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Certain restructuring measures do not fulfil the more stringent recognition
criteria contained in American accounting standard EITF 94.3.
Write-off of restructuring costs against goodwill
Under French GAAP (CRC 99-02), reserves to cover the cost of
restructuring newly-acquired subsidiaries can be charged against the
related goodwill in some circumstances.
This alternative accounting treatment of restructuring reserves is
specific to France and does not exist in US GAAP.
Development costs to be billed to customers included
in inventory
Certain Automotive Equipment development costs that are to be billed
to customers are included in the cost of inventory.
Under US accounting standard EITF 99-05, effective from 2000, these
types of costs may not be capitalized if certain conditions are not met.
EITF 99-05 did not require prior years’ financial statements to be
restated to take account of this change of method. The effect of the
change of method on the 2000 financial statements was therefore
limited to the restatement of goodwill in the opening balance sheet of
the Sommer Allibert Group.
Goodwill
- Recognition
Under French accounting standards, adjustments to goodwill may be
made up to the end of the fiscal year following the year of acquisition.
Under US GAAP, the maximum period is twelve months.
- Amortization
Under French accounting standards, goodwill is amortized over a
maximum of twenty years and an impairment loss is recognized where
necessary.
Effective from January 1, 2002, goodwill and certain intangible assets
may not be amortized under US GAAP (SFAS 142). SFAS 142 requires
companies to identify reporting units and to test goodwill for
impairment at least annually using a two-step process. The first step is
a screen for potential impairment and the second step measures the
amount of impairment, if any.
At December 31, 2002, the Group screened its principal reporting
units. The screening process did not reveal any potential impairment of
the related goodwill at that date.
Securitization
During the year, the Group sold portfolios of automobile loans through
securitization operations described in note 23. The impact of these
transactions on earnings for the year was not material.
Under US GAAP applicable to transfers of financial assets, the retained
interest must be recorded under assets at fair value. Fair value is
determined based on estimated discounted future cash flows from the
retained interest, taking into account experience-based expected early
repayment and credit loss rates. Early repayment and credit loss
assumptions are based on the least favorable rates observed over the
past four or five years. The discount rate applied includes a risk
premium reflecting the variability of these parameters. The gain on the
sale of the finance receivables takes into account the retained interest
carried in the balance sheet and the original net book value of the assets
and liabilities corresponding to the transferred assets.
Derivative instruments and hedging activities
Under French GAAP, derivative instruments that qualify for hedge
accounting may not be valued by the mark-to-market method.
Statement of Financial Accounting Standards (SFAS) no. 133
“Accounting for Derivative Instruments and Hedging Activities” is
applicable effective from fiscal 2001.
The procedures applied by the Group to manage currency and interest
rate risks are described in note 47.
The effect of applying SFAS 133 on opening stockholders’ equity as of
January 1, 2001 is shown separately from the effects on the accounts
for the years ended December 31, 2001 and 2002.
The €22 million effect on 2002 income includes a €3 million loss
related to the ineffective portion of fair value hedges, and a €25 million
profit corresponding to changes in the fair value of instruments that do
not qualify for hedge accounting under SFAS 133. The total effect on
2001 income was €13 million, including, respectively, a €3 million loss
and a €16 million profit.
Reserve for debenture redemption premiums
Amounts released from this reserve in respect of debentures converted
into common stock during the year are credited to income. Under US
GAAP, the net-of-tax amount should be credited directly to
stockholders’ equity, without impacting the statement of income.
Unrealized gains and losses on marketable securities
Marketable securities are stated at cost and an allowance is booked to
cover any permanent impairment in value.
Under US GAAP, marketable securities for which there is a liquid
market are marked to market and the resulting unrealized gain or loss,
net of tax is posted directly to stockholders’ equity without impacting
the statement of income.
Own shares held in connection with stock option plans
Own shares that are being held for allocation on exercise of employee
stock options are carried at cost under “Short-term investments”.
Under US GAAP these shares are deducted from stockholders’ equity
at cost under “Treasury stock”.
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