2007 Reference document (PDF) - Valeo

3.3.1. Claims and litigation
In the year ended December 31, 2007, the Group wrote back
a provision for 22 million euros following the settlement of a
commercial dispute.
In 2006, this caption mainly included costs relating to commercial
and labor disputes in progress.
3.3.2. Restructuring costs
Restructuring expenses of 37 million euros and 36 million euros
were recognized in 2007 and 2006, respectively, comprising costs
relating to the streamlining and closure of industrial sites, mainly
in Western Europe.
3.3.3. Impairment of fixed assets
■ Property, plant and equipment and intangible assets
(excluding goodwill)
Impairment losses on property, plant and equipment and intangible
assets mainly result from impairment tests carried out at the level
of C ash-G enerating U nits (CGUs) in accordance with the following
methodology:
■ the value in use of CGUs is calculated using post-tax cash flow
projections covering a period of five years, prepared on the basis of
the budgets and medium-term plans drawn up by Group divisions.
The projections are based on past experience, macroeconomic
data for the automobile market, order books and products under
development;
■ cash flows beyond the five-year period are extrapolated using
a growth rate of 1%. This rate is the same as that used in 2006
and 2005, and is below the average long-term growth rate for
the Group’s business sector;
■ in 2007, cash flows were discounted based on a weighted average
cost of capital (WACC) of 7.5% after tax (7.5% in 2006 and 7%
in 2005). An independent expert was consulted in determining
the method to be used to compute WACC. In 2007, WACC was
calculated based on a sample of 20 automotive parts suppliers
and a market risk premium of 4.5% (4.9% in 2006 and 4.8%
in 2005).
As a result of these tests, the Group recognized impairment losses
of 26 million euros in 2007. These reflect changes to medium-term
Consolidated fi nancial statements at December 31, 2007
Notes to consolidated financial statements
business forecasts as a result of a more pessimistic or uncertain sales
outlook and mainly concern one CGU within each of the Interior
Controls and Compressors P roduct F amilies, and an Engine Cooling
CGU based in Iran.
The impairment losses were recognized against property, plant and
equipment and intangible assets (24 million euros) and against
goodwill (2 million euros) relating to the Engine Cooling CGU in
Iran.
In 2006 and 2005, impairment losses were recognized against
a Lighting Systems CGU for an amount of 14 million euros and
11 million euros, respectively.
■ Sensitivity of CGU impairment tests to discount and growth
rates
An increase of 0.5% in the discount rate would result in an additional
impairment loss of 7 million euros being recognized against
intangible and tangible assets. A 0.5% decrease in the discount rate
would lead to a reversal of 6 million euros in impairment recognized
against fixed assets.
A 0.5% increase in the growth rate would lead to the reversal of
5 million euros in impairment losses taken in 2007.
■ Goodwill
Goodwill is allocated to C ash-G enerating U nits (CGUs) on the basis
of the P roduct F amily to which it relates. Goodwill is tested for
impairment at least once a year, using the same method as that
used for the CGUs described above.
No impairment losses were recognized by the Group in 2007 as a
result of these tests other than the write-down on goodwill relating
to the CGU in Iran.
A 0.5% increase in the discount rate would have no impact on
goodwill impairment tests.
3.3.4. Other
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In 2007, this caption mainly includes capital gains on disposals of
property assets amounting to 27 million euros. The balance includes
costs relating to strategic transactions.
In 2006, this caption includes the capital gain on the sale of Zexel
Logitec Company for an amount of 14 million euros, as well as costs
relating to strategic transactions.
2007 Reference document - VALEO
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