Chrysler 2006 Annual Report Download

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at December 31, 2006
101st fiscal year
Annual Report
Consolidated and Statutory
Financial Statements

Table of contents

  • Page 1
    Annual Report Consolidated and Statutory Financial Statements at December 31, 2006 101st fiscal year

  • Page 2
    ... following: Agenda 1. Statutory Financial Statements at December 31, 2006 and Report on Operations; motion for the allocation of the net income for the year. 2. Motion for the purchase of own shares and modalities of their disposition; related resolutions. 3. Incentive plan pursuant to Article 114...

  • Page 3
    But it does move. Galileo Galilei

  • Page 4
    ...and the Chief Executive Officer 9 10 11 13 14 16 17 21 24 49 53 55 Report on Operations The Fiat Group Highlights - Group Highlights by Sector Stockholders Sustainability Report Research and Innovation Human Resources Financial Review of the Group Corporate Governance Stock Option Plans Transactions...

  • Page 5
    ... strategy in China by reaching agreements with SAIC, Chongqing Heavy Vehicle Group, and Nanjing Motor Company. At the financial level, the Group steadily reduced its net industrial debt, which fell below 1.8 billion euros at the end of 2006 due to a strong industrial cash flow generation. The Group...

  • Page 6
    ...53 Stock Options Plans 55 Transactions among Group Companies and with Related Parties 56 Significant Events Occurring since the End of the Fiscal Year and Business Outlook 59 Operating Performance by Sector of Activity 83 Motion for Approval of the Financial Statements and Allocation of the 2006 Net...

  • Page 7
    ...of financing services to its customer and dealers mainly through Iveco Finance Holdings Ltd, a company 51% owned by the Barclays Group and 49% by Iveco. Other Businesses also include Holding companies and Other companies. Italy Europe excluding Italy North America Mercosur Other regions Total 146...

  • Page 8
    ...and Commercial Vehicles (Iveco) (1) Fiat Powertrain Technologies (1) Components (Magneti Marelli) Metallurgical Products (Teksid) Production Systems (Comau) Services (Business Solutions) Publishing and Communications (Itedi) Holding companies, Other companies and Eliminations Total for the Group 23...

  • Page 9
    ... permit a direct relationship between the financial community and the Group's top management. The most important meeting of 2006 was the Fiat Investor and Analyst Meeting held on November 8 and 9 in Turin at the Lingotto. At the meeting, Fiat's Chief Executive Officer and the top management of all...

  • Page 10
    ...area are reviewed below: â- Multijet II . As part of Fiat Powertrain Technologies R&D efforts, predevelopment work on the new Multijet II diesel injection system was completed in 2006. This system is able to manage the multiple injection process developed for the earlier Multijet without the latter...

  • Page 11
    ... thus making it possible to detect any slow drift and compile a database of all measurements. During 2006, the Fiat Group also finished reinsourcing the quality control programs used to analyse dealer returns. In addition, Elasis provided Fiat Auto with support in developing a number of new products...

  • Page 12
    ...Fiat Group EWC, which represents the employees of Group companies located in the European Union, was established in 1997 and is comprised by 30 representatives of the various countries in proportion to the current employment distribution of the Fiat Group in Europe. 20 Report on Operations Research...

  • Page 13
    ... signed by the Company and the trade unions at that meeting. Additional updates on the Group's growth prospects were communicated to the trade unions upon presentation of the 2007-2010 Plan targets at the "Fiat Investor & Analyst Meeting" held on November 8 and 9, 2006. The production and employment...

  • Page 14
    ...Fiat Auto Financial Services. FAFS acquired certain Fiat Auto subsidiaries active in the European Fiat Auto dealer financing and renting business. Fiat Auto sold to Sofinco, the wholly owned consumer credit subsidiary of Crédit Agricole, 50% of the share capital of FAFS. Net revenues Cost of sales...

  • Page 15
    ... and Construction Equipment (CNH-Case New Holland) Trucks and Commercial Vehicles (Iveco) Components and Production Systems (FPT, Magneti Marelli, Teksid, Comau) Other Businesses (Services, Publishing and Communications, Holding companies and Other companies) Eliminations Total for the Group 25,577...

  • Page 16
    ... of Fiat, Alfa Romeo and Lancia models and an increase of new applications on car models of the Group and third parties (online applications, hi-tech products of the Lighting business area and Selespeed gearboxes). â- In 2006 revenues of the Passenger & Commercial Vehicles product line totalled...

  • Page 17
    ... continued in 2006 due to purchasing efficiencies and containment of governance costs. Conversely, higher volumes were supported by greater commitment to marketing and sales network development. â- â- Agricultural and Construction Equipment In 2006, CNH - Case New Holland had a trading profit of...

  • Page 18
    ... income of 56 million euros arising from the equity swap agreements on Fiat shares which had been entered into to cover stock option plans. The financial component of costs for pension plans and other employee benefits totalled 166 million euros in 2006 (146 million euros in 2005). Fiscal 2005 had...

  • Page 19
    ... by the decrease in working capital which, when calculated on a comparable consolidation and exchange rate basis, amounted to 812 million euros. Cash flows used in investment activities totalled 1,390 million euros. Net of the reduction in securities held as current assets (223 million euros...

  • Page 20
    ... for vehicles sold with buy-back commitments, which is equal to the difference at the date of signing the contract between the sales price and the buy-back price and which is allocated over the term of the entire agreement. 36 Report on Operations Financial Review of the Group Report on Operations...

  • Page 21
    ... due on November 15, 2011. The offering closed on May 12 at a price of 99.565. The notes, issued by Fiat Finance and Trade Ltd. as part of the 15 billion euro Global Medium Term Notes program, are guaranteed by Fiat S.p.A. â- The amounts of "Other debt" and "Asset-backed financing" at December 31...

  • Page 22
    ... Industrial Activities and Financial Services activities is made by preparing specific sub-consolidated financial statements on the basis of the normal business performed by each Group company. Net revenues Cost of sales Selling, general and administrative costs Research and developments costs...

  • Page 23
    ..., full control of which was acquired at the end of 2005. On a comparable basis, revenues would have increased by 3.4% due to an increase in financing activity to the dealer network which more than offset lower financing activities to suppliers; â- CNH's Financial Services reported revenues of...

  • Page 24
    ... Services Intangible assets - Goodwill - Other intangible assets Property, plant and equipment Investment property Investments and other financial assets Leased assets Defined benefit plan assets Deferred tax assets Total Non-current Assets Inventories Trade receivables Receivables from financing...

  • Page 25
    ...Change in working capital Total C) Cash flows from (used in) investment activities: Investments in: - Tangible and intangible assets (net of vehicles sold under buy-back commitments) - Investments Proceeds from the sale of non-current assets Net change in receivables from financing activities Change...

  • Page 26
    ...Financial Services at December 31, 2006 totalled 1,030 million euros, 130 million euros higher than at December 31, 2005. The cash generated mainly derived from: â- Introduction The Fiat Group adopted and abides by the new Corporate Governance Code of Italian Listed Companies, issued in March 2006...

  • Page 27
    ... (USA), Tata America International Corporation Ltd and Tata Motors European Technical Centre, Plc. Mario Zibetti: Director of Ersel Sim S.p.A. Internal Control System Amending what was defined in 1999, partly in order to receive the changes made to the Corporate Governance Code, the Board adopted...

  • Page 28
    ... S.p.A. and Mubadala Development Company PJSC on the occasion of the sale of 5% of the capital stock of Ferrari S.p.A. in August 2005. Options granted as part of Stock Option Plans on Fiat shares and outstanding at December 31, 2006 are shown below. Options granted to Board Members are instead shown...

  • Page 29
    ... by Members of the Board of Directors and Control Bodies, General Managers and Executives with strategic responsibilities (Art. 79 of Consob Regulation, Resolution No. 11971 of May 14, 1999) (number of shares) Number of shares held at 12.31.2005 Number of shares bought in 2006 Number of shares sold...

  • Page 30
    ... time, it also indicates the synergies linking the automotive business, which has already generated major benefits in terms of operating efficiency, resource management, and cost cuts. Finally, the name "Fiat Group Automobiles S.p.A." highlights the international vocation of this large industrial...

  • Page 31
    ... 68 Agricultural and Construction Equipment 70 Trucks and Commercial Vehicles 74 Fiat Powertrain Technologies 76 Components There can be no motion without some particular direction. Jean-Jacques Rousseau 78 Metallurgical Products 79 Production Systems 80 Services 81 Publishing and Communications

  • Page 32
    Operating Performance by Sector of Activity Automobiles Agricultural and Construction Equipment Trucks and Commercial Vehicles Components and Production Systems Other Businesses Services Publishing and Communications 60 Relazione sulla gestione Fiat Auto Report on Operations 61

  • Page 33
    ... for the import and distribution in Russia of Fiat cars and light commercial vehicles. In March 2006, a letter of intent was signed to further develop of the strategic partnership between Fiat and Severstal in all industrial areas of the Fiat Group. An agreement was signed in July for production and...

  • Page 34
    ... application, including engines and transmissions. in Europe offered to Fiat Auto dealerships, end customers who opt for instalment payment plans, as well as leasing and medium and long-term rental services. This alliance with a major European bank group will enable the financial companies of the...

  • Page 35
    ...March 2006 and produced in a limited series. A limited edition of 12 cars derived from a racing model was also developed and put on sale. In order to support Maserati dealers throughout the United States, an agreement between Maserati and CNH Capital America LLC for the supply of a number of finance...

  • Page 36
    ... the main product lines. The Sector's global market share was unchanged from 2005, with increases in Latin America for all the main product lines. 68 Report on Operations CNH Highlights (in millions of euros) 2006 2005 Aggregates Manager, a North American publication, recognised Case Construction...

  • Page 37
    ... and Commercial Vehicles Market (GVW ≥ 2.8 tons) (in thousands of units) 2006 2005 % change - France - Germany - Great Britain - Italy - Spain - Other Western European Countries Western Europe Eastern Europe Rest of the World Total units sold Naveco Other associated companies (**) Grand total...

  • Page 38
    ... product development and a long-term commercial policy. This involves study of solutions in the field of light-range 4-wheel drive vehicles. the New Daily is confirming its position as the most solid and reliable vehicle in the segment. It can be equipped with a stability control system, a cutting...

  • Page 39
    ...% of revenues in 2006. In 2006, the Sector benefited from the rising sales volumes of its principal customers, particularly Fiat Auto, reporting growth of 11% on a comparable basis from the previous year. The Passenger & Commercial Vehicles product line sold 2,328,000 engines in 2006, approximately...

  • Page 40
    ... relationships with car makers and attract new orders. Positive developments in this area included the orders received from Renault Nissan, and the start of commercial dealings with Suzuki: an important launching pad for entry onto the Japanese market. Exhaust Systems In 2006, revenues totalled 533...

  • Page 41
    ...of the orders for contract work were acquired in Europe, 27% in the Nafta area, while the remaining 19% came from the Mercosur and new markets (5% in China). 32% of all orders came from Fiat Group companies and 68% from other manufacturers. At December 31, 2006 the order backlog totalled 593 million...

  • Page 42
    ... of advertising space with Warner Village did not entirely make up for the loss of Rete A. 668 37 28 10 5,057 752 35 7 19 5,436 Highlights (in millions of euros) 2006 2005 Net revenues Trading profit Operating result (*) Investments in tangible and intangible assets Employees at year-end (number...

  • Page 43
    ... be paid to the shares outstanding at the coupon detachment date, excluding treasury shares. Turin, February 20, 2007 On behalf of the Board of Directors Luca Cordero di Montezemolo Chairman Report on Operations Motion for Approval of the Financial Statements and Allocation of the 2006 Net Income...

  • Page 44
    Fiat Group Consolidated Financial Statements at December 31, 2006 86 Consolidated Income Statement 87 Consolidated Balance Sheet 89 Consolidated Statement of Cash Flows 90 Statement of Changes in Stockholders' Equity 91 Consolidated Income Statement pursuant to Consob Resolution No. 15519 of July 27...

  • Page 45
    ... assets Property, plant and equipment Investment property Investments and other financial assets: - Investments accounted for using the equity method - Other investments and financial assets Leased assets Defined benefit plan assets Deferred tax assets Total Non-current assets Inventories Trade...

  • Page 46
    ... sales at the end of the contract term, relating to assets included in Property, plant and equipment. (c) The item Other changes includes for an amount of approximately 3 billion euros the reimbursement of loans extended by the Group's centralised cash management to the financial services companies...

  • Page 47
    ... of euros) 2006 2005 1,065 86 1,331 89 Gains (losses) recognised directly in the cash flow hedge reserve Gains (losses) recognised directly in reserve for fair value measurement of available-for-sale financial assets Exchange gains (losses) on the translation of foreign operations Gains (losses...

  • Page 48
    ... of Italy. Fiat S.p.A. and its subsidiaries (the "Group") operate in more than 190 countries. The Group is engaged principally in the manufacture and sale of automobiles, agricultural and construction equipment and commercial vehicles. It also manufactures other products and systems, principally...

  • Page 49
    ... in other companies for which fair value is not available are stated at cost less any impairment losses. Development costs Development costs for vehicle project production (cars, trucks, buses, agricultural and construction equipment, related 94 Fiat Group Consolidated Financial Statements at...

  • Page 50
    ... attributed directly to the development process. Capitalised development costs are amortised on a systematic basis from the start of production of the related product over the product's estimated life, as follows: N° of years Other intangible assets acquired as part of an acquisition of a business...

  • Page 51
    ...techniques e.g. discounted cash flow analysis based on market information available at the balance sheet date. Gains and losses on available-for-sale financial assets are recognised directly in equity until the financial asset is disposed or is determined to be impaired, at which time the cumulative...

  • Page 52
    ...group dealers, or the delivery date in the case of direct sales. New vehicle sales with a buy-back commitment are not recognised at the time of delivery but are accounted for as operating leases when it is probable that the vehicle will be bought back. Cost of sales Cost of sales comprises the cost...

  • Page 53
    ... or sold with a buy-back commitment The Group reports assets rented or leased to customers under operating leases as tangible assets. Furthermore, new vehicle "sales" with a buy-back commitment are not recognised as sales at the time of delivery but are accounted for as operating leases if...

  • Page 54
    ... and interpretations have also been issued in 2006 but are not applicable to the Fiat Group: â- the fair value option designation eliminates or significantly reduces an accounting mismatch; a group of financial assets, financial liabilities, or both are managed and their performance is evaluated...

  • Page 55
    ... cases, by forward rate agreements. Counterparties to these agreements are major international financial institutions with high credit ratings. Information on the fair value of derivative financial instruments held at the balance sheet date is provided in Note 22. â- Net revenues Trading profit...

  • Page 56
    ...with its stock option plans. Fiat S.p.A. subsequently acquired 93,600 of these newly-issued shares, increasing its interest in the company to 56.4%. â- On August 31, 2006, Fiat sold its holding in Banca Unione di Credito (B.U.C.) to BSI (a company of the Generali Group). On November 10, 2006, the...

  • Page 57
    ... euros) 2006 2005 Revenues from: - Sales of goods - Rendering of services - Contract revenues - Rents on operating leases - Rents on assets sold with a buy-back commitment - Interest income from customers and other financial income of financial services companies - Other Total Net revenues 46,105...

  • Page 58
    ... 2004, and with Fiat Auto dealers, for a total of 187 million euros; costs of 141 million euros incurred by Fiat Auto, as a consequence of the rationalisation process - Losses on disposal of securities - Interest costs on employee benefits Total Interest and other financial expenses (b) Net income...

  • Page 59
    ... arising from the equity swaps on Fiat shares, set up to support stock option plans (further details of this are provided in Note 22). Interest earned and other financial income may be analysed as follows: (in millions of euros) 2006 2005 11. Income taxes Income taxes consist of the following: (in...

  • Page 60
    ... deferred tax assets is taken by each company in the Group by assessing critically whether the conditions exist for the future recoverability of such assets on the basis of updated strategic plans, accompanied by the related tax plans. For this reason, the total theoretical future tax benefits...

  • Page 61
    ...Ordinary shares Preference shares Saving shares 2006 Ordinary shares Preference shares Saving shares 2005 (in millions of euros) 2007 2008 2009 2010 Beyond Unlimited/ 2010 indeterminable Total Total Temporary differences and tax losses relating to State taxation (IRES in the case of Italy...

  • Page 62
    ... sale Translation differences and other changes At December 31, 2006 Total Total (in millions of euros) Amortisation Impairment losses Divestitures Profit attributable to each class of shares Weighted average number of shares Number of shares that would be issued from stock option plans Total...

  • Page 63
    ...determined on the basis of the value in use of the four new cash-generating units to which it has been allocated, by using the cash flows forecast by Sector management for the next seven years (seven years in 2005), an annual growth rate of 2% (2% in 2005) and a pre-tax discount rate varying between...

  • Page 64
    ... of consolidation of the Powertrain activities previously part of the Fiat-GM Powertrain, the joint venture with General Motors, and of the reclassification to assets held for sale of the intangible assets of Atlanet S.p.A. Foreign exchange losses of 273 million euros in 2006 (gains of 402 millions...

  • Page 65
    ... - Land - Owned industrial buildings - Industrial buildings leased under finance leases Total Industrial buildings - Owned plant, machinery and equipment - Plant, machinery and equipment leased under finance leases Total Plant, machinery and equipment Assets sold with a buy-back commitment - Owned...

  • Page 66
    ... costs. During 2006 the Group recognised impairment losses on Assets sold with a buy-back commitment from Trucks and Commercial Vehicles for an amount of 36 million euros (24 million euros in 2005) in order to align their carrying amount to market value. These losses are recognised in Cost of sales...

  • Page 67
    ... properties and industrial buildings of CNH, no longer in use, to Assets held for sale, as the consequence of the restructuring process taking place over the past few years following the acquisition of the Case group. 130 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes Fiat...

  • Page 68
    ... changes directly in equity Investments at cost Total Investments Receivables Other securities Total Investments and other financial assets 1,719 274 85 2,078 97 105 2,280 1,762 227 101 2,090 113 130 2,333 132 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes Fiat Group...

  • Page 69
    ... issued for financial year 2006 will be published subsequent to the publication of the consolidated financial statements of the Fiat Group. At December 31, 2006, the fair value of Investments in listed jointly controlled entities and listed associates, determined on the basis of quoted market prices...

  • Page 70
    ...receivables is considered in line with their fair value at the date. At December 31, 2006, trade receivables of 42 million euros were pledged as security for loans obtained (153 million euros at December 31, 2005). Gross amount due from customers for contract work as an asset Less: Gross amount due...

  • Page 71
    ... in total finance lease receivables vary depending on prevailing market interest rates. Receivables for dealer financing are typically generated by sales of vehicles and are generally managed under dealer network financing programs as a component of the portfolio of the financial services companies...

  • Page 72
    ... using the exchange rates prevailing at the balance sheet date and the discounted cash flow method; the fair value of equity swaps is determined using market prices at the balance sheet date; Current securities available-for-sale Current securities for trading Total Current securities 90 134...

  • Page 73
    ... The policy of the Fiat Group for managing exchange risk normally requires that future cash flows from trading activities which will occur for accounting purposes within the following twelve months, and from orders acquired (or contracts in progress), whatever their due dates, to be hedged. As...

  • Page 74
    ...Property, plant and equipment Leased assets Deferred tax assets Inventories Trade receivables Receivables from financing activities Other receivables, Accrued income and prepaid expenses Cash and cash equivalents Total Assets Employee benefits Other provisions Asset-backed financing Other debt Trade...

  • Page 75
    ... 31, 2006 and at December 31, 2005, the following stock-based compensation plans relating to managers of Fiat Group companies or members of the Board of Directors of Fiat S.p.A. were in place. Stock Option plans linked to Fiat S.p.A. ordinary shares The Board of Directors of Fiat S.p.A. approved...

  • Page 76
    ... 2008 22.2% 22.2% 22.2% 33.4%*NMC On November 3, 2006 the Fiat S.p.A. Board of Directors approved an eight year stock option plan, which provides certain managers of the Group and the Fiat S.p.A. Chief Executive Officer with the right to purchase a determined number of Fiat S.p.A. ordinary shares...

  • Page 77
    ... considered instead. In addition, the interest rate yield used in the option-pricing model for the 2006 plan is in line with that referred to in Note 19. The total cost recognised in the income statement for share-based payments linked to Fiat S.p.A. ordinary shares amounts to 11 million euros in...

  • Page 78
    ... values of stock options awarded for the years ended December 31, 2006, and 2005 were as follows: (in USD) 2006 2005 CNH Directors' Plan CNH EIP 14.61 5.78 10.13 10.18 Changes during the period in all CNH stock option plans are as follows: Directors' plan Number of shares Average exercise price...

  • Page 79
    ... 31, 2006 the employees and the Chairman held respective totals of 66,400 and 80,000 stock option rights under this scheme, all of whose exercise rights are subordinated to the listing of the company. Cash-settled share-based payments Certain entities of the Fiat Powertrain Technologies Sector...

  • Page 80
    ...The dividends expected to be paid on the ordinary shares of Fiat S.p.A. and used in the binomial model for 2006 are those referred to in recent statements made by the Group, consistent with the approach taken for the stock options granted by Fiat S.p.A. in 2006. The fair value of the above mentioned...

  • Page 81
    ... long-term employee benefits are calculated on the basis of the following actuarial assumptions: At December 31, 2006 In % Italy USA UK Other Italy USA At December 31, 2005 UK Other Discount rate Future salary increase Inflation rate Increase in healthcare costs Expected return on plan assets 3.98...

  • Page 82
    ...end for employees, as required by Italian labour legislation. This provision is settled to retiree employees and, shall be partially paid in advance if certain conditions are met. This defined benefit post-employment plan is unfunded. The amounts recognised in the balance sheet at December 31, 2006...

  • Page 83
    ...2,115 Plan assets for Post-employment benefits mainly consist of listed equity instruments and fixed income securities; plan assets do not include treasury stock of Fiat S.p.A. or properties occupied by Group companies. Plan assets may be summarised as follows: In % At December 31, 2006 At December...

  • Page 84
    ...on the present value of defined benefit obligation Plan assets Total Experience adjustments actuarial (gains) losses on the fair value of the plan assets The total balance at December 31, 2006 relates to corporate restructuring programs of the following Sectors (in millions of euros): Fiat Auto 137...

  • Page 85
    ...as an asset in the balance sheet under the item Current receivables (Note 19). The bonds issued by the Fiat Group are governed by different terms and conditions according to their type as follows: 166 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes Fiat Group Consolidated...

  • Page 86
    ...Term Notes Convertible bonds: Fiat Fin. Luxembourg S.A. (4) Total Convertible bonds Other bonds: CNH Capital America LLC Case New Holland Inc. Case New Holland Inc. Fiat Finance & Trade Ltd. (5) Case New Holland Inc. CNH America LLC Total Other bonds Hedging effect and amortised cost valuation Total...

  • Page 87
    ... - Cash and cash equivalents - Cash and cash equivalents included as Assets held for sale - Securities held for trading (Current securities) Current financial receivables (Receivables from financing activities) (b): - from jointly controlled financial services entities - from other related parties...

  • Page 88
    ... of 1,316 million euros relate to assets included in Property, plant and equipment, with the balance of 1,054 million euros relating to inventories. The item Advances on buy-back agreements represents the following: â- at the date of the sale, the price received for the product is recognised as an...

  • Page 89
    ... lease payments under operating lease agreements 82 172 180 434 71 171 161 403 During 2006, the Group has recorded costs for lease payments for 71 million euros (69 million euros during 2005). Business segment information The internal organisation and management structure of the Fiat Group...

  • Page 90
    ... financial services to its customers and dealers mainly through Iveco Finance Holdings Ltd., a company 51% owned by the Barclays group and 49% by Iveco. The Fiat Powertrain Technologies (FPT) Sector manufactures car engines and transmissions (these businesses were managed by the Fiat-GM Powertrain...

  • Page 91
    ...companies - Cash and cash equivalents, Current securities and Other financial assets of industrial companies Total unallocated Group assets Total assets Sector operating liabilities 12,396 Sector operating liabilities held-for-sale 50 Provision for investments 19 Unallocated Group liabilities: - Tax...

  • Page 92
    ...companies - Cash and cash equivalents, Current securities and Other financial assets of industrial companies Total unallocated Group assets Total assets Sector operating liabilities: 15,638 Sector operating liabilities held-for-sale - Provision for investments 21 Unallocated Group liabilities: - Tax...

  • Page 93
    ...result and its equity. In particular: â- Where a Group company incurs costs in a currency different from that of its revenues, any change in exchange rates can affect the operating result of that company. In 2006, the total trade flows exposed to exchange rate risk amounted to the equivalent of 13...

  • Page 94
    ..., payables and securities denominated in foreign currencies different from the company's money of account. Certain of the Group's subsidiaries are located in countries which are not members of the European monetary union, in particular the United States, Canada, United Kingdom, Switzerland, Brazil...

  • Page 95
    ... related parties on commercial terms that are normal in the respective markets, considering the quality of the goods or services involved. Other investments and financial assets Inventories Trade receivables Receivables from financing activities Other current receivables Cash and cash equivalents...

  • Page 96
    ... sales of motor vehicles, production systems and components, including engines and gearboxes, and the provision of services, to the following companies: 2006 2005 (in millions of euros) Current trade receivables: these relate to receivables resulting from the revenues discussed above and, starting...

  • Page 97
    ... who took on key responsibilities in 2006 and managers who left the Group in the year, including the severance pay of the latter. Non current assets Current assets Total assets Liabilities Contingent liabilities 13 35 48 25 - 13 35 48 25 - In 2005 the Group acquired the control of the following...

  • Page 98
    ...services companies of Iveco operating in France, Germany, Italy, Switzerland and the United Kingdom. Since that date the investment in Iveco Finance Holdings Limited is no longer consolidated on a line-by-line basis but is accounted for using the equity method. 192 Fiat Group Consolidated Financial...

  • Page 99
    ... India and China), development and growth will be agreed with other operators in the automotive business and vehicles will be constructed on behalf of other manufacturers and/or the manufacturing know how will be sold. By December 31, 2006 these agreements, which have by now become part of the Group...

  • Page 100
    ..., 2007, Moody's Investors Service upgraded the (long-term ) rating of Fiat S.p.A. from Ba3 to Ba2, maintaining its positive outlook; the short-term rating remains unchanged. â- On January 29, 2007, the Italian Stock Exchange removed from trading the 2007 Fiat Ordinary Share Warrants issued in 2002...

  • Page 101
    ... ownership, method of consolidation and type of business. The information provided for each company includes: name, registered office, country and capital stock stated in the original currency. The percentage of Group consolidation and the percentage held by Fiat S.p.A. or its subsidiaries are also...

  • Page 102
    ... on a line-by-line basis (continued) Interest held by % interest held % of voting rights Name Registered office Country Capital stock Currency % of Group consolidation Interest held by % interest held % of voting rights Controlling company â- Parent company Fiat CR Spol. S.R.O. Fiat Credito...

  • Page 103
    ... Holdings Limited Case Equipment International Corporation Case Europe S.a.r.l. Case Harvesting Systems GmbH Case IH Machinery Trading Shanghai Co. Ltd. Case India Limited Case International Marketing Inc. Case LBX Holdings Inc. Case New Holland Inc. Case United Kingdom Limited CNH America LLC...

  • Page 104
    ... Case Brazil Holdings Inc. Case Equipment International Corporation CNH International S.A. CNH Global N.V. CNH Belgium N.V. Fiat Polska Sp. z o.o. CNH International S.A. CNH Italia s.p.a. CNH Capital America LLC Banco CNH Capital S.A. CNH Global N.V. New Holland Holding Limited CNH Capital America...

  • Page 105
    ... Capital stock Currency Name Registered office Country Capital stock Currency Componentes Mecanicos S.A. Effe Grundbesitz GmbH Elettronica Trasporti Commerciali S.r.l. (Eltrac S.r.l.) European Engine Alliance S.c.r.l. FPT - Powertrain Technologies France S.A. Heuliez Bus S.A. IAV-Industrie...

  • Page 106
    ...voting rights Subsidiaries consolidated on a line-by-line basis (continued) % of Group consolidation Interest held by % interest held % of voting rights Name Registered office Country Capital stock Currency Name Registered office Country Capital stock Currency S.C.I. La Méditerranéenne...

  • Page 107
    ... voting rights Subsidiaries consolidated on a line-by-line basis (continued) % of Group consolidation Interest held by % interest held % of voting rights Name Registered office Country Capital stock Currency Name Registered office Country Capital stock Currency Magneti Marelli Racing Ltd...

  • Page 108
    ... consolidated on a line-by-line basis (continued) % of Group consolidation Interest held by % interest held % of voting rights Name Registered office Country Capital stock Currency Name Registered office Country Capital stock Currency Comau Russia OOO Comau SA Body Systems (Pty) Ltd...

  • Page 109
    ... on a line-by-line basis (continued) % of Group consolidation Interest held by % interest held % of voting rights Name Registered office Country Capital stock Currency Name Registered office Country Capital stock Currency Elasis-Società Consortile per Azioni Pomigliano d'Arco Italy 20...

  • Page 110
    ... line-by-line basis (continued) % of Group consolidation Interest held by % interest held % of voting rights Name Registered office Country Capital stock Currency Name Registered office Country Capital stock Currency Neptunia Assicurazioni Marittime S.A. New Business 7 S.p.A. New Business...

  • Page 111
    ... held % of voting rights Name Registered office Country Capital stock Currency % of Group consolidation Interest held by % interest held % of voting rights Jointly-controlled entities accounted for using the proportional consolidation â- Powertrain Technologies Fiat-GM Powertrain Polska Sp...

  • Page 112
    Jointly-controlled entities accounted for using the equity method (continued) % of Group consolidation Interest held by % interest held % of voting rights Name Registered office Country Capital stock Currency % of Group consolidation Interest held by % interest held % of voting rights Name â- ...

  • Page 113
    ... Subsidiaries valued at cost 68.350 99.167 0.833 â- Automobiles â- Production Systems Comau AGS S.p.A. Comau Service U.K. Ltd â- Services Grugliasco Watford Italy United Kingdom 1,000,000 260,000 EUR GBP 100.00 100.00 Comau S.p.A. Comau S.p.A. 100.000 100.000 Fiat Auto Espana Marketing...

  • Page 114
    ... EEIG Bursa Watford Turkey United Kingdom 350,230 0 TRY GBP 98.80 97.47 Fiat Oriente S.A.E. in liquidation Fides Corretagens de Securos Ltda Isvor Fiat India Private Ltd. in liquidation MC2 - Media Communications S.p.A. New Business 18 S.r.l. New Business 19 S.r.l. New Business 20 S.r.l. Nuova...

  • Page 115
    ...interest held % of voting rights Name â- Production Systems Registered office Country Capital stock Currency % of Group consolidation Interest held by % interest held % of voting rights Associated companies accounted for using the equity method â- Automobiles Fiat Auto Kreditbank GmbH Fidis Bank...

  • Page 116
    Name Registered office Country Capital stock Currency % of Group consolidation Associated companies valued at cost (continued) Interest held by % interest held % of voting rights Name Registered office Country Capital stock Currency % of Group consolidation Interest held by % interest held % ...

  • Page 117
    Name Registered office Country Capital stock Currency % of Group consolidation Interest held by % interest held % of voting rights Other companies valued at cost â- Agricultural and Construction Equipment Polagris S.A. â- Trucks and Commercial Vehicles Pikieliszki Lithuania 1,133,400...

  • Page 118
    Fiat S.p.A. Financial Statements at December 31, 2006 234 Financial Review of Fiat S.p.A. 238 Income Statement 239 Balance Sheet 240 Statement of Cash Flows 241 Statement of Changes in Stockholders' Equity I am enough of an artist to draw freely upon my imagination. Imagination is more important ...

  • Page 119
    ... shares issued and the stock market price of the shares at the subscription date, net of issuance costs. The income tax revenue of 26 million euros is the net result of the remuneration for the tax loss brought into the national tax consolidation by Fiat S.p.A. in 2006 to offset the income reported...

  • Page 120
    ... S.p.A. at market rates as part of the recapitalisation of subsidiaries discussed above. At December 31, 2005 financial receivables related to short-term financing of 2,700 million euros granted to the subsidiary Fiat Finance S.p.A. and due in 2006, and to cash deposited on the current account held...

  • Page 121
    ... Deferred tax assets Total Non-current assets Current assets Inventories Trade receivables Current financial receivables Other current receivables Cash and cash equivalents Total Current assets Assets held for sale TOTAL ASSETS STOCKHOLDERS' EQUITY AND LIABILITIES Stockholders' equity Capital stock...

  • Page 122
    ...Facility Non-cash stock option costs (Impairment losses) reversals of impairment losses of investments Capital losses/gains on the disposal of investments Change in provisions for employee benefits and other provisions Change in deferred taxes Change in working capital Total C) Cash flows from (used...

  • Page 123
    ... Deferred tax assets Total Non-current assets Current assets Inventories Trade receivables Current financial receivables Other current receivables Cash and cash equivalents Total Current assets Assets held for sale TOTAL ASSETS STOCKHOLDERS' EQUITY AND LIABILITIES Stockholders' equity Capital stock...

  • Page 124
    ... capital of the parent companies of business Sectors in which the Fiat Group operates. The head office of the company is in Turin, Italy. The financial statements of Fiat S.p.A. are prepared in euros which is the currency of the economic environment in which the company operates. The Balance Sheet...

  • Page 125
    ..., units with liquidity funds and other highly traded securities that are readily convertible to cash and which are subject to an insignificant risk of changes in value. The liability relating to financial guarantee contracts is included in Non-current financial payables. The term financial guarantee...

  • Page 126
    ... plans The company provides additional benefits to certain members of top management and to certain employees through equity compensation plans. Under IFRS 2 - Share-based Payment, these plans are a component of employee remuneration whose cost is measured by the fair value of the stock options...

  • Page 127
    ... IRES corporate income tax paid over on its behalf. In the case of a company bringing a tax loss into the consolidation Fiat S.p.A. recognises a payable to that company for the amount of the loss actually set off at a group level. Use of estimates The preparation of financial statements and related...

  • Page 128
    ... Holding Fiat S.A. - Fiat Finance S.p.A. - Itedi S.p.A. Total dividends distributed by subsidiaries Dividends distributed by other companies Total Dividends and other income from investments In particular as the investments are not listed and a market value (fair value less costs to sell...

  • Page 129
    ... as part of the agreements signed with Treno Alta Velocità - T.A.V. S.p.A. (see Note 27). Other revenues and income from Group companies mostly relates to rental income from real estate properties and to directors' fees paid by companies for duties performed by Fiat S.p.A. employees. Other revenues...

  • Page 130
    ..., prior year expenses and other more minor costs. In 2005 sundry operating costs included the costs for an indemnity paid on the termination of the agreements with IBM and higher costs attributed to Group companies for their initiatives in supporting the Group's brand and image. 8. Financial income...

  • Page 131
    ... the subscription price of the shares (10.28 euros per share) and their stock market price at the subscription date (7.337 euros per share) related to the new shares issued (291,828,718 ordinary shares), net of the related costs. 10. Income taxes Income taxes recognised in the Income Statement can...

  • Page 132
    ...) 87 Deferred tax assets have been recognised by carrying out a critical analysis to ensure that the conditions for their future realisation exist, through the use of updated strategic business plans and the related tax plans. As a consequence, the total theoretical future tax benefits arising from...

  • Page 133
    ...of property, plant and equipment is recognised under Other operating costs in the Income Statement (Note 6). 13. Investments At December 31, 2006, investments total 14,499,595 thousand euros and underwent the following changes during the year: (Impairment losses) Disposals/ reversal of imp. Capital...

  • Page 134
    ... of 104,000 new shares servicing its stock option plans. Fiat S.p.A. subsequently acquired 93,600 newly-issued shares of Ferrari S.p.A. for 26,713 thousand euros and sold 5,200 shares for 1,484 thousand euros, the latter as part of its agreements with Mubadala Development Company PJSC, bringing its...

  • Page 135
    ... in the share price above the exercise price of the stock options granted to the company's Chief Executive Officer in 2004, as described in Note 8, to which reference should be made for additional information. The fair value of this equity swap has been calculated on the basis of the market price at...

  • Page 136
    ... company's bank current accounts. The carrying amount of cash and cash equivalents is deemed to be in line with their fair value. The credit risk relating to cash and cash equivalents is insignificant since the counterparties are leading national and international banks. If the savings shares are...

  • Page 137
    ...million euros, net of related costs (see Note 9). Regarding 2006, treasury stock was sold when the stock options were exercised. The following are significant matters with respect to the capital stock of Fiat S.p.A.: â- Pursuant to resolutions approved by the Board of Directors on December 10, 2001...

  • Page 138
    ... 2006 2007 2008 22.2% 22.2% 22.2% 33.4%*NMC On November 3, 2006 the Fiat S.p.A. Board of Directors approved an eight year stock option plan, which provides certain managers of the Group and the Chief Executive Officer with the right to purchase a determined number of Fiat S.p.A. ordinary shares...

  • Page 139
    ... additional paid-in capital itself). The increase required for this at December 31, 2006 would be 828,889 thousand euros. (*) The granting of 20,000,000 stock options (of which 10,000,000 granted to managers and 10,000,000 granted to the Chief Executive Officer), approved by the Board of Directors...

  • Page 140
    ... not yet paid at the Balance Sheet date are included in the item Other payables (see Note 27). The company recognises the contribution cost for the year on the basis of the service rendered by the employee in the item Personnel costs (see Note 5). In the case of post-employment benefits the company...

  • Page 141
    ... in the present value of the obligation for post-employment benefits are as follows: Employee severance indemnity (in thousands of euros) 2006 2005 2006 Other 2005 2006 Total 2005 Financial payables to Group companies Financial guarantee contracts Total Non-current financial liabilities 2,800,000...

  • Page 142
    ...current post-employment benefits to be paid represent the present value of benefits (see Note 21) to be paid to the former Chief Executive Officer and employees that left the company. The balance of 2,622 thousand euros at December 31, 2005 for intercompany payables for consolidated IRES tax relates...

  • Page 143
    ... in the share price above the exercise price of the stock options granted to the company's Chief Executive Officer in 2006, as described in Note 8, to which reference should be made for additional information. The fair value of this equity swap has been calculated on the basis of the market price at...

  • Page 144
    ... balance mostly relates to sureties granted on behalf of Group companies on Billets de Trésorerie issued (Fiat Finance and Trade Ltd. 165,115 thousand euros), medium- to long-term loans granted by banks (214,580 thousand euros) and the rental payments relating to buildings included in the property...

  • Page 145
    ...would acquire the right to exercise a sale option to Fiat on its interest in Teksid, in the following cases: guarantees of 6,748,140 thousand euros granted on behalf of Group companies, including: - 790,193 thousand euros for loans (Banco CNH Capital S.A. 603,861 thousand euros, CNH America LLC 38...

  • Page 146
    ... given are for the most part on behalf of Group companies. There are no significant overdue balances. Exchange rate risk At December 31, 2006 Fiat S.p.A. has no significant receivables or payables balances or derivative financial instruments exposed to exchange rate risk. Interest rate risk Fiat...

  • Page 147
    ... not represent actual trading between Group companies and are carried out solely as part of the financial procedure permitted by tax laws and regulations governing the relations of Italian Group companies with the tax revenue authorities. In a similar manner the asset and liability balances (each of...

  • Page 148
    ... its capital stock in 2006 by issuing a total of 104,000 new shares at a price of 175 euros each, following the exercising by the company's chairman, Luca Cordero di Montezemolo, of the same number of stock options. Notice of this decision was provided in advance to the Board of Fiat S.p.A. at...

  • Page 149
    ...required by Consob (communication no. DEM/6064293 of July 28, 2006) â- Subsidiaries Capital (in euros) Result for the last fiscal year (in euros) Stockholders' equity (in euros) % owned by Fiat S.p.A. Accounting value (in euros) Company and registered office Number of shares 32. Significant non...

  • Page 150
    ... euros) % owned by Fiat S.p.A. Number of shares Accounting value (in euros) List of investments in subsidiaries and associated companies with additional information required by Consob (communication no. DEM/6064293 of July 28, 2006) â- IHF - Internazionale Holding Fiat S.A. - Lugano (Switzerland...

  • Page 151
    ...on November 3, 2006 the Fiat S.p.A. Board of Directors approved a stock option plan, which provides more than 300 managers, including executives with strategic responsibilities, and the Chief Executive Officer with the right to purchase 10,000,000 Fiat S.p.A. ordinary shares at the fixed price of 13...

  • Page 152
    ...European Regulation no. 1606 of July 19, 2002, starting from 2005 the Fiat Group has adopted the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") for the preparation of its consolidated financial statements. On the basis of national...

  • Page 153
    ... on the basis of their nature. Effects of transition to IFRS on the Balance Sheet at January 1, 2005 (in millions of euros) Italian GAAP Reclassifications Adjustments IAS/IFRS Intangible assets Property, plant and equipment Equity investments Other securities 50 43 5,249 - Optional exemptions...

  • Page 154
    ... assets Property, plant and equipment Equity investments Other securities 28 41 4,983 Total fixed assets Inventories Trade receivables Receivables from subsidiaries Financial receivables from subsidiaries Taxes receivable Deferred tax assets Other receivables Treasury stock Cash on hand Total...

  • Page 155
    ... payables" for changes in the format of the Balance Sheet (reclassification of non-current balances) 13 13 17 17 306 Appendix Transition of the Parent Company Fiat S.p.A. to International Financial Reporting Standards (IFRS) Appendix Transition of the Parent Company Fiat S.p.A. to International...

  • Page 156
    ... Balance Sheet 11 11 5 5 Revenues from sales and services Change in contract work in progress Other revenues and income Raw materials, services, leases and rentals Personnel costs Amortisation, depreciation and writedowns Other operating costs Difference between the value and costs of production...

  • Page 157
    ... in the format of the Income Statement from "Other operating costs" for changes in the format of the Income Statement Other reclassifications 77 27 41 - 145 310 Appendix Transition of the Parent Company Fiat S.p.A. to International Financial Reporting Standards (IFRS) Appendix Transition of the...

  • Page 158
    ...As permitted by Italian accounting principles Fiat S.p.A. previously measured work in progress on long-term construction-type contracts (being the contracts entered into by Fiat S.p.A. as general contractor with Treno Alta Velocità - T.A.V. S.p.A.) at cost of production. Contract revenue, therefore...

  • Page 159
    ... in the Fiat share price above the exercise price of the stock options granted to the Managing Director. At January 1, 2005 the Swap had a negative fair value that was recognised in the financial statements prepared in accordance with Italian accounting principles (a treatment in line with IFRS...

  • Page 160
    ...I. Stock options No obligation or cost was recognised for stock-based compensation under Italian accounting principles. IFRS 2 - Share-based Payment requires the total fair value of stock options at the grant date to be recognised in the Income Statement on a straight-line basis from the grant date...

  • Page 161
    Auditors' Reports Auditors' Reports 319

  • Page 162
    ... financial position of the Fiat Group as of December 31, 2006, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Auditors' Report on the Financial Statements Pursuant...

  • Page 163
    Reports of the Board of Statutory Auditors Reports of the Board of Statutory Auditors 323

  • Page 164
    ...the pertinent legislation. The Report on Operations presents fairly the results, balance sheet and financial position, as well as the operations in 2006 and the events that have occurred since the end of the fiscal year, for the complex of companies subject of the consolidation process. Based on our...

  • Page 165
    ... reporting of the Fiat Group as required by Section 404 of the United States Sarbanes-Oxley Act starting from fiscal year 2006 (completion of the planning and pre-assessment stages), for a total fee of 479,000 euros. Audit of the system of internal control over financial reporting of the Fiat Group...

  • Page 166
    Items on the Agenda and Related Reports and Motions Items on the Agenda and Related Reports and Motions 329

  • Page 167
    ...currently owned by Fiat S.p.A. represent approximately 0.3% of the Company capital stock, while the other Group companies do not own Fiat shares. The maximum and minimum purchase price per share will be directly related to the market quotations and namely to the reference price reported on the Stock...

  • Page 168
    ... Financial Statements. The residual 50% of the options granted to the Chief Executive Officer has a four-year vesting period in equal annual quotas and is exercisable starting November 2010. In order to service the options granted to employees with newly issued shares, on November 3 2006, the Board...

  • Page 169
    ... shares available for trade, and the ownership structure of listed companies. Considering the widespread ownership of Fiat stock and the consequently fragmented nature of stockholdings in the Company, as well as corporate governance practices already applied for the appointment of the members...

  • Page 170
    ...who has acquired several years of experience in the accounting and financial affairs at large companies may be appointed. The Board of Directors may also appoint one or more Chief Operating Officers and may designate a Secretary, who need not be a member of the Board. The compensation payable to the...

  • Page 171
    ... structure and accounting system; reviews the Company's strategic, industrial and financial plans; and based on reports provided by the bodies with delegated powers, assesses the general performance of the Company's operations. Art. 13 - Meetings and Duties of the Board of Directors Unchanged...

  • Page 172
    ..., will join the Board for the remainder of the auditors' term of office. In the event of a replacement of the Chairman, the office will be taken over by the other regular statutory auditor belonging to the same list. 340 Items on the Agenda and Related Reports and Motions Unchanged Unchanged...

  • Page 173
    Graphic design Atelier Roger Pfund, Communication visuelle sa Geneva, Switzerland Editorial Coordination Micrograf Turin, Italy Printed by Arti Grafiche Giacone Turin, Italy Printed in Italy April 2007 Printed on Arjowiggins Satimat paper

  • Page 174
    Fiat S.p.A. Corporate Headquarters Via Nizza, 250 10126 Turin - Italy Corporate Press Department Contacts: Tel. +39 011 00.63088 Fax +39 011 00.63798 [email protected] www.fiatgroup.com