Consolidated statement of financial position

 

CASH AND CASH EQUIVALENTS

Cash and cash equivalents amount to Euro 102,461 thousand versus Euro 66,760 thousand as of December 31, 2010 and break down as follows:

(in thousands of Euro)	12.31.2011	12.31.2010
Short-term cash investments	102,369	66,521
Cheques	16	158
Cash on hand	76	81
TOTAL	102,461	66,760

 

“Short-term cash investments” earn interest at a floating rate.

As a result of the inclusion of the Systèmes Moteurs Group in the scope of consolidation, cash and cash equivalents increased by Euro 5,326 thousand (and Euro 8,311 thousand on the acquisition of control date).

For further details, please refer to the Analysis of the Net Financial Position in note 22 and to the Consolidated Cash Flow Statement included in the accounting schedules.

As of December 31, 2011, the Group has unutilised lines of credit for the amount of Euro 202,638 thousand. These funds are available for use on demand, because the conditions required for their availability are met.

 

OTHER FINANCIAL ASSETS

(in thousands of Euro)	21.12.2011	12.31.2010
Securities held for trading	11	18
Held-to-maturity investments	1,893	-
Assets for derivative financial instruments	8	182
TOTAL	1,912	200

“Securities held for trading” are measured at fair value based on official sources at the time the financial statements are drawn up. They represent readily marketable securities which are used by the companies to optimise cash management.

“Held-to-maturity investments” are valued at amortised cost and include bonds of a Spanish prime banking institution.

“Assets for derivative financial instruments” total Euro 8 thousand and refer to the fair value of forward foreign exchange contracts. The decrease in the item is linked to the trends in exchange rates at year end. Further details can be found in the analysis of financial instruments contained in note 39. 

INVENTORIES

The breakdown of inventories is as follows:

(in thousands of Euro)	12.31.2011			12.31.2010
	Gross	Write-downs	Net	Gross	Write-downs	Net
Raw, ancillary and consumable materials	58,621	3,737	54,884	43,839	4,015	39,824
Work in progress and semi-finished products	13,454	292	13,162	12,445	269	12,176
Contract work in progress and advances	34,347	-	34,347	4,264	-	4,264
Finished goods and goods for resale	57,606	7,494	50,112	49,996	7,804	42,192
TOTAL	164,028	11,523	152,505	110,544	12,088	98,456

 

The gross value of inventories records an increase by Euro 53,484 thousand, Euro 47,821 thousand of which originate from the inclusion of the Systèmes Moteurs Group in the scope of consolidation (please note the increase in “Contract work in progress and advances” reflecting tooling for sale to customers), whereas the remaining portion originates from increased production volumes. Exchange rates being equal, inventories would have increased by Euro 54,418 thousand.

Writedowns mainly consist of accruals for raw materials that can no longer be used for current production and for obsolete or slow-moving finished goods, goods for resale and ancillary materials. The decrease in the provisions reflects products scrapped during the year for the amount of Euro 1,848 thousand, whereas Euro 19 thousand are traced back to a negative exchange effect; these were partly offset by further accruals for Euro 1,302 thousand (recorded in the Income Statement under item “Variable cost of sales”).

Inventories are encumbered by bank mortgages or liens totalling Euro 108 thousand to guarantee loans obtained by the subsidiary Allevard IAI Suspensions Private Ltd. 

 

(in thousands of Euro)	12.31.2011	12.31.2010
Trade receivables	179,663	141,430
Less: allowance for doubtful accounts	102,461	5,852
Trade receivables, net	174,344	135,578
Due from Parent Company	4,311	3,237
Due from associates	-	-
Tax receivables	19,564	12,178
Other receivables	10,204	10,232
Other assets	2,800	2,485
TOTAL	211,223	163,710

 

“Trade receivables, net” are non-interest bearing and have an average due date of 45 days, against 46 days recorded at the end of the previous year.

It should be noted that as of December 31, 2011, the Group factored trade receivables for Euro 57,557 thousand (Euro 37,563 thousand as of December 31, 2010), Euro 14,681 thousand of which pertain to the Systèmes Moteurs Group. The risks and benefits related to these receivables have been transferred to the factor; therefore these receivables have been derecognised from the Statement of Financial Position debiting the consideration received from the factoring company.

If the factoring transactions (Euro 57,557 thousand as of December 31, 2011 and Euro 37,563 thousand as of December 31, 2010) and Systèmes Moteurs Group figures (Euro 48,123 thousand) are excluded, trade receivables show a decrease of Euro 4,578 thousand for the most part originated from a reduction in receivables past due and a negative exchange effect (Euro 1,867 thousand).

Further adjustments were booked to “Allowance for doubtful accounts” during the year for a total of Euro 1,009 thousand, against net utilisations of the allowance for the amount of Euro 1,601 thousand (see note 39 for further details). Writedowns, net of provisions not used during the period, were charged to Income Statement under the item “Variable cost of sales – Variable sales and distribution costs”.

“Due from Parent Company” as of December 31, 2011 is the amount receivable from the Parent Company CIR S.p.A. arising from the participation in the Group tax filing system on the part of the Italian companies of the Group.
See chapter F for the terms and conditions governing these receivables from CIR S.p.A..

“Tax receivables” as of December 31, 2011 include tax credits due to the Group companies by the tax authorities of the various countries. It does not include deferred taxes which are treated separately.

The increase in the item compared to the previous year includes Euro 7,631 thousand originated from the inclusion of the Systèmes Moteurs Group in the scope of consolidation.

“Other receivables” are made up as follows:

(in thousands of Euro)	12.31.2011	12.31.2010
Amounts due from social security institutions	276	629
Amounts due from employees	235	224
Advances to suppliers	1,475	463
Due from others	8,218	8,916
TOTAL	10,204	10,232

 

The decrease in “Amounts due from social security institutions” mainly relates to advance payment recovery by the subsidiary Sogefi Rejna S.p.A. from social security institutions for employees on redundancy benefits.

The increase in “Advances to suppliers” includes Euro 435 thousand originated from the inclusion of the Systèmes Moteurs Group in the scope of consolidation.

“Other receivables” decreased as a result of the advance payment of Euro 4,918 thousand related to the insurance indemnity of the subsidiary Filtrauto S.A. for product warranties given to customers. This decrease is partly offset by the inclusion of the Systèmes Moteurs Group in the scope of consolidation (Euro 1,915 thousand) and by an amount receivable recognised for the recovery of product warranties given to customers of the Systèmes Moteurs Group (Euro 1,430 thousand) as outlined in note “2.2 Business combinations”.

The item “Other assets” essentially includes accrued income and prepayments on royalties, insurance premiums, indirect taxes relating to buildings and on costs incurred for sales activities.
The increase in this item basically accounts for the inclusion of the Systèmes Moteurs Group in the scope of consolidation (Euro 486 thousand).

 

 

(in thousands of Euro)	2011
	Land	Buildings, plant and machinery, commercial and industrial equipment	Other assets	Assets under construction and payments on account	TOTAL
Balance at January 1	14,423	189,145	4,278	19,300	227,146
Additions of the period	583	14,360	1,148	20,164	36,255
Disposals during the period	(36)	(260)	(13)	(4)	(313)
Exchange differences	(206)	(1,251)	(76)	(441)	(1,974)
Depreciation for the period	-	(34,790)	(1,459)	-	(36,249)
Writedowns/revaluations during the period	-	(3,352)	(86)	-	(3,438)
Change to the scope of consolidation	1,006	35,102	715	1,913	38,736
Other changes	4	15,416	339	(16,052)	(293)
Balance at December 31	15,774	214,370	4,846	24,880	259,870
Historical cost	15,774	792,973	28,417	25,574	862,738
of which: leases - gross value	1,158	18,542	15	-	19,715
Accumulated depreciation	-	578,603	23,571	694	602,868
of which: leases - accumulated depreciation	-	6,858	10	-	6,868
Net value	15,774	214,370	4,846	24,880	259,870
Net value - leases	1,158	11,684	5	-	12,847

 

(in thousands of Euro)	2010
	Land	Buildings, plant and machinery, commercial and industrial equipment	Other assets	Assets under construction and payments on account	TOTAL
Balance at January 1	14,175	188,869	102,461	22,754	231,529
Additions of the period	-	10,901	738	12,665	24,304
Disposals during the period	(9)	(520)	(53)	-	(582)
Exchange differences	215	5,815	300	1,266	7,596
Depreciation for the period	-	(33,097)	(1,577)	-	(34,674)
Writedowns/revaluations during the period	-	(171)	(72)	(694)	(937)
Other changes	42	17,348	(789)	(16,691)	(90)
Balance at December 31	14,423	189,145	4,278	19,300	227,146
Historical cost	14,423	733,874	27,322	19,994	795,613
of which: leases - gross value	1,158	18,335	15	-	19,508
Accumulated depreciation	-	544,729	23,044	694	568,467
of which: leases - accumulated depreciation	-	5,750	5	-	5,755
Net value	14,423	189,145	4,278	19,300	227,146
Net value - leases	1,158	12,585	10	-	13,753

Investments during the year amounted to Euro 36,255 thousand compared with Euro 24,304 thousand in the previous year.

The larger projects regarded the “Assets under construction and payments on account” and “Buildings, plant and machinery, commercial and industrial equipment” categories.

Major investments in the “Assets under construction and payments on account” category include investments in the Indian start-up Allevard IAI Suspensions Private Ltd; in subsidiary S.ARA Composites S.A.S. for the spring prototypes line in composite material; in the Brazilian subsidiaries Allevard Molas do Brasil Ltda and Sogefi Filtration do Brasil Ltda for a new production line, quality improvement and new installations; in subsidiary Shanghai Sogefi Auto Parts Co. Ltd to upgrade production capacity and developing new products; and in subsidiaries Sogefi Rejna S.p.A. and Allevard Rejna Autosuspensions S.A. for new installations and the development of new products.

The most important projects in the “Buildings, plant and machinery, commercial and industrial equipment” category include investments in the subsidiaries Sogefi Filtration Ltd and Systèmes Moteurs S.A.S. for the development of new products and technologies; in Allevard Rejna Autosuspensions S.A. for the improvement of production processes and new installations; and in LPDN GmbH to upgrade production capacity and for plant maintenance.

Numerous other smaller investments were also made during the year, which focused on upgrading production plants and developing new products.

“Disposals during the period” mostly account for transfers of “Buildings, plant and machinery, commercial and industrial equipment” performed by several group companies for minor amounts.

“Writedowns/revaluations during the period” totalled Euro 3,438 thousand and is nearly entirely made up of writedowns of “Buildings, plant and machinery, commercial and industrial equipment” and “Other assets” performed by subsidiary Sogefi Filtration Ltd as a result of the restructuring of its Llantrisant production plant currently under way.

“Change to the scope of consolidation” represents the fair value of Systèmes Moteurs Group's assets at the acquisition date. These amounts mainly refer to land, buildings, plant and machinery of subsidiary Systèmes Moteurs S.A.S. and plant and machinery of subsidiary Mark IV Air Intake Systems Corp.

Please note that the fair value of plant and machinery included in the “Buildings, plant and machinery, commercial and industrial equipment” category was determined on a provisional basis.

“Other changes” refer to the completion of projects that were underway at the end of the previous year and their reclassification under the pertinent items.

The balance of “Assets under construction and payments on account” as of December 31, 2011 includes Euro 306 thousand of advances for investments.

The main inactive assets, with a total net value of Euro 6,635 thousand, included in the item “Tangible fixed assets” refer to an industrial building of the subsidiary Sogefi Rejna S.p.A. (located in Melfi); an industrial building, with adjoining land and a property complex of the Holding Company Sogefi S.p.A. (located in Mantova and San Felice del Benaco).

The book value of said assets will be recovered through their sale rather than through their continuous use. As we do not expect to sell them within one year, they are not subject to the accounting treatment envisaged by IFRS 5.

In addition, Allevard Sogefi USA Inc. subsidiary owns a production line temporarily not in use for an amount of Euro 7,420 thousand (net value). The production will start again in 2012/2013 because of new customers’ orders and the facility will accommodate certain production requests transferred from other Sogefi group companies.

“Depreciation for the period” has been recorded in the appropriate item in the Income Statement.

No interest costs were capitalised to “Tangible fixed assets” during the year 2011.

Guarantees

As of December 31, 2011, tangible fixed assets are encumbered by mortgages or liens totalling Euro 1,545 thousand to guarantee loans from financial institutions, compared to Euro 501 thousand as of December 31, 2010. Guarantees as of December 31, 2011 refer exclusively to the Indian subsidiaries Sogefi M.N.R. Filtration India Private Ltd and Allevard IAI Suspensions Private Ltd.

Purchase commitments

As of December 31, 2011, there are binding commitments to buy tangible fixed assets for Euro 2,460 thousand (Euro 4,266 thousand as of December 31, 2010) mainly relating to the subsidiaries S.ARA Composite S.A.S. and Allevard Rejna Autosuspensions S.A.. Said commitments will be settled within 12 months.

Leases

The carrying value of assets under financial leases as of December 31, 2011 was Euro 19,715 thousand, and the related accumulated depreciation amounted to Euro 6,868 thousand. The financial aspects of the lease payments and their due dates are explained in note 16.

 

INTANGIBLE ASSETS

The net balance as of December 31, 2011 was Euro 213,526 thousand versus Euro 133,489 thousand at the end of the previous year, and breaks down as follows

(in thousands of Euro)	2011
	Develop-ment costs	Industrial patents and intellectual property rights, concessions, licences and trademarks	Other, assets under construction and payments on account	Goodwill	TOTAL
Balance at January 1	27,624	5,048	6,738	94,079	133,489
Additions of the period	13,246	396	6,853	-	20,495
Disposals during the period	-	(22)	(18)	-	(40)
Exchange differences	(106)	-	(154)	-	(260)
Amortisation for the period	(9,966)	(2,028)	(523)	-	(12,517)
Writedowns during the period	(129)	-	(5)	-	(134)
Change to scope of consolidation	15,854	1,688	54	54,919	72,515
Other changes	1,075	353	(1,450)	-	(22)
Balance at December 31	47,598	5,435	11,495	148,998	213,526
Historical cost	105,233	21,943	15,796	171,896	314,868
Accumulated amortisation	57,635	16,508	4,301	22,898	101,342
Net value	47,598	5,435	11,495	148,998	213,526

(in thousands of Euro)	2010
	Development costs	Industrial patents and intellectual property rights, concessions, licences and trademarks	Other, assets under construction and payments on account	Goodwill	TOTAL
Balance at January 1	25,199	5,944	6,150	94,079	131,372
Additions of the period	7,334	139	4,250	-	11,723
Disposals during the period	(36)	-	(52)	-	(88)
Exchange differences	801	3	237	-	1,041
Amortisation for the period	(8,251)	(1,537)	(462)	-	(10,250)
Writedowns during the period	(315)	-	-	-	(315)
Other changes	2,892	499	(3,385)	-	6
Balance at December 31	27,624	5,048	6,738	94,079	133,489
Historical cost	78,773	19,958	10,491	116,977	226,199
Accumulated amortisation	51,149	14,910	3,753	22,898	92,710
Net value	27,624	5,048	6,738	94,079	133,489

Investments during the year amounted to Euro 20,495 thousand compared with Euro 11,723 thousand in the previous year.

The increases in “Development Costs” refer to the capitalisation of costs incurred by Group companies to develop new products in collaboration with leading motor vehicle manufacturers. The largest investments refer to the subsidiaries Filtrauto S.A., Systèmes Moteurs S.A.S. and Sogefi Filtration do Brasil Ltda.

The additions to “Other, assets under construction and payments on account” are principally due to the costs incurred for the acquisition or internal production of intangible assets not yet in use.
The most important investments were made in subsidiary Allevard Rejna Autosuspensions S.A. for the development of new products and in the Holding Company Sogefi S.p.A. for the implementation of the new ERP information system across the Sogefi Group.

It does not include advances to suppliers for the purchase of fixed assets.

The line “Writedowns during the period” mostly refers to the writedowns made by the subsidiary Sogefi Rejna S.p.A. after a project under way was abandoned.

“Change to the scope of consolidation” represents the provisional fair value of Systèmes Moteurs Group's assets at the acquisition date.

“Development costs” principally include costs generated internally, whereas “Industrial patents and intellectual property rights, concessions, licences and trademarks” consist of factors that are all acquired externally.
“Other, assets under construction and payments on account” include around Euro 5,435 thousand of costs generated internally.

There are no intangible assets with an indefinite useful life except for goodwill.

Goodwill and impairment test

From January 1, 2004 goodwill is no longer amortised, but subjected each year to impairment test.

The Company has identified five Cash Generating Units (CGUs) to which the goodwill deriving from acquisitions could be allocated:

• engine systems – fluid filters (previously named “filters”)
• engine systems - air intake and cooling (“Systèmes moteurs” group)
• car suspension
• industrial vehicle suspension
• precision springs

For the moment, it is possible to identify goodwill deriving from external acquisitions in only three segments: fluid filters, air intake and cooling (to which the whole goodwill obtained with the acquisition of the Systèmes Moteurs group was allocated) and car suspension.

The specific goodwill of the “Engine Systems Division – fluid filters” amounts to Euro 77,030 thousand, the provisional goodwill of the “Engine Systems Division - air intake and cooling” amounts to Euro 54,919 thousand and the goodwill pertaining to the “Car Suspension Division” amounts to Euro 17,049 thousand.

Impairment tests have been carried out in accordance with the procedure laid down in IAS 36 to check whether there have been any losses in the value of this goodwill, by comparing the book value of the individual CGUs with their value in use, given by the present value of estimated future cash flows that are expected to result from the continuing use of the asset being tested for impairment. 
We used the method that involves discounting unlevered cash flows, based on projections drawn up in budgets/long-term plans for the period 2012-2015, approved by management and in line with forecasts for the automotive segment (as estimated from the segment’s most important sources) and on a discounting rate of 8.8%, which reflects the weighted average cost of capital.

The terminal value was calculated using the “perpetual annuity” approach, assuming a growth rate of 2% and considering an operating cash flow based on the last year of the long-term plan (the year 2015), adjusted to project a stable situation “in perpetuity”, based on the following main assumptions:

• a balance between capital investment and depreciation (according to the rationale of considering the level of investment needed to “maintain” the business);
• a zero change in working capital (assuming in effect that the benefits of the working capital reduction plan that the Group is currently implementing will run out in the medium-term).

As regards the average cost of capital, we calculated a weighted average of the cost of debt (taking into consideration the benchmark interest rates plus a spread) and the Company's own cost of capital, based on parameters for a group of firms operating in the European car components sector which are considered by the leading industry analysts to be Sogefi's peers. The values used to calculate the average cost of capital (extrapolated from the main financial sources) are as follows:

• financial structure of the industry: 31.4%
• levered beta of the industry: 1.12
• risk free rate: 5.44% (average of risk free rates of the key markets in which the group operates weighted by sales revenues)
• risk premium: 5.5%
• cost of debt spread: 1.1%

Sensitivity analyses were also carried out on two of the variables referred to above, with the growth rate being set to zero and the average cost of capital being increased by two percentage points. None of the scenarios used highlighted the need to post a write-down.
As far as the sensitivity analysis goes, the impairment test reached break even point at the following discounting rates (growth rate remaining unchanged at 2%): 17.29% for the engine systems division - fluid filters; 12.71% for the engine systems division - air intake and cooling; and 12.88% for the car suspension division.

The test based on the present value of the estimated future cash flows turns out a value in use of the CGUs that is considerably higher than their carrying value, so no writedown has been posted.

 

 

 

 

 

(in thousands of Euro)	12.31.2011	12.31.2010
Equity investments in other companies	490	440
Other securities	-	-
TOTAL	490	440

 

The balance of “Equity investments in other companies” essentially refers to the 22.62% shareholding in the company AFICO FILTERS S.A.E.. The equity investment was not classified as associate due to the lack of group’s members in the management bodies of the company.

 

 

(in thousands of Euro)	12.31.2011	12.31.2010
Substitute tax	576	576
Pension fund surplus	11,298	8,039
Other receivables	2,228	1,531
TOTAL	14,102	10,146

 

“Substitute tax” refers to the amount paid by the Holding Company Sogefi S.p.A. for the revaluation of buildings at the end of 2005.

“Pension fund surplus” refers to the subsidiaries Sogefi Filtration Ltd (Euro 11,146 thousand) and Filtrauto S.A. (Euro 152 thousand relating to the ex subsidiary Sogefi Filtration B.V). For further details, refer to note 19.

The item “Other receivables” mainly includes tax credits, including fiscal credits on purchases of assets made by the Brazilian subsidiaries, and non-interest bearing guarantee deposits for leased properties. These receivables will be collected over the coming years.

The increase in the item reflects tax credits of subsidiaries S.ARA Composite S.A.S. and Allevard Rejna Autosuspensions S.A. for the amount of Euro 466 thousand for research and development activities, whereas the remaining portion originates from the change to the scope of consolidation (Euro 301 thousand). 

 

 

 

(in thousands of Euro)	12.31.2011	12.31.2010
Bank overdrafts and short-term loans	9,827	35,958
Current portion of medium/long-term financial debts	46,962	42,773
of which: leases	1,674	1,866
TOTAL SHORT-TERM FINANCIAL DEBTS	56,789	78,731
Other short-term liabilities for derivative financial instruments	632	164
TOTAL SHORT-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS	57,421	78,895

 

Non-current portion 

(in thousands of Euro)	12.31.2011	12.31.2010
Financial debts to banks	330,462	141,406
Other medium/long-term financial debts	7,916	9,562
of which: leases	5,686	7,187
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS	338,378	150,968
Other medium/long-term liabilities for derivative financial instruments	8,416	2,042
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS	346,794	153,010

 

Bank overdrafts and short-term loans

For further details, please refer to the Analysis of the Net Financial Position in note 22 and to the consolidated Cash Flow Statement included in the financial statements.

 

Current portion of medium/long-term financial debts

As of December 31, 2011, this item principally includes the following loans:

• the current portion of Euro 22,200 thousand of a Euro 100,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Unicredit Corporate Banking S.p.A. in 2006 (the residual amount as of December 31, 2011 was Euro 44,210 thousand). The loan expires in September 2013 and has a floating interest rate corresponding to the 3-month Euribor plus a base spread of 70 basis points. The spread actually applied at the end of 2011 corresponded to 70 basis points. The loan is not secured against any of the company's assets;
• the current portion of Euro 5,000 thousand of a Euro 40,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Europea degli Investimenti (European Investment Bank) in 2010 (the residual amount as of December 31, 2011 was Euro 39,790 thousand). The loan expires in April 2016 and has a floating interest rate corresponding to the 3-month Euribor plus an average spread of 256 basis points. The loan is not secured against any of the company's assets;
• the current portion of Euro 2,675 thousand of a Euro 4,000 thousand loan denominated in Renminbi obtained by the subsidiary Shanghai Sogefi Auto Parts Co., Ltd from Unicredit in 2011 (the residual amount as of December 31, 2011 corresponded to the full amount). The loan expires in September 2012 and has a floating interest rate corresponding to the six-monthly PBOC plus a spread of 300 basis points. The loan is not secured against any of the company's assets;
• the current portion of Euro 2,295 thousand of a Euro 25,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Carige S.p.A. in 2011 (the residual amount as of December 31, 2011 was Euro 24,686 thousand). The loan expires in June 2017 and has a floating interest rate corresponding to the 3-month Euribor plus a fixed spread of 225 basis points. The loan is not secured against any of the company's assets;
• the current portion of Euro 2,000 thousand of a Euro 10,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from GE Capital S.p.A. in 2011 (the residual amount as of December 31, 2011 was Euro 9,926 thousand). The loan expires in December 2016 and has a floating interest rate corresponding to the 3-month Euribor plus a fixed spread of 230 basis points. The loan is not secured against any of the company's assets;
• the current portion of other minor medium/long-term loans, including financial lease payments in accordance with IAS 17.

 

In April 2011, Holding Company Sogefi S.p.A. repaid and redeemed in advance the full residual amount of the loan obtained from Intesa Sanpaolo S.p.A. in 2006. Further details are provided below. The current portion as of December 31, 2010 amounted to Euro 11.1 million.

 

Other short-term liabilities for derivative financial instruments

The item includes the short-term portion of the fair value of interest risk hedging contracts and exchange risk hedging contracts.
Reference should be made to chapter E for a further discussion of this matter.

 

Medium/long-term financial debts

This mainly includes the following loans:

• the syndicated loan obtained by the Holding Company Sogefi S.p.A. in 2008 for a total of Euro 160,000 thousand, Euro 159,825 thousand of which had been drawn down as of December 31, 2011. The loan expires in June 2013 and has a floating interest rate corresponding to the 3-month Euribor plus a base spread of 50 basis points. The spread actually applied at the end of 2011 corresponded to 50 basis points. The loan is not secured against any of the company's assets;
• the revolving loan obtained by the Holding Company Sogefi S.p.A. from Banca Nazionale del Lavoro S.p.A. in 2011 for a total of Euro 40,000 thousand, and drawn down for its full amount as of December 31, 2011. The loan expires in January 2013 and has a floating interest rate corresponding to the 3-month Euribor plus a fixed spread of 180 basis points. The loan is not secured against any of the company's assets;
• the medium-long term portion of Euro 34,790 thousand of the Euro 40,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Europea degli Investimenti (European Investment Bank) in 2010;
• the loan obtained by the Holding Company Sogefi S.p.A. from Intesa Sanpaolo S.p.A. in 2011 for a total of Euro 60,000 thousand, divided into two tranches of Euro 30,000 thousand each, with one tranche at amortised capital instalments and one of the revolving type. As of December 31, 2011, Euro 29,339 had been drawn down. The loan expires in December 2016 and has a floating interest rate corresponding to the 3-month Euribor plus a fixed spread of 250 basis points until May 1, 2012; after that date, a base spread of 200 basis points will be applied. The loan is not secured against any of the company's assets. When the new loan was taken out, the Holding Company Sogefi S.p.A. redeemed the previous loan in advance by repaying the residual amount of about Euro 27.8 million (Euro 11.1 million of which were the current portion); the previous loan for a total of Euro 50.0 million had been obtained from Intesa Sanpaolo S.p.A. in 2006 at a floating interest rate corresponding to the 3-month Euribor plus a base spread of 60 basis points, and was to expire in September 2013;
• the medium-long term portion of Euro 22,391 thousand of the Euro 25,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Carige S.p.A. in 2011.

In March 2011, the Holding Company Sogefi S.p.A. signed a revolving loan agreement for a total of Euro 25 million with Banca Monte dei Paschi di Siena S.p.A.. The agreement term is 6 years; the 3-month Euribor plus a fixed spread of 175 basis points will be applied until the first test ratio date; after that date, a base spread of 150 basis points will be applied. As of December 31, 2011, the Holding Company had not made any draw-down as regards the above loan.

The item “Other medium/long-term financial debts” includes other minor loans, as well as financial lease payments in accordance with IAS 17.

It is specified that, contractually, the spreads of the loans of the Holding Company Sogefi S.p.A. are reviewed every six months on the basis of the computation of the consolidated NFP/normalised consolidated EBITDA ratio.

For an analysis of the covenants relating to loans outstanding at the end of the period, please refer to note 22.

 

Other medium/long-term financial liabilities for derivative financial instruments

The item includes the medium/long-term portion of the fair value of the interest risk hedging instruments.

The increase in the item accounts for new multi-year agreements entered into by the Holding Company Sogefi S.p.A. to cover part of the loans taken out in 2011 and part of the future loans that are highly probable to be taken out.

Reference should be made to chapter E for a further discussion of this matter.

 

Finance leases

The Group has finance leases as well as rental and hire contracts for property, plant and machinery that, according to their type, cover almost the entire useful life of the asset concerned. The assets held under these leases, rental and hire contracts are booked in accordance with IAS 17 as though they were fixed assets owned by the company, disclosing their historical cost, depreciation, the financial cost and the residual liability.

Future payments deriving from these contracts can be summarised as follows: 

(in thousands of Euro)	Instalments	Capital
Within 12 months	2,072	1,674
Between 1 and 5 years	4,034	2,821
Beyond 5 years	3,597	2,865
Total lease payments	9,703	7,360
Interests	(2,343)
TOTAL PRESENT VALUE OF LEASE PAYMENTS	7,360	7,360

 

The contracts included in this item refer to the following subsidiaries:

- Sogefi Filtration Ltd for a long-term rental contract for the production site in Tredegar. The contract expires in September 2022 and the original total amount of the contract was GBP 2,650 thousand; the future capital payments amount to GBP 2,208 thousand and the annual nominal rate of interest applied by the lessor is 11.76%.

The Group has not given any sureties for this contract.

This rental contract has been accounted for as financial leases, as required by IAS 17, where the present value of the rent payments coincided approximately with the fair value of the asset at the time the contract was signed.

- Allevard Rejna Autosuspensions S.A. has two lease contracts for the following production sites:

a) Lieusaint: the contract expires in October 2014 and the original total amount of the contract was Euro 6,575 thousand, the future capital payments amount to Euro 1,317 thousand and the annual nominal rate of interest applied by the lessor is 3-month Euribor plus a spread of 60 basis points. The Group has not given any sureties for this contract;

b) Fronville: the contract expires in June 2012 and the original total amount of the contract was Euro 6,412 thousand, the future capital payments amount to Euro 569 thousand and the annual nominal rate of interest applied by the lessor is 3-month Euribor plus a spread of 72 basis points. The Group has not given any sureties for this contract.

There are no restrictions of any nature on these leases. There is a purchase option at the end of the contracts to buy the assets, namely Euro 4 thousand for the production site at Lieusaint and Euro 305 thousand for the site at Fronville. Given that it is probable that the options will be exercised, considering the low redemption values of the assets, these contracts have been accounted for as finance leases, as foreseen by IAS 17.

- Allevard Sogefi USA Inc. has entered into the following lease contracts for the Prichard production site relating to:

a) plants, machinery and improvements to the building for an original amount of USD 1,600 thousand. The contract expires in May 2019, the future capital payments amount to USD 1,245 thousand and the annual interest rate applied by the lessor is equal to 3.92%. The Group has given sureties for this contract;

b) plant, machinery and improvements to the building for an original amount of USD 1,897 thousand, increased to USD 3,000 thousand during the course of 2010. The contract expires in July 2019, the future capital payments amount to USD 2,416 thousand and the annual interest rate applied by the lessor is equal to 3%. The Group has given sureties for this contract.

There are no restrictions of any nature on these leases. Upon expiry of the contracts ownership of the assets is transferred to the lessee without payment of any purchase price. These contracts are therefore accounted for as financial leases, as required by IAS 17.

(in thousands of Euro)	12.31.2011	12.31.2010
Trade and other payables	283,516	210,019
Tax payables	8,615	6,235
TOTAL	292,131	216,254

 

Details of trade and other payables are as follows:

(in thousands of Euro)	12.31.2011	12.31.2010
Due to suppliers	216,980	159,819
Due to the parent company	433	263
Due to tax authorities for indirect and other taxes	9,698	7,495
Due to social and security institutions	20,931	15,123
Due to employees	27,911	20,647
Other payables	7,563	6,672
TOTAL	283,516	210,019

 

The amounts “Due to suppliers” are not subject to interest and on average are settled in 74 days, compared to 78 days recorded in 2010.

There is no significant concentration of payables due to any one supplier or small group of suppliers.

If the Systèmes Moteurs Group is not included in the scope of consolidation (Euro 57,893 thousand) and the reduction due to exchange rate fluctuation (Euro 1,174 thousand) is excluded, trade payables are found to be virtually stable.

The increase in payables “Due to tax authorities for indirect and other taxes”, “Due to employees” and “Due to social and security institutions” is traced back for the most part to the change to the scope of consolidation.

The increase in “Tax payables” reflects the higher tax burden resulting from the improved results achieved in this period.

 

LONG-TERM PROVISIONS AND OTHER PAYABLES

(in thousands of Euro)	12.31.2011	12.31.2010
Pension funds	27,346	23,714
Provision for employment termination indemnities	5,679	5,578
Provision for restructuring	2,484	8,027
Provisions for disputes with tax authorities	80	317
Provision for phantom stock options	59	226
Provision for product warranties	1,404	705
Other risks	2,482	2,598
Agents' termination indemnities	86	81
Lawsuits	887	531
TOTAL	40,507	41,777

 

Details of the main items are given below.

 

Pension funds

The amount of Euro 27,346 thousand represents the amount set aside at year end by the various Group foreign companies to cover the liabilities of their various pension funds. We point out that as of December 31, 2011, the pension funds of the subsidiaries Sogefi Filtration Ltd and Filtrauto S.A. (for the part relating to the ex subsidiary Sogefi Filtration B.V) show a surplus of Euro 11,146 thousand and Euro 152 thousand, respectively, which have been reported on the line “Other receivables”, as explained in note 13. The net amount of the liabilities to the various pension funds as of December 31, 2011 is therefore equal to Euro 16,048 thousand, as presented in the following table which shows movements in “Pension funds” during the course of the year:

(in thousands of Euro)	12.31.2011	12.31.2010
Opening balance	15,675	16,688
Cost of benefits charged to income statement	936	2,219
Contributions paid	(2,849)	(3,055)
Change to the scope of consolidation	2,605	-
Exchange differences	(319)	(177)
TOTAL	16,048	15,675
of which booked to Liabilities	27,346	23,714
of which booked to Assets	(11,298)	(8,039)

 

The amounts charged to the Income Statement can be summarised as follows: 

(in thousands of Euro)	2011	2010
Current service cost	2,040	1,010
Interest cost	8,701	8,633
Expected return on plan assets	(9,387)	(8,740)
Actuarial (gains) losses recognised during the year	(1,119)	1,316
Past service cost	240	-
Settlements/Curtailments	461	-
TOTAL	936	2,219

 

“Current service cost” and “Past service cost” are included in the various “Labour cost” lines of Income Statement items. It should be stressed that “Current service cost” for the previous year included a benefit for the amount of Euro 808 thousand resulting from a reduction in pension funds in connection with the restructuring plans under way at that time.

“Interest cost” and “Expected return on plan assets” are included in “Financial expenses (income), net”.

A portion of actuarial gains for the amount of Euro 329 thousand is included in “Labour cost”, whereas the remaining amount is booked to “Other non-operating expenses (income)”. The profit for the year mainly originates from the changed limit for the value of assets for employee benefits that may be recognised in the financial statements.

Item “Settlements/Curtailments” is included in “Other non-operating expenses (income)” and relates to subsidiary Sogefi Filtration Ltd for the reorganisation under way at the Llantrisant plant.

The following table shows the breakdown of “Pension funds” by geographical area of the relevant subsidiaries:

(in thousands of Euro)	12.31.2011	12.31.2010
Great Britain	(9,987)	(6,741)
France	23,074	19,365
Germany	2,776	2,886
Other	185	165
TOTAL	16,048	15,675

 

The increase in Great Britain surplus is due to the ordinary contributions made during the year, which exceeded the related current service cost, and to the dynamics of actuarial valuations.

The increase in pension funds in France originates from the change to the scope of consolidation due to the inclusion of the Systèmes Moteurs group for the amount of Euro 2,605 thousand.

The following paragraphs summarise the pension systems in the geographical areas that affect the Group the most: Great Britain and France.

Note that the actuarial valuations of the “Pension funds” are carried out by external specialists.

 

Great Britain

In Great Britain, pension plans are mainly private, being made with fund management companies and administered independently from the company. 

They are classified as defined-benefit plans subject to actuarial valuation that are accounted for according to the corridor approach as provided for by IAS 19. 

The main assumptions used in the actuarial valuation of these “Pension funds” were as follows:

	12.31.2011	12.31.2010
Discount rate %	4.8	5.5
Expected rate of return on plan assets %	2.0-7.0	2.0-7.5
Expected annual wage rise %	3.1-4.0	3.4-4.4
Annual inflation rate %	3.1	3.4
Retirement age	65	65

 

It is specified that the range of values presented for the “Expected rate of return on plan assets %” refers to the various types of assets included in the basket (shares, bonds, cash).

The reduction in the “Discount rate” is the result of the downward trend in returns on AA-rated corporate bonds recorded in 2011.

 

France

Pensions in France are essentially based on state pension plans and the responsibility of the company is limited to paying the contributions established by law.

In addition to this basic assistance guaranteed by the state, employees also have the right to other amounts that depend on their period of service and salary level, which are only paid if the employee reaches retirement age in the company.

These additional benefits are recognised as a liability for the company and, in accordance with IAS 19, they are considered as defined-benefit plans subject to actuarial valuation.

The main assumptions used in the actuarial valuation of these “Pension funds” were as follows: 

	12.31.2011	12.31.2010
Discount rate %	4,75-5,00	4,50
Expected annual wage rise %	2,0-2,5	2,0-3,0
Annual inflation rate %	2,0	2,0
Retirement age	62-65	62-65

 

The increase in the “Discount rate” compared to the previous year is the result of the upward trend in returns on AA-rated corporate bonds recorded in 2011.

The following table shows all of the obligations deriving from “Pension funds” and the present value of the plan assets for the year 2011 and the four previous years.

(in thousands of Euro)	12.31.2011	12.31.2010	12.31.2009	12.31.2008	12.31.2007
Present value of defined benefit obligations	179,572	164,835	151,614	124,549	164,415
Fair value of plan assets	149,486	144,044	130,352	108,292	148,962
Deficit	30,086	20,791	21,262	16,257	15,453
Liabilities recorded in "Long-term provisions"	27,346	23,714	23,614	23,470	23,718
Surplus recorded in "Other receivables"	(11,298)	(8,039)	(6,926)	(4,048)	(124)
Unamortised past service (income) cost	1,826	2,238	196	(17)	(18)
Unrecognised actuarial (gains) losses	12,212	2,878	4,378	(3,148)	(8,123)

 

“Unamortised past service (income) cost” reflects the increase of pension benefits recorded in the previous year following a change in national sector agreements in France. This increase will be amortised (and therefore booked to the Income Statement) on the basis of the length of the average residual working life of employees.

The item “Unrecognised actuarial (gains) losses” refers to the gains and losses not booked to the Income Statement as lower than the threshold of the corridor. The increase in the item compared to the previous year mainly reflects actuarial losses on the UK pension plan assets.

Changes in the “Present value of defined benefit obligations” were as follows:

(in thousands of Euro)	12.31.2011	12.31.2010
Present value of defined benefit obligations at the beginning of the period	164,835	151,614
Current service cost	2,040	1,010
Interest cost	8,701	8,633
Contribution paid by plan participants	634	733
Actuarial (gains) losses recognised during the period	2,492	3,691
Exchange differences	4,561	4,077
Benefits paid	(6,553)	(7,083)
Past service cost	(168)	2,160
Change to the scope of consolitation	2,605	-
Settlements/Curtailments	425	-
Present value of defined benefit obligations at the end of the period	179,572	164,835

 

The increase of the present value of obligations compared to the previous year is mainly due to the decrease in the discount rate of UK pension funds, which was only partially offset by the increase in the discount rate of French pension funds and the dropping inflation rate adopted for the valuation of UK pension funds. The effects resulting from these changes are included in “Actuarial (gains) losses recognised during the period”.

Fluctuating exchange rates and the change to the scope of consolidation also contributed to the increase in the present value of obligations.

Changes in the fair value of plan assets are illustrated in the table below:

(in thousands of Euro)	12.31.2011	12.31.2010
Fair value of plan assets at the beginning of the period	144,044	130,352
Expected return on plan assets	9,387	8,740
Contribution paid by plan participants	634	733
Contribution paid by the company	1,891	2,191
Actuarial gains (losses) of the period	(5,201)	4,223
Exchange differences	4,327	4,027
Benefits paid	(5,596)	(6,222)
Fair value of plan asset at the end of the period	149,486	144,044

 

The instability of financial markets aversely affected the fair value of plan assets, causing actuarial losses for the amount of Euro 5,201 thousand. To counter such instability, asset allocation was modified by increasing bonds and liquid funds and decreasing stocks as shown in the table below: 

	12.31.2011	12.31.2010
Debt instruments	42%	34%
Capital instruments	31%	41%
Cash	20%	11%
Other assets	7%	14%
TOTAL	100%	100%

 

 

Provision for employment termination indemnities (TFR)

This aspect only concerns the Group's Italian companies, where pensions are represented by state plans and the company's responsibility is limited to regular payment of social contributions each month.

In addition to state-provided pensions, employees are entitled to a termination indemnity when they leave the company or retire. This is put aside in a specific provision and the amounts accrued in previous years are subject to annual revaluation. This supplementary indemnity is considered as a defined-benefit fund, but subject to actuarial valuation for the part relating to the expected future benefits in respect of past service (which is the part subject to annual revaluation). Any actuarial losses of the individual companies are booked to the Income Statement if they fall outside the 10% corridor limit.

Further to the amendments to the “Provision for employment termination indemnities” introduced by Law 296 of December 27, 2006 and subsequent decrees and regulations issued in the early part of 2007, the portions of the provision accruing as from January 1, 2007 and transferred either to supplementary pension funds or the treasury fund held by INPS (the Italian social security authority) are being treated as “defined-contribution plans”. These amounts therefore do not require actuarial valuation and are no longer booked to the “Provision for employment termination indemnities”. The “Provision for employment termination indemnities” accruing up to December 31, 2006 is still a “defined-benefit plan”, consequently requiring actuarial valuation, which however will no longer take account of the component relating to future wage inflation.

This change is only applicable to companies with more than 50 employees (not applicable to Holding Company Sogefi S.p.A.).

The assumptions taken into consideration when carrying out the actuarial valuation of the “Provision for employment termination indemnities” were as follows:

Macroeconomic assumptions:

1.    discount rate: 4.25%
2.    annual inflation rate: 2%
3.    annual increase in termination indemnity: 3%

Demographic assumptions:

1.    rate of voluntary resignations: 3% - 10% of the workforce;
2.    retirement age: it was assumed that employees would reach the first of the requirements valid for mandatory general social security;
3.    probability of death: the RG48 mortality tables produced by the General State Accounting Body were used;
4.    probability of advanced settlement: 2% - 3% each year;
5.    INPS' table split by age and gender was used for the probability of disability.

The provision changed as follows during the period: 

(in thousands of Euro)	12.31.2011	12.31.2010
Opening balance	5,578	8,365
Accruals for the period	377	409
Contributions paid	(276)	(3,196)
TOTAL	5,679	5,578

 

The amounts charged to the Income Statement can be summarised as follows: 

(in thousands of Euro)	2011	2010
Current service cost	77	93
Interest cost	283	301
Actuarial (gains) losses recognised during the year	17	15
TOTAL	377	409

 

Unrecognised actuarial losses are lower than the threshold of the corridor and amount to Euro 793 thousand as of December 31, 2011 (Euro 775 thousand as of December 31, 2010).

 

Provision for restructuring

These are amounts set aside for restructuring operations that have been officially announced and communicated to those concerned, as required by IAS/IFRS.

 

The provision changed as follows during the period: 

(in thousands of Euro)	12.31.2011	12.31.2010
Opening balance	8,027	11,056
Accruals for the period	786	7,122
Utilisations	(6,023)	(10,062)
Provisions not used during the period	(167)	(93)
Other changes	(162)	-
Exchange differences	23	4
TOTAL	2,484	8,027

 

“Accruals for the period” mainly refer to the reorganisation of production activities under way at the Llantrisant plant (engine systems).

“Utilisations” have been booked as reductions of provisions previously set aside for restructuring projects planned and initiated in previous years and completed or being completed mainly in the engine systems division.

The “Provisions not used during the period” relate to amounts previously set aside which turned out to be excessive compared with the amount actually spent. 

Movements in the “Accruals for the period” net of the “Provisions not used during the period” occurred during the year total Euro 619 thousand; this figure is booked to the Income Statement under “Restructuring costs”.

 

Provisions for disputes with tax authorities

This refers to tax disputes underway with local tax authorities, relating mainly to subsidiary Sogefi Rejna S.p.A., for which the appropriate provisions have been made, even though the final outcome is not yet certain.

The provision changed as follows during the period: 

(in thousands of Euro)	12.31.2011	12.31.2010
Opening balance	317	446
Accruals for the period	-	-
Utilisations	(237)	(129)
Provisions not used during the period	-	-
Other changes	-	-
Exchange differences	-	-
TOTAL	80	317

 

The decrease in the item reflects the settlement of the tax dispute of the subsidiary Sogefi Filtration S.A., which required payment of the amount set aside during the previous years.

 

Provision for phantom stock options

This item amounted to Euro 59 thousand (Euro 226 thousand as of December 31, 2010) and refers to the fair value accrual for incentive schemes providing for cash payment, known as phantom stock options, for the Managing Director of the Holding Company. The change in the provision reflects the portion of the change in fair value attributable to the period (Euro 167 thousand). The decrease in the provision has been included in the Income Statement under “Directors' and statutory auditors' remuneration”. More details on the phantom stock option plans can be found in note 29.

 

Other provisions

As regards the “Other provisions”, the amounts shown in the financial statements are the best possible estimate of the underlying liabilities. The following table shows the movements in the most important items:

(in thousands of Euro)	12.31.2010
	Provision for product warranties	Other risks	Agents' termination indemnities	Lawsuits
Opening balance	4,090	2,450	159	620
Accruals for the period	151	1,274	4	112
Utilisations	(3,317)	(389)	(82)	(184)
Provisions not used during the period	(221)	(776)	-	(22)
Exchange differences	2	39	-	5
TOTAL	705	2,598	81	531

(in thousands of Euro)	12.31.2011
	Provision for product warranties	Other risks	Agents' termination indemnities	Lawsuits
Opening balance	705	2,598	81	531
Accruals for the period	554	914	5	163
Utilisations	(1,481)	(261)	-	(75)
Provisions not used during the period	(216)	(543)	-	(114)
Change to the scope of consolidation	1,821	-	-	384
Other changes	-	(200)	-	-
Exchange differences	21	(26)	-	(2)
TOTAL	1,404	2,482	86	887

 

The item “Provision for product warranties” refers to both allocations calculated on a statistical basis made by the Group companies to cover warranties to customers and to allocations for specific risks and litigations towards customers.
The “Provisions not used during the period” mainly refer to provisions made in previous years, that were then found to be excessive following an updated assessment of the risk and of related insurance cover.
“Change to the scope of consolidation” represents the fair value of assumed Systèmes Moteurs Group's liabilities at the acquisition date. The item includes Euro 1,430 thousand for liabilities booked during the purchase price allocation process; the full amount was utilised at the end of year 2011.

 

The increase in item “Other risks” mainly refers to the accruals for disputes with employees (Euro 571 thousand), and suppliers (Euro 200 thousand).
“Provisions not used during the period” of the item “Other risks” mainly refer to the reduction of the provisions set aside by the subsidiary LPDN GmbH to cover noise pollution risks and the economic impact of the probable requests for part-time contracts by employees who, having reached the age limits established by the law, have the right to request the company to grant said contracts.

“Other changes” represent reclassifications of other items of the financial statements.

“Accruals for the period” and “Provisions not used during the period” of “Lawsuits” refer to disputes with employees.

“Change to the scope of consolidation” represents the fair value of assumed Systèmes Moteurs Group's liabilities relating to disputes with employees at the acquisition date.

 

Other payables

“Other payables” totalled Euro 1,619 thousand (Euro 410 thousand as of December 31, 2010) and mainly regard the Systèmes Moteurs Group, namely advances received from customers and amounts due to suppliers.

(in thousands of Euro)	12.31.2011		12.31.2010
	Amount of temporary differences	Tax effect	Amount of temporary differences	Tax effect
Deferred tax assets:
Allowance for doubtful accounts	2,616	734	2,233	628
Fixed assets writedowns	21,569	6,874	21,908	6,795
Inventory writedowns	5,586	1,811	6,248	2,015
Provisions for restructuring	777	213	3,250	1,024
Other provisions	22,977	7,622	18,781	6,203
Other	20,468	6,553	25,960	8,927
Deferred tax assets for tax losses incurred during the year	8,553	2,138	14,057	4,628
Deferred tax assets for tax losses incurred during previous years	37,510	11,908	25,209	8,027
TOTAL	120,056	37,853	117,646	38,247
Deferred tax liabilities:
Accelerated/excess depreciation and amortisation	68,154	20,221	62,802	19,633
Difference in inventory valuation methods	79	33	819	236
Capitalisation of R&D costs	35,802	11,502	26,609	9,072
Other	13,583	3,463	12,294	3,506
TOTAL	117,618	35,219	102,524	32,447
Deferred tax assets (liabilities), net		2,634		5,800
Temporary differences excluded from the calculation of deferred tax assets (liabilities):
Tax losses carried forward	59,732	22,094	48,425	18,521
Other	(626)	(237)	(820)	(254)
TOTAL	59,106	21,857	47,605	18,267

 

The tax effect has been calculated on the basis of the rates applicable in the various countries, which are in line with those of the previous year, except for the tax rate in force in Great Britain (25% as of December 31, 2011 compared to 28% the previous year).

The change in “Deferred tax assets (liabilities), net” compared with December 31, 2010 amounts to Euro 3,166 thousand and differs by Euro 3,281 thousand from the amount shown in the Income Statement under “Income taxes – Deferred tax liabilities (assets)” due to:

• movements in financial items that did not have any effect on the income statement and therefore the related positive tax effect has been recorded in equity (Euro 1,854 thousand);
• change to the scope of consolidation due to the inclusion of the Systèmes Moteur group. The provisional fair value of net deferred tax liabilities at the acquisition date amounted to Euro 5,298 thousand. This amount mainly refers to deferred tax liabilities on R&D costs capitalisation and on the depreciation and amortisation differentials of subsidiary Systèmes Moteurs S.A.S., which were partly offset by deferred tax assets, entirely utilised at the end of the year 2011, on past losses of subsidiary Mark IV Air Intake Systemes Corp.;
• reclassifications or exchange differences.

The decrease in the tax effect in the item “Provisions for restructuring” relates to the use of accruals made in the previous year for production reorganisation mainly implemented at the French subsidiary Filtrauto S.A..

The decrease in the tax effect in the item “Other” mostly originates from a reclassification made under “Capitalisation of R&D costs”.

The increase in the tax effect in items “Other provisions” (mainly pension funds), “Accelerated/excess depreciation and amortization” and “Capitalisation of R&D costs” is to be traced back for the most part to the change to the scope of consolidation which was partly offset by the reclassification mentioned above.

 

“Deferred tax assets for tax losses incurred during the year” mainly refer to subsidiary Sogefi Filtration Ltd. “Deferred tax assets for tax losses incurred during previous years” mainly refer to the subsidiaries Allevard Rejna Autosupensions S.A., Sogefi Filtration S.A. and Sogefi Filtration Ltd.

These taxes were recognised because it is believed to be probable that taxable income will be available in the future against which such tax losses can be utilised. Such probability is determined based on the fact that losses have originated under extraordinary circumstances that are unlikely to occur again, such as restructuring plans currently under way or occurred in the past. It should also be noted that the losses incurred by the UK subsidiary can be carried forward indefinitely and those of the Spanish subsidiary must be utilised within 2025. The losses of the French subsidiary can be carried forward indefinitely but the new law passed in 2011 has maintained a limit for the amount that can be utilised each year, making recovery time longer.
Note that the deferred tax assets relating to the “Allowance for doubtful accounts” and to the “Inventory writedowns” include amounts that will mainly be reversed in the twelve months following year end.

As regards the figures shown under “Temporary differences excluded from the calculation of deferred tax assets (liabilities)", deferred tax assets were not booked as, at year end, there was not a probability that they would be recovered. “Tax losses carried forward” mainly refer to subsidiary Allevard Sogefi U.S.A., Inc. and can be carried forward up to a 20-year limit (the first term is in year 2022). The increase in “Tax losses carried forward” mainly relates to the change to the scope of consolidation. 

 

SHARE CAPITAL AND RESERVES

Share capital