Chrysler 2003 Annual Report Download - page 85

84 Fiat Group Consolidated Financial Statements at December 31, 2003
Notes to the Consolidated Financial Statements
(in millions of euros) 2003 2002
Statement of operations data
Net sales 6,598 6,624
Operating income 296 280
Net income 180 131
In view of the strictly industrial nature of the joint venture and in order to achieve a reading of its industrial performance that is
consistent with the past, commencing in 2001 and during the period in which the industrial convergence and the relative synergies
is being implemented (estimated at less than three years), the Group’s share of the results of the company is included in the consolidated
statement of operations as a split between the operating/industrial component and the other non-operating components. In particular,
the Group’s share of the operating result of the company (147 million euros in 2003, 143 million euros in 2002 and 47 million euros in
the second half of 2001), determined by the transfer pricing policy adopted, is included in the consolidated statement of operations
as an adjustment to the cost of the products purchased from the joint venture, whereas the share of the result in the other non-operating
components is allocated to the respective principal captions, without effect on the total net result recorded by the Group. As far
as Fiat-GM Powertrain's balance sheet is concerned, with regard to the debt position, there are no commitments or guarantees
provided by Fiat.
Italenergia Bis
With reference to the investment in Italenergia Bis S.p.A., during the second half of 2002, the Fiat Group sold a 14% holding
to certain other stockholders of the company (Banca Intesa, IMI Investimenti and Capitalia, hereinafter the “Banks”) for 548 million
euros, realizing a gain of 189 million euros. The related sales contracts and the contemporaneous agreements with another
stockholder of Italenergia Bis (Electricité de France, hereinafter “EDF”) provide, among other things, that:
❚By virtue of an option acquired in respect of EDF (the so-called EDF Put), Fiat may elect, between March and April 2005, to sell
the shares it still holds in Italenergia Bis (223,151,568 shares, equal to 24.6%,) to EDF, at a price corresponding to the value of the
investment, as estimated on the basis of the valuations performed by three experts appointed for that purpose. That price, less a
premium of 127 million euros, payable only in the event the option is exercised, may not be less than a minimum (floor) of 1,147
million euros, or 5.141698 euros per share.
❚In connection with the EDF Put, the Banks (in addition to the put agreements negotiated independently with EDF for their
respective initial holdings in Italenergia Bis) obtained a so-called “tag along/drag along” agreement from Fiat, and Fiat arranged a
symmetrical Put/Call contract with EDF (conditional upon the prior exercise of the EDF Put by Fiat) that gives rise to two scenarios:
a) Fiat independently exercises the EDF Put on its own 24.6% holding and in this case:
– The Banks exercise the “tag along” under which the Banks each sell their own 4.66% holding to Fiat under the same price
conditions as the EDF Put (valuation at fair market value, minimum floor of 5.141698 euros per share). Fiat, in turn, sells the
acquired shares to EDF, making use of the put clauses in the Put/Call arranged with EDF.
– The corresponding “drag along” allows Fiat to reacquire the Banks’ shares in any case and to surrender them to EDF which
in turn has, by means of the call clauses in the Put/Call, the right to ask Fiat to acquire and surrender the shares. In substance,
by means of the call, EDF may (providing that Fiat exercised the EDF Put, which is a condition for the Put/Call) acquire the
entire original Fiat investment.
b) Fiat does not independently exercise the EDF Put on its own 24.6% holding and in this case:
– The individual Banks, separately, have the right to request Fiat to exercise its Put on EDF which allows the Banks to exercise
the “tag along”, as described above, and to realize a gain.
– Fiat may elect not to exercise the EDF Put, as instead requested, and the Banks have the right to ask that Fiat purchase from
the same Banks their respective 4.66% holdings at the lower of the price determined pursuant to the EDF Put, in accordance
with the same criteria and procedures agreed with EDF, and 6.5 euros per share.
– Fiat does not have a call right on the Banks’ holdings which were sold to the Banks definitively.
In conclusion, the 14% holding in Italenergia Bis sold by Fiat is subject to Put options exercisable in 2005 by each of the Banks.
Nevertheless, the effects of the sale were considered final and the resulting gain realized in the previous year, in that Fiat had
contemporaneously stipulated a put option with EDF that will give it the right, in the event that the Banks ask to purchase said
shares, to sell them in turn to EDF at the same price conditions as the EDF Put.