Chrysler 2011 Annual Report Download - page 280

279
Fiat S.p.A. - Statutory
Financial Statements
at 31 December 2011
Given its relative weighting, estimates used in determining the carrying amount of Fiat Group Automobiles S.p.A. (FGA) had the most
significant impact on “Investments in subsidiaries and associates”. For the purposes of the 2011 financial statements, measurement
was based on FGA’s estimated “value in use”, which took into account expected performance for 2012 consistent with information
provided in “Subsequent Events and Outlook” (Report on Operations). For the period 2013-2015, original plan targets were adjusted
downward to take into account, for the sake of prudence, the current economic uncertainty, particularly for the eurozone and the
European auto market. With reference to the controlling interest held by FGA in Chrysler, estimates were based on the 2010-2014 Plan
presented in November 2009, in relation to which targets to date have been met or exceeded and targets for future years confirmed.
The normalized cash flow used for calculation of the terminal value was based on a weighted average of the expected contributions
from each geographic market, which take into account the cyclicality and maturity of the auto business in each market. With regard
to Chrysler, given its current negative equity position and restrictions on dividend distributions related to existing financial covenants,
a normalized cash flow contribution (based on the Plan presented on 4 November 2009) was included in the terminal value only. The
estimate of terminal value assumes a long-term growth rate of zero.
As the cash flows are assumed equivalent to expected net profit, the discount rates applied are based on the estimated cost of
equity. Different and increasing rates were applied over the specific cash flow projection period (2012-2015) to reflect the level of
risk associated with achieving targets and with the geographic distribution of earnings. The weighted average discount rate for the
projection period ranged from 15.5% to 18.5%. For the terminal value, a discount rate of 15.3% was used, which factored in the
contribution from Chrysler, in addition to a premium (3%) to reflect the risk associated with achieving targets. A change of half a percent
in the discount rate has an impact of approximately €300 million on the value of the investment.
A similar process was conducted for the investment in Fiat Powertrain Technologies S.p.A. and it was assumed that, as a captive
business, the risk profile was closely correlated to that for FGA’s activities in Europe.
The estimates and assumptions made – which also took into account the current level of uncertainty concerning conditions in the
eurozone in the foreseeable future – as well as an analysis based on historic and prospective P/E multiples for comparable quoted
companies which was used as a control, provide reasonable support for maintaining the carrying amounts recognized for FGA and Fiat
Powertrain unchanged at 31 December 2011.
Accounting principles, amendments and interpretations adopted from 1 January 2011
The Company applied the following principles, amendments and interpretations from 1 January 2011.
On 4 November 2009, the IASB issued a revised version of IAS 24 - Related Party Disclosures that simplifies the disclosure requirements
for transactions with government-related entities and clarifies the definition of a related party. Adoption of the revised standard had no
effect on measurement of items in the financial statements and only a limited effect on disclosure for related-party transactions.
Accounting standards, amendments and interpretations effective from 1 January 2011 but not applicable to the Company
The following amendments, improvements and interpretations, effective from 1 January 2011, relate to issues that were not applicable
at the date of these financial statements, but which may have an impact on the accounting treatment of future transactions or
arrangements:
Amendment to IAS 32 – Financial instruments: Presentation: Classification of Rights Issues
Amendment to IFRIC 14 – Prepayments of a Minimum Funding Requirement
IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments
Improvements to IAS/IFRS (2010)