Plastic Omnium - 2018 Registration Document

4 2018 CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements at December 31, 2018 PLASTIC OMNIUM 2018 REGISTRATION DOCUMENT 145 Research tax credit 1.1.10 The Group benefits from tax credits linked to the research effort of its subsidiaries. These tax credits are included in operating margin under “Net research and Development costs”, see Notes 4.1 “Research and Development costs” and 4.2 “Cost of sales, development, selling and administrative costs”. Intangible assets 1.1.11 RESEARCH AND DEVELOPMENT COSTS 1.1.11.1 Development costs incurred during the project phase and related to the execution of the contract with the customer not fulfilling a performance obligation are recognized as intangible assets. These internal and external costs relate to the work on the organization of purchasing, logistics and industrial processes to produce the parts that will be ordered by customers. These costs are recognized as intangible assets in progress during the development phase and amortized on a straight-line basis over the estimated life of the series production that is generally three years for exterior parts, five years for fuel systems and the Modules business. The amortization of development hours is booked under Research and Development costs and that of the tooling in gross margin. These assets are subject to annual impairment tests and then to the value loss index as of their go-live. Products received from customers related to these costs are recorded in turnover from the start of series life over the production period. Payments received before the start of life are recorded in customer prepayments The accounting treatment of costs that satisfy a performance obligation is described in Note 1.1.7 “Revenue/Revenue from contracts with customers”. Furthermore, under IFRS 15, only the costs of obtaining contracts that would not exist in the absence of a contract are credited to the assets and depreciated over the expected production period; costs incurred prior to the appointment of the Group, whether or not the contract is obtained, are recognized as an expense for the period. Other Research and Development costs The other Research and Development costs are expenses for the financial year. OTHER INTANGIBLE ASSETS 1.1.11.2 Other intangible assets are measured at cost less accumulated amortization and impairment losses. They are amortized according to the linear method over their estimated useful lives. In 2018, they mainly included the “Ford-Milan,” “Faurecia Exterior Systems business” and “HBPO” contractual customer relationships. These intangible assets are tested for impairment when there is an indication of loss of value. Start-up costs 1.1.12 Costs corresponding to start-up phases of large plants, including organizational costs, are expensed as they are incurred. They correspond to the use of new production capacity or techniques. As indicated in Note 1.1.9, pre-start-up costs for new plants are recognized under “Other operating expenses”. Goodwill and impairment tests 1.1.13 Plastic Omnium Group goodwill is not amortized but is tested for impairment at the end of the year, but also during the reporting of the half-yearly accounts in the case of evidence of impairment. Impairment tests are carried out at the level of the cash generating units (CGU) or groups of cash generating units, which are: Industries; ● Modules. ● On December 31, 2018, the Group presented its segment information in two “reportable segments”, i.e., Industries and Modules (see Note 3 “Sector Information”). The goodwill information follows the same presentation (see Note 5.1.1 on “Goodwill”). The net carrying amount of all assets (including goodwill), comprising each cash-generating unit, is compared to its recoverable amount, i.e. the higher of the fair value less disposal costs and the value in use determined using the discountedcash-flow method. Thecash-flow forecast is based on the Group’s medium-term plans, which are prepared for the next four years, revised as necessary to reflect the most recent market conditions. Beyond this timeframe, a terminal value is calculated based on the capitalization of the projectedcash-flows for the last year covered by the business plan, using a long-term growth rate that reflects the outlook for the market. Thesecash-flow projections are then discounted. The assumptions used to determine the discount rates take into account: an industry risk premium; ● an industry financing “spread” to value the cost of debt; ● the rates used by comparable companies in each segment. ● Goodwill is measured annually at cost, less any accumulated impairment representing loss of value. Impairments on goodwill are irreversible. Sensitivity tests with an increase in the discount rate of 0.5% or a reduction of 0.5% in the long-term growth rate or a reduction of 0.5% in the operating margin rate are systematically carried out. Negative goodwill (badwill) is recorded in the income statement during the year of acquisition. Tangible fixed assets 1.1.14 GROSS VALUES Property, plant and equipment are initially recorded at their acquisition cost, at their cost of production when they are manufactured by the company for itself (or subcontracted) or at their fair value for those acquired without consideration. Property, plant and equipment may be specific tooling developed by the Group in connection with production contracts signed with customers without transfer of control to customers, for which the Group will receive an integrated remuneration in the part price. In this case, the remuneration is recorded in revenue over the series’ life.