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costs which are to be billed to customers do not meet the criteria for
classification as research and development costs, and are included
in inventory.
h) Operating margin
Operating margin, which represents the main performance indicator
used by the Group, corresponds to net income of fully-consolidated
companies before:
- early-termination plan costs,
- restructuring costs,
- net interest income and expense of manufacturing and sales companies,
- gains and losses on disposals of fixed assets other than automobiles,
- revenues from investments in non-consolidated companies,
- exchange gains and losses of manufacturing and sales companies,
- net gains and losses and movements in reserves related to nonrecurring
items,
- income taxes.
i) Goodwill
Goodwill, representing the excess of the purchase price (including
transaction expenses) of shares in consolidated companies over the fair
value of the net assets acquired at the date of acquisition, is amortized
on a straight-line basis over a period not exceeding 20 years.
j) Intangible assets
Internal and external costs for the development and upgrading of
software intended for internal use are capitalized and amortized on a
straight-line basis over a period not exceeding 4 years. Other software
acquisition and development costs are expensed as incurred.
Other intangible assets, consisting principally of patents and
trademarks, are amortized on a straight-line basis over the estimated
period of benefit, not to exceed 20 years.
k) Property, plant and equipment
Property, plant and equipment are carried at cost, including capitalized
interest expense. The French legal revaluations and foreign
revaluations are not reflected in the consolidated financial statements.
Maintenance and repair costs are expensed as incurred, except
for those which enhance the productivity or prolong the useful life
of an asset.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of the respective assets as follows:
Useful lives, in number of years
Buildings 20 to 30
Plant and equipment 6.66 to 16
Computer equipment 3 to 4
Vehicles and handling equipment 4 to 7
Fixtures and fittings 10 to 20
Assets acquired under capital leases are recorded under assets at
their fair value at the inception of the lease and depreciated by the
method and at the rates indicated above. A corresponding obligation
is recorded as a liability (note 34-d).
Special tools are depreciated over the estimated lives of the
corresponding models, which are generally shorter than the useful lives
of the tools concerned, due to the frequency of model changes.
l) Long-lived assets
An impairment loss is recognized whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset
may not be recoverable.
In the case of goodwill, the impairment test is based on the difference
between the carrying amount and the sum of discounted future cash flows.
For other assets, it is based on the sum of undiscounted expected future
cash flows, taking into account the assets’ planned future use.
The impairment loss is determined on the basis of the fair value of
the asset, measured by reference to discounted future cash flows
or market value.
m) Securities
1. Investment securities
Investment securities held by Group companies consist solely of debt
securities acquired with the intention of holding them to maturity. They
are stated at their redemption value. Premiums and discounts are
amortized over the life of the securities. Investment securities are recorded
under “Receivables and investment securities” in the balance sheet.
2. Shares in non-consolidated companies
Shares in non-consolidated companies are stated at cost and are written
down in the case of a permanent impairment in value. Allowances for
permanent impairment in value are determined based on the most
appropriate financial criteria, including the Group’s equity in the
underlying net assets, the earnings outlook of the company and, in the
case of listed companies, the share price.
3. Marketable securities
Securities that the Group intends to hold on a long-term basis
are recorded under “Receivables and investment securities” and
securities that are intended to be sold in the short-term are classified as
“Short-term investments”.
Marketable securities are recorded at cost, net of transaction expenses
and accrued interest. They are written down at year-end in the case of
a permanent impairment in value.
Unrealized gains and losses recorded under stockholders’ equity
further to the revaluation carried out in 1999 were reversed in 2000.
n) Deferred taxes
1. On recognized transactions and contingencies
Deferred taxes are recognized by the liability method for temporary
differences between the book value and tax basis of assets and
liabilities and also in respect of tax loss carryforwards. A valuation
allowance is booked for net deferred tax assets where the related tax
benefit is not likely to be realized (note 13-d).
2. On future dividend distributions
A deferred tax liability is recorded for the estimated tax payable on
intercompany dividends planned to be distributed by consolidated
companies (note 13-a).
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PSA PEUGEOT CITROËN - APPENDICES TO THE MANAGING BOARD REPORT