Chrysler 1999 Annual Report Download - page 23

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FINANCIAL POSITION AND OPERATING RESULTS
OF THE FIAT GROUP
Introduction
During 1999, in continued pursuit of a strategy of international
expansion, the Group carried out important transactions
designed to strengthen its competitive position and focus
the operations of its Sectors. The process of redefining and
strategically positioning the Group required the deployment
of massive financial resources, as capital investment reached
the unprecedented total of more than 6,000 million euros.
The impact of these developments on the scope of
consolidation should be kept in mind when reviewing the
performance of the individual Sectors and of the Group as
a whole. The most important changes are listed below:
❚In view of the growing importance of its Indian operations,
Fiat Auto consolidated Fiat India Automobiles Ltd. and its
subsidiary Ind. Auto Ltd. on a line-by-line basis.
❚Iveco consolidated on a 50% proportional basis the results
of Naveco Ltd., a Chinese company that manufactures and
sells commercial vehicles, and those of Irisbus, a 50-50 joint
venture to which Iveco and Renault V.I. transferred their bus
operations.
In December, Iveco acquired a controlling interest in Fraikin,
a leading French provider of long-term leasing services for
commercial vehicles. Fraikin was consolidated in the Group’s
financial statements for the fourth quarter.
❚In November, New Holland completed the acquisition of
Case Corporation at a total cost of about 4,600 million
euros. Following the acquisition, New Holland changed its
name to CNH Global N.V. (CNH). Because of problems
arising from the difference between its accounting principles
(U.S. GAAP) and those of the Group, Case could not be
consolidated in 1999. However, its results will be reflected
in the Group’s financial statements starting with 2000.
CNH consolidated for the full year on a line-by-line basis
O&K Orenstein & Koppel AG, a German construction
equipment company which it acquired at the end of 1998,
and New Holland Bizon Sp. Zo.o., a Polish producer of
combine harvesters which it bought in July 1998.
❚Teksid consolidated on a line-by-line basis Meridian
Technologies Inc., a producer of magnesium components
which is now controlled by the Sector, and the operations
transferred by Renault into a unit that operates the cast-iron
and aluminum production activities of both Groups.
The Steel Division, which was sold to Neumayer GmbH,
was removed from the scope of consolidation.
❚Magneti Marelli consolidated on a line-by-line basis the
European operations it had purchased from Midas (quick
repair centers). At the same time, it sold to Denso of Japan an
80% interest in its Rotary Devices Business Unit, continued
to divest the nonstrategic product lines of the Cofap Group
in Brazil and deconsolidated the Fuel Supply Division, which
is in the process of being sold. In addition, it consolidated on
a proportional basis Viasat, a 50-50 joint venture established
with Telecom Italia to provide infomobility services.
In December, it announced the sale of its Lubricants Division,
which will be deconsolidated as of 2000, and the purchase
of Seima, a manufacturer of automotive lighting fixtures.
❚Fiat S.p.A. acquired the Pico (Progressive Tools & Industries
Co.) Group, a leading U.S. producer of bodywork systems.
Comau is also active in this field. Pico’s results were
consolidated by the Fiat Group as of May 1999.
The new Sector Comau/Pico used the line-by-line method
to consolidate Renault Automation, a manufacturer of
systems and equipment used in the production of automotive
components in which it had acquired a 51% interest, and
the Bodywork Systems activities of Sciaky S.A. in France.
❚In December, Toro Assicurazioni purchased the French
operations of the Guardian Group Royal Exchange, which
specializes in the areas of life insurance and asset management.
❚Lastly, the tender offers for Toro Assicurazioni S.p.A. (71%
and 80% of the outstanding preference and saving shares
respectively) and Comau S.p.A. (substantially 100% of the
outstanding shares) were completed successfully at a total
cost of 622 million euros.
In 1999, the Group divested several nonstrategic equity
investments, including those in Banco Central Hispano
Americano, Rhône Poulenc, Impregilo and Intesa.
Operating performance
Steadily rising unit sales and the significant improvement in
operating margins recorded in the last quarter of the year,
combined with the effect of sizable reductions in product costs
and overhead, enabled the Fiat Group to report a moderate
improvement in operating income compared with 1998.
The higher financial expenses incurred as a result of the
acquisitions completed during the year and a higher tax
burden had a dampening effect on the bottom line.
Nevertheless, net income exceeded 500 million euros in 1999.
In order to provide a better understanding of the Group’s
performance, the statement of operations has been reclassified
by destination in the table below, providing a breakdown
between industrial and insurance activities.
ANALYSIS OF THE FINANCIAL POSITION AND
OPERATING RESULTS OF THE FIAT GROUP AND FIAT S.P.A.