Consolidated Statement of Comprehensive Income/(Loss)

for the years ended December 31, 2014, 2013 and 2012



NoteFor the years ended December 31,
201420132012
(€ million)
Net profit (A) 632 1,951 896
Items that will not be reclassified to the Consolidated income statement in subsequent periods:
(Losses)/gains on remeasurement of defined benefit plans (23) (333) 2,676 (1,846)
Share of (losses)/gains on remeasurement of defined benefit plans for equity method investees (23) (4) (7) 4
Related tax impact (23) 29 239 3
Total items that will not be reclassified to the Consolidated income statement in subsequent periods (B1) (308) 2,908 (1,839)
Items that may be reclassified to the Consolidated income statement in subsequent periods:
(Losses)/gains on cash flow hedging instruments (23) (292) 162 184
(Losses)/gains on available-for-sale financial assets (23) (24) 4 27
Exchange differences on translating foreign operations (23) 1,282 (720) (285)
Share of Other comprehensive income/(loss) for equity method investees (23) 51 (88) 36
Related tax impact (23) 73 (27) (24)
Total items that may be reclassified to the Consolidated income statement in subsequent periods (B2) 1,090 (669) (62)
 
Total Other comprehensive income/(loss), net of tax (B1)+(B2)=(B) 782 2,239 (1,901)
 
Total Comprehensive income/(loss) (A)+(B) 1,414 4,190 (1,005)
 
Total Comprehensive income/(loss) attributable to:
Owners of the parent 1,282 2,117 (1,062)
Non-controlling interests 132 2,073 57

The accompanying notes are an integral part of the Consolidated financial statements.

23. Equity

Consolidated shareholders’ equity at December 31, 2014 increased by €1,154 million from December 31, 2013, mainly due to the issuance of mandatory convertible securities (described in more detail below) resulting in an increase of €1,910 million, the placement of 100,000,000 common shares (described below) resulting in an aggregate increase of € 994 million, net profit for the period of €632 million, the increase in cumulative exchange differences on translating foreign operations of €782 million, partially offset by the decrease of €2,665 million arising from the acquisition of the 41.5 percent non-controlling interest in FCA US and the disbursement to Fiat shareholders who exercised cash exit rights.

Consolidated shareholders’ equity at December 31, 2013 increased by €4,215 million from December 31, 2012, mainly due to an increase of €2,908 million in the remeasurement of defined benefit plans reserve net of related tax impact, the profit for the period of €1,951 million and an increase of €123 million in the cash flow hedge reserve partially offset by the decrease of €796 million in the cumulative exchange differences on translating foreign operations.

Share capital

At December 31, 2014, fully paid-up share capital of FCA amounted to €17 million (€4,477 million at December 31, 2013) and consisted of 1,284,919,505 common shares and of 408,941,767 special voting shares, all with a par value of €0.01 each (1,250,687,773 ordinary shares with a par value of €3.58 each of Fiat at December 31, 2013 - see section Merger, below). On December 12, 2014, FCA issued 65,000,000 new common shares and sold 35,000,000 of treasury shares for aggregate net proceeds of $1,065 million (€849 million) comprised of gross proceeds of $1,100 million (€877 million) less $35 million (€28 million) of transaction costs.

On October 29, 2014, the Board of Directors of FCA resolved to authorize the issuance of up to a maximum of 90,000,000 common shares under the framework equity incentive plan which had been adopted before the closing of the Merger. No grants have occurred under such framework equity incentive plan and any issuance of shares thereunder in the period from 2014 to 2018 will be subject to the satisfaction of certain performance/retention requirements. Any issuances to directors will be subject to shareholders approval.

Treasury shares

There were no treasury shares held by FCA at December 31, 2014 (34,577,867 Fiat ordinary shares for an amount of €259 million at December 31, 2013) (see section - Merger, below).      

Merger

As a result of the merger described in the section Principle Activities—FCA Merger above becoming effective on October 12, 2014:

  • 60,002,027 Fiat ordinary shares were reacquired by Fiat with a disbursement of €464 million as a result of the cash exit rights exercised by a number of Fiat shareholders following the Merger. Pursuant to the Italian law, these shares were offered to Fiat shareholders not having exercised the cash exit rights. These Fiat shareholders elected to purchase 6,085,630 shares with a cash disbursement of €47 million. As a result, concurrent with the Merger, on October 12, 2014, 53,916,397 Fiat shares were cancelled with a net aggregate cash disbursement of €417 million.
  • As the Merger, which took the form of a reverse merger, resulted in FCA being the surviving entity, all Fiat ordinary shares outstanding as of the Merger date (1,167,181,255 ordinary shares) were cancelled and exchanged. FCA allotted one new FCA common share (each having a nominal value of €0.01) for each Fiat ordinary share (each having a nominal value of €3.58). The original investment of FCA in Fiat which consisted of 35,000,000 common shares was not cancelled resulting in 35,000,000 treasury shares in FCA. On December 12, 2014, FCA completed the placement of these treasury shares on the market.

The following table provides the detail for the number of Fiat ordinary shares outstanding at December 31, 2013 and the number of FCA common shares outstanding at December 31, 2014:

Fiat S.p.A.FCA
Thousand of sharesAt December 31, 2013Share-based payments and exercise of stock optionsExit RightsCancellation of treasury shares upon the MergerAt the date of the MergerFCA share capital at the MergerIssuance of FCA Common shares and sale of treasury sharesExercise of Stock OptionsAt December 31, 2014
Shares issued 1,250,688 320 -53,916 -29,911 1,167,181 35 65 17,738 1,284,919
Less: treasury shares -34,578 4,667 29,911 -35 35
Shares issued and outstanding 1,216,110 4,987 -53,916 1,167,181 100 17,738 1,284,919

Mandatory Convertible Securities

In December 2014, FCA issued an aggregate notional amount of U.S.$2,875 million (€2,293 million) of mandatory convertible securities (the “Mandatory Convertible Securities”). Per the terms of the prospectus, the Mandatory Convertible Securities will pay cash coupons at a rate of 7.875 percent per annum, which can be deferred at the option of FCA. The Mandatory Convertible Securities will mature on December 15, 2016 (the “Mandatory Conversion Date”). The purpose of the transaction was to provide additional financing to the Group for general corporate purposes.

As part of the issuance of the Mandatory Convertible Securities, the underwriters had the option to purchase, within 30 days beginning on, and including, the date of initial issuance of U.S.$2,500 million (€1,994 million) of Mandatory Convertible Securities, up to an additional U.S.$375 million of Mandatory Convertible Securities from FCA at the same price as that sold to the public, less the underwriting discounts and commissions (the “over-allotment option”). The underwriters exercised the over-allotment option concurrent with the issuance of the Mandatory Convertible Securities and purchased an additional U.S.$375 million (€299 million) of Mandatory Convertible Securities, resulting in the aggregate notional amount of U.S.$2,875 million (€2,293 million) of Mandatory Convertible Securities that were issued.

The Mandatory Convertible Securities will automatically convert on the Mandatory Conversion Date into a number of common shares equal to the conversion rate calculated based on the share price relative to the applicable market value (“AMV”), as defined in the prospectus, as follows:

  • Maximum Conversion Rate: 261,363,375 shares if AMV ≤ Initial Price (U.S.$11), in aggregate the Maximum Number of Shares(1)
  • A number of shares equivalent to the value of U.S.$100 (i.e., U.S.$100 / AMV), if Initial Price (U.S.$11) ≤ AMV ≤ Threshold Appreciation Price (U.S.$12.925)(1)
  • Minimum Conversion Rate: 222,435,875 shares if AMV ≥ Threshold Appreciation Price (U.S.$12.925), in aggregate the Minimum Number of Shares(1)
  • Upon Mandatory Conversion: Holders receive: (i) any deferred coupon payments, (ii) accrued and unpaid coupon payments in cash or in Shares at the election of the Group.

(1) The Conversion Rates, the Initial Price and the Threshold Appreciation Price are each subject to adjustment related to dilutive events. In addition, upon the occurrence of a Spin-Off (as defined), the Threshold Appreciation Price, the Initial Price and the Stated Amount are also subject to adjustment.

Other features of the Mandatory Convertible Securities are outlined below:

  • Early Conversion at Option of the Group: FCA has the option to convert the Mandatory Convertible Securities and deliver the Maximum Number of Shares prior to the Mandatory Conversion Date, subject to limitations around timing of the planned Ferrari separation. Upon exercise of this option, holders receive cash equal to: (i) any deferred coupon payments, (ii) accrued and unpaid coupon payments, and (iii) the present value of all remaining coupon payments on the Mandatory Convertible Securities discounted at the Treasury Yield rate.
  • Early Conversion at Option of the Holder: holders have the option to convert their Mandatory Convertible Securities early and receive the Minimum Number of Shares, subject to limitations around timing of the planned Ferrari separation. Upon exercise of this option, holders receive any deferred coupon payments in cash or in common shares at the election of FCA.
  • The Mandatory Convertible Securities also provide for the possibility of early conversion in limited situations upon occurrence of defined events outlined in the prospectus.

Under IAS 32 - Financial Instruments: Presentation, the issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition in accordance with the substance of the contractual arrangement and whether the components meet the definitions of a financial asset, financial liability or an equity instrument. As the Mandatory Convertible Securities are a compound financial instrument that is an equity contract combined with a financial liability for the coupon payments, there are two units of account for this instrument.

The equity contract meets the definition of an equity instrument as described in paragraph 16 of IAS 32 as the equity contract does not include a contractual obligation to (i) deliver cash or another financial asset to another entity or (ii) exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to FCA. Additionally, the equity contract is a non-derivative that includes no contractual obligation for FCA to deliver a variable number of its own equity, as FCA controls its ability to settle for a fixed number of shares under the terms of the contract. Management has determined that the terms of the contract are substantive as there are legitimate corporate objectives that could cause FCA to seek early conversion of the Mandatory Convertible Securities. As a result, the equity conversion feature has been accounted for as an equity instrument.

In regard to the obligation to pay coupons, FCA notes that this meets the definition of a financial liability as it is a contractual obligation to deliver cash to another entity. FCA has the right to, or in certain limited circumstances the investors can force FCA to prepay the coupons, in addition to settling the equity conversion feature, before maturity. Under IFRS, the early settlement features would be bifurcated from the financial liability for the coupon payments since they require the repayment of the coupon obligation at an amount other than fair value or the amortized cost of the debt instrument as required by IAS 39.AG30(g).

As required by paragraph 31 of IAS 32, the initial carrying amount of a compound financial instrument is allocated to its equity and liability components. The equity component is assigned the residual amount after deducting the amount separately determined for the liability component from the fair value of the instrument as a whole. The value of any derivative features embedded in the compound financial instrument other than the equity component is included in the liability component. Therefore, the financial liability for the coupon payments will be initially recognized at its fair value. The derivative related to the early settlement conversion features defined in the Mandatory Convertible Securities will be bifurcated from the financial liability for the coupon payments and will be accounted for at fair value through profit and loss. Subsequently, the financial liability related to the coupon payments will be accounted for at amortized cost using the effective interest method. The financial liabilities related to the embedded derivative features will be remeasured to their fair value at each reporting date with the remeasurement gains or losses being recorded in the Consolidated statement of income. The residual amount of the proceeds received from the issuance of the Mandatory Convertible Securities will be allocated to share reserves in Equity. The amount of proceeds recorded in equity will not be remeasured subsequently.

Under IAS 32, transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. The portion allocated to the equity component should be accounted for as a deduction from equity to the extent that they are incremental costs directly attributable to the equity transaction. The portion allocated to the liability component (including third party costs and creditor fees) are deducted from the liability component balance, are accounted for as a debt discount and are amortized over the life of the coupon payments using the effective interest method.

Net proceeds of U.S.$2,814 million (€2,245 million), consisting of gross proceeds of U.S.$2,875 million (€2,293 million) less total transaction costs of U.S.$61 million (€48 million) directly related to the issuance, were received in connection with the issuance of the Mandatory Convertible Securities. The fair value amount determined for the liability component at issuance was U.S.$419 million (€335 million) which was calculated as the present value of the coupon payments due, less allocated transaction costs of U.S.$9 million (€7 million) that are accounted for as a debt discount (Note 27). The remaining net proceeds of U.S.$2,395 million (€1,910 million) (including allocated transaction costs of U.S.$52 million (€41 million) was recognized within equity reserves. 

Other reserves

Other reserves mainly include:

  • the legal reserve of €10,816 million at December 31, 2014 (€6,699 million at December 31, 2013) that were determined in accordance to the Dutch law and mainly refers to development costs capitalized by subsidiaries and their earnings subject to certain restrictions to distributions to the parent company. The legal reserve also includes the reserve for the equity component of the Mandatory Convertible Securities of €1,910 million at December 31, 2014. Pursuant to Dutch law, limitations exist relating to the distribution of shareholders’ equity up to the total amount of the legal reserve;
  • the capital reserves amounting to €3,472 million at December 31, 2014 and consisting mainly of the effects of the Merger resulting in a different par value of FCA common shares (€0.01 each) as compared to Fiat S.p.A. ordinary shares (€3.58 each) where the consequent difference between the share capital before and after the Merger was recognized to increase the capital reserves;
  • retained earnings, that after separation of the legal reserve, are negative by €1,458 million;
  • the profit attributable to owners of the parent of €568 million at December 31, 2014 (a profit of €904 million for the year ended December 31, 2013);

Other comprehensive income/(loss)

Other comprehensive income/(loss) was as follows:

For the years ended December 31,
201420132012
(€ million)
Items that will not be reclassified to the Consolidated income statement:
(Losses)/ gains on remeasurement of defined benefit plans (333) 2,676 (1,846)
Shares of (losses)/ gains on remeasurement of defined benefit plans for equity method investees (4) (7) 4
Total items that will not be reclassified to the Consolidated income statement (B1) (337) 2,669 (1,842)
Items that may be reclassified to the Consolidated income statement:
(Losses)/ gains on cash flow hedging instruments arising during the period (396) 343 91
(Losses)/ gains on cash flow hedging instruments reclassified to the Consolidated income statement 104 (181) 93
(Losses)/ gains on cash flow hedging instruments (292) 162 184
(Losses)/ gains on available-for-sale financial assets arising during the period (24) 4 27
(Losses)/ gains on available-for-sale financial assets reclassified to the Consolidated income statement
(Losses)/ gains on available-for-sale financial assets (24) 4 27
Exchange differences on translating foreign operations arising during the period 1,282 (720) (285)
Exchange differences on translating foreign operations reclassified to the Consolidated income statement
Exchange differences on translating foreign operations 1,282 (720) (285)
Share of Other comprehensive income/(loss) for equity method investees arising during the period 35 (75) 19
Share of Other comprehensive income/(loss) for equity method investees reclassified to the Consolidated income statement 16 (13) 17
Share of Other comprehensive income/(loss) for equity method investees 51 (88) 36
Total items that may be reclassified to the Consolidated income statement (B2) 1,017 (642) (38)
Total Other comprehensive income/(loss) (B1)+(B2)=(B) 680 2,027 (1,880)
Tax effect 102 212 (21)
Total Other comprehensive income/(loss), net of tax 782 2,239 (1,901)

With reference to the defined benefit plans, the gains and losses arising from the remeasurement mainly include actuarial gains and losses arising during the period, the return on plan assets (net of interest income recognized in the Consolidated income statement) and any changes in the effect of the asset ceiling. These gains and losses are offset against the related net liabilities or assets for defined benefit plans (see Note 25 in the Consolidated financial statements).

The tax effect relating to Other comprehensive income/(loss) was as follows:

For the years ended December 31,
201420132012
Pre-tax balanceTax income/ (expense)Net balancePre-tax balanceTax income/ (expense)Net balancePre-tax balanceTax income/ (expense)Net balance
(€ million)
Gains/(Losses) on remeasurement of defined benefit plans (333) 29 (304) 2,676 239 2,915 (1,846) 3 (1,843)
Gains/(losses) on cash flow hedging instruments (292) 73 (219) 162 (27) 135 184 (24) 160
Gains/(losses) on available- for-sale financial assets (24) (24) 4 4 27 27
Exchange gains/(losses) on translating foreign operations 1,282 1,282 (720) (720) (285) (285)
Share of Other comprehensive income/(loss) for equity method investees 47 47 (95) (95) 40 40
Total Other comprehensive income/(loss) 680 102 782 2,027 212 2,239 (1,880) (21) (1,901)

Non-controlling interest

Total non-controlling interest at December 31, 2014 of €313 million primarily related to the 10.0 percent interest held in Ferrari S.p.A. of €194 million. Total non-controlling interest at December 31, 2013 of €4,258 million primarily related to the 41.5 per cent interest held in FCA US of €3,944 million and to the 10.0 percent interest held in Ferrari S.p.A. of €215 million. 

Policies and processes for managing capital

For 2014, the Board of Directors has not recommended a dividend payment on FCA common shares in order to further fund capital requirements of the Group’s five-year business plan presented on May 6, 2014.

The objectives identified by the Group for managing capital are to create value for shareholders as a whole, safeguard business continuity and support the growth of the Group. As a result, the Group endeavors to maintain an adequate level of capital that at the same time enables it to obtain a satisfactory economic return for its shareholders and guarantee economic access to external sources of funds, including by means of achieving an adequate credit rating.

The Group constantly monitors the ratio between debt and equity, particularly the level of net debt and the generation of cash from its industrial activities. In order to reach these objectives, the Group continues to aim for improvement in the profitability of its operations. Furthermore, the Group may sell part of its assets to reduce the level of its debt, while the Board of Directors may make proposals to Shareholders in the general meeting to reduce or increase share capital or, where permitted by law, to distribute reserves. The Group may also make purchases of treasury shares, without exceeding the limits authorized by Shareholders in the general meeting, under the same logic of creating value, compatible with the objectives of achieving financial equilibrium and an improvement in the Group’s rating.

The FCA loyalty voting structure

The purpose of the loyalty voting structure is to reward long-term ownership of FCA common shares and to promote stability of the FCA shareholder base by granting long-term FCA shareholders with special voting shares to which one voting right is attached additional to the one granted by each FCA common share that they hold. In connection with the Merger, FCA issued 408,941,767 special voting shares, with a nominal value of €0.01 each, to those eligible shareholders of Fiat who had elected to participate in the loyalty voting structure upon completion of the Merger in addition to FCA common shares. After closing of the Merger, an FCA shareholder may at any time elect to participate in the loyalty voting structure by requesting that FCA register all or some of the number of FCA common shares held by such FCA shareholder in the Loyalty Register. Only a minimal dividend accrues to the special voting shares allocated to a separate special dividend reserve, and they shall not carry any entitlement to any other reserve of FCA. Having only immaterial economics entitlements, the special voting shares do not impact the FCA earnings per share calculation.

With respect to cash flow hedges, in 2014 the Group reclassified losses of €106 million (gains of €190 million in 2013 and losses of €105 million in 2012), net of the tax effect, from Other comprehensive income/(loss) to Consolidated income statement. These items are reported in the following lines:



For the years ended December 31,
201420132012
(€ million)
Currency risk
Increase/(Decrease) in Net revenues 53 126 (92)
Decrease in Cost of sales 11 44 25
Financial (expenses)/income (157) 22 32
Result from investments (13) 17 (12)
Interest rate risk
Increase in Cost of sales (2) (6) (6)
Result from investments (3) (4) (5)
Financial (expenses)/income (11) (10) (6)
Commodity price risk
Increase in Cost of sales (2) (1) (40)
Ineffectiveness - overhedge 4 5 (6)
Taxes expenses/(income) 14 (3) 5
Total recognized in the Consolidated income statement (106) 190 (105)

Fair value hedges

The gains and losses arising from the valuation of outstanding interest rate derivatives (for managing interest rate risk) and currency derivatives (for managing currency risk) recognized in accordance with fair value hedge accounting and the gains and losses arising from the respective hedged items are summarized in the following table:



For the years ended December 31,
201420132012
(€ million)
Currency risk
Net gains/(losses) on qualifying hedges (53) 19 14
Fair value changes in hedged items 53 (19) (14)
Interest rate risk
Net gains/(losses) on qualifying hedges (20) (28) (51)
Fair value changes in hedged items 20 29 53
Net gains/(losses) 1 2