2006 Annual Report - Fiat SpA

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In order to render the reconciliation between income taxes recorded in the financial statements and theoretical income taxes more meaningful, the IRAP tax is not taken into consideration. Since the IRAP tax has a taxable basis that is different from income before taxes, it generates distortions between one year and another. Accordingly, theoretical income taxes are determined by applying only the tax rate in effect in Italy (IRES equal to 33% in 2006 and in 2005) to income before taxes. Permanent differences in the above reconciliation include the tax effect of non-taxable income of 206 million euros in 2006 (677 million euros in 2005) and of non-deductible costs of 204 million euros in 2006 (225 million euros in 2005). In particular, in 2005 the tax effect of permanent differences arose principally from the theoretical tax effect of 283 million euros on the unusual financial income relating to the Mandatory Convertible Facility (gross 858 million euros) and that of 290 million euros arising from the sale of Italenergia Bis S.p.A. (gross 878 million euros). The reconciliation includes a positive effect of 189 million euros resulting from the recognition of net deferred tax assets not recognised in prior years (the effect of this was negative in 2005 as the deferred tax assets originating during the year were not recognised). In 2006, Other differences included unrecoverable withholding tax for 20 million euros (21 million euros in 2005). Net deferred tax assets at December 31, 2006 consist of deferred tax assets, net of deferred tax liabilities, which have been offset where possible by the individual consolidated companies. The net balance of Deferred tax assets and Deferred tax liabilities may be analysed as follows: (in millions of euros) At December 31, 2006 At December 31, 2005 Change Deferred tax assets 1,860 2,104 (244) Deferred tax liabilities (263) (405) 142 Net deferred tax assets 1,597 1,699 (102) The reduction in net deferred tax assets, as analysed in the following table, is mainly due to: ■ negative exchange differences and other changes amounting to 105 million euros; ■ the corresponding tax effect of items recorded directly in equity amounting to 35 million euros; ■ changes in the scope of consolidation due to the sale of a subsidiary (B.U.C.) and to the deconsolidation of the Fiat Auto Sector financial subsidiaries which were transferred to the FAFS joint venture for 23 million euros. These components of the reduction were partly offset by the recognition of deferred tax assets, net of the realisation of deferred tax assets recognised in prior years. 116 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes Deferred tax assets and deferred tax liabilities may be analysed by source as follows: Translation At Recognised Changes in differences At December in income Charged the scope of and other December (in millions of euros) 31, 2005 statement to equity consolidation changes 31, 2006 Deferred tax assets arising from: - Taxed provisions 1,396 126 – (1) (32) 1,489 - Inventories 223 – – – (3) 220 - Taxed allowances for doubtful accounts 142 39 – (2) (7) 172 - Employee benefits 675 (15) – (2) (47) 611 - Write-downs of financial assets 1,073 (602) – (2) (3) 466 - Measurement of derivative financial instruments 22 124 (20) – (6) 120 - Other 1,099 (320) – (12) (21) 746 Total Deferred tax assets 4,630 (648) (20) (19) (119) 3,824 Deferred tax liabilities arising from: - Accelerated depreciation (533) 8 – 20 17 (488) - Deferred tax on gains (83) 71 – – (2) (14) - Capital investment grants (27) 10 – – – (17) - Employee benefits (24) (8) – 1 – (31) - Capitalisation of development costs (822) (89) – – 5 (906) - Other (1,011) (125) (15) 6 45 (1,100) Total Deferred tax liabilities (2,500) (133) (15) 27 65 (2,556) Theoretical tax benefit arising from tax loss carryforwards 5,011 804 – (72) (42) 5,701 Adjustments for assets whose recoverability is not probable (5,442) 38 – 41 (9) (5,372) Total Deferred tax assets, net of Deferred tax liabilities 1,699 61 (35) (23) (105) 1,597 The decision to recognise 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 arising from deductible temporary differences (3,824 million euros at December 31, 2006 and 4,630 million euros at December 31, 2005) and tax loss carryforwards (5,701 million euros at December 31, 2006 and 5,011 million euros at December 31, 2005) have been reduced by 5,372 million euros at December 31, 2006 and 5,442 million euros at December 31, 2005. In particular, Deferred tax assets, net of Deferred tax liabilities, include 1,150 million euros at December 31, 2006 (965 million euros at December 31, 2005) of tax benefits arising from tax loss carryforwards. At December 31, 2006, a further tax benefit of 4,551 million euros (4,046 million euros at December 31, 2005) arising from tax loss carryforwards has not been recognised. Deferred taxes have not been provided on the undistributed earnings of subsidiaries since the Group is able to control the timing of the distribution of these reserves and it is probable that they will not be distributed in the foreseeable future. The totals of deductible and taxable temporary differences and accumulated tax losses at December 31, 2006, together with the amounts for which deferred tax assets have not been recognised, analysed by year of expiry, are as follows: Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes 117
Year of expiry Total at December Beyond Unlimited/ (in millions of euros) 31, 2006 2007 2008 2009 2010 2010 indeterminable Temporary differences and tax losses relating to State taxation (IRES in the case of Italy): - Deductible temporary differences 10,445 4,723 1,281 1,210 1,159 2,010 62 - Taxable temporary differences (6,347) (1,330) (1,164) (1,240) (1,072) (1,290) (251) - Tax losses 18,461 551 1,978 2,016 2,134 4,804 6,978 - Temporary differences and tax losses for which deferred tax assets have not been recognised (17,574) (1,384) (1,980) (1,916) (2,130) (4,942) (5,222) Temporary differences and tax losses relating to State taxation 4,985 2,560 115 70 91 582 1,567 Temporary differences and tax losses relating to local taxation (IRAP in the case of Italy): - Deductible temporary differences 4,025 1,013 684 656 620 1,039 13 - Taxable temporary differences (4,239) (516) (936) (1,013) (850) (924) – - Tax losses 822 – – – – 246 576 - Temporary differences and tax losses for which deferred tax assets have not been recognised (1,390) (163) (81) (81) (79) (419) (567) Temporary differences and tax losses relating to local taxation (782) 334 (333) (438) (309) (58) 22 12. Earnings per share As explained at the Note 25 below, Fiat S.p.A. capital stock is represented by three different classes of shares (ordinary shares, preference shares and saving shares) that participate in dividends with different rights. Profit or loss of the period attributable to each class of share is determined in accordance with the share’s contractual dividend rights, and for this purpose the net result attributable to ordinary equity holders of the parent entity is adjusted by the amount of the dividend declared in the period for each class of share and by any other dividends that are contractually due, in the theoretical event of a total distribution of profits. The remaining profit is then allocated equally to each of the three classes of shares as if all the profit for the period had been distributed, with the total amount of profit allocated to each class of share being divided by the weighted average number of outstanding shares to determine earnings per share. The following table shows the reconciliation between the net result attributable to equity holders of the parent and the profit attributable to each class of shares, as well as, figures used in the computation of the base earnings per share: 118 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes 2006 2005 Ordinary Preference Saving Ordinary Preference Saving shares shares shares Total shares shares shares Total Profit attributable to equity holders of the parent million of euros 1,065 1,331 Prior period dividends to saving shares declared for the period million of euros – – 50 50 – – – – Dividends declared for the period million of euros 169 32 25 226 – – – – Theoretical preference right on saving and ordinary shares million of euros 169 – 12 181 – – – – Profit available for distribution to all classes of shares million of euros 521 49 38 608 1,102 129 100 1,331 Profit attributable to each class of shares million of euros 859 81 125 1,065 1,102 129 100 1,331 Weighted average number of shares thousand 1,088,027 103,292 79,913 1,271,232 881,177 103,292 79,913 1,064,382 Basic Earning per share euros 0.789 0.789 1.564 1.250 1.250 1.250 If prior period dividends to saving shares had not been assigned, basic and diluted earnings per savings shares in 2006 would have been 0.983 euros per share 0.982 euros per share, respectively. Basic and diluted earnings per share attributable to ordinary and preference shares in 2006 would have been 0.828 euros per share and 0.827 euros per share, respectively. For the purpose of calculating the diluted earning per share in 2006, the number of ordinary shares considered is the average number of shares outstanding plus the effects arising from shares that would be issued on the exercise of all dilutive stock options. During 2005 no dilutive effects arose from above mentioned stock option plans. In 2005 and 2006 no dilutive effects arose from warrants issued by Fiat S.p.A. on its ordinary shares. Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes 119
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Annual Report Consolidated and Stat
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But it does move. Galileo Galilei
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Letter from the Chairman and the Ch
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The Fiat Group The Fiat Group perfo
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Page 15 and 16: Revenues by Business Area (in milli
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Page 19 and 20: Investment income was 156 million e
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Page 25 and 26: Statement of Changes in Net Industr
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Page 29 and 30: The Board of Directors, at its meet
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Page 33 and 34: Fiat Auto - Fiat, Alfa Romeo, Lanci
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Page 47 and 48: Statement of Changes in Stockholder
Page 49 and 50: partially from the market: the rema
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Page 57 and 58: Composition and principal changes I
Page 59: Net financial expenses in 2006 (exc
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Page 67 and 68: In 2005 Changes in accumulated depr
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Page 77 and 78: A summary of outstanding stock opti
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Page 83 and 84: Changes in the present value of Pos
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Page 89 and 90: Fidis Retail Italia (FRI) All the r
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Page 93 and 94: Credit risk The maximum credit risk
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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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