Consolidated Statement of Financial Position

At December 31, 2014 and 2013



NoteAt December 31,
20142013
(€ million)
Assets
Intangible assets: 22,847 19,514
Goodwill and intangible assets with indefinite useful lives (13) 14,012 12,440
Other intangible assets (14) 8,835 7,074
Property, plant and equipment (15) 26,408 23,233
Investments and other financial assets: (16) 2,020 2,052
Investments accounted for using the equity method 1,471 1,388
Other investments and financial assets 549 664
Defined benefit plan assets 114 105
Deferred tax assets (10) 3,547 2,903
Total Non-current assets 54,936 47,807
Inventories (17) 12,467 10,278
Trade receivables (18) 2,564 2,544
Receivables from financing activities (18) 3,843 3,671
Current tax receivables (18) 328 312
Other current assets (18) 2,761 2,323
Current financial assets: 761 815
Current investments 36 35
Current securities (19) 210 247
Other financial assets (20) 515 533
Cash and cash equivalents (21) 22,840 19,455
Total Current assets 45,564 39,398
Assets held for sale (22) 10 9
Total Assets 100,510 87,214
Equity and liabilities
Equity: (23) 13,738 12,584
Equity attributable to owners of the parent 13,425 8,326
Non-controlling interest 313 4,258
Provisions: 20,372 17,427
Employee benefits (25) 9,592 8,326
Other provisions (26) 10,780 9,101
Deferred tax liabilities (10) 233 278
Debt (27) 33,724 30,283
Other financial liabilities (20) 748 137
Other current liabilities (29) 11,495 8,963
Current tax payables 346 314
Trade payables (28) 19,854 17,207
Liabilities held for sale (22) 21
Total Equity and liabilities 100,510 87,214

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

10. Tax expense/(income)

Income tax was as follows:

For the years ended December 31,
201420132012
(€ million)
Current tax expense 677 615 691
Deferred tax income (145) (1,570) (71)
Taxes relating to prior periods 12 19 8
Total Tax expense/(income) 544 (936) 628

For the year ended December 31, 2014 Total tax expense amounted to €544 million. In 2013, Total tax income was €936 million and included a €1,500 million positive one-time recognition of net deferred tax assets related to tax loss carry- forwards and temporary differences within the NAFTA segment.

In 2014, the Regional Italian Income Tax (“IRAP”) recognized within current taxes was €62 million (€58 million in 2013 and €64 million in 2012) and IRAP recognized within deferred tax costs was €18 million (€11 million in 2013 and €21 million in 2012).

The applicable tax rate used to determine the theoretical income taxes was 21.5 percent in 2014, which is the statutory rate applicable in the United Kingdom, the tax jurisdiction in which FCA is resident. The applicable tax rate used to determine the theoretical income taxes was 27.5 percent in 2013 and 2012, which was the statutory rate applicable in Italy, the tax jurisdiction in which Fiat was resident. The change in the applicable tax rate is a result of the change in tax jurisdiction in connection with the Merger. The reconciliation between the theoretical income taxes calculated on the basis of the theoretical tax rate and income taxes recognized was as follows:

For the years ended December 31,
201420132012
(€ million)
Theoretical income taxes 253 279 419
Tax effect on:
Recognition and utilization of previously unrecognized deferred tax assets (173) (1,745) (529)
Permanent differences (148) 8 (79)
Deferred tax assets not recognized and write-downs 379 380 472
Differences between foreign tax rates and the theoretical applicable tax rate and tax holidays 66 24 164
Taxes relating to prior years 12 19 8
Unrecognized withholding tax 57 84 95
Other differences 18 (54) (7)
Total Tax expense/(income), excluding IRAP 464 (1,005) 543
Effective tax rate 39.5% n.a. 35.7%
IRAP (current and deferred) 80 69 85
Total Tax expense/(income) 544 (936) 628

Because the IRAP taxable basis differs from Profit before taxes, it is excluded from the above effective tax rate calculation.

In 2014, the Group’s effective tax rate is equal to 39.5%. The difference between the theoretical and the effective income taxes is primarily due to €379 million arising from the unrecognized deferred tax assets on temporary differences and tax losses originating in the year in EMEA, which is partially offset by the recognition of non-recurring deferred tax benefits of €173 million.

In 2013, the Group’s effective tax rate includes a significant tax benefit and is not comparable to prior periods primarily due to FCA US recognizing previously unrecognized deferred tax assets of €1,500 million. Excluding this effect, the effective tax rate of the Group in 2013 would have been 48.7 percent. The difference between the 2013 theoretical and effective income tax was primarily due to the above-mentioned recognition and utilization of previously unrecognized deferred tax assets of €1,734 million (€1,500 million of which was recognized in income taxes and €234 million in Other Comprehensive income/(loss). These benefits were partially offset by the negative impact of  €380 million arising from the unrecognized deferred tax assets on temporary differences and tax losses originating in the year.

In 2012, the Group’s effective tax rate was 35.7 percent. The difference between the theoretical and the effective income tax rate was due to the recognition and utilization of previously unrecognized deferred tax assets for €529 million, net of €472 million arising from the unrecognized deferred tax assets on temporary differences and tax losses originating in the year.

The Group recognizes the amount of Deferred tax assets less the Deferred tax liabilities of the individual consolidated companies in the Consolidated statement of financial position within Deferred tax asset, where these may be offset. Amounts recognized were as follows: 

 



At December 31,
20142013
(€ million)
Deferred tax assets 3,547 2,903
Deferred tax liabilities (233) (278)
Net deferred tax assets 3,314 2,625

In 2014, net deferred tax assets increased by €689 million mainly due to the following:

  • €145 million increase for recognition of previously unrecognized Deferred tax assets and the recognition of Deferred tax assets on temporary differences originating during the year, net of the reversal of deferred taxes relating to previous years;
  • €102 million increase for recognition directly to Equity of net deferred tax assets;
  • €190 million increase due to exchange rate differences and other changes;
  • €252 million increase in Deferred tax assets due to acquisition of the remaining 41.5 percent interest in FCA US.

The significant components of Deferred tax assets and liabilities and their changes during the years ended December 31, 2014 and 2013 were as follows:

At January 1,2014Recognized in Consolidated income statementCharged to equityChanges in the scope of consolidationTranslation differences and other changesAt December 31,2014
(€ million)
Deferred tax assets arising on:
Provisions 2,938 533 4 1,092 4,567
Provision for employee benefits 1,131 101 35 145 1,412
Intangible assets 343 (31) 16 328
Impairment of financial assets 191 (7) (10) 174
Inventories 261 41 8 310
Allowances for doubtful accounts 110 1 111
Other 1,209 (947) 42 (4) 1,460 1,760
Total 6,183 (310) 77 2,712 8,662
Deferred tax liabilities arising on:
Accelerated depreciation (1,404) (80) (1,222) (2,706)
Capitalization of development costs (1,416) (155) 2 (407) (1,976)
Other Intangible assets and Intangible assets with indefinite useful lives (640) 23 16 (695) (1,296)
Provision for employee benefits (20) 2 (2) (1) (21)
Other (562) (56) 27 (16) (24) (631)
Total (4,042) (266) 25 2 (2,349) (6,630)
Deferred tax asset arising on tax loss carry-forward 3,810 777 109 4,696
Unrecognized deferred tax assets (3,326) (56) (2) (30) (3,414)
Total net Deferred tax assets 2,625 145 102 442 3,314

At January 1,2013Recognized in Consolidated income statementCharged to equityChanges in the scope of consolidationTranslation differences and other changesAt December 31,2013
(€ million)
Deferred tax assets arising on:
Provisions 2,922 368 3 (355) 2,938
Provision for employee benefits 1,022 137 18 (46) 1,131
Intangible assets 381 (38) 1 (1) 343
Impairment of financial assets 228 13 (50) 191
Inventories 264 (1) 1 (3) 261
Allowances for doubtful accounts 90 18 2 110
Other 1,456 (224) 2 (25) 1,209
Total 6,363 273 18 7 (478) 6,183
Deferred tax liabilities arising on:
Accelerated depreciation (1,354) (128) 1 77 (1,404)
Capitalization of development costs (1,211) (252) 47 (1,416)
Other Intangible assets and Intangible assets with indefinite useful lives (784) 48 (17) 113 (640)
Provision for employee benefits (22) (1) 3 (20)
Other (527) 54 (23) (2) (64) (562)
Total (3,898) (278) (23) (19) 176 (4,042)
Deferred tax asset arising on tax loss carry-forward 3,399 437 7 (33) 3,810
Unrecognized deferred tax assets (4,918) 1,138 217 237 (3,326)
Total net Deferred tax assets 946 1,570 212 (5) (98) 2,625

The decision to recognize deferred tax assets is made for each company in the Group by critically assessing whether conditions exist for the future recoverability of such assets by taking into account recent forecasts from budgets and plans. At December 31, 2014, following the Group’s reorganization of its subsidiaries in the U.S and in consideration of the projected positive results in the U.S. and other countries, additional deferred tax assets of €226 million have been recognized. The additional recognized deferred tax assets were offset by a write-down of €232 million deferred tax assets related to the projected spin-off of Ferrari. Despite a tax loss in the Group’s wholly-owned consolidated Italian subsidiaries, the Group continued to recognize deferred tax assets of €799 million (€1,016 million at December 31, 2013) as the Group expects future taxable income in future periods and based on the fact that tax losses can be carried forward indefinitely.

At December 31, 2014, the Group had deferred tax assets on deductible temporary differences of €8,662 million (€6,183 million at December 31, 2013), of which €480 million was not recognized (€435 million at December 31, 2013). At December 31, 2014, the Group also had theoretical tax benefit on losses carried forward of €4,696 million (€3,810 million at December 31, 2013), of which €2,934 million was unrecognized (€2,891 million at December 31, 2013). At December 31, 2014, net deferred tax assets included the amount of €1,762 million in respect of benefits on unused tax losses carry-forwards (€919 million at December 31, 2013).

Deferred taxes on the undistributed earnings of subsidiaries have not been recognized, except in cases where it is probable the distribution will occur in the foreseeable future.

Total deductible and taxable temporary differences and accumulated tax losses at December 31, 2014, together with the amounts for which deferred tax assets have not been recognized, analyzed by year of expiration, are as follows:

Year of expiration
Total at December 31, 20142015201620172018Beyond 2017Unlimited/ indeterminable
(€ million)
Temporary differences and tax losses relating to corporate taxation:
Deductible temporary differences 26,777 8,540 2,113 1,742 1,876 12,506
Taxable temporary differences (19,119) (757) (1,873) (1,793) (1,834) (9,933) (2,929)
Tax losses 15,852 58 163 154 113 3,695 11,669
Amounts for which deferred tax assets were not recognized (12,064) (487) (317) (171) (2) (1,176) (9,911)
Temporary differences and tax losses relating to corporate taxation 11,446 7,354 86 (68) 153 5,092 (1,171)
Temporary differences and tax losses relating to local taxation (i.e. IRAP in Italy):
Deductible temporary differences 18,007 4,665 1,622 1,556 1,568 8,596
Taxable temporary differences (17,494) (485) (1,905) (1,868) (1,881) (8,404) (2,951)
Tax losses 3,401 3 5 41 75 2,573 704
Amounts for which deferred tax assets were not recognized (1,052) (84) (36) (19) (15) (354) (544)
Temporary differences and tax losses relating to local taxation 2,862 4,099 (314) (290) (253) 2,411 (2,791)

13. Goodwill and intangible assets with indefinite useful life

Goodwill and intangible assets with indefinite useful life as at December 31, 2014 and at December 31, 2013 are summarized below:



At December 31,2013Change in the scope of consolidationImpairment lossesTranslation differences and other changesAt December 31,2014
(€ million)
Gross amount 10,283 1,218 11,501
Accumulated impairment losses (443) 1 (442)
Goodwill 9,840 1,219 11,059
Brands 2,600 353 2,953
Total Goodwill and intangible assets with indefinite useful lives 12,440 1,572 14,012



At December 31,2012Change in the scope of consolidationImpairment lossesTranslation differences and other changesAt December 31,2013
(€ million)
Gross amount 10,645 15 (377) 10,283
Accumulated impairment losses (413) (30) (443)
Goodwill 10,232 15 (407) 9,840
Brands 2,717 (117) 2,600
Total Goodwill and intangible assets with indefinite useful lives 12,949 15 (524) 12,440

Foreign exchange effects in 2014 and in 2013 amounted to €1,572 million and €524 million, respectively, and arose mainly from changes in the U.S. Dollar/Euro rate.

Changes in the scope of consolidation in 2013 included the effects of the consolidation of the VM Motori group from July 1, 2013 resulting from the acquisition of the remaining 50.0 per cent interest. 

Brands

Brands arise from the NAFTA segment and are comprised of the Chrysler, Jeep, Dodge, Ram and Mopar brands. These rights are protected legally through registration with government agencies and through the continuous use in commerce. As these rights have no legal, contractual, competitive or economic term that limits their useful lives, they are classified as intangible assets with indefinite useful lives, and are therefore not amortized.

For the purpose of impairment testing, the carrying value of Brands, which is allocated to the NAFTA segment, is tested jointly with the Goodwill allocated to the NAFTA segment.

Goodwill

At December 31, 2014, goodwill includes €10,185 million for FCA US (€8,967 million at December 31, 2013) and €786 million for Ferrari S.p.A (€786 million at December 31, 2013) which resulted from their respective acquisitions.

Goodwill is allocated to operating segments or to CGUs within the operating segments as appropriate, in accordance with IAS 36 – Impairment of assets.

The following table presents the allocation of Goodwill across the segments:

 

At December 31,
20142013
(€ million)
NAFTA 8,350 7,330
APAC 1,085 968
LATAM 517 461
EMEA 233 208
Ferrari 786 786
Components 52 51
Other activities 36 36
Total Goodwill (net carrying amount) 11,059 9,840

In accordance with IAS 36, Goodwill is not amortized and is tested for impairment annually, or more frequently, if facts or circumstances indicate that the asset may be impaired. Impairment testing is performed by comparing the carrying amount and the recoverable amount of each CGU to which Goodwill has been allocated. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use.

The assumptions used in this process represent management’s best estimate for the period under consideration. Goodwill allocated to the NAFTA segment represents 75.5 percent of the Group’s total Goodwill, which also includes the carrying amount of the Group’s Brands, as discussed above. The estimate of the value in use of the NAFTA segment for purposes of performing the annual impairment test was based on the following assumptions:

  • The expected future cash flows covering the period from 2015 through 2018 have been derived from the Group Business Plan presented on May 6, 2014. More specifically, in making the estimates, expected EBITDA for the periods under consideration was adjusted to reflect the expected capital expenditure and monetary contributions to pension plans and other post-employment benefit plans. These cash flows relate to the CGU in its condition when preparing the financial statements and exclude the estimated cash flows that might arise from restructuring plans or other structural changes. Volumes and sales mix used for estimating the future cash flow are based on assumptions that are considered reasonable and sustainable and represent the best estimate of expected conditions regarding market trends and segment, brand and model share for the NAFTA segment over the period considered.
  • The expected future cash flows include a normalized terminal period used to estimate the future results beyond the time period explicitly considered. This terminal period was calculated by applying an EBITDA margin of the average of the expected EBITDA for 2015-2018 to the average 2015-2018 expected revenues used in calculating the expected EBITDA. The terminal period was then adjusted by a normalized amount of investments determined assuming a steady state business and by expected monetary contributions to pension plans and post-employment benefit plans.

Pre-tax expected future cash flows have been estimated in U.S. Dollars, and discounted using a pre-tax discount rate. The base WACC of 16.4 percent (16.0 percent in 2013, 15.1 percent in 2012) used reflects the current market assessment of the time value of money for the period being considered and the risks specific to the segment under consideration. The WACC was calculated using the Capital Asset Pricing Model (“CAPM”) technique in which the risk-free rate has been calculated by referring to the yield curve of long-term U.S. government bonds and the beta coefficient and the debt/equity ratio have been extrapolated by analyzing a group of comparable companies operating in the automotive sector. Additionally, to reflect the uncertainty of the current economic environment and future market conditions, the cost of equity component of the WACC was progressively increased by a 100 basis point risk premium for the years 2016 and 2017, 90 basis points for 2018 and by 100 basis points in the terminal period.

The value in use estimated as above was determined to be in excess of the book value of the net capital employed (inclusive of Goodwill and Brands allocated to the NAFTA segment) by approximately €100 million at December 31, 2014.

Impairment tests for Goodwill allocated to other segments were based on the expected future cash flows covering the period from 2015 through 2018. The assumptions used to determine the pre-tax WACCs and the risk premiums were consistent with those described above for the NAFTA segment. Discounted cash flows were measured using a pre-tax base WACC of 16.6 percent (14.9 percent in 2013, 14.4 percent in 2012), 18.0 percent (22.3 percent in 2013, 17.2 percent in 2012) and 16.4 percent (17.9 percent in 2013, 16.4 percent in 2012) for the APAC, LATAM and EMEA segments, respectively. The results of the impairment tests for APAC, LATAM and EMEA resulted in a positive outcome reflecting a surplus of the value in use over the book value. A sensitivity analysis was performed by increasing the base WACC used above for each of the regions by 50 basis points, which resulted in a surplus of the carrying amount over the value in use for the APAC, LATAM and EMEA segments.

In addition, the Goodwill recorded within the Ferrari operating segment was tested for impairment. The expected future cash flows are the operating cash flows taken from the estimates included in the 2015 budget and the expected business performance, taking account of the uncertainties of the global financial and economic situation, extrapolated for subsequent years by using the specific medium/long-term growth rate for the sector equal to 1.0 percent (1.0 percent in 2013, 2.0 percent in 2012). These cash flows were then discounted using a post-tax discount rate of 8.2 percent (8.4 percent in 2013, 8.1 percent in 2012). The recoverable amount of the CGU was significantly higher than its carrying amount. Furthermore, the exclusivity of the business, its historical profitability and its future earnings prospects indicate that the carrying amount of the Goodwill within the Ferrari operating segment will continue to be recoverable, even in the event of difficult economic and market condition.

14. Other intangible assets

Externally acquired development costsDevelopment costs internally generatedPatents, concessions and licensesOther intangible assetsTotal
(€ million)
Gross carrying amount Balance at December 31, 2012 5,227 4,637 2,100 638 12,602
Additions 1,562 480 224 64 2,330
Change in the scope of consolidation 198 1 21 220
Divestitures (5) (304) (19) (2) (330)
Translation differences and other changes (123) (159) (21) (100) (403)
Balance at December 31, 2013 6,859 4,654 2,285 621 14,419
Additions 1,542 725 350 89 2,706
Change in the scope of consolidation
Divestitures (8) (36) (38) (6) (88)
Translation differences and other changes 239 168 207 4 618
Balance at December 31, 2014 8,632 5,511 2,804 708 17,655
Accumulated amortization and impairment losses Balance at December 31, 2012 2,436 2,516 875 430 6,257
Change in the scope of consolidation 142 11 153
Amortization 479 408 213 48 1,148
Impairment losses 120 130 250
Divestitures (1) (286) (18) (1) (306)
Translation differences and other changes (11) (90) 16 (72) (157)
Balance at December 31, 2013 3,165 2,678 1,086 416 7,345
Change in the scope of consolidation
Amortization 648 409 225 49 1,331
Impairment losses 46 36 82
Divestitures (6) (30) (33) (4) (73)
Translation differences and other changes (84) 152 59 8 135
Balance at December 31, 2014 3,769 3,245 1,337 469 8,820
Carrying amount at December 31, 2013 3,694 1,976 1,199 205 7,074
Carrying amount at December 31, 2014 4,863 2,266 1,467 239 8,835

Additions of €2,706 million in 2014 (€2,330 million in 2013) include development costs of €2,267 million (€2,042 million in 2013), consisting primarily of material costs and personnel related expenses relating to engineering, design and development focused on content enhancement of existing vehicles, new models and powertrain programs in NAFTA and EMEA segments. In 2014, the Group wrote-down certain internally generated development costs within the EMEA (€47 million) and NAFTA (€28 million) segments primarily in connection with changes in certain product developments.

In 2013, to reflect the new product strategy the Group wrote-down certain development costs by €250 million. This amount mainly includes €151 million for the EMEA segment, €32 million for the LATAM segment and €65 million for Maserati in connection with development costs on new Alfa Romeo, Fiat and Maserati products, which had been switched to new platforms considered technologically more appropriate. Write-downs of development costs have been recognized as Other unusual expenses for €226 million and the remaining impairments of €24 million were recognized in Research and development costs. In 2012, the write-down of development costs amounted to €57 million and it was recognized within Research and development costs, as this was not related to strategic factors.

Change in the scope of consolidation in 2013 mainly includes the effects of the consolidation of the VM Motori group resulting from the acquisition of the remaining 50.0 percent interest for consideration of €34 million.

Translation differences principally reflect foreign exchange gains of €482 million in 2014 related to changes in the U.S. Dollar against the Euro. Translation differences of €243 million in 2013 principally reflected foreign exchange losses related to the changes in the U.S. Dollar and Brazilian Real against the Euro. Translation differences of €88 million in 2012 principally reflected the foreign exchange losses related to the devaluation of the U.S. Dollar and Brazilian Real against the Euro, partially offset by the appreciation of the Polish Zloty against the Euro.

15. Property, plant and equipment



LandIndustrial buildingsPlant, machinery and equipmentOther assetsAdvances and tangible assets in progressTotal
(€ million)
Gross carrying amount
Balance at December 31, 2012
717 6,490 35,453 1,919 3,282 47,861
Additions 4 513 2,559 137 1,949 5,162
Divestitures (5) (29) (858) (56) (20) (968)
Change in the scope of consolidation 3 19 240 5 4 271
Impairment losses (2) (2)
Translation differences (55) (282) (1,362) (92) (177) (1,968)
Other changes 216 324 2,373 124 (2,752) 285
Balance at December 31, 2013 880 7,035 38,405 2,037 2,284 50,641
Additions 14 766 2,877 292 1,466 5,415
Divestitures (7) (94) (1,248) (37) (2) (1,388)
Change in the scope of consolidation
Impairment losses
Translation differences 35 316 1,586 168 132 2,237
Other changes 23 2 867 62 (969) (15)
Balance at December 31, 2014 945 8,025 42,487 2,522 2,911 56,890
Accumulated depreciation and impairment losses
Balance at December 31, 2012
7 2,267 22,091 990 10 25,365
Depreciation 261 3,048 178 3,487
Divestitures (14) (818) (41) (873)
Impairment losses 84 84
Change in the scope of consolidation 2 148 4 154
Translation differences (82) (693) (43) (818)
Other changes (40) 58 (10) 1 9
Balance at December 31, 2013 7 2,394 23,918 1,078 11 27,408
Depreciation 266 3,099 201 3,566
Divestitures (2) (87) (1,219) (33) (1,341)
Impairment losses 6 27 33
Change in the scope of consolidation
Translation differences 57 653 61 771
Other changes 2 10 19 9 5 45
Balance at December 31, 2014 7 2,646 26,497 1,316 16 30,482
Carrying amount at December 31, 2013 873 4,641 14,487 959 2,273 23,233
Carrying amount at December 31, 2014 938 5,379 15,990 1,206 2,895 26,408

Additions of €5,415 million in 2014 (€5,162 million in 2013) are primarily related to the car mass-market operations in the NAFTA and EMEA segments, as well as to the ongoing construction of the new LATAM plant in Pernambuco (Brazil) in 2014 and 2013.            

In 2014, €33 million of impairment losses are primarily related to the EMEA segment for certain powertrains that were abandoned. In 2013, approximately €30 million of impairment losses related to assets in the Cast Iron business unit of the Components segment as a result of an expected reduction in these activities compared to previous expectations, due to the increasing use of aluminum in the production of the automotive engine blocks rather than cast iron.
These impairments, which were due to a structural change in the market, were fully recognized within Other unusual expenses. The remaining impairment losses (€55 million) related to the above mentioned streamlining of architectures and models associated with the EMEA segment’s refocused product strategy.

In 2014, translation differences of €1,466 million mainly reflect the strengthening of the U.S. Dollar against the Euro. In 2013, translation differences of €1,150 million primarily related to the changes of the U.S. Dollar and the Brazilian Real against the Euro.
In 2014 and 2013, Other changes primarily consisted of the reclassification of prior year balances for Advances and tangible assets in progress to the respective categories when the assets were acquired and entered service. With reference to Land, Other changes in 2013 also includes €214 million which is the fair value of the land donated to the Group by the State of Pernambuco (Brazil) following the Group’s commitment to implement an industrial unit designed to produce, assemble and sell vehicles.

In 2013, changes in the scope of consolidation mainly reflect the consolidation of the VM Motori group resulting from the acquisition of the remaining 50.0 per cent interest for consideration of €34 million.

The net carrying amount of assets leased under finance lease agreements included in Property, plant and equipment were as follows:




At December 31,
20142013
(€ million)
Industrial buildings 84 87
Plant machinery and equipment 299 307
Property plant and equipment 383 394

Property, plant and equipment of the Group, excluding FCA US, reported as pledged as security for debt, assets that are legally owned by suppliers but are recognized in the Consolidated financial statements in accordance with IFRIC 4 - Determining Whether an Arrangement Contains a Lease with the corresponding recognition of a financial lease payable. They are as follows:




At December 31,
20142013
(€ million)
Land and industrial buildings pledged as security for debt 1,019 103
Plant and machinery pledged as security for debt and other commitments 648 310
Other assets pledged as security for debt and other commitments 3 5
Property plant and equipment pledged as security for debt 1,670 418

Information on the assets of FCA US subject to lien are set out in Note 27 in the Consolidated financial statements.

At December 31, 2014, the Group had contractual commitments for the purchase of Property, plant and equipment amounting to €2,263 million (€1,536 million at December 31, 2013).

16. Investments and other financial assets



At December 31,
20142013
(€ million)
Interest in joint ventures 1,329 1,225
Interest in associates 105 123
Interests in unconsolidated subsidiaries 37 40
Equity method investments 1,471 1,388
Available-for-sale investments 124 148
Equity Investments at fair value 151
Investments at fair value 124 299
Other Investments measured at cost 59 52
Total Investments 1,654 1,739
Non-current financial receivables 296 257
Other securities and other financial assets 70 56
Total Investments and other financial assets 2,020 2,052

Investments in joint ventures

The Group’s interests in joint ventures, amounting to €1,329 million at December 31, 2014 (€1,225 million at December 31, 2013) are all accounted for using the equity method of accounting and at December 31, 2014 mainly include the Group’s interests in FCA Bank S.p.A. (“FCA Bank”) (formerly known as FGA Capital S.p.A) amounting to €894 million (€839 million at December 31, 2013), the Group’s interest in Tofas-Turk Otomobil Fabrikasi A.S. (“Tofas”) amounting to €299 million (€240 million at December 31, 2013) and the Group’s interest in GAC Fiat Chrysler Automobiles Co.Ltd (previously known as GAC Fiat Automobiles Limited) amounting to €45 million (€85 million at December 31, 2013).

Changes in interests in joint ventures in 2014 and 2013 are as follows:



Investments in joint ventures
(€ million)
Balance at December 31, 2012 1,282
Share of the net profit 112
Acquisitions, Capitalizations (Refunds) 44
Change in the scope of consolidation (37)
Translations differences (69)
Other changes (107)
Balance at December 31, 2013 1,225
Share of the net profit 127
Acquisitions, Capitalizations (Refunds) 14
Change in the scope of consolidation 2
Translations differences 33
Other changes (72)
Balance at December 31, 2014 1,329

In 2014, Other changes consisting of a net decrease of €72 million mainly relates to dividends distributed by FCA Bank for €41 million and by Tofas for €42 million, and to the positive change in the cash flow hedge reserve of Tofas of €13 million.

In 2013, Other changes consisting of a net decrease of €107 million mainly relates to dividends distributed by FCA Bank for €15 million and by Tofas for €72 million, and to the negative change in the cash flow hedge reserve of Tofas of €17 million.            

The only material joint venture for the Group is FCA Bank: a 50/50 joint venture with Crédit Agricole Consumer Finance S.A. FCA Bank operates in 14 European countries including Italy, France, Germany, UK and Spain. In July 2013, the Group reached an agreement with Crédit Agricole to extend the term of that joint venture through to December 31, 2021. Under the agreement, FCA Bank will continue to benefit from the financial support of the Crédit Agricole Group while continuing to strengthen its position as an active player in the securitization and debt markets. FCA Bank provides retail and dealer financing and long-term rental services in the automotive sector, directly or through its subsidiaries as a partner of the Group’s car mass-market brands and for Maserati.

Summarized financial information relating to FCA Bank was as follows:



At December 31,
20142013
(€ million)
Financial assets 14,604 14,484
Of which: Cash and cash equivalents
Other assets 2,330 2,079
Financial liabilities 14,124 13,959
Other liabilities 896 802
Equity (100%) 1,914 1,802
Net assets attributable to owners of the parent 1,899 1,788
Group’s share of net assets 950 894
Elimination of unrealized profits and other adjustments (56) (55)
Carrying amount of interest in the joint venture 894 839

 

For the years ended December 31,
20142013
(€ million)
Interest and similar income 737 752
Interest and similar expenses (373) (381)
Income tax expense (74) (76)
Profit from continuing operations 182 172
Net profit 182 172
Net profit attributable to owners of the parent (A) 181 170
Group’s share of net profit 91 85
Elimination of unrealized profits
Group’s share of net profit in the joint venture 91 85
Other comprehensive income/(loss) attributable to owners of the parent (B) 12 (1)
Total comprehensive income attributable to owners of the parent (A+B) 193 169

Tofas, which is registered with the Turkish Capital Market Board (“CMB”) and listed on the Istanbul Stock Exchange (“ISE”) since 1991, is classified as a joint venture as the Group and the other partner each have a shareholding of 37.9 percent. As at December 31, 2014 the fair value of the Group’s interest in Tofas was €1,076 million (€857 million at December 31, 2013).

The aggregate amounts for the Group’s share in all individually immaterial Joint ventures that are accounted for using the equity method were as follows:




For the years ended December 31,
201420132012
(€ million)
Net Profit from continuing operations 36 27 65
Net profit 36 27 65
Other comprehensive income/(loss) 37 (90) 39
Total other comprehensive income/(loss) 73 (63) 104

There are no restrictions on the ability of joint ventures to transfer funds to the Group in the form of cash dividends, or to repay loans or advances made by the entity, that have a material impact on the Group’s liquidity.

Investments in associates

The Group’s interests in associates, amounting to €105 million at December 31, 2014 (€123 million at December 31, 2013) are all accounted for using the equity method of accounting and include the Group’s interests in RCS MediaGroup S.p.A. (“RCS”) amounting to €74 million at December 31, 2014 (€87 million at December 31, 2013).

As of December 31, 2014 the fair value of the Group’s interest in RCS, which is a company listed on the Italian Stock exchange, was €81 million (€115 million at December 31, 2013).

The aggregate amounts for the Group’s share in all individually immaterial associates accounted for using the equity method, including RCS were as follows:




For the years ended December 31,
201420132012
(€ million)
Loss from continuing operations (20) (42) (72)
Net loss (20) (42) (72)
Other comprehensive income/(loss) 3 2 (1)
Total other comprehensive loss (17) (40) (73)

There are no restrictions on the ability of associates to transfer funds to the Group in the form of cash dividends, or to repay loans or advances made by the entity, that have a material impact on the Group’s liquidity.

Investments at fair value

At December 31, 2014, Investments at fair value include the investment in CNHI for €107 million (€282 million at December 31, 2013), the investment in Fin. Priv. S.r.l. for €14 million (€14 million at December 31, 2013) and the investment in Assicurazioni Generali S.p.A. for €3 million (€3 million at December 31, 2013).

At January 1, 2011, FCA was allotted 38,568,458 ordinary shares in CNHI’s predecessor, Fiat Industrial S.p.A., without consideration, following the de-merger of Fiat Industrial S.p.A. from Fiat, corresponding to the number of Treasury shares it held. Following this allotment, the portion of the cost of Treasury shares recognized in equity and attributable to the de-merged entity’s shares, amounting to €368 million, was reclassified as an asset in the Consolidated statement of financial position. This initial allocation was calculated on the basis of the weighting of the stock market prices of Fiat and Fiat Industrial S.p.A. shares on the first day of quotation. At the same time, in accordance with IAS 39 and its interpretations, the investment was measured at fair value (€347 million) with a corresponding entry made to Other reserves. In addition, the de-merger of CNHI from Fiat also established that 23,021,250 shares would service the stock option and stock grant plans outstanding at December 31, 2010. These shares were therefore considered linked to the liability for share-based payments recognized by the Group as a result of changes to the plans made by the de-merger and measured at fair value with changes recognized in profit and loss consistently with changes in fair value of the liability. The remaining CNHI shares were classified as Available-for-sale investments and were measured at fair value with changes recognized directly in Other comprehensive income/(loss).

At December 31, 2014, the investment in CNHI consisted of 15,948,275 common shares for an amount of €107 million. The investment is classified as Available-for-sale and is measured at fair value with changes recognized directly in Other comprehensive income/loss. During 2014, 18,059,375 ordinary shares of the investment balance existing at December 31, 2013 were sold following the exercise of the stock options and 100,625 shares of the residual CNHI shares corresponding to options not exercised were reclassified as Available-held-for-sale investments.

At December 31, 2013, the investment in CNHI consisted of 34,007,650 ordinary shares for an amount of €282 million. At December 31, 2013, 18,160,000 shares, for an amount of €151 million, were to service the stock option plans and 15,847,650 shares, for an amount €131 million, were classified as available-for-sale. In addition, at December 31, 2014, the Group had 15,948,275 special voting shares (33,955,402 at December 31, 2013), which cannot directly or indirectly be sold, disposed of or transferred, and over which the Group cannot create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance.

The total investment in CNHI corresponded to 1.7 percent and 3.7 percent of voting rights at December 31, 2014 and December 31, 2013, respectively.

17. Inventories



At December 31,
20142013
(€ million)
Raw materials, supplies and finished goods 10,294 8,910
Assets sold with a buy-back commitment 2,018 1,253
Gross amount due from customers for contract work 155 115
Total Inventories 12,467 10,278

In 2014, Inventories increased by €2,189 million from €10,278 million at December 31, 2013 as a result of a higher level of finished products following volume growth in the NAFTA, EMEA and Maserati segments in addition to positive translation differences primarily related to the strengthening of the US dollar against the Euro.

At December 31, 2014, Inventories include those measured at net realizable value (estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale) amounting to €1,694 million (€1,343 million at December 31, 2013).

The amount of inventory write-downs recognized as an expense, within cost of sales, during 2014 is €596 million (€571 million in 2013).

The amount due from customers for contract work relates to the design and production of industrial automation systems and related products for the automotive sector at December 31, 2014 and 2013 was as follows:



At December 31,
20142013
(€ million)
Aggregate amount of costs incurred and recognized profits (less recognized losses) to date 1,817 1,506
Less: Progress billings (1,914) (1,600)
Construction contracts, net of advances on contract work (97) (94)
Gross amount due from customers for contract work as an asset 155 115
Less: Gross amount due to customers for contract work as a liability included in Other current liabilities (252) (209)
Construction contracts, net of advances on contract work (97) (94)

18. Current receivables and Other current assets

The composition of the Current receivables and Other current assets was as follows:



At December 31,
20142013
(€ million)
Trade receivables 2,564 2,544
Receivables from financing activities 3,843 3,671
Current tax receivables 328 312
Other current assets:
Other current receivables 2,246 1,881
Accrued income and prepaid expenses 515 442
Total Other current assets 2,761 2,323
Total Current receivables and Other current assets 9,496 8,850

The analysis by due date (excluding Accrued income and prepaid expenses) was as follows:

20142013
Due within one yearDue between one and five yearsDue beyond five yearsTotalDue within one yearDue between one and five yearsDue beyond five yearsTotal
Trade Receivables 2,564 2,564 2,527 15 2 2,544
Receivables from financing activities 3,013 776 54 3,843 2,776 863 32 3,671
Current tax receivables 284 7 37 328 227 44 41 312
Other current receivables 2,076 156 14 2,246 1,658 184 39 1,881
Total current receivables 7,937 939 105 8,981 7,188 1,106 114 8,408

Trade receivables

Trade receivables, amounting to €2,564 million at December 31, 2014 (€2,544 million at December 31, 2013), are shown net of allowances for doubtful accounts of €320 million at December 31, 2014 (€344 million at December 31, 2013). Changes in these allowances, which are calculated on the basis of historical losses on receivables, were as follows in 2014:



At December 31, 2013ProvisionUse and other changesAt December 31, 2014
(€ million)
Allowances for doubtful accounts 344 33 (57) 320



At December 31, 2012ProvisionUse and other changesAt December 31, 2013
(€ million)
Allowances for doubtful accounts 347 47 (50) 344

Receivables from financing activities

Receivables from financing activities mainly relate to the business of financial services companies fully consolidated by the Group (primarily related to dealer and retail financing).



At December 31,
20142013
(€ million)
Dealer financing 2,313 2,286
Retail financing 1,039 970
Finance leases 349 297
Other 142 118
Total Receivables from financing activities 3,843 3,671

Receivables from financing activities are shown net of an allowance for doubtful accounts determined on the basis of specific insolvency risks. At December 31, 2014, the allowance amounts to €73 million (€119 million at December 31, 2013). Changes in the allowance accounts during the year were as follows:



At December 31, 2013ProvisionUse and other changesAt December 31, 2014
(€ million)
Allowance for Receivables from financing activities 119 69 (115) 73



At January 1,2013ProvisionUse and other changesAt December 31, 2013
(€ million)
Allowance for Receivables from financing activities 101 89 (71) 119

Receivables for dealer financing are typically generated by sales of vehicles, and are generally managed under dealer network financing programs as a component of the portfolio of the financial services companies. These receivables are interest bearing, with the exception of an initial limited, non-interest bearing period. The contractual terms governing the relationships with the dealer networks vary from country to country, although payment terms range from two to six months.

Finance lease receivables refer to vehicles leased out under finance lease arrangements, mainly by the Ferrari and Maserati segments. This item may be analyzed as follows, gross of an allowance of €10 million at December 31, 2014 (€5 million at December 31, 2013):

20142013
Due within one yearDue between one and five yearsDue beyond five yearsTotalDue within one yearDue between one and five yearsDue beyond five yearsTotal
(€ million)
Receivables for future minimum lease payments 110 281 8 399 104 223 8 335
Less: unrealized interest income (16) (24) (40) (14) (18) (1) (33)
Present value of future minimum lease payments 94 257 8 359 90 205 7 302

Other current assets

At December 31, 2014, Other current assets mainly consisted of Other tax receivables for VAT and other indirect taxes of €1,430 million (€969 million at December 31, 2013), Receivables from employees of €151 million (€151 million at December 31, 2013) and Accrued income and prepaid expenses of €515 million (€442 million at December 31, 2013).

Transfer of financial assets

At December 31, 2014, the Group had receivables due after that date which had been transferred without recourse and which were derecognized in accordance with IAS 39 amounting to €4,511 million (€3,603 million at December 31, 2013). The transfers related to trade receivables and other receivables for €3,676 million (€2,891 million at December 31, 2013) and financial receivables for €835 million (€712 million at December 31, 2013). These amounts include receivables of €2,611 million (€2,177 million at December 31, 2013), mainly due from the sales network, transferred to jointly controlled financial services companies (FCA Bank).

At December 31, 2014 and 2013, the carrying amount of transferred financial assets not derecognized and the related liabilities were as follows:

20142013
Trade receivablesReceivables from financing activitiesCurrent tax receivablesTotalTrade receivablesReceivables from financing activitiesCurrent tax receivablesTotal
(€ million)
Carrying amount of assets transferred and not derecognized 37 407 25 469 283 440 33 756
Carrying amount of the related liabilities 37 407 25 469 283 440 33 756

19. Current securities

Current securities consist of short-term or marketable securities which represent temporary investments, but which do not satisfy all the requirements to be classified as cash equivalents.




At December 31,
20142013
(€ million)
Current securities available-for-sale 30 92
Current securities held-for-trading 180 155
Total current securities 210 247

20. Other financial assets and Other financial liabilities

These line items mainly consist of fair value measurement of derivative financial instruments. They also include some collateral deposits (held in connection with derivative transactions and debts).

20142013
Positive fair valueNegative fair valuePositive fair valueNegative fair value
Fair value hedges:
Interest rate risk - interest rate swaps 82 93
Interest rate and exchange rate risk - combined interest rate and currency swaps (41) 15
Total Fair value hedges 82 (41) 108
Cash flow hedge:
Currency risks - forward contracts, currency swaps and currency options 222 (467) 260 (59)
Interest rate risk - interest rate swaps 1 (4) 1 (3)
Interest rate and currency risk - combined interest rate and currency swaps 60 (7) 9 (22)
Commodity price risk – commodity swaps and commodity options 4 (16) 6 (5)
Total Cash flow hedges 287 (494) 276 (89)
Derivatives for trading 108 (213) 129 (48)
Fair value of derivative instruments 477 (748) 513 (137)
Collateral deposits 38 20
Other financial assets/(liabilities) 515 (748) 533 (137)

The overall change in Other financial assets (from €533 million at December 31, 2013 to €515 million at December 31, 2014) and in Other financial liabilities (from €137 million at December 31, 2013 to €748 million at December 31, 2014) was mostly due to fluctuations in exchange rates, interest rates, commodity prices during the year and the settlement of the instruments which matured during the year.

As Other financial assets and liabilities primarily consist of hedging derivatives, the change in their value is compensated by the change in the value of the hedged items.

At December 31, 2014 and 2013, Derivatives for trading primarily consisted of derivative contracts entered for hedging purposes which do not qualify for hedge accounting and one embedded derivative in a bond issue in which the yield is determined as a function of trends in the inflation rate and related hedging derivative, which converts the exposure to floating rate (the total value of the embedded derivative is offset by the value of the hedging derivative).

The following table provides an analysis by due date of outstanding derivative financial instruments based on their notional amounts:

20142013
Due within one yearDue between one andfive yearsDue beyondfive yearsTotalDue within one yearDue between one andfive yearsDue beyondfive yearsTotal
(€ million)
Currency risk management 15,328 2,544 17,872 10,446 802 11,248
Interest rate risk management 172 1,656 1,828 764 1,782 2,546
Interest rate and currency risk management 698 1,513 2,211 1,455 1,455
Commodity price risk management 483 59 542 450 23 473
Other derivative financial instruments 14 14 14 14
Total notional amount 16,681 5,772 14 22,467 11,660 4,062 14 15,736

Cash flow hedges

The effects recognized in the Consolidated income statement mainly relate to currency risk management and, to a lesser extent, to hedges regarding commodity price risk management and the cash flows that are exposed to an interest rate risk.

The Group’s policy for managing currency risk normally requires hedging of projected future cash flows from trading activities which will occur within the following twelve months, and from orders acquired (or contracts in progress), regardless of their due dates. The hedging effect arising from this and recorded in the cash flow hedge reserve will be recognized in the Consolidated income statement, mainly during the following year.

Derivatives relating to interest rate and currency risk management are treated as cash flow hedges and are entered into for the purpose of hedging bonds issued in foreign currencies. The amount recorded in the cash flow hedge reserve is recognized in the Consolidated income statement according to the timing of the flows of the underlying bonds.

21. Cash and cash equivalents

Cash and cash equivalents consisted of:

At December 31,
20142013
(€ million)
Cash at banks 10,645 9,939
Money market securities 12,195 9,516
Total Cash and cash equivalents 22,840 19,455

These amounts include cash at banks, units in money market funds and other money market securities, comprising commercial paper and certificates of deposit that are readily convertible into cash, with original maturities of three months or less at the date of purchase. Cash and cash equivalents are subject to an insignificant risk of changes in value, and consist of balances spread across various primary national and international banking institutions, and money market instruments.

The item Cash at banks includes bank deposits which may be used exclusively by Group companies entitled to perform specific operations (cash with a pre-determined use) amounting to €3 million at December 31, 2014 (€3 million at December 31, 2013).

22. Assets and Liabilities held for sale

The items included in Assets and liabilities held for sale were as follows:

At December 31,
20142013
(€ million)
Property, plant and equipment 8 1
Investments and other financial assets 2
Inventories 3
Trade and other receivables 5
Total Assets held for sale 10 9
Provisions 5
Trade and other payables 16
Total Liabilities held for sale 21

Assets and liabilities held for sale at December 31, 2014 consisted of buildings allocated to the LATAM and Components segments as well as certain minor investments within the EMEA segment.

At December 31, 2013, Assets and liabilities held for sale primarily related to a subsidiary (Fonderie du Poitou Fonte S.A.S.) within the Components segment for which the Group disposed of its interest in the subsidiary in May 2014.

The Group holds a subsidiary which operates in Venezuela whose functional currency is the U.S. Dollar. Pursuant to certain Venezuelan foreign currency exchange control regulations, the Central Bank of Venezuela centralizes all foreign currency transactions in the country. Under these regulations, the purchase and sale of foreign currency must be made through the Centro Nacional de Comercio Exterior en Venezuela from January 1, 2014 (CADIVI until December 31, 2013). The cash and cash equivalents denominated in VEF amounted to €123 million (VEF 1,785 million) at December 31, 2014 and €270 million (VEF 2,347 million) at December 31, 2013. The reduction, in Euro terms, is largely due to the adoption of SICAD I rate at March 31, 2014 for the conversion of the VEF denominated monetary items, as explained in more detail in Note 8, and in part to the payments made by the subsidiary during the period. In addition, Cash and cash equivalents held in certain foreign countries (primarily, China and Argentina) are subject to local exchange control regulations providing for restrictions on the amount of cash other than dividends that can leave the country.

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

25. Provisions for employee benefits

The Group’s provisions and net assets for employee benefits were as follows:

At December 31,
20142013
(€ million)
Present value of defined benefit obligations:
Pension benefits 27,287 23,137
Health care and life insurance plans 2,276 1,945
Other post-employment benefits 1,074 1,023
Total present value of defined benefit obligations (a) 30,637 26,105
Fair value of plan assets (b) 22,231 18,982
Asset ceiling (c) 6 3
Total net defined benefit plans (a - b + c) 8,412 7,126
of which:
Net defined benefit liability (d) 8,516 7,221
(Defined benefit plan asset) (104) (95)
Other provisions for employees and liabilities for share-based payments (e) 1,076 1,105
Total Provisions for employee benefits (d + e) 9,592 8,326

The Group provides post-employment benefits for certain of its active employees and retirees. The way these benefits are provided varies according to the legal, fiscal and economic conditions of each country in which the Group operates and may change periodically. The plans are classified by the Group on the basis of the type of benefit provided as follows: pension benefits, health care and life insurance plans, and other post-employment benefits. Moreover, Group companies provide post-employment benefits, such as pension or health care benefits, to their employees under defined contribution plans. In this case, the Group pays contributions to public or private insurance plans on a legally mandatory, contractual, or voluntary basis. By paying these contributions the Group fulfills all of its obligations. The Group recognizes the cost for defined contribution plans over the period in which the employee renders service and classifies this by function in Cost of sales, Selling, general and administrative costs and Research and development costs. In 2014, this cost totaled €1,405 million (€1,314 million in 2013 and €1,114 million in 2012). 

Pension benefits

Group companies in the United States and Canada sponsor both non-contributory and contributory defined benefit pension plans. The non-contributory pension plans cover certain hourly and salaried employees. Benefits are based on a fixed rate for each year of service. Additionally, contributory benefits are provided to certain salaried employees under the salaried employees’ retirement plans. These plans provide benefits based on the employee’s cumulative contributions, years of service during which the employee contributions were made and the employee’s average salary during the five consecutive years in which the employee’s salary was highest in the 15 years preceding retirement or the freeze of such plans, as applicable.

In the United Kingdom, the Group participates, amongst others, in a pension plan financed by various entities belonging to the Group, called the “Fiat Group Pension Scheme” covering mainly deferred and retired employees.

Liabilities arising from these plans are usually funded by contributions made by Group subsidiaries and, at times by their employees, into legally separate trusts from which the employee benefits are paid. The Group’s funding policy for defined benefit pension plans is to contribute the minimum amounts required by applicable laws and regulations. Occasionally, additional discretionary contributions in excess of these legally required are made to achieve certain desired funding levels. In the U.S. these excess amounts are tracked, and the resulting credit balance can be used to satisfy minimum funding requirements in future years. As of December 31, 2014, the combined credit balances for the U.S. and Canadian qualified pension plans was approximately €2.1 billion, the usage of the credit balances to satisfy minimum funding requirements is subject to the plans maintaining certain funding levels. The Group contributions to funded pension plans for 2015 are expected to be €284 million, of which €262 million relate to FCA US and more specifically, €191 million are discretionary contributions and €71 million will be made to satisfy minimum funding requirement. The expected benefit payments for pension plans are as follows:

Expected benefit payments
(€ million)
2015 1,769
2016 1,733
2017 1,710
2018 1,688
2019 1,675
2020-2024 8,187

The following summarizes the changes in the pension plans:

20142013
ObligationFair value
of plan
assets
Asset
ceiling
Liability
(asset)
ObligationFair value
of plan
assets
Asset
ceiling
Liability
(asset)
(€ million)
Amounts at January 1, 23,137 (18,982) 3 4,158 26,974 (20,049) 6,925
Included in the Consolidated income statement 1,290 (816) 474 1,142 (712) 430
Included in Other comprehensive
income/loss
Actuarial losses/(gains) from
- Demographic assumptions (256) (256) (35) (35)
- Financial assumptions 1,916 (8) 1,908 (1,943) (1) (1,944)
- Other 2 2 (2) 2
Return on assets (1,514) (1,514) (518) (518)
Changes in the effect of limiting net assets 3 3 3 3
Changes in exchange rates 2,802 (2,273) 529 (1,352) 1,107 (245)
Other
Employer contributions (229) (229) (458) (458)
Plan participant contributions 2 (2) 9 (9)
Benefits paid (1,611) 1,606 (5) (1,673) 1,667 (6)
Other changes 5 (13) (8) 17 (11) 6
Amounts at December 31, 27,287 (22,231) 6 5,062 23,137 (18,982) 3 4,158

During 2014, a decrease in discount rates resulted in actuarial losses for the year ended December 31, 2014, while an increase in discount rates resulted in actuarial gains for the year ended December 31, 2013.

Amounts recognized in the Consolidated income statement were as follows:

For the years ended December 31,
201420132012
(€ million)
Current service cost 184 292 271
Interest expense 1,089 1,026 1,199
(Interest income) (878) (768) (942)
Other administration costs 62 42 44
Past service costs/(credits) and gains or losses arising from settlements 17 (162) 10
Total recognized in the Consolidated income statement 474 430 582

In 2014, following the release of new standards by the Canadian Institute of Actuaries, mortality assumptions used for our Canadian benefit plan valuations were updated to reflect recent trends in the industry and the revised outlook for future generational mortality improvements. Generational improvements represent decreases in mortality rates over time based upon historical improvements in mortality and expected future improvements. The change increased the Group’s Canadian pension obligations by approximately €41 million. Additionally, retirement rate assumptions used for the Group’s U.S. benefit plan valuations were updated to reflect an ongoing trend towards delayed retirement for FCA US employees. The change decreased the Group’s U.S. pension and other post-employment benefit obligations by approximately €261 million and €40 million, respectively.

During the second quarter of 2013, FCA US amended its U.S. and Canadian salaried defined benefit pension plans. The U.S. plans were amended in order to comply with U.S. regulations, cease the accrual of future benefits effective December 31, 2013, and enhance the retirement factors. The Canada amendment ceased the accrual of future benefits effective December 31, 2014, enhanced the retirement factors and continued to consider future salary increases for the affected employees. An interim remeasurement was performed for these plans, which resulted in a curtailment gain of €166 million recognized in unusual income in the Consolidated income statement (see Note 8). In addition, the Group recognized a €509 million reduction to its pension obligation, a €7 million reduction to defined benefit plan assets and a corresponding €502 million increase in accumulated Other comprehensive income/(loss) for the year ended December 31, 2013. There were no significant plan amendments or curtailments to the Group’s pension plans for the year ended December 31, 2014.

The fair value of plan assets by class was as follows:

At December 31, 2014At December 31, 2014
Amountof which have
a quoted market
price in an
active market
Amountof which have
a quoted market
price in an
active market
(€ million)
Cash and cash equivalents 713 614 532 401
U.S. equity securities 2,406 2,338 2,047 2,033
Non-U.S. equity securities 1,495 1,463 1,540 1,531
Commingled funds 2,009 186 1,518 195
Equity instruments 5,910 3,987 5,105 3,759
Government securities 2,948 780 2,545 729
Corporate bonds (including Convertible and high yield bonds) 6,104 4 5,049 38
Other fixed income 892 7 635
Fixed income securities 9,944 791 8,229 767
Private equity funds 1,648 1,713
Commingled funds 5 5
Mutual funds 4 4
Real estate funds 1,395 1,222
Hedge funds 1,841 1,759
Investment funds 4,893 5 4,698
Insurance contracts and other 771 91 418 46
Total fair value of plan assets 22,231 5,488 18,982 4,973

Non-U.S. Equity securities are invested broadly in developed international and emerging markets. Debt instruments are fixed income securities which comprise primarily of long-term U.S. Treasury and global government bonds, as well as U.S., developed international and emerging market companies’ debt securities diversified by sector, geography and through a wide range of market capitalization. Commingled funds include common collective trust funds, mutual funds and other investment entities. Private equity funds include those in limited partnerships that invest primarily in operating companies that are not publicly traded on a stock exchange. Real estate investments includes those in limited partnerships that invest in various commercial and residential real estate projects both domestically and internationally. Hedge fund investments include those seeking to maximize absolute return using a broad range of strategies to enhance returns and provide additional diversification.

The investment strategies and objectives for pension assets primarily in the U.S. and Canada reflect a balance of liability- hedging and return-seeking investment considerations. The investment objectives are to minimize the volatility of the value of the pension assets relative to the pension liabilities and to ensure assets are sufficient to pay plan obligations. The objective of minimizing the volatility of assets relative to liabilities is addressed primarily through asset diversification, partial asset–liability matching and hedging. Assets are broadly diversified across many asset classes to achieve risk– adjusted returns that, in total, lower asset volatility relative to the liabilities. Additionally, in order to minimize pension asset volatility relative to the pension liabilities, a portion of the pension plan assets are allocated to fixed income securities. The Group policy for these plans ensures actual allocations are in line with target allocations as appropriate.

Assets are actively managed, primarily, by external investment managers. Investment managers are not permitted to invest outside of the asset class or strategy for which they have been appointed. The Group uses investment guidelines to ensure investment managers invest solely within the mandated investment strategy. Certain investment managers use derivative financial instruments to mitigate the risk of changes in interest rates and foreign currencies impacting the fair values of certain investments. Derivative financial instruments may also be used in place of physical securities when it is more cost effective and/or efficient to do so. Plan assets do not include shares of FCA or properties occupied by Group companies.

Sources of potential risk in the pension plan assets measurements relate to market risk, interest rate risk and operating risk. Market risk is mitigated by diversification strategies and as a result, there are no significant concentrations of risk in terms of sector, industry, geography, market capitalization, or counterparty. Interest rate risk is mitigated by partial asset–liability matching. The fixed income target asset allocation partially matches the bond–like and long–dated nature of the pension liabilities. Interest rate increases generally will result in a decline in the fair value of the investments in fixed income securities and the present value of the obligations. Conversely, interest rate decreases generally will increase the fair value of the investments in fixed income securities and the present value of the obligations.

The weighted average assumptions used to determine the defined benefit obligations were as follows:

    

At December 31,
20142013
U.S.CanadaUKU.S.CanadaUK
Discount rate 4.0 3.8 4.0 4.7 4.6 4.5
Future salary increase rate n/a 3.5 3.0 3.0 3.5 3.1

The discount rates are used in measuring the obligation and the interest expense/(income) of net period cost. The Group selects these rates on the basis of the rate on return on high-quality (AA rated) fixed income investments for which the timing and amounts of payments match the timing and amounts of the projected pension and other post- employment plan. The average duration of the U.S. and Canadian liabilities was approximately 11 and 13 years, respectively. The average duration of the UK pension liabilities was approximately 21 years.

Health care and life insurance plans

Liabilities arising from these plans comprise obligations for retiree health care and life insurance granted to employees and to retirees in the U.S. and Canada by FCA US companies. Upon retirement from the Group, these employees may become eligible for continuation of certain benefits. Benefits and eligibility rules may be modified periodically. These plans are unfunded. The expected benefit payments for unfunded health care and life insurance plans are as follows:

Expected benefit payments
(€ million)
2015 136
2016 134
2017 133
2018 132
2019 131
2020-2024 651

Changes in the net defined benefit obligations for healthcare and life insurance plans were as follows:

20142013
(€ million)
Present value of obligations at January 1, 1,945 2,289
Included in the Consolidated income statement 126 112
Included in OCI:
Actuarial losses (gains) from:
- Demographic assumptions (95) (21)
- Financial assumptions 187 (207)
- Other 11
Effect of movements in exchange rates 244 (112)
Other changes
Benefits paid (128) (126)
Other (3) (1)
Present value of obligations at December 31, 2,276 1,945

Amounts recognized in the Consolidated income statement were as follows:

For the years ended December 31,
201420132012
(€ million)
Current service cost 21 23 22
Interest expense 98 89 103
Past service costs (credits) and gains or losses arising from settlements 7 (6)
Total recognized in the Consolidated income statement 126 112 119

Health care and life insurance plans are accounted for on an actuarial basis, which requires the selection of various assumptions, in particular, it requires the use of estimates of the present value of the projected future payments to all participants, taking into consideration the likelihood of potential future events such as health care cost increases and demographic experience.            

The weighted average assumptions used to determine the defined benefit obligations were as follows:

20142013
U.S.CanadaU.S.Canada
(%)
Discount rate 4.1 3.9 4.9 4.7
Salary growth n/a 2.7
Weighted average ultimate healthcare cost trend rate 5.0 3.6 5.0 3.6

The discount rates used for the measurement of these obligations are based on yields of high-quality (AA-rated) fixed income securities for which the timing and amounts of payments match the timing and amounts of the projected benefit payments. The average duration of the U.S. and Canadian liabilities was approximately 12 and 16 years, respectively.

The annual rate of increase in the per capita cost of covered U.S. health care benefits assumed for next year and used in the 2014 plan valuation was 6.5 percent (6.8 percent in 2013). The annual rate was assumed to decrease gradually to 5.0 percent after 2021 and remain at that level thereafter. The annual rate of increase in the per capita cost of covered Canadian health care benefits assumed for next year and used in the 2014 plan valuation was 3.3 percent (3.3 percent in 2013). The annual rate was assumed to increase gradually to 3.6 percent in 2017 and remain at that level thereafter.

Other post-employment benefits

Other post-employment benefits includes other employee benefits granted to Group employees in Europe and comprises, amongst others, the Italian employee severance indemnity (TFR) obligation amounting to €886 million at December 31, 2014 and €861 million at December 31, 2013. These schemes are required under Italian Law.

The amount of TFR to which each employee is entitled must be paid when the employee leaves the Group and is calculated based on the period of employment and the taxable earnings of each employee. Under certain conditions the entitlement may be partially advanced to an employee during their working life.

The legislation regarding this scheme was amended by Law 296 of December 27, 2006 and subsequent decrees and regulations issued in the first part of 2007. Under these amendments, companies with at least 50 employees are obliged to transfer the TFR to the “Treasury fund” managed by the Italian state-owned social security body (INPS) or to supplementary pension funds. Prior to the amendments, accruing TFR for employees of all Italian companies could be managed by the company itself. Consequently, the Italian companies’ obligation to INPS and the contributions to supplementary pension funds take the form, under IAS 19 - Employee Benefits, of defined contribution plans whereas the amounts recorded in the provision for employee severance pay retain the nature of defined benefit plans. Accordingly, the provision for employee severance indemnity in Italy consists of the residual obligation for TFR until December 31, 2006. This is an unfunded defined benefit plan as the benefits have already been entirely earned, with the sole exception of future revaluations. Since 2007 the scheme has been classified as a defined contribution plan and the Group recognizes the associated cost over the period in which the employee renders service.

Changes in defined benefit obligations for other post-employment benefits was as follows:

20142013
(€ million)
Present value of obligations at January 1, 1,023 997
Included in the Consolidated income statement: 31 24
Included in OCI:
Actuarial losses (gains) from:
Demographic assumptions (2) (2)
Financial assumptions 81 37
Other 14 23
Effect of movements in exchange rates 1 (4)
Other:
Benefits paid (77) (59)
Change in the scope of consolidation 15 21
Other (12) (14)
Present value of obligations at December 31, 1,074 1,023

Amounts recognized in the Consolidated income statement was as follows:

For the years ended December 31,
201420132012
(€ million)
Current service cost 20 9 8
Interest expense 11 15 25
Past service costs (credits) and gains or losses arising from settlements (3)
Total recognized in the Consolidated income statement 31 24 30

The main assumptions used in developing the required estimates for other post-employment benefits include the discount rate, the retirement or employee leaving rate and the mortality rates.

The discount rates used for the measurement of the Italian TFR obligation are based on yields of high-quality (AA rated) fixed income securities for which the timing and amounts of payments match the timing and amounts of the projected benefit payments. For this plan, the single weighted average discount rate that reflects the estimated timing and amount of the scheme future benefit payments for 2014 is equal to 1.7 percent (2.8 percent in 2013). The average duration of the Italian TFR is approximately 7 years. Retirement or employee leaving rates are developed to reflect actual and projected Group experience and law requirements for retirement in Italy.

Other provisions for employees and liabilities for share-based payments

At December 31, 2014, Other provisions for employees and liabilities for share-based payments comprised other long term benefits obligations for €376 million (€332 million at December 31, 2013), representing the expected obligation for benefits as jubilee and long term disability granted to certain employees by the Group. At December 31, 2013 this item also included liabilities for share-based payments amounting to €123 million.

26. Other provisions

Changes in Other provisions were as follows:

At
December 31,
2013
Additional
provisions
SettlementsUnused
amounts
Translation
differences
Changes in
the scope of
consolidation
and other
changes
At
December 31,
2014
(€ million)
Warranty provision 3,656 2,909 (2,119) 392 7 4,845
Sales incentives 2,993 9,292 (8,874) (20) 318 (14) 3,695
Legal proceedings and disputes 547 125 (85) (36) 15 9 575
Commercial risks 371 171 (109) (40) 6 (18) 381
Restructuring provision 191 52 (97) (8) 1 (8) 131
Indemnities 62 2 (4) 60
Environmental risks 29 2 (2) 29
Investment provision 12 (4) 8
Other risks 1,240 299 (256) (173) 41 (95) 1,056
Total Other provisions 9,101 12,852 (11,546) (277) 773 (123) 10,780

The effect of discounting these provisions was €2 million in 2014 (€21 million in 2013).

The warranty provision represents the best estimate of commitments given by the Group for contractual, legal, or constructive obligations arising from product warranties given for a specified period of time beginning at the date of sale to the end customer. This estimate is principally based on assumptions regarding the lifetime warranty costs of each vehicle and each model year of that vehicle line, as well as historical claims experience for vehicles. The Group establishes provisions for product warranty obligations when the related sale is recognized. Warranty provisions also include management’s best estimate of the costs that are expected to be incurred in connection with product defects that could result in a general recall of vehicles, which are estimated by making an assessment of the historical occurrence of defects on a case-by-case basis and are accrued when a reliable estimate of the amount of the obligation can be made.

The following table sets forth total warranty costs recognized for the years ended December 31, 2014, 2013 and 2012:

 



For the years ended December 31,
201420132012
(€ million)
Warranty costs 2,909 2,011 1,759
Recorded in the Consolidated income statement within:
Cost of sales 2,909 1,896 1,759
Other unusual expenses 115
2,909 2,011 1,759

Warranty provision increased by €1,189 million in the year ended December 31, 2014. The increase was primarily driven by an increase in the overall warranty expenses relating to the recently approved recall campaigns in the NAFTA segment. Additionally, there was an increase to the warranty provision of approximately €392 million with respect to foreign exchange effects when translating from U.S. Dollar to Euro.

Sales incentives are offered on a contractual basis to the Group’s dealer networks, primarily on the basis of a specific cumulative level of sales transactions during a certain period. The sales incentive provision also includes sales cash incentives provided to retail customers.

The Legal proceedings and disputes provision represents management’s best estimate of the liability to be recognized by the Group with regard to legal proceedings arising in the ordinary course of business with dealers, customers, suppliers or regulators (such as contractual or patent disputes), legal proceedings involving claims with active and former employees and legal proceedings involving different tax authorities. None of these provisions are individually significant. Each Group company recognizes a provision for legal proceedings when it is deemed probable that the proceedings will result in an outflow of resources. In determining their best estimate of the liability, each Group company evaluates their legal proceedings on a case-by-case basis to estimate the probable losses that typically arise from events of the type giving rise to the liability. Their estimate takes into account, as applicable, the views of legal counsel and other experts, the experience of the Group and others in similar situations and the Group’s intentions with regard to further action in each proceeding. Group’s consolidated provision combines these individual provisions established by each of the Group’s companies.

Commercial risks arise in connection with the sale of products and services such as maintenance contracts. An accrual is recorded when the expected costs to complete the services under these contracts exceed the revenues expected to be realized.

The Group’s restructuring programs primarily relate to restructuring and rationalization activities in the NAFTA and EMEA segments. The restructuring provision at December 31, 2014 consists of termination benefits of €72 million (€106 million at December 31, 2013) payable to employees in connection with restructuring plans, manufacturing rationalization costs of €9 million (€15 million at December 31, 2013) and other costs of €50 million (€70 million at December 31, 2013). These provisions are related to the EMEA segment €41 million (€53 million at December 31, 2013), the NAFTA segment €36 million (€41 million at December 31, 2013), the Components segment €15 million (€28 million at December 31, 2013), publishing activities €13 million (€31 million at December 31, 2013) and other minor activities €26 million (€38 million at December 31, 2013).

Indemnities are estimated by the Group in connection with divestitures. These liabilities primarily arise from indemnities relating to contingent liabilities in existence at the time of the sale, as well as those covering any possible breach of the representations and warranties provided in the contract and, in certain instances, environmental or tax matters. These provisions were determined estimating the amount of the expected outflow of resources, taking into consideration the relevant level of probability of occurrence.

The environmental risks provision represents management’s best estimate of the Group’s probable environmental obligations. Amounts included in the estimate include direct costs to be incurred by the Group in connection with environmental obligations associated with current or formerly owned facilities and sites. This provision also includes costs related to claims on environmental matters.

Other risks includes, among other items: provisions for disputes with suppliers related to supply contracts or other matters that are not subject to legal proceedings, provisions for product liabilities arising from personal injuries including wrongful death and potential exemplary or punitive damages alleged to be the result of product defects, and disputes with other parties relating to contracts or other matters not subject to legal proceedings. The valuation of these provisions is determined based on, among other factors, claims incurred and our historical experiences regarding similar disputes.            

27. Debt

Breakdown of debt by category and by maturity was as follows:

At December 31,
2014
2013
Due within one yearDue between one and five yearsDue beyond five yearsTotalDue within one yearDue between one and five yearsDue beyondfive yearsTotal
(€ million)
Bonds 2,292 10,367 4,989 17,648 2,572 8,317 3,577 14,466
Borrowings from banks 3,670 8,131 950 12,751 2,584 5,639 607 8,830
Payables represented by securities 559 544 270 1,373 554 1,374 2,604 4,532
Asset-backed financing 444 25 469 746 10 756
Other debt 745 424 314 1,483 1,019 353 327 1,699
Total Debt 7,710 19,491 6,523 33,724 7,475 15,693 7,115 30,283

Debt increased by €3,441 million at December 31, 2014. Net of foreign exchange translation effects and scope of consolidation, the increase in Debt was €2,059 million: FCA issued new bonds for €4,629 million and repaid bonds on maturity for €2,150 million; medium and long-term loans (those expiring after twelve months) obtained by FCA amounted to €4,876 million, while medium and long-term borrowings repayments amounted to €5,838 million.

The annual effective interest rates and the nominal currencies of debt at December 31, 2014 and 2013 were as follows:

Interest rateTotal at December 31, 2014
less than 5%from 5% to 7.5%from 7.5% to 10%from 10% to 12.5%more than 12.5%
(€ million)
Euro 6,805 7,500 1,003 87 15,395
U.S. Dollar 5,769 2,651 2,537 8 206 11,171
Brazilian Real 1,720 430 282 376 1,330 4,138
Swiss Franc 593 686 1,279
Canadian Dollar 31 229 393 653
Mexican Peso 164 233 397
Chinese Renminbi 1 333 334
Other 197 20 37 24 79 357
Total Debt 15,116 12,013 4,485 495 1,615 33,724

Interest rateTotal at December 31, 2013
less than 5%from 5% to 7.5%from 7.5% to 10%from 10% to 12.5%more than 12.5%
(€ million)
Euro 5,382 7,412 2,253 90 15,137
U.S. Dollar 2,962 122 5,744 12 169 9,009
Brazilian Real 1,271 431 256 1,19 3,148
Swiss Franc 378 672 1,05
Canadian Dollar 39 79 584 702
Mexican Peso 414 414
Chinese Renminbi 2 292 66 360
Other 291 17 51 10 94 463
Total Debt 10,325 9,025 9,368 1,302 263 30,283

For further information on the management of interest rate and currency risk reference should be made to Note 35.

Bonds

All outstanding bonds issued by Fiat Chrysler Finance Europe S.A. (formerly known as Fiat Finance and Trade Ltd S.A.) and Fiat Chrysler Finance North America Inc. (formerly known as Fiat Finance North America Inc.) (both wholly- owned subsidiaries of the Group) are governed by the terms and conditions of the Global Medium Term Note Program (“GMTN Program”). A maximum of €20 billion may be used under this program, of which notes of approximately €12.1 billion have been issued and are outstanding at December 31, 2014 (€11.6 billion at December 31, 2013). The GMTN Program is guaranteed by the Group. The companies in the Group may from time to time buy back bonds in the market that have been issued by FCA. Such buybacks, if made, depend upon market conditions, the financial situation of FCA and other factors which could affect such decisions.

The bonds issued by Fiat Chrysler Finance Europe S.A. and by Fiat Chrysler Finance North America Inc. impose covenants on the issuer and, in certain cases, on FCA as guarantor, which include: (i) negative pledge clauses which require that, in case any security interest upon assets of the issuer and/or FCA is granted in connection with other bonds or debt securities having the same ranking, such security should be equally and ratably extended to the outstanding bonds; (ii) pari passu clauses, under which the bonds rank and will rank pari passu with all other present and future unsubordinated and unsecured obligations of the issuer and/or FCA; (iii) periodic disclosure obligations; cross-default clauses which require immediate repayment of the bonds under certain events of default on other financial instruments issued by FCA’s main entities; and (v) other clauses that are generally applicable to securities of a similar type. A breach of these covenants may require the early repayment of the bonds. In addition, the agreements for the bonds guaranteed by FCA contain clauses which could require early repayment if there is a change of the controlling shareholder of FCA leading to a ratings downgrade by ratings agencies.

The bond issues outstanding at December 31, 2014 were as follows:

CurrencyFace value of
outstanding
bonds (€ million)
Coupon
%
MaturityAt December 31,
(€ million)
20142013
Global Medium Term Note Program:
Fiat Chrysler Finance Europe S.A.(1) EUR 900 6125 July 8, 2014 900
Fiat Chrysler Finance Europe S.A.(1) EUR 1,250 7625 September 15, 2014 1,25
Fiat Chrysler Finance Europe S.A.(1) EUR 1,500 6875 February 13, 2015 1,5 1,5
Fiat Chrysler Finance Europe S.A.(2) CHF 425 5000 September 7, 2015 353 346
Fiat Chrysler Finance Europe S.A.(1) EUR 1,000 6375 April 1, 2016 1 1
Fiat Chrysler Finance Europe S.A.(1) EUR 1,000 7750 October 17, 2016 1 1
Fiat Chrysler Finance Europe S.A.(2) CHF 400 5250 November 23, 2016 333 326
Fiat Chrysler Finance Europe S.A.(1) EUR 850 7000 March 23, 2017 850 850
Fiat Chrysler Finance North America Inc.(1) EUR 1,000 5625 June 12, 2017 1 1
Fiat Chrysler Finance Europe S.A.(2) CHF 450 4000 November 22, 2017 374 367
Fiat Chrysler Finance Europe S.A.(1) EUR 1,250 6625 March 15, 2018 1,25 1,25
Fiat Chrysler Finance Europe S.A.(1) EUR 600 7375 July 9, 2018 600 600
Fiat Chrysler Finance Europe S.A.(2) CHF 250 3125 September 30, 2019 208
Fiat Chrysler Finance Europe S.A.(1) EUR 1,250 6750 October 14, 2019 1,25 1,25
Fiat Chrysler Finance Europe S.A.(1) EUR 1,000 4.750 March 22, 2021 1,000
Fiat Chrysler Finance Europe S.A.(1) EUR 1,350 4.750 July 15, 2022 1,350
Others EUR 7 7 7
Total Global Medium Term Notes 12,075 11,646
Other bonds:
FCA US (Secured Senior Notes)(3) U.S.$ 2,875 8.000 June 15, 2019 2,368 1,088
FCA US (Secured Senior Notes)(3) U.S.$ 3,08 8.250 June 15, 2021 2,537 1,232
Total Other bonds 4,905 2,320
Hedging effect, accrued interest and amortized cost valuation 668 500
Total Bonds 17,648 14,466

(1) Bond for which a listing on the Irish Stock Exchange was obtained.
(2) Bond for which a listing on the SIX Swiss Exchange was obtained.
(3) Includes 2019 Notes and 2021 Notes (defined below).

Changes in Global Medium Term Notes during 2014 were mainly due to the:

  • Issuance of 4.75 percent notes at par in March 2014, having a principal of €1 billion and due March 2021 by Fiat Chrysler Finance Europe S.A. The proceeds will be used for general corporate purposes. The notes have been admitted to listing on the Irish Stock Exchange.
  • Issuance of 4.75 percent notes at par in July 2014, having a principal of €850 million and due July 2022 by Fiat Chrysler Finance Europe S.A. The notes issuance was reopened in September 2014 for a further €500 million principal value, priced at 103.265 percent of par value, increasing the total principal amount to €1.35 billion.
  • Issuance of 3.125 percent notes at par in September 2014 having a principal of CHF250 million and due September 2019 by Fiat Chrysler Finance Europe S.A.
  • Repayment at maturity of bonds having a nominal value of €900 million and of €1,250 million originally issued by Fiat Chrysler Finance Europe S.A.

FCA US Secured Senior Notes

In May 2011, FCA US and certain of its U.S. subsidiaries, either as a co-issuer or guarantor, entered into the following secured senior notes:

  • secured senior notes due 2019 - issuance of $1,500 million (€1,235 million at December 31, 2014) of 8.0 percent secured senior notes due June 15, 2019; and
  • secured senior notes due 2021 - issuance of $1,700 million (€1,400 million at December 31, 2014) of 8.25 percent secured senior notes due June 15, 2021.

In February 2014, FCA US and certain of its U.S. subsidiaries, either as a co-issuer or guarantor, issued additional secured senior notes:

  • secured Senior Notes due 2019 – U.S.$1,375 million (€1,133 million at December 31, 2014) aggregate principal amount of 8.0 percent secured senior notes (collectively with the May 2011 issuance of the secured senior notes due 2019, the “2019 Notes”), due June 15, 2019, at an issue price of 108.25 percent of the aggregate principal amount; and
  • secured Senior Notes due 2021 – U.S.$1,380 million (€1,137 million at December 31, 2014) aggregate principal amount of 8.25 percent secured senior notes (collectively with the May 2011 issuance of the secured senior notes due 2021, the “2021 Notes”), due June 15, 2021 at an issue price of 110.50 percent of the aggregate principal amount.

The 2019 Notes and 2021 Notes are collectively referred to as the “Secured Senior Notes”.

FCA US may redeem, at any time, all or any portion of the Secured Senior Notes on not less than 30 and not more than 60 days’ prior notice mailed to the holders of the Secured Senior Notes to be redeemed.

Prior to June 15, 2015, the 2019 Notes will be redeemable at a price equal to the principal amount of the 2019 Notes being redeemed, plus accrued and unpaid interest to the date of redemption and a “make–whole” premium calculated under the indenture governing the Secured Senior Notes. On and after June 15, 2015, the 2019 Notes are redeemable at redemption prices specified in the 2019 Notes, plus accrued and unpaid interest to the date of redemption. The redemption price is initially 104.0 percent of the principal amount of the 2019 Notes being redeemed for the twelve months beginning June 15, 2015, decreasing to 102.0 percent for the twelve months beginning June 15, 2016 and to par on and after June 15, 2017.

Prior to June 15, 2016, the 2021 Notes will be redeemable at a price equal to the principal amount of the 2021 Notes being redeemed, plus accrued and unpaid interest to the date of redemption and a “make–whole” premium calculated under the indenture governing the Secured Senior Notes. On and after June 15, 2016, the 2021 Notes are redeemable at redemption prices specified in the 2021 Notes, plus accrued and unpaid interest to the date of redemption. The redemption price is initially 104.125 percent of the principal amount of the 2021 Notes being redeemed for the twelve months beginning June 15, 2016, decreasing to 102.750 percent for the twelve months beginning June 15, 2017, to 101.375 percent for the twelve months beginning June 15, 2018 and to par on and after June 15, 2019.

The indenture governing the Secured Senior Notes issued by FCA US includes affirmative covenants, including the reporting of financial results and other developments. The indenture also includes negative covenants which limit FCA US’s ability and, in certain instances, the ability of certain of its subsidiaries to, (i) pay dividends or make distributions of FCA US’s capital stock or repurchase FCA US’s capital stock; (ii) make restricted payments; (iii) create certain liens to secure indebtedness; (iv) enter into sale and leaseback transactions; (v) engage in transactions with affiliates; (vi) merge or consolidate with certain companies and (vii) transfer and sell assets. The indenture provides for customary events of default, including but not limited to, (i) non-payment; (ii) breach of covenants in the indenture; (iii) payment defaults or acceleration of other indebtedness; (iv) a failure to pay certain judgments and (v) certain events of bankruptcy, insolvency and reorganization. If certain events of default occur and are continuing, the trustee or the holders of at least 25.0 percent in aggregate of the principal amount of the Secured Senior Notes outstanding under one of the series may declare all of the notes of that series to be due and payable immediately, together with accrued interest, if any. As of December 31, 2014, FCA US was in compliance with all covenants.

Borrowings from banks

At December 31, 2014, Borrowings from banks includes €2,587 million (€2,119 million at December 31, 2013) outstanding, which includes accrued interest, on the U.S.$3,250 million (€2,677 million) tranche B term loan maturing May 24, 2017 of FCA US (“Tranche B Term Loan due 2017”) and €1,421 million outstanding, which includes accrued interest, on the U.S.$1,750 million (€1,442 million) tranche B term loan maturing December 31, 2018 (“Tranche B Term Loan due 2018”). The revolving credit facility (described below) was undrawn at December 31, 2014. The Tranche B Term Loan due 2017, Tranche B Term Loan due 2018 and the revolving credit facility (described below), are collectively referred to as the “Senior Credit Facilities”.

The Tranche B Term Loan due 2017 of FCA US consists of the existing U.S.$3.0 billion tranche B term loan (€2,471 million) that matures on May 24, 2017, (the “Original Tranche B Term Loan”), and an additional U.S.$250 million (€206 million at December 31, 2014) term loan entered into on February 7, 2014 under the Original Tranche B Term Loan that also matures on May 24, 2017, collectively the “Tranche B Term Loan due 2017”. The outstanding principle amount of the Tranche B Term Loan due 2017 is payable in equal quarterly installments of U.S.$8.1 million (€6.7 million) commencing March 2014, with the remaining balance due at maturity in May 2017. The Original Tranche B Term Loan was re-priced in June and in December 2013 and subsequently, all amounts outstanding under Tranche B Term Loan due 2017 will bear interest, at FCA’s option, at either a base rate plus 1.75 percent per annum or at LIBOR plus 2.75 percent per annum, subject to a base rate floor of 1.75 percent per annum or a LIBOR floor of 0.75 percent per annum. For the year ended December 31, 2014, interest was accrued based on LIBOR.

On February 7, 2014, FCA US entered into an agreement for the Tranche B Term Loan due 2018 for U.S.$1,750 million (€1,442 million). The outstanding principal amount for the Tranche B Term Loan due 2018 is payable in equal quarterly installments of U.S.$4.4 million (€3.6 million), commencing June 30, 2014, with the remaining balance due at maturity. The Tranche B Term Loan due 2018 bears interest, at FCA US’s option, either at a base rate plus 1.50 percent per annum or at LIBOR plus 2.5 percent per annum, subject to a base rate floor of 1.75 percent per annum or a LIBOR floor of 0.75 percent per annum.

FCA US may pre-pay, refinance or re-price the Tranche B Term Loan due 2017 and the Tranche B Term Loan due 2018 without premium or penalty. FCA US also has the option to extend the maturity date of all or a portion of the aforementioned term loans with the consent of the lenders.

At December 31, 2014, FCA US had a secured revolving credit facility (“Revolving Credit Facility”) amounting to US$1.3 billion (€1.1 billion), which remains undrawn and which matures in May 2016. All amounts outstanding under the Revolving Credit Facility bear interest, at the option of FCA US, either at a base rate plus 2.25 percent per annum or at LIBOR plus 3.25 percent per annum. Subject to the limitations in the credit agreements governing the Senior Credit Facilities (“Senior Credit Agreements”) and the indenture governing our Secured Senior Notes, FCA US has the option to increase the amount of the Revolving Credit Facility in an aggregate principal amount not to exceed U.S.$700 million (approximately €577 million) at December 31, 2014, subject to certain conditions.

The Senior Credit Agreements include a number of affirmative covenants, many of which are customary, including, but not limited to, the reporting of financial results and other developments, compliance with laws, payment of taxes, maintenance of insurance and similar requirements. The Senior Credit Agreements also include negative covenants, including but not limited to: (i) limitations on incurrence, repayment and prepayment of indebtedness; (ii) limitations on incurrence of liens; (iii) limitations on making certain payments; (iv) limitations on transactions with affiliates, swap agreements and sale and leaseback transactions; (v) limitations on fundamental changes, including certain asset sales and (vi) restrictions on certain subsidiary distributions. In addition, the Senior Credit Agreements require FCA US to maintain a minimum ratio of “borrowing base” to “covered debt” (as defined in the Senior Credit Agreements), as well as a minimum liquidity of US$3.0 billion (€2.5 billion), which includes any undrawn amounts on the Revolving Credit Facility.

The Senior Credit Agreements contain a number of events of default related to: (i) failure to make payments when due; (ii) failure to comply with covenants; (iii) breaches of representations and warranties; (iv) certain changes of control; (v) cross–default with certain other debt and hedging agreements and (vi) the failure to pay or post bond for certain material judgments. As of December 31, 2014, FCA US was in compliance with all covenants under the Senior Credit Agreements.

Medium/long term committed credit lines currently available to the treasury companies of the Group (excluding FCA US) amount to approximately €3.3 billion at December 31, 2014 (€3.2 billion at December 31, 2013), of which €2.1 billion related to the 3-year syndicated revolving credit line due in July 2016 that was undrawn at December 31, 2014 and at December 31, 2013. The €2.1 billion syndicated credit facility of the Group contains typical covenants for contracts of this type and size, such as financial covenants (Net Debt/EBITDA and EBITDA/Net Interest ratios related to industrial activities) and negative pledge, cross default and change of control clauses. The failure to comply with these covenants, in certain cases, if not suitably remedied, can lead to the requirement for early repayment of the outstanding loans. Similar covenants are included in the loans granted by the European Investment Bank for a total of €1.1 billion used to fund the Group’s investments and research and development costs. In addition, the above syndicated credit facility, currently includes limits on the ability to extend guarantees or loans to FCA US.

Additionally, the operating entities of the Group (excluding FCA US) have committed credit lines available, with residual maturity after twelve months, to fund scheduled investments, of which approximately €0.9 billion was undrawn at December 31, 2014 (€1.8 billion at December 31, 2013).

Payables represented by securities

At December 31, 2014, Group’s Payables represented by securities primarily included the unsecured Canadian Health Care Trust Notes totaling €651 million, including accrued interest, (€703 million at December 31, 2013, including accrued interest), which represents FCA US’s financial liability to the Canadian Health Care Trust arising from the settlement of its obligations for postretirement health care benefits for National Automobile, Aerospace, Transportation and General Workers Union of Canada “CAW” (now part of Unifor), which represented employees, retirees and dependents.

As described in more detail in Note 23, FCA issued aggregate notional amount of U.S.$2,875 million (€2,293 million) of Mandatory Convertible Securities on December 16, 2014. The obligation to pay coupons as required by the Mandatory Convertible Securities meets the definition of a financial liability as it is a contractual obligation to deliver cash to another entity. The fair value amount determined for the liability component at issuance of the Mandatory Convertible Securities was U.S.$419 million (€335 million) 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. Subsequent to issuance, the financial liability for the coupon payments is accounted for at amortized cost. At December 31, 2014, the financial liability component was U.S.$420 million (€346 million).      

At December 31, 2013 the item Payables represented by securities primarily related to the balance of FCA US’s financial liability to the VEBA Trust (the “VEBA Trust Note”) of €3,575 million including accrued interest. The VEBA Trust Note had been issued by FCA US in connection with the settlement of its obligations related to postretirement healthcare benefits for certain UAW retirees. The VEBA Trust Note had an implied interest rate of 9.0 percent and required annual payments of principal and interest through July 15, 2023. The proceeds of the February 7, 2014 issuances of the Secured Senior Notes were used to prepay all amounts outstanding of approximately $5.0 billion (€3.6 billion) under the VEBA Trust Note, which included a principal payment of $4,715 million (€3,473 million) and interest accrued through February 7, 2014. The $4,715 million (€3,473 million) principal payment consisted of $128 million (€94 million) of interest that was previously capitalized as additional debt with the remaining $4,587 million (€3,379 million) representing the original face value of the note.

Asset-backed financing

Asset-backed financing represents the amount of financing received through factoring transactions which do not meet IAS 39 derecognition requirements and are recognized as assets in the Consolidated statement of financial position under Current receivables and other current assets (Note 18). Asset-backed financing decreased by €287 million in 2014.

At December 31, 2014, debt secured by assets of the Group (excluding FCA US) amounts to €777 million (€432 million at December 31, 2013), of which €379 million (€386 million at December 31, 2013) was due to creditors for assets acquired under finance leases and the remaining amount mainly related to subsidized financing in Latin America. The total carrying amount of assets acting as security for loans amounts to €1,670 million at December 31, 2014 (€418 million at December 31, 2013).

At December 31, 2014, debt secured by assets of FCA US amounts to €9,881 million (€5,180 million at December 31, 2013), and includes €9,093 million (€4,448 million at December 31, 2013) relating to the Secured Senior Notes and the Senior Credit Facilities and €251 million (€165 million at December 31, 2013) due to creditors for assets acquired under finance leases and other debt and financial commitments for €537 million (€567 million at December 31, 2013).

In addition, at December 31, 2014 the Group’s assets include current receivables to settle Asset-backed financing of €469 million (€756 million at December 31, 2013).

Other debt

At December 31, 2014, payables for finance leases amount to €630 million and may be analyzed as follows:

20142013
Due within one yearDue between one and three yearsDue between three and five yearsDue beyond five yearsTotalDue within one yearDue between one and three yearsDue between three and five yearsDue beyond five yearsTotal
(€ million)
Minimum future lease payments 114 209 188 243 754 82 151 133 270 636
Interest expense (33) (51) (31) (9) (124) (20) (31) (21) (13) (85)
Present value of minimum lease payments 81 158 157 234 630 62 120 112 257 551

At December 31, 2014, the Group (excluding FCA US) had outstanding financial lease agreements for certain Property, plant and equipment whose overall net carrying amount totals €383 million (€394 million at December 31, 2013) (Note 15). As discussed in Note 15, finance lease payables also relate to suppliers’ assets recognized in the Consolidated financial statements in accordance with IFRIC 4.

Restrictions in Relation to the Group’s Interest in FCA US

The Group is subject to several restrictions that limit its ability to access and use assets or settle liabilities in relation to its interest in FCA US. Financing arrangements outstanding may limit the Group’s ability to allocate capital between Group entities or may restrict its ability to receive dividends or other restricted payments from FCA US. In particular, FCA’s existing syndicated credit facility currently imposes restrictions, with certain exceptions, that limit FCA’s capability to extend guarantees or loans to FCA US, or subscribe equity to FCA US.

FCA US’s Senior Credit Facilities, are secured by a senior priority security interest in substantially all of FCA US’s assets and the assets of its U.S. subsidiary guarantors, subject to certain exceptions. The collateral includes 100.0 percent of the equity interests in FCA US’s U.S. subsidiaries and 65.0 percent of the equity interests in certain of its non-U.S. subsidiaries held directly by FCA US and its U.S. subsidiary guarantors. In addition, FCA US’s Secured Senior Notes are secured by security interests junior to the Senior Credit Facilities in substantially all of FCA US’s assets and the assets of its U.S. subsidiary guarantors, including 100.0 percent of the equity interests in FCA US’s U.S. subsidiaries and 65.0 percent of the equity interests in certain of its non U.S. subsidiaries held directly by FCA US and its U.S. subsidiary guarantors. In addition, these debt instruments include covenants that restrict FCA US’s ability to make certain distributions or purchase or redeem its capital stock, prepay certain other debt, encumber assets, incur or guarantee additional indebtedness, incur liens, transfer and sell assets or engage in certain business combinations, enter into certain transactions with affiliates or undertake various other business activities as well as the requirement to maintain borrowing base collateral coverage and a minimum liquidity threshold.

While the Senior Credit Facilities and Secured Senior Notes are outstanding, further distributions to FCA US will be limited to 50.0 percent of FCA US’s consolidated net income (as defined in the agreements) from January 2012, less the amount of the January 2014 distribution that was used to pay the VEBA Trust for the acquisition of the remaining 41.5 percent interest in FCA US not previously owned by FCA.

28. Trade payables

Trade payables due within one year of €19,854 million at December 31, 2014 increased by €2,647 million from December 31, 2013. Excluding the foreign exchange translation effects, the increase of Trade payables amounted to €1,512 million and mainly related to the increased production in the NAFTA and EMEA segments as a result of increased consumer demand for our vehicles and increased capital expenditures.

29. Other current liabilities

Other current liabilities consisted of the following:



At December 31,
20142013
(€ million)
Advances on buy-back agreements 2,571 1,583
Indirect tax payables 1,495 1,304
Accrued expenses and deferred income 2,992 2,370
Payables to personnel 932 781
Social security payables 338 349
Amounts due to customers for contract work 252 209
Other 2,915 2,367
Total Other current liabilities 11,495 8,963

An analysis of Other current liabilities (excluding Accrued expenses and deferred income) by due date was as follows:

20142013
Due within one yearDue betweenone and five yearsDue beyond five yearsTotalDue within one yearDue betweenone and five yearsDue beyond five yearsTotal
(€ million)
Total Other current liabilities (excluding Accrued expenses and deferred income) 7,248 1,230 25 8,503 5,731 840 22 6,593

Advances on buy-back agreements refers to buy-back agreements entered into by the Group and includes the price received for the product recognized as an advance at the date of the sale, and subsequently, the repurchase price and the remaining lease installments yet to be recognized.

Indirect tax payables includes taxes on commercial transactions accrued by the Brazilian subsidiary, FIASA, for which the company (as well as a number of important industrial groups which operate in Brazil) is awaiting the decision by the Supreme Court regarding its claim alleging double taxation. In March 2007, FIASA received a preliminary trial court decision allowing the payment of such tax on a taxable base consistent with the Group’s position. Since it is a preliminary decision and the amount may be required to be paid to the tax authorities at any time, the difference between the tax payments as preliminary allowed and the full amount determined as required by the legislation still in force is recognized as a current liability due between one and five years. Timing for the Supreme Court decision is not predictable.

Included within Other current liabilities is the outstanding obligation of €417 million arising from the MOU signed by FCA US and the UAW. For further information on the MOU refer to the section —Acquisition of the remaining ownership interest in FCA US.

Deferred income includes the revenues not yet recognized in relation to separately-priced extended warranties and service contracts offered by FCA US. These revenues will be recognized in the Consolidated income statement over the contract period in proportion to the costs expected to be incurred based on historical information.