Balance Sheet – Liabilities and Shareholders' Equity
A) Shareholders' Equity
The main changes that occurred in 2005 in the amount and composition of the Company's shareholders' equity, which reflect the appropriation of the 2004 net income, include the following:
  • An increase of 14,220,000 euros due to the exercise of warrants and options awarded under the stock option plan;
  • 351,054,000 euros for the year's net income;
  • An increase of 3,402,000 euros in additional paid-in capital due to the exercise of stock options awarded to Group executives under the Company's stock option plan.
The table below shows a breakdown of this item and the changes to its components:
  Capital Additional Reserve Reserve for Reserve Other Loss Income Total
  stock paid-in for investments for future reserves: carry (loss) for  
    capital Government under Law capital merger forward the year  
      grants No. 488/92 increases surplus      
Shareholders' Equity
at 12/31/03 4,212,079 79,921 3,770 15,993 250 - (595,166) 144,321 3,861,168
Appropriation of 2003 earnings - (79,921) - - (250) - 224,492 (144,321) -
Capital stock increase through
the exercise of warrants 46,809 - - - - - - - 46,809
Surplus upon merger - - - - - 571 - - 571
Earnings for the year - - - - - - - 311,876 311,876
Shareholders' Equity
at 12/31/04 4,258,888 - 3,770 15,993 - 571 (370,674) 311,876 4,220,424
Appropriation of 2004 earnings - - - - - - 311,876 (311,876) -
Capital stock increase through the
exercise of warrants and stock options 14,220 - - - - - - - 14,220
Additional paid-in cap. - 3,402 - - - - - - 3,402
Surplus upon merger - - - - - (571) 571 - -
Income (loss) of the year - - - - - - - 351,054 351,054
Shareholders' Equity
at 12/31/05 4,273,108 3,402 3,770 15,993 - - (58,227) 351,054 4,589,100
A breakdown of capital stock, which was fully subscribed and paid in, is as follows:
  Number of shares
Common shares 4,162,515,334
Nonconvertible savings shares 110,592,420
In 2005, the capital stock increased by 14,219,788 shares, due to the exercise of warrants and stock options. At December 31, 2005, there were 1,018,648,623 warrants outstanding. These warrants convey the right to purchase an equal number of new common shares, at a price of 1 euro per share.
The "Other Information" section at the end of this Report provides the disclosures required by Article 2427, Section 7 bis, of the Italian Civil Code with regard to the tax status of reserves and their availability for distribution.
B) Reserves for Risks and Charges
The balance of 897,366,000 euros includes the reserve for taxes (52,346,000 euros) and other reserves for risks and charges established to cover contingent liabilities (845,020,000 euros). A breakdown of these reserves is provided below:
  Balance at Contributions Provisions Utilizations Balance at
  12/31/04 upon merger     12/31/05
B.2) Reserve for current and deferred taxes 60,310 - 3,260 (11,224) 52,346
B.3) Other reserves for risks and charges          
for guarantees provided on contracts
- to sell equity investments 316,609 - 26,413 (139,606) 203,416
- for risks from disputes, litigation
and contractual instruments 177,728 - 13,442 (35,591) 155,579
- for closing of mineral properties 99,598 - 9,136 (2,990) 105,744
- for asset writedowns 30,145 - 25,940 (22,087) 33,998
- for risks on equity investments 12,858 - - (658) 12,200
- for other risks and charges 281,711 5,476 66,187 (19,291) 334,083
Total other reserves for risks and charges 918,649 5,476 141,118 (220,223) 845,020
Total reserves for risks and charges 978,959 5,476 144,536 (231,447) 897,366
B.2) Reserve for Current and Deferred Taxes
The balance provides coverage mainly for liabilities that may arise as a result of current tax-related disputes (34,711,000 euros) and deferred taxes for 17,635,000 euros, including 16,250,000 euros related to reversals of items booked exclusively for tax purposes and 1,162,000 euros due on the Finel dividend, which was recognized as of December 31, 2005 on an accrual basis.
Utilizations of reserves (11,224,000 euros) reflect almost exclusively the settlement of disputes.
B.3) Other Reserves
The Reserves for risks and charges of 845,020,000 euros include 5,476,000 euros attributable to the absorbed company Megs.
A breakdown of provisions totaling 141,118,000 euros is as follows:
  • 85,272,000 euros of integration of provisions for risks arisen during the period, among which extraordinary allowances for 25,500,000 euros set aside to cover the guarantees provided in connection with the sale of Tecnimont and Sidi Krir, 4,581,000 euros to write down certain tax credits and 7,018,000 euros added to certain reserves as inflation adjustments through December 31, 2005.
  • 21,250,000 euros for charges arising from presumed risks that may arise in connection with carbon dioxide emissions covered by EU Directive No. 2003/87/CE, which established a system for the trading of emissions of greenhouse gases such as Co2 (Emissions Rights). This system has not yet been fully incorporated into Italian law.
  • 17,720,000 euros for future environmental remediation costs at certain industrial sites.
  • 9,136,000 euros for closures of mineral properties and the removal of equipment upon completion of the exploitation of natural gas and oil fields.
  • 7,740,000 euros for future charges, mainly in connection with the settlement of trade disputes, adjustment payments on government concession fees and compensation for damages payable.
Decreases of 220,223,000 euros include:
  • 100,000,000 euros drawn from a reserve for risks upon the signing of an agreement settling any and all present and future claims stemming from contractual commitments pursuant to a contract signed in 2002 to sell the investment in Cereol to Bunge. This settlement had a positive impact of 31,847,000 euros in the Company's statement of income.
  • 21,133,000 euros drawn from a reserve for risks to cover costs incurred in connection with contractual disputes involving the sale of real estate assets.