Chrysler 2002 Annual Report Download - page 24

22 Report on Operations Analysis of the Financial Position and Operating Results
of the Fiat Group and Fiat S.p.A.
❚Business Solutions had operating income of 67 million euros
in 2002. The decrease from the 73 million euros reported
in the previous year stemmed from the combined effect of
reduction of the scope of consolidation (the 2001 figure
included the first half-year results of Fenice, which was
subsequently sold as part of the Italenergia transaction)
and lower prices caused by partial transfer of efficiency gains
to customers, which were partially offset by improvements
realized in the property management area.
❚Itedi reported operating income of 3 million euros in 2002,
against an operating loss of 2 million euros in the previous
year. This improvement largely reflected implementation
of product cost efficiency measures and higher sales prices
for the newspaper.
EBIT (Earnings Before Interest and Taxes)
Group EBIT totaled a negative 3,955 million euros (against a
positive 528 million euros in 2001). The severe worsening of
this result with respect to the previous year is largely attributable
to the rapid and generalized deterioration in the economic
conditions under which the Fiat Group operates, provoking an
especially severe downward spiral. Operating income was the
first area to suffer, declining sharply: the Automobile Sector,
which is exposed to the greatest competitive pressures, was
particularly hard hit.
The Fiat Group consequently launched several major industrial
restructuring initiatives, with the related extraordinary charges
further impacting the net result.
At the same time, it was necessary to acknowledge the loss
in value of numerous industrial and financial activities, which
were also impacted by the weakening economy.
Finally, in order to protect the assets and financial structure
of the Group, it was necessary to divest certain activities at
aloss and on unfavorable terms.
EBIT not only reflected the previously described deterioration
in operating income but was also influenced by the following
items:
Net investment expenses totaled 690 million euros, compared
with expenses of 149 million euros in 2001, reflecting higher
writedowns taken to mark to market the portfolio of listed
securities held by the Group’s insurance companies and the
negative results of certain companies valuated by the equity
method, particularly Italenergia Bis. The result of Italenergia
Bis affected the entire fiscal year in 2002, while the impact of
Italenergia S.p.A. (before contribution) was limited to the last
quarter of 2001.
The balance of non-operating income and expenses for 2002
was a negative 2,503 million euros, against a positive balance of
359 million euros in 2001. This item is broken down as follows:
❚A negative balance of 502 million euros for disposals,
reflecting the loss of 1,049 million euros upon sale of the
investment in General Motors at market prices, losses and
expenses incurred upon sale of the Teksid Aluminum Business
Unit (100 million euros) and the Electronic Systems Business
Unit of Magneti Marelli (150 million euros). These losses were
partially offset by the proceeds realized mainly from the sale
of 34% of Ferrari (671 million euros net of transaction costs),
14% of Italenergia Bis (189 million euros), Magneti Marelli’s
AfterMarket operations (26 million euros), the investment
in Europ Assistance (83 million euros) and other minor
investments with total net proceeds of 38 million euros.
Furthermore, following the preliminary agreements reached
during December 2002 for the sale of Fraikin and conclusion
of the relative contract of sale in the first quarter of 2003, the
book value of Iveco’s Fraikin operations was written down to
its presumed market value, resulting in total expenses for
Iveco of 210 million euros.
❚Restructuring expenses of 1,026 million euros, largely
connected with the industrial restructuring plan for Fiat Auto
and its effects on other Group Sectors. These expenses are
represented by the costs incurred or determined according
to plans for personnel laid off with long-term unemployment
benefits, severance incentives, and writedown of property,
plant and equipment and intangible fixed assets according
to new forecasts of their expected use by the Sectors during
restructuring. The foregoing amount includes approximately
550 million euros in expenses sustained by Fiat Auto and
by other component Sectors, especially Magneti Marelli
(approximately 320 million euros).
❚Other writedowns of assets to reflect the changed market
outlook and consequent new business plans, for a total of 311
million euros. This amount includes the writedown by Comau
of Pico’s goodwill, of several Magneti Marelli businesses, and
Iveco and Teksid assets. It also includes provisions for future
risks and charges for permanent loss in value of investments
in the telecommunications field (95 million euros).
❚Extraordinary provisions to reserves for future risks and
charges, other expenses and prior period expenses, net
of other extraordinary income and prior period income,
for 585 million euros.
❚Prior period tax liabilities for 79 million euros, 56 million
euros of which for charges assessed under the tax amnesty.
In 2001 the balance of non-operating items included the
proceeds realized upon sale of the Magneti Marelli Climate
Control Division, the residual 49% of Alstom Ferroviaria, the ITS
and GSA operations, and the operations of Fenice and certain
power plants as part of the transaction leading to the formation
of Italenergia, net of costs incurred for industrial streamlining
and restructuring.
Result for the Fiscal Year
The Group’s loss before taxes was 4,817 million euros (against
aloss of 497 million euros in 2001). The increased loss with
respect to the previous year stemmed from the previously
mentioned reduction in EBIT, while the impact of Group
financial expenses decreased.