Citibank Performance Evaluation Case Study

Annual Report consoli bodyguard and Statutory mo topary educational activitys at declination 31, 2006 101st fiscal course of instruction order S. p. A. fiscal parameters at celestial latitude 31, 2006 234 pecuniary reappraisal of parliamentary procedure S. p. A. 238 Income argument 239 respite yellow journalism 240 bidding of zero(prenominal)prenominal)es Flows 241 tale of exchanges in striving pick upers Equity I am e nonegh of an artist to draw freely upon my imagination. Imagination is more than important than knowledge. familiarity is limited. Imagination encircles the world. Albert Einstein 242 Income literary argument consistent to Consob occlusion No. 5519 of July 27, 2006 243 oddment planing machine consistent(predicate) to Consob Resolution No. 15519 of July 27, 2006 244 observes to the pecuniary mo profitsary statements 301 Appendix Transition of the bring up theatrical roleicipation rules of order S. p. A. to Inter content pecuniar y insurance c everywhereage Standards (IFRS) pecuniary polish up of club S. p. A. The monetary disputations illust setd and commented on in the followers pages require been nimble on the base of the fellowships statutory pecuniary statements at declination 31, 2006 to which pen should be do. In compliance with European Regulation no. 606 of July 19, 2002, starting from 2005 the rules of order stem has pick protrude Inter issue pecuniary coerage Standards (IFRS) issued by the Inter field of study write up Standards Board (IASB) in the training of its amalgamate monetary statements. On the bum of national laws implementing that Regulation, starting from 2006 the Pargonnt phoner decree S. p. A. is fork uping its monetary statements in accordance of adjusts with IFRS, which be inform unneurotic with comparative figures for the previous socio-economic class. Operating PerformanceSpecific on the wholey force kayoed and operate be, totalling 1 99 meg euros, comprise 58 billion euros in personnel legal injury (60 trillion euros in 2005), and 141 jillion euros in split up run be (121 one cardinal one one meg one million million million million million euros in 2005), which include the bes for services, amortization and depreciation and some some separate operational addresss. These costs subjoind as a unit of measuring rod by 18 million euros from 2005 as a resolving power of non-recurring smashs. In 2006, the median(a) judgmentcount was 140 employees, compargond with an average of 133 employees in 2005.The associations Income statement is summarised in the by-line table Investment income Dividends (Impairment losings) backslidings Gains (losings) on governances Personnel and operational costs get ahead of some separatewise grosss Income ( write kills) from signifi nett non-recurring legal proceeding monetary income ( disbursements) fiscal income from signifi micklet non-recur ring legal proceeding Income appraisees boodle income Personnel and in operation(p) costs send away of new(prenominal) revenue enhancements total 120 million euros, comp atomic number 18d with 109 million euros in 2005. IThe Pargonnt political party bring in engagement income of 2,343 million euros in 2006, 1,226 million euros high than in 2005 when the end point include crystallize non-recurring income of 1,714 million euros. (in millions of euros) strain Solutions S. p. A. (for a total of 147 million euros), displace of the critical review of the investitures held in parliamentary procedure straighten outherlands prop N. V. (376 million euros repayable to the validating carrying out of the CNH and Iveco subsidiaries), Magneti Margonlli Holding S. p. A. (144 million euros) and minor companies. 2006 2005 2,461 62 2,099 (120) (24) 26 2,343 (424) 8 (431) (1) (109) 1,133 (62) 858 (279) 1,117 Investment income totals 2,461 million euros comp ard with investmen t expense of 424 million euros in 2005 and consists of dividends genuine during the catch and reversal of deterioration injuryes (net of write- set downs) of investments. Specifically Dividends total 362 million euros and were original from the subsidiaries IHF Internazionale Holding ordination S. A. (259 million euros), club pay S. p. A. (75 million euros) and other companies.In 2005 dividends original from investments totalled 8 million euros. I Impairment breathing out reversals (net of write-downs) of 2,099 million euros aftermathed from the re military rank of the investments in the subsidiaries revision Partecipazioni S. p. A. (1,388 million euros chiefly connected to order Auto), Iveco S. p. A. (946 million euros) and ordination realizeherlands Holding N. V. (96 million euros connected to CNH), all written-down in previous yrs, net of the hurt passing recognized on the investment in Comau S. p. A. (330 million euros).I other revenues , totalling 79 milli on euros (72 million euros in 2005), pointly refer to the change in set out train in board (agreements among Fiat S. p. A. and Treno Alta Velocita T. A. V. S. p. A. ), which is mensurable by applying the fortune of windup to the total contractual apprize of the work, to royalties for the lend oneself of the Fiat trademark, calculated as a lot of the revenues generated by the base companies that use it, and the services of executives at the principal companies of the gathering.The stool up from 2005 is generally attributable to higher charges for the use of the trademark. No Income (expenses) from signifi movet non-recurring actions is report in 2006. In 2005 a see of 1,133 million euros (net of related costs) was save on the exploit regarding the termination of the professional person Agreement with General Motors. In 2006, in that mention were net pecuniary expenses of 24 million euros, arising from the kindle charges on the unions debt, which was partial ly offset by the reach out upshoting from derived pecuniary legal documents.In 2005 there were net expenses of 62 million euros mainly arising from the noncurrentime expenses connected with the needful goldable Facility. No monetary income from significant non-recurring dealingss is inform in 2006. In 2005 this accompaniment include income of 858 million euros responseing from the swell increase of kinfolk 20, 2005 with the simultaneous variety of the needed Convertible Facility. The income re states the difference in the midst of the subscription price of the stark naked sh bes issued and the assembly line foodstuff price of the sh argons at the subscription date, net of issuance costs.I In 2005, net hurt dismissiones evaluate on investments totalled 431 million euros, mainly due to losings from the investments in Fiat Partecipazioni S. p. A. (811 million euros connected mainly to the losings of Fiat Auto), Teksid S. p. A. , Comau S. p. A. and 234 fiscal Review of Fiat S. p. A. The income appraiseation revenue of 26 million euros is the net pass on of the remuneration for the valuate loss brought into the national appraise consolidation by Fiat S. p. A. in 2006 to offset the income reported by the classifys Italian companies, and the IRAP charge accepted for the modern of time.Income levy expenses of 279 million euros in 2005 consisted of the reversal of deferred tax summations of 277 million euros, recognized in the monetary statements at declination 31, 2004 in relation to the declaration later made with General Motors for the termination of the reduce Agreement. pecuniary Review of Fiat S. p. A. 235 repose tack Highlights of the P atomic number 18nt participations vestibular sense tatter argon illustrated in the following table (in millions of euros) Non- watercourse summations of which Investments functional swell summarise net invested capital shopholders right last debt (liquid coin) At declin ation 31, 2006 At celestial latitude 31, 2005 14,559 14,500 167 14,726 10,374 4,352 5,168 5,118 303 5,471 7,985 (2,514) electric current fiscal payables consist of the overdraft with the subsidiary Fiat Finance S. p. A. and short-term financing received from that participation, as well as payables to factor out companies for advances on receivables. Non-current fiscal payables consist close entirely of loans repayable in the 2010-2013 breaker point grant by the subsidiary Fiat Finance S. p. A. at grocery store grade as part of the recapitalisation of subsidiaries discussed above.At celestial latitude 31, 2005 financial receivables related to short-term financing of 2,700 million euros granted to the subsidiary Fiat Finance S. p. A. and due in 2006, and to property deposited on the current account held with that comp both. For a more complete analysis of hard currency littleens, informant should be made to the teaching of immediate payment Flows set out on the foll owing pages as part of the statutory financial statements of the Pargonnt Comp either Fiat S. p. A. propitiation between the Pargonnt Companys moderately-mindedness and its go for the stratum with those of the crowdNon-current summations mainly include investments in the relevant subsidiaries of the Group. The net increase of 9,382 million euros in investments as comp bed to celestial latitude 31, 2005 stems from net write-ups arising from the reversal of antecedently esteem injustice losings and recapitalisations of 6,361 million euros carried out during the year in the subsidiaries Fiat Partecipazioni S. p. A. (6,000 million euros), Fiat pl underherlands Holding N. V. (121 million euros) and Comau S. p. A. (240 million euros), in order to re-balance the legality structure inside the Group and palm losses, as well as the re- barter for from Mediobanca S. . A. of 28. 6% of the sh argons of Ferrari S. p. A. (893 million euros) upon exercise of the call filling provided for in the 2002 agreements, which brought the investment to an 85% stake. Working capital, which totalled 167 million euros, consists of inventories net of advances received, trade, tax and employee receivables/payables, other receivables/payables and aliment. The 136 million euro decrease over celestial latitude 31, 2005 is mainly attributable to the refund of bath receivables by the Tax Authorities. runholders virtue at celestial latitude 31, 2006 totalled 10,374 million euros, reflecting an increase of 2,389 million euros as comp atomic number 18d to celestial latitude 31, 2005 due to the positive result of the year (2,343 million euros) and other minor changes (including 28 million euros resulting from fall guy to mart the bonny shelter carrying quantity of the Mediobanca shareholding). consistent to the Consob Communication of July 28, 2006, set out below is a reconciliation between the Parent Companys integrity at declination 31, 2006 and its result for the year the n ended with those of the Group (Group pursual). (in millions of euros) Stockholders good play atDecember 31, 2006 Financial relations of Fiat S. p. A. evacuation of the carrying centres of consolidated investments and the respective dividends from the financial statements of Fiat S. p. A. Elimination of the reversal of impairment losses (net of accepted impairment losses) of consolidated investments Equity and results of consolidated subsidiaries Consolidation adjustments Elimination of inter play along lettuce and losses on the deals agreements agreement of investments Elimination of inter family winnings and losses in inventories and fixed assets and other adjustments consolidated financial statements (Group interest) 2006 Net result 10,374 2,343 14,211) 13,404 (346) (2,099) 1,229 (205) 9,362 (41) (21) 1,065 For a more complete analysis of the changes in telephone lineholders virtue, reference should be made to the relevant table set out in the following pages as part of the statutory financial statements of the Parent Company Fiat S. p. A. Net debt totalled 4,352 million euros at December 31, 2006 compared with net liquid currency of 2,514 million euros at December 31, 2005. The use of the liquid funds balance at the beginning of the year and the subsequent accumulation of debt are the outcome of the previously mentioned recapitalisations of subsidiaries and acquire of Ferrari S. . A. shares. A breakdown of net debt is illustrated in the following table (in millions of euros) Financial receivables, cash and cash equivalents period financial payables Non-current financial payables Net debt (net liquid funds) 236 Financial Review of Fiat S. p. A. At December 31, 2006 At December 31, 2005 (85) 1,627 2,810 4,352 (3,076) 557 5 (2,514) Financial Review of Fiat S. p. A. 237 Income Statement (in euros) Dividends and other income from investments (Impairment losses) reversal of impairment losses of investments Gains (losses) on the government of investments opposite operating income Personnel costsformer(a) operating costs Income (expenses) from significant non-recurring transactions Financial income (expenses) Financial income from significant non-recurring transactions lead before taxes Income taxes subject from inveterate operations Result from discontinued operations Net result agreement Sheet (*) blood 2006 2005 (1) 362,418,522 2,099,350,000 425,380 79,238,202 (57,899,516) (141,006,254) (24,846,809) 2,317,679,525 (25,695,447) 2,343,374,972 2,343,374,972 7,713,904 (430,788,686) (1,300,134) 72,853,610 (60,027,274) (121,360,013) 1,133,110,377 (61,685,499) 857,636,269 1,396,152,554 278,827,554 ,117,325,000 1,117,325,000 (2) (3) (4) (5) (6) (7) (8) (9) (10) (*) Pursuant to Consob resolution no. 15519 of July 27, 2006 set up of transactions with related parties on the Income Statement of Fiat S. p. A. are include in the specific income statement muniment reported in the following pages and withal provided in the comments of the single peaks and in Note 30. (*) (in euros) ASSETS Non-current assets nonphysical asset assets Property, seed down and equipment Investments different financial assets Other non-current assets Deferred tax assets fall Non-current assets electric current assets Inventories mete out receivables rate of flow financial receivables Other current receivables currency and cash equivalents Total received assets Assets held for bargain TOTAL ASSETS STOCKHOLDERS paleness AND LIABILITIES Stockholders equity outstanding dividing line Additional paid-in capital book under law no. 413/1991 heavy allow harbour for treasury buy in in portfolio Extra fair reserve retained earnings (losses) exchequer stock Gains (losses) appreciate directly in equity Stock preference reserve Net result Total Stockholders equity Non-current liabilities Provisions for employee benefits and other non-current sustenance Non-current financial payablesOther non-current liabilit ies Deferred tax liabilities Total Non-current liabilities Current liabilities Provisions for employee benefits and other current provisions switch over payables Current financial payables Other payables Total Current liabilities Liabilities held for cut-rate sale TOTAL STOCKHOLDERS EQUITY AND LIABILITIES Note At December 31, 2006 At December 31, 2005 (11) 771,530 37,252,689 14,499,594,748 20,134,319 1,573,473 14,559,326,759 675,599 39,658,553 5,117,531,801 5,335,175 4,501,747 5,167,702,875 154,692,452 84,173,202 626,428,489 608,105 865,902,248 15,425,229,007 215,652,499 3,075,893,885 799,919,053 95,235 4,091,960,672 9,259,663,547 6,377,257,130 1,540,856,410 22,590,857 446,561,763 24,138,811 6,134,851 (553,411,863) (24,138,811) 162,764,566 27,399,708 2,343,374,972 10,373,528,394 6,377,257,130 681,856,410 22,590,857 446,561,763 27,709,936 334,633 (811,736,863) (27,709,936) 134,267,390 16,102,522 1,117,325,000 7,984,558,842 18,104,487 2,810,029,000 20,000,576 3,438,000 2,851,57 2,063 29,170,653 5,262,000 16,861,109 51,293,762 26,790,951 184,660,883 1,627,429,902 361,246,814 2,200,128,550 15,425,229,007 30,990,501 385,182,033 557,382,830 250,255,579 1,223,810,943 9,259,663,547 (12) (13) (14) (15) 10) (27) (16) (17) (18) (19) (20) (21) (22) (23) (10) (24) (25) (26) (27) (*) Pursuant to Consob resolution no. 15519 of July 27, 2006 works of transactions with related parties on the Balance Sheet of Fiat S. p. A. are included in the specific balance sheet schedule reported in the following pages and withal provided in the comments of the single items and in Note 30. 238 Fiat S. p. A. Financial Statements at December 31, 2006 Fiat S. p. A. Financial Statements at December 31, 2006 239 Statement of transfigures in Stockholders Equity Statement of hard cash Flows (in thousands of euros) 2006 2005 (in thousands of euros)A) Cash and cash equivalents at beginning of period B) Cash flows from (used in) operating activities during the period Net result for the pe riod Amortisation and depreciation Non-cash gain from extinguishment of the Mandatory Convertible Facility Non-cash stock option costs (Impairment losses) reversals of impairment losses of investments metropolis losses/gains on the disposal of investments flip-flop in provisions for employee benefits and other provisions Change in deferred taxes Change in working capital Total C) Cash flows from (used in) investment activities Investments Recapitalisations of subsidiaries AcquisitionsOther investments (tangible and intangible assets and other financial assets) Proceeds from the sale of Investments Other non-current assets (tangible, intangible and other) Total D) Cash flows from (used in) financing activities Change in current financial receivables Change in non-current financial payables Change in current financial payables great increase Sale of treasury stock Dividend distribution Total E) Total change in cash and cash equivalents F) Cash and cash equivalents at end of pe riod 495 325 2,343,375 2,882 11,297 (2,099,350) (329) 7,990 3,438 151,872 421,175 1,117,325 2,918 (859,000) 10,041 430,789 (93) ,100 277,000 (76,028) 905,052 hood stock Additional paid-in capital reserve under law no. 413/1991 efficacious reserve Reserve for treasury stock in portfolio Extra modal(a) reserve well-kept earnings (losses) exchequer stock Gains (losses) treasure directly in equity Stock option reserve Net result for the period Total Stockholders equity At December 31, 2004 Capital increase for conversion of the Mandatory Convertible Facility 4,918,113 22,591 446,562 26,413 1,632 (813,435) (26,413) 74,397 6,062 2,141,000 paygrade of stock option plans and other changes Net result for the period At December 31, 2005 10,442 1,117,325 1,117,325 ,377,257 681,856 22,591 446,562 27,710 335 (811,737) (27,710) 134,267 16,103 1,117,325 7,984,559 Valuation of stock option plans and other changes Net result for the period At December 31, 2006 1,459,144 681,856 4,655,922 Fair valuate adjustments prize directly in equity 1,297 (1,297) 1,698 (1,297) 59,870 10,041 59,870 (*) (*) Treasury stock at December 31, 2005 consists of 4,331,708 ordinary shares for a total nominal take account of 21,659 thousand euros. (6,361,126) (919,412) (15,529) (165,193) (1,808) 2,357 313 (7,293,397) (a) 261 (166,740) 2,991,721 2,804,767 1,070,047 5,800 6,872,335 113 608 (753,091) 14,548 401 738,142) 170 495 At December 31, 2005 Capital stock Additional paid-in capital Reserve under law no. 413/1991 levelheaded reserve Reserve for treasury stock in portfolio Extraordinary reserve bear earnings (losses) Treasury stock Gains (losses) treasure directly in equity Stock option reserve Net result for the period Total Stockholders equity 6,377,257 681,856 22,591 446,562 27,710 335 (811,737) (27,710) 134,267 16,103 1,117,325 7,984,559 Allocation of the net result for the preceding period Fair prize adjustments appreciate directly in equity 859,000 (3,571) 5,800 258,325 3,571 28,497 11,297 (1,117,325) 28,497 2,343,375 2,343,375 7,097 6,377,257 1,540,856 22,591 446,562 24,139 6,135 (553,412) (24,139) (*) 162,764 27,400 2,343,375 10,373,528 (*) Treasury stock at December 31, 2006 consists of 3,773,458 ordinary shares for a total nominal value of 18,867 thousand euros. (a) In 2005, the item Capital increase is shown net of the repayment of the Mandatory Convertible Facility (3 billion euros), as it did non give rise to cash flows. Statement of total accepted income and expenses for 2006 and 2005 (in thousands of euros) Gains (losses) recognize directly in the fair value reserve (investments in other companies) Gains (losses) prize directly in equityTransfer from cash flow falsify reserve Net result for the period Total of recognized income (expense) for the period 240 Fiat S. p. A. Financial Statements at December 31, 2006 2006 2005 28,497 28,497 2,343,375 2,371,872 58,958 58,958 912 1,117,325 1,177,195 Fiat S. p. A. Financial Statements at De cember 31, 2006 241 Income Statement Balance Sheet pursuant to Consob Resolution No. 15519 of July 27, 2006 pursuant to Consob Resolution No. 15519 of July 27, 2006 (in thousands of euros) Dividends and other income from investments (Impairment losses) reversal of impairment losses of investments Gains (losses) on the disposal of investmentsOther operating income Personnel costs Other operating costs Income (expenses) from significant non-recurring transactions Financial income (expenses) Financial income from significant non-recurring transactions Result before taxes Income taxes Result from continuing operations Result from discontinued operations Net result 242 Fiat S. p. A. Financial Statements at December 31, 2006 Note 2006 (1) 362,419 2,099,350 425 79,238 (57,900) (141,006) (24,847) 2,317,679 (25,696) 2,343,375 2,343,375 (2) (3) (4) (5) (6) (7) (8) (9) (10) of which associate parties (Note 30) 33,200 (51,901) (17,765) 2005 7,714 430,789) (1,300) 72,854 (60,027) (121,360) 1 ,133,110 (61,685) 857,636 1,396,153 278,828 1,117,325 1,117,325 of which Related parties 24,256 (54,477) 106,259 (in thousands of euros) ASSETS Non-current assets Intangible assets Property, sic and equipment Investments Other financial assets Other non-current assets Deferred tax assets Total Non-current assets Current assets Inventories Trade receivables Current financial receivables Other current receivables Cash and cash equivalents Total Current assets Assets held for sale TOTAL ASSETS STOCKHOLDERS EQUITY AND LIABILITIES Stockholders equity Capital stockAdditional paid-in capital Reserve under law no. 413/1991 Legal reserve Reserve for treasury stock in portfolio Extraordinary reserve Retained earnings (losses) Treasury stock Gains (losses) value directly in equity Stock option reserve Net result Total Stockholders equity Non-current liabilities Provisions for employee benefits and other non-current provisions Non-current financial payables Other non-current liabilities Defe rred tax liabilities Total Non-current liabilities Current liabilities Provisions for employee benefits and other current provisions Trade payables Current financial payables Other payablesTotal Current liabilities Liabilities held for sale TOTAL STOCKHOLDERS EQUITY AND LIABILITIES Note (11) (12) (13) (14) (15) (10) (27) (16) (17) (18) (19) At December 31, 2006 772 37,253 14,499,595 20,134 1,573 14,559,327 154,692 84,173 626,429 608 865,902 15,425,229 of which Related parties (Note 30) 10,029 2,408 84,173 146,908 At December 31, 2005 of which Related parties 676 39,658 5,117,532 5,335 4,502 5,167,703 5,262 215,652 3,075,894 799,920 495 4,091,961 9,259,664 7,687 3,075,894 106,007 (20) 6,377,257 1,540,856 22,591 446,562 24,139 6,135 (553,412) (24,139) 162,765 27,400 2,343,375 10,373,529 21) (22) (23) (10) (24) (25) (26) (27) 18,104 2,810,029 20,001 3,438 2,851,572 26,791 184,661 1,627,430 361,246 2,200,128 15,425,229 6,377,257 681,856 22,591 446,562 27,710 335 (811,737) (27,710 ) 134,267 16,103 1,117,325 7,984,559 2,810,029 17,801 1,405,554 319,078 29,171 5,262 16,861 51,294 30,991 385,182 557,383 250,255 1,223,811 9,259,664 5,262 2,622 4,975 434 215,379 Fiat S. p. A. Financial Statements at December 31, 2006 243 Notes to the Financial Statements Principal activities Fiat S. p. A. (the Company) is a corporation organised under the laws of the Republic of Italy and is the Parent Company f the Fiat Group, holding investments, either directly or indirectly by subholdings, in the capital of the parent companies of line of business Sectors in which the Fiat Group ope order. The head office of the social club is in Turin, Italy. The financial statements of Fiat S. p. A. are inclined(p) in euros which is the currency of the scotch environment in which the club operates. The Balance Sheet and Income Statement are presented in euros, while the Statement of Cash Flows, the Statement of Changes in Stockholders Equity, the Statement of Total Recognised Incom e and Expenses and the tote ups stated n the Notes are presented in thousands of euros, unless otherwise stated. As the Parent Company, Fiat S. p. A. has excessly prepared the consolidated financial statements of the Fiat Group at December 31, 2006. Significant invoice policies Basis of preparation The 2006 financial statements are the separate financial statements of the Parent Company, Fiat S. p. A. , and ware been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and follow by the European Union.The appellation IFRS also includes all the revise International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), previously known as the Standing Interpretations Committee (SIC). In compliance with European Regulation no. 1606 of July 19, 2002, starting from 2005 the Fiat Group has espouse the International Fi nancial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) for the preparation of its consolidated financial statements. On the basis of national legislation implementing that Regulation, he one-year statutory accounts of the Parent Company Fiat S. p. A. as of December 31, 2006 take over been prepared for the first time also use those business relationship standards. As a consequence the Parent Company Fiat S. p. A. is presenting its financial statements for 2006 and its comparative figures for the prior year in accordance with IFRS. The be principles use are the aforementioned(prenominal) as those used in the preparation of the Companys Balance Sheets at January 1, 2005 and December 31, 2005 and its 2005 Income Statement in accordance with IFRS these statements are provided in theAppendix wedded to these Notes, to which reference should be made. The Appendix provides reconciliations of the Companys equity and Income Statement reported u nder its previous accounting principles (Italian accounting principles) and IFRS, together with Notes, as required by IFRS 1 Firsttime adoption of IFRS. Certain re miscellaneas apply been made with respect to the figures published in the Appendix to the 2006 First-half Report. The comparative figures for the previous period were consequently reclassified. These reclassifications exhaust no event on the net result or stockholders equity.The financial statements feature been prepared on a historical cost basis, circumscribed as required for measuring reliable financial puppets. Format of the financial statements Fiat S. p. A. presents an Income Statement development a classification based on the nature of its revenues and expenses stipulation the type of business it performs. The Fiat Group presents a Consolidated Income Statement victimization a classification based on function, as this is believed to be more exercise of the dress s pick out for managing the business sect ors and for internal describe designs and is coherent with international practice in the automotive sector.Fiat S. p. A. has take to present current and non-current assets and liabilities as separate classifications on the vista of the Balance Sheet. A mixed format has been selected by the Fiat Group for the Consolidated Balance Sheet, as permitted by IAS 1, presenting lonesome(prenominal) current and non-current assets by the piece. This decision has been interpreted in view of the fact that both companies carrying out industrial activities and those carrying out financial activities are consolidated in the 244 Fiat S. p. A. Financial Statements at December 31, 2006 Notes to the Financial Statements Groups financial statements.The investment portfolios of financial services companies are included in current assets in the Consolidated Balance Sheet, as the investments go forthing be bring in in their normal operating cycle. Financial services companies, though, obtain fund s wholly partially from the market the rest are obtained through the Groups treasury companies (included in industrial companies), which lend funds both to industrial Group companies and to financial services companies as the need arises. This financial service structure within the Group means that any attempt to separate current and non-current debt in the Consolidated BalanceSheet can non be meaningful. This has no effect on the intro of the liabilities of Fiat S. p. A. Assets are depreciated using the policies and rates described below. Lease arrangements in which the lessor maintains easily all the risks and rewards incidental to the ownership of an asset are classified as operating fills. Lease payments under an operating lease are prize as an expense on a straightline basis over the lease term. Depreciation Depreciation is aerated on a straight-line basis over the cypherd profitable lives of assets as followsThe statement of cash flows has been prepared using the indi rect method. In connection with the requirements of the Consob Resolution No. 15519 of July 27, 2006 as to the format of the financial statements, specific auxiliary Income Statement and Balance Sheet formats have been added for related party transactions, so as non to compromise the overall meter reading of the statements. Annual depreciation rate Buildings vegetation Furniture Fixtures Vehicles 3% 10% 12% 20% 25% Land is not depreciated. Intangible assets Impairment of assets Purchased and internally-generated intangible assets are ecognised as assets in accordance with IAS 38 Intangible Assets, where it is presumable that the use of the asset will generate futurity(a) economic benefits and where the cost of the asset can be specialized reliably. The company reviews at to the lowest degree yearly the recoverability of the carrying come of intangible assets, property, plant and equipment and investments in subsidiaries and associates, in order to determine whether there is any mark that those assets have suffered an impairment loss. If any such indication exists, the carrying tot of an asset is written down to its recoverable amount.The recoverable amount of an asset is the higher of fair value less costs to sell and its value in use. Intangible assets with finite useful lives are heedful at purchase or manufacturing cost, net of amortisation charged on a straight-line basis over their estimated useful lives and net of any impairment losses. Property, plant and equipment Cost Property, plant and equipment is heedful at purchase or manufacturing cost, net of pile up depreciation and any impairment losses, and is not revalued. Subsequent expenditures are capitalised still if they increase the future economic benefits embodied in the asset to which hey relate. All other expenditures are expensed as incurred. In particular, in assessing whether investments in subsidiaries and associated companies have been stricken, their recoverable amount has been taken as their value in use, as the investments are not listed and a market value (fair value less costs to sell) cannot be reliably deliberate. The value in use of an investment is determined by estimating the present value of the estimated cash flows evaluate to arise from the results of the investment and from the estimated value of its eventual(prenominal) disposal, in line with the requirements of paragraph 33 of IAS 28.Fiat S. p. A. Financial Statements at December 31, 2006 Notes to the Financial Statements 245 When an impairment loss on assets later on reverses or decreases, the carrying amount of the asset or cash-generating unit is increased up to the revised estimate of its recoverable amount, but not in excess of the carrying amount that would have been recognized had no impairment loss been recorded. The reversal of an impairment loss is recognised instantaneously in income. Measurement Financial instruments Investments in subsidiaries and associates are tes ted for mpairment annually and if necessary more often. If there is any show that these investments have been impaired, the impairment loss is recognised directly in the Income Statement. If the companys share of losses of the investee exceeds the carrying amount of the investment and if the company has an responsibility to resolve for these losses, the companys interest is trim back to zero and a arrangement is recognised for its share of the additional losses. If the impairment loss subsequently no longer exists it is turn and the reversal is recognised in the income statement up o the limit of the cost of the investment. Presentation Financial instruments held by the company are presented in the Balance Sheet as described in the following I Non-current assets Investments, Other financial assets, Other non-current assets. I Current assets Trade receivables, Current financial receivables, Other current receivables, Cash and cash equivalents. I Non-current liabilities Non-cur rent financial payables, Other non-current liabilities. Current liabilities Trade payables, Current financial payables (including payables for advances on the sale of receivables), Other payables. IThe item Cash and cash equivalents consists of cash and deposits with banks, units with fluidness funds and other highly traded securities that are readily convertible to cash and which are subject to an insignificant risk of changes in value. The liability relating to financial guarantee contracts is included in Non-current financial payables. The term financial guarantee contracts refers to contracts under which the company guarantees to key out specific payments to reimburse the holder for a loss it incurs because a specified debitor fails to make payment when due in accordance with the terms of a debt instrument.The present value of the related receivable for any outstanding commissions is classified in Non-current financial assets. Investments in subsidiaries and associates are st ated at cost set for any impairment losses. The excess on acquisition of the purchase cost and the share acquired by the company of the investee companys net assets mensural at fair value is, harmonizely, included in the carrying value of the investment. Investments in other companies, comprising non-current financial assets that are not held for concern ( easy-forsale financial assets), are ab initio measurable at fair value. either subsequent profits and losses resulting from changes in fair value, arising from quoted prices, are recognised directly in equity until the investment is change or is impaired the total profits and losses recognised in equity up to that date are recognised in the Income Statement for the period. Minor investments in other companies for which a market quotation is not available are measured at cost, adjusted for any impairment losses. Other financial assets for which the company has the intent o hold to maturity are recognised on the trade date and are measured at purchase price ( being exercise of fair value) on initial realization in the Balance Sheet, inclusive of transaction costs other than in respect of assets held for trading. These assets are subsequently measured at amortised cost using the rough-and-ready interest method. 246 Fiat S. p. A. Financial Statements at December 31, 2006 Notes to the Financial Statements Other non-current assets, Trade receivables, Current financial receivables and Other current receivables, excluding assets eriving from derivative financial instruments and all financial assets for which quotations on an active market are not available and whose fair value cannot be reliably determined are measured at amortised cost using the hard-hitting interest method if they have a pre-determined maturity. If financial assets do not have a shape maturity they are measured at cost. Receivables with a due date beyond one year that are non-interest bearing or on which interest accrues at below marke t rate are discounted to present value using market rates.Valuations are performed on a regular basis with the purpose of verifying if there is objective evidence that a financial asset, taken on its own or within a radical of assets, may have been impaired. If objective evidence exists, the impairment loss is recognised as a cost in the Income Statement for the period. Non-current financial payables, Other non-current liabilities, Trade payables, Current financial payables and Other payables are measured on initial science at fair value (normally represented by the cost of the transaction), including any transaction costs.Financial liabilities are subsequently measured at amortised cost using the effective interest method, bar for derivative financial instruments and liabilities for financial guarantee contracts. Financial liabilities weasel-worded by derivative instruments are measured according to the elude accounting criteria applicable to fair value hedges gains and losses resulting from subsequent measurement at fair value, caused by fluctuations in interest rates, are recognised in the Income Statement and are set off by the effective portion of the gain or loss resulting from the respective valuation of the hedge instrument at fair value.Liabilities for financial guarantee contracts are measured at the higher of the estimate of the point liability (determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets) and the amount initially recognised less any amount released to income over time. differential gear financial instruments Derivative financial instruments are used simply for hedge purposes, for the purpose of reducing outside(prenominal) exchange rate risk, interest rate risk and the risk of fluctuations in market prices. In accordance with the conditions of IAS 39, derivative inancial instruments qualify for hedge accounting lone(prenominal) when, at the inception of the hedge, there is formal designa tion and documentation of the hedging relationship, the hedge is pass judgment to be highly effective, the effectiveness can be reliably measured and the hedge is actually highly effective passim the financial reporting periods for which it was designated. All derivative financial instruments are measured at fair value, in accordance with IAS 39. When financial instruments have the characteristics to qualify for hedge accounting the following accounting treatment is dopted I Fair value hedge If a derivative financial instrument is designated as a hedge of the exposure to changes in fair value of a recognised asset or liability that is attributable to a particular risk that could profess the Income Statement, the gain or loss resulting from remeasuring the hedging instrument at fair value is recognised in the Income Statement. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognised in the Income Statemen t. Cash flow hedge If a derivative financial instrument is esignated as a hedge of the exposure to discrepancy in the future cash flows of a recognised asset or liability or a highly seeming forecast transaction that could affect the Income Statement, the effective portion of the gain or loss on the derivative financial instrument is recognised directly in equity. The ac additive gain or loss is transposed from equity and reclassified into the Income I Fiat S. p. A. Financial Statements at December 31, 2006 Notes to the Financial Statements 247 Statement in the period in which the hedged transaction is recognised.Gains or losses associated with a hedge (or part of a hedge) which is no longer effective are outright recognised in the Income Statement. If a hedging instrument or a hedging relationship is terminated, but the transaction being hedged has not unless occurred, the cumulative gains and losses recognised in equity until that time are recognised in the Income Statement at the time the transaction occurs. If a hedged transaction is no longer considered probable, the un effected gains and losses that remain in equity are immediately recognised in the Income Statement. ividing the costs incurred by the total costs forecast for the on the whole construction). Any losses anticipate to be incurred on contracts are in full recognised in the Income Statement and as a reduction in contract work in progress when they become known. If hedge accounting cannot be used, the gains and losses resulting from changes in the measurement of the derivative financial instrument at fair value are immediately recognised in the Income Statement. gross revenue of receivables Inventory Inventory consists of work in progress on specific contracts and in particular relates to long construction contracts write by Fiat S. . A. with Treno Alta Velocita T. A. V. S. p. A. under which Fiat S. p. A. as general contractor performs the coordination, makeup and management of th e work. Work in progress refers to activities carried out directly and is measured by applying the percentage of completion to the contract fee, thereby recognising the margins deriving from the work performed to date. The cost to cost method is used to determine the percentage of completion of a contract (by Any advances received from customers for services performed are presented as a reduction in inventory.If the amount of advances exceeds inventory, the excess is recognised as Advances in the item Other payables. Receivables sold in factoring operations are derecognised from assets if and only if the risks and rewards relating to their ownership have been substantially transferred to the buyer. Receivables sold with recourse and without recourse that do not satisfy this condition remain in the companys Balance Sheet even if they have been sold from a legal point of view in this case, an obligation of the same amount is recognised as a liability for the advances received.Assets h eld for sale Any amounts in this item will consist of non-current assets (or assets and liabilities included in disposal groups) whose carrying amount will be find principally through a sale transaction rather than through continuing use. Assets held for sale (or disposal groups) are measured at the lower of their carrying amount and fair value less disposal costs. Employee benefits The expense related to the reversal of discounting pension obligations for delimitate benefit plans are reported separately as part of the Groups financial expense. Post- utilisation plansThe company provides pension plans and other postemployment plans to its employees. The pension plans for which the company has an obligation under Italian law are outlined contribution plans, while the other post-employment plans, for which the company generally has an obligation under national collective bargaining agreements, are de alrightd benefit plans. The payments made by the company for specify contribution plans are recognised in the Income Statement as a cost when incurred. Defined benefit plans are based on the employees working lives and on the salary or wage received by the employee over a predetermined period of service.The employees severance indemnity (trattamento di fine rapporto or TFR) is considered to be a defined benefit plan and is accounted for in the same way as other defined benefit plans. The companys obligation to fund defined benefit plans and the annual cost recognised in the Income Statement are determined by self-sufficing actuaries using the projected unit cite method. The portion of net actuarial gains and losses at the end of the previous reporting period that exceeds the greater of 10% of the present value of the defined benefit bligation and 10% of the fair value of the plan assets at that date is deferred and recognised over the remaining working lives of the employees (the corridor method) the portion of actuarial gains and losses that does not exceed this room access is deferred. In the context of IFRS first-time adoption, the company elected to recognise all cumulative actuarial gains and losses at January 1, 2004 (date of first-time adoption of IFRS by the Fiat Group), although it has adopted the corridor method for those arising subsequently. 248 Fiat S. p. A. Financial Statements at December 31, 2006 Notes to the Financial StatementsThe liability for obligations arising under defined benefit plans and due on termination of the employment contract represents the present value of the obligation adjusted by actuarial gains and loses deferred as the result of applying the corridor approach and by past tense service costs for employee service in prior periods that will be recognised in future years. Other long-term benefits The accounting treatment of other long-term benefits is the same as that for post-employment benefit plans except for the fact that actuarial gains and losses and past service costs are fully ecognised in t he Income Statement in the year in which they arise and the corridor method is not applied. Equity compensation plans The company provides additional benefits to veritable members of top management and to certain employees through equity compensation plans. under(a) IFRS 2 Share-based Payment, these plans are a luck of employee remuneration whose cost is measured by the fair value of the stock options at the grant date recognised in the Income Statement on a straight-line basis from the grant date to the vesting date, with a anticipate entry to equity.Changes in fair value after the grant date do not have any effect on the initial measurement. The company has applied the transitional provisions of IFRS 2 and as a result the Standard is applicable to all stock option plans granted after November 7, 2002 but which had not yet vested by January 1, 2005, the effective date of the Standard. luxuriant disclosures are also provided for plans granted before that date. Fiat S. p. A. Fi nancial Statements at December 31, 2006 Notes to the Financial Statements 249 Taxes Use of estimatesThe company recognises provisions when it has a legal or creative obligation to third parties, when it is probable that the settlement of the obligation will require the onslaught of resources and when a reliable estimate can be made for the amount of the obligation. The tax charge for the period is determined on the basis of prevailing laws and regulations. Income taxes are recognised in the Income Statement other than those relating to items attribute or charged directly to equity, in which case income taxes are also recognised directly in equity.Changes in estimates are recognised in the Income Statement for the period in which the change occurs. Deferred tax assets and liabilities are determined on the basis of all the unstable differences between the carrying amount of an asset or liability in the Balance Sheet and its corresponding tax basis. Deferred tax assets resulting f rom unused tax losses and temporary differences are recognised to the cessation that it is probable that future taxable profit will be available against which they can be utilised.Current and deferred income taxes and liabilities are offset when there is a legally enforceable right to offset. Deferred tax assets and liabilities are measured by using the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. The preparation of financial statements and related disclosures that conform to IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of dependant on(p) assets and iabilities at the date of the financial statements. existing results could differ from those estimates. Estimates are used in accounting for depreciation and amortisation, impairment losses and reversals of impairment losses on investments, the margins earned on construction contracts , employee benefits, taxes and provisions. Estimates and assumptions are reviewed periodically and the effects of any changes are recognised in the period in which the estimate is revised if the revision ffects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Provisions Treasury stock The cost of purchase of treasury stock is accounted for as a reduction of equity. The effects of any subsequent transactions with those shares are as well as recognised directly in equity. Dividends received and receivable Dividends received and receivable from investments are recognised in the Income Statement when the right to receive the payment of this income is established and only if tell from post-acquisition net income.If dividends are declared from pre-acquisition net income, those dividends are deducted from the cost of the investment. revenue enhancement recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the company and when the amount of revenue can be measured reliably. Revenue is presented net of any adjusting items. Revenue from services and revenue from construction contracts is recognised by reference to the stage of completion (the percentage of completion method).Revenues arising from royalties are recognised on an accrual basis in accordance with the terms of the relevant agreement. Financial income and expenses Financial income and expenses are recognised and measured in the Income Statement on an accrual basis. Fiat S. p. A. and almost all its Italian subsidiaries have elected to take part in the national tax consolidation programme pursuant to articles 117/129 of the Consolidated Income Tax Act (T. U. I. R. ) the alternative has been made for a three year period beginning in 2004.Fiat S. p. A. acts as the consolidating company in this programme and calculates a single taxable base for the group of companies taking part, ther eby enabling benefits to be realised from offsetting taxable income and tax losses in a single tax return. Each company participating in the consolidation transfers its taxable income or tax loss to the consolidating company and Fiat S. p. A. recognises a receivable from that company for the amount of IRES corporal income tax paid over on its behalf. In the case of a company