THE FIAT GROUP IN - Fiat SpA

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the exchange rate in effect at year end. Resulting exchange
gains and losses are included in the statement of operations.
Other receivables also include deposits to guarantee the
securitization transactions of trade receivables (securitization
refers to particular programs of discounting trade receivables
without recourse, with a collateral deposit as a guarantee).
Current assets also include investments and securities
acquired as temporary investment which are valued at the
lower of cost or market, cost being determined on a
Last-In First-Out (LIFO) basis.
Insurance company investments to cover insurance claims
and accruals are valued at the lower of cost or market.
Treasury stock consists of Fiat S.p.A. shares bought back
by Fiat to service stock option plans; it is valued at the lower
of cost or market, cost being determined on a Last-In
First-Out (LIFO) basis. A specific reserve for treasury stock
is also recorded under the stockholders’ equity of the Group
for the same amount.
Reserves for risks and charges and employee severance
indemnities
The reserves for risks and charges include provisions to cover
losses or liabilities likely to be incurred but uncertain as to the
amount or as to the date on which they will arise.
In particular, the reserve for pensions and similar obligations
includes provisions for long-service or other bonuses (including
pension funds required by some countries in which the Group
operates), payable to employees and former employees under
contractual agreements or by law, determined on an actuarial
basis, where applicable.
Restructuring reserves include the costs to carry out corporate
reorganization and restructuring plans and are provided in the
year the company formally decides to commence such plans,
to the extent that such costs can be reasonably estimated.
The technical reserves of insurance companies are determined
according to the procedures and rules issued by the regulatory
agencies in each country in which the individual subsidiaries
operate. In particular, unearned property and liability premiums
are recognized on the pro-rata basis over the period of the
policy. The reserve for unpaid property and liability losses and
unpaid adjustment expenses has been calculated on the basis
of reasonable estimates of the “latest cost” of the claims,
analytically and for groups of particular risks, following
adequate statistical and actuarial methods. The policy
reserves for unpaid losses on life insurance claims are
calculated on an actuarial basis, accompanied by an opinion
by a qualified actuary on the congruity of the amount.
The reserve for employee severance indemnities comprises
the liability for severance indemnities for Italian companies
accrued at year end for each employee and determined in
accordance with labor legislation. In particular, the liability
includes a portion of the employee’s annual salary and is
indexed for inflation in accordance with Italian rules.
Payables
Payables are recorded at face value; the portion of interest
included in the nominal amount is deferred until future periods
in which it is earned. Accounts payable denominated in
foreign currency are translated at the exchange rate in effect
at year end. Resulting exchange gains and losses are included
in the statement of operations.
Taxes payable includes the tax charge for the current year
recorded in the statement of operations.
Accruals and deferrals
Accruals and deferrals are determined using the accrual method
based on the income and expense to which they relate.
Securitization of financial receivables
The Fiat Group has programs for discounting financial
receivables using securitization transactions. This discounting
of financial receivables calls for the sale without recourse of
a portfolio of financial receivables to a non-Group vehicle
company. This company finances itself by issuing securities
backed by the above-mentioned portfolio (Asset Backed
Securities). The securities issued are divided into two types
having different characteristics: the first (historically between
88% and 98% of the entire issue) is placed on the market,
occasionally subdivided by various classes of ratings, and
subscribed to by investors; the second (12%-2%), the
reimbursement of which is subordinated to the first, is subscribed
to by the seller. The risk for the seller is limited to the portion
of the securities which it has subscribed. At the end of each
accounting period, therefore, such securities are evaluated
in relation to the performance of the receivables sold and
may be written down on the basis of this evaluation.
Lastly, these sales without recourse require the immediate
recognition of the present value of the future margin implicit
in the receivables sold, net of discounting costs. This net
value is included in the Value of production since it relates
to revenues typical of the operations of the financial services
companies (to this end, the financial income of such companies
is included in revenues from sales and services, as described
in the relevant note).