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Management’s discussion and analysis worth of gains on the sale of marketable securities. These gains were partly offset by a €104 million loss on the buyback of 2,380,632 convertible debentures issued in 1994. After taking into account the reversal of reserves for debenture redemption premiums, the net loss was €104 million. 4.5. Incomes taxes on income of fullyconsolidated companies Income taxes on income of fully-consolidated companies are presented by combining the tax due by both the manufacturing and sales companies and the finance companies. The reason for this is that the tax group set up in application of French group relief rules comprises companies from all of the Group’s businesses in France, i.e. the Automobile Division, Finance, Transportation and Logistics and “Other” businesses. The tax charge breaks down as follows: Income taxes on income of fully-consolidated companies amounted to €777 million, representing 29.6% of pre-tax income of €2,625 million. In 2001, the tax charge was €835 million representing 31.5% of pre-tax income of fully-consolidated companies of €2,647 million. The lower effective rate of tax in 2002 reflects the reduction in the French statutory tax rate and an increase in income taxed at reduced rates relative to total taxable income. Income taxes in 2000 amounted to €713 million, representing 32.2% of pretax income of fully-consolidated companies of €2,216 million. 4.6. Net earnings of companies at equity In 2002, net earnings of companies at equity came to €22 million, versus €9 million in 2001 and €19 million in 2000. Companies at equity primarily consist of entities set up to manage cooperation agreements between PSA Peugeot Citroën and other carmakers. These include the joint venture with Renault for the manufacture of engines and transmissions, and with Fiat for the manufacture of light commercial vehicles and multi-purpose vehicles. The 2002 figure also includes Toyota Peugeot Citroën Automobiles (TPCA). This project is still in the start-up phase and the impact on Group earnings for 2002 was not material. The joint venture has been set up to manufacture entry-level Toyota, Peugeot and Citroën vehicles based on a common platform. Production is scheduled to begin in 2005. The Chinese joint venture, DCAC, was also accounted for by the equity method for the first time in 2002, based on the Group’s 27% interest. DCAC contributed €10 million to Group income for the year. In order to ensure that accounting data restated in accordance (in millions of euros) 2002 2001 2000 Manufacturing and sales companies 666 750 601 Finance companies 111 85 112 Total PSA Peugeot Citroën 777 835 713 with Group accounting policies are reliable, DCAC is accounted for by the equity method based on accounts closed at September 30. The company’s contribution to 2002 income therefore corresponds to its results for the period October 2001 to September 2002. Sales for this period totaled €976 million, an increase of 30% on the previous twelve month period. Operating margin came to €119 million, representing 12.2% of sales. This high margin rate is attributable to last year’s strong business growth, the success of the models sold by DCAC in the local market and the reduction in the joint venture’s production costs. DCAC incurred interest expense of €42 million and net exchange losses of €7 million. After deducting income tax of €32 million, the company’s net income for the period came to €38 million. In the last three months of calendar 2002, DCAC enjoyed a further rise in sales. Selling prices remained stable, driving a further improvement in operating margin. 106 PSA PEUGEOT CITROËN - MANAGING BOARD REPORT
Growth Strategy Corporate Governance Business Review Corporate Policies Management’s Discussion and Analysis Statistics 4.7. Amortization of goodwill Amortization of goodwill amounted to €163 million in 2002 versus €140 million in 2001 and €199 million in 2000. In the Finance division, goodwill amortization concerning Crédipar amounted to €5 million in 2002. Goodwill amortization in the Automotive Equipment business included €42 million related to Bertrand Faure, €11 million concerning Faurecia Exhaust Systems and €69 million concerning the Sommer Allibert automobile business. In all of these cases, amortization is calculated over 20 years. The 2002 total also includes €34 million corresponding to annual amortization and an impairment loss recorded to write off the entire amount of goodwill recognized at the end of 2001 following the buyout of the Rio de Janeiro state government’s minority stake in Peugeot Citroën do Brasil in connection with the renegotiation of the Group’s agreements with the state government. The impairment loss was recorded following an analysis showing that, following the drop in value of the Brazilian currency in 2002, the future cash flow expected to be generated by the automobile business in Brazil would not be sufficient to guarantee recovery of the value of the goodwill. A series of measures is underway to restore the profitability of the Brazilian operation, including by significantly increasing local vehicle content. The Group also compared the book value of goodwill for the main companies acquired with the estimated future cash flow from the businesses concerned. Based on the assumptions used to perform this analysis, in each case the comparison showed that future cash flows would be sufficient to permit the recovery of the goodwill. Consequently, these amounts of goodwill are being amortized on a straight-line basis over 20 years in the normal way. The 2001 charge corresponds to the amortization of goodwill on Crédipar (€5 million), Peugeot Citroën Argentina (€21 million including recognition of an impairment loss to write off the unamortized balance), Bertrand Faure (€43 million), Faurecia Exhaust Systems (€12 million) and Sommer Allibert (€52 million, prorated from the date of acquisition to the year-end). The 2000 charge corresponds to the amortization of goodwill on Crédipar (€5 million), Bertrand Faure (€42 million), Faurecia Exhaust Systems (€12 million) and Peugeot Citroën Argentina (€138 million including recognition of an initial impairment loss due to the economic outlook in Argentina). PSA PEUGEOT CITROËN - MANAGING BOARD REPORT 107
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2002 ANNUAL REPORT
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K ey figures Worldwide sales Automo
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Contents 2 A Tribute to Pierre Peug
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A Tribute to Pierre Peugeot Our Gro
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M essage from the Chairmen is alrea
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plan defined by the Managing Board.
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10 Growth Strategy 16 Corporate Gov
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Growth Strategy 12 • One Group, t
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Growth Strategy Corporate Governanc
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Corporate Governance 18 21 22 • T
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Business Review 30 34 44 48 52 56 O
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Page 59 and 60: Growth Strategy Corporate Governanc
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Page 137 and 138: C onsolidated statements of income
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➔ Note 21 - Inventories Inventori
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➔ Note 25 - Short-term income tax
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g) Capital in excess of par value o
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➔ Note 34 - Other long-term borro
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2. Short-term portion (in millions
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➔ Note 42 - Net financial positio
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1. Automobile division An early-ter
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- Changes during the year (in milli
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The entire debt is converted to flo
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2. Maturities of hedging instrument
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➔ Note 50 - Commitments and conti
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2. Effect of debenture conversions
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F ive-year consolited statement of
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F ive-year consolidated balance she
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C onsolidated companies as at Decem
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Company Percent Percent F/E control
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Recruitments (1) 2 4 Disabled emplo
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7 Paid leave other than vacations E
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Consumption Peugeot 607 Fuel Displa
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E nvironmental Indicators Productio
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Waste production PEUGEOT CITROËN A
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M anagement and Administration Main
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I nformation about the company’s
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S tatutory Auditors’ Report on th
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➔ Stockholders’ Meetings (Artic
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PEUGEOT S.A. 100% AUTOMOBILES CITRO
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S tockholder Information (Euronext
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F inancial authorizations in effect
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216 PSA PEUGEOT CITROËN - INFORMAT
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R esolutions Eighth resolution Auth
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T he Vice Presidents Committee Thie
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12,000 copies of this report were p
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