Chrysler 2004 Annual Report Download - page 192

FIAT S.P.A.
03
190
At December 31, 2003, the Equity Swaps caption included, for 61,730 thousand euros, the notional amount of the equity swap
stipulated to hedge the risk of an increase in the Fiat share price above the exercise price of 10,000,000 stock options granted to Mr.
Morchio. Near the contract expiration date (August 31, 2004), the equity swap was replaced by the aforementioned contract in
respect of the stock options granted to Mr. Marchionne. The replacement gave rise to income of 5,010 thousand euros. It is to
specify that, during 2004, the aforementioned stock options expired upon the resignation of Mr. Morchio.
Four forward rate agreements were made in the last quarter of 2004 with the subsidiary Fiat Ge.Va. S.p.A., with an aggregate par
value of 2,000 million euros, to hedge the risk related to an increase in interest rates. In particular, these agreements predetermine in
the form of fixed rates the variable part of the interest that will be paid on the mandatory convertible facility during the final period of
its term in 2005. At December 31, 2004, these FRA had an aggregate negative fair value of 912 thousand euros, but since the
transactions in question must be classified as hedging, satisfying the requirements of the accounting principle for treatment in hedge
accounting and having to offset the effects of the 2005 transaction that was subject to hedging, expenses were not charged for fiscal
2004.
Other commitments
This item, which totaled 9,296 thousand euros at December 31, 2004 (12,853 thousand euros at December 31, 2003), represents the
residuary amount of the commitment, undertaken by Fiat on the occasion of its centennial under a resolution adopted by the
Stockholders Meeting on June 22, 1998, to defray, over a ten-year period, the costs incurred to provide courses for a Degree in
Automotive Engineering and pay for the renovation of the respective building. The decrease of 3,557 thousand euros from
December 31, 2003 reflects the outlays incurred in the year to renovate the building and teach the courses.
A summary is presented below of the rights arising from the purchase, during 2002, of 34% of the capital stock of Ferrari S.p.A. for
775 million euros by Mediobanca S.p.A., within the framework of a consortium set up for the acquisition and placement of the Ferrari
shares. Fiat realized a gain of 671 million euros on this sale, net of selling expenses. The sales contract sets out the following principal
elements:
■Mediobanca assumed the responsibility of sole Global Coordinator in charge of coordinating and leading the consortium.
■Mediobanca can not sell its Ferrari shares to another group in the automobile industry as long as the Fiat Group maintains a 51%
controlling interest in Ferrari. Barring certain specific assumptions, the Fiat Group can not reduce its investment in Ferrari below
51% until the end, depending on the case, of the third or fourth year subsequent to signing the contract.
■Fiat holds a call option that allows it to repurchase the Ferrari shares at any time before June 30, 2006 (the original date of June 30,
2005 was extended by one year during the course of 2003), except during the five months subsequent to the presentation of an
IPO application to the competent authorities. The option exercise price is equal to the original price at which the shares were sold
plus interest during the period based on the BOT yield plus 4%.
■Mediobanca, moreover, does not hold any put option to resell the purchased Ferrari shares to Fiat, even in the event that the IPO
does not occur or is not completed.
■Fiat may share, in differing percentages, in any gain realized by Mediobanca and the other members of the consortium in the
event of an IPO.
As part of the sale of Piemongest S.p.A. to Iupiter S.r.l., Fiat S.p.A. guaranteed performance of the obligations envisaged under that
transaction.
It should be noted that, while Renault has a 19.52% interest in Teksid S.p.A., Fiat S.p.A. and Renault have agreed that this may be
resold to Fiat S.p.A., should there be a material change in the conditions upon which the original agreement was based.
15 Value of production
Service revenues
Service revenues, which amounted to 59,776 thousand euros in 2004, are mainly the result of transactions with Group companies.
They refer for 47,695 thousand euros (of which 47,153 thousand euros Fiat Auto and 542 thousand euros Al Ghazi Tractors Ltd.)
to fees paid for the use of the Fiat trademark by the individual companies determined as a percentage of sales. The contractually
established percentages are as follows: Fiat Auto S.p.A. 0.5% and Al Ghazi Tractors S.p.A. 0.75%.