Consolidated entities

The consolidated financial statements of the Fiat Group at 31 December 2012 include Fiat S.p.A. and 297 consolidated subsidiaries in which Fiat S.p.A., directly or indirectly, has a majority of the voting rights, and over which it exercises control or from which it is able to derive benefit by virtue of its power to govern their corporate financial and operating policies.

There were no significant changes in the scope of consolidation in 2012, although the following minor changes occurred:

  • in early January 2012, Fiat announced that the “Ecological Event” (Third performance event established in the Chrysler’s LLC Operating Agreement, as amended) had been achieved, leading to a further 5% increase of its holding in Chrysler. At 31 December 2012 Fiat had a 58.5% ownership interest in Chrysler;
  • AKAT Automotive Distribution Company Private Limited, whose name was subsequently changed to Fiat Group Automobiles India Private Limited, was established in India and will assume responsibility for all commercial, distribution and service related activities from the current joint Tata Motors-Fiat dealerships assigned to manage the Fiat brand. The investment was initially measured at cost and now is consolidated on a line by line basis;
  • Some minor subsidiaries belonging to the Components and Production System operating segment  and the company FGA Austro Car GmbH belonging to the EMEA region, whose total assets and revenues are not material for the Group, were consolidated on a line-by-line basis.

In addition, as part of the discussions which began in 2011 on the future of the Fiat-PSA Peugeot Citroën JVs, on 26 July 2012 the Group entered into an agreement with PSA Peugeot Citroën providing for the transfer of its shareholding in the Sevelnord Société Anonyme joint venture at a symbolic value. In accordance with IFRS 5, the Group has reclassified its investment in Sevelnord Société Anonyme within assets held for sale and measured it at fair value, by recognising an unusual loss of €91 million in the second quarter of 2012.

Amounts reported in the Consolidated income statement and statement of cash flows for 2011 include the operations of Chrysler which has been consolidated since 1 June 2011.

Excluded from consolidation are 68 subsidiaries that are either dormant or generate a negligible volume of business; their proportion of the Group’s assets, liabilities, financial position and earnings is immaterial. In particular, 45 of these subsidiaries are accounted for using the cost method, and represent in aggregate 0.1% of total Fiat Group revenues, 0% of Fiat Group equity and 0.1% of total Fiat Group assets.

Interests in jointly controlled entities (50 companies, including 26 entities of the FGA Capital group) are accounted for using the equity method. Condensed financial information relating to the Group’s pro-rata interest in these entities is as follows:

(€ million) At 31 December 2012 At 31 December 2011 
Non-current assets 1,984 1,965
Current assets 8,790 9,242
TOTAL ASSETS 10,774 11,207
Debt 7,602 8,134
Other liabilities 1,601 1,595

The combined balances of the Group’s share in the principal income statement items of jointly controlled entities accounted for using the equity method are as follows:

(€ million) 2012 2011
Net revenues 4,381 4,703
Trading profit/(loss) 230 246
EBIT 225 234
Profit/(loss) before taxes 200 240
Profit/(loss) 148 143

At 31 December 2012, 8 associates are accounted for using the equity method, while 24 associates, which in aggregate are of minor importance, are accounted for using the cost method. The main aggregate amounts related to the Group’s interests in associates are as follows:

(€ million) At 31 December 2012 At 31 December 2011
Total assets 294 386
Liabilities 218 240
(€ million) 2012 2011
Net revenues 182 208
Net profit/(loss) (38) (4)

The main aggregate amounts related to the Group interests in associates measured at cost are as follows:

(€ million) At 31 December 2012 At 31 December 2011
Total assets 35 22
Liabilities 16 8
(€ million) 2012 2011
Net revenues 48 44
Net profit/(loss) 4 1

Investment in Chrysler

Chrysler has been consolidated on a line-by-line basis effective 1 June 2011 following acquisition of control as defined by  IAS 27 – Consolidated and Separate Financial Statements due to increasing the ownership to 46% (on a fully-diluted basis) on 24 May 2011 (the “Acquisition date”) in addition to the potential voting rights associated with options that became exercisable on the same date. The acquisition of the control of Chrysler represents a business combination achieved in stages falling under the scope of IFRS 3 - Business Combinations. During 2011, Fiat recognised the following accounting treatment for the business combination (effects in US Dollars translated into Euros using the exchange rate of 1.4385 at 1 June 2011):

  • The previously held 30% ownership interest in Chrysler initially recognised at zero by Fiat was remeasured at fair value at the Acquisition date and the resulting gain of €1,729 million ($2,487 million) was recognised in profit or loss under Unusual income/(expense). For the purpose of establishing the fair value of Chrysler in order to calculate that gain, given that no active market price for Chrysler shares was available, in accordance with IFRS 3, it was deemed reasonable to use the equity value of $8,290 million (€5,763 million) for Chrysler, implied in the price agreed between Fiat and the U.S. Treasury in early June 2011 for exercising the call option on the U.S. Treasury’s 6.031% ownership interest (on a fully-diluted basis) in Chrysler.
  • The identifiable assets acquired and identifiable liabilities assumed have been measured at their Acquisition date fair value, with the exception of certain contingent liabilities existing prior to acquisition whose value was not determinable, deferred taxes and certain obligations associated with employee benefits, all of which were recognised in accordance with the applicable standard, as required by IFRS 3; this measurement process was completed in December 2011.
  • Non-controlling interests of 54% on a fully-diluted basis, were recognised at €3,112 million ($4,477 million) at 1 June 2011, based on the above-stated equity value of Chrysler of $8,290 million (€5,763 million) in accordance with paragraph 19(a) of IFRS 3.
  • Goodwill arising from the acquisition was determined at the end of the measurement period as follows:
    At the Acquisition date
    ($ million) (€ million)
Consideration paid for the acquisition of the additional 16% ownership interest + 1,268 881
Fair value of the previously held ownership interest (30%) + 2,487 1,729
Value attributed to non-controlling interests + 4,477 3,112
Net assets acquired/(net liabilities assumed) - (4,169) (2,899)
GOODWILL = 12,401 8,621
  • Fiat’s contractual right to receive an additional 5% ownership interest in Chrysler with no monetary consideration on the occurrence of the Ecological Event, previously recognised in the Consolidated financial statements at zero, was recognised under Other investments and financial assets at fair value at 1 June 2011. The resulting gain of €288 million ($415 million) was recognised in the income statement as Unusual income/(expense). Fair value was also based on the above-stated fair value of Chrysler’s equity of $8,290 million (€5,763 million).
  • The consideration paid for this transaction and the related net cash flows were as follows:
  ($ million) (€ million)
CONSIDERATION PAID 1,268 881
     
Net cash outflows/(inflows) on acquisition:    
Consideration paid 1,268 881
Cash and cash equivalents acquired (9,358) (6,505)
TOTAL NET CASH OUTFLOWS/(INFLOWS) ON ACQUISITION (8,090) (5,624)

In addition, in the third quarter of 2011, Fiat acquired additional interests in Chrysler from the U.S. Treasury and Canadian government (6.031% and 1.508% on a fully-diluted basis) for cash consideration of $500 million and $125 million respectively (€351 million and €87 million respectively) and Fiat also acquired the U.S. Treasury’s rights under the Equity Recapture Agreement between the U.S. Treasury and the VEBA Trust in exchange for cash consideration of $75 million, of which $15 million was paid to the Canadian government pursuant to a separate arrangement between the U.S. Treasury and the Canadian government. As a result of these transactions, Fiat’s ownership interest in Chrysler at 31 December 2011 was 53.5% (on a fully-diluted basis). The acquisition of these non-controlling interests was recognised to equity.

In January 2012, Fiat announced that the third performance event (“Ecological Event”) established in Chrysler’s LLC Operating Agreement, as amended through the date hereof, had been achieved, leading to a further 5% increase of its holding in Chrysler. At 31 December 2012 Fiat had a 58.5% ownership interest in Chrysler.

At the date of this Annual report, Fiat holds the following options and rights:

  • VEBA Trust Call Option: the VEBA Trust granted Fiat a call option on a portion of the Class A membership interests held by the VEBA Trust. This call option is exercisable from 1 July 2012 to 30 June 2016, and covers up to 40% of the membership interests currently held by the VEBA Trust, less any membership interests previously transferred under the Equity Recapture Agreement described below, and may be exercised for no more than 8% of such membership interests in any six month period. The price of the membership interests acquired in connection with the exercise of the VEBA Trust Call Option is dependent on whether or not a Chrysler Group Initial Public Offering (“IPO”) has been completed at the time the option is exercised. If a Chrysler Group IPO has not occurred, the exercise price for this option is determined using a defined market-based multiple, not to exceed Fiat’s multiple, applied to Chrysler Group’s reported EBITDA for the most recent four quarters, less net industrial debt. If exercised contemporaneously with a Chrysler Group IPO, the exercise price is equal to the Chrysler Group IPO price. Subsequent to a Chrysler Group IPO, the exercise price is determined by reference to a volume-weighted average price per share of Chrysler Group’s common stock. On 3 July 2012, Fiat notified VEBA of Fiat’s exercise of its option to purchase a portion of VEBA’s ownership interest in Chrysler. That tranche represents approximately 3.3% of Chrysler’s outstanding equity. On 26 September 2012, Fiat announced that Fiat North America (a wholly-owned subsidiary) was seeking a declaratory judgment from the Delaware Court of Chancery to confirm the price to be paid for the stake, since the parties had not reached an agreement on the purchase price. On 3 January 2013, Fiat notified VEBA of its exercise of its option to purchase a second tranche of the interest held in Chrysler Group LLC by VEBA, representing approximately 3.3% of Chrysler’s outstanding equity. In the event that these pending transactions are completed as contemplated, Fiat will hold approximately 65.17% of the outstanding equity in Chrysler.
  • The Equity Recapture Agreement: which provides Fiat the rights to the economic benefit associated with the membership interests held by the VEBA Trust once the VEBA Trust receives proceeds, including certain distributions, in excess of $4.25 billion plus 9% per annum from 1 January 2010 (“Threshold Amount”). Once the VEBA Trust receives the Threshold Amount, any additional proceeds payable to the VEBA Trust for the Chrysler membership interests and any membership interests retained by the VEBA Trust are to be transferred to Fiat for no further consideration. In addition, Fiat has the right to acquire VEBA Trust’s entire membership interest in Chrysler at a price equivalent to the specified Threshold Amount, less any proceeds already received by the VEBA Trust on that interest (see Note 32).

In accordance with paragraph AG81 of IAS 39 – Financial Instruments: recognition and measurement, both of these have been recognised in the Consolidated financial statements at cost, since (i) the variability in the range of reasonable fair value estimates is significant for these instruments and (ii) the probabilities that are used to weight the various estimates in the range of fair values cannot be reasonably established and used in estimating fair value.

For a more detailed description of the acquisition of control of Chrysler reference should be made to the Note  -Investment in Chrysler in the Consolidated Financial Statements at 31 December 2011.

Other acquisitions or disposals

No significant subsidiaries were acquired or disposed of in 2012. As discussed above during the year, the Group acquired additional interests in Chrysler  with the following cash outflows:

 Chrysler Group LLC Purchased interest
(in %)
Cash outflows
on acquisition
(€ million)
 5%0

During 2011, the Group, after having obtained a controlling interest, acquired additional non-controlling interests in Chrysler as well as the investment in the joint venture VM Motori with the following cash outflows:

  Purchased interest
(in %)
Cash outflows
on acquisition
(€ million) 
Chrysler Group LLC 7.5% (438)
VM Motori S.p.A. 50.0% (34)

Finally, the Group has disposed of certain minor investments during 2011, including a minor subsidiary of the Ferrari sector that was been classified as an asset held for sale during the third quarter of 2011 and the investment in Fiat Switzerland that was sold to the Fiat Industrial group. 

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