PININFARINA GROUP. Quarterly Report at March 31, 2006

Transcription

1 PININFARINA GROUP Quarterly Report at March 31, 2006 Pininfarina S.p.A. Share Capital: 9,317,000 euros, fully paid in Registered Office: 6 Via Bruno Buozzi, Turin Tax I.D. and Turin Company Register No

2 PININFARINA GROUP Quarterly Report at March 31, 2006 Approved by the Board of Directors on May 12,

3 Board of Directors Chairman * Sergio Pininfarina (1) Chief Executive Officer * Andrea Pininfarina Directors Elisabetta Carli Mario Renzo Deaglio (2) Cesare Ferrero (1) (2) Carlo Pavesio (2) Lorenza Paolo Pininfarina Pininfarina Franzo Grande Stevens (1) (1) Member of the Appointments and Compensation Committee. (2) Member of the Internal Control Committee. Board of Statutory Auditors Chairman Giacomo Zunino Statutory Auditors Giorgio Giorgi Piergiorgio Re Secretary to the Board of Directors Independent Auditors Gianfranco Albertini PricewaterhouseCoopers S.p.A. *Powers Under Article 22 of the Bylaws, the Chairman and the Chief Executive Officer are the legal representatives of the Company before outsiders and before the courts. Accordingly, they are empowered to carry out all actions that are consistent with the Bylaws and do not conflict with the provisions of Article 2384 of the Italian Civil Code. 3

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5 CONTENTS Review of Operating and Financial Performance page 7 Consolidated Financial Highlights page 10 Reclassified Consolidated Income Statement page 11 Reclassified Consolidated Balance Sheet page 12 Net Financial Position page 13 Consolidated Balance Sheet page 14 Consolidated Income Statement page 16 Statement of Changes in Shareholders Equity page 17 Consolidated Cash Flow Statement page 18 Companies of the Pininfarina Group page 19 Notes to the Quarterly Consolidated Financial Statements page 20 Other Information page 44 5

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7 The Pininfarina Group Review of Operating and Financial Performance The quarterly financial statements at March 31, 2006 were prepared in accordance with the international accounting principles set forth in IAS 34 and comply with IFRS guidelines. In order to allow the comparison of homogeneous data, the financial statements for the first three months of 2005 have been restated in accordance with the same principles. The accounting principles applied, which are reviewed beginning on page 20 of this Report, are consistent with those used for the data at December 31, In the first quarter of 2006, the Pininfarina Group was busy on two fronts. On the manufacturing side, it ramped up production of two new models (the Alfa Romeo Brera and the Volvo C70). Meanwhile, its service businesses continued to develop both future Pininfarina products and design and engineering projects for third parties. At March 31, 2006, value of production totaled million euros, or 34.9% more than in the same period in 2005 (99.6 million euros). Despite this sharp increase in revenues, the Group still reported a loss both at the operating level (-11.4 million euros) and in terms of its bottom line (-8.1 million euros). These results are roughly in line with the forecast provided for 2006, which called for a breakeven year, but only after the Group s activities begin to operate at full capacity in the second half of the year. If one is to view the 2006 and 2005 quarterly figures in a similar light, it is important to keep in mind the following developments: - The data for the first quarter of 2005 (EBIT of 21.6 million euros and net profit of 22 million euros) benefited from a gain of 30.2 million euros on the sale of the investment in the Open Air Systems GmbH joint venture; - In the first quarter of 2005, even though production volume was inadequate, the performance of the Group s regular operations benefited from the gradual end of the production run of the last two cars in the old product line (Ford Streetka and Mitsubishi Pajero Pinin). On the other hand, during the first three months of 2006, the Group was stepping up production of the Alfa Romeo Brera, Mitsubishi Colt CZC and Volvo C70 and preparing to start manufacturing the Alfa Romeo Spider and Ford Focus CC. The cost structure entailed by these two diverging scenarios is clearly more burdensome for the startup situation, with an adverse effect on the operating results reported in the first quarter of The net financial position was positive by 26.7 million euros, an improvement over the negative balance of 6.9 million euros at December 31, 2005 (positive balance of 36 million euros at March 31, 2005). An increase in liquidity made possible by changes in working capital requirements and a positive difference between production loans receivable and payable are the main reasons for this improvement. At March 31, 2006, the Group had 2,738 employees (4.6% more than the 2,618 employees on staff at March 31, 2005). Another 702 were employed by Pininfarina Sverige A.B., the Group s Swedish joint venture. 7

8 Performance of the Group s Businesses in the First Three Months of 2006 Manufacturing Operations The manufacturing operations generated value of production of 97.4 million euros (+72.4%, compared with 56.5 million euros in 2005). This increase is explained by the following factors: - higher unit output (+8.3%); - expanded processing assignment due to a change in the production cycle; - greater unit value of the products manufactured this year as compared with those manufactured in The table below provides a breakdown of the number of cars invoiced during the period: 3/31/06 3/31/05 Alfa Romeo Brera 3,265 0 Ford Streetka 0 1,470 Mitsubishi Pajero Pinin 0 1,591 Mitsubishi Colt CZC 51 0 TOTAL 3,316 3,061 EBIT were negative by 12.1 million euros, compared with positive EBIT of 22.8 million euros at March 31, 2005 (which included a gain of 30.2 million euros on the sale of the investment in Open Air Systems GmbH). In the coming weeks, the Alfa Romeo Spider will join other recently introduced models on the production line. Manufacture of the Ford Focus CC will follow in the second half of the year, completing the line of products that the Group will be manufacturing in the coming years. The rehiring of employees who were enrolled in the Special Government Layoff Benefits Fund has been virtually completed. To meet the temporary staffing requirements that occur when model production is being ramped up, the Group signed an agreement allowing it to use employees seconded from other businesses (more than 400 employees for all of 2006). Service Operations The value of production generated by the Group s service businesses, which include design, industrial design and engineering, amounted to 37 million euros, or 14.2% less than at March 31, 2005, when it amounted to 43.1 million euros. A decrease in development work for Pininfarina products accounts for the shortfall. On the other hand, assignments for non-captive customers increased, allowing the improvement in profitability that started in the second half of 2005 to continue in the first quarter of Specifically, the EBIT of the service businesses were positive by 0.6 million euros, compared with negative EBIT of 1.2 million euros at March 31,

9 Outlook for the Balance of the Year and Significant Events Occurring Since March 31, 2006 Forecasts for the balance of the year call for consolidated value of production to top 700 million euros. The increase over the 2005 figure (383 million euros) will be realized mainly once the full new product line is in place. For all of 2006, EBIT should be close to breakeven, with the profitability of the Group s regular operations increasing sufficiently in the second half of the year to offset the losses incurred during the first six months of The net financial position should contract compared with the first three months of the year, reflecting the completion of the Group s capital investment programs. The early positive feedback that is coming from the international markets strengthens the conviction that the new models, which have required an unprecedented manufacturing and financial effort, will be successful commercially. Specifically: - The commercial launch of the Volvo C70 (more than 3,600 cars produced thus far) in March in the United States and Great Britain, and in Italy and the rest of Europe a few days ago, points to greater demand than was originally anticipated; - The Mitsubishi Colt CZC (over 1,000 units manufactured thus far) seems headed for commercial success. Following its pan-european launch in March and even before the launch of the Open Doors, which is scheduled for June in Europe, orders have been very strong, especially in Germany. - The award received by the Alfa Romeo Spider, which was voted Cabrio of the Year at the Geneva Motor Show, bodes well for its future on the eve of the start of production. The Spider will complement the Alfa Romeo Brera (more than 6,000 units sold thus far); - Lastly, the Ford sales network has steadily growing expectations of success for the Focus CC, which, after being previewed in Geneva, will be officially introduced to the public at the London Motor Show in July. No events involving Group companies have occurred to date that would significantly alter the Group s balance sheet or financial position compared with December 31, May 12, 2006 Sergio Pininfarina Chairman of the Board of Directors 9

10 CONSOLIDATED FINANCIAL HIGHLIGHTS (in thousands of euros) Data at Data at 3/31/06 3/31/05 12/31/05 Operating Data Net revenues 103,009 57, ,426 Value of production 134,416 99, ,030 EBIT (11,431) 21,617 (8,281) Net financial income 1,060 1,342 1,370 Profit before taxes (10,552) 21,205 (9,501) Profit (Loss) for the period (8,094) 21,958 (8,103) Cash flow * (4,102) 25,847 8,270 Balance Sheet Data Net non-current assets 249, , ,933 Net invested capital 186, , ,160 Group interest in shareholders' equity 184, , ,557 Net financial position 26,713 36,019 (6,894) Other Data Number of employees at end of period 2,738 2,618 2,733 * Group interest in net profit plus depreciation and amortization. 10

11 RECLASSIFIED CONSOLIDATED INCOME STATEMENT (in thousands of euros) Data at Data at 3/31/06 % 3/31/05 % Change 12/31/05 Net revenues , , Changes in inventory of work in process and finished products , ,24 (9.708) (85.206) Other income and revenues 722 0, ,10 (1.366) Work performed internally and capitalized 310 0,23 0 0, Value of production for the period , , Net gain on disposal of non-current assets 65 0, ,36 (30.171) Raw materials and outside services ( ) (93,86) (70.337) (68,49) (55.821) ( ) Change in inventory of raw materials ,50 (7.337) (7,37) (5.794) Value added , ,50 (28.386) Labor costs (31.178) (23,19) (26.405) (26,51) (4.773) ( ) EBITDA (7.401) (5,51) ,99 (33.159) Depreciation and amortization (3.992) (2,97) (3.889) (3,90) (103) (16.373) Additions to provisions and reserves (38) (0,03) (252) (2,38) 214 (2.374) EBIT (11.431) (8,50) ,70 (33.048) (8.281) Net financial income , ,35 (282) Other income (expense), net (181) (0,13) (1.754) (1,76) (2.590) Profit before taxes (10.552) (7,85) ,29 (31.757) (9.501) Income taxes , , Profit (Loss) for the period (8.094) (6,02) ,05 (30.052) (8.103) 11

12 RECLASSIFIED CONSOLIDATED BALANCE SHEET (in thousands of euros) Data at Data at 3/31/06 12/31/05 Change 3/31/05 Net non-current assets (A) Net intangible assets (82) Net property, plant and equipment Equity investments (297) Total A Working capital (B) Inventory Net trade receivables and other receivables (15.483) Deferred-tax assets Trade accounts payable ( ) ( ) (68.287) ( ) Provision for risks and charges (2.795) (2.728) (67) (4.276) Other liabilities (64.888) (63.706) (1.182) (57.218) Total B (62.357) (19.773) (42.584) Net invested capital (C=A+B) (37.506) Provision for termination indemnities (D) Net capital requirements (E=C-D) (38.095) Shareholders equity (F) (4.488) Net financial position (G) Long-term debt (23.340) (Net liquid assets) (99.519) (89.252) (10.267) (87.113) Total G (26.713) (33.607) (36.019) Total as in E (H=F+G) (38.095)

13 NET FINANCIAL POSITION (in thousands of euros) Data at Data at 3/31/06 12/31/05 Change 3/31/05 Cash and cash equivalents Current assets held for trading (30) Current loans receivable and other receivables (8.814) Available-for-sale current assets Loans receivable from associates and joint ventures Bank account overdrafts (280) (501) Current liabilities under finance leases (41.365) (46.045) (35.781) Loans payable to associates and joint ventures Net liquid assets Long-term loans and other receivables from outsiders Long-term loans and other receivables from associates and joint ventures Available-for-sale non-current assets Long-term liabilities under finance leases ( ) ( ) (16.168) ( ) Long-term bank debt ( ) ( ) (644) ( ) Long-term debt (72.806) (96.146) (51.094) Net financial position (6.894)

14 Consolidated Balance Sheet Assets Note ref. 3/31/06 12/31/05 Property, plant and equipment 7 208,514, ,056,932 Land and buildings 100,226,720 99,677,778 Land 22,618,462 22,619,019 Buildings 67,170,765 66,538,277 Leased property 10,437,493 10,520,482 Plant and machinery 95,593,911 91,413,504 Machinery 5,508,760 5,769,909 Plant 34,233,733 34,853,880 Leased machinery and equipment 55,851,418 50,789,715 Furniture, fixtures and other property, plant and equipment 6,400,036 6,339,239 Furniture and fixtures 2,925,125 3,007,970 Hardware and software 2,469,083 2,292,636 Other property, plant and equipment (incl. vehicles) 1,005,828 1,038,633 Other leased property, plant and equipment 0 0 Assets under construction 6,293,562 5,626,411 Investment in property, plant and equipment 0 0 Intangible assets 8 6,202,026 6,284,212 Goodwill 2,301,012 2,301,012 Licenses and trademarks 3,561,226 3,626,561 Development costs 0 0 Other intangibles 339, ,639 Equity investments 34,295,100 34,592,135 Subsidiaries 0 0 Associated companies 9 744, ,800 Joint ventures 9 33,018,884 33,373,701 Other companies 9 531, ,634 Deferred-tax assets 27,801,599 20,926,810 Non-current financial assets 307,639, ,487,405 Held-to-maturity long-term investments 0 0 Loans and other receivables from: 275,547, ,472,036 Outsiders ,062, ,094,880 Associated companies and joint ventures ,485, ,377,156 Held-for-sale non-current financial assets 10 32,092,436 26,015,369 Held-for-sale other non-current assets 0 0 TOTAL NON-CURRENT ASSETS 584,452, ,347,494 Inventory 11 41,007,182 17,583,386 Raw materials 28,355,896 12,728,743 Work in process 5,625,795 2,475,939 Finished goods 7,025,491 2,378,704 Contract work in progress 11 26,910,595 14,774,330 Current financial assets 111,369, ,211,789 Current assets held for trading 10 60,835,263 60,864,391 Current loans receivable and other receivables from: 50,534,471 59,347,398 Outsiders 10 50,534,471 59,347,398 Associated companies and joint ventures 0 0 Held-for-sale current financial assets 0 0 Held-to-maturity current investments 0 0 Derivatives 0 0 Trade receivables and other receivables 106,971, ,454,878 Trade receivables from: 93,082, ,296,621 Outsiders 82,835,505 95,725,186 Associated companies and joint ventures 10 10,247,253 10,571,435 Other receivables 13,889,108 16,158,257 Cash and cash equivalents 29,795,372 15,585,498 Cash on hand 266, ,260 Short-term bank deposits 29,529,116 14,910,238 TOTAL CURRENT ASSETS 316,054, ,609,881 TOTAL ASSETS 900,507, ,957,375 14

15 Consolidated Balance Sheet Liabilities and Shareholders Equity Note ref. 3/31/06 12/31/05 Common shares 9,316,280 9,312,155 Additional paid-in capital 36,260,953 36,215,861 Reserve for treasury stock 12,000,000 12,000,000 Statutory reserve 2,231,389 2,231,389 Revaluations reserve 0 0 Stock option reserve 1,570,733 1,320,733 Derivative hedging reserve 0 0 Reserve for currency translations (420,116) (252,864) Fair value reserve 16,320,873 12,507,513 Other reserves 116,407, ,942,932 Retained earnings (1,525,225) 12,382,791 Profit (Loss) for the year (8,093,598) (8,103,394) GROUP INTEREST IN SHAREHOLDERS' EQUITY 184,068, ,557,116 Minority interest in shareholders equity 0 0 TOTAL SHAREHOLDERS EQUITY 184,068, ,557,116 Long-term borrowings 380,445, ,632,728 Collateralized borrowings 0 0 Liabilities under finance leases ,373, ,204,788 Other indebtedness owed to: 159,072, ,427,940 Outsiders ,072, ,427,940 Associated companies and joint ventures 0 0 Deferred-tax liabilities 34,006,748 28,026,734 Provision for termination indemnities 29,298,166 28,708,951 Provision for pensions and severance pay 797, ,732 Provision for termination indemnities 28,500,834 28,244,219 Provision for other liabilities and charges 0 0 Decommissioning costs 0 0 TOTAL NON-CURRENT LIABILITIES 443,750, ,368,413 Current borrowings 41,645,959 46,545,406 Due to banks for overdraft facilities , ,816 Collateralized borrowings 0 0 Liabilities under finance leases 14 41,365,479 46,044,590 Bonds outstanding and other borrowings owed to: 0 0 Outsiders 0 0 Associated companies and joint ventures 0 0 Other payables 25,753,640 32,134,207 Wages and salaries 15,397,949 9,580,474 Due to social security institutions 4,272,358 5,583,737 Other amounts due to employees 302, ,928 Other liabilities 5,780,794 16,677,068 Trade accounts payable 197,365, ,079,429 Accounts payable to outsiders 197,108, ,072,214 Accounts payable to associated companies and joint ventures 257,269 0 Advances received for work in progress 0 7,215 Provision for current taxes 617,545 51,047 Direct taxes 88,187 0 Other taxes 529,358 51,047 Financial derivatives 0 0 Provision for other liabilities and charges 2,795,436 2,727,570 Provision for warranties 762, ,000 Provision for legal disputes 0 0 Provision for restructuring programs 0 0 Other provisions 2,032,855 1,827,570 Other liabilities 4,509,686 3,494,187 TOTAL CURRENT LIABILITIES 272,688, ,031,846 TOTAL LIABILITIES 716,438, ,400,259 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 900,507, ,957,375 15

16 Consolidated Income Statement Note ref. 3/31/06 3/31/05 Sales and service revenues 103,008,671 57,430,370 Increase in Company-produced non-current assets 309,936 0 Change in inventory of finished goods and work in progress 30,375,495 40,082,618 Change in contract work in progress 22,774,971 40,447,288 Change in inventory of work in progress, semifinished goods and finished goods 7,600,524 (364,670) Other income and revenues ,324 2,087,727 TOTAL VALUE OF PRODUCTION 134,416,426 99,600,715 Gain on the sale of non-current assets 17 65,006 30,236,710 Amount earned on the sale of equity investments 0 32,312,027 Raw materials and consumables used (83,319,356) (44,983,619 Raw materials and components (98,772,949) (37,646,489) Change in inventory of raw materials, subsidiary materials and consumables 15,453,593 (7,337,130)) Provision for inventory risk 0 0 Other variable production costs (2,390,118) (1,682,295) Consumables (1,169,837) (889,202) Utilities (232,666) 0 External maintenance costs (987,615) (793,093) Variable external engineering services (14,625,111) (24,806,330 Wages, salaries and employee benefits (31,177,608) (26,404,681) Production staff, office staff and managers (29,673,756) (25,274,300) Independent contractors (142,799) (42)) Social security and other post-employment benefits (1,361,053) (1,130,339) Cost of profit sharing compensation 0 0 Depreciation, amortization and writedowns (3,991,886) (3,889,205) Depreciation of property, plant and equipment 18 (3,483,783) (3,605,729) Amortization of intangibles 19 (508,103) (283,476) Utilization of negative goodwill 0 0 Foreign exchange gains (losses) (15,710) 53,100 Other expenses (10,392,591) (6,507,064) PROFIT (LOSS) FROM OPERATIONS (11,430,948) 21,617,331 Finance costs, net 20 1,060,185 1,341,237 Dividends 0 0 Value adjustments 21 (187,565) (1,754,000) Nonrecurring income (expense) 6,415 0 PROFIT (LOSS) BEFORE TAXES (10,551,913) 21,204,568 Income taxes for the year 22 2,458, ,859 PROFIT (LOSS) FOR THE YEAR (8,093,598) 21,958,427 3/31/06 3/31/05 Earnings (Loss) per share (8,093,598 ) 21,958,427 Number of common shares, net 9,317,000 9,317,000 Basic earnings (loss) per share (0.87)

17 Statement of Changes in Consolidated Shareholders Equity 1/1/04 Fair value gains (losses) Cash flow hedges Translation restatements Net gains (losses) recognized directly in equity Profit (Loss) for the period Total result for the period Employee stock option plan Changes to reserves Dividends Issue of share capital Purchases/ Sales of treasury shares 12/31/04 Common shares 9,192,181 (9,679) 9,182,502 Additional paid-in capital 34,013,017 (102,367) 33,910,650 Reserve for treasury stock 27,951,000 (516,488) 27,434,512 Statutory reserve 2,231,389 2,231,389 Revaluation reserve Stock options reserve 527, ,691 Derivative hedging reserve Reserve for currency translat. 3,726 3,726 Fair value reserve 8,599,119 (333,418) (333,418) (333,418) 8,265,701 Other reserves 99,731, ,280 (3,124,779) 516,488 97,522,513 Retained earnings 15,895,428 15,895,428 Profit (Loss) for the period - (2,404,679) (2,404,679) (2,404,679) GROUP INTEREST IN SHAREHOLDERS' EQUITY 197,613, ,569,433 Minority interest in profit and res. - TOTAL SHAREHOLDERS' EQUITY 197,613,658 (333,418) (333,418) (2,404,679) (2,738,097) 527, ,006 (3,124,779) (112,046) 192,569,433 1/1/05 Fair value gains (losses) Cash flow hedges Translation restatements Net gains (losses) recognized directly in equity Profit (Loss) for the period Total result for the period Employee stock option plan Changes to reserves Dividends Issue of share capital Purchases/ Sales of treasury shares 12/31/05 Common shares 9,182, ,653 9,312,155 Additional paid-in capital 33,910,650 2,305,211 36,215,861 Reserve for treasury stock 27,434,512 (15,434,512) 12,000,000 Statutory reserve 2,231,389 2,231,389 Revaluation reserve Stock options reserve 527, ,042 1,320,733 Derivative hedging reserve Reserve for currency translat. 3,726 (256,590) (256,590) (256,590) (252,864) Fair value reserve 8,265,701 4,241,812 4,241,812 4,241,812 12,507,513 Other reserves 97,522,513 16,542,470 (3,122,051) 110,942,932 Retained earnings 15,895,428 (3,512,637) 12,382,791 Profit (Loss) for the period (2,404,679) (8,103,394) (8,103,394) 2,404,679 (8,103,394) GROUP INTEREST IN SHAREHOLDERS' EQUITY 192,569, ,557,116 Minority interest in profit and res. TOTAL SHAREHOLDERS' EQUITY 192,569,433 4,241,812 (256,590) 3,985,222 (8,103,394) (4,118,172) 793,042 - (3,122,051) 2,434, ,557,116 1/1/06 Fair value gains (losses) Cash flow hedges Translation restatements Net gains (losses) recognized directly in equity Profit (Loss) for the period Total result for the period Employee stock option plan Changes to reserves Dividends Issue of share capital Purchases/ Sales of treasury shares 3/31/06 Common shares 9,312,155 4,125 9,316,280 Additional paid-in capital 36,215,861 45,092 36,260,953 Reserve for treasury stock 12,000,000 12,000,000 Statutory reserve 2,231,389 2,231,389 Revaluation reserve Stock options reserve 1,320, ,000 1,570,733 Derivative hedging reserve Reserve for currency translat. (252,864) (167,252) (167,252) (167,252) (420,116) Fair value reserve 12,507,513 3,813,360 3,813,360 3,813,360 16,320,873 Other reserves 110,942,932 5,464, ,407,449 Retained earnings 12,382,791 (13,908,016) (1,525,225) Profit (Loss) for the period (8,103,394) (8,093,598) (8,093,598) 8,103,394 (8,093,598) GROUP INTEREST IN SHAREHOLDERS' EQUITY 188,557, ,068,738 Minority interest in profit and res. TOTAL SHAREHOLDERS' EQUITY 188,557,116 3,813,360 (167,252) 3,646,108 (8,093,598) (4,447,490) 250,000 (340,105) - 49, ,068,738 17

18 Consolidated Cash Flow Statement Data at 3/31/06 3/31/05 Profit (Loss) for the period (8,093,598) 21,958,427 Restatements 1,082,004 (24,772,314) - Income taxes (2,458,315) (753,859) - Depreciation of property, plant and equipment 3,483,783 3,605,729 - Amortization of intangibles 508, ,476 - Writedowns (44,992) 1,514,000 - Provision for pensions and seniority indemnities 589, ,400 - (Gains) Losses on sale of non-current assets (65,006) (30,236,710) - (Gains) Losses on derivatives (Gains) Losses on held-for-sale financial assets (17,813) 0 - (Financial income) (5,477,598) (4,309,147) - Financial expense 4,375,844 3,101,109 - (Dividends) Value adjustment to shareholders equity 187,565 1,754,000 - Unrealized (gains) losses on foreign exchange transactions 1,218 (55,312) - Other restatements 0 0 Changes in working capital 42,627,615 (39,586,168) - Inventories (23,423,796) 7,823,250 - Contract work in progress (12,136,265) (30,371,332) - Trade accounts receivable 15,483,012 1,418,194 - Trade accounts payable 68,285,151 (18,892,592) - Other changes (5,580,487) 436,312 Cash flow from operating activities 35,616,021 (42,400,055) (Financial expense) (4,375,844) (3,101,109) (Income taxes) 2,458, ,859 Net cash from operating activities 33,698,492 ( 44,747,305) - Acquisition of a subsidiary, net of acquired cash Purchases of property, plant and equipment (9,301,991) 74,216 - Proceeds from sale of property, plant and equipment Non-current financial assets (27,496,778) 7,417,245 - Financial income 5,477,598 4,309,147 - Dividends received Other equity investments 127,283 1,547,253 Net cash used in investing activities 2,504,604 (31,399,444) - Proceeds from the issuance of shares Purchases of treasury shares 49, Borrowings from lenders outside the Group 11,913,410 22,811,732 - Dividends paid 0 0 Net cash used in financing activities 14,467,231 (8,587,712) - Other non-cash items (257,357) 477,884 Increase (Decrease) in cash and cash equivalents 14,209,874 (8,109,829) - Cash and cash equivalents at beginning of period 15,585,498 26,568,454 Cash and cash equivalents at end of period 29,795,372 18,458,625 18

19 Companies of the Pininfarina Group (data presented in accordance with the new IAS accounting principles) At March 31, 2006, the Matra Automobile Engineering Group reported value of production of 13.5 million euros and a consolidated loss of 0.6 million euros, compared with 12.8 million euros and 1.2 million euros, respectively, in the first three months of The increase in value of production and an improvement in operating efficiency enabled the group cut its loss in half during the first three months of 2006, moving significantly closer to breakeven. Pininfarina Extra S.r.l. ended the first quarter of 2006 with value of production of 1.2 million euros, unchanged from the same period last year. The profit for the period amounted to 190,000 euros, compared with 5,000 euros in the first three months of Pininfarina Extra USA Corp., a wholly owned subsidiary of the Pininfarina Extra S.r.l. that was created to establish a local presence and follow more closely the U.S. operations, became operational in March Pininfarina Deutschland GmbH booked value of production of 1.4 million euros in the first three months of 2006 (1.8 million euros at March 31, 2005) and a net loss of 0.5 million euros (0.3 million euros a year earlier). The company is currently implementing a restructuring program that will help it focus its operations on activities with a higher value added that are more integrated with the Group s service sector strategy. Pininfarina Sverige AB, which became fully operational in November 2005, reported value of production of 63.4 million euros and a loss of 0.3 million euros, caused mainly by the startup costs incurred to begin production of the Volvo C70 convertible (the data reflect the 60% interest held by the Group in this joint venture). At March 31, 2005, the company had generated no value of production and reported a loss of 0.7 million euros. A total of 2,144 cars were produced during the first three months of RHTU AB had value of production of 0.9 million euros (0.5 million euros in the first quarter of 2005) and, like the previous year, broke even in the first three months of This company manufactures the retractable hard tops that are being installed in the Volvo C70 produced by Pininfarina Sverige A.B. Pininfarina S.p.A., the Group s Parent Company, reported value of production of million euros at March 31, 2006, compared with 84.2 million euros in the first three months of 2005 (+40.6%). The loss for the period came to 7 million euros, compared with a profit of 16.9 million euros in the first quarter of The net financial position showed a positive balance of 44.6 million euros, down from 46.4 million euros in the same period last year. Most of the remarks made in the review of the Group s performance in the first three months of 2006 apply to the Parent Company as well. 19

20 1. General Information Notes to the Quarterly Consolidated Financial Statements The Pininfarina Group is an industrial enterprise that is centered around a core of automotive operations and based on the establishment of comprehensive collaborative relationships with carmakers. Pininfarina operates as a global partner. Its highly flexible approach enables it to work with customers through the entire product development process design, planning, development, industrialization and manufacturing or to provide support during any one of these phases. The Group has production and development facilities in Italy, France, Germany, Sweden and Morocco. Its customers are located mainly in Italy, France, Great Britain and China. Pininfarina is a corporation that has its registered office at 6 via Bruno Buozzi, in Turin. The Company s shares are traded on the regular segment of the Borsa Italiana securities market. The consolidated quarterly report was approved by the Board of Directors on May 12, Accounting Principles 2.1 Presentation Criteria As required by: Legislative Decree No. 38 of February 28, 2002; European Regulation No of July 19, 2002 ; Article 82 of Issuers Regulation No , as amended by CONSOB Resolution No of April 14, 2005; the Pininfarina Group prepared its Quarterly Report at March 31, 2006 in accordance with the IFRSs. Consistent with the requirements of Paragraph 8 of IAS 34 Interim Financial Reporting, the Quarterly Report comprises the following minimum components: a) Condensed balance sheet; b) Condensed income statement; c) Condensed statement of changes in shareholders equity; d) Condensed cash flow statement; e) Selected explanatory notes required by Paragraph 16 of IAS 34. The accounting principles did not undergo changes that would require a restatement of the opening balances. The estimation criteria applied have not changed. The data at March 31, 2005 included in this Quarterly Report, which have been restated to make them consistent with the IFRSs, are provided for the purpose of comparison with the data in the Group s consolidated financial statements at March 31,

21 2.2 Consolidation (a) Subsidiaries Subsidiaries are those companies, including vehicle companies, over which the Pininfarina Group has authority to direct their financial and operating decisions. Generally, control is deemed to exist when the Group holds more than half of the voting rights, either directly or through shareholder agreements or contingent voting rights. Subsidiaries are consolidated from the moment the Group is able to exercise control and are deconsolidated the moment it ceases to exercise control. The Group accounts for the acquisition of controlling interests by the purchase method. This method, which is provided in IFRS 3, Business Combinations, requires that the acquiree s identifiable assets and liabilities be recognized at their fair value as of the acquisition date. The cost of acquisition in the sum of the price paid plus any incidental charges. Any difference between the cost paid and the Group s pro rata interest in the fair value of the net assets it acquired is capitalized and recognized as goodwill, if positive, or charged directly to income, if negative. Revenues and expenses and receivables and payables that arise from transactions between Group companies are eliminated in the consolidation process. When necessary, the accounting principles of subsidiaries are amended to make them consistent with those of the Group s Parent Company. (b) Associated Companies and Joint Ventures The Group is deemed to exercise a significant influence when it controls between 20% and 50% of the voting rights. Investments in associated companies and joint ventures are recognized initially at cost and are then valued by the equity method. The Group s investments in associated companies and joint ventures include any goodwill that was recognized at the time of acquisition, less accumulated impairment losses. The Group s income statement reflects the Group s pro rata interest in the result of associated companies and joint ventures. If an associated company or a joint venture recognizes an adjustment that entails a direct charge to shareholders equity, the Group recognizes its pro rata share of the charge and shows it in its statement of changes in shareholders equity. The Group s pro rata interest in losses incurred by an associated company or a joint venture is recognized on the Group s financial statements until the value of the corresponding equity investment is written off. Any additional loss is posted to the provisions for risks and losses only to the extent that the Group has undertaken obligations or made payments on behalf of the associated company or joint venture. Gains generated through transactions with an associated company or a joint venture are eliminated against the value of the investment. The same is done for losses, unless the losses stem from an impairment of the assets subject of the transaction. When necessary, the accounting principles of associated companies and joint ventures are amended to make them consistent with those of the Group s Parent Company. 2.3 Translation of Items Denominated in Foreign Currencies (a) Functional Currency and Presentation Currency The financial statements of subsidiaries, associated companies and joint ventures are presented in the corresponding functional currency, which is the currency used in their primary business environment. The presentation currency of the Pininfarina Group is the euro. 21

22 (b) Assets, Liabilities and Transactions in Currencies Other Than the Euro Transactions executed in currencies other than the euro are recognized initially at the exchange rate in force on the date of the transaction. Monetary assets and liabilities denominated in currencies other than the euro are converted into euros at the exchange rate in force on the balance sheet date. All translation differences are recognized in the income statement, except for differences stemming from loans in foreign currencies that hedge investments in foreign subsidiaries. These differences, and the corresponding tax consequences, are recognized directly in equity until the equity investment is sold, at which point the translation differences are recognized in the income statement. Non-monetary items that are carried at historical cost are translated into euros at the exchange rate in force when the underlying transaction was first recognized. Non-monetary items that are carried at fair value are translated into euros at the exchange rate in force on the date when each item s fair value was determined. (c) Group Companies No company of the Pininfarina Group operates in a high-inflation economic environment. The assets and liabilities of Group companies that use a functional currency different from the euro are translated into euros at the exchange rate in force on the balance sheet date. The income statement is translated at the average exchange rate for the reporting period. Translation differences are recognized directly in equity and are shown separately in the Translation reserve. When an investee company is sold, the corresponding portion of this reserve is reflected in the income statement. Goodwill and fair value adjustments to the assets and liabilities of foreign companies are translated into euros at the year-end exchange rate. 2.4 Property, Plant and Equipment All classes of property, plant and equipment are carried at their historical cost, less accumulated depreciation and impairment losses, except for land, which is carried at its historical cost less impairment losses. Cost includes all expenses directly attributable to the purchase. Costs incurred after an asset has been acquired can be capitalized only if it is likely that they will produce future economic benefits and if the costs can be measured reliably. The depreciation of property, plant and equipment is computed on a straight-line basis, so as to distribute each asset s residual carrying value over its remaining useful life. Extraordinary maintenance costs that have been capitalized and added to the carrying value of an existing asset are depreciated over the residual useful life of the asset or over the period of time until the next maintenance overhaul, whichever is shorter. The residual values and useful lives of property, plant and equipment are reviewed, and changed if necessary, on the balance sheet date. Gains and losses on the sale of property, plant and equipment are recognized in the income statement. They represent the difference between an item s carrying amount and its sales price. In this and subsequent sections of these notes, the term impairment shall mean the adjustment made to the carrying amount of a non-current asset to make it consistent with the asset s recoverable value. 2.5 Intangible Assets (a) Goodwill Goodwill represents the excess of the price paid for net identifiable assets at the time of their acquisition over their fair value. 22

23 Goodwill generated by the acquisition of an interest in a subsidiary is recognized as an intangible asset. Goodwill generated by the acquisition of an interest in an associated company is recognized as an addition to the value of the underlying equity investment. Goodwill is recognized in the financial statements at the value determined on the date control is acquired and is thereafter adjusted for any impairment loss, based on a test performed at least once a year. The calculation of a gain or loss on the sale of an equity investment must take into account the carrying amount of the applicable goodwill. An impairment test is made by comparing the carrying amount of goodwill against the present value of the future cash flow that homogeneous groups of assets are expected to produce. (b) Software and Other Licenses The cost actually incurred to secure software licenses and other similar licenses, including the expenses required to put them into use, are capitalized and amortized over the estimated useful lives of the licenses (three to five years). The costs incurred to develop and maintain software are treated as operating expenses and charged to income in the year they are incurred. Costs incurred to develop software that can be identified and controlled by the Pininfarina Group and which has a high probability of producing greater economic benefits than the cost incurred during a single year are capitalized as an intangible asset and amortized over the useful life of the corresponding asset (not more than three years). (c) Research and Development Costs Research costs are charged to income in the year they are incurred. Development costs, other than those referred to in the paragraph below, are capitalized as intangible assets only if they can be measured reliably and it is clear that the project for which they are being incurred has a high chance of success, both in terms of technical feasibility and commercial acceptance. Development costs that do not meet these characteristics are treated as operating expenses. Development costs that were charged to income in previous years may not be capitalized at a later date, even if they then meet the requirements for capitalization. Development costs with a finite useful life are amortized from the date the resulting product was brought to market over the length of time during which they are expected to produce economic benefits, but not more than five years. Development costs incurred in the performance of automobile design, engineering or development contracts are included among the aggregate costs financed by the Company through arrangements that can be identified as leases in accordance with IFRIC 4. (d) Other Intangibles Other intangibles acquired separately are capitalized at cost. Those acquired through business combinations are capitalized at their fair value as of the date of acquisition. After initial recognition, intangibles with a finite useful life are carried at cost less depreciation and impairment losses. Intangibles with an undefined useful life are carried at cost less impairment losses. With the exception of research and development costs, internally produced intangibles cannot be capitalized. These costs are charged to income in the year they are incurred. Other intangibles are tested once a year for impairment. Such testing can be carried out for individual intangible assets or for entire cash generating units. The useful lives of other intangibles are reviewed once a year. Any resulting changes are applied from that point on. 23

24 2.6 Recoverable Amount of Assets The recoverable amount of intangibles with an indefinite useful life that are not amortized should be tested for impairment at least once a year. Assets that are amortized are tested for impairment only when there is an indication that their carrying amount may not be recoverable. The amount of the impairment writedown should be equal to the difference between an assets carrying amount and its recoverable amount, computed as the greater of the asset s sales price (net of transaction costs) and its value in use. The recoverable amount of the assets is determined by grouping basic cash generating units. 2.7 Financial Assets The Group divides its investments into four categories: a) financial assets carried at fair value, with changes in value recognized in earnings; b) loans and other financial receivables; c) held-to-maturity investments; and d) held-for-sale financial assets. The basis for this classification is the reasoning behind an asset s acquisition. Management allocates financial assets to the appropriate category at the time of purchase and reviews this allocation at the end of each year. (a) Financial Assets Carried at Fair Value, with Changes in Value Recognized in Earnings This category is divided into two classes: 1) financial assets held for trading and 2) assets held as negotiable assets from the time of acquisition. An asset is included in this category if it was acquired mainly to be resold over the short term or if it was placed in this category by the Company s management. Any derivatives that do not qualify as hedges are included in the held-for-trading class. Financial assets that fall into these two classes are listed as current assets when they are held for trading or are expected to be sold within 12 months from the balance sheet date. (b) Loans and Other Financial Receivables Loans and other financial receivables are non-derivative financial assets that entail fixed or determinable payments, are not traded on a regulated market and are not held for trading. They are listed as current assets, except for the portion due after one year, which is classified under non-current assets. (c) Held-to-maturity Investments These are non-derivative financial assets that entail fixed or determinable payments and have a fixed maturity and which the Group plans and has the financial ability to hold to maturity. (d) Held-for-sale Financial Assets Held-for-sale financial assets are those non-derivative financial assets that are designated as available for sale and those non-derivative financial assets that do not fall into any of the previous categories. These assets are listed as current assets, unless management decides not to sell them within 12 months from the balance sheet date. Purchases and sales of financial assets are recognized on the transaction date, which is the date when the Group agrees to buy or sell an asset. 24

25 All financial assets (except for financial assets carried at fair value) whose changes in value are recognized in earnings, are initially recognized at their fair value, plus transaction costs. Financial assets are removed from the financial statements when they cease to deliver cash flow, or the right to receive such cash flow is transferred, or when the Group effectively transfers all of the risks and benefits inherent in ownership to a third party. Following their purchase, assets that are categorized either as Held-for-sale financial assets or as Financial assets carried at fair value (whose changes in value are recognized in earnings) are valued at fair value. The assets included in the other two categories (Loans and other financial receivables and Held-to-maturity investments) are valued at their amortized cost, computed by the effective interest method. Realized and unrealized gains and losses from changes in the fair value of financial assets categorized as Financial assets carried at fair value (whose changes in value are recognized in earnings) are reflected in the income statement in the year when they are generated. Unrealized gains and losses from changes in the fair value of non-monetary securities categorized as Heldfor-sale assets are recognized in equity. When securities categorized as Held-for-sale assets are sold or their value is impaired, adjustments to their fair value that have accumulated in a separate shareholders equity reserve are recognized in earnings as a gain or loss on the sale. The fair value of investments in listed securities is based on current bid prices. If an active market is not available for these financial assets or they are unlisted equity securities, fair value is determined by the Group using such valuation techniques as making reference to market transactions involving similar instruments or discounting future cash flows, adjusted as necessary to reflect the specific characteristics of the issuers. At the end of each fiscal year, the Group tests its financial assets for objective indications of the existence of impairment losses. In the case of financial assets that represent equity investments categorized as Held-forsale assets, a significant and prolonged decline in their fair value, as compared to their cost, is one of the elements that should be considered in determining a loss of value. If this type of evidence exists for a financial asset categorized as a Held-for-sale asset, the accumulated loss, calculated as the difference between the asset s cost and its current fair value (net of previous writedowns), is reversed out of shareholders equity and posted to the income statement. Writedowns that have been recognized in earnings cannot be reversed. 2.8 Inventory Inventory is carried at cost or estimated net realizable value, whichever is smaller. Net realizable value is the selling price in the ordinary course of business, less the variable costs necessary to make the sale. Cost is determined by the FIFO ( first-in, first-out ) method. The cost of finished goods and semifinished goods includes design, raw materials and direct labor costs, as well as other direct costs and other indirect costs that can be allocated to the manufacturing operations based on a normal level of production capacity. This costing formula does not include borrowing costs. 2.9 Trade Receivables and Other Receivables Trade receivables are initially recognized at fair value. Subsequently, they are valued at amortized cost computed by the effective interest rate method, net of writedowns for uncollectible accounts. Writedowns of receivables are accounted for as if there was objective evidence that the Group will be unable to collect the full amounts that customers have agreed to pay on the dates due. The amount of the writedown, which should correspond to the difference between the carrying amount of the receivables and the present value of future collections, discounted at the effective interest rate, is recognized in the income statement Cash and Cash Equivalents The Cash and cash equivalents account includes cash on hand, readily available bank deposits, overdraft facilities and liquid investments due within three months. Overdraft utilizations are recognized as current liabilities. 25

26 2.11 Share Capital The Company s common share capital is listed in the shareholders equity section of the balance sheet. Incidental expenses incurred to issue share capital or options are recognized under shareholders equity. If a Group company buys shares of Pininfarina S.p.A. or Pininfarina S.p.A. purchases treasury shares (within the constraints of the applicable statutes), the price paid, net of any directly attributable incidental charges, is deducted from shareholders equity until the shares are canceled, reissued, awarded to employees or sold Borrowings Initially, borrowings are recognized at fair value, net of any incidental charges. Subsequently, they are valued by the amortized cost method. Any difference between the collection amount, net of any incidental charges, and the redemption amount is recognized in earnings on an accrual basis, computed by the effective interest rate method. The portion of borrowings that is due within one year is listed among current liabilities. The portion due after one year is recognized as a non-current liability only if the Group has an unconditional contractual right to defer repayment Deferred Taxes Deferred taxes are computed on all temporary differences between the carrying amount of assets and liabilities and the amount attributed to those assets and liabilities for tax purposes. Temporary differences are not computed on: - Goodwill generated by a business combination; - Initial recognition of assets and liabilities upon the execution of a transaction that is not a business combination and has no impact on reported results for the period or on taxable income. Deferred-tax liabilities are computed using the tax rates in force in the business environments in which the companies of the Group operate and in accordance with the tax laws that have been enacted, or which can be deemed to have been virtually enacted as of the balance sheet date and which are expected to apply when the temporary differences that required the recognition of a deferred-tax liability are reversed. Deferred-tax assets are recognized only if it is likely that the Company will have earned sufficient taxable income to offset them when the temporary differences that required their recognition are reversed. Deferred-tax assets are reviewed at each balance sheet date and are adjusted to reflect changes in the expectation that the Company will earn sufficient taxable income in the future to utilize all or part of the deferred-tax assets. Deferred-tax liabilities are computed on temporary differences generated in connection with equity investments in subsidiaries, associated companies and joint ventures, except in those cases where the reversal of the temporary differences can be controlled by the Group and it is unlikely to occur in the near future. Temporary differences on components of shareholders equity are posted directly to shareholders equity Employee Benefits (a) Pension Plans The employees of the Pininfarina Group have access to defined-contribution and defined-benefit plans. None of these plans has dedicated plan assets. 26