Consolidated statement of financial position


ASSETS Note 12.31.2011 12.31.2010
(in thousands of Euro)      
CURRENT ASSETS      
         Cash and cash equivalents 102,461 66,760
         Other financial assets 1,912 200
         Working capital      
         Inventories 152,505 98,456
         Trade receivables 178,655 138,815
         Other receivables 10,204 10,232
         Tax receivables  19,564 12,178
         Other assets 2,800 2,485
         TOTAL WORKING CAPITAL   363,728 262,166
TOTAL CURRENT ASSETS   468,101 329,126
NON-CURRENT ASSETS      
Fixed assets      
         Land 15,774 14,423
         Property, plant and equipment 239,250 208,445
         Other tangible fixed assets 4,486 4,278
         Of which: leases   12,847 13,753
         Intangible assets 213,526 133,489
TOTAL FIXED ASSETS   473,396 360,635
OTHER NON-CURRENT ASSETS      
         Investments in joint ventures 303 -
         Other financial assets available for sale 490 440
         Non-current trade receivables 918 -
         Financial receivables - -
         Other receivables 14,102 10,146
         Deferred tax assets 37,853 38,247
TOTAL OTHER NON-CURRENT ASSETS   53,666 48,833
TOTAL NON-CURRENT ASSETS   527,062 409,468
NON-CURRENT ASSETS HELD FOR SALE 744 722
       
TOTAL ASSETS   995,907 739,316
       
       
LIABILITIES Note 12.31.2011 12.31.2010
(in thousands of Euro)      
CURRENT LIABILITIES      
       Bank overdrafts and short-term loans 9,827 35,958
       Current portion of medium/long-term financial debts and other loans  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 632 164
       TOTAL SHORT-TERM FINANCIAL DEBTS       
       AND DERIVATIVE FIN. INSTRUMENTS   57,421 78,895
       Trade and other payables 283,516 210,019
       Tax payables 8,615 6,235
       Other current liabilities 7,324 2,121
TOTAL CURRENT LIABILITIES   356,876 297,270
NON-CURRENT LIABILITIES      
MEDIUM/LONG-TERM FINANCIAL DEBTS AND      
DERIVATIVE FINANCIAL INSTRUMENTS      
       Financial debts to bank 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 financial liabilities for derivative financial instruments 8,416 2,042
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS      
    346,794 153,010
OTHER LONG-TERM LIABILITIES      
        Long-term provisions 40,507 41,777
        Other payables 1,619 410
        Deferred tax liabilities 35,219 32,447
TOTAL OTHER LONG-TERM LIABILITIES   77,345 74,634
TOTAL NON-CURRENT LIABILITIES   424,139 227,644
SHAREHOLDERS' EQUITY      
        Share capital 60,665 60,546
        Reserves and retained earnings (accumulated losses) 110,515 117,874
        Group net result for the year 24,736 18,821
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO THE HOLDING COMPANY   195,916 197,241
         Non-controlling interests 18,976 17,161
TOTAL SHAREHOLDERS' EQUITY    214,892 214,402
TOTAL LIABILITIES AND EQUITY   995,907 739,316

 


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. 

 

TRADE AND OTHER RECEIVABLES 
 
Current receivables break down as follows:
(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).

 

TANGIBLE FIXED ASSETS 
 
The net carrying amount of tangible fixed assets as of December 31, 2011 amounted to Euro 259,870 thousand versus Euro 227,146 thousand at the end of the previous year and breaks down as follows:

 

(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.

 

 

INVESTMENTS IN JOINT VENTURES
 
The item includes the investment in Mark IV Asset (Shanghai) Auto Parts Co., Ltd., a joint venture valued at the equity method.

 

 

OTHER FINANCIAL ASSETS AVAILABLE FOR SALE
 
As of December 31, 2011, these totalled Euro 490 thousand, compared with Euro 440 thousand as of December 31, 2010 and break down as follows:

 

(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.

 

FINANCIAL RECEIVABLES AND OTHER NON-CURRENT RECEIVABLES
 
Non-current trade receivables amount to Euro 918 thousand and refer to subsidiary Systèmes Moteurs S.A.S.; they relate to equipment supplied. 
 
“Other receivables” break down as follows:

 

(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). 

 

 

DEFERRED TAX ASSETS
 
As of December 31, 2011, this item amounts to Euro 37,853 thousand compared with Euro 38,247 thousand as of December 31, 2010.
This amount relates to the expected benefits on deductible temporary differences, booked to the extent that it is probable that it will be recovered. Reference should be made to note 20 for a further discussion of this matter.

 

 

NON-CURRENT ASSETS HELD FOR SALE
 
This item includes the net value of Euro 744 thousand of the building of the UK subsidiary, United Springs Ltd, held for sale.
 

 

 

FINANCIAL DEBTS TO BANKS AND OTHER FINANCING CREDITORS 
 
These break down as follows:
 
Current portion 
(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.

 

TRADE AND OTHER CURRENT PAYABLES
 
The amounts shown in the financial statements can be broken down into the following categories:
(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.

 

 

OTHER CURRENT LIABILITIES
 
“Other current liabilities” include adjustments to costs and revenues for the period so as to ensure compliance with the accruals based principle (accrued expenses and deferred income) and advances received from customers for orders still to be delivered.
The Euro 5,203 thousand increase in the item includes Euro 2,334 thousand arising out of the change to scope of consolidation and the remaining amount was originated from larger advances paid by customers for tooling to be built.

 

LONG-TERM PROVISIONS AND OTHER PAYABLES

 
These are made up as follows: 
(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.

DEFERRED TAX ASSETS AND LIABILITIES
 
The following details of deferred tax assets and liabilities are provided in light of the IAS/IFRS disclosure requirements.
 
(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

The share capital of the Holding Company Sogefi S.p.A. is fully paid in and amounts to Euro 60,665 thousand as of December 31, 2011 (Euro 60,546 thousand as of December 31, 2010), split into 116,662,992 ordinary shares with a par value of Euro 0.52 each. 
 
As of December 31, 2011, the Holding Company has 3,253,000 treasury shares in its portfolio, corresponding to 2.79% of share capital.
 
Movements in the shares outstanding are as follows:
 
(Shares outstanding) 2011 2010
No. shares at start of period 116,434,992 116,148,992
No. shares issued for subscription of stock options 228,000 286,000
No. of ordinary shares as of December 31 116,662,992 116,434,992
Treasury shares (3,253,000) (1,956,000)
No. of shares outstanding as of December 31 113,409,992 114,478,992

 

The following table shows the changes in the Group’s equity.

(in thousands of Euro) Share capital Share premium reserve Reserve for treasury shares Treasury shares Translation reserve Legal reserve Cash flow hedging reserve Stock-based incentive plans reserve Tax on items booked in Other Comprehensive Income Other reserves Retained earnings Net result for the period Total
Balance at December 31, 2009 60,397 14,491 5,007 (5,007) (2,540) 12,320 (3,288) 1,168 901 3,124 87,877 (7,639) 166,811
Paid share capital increase 149 148 - - - - - - - - - - 297
Allocation of 2009 net profit:                          
 Legal reserve - - - - - - - - - - - - -
    Dividends - - - - - - - - - - - - -
    Retained earnings - - - - - - - - - - (7,639) 7,639 -
Credit to equity for stock-based incentive plans - - - - - - - 540 - - - - 540
Other changes - - - - - - - - - - (515) - (515)
Fair value measurement of financial assets available for sale - - - - - - - - - (11) - - (11)
Fair value measurement of cash flow hedging instruments: share booked to equity - - - - - - (1,556) - - - - - (1.556)
Fair value measurement of cash flow hedging instruments: share booked to income statement - - - - - - 2,418 - - - - - 2,418
Tax on items booked in Other Comprehensive Income - - - - - - - - (233) - - - (233)
Currency translation differences - - - - 10,669 - - - - - - - 10,669
Net result for the period - - - - - - - - - - - 18,821 18,821
Balance at December 31, 2010 60,546 14,639 5,007 (5,007) 8,129 12,320 (2,426) 1,708 668 3,113 79,723 18,821 197,241
Paid share capital increase 119 190 - - - - - - - - - - 309
Allocation of 2010 net profit:                          
 Legal reserve - - - - - - - - - - - - -
Dividends - - - - - - - - - - (14,888) - (14,888)
Retained earnings - - - - - - - - - - 18,821 (18,821) -
Net purchase of treasury shares - (2,684) 2,684 (2,684) - - - - - - - - (2,684)
Credit to equity for stock-based incentive plans - - - - - - - 611 - - - - 611
Other changes - - - - - - - - - - (121) - (121)
Fair value measurement of financial assets available for sale - - - - - - - - - (2) - - (2)
Fair value measurement of cash flow hedging instruments: share booked to equity - - - - - - (7,987) - - - - - (7,987)
Fair value measurement of cash flow hedging instruments: share booked to income statement - - - - - - 1,255 - - - - - 1,255
Tax on items booked in Other Comprehensive Income - - - - - - - - 1,854 - - - 1,854
Currency translation differences - - - - (4,408) - - - - - - - (4,408)
Net result for the period - - - - - - - - - - - 24,736 24,736
Balance at December 31, 2011 60,665 12,145 7,691 (7,691) 3,721 12,320 (9,158) 2,319 2,522 3,111 83,535 24,736 195,916

 

Share premium reserve

It amounts to Euro 12,145 thousand compared with Euro 14,639 thousand in the previous year.

The increase by Euro 190 thousand accounts for share subscriptions under stock option plans.

On April 19, 2011, the Shareholders' Meeting authorised the purchase of treasury shares and the Holding Company Sogefi S.p.A. purchased 1,297,000 shares at an average price of Euro 2.07 each in 2011. The Holding Company set up the “Reserve for treasury shares” according to Italian Civil Code (article 2357-ter) using the availability amount of the “Share premium reserve”.

 

Treasury shares

The item “Treasury shares” corresponds to the acquisition cost of the treasury shares held in portfolio. Movements during the year amount to Euro 2,684 thousand and reflect treasury share purchased occurred in 2011 as reported in the note to “Share premium reserve”.

 

Translation reserve

This reserve is used to record the exchange differences arising on the translation of foreign subsidiaries' financial statements.
Movements in the period show a decrease of Euro 4,408 thousand mainly attributable to the depreciation of the Brazilian real against the Euro.

 

Cash flow hedging reserve

This reserve has changed as a result of accounting for the cash flows deriving from instruments that for IAS 39 purposes are designated as “cash flow hedging instruments”. Changes during the period show a decrease of Euro 6,732 thousand.

 

Stock-based incentive plans reserve

The reserve refers to the credit to equity for stock-based incentive plans, assigned to employees, resolved after November 7, 2002, including the portion relating to the stock grant plan approved in 2011.

 

Retained earnings

These totalled Euro 83,535 thousand and include amounts of profit that have not been distributed.
The decrease of Euro 121 thousand mainly arises from the change in the percentage held in the subsidiary S.ARA Composite S.A.S..

 

Tax on items booked directly in Other Comprehensive Income

The table below shows the amount of income taxes relating to each item of the “Profit (loss) booked in Other Comprehensive Income”:

(in thousands of Euro) 2011 2010
  Gross value Taxes Net Value Gross value Taxes Net value
Profit (loss) booked to cash flow hedging reserve (6,732) 1,853 (4,879) 862 (237) 625
Profit (loss) booked to fair value reserve for financial assets available for sale (2) 1 (1) (18) 6 (12)
Profit (loss) booked to translation reserve (4,588) - (4,588) 11,018 - 11,018
Total Profit (loss) booked in Other Comprehensive Income (11,322) 1,854 (9,468) 11,862 (231) 11,631

 

NON-CONTROLLING INTERESTS
 
The balance amounted to Euro 18,976 thousand and refers to the portion of shareholders' equity attributable to non-controlling interests. 
The increase of Euro 89 thousand mainly arises from the change in the percentage held in the subsidiary S.ARA Composite S.A.S..