Notes on the main items of the statement of financial position


Cash and cash equivalents

Cash and cash equivalents are those held to meet short-term cash needs, rather than for investment or other purposes. For an investment to be considered as cash or cash equivalent, it must be able to be readily converted into a known amount of cash and must be subject to an insignificant risk of change in value.

Inventories

Inventories are stated at the lower of purchase or manufacturing cost, determined on a weighted average cost basis, and realisable value based on market trends, net of variable selling costs.
Manufacturing cost includes raw materials and all direct or indirect production-related expenses. Financial expenses are excluded. Obsolete and slow-moving inventories are written down to their utilisable or realisable value.

Receivables included in current assets

Receivables are initially recognised at fair value of the consideration to be received, which usually corresponds to the nominal value shown on the invoice, adjusted (if necessary) to their estimated realisable value by making provision for doubtful accounts. Subsequently, receivables are measured at amortised cost, which generally corresponds to their nominal value.
Receivables assigned through without-recourse factoring transactions after which the related risks and benefits are definitively transferred to the assignee are derecognised from the statement of financial position at the time of transfer.

Tangible fixed assets

Tangible fixed assets mainly relate to industrial sites. Assets are shown at historical cost, net of accumulated depreciation and accumulated impairment losses.
Cost includes related charges, together with the portion of direct and indirect expenses reasonably attributable to individual assets.

Tangible fixed assets are depreciated each month on a straight-line basis using rates that reflect the technical and economic remaining lives of the related assets.

The depreciable value is the cost of an asset, or any other value representing the cost, less its residual value, where the residual value of an asset is the estimated value that the entity could receive at that time from its disposal, net of estimated disposal costs.

Depreciation is calculated from the month that the asset becomes available for use, or when it is potentially able to provide the economic benefits expected of it.

The annual average depreciation rates applied are as follows:

  %
Land n.a.
Industrial buildings and light constructions 2.5-12.5
Plant and machinery 7-14
Industrial and commercial equipment 10-25
Other assets 10-33
Assets under construction n.a.


Land, assets under construction and payments on account are not depreciated.

Ordinary maintenance costs are charged to the Income Statement.
Maintenance costs that increase the value, functions or useful life of fixed assets are recorded directly as the increase in the value of the assets to which they refer and depreciated over their residual useful lives.
Gains or losses on the disposal of assets are calculated as the difference between the sales proceeds and the net book value of the asset and are charged to the Income Statement for the period.

Grants are shown in the Statement of Financial Position as an adjustment of the book value of the asset concerned. Grants are then recognised as income over the useful life of the asset by effectively reducing the depreciation charge each year.

Assets under lease
There are two types of leases: finance leases and operating leases.
A lease is considered a finance lease when it transfers a significant and substantial part of the risks and benefits associated with ownership of the asset to the lessee.

As envisaged in IAS 17, a lease is considered a finance lease when the following elements are present, either individually or in combination:

  • the contract transfers ownership of the asset to the lessee at the end of the lease term;
  • the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable such that it is reasonably certain, at the inception of the lease, that it will be exercised;
  • the lease term is for the major part of the useful life of the asset, even if title is not transferred;
  • at the inception of the lease, the present value of the minimum lease payments is equal to the fair value of the asset being leased;
  • the assets being leased are of such a specialised nature that only the lessee is able to use them without making major modifications.

Assets available to Group companies under contracts that fall into the category of finance leases are accounted for as tangible fixed assets at their fair value at the date of purchase or, if lower, at the present value of the minimum payments due under the lease; the corresponding liabilities to the lessor are shown in the Statement of Financial Position as financial debts. The assets are depreciated over their estimated useful lives.
Lease payments are split between the principal portion, which is booked as a reduction of financial debts, and interest. Financial expenses are charged directly to the Income Statement for the period.
Payments under operating lease contracts, on the other hand, are charged to the Income Statement on a straight-line basis over the life of the contract.

Intangible assets

An intangible asset is only recognised if it is identifiable and verifiable, it is probable that it will generate economic benefits in the future and its cost can be measured reliably.
Intangible assets with a finite life are valued at purchase or production cost, net of amortisation and accumulated impairment losses.

The annual average amortisation rates applied are as follows:

  %
Development costs 20-33
Industrial patents and intellectual property rights, concessions, licences, trademarks 20-33
Customer relationship 5
Trade name 5
Other 20-33
Goodwill n.a.
Assets under construction n.a.


Amortisation is based on the asset’s estimated useful life and begins when it is available for use.

Research and development expenses
Research expenses are charged to the income statement as incurred in accordance with IAS 38.
Development expenses relating to specific projects are capitalised when their future benefit is considered reasonably certain by virtue of a customer’s commitment; they are then amortised over the entire period of future profits expected to be earned by the project in question.
The capitalised value of the various projects is reviewed annually - or more frequently if there are particular reasons for doing so - analysing its fairness to see if there have been any impairment losses.

Trademarks and licences
Trademarks and licences are valued at cost, less amortisation and accumulated impairment losses. The cost is amortised over the shorter of the contract term and the finite useful life of the asset.

Customer relationship
The customer relationship represents the value assigned, during the “Purchase Price Allocation” process, to Systemes Moteurs Group customers’ portfolio at the data of the acquisition.

Trade name
The trade name represents the value assigned, during the “Purchase Price Allocation” process, to the name “Systemes Moteurs” at the data of the acquisition.

Software
The costs of software licences, including related charges, are capitalised and shown in the financial statements net of amortisation and any accumulated impairment losses.
It should be pointed out that a multi-year project has been launched to implement a new integrated IT system across the Group. Relating costs are capitalised by Holding Company Sogefi S.p.A., that will licence the intellectual property rights on the IT system for use by the subsidiaries involved in the implementation process receiving the payment of royalty fees. The evaluated asset useful life is 10 years and the amortization takes effect since the full implementation in each company.

Goodwill
Goodwill resulting from business combinations is initially recognised at cost as at the acquisition-date, as detailed in the paragraph above entitled “Business combinations”. Goodwill is not amortised but is tested annually for impairment, or more frequently if specific events or changed circumstances indicate a potential loss in value. Unlike other intangible assets, reversal of an impairment loss is not allowed for goodwill.
For impairment test purposes, goodwill was allocated to each of the Cash Generating Units (CGU) due to benefit from the acquisition.
The Sogefi Group currently encompasses five CGUs: Engine Systems – Fluid Filters (previously named “Filters”), Engine Systems – Air Intake and Cooling (Systemes Moteurs Group), Car Suspension, Industrial Vehicles Suspension and Precision Springs.
The goodwill currently on the books only concerns the Engine Systems division – Fluid Filters, the Engine Systems division – Air Intake and Cooling and the Car Suspension division.

Intangible assets with an indefinite useful life
Intangible assets with an indefinite useful life are not amortised, but are tested annually for impairment, or more frequently if there is an indication that the asset may have suffered a loss in value. As of December 31, 2012, the Group has no intangible assets with an indefinite useful life.

Impairment losses of tangible and intangible fixed assets

If there are indications of possible losses in value, tangible and intangible fixed assets are subjected to impairment test, estimating the asset's recoverable amount and comparing it with its net book value. If the recoverable amount is less than the book value, the latter is reduced accordingly. This reduction constitutes an impairment loss, which is booked to the income statement.
For goodwill and any other intangible fixed assets with indefinite life, impairment test is carried out at least once a year.
With the exception of goodwill, if a previous writedown is no longer justified, a new recoverable amount is estimated, providing it is not higher than what the carrying value would have been if the writedown had never been made. This reversal is also booked to the Income Statement.

Equity investments in associates and joint ventures

The results, assets and liabilities of associates and joint ventures are consolidated under the equity method.

Equity investments in other companies and other securities

In accordance with IAS 39, equity investments in entities other than subsidiaries and associates are classified as financial assets available for sale which are measured at fair value, except in situations where the market price or fair value cannot be determined. In this case the cost method is used.
Gains and losses deriving from value adjustments are booked to a specific item in “Profit (loss) booked in Other comprehensive income”. In the case of objective evidence that an asset suffered an impairment loss or it is sold, the gains and losses previously recognised under “Other Comprehensive Income” are reclassified to the Income Statement.
For a more complete discussion of the principles regarding financial assets, reference should be made to the note specifically prepared on this matter (paragraph 3 "Financial assets").

Non-current assets held for sale

Under IFRS 5 "Non-current assets held for sale and discontinued operations", providing the relevant requirements are met, non-current assets whose book value will be recovered principally by selling them rather than by using them on a continuous basis, have to be classified as being held for sale and valued at the lower of book value or fair value net of any selling costs. From the date they are classified as non-current assets held for sale, their depreciation is suspended.

Loans

Loans are initially recognised at cost, represented by the fair value received, net of related loan origination charges.
After initial recognition, loans are measured at amortised cost by applying the effective interest rate method.
The amortised cost is calculated taking account of issuing costs and any discount or premium envisaged at the time of settlement.

Derivatives

A derivative is understood as being any contract of a financial nature with the following characteristics:

  1. its value changes in relation to changes in an interest rate, the price of a financial instrument, the price of a commodity, the exchange rate of a foreign currency, a price or interest rate index, a credit rating or any other pre-established underlying variable;
  2. it does not require an initial net investment or, if required, this is less than what would be requested for other types of contract likely to provide a similar reaction to changes in market factors;
  3. it will be settled at some future date.

For accounting purposes, a derivative’s treatment depends on whether it is speculative in nature or whether it can be considered an hedging instrument.
All derivatives are initially recognised in the Statement of Financial Position at cost as this represents their fair value. Subsequently, all derivatives are measured at fair value.

Any changes in the fair value of derivatives that are not designated as hedging instruments are booked to the Income Statement (under the item “Financial expenses (income), net”).

Derivatives that can be booked under the hedge accounting are classified as:

  • fair value hedges if they are meant to cover the risk of changes in the market value of the underlying assets or liabilities;
  • cash flow hedges if they are taken out to hedge the risk of fluctuations in the cash flows deriving from an existing asset or liability, or from a future transaction that is highly probable.

For derivatives classified as fair value hedges, the gains and losses that arise on determining their fair value and the gains and losses that derive from adjusting the underlying hedged items to their fair value are booked to the Income Statement.

For those classified as cash flow hedges, used for example, to hedge medium/long-term loans at floating rates, gains and losses that arise from their valuation at fair value are booked directly to Other comprehensive income for the part that effectively hedges the risk for which they were taken out, whereas any part that proves ineffective is booked to the Income Statement (under the item “Financial expenses (income), net”).
The portion booked to Profit (loss) booked to Other comprehensive income will be reclassified to the Income Statement (under the item “Financial expenses (income), net” in the period) when the hedged assets and liabilities impact the costs and revenues of the period.
Note that the Group has adopted a specific procedure for managing financial instruments as part of an overall risk management policy.

Trade and other payables

Payables are initially recognised at fair value of the consideration to be paid and subsequently at amortised cost, which generally corresponds to their nominal value.

Provisions for risk and charges

Provisions for risks and charges are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resource embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
On the other hand, no provision is made in the case of risks for which there is only a possibility that a liability may arise. In this case, the risk is disclosed in the notes on commitments and risks without making any provision.
Provisions relating to corporate reorganizations are only set aside once they have been approved and raised a valid expectation to the parties involved.

Post-retirement and similar employee benefits

Group employees have defined-benefit and/or defined-contribution pension plans, depending on the conditions and local practices of the countries in which the group operates.
The Group’s responsibility is to finance the pension funds for the defined-benefit plans (including the employment termination indemnities currently applicable in Italy) and the annual cost recognised in the income statement are calculated on the basis of actuarial valuations that use the projected unit credit method. The part of the accumulated net value of actuarial profits and losses in excess of the higher between 10% of the present value of the defined-benefit obligation and 10% of the fair value of plan assets at the end of the previous reporting period is amortised over the average residual working life of the employees (“corridor approach”). On first-time adoption of IFRS, the Group decided to record all accumulated actuarial profits and losses existing on January 1, 2004, even though it had chosen to use the corridor approach for subsequent actuarial profits and losses.

The liability relating to benefits to be recognised on termination of employment recorded in the statement of financial position represents the present value of the defined-benefit obligation, adjusted by the actuarial profits and losses suspended in application of the corridor approach and by costs relating to past service to be recognised in future years, less the fair value of the plan assets. Any net assets determined using this calculation method are recognised at the lowest of their value and the sum of unrecognised net actuarial losses, the cost of past service to be recognised in future years, the present value of available repayments and reductions of future contribution to the plan.

In the event of an amendment to the plan that changes the benefits relating to past service or in the event of the application of a new plan relating to past service, the costs relating to past service are booked to the income statement on a straight-line basis for the average period until such time as said benefits are acquired. In the event of an amendment to the plan that significantly reduces the number of employees involved in the plan or that changes the clauses of the plan in such a way that a significant part of future service due to employees will no longer accrue the same benefits or will accrue them but to a lesser extent, the profit or loss relating to said reduction is immediately booked to the income statement.

All of the costs and income resulting from the measurement of funds for pension plans are booked to the Income Statement by functional area of destination, with the exception of the financial component relating to non-financed defined-benefit plans, which is included in Financial expenses and actuarial gain/losses included in “Other non-operating expenses (income)”.
The costs relating to defined-contribution plans are booked to the Income Statement when incurred.

Phantom stock options
With regard to phantom stock option plans, as envisaged by IFRS 2, in the section regarding “Cash-settled share-based payment transactions”, the fair value of the plan at the date of the financial statements is remeasured, with any changes in fair value recognised to the Income Statement as a cost with a corresponding entry to a provision.

Stock-based incentive plans
With regard to “Stock-based incentive plans“ (Stock options and Stock grants), as envisaged by IFRS 2 “Share-based payments”, the Group calculates the fair value of the option at the granting date, booking it to the Income Statement as a cost over the vesting period of the benefit. Given that this is an eminently imputed element, the ad hoc equity reserve in the Statement of Financial Position has been increased. This imputed cost is measured by specialists with the help of suitable economic and actuarial models.

Deferred taxation

Deferred taxes are calculated on the temporary differences between the book value of assets and liabilities and their tax bases, and classified under non-current assets and liabilities.
Deferred tax assets are accounted for only to the extent that it is probable that sufficient taxable profits will be available in the future against which they can be utilised.
The carrying amount of the deferred tax assets shown in the financial statements is subject to an annual review.
Deferred tax assets and liabilities are calculated at the tax rates expected to apply in the period when the differences reverse under the law of the countries in which the Group operates, considering current rates and those enacted or substantially enacted at the end of the reporting period.
Current and deferred taxes are recognised in the Income Statement, except for those relating to items directly charged or credited to Other comprehensive income / Equity, in which case tax effect is recognised directly under Other comprehensive income / Equity.

Participation in CIR's group tax filing system (applicable to Italian companies)

Each company jointing to the group Italian tax filing system transfers its tax profit or loss to the parent company. The parent company recognises a credit corresponding to the IRES (Italian tax on company income) that companies have to be paid (debit for the transferer company). On the contrary, for companies that booked tax losses, the parent company recognises a debt corresponding to the IRES for the part of loss actually offset at group level (credit for the transferer company).

Treasury shares

Treasury shares are deducted from equity. The original cost of treasury shares and the profit resulting from their subsequent sales are recognised as changes in equity.

Revenues recognition

Revenues from the sale of products are recognised at the time ownership passes (time of risks and benefits transfer), which is generally upon shipment to the customer. They are shown net of returns, discounts and accruals.
Revenues from services rendered are recognised at the time the services are provided.

Variable cost of sales

This represents the cost of goods sold. It includes the cost of raw and ancillary materials and goods for resale, as well as variable manufacturing and distribution costs, including the direct labour cost of production.

Manufacturing and R&D overheads

This category includes manufacturing overheads such as indirect labour cost of production, maintenance costs, consumable materials, building rents, and industrial equipment involved in production.
Also included are all R&D overheads, net of any development costs that are capitalised because of their future benefits and excluding amortisation which is booked to a separate item in the Income Statement.

Distribution and sales fixed expenses

These are costs that are essentially insensitive to changes in sales volumes, relating to personnel, promotion and advertising, external warehousing, rentals and other sales and distribution activities. This category, therefore, includes all fixed costs identified as being incurred after finished products have been stocked in the warehouse and directly related to their sale and distribution.

Administrative and general expenses

This category includes fixed labour costs, telephone expenses, legal and tax consulting fees, rents and rentals, cleaning, security and other general expenses.

Operating grants

These are credited to the Income Statement when there is a reasonable certainty that the company will meet the conditions for obtaining the grant and that the grants will therefore be received.

Restructuring costs and other non-operating expenses/income

These are figures that do not relate to the Group's normal business activities or refer to non-recurring activities and are disclosed in the notes if they are of a significant amount.
The non-recurring nature of restructuring costs makes it appropriate for them to be disclosed separately, posting them in such a way that does not affect the operating result deriving from the Group's normal business activities.

Dividends

Dividend income is recorded when the right to receive it arises. This is normally at the time of the shareholders' resolution that approves distribution of the dividends.

Dividends to be distributed are recognised as a payable to shareholders immediately after they have been approved.

Current taxes

Current taxes are booked on the basis of a realistic estimate of taxable income calculated according to current tax legislation in the country concerned, taking account of any exemptions and tax credits that may be due.

Earnings per share (EPS)

Basic EPS is calculated by dividing net result for the period attributable to the ordinary shareholders of the Holding Company by the weighted average number of ordinary shares outstanding during the period, net of treasury shares.

Diluted EPS is obtained by adjusting the weighted average number of shares outstanding to take account of all potential ordinary shares that could have a dilutive effect.

Translation of foreign currency items

Functional currency
Group companies prepare their financial statements in the local currency of the country concerned.
The functional currency of the Parent is the Euro and this is the presentation currency in which the consolidated financial statements are prepared and published.

Accounting for foreign currency transactions
Foreign currency transactions are initially translated at the exchange rate ruling on the transaction date.
At the end of the reporting period, monetary assets and liabilities expressed in foreign currency are retranslated at the period-end exchange rate.
Non-monetary foreign currency items valued at historical cost are translated at the exchange rate ruling on the transaction date.
Non-monetary items carried at fair value are translated at the exchange rate ruling on the date this value was determined.

Critical estimates and assumptions

Various estimates and assumptions regarding the future have to be made when preparing financial statements. They are the best estimates possible at the end of the reporting period. Given their nature, they could lead to a material difference in statement of financial position items in future years. The main items affected by these estimates are as follows:

  • goodwill – impairment test: for the purpose of determining the value in use of the Cash Generating Units, the Group took into account the trends expected for 2013 as determined based on the budget and for 2014-2016 has determined based on the forecasts included in the 2014-2016 strategic plan. Budget and the strategic plan were prepared in line with forecasts for the automotive segment made available by the segment’s most important sources. Impairment test based on such forecasts do not indicate a need for impairment;
  • pension plans: actuaries who offer their consulting services to the Group use different statistic assumptions in order to anticipate future events for the purpose of estimating pension plan expenses, liabilities and assets. Such assumptions concern discount rate, expected return on pension plan assets (this particular assumption concerns nearly exclusively British pension funds), future wage inflation rates, mortality and turnover rates;
  • recoverability of deferred tax assets on tax losses: as of December 31, 2012, deferred tax assets on tax losses incurred during previous years were accounted for to the extent that it is probable that taxable income will be available in the future against which they can be utilised. Such probability is determined based on the fact that such losses have originated under extraordinary circumstances that are unlikely to occur again in the future.
  • derivatives: the fair value of derivatives was estimated by third-party consultants based on assessment models in accordance with industry practice;
  • with regard to the determination of the fair value of the assets acquired and liabilities assumed by Systèmes Moteurs, it should be noted that:
    • the fair value of tangible fixed assets was determined based on valuations made by third-party professionals;
    • the fair value of intangible assets was determined by third-party consultants based on assessment models in accordance with industry practice;
    • contingent liabilities arising out of product warranty risks were determined based on conservative assumptions; the associated indemnification asset arising from indemnities was recognised based on a reasonable certainty that it will be recovered.

Adoption of new accounting standards

IFRS accounting standards, amendments and interpretations applied from January 2012

The following accounting standards, amendments and interpretations were first adopted by the Group starting January 1, 2012.

On October 7, 2010, the IASB issued amendments to IFRS 7 – Financial instruments: Disclosures. The intent of these amendments is to improve the disclosure requirements for derecognised financial assets. More specifically, the amendments require more transparency of risk exposure for transactions in which an entity transfers a financial asset but retains a continuing involvement of some kind in that asset. The amendments also require additional disclosures in the event that a disproportionate amount of such transfer transactions is undertaken at the end of a reporting period. The adoption of these amendments had an impact on the disclosures on factored trade receivables without recourse, where transfer was not notified to the other party.
On December 20, 2010, the IASB issued a minor amendment to IAS 12 – Income Taxes, which requires an entity to measure deferred tax on investment properties measured at fair value based on how the entity expects to recover the carrying amount of the asset (through continuative use or sale). Specifically, this amendment introduces a presumption that the carrying amount of investment properties measured at fair value according to IAS 40 will be recovered entirely through sale and requires deferred tax to be determined on a sale basis in jurisdictions where different tax rates apply. The adoption of this amendment had no impact on deferred tax measurement as at December 31, 2012.

IFRS and IFRIC accounting standards, amendments and interpretations approved by the European Union but not yet applicable and not early adopted by the Group

On May 12, 2011, the IASB issued IFRS 10 – Consolidated Financial Statements that is to supersede SIC-12 Consolidation – Special Purpose Entities (Special Purpose Vehicles) and parts of IAS 27 – Consolidated and Separate Financial Statements, which will be renamed Separate financial statements and will establish how equity investments are to be accounted for in separate financial statements. The key changes introduced by this new principle are as follows:

  • Under IFRS 10, all types of entities are to be consolidated according to a single basic principle, the principle of control. The changes introduced remove the perceived inconsistency between the former IAS 27 (based on control) and SIC 12 (based on the transfer of risk and benefits);
  • A more detailed definition of control has been introduced, based on three elements: (a) power over the investee; (b) exposure, or rights, to variable returns from the investor's involvement with the investee; (c) inventor’s ability to use its power over the investee to affect the amount of the investor’s returns;
  • for the purpose of determining whether an investor has control over an investee, IFRS 10 requires investor to focus on relevant activities that significantly affect the investee's return;
  • for the purpose of determining whether an investor has control over an investee, IFRS 10 requires that only substantive rights be considered, i.e. those rights that can be exercised when significant decisions concerning the investee need to be taken;
  • IFRS 10 provides application guidance on evaluating whether control exists in complex situations, such as de facto control, potential voting rights, situations in which it is necessary to assess whether the decision-maker is acting as a principal or an agent, etc..

Generally speaking, IFRS 10 application requires significant judgement on a certain number of application issues.

The standard is applicable retrospectively from January 1, 2014. The Group does not expect this new standard to impact the scope of consolidation in any way.

On May 12, 2011, IASB issued IFRS 11 – Joint Arrangements that is to replace IAS 31 – Interests in Joint Ventures and SIC-13 Jointly-controlled Entities – Non-monetary Contributions by Venturers. The criteria for determining joint control remains unchanged, the new standard provides criteria for the accounting of joint arrangements that focus on the rights and obligations of the arrangement, rather than its legal form and requires the equity method as a single method to account for interests in jointly-controlled entities in consolidated financial statements. According to IFRS 11, the existence of a separate vehicle alone is not sufficient to classify a joint arrangement as a joint venture. The new standard is applicable retrospectively from January 1, 2014. After this standard was issued, IAS 28 – Investments in Associates was amended to include interests in joint ventures in its scope of application, as of the effective date of the new standard. The Group does not expect this new standard to impact the scope of consolidation in any way.

On May 12, 2011, IASB issued IFRS 12 – Disclosure of interests in other entities, a new standard that includes all of the disclosure requirements for subsidiaries, joint arrangements, associates, special purpose entities and other non-consolidated special purpose vehicles to be stated in the consolidated financial statements. The standard is applicable retrospectively from January 1, 2014.

On May 12, 2011, the IASB issued IFRS 13 – Fair Value Measurement, clarifying how the fair value should be measured for the purpose of the financial statements and it is applicable to all situations in which IFRS permit or require a fair value measurement or the presentation of disclosures based on fair value, with some limited exceptions. In addition, this standard requires more detailed information to be disclosed on fair value measurement (fair value hierarchy) compared to IFRS 7 requirements. The standard is effective prospectively from January 1, 2013.

On December 16, 2011, the IASB issued certain amendments to IAS 32 – Financial Instruments: Presentation to clarify the application of certain offsetting criteria for financial assets and financial liabilities in IAS 32. As a result, such criteria are now more difficult to apply. These amendments are effective for annual periods beginning on or after January 1, 2014 and are required to be applied retrospectively.

On December 16, 2011, IASB issued certain amendments to IFRS 7 – Financial instruments: Disclosures. The amendments require disclosures about the effect or potential effect of offsetting financial assets and liabilities on an entity's financial position. The amendments are effective for annual periods beginning on or after January 1, 2013. The required disclosures should be provided retrospectively.

On June 16, 2011, the IASB issued an amendment to IAS 1 – Presentation of Financial Statements requiring entities to group all items presented in "Other comprehensive income" depending on whether they can be reclassified to the Income Statement. The amendment is applicable from financial periods beginning on or after July 1, 2012.

On June 16, 2011, the IASB issued amendments to IAS 19 – Employee Benefits that eliminates the option to defer the recognition of actuarial gains and losses, known as the “corridor method”, and requires all actuarial gains and losses to be booked to “Other comprehensive income” immediately, so that the full net amount of the provisions for the defined benefits (net of plan assets) is recognised in the consolidated financial position. The amendments further require any changes in the defined benefit provision and plan assets over the period to be reported into three items: the cost components of work performed during the reporting period must be recognised in the Income Statement as service costs; net interest costs calculated by applying the appropriate discount rate to the opening net balance of defined benefit provision net of assets must be booked to Income Statement as net financial expenses and the actuarial gains and losses resulting from remeasurements of assets and liabilities must be booked to “Other comprehensive income”. In addition, the return on assets included in net interest costs must be calculated using the discount rate applicable to liabilities and no longer the expected return on the assets. The amendment also introduces the requirement for additional disclosures to be provided in the notes. The amendments are applicable retrospectively from financial periods beginning on or after January 1, 2013. Based on reasonable estimates, the effects of the application of these amendments to the balances of liabilities for “Long-term provisions” and Shareholders' equity as of December 31, 2012 amount to Euro 20,041 thousand. The Group has not yet completed the analysis of how the application of the new principle would have impacted the net result for the year 2012.

IFRIC Interpretation 20 – Stripping Costs in the Production Phase of a Surface Mine was published in October 2011. It addresses waste removal costs incurred in surface mining activities during the production phase of a mine. This Interpretation is effective for annual periods beginning on or after January 1, 2013.

On March 19, 2011, the IASB issued an amendment to IFRS 1 First-time adoption of International Financial Reporting Standards – Government Loans that changes reference to government loans accounting during transition to IFRS.

IFRS accounting standards, amendments and interpretations not yet endorsed by the European Union.

The European Union has not yet completed its endorsement process for the standards and amendments below reported at the date of these financial statements.

On November 12, 2009, the IASB issued IFRS 9 - Financial instruments: the same standard was amended on October 28, 2010. The standard, applicable retrospectively from January 1, 2015, represents the first phase of a process in stages, the aim of which is to entirely replace IAS 39 and introduces new requirements for the classification and measurement of financial assets and financial liabilities. In particular, as regards financial assets, the new standard adopts a single approach based on how an entity manages its financial instruments and the contractual cash flows characteristics of the financial assets, in order to determine its valuation criteria and replacing the many different rules in IAS 39. The most significant effect of the standard regarding the financial liabilities relates to the accounting for changes in fair value attributable to changes in the credit risk of financial liabilities designated as at fair value through profit or loss. According to the new standard, these changes must be recognised in “Other Comprehensive Income” and will no longer be recognised in the Income Statement.
Phases two and three of the financial instrument project, which address financial asset impairment and hedge accounting, respectively, are still under way. IASB is also evaluating improvements to the part of IFRS 9 that addresses the Classification and measurement of financial assets.

On May 17, 2012 the IASB published document Annual Improvements to IFRSs: 2009-2011 Cycle, amending standards as part of the annual improvement process, which is designed to make necessary, but not urgent, amendments to IFRSs. Outlined below are those amendments that impact the presentation, recognition and measurement of the items of the financial statements. Those related to changes in new terminology having minimal accounting impacts, or those that concern standards or interpretations not applicable to the Group have been omitted.

  • IAS 1 Presentation of Financial Statements – Comparative information: clarifies that any additional comparative information provided must be presented in accordance with IAS/IFRS. It also clarifies that when an entity changes an accounting principle or makes retrospective adjustments/restatements, it must include an opening statement of financial position at the beginning of the comparative period (“third statements of financial position” in the financial statements); related disclosures are not required for such “third statements of financial position”, except for the affected items, in the supporting notes.
  • IAS 16 Property, Plant and Equipment – Classification of servicing equipment: clarifies that servicing equipment must be classified under Property, plant and equipment if used during more than one accounting period. Otherwise, they must be classified as inventory.
  • IAS 32 Financial Instruments: Presentation – Taxes relating to distributions to holders of an equity instrument and transaction costs on equity transaction: clarifies that such income taxes are accounted according to IAS 12.
  • IAS 34 Interim Financial Reporting – Total assets for a reportable segment: clarifies that total assets must be disclosed only if such information is regularly provided to the chief operating decision maker of the entity and there has been a material change from the amounts disclosed in the last annual financial statements for the reportable segment.

The proposed amendments are effective for the years beginning on or after January 1, 2013. Early adoption is allowed.

On June 28, 2012, the IASB published document Consolidated Financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12). First and foremost, the document is aimed at clarifying the Board's intentions as to the transition rules in IFRS 10 Consolidated Financial Statements. The document clarifies that when an entity with a calender year end first adopts IFRS 10 for the financial statements for the year ended December 31, 2013, initial application date will be January 1, 2013.
If the consolidation conclusion is the same under IAS 27 and SIC 12, as well as under IFRS 10 on the initial application date, the entity is not required to make any adjustments. Likewise, no adjustment is required when the interest was transferred during the comparative period (and is no longer held on initial application date).
The document aims to clarify how an investor should adjust the comparative period or periods retrospectively when the conclusions on the consolidation according to IAS 27/SIC 12 and IFRS 10 as at date of initial application differ. Specifically, when retrospective adjustment as outlined above is impracticable, an acquisition/transfer is accounted for at the beginning of the comparative period presented, and retained earnings are adjusted accordingly.
In addition, the Board amended IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities to likewise facilitate the presentation or modification of comparative information for periods before “the immediately preceding period” (i.e. the comparative period presented in the financial statements). A further amendment to IFRS 12 limits the requirement to present comparative information for the disclosures for structured entities not consolidated in periods preceding the application of IFRS 12.
These amendments are to be applied - along with the reference standards - for years beginning on January 1, 2014, unless adopted earlier.

The amendments to IFRS 10, IFRS 12 and IAS 27 “Investment Entities” issued on October 31, 2012 introduce an exemption from the consolidation of subsidiaries for investment entities, unless the investees provide them with services related to their investment activities. Under these amendments, an investment entity must measure its investment in subsidiaries on a fair value basis through profit or loss. In order to qualify as investment entity, an entity must:

  • obtain funds from one or more investors for the purpose of providing them with professional investment management services;
  • commit to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and
  • measure and evaluate the performance of substantially all of its investments on a fair value basis.

These amendments apply for annual periods beginning on January 1, 2014; early adoption is permitted.

 

FINANCIAL ASSETS

Classification and initial recognition

In accordance with IAS 39, financial assets are to be classified in the following four categories:

  1. financial assets at fair value through profit or loss;
  2. held-to-maturity investments;
  3. loans and receivables;
  4. available-for-sale financial assets.

The classification depends on the purpose for which assets are bought and held. Management decides on their initial classification at the time of initial recognition, subsequently checking that it still applies at the end of each reporting period.

The main characteristics of the assets mentioned above are as follows:

Financial assets at fair value through profit or loss
This is made up of two sub-categories:

  • financial assets held specifically for trading purposes;
  • financial assets to be measured at fair value under the fair value option designation. This category also includes all financial investments, other than equity instruments that do not have a price quoted on an active market, but for which the fair value can be determined.

Derivatives are included in this category, unless they are designated as hedging instruments, and their fair value is booked to the Income Statement.

At the time of initial recognition, financial assets held for trading are recognised at fair value, not including the transaction costs or income associated with the same instruments, which are recognised in the Income Statement.

All of the assets in this category are classified as current if they are held for trading purposes or if they are expected to be sold within 12 months from the end of the reporting period.

Designation of a financial instrument to this category is considered final (IAS 39 envisages some exceptional circumstances in which said financial assets may be reclassified in another category) and can only be done on initial recognition.

Held-to-maturity investments
These are non-derivative assets with fixed or determinable payments and fixed maturities which the Group intends to hold to maturity (e.g. subscribed bonds).
The intention and ability to hold the security to maturity must be evaluated on initial recognition and confirmed at the end of each reporting period.
In the case of early disposal of securities belonging to this category (for a significant amount and not motivated by particular events), the entire portfolio is reclassified to financial assets available for sale and restated at fair value.

Loans and receivables
These are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market and in which the Group does not intend to trade.
They are included in current assets except for the portion falling due beyond 12 months from the end of the reporting period, which is classified as non-current.

Available-for-sale financial assets
This is a residual category represented by non-derivative financial assets that are designated as available for sale and which have not been assigned to one of the previous categories.
“Available-for-sale financial assets” are recorded at their fair value including related purchase costs.
They are classified as non-current assets, unless management intends to dispose of them within 12 months from the end of the reporting period.

Subsequent measurement

Gains and losses on “Financial assets at fair value through profit or loss” (cat. 1) are immediately booked to the Income Statement.
“Available-for-sale financial assets” are measured at fair value unless a market price or fair value cannot be reliably determined. In this case the cost method is used.
Gains and losses on “Available-for-sale financial assets” (cat. 4) are booked to a separate item under Other comprehensive income until they have been sold or cease to exist, or until it has been ascertained that they have suffered an impairment loss. When such events take place, all gains or losses recognised and booked to Other comprehensive income up to that moment are transferred to the Income Statement.

Fair value is the amount for which an asset could be exchanged (exit price), or a liability extinguished, in an arm’s length transaction between informed and independent parties. Consequently, it is assumed that the holder is a going-concern entity and that none of the parties needs to liquidate their assets in a forced sale at unfavourable conditions.

In the case of securities traded on regulated markets, fair value is determined with reference to the bid price at the close of trading at the end of the reporting period.
In cases where no market valuation is available for an investment, fair value is determined either on the basis of the current market value of another very similar financial instrument or by using appropriate financial techniques (such as discounted cash flow analysis).
Purchases or sales regulated at "market prices" are recognised on the day of trading, which is the day on which the Group takes a commitment to buy or sell the asset.
In situations where the fair value cannot be reliably determined, the financial asset is carried at cost, with disclosure in the notes of its type and the reasons for measuring it at cost.
“Held-to-maturity investments” (cat. 2) and “Loans and receivables” (cat. 3) are measured at their “amortised cost” using the effective interest rate and taking account of any discounts or premiums obtained at the time of acquisition so that they can be recognised over the entire period until their maturity. Gains or losses are booked to the Income Statement either at the time that the investment reaches maturity or when an impairment arises, in the same way that they are recognised during the normal process of amortisation that is part of the amortised cost method.
Investments in financial assets can only be derecognised once the contractual rights to receive the cash flows deriving from such investments have expired (e.g. final redemption of bonds) or if the Group transfers the financial asset and all of the risks and benefits attached to it.

 


SEGMENT INFORMATION

OPERATING SEGMENTS

In compliance with the provisions of IFRS 8, the following information is provided by operating segments (business segments) and performance indicators that play a key role in the Group's strategic decisions.
As the analysis by business segments is given higher priority in the decision-making process, the analysis by geographic areas is no longer presented.

Business segments

With regard to the business segments, information concerning the two Divisions – Engine Systems and Suspension Components – is provided below. Figures for the Holding Company Sogefi S.p.A. and the subsidiary Sogefi Purchasing S.a.S. are also provided for the purpose of reconciliation with consolidated values.

The tables below provide the Group’s income statement and statement of financial position figures for 2011 and 2012:

(in thousands of Euro) 2011 (*)
  Engine Systems Division Suspension Components Division Sogefi SpA / Sogefi Purch. SaS Adjustments Sogefi consolidated f/s
REVENUES          
Sales to third parties 611,791 546,594 - - 1,158,385
Intersegment sales 1,144 1,13 18,567 (20,841) -
TOTAL REVENUES 612,935 547,724 18,567 (20,841) 1,158,385
RESULTS          
EBIT 24,443 44,139 (8,190) (1,905) 58,487
Financial expenses, net         (12,680)
Income from equity investments         -
Losses from equity investments         -
Result before taxes         45,807
Income taxes         (18,605)
Loss (profit) attributable to non-controlling interests         (3,156)
NET RESULT         24,046
STATEMENT OF FINANCIAL POSITION        
ASSETS          
Segment assets 499,638 422,275 591,760 (629,178) 884,495
Equity investments in associates - - - - -
Unallocated assets - - - 151,666 151,666
TOTAL ASSETS 499,638 422,275 591,760 (477,512) 1,036,161
LIABILITIES          
Segment liabilities 310,767 2268,311 438,514 (195,633) 821,959
TOTAL LIABILITIES 310,767 2268,311 438,514 (195,633) 821,959
OTHER INFORMATION          
Increase in tangible and intangible fixed asset 27,855 27,293 1,602 (0) 56,750
Depreciation, amortisation and writedown 27,586 24,171 5,982 (4,375) 53,364
(*) Some 2011 values have been restated following the conclusion of the Purchase Price Allocation process of Systèmes Moteurs S.A.S.. Please see Note 2 "Consolidation principles and accounting policies" for additional details.

 

(in thousands of Euro) 2012
  Engine Systems Division Suspension Components Division Sogefi SpA / Sogefi Purch. SaS Adjustments Sogefi consolidated f/s
REVENUES          
Sales to third parties 791,683 527,550 - - 1,319,233
Intersegment sales 940 1,054 20,099 (22,093) -
TOTAL REVENUES 792,623 528,604 20,099 (22,093) 1,319,233
RESULTS          
EBIT 39,000 32,312 (6,148) (2,389) 62,775
Financial expenses, net         (16,474)
Income from equity investments         -
Losses from equity investments         -
Result before taxes         46,301
Income taxes         (13,771)
Loss (profit) attributable to non-controlling interests         (3,205)
NET RESULT         29,325
STATEMENT OF FINANCIAL POSITION        
ASSETS          
Segment assets 524,073 416,152 571,748 (642,899) 869,074
Equity investments in associates - - - - -
Unallocated assets - - - 153,221 153,221
TOTAL ASSETS 524,073 416,152 571,748 (489,678) 1,022,295
LIABILITIES          
Segment liabilities 317,884 256,843 431,470 (199,197) 807,000
TOTAL LIABILITIES 317,884 256,843 431,470 (199,197) 807,000
OTHER INFORMATION          
Increase in tangible and intangible fixed assets 46,592 30,311 9,294 (1,807) 84,390
Depreciation, amortisation and writedowns 35,676 24,545 6,349 (3,320) 63,250


Please note that the Engine Systems Division includes the book value of the Systemes Moteurs Group (which do not include fair value adjustments to net assets from the Purchase Price Allocation) and the adjustments for its Purchase Price Allocation relating to provision for product warranties reversed (contingent liabilities recognised during the Purchases Price Allocation process); the remaining adjustments for its Purchase Price Allocation are posted in column "Adjustments".
Adjustments to “Intersegment sales” mainly refer to services provided by the Holding Company Sogefi S.p.A. and by the subsidiary Sogefi Purchasing S.a.S. to other Group companies (see note 40 for further details on the nature of the services provided). This item also includes intersegment sales between the Engine Systems Division and the Suspension Components Division.

The adjustments to “EBIT" refer to depreciation and amortisation linked to the revaluation of assets resulting from the acquisition of 40% of Sogefi Rejna S.p.A. and its subsidiaries in the year 2000 and of Systemes Moteurs Group in the year 2011.

In the Statement of Financial Position, the adjustments to the item "Segment assets" refer to the consolidation entry of investments in subsidiaries and intercompany receivables.
Adjustments to “Unallocated assets” mainly include the goodwill and the fixed assets revaluations resulting from the acquisitions of: the Allevard Ressorts Automobile group, 40% of Sogefi Rejna S.p.A., the Filtrauto group, 60% of Sogefi M.N.R. Filtration India Private Ltd and the Systemes Moteurs Group.

“Depreciation, amortisation and writedowns” include writedowns of tangible and intangible fixed assets for the amount of Euro 4,850 thousand, Euro 3,208 thousand of which originate from the current reorganisation of the Llantrisant site of subsidiary Sogefi Filtration Ltd and Euro 1,535 thousand refer to subsidiary Allevard Sogefi U.S.A. Inc. and reflect plant for the manufacture of stabilizer bars no longer used.
These assets were written down based on the fair value of assets at year-end date, which amounts to zero.

Information on the main customers

Note that revenues from sales to third parties as of December 31, 2012 account for over 10% of Group revenues refer to: PSA (12.9% of total revenues), Ford (11.8% of total revenues) and Renault/Nissan (11.3% of total revenues).

Information on the geographical areas

The breakdown of revenues by geographical area “of destination”, in other words with regard to the nationality of the customer, is analysed in the directors' report and in the notes to the income statement.

The breakdown of assets by geographical area is as follows:

(in thousands of Euro) 2011 (*)
  Europe South America North America Asia Adjustments Sogefi consolidated f/s
TOTAL ASSETS 1,408,970 128,155 66,374 52,801 (620,139) 1,036,161
(*) Certain values as at December 31, 2011 were redetermined after the completion of the Purchase Price Allocation process in connection with the Systèmes Moteurs S.A.S. acquisition.

 

(in thousands of Euro) 2012
  Europe South America North America Asia Adjustments Sogefi consolidated f/s
TOTAL ASSETS 1,367,211 124,948 101,619 74,468 (645,951) 1,022,295

 

NOTES ON THE MAIN ITEMS OF THE STATEMENT OF FINANCIAL POSITION

ASSETS

CASH AND CASH EQUIVALENTS

Cash and cash equivalents amount to Euro 85,209 thousand versus Euro 102,461 thousand as of December 31, 2011 and break down as follows:

(in thousands of Euro) 12.31.2012 12.31.2011
Short-term cash investments 84,627 102,369
Cheques 521 16
Cash on hand 61 76
TOTAL 85,209 102,461


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

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.

As of December 31, 2012, the Group has unutilised lines of credit for the amount of Euro 246,765 thousand. These funds are available for use on demand, because the conditions required for their availability are met.

Please note that this item includes Euro 4,117 thousand held by the Argentinian subsidiaries; use of this amount is temporarily subject to government restrictions that require an official authorisation of foreign payments (including dividend payouts).

OTHER FINANCIAL ASSETS

“Other financial assets” can be broken down as follows:

(in thousands of Euro) 12.31.2012 12.31.2011
Securities held for trading 15 11
Held-to-maturity investments 8,199 1,893
Assets for derivative financial instruments 15 8
TOTAL 8,229 1,912


“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 15 thousand and refer to the fair value of forward foreign exchange contracts. Further details can be found in the analysis of financial instruments contained in note 39.

INVENTORIES

The breakdown of net inventories is as follows:

  12.31.2012 12.31.2011
(in thousands of Euro) Gross Write-downs Net Gross Write-downs Net
Raw, ancillary and consumable materials 53,879 4,274 49,605 58,621 3,737 54,884
Work in progress and semi-finished products 12,515 379 12,136 13,454 292 13,162
Contract work in progress and advances 41,224 57 41,167 34,347 - 34,347
Finished goods and goods for resale 53,173 7,497 45,676 57,606 7,494 50,112
TOTAL 160,791 12,207 148,584 164,028 11,523 152,505


The gross value of inventories decreased by Euro 3,237 thousand; this is due to a negative exchange effect for Euro 2,513 thousand, whereas the remainder is traced back to a slowdown of business during the last portion of the year 2012 and to improved inventory management. The rise in “Contract work in progress and advances” represents tooling to be sold to customers, mostly in the Engine Systems Division.

Writedowns consist for the most part 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 increase in the provision reflects an additional Euro 1,724 thousand set aside (booked to the income statement under “Variable cost of sales”) that were partly offset by products scrapped during the year for the amount of Euro 964 thousand and a negative exchange effect for Euro 76 thousand.

Inventories are encumbered by bank mortgages or liens totalling Euro 70 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) 12.31.2012 12.31.2011
Trade receivables 156,245 179,663
Less: allowance for doubtful accounts 5,263 5,319
Trade receivables, net 150,982 174,344
Due from subsidiaries 4,179 4,311
Tax receivables 21,815 19,564
Other receivables 32,477 32,141
Other assets 3,559 2,800
TOTAL 213,012 233,160


“Trade receivables, net” are non-interest bearing and have an average due date of 42 days, against 45 days recorded at the end of the previous year.
It should be noted that as of December 31, 2012, the Group factored trade receivables for Euro 65,114 thousand (Euro 57,557 thousand as of December 31, 2011), including an amount of Euro 34,151 thousand which was not notified and for which the Group continues to manage collection services. The risks and benefits related to these receivables have been transferred to the factor; therefore these receivables have been derecognised in the Statement of Financial Position debiting the consideration received from the factoring company.

If the factoring transactions (Euro 65,114 thousand as of December 31, 2012 and Euro 57,557 thousand as of December 31, 2011) are excluded, new trade receivables show a decrease of Euro 15,860 thousand for the most part due to a slowdown in business during the last portion of the year 2012 compared to the previous year and to a negative exchange effect (Euro 4,575 thousand).

Further adjustments were booked to “Allowance for doubtful accounts” during the year for a total of Euro 706 thousand, against net utilisations of the allowance for the amount of Euro 731 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, 2012 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, 2012 include tax credits due to the Group companies by the tax authorities of the various countries. The increase in this item mainly reflects increased VAT credits. It does not include deferred taxes which are treated separately.

“Other receivables” are made up as follows:

(in thousands of Euro) 12.31.2012 12.31.2011
Amounts due from social security institutions 468 276
Amounts due from employees 293 235
Advances to suppliers 1,289 1,475
Due from others 30,427 30,155
TOTAL 32,477 32,141

"Due from others" include an indemnification asset of Euro 23,368 thousand owed by the seller of Systèmes Moteurs S.A.S.’s shares relating to the recovery of expenses charged by customers following claims on the quality of products sold, based on warranties given by the same seller (after possible partial indemnities obtained from insurers and suppliers). This amount was booked during the Purchase Price Allocation process 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 reflects for the most part prepaid rents of subsidiary Sogefi Filtration do Brasil Ltda relating to the year 2013.

TANGIBLE FIXED ASSETS

The net carrying amount of tangible fixed assets as of December 31, 2012 amounted to Euro 252,345 thousand versus Euro 260,682 thousand at the end of the previous year and breaks down as follows:

(in thousands of Euro) 2012
  Land Buildings, plant and machinery, commercial and industrial equipment Other assets Assets under construction and payments on account TOTAL
Balance at January 1 15,774 215,183 4,845 24,880 260,682
Additions of the period 74 17,810 1,647 25,706 45,237
Disposals during the period (1,187) (2,047) (7) (30) (3,271)
Exchange differences (118) (4,271) (259) (853) (5,501)
Depreciation for the period - (38,072) (1,746) - (39,818)
Writedowns/revaluations during the period - (4,521) (313) - (4,834)
Reclassification of non-current asset held for sale - 744 - - 744
Other changes 1,168 13,404 1,276 (16,742) (894)
Balance at December 31 15,711 198,230 5,443 32,961 252,345
Historical cost 15,711 808,981 29,685 33,655 888,032
of which: leases - gross value 331 8,496 15 - 8,842
Accumulated depreciation - 610,751 24,242 694 635,687
of which: leases - accumulated depreciation - 3,668 15 - 3,683
Net value 15,711 198,230 5,443 32,961 252,345
Net value - leases 331 4,828 - - 5,159

 

(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 14,361 1,148 20,163 36,255
Disposals during the period (36) (260) (13) (4) (313)
Exchange differences (206) (1,251) (76) (440) (1,973)
Depreciation for the period - (34,950) (1,459) - (36,409)
Writedowns/revaluations during the period - (3,352) (86) - (3,438)
Change to scope of consolidation 1,006 36,075 715 1,913 38,709
Other changes 4 15,415 338 (16,052) (295)
Balance at December 31 15,774 215,183 4,845 24,880 260,682
Historical cost 15,774 794,433 28,420 25,574 864,201
of which: leases - gross value 1,158 18,542 15 - 19,715
Accumulated depreciation - 579,250 23,575 694 603,519
of which: leases - accumulated depreciation - 6,858 10 - 6,868
Net value 15,774 215,183 4,845 24,880 260,682
Net value - leases 1,158 11,684 5 - 12,847


Investments during the year amounted to Euro 45,237 thousand compared with Euro 36,255 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.

Key investments falling under category “Assets under construction and payments on account” relate to subsidiary Sogefi (Suzhou) Auto Parts Co., Ltd for the new Chinese plant under construction; to subsidiary Sogefi Rejna S.p.A. for the new production line for tubular stabilizer bars, investments in safety, environmental pollution reduction and process improvement measures; to subsidiary Sogefi Filtration do Brasil Ltda for the development of new products, new equipment and process improvement; subsidiaries Filtrauto S.A., Allevard Rejna Autosuspensions S.A. and Sogefi Filtration Ltd for the development of new products and process improvement.

Among the most significant projects in the “Buildings, plant and machinery, commercial and industrial equipment” category, noteworthy are the investments in subsidiary LPDN GmbH to improve processes and for plant upkeep; in subsidiary Systèmes Moteurs S.A.S. to develop new products and for process and plant improvements; in subsidiaries Allevard Sogefi U.S.A., Inc. and Sogefi M.N.R. Filtration India Pvt Ltd to increase production capacity and develop new products; in subsidiary Iberica De Suspensiones S.L. (ISSA) to improve processes and buy new equipment; in subsidiary Sogefi Engine Systems Canada Corp. to improve processes, develop new products and increase production capacity.

“Disposals during the period” total Euro 6,856 thousand and refer nearly entirely to subsidiary Sogefi Filtration do Brasil Ltda; they relate to the sale of plant (on which it has been realized a capital gain for Euro 6,856 thousand).

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

“Writedowns/revaluations during the period” totalled Euro 4,834 thousand and is mainly made up of writedowns of “Buildings, plant and machinery, commercial and industrial equipment” performed by subsidiary Sogefi Filtration Ltd as a result of the restructuring of its Llantrisant production plant currently under way and by subsidiary Allevard Sogefi U.S.A., Inc. in relation to industrial assets for the production of stabilizer bars no longer used (these losses have been enrolled as “Other non-operating expenses (income)”).

Line “Reclassification of non-current assets held for sale” refers to the net value of the building of subsidiary United Springs Ltd that was reclassified to “Non-current assets held for sale” as at December 31, 2011.
As it is unlikely that this property will be sold during the next twelve months, its value was reclassified under “Tangible fixed assets” and the depreciation process was resumed.

“Other changes” refer to the completion of projects that were under way 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, 2012 includes Euro 79 thousand of advances for investments.

The main inactive assets, with a total net book value of Euro 6,317 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 net 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 in the scope of IFRS 5.

No interest costs were capitalised to “Tangible fixed assets” during the year 2012.

Guarantees
As of December 31, 2012, tangible fixed assets are encumbered by mortgages or liens totalling Euro 13,046 thousand to guarantee loans from financial institutions, compared to Euro 1,545 thousand as of December 31, 2011. Guarantees existing as of December 31, 2012 refer to subsidiaries Sogefi Engine Systems Canada Corp., Systèmes Moteurs S.A.S, Allevard IAI Suspensions Private Ltd, United Springs B.V. and Sogefi M.N.R. Filtration India Private Ltd.

Purchase commitments
As of December 31, 2012, there are binding commitments to buy tangible fixed assets for Euro 480 thousand (Euro 2,460 thousand as of December 31, 2011) relating to the subsidiaries Allevard Rejna Autosuspensions S.A. and United Springs S.A.S.. Said commitments will be settled within 12 months.

Leases
The carrying value of assets under financial leases as of December 31, 2012 was Euro 8,842 thousand, and the related accumulated depreciation amounted to Euro 3,683 thousand.
It should be noted that the lease agreements of the Fronville facility and part of the lease agreement of the Lieusaint facility have expired during the year 2012 and subsidiary Allevard Rejna Autosuspensions S.A. exercised the option to purchase at the price of Euro 305 thousand and Euro 3, respectively.
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, 2012 was Euro 239,577 thousand versus Euro 220,246 thousand at the end of the previous year, and breaks down as follows:

(in thousands of Euro) 2012
  Development costs Industrial patents and intellectual property rights, concessions, licences and trademarks Other, assets under construction and payments on account Customer Relationship Trade name Systèmes Moteurs Goodwill TOTAL
Balance at January 1 47,598 7,455 11,495 18,803 8,256 126,639 220,246
Additions of the period 26,170 236 12,747 - - - 39,153
Disposals during the period (89) - (58) - - - (147)
Exchange differences (871) 1 (205) - - - (1,075)
Amortisation for the period (13,913) (2,735) (509) (990) (435) - (18,582)
Writedowns during the period (16) - - - - - (16)
Change to scope of consolidation - - - - - - -
Other changes 2,017 10 (2,029) - - - (2)
Balance at December 31 60,896 4,967 21,441 17,813 7,821 126,639 239,577
Historical cost 130,229 24,072 26,136 19,215 8,437 149,537 357,626
Accumulated amortisation 69,333 19,105 4,695 1,402 616 22,898 118,049
Net value 60,896 4,967 21,441 17,813 7,821 126,639 239,577
(in thousands of Euro) 2011
  Development costs Industrial patents and intellectual property rights, concessions, licences and trademarks Other, assets under construction and payments on account Customer Relationship Trade name Systèmes Moteurs 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) (2,300) (524) (412) (181) - (13,383)
Writedowns during the period (129) - (5) - - - (134)
Change to scope of consolidation 15,854 3,980 54 19,215 8,437 32,560 80,100
Other changes 1,075 353 (1,449) - - - (21)
Balance at December 31 47,598 7,455 11,495 18,803 8,256 126,639 220,246
Historical cost 105,233 24,250 15,796 19,215 8,437 149,537 322,468
Accumulated amortisation 57,635 16,795 4,301 412 181 22,898 102,222
Net value 47,598 7,455 11,495 18,803 8,256 126,639 220,246


Investments during the year amounted to Euro 39,153 thousand.

The increases in “Development costs” for the amount of Euro 26,170 thousand 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 Systèmes Moteurs S.A.S., Filtrauto S.A., Mark IV AIS Mexico S de R.L. de C.V., Sogefi Filtration do Brasil Ltda and Allevard Sogefi U.S.A. Inc..

Increases in “Other, assets under construction and payments on account” for the amount of Euro 12,747 thousand refer mainly to the development and implementation of the new information system across the Sogefi Group.
Other smaller investments were also made during the year, which focused on developing new products not yet in production. Specifically, the largest investments were directed towards subsidiaries Allevard Rejna Autosuspensions S.A., Sogefi Filtration Ltd and Sogefi Rejna S.p.A..

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

“Development costs” principally include costs generated internally, whereas "Industrial patents and intellectual property rights, concessions, licences and trademarks” consist of factors that are acquired externally for the most part.
“Other, assets under construction and payments on account” include around Euro 13,799 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 three CGUs: fluid filters, air intake and cooling and car suspension.
The specific goodwill of the “Engine Systems Division – Fluid Filters” amounts to Euro 77,030 thousand, the goodwill of the “Engine Systems Division – Air Intake and Cooling” amounts to Euro 32,560 thousand and the goodwill pertaining to the “Car Suspension Components 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 2013-2016, 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%, which reflects the weighted average cost of capital.
The same discounting rate is used for all three CGUs. As a matter of fact, the three CGUs operate in the same sector and deal with the same kind of customers, and it is estimated that they are exposed to the same risk.

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 2016), 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 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 entities 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 (debt to equity): 37.2%
  • levered beta of the industry: 1.15
  • risk free rate: 4.25% (annual average yield 10 year government bonds for the key jurisdiction in which the group operates, weighted by sales revenues)
  • risk premium: 5.5%
  • debt cost spread: 3.3% (estimate based on the 2013 budget)

Sensitivity analyses were also carried out on two of the variables referred to above, with the growth rate of terminal value being set to zero or the average cost of capital being increased by two percentage points. None of the scenarios used highlighted the need to post a write-down.

Regarding the sensitivity analysis:

  • the impairment test reached break-even point at the following discounting rates (growth rate of terminal value remaining unchanged at 2% and all other plan assumptions being equal): 18.08% for the engine systems division - fluid filters, 20.27% for the engine systems division - air intake and cooling and 10.66% for the car suspension division.
  • the impairment test reached break-even point with a EBIT’s significant decrease during the explicit plan and in terminal value: -33% for the car suspension division and over -50% for the engine systems division - fluid filters and for the engine systems division - air intake and cooling.

The test based on the present value of the estimated future cash flows turns out a value in use of the CGUs that exceeds 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. There are no contingent liabilities or financial engagements connected to such equity investment.

OTHER FINANCIAL ASSETS AVAILABLE FOR SALE

As of December 31, 2012, these totalled Euro 489 thousand, compared with Euro 490 thousand as of December 31, 2011 and break down as follows:

(in thousands of Euro) 12.31.2012 12.31.2011
Equity investments in other companies 489 490
Other securities - -
TOTAL 489 490


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

As at December 31, 2012, there are no non-current trade receivables. The amount of Euro 918 thousand pertaining to subsidiary Systèmes Moteurs S.A.S. as at December 31, 2011 was reclassified under short-term items because it is repayable within the next twelve months.

“Other receivables” break down as follows:

(in thousands of Euro) 12.31.2012 12.31.2011
Substitute tax 576 576
Pension fund surplus 12,864 11,298
Other receivables 3,582 2,228
TOTAL 17,022 14,102


“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, since the company presents a reimbursement right for the contingent surplus at the end of the plan. 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 the non-current portion of prepaid rents of subsidiary Sogefi Filtration do Brasil Ltda relating to the year 2014 for the amount of Euro 590 thousand, tax credits of subsidiaries Allevard Rejna Autosuspensions S.A. and S.ARA Composite S.A.S. for the amount of Euro 447 thousand for research and development activities, and other receivables mainly consisting in tax credits for the remaining portion.

DEFERRED TAX ASSETS

As of December 31, 2012, this item amounts to Euro 57,530 thousand compared with Euro 48,638 thousand as of December 31, 2011.
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

As at December 31, 2011, this item included the net value of the building of the UK subsidiary, United Springs Ltd, held for sale. As it is no longer deemed likely that this property will be sold during the next twelve months, it was reclassified from “Non currents assets held for sale” to “Tangible fixed assets” and the depreciation process was resumed.

FINANCIAL DEBTS TO BANKS AND OTHER FINANCING CREDITORS

These break down as follows:

Current portion

(in thousands of Euro) 12.31.2012 12.31.2011
Bank overdrafts and short-term loans 8,377 9,827
Current portion of medium/long-term financial debts 89,596 46,962
of which: leases 814 1,674
TOTAL SHORT-TERM FINANCIAL DEBTS 97,973 56,789
Other short-term liabilities for derivative financial instruments 1,011 632
TOTAL SHORT-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS 98,984 57,421

 

Non-current portion

(in thousands of Euro) 12.31.2012 12.31.2011
Financial debts to banks 267,773 330,462
Other medium/long-term financial debts 8,821 7,916
of which: leases 4,880 5,686
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS 276,594 338,378
Other medium/long-term liabilities for derivative financial instruments 13,708 8,416
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS 290,302 346,794

 

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, 2012, this item principally includes the following loans:

  • the current portion of Euro 27,850 thousand of a Euro 100,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Unicredit S.p.A. in 2006 (the residual amount as of December 31, 2012 was Euro 33,276 thousand). The loan expires in March 2014 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 2012 corresponded to 90 basis points. The loan is not secured against any of the company's assets. During the year, the Holding Company benefited from a temporary suspension of capital payments due on July 31 and on October 31, 2012 (for a total amount of Euro 11,100 thousand) granted to entities affected by the earthquake that affected the Mantua area in May 2012. As a result of this suspension, the final expiry date of the loan was put off from September 2013 to March 31, 2014;
  • the current portion of Euro 10,000 thousand of a Euro 40,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from the Banca Europea degli Investimenti (BEI) in 2010 (the residual amount as of December 31, 2012 was Euro 34,838 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 6,250 thousand of a Euro 25,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Monte de Paschi di Siena S.p.A. in 2011 (the residual amount as of December 31, 2012 was Euro 24,793 thousand). The loan expires in December 2016 and has a floating interest rate corresponding to the 3-month Euribor plus a base spread of 150 basis points. The spread actually applied at the end of 2012 corresponded to 200 basis points. The loan is not secured against any of the company's assets;
  • the current portion of Euro 6,000 thousand of a Euro 60,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Intesa Sanpaolo S.p.A. in 2011 (the residual amount as of December 31, 2012 was Euro 59,471 thousand), divided into two tranches of Euro 30,000 thousand each, with one tranche at amortised capital instalments starting in June 2013 and one of the revolving type made available in December 2012. The loan expires in December 2016 and has a floating interest rate corresponding to the 3-month Euribor plus a base spread of 200 basis points. The spread actually applied at the end of 2012 corresponded to 230 basis points. The loan is not secured against any of the company's assets;
  • a Euro 6,533 thousand loan denominated in Brazilian real obtained by the subsidiary Sogefi Filtration do Brasil Ltda from Banco do Brasil in 2010 (the residual amount as of December 31, 2012 corresponded to the full amount). The loan expires in July 2013 and has a 4.5% fixed interest rate. The loan is not secured against any of the company's assets;
  • a Euro 5,959 thousand loan (partly denominated in Euro and partly in Renminbi) obtained by the subsidiary Shanghai Sogefi Auto Parts Co., Ltd from Unicredit in 2012 (the residual amount as of December 31, 2012 corresponded to the full amount). The loan expires in May 2013 and has a floating interest rate corresponding to the six-monthly PBOC multiplied by 130% for the portion denominated in Renminbi, whereas the portion denominated in Euro has an interest rate established by Unicredit (“cost of funding”) plus a spread of 250 basis points. The loan is not secured against any of the company's assets;
  • the current portion of Euro 4,677 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, 2012 was Euro 23,602 thousand). The loan expires in September 2017 and has a floating interest rate corresponding to the 3-month Euribor plus a fixed spread of 225 basis points. During the year, the Holding Company benefited from a temporary suspension of the capital payment due on September 30, 2012 (for a total amount of Euro 1,142 thousand) granted to entities affected by the earthquake that affected the Mantua area in May 2012. As a result of this suspension, the final expiry date of the loan was put off from June 30, 2017 to September 30, 2017. 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.

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:

  • Euro 115,277 thousand reflect drawdowns on the five-year syndicated revolving loan for a total of Euro 200,000 thousand obtained by the Holding Company Sogefi S.p.A. on December 4, 2012 from banks IMI, BNP Paribas, ING Bank N.V. and Mediobanca, with a portion of Euro 120,000 thousand at amortised capital instalments and a portion of Euro 80,000 thousand of the revolving type, expiring in December 2017. Base spreads are 425 basis points on Euribor for the amortised portion and 350 basis points on Euribor for the revolving portion. In December, the Holding Company Sogefi S.p.A. paid Euro 4.6 million comprising up front fees, documentation fees and registry duty in relation to this loan. On December 20, 2012 the Holding Company Sogefi S.p.A. drew down the entire amount of Euro 120,000 thousand of the loan portion at amortised capital instalments.
    As at December 31, 2012 the spread applied to this syndicated loan was 425 basis points on 3-month Euribor.
    The loan is not secured against any of the company's assets.
    As it drew down the Euro 120 million portion of the new syndicated loan, the Holding Company Sogefi S.p.A. extinguished the syndicated loan of Euro 140 million obtained in June 2008 from lead banks Ing Bank N.V. and Intesa Sanpaolo S.p.A. which expires in June 2013;
  • the medium-long term portion of Euro 5,426 thousand of the Euro 100,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Unicredit S.p.A. in 2006;
  • the medium-long term portion of Euro 24,838 thousand of the Euro 40,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from the Banca Europea degli Investimenti (BEI) in 2010;
  • the medium-long term portion of Euro 18,543 thousand of the Euro 25,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Monte dei Paschi di Siena S.p.A. in 2011;
  • the medium-long term portion of Euro 53,471 thousand of the Euro 60,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Intesa Sanpaolo S.p.A. in 2011;
  • the medium-long term portion of Euro 18,925 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.

On December 19, 2012, the Holding Company Sogefi S.p.A. extinguished the loan of Euro 40 million signed with Banca Nazionale del Lavoro S.p.A. in July 2011 and expiring in January 2013.

On December 21, 2012 the Holding Company Sogefi S.p.A. entered into a loan agreement for a total amount of Euro 15 million at amortised capital instalments with Banco do Brasil S.A.. The loan expires in December 2016 and provides for a fixed spread of 315 basis points on Euribor. As at December 31, 2012, the Holding Company Sogefi S.p.A. has not drawn down this loan.

Please note that as at December 31, 2012 the Canadian subsidiary Sogefi Engine Systems Canada Corp. has a loan agreement with GE Capital for a total amount of Euro 6,471 thousand, Euro 5,727 thousand of which are classified as medium/long-term loans. As at December 31, 2012 one contract provision concerning guarantees given to the bank was not complied with in full. GE Capital later issued a waiver to release the company from these guarantees. Considering the situation as at December 31, 2012, it was deemed appropriate to maintain the existing loan classification partly as short-term debts and partly as medium/long-term debts.

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.
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 building, 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, financial cost and residual liability.

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

(in thousands of Euro) Instalments Capital
Within 12 months 1,273 814
Between 1 and 5 years 3,782 2,618
Beyond 5 years 2,812 2,262
Total lease payments 7,867 5,694
Interests (2,173) -
TOTAL PRESENT VALUE OF LEASE PAYMENTS 5,694 5,694


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 Euro 3,247 thousand; the future capital payments amount to Euro 2,577 thousand and the annual nominal rate of interest applied by the lessor is 11.37%.
    The Group has given 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 a lease contract for the Lieusaint production site. The contract expires in October 2014 and the original total amount of the contract was Euro 2,108 thousand, the future capital payments amount to Euro 673 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.
    There are no restrictions of any nature on this lease. There is a purchase option at the end of the contracts to buy the assets at the price of Euro 1. Given that it is probable that the options will be exercised, considering the low redemption value of the assets, this contract has been accounted for as a finance lease, as foreseen by IAS 17.
    It should be noted that the lease agreements of the Fronville facility and part of the lease agreement of the Lieusaint facility have expired during the year 2012 and subsidiary Allevard Rejna Autosuspensions S.A. exercised the option to purchase at the price of Euro 305 thousand and Euro 3, respectively.
  • Allevard Sogefi USA Inc. has entered into the following lease contracts for the Prichard production site relating to:
  1. plants, machinery and improvements to the building for an original amount of Euro 1,213 thousand. The contract expires in May 2019, the future capital payments amount to Euro 832 thousand and the annual interest rate applied by the lessor is equal to 3.92%. The Group has given sureties for this contract;
  2. plants, machinery and improvements to the building for an original amount of Euro 2,274 thousand. The contract expires in July 2019, the future capital payments amount to Euro 1,612 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) 12.31.2012 12.31.2011
Trade and other payables 307,984 314,841
Tax payables 12,203 8,615
TOTAL 320,187 323,456

 

Details of trade and other payables are as follows:

(in thousands of Euro) 12.31.2012 12.31.2011
Due to suppliers 212,891 218,217
Due to the parent company 597 433
Due to tax authorities for indirect and other taxes 10,846 9,698
Due to social and security institutions 20,710 20,931
Due to employees 30,024 27,911
Other payables 32,916 37,651
TOTAL 307,984 314,841


The amounts “Due to suppliers” are not subject to interest and on average are settled in 74 days, in line with the year 2011.
There is no significant concentration of payables due to any one supplier or small group of suppliers.

The amounts “Due to suppliers” decreased by Euro 5,326 thousand; this is due to a negative exchange effect for Euro 3,062 thousand, whereas the remainder is traced back to a slowdown of business during the last portion of the year 2012.

Item “Due to the Parent Company” reflects the consideration due for the fiscal surplus transferred by companies that have joined the CIR Group tax filing system. For further details, please refer to note 40.

The increase in amounts “Due to tax authorities for indirect and other taxes” reflects VAT debts for the most part relating to the Suspension Components Division and other tax debt relating to the Engine Systems Division.
The amounts “Due to employees” were impacted by pay rises, especially in South America, and larger bonus amounts to be paid.

“Other payables” reflect liabilities connected with product warranty risks of the Systèmes Moteurs Group and other liabilities booked to accounts during the Purchase Price Allocation process totalling Euro 25,934 thousand at December 31, 2012 (in comparison with July 31, 2011 the group has already returned Euro 6,020 thousands against these liabilities; for further details please see note 2.2).

The increase in “Tax payables” mainly reflects the higher tax burden of subsidiary Sogefi Engine Systems Canada Corp. resulting from the improved results achieved in this period and the unavailability of past losses to carry over (unlike the previous year). 

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 increase in the item for the amount of Euro 1,441 thousand mainly refers to 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) 12.31.2012 12.31.2011
Pension funds 28,571 27,346
Provision for employment termination indemnities 5,702 5,679
Provision for restructuring 7,720 2,484
Provisions for disputes with tax authorities 546 80
Provision for phantom stock options 30 59
Provision for product warranties 332 1,404
Other risks 1,063 2,482
Agents' termination indemnities 90 86
Lawsuits 881 887
TOTAL 44,935 40,507


Details of the main items are given below.

 

Pension funds

The amount of Euro 28,571 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, 2012, the pension fund of the subsidiary Sogefi Filtration Ltd shows a surplus of Euro 12,864 thousand, which was booked to “Other receivables”, as explained in note 13. The net amount of the liabilities to the various pension funds as of December 31, 2012 is therefore equal to Euro 15,707 thousand, as presented in the following table which shows movements in “Pension funds” during the course of the year:

(in thousands of Euro) 12.31.2012 12.31.2011
Opening balance 16,048 15,675
Cost of benefits charged to income statement 2,756 936
Contributions paid (2,873) (2,849)
Change to the scope of consolidation - 2,605
Exchange differences (224) (319)
TOTAL 15,707 16,048
of which booked to Liabilities 28,571 27,346
of which booked to Assets (12,864) (11,298)

 

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

(in thousands of Euro) 2012 2011
Current service cost 2,082 2,040
Interest cost 8,753 8,701
Expected return on plan assets (9,358) (9,387)
Actuarial (gains) losses recognised during the year 598 (1,119)
Past service cost 163 240
Settlements/Curtailments 518 461
TOTAL 2,756 936


“Current service cost” and “Past service cost” are included in the various “Labour cost” lines of Income Statement items.
“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 237 thousand is included in “Labour cost”, whereas the remaining amount is booked to “Other non-operating expenses (income)”. The profit for the previous year mainly originated 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) 12.31.2012 12.31.2011
Great Britain (11,582) (9,987)
France 24,249 23,074
Germany 2,664 2,776
Other 376 185
TOTAL 15,707 16,048


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 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:

  12.31.2012 12.31.2011
Discount rate % 4.5 4.8
Expected rate of return on debt instruments % 5.0 5.0
Expected rate of return on capital instruments % 7.0 7.0
Expected rate of return on cash % 2.0 2.0
Expected rate of return on plan assets % 6.0-6.5 6.0-6.5
Expected annual wage rise % 2.8-3.8 3.1-4.0
Annual inflation rate % 2.8 3.1
Retirement age 65 65

 

The reduction in the “Discount rate” versus the previous year reflects the downward trend in returns on AA-rated UK corporate bonds (13-year duration) recorded in 2012.

The table below shows the expected rate of return on plan assets:

  12.31.2012 12.31.2011
Expected rate of return on debt instruments % 3.0 22.0
Expected rate of return on capital instruments % 14.0 -5.0
Expected rate of return on cash % - -
Expected rate of return on plan assets % 7.0 1.0

 

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:

  12.31.2012 12.31.2011
Discount rate % 3.0-3.3 4.75-5.00
Expected annual wage rise % 2.0-2.5 2.0-2.5
Annual inflation rate % 2.0 2.0
Retirement age 60-65 60-65


The reduction in the “Discount rate” versus the previous year reflects the downward trend in returns on AA-rated corporate bonds of Euro zone (13-year duration) recorded in 2012.

The following table shows all of the obligations deriving from “Pension funds” and the present value of the plan assets for the year 2012 and the four previous years.

(in thousands of Euro) 12.31.2012 12.31.2011 12.31.2010 12.31.2009 12.31.2008
Present value of defined benefit obligations 189,028 179,572 164,835 151,614 124,549
Fair value of plan assets 155,445 149,486 144,044 130,352 108,292
Deficit 33,583 30,086 20,791 21,262 16,257
Liabilities recorded in "Long-term provisions" 28,571 27,346 23,714 23,614 23,470
Surplus recorded in "Other receivables" (12,864) (11,298) (8,039) (6,926) (4,048)
Unamortised past service (income) cost 1,664 1,826 2,238 196 (17)
Unrecognised actuarial (gains) losses 16,212 12,212 2,878 4,378 (3,148)


“Unamortised past service (income) cost” reflects the increase of pension benefits recorded in previous years 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 present value of French and British fund bonds after the discount rate was reduced.

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

(in thousands of Euro) 12.31.2012 12.31.2011
Present value of defined benefit obligations at the beginning of the period 179,572 164,835
Current service cost 2,082 2,040
Interest cost 8,753 8,701
Contribution paid by plan participants 495 634
Actuarial (gains) losses recognised during the period 4,033 2,492
Exchange differences 3,559 4,561
Benefits paid (6,822) (6,553)
Past service cost - (168)
Change to the scope of consolitation - 2,605
Settlements/Curtailments (2,644) 425
Present value of defined benefit obligations at the end of the period 189,028 179,572


The increase of the present value of obligations compared to the previous year is mainly due to the decrease in the discount rate of French and UK pension funds, which was only partially offset by the increase in the death rate and the decrease in the wage inflation rate experienced by UK pension funds. The effects resulting from these changes are included in “Actuarial (gains) losses recognised during the year”.
Fluctuating exchange rates also contributed to the increase in the present value of obligations.
Referring to subsidiaries values in functional currency different from Euro: income statement item have been translated at the average rate of the period; the present value of the defined benefit obligation at the beginning and at the end of the period have been converted using the punctual exchange rate at the data.

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

(in thousands of Euro) 12.31.2012 12.31.2011
Fair value of plan assets at the beginning of the period 149,486 144,044
Expected return on plan assets 9,358 9,387
Contribution paid by plan participants 495 634
Contribution paid by the company 1,725 1,891
Actuarial gains (losses) of the period (189) (5,201)
Exchange differences 3,404 4,327
Benefits paid (5,672) (5,596)
Settlements (3,162) -
Fair value of plan asset at the end of the period 155,445 149,486

“Settlements” refers to the termination of the pension fund of subsidiary Filtrauto S.A. (for the portion relating to former subsidiary Sogefi Filtration B.V.).

Referring to subsidiaries values in functional currency different from Euro: income statement item have been translated at the average rate of the period; the fair value of plan asset at the beginning and at the end of the period have been converted using the punctual exchange rate at the data.

Asset allocation at the end of the year 2012 shows a slight increase in equity instruments compared to debt instruments, as can be seen in the following table:

  12.31.2012 12.31.2011
Debt instruments 36% 42%
Capital instruments 36% 31%
Cash 22% 20%
Other assets 6% 7%
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: 2.05% (index IBOxx Eurozone Corporate AA) (4.25% as of December 31, 2011)
  2. annual inflation rate: 2% (2% as of December 31, 2011)
  3. annual increase in termination indemnity: 3% (3% as of December 31, 2011)
  • Demographic assumptions:
  1. rate of voluntary resignations: 3% - 10% of the workforce (same assumptions adopted as of December 31, 2011);
  2. retirement age: it was assumed that employees would reach the first of the requirements valid for mandatory general social security (same assumptions adopted as of December 31, 2011);
  3. probability of death: the RG48 mortality tables produced by the General State Accounting Body were used (same assumptions adopted as of December 31, 2011);
  4. probability of advanced settlement: an annual value of 2% - 3% each year was assumed (same assumptions adopted as of December 31, 2011);
  5. INPS' table split by age and gender was used for the probability of disability (same assumptions adopted as of December 31, 2011).

The provision changed as follows during the period:

(in thousands of Euro) 12.31.2012 12.31.2011
Opening balance 5,679 5,578
Accruals for the period 365 377
Contributions paid (342) (276)
TOTAL 5,702 5,679


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

(in thousands of Euro) 2012 2011
Current service cost 80 77
Interest cost 268 283
Actuarial (gains) losses recognised during the year 17 17
TOTAL 365 377


Unrecognised actuarial losses amount to Euro 2,165 thousand as of December 31, 2012 (Euro 793 thousand as of December 31, 2011). The increase over the previous year can be traced back mainly to a decrease in the discount rate.

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) 12.31.2012 12.31.2011
Opening balance 2,484 8,027
Accruals for the period 7,103 786
Utilisations (1,666) (6,023)
Provisions not used during the period (158) (167)
Other changes (20) (162)
Exchange differences (23) 23
TOTAL 7,720 2,484


“Accruals for the period” refer nearly entirely 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 6,945 thousand; this figure is booked to the Income Statement under “Restructuring costs”.

Provisions for disputes with tax authorities

This refers to tax disputes under way with local European tax authorities, 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 migliaia di Euro) 12.31.2012 12.31.2011
Opening balance 80 317
Accruals for the period 500 -
Utilisations (34) (237)
Provisions not used during the period - -
Other changes - -
Exchange differences - -
TOTAL 546 80

 

Provision for phantom stock option

This item amounts to Euro 30 thousand (Euro 59 thousand as of December 31, 2011) and refers to the fair value of 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 29 thousand). The reduction 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) 12.31.2011
  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)
Exchange differences 1,821 - - 384
Other changes - (200) - -
Exchange differences 21 (26) - (2)
TOTAL 1,404 2,482 86 887
(in thousands of Euro) 12.31.2012
  Provision for product warranties Other risks Agents' termination indemnities Lawsuits
Opening balance 1,404 2,482 86 887
Accruals for the period 83 498 4 235
Utilisations (220) (1,089) - (132)
Provisions not used during the period (952) (818) - (93)
Other changes - 20 - -
Exchange differences 17 (30) - (16)
TOTAL 332 1,063 90 881


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.

“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, disputes with third parties 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.

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

Other payables

“Other payables” amount to Euro 179 thousand (Euro 1,619 thousand as of December 31, 2011).

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) 12.31.2012 12.31.2011
  Amount of temporary differences Tax effect Amount of temporary differences Tax effect
Deferred tax assets:        
Allowance for doubtful accounts 3,081 882 2,976 857
Fixed assets writedowns 21,994 6,994 21,569 6,891
Inventory writedowns 5,318 1,732 6,033 1,963
Provisions for restructuring 778 214 777 213
Other provisions - Other payables 50,274 16,991 54,222 18,408
Fair value derivative financial instruments 14,242 3,919 8,879 2,445
Other 15,443 5,262 10,782 3,815
Deferred tax assets for tax losses incurred during the year 7,517 2,588 8,553 2,138
Deferred tax assets for tax losses incurred during previous years 58,174 18,948 37,510 11,908
TOTAL 176,821 57,530 151,301 48,638
Deferred tax liabilities:        
Accelerated/excess depreciation and amortisation 85,091 25,379 98,044 29,840
Difference in inventory valuation methods 758 211 79 33
Capitalisation of R&D costs 39,450 13,424 35,802 11,502
Other 18,467 4,634 13,583 3,463
TOTAL 143,766 43,648 147,508 44,838
Deferred tax assets (liabilities), net   13,882   3,800
Temporary differences excluded from the calculation of deferred tax assets (liabilities):
Tax losses carried forward 62,715 20,354 59,732 22,094
Other (12,366) (4,212) (626) (237)
TOTAL 50,349 16,142 59,106 21,857


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 (23% as of December 31, 2012 compared to 25% the previous year).
The change in “Deferred tax assets (liabilities), net” compared with December 31, 2011 amounts to Euro 10,082 thousand and differs by Euro 1,310 thousand from the amount shown in the Income Statement under “Income taxes – Deferred tax liabilities (assets)” due to:

  • movements in financial items (fair value of derivatives designated as cash flow hedges) that did not have any effect on the income statement and therefore the related positive tax effect has been recorded in “Other comprehensive income” (Euro 1,476 thousand);
  • reclassifications or exchange differences for the amount of Euro 166 thousand.

The decrease in the tax effect in the item “Other provisions – Other payables” mostly originates from a reduction of liabilities associated with product warranty risks following the acquisition of the Systemes Moteurs Group.

Item “Other” of deferred tax assets includes various types of postings, such as for example costs for which tax deduction is deferred (for example, employees' bonus entitlements, intercompany service costs in Argentinian subsidiaries that are deducted upon actual payment), tax benefits for research and development activities or against international double taxation to be used in future periods to reduce the tax liabilities of Spanish subsidiary Sogefi Filtration S.A..

“Deferred tax assets for tax losses incurred during the year” relate to subsidiary Systèmes Moteurs S.A.S.. 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.

As of December 31, 2012, the amount of Euro 7,109 was booked to “Deferred tax assets for tax losses incurred during previous years” relating to subsidiary Allevard Sogefi U.S.A. Inc.. Based on the revenue outlook of the company as per long-term plans, it is believed to be probable that taxable income will be available in the future against which such tax losses can be utilised. The amount recognised in deferred tax assets reflects the portion that can be recovered during the explicit period of the strategic plan; the remaining past losses are shown in item “Temporary differences excluded from the calculation of deferred tax assets (liabilities )”. We point out that the tax losses of the US subsidiary can be carried forward up to a 20-year limit (the first term is in year 2022).
This amount is added to the deferred tax assets for tax losses recorded during the previous years by subsidiaries Allevard Rejna Autosupensions S.A. (Euro 5,084 thousand), United Springs S.A.S. (Euro 1,031 thousand), Sogefi Filtration S.A. (Euro 2,308 thousand) and Sogefi Filtration Ltd (Euro 3,416 thousand). 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 2028. The losses of the French subsidiary can be carried forward indefinitely but the new law passed in 2012 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 relate to subsidiary Allevard Sogefi U.S.A., Inc. (portion of losses not recognised in deferred tax assets because it can not be recovered in the explicit period of the long-term plan, as mentioned above), to the Chinese and Indian subsidiaries and to the French subsidiaries of the Suspension Components Division.
The increase in “Tax losses carried forward” is mainly traced back to the losses of subsidiary Sogefi Filtration Ltd. No deferred tax assets were recognised for these losses because the cash flows for the explicit period of the company's long-term plan only allow for the recovery of the deferred tax assets recognised during previous years.
Item “Other” mainly relates to subsidiaries Allevard Sogefi Usa Inc. and Shanghai Sogefi Auto Parts Co. Ltd and reflects temporary differences in the value of tangible and intangible fixed assets.

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 60,712 thousand as of December 31, 2012 (Euro 60,665 thousand as of December 31, 2011), split into 116,753,392 ordinary shares with a par value of Euro 0.52 each.

As of December 31, 2012, the Holding Company has 3,981,095 treasury shares in its portfolio, corresponding to 3.41% of share capital.

Movements in the shares outstanding are as follows:

(Shares outstanding) 2012 2011
No. shares at start of period 116,662,992 116,434,992
No. shares issued for subscription of stock options 90,400 228,000
No. of ordinary shares as of December 31 116,753,392 116,662,992
Treasury shares (3,981,095) (3,253,000)
No. of shares outstanding as of December 31 112,772,297 113,409,992


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, 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 - - - - - - - - - - - 24,046 24,046
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 24,046 195,226
Paid share capital increase 47 47 - - - - - - - - - - 94
Allocation of 2011 net profit:                          
Legal reserve - - - - - - - - - - - - -
Dividends - - - - - - - - - - (14,716) - (14,716)
Retained earnings - - - - - - - - - - 24,046 (24,046) -
Net purchase of treasury shares - (1,396) 1,396 (1,396) - - - - - - - - (1,396)
Credit to equity for stock-based incentive plans - - - - - - - 1,233 - - - - 1,233
Other changes - - - - - - - - - - (63) - (63)
Fair value measurement of financial assets available for sale - - - - - - - - - - - - -
Fair value measurement of cash flow hedging instruments: share booked to equity - - - - - - (7,491) - - - - - (7,491)
Fair value measurement of cash flow hedging instruments: share booked to income statement - - - - - - 2,121 - - - - - 2,121
Tax on items booked in Other Comprehensive Income - - - - - - - - 1,476 - - - 1,476
Currency translation differences - - - - (10,351) - - - - - - - (10,351)
Net result for the period - - - - - - - - - - - 29,325 29,325
Balance at December 31, 2012 60,712 10,796 9,087 (9,087) (6,630) 12,320 (14,528) 3,552 3,998 3,111 92,802 29,325 195,458


Share premium reserve

It amounts to Euro 10,796 thousand compared with Euro 12,145 thousand in the previous year.
The increase by Euro 47 thousand accounts for share subscriptions under stock option plans.
On April 19, 2012, the Shareholders' Meeting authorised the purchase of treasury shares and the Holding Company Sogefi S.p.A. purchased 728,095 shares at an unit average price of Euro 1.92 each in 2012.
The Holding Company set up the “Reserve for treasury shares” under art. 2357-ter of the Italian Civil Code using the “Share premium reserve”.

Treasury shares

Item “Treasury shares” reflects the purchase price of treasury shares held in portfolio. Movements during the year amount to Euro 1,396 thousand and reflect treasury share purchases occurred in 2012 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 10,351 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 5,370 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 2012.

Retained earnings

These totalled Euro 92,802 thousand and include amounts of profit that have not been distributed.
Tax on items booked in Other Comprehensive Income

The table below shows the amount of income taxes relating to each item of the “Other Comprehensive Income”:

(in thousands of Euro) 2012 2011
  Gross value Taxes Net value Gross value Taxes Net value
Profit (loss) booked to cash flow hedging reserve (5,370) 1,476 (3,894) (6,732) 1,853 (4,879)
Profit (loss) booked to fair value reserve for financial assets available for sale - - - (2) 1 (1)
Profit (loss) booked to translation reserve (10,556) - (10,556) (4,588) - (4,588)
Total Profit (loss) booked in Other Comprehensive Income (15,926) 1,476 (14,450) (11,322) 1,854 (9,468)

 

NON-CONTROLLING INTERESTS
 
The balance amounts to Euro 19,837 thousand and refers to the portion of shareholders' equity attributable to non-controlling interests.
The increase of Euro 111 thousand mainly arises from the change in the percentage held in the subsidiary S.ARA Composite S.A.S..

 

ANALYSIS OF THE NET FINANCIAL POSITION

The following table provides details of the net financial position as required by Consob in its communication no. DEM/6064293 of July 28, 2006 with a reconciliation of the net financial position shown in the report on operations:

(in thousands of Euro) 12.31.2012 12.31.2011
A. Cash 85,209 102,461
B. Other cash at bank and on hand (held to maturity investments) 8,199 1,893
C. Financial instruments held for trading 15 11
D. Liquid funds (A) + (B) + (C) 93,423 104,365
E. Current financial receivables 15 8
F. Current payables to banks 8,377 9,827
G. Current portion of non-current indebtedness 89,596 46,962
H. Other current financial debts 1,011 632
I . Current financial indebtedness (F) + (G) + (H) 98,984 57,421
J. Current financial indebtedness, net (I) - (E) - (D) 5,546 (46,952)
K. Non-current payables to banks 262,046 330,461
L. Bonds issued - -
M. Other non-current financial debts 28,225 16,333
N. Non-current financial indebtedness (K) + (L) + (M) 290,301 346,794
O. Net indebtedness (J) + (N) 295,847 299,842
Non-current financial receivables - -
Financial indebtedness, net including non-current financial receivables (as per the "Net financial position" included in the Report on operations) 295,847 299,842


Details of the covenants applying to loans outstanding at year end are as follows (see note 16 for further details on loans):

  • loan of Euro 100 million from Unicredit S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than 4;
  • loan of Euro 40 million from Banca Europea degli Investimenti (BEI): the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 60 million from Intesa Sanpaolo S.p.A.: the ratio of the consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5;
  • loan of Euro 25 million from Banca Carige S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 10 million from GE Capital S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 25 million from Monte dei Paschi di Siena S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • 2012 syndicated loan of Euro 200 million: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
  • loan of Euro 15 million from Banco do Brasil S.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4.

As of December 31, 2012 the Company was in compliance with these covenants.