Balance Sheets, Statements of Operations and Notes

Transcription

1 The Fiat Group in 2 Consolidated and Statutory Financial Statements The Fiat Group in 2 Consolidated and Statutory Financial Statements Balance Sheets, Statements of Operations and Notes Balance Sheets, Statements of Operations and Notes

2 CONTENTS 1 Fiat Group Consolidated Financial Statements at December 31, 2 2 Consolidated Balance Sheet 7 Consolidated Statement of Operations 9 Notes to the Consolidated Financial Statements 45 Fiat S.p.A. Financial Statements at December 31, 2 46 Balance Sheet 49 Statements of Operations 51 Notes to the Financial Statements 85 Annex to the Notes to the Consolidated Financial Statements 86 The Companies of the Fiat Group 121 Auditors Report on the Consolidated Financial Statements 122 Auditors Report on the Financial Statements of Fiat S.p.A. 123 Reports of the Board of Statutory Auditors The 2 Annual Report of the Fiat Group is available on the Internet at the following addresses: The online version of the Annual Report contains additional and more detailed information, including data sheets, which may be downloaded in pdf or excel format.

3 FINANCIAL HIGHLIGHTS OF THE FIAT GROUP CONSOLIDATED REVENUES in millions of euros 57,555 in millions of euros Operating income , Income before taxes 1,5 1,24 1,442 2,16 1,965 Income before minority interest ,55 1,42 Group net income ,248 1,225 4,244 46,257 45,769 48,123 Net financial position (Net borrowings) (6,467) (4,31) 1,42 1,34 (1,142) Stockholders equity including minority interest 15,29 14,767 15,12 15,462 14,26 Group interest in stockholders equity 13,32 12,874 12,998 13,23 12,42 Cash flow (income before minority interest plus depreciation and amortization) 3,63 2,86 3,226 4,184 3,867 Capital expenditures 3,236 2,712 2,418 2,398 2,746 Research and development 1,725 1,46 1,264 1,166 1,129 Operating income from Industrial Activities/Net revenues (R.O.S.) 1.7% 1.9% 2.2% 4.4% 2.9% Operating income/average net invested capital (R.O.I.) 4.2% 4.8% 5.4% 12.2% 6.3% Income before minority interest/net revenues 1.% 1.1% 2.% 3.4% 3.5% Net income/average stockholders equity (after minority interest) (R.O.E.) 5.1% 2.7% 4.7% 9.9% 1.5% Value creation Amount (*) (899) (48) (714) 144 (67) Return on net invested capital 6.% 7.% 7.7% 12.8% 8.5% (*) Difference between operating income for the fiscal year (including investment income) and the cost of average net invested capital at an annual rate of 1% in 2 and 1999, and of 12% in NET INVESTED CAPITAL in millions of euros 15,168 14, ,676 18,798 13,7 STATISTICAL DATA BY GEOGRAPHICAL REGION number Companies Employees Facilities R&D Centers Italy , Europe excluding Italy , NUMBER OF EMPLOYEES Mercosur 68 29, North America , Other regions 136 8, , ,322 22, , ,953 Total 1,63 223, Fiat S.p.A. adopted the euro as its reporting currency as of January 1, 1999, opting for an early use of this currency, as allowed under Legislative Decree No. 213/1998 Provisions Governing the Introduction of the Euro in the Italian National System. The Consolidated Financial Statements and Statutory Financial Statements of Fiat S.p.A. at December 31, 2 and December 31, 1999 are therefore denominated in euros. To make the respective data comparable, the amounts for the 1998 fiscal year have been restated in euros using the fixed exchange rate of 1 euro = 1, lire established on December 31,

4 FIAT GROUP CONSOLIDATED FINANCIAL STATEMENTS at December 31, 2 1 Fiat S.p.A. Head Office: 25 Via Nizza, Turin, Italy Paid-in Capital: 2,753,25, euros Entered in the Turin Company Register Fiscal Code:

5 CONSOLIDATED BALANCE SHEET ASSETS (in millions of euros) December 31, 2 December 31, 1999 AMOUNTS DUE FROM STOCKHOLDERS FOR SHARES SUBSCRIBED BUT NOT CALLED 1 1 FIXED ASSETS Intangible fixed assets (note 1) Start-up and expansion costs Research, development and advertising expenses Industrial patents and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill Intangible assets in progress and advances Other intangible assets Differences on consolidation 4, Total 6,457 1,89 Property, plant and equipment (note 2) Land and buildings 4,891 5,4 Plant and machinery 6,264 6,281 Industrial and commercial equipment 1,823 1,751 Other assets 2,547 1,764 Construction in progress and advances 1,152 1,84 Total 16,677 15,92 Financial fixed assets (note 3) Investments in: unconsolidated subsidiaries 758 5,55 associated companies 1,778 1,95 other companies 4,764 1,271 Total Investments 7,3 7,421 Receivables from: unconsolidated subsidiaries: due within one year 3 2 Total Receivables from unconsolidated subsidiaries 3 2 others due within one year due beyond one year Total Receivables from others Total Receivables Other securities 5,73 5,132 Treasury stock Assets leased 4,15 4,142 Total 16,66 16,828 TOTAL FIXED ASSETS 39,794 34,557 CURRENT ASSETS Inventories (note 4) Raw materials and supplies 1,477 1,259 Work in progress and semifinished products 1,297 1,217 Contract work in progress 4,796 4,63 Finished goods and merchandise 4,921 3,963 Advances to suppliers 1,888 1,162 Total 14,379 12,24 2 Consolidated Financial Statements at December 31, 2

6 CONSOLIDATED BALANCE SHEET (in millions of euros) December 31, 2 December 31, 1999 CURRENT ASSETS (continued) Receivables (note 5) Trade receivables: due within one year 6,443 6,423 due beyond one year Total Trade receivables 6,532 6,59 Receivables from unconsolidated subsidiaries: due within one year Total Receivables from unconsolidated subsidiaries Receivables from associated companies: due within one year Total Receivables from associated companies Other receivables: due within one year 3,451 2,691 due beyond one year 2,261 1,259 Total Other receivables 5,712 3,95 Total 12,458 1,645 Financial assets not held as fixed assets (note 6) Investments in other companies 1, Total Investments 1, Other securities 4,918 4,144 Treasury stock 27 Financial receivables Receivables from unconsolidated subsidiaries: due within one year due beyond one year Total Financial receivables from unconsolidated subsidiaries Receivables from associated companies: due within one year due beyond one year 8 Total Financial receivables from associated companies Receivables from others: due within one year 9,363 8,749 due beyond one year 9,838 5,765 Total Financial receivables from others 19,21 14,514 Total Financial receivables 19,795 14,854 Total 25,838 19,685 Cash (note 7) Bank and post office accounts 1,964 1,885 Checks 4 2 Cash on hand Total 1,997 1,96 TOTAL CURRENT ASSETS 54,672 44,44 ACCRUED INCOME AND PREPAID EXPENSES (note 8) Issue discounts 42 Other accrued income and prepaid expenses 1, TOTAL ACCRUED INCOME AND PREPAID EXPENSES 1, TOTAL ASSETS 95,755 79,

7 CONSOLIDATED BALANCE SHEET LIABILITIES AND STOCKHOLDERS EQUITY (in millions of euros) December 31, 2 December 31, 1999 STOCKHOLDERS EQUITY (note 9) Stockholders equity of the Group Capital stock 2,753 2,753 Additional paid-in capital 1,636 1,636 Legal reserve Treasury stock valuation reserve 5 27 Retained earnings and other reserves 7,558 7,446 Net income Total 13,32 12,874 Minority interest 1,889 1,893 TOTAL STOCKHOLDERS EQUITY 15,29 14,767 RESERVES FOR RISKS AND CHARGES (note 1) Reserve for pensions and similar obligations 1, Income tax reserves 1, Other reserves 4,577 2,781 Consolidation reserve for future risks and charges Insurance policy liabilities and accruals 12,616 1,293 TOTAL RESERVES FOR RISKS AND CHARGES 19,916 14,666 RESERVE FOR EMPLOYEE SEVERANCE INDEMNITIES (note 11) 2,17 2,138 PAYABLES (note 12) Bonds: due within one year 2, due beyond one year 8,6 2,95 Total Bonds 11,89 3,565 Convertible bonds Borrowings from banks: due within one year 8,38 1,326 due beyond one year 5,214 6,594 Total Borrowings from banks 13,594 16,92 Other financial payables: due within one year 1,731 1,122 due beyond one year Total Other financial payables 2,517 1,689 Advances: due within one year 3,411 2,992 due beyond one year 3,332 2,821 Total Advances 6,743 5,813 Trade payables: due within one year 11,66 1,466 due beyond one year Total Trade payables 11,184 1,524 Notes payable: due within one year 4,5 1,832 due beyond one year Total Notes payable 5,172 2,474 Payables to unconsolidated subsidiaries: due within one year due beyond one year 5 Total Payables to unconsolidated subsidiaries Consolidated Financial Statements at December 31, 2

8 CONSOLIDATED BALANCE SHEET (in millions of euros) December 31, 2 December 31, 1999 PAYABLES (continued) Payables to associated companies: due within one year Total Payables to associated companies Taxes payable: due within one year 1,593 1,236 due beyond one year Total Taxes payable 1,656 1,39 Social security payable: due within one year due beyond one year 2 7 Total Social security payable Other payables: due within one year 1,488 1,27 due beyond one year Total Other payables 1,713 1,388 TOTAL PAYABLES 54,778 44,793 ACCRUED EXPENSES AND DEFERRED INCOME (note 13) Other accrued expenses and deferred income 3,835 3,59 TOTAL ACCRUED EXPENSES AND DEFERRED INCOME 3,835 3,59 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 95,755 79,

9 CONSOLIDATED BALANCE SHEET MEMORANDUM ACCOUNTS (note 14) (in millions of euros) December 31, 2 December 31, 1999 GUARANTEES GRANTED Unsecured guarantees Suretyships on behalf of unconsolidated subsidiaries 3 33 on behalf of associated companies on behalf of others 1,44 1,657 Total Suretyships 1,56 1,84 Guarantees of notes on behalf of others Total Guarantees of notes Other unsecured guarantees on behalf of unconsolidated subsidiaries on behalf of associated companies on behalf of others 2,164 2,824 Total Other unsecured guarantees 2,591 3,29 Total Unsecured guarantees 4,258 5,147 Secured guarantees on behalf of unconsolidated subsidiaries on behalf of associated companies 14 on behalf of others Total Secured guarantees TOTAL GUARANTEES GRANTED 4,656 5,557 COMMITMENTS Commitments related to off-balance-sheet instruments 34,548 2,49 Commitments to purchase property, plant and equipment 1, Commitments for contracts in progress Other commitments 4,789 3,182 TOTAL COMMITMENTS 4,556 23,9 THIRD-PARTY ASSETS HELD BY THE GROUP 1,372 1,775 GROUP ASSETS HELD BY THIRD PARTIES 13,179 12,438 OTHER MEMORANDUM ACCOUNTS TOTAL MEMORANDUM ACCOUNTS 6,416 44,231 6 Consolidated Financial Statements at December 31, 2

10 CONSOLIDATED STATEMENT OF OPERATIONS (in millions of euros) VALUE OF PRODUCTION (note 15) Revenues from sales and services 57,63 48,42 45,755 Change in work in progress, semifinished and finished products inventories (154) Change in contract work in progress (48) (279) 14 Additions to internally produced fixed assets 1,242 1, Other income and revenues: revenue grants other 2,376 1,86 1,64 Total Other income and revenues 2,419 1,839 1,66 TOTAL VALUE OF PRODUCTION 61,243 51,344 48,262 COSTS OF PRODUCTION (note 16) Raw materials, supplies and merchandise 31,134 25,72 24,12 Services 9,42 7,893 7,46 Leases and rentals Personnel: salaries and wages 6,14 5,43 5,239 social security contributions 1,71 1,63 1,835 employee severance indemnities employee pensions and similar obligations other costs Total Personnel costs 8,695 7,648 7,641 Amortization, depreciation and writedowns: amortization of intangible fixed assets depreciation of property, plant and equipment 2,533 2,74 2,72 writedown of fixed assets writedown of receivables among current assets and liquid funds Total Amortization, depreciation and writedowns 3,528 2,63 2,564 Change in raw materials, supplies and merchandise inventories 63 (64) 253 Provisions for risks 1, Other provisions Other operating costs 1,458 1,265 1,183 Expenses of financial services companies ,5 Insurance claims and other costs 4,22 3,636 2,738 TOTAL COSTS OF PRODUCTION 6,388 5,556 47,516 DIFFERENCE BETWEEN THE VALUE AND COSTS OF PRODUCTION FINANCIAL INCOME AND EXPENSES (note 17) Investment income: unconsolidated subsidiaries associated companies other companies Total Investment income Other financial income from long-term receivables: from others from securities held as fixed assets other than equity investments from securities held as current assets other than equity investments

11 CONSOLIDATED STATEMENT OF OPERATIONS (in millions of euros) FINANCIAL INCOME AND EXPENSES (continued) Other financial income (continued) Other income from: unconsolidated subsidiaries associated companies others 1,312 1, Total Other income 1,351 1, Total Other financial income 1,655 1,87 1,187 Interest and other financial expenses: unconsolidated subsidiaries associated companies others 2,631 2,247 1,57 Total Interest and other financial expenses 2,65 2,26 1,64 TOTAL FINANCIAL INCOME AND EXPENSES (617) (11) 363 ADJUSTMENTS TO FINANCIAL ASSETS (note 18) Revaluations of: equity investments financial fixed assets other than equity investments securities among current assets other than equity investments Total Revaluations Writedowns: equity investments financial fixed assets other than equity investments securities among current assets other than equity investments financial receivables Total Writedowns TOTAL ADJUSTMENTS TO FINANCIAL ASSETS (12) 4 43 EXTRAORDINARY INCOME AND EXPENSES (note 19) Income: gains on disposals 2, other income Total Income 2, Expenses: losses on disposals taxes relating to prior years other expenses 1, Total Expenses 1, TOTAL EXTRAORDINARY INCOME AND EXPENSES INCOME BEFORE TAXES 1,5 1,24 1,442 Income taxes (note 2) INCOME BEFORE MINORITY INTEREST Minority interest 86 (153) (295) NET INCOME Consolidated Financial Statements at December 31, 2

12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2 FORM AND CONTENT OF THE CONSOLIDATED FINANCIAL STATEMENTS The 2 consolidated financial statements have been prepared in accordance with the rules introduced by Italian Legislative Decree No. 127 dated April 9, 1991, which fulfilled the Fourth and Seventh EC Directives. Included in the statement of operations are comparative amounts for 1999 and The significant events which occurred after the end of the fiscal year described in the Report of Operations are an integral part of the Notes to the consolidated financial statements. The consolidated financial statements include the financial statements of Fiat S.p.A., the Parent Company, and of all Italian and foreign subsidiaries that constitute the Fiat Group, in which Fiat S.p.A. holds directly or indirectly more than 5% of the voting capital or has de facto control. Also included are joint ventures in which the Parent Company holds control directly or indirectly with other partners, consolidated using the proportional method. Certain non relevant activities, which total less than.5% in 2 (.4% in 1999 and.3% in 1998) of total consolidated revenues and for which it is not practicable to obtain the necessary information on a timely basis without disproportionate expense, have been excluded from consolidation. This exclusion does not affect the assertion that the consolidated financial statements are a true and correct representation of the financial position and results of operations of the Group. Furthermore, with reference to the consolidated financial statements as of December 31, 1999, the Case Group, purchased in November 1999, had not been consolidated as it would not have been practicable to obtain the necessary information on a timely basis without disproportionate expense. The composition of the Fiat Group underwent several changes in 2 that are discussed in detail in the Report on Operations. In 2, the strategic industrial alliance with General Motors led to the corporate reorganization of the Automobile Sector. Specifically, as from July 1, 2, the Sector Parent Company, Fiat Auto S.p.A. (now Fiat Auto Partecipazioni S.p.A.) spun off its business to a new Sector Parent Company Fiat Auto Holdings B.V. in which it controls 8%. At the same time, General Motors acquired a 2% stake in Fiat Auto Holdings B.V. and Fiat acquired a 5.85% stake in General Motors. These financial statements comment on the performance of the Automobile Sector. Its economic results during the first half are represented by the figures reported by Fiat Auto S.p.A. Group (now Fiat Auto Partecipazioni S.p.A.) and those for the second half by Fiat Auto Holdings B.V. Group, after the aforementioned spin-off; as far as the balance sheet values at December 31, 2 are concerned, those of the Automobile Sector are identified with the consolidated balance sheet of Fiat Auto Holdings B.V. This representation of the performance of the Automobile Sector is homogeneous and comparable with that described in previous years and with that of the current year. PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared from the statutory financial statements of the Group s single companies or consolidated Sectors approved by the Boards of Directors and adjusted, where necessary, by the directors of the companies to conform with Group accounting principles and to eliminate tax-driven adjustments. The Group s accounting policy respects the requirements set forth by Legislative Decree No. 127 of April 9, 1991, interpreted and supplemented by the Italian accounting principles issued by the National Boards of Dottori Commercialisti and of Ragionieri and, where there are none and not at variance, by those laid down by the International Accounting Standards Committee (I.A.S.C.). In order to obtain a true and correct representation of the financial position and results of operations of the Group, taking into account their functional integration, the subsidiaries operating in the insurance sector and the financial companies that provide services to the industrial Sectors have been consolidated on a line-by-line basis. As a result, adjustments to the balance sheet and statement of operations format have been made in applying Article 32 of Legislative Decree No. 127/91, which provides for changes to be made to obtain a more clear, true and correct representation of the financial position and results of operations. Principles of consolidation Assets and liabilities, and revenues and expenses, of subsidiaries consolidated on a line-by-line basis are included in the consolidated financial statements, regardless of the percentage of ownership. Carrying values of investments are eliminated against the subsidiaries related stockholders equity. The portion of stockholders equity and results of operations attributed to minority interests are disclosed separately

13 In accordance with Legislative Decree No. 127, since 1994, differences arising from the elimination of investments against the related stockholders equity of the investment at the date of acquisition are allocated, where applicable, to assets and liabilities of the company being consolidated. The residual value, if positive, is capitalized as an asset Differences on consolidation, and is amortized on the straight-line method over the estimated period of recoverability. Negative residual amounts are recorded as a component of stockholders equity Consolidation reserve (or as a liability Consolidation reserve for future risks and charges, when due to a forecast of unfavorable economic results). Unrealized intercompany profits, losses, and related tax effects are eliminated, together with all intercompany receivables, payables, revenues and expenses arising on transactions between consolidated companies which have not been realized with third parties. The gross margin on intercompany sales is eliminated, with the exception of plant and equipment produced and sold at prices in line with market conditions, in which case such eliminations would be effectively irrelevant and not costbeneficial. Also subject to elimination are guarantees, commitments and risks relating to companies included in the area of consolidation. The balance sheets of foreign subsidiaries are translated into Euro by applying the exchange rates in effect at year end. The statements of operations of foreign subsidiaries are translated using the average exchange rates, except for those subsidiaries operating in high-inflation countries (cumulative inflation in excess of 1% in three years), in which case accounting principles for high inflation accounting are used. Exchange differences resulting from the translation of opening stockholders equity at current exchange rates and at the exchange rates used at the end of the previous year, as well as differences between net income expressed at average exchange rates and that expressed at current exchange rates, are reflected in the stockholders equity caption Cumulative translation adjustments. Such reserves relating to investments in subsidiaries or associated companies are included in the statement of operations upon the sale of the investments to third parties. The exchange rates used are summarized in Note 23. Accounting principles Balance sheet Fixed assets Intangible fixed assets Intangible assets and deferred charges expected to benefit future periods are recorded at cost, adjusted by amortization calculated on a straight-line basis over the period to be benefited. In particular, goodwill and differences on consolidation are amortized over a period of not more than 2 years, taking into account their expected period of recovery. The costs of researching and developing new products and/or processes are mainly included in the results of operations in the period in which such costs are incurred in line with the principle of conservatism and with international practice in the automobile sector. Goodwill represents the contractual amount paid for goodwill resulting from the acquisition of a company or investment. Property, plant and equipment Property, plant and equipment are recorded at purchase or construction cost. These values are adjusted where specific laws of the country in which the assets are located allow or require revaluation, in order to reflect, even if only partially, changes in the purchasing power of the currency. Cost also includes internal and external financing expenses incurred prior to the use of the asset. Depreciation is provided on a straight-line basis with rates that reflect the estimated useful life of the related assets. Ordinary repairs and maintenance expenses related to property, plant and equipment are charged to the statement of operations in the year in which they are incurred, while maintenance expenses which increase the value of property, plant and equipment are capitalized. Capital investment grants related to investments in property, plant and equipment are recorded as deferred income when collection becomes certain and credited to income over the useful life of the related asset. Properties held by insurance companies to cover policy liabilities and accruals are stated at acquisition cost and adjusted by the compulsory law on revaluations imposed on Italian companies; however, the carrying amounts do not exceed market value. Depreciation is determined based on the useful life and expected remaining value. The revaluation of assets allowed by Law No. 342/2, having been effected by only a very few Italian companies 1 Consolidated Financial Statements at December 31, 2 Notes to the Consolidated Financial Statements

14 of the Group, was reversed in the consolidated financial statements, for purposes of giving preference to the uniformity and comparability of the accounting principles over time. Financial fixed assets Financial fixed assets include investments in unconsolidated subsidiaries, associated companies and other companies, financial receivables held for investment purposes, treasury stock and other securities. Investments in unconsolidated subsidiaries and associated companies (those in which Fiat exercises, directly or indirectly, a significant influence) are normally valued in accordance with the equity method. Investments in other companies are valued at cost. In the event of a permanent impairment in value, a specific allowance is provided as a direct reduction of the asset account. Financial receivables are recorded at estimated realizable value. Securities are recorded at cost, including additional direct charges. In cases of permanent impairment, a valuation allowance is provided as a direct reduction of the securities. However, securities held by the insurance companies as investments for the benefit of those insured under life insurance policies to support risks (related to index-linked and unit-linked policies) and as investments in the management of pension funds, are valued at market price, as set forth by the specific laws governing the insurance sector in Italy. Treasury stock, represented by Fiat S.p.A. shares held by some subsidiaries, is valued at purchase cost. A specific reserve for treasury stock is also recorded under stockholders equity of the Group for the same amount. The investment in equipment leased is recorded at cost. The related depreciation is generally calculated based on the life of the lease and the related risk in managing such contracts. Current assets Inventories are valued at the lower of cost or market, cost being determined on a First In First Out (FIFO) basis. The valuation of inventories includes the direct costs of materials and labor and variable and fixed indirect costs. Work in progress on long-term contracts is valued based on the stage of completion and is recorded gross of advance payments received from customers. Eventual losses on such contracts are fully recorded when they become known. Provision is made for obsolete and slow-moving raw materials, finished goods, spare parts and other supplies based on their expected future use and realizable value. Receivables are recorded at estimated realizable value. Any unearned interest included in the nominal value of financial receivables has been deferred to future periods. Receivables 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. Other receivables also include deposits to guarantee securitization transactions (securitization refers to particular programs of discounting 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, 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

15 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. those at year end are also included in the statement of operations and offset the exchange effects of the items being hedged. For interest rate instruments designated as hedges, the interest rate differential is included in the statement of operations, in Financial income and expenses, in accordance with the accrual method. Instead, financial instruments used for trading purposes are valued at year-end market value and the difference compared to the nominal contract value is recorded in the statement of operations under Financial income and expenses. 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. Memorandum accounts Off-balance sheet financial instruments Financial instruments used to hedge exchange and interest rate fluctuations and, in general, changes in the assets and liabilities, are presented in Note 14. Off-balance sheet financial instruments are recorded at inception in the memorandum accounts at their nominal contract value. For foreign exchange instruments designated as hedges, the premium or discount, representing the difference between the spot exchange rate at the inception of the contract and the forward exchange rate, is included in the statement of operations, in Financial income and expenses, in accordance with the accrual method. Differences between the value of such instruments using the exchange rates at inception and Statement of Operations Revenue recognition Revenues from sales of products are recognized at the moment title passes to the customer, which is generally at the time of shipment. Revenues from long-term contracts are recognized using the percentage of completion method. Revenues also include amounts received from financing leases, net of depreciation, and income from company assets on operating leases. Within the Insurance Sector, interest, other financial income and insurance premiums are recognized on an accrual basis. Costs Costs are recognized on an accrual basis. Research and development costs are charged to the statement of operations in the period in which they are incurred. Research-related revenue grants provided by the Government or the EU are credited to the statement of operations when collection becomes certain. Advertising and promotion expenses are charged to the statement of operations in the period in which incurred. Estimated product warranty costs are charged to the statement of operations at the time of sale. Financial income and expenses Income and expenses resulting from off-balance sheet financial instruments, as well as year-end exchange differences, are included in the statement of operations in accordance with the above mentioned policies. 12 Consolidated Financial Statements at December 31, 2 Notes to the Consolidated Financial Statements

16 Costs relating to the factoring of receivables and notes of any type (with recourse, without recourse, securitization) and nature (trade, financial, other) are charged to the statement of operations on an accrual basis. Introduction of the Euro Starting from January 1, 1999, all Group companies located in the euro-zone countries, except for insurance companies and certain companies which became part of the Group subsequently, adopted the euro as their functional currency. In compliance with Legislative Decree 213/1998, Procedures for the introduction of Euro in the national laws, supplemented by the document of the National Boards of Dottori Commercialisti and of Ragioneri on the subject of the Introduction of the Euro as the currency of account, the exchange differences relating to monetary elements in currencies participating in the Euro, present in the financial statements of consolidated companies at December 31, 1998, had been determined by reference to the fixed exchange rate established at December 31, The exchange differences which arose therefrom had been directly allocated to the balance sheet items to which they referred and an offsetting entry had been made directly to the 1998 consolidated statement of operations for the entire amount. The costs connected to the introduction of the Euro had been entirely charged to the consolidated statement of operations under Costs of production in the year incurred. Income taxes Income taxes currently payable are provided for on the basis of reasonable estimates of the liability for the year, in accordance with the existing legislation of the countries in which the Group operates. On the basis of the evolution of international accounting principles and subsequent to the issued accounting principle by the specific Commission of the National Boards of Dottori Commercialisti and of Ragionieri on the subject of the Accounting treatment of income taxes, and taking into account the recommendation contained therein to adopt the principle starting from the year ended December 31, 1998, the accounting principle for the determination of deferred income taxes had been changed in the consolidated financial statements at that date. Deferred tax liabilities or deferred tax assets are determined for the most significant consolidation transactions and all the timing differences between the consolidated assets and liabilities and the corresponding amounts for purposes of taxation shown on the statutory financial statements of the consolidated companies. In particular, deferred tax assets have only been recorded if there is a reasonable certainty of their future recovery. Deferred tax liabilities, instead, are not recorded if it is unlikely that a future liability will arise. Deferred tax assets and liabilities are offset if they refer to the same company. The balance from offsetting the amounts is recorded in Other receivables in current assets, if a deferred tax asset, and in the Deferred tax reserve, if a deferred tax liability. The effect deriving from the application of the new principle in relation to that adopted up to December 31, 1997 had been recorded in Extraordinary income and expenses in the statement of operations for the year ended December 31, 1998, as described in Note

17 COMPOSITION, PRINCIPAL CHANGES AND OTHER INFORMATION Fixed assets 1 Intangible fixed assets Net of Change in Disposals Net of amortization the scope of Reclassi- and other amortization (in millions of euros) 12/31/1999 Additions Amortization consolidation fications changes 12/31/2 Start-up and expansion costs (36) 12 (2) 19 Research, development and advertising expenses (11) 23 Industrial patents and intellectual property rights (6) (116) 561 Concessions, licenses, trademarks and similar rights (83) (18) 482 Goodwill (28) 1 (22) 386 Intangible assets in progress and advances (19) (1) 63 Other intangible assets (74) 5 3 (61) 268 Differences on consolidation 62 1,173 (227) 2, ,565 Total Intangible fixed assets 1,89 1,653 (519) 3,71 (196) 6,457 Start-up and expansion costs at December 31, 2 consist of deferred plant start-up costs and corporate formation costs of 11 million euros (84 million euros at December 31, 1999) and capital increase costs of 8 million euros (9 million euros at December 31, 1999). Industrial patents and intellectual property rights at December 31, 2 total 561 million euros with an increase of 475 million euros compared to December 31, The change from December 31, 1999 is due to Additions during the year of 136 million euros, mainly for the capitalization of costs connected with technological and software studies conducted by the Automobile Sector, Amortization of 6 million euros, Change in the scope of consolidation of 359 million euros mainly for the inclusion of the Case Group and Reclassifications, Disposals and other changes totaling 4 million euros. Concessions, licenses, trademarks and similar rights at December 31, 2 total 482 million euros with an increase of 351 million euros compared to December 31, The change from December 31, 1999 is due to Additions during the year of 81 million euros, Amortization of 83 million euros, Change in the scope of consolidation of 352 million euros mainly for the inclusion of the Case Group and Reclassifications, Disposals and other changes, net, of 1 million euros. Intangible assets in progress and advances amount to 63 million euros (187 million euros at December 31, 1999) with a decrease of 124 million euros compared to the prior year, due to Additions during the year of 67 million euros and Reclassifications of 19 million euros to the respective accounts when the assets were effectively acquired or put into use. Other intangible assets mainly consist of other deferred charges. In particular, included in intangible fixed assets are costs incurred by the Aviation Sector to participate in international cooperation programs and the contract acquisition costs incurred by the Insurance Companies. Differences on consolidation at December 31, 2 total 4,565 million euros with an increase of 3,963 million euros compared to December 31, Additions during the year derive from the adjustment to the initial goodwill referring to the Case Group owing to the restructuring costs chargeable to opening stockholders equity (47 million euros), the differences on consolidation arising from the purchase of an additional stake in the Fraikin Group (136 million euros), in CNH Global N.V. (61 million euros), in the Flexi-Coil Group (41 million euros) and in other minor companies (14 million euros). Differences on consolidation stemming from the tender offers for the minority interests in Toro Assicurazioni S.p.A. (36 million euros) and Magneti Marelli S.p.A. (154 million euros) are also included in Additions. Changes in the scope of consolidation refer to the inclusion of the Case Group for 2,857 million euros, the Flexi-Coil Group for 5 million euros, the Seima Group for 62 million euros, the Automotive Lighting Group for 27 million euros and other minor companies. 14 Consolidated Financial Statements at December 31, 2 Notes to the Consolidated Financial Statements

18 2 Property, plant and equipment Net of Change in Foreign Disposals Net of Accumulated depreciation the scope of Reclassi- exchange and other depreciation depreciation (in millions of euros) 12/31/1999 Additions Depreciation consolidation fications effects changes 12/31/2 12/31/2 Land and buildings 5,4 15 (195) (592) 4,891 1,952 Plant and machinery 6, (1,33) (419) 6,264 9,228 Industrial and commercial equipment 1, (74) (17) 1,823 5,8 Other assets 1,764 1,27 (61) (484) 2,547 2,51 Construction in progress and advances 1, (896) 9 (161) 1,152 Total Property, plant and equipment 15,92 3,236 (2,533) 1, (1,763) 16,677 19,481 Property, plant and equipment are shown gross of revaluations, which, net of depreciation recorded in previous years, are approximately 481 million euros at December 31, 2 and about 623 million euros at December 31, No interest expenses were capitalized in 2 and in Changes in the scope of consolidation of 1,711 million euros refer to the inclusion of the Case Group for 1,972 million euros, the Seima Group for 13 million euros, the exclusion of the Rolling Stock and Railway Systems Sector for 82 million euros, the deconsolidation of some Fiat Auto Brazilian companies (Powertrain and Purchasing operations) for 323 million euros that became part of the joint ventures with General Motors and are accounted for using the equity method, as well as the inclusion and exclusion of other minor companies in consolidation. Reclassifications primarily refer to a reduction in construction in progress and advances for the purchase of property, plant and equipment existing at the end of the prior year, which were reclassified at the time they were effectively acquired and put into operation. Disposals and other changes total -1,763 million euros and include, with respect to Land and buildings, 592 million euros partly related to the sale of non-strategic properties sold with the intent to reduce net invested capital. Other assets include vehicles on operating leases for 1,874 million euros at December 31, 2 (1,88 million euros at December 31, 1999), mainly related to long-term leases. The increase (786 million euros) compared to December 31, 1999 is mainly due to the change in the scope of consolidation connected with the inclusion of the Case Group (56 million euros) and the increase of the Automobile Sector operations (199 million euros). The range of depreciation rates used is as follows: Depreciation rates Land and buildings 3% 9% Plant and machinery 8% 21% Industrial and commercial equipment 16% 28% Other assets 11% 25% Financial fixed assets Investments Change in Acquisitions Foreign Disposals Value at Equity in Equity the scope of and exchange and other Value at (in millions of euros) 12/31/1999 earnings in losses consolidation capitalizations effects changes 12/31/2 Unconsolidated subsidiaries 5,55 34 (82) (4,311) 83 (1) (2) 758 Associated companies 1, (58) (32) 1,778 Other companies 1,271 3 (86) (45) 3,643 (17) (32) 4,764 Total Investments 7, (226) (3,88) 3,829 (12) (84) 7,3 15

19 Equity in earnings and Equity in losses include the Group s share of the income or the loss of companies accounted for using the equity method. Change in the scope of consolidation (-3,88 million euros) is due to: decrease of 4,579 million euros due to the line-by-line consolidation of the Case Group, which was valued at cost at December 31, 1999; increase of 25 million euros due to the use of the equity method to account for some Brazilian companies in the Automobile Sector (Powertrain and Purchasing operations) that became part of the joint ventures with General Motors and were previously consolidated on a line-by-line basis; net increase of 385 million euros due to the use of the equity method to account for Banca di Roma S.p.A., previously valued at cost (increase of 541 million euros in Investments in associated companies and decrease of 156 million euros in Investments in other companies). In particular, Toro Assicurazioni S.p.A. increased its stake in Banca di Roma from 4% to 1.1% during the year; net increase of 136 million euros mainly due to the Case Group companies. Acquisitions and capitalizations (3,829 million euros) refer principally to the following acquisitions and capitalizations: Investments in unconsolidated subsidiaries (83 million euros): Fiat Automoviles Venezuela C.A. (22 million euros), European Engine Alliance S.r.l. (16 million euros) and other (45 million euros); Investments in associated companies (13 million euros): Hua Dong Teksid Automotive Ltd. (1 million euros), Jiangsu Nanya Gearbox Co. Ltd. (44 million euros), E.D.M. S.r.l. (9 million euros) and other (4 million euros); Investments in other companies (3,643 million euros): this item includes the amount of 2,63 million euros relating to General Motors shares. The remaining amount of 1,4 million euros refers to investments made by the insurance companies in mutual funds and investment holdings (957 million euros) and miscellaneous investments made by Group companies (83 million euros). Investments, by type of consolidation method, are analyzed as follows: (in millions of euros) At 12/31/2 At 12/31/1999 Investments accounted for using the equity method 2,49 1,42 Investments valued on a cost basis: listed companies 2, unlisted companies 2,171 5,73 Total Investments valued at cost 4,891 6,1 Total Investments 7,3 7,421 Unconsolidated subsidiaries are analyzed as follows: At 12/31/2 At 12/31/1999 (in millions of euros) % Amount % Amount Unconsolidated subsidiaries: Buc-Banca Unione di Credito PTC Holding do Brasil Ltda Iveco-Kraz Inc Case Group 1. 4,579 Other unconsolidated subsidiaries (minor amounts) Total 757 5,55 As allowed by law, the above companies have not been consolidated either because their operations are so dissimilar (Buc Banca Unione di Credito), or because they were acquired towards the end of the year and it would not have been practicable to obtain the necessary information for their consolidation on a timely basis without disproportionate expense or because their operations are not significant. 16 Consolidated Financial Statements at December 31, 2 Notes to the Consolidated Financial Statements

20 Investments in associated companies are as follows: At 12/31/2 At 12/31/1999 (in millions of euros) % Amount % Amount Associated companies: Banca di Roma S.p.A Tofas Turk Otomobil Fabrikasi A.S H.d.P. S.p.A Sevel S.p.A Augusta Vita S.p.A Turk Traktor A.S New Holl. HFT Japan Inc Sevel Nord S.A F.F. Industrie Ferroviarie S.p.A Europ Assistance Holding S.A Ser.Ene S.p.A Denso Manufacturing U.K. Ltd Lingotto S.p.A Denso Manufacturing Italia S.p.A New Holland Trakmak Traktor A.S Otoyol Sanayi A.S Atlanet S.p.A Sinport S.p.A Jiangsu Parts Co. Ltd Jiangsu Nanya Auto Ltd Machen Iveco Holding S.A Fatia S.p.A Ciaoholding N.V Flexi-Coil Ltd Ikarusbus Jamugyarto RT Trucks & Bus Company Other associated companies (minor amounts) Total 1,778 1,95 Investments in other companies are as follows: in millions of euros) At 12/31/2 At 12/31/1999 Other companies: Other listed companies 2, Other unlisted companies 2,44 1, Total 4,764 1, Other listed companies of 2,72 million euros at December 31, 2 (271 million euros at December 31, 1999) principally include stock in General Motors (2,63 million euros) and Mediobanca (78 million euros). Had the portfolio of the major listed stocks at December 31, 2 been valued at fair value, it would have been approximately 769 million euros lower than the carrying value in the financial statements (approximately 27 million euros higher than the carrying value at December 31, 1999). This lower value principally refers to the market price of General Motors stock which, at December 31, 2, is 848 million euros lower than the carrying value in the financial statements: since this is considered a strategic investment and the Group deems that such lower value is not representative of a permanent impairment, no writedown was made to the investment. No fair values have been determined for the Other unlisted companies as this type of calculation would require a significant effort which would outweigh the benefits of obtaining such information. 17

21 Receivables At 12/31/2 At 12/31/1999 Of which Of which Due within Due beyond due beyond Due within Due beyond due beyond (in millions of euros) one year one year 5 years Total one year one year 5 years Total Receivables from unconsolidated subsidiaries Receivables from others Total Receivables Financial receivables are shown net of the allowances for doubtful accounts of 1 million euros (18 million euros at December 31, 1999) accrued during the year 2 for 1 million euros and with utilization during the year for 18 million euros. Financial receivables recorded in the financial statements at December 31, 2 and 1999 approximate their fair values which have been calculated using the present value method, based on a discount rate which reflects market conditions, the duration and risk of insolvency. Other securities (in millions of euros) At 12/31/2 At 12/31/1999 Change Other securities 5,73 5,132 (59) Other securities are shown in the financial statements net of the allowance for doubtful accounts of 2 million euros (5 million euros at December 31, 1999), accrued during the year for 3 million euros. Other securities principally include marketable Government securities and bonds, held primarily by the insurance companies for 5,56 million euros at December 31, 2 and 5,118 million euros at December 31, Other securities, if valued at fair value at December 31, 2, would amount to 4,946 million euros. Treasury stock At 12/31/2 At 12/31/1999 Number Cost Number Cost of shares (in millions of shares (in millions (thousands) of euros) (thousands) of euros) Fiat S.p.A. shares held by subsidiaries: Ordinary Preference 1 1 Savings 1, ,64 12 Total Treasury stock 1, ,94 27 Treasury stock, stated at cost, consists of Fiat shares held by the companies Toro Assicurazioni S.p.A. and Fiat Ge.Va. S.p.A. The decrease from 1,94 thousand shares (for an amount of 27 million euros) to 1,715 thousand shares (for an amount of 23 million euros) is due to the sale of ordinary shares by Fiat Ge.Va. S.p.A. Assets leased Net of Foreign Disposal Net of Accumulated depreciation exchange and other depreciation depreciation (in millions of euros) 12/31/1999 Additions Depreciation effects changes 12/31/2 12/31/2 Assets leased 4,142 1,733 (986) 82 (821) 4,15 1,835 Assets leased consist of vehicles sold by the Automotive Sectors under financial leases. The amount at December 31, 2 is essentially the same as that at December 31, Disposal and other changes of 821 million euros consists of the increase (575 million euros) due to the inclusion of the Case Group and the decrease (1,396 million euros), principally related to the Automobile Sector and mainly in Brazil, where a shift in the demand from financing leases to other forms of financing was caused by changes in the law. Assets leased do not include vehicles on operating leases, which are included under Property, plant and equipment. 18 Consolidated Financial Statements at December 31, 2 Notes to the Consolidated Financial Statements