statutory AuditorsMembers of the Compagnie Régionale de Paris

I n d e p e n d e n t A u d i t o r s ’ g e n e r a l r e p o r to n t h e a n n u a l

f i n a n c i a l s t a t e m e n t s

Compagnie Généra le des Établ i ssements Miche l inIndependent Auditors ’ general repor t

47


As the Statutory Auditors of your company, we are required to present to you a special reporton agreements regulated by law that have been made known to us. We are not required toinquire into the possible existence of such agreements.

We would inform you that we have not been advised of any agreement covered by theprovisions of clause 258 of the law of July 24, 1966.




I n d e p e n d e n t A u d i t o r s ’ s p e c i a l r e p o r to n a g r e e m e n t s

r e g u l a t e d b y l a w

Compagnie Généra le des Établ i ssements Miche l inIndependent Auditors ’ special repor t

48


Your Managing Partners’ report and the financial statements made available to you showthe evolution of your Company's business and its financial results for the year 1999. Thegeneral report of the Independent Auditors does not require any comment from us.

The consolidated accounts show net income of EUR182 million, the Group's share being154 million, against EUR573.66 million and 535.62 million respectively for 1998. The fallin net income was for the most part due, as indicated in your Managing Partners’ report,to an exceptional provision associated with the implementation of the strategy to improvethe competitive position in Europe. You will have seen the improvement in the tradingmargin which, as a percentage of net sales, reached 9% for the year. You will also notethe scale of capital investments, illustrating the dynamism of the enterprise, and themaintenance of a healthy financial structure.

Operating cash flow was at the high level of EUR1.5 billion.

In France, the net sales of Manufacture Française des Pneumatiques Michelin were FRF25.5billion, up by 1.6%, while net income, after accounting for exceptional income, remainedflat at 974.6 million.

Compagnie Financière Michelin continued to play a central role in Group financing andincreased its stockholdings by SFR356.8 million.

Within this context your Managing Partners' proposal for a further increase in dividenddemonstrates their confidence for the future and their desire, with which we would liketo be associated, to share the benefit of Michelin’s progress with stockholders.

The mandates of M. Daniel Michelin and M. Grégoire Puiseux as members of the Conseilde surveillance are due to expire. M. Daniel Michelin has made it known to us that, forpersonal reasons, he does not wish his mandate to be renewed.

M. Grégoire Puiseux has indicated his willingness to be re-elected, subject to the approvalof the Annual Meeting.

S u p e r v i s o r y B o a r d ’ s r e p o r t

Compagnie Généra le des Établ i ssements Miche l inSupervisor y Board’s repor t

49

If these proposals are adopted, the Conseil will be made up as follows:

Name Year Term of office elected ends

M. Pierre MICHELIN 1998 2003

M. Edouard de ROYÈRE 1998 2003

M. Eric BOURDAIS de CHARBONNIÈRE 1999 2004

M. François GRAPPOTTE 1999 2004

M. Grégoire PUISEUX 2000 2005

You will also be asked to authorize a program for the purchase by the Company of itsshares. The motivation and propositions of your Managing Partners seem to us to beappropriate for the circumstances.

Finally, you will be requested to authorize your Managing Partners to borrow, in the formof bonds, to a limit of EUR1.25 billion, the authorization to be valid for a period of fiveyears.

We invite you to adopt the resolutions submitted for your approval.

Clermont-Ferrand, France, March 23, 2000

Daniel MICHELIN

Compagnie Généra le des Établ i ssements Miche l inSupervisor y Board’s repor t

Compagnie Généra le des Établ i ssements Miche l in

50

51


1999 South African Grand Prix

Company financial statements1999


52

Balance sheets at December 31

Fixed assets

Intangible fixed assets

Concessions, patents and similar rights 5 689 714.89 5 684 379.17 5 335.72 29 478.66

Other intangible fixed assets 61 296.21 43 324.64 17 971.57 19 255.25

Advances and payments on account — — — —

5 751 011.10 5 727 703.81 23 307.29 48 733.91

Tangible fixed assets

Land 102 469.01 — 102 469.01 102 469.01

Buildings 1 809 422.59 1 621 409.56 188 013.03 188 720.79

Other tangible fixed assets 467 622.14 397 277.56 70 344.58 95 906.99

Assets under construction — — — —


2 379 513.74 2 018 687.12 360 826.62 387 096.79

Financial fixed assets (1)

Stockholdings 2 610 410 632.60 389 332 196.73 2 221 078 435.87 2 177 065 334.06

Receivables related to stockholdings 1 210 143 663.78 — 1 210 143 663.78 1 340 944 314.62

Other investments 3 788 198.35 — 3 788 198.35 3 788 198.34

Loans 78 176.70 — 78 176.70 78 176.70

Other 681.45 — 681.45 681.45

3 824 421 352.88 389 332 196.73 3 435 089 156.15 3 521 876 705.17

(I) 3 832 551 877.72 397 078 587.66 3 435 473 290.06 3 522 312 535.87

Current assets

Accounts receivable 175 609 293.43 — 175 609 293.43 159 681 817.73

Stocks. shares and securities

Treasury stock 112 196 496.24 10 649 310.24 101 547 186.00 40 189 771.29

Other holdings 126 953.41 15.78 126 937.63 126 937.63

112 323 449.65 10 649 326.02 101 674 123.63 40 316 708.92

Cash and equivalents 100 249.38 — 100 249.38 79 394.38

Suspense accounts

Payments in advance (2) 39 714.59 — 39 714.59 4 718.35

(II) 288 072 707.05 10 649 326.02 277 423 381.03 200 082 639.38

Deferred charges (III) 1 817 207.06 — 1 817 207.06 2 113 464.43

Premiums on bond redemption (IV) — — — —

Foreign exchange conversion differences (V) — — — —

GRAND TOTAL (I + II + III + IV + V) 4 122 441 791.83 407 727 913.68 3 714 713 878.15 3 724 508 639.68

(1) of which. falling due within one year 559 187 397.66 625 807 012.26

(2) of which. falling due after one year — —

1999 1998

Net NetDepreciation and

provisionsGross


53

Stockholders' equity

Capital stock 269 431 746.00 251 935 793.96

Paid in excess of par 1 609 475 573.81 1 739 044 971.29

Revaluation differences 530 808 502.63 531 791 000.24

Reserves

Legal reserve 25 193 579.39 25 043 038.13

Tax-regulated reserve 430 740 348.79 318 560 804.85

Other reserves 103 031 915.59 72 531 915.59

Retained earnings 23 235 724.81 20 245 427.65

Income for the year 247 399 260.17 254 410 770.22

Tax-related provisions 61 597 677.21 61 597 677.21

(I) 3 300 914 328.40 3 275 161 399.14

Provisions for contingencies and charges

Contingencies 7 000 000.00 —

Future charges — —

(II) 7 000 000.00 —

Creditors (1)

Convertible bonds 10 119.94 18 372.54

Other bonds 322 612 741.96 322 612 818.60

Amounts owed to financial institutions (2) — —

Other borrowings (2) 32 503 799.35 32 096 878.73

Taxes and social charges 4 652 586.83 32 483 780.19

Fixed assets and related accounts 20 420.55 20 420.55

Other accounts payable 46 974 159.74 62 114 969.93

(III) 406 773 828.37 449 347 240.54

Foreign exchange conversion differences (IV) 25 721.38 —

GRAND TOTAL (I + II + III + IV) 3 714 713 878.15 3 724 508 639.68

(1) of which. falling due after one year 304 898 034.00 304 898 034.47

of which. falling due within one year 101 875 794.37 144 449 206.06

(2) of which. bank current facilities and overdraft balances — —

1999 1998

in euros


54

Statements of income for the years ended December 31in euros

Trading revenue (1)Royalties 296 709 451.18 272 554 108.48(of which. from outside France EUR241 242 105.69)Other revenue 87 642.43 48 462.84

(I) 296 797 093.61 272 602 571.32

Trading expenses (2)External charges 183 979 898.40 178 000 314.80Taxes and similar expense 1 665 402.56 651 105.62Wages and salaries 1 136 874.59 1 299 028.20Social charges 444 061.94 501 794.58Provision for depreciation● Fixed assets 91 302.31 169 688.46● Deferred trading expense — —Other expense 82 141.36 76 226.21

(II) 187 399 681.16 180 698 157.87

TRADING INCOME (I - II) 109 397 412.45 91 904 413.45

Financial revenueFrom stockholdings (3) 155 722 650.65 152 278 235.28Interest and similar receipts (3) 449 292.28 192 820.98Provisions written back — 492.05Foreign exchange gains 5 453 848.18 955 891.10Net gains on sales of securities 1 688 808.55 —

(III) 163 314 599.66 153 427 439.41

Financial expensesDepreciation and provisions 10 945 567.62 296 257.38Interest and similar charges (4) 19 177 256.30 19 650 327.87Foreign exchange losses 1 372 170.51 494 687.56Net losses on sales of securities — —

(IV) 31 494 994.43 20 441 272.81

FINANCIAL INCOME (III - IV) 131 819 605.23 132 986 166.60

ORDINARY INCOME BEFORE TAXATION (I - II + III - IV) 241 217 017.68 224 890 580.05

Exceptional revenueFrom ordinary activities 156 383.34 3 034.83From capital transactions 308 722.12 191 234.98Provisions written back 45 000 000.00 166 478 915.54

(V) 45 465 105.46 166 673 185.35

Exceptional expensesOn ordinary activities — 87 249 058.93On capital transactions 245 474.44 206 022.06Depreciation and provisions 7 000 000.00 —

(VI) 7 245 474.44 87 455 080.99

EXCEPTIONAL INCOME (V - VI) 38 219 631.02 79 218 104.36

TAXES ON INCOME (VII) 32 037 388.53 49 697 914.19

TOTAL REVENUE (I + III + V) 505 576 798.73 592 703 196.08

TOTAL EXPENSE (II + IV + VI + VII) 258 177 538.56 338 292 425.86

NET INCOME 247 399 260.17 254 410 770.22

(1) of which. revenue relating to previous years — —

(2) of which. expenses relating to previous years — —

(3) of which. revenue in respect of subsidiaries 155 285 663.85 152 070 903.20

(4) of which. expenses in respect of subsidiaries 980 022.98 1 673 959.27

1999 1998


55

Appendix to the financial statementsin euros

The balance sheet totals before appropriations for the year endedDecember 31, 1999 were EUR3 714 713 878.15.The statement of income for the year, presented in tabular form,shows:— Total revenue 505 576 798.73— Total expense 258 177 538.56

Net income for the financial year 247 399 260.17The accounting period consisted of twelve months and coincided withthe calendar year.These notes and tables form an integral part of the accounts.

THE YEAR'S ACTIVITIESMain features of the year's activities are covered in the ManagingPartners’ report to the Annual Meeting of Stockholders, convened toconsider the 1999 accounts.

ACCOUNTING METHODS AND PRINCIPLESThe methods of valuation and determination of the financial resulthave been applied on a basis consistent with previous years.The accounts for the year to December 31, 1999 have been preparedand presented in conformity with the accounting rules and with dueregard to the principles of prudence, separation of accounting yearsand continuity of trading.Specific valuation methods used in the preparation of the accountswere as follows:

a) Intangible fixed assets

The "Concessions, patents and similar rights" consist mainly ofpurchases of computer software; these items are written off according totheir relative importance, either within 12 months or over a 3-year period.

"Other intangible fixed assets" are vehicle parking rights, written offover a 40-year period in accordance with the fiscal rule.

b) Tangible fixed assets

● Gross valuesTangible fixed assets are valued at historic cost, increased whereapplicable by the legal revaluation undertaken in 1976/1978.

● Depreciation Is calculated on a straight-line basis and the asset lives used are:- Buildings 30 years,- Other tangible fixed assets 10 years, with the exception of

computer equipment where a life of 5 years is used.

c) Financial fixed assets

Stockholdings● Gross values: stockholdings are valued at historic cost,

increased where applicable by the revaluation undertaken in1976/1978.

● Net values: generally, the net values appearing in the balancesheet are not greater than those which would be used in aconsolidation by the equity method, with the followingexceptions:

- for Manufacture Française des Pneumatiques Michelin, dueto the existence of potential capital gains on various tangibleassets and also to the fact that there are intangible assets notrecorded in the balance sheet.

Note, however, that the provision for depreciation previouslymade against the value of this stockholding has again beenpartly written back this year, as a consequence of thecompany's positive financial result.

- for Pardevi S.A., the valuation of which, in accordance withaccounting and fiscal rules, takes into account the potentialgains on its portfolio.

Other financial investments

Holdings that the Company intends to retain but which are notdirectly related to its business activity are grouped under thisheading.

They are valued consistent with stockholdings.

d) Accounts receivable

Appear at nominal value.

e) Paid in excess of par

This heading relates mainly to premiums on issues of stock and onthe conversion of bonds into shares.

f) Tax-regulated reserves

Consist almost entirely of capital gains reinvested in the writing-down of financial securities in accordance with the former article40 of the Code Général des Impôts. The amounts were classed as"Regulated depreciation" prior to the legal revaluation undertakenin 1976/1978.

g) Foreign exchange operations

Revenues and expenses in currency are recorded at their exchangevalues at the date of the transaction.

Amounts receivable and payable in currency are shown in thebalance sheet, converted to euros at the December 31 exchangerate. The resulting differences are shown in the balance sheet as"foreign exchange conversion differences", either as an asset orliability. Potential currency losses are provided for separately ascontingencies.

Forward exchange operations outstanding at the end of the yearare shown in the balance sheet. Any potential net losses likely toresult from them are provisioned, as necessary, under"Contingencies".

h) Deferred charges

Relate to the balance of issue expenses of the 1996 bonds, writtenoff over the term of the borrowing.


56

FIXED ASSETS AND DEPRECIATIONIntangible and tangible fixed assets which are not material, together with those which are almost entirely written off, are not included in the tables below.

FIXED ASSETSGross value

atJanuary 1

Acquisitions,New loans, Increases

in holdings

Sales, Taken out of service,Repayment of loans,Decreases in holdings

Gross valueat December 31

Intangible fixed assets 5 746 133 4 878 — 5 751 011Tangible fixed assets 2 346 571 40 082 7 139 2 379 514

8 092 704 44 960 7 139 8 130 525

Financial fixed assets:Stockholdings 2 610 647 531 3 222 240 120 2 610 410 633Receivables related to stockholdings 1 340 944 315 — 130 800 651 1 210 143 664Other financial investments 3 788 198 — — 3 788 198Loans 78 177 — — 78 177Other financial assets 681 — — 681

3 955 458 902 3 222 131 040 771 3 824 421 353

TOTAL 3 963 551 606 48 182 131 047 910 3 832 551 878

DEPRECIATION Balance at January 1

Increases: Provisionedduring the year

Decreases: Depreciationrelated to disposals

Balanceat December 31


7 656 873 91 302 1 784 7 746 391

Deferred charges 849 109 296 257 — 1 145 366

TOTAL 8 505 982 387 559 1 784 8 891 757

PROVISIONSBalance

at January 1Increases: Provisioned

during the yearDecreases: Written back

during the yearBalance at

December 31

Tax-related provisions 61 597 677 — — 61 597 677Provisions for contingencies and charges:Contingencies — 7 000 000 — 7 000 000Deferred charges — — — —

— 7 000 000 — 7 000 000

Amortization (1) 433 582 212 11 399 310 45 000 000 399 981 522

TOTAL 495 179 889 18 399 310 45 000 000 468 579 199

of which, provisioned and written back:- operating — —- financial 10 649 310 —- exceptional 7 000 000 45 000 000- transfer to revaluation reserve 750 000 —

(1) Movements in the provision for amortization concerned the following:- Provisioned: Treasury stock 10 649 310

Various holdings 750 000Accounts receivable —

- Written back: MFPM stockholding 45 000 000

in euros


57

DETAILS OF CERTAIN BALANCE SHEET ITEMS

MATURITY OF AMOUNTS DUE AND PAYABLE

Related to companies

Subsidiaries InvestmentsPayables or receivables in the form

of Bills of exchange

Stockholdings (net value) 2 221 078 435 1 —Receivables related to stockholdings 1 210 143 664 — —Other financial fixed asset investments — 3 788 198 —Other amounts receivable 110 248 056 — —Other borrowings 32 503 799 — —Other accounts payable 45 304 870 — —

DUE Gross due within one year due after one year

PAYABLE Gross due within one year due after one and within five years due after five years

Fixed assetsReceivables related to stockholdings 1 210 143 664 559 186 360 650 957 304Loans 78 177 1 038 77 139Other financial fixed assets 681 — 681

Current assetsAccounts receivable 175 609 293 175 607 627 1 666

TOTAL 1 385 831 815 734 795 025 651 036 790

Convertible bonds 10 120 10 120 — —Other bonds 322 612 742 17 714 708 — 304 898 034 (1)Amounts owed to financial institutions — — — —Other borrowings 32 503 799 32 503 799 — —Taxes and social charges 4 652 587 4 652 587 — —Fixed assets and related accounts 20 420 20 420 — —Other accounts payable 46 974 160 46 974 160 — —

TOTAL 406 773 828 101 875 794 — 304 898 034 (1)

(1) 1996 borrowing at 6.7% repayable in full at par, February 19, 2006.

Balance sheet item

Convertible bonds —Other bonds 17 704 209Amounts owed to financial institutions —Other borrowings 258 689Taxes and social charges 430 651Other accounts payable 1 128 322

TOTAL 19 521 871

ACCRUED INTEREST AND INVOICES PENDING

in euros


58

SUSPENSE ACCOUNTS PAYMENTS ANDREVENUES IN ADVANCEPayments in advance were in respect of trading expenses, in the sum of

39 715

REVALUATIONRevaluation differences were 530 808 503of which: – 32 091 related to land,

– 530 776 412 related to stockholdings.

CAPITAL STOCK Number Nominalvalue

1. Shares issued at January 1 137 715 873 (FRF 12) (1)

2. Shares issued during the year — —

3. Shares canceled 3 000 000 EUR2 (2)

4. Shares issued at December 31 134 715 873 EUR2

(1) Following the resolution adopted by the Special Meeting of June 11,1999, the nominal value was changed to EUR2.

(2) The Managing Partners decided on September 7, 1999 to cancel3,000,000 shares held in treasury stock. This was effective fromOctober 7, 1999 and as a result:- capital stock was reduced by EUR6,000,000;- the account paid in excess of par was reduced by EUR106,148,433.43.

Changing the nominal value to EUR2 led to:- an increase of EUR23,495,952.04 in capital stock;- a reduction of the same amount in the account “Paid in excess of par”.

TRADING REVENUETrading revenue of 296 709 451 consisted wholly of royalties.It was made up as follows:- France 55 467 345- Outside of France 241 242 106

296 709 451

TAXES ON INCOMEThe charge for corporate taxes was 32 037 389 in 1999.

MARKET EXPOSURE

a) Interest rate riskFollowing the issue of bonds to the value of FRF2 billion in February1996, now converted to EUR304,898,034, the Company entered intoan interest rate swap agreement for EUR76,224,509. Outside of this,the borrowing is financed at three-month market rates.There are no commitments to other interest rate instruments.

b) Foreign exchange riskAt December 31, 1999 the Company had receivables to a total netvalue of 67 million in respect of accrued royalties. The amounts will bereceived either in one of the major European currencies or in US dollarsand are included in the balance sheet at their euro exchange value asat the end of the year. Provision has been made as necessary to coverpotential exchange risk. It is in any case partially covered by forwardsales and for these, the minor differences between the amounts ofcurrency payable and receivable are included, where appropriate, inascertaining the balance sheet provision for foreign exchangeconversion differences.

c) Risk on stock heldThe Company holds:– stock, both in associated companies and as long-term investments.

The valuation of these reflects their utility to the Company and alsotheir potential worth on realization;

– stocks, shares and securities to an overall net value of 102 million.Their quoted price amounted to 102 million.

MANAGEMENT COMPENSATIONThe Company is administered by Gérants (Managing Partners) who arealso Associés commandités (General Partners). In this latter capacity theybenefit from a global allocation of income as prescribed by the Articles andshared between all of the General Partners. The Managing Partners do nototherwise receive salary or benefits in kind from the Company or fromcompanies which it controls.

Management 7 —Supervisory/Technical — —Staff 25 —Hourly paid — 1

32 1

POSTRETIREMENT INDEMNITY LIABILITIESThe Company's obligations under this heading are detailed in theConvention Collective. The total actuarial valuation of the liability as atDecember 31, 1999 was approximately 0.7 million. It was not provided forin the accounts.

INCREASES / DECREASES IN THE FUTURE TAXCHARGE

Type of temporary difference Amount

Increases:Tax-regulated provisions 276 852 389

Increases in the future taxation charge- Corporate tax at 19% 52 601 954- Contribution at 10% 5 260 195- Contribution at 3.3% 1 735 864

TOTAL 59 598 013

Decreases:Provisions not deductible in the year in which they were made:- Contingencies and charges —- Amortization —Other 552 090Depreciation classed as deferred —Losses carried forward —Long-term amortization of investments —Decreases in the future taxation charge- Corporate tax at 19% 104 897- Contribution at 10% 10 490- Contribution at 3.3% 3 461

TOTAL 118 848

Permanentemployees

AVERAGE NUMBEROF EMPLOYEES

Temporarystaff

in euros


59

INVESTMENT PORTFOLIO AT DECEMBER 31, 1999

Holding Inventory value

Stockholdings and other fixed asset securities. portfolio value exceeding EUR152 449:

Compagnie Financière Michelin 12 252 920 shares 1 502 100 738.75

Manufacture Française des Pneumatiques Michelin 3 199 580 — 530 934 412.35

Participation et Développement Industriels S.A. “Pardevi” 1 199 986 — 144 367 415.05

Société de Technologie Michelin 99 994 — 15 243 987.03

Spika S.A. 199 986 — 25 914 518.79

Société de Participations dans les Entreprises Régionales en Expansion “Siparex” 121 987 — 1 909 893.66

Siparex Associés 115 152 — 1 542 911.97

Société Financière d’Innovation du Sud-Est “Sudinnova” 21 786 — 335 392.72

Société d’Exportation Michelin 20 000 parts 2 517 363.14

Other stockholdings (Total) 0.76

Stocks. shares and securities:

Treasury stock 2 603 774 shares 101 547 186.00

Securities 640.30

Shares. New York stock exchange 34 607 — 126 297.33

in euros


60

LIST OF AFFILIATES AND STOCKHOLDINGS

Capitalstock

(1)

Otherstockholders’equity beforeIncome (Loss)

(1)

%Holding

Value of holding inaccounts

Loans andAdvances

made by theCompany

not yet repaid

Guaranteesand

Endorse-ments

given by the

Company

Net salesin last

accountingperiod

Incomein last

accountingperiod

Dividendsreceived by

theCompany

duringthe yearGross Net

A - Details of affiliates and stockholdings(portfolio value exceeding 1% of the capital stock of the Company)

1 – Subsidiaries (holding of more than 50%)

Société d'Exportation MichelinPlace des Carmes-Déchaux, 63000 Clermont-Ferrand, France

FRF1 000 000 FRF10 917 451 100 4 182 057 2 517 363 — — 8 500 104 674 722 609 186

Participation et Développement Industriels S.A. "Pardevi"23, rue Breschet, 63000 Clermont-Ferrand, France

FRF120 000 000 FRF204 960 343 99.99 159 727 854 144 367 415 — — — 2 562 519 3 109 924

Compagnie Financière Michelin12, route Louis-Braille, 1763 Granges-Paccot, SwitzerlandSFR1 404 831 200 SFR2 520 650 360 91.67 1 502 100 739 1 502 100 739 — — — 189 679 415 96 958 186

Société de Technologie Michelin23, rue Breschet, 63000 Clermont-Ferrand, France

FRF100 000 000 FRF10 924 212 99.99 15 243 987 15 243 987 — — 128 914 599 1 837 877 —

Spika S.A.23, rue Breschet, 63000 Clermont-Ferrand, France

FRF20 000 000 FRF168 235 902 99.99 25 914 519 25 914 519 41 998 941 — — 1 593 730 —

2 – Stockholdings (holding between 10 and 50%)

Manufacture Française des Pneumatiques MichelinPlace des Carmes-Déchaux, 63000 Clermont-Ferrand, FranceFRF2 000 000 000 FRF3 447 008 386 39.99 902 534 145 530 934 412 426 752 470 — 3 892 684 157 148 576 975 —

B -General information regarding other affiliates and stockholdings

1 -Affiliates not included in A:

- In France — — — — — —

- Outside France 615 661 3 — — —

2 -Stockholdings not included in A:

- In France — 433 1 — — (note 2) 149 095

- Outside France — 91 238 1 — —

(1) In local currency(2) Company wound up in 1999 by Société d'Exportation Michelin, which has taken over its operations.

in euros


61

CHANGES IN STOCKHOLDERS’ EQUITY (Balance sheet before distributions, non-consolidated)

1998 1999

Result for the year (in EUR thousands and EUR per share)

Statement of Income

Income 254 411 247 399

per share 1.85 1.84

Proposed Dividend

Total 88 146 95 648

per A capital share 0.66 —

per A jouissance and B share 0.64 —

per share — 0.71

Detailed changes in stockholders’ equity (in EUR thousands) 1999

A) 1- Stockholders’ equity at end of 1998 financial year 3 275 161

2- Distributions voted by the Annual Meeting of Stockholders 109 299

3- Balance brought forward in 1999 financial year 3 165 862

B) Retrospective adjustments to the balance brought forward in 1999:

1- to Capital stock and paid in excess of par —

2- to Reserves —

C) Stockholders’ equity brought forward after retrospective adjustments (A3 + B) 3 165 862

D) Changes during the year:

1- Capital stock 17 496

2- Paid in excess of par (129 569)

3- Revaluation differences (982)

4- Reserves —

5- Tax-related provisions —

6- Adjustment of retained earnings brought forward 708

7- 1999 Net income 247 399

E) Stockholders’ equity. before Annual Meeting. (C + D) 3 300 914

F) Total change in stockholders’ equity during the year (E - C) 135 052

G) of which: variation due to change in capital stock and premiums (112 073)

H) Change in stockholders’ equity during the year excluding changes in the capital stock and premiums (F - G) 247 125

in euros


62

D1 : – Amount transferred from Paid in excess of par for conversion of the FRF12 nominalvalue of shares to its equivalent in euros, rounded to EUR2. 23 496

– Reduction of capital by cancellation of shares (6 000)

D2 : – Transfer for conversion of shares from a nominal value of FRF12, rounded to EUR2 (23 496)

– Deduction representing the difference between the net accounting value of treasurystock canceled and the amount by which capital was reduced. (106 148)

– Premium following the re-unification of A jouissance stock 75

D3 : – Revaluation reserve written back (982)

D6 : – Dividend attributable to treasury stock 708

Notes:

SOURCES

Balance of retained earnings brought forward 23 235 724.81

Net Income for the financial year 247 399 260.17

APPROPRIATIONS

Legal reserve 1 749 595.21

Tax-regulated reserves for long-term capital gains 74 681 618.14

Dividends 95 648 269.83

Share attributable to the General Partners.

as provided by the Articles 1 824 786.36

Taxes on distributions 19 767 499.00

Other reserves 40 000 000.00

Balance of retained earnings carried forward 36 963 216.44

TOTAL 270 634 984.98 270 634 984.98

APPROPRIATIONS OF INCOME FOR THE YEAR 1999

(in EUR thousands)

in euros


63

19991998199719961995

I - CAPITAL AT DECEMBER 31

a) Capital stock 210 802 404.00 219 766 061.00 250 430 381.00 251 935 794.00 269 431 746

b) Issued common shares 115 231 094.00 120 130 905.00 136 892 968.00 137 715 873.00 134 715 873

c) Issued non-voting shares with priority dividend — — — — —

d) Maximum future issues of shares:d1: arising from convertible bonds 20 299 043.00 16 080 530.00 — — —d2: arising from warrants — — — — —d3: arising from loyalty bonus — — — — —

II - ANNUAL RESULTS

a) Trading revenue. excluding taxes 70 846 029.90 79 570 761.33 84 605 104.22 272 554 108.48 296 709 451.18

b) Income before taxation and net depreciation and provisions 58 483 781.87 172 741 401.47 128 682 124.31 138 095 222.66 252 473 518.63

c) Taxes on income 10 293 519.24 (1 995 163.40) 26 404 610.82 49 697 914.19 32 037 388.53

d) Employees' share of income for the year — — — — —

e) Net income after taxation.depreciation and provisions 56 095 049.25 121 122 242.07 192 361 544.60 254 410 770.22 247 399 260.17

III - RESULTS PER SHARE

a) Income after taxation but before depreciation and provisions 0.51 1.45 0.75 0.64 1.64

b) Net income after taxation. depreciation and provisions 0.49 1.01 1.41 1.85 1.84

c) Dividend:– A capital share 0.43 0.52 0.59 0.66 —– A jouissance and B share 0.42 0.50 0.58 0.64 —– per share 2.75 3.30 3.80 4.20 0.71

IV - PERSONNEL

a) Average number of employees during the year 33.00 34.00 32.00 33.00 32

b) Total salaries & wages paid during the year 1 202 410.54 1 601 588.56 1 258 445.54 1 299 028.20 1 136 874.59

c) Cost of social security and employee facilities 473 922.01 536 429.51 482 490.79 501 794.58 444 061.94

SUMMARY OF RESULTS FOR THE YEARS 1995 TO 1999 in euros


64


65

Company financial statements1999

in French francs


66

Balance sheets at December 31

Fixed assets

Intangible fixed assets

Concessions. patents and similar rights 37 322 083.10 37 287 083.07 35 000.03 193 367.32

Other intangible fixed assets 402 076.78 284 191.01 117 885.77 126 306.21


37 724 159.88 37 571 274.08 152 885.80 319 673.53

Tangible fixed assets

Land 672 152.65 — 672 152.65 672 152.69

Buildings 11 869 034.14 10 635 749.51 1 233 284.63 1 237 927.21

Other tangible fixed assets 3 067 400.16 2 605 969.96 461 430.20 629 108.65

Assets under construction — — — —


15 608 586.95 13 241 719.47 2 366 867.48 2 539 188.55

Financial fixed assets (1)

Stockholdings 17 123 171 273.28 2 553 851 797.70 14 569 319 475.58 14 280 612 453.33

Receivables related to stockholdings 7 938 022 072.62 — 7 938 022 072.62 8 796 018 097.85

Other investments 24 848 952.25 — 24 848 952.25 24 848 952.19

Loans 512 805.54 — 512 805.54 512 805.54

Other 4 470.02 — 4 470.02 4 470.00

25 086 559 573.71 2 553 851 797.70 22 532 707 776.01 23 101 996 778.91

(I) 25 139 892 320.54 2 604 664 791.25 22 535 227 529.29 23 104 855 640.99

Current assets

Accounts receivable 1 151 921 452.90 — 1 151 921 452.90 1 047 444 061.10

Stocks. shares and securities

Treasury stock 735 960 770.84 69 854 895.97 666 105 874.87 263 627 618.03

Other holdings 832 759.78 103.51 832 656.27 832 656.28

736 793 530.62 69 854 999.48 666 938 531.14 264 460 274.31

Cash and equivalents 657 592.83 — 657 592.83 520 792.98

Suspense accounts

Payments in advance (2) 260 510.63 — 260 510.63 30 950.31

(II) 1 889 633 086.98 69 854 999.48 1 819 778 087.50 1 312 456 078.70

Deferred charges (III) 11 920 096.91 — 11 920 096.91 13 863 417.88

Premiums on bond redemption (IV) — — — —

Foreign exchange conversion differences (V) — — — —

GRAND TOTAL (I + II + III + IV + V) 27 041 445 504.43 2 674 519 790.73 24 366 925 713.70 24 431 175 137.57

(1) of which. falling due within one year 3 668 028 878.07 4 105 024 903.39

(2) of which. falling due after one year — —

1999 1998

Net NetDepreciation and

provisionsGross


67

Stockholders' equity

Capital stock 1 767 356 398.11 1 652 590 476.00

Paid in excess of par 10 557 467 689.70 11 407 387 222.30

Revaluation differences 3 481 875 529.60 3 488 320 291.43

Reserves

Legal reserve 165 259 047.56 164 271 561.60

Tax-regulated reserve 2 825 471 469.71 2 089 621 898.70

Other reserves 675 845 062.55 475 778 177.57

Retained earnings 152 416 363.39 132 801 299.85

Income for the year 1 622 832 765.03 1 668 825 256.00

Tax-related provisions 404 054 275.50 404 054 275.54

(I) 21 652 578 601.15 21 483 650 458.99

Provisions for contingencies and charges

Contingencies 45 916 990.00 —

Future charges — —

(II) 45 916 990.00 —

Creditors (1)

Convertible bonds 66 382.45 120 515.96

Other bonds 2 116 200 863.78 2 116 201 366.52

Amounts owed to financial institutions (2) — —

Other borrowings (2) 213 210 947.10 210 541 722.78

Taxes and social charges 30 518 968.99 213 079 630.02

Fixed assets and related accounts 133 950.03 133 950.00

Other accounts payable 308 130 289.01 407 447 493.30

(III) 2 668 261 401.36 2 947 524 678.58

Foreign exchange conversion differences (IV) 168 721.19 —

GRAND TOTAL (I + II + III + IV) 24 366 925 713.70 24 431 175 137.57

(1) of which. falling due after one year 2 000 000 000.00 2 000 000 000.00

of which. falling due within one year 668 261 404.48 947 524 678.58

(2) of which. bank current facilities and overdraft balances — —

1999 1998

in French francs


68

Trading revenue (1)Royalties 1 946 286 414.68 1 787 837 753.34(of which. from outside France FRF1 582 444 479.18)Other revenue 574 896.65 317 895.35

(I) 1 946 861 311.33 1 788 155 648.69

Trading expenses (2)External charges 1 206 829 022.15 1 167 605 524.93Taxes and similar expense 10 924 324.67 4 270 972.89Wages and salaries 7 457 408.46 8 521 066.41Social charges 2 912 855.38 3 291 556.67Provision for depreciation● Fixed assets 598 903.89 1 113 083.32● Deferred trading expense — —Other expense 538 812.00 500 011.15

(II) 1 229 261 326.55 1 185 302 215.37

TRADING INCOME (I - II) 717 599 984.78 602 853 433.32

Financial revenueFrom stockholdings (3) 1 021 473 627.52 998 879 743.77Interest and similar receipts (3) 2 947 164.16 1 264 822.69Provisions written back — 3 227.66Foreign exchange gains 35 774 898.91 6 270 234.58Net gains on sales of securities 11 077 857.90 —

(III) 1 071 273 548.49 1 006 418 028.70

Financial expensesDepreciation and provisions 71 798 216.99 1 943 321.00Interest and similar charges (4) 125 794 555.11 128 897 701.16Foreign exchange losses 9 000 848.51 3 244 937.68Net losses on sales of securities — —

(IV) 206 593 620.61 134 085 959.84

FINANCIAL INCOME (III - IV) 864 679 927.88 872 332 068.86

ORDINARY INCOME BEFORE TAXATION (I - II + III - IV) 1 582 279 912.66 1 475 185 502.18

Exceptional revenueFrom ordinary activities 1 025 807.46 19 907.21From capital transactions 2 025 084.36 1 254 419.21Provisions written back 295 180 650.00 1 092 030 100.00

(V) 298 231 541.82 1 093 304 426.42

Exceptional expensesOn ordinary activities — 572 316 309.47On capital transactions 1 610 206.77 1 351 416.13Depreciation and provisions 45 916 990.00 —

(VI) 47 527 196.77 573 667 725.60

EXCEPTIONAL INCOME (V - VI) 250 704 345.05 519 636 700.82

TAXES ON INCOME (VII) 210 151 492.68 325 996 947.00

TOTAL REVENUE (I + III + V) 3 316 366 401.64 3 887 878 103.81

TOTAL EXPENSE (II + IV + VI + VII) 1 693 533 636.61 2 219 052 847.81

NET INCOME 1 622 832 765.03 1 668 825 256.00

(1) of which. revenue relating to previous years — —

(2) of which. expenses relating to previous years — —

(3) of which. revenue in respect of subsidiaries 1 018 607 182.02 997 519 734.48

(4) of which. expenses in respect of subsidiaries 6 428 529.34 10 980 453.00

1999 1998

Statements of income for the years ended December 31in French francs


69

Appendix to the financial statementsin French francs

The balance sheet totals before appropriations for the year endedDecember 31, 1999 were FRF24 366 925 713.70.The statement of income for the year, presented in tabular form,shows:— Total revenue 3 316 366 401.64— Total expense 1 693 533 636.61

Net income for the financial year 1 622 832 765.03The accounting period consisted of twelve months and coincided withthe calendar year.These notes and tables form an integral part of the accounts.

THE YEAR'S ACTIVITIESMain features of the year's activities are covered in the ManagingPartners’ report to the Annual Meeting of Stockholders, convened toconsider the 1999 accounts.

ACCOUNTING METHODS AND PRINCIPLESThe methods of valuation and determination of the financial resulthave been applied on a basis consistent with previous years.The accounts for the year to December 31, 1999 have been preparedand presented in conformity with the accounting rules and with dueregard to the principles of prudence, separation of accounting yearsand continuity of trading.Specific valuation methods used in the preparation of the accountswere as follows:

a) Intangible fixed assets

The "Concessions, patents and similar rights" consist mainly ofpurchases of computer software; these items are written off according totheir relative importance, either within 12 months or over a 3-year period.

"Other intangible fixed assets" are vehicle parking rights, written offover a 40-year period in accordance with the fiscal rule.

b) Tangible fixed assets

● Gross valuesTangible fixed assets are valued at historic cost, increased whereapplicable by the legal revaluation undertaken in 1976/1978.

● Depreciation Is calculated on a straight-line basis and the asset lives used are:- Buildings 30 years,- Other tangible fixed assets 10 years, with the exception of

computer equipment where a life of 5 years is used.

c) Financial fixed assets

Stockholdings● Gross values: stockholdings are valued at historic cost,

increased where applicable by the revaluation undertaken in1976/1978.

● Net values: generally, the net values appearing in the balancesheet are not greater than those which would be used in aconsolidation by the equity method, with the followingexceptions:

- for Manufacture Française des Pneumatiques Michelin, dueto the existence of potential capital gains on various tangibleassets and also to the fact that there are intangible assets notrecorded in the balance sheet.

Note, however, that the provision for depreciation previouslymade against the value of this stockholding has again beenpartly written back this year, as a consequence of thecompany's positive financial result.

- for Pardevi S.A., the valuation of which, in accordance withaccounting and fiscal rules, takes into account the potentialgains on its portfolio.

Other financial investments

Holdings that the Company intends to retain but which are notdirectly related to its business activity are grouped under thisheading.

They are valued consistent with stockholdings.

d) Accounts receivable

Appear at nominal value.

e) Paid in excess of par

This heading relates mainly to premiums on issues of stock and onthe conversion of bonds into shares.

f) Tax-regulated reserves

Consist almost entirely of capital gains reinvested in the writing-down of financial securities in accordance with the former article40 of the Code Général des Impôts. The amounts were classed as"Regulated depreciation" prior to the legal revaluation undertakenin 1976/1978.

g) Foreign exchange operations

Revenues and expenses in currency are recorded at their exchangevalues at the date of the transaction.

Amounts receivable and payable in currency are shown in thebalance sheet, converted to French francs at the December 31exchange rate. The resulting differences are shown in the balancesheet as "foreign exchange conversion differences", either as anasset or liability. Potential currency losses are provided forseparately as contingencies.

Forward exchange operations outstanding at the end of the yearare shown in the balance sheet. Any potential net losses likely toresult from them are provisioned, as necessary, under"Contingencies".

h) Deferred charges

Relate to the balance of issue expenses of the 1996 bonds, writtenoff over the term of the borrowing.


70

FIXED ASSETS AND DEPRECIATIONIntangible and tangible fixed assets which are not material, together with those which are almost entirely written off, are not included in the tables below.

FIXED ASSETSGross value

atJanuary 1

Acquisitions,New loans, Increases

in holdings

Sales, Taken out of service,Repayment of loans,Decreases in holdings

Gross valueat December 31


53 084 659 294 918 46 830 53 332 747

Financial fixed assets:Stockholdings 17 124 725 223 21 134 1 575 084 17 123 171 273Receivables related to stockholdings 8 796 018 098 — 857 996 025 7 938 022 073Other financial investments 24 848 952 — — 24 848 952Loans 512 806 — — 512 806Other financial assets 4 470 — — 4 470

25 946 109 549 21 134 859 571 109 25 086 559 574

TOTAL 25 999 194 208 316 052 859 617 939 25 139 892 321

DEPRECIATION Balance at January 1

Increases: Provisionedduring the year

Decreases: Depreciationrelated to disposals

Balanceat December 31


50 225 797 598 904 11 708 50 812 993

Deferred charges 5 569 791 1 943 321 — 7 513 112

TOTAL 55 795 588 2 542 225 11 708 58 326 105

PROVISIONSBalance

at January 1Increases: Provisioned

during the yearDecreases: Written back

during the yearBalance at

December 31

Tax-related provisions 404 054 276 — — 404 054 276Provisions for contingencies and charges:Contingencies — 45 916 990 — 45 916 990Deferred charges — — — —

— 45 916 990 — 45 916 990

Amortization (1) 2 844 112 874 74 774 573 295 180 650 2 623 706 797

TOTAL 3 248 167 150 120 691 563 295 180 650 3 073 678 063

of which, provisioned and written back:- operating — —- financial 69 854 896 —- exceptional 45 916 990 295 180 650- transfer to revaluation reserve 4 919 677 —

(1) Movements in the provision for amortization concerned the following:- Provisioned: Treasury stock 69 854 896

Various holdings 4 919 677Accounts receivable —

- Written back: MFPM stockholding 295 180 650

in French francs


71

DETAILS OF CERTAIN BALANCE SHEET ITEMS

MATURITY OF AMOUNTS DUE AND PAYABLE

Related to companies

Subsidiaries InvestmentsPayables or receivables in the form

of Bills of exchange

Stockholdings (net value) 14 569 319 472 4 —Receivables related to stockholdings 7 938 022 073 — —Other financial fixed asset investments — 24 848 952 —Other amounts receivable 723 179 838 — —Other borrowings 213 210 947 — —Other accounts payable 297 180 463 — —

DUE Gross due within one year due after one year

PAYABLE Gross due within one year due after one and within five years due after five years

Fixed assetsReceivables related to stockholdings 7 938 022 073 3 668 022 073 4 270 000 000Loans 512 806 6 806 506 000Other financial fixed assets 4 470 — 4 470

Current assetsAccounts receivable 1 151 921 453 1 151 910 522 10 931

TOTAL 9 090 460 802 4 819 939 401 4 270 521 401

Convertible bonds 66 382 66 382 — —Other bonds 2 116 200 864 116 200 864 — 2 000 000 000 (1)Amounts owed to financial institutions — — — —Other borrowings 213 210 947 213 210 947 — —Taxes and social charges 30 518 969 30 518 969 — —Fixed assets and related accounts 133 950 133 950 — —Other accounts payable 308 130 289 308 130 289 — —

TOTAL 2 668 261 401 668 261 401 — 2 000 000 000 (1)

(1) 1996 borrowing at 6.7% repayable in full at par, February 19, 2006.

Balance sheet item

Convertible bonds —Other bonds 116 132 000Amounts owed to financial institutions —Other borrowings 1 696 892Taxes and social charges 2 824 885Other accounts payable 7 401 305

TOTAL 128 055 082

ACCRUED INTEREST AND INVOICES PENDING

in French francs


72

SUSPENSE ACCOUNTS PAYMENTS ANDREVENUES IN ADVANCEPayments in advance were in respect of trading expenses, in the sum of

260 511

REVALUATIONRevaluation differences were 3 481 875 530of which: - 210 500 related to land,

- 3 481 665 030 related to stockholdings.

CAPITAL STOCK Number Nominalvalue

1. Shares issued at January 1 137 715 873 (FRF 12) (1)

2. Shares issued during the year — —

3. Shares canceled 3 000 000 EUR2 (2)

4. Shares issued at December 31 134 715 873 EUR2

(1) Following the resolution adopted by the Special Meeting of June 11,1999, the nominal value was changed to EUR2.

(2) The Managing Partners decided on September 7, 1999 to cancel3,000,000 shares held in treasury stock. This was effective fromOctober 7, 1999 and as a result:- capital stock was reduced by EUR6,000,000 (FRF39,357,420);- the account paid in excess of par was reduced by

EUR106,148,432.43 (FRF696,288,079).

Changing the nominal value to EUR2 led to:- an increase of FRF154,123,342 in capital stock;- a reduction of the same amount in the account “Paid in excess of par”.

TRADING REVENUETrading revenue of FRF1 946 286 415 consisted wholly of royalties.It was made up as follows:- France 363 841 936- Outside of France 1 582 444 479

1 946 286 415

TAXES ON INCOMEThe charge for corporate taxes was 210 151 493 in 1999.

MARKET EXPOSURE

a) Interest rate riskFollowing the issue of bonds to the value of FRF2 billion in February1996, now converted to EUR304,898,034, the Company entered intoan interest rate swap agreement for EUR76,224,509. Outside of this,the borrowing is financed at three-month market rates.There are no commitments to other interest rate instruments.

b) Risk on stock heldAt December 31, 1999 the Company had receivables to a total net valueof 441 million in respect of accrued royalties. The amounts will be receivedeither in one of the major European currencies or in US dollars and areincluded in the balance sheet at their French franc exchange value as atthe end of the year. Provision has been made as necessary to coverpotential exchange risk. It is in any case partially covered by forward salesand for these, the minor differences between the amounts of currencypayable and receivable are included, where appropriate, in ascertainingthe balance sheet provision for foreign exchange conversion differences.

c) Risk on stock heldThe Company holds:– stock, both in associated companies and as long-term investments.

The valuation of these reflects their utility to the Company and alsotheir potential worth on realization;

– stocks, shares and securities to an overall net value of 667 million.Their quoted price amounted to 667 million.

MANAGEMENT COMPENSATIONThe Company is administered by Gérants (Managing Partners) who arealso Associés commandités (General Partners). In this latter capacity theybenefit from a global allocation of income as prescribed by the Articles andshared between all of the General Partners. The Managing Partners do nototherwise receive salary or benefits in kind from the Company or fromcompanies which it controls.

Management 7 —Supervisory/Technical — —Staff 25 —Hourly paid — 1

32 1

POSTRETIREMENT INDEMNITY LIABILITIESThe Company's obligations under this heading are detailed in theConvention Collective. The total actuarial valuation of the liability as atDecember 31, 1999 was approximately 5 million. It was not provided forin the accounts.

INCREASES / DECREASES IN THE FUTURE TAXCHARGE

Type of temporary difference Amount

Increases:Tax-regulated provisions 1 816 032 625

Increases in the future taxation charge- Corporate tax at 19% 345 046 199- Contribution at 10% 34 504 620- Contribution at 3.3% 11 386 525

TOTAL 390 937 344

Decreases:Provisions not deductible in the year in which they were made:- Contingencies and charges —- Amortization —Other 3 621 473Depreciation classed as deferred —Losses carried forward —Long-term amortization of investments —Decreases in the future taxation charge- Corporate tax at 19% 688 079- Contribution at 10% 68 808- Contribution at 3.3% 22 707

TOTAL 779 594

in French francs

Permanentemployees

AVERAGE NUMBEROF EMPLOYEES

Temporarystaff


73

INVESTMENT PORTFOLIO at December 31, 1999

Holding Inventory value

Stockholdings and other fixed asset securities, portfolio value exceeding FRF2 000 000:

Compagnie Financière Michelin 12 252 920 shares 9 853 134 942.88

Manufacture Française des Pneumatiques Michelin 3 199 580 — 3 482 701 443.22

Participation et Développement Industriels S.A. “Pardevi” 1 199 986 — 946 988 164.74

Société de Technologie Michelin 99 994 — 99 994 000.00

Spika S.A. 199 986 — 169 988 100.02

Société de Participations dans les Entreprises Régionales en Expansion “Siparex” 121 987 — 12 528 081.16

Siparex Associés 115 152 — 10 120 839.07

Société Financière d’Innovation du Sud-Est “Sudinnova” 21 786 — 2 200 032.02

Société d’Exportation Michelin 20 000 parts 16 512 819.73

Other stockholdings (Total) 4.99

Stocks. shares and securities:

Treasury stock 2 603 774 shares 666 105 874.87

Securities 4 200.09

Shares. New York stock exchange 34 607 — 828 456.18

in French francs


74

LIST OF AFFILIATES AND STOCKHOLDINGS

in French francs

Capitalstock

(1)

Otherstockholders’equity beforeIncome (Loss)

(1)

%Holding

Value of holding inaccounts

Loans andAdvances

made by theCompany

not yet repaid

Guaranteesand

Endorse-ments

given by the

Company

Net salesin last

accountingperiod

Incomein last

accountingperiod

Dividendsreceived by

theCompany

duringthe yearGross Net

A - Details of affiliates and stockholdings(portfolio value exceeding 1% of the capital stock of the Company)

1 – Subsidiaries (holding of more than 50%)

Société d'Exportation MichelinPlace des Carmes-Déchaux, 63000 Clermont-Ferrand, France

FRF1 000 000 FRF10 917 451 100 27 432 497 16 512 820 — — 55 757 031 4 425 885 3 996 000

Participation et Développement Industriels S.A. "Pardevi"23, rue Breschet, 63000 Clermont-Ferrand, France

FRF120 000 000 FRF204 960 343 99.99 1 047 746 037 946 988 165 — — — 16 809 021 20 399 762

Compagnie Financière Michelin12, route Louis-Braille, 1763 Granges-Paccot, SwitzerlandSFR1 404 831 200 SFR2 520 650 360 91.67 9 853 134 943 9 853 134 943 — — — 1 244 215 399 636 004 005

Société de Technologie Michelin23, rue Breschet, 63000 Clermont-Ferrand, France

FRF100 000 000 FRF10 924 212 99.99 99 994 000 99 994 000 — — 845 624 338 12 055 682 —

Spika S.A.23, rue Breschet, 63000 Clermont-Ferrand, France

FRF20 000 000 FRF168 235 902 99.99 169 988 100 169 988 100 275 494 994 — — 10 454 183 —

2 – Stockholdings (holding between 10 and 50%)

Manufacture Française des Pneumatiques MichelinPlace des Carmes-Déchaux, 63000 Clermont-Ferrand, FranceFRF2 000 000 000 FRF3 447 008 386 39.99 5 920 235 903 3 482 701 443 2 799 312 697 — 25 534 334 216 974 601 070 —

B -General information regarding other affiliates and stockholdings

1 -Affiliates not included in A:

- In France — — — — — —

- Outside France 4 038 474 3 — — —

2 -Stockholdings not included in A:

- In France — 2 840 1 — — (note 2) 978 000

- Outside France — 598 479 1 — —

(1) In local currency(2) Company wound up in 1999 by Société d'Exportation Michelin, which has taken over its operations.


75

CHANGES IN STOCKHOLDERS’ EQUITY (Balance sheet before distributions, non-consolidated)

1998 1999

Result for the year (totals in FRF thousands and in FRF per share)

Statement of Income

Income 1 668 825 1 622 833

per share 12.12 12.05

Proposed Dividend

Total 578 455 627 411

per A capital share 4.33 —

per A jouissance and B share 4.20 —

per share — 4.65

Detailed changes in stockholders’ equity (in FRF thousands) 1999

A) 1- Stockholders’ equity at end of 1998 financial year 21 483 650

2- Distributions voted by the Annual Meeting of Stockholders. 716 954

3- Balance brought forward in 1999 financial year 20 766 696

B) Retrospective adjustments to the balance brought forward in 1999:

1- to Capital stock and paid in excess of par —

2- to Reserves —

C) Stockholders’ equity brought forward after retrospective adjustments (A3 + B) 20 766 696

D) Changes during the year:

1- Capital stock 114 766

2- Paid in excess of par (849 919)

3- Revaluation differences (6 445)

4- Reserves —

5- Tax-related provisions —

6- Adjustment of retained earnings brought forward 4 648

7- 1999 Net income 1 622 833

E) Stockholders’ equity. before Annual Meeting, (C + D) 21 652 579

F) Total change in stockholders’ equity during the year (E - C) 885 883

G) of which: variation due to change in capital stock and premiums (735 153)

H) Change in stockholders’ equity during the year excluding changes in the capital stock and premiums (F - G) 1 621 036

in French francs


76

D1 : – Amount transferred from Paid in excess of par for conversion of the FRF12 nominalvalue of shares to its equivalent in euros, rounded to EUR2. 154 123

– Reduction of capital by cancellation of shares (39 357)

D2 : – Transfer for conversion of shares from a nominal value of FRF12, rounded to EUR2. (154 123)

– Deduction representing the difference between the net accounting value of treasurystock canceled and the amount by which capital was reduced (696 288)

– Premium following the re-unification of A jouissance stock 492

D3 : – Revaluation reserve written back (6 445)

D6 : – Dividend attributable to treasury stock 4 648

SOURCES

Balance of retained earnings brought forward 152 416 363.39

Net Income for the financial year 1 622 832 765.03

APPROPRIATIONS

Legal reserve 11 476 592.25

Tax-regulated reserves for long-term capital gains 489 879 301.90

Dividends 627 411 521.33

Share attributable to the General Partners.

as provided by the Articles 11 969 813.86

Taxes on distributions 129 666 293.42

Other reserves 262 382 800.00

Balance of retained earnings carried forward 242 462 805.66

TOTAL 1 775 249 128.42 1 775 249 128.42

APPROPRIATIONS OF INCOME FOR THE YEAR 1999

(in French francs converted from euros)

Notes: (in FRF thousands)

in French francs


77

19991998199719961995

I - CAPITAL AT DECEMBER 31

a) Capital stock 1 382 773 128.00 1 441 570 860.00 1 642 715 616.00 1 652 590 476.00 1 767 356 398

b) Issued common shares 115 231 094.00 120 130 905.00 136 892 968.00 137 715 873.00 134 715 873

c) Issued non-voting shares with priority dividend — — — — —

d) Maximum future issues of shares:d1: arising from convertible bonds 20 299 043.00 16 080 530.00 — — —d2: arising from warrants — — — — —d3: arising from loyalty bonus — — — — —

II - ANNUAL RESULTS

a) Trading revenue. excluding taxes 464 719 492.33 521 949 978.91 554 973 103.46 1 787 837 753.34 1 946 286 414.68

b) Income before taxation and net depreciation and provisions 383 628 461.07 1 133 109 314.83 844 099 402.26 905 845 279.66 1 656 117 718.59

c) Taxes on income 67 521 060.00 (13 087 414.00) 173 202 893.00 325 996 947.00 210 151 492.68

d) Employees' share of income for the year — — — — —

e) Net income after taxation.depreciation and provisions 367 959 402.20 794 509 825.43 1 261 809 017.17 1 668 825 256.00 1 622 832 765.03

III - RESULTS PER SHARE

a) Income after taxation but before depreciation and provisions 3.33 9.54 4.90 4.21 10.73

b) Net income after taxation. depreciation and provisions 3.19 6.61 9.22 12.12 12.05

c) Dividend:– A capital share 2.85 3.40 3.90 4.33 —– A jouissance and B share 2.75 3.30 3.80 4.20 —– per share 2.75 3.30 3.80 4.20 4.65

IV - PERSONNEL

a) Average number of employees during the year 33.00 34.00 32.00 33.00 32.00

b) Total salaries & wages paidduring the year 7 887 296.08 10 505 732.25 8 254 861.59 8 521 066.41 7 457 408.46

c) Cost of social security and employee facilities 3 108 724.57 3 518 746.92 3 164 932.12 3 291 556.67 2 912 855.38

SUMMARY OF RESULTS FOR THE YEARS 1995 TO 1999 in French francs

Michel in Group

78

Michel in Group

791999 Tunisia Rally

Consolidated financial statements1999

Michel in Group

80

Consolidated balance sheets at December 31in euros

Fixed assetsIntangible fixed assets 359 480 225 675 133 805 98 558Acquisition differences 499 565 251 931 247 634 236 318Tangible fixed assets 13 969 155 8 265 941 5 703 214 4 938 116 Financial investments (1) 571 501 120 070 451 431 403 720Investments in affiliates at equity 13 564 — 13 564 13 583

15 413 265 8 863 617 6 549 648 5 690 295

Current assetsInventories and work in process 3 346 329 97 245 3 249 084 2 720 470Trade receivables and related accounts (2) 2 521 142 72 849 2 448 293 2 036 449Other receivables (2) 428 304 1 441 426 863 379 559Stocks, shares and securities 195 652 10 649 185 003 282 557Cash and equivalents 694 781 — 694 781 815 711

7 186 208 182 184 7 004 024 6 234 746

Suspense and related accounts 991 056 — 991 056 910 131

TOTAL ASSETS 23 590 529 9 045 801 14 544 728 12 835 172

(1) of which falling due within one year 23 847 24 901(2) of which falling due after more than one year 14 962 16 718

Stockholders’ equityCapital stock 269 432 251 936Paid in excess of par 1 609 476 1 739 045Consolidated reserves 2 546 023 2 156 827Consolidation translation adjustments (604 953) (781 115)Net income for the year 154 429 535 617

3 974 407 3 902 310

Minority interests— in Equity 291 426 267 252— in Income 28 050 267 252

319 476 305 294

TOTAL STOCKHOLDERS’ EQUITY 4 293 883 4 207 604

Subordinated debt (3) 943 890 807 595

Provisions for contingencies and charges 2 462 022 1 894 328

Creditors (3)Borrowings and financial debts 3 734 324 3 042 546Accounts payable - trade and similar 1 391 191 1 312 936Other creditors 1 585 732 1 447 426

6 711 247 5 802 908

Suspense and related accounts (3) 133 686 122 827

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 14 544 728 12 835 172

(3) of which: falling due after more than one year 2 805 728 2 208 674of which: falling due within one year 4 983 575 4 524 656

1999 1998

NetNetDepreciationand provisionsGross

(in EUR thousands)

1999 1998

Michel in Group

81

Consolidated statementsof income for the years ended December 31in euros

1999 1998

Trading revenueNet sales 13 763 137 12 485 639Provisions written back 203 842 176 046Other revenue 428 156 440 106

14 395 135 13 101 791

Trading expensesPurchases adjusted for inventory change 4 454 363 4 093 119Personnel expense 4 683 671 4 358 785Taxes and similar expense 220 861 204 479Depreciation 839 141 728 494Provisions 269 364 248 876Other expense 2 694 592 2 394 769

(13 161 992) (12 028 522)

TRADING INCOME 1 233 143 1 073 269

Financial revenueOrdinary financial revenue 187 197 193 516Provisions written back 3 607 6 480

190 804 199 996

Financial expensesOrdinary financial expense 419 217 416 458Depreciation and provisions 17 013 3 444

(436 230) (419 902)

FINANCIAL INCOME (EXPENSE) (245 426) (219 906)

INCOME FROM ORDINARY ACTIVITIES OF THE FULLY CONSOLIDATED COMPANIES 987 717 853 363

Exceptional revenueProvisions written back 117 758 250 448Other revenue 164 493 205 718

282 251 456 166

Exceptional expensesDepreciation and provisions 457 119 116 745Other expense 178 321 293 167

(635 440) (409 912)

EXCEPTIONAL INCOME (EXPENSE) (353 189) 46 254Depreciation of goodwill and sundry acquisition differences 78 242 20 236Taxes on income 374 321 307 604

INCOME OF THE FULLY CONSOLIDATED COMPANIES AFTER TAXATION 181 965 571 777Share of income of affiliates 514 1 882

NET INCOME 182 479 573 659of which: attributable to Michelin Group 154 429 535 617

attributable to minority interests 28 050 38 042

(in EUR thousands)

Michel in Group

82

1999 1998

OPERATING ACTIVITIESNet income 182 479 573 659Depreciation and amortization 921 155 749 904Writing-down provisions, contingencies and charges 513 513 (15 893)Capital gains (losses) on fixed asset disposals (57 510) (47 696)Other (11 819) (13 500)Operating cash flow 1 547 818 1 246 474Change in working capital requirements (514 292) (167 565)

NET CASH PROVIDED BY OPERATING ACTIVITIES 1 033 526 1 078 909

INVESTING ACTIVITIESAcquisition of tangible and intangible fixed assets (1 252 410) (1 173 877)

Increase in financial fixed assets (313 005) (209 251)Total (1 565 415) (1 383 128)Disposal of tangible, intangible and financial fixed assets 126 922 143 031Reduction in financial fixed assets 49 134 51 143Total 176 056 194 174Net capital investment in the period (1 389 359) (1 188 954)Change in working capital requirements and sundries (56 897) 20 117

NET CASH USED IN INVESTING ACTIVITIES (1 446 256) (1 168 837)

FINANCING ACTIVITIESCommon stock increase (reduction) (112 148) 41 626Distributions paid in the period (148 435) (137 129)Change in consolidated total (260 583) (95 503)Change in financial debt 636 661 113 373Change in working capital requirements and sundries (333) (3 591)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 375 745 14 279Effect of changes in exchange rates and scope of consolidation (113 833) 3 530

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (150 818) (72 119)Cash and cash equivalents at beginning of period (191 479) (119 360)Cash and cash equivalents at end of period (342 297) (191 479)

Consolidated statements of cash flowsin euros (in EUR thousands)

The consolidated accounts have been prepared in accordance with currentFrench regulations; since last year there has been no change in themethod of consolidation. Changes in the scope of consolidation made nosignificant impact.

PRINCIPLES OF CONSOLIDATION

Basis of consolidation— full consolidation:

Except as stated below, all the industrial, commercial, financial andother companies which Compagnie Générale des ÉtablissementsMichelin controls directly or indirectly.

— consolidated by the equity method:Companies in which Compagnie Générale des ÉtablissementsMichelin holds a direct or indirect interest of between 20% and 50%.

— omitted from consolidation:Companies which are covered by article 357-4 of the law of July 24, 1966.

Accounting policies

1. As a general rule, the accounting periods of the consolidated companiescoincide with the calendar year and the balance sheets and statementsof results used in the consolidation are those submitted for the approvalof their annual meetings. All of the accounts are subject, as necessary,to reclassification to conform to Group accounting policies.

2. The accounts of foreign affiliates have been converted into euros using:

— the rate of exchange at December 31 for balance sheet accounts,

— average exchange rates for income statements, except forcountries with strong inflation where the December 31 exchangerate has been used. In total, these are not material.

3. The principal adjustments and restatements made have been to thefollowing:

Appendix to the consolidated financialstatements at December 31, 1999

Michel in Group

83

in euros

— Inter-Group dividends have been eliminated from the results.— Unrealized profits and losses on exchange are included in the

results, regardless of local rules.— The depreciation of tangible fixed assets of the major Group

companies has been recalculated using consistent asset lives on astraight line basis and applied to original cost, increased wherenecessary as a result of legal revaluations.

— The industrial fixed assets of Michelin (Nigeria) Limited have beenfully depreciated in the consolidated accounts.

— Accounting for leasing contracts is as described later underAccounting Principles.

— Unrealized profits on inventories of finished goods derived frominter-company sales have been eliminated.

— Movements in the financial year concerning either tax-regulatedprovisions or other statutory provisions have been excluded fromthe results. The same principle has been applied to movements inthe provisions for depreciation on investments in the consolidatedcompanies, whether allowable or not for local tax purposes.

— Withholding taxes not recoverable on dividends received fromconsolidated companies have been charged as an expense.

— Acquisition differences have been determined and theiramortization calculated as noted later under AccountingPrinciples.

— The above restatements have given rise, where appropriate, to thecomputation of a provision for deferred taxation corresponding tothe tax position of each company vis-a-vis its local legislation.Provision for tax liability, calculated using the deferred tax method,is made company by company; the balance of taxes recoverable isonly taken into account where it is material and is likely to bereceived in the short or medium term. Variations in deferred taxcharges are recorded in the statement of income.Changes recorded in the restated headings which have theircounterpart either in the results, the consolidation difference orthe provision for deferred taxation, have been split whereappropriate between Group and minority interests.

ACCOUNTING PRINCIPLESAND VALUATION OF ASSETS

The consolidated accounts for the year to December 31, 1999 havebeen prepared and presented in conformity with the accounting rulesand with due regard to the principles of prudence, separation ofaccounting years and continuity of trading.The various balance sheet items were computed as follows:

Intangible fixed assetsItems shown in the balance sheet under the heading "Intangible FixedAssets" consist mainly of the values of computer software, amortizedover periods of between one and three years, plus some items ofgoodwill, completely written down.

Acquisition differencesOn first consolidation of an acquisition the difference consists of theexcess of the cost of the investment over the fair value of the assetsacquired.Differences are capitalized on the first consolidation of industrialcompanies and, after harmonization of the net values of theirproduction facilities in accordance with Group accounting practice,are amortized on a straight-line basis over a period of 20 years. Theirasset values are examined annually.Other acquisition differences recorded during an account-ing period are amortized in the year.Negative acquisition differences are shown in the balance sheet as a

provision. Provisions are written back as necessary, reflecting changesin the risk associated with the companies acquired.

Tangible fixed assetsLand, buildings and plant are valued at original cost, increased wherenecessary as a result of legal revaluations.Depreciation is calculated on a straight-line basis and the principalasset lives used are:— Buildings: 25 years— Plant & machinery, fixtures and fittings: 7 to 12 years— Other tools and equipment: 2 to 12 yearsFrom January 1, 1999, contracts falling within the IAS definition offinance leases are shown as fixed assets and the corresponding debt isincluded as a balance sheet liability.Industrial assets covered by long-term leasing contracts prior to theabove date remain in the balance sheet at cost, with the associateddebt shown as a liability.

Stockholdings and other financial investments

Stockholdings in companies consolidated by the equitymethodThe values of stock in companies consolidated by the equity methodrepresents the share of the stockholders’ equity of these companiesheld by the Group, applying the principles of consolidation that havebeen used.

Non-consolidated stockholdings and other financial fixed assetsThe gross value is primarily the cost of acquisition exclud-ing purchase expenses, except in cases where local regulations haverequired revaluation.The portfolio valuation is at the lower of its quoted value or the valuewhich would result upon consolidation by the equity method. Aprovision for writing down is made where the portfolio value is lessthan recorded value.

InventoriesIn general, inventories are valued at weighted average cost or on thefirst in, first out method (FIFO).Finished goods are valued at the lower of cost or market value andwhere necessary, provision is made for depreciation.

Trade receivables and related accountsTrade receivables are recorded at nominal value, net of a provision fornon-recovery determined either individually or according to agingcriteria.

Suspense and related accountsRecorded under this heading are mainly:— charges to be spread over several years— deferred tax assets accounted for locally, as referred to above

under Accounting Policies.

Subordinated debtSubordinated debt has a predetermined maturity and is subject tospecial conditions concerning the payment of interest andreimbursement of principal. In the event of a dissolution or courtsupervision, it has a ranking inferior to that of all other creditors andits position is similar to that of common stock. In the balance sheet,therefore, subordinated debt is shown immediately followingstockholders’ equity.

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Registered Equity

1. Ultimate Parent Registered Office Country number interest %

- Compagnie Générale des Établissements Michelin Clermont-Ferrand France 855 200 887

2. Full consolidation

— Industrial companies- Manufacture Française des Pneumatiques Michelin Clermont-Ferrand France 855 200 507 96.07- Société Michelin de Transformation des Gravanches Clermont-Ferrand France 344 181 086 95.79- Société du Caoutchouc Synthétique Michelin Bassens France 328 525 746 96.07- Pneu Laurent Avallon France 425 920 212 96.07- Pneumatiques Kléber Toul France 552 008 831 96.07- Michelin AVS Versailles France 322 804 931 96.07- Kléber Reifen GmbH Saint-Ingbert Germany 93.48- Michelin Reifenwerke KGaA Karlsruhe Germany 93.45- Michelin Kronprinz Werke GmbH Solingen Germany 93.45- Sociedade Michelin de Participações Indústria e Comércio Ltda Rio de Janeiro Brazil 93.45- Michelin North America (Canada) Inc. New Glasgow Canada 93.45- Michelin Shenyang Light Truck & Passenger Tire Co., Ltd Liaoning Province China 84.11- Michelin Shenyang Rubber Components Co., Ltd Liaoning Province China 84.11- Michelin Shenyang Tire Co., Ltd Liaoning Province China 84.11- Michelin Shenyang Truck Tire Co., Ltd Liaoning Province China 65.42- Industria Colombiana de Llantas S.A. Cali Colombia 93.31- Neumáticos Michelin, S.A. Madrid Spain 90.12- Michelin North America, Inc. New York United States 93.45- Michelin Aircraft Tire Corporation Wilmington United States 93.45- American Synthetic Rubber Corporation Wilmington United States 93.45- Taurus Rubber Company Ltd Budapest Hungary 93.40- Taurus Agricultural Tyre Ltd Nyíregyháza Hungary 93.40- Società per Azioni Michelin Italiana Turin Italy 93.45- Michelin Okamoto Tire Corporation Ohta-City

Gunma-Ken Japan 86.30- Industrias Michelin S.A. de C.V. Mexico D.F. Mexico 93.45- Michelin (Nigeria) Limited Nigeria Nigeria 74.76- MSF Tire & Rubber, Inc. Muntinlupa City Philippines 65.13- Stomil-Olsztyn S.A. Olsztyn Poland 50.53- Michelin Tyre Public Limited Company England United Kingdom 93.45- Michelin Gummiringar AB Stockholm Sweden 93.45- Michelin Siam Co., Ltd. Chonburi Thailand 46.74- Siam Tyre Industry Co., Ltd Saraburi Province Thailand 46.74- Siam Tyre Phra Pradaeng Co., Ltd Samuthprakarn Thailand 46.74- The Siam Steel Cord Co. Rayong Thailand 46.74

— Commercial companies- Euromaster France Grenoble France 392 527 404 80.66- Société d’Exportation Michelin Clermont-Ferrand France 855 200 317 100.00- Transityre France S.A. Clermont-Ferrand France 387 940 778 93.45- Michelin Tyre Company South Africa (Proprietary) Limited Johannesburg South Africa 93.45- Michelin Reifenverkaufsgesellschaft m.b.H. Vienna Austria 93.45- Michelin Australia Pty. Ltd Melbourne Australia 93.45- Michelin Belux S.A. Brussels Belgium 93.45- Michelin Chile Ltda. Santiago Chile 93.45- Michelin Korea Co., Ltd. Seoul Korea 93.45- Michelin Gummi Compagni A/S Brøndby Denmark 93.45- Michelin Rehvide AS Tallinn Estonia 93.45- Michelin Retread Technologies, Inc. Wilmington United States 93.45- Tire Centers, LLC Wilmington United States 93.45- Oy Suomen Michelin Ab Espoo Finland 93.45- Elastika Michelin A.E. Athens Greece 93.45- Michelin Asia (Hong-Kong) Ltd Hong Kong Hong Kong 93.45- Michelin Magyarország Kft Budapest Hungary 93.45- Michelin Indian Private Limited New Delhi India 93.45- Kléber Italiana SpA Volpiano Italy 93.45- Michelin Tire Sales Corporation Tokyo Japan 86.30- Nihon Michelin Tire Co., Ltd Tokyo Japan 93.45- Michelin Riepas SIA Riga Latvia 93.45

SCOPE OF CONSOLIDATION

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Registered EquityRegistered Office Country number interest %

- UAB Michelin Padangos Vilnius Lithuana 93.45- Michelin Tyre Services Company Ltd Nigeria Nigeria 56.34- Norsk Michelin Gummi A/S Skedsmo Norway 93.45- Transityre B.V. Breda Netherlands 93.45- Eurodrive Services and Distribution N.V. Amsterdam Netherlands 93.01- Michelin Nederland N.V. Drunen Netherlands 93.45- Michelin del Peru S.A. Lima Peru 93.45- Michelin Polska Sp. z o.o. Warsaw Poland 93.45- Michelin Companhia Luso-Pneu Ltda. Loures Portugal 93.45- Michelin Ceská republika s.r.o. Prague Czech Republic 93.45- Associated Tyre Specialists Limited England United Kingdom 93.18- Michelin Tyres Russian General Agency ZAO Moscow Russia 93.45- Michelin Asia (Singapore) Co. Pte. Ltd Singapore Singapore 93.45- Michelin Slovensko s.r.o. Bratislava Slovakia 93.45- Michelin Slovenija Pnevmatike d.o.o. Ljubljana Slovenia 93.45- Société Anonyme des Pneumatiques Michelin Givisiez Switzerland 93.45- Michelin Chun Shin Ltd Taipei Taiwan 91.56- Michelin Siam Marketing & Sales Co., Ltd Bangkok Thailand 46.74- Michelin Lastikleri Ticaret A.S. Istanbul Turkey 93.45- Various distribution companies in Europe

and elsewhere.— Financial and other companies

- Société Européenne de Pneumatiques Clermont-Ferrand France 344 143 680 93.31- Participation et Développement Industriels S.A. Clermont-Ferrand France 301 293 171 99.99- Spika S.A. Clermont-Ferrand France 304 690 209 100.00- Société Civile Immobilière Michelin Clermont-Ferrand France 328 441 050 96.07- Société Civile Immobilière Michelin Breteuil Paris France 328 309 281 96.07- Société des Procédés Industriels Modernes Paris France 300 203 981 96.07- Société de Technologie Michelin Clermont-Ferrand France 414 624 379 100.00- Michelin Investment Holding Company Limited Bermuda Bermuda 93.45- Plantações E. Michelin Ltda Rio de Janeiro Brazil 93.45- Plantações Michelin da Bahia Ltda Rio de Janeiro Brazil 93.45- Michelin Americas Research & Development Corporation Wilmington United States 93.45- Michelin Corporation New York United States 93.45- Osse River Rubber Estates Limited Nigeria Nigeria 38.13- Utagba Uno Rubber Estates Limited Nigeria Nigeria 65.23- Araromi Rubber Estates Limited Nigeria Nigeria 54.39- Waterside Rubber Estates Limited Nigeria Nigeria 74.76- MC Projects B.V. Amsterdam Netherlands 46.73- Michelin Finance (Pays-Bas) B.V. Amsterdam Netherlands 93.45- Michelin Holding (Pays-Bas) B.V. Amsterdam Netherlands 93.45- Michelin Participations B.V.i.l. Amsterdam Netherlands 92.62- Société des Matières Premières Tropicales Pte. Ltd Singapore Singapore 93.45- Compagnie Financière Michelin Granges-Paccot Switzerland 93.45- Michelin Factoring S.A. Granges-Paccot Switzerland 93.45- Michelin Participations S.A. Granges-Paccot Switzerland 92.62- Michelin Recherche et Technique S.A. Granges-Paccot Switzerland 93.45- M.S. Enterprises Holding Co., Ltd Bangkok Thailand 47.66- Michelin Siam Group Co., Ltd Bangkok Thailand 46.74

3. Consolidated by the equity method- Compagnie Générale des Transports Verney Le Mans France 378 340 061 41.30- Sucat Land Corp. Makati City Philippines 27.33- Tekersan Jant Sanayi A.S. Istanbul Turkey 18.78

4. Companies omitted from consolidation- Various companies which, relatively, were not material, in accordance with the provisions of article 357-4 of the law of July 29, 1966,

concerning trading companies (consolidated accounts).

The above list, which is not exhaustive, has been prepared with specific reference to the requirements of article 248-12, decree no. 67-236 of March 23, 1967, concerning trading companies (consolidated accounts).

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86

Depreciation:

Intangible Fixed Assets 181 300 66 999 – 29 376 6 752 225 675

Goodwill and sundry acquisition differences 147 780 82 225 – 407 22 333 251 931

Tangible Fixed Assets 7 320 415 799 727 – 342 979 488 778 8 265 941 (1)

7 649 495 948 951 – 372 762 517 863 8 743 547

Provision for amortization 266 072 62 592 – 35 548 9 138 302 254 (2)

TOTAL 7 915 567 1 011 543 – 408 310 – 527 001 9 045 801

Intangible Fixed Assets 279 858 79 169 – 12 389 12 842 359 480

Goodwill and sundry acquisition differences 384 098 65 967 – 407 49 907 499 565

Tangible Fixed Assets 12 258 531 1 173 241 – 387 239 924 622 13 969 155 (1)

TOTAL 12 922 487 1 318 377 – 400 035 987 371 14 828 200

(1) of which: France 3 263 267

Western Europe excluding France 4 067 326

North America and Mexico 4 970 454

Other countries 1 668 108

Gross valueat Dec 31

Conversion and sundrydifferences

DiminutionsAdditionsGross valueat Jan 1

Peugeot S.A. (1) Paris 3.8 % 3 241 366 254 744 60 012 (2)

Other companies, loans, long,term advances and others 391 419

TOTAL 451 431

(1) Accounting year ended December 31, 1998.

(2) Based on the average quoted price for December 1999 this holding was valued at EUR380 million.

Net value ofholding/loan

at December 31

Income.Last accounting

period

Stockholders’equity

Proportionof capital held

RegisteredofficeCompany




Other countries 733 472

(2) of which: on financial fixed assets 120 070

on inventories 97 245

on receivables 74 290

on stocks, shares & securities 10 649

Balanceat Dec 31

Conversionand sundrydifferences

Amounts writtenback in the

financial year

Provisionsin the

financial year

Balanceat Jan 1

3) FINANCIAL FIXED ASSETS

2) DEPRECIATION AND PROVISIONS

(in EUR thousands)

NOTESin euros

1) FIXED ASSETS

Michel in Group

87

(in EUR thousands)

6) SUMMARY OF STOCKHOLDERS’ EQUITY AND MINORITY INTERESTS

5) TREASURY STOCK

7) SUBORDINATED DEBT

Balanceat Dec 311999 result


Allocationof balanceof retained

earningsDistributionsChange

in capitalBalanceat Jan1

This is a borrowing of USD1.1 billion for a term of 15 years, maturing in May 2005. Interest is normally due quarterly and other special conditionsattached to this borrowing are noted under Accounting Principles.

It was decided, within the terms of the contract, to restrict the amount of subordinated debt at December 31, 1999 to USD951 million.

Compagnie Générale des Transports Verney 7 603 702 8 305

Radsystem GmbH 555 – 555 (1)

Sucat Land Corp. 2 976 322 3 298

Tekersan Jant Sanayi A.S. 1 378 – 470 908

12 512 – 1 12 511

Other companies 1 071 – 18 1 053

TOTAL 13 583 – 19 13 564

Net valueof holding at Dec 1

Changesduring the year

Net valueof holding at Jan 1Company

(1) Consolidated in 1999

Other changes arose mainly from the financial results of the companies, from the conversion of the accounts for the previous year and from distributions in respect of

financial year 1998.

in euros4) STOCKHOLDINGS CONSOLIDATED BY THE EQUITY METHOD

Compagnie Générale des Établissements Michelin held 2,603,774 shares at December 31, 1999, shown as stocks, shares and securities.

Capital stock 251 936 17 496 269 432

Paid in excess of par 1 739 045 – 129 644 75 1 609 476

Consolidated reserves 2 156 827 709 404 829 – 16 342 2 546 023

Consolidation translation

adjustments – 781 115 176 162 – 604 953

Statement of income,

Group share 535 617 – 130 788 – 404 829 154 429 154 429

Stockholders’ equity 3 902 310 – 112 148 – 130 004 — 159 820 154 429 3 974 407

Minority interests:

in Stockholders’ equity 267 252 19 611 4 563 291 426

in Net income 38 042 – 18 431 – 19 611 28 050 28 050

TOTAL 4 207 604 – 12 148 – 148 435 — 164 383 182 479 4 293 883

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88

(in EUR thousands)

Dec 31, 1999 Dec 31, 1998

Provision for losses on foreign exchange 700 1 600Provision for pensions and similar obligations 1 668 823 1 463 697Provision for deferred taxation 56 221 54 629Provision for restructuring costs 535 127 201 831Provision for other risks and expense 201 151 172 481

TOTAL 2 462 022 1 894 238

Tax losses carried forward and temporary differences not taken intoaccount in the calculation of deferred tax assets or in the charge fordeferred tax amounted to EUR1.6 billion.Setting aside the effect of consolidation translation adjustments andsundry items which amounted to EUR7 million, the change in the provisionfor restructuring costs was due to:

• a transfer of EUR370 million to provisions in respect of the projectedexpenses related to reorganization of the European activities;• a writing back of provisions corresponding to amounts charged in 1999,in the sum of EUR59 million;• other provisions and write-backs for a net provision of EUR16 million.For the most part, the above changes are included in the exceptional result.

Convertible bonds 10 10 — —

Other bonds 322 721 17 823 — 304 898

Sundry borrowings and financial debt 3 411 593 2 009 511 1 175 257 226 825

TOTAL FINANCIAL DEBT 3 734 324 2 027 344 1 175 257 531 723

Accounts payable - trade and similar 1 391 191 1 391 184 7 —

Other debts 1 585 732 1 509 438 76 294 —

TOTAL (1) 6 711 247 4 927 966 1 251 558 531 723

(1) of which secured, 115 781

Falling due after1 and within

5 years

Falling dueafter 5 years

Falling duewithin 1 yearGross amount

11) POSTRETIREMENT INDEMNITIES AND SIMILAR LIABILITIES

In most of the countries in which the Group companies operate,commitments in respect of postretirement benefits are covered:

- by external organizations to whom employee and company contributionsare paid. This releases the companies from any further liability in thisregard, or

- by pension funds, which may be managed either externally or byemployees of the companies concerned. In these cases, the commitmentis generally limited to ensuring adequacy of funding and propermanagement of the funds.

Supplementary postretirement commitments, either for pensions or partialcoverage of medical expenses not met by external organizations, are of acontractual nature and, in conformity with the accounting requirements ofthe countries concerned, an actuarial provision of EUR1.7 billion is madein the balance sheet.

Additionally, according to the rules and conventions existing in the variouscountries, employees may, upon leaving the company, receive a capital sumand/or a series of annuities. The actuarial value of these commitments notcovered by the provision mentioned above is estimated at EUR0.6 billion.

In 1994, Michelin North America Inc., New York and in 1999, MichelinNorth America (Canada) Inc., New Glasgow, commenced a program ofsale and the securitization of certain accounts receivable. These revolvingprograms provide a long-term source of finance.

At December 31, 1999 the net sales of accounts receivable were EUR676 million. Expenses related to the programs are calculated and paidbased on readily-available market rates and are included as financialexpenses in the accounts.

9) DEBT

10) ACCOUNTS RECEIVABLE

in euros8) PROVISIONS FOR CONTINGENCIES AND EXPENSES

Michel in Group

89

(in EUR thousands)

13) NET SALES

14) EMPLOYEES AND PERSONNEL EXPENSE

15) FINANCIAL INCOME AND EXPENSE - MARKET EXPOSURE

Commitments undertaken

Guarantees 119 139

Lease contracts 672 142

Bills discounted not yet due 24 786

TOTAL 816 067

Commitments received

Guarantees and sureties 309 055

France 14.0

Western Europe excluding France 35.9

North America and Mexico 35.3

Other countries 14.8

Tires and wheels 98.8

Manufactured rubber and plastics,

maps, guides and sundries 1.2

by geographical zone % by activity %

The average number of employees in companies within the fullconsolidation was 130,434.

Corresponding personnel expense was EUR4,684 million.

Foreign exchange risks

Group policy is to cover foreign exchange exposure. As a result, variousmarket instruments are used, mainly exchange rate forward contracts oroptions. All of the related expenses, chiefly commissions paid, areaccounted for on completion of the transactions concerned.

In general, receivables and payables in currency are of a similar nature andterm. There is thus an offset and only the net exposure is covered.

The resulting income and losses, realized or unrealized, together with thecosts of coverage are recorded in the income statement.

In summary, all net risks of loss are covered by provisions.

Investments by holding companies in foreign affiliates is financed in thecurrency of the holding company's accounts (unless a sale of theinvestment is foreseen) and the exchange exposure arising on income fromthe holdings is covered according to the above procedure.

Interest rate risks

Interest rate exposure for periods of up to one year is managed locally. Amaximum amount to be financed at fixed rates for more than one year isset for each foreign currency and exposure is controlled and coordinatedconsistently within the Group.

At December 31, 1999, net financial debt included, (in EUR millions):

- borrowings and financial debtss 3 734

- stocks, shares and securities – 185

- cash and cash equivalents – 695

2 854

- subordinated debt 944

TOTAL 3 798

in euros12) OTHER COMMITMENTS

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90

The table below gives a summary of net financial debt, fixed and variable rate and by currency, after accounting for the results of all financial operationsusing market instruments.

French franc 156 307 5.8 463 12.2

Swiss franc 443 68 3.8 511 13.5

Pound sterling 376 — — 376 9.9

Other European 142 1 2.8 143 3.8

Total European 1 117 376 5.4 1 493 39.4

US dollar 762 811 2.9 1 573 41.4

Canadian dollar 61 20 6.8 81 2.1

Total dollar zone 823 831 3.0 1 654 43.5

Other currencies 557 94 2.8 651 17.1

TOTAL 2 497 1 301 3.6 3 798 100.0

Variable rate Fixed rate Average fixedrate period Total debt % per

currencyCurrency

Risks on financial holdings

The value of non-consolidated long-term stockholdings arises both fromtheir utility to the Group and from their potential realizable value. AtDecember 31, 1999 there was no foreseeable risk of depreciation.

Other financial holdings are included in the balance sheet for a total ofEUR185 million. They consist mainly of short-term investments with no

associated exchange or interest rate risk. Of this amount, quoted sharesaccounted for EUR104 million and their stock exchange value at December31, 1999 was EUR107 million.

16) OTHER EXCEPTIONAL REVENUE AND EXPENSES

Other exceptional revenue 164 493of which: proceeds from disposals of fixed assets 122 009

Other exceptional expense 178 321of which: net value of disposals of fixed assets 64 499

restructuring costs (excluding provisions) 66 436

17) TAXES ON INCOME

The charge in the statement of income is made up: - Tax relating to the accounting year 275 324- Deferred tax 98 997

18) MANAGEMENT COMPENSATION

Compagnie Générale des Établissements Michelin is administered by Gérants ( Managing Partners) who are also Associés commandités (GeneralPartners). In this latter capacity they benefit from a global allocation of income as prescribed by the Articles and shared between all of the GeneralPartners. The Managing Partners do not otherwise receive salary or benefits in kind from Company Générale or from companies which it controls.

(in EUR millions)

(in EUR thousands)

(in EUR thousands)

in euros

Michel in GroupIndependent Auditors’ repor t on the consolidated f inancial s tatements

91

I n d e p e n d e n t A u d i t o r s ’ r e p o r to n t h e c o n s o l i d a t e d f i n a n c i a l

s t a t e m e n t s


In accordance with the mandate given to us by your Annual Meeting of Stockholders wehave audited the attached consolidated financial statements of Compagnie Générale desÉtablissements Michelin, established in euros, for the financial year ended December 31,1999, as set out in this report.

The preparation of these consolidated financial statements is the responsibility of yourManaging Partners. It is our responsibility, based upon our audit, to express an opinion onthese statements.

We have conducted our audit in accordance with accepted professional standards; thesestandards require us to apply such auditing procedures as provide reasonable assurance thatthe financial statements are free from material mis-statements. An audit includesexamination, on a test basis, of the relevant elements which support the informationcontained in the financial statements. It also includes an assessment of the accountingprinciples used, the significant estimates made in the preparation of the financial statementsand in addition, their overall presentation. We believe that our audit provides a reasonablebasis for our opinion.

In our opinion the consolidated financial statements have been properly prepared inaccordance with statutory requirements and present fairly, in all material respects, the assetsand liabilities, the financial situation and the financial result of the group of companiesincluded in the consolidation.

We have also examined the information relating to the Group provided in your ManagingPartners’ report. We have no comment to make on the accuracy of the information providedor on its conformity with the consolidated financial statements.




Michel in Group

92

Michel in Group

93

Consolidated financial statements1999

in French francs

Michel in Group

94

Consolidated balance sheets at December 31in French francs

Fixed assetsIntangible fixed assets 2 358 033 1 480 332 877 701 646 500Acquisition differences 3 276 931 1 652 557 1 624 374 1 550 144Tangible fixed assets 91 631 647 54 221 018 37 410 629 32 391 917Financial investments (1) 3 748 800 787 608 2 961 192 2 648 227Investments in affiliates at equity 88 977 — 88 977 89 100

101 104 388 58 141 515 42 962 873 37 325 888

Current assetsInventories and work in process 21 950 481 637 890 21 312 591 17 845 108Trade receivables and related accounts (2) 16 537 609 477 860 16 059 749 13 358 224Other receivables (2) 2 809 492 9 455 2 800 037 2 489 743Stocks, shares and securities 1 283 397 69 855 1 213 542 1 853 454Cash and equivalents 4 557 462 — 4 557 462 5 350 714

47 138 441 1 195 060 45 943 381 40 897 243

Suspense and related accounts 6 500 905 — 6 500 905 5 970 067

TOTAL ASSETS 154 743 734 59 336 575 95 407 159 84 193 198

(1) of which falling due within one year 156 428 163 337(2) of which falling due after more than one year 98 141 109 666

Stockholders’ equityCapital stock 1 767 356 1 652 590Paid in excess of par 10 557 468 11 407 387Consolidated reserves 16 700 815 14 147 856Consolidation translation adjustments (3 968 229) (5 123 777)Net income for the year 1 012 989 3 513 417

26 070 399 25 597 473

Minority interests— in Equity 1 911 628 1 753 056— in Income 183 992 249 536

2 095 620 2 002 592

TOTAL STOCKHOLDERS’ EQUITY 28 166 019 27 600 065

Subordinated debt (3) 6 191 514 5 297 473

Provisions for contingencies and charges 16 149 807 12 425 384

Creditors (3)Borrowings and financial debts 24 495 557 19 957 796Accounts payable - trade and similar 9 125 616 8 612 294Other creditors 10 401 722 9 494 494

44 022 895 38 064 584

Suspense and related accounts (3) 876 924 805 692

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 95 407 159 84 193 198

(3) of which: falling due after more than one year 18 401 220 14 487 951of which: falling due within one year 32 690 113 29 679 798

1999 1998

NetNetDepreciationand provisionsGross

(in FRF thousands)

1999 1998

Michel in Group

95

Consolidated statementsof income for the years ended December 31in French francs

1999 1998

Trading revenueNet sales 90 280 253 81 900 424Provisions written back 1 337 117 1 154 788Other revenue 2 808 519 2 886 908

94 425 889 85 942 120

Trading expensesPurchases adjusted for inventory change 29 218 704 26 849 103Personnel expense 30 722 868 28 591 754Taxes and similar expense 1 448 751 1 341 294Depreciation 5 504 404 4 778 605Provisions 1 766 909 1 632 517Other expense 17 675 362 15 708 656

(86 336 998) (78 901 929)

TRADING INCOME 8 088 891 7 040 191

Financial revenueOrdinary financial revenue 1 227 929 1 269 380Provisions written back 23 662 42 503

1 251 591 1 311 883

Financial expensesOrdinary financial expense 2 749 883 2 731 785Depreciation and provisions 111 599 22 591

(2 861 482) (2 754 376)

FINANCIAL INCOME (EXPENSE) (1 609 891) (1 442 493)

INCOME FROM ORDINARY ACTIVITIES OF THE FULLY CONSOLIDATED COMPANIES 6 479 000 5 597 698

Exceptional revenueProvisions written back 772 441 1 642 833Other revenue 1 079 001 1 349 422

1 851 442 2 992 255

Exceptional expensesDepreciation and provisions 2 998 504 765 801Other expense 1 169 709 1 923 050

(4 168 213) (2 688 851)

EXCEPTIONAL INCOME (EXPENSE) (2 316 771) 303 404Depreciation of goodwill and sundry acquisition differences 513 237 132 737Taxes on income 2 455 381 2 017 757

INCOME OF THE FULLY CONSOLIDATED COMPANIES AFTER TAXATION 1 193 611 3 750 608Share of income of affiliates 3 370 12 345

NET INCOME 1 196 981 3 762 953of which: attributable to Michelin Group 1 012 989 3 513 417

attributable to minority interests 183 992 249 536

(in FRF thousands)

Michel in Group

96

1999 1998

OPERATING ACTIVITIESNet income 1 196 981 3 762 953Depreciation and amortization 6 042 382 4 919 049Writing-down provisions, contingencies and charges 3 368 425 (104 254)Capital gains (losses) on fixed asset disposals (377 239) (312 868)Other (77 529) (88 548)Operating cash flow 10 153 020 8 176 332Change in working capital requirements (3 373 534) (1 099 156)

NET CASH PROVIDED BY OPERATING ACTIVITIES 6 779 486 7 077 176

INVESTING ACTIVITIESAcquisition of tangible and intangible fixed assets (8 215 271) (7 700 126)

Increase in financial fixed assets (2 053 180) (1 372 597)Total (10 268 451) (9 072 723)Disposal of tangible, intangible and financial fixed assets 832 555 938 223Reduction in financial fixed assets 322 298 335 476Total 1 154 853 1 273 699Net capital investment in the period (9 113 598) (7 799 024)Change in working capital requirements and sundries (373 220) 131 958

NET CASH USED IN INVESTING ACTIVITIES (9 486 818) (7 667 066)

FINANCING ACTIVITIESCommon stock increase (reduction) (735 645) 273 046Distributions paid in the period (973 671) (899 508)Change in consolidated total (1 709 316) (626 462)Change in financial debt 4 176 220 743 677Change in working capital requirements and sundries (2 182) (23 554)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2 464 722 93 661Effect of changes in exchange rates and scope of consolidation (746 688) 23 157

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (989 298) (473 072)Cash and cash equivalents at beginning of period (1 256 022) (782 950)Cash and cash equivalents at end of period (2 245 320) (1 256 022)

Consolidated statements of cash flowsin French francs (in FRF thousands)

The consolidated accounts have been prepared in accordance with currentFrench regulations; since last year there has been no change in themethod of consolidation. Changes in the scope of consolidation made nosignificant impact.

PRINCIPLES OF CONSOLIDATION

Basis of consolidation— full consolidation:

Except as stated below, all the industrial, commercial, financial andother companies which Compagnie Générale des ÉtablissementsMichelin controls directly or indirectly.

— consolidated by the equity method:Companies in which Compagnie Générale des ÉtablissementsMichelin holds a direct or indirect interest of between 20% and 50%.

— omitted from consolidation:Companies which are covered by article 357-4 of the law of July 24, 1966.

Accounting policies

1. As a general rule, the accounting periods of the consolidated companiescoincide with the calendar year and the balance sheets and statementsof results used in the consolidation are those submitted for the approvalof their annual meetings. All of the accounts are subject, as necessary,to reclassification to conform to Group accounting policies.

2. The accounts of foreign affiliates have been converted into Frenchfrancs using:

— the rate of exchange at December 31 for balance sheet accounts,

— average exchange rates for income statements, except forcountries with strong inflation where the December 31 exchangerate has been used. In total, these are not material.

3. The principal adjustments and restatements made have been to the

Appendix to the consolidated financialstatements at December 31, 1999

Michel in Group

97

in French francs

following:— Inter-Group dividends have been eliminated from the results.— Unrealized profits and losses on exchange are included in the

results, regardless of local rules.— The depreciation of tangible fixed assets of the major Group

companies has been recalculated using consistent asset lives on astraight line basis and applied to original cost, increased wherenecessary as a result of legal revaluations.

— The industrial fixed assets of Michelin (Nigeria) Limited have beenfully depreciated in the consolidated accounts.

— Accounting for leasing contracts is as described later underAccounting Principles.

— Unrealized profits on inventories of finished goods derived frominter-company sales have been eliminated.

— Movements in the financial year concerning either tax-regulatedprovisions or other statutory provisions have been excluded fromthe results. The same principle has been applied to movements inthe provisions for depreciation on investments in the consolidatedcompanies, whether allowable or not for local tax purposes.

— Withholding taxes not recoverable on dividends received fromconsolidated companies have been charged as an expense.

— Acquisition differences have been determined and theiramortization calculated as noted later under AccountingPrinciples.

— The above restatements have given rise, where appropriate, to thecomputation of a provision for deferred taxation corresponding tothe tax position of each company vis-a-vis its local legislation.Provision for tax liability, calculated using the deferred tax method,is made company by company; the balance of taxes recoverable isonly taken into account where it is material and is likely to bereceived in the short or medium term. Variations in deferred taxcharges are recorded in the statement of income.Changes recorded in the restated headings which have theircounterpart either in the results, the consolidation difference orthe provision for deferred taxation, have been split whereappropriate between Group and minority interests.

ACCOUNTING PRINCIPLESAND VALUATION OF ASSETS

The consolidated accounts for the year to December 31, 1999 havebeen prepared and presented in conformity with the accounting rulesand with due regard to the principles of prudence, separation ofaccounting years and continuity of trading.The various balance sheet items were computed as follows:

Intangible fixed assetsItems shown in the balance sheet under the heading "Intangible FixedAssets" consist mainly of the values of computer software, amortizedover periods of between one and three years, plus some items ofgoodwill, completely written down.

Acquisition differencesOn first consolidation of an acquisition the difference consists of theexcess of the cost of the investment over the fair value of the assetsacquired.Differences are capitalized on the first consolidation of industrialcompanies and, after harmonization of the net values of theirproduction facilities in accordance with Group accounting practice,are amortized on a straight-line basis over a period of 20 years. Theirasset values are examined annually.Other acquisition differences recorded during an account-ing period are amortized in the year.

Negative acquisition differences are shown in the balance sheet as aprovision. Provisions are written back as necessary, reflecting changesin the risk associated with the companies acquired.

Tangible fixed assetsLand, buildings and plant are valued at original cost, increased wherenecessary as a result of legal revaluations.Depreciation is calculated on a straight-line basis and the principalasset lives used are:— Buildings: 25 years— Plant & machinery, fixtures and fittings: 7 to 12 years— Other tools and equipment: 2 to 12 yearsFrom January 1, 1999, contracts falling within the IAS definition offinance leases are shown as fixed assets and the corresponding debt isincluded as a balance sheet liability.Industrial assets covered by long-term leasing contracts prior to theabove date remain in the balance sheet at cost, with the associateddebt shown as a liability.

Stockholdings and other financial investments

Stockholdings in companies consolidated by the equitymethodThe values of stock in companies consolidated by the equity methodrepresents the share of the stockholders’ equity of these companiesheld by the Group, applying the principles of consolidation that havebeen used.

Non-consolidated stockholdings and other financial fixed assetsThe gross value is primarily the cost of acquisition exclud-ing purchase expenses, except in cases where local regulations haverequired revaluation.The portfolio valuation is at the lower of its quoted value or the valuewhich would result upon consolidation by the equity method. Aprovision for writing down is made where the portfolio value is lessthan recorded value.

InventoriesIn general, inventories are valued at weighted average cost or on thefirst in, first out method (FIFO).Finished goods are valued at the lower of cost or market value andwhere necessary, provision is made for depreciation.

Trade receivables and related accountsTrade receivables are recorded at nominal value, net of a provision fornon-recovery determined either individually or according to agingcriteria.

Suspense and related accountsRecorded under this heading are mainly:— charges to be spread over several years— deferred tax assets accounted for locally, as referred to above

under Accounting Policies.

Subordinated debtSubordinated debt has a predetermined maturity and is subject tospecial conditions concerning the payment of interest andreimbursement of principal. In the event of a dissolution or courtsupervision, it has a ranking inferior to that of all other creditors andits position is similar to that of common stock. In the balance sheet,therefore, subordinated debt is shown immediately followingstockholders’ equity.

Michel in Group

98

SCOPE OF CONSOLIDATION

Registered Equity

1. Ultimate Parent Registered Office Country number interest %

- Compagnie Générale des Établissements Michelin Clermont-Ferrand France 855 200 887

2. Full consolidation

— Industrial companies- Manufacture Française des Pneumatiques Michelin Clermont-Ferrand France 855 200 507 96.07- Société Michelin de Transformation des Gravanches Clermont-Ferrand France 344 181 086 95.79- Société du Caoutchouc Synthétique Michelin Bassens France 328 525 746 96.07- Pneu Laurent Avallon France 425 920 212 96.07- Pneumatiques Kléber Toul France 552 008 831 96.07- Michelin AVS Versailles France 322 804 931 96.07- Kléber Reifen GmbH Saint-Ingbert Germany 93.48- Michelin Reifenwerke KGaA Karlsruhe Germany 93.45- Michelin Kronprinz Werke GmbH Solingen Germany 93.45- Sociedade Michelin de Participações Indústria e Comércio Ltda Rio de Janeiro Brazil 93.45- Michelin North America (Canada) Inc. New Glasgow Canada 93.45- Michelin Shenyang Light Truck & Passenger Tire Co., Ltd Liaoning Province China 84.11- Michelin Shenyang Rubber Components Co., Ltd Liaoning Province China 84.11- Michelin Shenyang Tire Co., Ltd Liaoning Province China 84.11- Michelin Shenyang Truck Tire Co., Ltd Liaoning Province China 65.42- Industria Colombiana de Llantas S.A. Cali Colombia 93.31- Neumáticos Michelin, S.A. Madrid Spain 90.12- Michelin North America, Inc. New York United States 93.45- Michelin Aircraft Tire Corporation Wilmington United States 93.45- American Synthetic Rubber Corporation Wilmington United States 93.45- Taurus Rubber Company Ltd Budapest Hungary 93.40- Taurus Agricultural Tyre Ltd Nyíregyháza Hungary 93.40- Società per Azioni Michelin Italiana Turin Italy 93.45- Michelin Okamoto Tire Corporation Ohta-City

Gunma-Ken Japan 86.30- Industrias Michelin S.A. de C.V. Mexico D.F. Mexico 93.45- Michelin (Nigeria) Limited Nigeria Nigeria 74.76- MSF Tire & Rubber, Inc. Muntinlupa City Philippines 65.13- Stomil-Olsztyn S.A. Olsztyn Poland 50.53- Michelin Tyre Public Limited Company England United Kingdom 93.45- Michelin Gummiringar AB Stockholm Sweden 93.45- Michelin Siam Co., Ltd. Chonburi Thailand 46.74- Siam Tyre Industry Co., Ltd Saraburi Province Thailand 46.74- Siam Tyre Phra Pradaeng Co., Ltd Samuthprakarn Thailand 46.74- The Siam Steel Cord Co. Rayong Thailand 46.74

— Commercial companies- Euromaster France Grenoble France 392 527 404 80.66- Société d’Exportation Michelin Clermont-Ferrand France 855 200 317 100.00- Transityre France S.A. Clermont-Ferrand France 387 940 778 93.45- Michelin Tyre Company South Africa (Proprietary) Limited Johannesburg South Africa 93.45- Michelin Reifenverkaufsgesellschaft m.b.H. Vienna Austria 93.45- Michelin Australia Pty. Ltd Melbourne Australia 93.45- Michelin Belux S.A. Brussels Belgium 93.45- Michelin Chile Ltda. Santiago Chile 93.45- Michelin Korea Co., Ltd. Seoul Korea 93.45- Michelin Gummi Compagni A/S Brøndby Denmark 93.45- Michelin Rehvide AS Tallinn Estonia 93.45- Michelin Retread Technologies, Inc. Wilmington United States 93.45- Tire Centers, LLC Wilmington United States 93.45- Oy Suomen Michelin Ab Espoo Finland 93.45- Elastika Michelin A.E. Athens Greece 93.45- Michelin Asia (Hong-Kong) Ltd Hong Kong Hong Kong 93.45- Michelin Magyarország Kft Budapest Hungary 93.45- Michelin Indian Private Limited New Delhi India 93.45- Kléber Italiana SpA Volpiano Italy 93.45- Michelin Tire Sales Corporation Tokyo Japan 86.30- Nihon Michelin Tire Co., Ltd Tokyo Japan 93.45- Michelin Riepas SIA Riga Latvia 93.45

Michel in Group

99

Registered EquityRegistered Office Country number interest %

- UAB Michelin Padangos Vilnius Lithuana 93.45- Michelin Tyre Services Company Ltd Nigeria Nigeria 56.34- Norsk Michelin Gummi A/S Skedsmo Norway 93.45- Transityre B.V. Breda Netherlands 93.45- Eurodrive Services and Distribution N.V. Amsterdam Netherlands 93.01- Michelin Nederland N.V. Drunen Netherlands 93.45- Michelin del Peru S.A. Lima Peru 93.45- Michelin Polska Sp. z o.o. Warsaw Poland 93.45- Michelin Companhia Luso-Pneu Ltda. Loures Portugal 93.45- Michelin Ceská republika s.r.o. Prague Czech Republic 93.45- Associated Tyre Specialists Limited England United Kingdom 93.18- Michelin Tyres Russian General Agency ZAO Moscow Russia 93.45- Michelin Asia (Singapore) Co. Pte. Ltd Singapore Singapore 93.45- Michelin Slovensko s.r.o. Bratislava Slovakia 93.45- Michelin Slovenija Pnevmatike d.o.o. Ljubljana Slovenia 93.45- Société Anonyme des Pneumatiques Michelin Givisiez Switzerland 93.45- Michelin Chun Shin Ltd Taipei Taiwan 91.56- Michelin Siam Marketing & Sales Co., Ltd Bangkok Thailand 46.74- Michelin Lastikleri Ticaret A.S. Istanbul Turkey 93.45- Various distribution companies in Europe

and elsewhere.— Financial and other companies

- Société Européenne de Pneumatiques Clermont-Ferrand France 344 143 680 93.31- Participation et Développement Industriels S.A. Clermont-Ferrand France 301 293 171 99.99- Spika S.A. Clermont-Ferrand France 304 690 209 100.00- Société Civile Immobilière Michelin Clermont-Ferrand France 328 441 050 96.07- Société Civile Immobilière Michelin Breteuil Paris France 328 309 281 96.07- Société des Procédés Industriels Modernes Paris France 300 203 981 96.07- Société de Technologie Michelin Clermont-Ferrand France 414 624 379 100.00- Michelin Investment Holding Company Limited Bermuda Bermuda 93.45- Plantações E. Michelin Ltda Rio de Janeiro Brazil 93.45- Plantações Michelin da Bahia Ltda Rio de Janeiro Brazil 93.45- Michelin Americas Research & Development Corporation Wilmington United States 93.45- Michelin Corporation New York United States 93.45- Osse River Rubber Estates Limited Nigeria Nigeria 38.13- Utagba Uno Rubber Estates Limited Nigeria Nigeria 65.23- Araromi Rubber Estates Limited Nigeria Nigeria 54.39- Waterside Rubber Estates Limited Nigeria Nigeria 74.76- MC Projects B.V. Amsterdam Netherlands 46.73- Michelin Finance (Pays-Bas) B.V. Amsterdam Netherlands 93.45- Michelin Holding (Pays-Bas) B.V. Amsterdam Netherlands 93.45- Michelin Participations B.V.i.l. Amsterdam Netherlands 92.62- Société des Matières Premières Tropicales Pte. Ltd Singapore Singapore 93.45- Compagnie Financière Michelin Granges-Paccot Switzerland 93.45- Michelin Factoring S.A. Granges-Paccot Switzerland 93.45- Michelin Participations S.A. Granges-Paccot Switzerland 92.62- Michelin Recherche et Technique S.A. Granges-Paccot Switzerland 93.45- M.S. Enterprises Holding Co., Ltd Bangkok Thailand 47.66- Michelin Siam Group Co., Ltd Bangkok Thailand 46.74

3. Consolidated by the equity method- Compagnie Générale des Transports Verney Le Mans France 378 340 061 41.30- Sucat Land Corp. Makati City Philippines 27.33- Tekersan Jant Sanayi A.S. Istanbul Turkey 18.78

4. Companies omitted from consolidation- Various companies which, relatively, were not material, in accordance with the provisions of article 357-4 of the law of July 29, 1966,

concerning trading companies (consolidated accounts).

The above list, which is not exhaustive, has been prepared with specific reference to the requirements of article 248-12, decree no. 67-236 of March 23, 1967, concerning trading companies (consolidated accounts).

Michel in Group

100

Depreciation:

Intangible Fixed Assets 1 189 248 439 485 – 192 691 44 290 1 480 332

Goodwill and sundry acquisition differences 969 376 539 358 – 2 667 146 490 1 652 557

Tangible Fixed Assets 48 018 777 5 245 862 – 2 249 794 3 206 173 54 221 018 (1)

50 177 401 6 224 705 – 2 445 152 3 396 953 57 353 907

Provision for amortization 1 745 328 410 575 – 233 180 59 945 1 982 668 (2)

TOTAL 51 922 729 6 635 280 – 2 678 332 3 456 898 59 336 575

Intangible Fixed Assets 1 835 748 519 312 – 81 268 84 241 2 358 033

Goodwill and sundry acquisition differences 2 519 520 432 714 – 2 667 327 364 3 276 931

Tangible Fixed Assets 80 410 694 7 695 959 – 2 540 123 6 065 117 91 631 647 (1)

TOTAL 84 765 962 8 647 985 – 2 624 058 6 476 722 97 266 611





Gross valueat Dec 31

Conversion and sundrydifferences

DiminutionsAdditionsGross valueat Jan 1

Peugeot S.A. (1) Paris 3.8 % 21 261 966 1 671 009 393 653 (2)

Other companies, loans, long,term advances and others 2 567 539

TOTAL 2 961 192

(1) Accounting year ended December 31, 1998.

(2) Based on the average quoted price for December 1999 this holding was valued at FRF2,494 million.

Net value ofholding/loan

at December 31

Income.Last accounting

period

Stockholders’equity

Proportionof capital held

RegisteredofficeCompany





(2) of which: on financial fixed assets 787 608

on inventories 637 890

on receivables 487 315

on stocks, shares & securities 69 855

Balanceat Dec 31


Amounts writtenback in the

financial year

Provisionsin the

financial year

Balanceat Jan 1

3) FINANCIAL FIXED ASSETS

2) DEPRECIATION AND PROVISIONS

(in FRF thousands)

NOTESin French francs

1) FIXED ASSETS

Michel in Group

101

(in FRF thousands)

6) SUMMARY OF STOCKHOLDERS’ EQUITY AND MINORITY INTERESTS

5) TREASURY STOCK

7) SUBORDINATED DEBT

Capital stock 1 652 590 114 766 1 767 356

Paid in excess of par 11 407 387 – 850 411 492 10 557 468

Consolidated reserves 14 147 856 4 648 2 655 508 – 107 197 16 700 815

Consolidation translation

adjustments – 5 123 777 1 155 548 – 3 968 229

Statement of income,

Group share 3 513 417 – 857 909 – 2 655 508 1 012 989 1 012 989

Stockholders’ equity 25 597 473 – 735 645 – 852 769 — 1 048 351 1 012 989 26 070 399

Minority interests:

in Stockholders’ equity 1 753 056 128 634 29 938 1 911 628

in Net income 249 536 – 120 902 – 128 634 183 992 183 992

TOTAL 27 600 065 – 735 645 – 973 671 — 1 078 289 1 196 981 28 166 019

Balanceat Dec 311999 result


Allocationof balanceof retained

earningsDistributionsChange

in capitalBalanceat Jan1

This is a borrowing of USD1.1 billion for a term of 15 years, maturing in May 2005. Interest is normally due quarterly and other special conditionsattached to this borrowing are noted under Accounting Principles.It was decided, within the terms of the contract, to restrict the amount of subordinated debt at December 31, 1999 to USD951 million.

Compagnie Générale des Transports Verney 49 875 4 603 54 478

Radsystem GmbH 3 637 – 3 637 (1) —

Sucat Land Corp. 19 521 2 113 21 634

Tekersan Jant Sanayi A.S. 9 040 – 3 085 5 955

82 073 – 6 82 067

Other companies 7 027 – 117 6 910

TOTAL 89 100 – 123 88 977

Net valueof holding at Dec 1

Changesduring the year

Net valueof holding at Jan 1Company

(1) Consolidated in 1999

Other changes arose mainly from the financial results of the companies, from the conversion of the accounts for the previous year and from distributions in respect of

financial year 1998.

in French francs4) STOCKHOLDINGS CONSOLIDATED BY THE EQUITY METHOD

Compagnie Générale des Établissements Michelin held 2,603,774 shares at December 31, 1999, shown as stocks, shares and securities.

Michel in Group

102

(in FRF thousands)

Dec 31, 1999 Dec 31, 1998

Provision for losses on foreign exchange 4 592 10 495Provision for pensions and similar obligations 10 946 760 9 601 222Provision for deferred taxation 368 783 358 342Provision for restructuring costs 3 510 205 1 323 926Provision for other risks and expense 1 319 467 1 131 399

TOTAL 16 149 807 12 425 384

Tax losses carried forward and temporary differences not taken intoaccount in the calculation of deferred tax assets or in the charge fordeferred tax amounted to FRF10.4 billion.

Setting aside the effect of consolidation translation adjustments andsundry items which amounted to FRF44 million, the change in theprovision for restructuring costs was due to:

• a transfer of FRF2,427 million to provisions in respect of the projected

expenses related to reorganization of the European activities;

• a writing back of provisions corresponding to amounts charged in 1999,

in the sum of FRF388 million;

• other provisions and write-backs for a net provision of FRF104 million.

For the most part, the above changes are included in the exceptional

result.

Convertible bonds 66 66 — —

Other bonds 2 116 910 116 910 — 2 000 000

Sundry borrowings and financial debt 22 378 581 13 181 523 7 709 184 1 487 874

TOTAL FINANCIAL DEBT 24 495 557 13 298 499 7 709 184 3 487 874

Accounts payable - trade and similar 9 125 616 9 125 569 47 —

Other debts 10 401 722 9 901 269 500 453 —

TOTAL (1) 44 022 895 32 325 337 8 209 684 3 487 874

(1) of which secured, 759,475

Falling due after1 and within

5 years

Falling dueafter 5 years

Falling duewithin 1 yearGross amount

11) POSTRETIREMENT INDEMNITIES AND SIMILAR LIABILITIES

In most of the countries in which the Group companies operate,commitments in respect of postretirement benefits are covered:

- by external organizations to whom employee and company contributionsare paid. This releases the companies from any further liability in thisregard, or

- by pension funds, which may be managed either externally or byemployees of the companies concerned. In these cases, the commitmentis generally limited to ensuring adequacy of funding and propermanagement of the funds.

Supplementary postretirement commitments, either for pensions or partialcoverage of medical expenses not met by external organizations, are of acontractual nature and, in conformity with the accounting requirements ofthe countries concerned, an actuarial provision of FRF10.9 billion is madein the balance sheet.

Additionally, according to the rules and conventions existing in the variouscountries, employees may, upon leaving the company, receive a capitalsum and/or a series of annuities. The actuarial value of these commitmentsnot covered by the provision mentioned above is estimated atFRF4.1 billion.

In 1994, Michelin North America Inc., New York and in 1999, MichelinNorth America (Canada) Inc., New Glasgow, commenced a program ofsale and the securitization of certain accounts receivable. These revolvingprograms provide a long-term source of finance.

At December 31, 1999 the net sales of accounts receivable were FRF4,434million. Expenses related to the programs are calculated and paid based onreadily-available market rates and are included as financial expenses in theaccounts.

9) DEBT

10) ACCOUNTS RECEIVABLE

in French francs8) PROVISIONS FOR CONTINGENCIES AND EXPENSES

Michel in Group

103

(in FRF thousands)

13) NET SALES

14) EMPLOYEES AND PERSONNEL EXPENSE

15) FINANCIAL INCOME AND EXPENSE - MARKET EXPOSURE

Commitments undertaken

Guarantees 781 501

Lease contracts 4 408 963

Bills discounted not yet due 162 585

TOTAL 5 353 049

Commitments received

Guarantees and sureties 2 027 268

France 14.0

Western Europe excluding France 35.9

North America and Mexico 35.3

Other countries 14.8

Tires and wheels 98.8

Manufactured rubber and plastics,

maps, guides and sundries 1.2

by geographical zone % by activity %

The average number of employees in companies within the fullconsolidation was 130,434.

Corresponding personnel expense was FRF30,723 million.

Foreign exchange risks

Group policy is to cover foreign exchange exposure. As a result, variousmarket instruments are used, mainly exchange rate forward contracts oroptions. All of the related expenses, chiefly commissions paid, areaccounted for on completion of the transactions concerned.

In general, receivables and payables in currency are of a similar nature andterm. There is thus an offset and only the net exposure is covered.

The resulting income and losses, realized or unrealized, together with thecosts of coverage are recorded in the income statement.

In summary, all net risks of loss are covered by provisions.

Investments by holding companies in foreign affiliates is financed in thecurrency of the holding company's accounts (unless a sale of theinvestment is foreseen) and the exchange exposure arising on income fromthe holdings is covered according to the above procedure.

Interest rate risks

Interest rate exposure for periods of up to one year is managed locally. Amaximum amount to be financed at fixed rates for more than one year isset for each foreign currency and exposure is controlled and coordinatedconsistently within the Group.

At December 31, 1999, net financial debt included, (in FRF millions):

- borrowings and financial debtss 24 496

- stocks, shares and securities – 1 214

- cash and cash equivalents – 4 557

18 725

- subordinated debt 6 191

TOTAL 24 916

in French francs12) OTHER COMMITMENTS

Michel in Group

104

The table below gives a summary of net financial debt, fixed and variable rate and by currency, after accounting for the results of all financial operationsusing market instruments.

Euro 1 022 2 016 5.8 3 038 12.2

Swiss franc 2 905 449 3.8 3 354 13.5

Pound sterling 2 467 1 1.8 2 468 9.9

Other European 933 2 2.8 935 3.8

Total European 7 327 2 468 5.4 9 795 39.4

US dollar 4 995 5 322 2.9 10 317 41.4

Canadian dollar 396 134 6.8 530 2.1

Total dollar zone 5 391 5 456 3.0 10 847 43.5

Other currencies 3 661 613 2.8 4 274 17.1

TOTAL 16 379 8 537 3.6 24 916 100.0

Variable rate Fixed rate Average fixedrate period Total debt % per

currencyCurrency

Risks on financial holdings

The value of non-consolidated long-term stockholdings arises both fromtheir utility to the Group and from their potential realizable value. AtDecember 31, 1999 there was no foreseeable risk of depreciation.

Other financial holdings are included in the balance sheet for a total ofFRF1,213.5 million. They consist mainly of short-term investments with no

associated exchange or interest rate risk. Of this amount, quoted sharesaccounted for FRF684.7 million and their stock exchange value atDecember 31, 1999 was FRF702 million.

16) OTHER EXCEPTIONAL REVENUE AND EXPENSES

Other exceptional revenue 1 079 001of which: proceeds from disposals of fixed assets 800 327

Other exceptional expense 1 169 709of which: net value of disposals of fixed assets 423 088

restructuring costs (excluding provisions) 435 790

17) TAXES ON INCOME

The charge in the statement of income is made up: - Tax relating to the accounting year 1 806 006- Deferred tax 649 375

18) MANAGEMENT COMPENSATION

Compagnie Générale des Établissements Michelin is administered by Gérants ( Managing Partners) who are also Associés commandités (GeneralPartners). In this latter capacity they benefit from a global allocation of income as prescribed by the Articles and shared between all of the GeneralPartners. The Managing Partners do not otherwise receive salary or benefits in kind from Company Générale or from companies which it controls.

(in FRF millions)

(in FRF thousands)

(in FRF thousands)

in French francs

Documents

999 Annual Report · (1) Member until the close of the Annual Meeting of May 26, 2000. (2) Re-appointment proposed at the above Meeting. C ONSEIL DE SURVEILLANCE(SUPERVISORYB OARD)