2006 Annual Report - Fiat SpA

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Board of Directors and Control Bodies 6 Letter from the Chairman and the Chief Executive Officer 9 Report on Operations 10 The Fiat Group 11 Highlights – Group 13 Highlights by Sector 14 Stockholders 16 Sustainability Report 17 Research and Innovation 21 Human Resources 24 Financial Review of the Group 49 Corporate Governance 53 Stock Option 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 62 Fiat Auto – Fiat, Alfa Romeo, Lancia and Fiat Light Commercial Vehicles 66 Maserati 67 Ferrari 68 Agricultural and Construction Equipment 70 Trucks and Commercial Vehicles 74 Fiat Powertrain Technologies 76 Components 78 Metallurgical Products 79 Production Systems 80 Services 81 Publishing and Communications 83 Motion for Approval of the Financial Statements and Allocation of the 2006 Net Income 4 Contents 85 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, 2006 92 Consolidated Balance Sheet pursuant to Consob Resolution No. 15519 of July 27, 2006 93 Notes to the Consolidated Financial Statements 199 Appendix – The Companies of the Fiat Group 233 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 242 Income Statement pursuant to Consob Resolution No. 15519 of July 27, 2006 243 Balance Sheet pursuant to Consob Resolution No. 15519 of July 27, 2006 244 Notes to the Financial Statements 301 Appendix – Transition of the Parent Company Fiat S.p.A. to International Financial Reporting Standards (IFRS) 319 Auditors’ Reports 323 Reports of the Board of Statutory Auditors 329 Items on the Agenda and Related Reports and Motions Fiat S.p.A. Registered Office in Turin, Via Nizza 250 Paid-in capital: 6,377,262,975 euros Entered in the Turin Company Register Fiscal Code: 00469580013 This Report has been translated into English from the original version in Italian. In case of doubt the Italian version shall prevail. Board of Directors and Control Bodies Board of Directors Chairman Luca Cordero di Montezemolo (3) Vice Chairman John Elkann (1) (3) Chief Executive Officer Sergio Marchionne (3) Directors Andrea Agnelli Roland Berger (3) Tiberto Brandolini d’Adda Luca Garavoglia (1) Gian Maria Gros-Pietro (1) Hermann-Josef Lamberti (2) Virgilio Marrone Vittorio Mincato (2) Pasquale Pistorio (3) Carlo Sant’Albano Ratan Tata Mario Zibetti (2) Secretary to the Board Franzo Grande Stevens (1) Member of the Nominating and Compensation Committee (2) Member of the Internal Control Committee (3) Member of the Strategic Committee Board of Statutory Auditors Statutory Auditors Carlo Pasteris – Chairman Giuseppe Camosci Cesare Ferrero Alternate Auditors Giorgio Giorgi Piero Locatelli Roberto Lonzar External Auditors Deloitte & Touche S.p.A. 5
Letter from the Chairman and the Chief Executive Officer 2006 has been an important year for the Fiat Group. It marked the end of the turnaround phase and the beginning of a new, exciting phase of growth. The plan implemented over the past three years has made a clean break with the past. Fiat’s management structure has been reshaped and strengthened, with the creation of lean, efficient and agile organizations in all of our businesses. Special attention has been given to strengthening our brands’ market positioning and proximity to the client. All of this was combined with significant efforts directed at rationalizing processes and achieving higher levels of efficiency in all Group business areas. We have laid the basis for building the Group’s future in industrial, financial and commercial terms. The first significant breakthrough was made in 2005, with the Group posting a net profit for the first time since 2001. The improvements continued throughout 2006, with the Auto Sector reporting its first full-year trading profit since 2000. The other Sectors, especially Iveco and CNH, also generated a good level of top line growth and significant margin expansion. The Group’s results in 2006 will allow us to distribute a dividend to our stockholders for the first time in five years. Restructuring efforts were accompanied by major new and upgrading product program in every area of activity. In the Auto Sector alone, this has meant rolling out 22 new models and restylings in just two years, which has enabled us to gain significant market share both in Italy and in major European countries. Our future also sees Fiat as a much more international group, and significant steps in this direction were taken as evidenced by the number of international agreements reached during the year. The Automobiles Sector focused on reinforcing its presence in two high-growth markets, Russia and India, by entering into commercial and industrial agreements with Severstal Auto and 6 Letter from the Chairman and the Chief Executive Officer Tata Motors. Iveco significantly accelerated its growth 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’s cash position remains high, at almost 8 billion euros at December 31, 2006. All of these factors have contributed to restoring confidence in Fiat. This is confirmed by the improvement in its debt ratings, its ability to attract a large number of institutional international investors when it issues debt securities, and its steadily rising stock market price. The results we present on these pages are the fruit of an intense and rigorous commitment. But more than anything else, they reflect the new mentality prevailing at Fiat today, at all levels and in every area of activity. Delivering on our promises is a key value for us. We demonstrated this by achieving and, in many cases, exceeding all the targets proposed to the markets three years ago. Promoting on the basis of merit, making individuals accountable, and giving them a wide margin of operating freedom are some of the key drivers that are beginning to bring about a significant, structural cultural change in the company. Embracing and cherishing competition and looking at the future as an opportunity to be seized and exploited has become our philosophy. These changes were made possible as a result of a redefinition of the concept of leadership and its significance in the management of our businesses, which has enabled Fiat to reinforce its market positions, greatly accelerate product development timeframes and make a leap in quality. The men and women who now work in our Group – and who have done a hard job these years to restore the pride and credibility of Fiat – are the best guarantee for the future of our company. We want to express our most sincere thanks to all of them for the results achieved. The plan marked out for the next four years is even more ambitious and challenging. It is a plan geared towards growth. Improved operating performance across all businesses, accompanied by significant investments, and growing profitability in every business area will consolidate Fiat’s position as a major international industrial group. Here again, the targets set for each of the years up to 2010 are clear and rigorous. In 2007, these targets envisage that the Group turn a trading profit of between 2.5 and 2.7 billion euros and realize net income of between 1.6 and 1.8 billion euros. The trading margin target for the Automobiles Business Area, which faces the challenge of a fairly stable market in Europe and a slowly expanding one in Brazil, has been set at 2.6-3.4%. This is almost double the figure for 2006. That result will be supported by the start of sales of new models, especially Fiat Bravo, Fiat Linea, and Fiat 500, and actions to streamline governance costs. For the other principal activities, the aim is to realize significant trading margins: 9+% for CNH and 7+% for Iveco. We are committed to building a great Company. This is why we will keep the pressure up and continue to demand maximum effort from all the men and women at Fiat. We will continue to cut costs in non-essential areas. We will flank our continuously developing technologies with an improved commercial organization and more efficient services. We will continue investing in product and process innovation, devoting special attention to quality standards. We will be ready to seize any positive opportunities that should arise to stimulate our growth even more, through targeted cooperation with significant partners. The Fiat of today has the will, capacity, and solid foundation for setting out on a significant path of development, while holding on firmly to those values of honesty, integrity, and accountability that have sustained us thus far. This is our commitment and, at the same time, our new promise. Turin, February 20, 2007 Luca Cordero di Montezemolo Chairman Sergio Marchionne Chief Executive Officer Letter from the Chairman and the Chief Executive Officer 7
Page 1 and 2: Annual Report Consolidated and Stat
Page 3: But it does move. Galileo Galilei
Page 7 and 8: The Fiat Group The Fiat Group perfo
Page 9 and 10: Stockholders Financial communicatio
Page 11 and 12: in 2003, and now the Panda Hydrogen
Page 13 and 14: The meeting with the EWC Selected C
Page 15 and 16: Revenues by Business Area (in milli
Page 17 and 18: The breakdown of trading profit by
Page 19 and 20: Investment income was 156 million e
Page 21 and 22: If working capital is restated to i
Page 23 and 24: Financial Services Revenues (in mil
Page 25 and 26: Statement of Changes in Net Industr
Page 27 and 28: strategic consistency, economic fea
Page 29 and 30: The Board of Directors, at its meet
Page 31 and 32: There can be no motion without some
Page 33 and 34: Fiat Auto - Fiat, Alfa Romeo, Lanci
Page 35 and 36: Maserati Operating Performance In 2
Page 37 and 38: Trucks and Commercial Vehicles Ivec
Page 39 and 40: Fiat Powertrain Technologies Operat
Page 41 and 42: Metallurgical Products - Teksid Pro
Page 43 and 44: Motion for Approval of the Financia
Page 45 and 46: Consolidated Income Statement (*) (
Page 47 and 48: Statement of Changes in Stockholder
Page 49 and 50: partially from the market: the rema
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Union market for the Fiat Auto and
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Composition and principal changes I
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Net financial expenses in 2006 (exc
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Year of expiry Total at December Be
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The net carrying amount of Intangib
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14. Property, plant and equipment I
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In 2005 Changes in accumulated depr
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esulting in a reduction of 1,213 mi
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Receivables from financing activiti
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(the residual debt of the Exchangea
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The reconciliation of the number of
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A summary of outstanding stock opti
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Under the CNH EIP, performance-base
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26. Provisions for employee benefit
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Changes in the present value of Pos
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■ Commercial risks - This provisi
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31, 2006 (872 million euros at Dece
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Fidis Retail Italia (FRI) All the r
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Other and Magneti Business elimina-
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Credit risk The maximum credit risk
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The increase over the prior year re
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■ Current trade receivables of 78
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The book value at the disposal date
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198 Appendix The Companies of the F
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Subsidiaries consolidated on a line
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% of Group % of consoli- Interest %
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Subsidiaries accounted for using th
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234 Financial Review of Fiat S.p.A.
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(*) (*) Income Statement Balance Sh
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Income Statement pursuant to Consob
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When an impairment loss on assets s
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Provisions The company recognises p
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4. Other operating income Other ope
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Net income from derivative financia
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12. Property, plant and equipment T
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15. Other non-current assets At Dec
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Regarding changes in 2005, the Mand
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A summary of outstanding stock opti
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The amounts recognised in the Incom
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The item Payables to Group companie
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These relate to: ■ guarantees of
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Counterparty Other Current Other No
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32. Significant non-recurring trans
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Fees paid to Members of the Board o
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Financial statement format Fiat S.p
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Deferred tax assets Reclassificatio
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Reconciliation of net profit (loss)
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B. Employee benefits The employees
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Auditors’ Reports Auditors’ Rep
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Reports of the Board of Statutory A
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that numerous transactions involvin
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Motion for Approval of the Financia
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Motion to amend Articles 9, 11, 12,
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Stockholders Meeting and will be ef
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Graphic design Atelier Roger Pfund,
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2006 Annual Report - Fiat SpA

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