2006 Annual Report - Fiat SpA
2006 Annual Report - Fiat SpA
2006 Annual Report - Fiat SpA
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26. Provisions for employee benefits<br />
Group companies provide post-employment benefits for their employees, either directly or by contributing to independently<br />
administered funds.<br />
The way these benefits are provided varies according to the legal, fiscal and economic conditions of each country in which the<br />
Group operates, the benefits generally being based on the employees’ remuneration and years of service. The obligations relate<br />
both to active employees and to retirees.<br />
Group companies provide post-employment benefits under defined contribution and/or defined benefit plans.<br />
In the case of defined contribution plans, the company pays contributions to publicly or privately administered pension insurance<br />
plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the company has no further payment<br />
obligations. Liabilities for contributions accrued but not paid are included in the item Other payables (see Note 30). The entity<br />
recognise the contribution cost when the employee has rendered his service and includes this cost by destination in Cost of Sales,<br />
Selling, General and Administrative costs and Research and development costs. In <strong>2006</strong>, these expenses totalled 1,161 million<br />
euros (1,080 million euros in 2005).<br />
Defined benefit plans may be unfunded, or they may be wholly or partly funded by contributions by an entity, and sometimes by<br />
its employees, into an entity, or fund, that is legally separate from the employer and from which the employee benefits are paid.<br />
In the case of funded and unfunded post employment benefits, included in the item Post-employment benefits, the Group<br />
obligation is determined on an actuarial basis, using the Projected Unit Credit Method and is offset against the fair value of plan<br />
assets, if any. Where the fair value of plan assets exceed the post-employment benefits obligation, and the group has a right of<br />
reimbursement or a right to reduce future contributions, the surplus amount is recognised in accordance with IAS 19 as an asset.<br />
As discussed in the paragraph Significant accounting policies, actuarial gains and losses are accounted for from January 1, 2004<br />
using the corridor approach.<br />
Finally, the Group grants certain other long-term benefits to its employees; these benefits include those generally paid when the<br />
employee attains a specific seniority or in the case of disability. In this case the measurement of the obligation reflects the<br />
probability that payment will be required and the length of time for which payment is expected to be made. The amount of this<br />
obligation is calculated on an actuarial basis using the Projected Unit Credit Method. The corridor approach is not used for<br />
actuarial gains and losses arising from this obligation.<br />
The item Other provisions for employees consists of the best estimate at the balance sheet date of short-term employee benefits<br />
payable (such as bonuses for example) by the Group within twelve months after the end of the period in which the employees<br />
render the related.<br />
158<br />
<strong>Fiat</strong> Group Consolidated Financial Statements at December 31, <strong>2006</strong> - Notes<br />
Provisions for employee benefits at December 31, <strong>2006</strong> and 2005 are as follows:<br />
(in millions of euros) At December 31, <strong>2006</strong> At December 31, 2005<br />
Post-employment benefits:<br />
- Employee severance indemnity 1,270 1,283<br />
- Pension Plans 795 903<br />
- Health care plans 986 1,102<br />
- Other 259 294<br />
Total post-employment benefits 3,310 3,582<br />
Other provisions for employees 266 216<br />
Other long-term employee benefits 185 152<br />
Total provision for employee benefits 3,761 3,950<br />
Defined benefit plan assets 11 –<br />
Total Defined benefits plan assets 11 –<br />
In <strong>2006</strong>, changes in Other provisions for employees and in Other long-term employee benefits are as follows:<br />
Change in the scope of<br />
At December consolidation and At December<br />
(in millions of euros) 31, 2005 Provision Utilisation other changes 31, <strong>2006</strong><br />
Other provisions for employees 216 209 (129) (30) 266<br />
Other long-term employee benefits 152 21 (14) 26 185<br />
Total 368 230 (143) (4) 451<br />
In 2005, changes in Other provisions for employees and in Other long-term employee benefits were as follows:<br />
Change in the scope of<br />
At December consolidation and At December<br />
(in millions of euros) 31, 2004 Provision Utilisation other changes 31, 2005<br />
Other provisions for employees 100 136 (28) 8 216<br />
Other long-term employee benefits 140 18 (13) 7 152<br />
Total 240 154 (41) 15 368<br />
Post-employment benefits and Other long-term employee benefits are calculated on the basis of the following actuarial<br />
assumptions:<br />
At December 31, <strong>2006</strong> At December 31, 2005<br />
In % Italy USA UK Other Italy USA UK Other<br />
Discount rate 3.98 5.80 5.00 4-5 3.53 5.50 4.75 1-5.25<br />
Future salary increase 3.65 n/a 3.50 1.5-3.5 2.58 n/a 3.50 2.25-3.5<br />
Inflation rate 2.00 n/a 3.00 2.00 2.00 n/a 2.75 2.00<br />
Increase in healthcare costs n/a 5-10 n/a n/a n/a 5-10 n/a n/a<br />
Expected return on plan assets n/a 8.25 7.25 n/a n/a 8.25 6.88 n/a<br />
<strong>Fiat</strong> Group Consolidated Financial Statements at December 31, <strong>2006</strong> - Notes 159