Financial Statement Formats

The Company has applied the provisions of Consob Resolution No. 15519 of July 27, 2006 in regard to the formats of financial statements and Consob Notice No. 6064293 of July 28, 2006 in regard to corporate disclosure.

The consolidated financial statements at December 31, 2011 consist of the Balance Sheet, the Income Statement, the Statement of Comprehensive Income, the Statement of Changes in Equity, the Statement of Cash Flows and the Explanatory Notes, and are accompanied by the Directors’ Report on Operations.

The format adopted for the Balance Sheet classifies assets and liabilities as current and non-current.

The Group has opted to present the components of profit or loss for the year in a schedule in a separate Income Statement, rather than include these components directly in the Statement of Comprehensive Income. The Income Statement classifies costs by nature.

The Statement of Comprehensive Income includes the result for the period and, for homogeneous categories, the revenues and costs which, in accordance with IFRSs, are recognised directly in equity.

The Group has decided to present both the tax effects and reclassifications to the Income Statement of gains/losses recognised directly in equity in previous periods directly in the Statement of Comprehensive Income and not in the Explanatory Notes.

The Statement of Changes in Equity includes the amounts of transactions with the equity holders and the movements that occurred during the period in retained earnings.

In the Statement of Cash Flows, the cash flows deriving from operating activities are presented using the indirect method, according to which the profit or loss for the period is adjusted by the effects of nonmonetary transactions, by any deferment or accrual of past or future operating receipts or payments, and by any revenue or cost items connected with the cash flows arising from investing activities or financing activities.


Scope of Consolidation

The scope of consolidation includes the subsidiaries, associates and investments in joint ventures.

All companies and entities whose financial and operating policies are subject to control by the Group are considered subsidiaries. This condition is normally satisfied when the Group owns more than half of the voting rights, unless it is clearly demonstrated that such ownership does not constitute control.

Subsidiaries are also considered to be those companies in which the Group has the power to control their financial and operating policies through agreements with other shareholders, even if it owns half or less of the voting rights. The financial statements of subsidiaries are included in the consolidated financial statements beginning on the date when control is acquired until the time when control is lost. Non-controlling interests in equity and net income (loss) are separately indicated on the consolidated Balance Sheet and Income Statement.

All companies over which the Group can exercise significant influence (as defined by IAS 28 – Investments in Associates) are considered associates. This influence is normally assumed to exist if the Group holds between 20% and 50% of the voting power of the investee or – even with a smaller proportion of voting rights – it has the power to participate in determining the financial and operating policies of the investee on the basis of particular legal relationships. Such relationships may take the form of shareholders’ agreements together with other forms of significant exercise of governance rights.

Companies in which two or more parties operate a business under joint control on the basis of a contractual or statutory agreement are considered joint ventures.

The main change in the scope of consolidation that occurred in 2011 refers to acquisition of the companies OJSC Kirov Tyre Plant and LLC Amtel- Russian Tyres (Russia). Please see the note below on “Business Combinations.”


Consolidation Policies

The financial statements used for consolidation purposes are those of the companies included in the scope of consolidation, prepared at the reporting date of the parent and adjusted, as necessary, in accordance with the IAS/IFRSs applied by the Group.

The financial statements expressed in foreign currencies have been translated into euro at the yearend rates for the Balance Sheet and at the average exchange rates of the year for the Income Statement, with the exception of financial statements of companies operating in high-inflation countries, whose income statements are translated at the year-end exchange rates.

The differences arising from the translation of opening equity at year-end exchange rates have been recognised in the reserve for translation differences, together with the difference between the result for the year translated at the year-end rate and at the average rate for the year. The reserve for translation differences is recognised in the Income Statement upon disposal of the company that generated the reserve.

The consolidation policies may be summarised as follows:

  • subsidiaries are consolidated on a line-by-line basis, according to which:
    • the assets, liabilities, revenue, and costs on the financial statements of subsidiaries are recognised in their full amounts, regardless of the percentage of ownership;
    • the carrying amount of investments is eliminated against the underlying share of equity;
    • the financial and operating transactions between companies consolidated on a line-by-line basis, including dividends distributed within the Group, are eliminated;
    • the non-controlling interest in equity and in income (loss) is presented separately on the Balance Sheet and Income Statement;
  • investments in associates and joint ventures are accounted for by the equity method, on the basis of which the carrying amount of the investments is adjusted by:
    • the investor’s share of the post-acquisition results of the associate or joint venture;
    • the allocable amount of profits and losses recognised directly in the equity of the associate or joint venture, in accordance with the reference accounting standards;
    • dividends paid by the associate or joint venture;
    • when the Group’s share of the associate’s/joint venture’s losses exceeds the carrying amount of the investment in the financial statements, the carrying amount of the investment is eliminated and the share of any further losses is recognised in the “Provisions for liabilities and charges,” to the extent that the Group has a contractual or implicit obligation to cover the losses;
  • the profits resulting from sales made by subsidiaries to joint ventures or associates are eliminated in proportion to the percentage equity interest in the acquiring entity. Upon disposal of the equity investment with consequent loss of control, the gain or loss from that disposal reflects the corresponding residual value of goodwill.

In the case of equity interests acquired after acquisition of a controlling interest, any difference between the purchase cost and the corresponding fraction of acquired equity is recognised in equity. Likewise, the effects of disposing non-controlling interests without loss of control are also recognised in equity.