0001605484stellantis:RestrictedShareUnitsMemberstellantis:A20172021LTIPDomain2021-01-012021-03-31 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
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| o | REGISTRATION STATEMENT PURSUANT TO SECTIONS 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 20172020
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-36085
Fiat Chrysler AutomobilesStellantis N.V.
(Exact Name of Registrant as Specified in Its Charter)
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25 St. James's StreetSingaporestraat 92-100
London SW1A 1HALijnden P7 1175 RA
United KingdomThe Netherlands
Tel. No.: +44 (0)+31 20 7766 03113421 707
(Address Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Giorgio Fossati
25 St. James's StreetSingaporestraat 92-100
London SW1A 1HALijnden P7 1175 RA
United KingdomThe Netherlands
Tel. No.: +44 (0)+31 20 7766 03113421 707
general.counsel@stellantis.com
(Name, Address, Including Zip Code,Telephone, E-mail and/or Facsimile number and Telephone Number, Including Area Code,Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
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| Common Shares, par value €0.01 | | STLA | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 1,540,089,6901,574,714,499 common shares, par value €0.01 per share, and 408,941,767449,618,514 special voting shares, par value €0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þo No oþ
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes oþ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and large accelerated filer”emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ | | Accelerated filer o | | Non-accelerated filer o |
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other o
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow: Item 17 o or Item 18 o.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
Stellantis N.V.
(formerly Fiat Chrysler Automobiles N.V.)
Annual Report and Form 20-F
for the year ended December 31, 2020
TABLE OF CONTENTS
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| BOARD OF DIRECTORS |
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Chairman John Elkann |
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Robert Peugeot(3) |
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F - 6Chief Executive OfficerCarlos Tavares |
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Andrea Agnelli(1),(3) Henri de Castries(1),(2),(3) Fiona Clare Cicconi(1),(3) Nicolas Dufourcq(1) Ann Frances Godbehere(2) Wan Ling Martello(2),(3) Jacques de Saint-Exupéry Kevin Scott(1) |
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Ernst & Young Accountants LLP (AFM annual report filing)(4) EY S.p.A (SEC Form 20-F filing)(4) |
(1) Member of the Governance and Sustainability Committee
(2) Member of the Audit Committee
(3) Member of the Remuneration Committee
(4) Refer to “About this Report” for additional information relating to these regulatory filings.
BOARD REPORT
INTRODUCTION
About this Report
On January 16, 2021, Peugeot S.A. (“PSA”) merged with and into Fiat Chrysler Automobiles N.V., with Fiat Chrysler Automobiles N.V. as the surviving company in the merger (the “merger”). On January 17, 2021, the combined company was renamed Stellantis N.V., the current members of the board of directors were appointed and the Stellantis articles of association became effective. On this date, the Stellantis management and board of directors collectively obtained the power and ability to control the assets, liabilities and operations of both FCA and PSA. As such, under IFRS 3, Business Combinations, January 17, 2021 is the acquisition date for the business combination.
In 2021, the merger will be accounted for by Stellantis using the acquisition method of accounting in accordance with IFRS 3, which requires the identification of the acquirer and the acquiree for accounting purposes. Based on the assessment of the indicators under IFRS 3 and consideration of all pertinent facts and circumstances, FCA and PSA’s management determined that PSA is the acquirer for accounting purposes and as such, the merger will be accounted for as a reverse acquisition. As a result, the financial statements of Stellantis N.V. in subsequent filings will represent the historical financial statements of PSA.
This document, referred to hereafter as the “Annual Report and Form 20-F”, constitutes both the Statutory annual report in accordance with Dutch legal requirements and the annual report on Form 20-F (“Form 20-F”), applicable to Foreign Private Issuers, pursuant to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, for Stellantis N.V., formerly known as Fiat Chrysler Automobiles N.V., for the year ended December 31, 2020, except as noted below.
A table that cross-references the content of this report to the Form 20-F requirements is set out in the FORM 20-F CROSS REFERENCE section included elsewhere in this report.
The Annual Report and Form 20-F is filed with the Netherlands Authority for Financial Markets (Autoriteit Financiële Markten, the “AFM”) and unless otherwise stated, all references in this document to “Annual Report” refer to the AFM filing. The following sections have been removed for our Annual Report filing with the AFM:
•FORM 20-F cover page;
•REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (EY S.p.A. in respect of Internal Control over Financial Reporting for the SEC filing);
•REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (EY S.p.A. in respect of the PCAOB audit of the financial statements for the SEC filing);
•Exhibits; and
•SIGNATURES.
The Annual Report and Form 20-F and related exhibits are filed with the U.S. Securities and Exchange Commission (“SEC”) and unless otherwise stated, all references in this document to “Form 20-F” refer to the SEC filing. The following sections have been removed for our Form 20-F filing with the SEC:
•MESSAGE FROM THE CHAIRMAN AND THE CEO
•CORPORATE GOVERNANCE - Responsibilities in Respect to the Annual Report;
•NON-FINANCIAL INFORMATION;
•CONTROLS AND PROCEDURES - Statement by the Board of Directors;
•2021 STELLANTIS GUIDANCE;
•FCA N.V. COMPANY FINANCIAL STATEMENTS; and
•Independent auditor’s report (Ernst & Young Accountants LLP in respect of the AFM filing).
Where information included in this report is forward-looking in nature or stated as of or after the merger, such information reflects the facts and circumstances relating to Stellantis N.V. following the merger. Where information included in this report relates to historical operations and results for the year ended December 31, 2020, and prior years, this relates to pre-merger Fiat Chrysler Automobiles N.V. unless specified otherwise.
Additionally, the following sections include summary information in relation to the operations of PSA. This information is not intended to meet the reporting requirements of a Form 20-F or Netherlands Annual Report in respect of the standalone operations of PSA for the year ended December 31, 2020, and has been provided for context only:
•GROUP OVERVIEW
◦Overview of Our Business
▪Design and Manufacturing
▪Research and Development
▪Intellectual Property
▪Property, Plant and Equipment
▪Supply of Raw Materials, Parts and Components
▪Employees
◦Sales Overview
•FINANCIAL OVERVIEW - Liquidity and Capital Resources
•RISK MANAGEMENT - Risk Management
•NON-FINANCIAL INFORMATION
•ADDITIONAL INFORMATION FOR U.S. LISTING PURPOSES - Significant Vehicle Assembly Plants
Where information relating to PSA has been presented, this includes the operations of Faurecia S.E. (“Faurecia”), which were included within the continuing operations of PSA as of December 31, 2020. Refer to “Faurecia Distribution” included elsewhere in this report.
Documents on Display
The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC’s website is provided solely for information purposes and is not intended to be an active link. Reports and other information concerning our business may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005.
We also make our periodic reports, as well as other information filed with or furnished to the SEC, available free of charge through our website, at www.stellantis.com, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. The information on our website is not incorporated by reference in this report.
Certain Defined Terms
In this report, unless otherwise specified, the terms “we”, “our”, “us”, the “Group”, the “Company” and “FCA”“Stellantis” refer to Fiat Chrysler AutomobilesStellantis N.V., together with its consolidated subsidiaries, and its predecessor prior to the completion of the merger of Fiat S.p.A. with and into Fiat Investments N.V. on October 12, 2014 (at which time Fiat Investments N.V. was renamed Fiat Chrysler Automobiles N.V., or “FCA NV”), the “Merger” or any one or more of them, as the context may require.
References to “Fiat” refer solely to“FCA”, “FCA NV” and “FCA Group” mean Fiat S.p.A., the predecessor of FCA NV prior to the Merger. References to “FCA US” refer to FCA US LLC,Chrysler Automobiles N.V. or Fiat Chrysler Automobiles N.V. together with its directconsolidated subsidiaries, or any one or more of them, as the context may require.
References to “PSA” and indirect subsidiaries.“Groupe PSA” mean Peugeot S.A. or Peugeot S.A. together with its consolidated subsidiaries, or any one or more of them, as the context may require.
Utility vehicles (“UVs”) include sport utility vehicles (“SUVs”), which are available with four-wheel drive systems that provide true off-road capabilities,References to the “merger” refer to the merger between PSA and crossover utility vehicles, (“CUVs”), which are not designed for heavy off-road use. UVs can be divided among six main groups, ranging from “micro” or “A segment”, defined as UVs that are less than 3.9 meters length, to “large” or “F segment”, defined as UVs that are greater than 5.2 meters in length. Light trucks may be divided between vans (also known as light commercial vehicles, or “LCVs”), which typically are used for the transportation of goods or groups of people,FCA completed on January 16, 2021 and pickup trucks, which are light motor vehicles with an open-top rear cargo area.
Minivans, also known as multi-purpose vehicles (“MPVs”) typically have seating for up to eight passengers. Passenger cars include sedans, station wagons and three- and five-door hatchbacks, that may range in size from “micro” or “A segment” vehicles of less than 3.7 meters in length to “large” or “F segment” cars that are greater than 5.1 meters in length.
A vehicle is characterized as “all-new” if its vehicle platform is significantly different from the platform usedresulting in the prior model year and/or has had a full exterior renewal.creation of Stellantis.
A vehicle is characterized as “significantly refreshed” if it continues its previous vehicle platform but has extensive changes or upgrades from the prior model.
Presentation of Financial and Other Data
This report includes the consolidated financial statements of the GroupFCA as of December 31, 20172020 and 20162019 and for the years ended December 31, 2017, 20162020, 2019 and 20152018 prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), as well as IFRS as adopted by the European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the European Union. We refer to theThe consolidated financial statements and the notes to the consolidated financial statements are referred to collectively as the “Consolidated Financial Statements.”Statements”.
All references in this report to “Euro” and “€” refer to the currency issued by the European Central Bank. The FCA Group’s financial information is presented in Euro. All references to “U.S. Dollars”, “U.S. Dollar”, “U.S.$” and “$” refer to the currency of the United States of America (or “U.S.(“U.S.”).
The language of this report is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.
Certain totals in the tables included in this report may not add due to rounding.
iiExcept as otherwise disclosed within this report, no significant changes have occurred since the date of the audited Consolidated Financial Statements included elsewhere in this report.
Market and Industry Information
In this report, we include andor refer to industry and market data, including market share, ranking and other data, derived from or based upon a variety of official, non-official and internal sources, such as internal surveys and management estimates, market research, publicly available information and industry publications. Market share, ranking and other data contained in this report may also be based on our good faith estimates, our own knowledge and experience and such other sources as may be available. Market share data may change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process, different methods used by different sources to collect, assemble, analyze or compute market data, including different definitions of vehicle segments and descriptions and other limitations and uncertainties inherent in any statistical survey of market shares or size. Industry publications and surveys and forecasts generally state that the information contained thereinin such publications, surveys and forecasts has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of the included information. Although we believe that this information is reliable, we have not independently verified the data from third-party sources. In addition, we normallytypically estimate our market share for automobiles and commercial vehicles based on registration data.
In a limited number of markets where registration data are not available, we calculate our market share based on estimates relating to sales to final customers. Such data may differ from data relating to shipments to our dealers and distributors. While we believe our internal estimates with respect to our industry are reliable, our internal company surveys and management estimates have not been verified by an independent expert, and we cannot guarantee that a third party using different methods to assemble, analyze or compute market data would obtain or generate the same result. The market share data presented in this report represents the best estimates available from the sources indicated as of the date hereofof this report but, in particular as they relate to market share and our future expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed in the section —Risk Factorsof in this report.
Forward-LookingCautionary Statements Concerning Forward Looking Statements
Statements contained in this report, particularly those regarding possible or assumed future performance, competitive strengths, costs, dividends, reserves, andour growth, of FCA, industry growth and other trends and projections and estimated company earnings are “forward-looking statements” that contain risks and uncertainties. In some cases, words such as “may”, “will”, “expect”, “could”, “should”, “intend”, “estimate”, “anticipate”, “believe”, “outlook”, “continue”, “remain”, “on track”, “design”, “target”, “objective”, “goal”, “plan”, “design”, “forecast”, “projection”, “outlook”, “prospects”, “plan”, or similar terms are used to identify forward-looking statements. These forward-looking statements reflect the respectiveour current views of the Group with respect to future events and involve significant risks and uncertainties that could cause actual results to differ materially.
These factors include, without limitation:
•our ability to realize the anticipated benefits of the merger, including cost savings, synergies and growth opportunities;
•our ability to attract and retain management personnel and other key employees;
•the fact FCA’s consolidated financial statements and the selected financial information included in this annual report may not be indicative of, and may differ materially from, our future results of operations following the merger;
•business interruptions, including disruptions to the manufacturing and sale of our products and the provision of our services, resulting from the COVID-19 outbreak;
•our ability to maintain vehicle shipment volumes;volumes, expand certain of our brands globally and launch products successfully;
•changes in the global financial markets, general economic environmentconditions and changes in demand for automotive products, which is subject to cyclicality;
•changes in local economic and political conditions, including with regard toas a result of Brexit;
•changes in trade policy, the imposition of tariffs, the enactment of tax reforms orand other changes in tax laws and regulations;
our ability to expand certain of our brands globally;•disruptions arising from political, social and economic instability, or civil unrest;
•our ability to offer innovative, attractive products;products, and to develop, manufacture and sell vehicles with advanced features, including enhanced electrification, connectivity and automated-driving characteristics;
•various types of claims, lawsuits, governmental investigations and other contingent obligations against us,contingencies, including product liability and warranty claims, vehicle recalls and environmental claims, governmental investigations and lawsuits;
•material operating expenditures in relation to compliance with environmental, health and safety regulations;
•the highintense level of competition in the automotive industry, which may increase due to consolidation;
exposure•our ability to shortfalls inaccurately forecast demand for our defined benefit pension plans;vehicles;
•our ability to provide or arrange for access to adequate financing for the Group'sour dealers and retail customers,customers;
•our liquidity and associated risks related to financial services companies;
our ability to access funding to execute our business planstrategies and improve our business, financial condition and results of operations;
•a significant malfunction, disruption or security breach compromising our information technology systems or the electronic control systems contained in our vehicles.vehicles;
•our ability to realize anticipated benefits from joint venture arrangements;arrangements in certain emerging markets;
disruptions•risks arising from political, social and economic instability;disruptions to our dealers, including as a result of the COVID-19 pandemic;
risks associated with•disruptions to our relationships with employees, dealers and suppliers;
increases in costs, disruptions of supply orchain, shortages of raw materials;materials or increases in the cost of raw materials and components used by us;
•developments in labor and industrial relations, including any work stoppages, and developments in applicable labor laws;
•exchange rate fluctuations, interest rate changes, credit risk and other market risks;
political•exposure to shortfalls in the funding of our defined benefit pension plans; and civil unrest;
earthquakes or other disasters; and
•other factors discussed elsewhere in this report.
Furthermore, in light of the inherent difficulty in forecasting future results, any estimates or forecasts of particular periods that are provided in this report are uncertain. We expressly disclaim and do not assume any liability in connection with any inaccuracies in any of the forward-looking statements in this report or in connection with any use by any third party of such forward-looking statements. Actual results could differ materially from those anticipated in such forward-looking statements. We do not undertake an obligation to update or revise publicly any forward-looking statements.
Additional factors which could cause actual results and developments to differ from those expressed or implied by the forward-looking statements are included in the section —“Risk Factors” in this report.
MANAGEMENT REPORT
COVID-19 update
During the first half of 2020, the COVID-19 virus spread worldwide and was declared a pandemic by the World Health Organization on March 11, 2020. In response, many governments in affected jurisdictions imposed travel bans, quarantines and other emergency public safety measures. For example, governments imposed restrictions on travel and the movement and gathering of people, as well as restrictions on economic activity. At March 4, 2021, many of these measures are still in place as certain regions have experienced secondary waves of the pandemic, with increased cases in recent months.
As the severity of the COVID-19 pandemic became apparent, FCA leadership took actions to protect its employees and communities, as well as strengthen FCA’s financial position and limit the impact on FCA’s financial performance.
FCA implemented a temporary suspension of production across its facilities: in APAC starting with China on January 23, 2020; in EMEA, starting with Italy from March 11, 2020; in Maserati beginning March 12, 2020; in North America starting progressively from March 18, 2020; and in LATAM on March 23, 2020. The FCA Group also implemented remote working arrangements, where feasible, across all regions at various stages during the first quarter, and has restricted both domestic and international business travel since late February 2020. These arrangements were structured to ensure continuation of critical activities, including, but not limited to, appropriate functioning of FCA’s internal controls and financial reporting systems and processes.
FCA worked closely with all relevant stakeholders, including unions and dealer representatives, to develop and implement plans to restart production and vehicle sales once governments in various jurisdictions permitted, including the development of enhanced sanitizing and health and safety procedures. On February 19 and February 24, 2020, production restarted at the GAC Fiat Chrysler Automobiles Co. joint venture plants in Guangzhou and Changsha, China, respectively. Production restarted in all North American plants by June 1, 2020; in India on May 18, 2020; Latin America by May 20, 2020; on April 27, 2020 production restarted at the Sevel joint operation in Atessa, Italy, increasing progressively at other plants in the EMEA region and achieving pre-COVID shift patterns during the third quarter. Return to work procedures for offices and other facilities were also phased in with continued widespread use of remote working practices.
During 2020, FCA management took several key actions to secure its liquidity and financial position, including drawing on existing bilateral lines of credit totaling €1.5 billion and securing an additional incremental bridge credit facility of €3.5 billion, structured as a bridge to capital markets, which was available to be drawn beginning in April and then replaced as noted below. In addition, measures were taken to reduce cash outflows, including: a temporary suspension of a significant number of capital expenditure programs, with no programs cancelled; delaying non-essential spending; temporary lay-offs, salary cuts and deferrals; and significant reductions to marketing and other discretionary spend. On April 21, 2020, the FCA Group drew down its €6.25 billion syndicated revolving credit facility, which was then subsequently repaid by December 31, 2020. On June 24, 2020, the FCA Group announced that FCA Italy S.p.A., a wholly owned subsidiary of Fiat Chrysler Automobiles N.V., and other Italian companies in the FCA Group had signed a 3-year, €6.3 billion credit facility with Intesa Sanpaolo, Italy’s largest banking group. On July 1, 2020, the FCA Group confirmed pricing of an offering of €3.5 billion of notes under the Medium Term Note Programme, with settlement on July 7, 2020. The offering comprised (i) €1.25 billion in principal amount of 3.375% notes due July 2023, (ii) € 1.25 billion in principal amount of 3.875% notes due January 2026, and (iii) €1.0 billion in principal amount of 4.500% notes due July 2028, each at an issue price of 100% of the applicable principal amount. The issuance replaced in full the €3.5 billion bridge credit facility above, which was fully cancelled on July 7, 2020, in connection with the settlement of the notes offering. Additionally, on September 18, 2020, FCA announced that it entered into an agreement for a €485 million five-year loan with the European Investment Bank (“EIB”) to support production of plug-in hybrid electric (“PHEV”) vehicles, which is in addition to the €300 million facility entered into in March 2020 before the COVID-19 pandemic.
The FCA Group also took actions to support the wider community in the countries in which it operates, including: producing protective masks for healthcare workers and first responders, with over one million shipped worldwide during the first quarter and one hundred million produced in Italy by September; in North America and EMEA working with medical equipment manufacturers to support production of ventilators, other medical equipment and personal protective equipment, such as Siare Engineering International Group (Bologna, Italy); in APAC the FCA Group donated personal protective equipment and vehicles; Maserati provided funding scholarships at medical schools; in LATAM, FCA worked on the creation of two makeshift field hospitals close to our plants in Brazil, with a further 100-bed facility constructed in Argentina, as well as the production of face shields, vehicle fleet support and engineering, and production assistance for the manufacturing and servicing of ventilators.
On March 18, 2020, due to the continued uncertainty of market conditions and regional operating restrictions related to the evolving COVID-19 pandemic, FCA withdrew its FY 2020 Guidance. On April 3, 2020, FCA announced that the Annual General Meeting of the Company’s shareholders (“AGM”) scheduled for April 16, 2020 would be postponed to late June 2020, including the postponement of the resolution on the proposed 2019 €1.1 billion ordinary dividend. Further to the planned 50/50 merger of their businesses announced in December 2019, on May 13, 2020, the board of directors of Fiat Chrysler Automobiles N.V. and the managing board of Peugeot S.A. announced the decision by each company to not distribute an ordinary dividend in 2020 related to financial year 2019, in light of the impact from the COVID-19 crisis. The postponed AGM was held on June 26, 2020.
Amendment to the FCA PSA combination agreement
On September 14, 2020, FCA and PSA announced an amendment to the combination agreement entered into in December 2019 in order to address the liquidity impact on the automotive industry of the COVID-19 pandemic while preserving the economic value and fundamental balance of the original agreement. Specifically, the special dividend to be paid to FCA’s shareholders was set at €2.9 billion (previously €5.5 billion) with PSA's 46% stake in Faurecia to be distributed to all Stellantis shareholders promptly after closing following approval by the Stellantis Board and shareholders. As announced on October 28, 2020, FCA and PSA agreed to permit PSA to dispose of, prior to closing, a portion of its interest in Faurecia not to exceed 7 percent of Faurecia's outstanding share capital with the proceeds of this report.disposal, along with the remainder of PSA’s current 46% stake in Faurecia, to be distributed to all Stellantis shareholders. The amendment was unanimously approved by the Boards of both companies with the strong support of their reference shareholders.
Additionally, it was also agreed that the Boards of both PSA and FCA would consider a potential distribution of €500 million to the shareholders of each company before closing or, alternatively, a distribution of €1 billion to be paid following the closing to all Stellantis shareholders. Refer to Note 26, Equity within the Consolidated Financial Statements included elsewhere in this report for additional detail on the proposed special cash distribution to holders of Stellantis common shares.
Refer to the following sections for discussion of the related impacts on the results of FCA and mitigating actions taken to protect its workforce, support FCA’s communities and manage liquidity:
•MANAGEMENT DISCUSSION AND ANALYSIS - FCA Group Results
•MANAGEMENT DISCUSSION AND ANALYSIS - Results by Segment
•MANAGEMENT DISCUSSION AND ANALYSIS - Liquidity and Capital Resources
•Risk Factors
•Consolidated Financial Statements
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. Selected Financial DataFCA SELECTED FINANCIAL DATA
The following tables set forth selected historical consolidated financial and other data of FCA and have been derived, in part, from:
•the Consolidated Financial Statements of FCA as of December 31, 20172020 and 20162019 and for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, included elsewhere in this report; and
•the Consolidated Financial Statements of FCA as of December 31, 2018, 2017 and 2016, for the years ended December 31, 20142017 and 2013,2016, except for the classification of Magneti Marelli as a discontinued operation as noted below, which are not included in this report.
This data should be read in conjunction with “Presentation of Financial and Other Data” (above), Item 3D. Risk Factors, Item 5. Operating and Financial Review the FINANCIAL OVERVIEW section and the Consolidated Financial Statements and related notes included elsewhere in this report.
Consolidated Income Statement Data | | | | Years ended December 31 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 (1) | | 2014 (1) | | 2013 (1) | | 2020 | | 2019(1) | | 2018(1) | | 2017(1) | | 2016(1) |
| | (€ million, except per share amounts) | | (€ million, except per share amounts) |
| Net revenues | € | 110,934 |
| | € | 111,018 |
| | € | 110,595 |
| | € | 93,640 |
| | € | 84,530 |
| Net revenues | € | 86,676 | | | € | 108,187 | | | € | 110,412 | | | € | 105,730 | | | € | 105,798 | |
| Profit before taxes | € | 6,161 |
| | € | 3,106 |
| | € | 259 |
| | € | 783 |
| | € | 649 |
| Profit before taxes | € | 1,356 | | | € | 4,021 | | | € | 4,108 | | | € | 5,879 | | | € | 2,950 | |
| Net profit from continuing operations | € | 3,510 |
| | € | 1,814 |
| | € | 93 |
| | € | 359 |
| | € | 2,050 |
| Net profit from continuing operations | € | 24 | | | € | 2,700 | | | € | 3,330 | | | € | 3,291 | | | € | 1,713 | |
| Profit from discontinued operations, net of tax | € |
|
| | € | — |
| | € | 284 |
| | € | 273 |
| | € | 243 |
| Profit from discontinued operations, net of tax | € | — | | | € | 3,930 | | | € | 302 | | | € | 219 | | | € | 101 | |
| Net profit | € | 3,510 |
| | € | 1,814 |
| | € | 377 |
| | € | 632 |
| | € | 2,293 |
| Net profit | € | 24 | | | € | 6,630 | | | € | 3,632 | | | € | 3,510 | | | € | 1,814 | |
| Net profit attributable to: | | | | | | | | | | |
| | Net profit/(loss) attributable to: | | Net profit/(loss) attributable to: | |
| Owners of the parent | € | 3,491 |
| | € | 1,803 |
| | € | 334 |
| | € | 568 |
| | € | 1,246 |
| Owners of the parent | € | 29 | | | € | 6,622 | | | € | 3,608 | | | € | 3,491 | | | € | 1,803 | |
Non-controlling interests | € | 19 |
| | € | 11 |
| | € | 43 |
| | € | 64 |
| | € | 1,047 |
| Non-controlling interests | € | (5) | | | € | 8 | | | € | 24 | | | € | 19 | | | € | 11 | |
| | Earnings per share from continuing operations | | | | | | | | | | Earnings per share from continuing operations | |
| Basic earnings per share | € | 2.27 |
| | € | 1.19 |
| | € | 0.05 |
| | € | 0.27 |
| | € | 0.85 |
| Basic earnings per share | € | 0.02 | | | € | 1.72 | | | € | 2.15 | | | € | 2.14 | | | € | 1.13 | |
| Diluted earnings per share | € | 2.24 |
| | € | 1.18 |
| | € | 0.05 |
| | € | 0.27 |
| | € | 0.84 |
| Diluted earnings per share | € | 0.02 | | | € | 1.71 | | | € | 2.12 | | | € | 2.11 | | | € | 1.12 | |
| | Earnings per share from discontinued operations | | | | | | | | | | Earnings per share from discontinued operations | |
| Basic earnings per share | € | — |
| | € | — |
| | € | 0.17 |
| | € | 0.20 |
| | € | 0.18 |
| Basic earnings per share | € | — | | | € | 2.51 | | | € | 0.18 | | | € | 0.14 | | | € | 0.06 | |
| Diluted earnings per share | € | — |
| | € | — |
| | € | 0.17 |
| | € | 0.20 |
| | € | 0.17 |
| Diluted earnings per share | € | — | | | € | 2.50 | | | € | 0.18 | | | € | 0.13 | | | € | 0.06 | |
| | Earnings per share from continuing and discontinued operations | | | | | | | | | | Earnings per share from continuing and discontinued operations | |
| Basic earnings per share | € | 2.27 |
| | € | 1.19 |
| | € | 0.22 |
| | € | 0.47 |
| | € | 1.03 |
| Basic earnings per share | € | 0.02 | | | € | 4.23 | | | € | 2.33 | | | € | 2.27 | | | € | 1.19 | |
| Diluted earnings per share | € | 2.24 |
| | € | 1.18 |
| | € | 0.22 |
| | € | 0.46 |
| | € | 1.01 |
| Diluted earnings per share | € | 0.02 | | | € | 4.22 | | | € | 2.30 | | | € | 2.24 | | | € | 1.18 | |
| | Other Statistical Information (unaudited): | | | | | | | | | | Other Statistical Information (unaudited): | |
| | | | | | | | | | | |
| Shipments (in thousands of units) | 4,423 |
| | 4,482 |
| | 4,602 |
| | 4,601 |
| | 4,345 |
| |
Combined shipments (in thousands of units)(2) | | Combined shipments (in thousands of units)(2) | 3,435 | | 4,418 | | 4,842 | | 4,740 | | 4,720 |
Consolidated shipments (in thousands of units)(3) | | Consolidated shipments (in thousands of units)(3) | 3,254 | | 4,272 | | 4,655 | | 4,423 | | 4,482 |
_________________________
(1) The operating results of FCA for the years ended December 31, 2015, 20142019, 2018, 2017 and 20132016 exclude FerrariMagneti Marelli following the classification of FerrariMagneti Marelli as a discontinued operation for the year ended December 31, 2015; Ferrari2018, and until its deconsolidation on completion of the sale transaction on May 2, 2019; Magneti Marelli operating results were excluded from the FCA Group's continuing operations and are presented as a single line item within the Consolidated Income StatementsStatement data for each of the years ended December 31, 2015, 20142019, 2018, 2017 and 2013.2016 presented above, and until its deconsolidation on completion of the sale transaction on May 2, 2019.
(2) Combined shipments include shipments by the FCA Group's consolidated subsidiaries and unconsolidated joint ventures.
(3) Consolidated shipments only include shipments by the FCA Group's consolidated subsidiaries.
Consolidated Statement of Financial Position Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, | |
| 2020(1) | | 2019(1,2) | | 2018(1,2) | | 2017(1,2) | | 2016(1,2) | |
| (€ million, except shares issued data) | |
| Cash and cash equivalents | € | 23,846 | | | € | 15,014 | | | € | 12,450 | | | € | 12,638 | | | € | 17,318 | | |
| Total assets | € | 99,730 | | | € | 98,044 | | | € | 96,873 | | | € | 96,299 | | | € | 104,343 | | |
| Debt | € | 21,117 | | | € | 12,901 | | | € | 14,528 | | | € | 17,971 | | | € | 24,048 | | |
| Total equity | € | 25,861 | | | € | 28,675 | | | € | 24,903 | | | € | 20,987 | | | € | 19,353 | | |
| Equity attributable to owners of the parent | € | 25,737 | | | € | 28,537 | | | € | 24,702 | | | € | 20,819 | | | € | 19,168 | | |
| Non-controlling interests | € | 124 | | | € | 138 | | | € | 201 | | | € | 168 | | | € | 185 | | |
| | | | | | | | | | |
| Share capital | € | 20 | | | € | 20 | | | € | 19 | | | € | 19 | | | € | 19 | | |
| | | | | | | | | | |
| Shares issued (in thousands) | | | | | | | | | | |
Common(3) | 1,574,714 | | 1,567,519 | | 1,550,618 | | 1,540,090 | | 1,527,966 | |
Special Voting(3) | 449,619 | | 408,942 | | 408,942 | | 408,942 | | 408,942 | |
| | | | | | | | | | |
Dividends paid, per share(4) | | | | | | | | | | |
| Ordinary dividends paid, per share | € | — | | | € | 0.65 | | | € | — | | | € | — | | | € | — | | |
| Extraordinary dividends paid, per share | € | — | | | € | 1.30 | | | € | — | | | € | — | | | € | — | | |
|
| | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2017 | | 2016 | | 2015 (1) | | 2014 | | 2013 |
| | (€ million, except shares issued data) |
| Cash and cash equivalents | € | 12,638 |
| | € | 17,318 |
| | € | 20,662 |
| | € | 22,840 |
| | € | 19,455 |
|
| Total assets | € | 96,299 |
| | € | 104,343 |
| | € | 105,753 |
| | € | 101,149 |
| | € | 87,543 |
|
| Debt | € | 17,971 |
| | € | 24,048 |
| | € | 27,786 |
| | € | 33,724 |
| | € | 30,283 |
|
| Total equity | € | 20,987 |
| | € | 19,353 |
| | € | 16,968 |
| | € | 14,377 |
| | € | 12,913 |
|
| Equity attributable to owners of the parent | € | 20,819 |
| | € | 19,168 |
| | € | 16,805 |
| | € | 14,064 |
| | € | 8,655 |
|
| Non-controlling interests | € | 168 |
| | € | 185 |
| | € | 163 |
| | € | 313 |
| | € | 4,258 |
|
| Share capital | € | 19 |
| | € | 19 |
| | € | 17 |
| | € | 17 |
| | € | 4,477 |
|
| Shares issued (in thousands): | | | | | | | | | |
| Fiat S.p.A | | | | | | | | | |
| Ordinary | — |
| | — |
| | — |
| | — |
| | 1,250,688 |
|
| FCA | | | | | | | | | |
Common(2) | 1,540,090 |
| | 1,527,966 |
| | 1,288,956 |
| | 1,284,919 |
| | — |
|
Special Voting (3) | 408,942 |
| | 408,942 |
| | 408,942 |
| | 408,942 |
| | — |
|
_________________________
(1) The assets and liabilities of Ferrarithe cast iron automotive components business of Teksid were classified as Assets held for distributionsale and Liabilities held for distributionsale within the Consolidated Statement of Financial Position at December 31, 2015,2020 and at December 31, 2019, while the assets and liabilities of Ferrarithe cast iron automotive components business of Teksid have not been classified as such within the comparative Consolidated Statements of Financial Position at December 31, 20142018, 2017 and 2013.
(2) Book value per common share at December 31, 2017 was €13.52.
(3)2016. Refer to Note 26, Equity,3, Scope of consolidation within ourthe Consolidated Financial Statements included elsewhere in this report.
Exchange rates
These exchange rates are included(2) The assets and liabilities of Magneti Marelli were classified as Assets held for informational purposes onlysale and may differ from the exchange rates used in preparation ofLiabilities held for sale within the Consolidated Statement of Financial Position at December 31, 2018, while the assets and liabilities of Magneti Marelli have not been classified as such within the comparative Consolidated Statements prepared in accordance with IFRS. For a description of the exchange rates used in the preparation of our Consolidated Financial Statements, referPosition at December 31, 2017 and 2016.
(3) Refer to Note 2, Basis of Preparation,26, Equity, within ourthe Consolidated Financial Statements included elsewhere in this report.
The table below shows(4) On March 2, 2021, the high, low, average and period end noon buying rates inBoard of Directors resolved to propose to the cityAnnual General Meeting the approval of New York for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Banka special cash distribution of New York for U.S.$€0.32 per €1.00. The average is computed using the noon buying ratecommon share (approximately US$0.39, based on the last business day of each month during the period indicated.
|
| | | | | | | | | | | | |
Period | | Low | | High | | Average | | Period End |
| Year Ended December 31, 2013 | | 1.2774 |
| | 1.3816 |
| | 1.3281 |
| | 1.3779 |
|
| Year Ended December 31, 2014 | | 1.2101 |
| | 1.3927 |
| | 1.3210 |
| | 1.2101 |
|
| Year Ended December 31, 2015 | | 1.0524 |
| | 1.2015 |
| | 1.1032 |
| | 1.0859 |
|
| Year Ended December 31, 2016 | | 1.0375 |
| | 1.1516 |
| | 1.1029 |
| | 1.0552 |
|
| Year Ended December 31, 2017 | | 1.0416 |
| | 1.2041 |
| | 1.1396 |
| | 1.2022 |
|
The table below shows the high and low noon buying rates for Euro for each month during the six months prior to the date of this report.
|
| | | | | | |
Period | | Low | | High |
| August 2017 | | 1.1703 |
| | 1.2025 |
|
| September 2017 | | 1.1747 |
| | 1.2041 |
|
| October 2017 | | 1.1580 |
| | 1.1847 |
|
| November 2017 | | 1.1577 |
| | 1.1936 |
|
| December 2017 | | 1.1725 |
| | 1.2022 |
|
| January 2018 | | 1.1922 |
| | 1.2488 |
|
On February 9, 2018, the noon buyingclosing spot rate for U.S.$ was €1.00 = U.S.$1.2226.
B. Capitalization and Indebtedness
Not applicable.
C. Reason for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
We face a variety of risks in our business. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of or that we currently believe to be immaterial, may also become important factors that affect us.
Risks Related to Our Business, Strategy and Operations
If our vehicle shipment volumes deteriorate, particularly shipments of our pickup trucks and larger sport utility vehicles in the U.S. retail market, our results of operations and financial condition will suffer.
As is typical for an automotive manufacturer, we have significant fixed costs and, therefore, changes in vehicle shipment volumes can have a disproportionately large effect on our profitability.
Further, our profitability in the U.S., Canada, Mexico and Caribbean islands (“NAFTA”), a region which contributed a majority of our profit in each of the last three years, is particularly dependent on demand for our pickup trucks and larger SUVs. For example, our pickup trucks and larger SUVs have historically been more profitable than other vehicles and accounted for approximately 62 percent of our total U.S. retail vehicle shipments in 2017. A shift in consumer demand away from these vehicles within the NAFTA region, and towards compact and mid-size passenger cars, whether in response to higher fuel prices or other factors, could adversely affect our profitability.
Our dependence within the NAFTA region on pickup trucks and larger SUVs remained high in 2017 as we continued implementation of our plan to reallocate more production capacity to these vehicle types after we ceased production in the region of compact and mid-size passenger cars in 2016. For additional information on factors affecting vehicle profitability, see Item 5. Operating and Financial Review and Trends, Uncertainties and Opportunities.
Moreover, we tend to operate with negative working capital as we generally receive payment for vehicles within a few days of shipment, whereas there is a lag between the time when parts and materials are received from suppliers and when we pay for such parts and materials; therefore, if our vehicle shipments decline materially we may suffer a significant negative impact on cash flow and liquidity as we continue to pay suppliers during a period in which we receive reduced proceeds from vehicle shipments. If vehicle shipments decline, or if they were to fall short of our assumptions, due to recessionary conditions, changes in consumer confidence, geopolitical events, inability to produce sufficient quantities of certain vehicles, limited access to financing or other factors, such decline or shortfall could have a material adverse effect on our business, financial condition and results of operations.
Our businesses are affected by global financial markets and general economic and other conditions over which we have little or no control.
Our results of operations and financial position may be influenced by various macroeconomic factors within the various countries in which we operate including changes in gross domestic product, the level of consumer and business confidence, changes in interest rates for or availability of consumer and business credit, the rate of unemployment and foreign currency exchange rates.
In general, the automotive sector has historically been subject to highly cyclical demand and tends to reflect the overall performance of the economy, often amplifying the effects of economic trends. Given the difficulty in predicting the magnitude and duration of economic cycles, there can be no assurances as to future trends in the demand for our products in any of the markets in which we operate.
In addition to slow economic growth or recession, other economic circumstances, such as increases in energy prices, fuel prices and fluctuations in prices of raw materials or contractions in infrastructure spending, could have negative consequences for the industry in which we operate and, together with the other factors referred to previously, could have a material adverse effect on our business, financial condition and results of operations.
We are also subject to risks inherent to operating globally, including those related to:
exposure to local political conditions;
import and/or export restrictions;
multiple tax regimes, including regulations relating to transfer pricing and withholding and other taxes on remittances and other payments to or from subsidiaries;
compliance with applicable anti-corruption laws;
foreign investment and/or trade restrictions or requirements, foreign exchange controls and restrictions on the repatriation of funds; and
the introduction of more stringent laws and regulations.
We are particularly susceptible to these risks in the emerging markets where we operate, including Turkey, China, Brazil, India and Russia. Unfavorable developments in any one or a combination of these risk areas (which may vary from country to country) could have a material adverse effect on our business, financial condition and results of operations.
For instance, in June 2016, a majority of voters in the United Kingdom voted in favor of withdrawing from the European Union in a national referendum. The terms of a UK withdrawal, commonly referred to as “Brexit”, are subjectat December 31, 2020) corresponding to a negotiation period that could last up to two years from March 2017 when the government of the United Kingdom formally initiated the withdrawal process, or longer if extended by mutual agreement. During this time, the government of the United Kingdom may also revoke its notification to leave the European Union. The referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, which is also subject to negotiation, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union-derived laws to replace or replicate. The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. Additionally, in recent years, certain member countries of the European Union have implemented austerity measures to avoid defaulting on debt repayments. If a country within the euro area were to default on its debt or withdraw from the euro currency, or, in a more extreme circumstance, the euro currency were to be dissolved entirely, the impact on markets around the world, and on the Company’s global business, could be immediate and significant.
In the United States, changes in policy positions by the current presidential administration may impact our business, in particular with respect to our production of vehicles outside the U.S. for import into the U.S., particularly from Canada, Mexico and Italy. For example, although we recently announced our intent to move production to the U.S. in 2020, our heavy-duty pickup trucks are currently assembled in Mexico and imported into the U.S. Any new policies and any steps we may take to address such new policies could have a material adverse effect on our business, financial condition and results of operations.
These developments have also introduced an elevated level of economic and policy uncertainty, which could cause financial and capital markets within and outside the U.S. and Europe to constrict, thereby negatively impacting our ability to finance our business. It also could cause a substantial dip in consumer and business confidence and spending that could negatively impact sales of vehicles. Any one of these impacts could have a material adverse effect on our business, financial condition and results of operations.
In addition, in July 2017 the Brazilian tax authorities issued an instruction that could affect our ability to apply federal tax credits generated in certain operations to offset federal taxes arising from other operations. In December 2017, we obtained a preliminary court ruling allowing us to immediately resume application of the impacted federal tax credits. While we believe that it is more likely than not that there will be no significant impact from the Brazilian tax authorities' instruction, given the current economic conditions in Brazil, new tax laws may be introduced or changes to the application of existing tax laws may occur that could have a material adverse effect on our business, financial condition and results of operations.
We may be unsuccessful in efforts to increase the growth of some of our brands that we believe have global appeal and reach.
The growth strategies reflected in our 2014-2018 Business Plan announced in May 2014 and updated in January 2016 (our “Business Plan”) include expanding global sales of the Jeep brand through localized production in Asia, Europe and Latin America, the launch of new large utility vehicle models in North America, the reintroduction in North America and expansion in Europe and Asia of our Alfa Romeo brand including the development of an all-new platform and new powertrains, as well as the further expansion of our Maserati brand portfolio.
These strategies, particularly with respect to the Alfa Romeo brand, have required and will continue to require significant investments in products, powertrains, production facilities and distribution networks. If we are unable to introduce vehicles that appeal to consumers in these markets and achieve our brand expansion strategies, we may be unable to earn a sufficient return on these investments which could have a material adverse effect on our business, financial condition and results of operations.
Our future performance depends on our ability to offer innovative, attractive products.
Our success depends on, among other things, our ability to develop innovative, high-quality products that are attractive to consumers and provide adequate profitability.
We may not be able to effectively compete with other automakers with regard to electrification, autonomous driving, mobility and other emerging trends in the industry. In certain cases, the technologies that we plan to employ are not yet commercially practical and depend on significant future technological advances by us, our partners and by suppliers. There can be no assurance that these advances will occur in a timely or feasible manner, that the funds we have budgeted or expended for these purposes will be adequate, or that we will be able to obtain rights to use these technologies. Further, our competitors and others are pursuing similar technologies and other competing technologies, and there can be no assurance that they will not acquire and implement similar or superior technologies sooner than we will or on an exclusive basis or at a significant cost advantage.
In addition, as a result of the extended product development cycle and inherent difficulty in predicting consumer acceptance, a vehicle that we believe will be attractive may not generate sales in sufficient quantities and at high enough prices to be profitable. It generally takes two years or more to design and develop a new vehicle, and a number of factors may lengthen that schedule. For example, if we determine that a safety or emissions defect, a mechanical defect or a non-compliance with regulation exists with respect to a vehicle model prior to retail launch, the launch of such vehicle could be delayed until we remedy the defect or non-compliance. Various elements may also contribute to consumers’ acceptance of new vehicle designs, including competitors’ product introductions, fuel prices, general economic conditions and changes in styling preferences.
If we fail to develop products that contain desirable technologies and are attractive to and accepted by consumers, the residual value of our vehicles could be negatively impacted. In addition, the increasing pace of inclusion of new innovations and technologies in our and our competitors' vehicles could also negatively impact the residual value of our vehicles. While we may not be impacted as significantly by declines in the residual value of our vehicles as compared to our competitors that own and operate controlled finance companies, a deterioration in residual value could increase the cost that consumers pay to lease our vehicles or increase the amount of subvention payments that we make to support our leasing programs.
The failure to develop and offer innovative, attractive and relevant products on a timely basis that compare favorably to those of our principal competitors could have a material adverse effect on our business, financial condition and results of operations. Our high proportion of fixed costs, both due to our significant investment in property, plant and equipment as well as the requirements of our collective bargaining agreements and other applicable labor relations regulations, which limit our flexibility to adjust personnel costs to changes in demand for our products, may further exacerbate this risk.
Laws, regulations and governmental policies, including those regarding increased fuel efficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business.
As we seek to comply with government regulations, particularly those related to fuel efficiency, vehicle safety and greenhouse gas and tailpipe emissions standards, we must devote significant financial and management resources, as well as vehicle engineering and design attention, to these legal requirements. We expect the number and scope of these regulatory requirements, along with the costs associated with compliance, to increase significantly in the future, and these costs could be difficult to pass through to consumers. For a further discussion of the regulations we are subject to, see Item 4B. Business Overview-Environmental and Other Regulatory Matters.
In addition, fuel efficiency regulations have increased in several markets. For example, in September 2017, China’s Ministry of Industry and Information Technology released administrative rules regarding corporate average fuel consumption (“CAFC”) and new energy vehicle (“NEV”) credits that will become effective on April 1, 2018. Non-compliance with the CAFC target in these administrative rules can be offset through carry-forward CAFC credits, transfer of CAFC credits within affiliates, the OEMs use of its own NEV credits, or the purchase of NEV credits. Non-compliance with the NEV target can only be offset by the purchase of NEV credits. However, the market availability and pricing of CAFC and NEV credits is unclear at this time. If we are unable to comply with the applicable targets and fail to offset a negative balance of credits, our sales or production of new passenger vehicles that fail to meet CAFC targets could be suspended. Although we continue to evaluate their specific impact, these regulations could materially adversely affect our business, financial condition and results of operations.
We are currently cooperating with diesel emissions investigations by several governmental agencies and are subject to a number of related private lawsuits.
We have received inquiries from several regulatory authorities as they examine the on-road tailpipe emissions of several automakers’ vehicles. We are, when jurisdictionally appropriate, cooperating with a number of governmental agencies and authorities.
In particular, in Europe, we have been working with the Italian Ministry of Transport (“MIT”) and the Dutch Vehicle Regulator (“RDW”), the authorities that certified FCA diesel vehicles for sale in the European Union, and the UK Driver and Vehicle Standards Agency (“DVSA”). We also initially responded to inquiries from the German authority, the Kraftfahrt-Bundesamt (“KBA”), regarding emissions test results for our vehicles reported by KBA, and we discussed the KBA reported test results, our emission control calibrations and the features of the vehicles in question. After these initial discussions, the MIT, which has sole authority for regulatory compliance of the vehicles it has certified, asserted its exclusive jurisdiction over the matters raised by the KBA, tested the vehicles, determined that the vehicles complied with applicable European regulations and informed the KBA of its determination. Thereafter, mediations have been held under European Commission (“EC”) rules, between the MIT and the German Ministry of Transport and Digital Infrastructure (“BMVI”), which oversees the KBA, in an effort to resolve their differences. The mediation was concluded with no action being taken with respect to FCA. In May 2017, the EC announced its intention to open an infringement procedure against Italy regarding Italy's alleged failure to respond to EC's concerns regarding certain FCA emission control calibrations. The MIT has responded to the EC's allegations by confirming that the vehicles' approval process was correctly performed, which was borne out in material Italy provided during the mediation process.
In addition, at the request of the French Consumer Protection Agency, the French public prosecutor has been investigating diesel vehicles of a number of automakers including FCA, regarding whether the sale of those vehicles violated French consumer protection laws.
The results of these inquiries cannot be predicted at this time; however, the intervention by a number of governmental agencies and authorities has required significant management time, which may divert attention from other key aspects of our business plan, or may lead to further enforcement actions as well as penalties or obligations to modify or recall vehicles, any of which may have a material adverse effect on our business, results of operations and reputation.
On January 12, 2017, the U.S. Environmental Protection Agency (“EPA”) and the California Air Resource Board issued Notices of Violation related to certain software-based features in the emissions control systems in approximately 100,000 2014-2016 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles. On May 23, 2017, the Environmental and Natural Resources Division of the U.S. Department of Justice (“DOJ-ENRD”) filed a civil lawsuit against us in connection with the concerns raised by the EPA. The complaint alleges that software-based features were not disclosed to the EPA as required during the vehicle emissions certification process, resulting in violations of the Clean Air Act. The complaint also alleges that certain of the software features bypass, defeat or render inoperative the vehicles’ emission control systems, causing the vehicles to emit higher levels of oxides of nitrogen (NOx) during certain normal real world driving conditions than during federal emissions tests. A number of private lawsuits relating to the vehicles have been filed in U.S. state and federal courts principally on behalf of consumers asserting fraud, violation of consumer protection laws, and other civil claims, including a putative class action that is proceeding in U.S. federal court in the Northern District of California, and a number of other governmental agencies and authorities including the U.S. Department of Justice, the U.S. Securities and Exchange Commission and various states Attorneys General have commenced related investigations.
We are unable to predict the outcome of these investigations and litigation at this stage and due to the range of possible outcomes, we are unable to reliably estimate a range of probable losses. It is possible that the resolution of these matters may adversely affect our reputation with consumers, which may negatively impact demand for our vehicles and could have a material adverse effect on our business, financial condition and results of operations.
Our success largely depends on the ability of our management team to operate and manage effectively.
Our success largely depends on the ability of our senior executives and other members of management to effectively manage the Group and individual areas of the business. In particular, our Chief Executive Officer, Sergio Marchionne, is critical to the execution of our strategic direction and implementation of our Business Plan. Although Mr. Marchionne has indicated his intention to remain as our Chief Executive Officer through the period of our Business Plan, he has communicated that he plans to retire in the first half of 2019.
We have developed succession plans that we believe are appropriate, although it is difficult to predict with any certainty that we will be able to replace these individuals with persons of equivalent experience and capabilities. If we are unable to find adequate replacements or to attract, retain and incentivize senior executives, other key employees or new qualified personnel, such inability could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to more intensive competition if other manufacturers pursue consolidations.
We have for some time advocatedfor consolidation in the automotive industry due to our view that our industry is characterized by significant duplication in product development costs, much of which does not drive consumer-perceived value. We believe that sharing product development costs among manufacturers, preferably through consolidation, would enable automakers to improve their return on capital employed for product development and manufacturing and enhance utilization of tooling, machinery and equipment. While we continue to implement our Business Plan, and we believe that our business will continue to grow and our operating margins will continue to improve, if our competitors are able to successfully integrate with one another and we were not to enhance our own collaborations or adapt effectively to increased competition, our competitors’ integration could have a material adverse effect on our business, financial condition and results of operations.
Product recalls and warranty obligations may result in direct costs, and any resulting loss of vehicle sales could have material adverse effects on our business.
We, and the U.S. automotive industry in general, have experienced a sustained increase in recall activity to address performance, compliance or safety-related issues. Our costs to recall vehicles have been significant and typically include the cost of replacement parts and labor to remove and replace parts. These costs substantially depend on the nature of the remedy and the number of vehicles affected, and may arise many years after a vehicle's sale. Product recalls may also harm our reputation, force us to halt the sale of certain vehicles and cause consumers to question the safety or reliability of our products. Given the intense regulatory activity across the automotive industry, ongoing compliance costs are expected to remain high.
Any costs incurred, or lost vehicle sales, resulting from product recalls could materially adversely affect our financial condition and results of operations. Moreover, if we face consumer complaints, or we receive information from vehicle rating services that calls into question the safety or reliability of one of our vehicles and we do not issue a recall, or if we do not do so on a timely basis, our reputation may also be harmed and we may lose future vehicle sales. We are also obligated under the terms of our warranty agreements to make repairs or replace parts in our vehicles at our expense for a specified period of time. Therefore, any failure rate that exceeds our assumptions could have a material adverse effect on our business, financial condition and results of operations.
Compliance with U.S. regulatory requirements for product recalls has also received heightened scrutiny. In connection with the failure in three specified campaigns to provide an adequate remedy, and noncompliance with various reporting requirements under the National Traffic and Motor Vehicle Safety Act of 1966 and the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act, FCA US entered into a consent order with NHTSA in 2015 (the “Consent Order”) to pay substantial civil penalties and to engage an independent monitor to review and assess FCA US's compliance with its obligations under the Consent Order. FCA US is obligated to remedy the defects in the vehicles subject to the recalls cited in the Consent Order, and in certain instances, FCA US has been required to buy back vehicles as an additional alternative to a repair remedy. Failure to comply with the terms of the Consent Order may result in additional fines and penalties much of which have been deferred pending the independent monitor's and NHTSA's ongoing assessment of FCA US's compliance with terms of the Consent Order. Further, the monitor's term will continue for the duration of the Consent Order. There can be no assurance that we will not be subject to additional regulatory inquiries and consequences in the future.
The automotive industry is highly competitive and cyclical and we may suffer from those factors more than some of our competitors.
Substantially all of our revenues are generated in the automotive industry, which is highly competitive, encompassing the production andtotal distribution of passenger cars, light commercial vehicles and components and production systems. We face competition from other international passenger car and light commercial vehicle manufacturers and distributors and components suppliers in Europe, North America, Latin America and the Asia Pacific region. These markets are all highly competitive in terms of product quality, innovation, pricing, fuel economy, reliability, safety, consumer service and financial services offered, and many of our competitors are better capitalized with larger market shares.
In the automotive business, salesapproximately €1 billion. Refer to consumers are cyclical and subject to changes in the general condition of the economy, the readiness of consumers to buy and their ability to obtain financing, as well as the possible introduction of measures by governments to stimulate demand. The automotive industry is also subject to the constant renewal of product offerings through frequent launches of new models. A negative trend in the automotive industry or our inability to adapt effectively to external market conditions coupled with more limited capital than many of our principal competitors could have a material adverse effect on our business, financial condition and results of operations.
Additionally, global vehicle production capacity exceeds current demand. In the event that industry shipments decrease and overcapacity intensifies, our competitors may attempt to make their vehicles more attractive or less expensive to consumers by adding vehicle enhancements, providing subsidized financing or leasing programs, or by reducing vehicle prices whether directly or by offering option package discounts, price rebates or other sales incentives in certain markets. Manufacturers in countries that have lower production costs may also choose to export lower-cost automobiles to more established markets. An increase in these actions could have a material adverse effect on our business, financial condition and results of operations.
Our lack of a captive finance company in certain key markets could place us at a competitive disadvantage to other automakers that may be able to offer consumers and dealers financing and leasing on better terms than our consumers and dealers are able to obtain.
Our dealers enter into wholesale financing arrangements to purchase vehicles from us to hold in inventory and facilitate retail sales, and retail consumers use a variety of finance and lease programs to acquire vehicles.
Unlike many of our competitors, we do not own and operate a controlled finance company dedicated solely to our mass-market vehicle operations in the U.S. and certain key markets in Europe, Asia and South America. Instead we have elected to partner with specialized financial services providers through joint ventures and commercial agreements. Our lack of a controlled finance company in these key markets may increase the risk that our dealers and retail consumers will not have access to sufficient financing on acceptable terms which may adversely affect our vehicle sales in the future. Furthermore, many of our competitors are better able to implement financing programs designed to maximize vehicle sales in a manner that optimizes profitability for them and their finance companies on an aggregate basis. Since our ability to compete depends on access to appropriate sources of financing for dealers and retail consumers, our lack of a controlled finance company in those markets could have a material adverse effect on our business, financial condition and results of operations.
In other markets, we rely on controlled finance companies, joint ventures and commercial relationships with third parties, including third party financial institutions, to provide financing to our dealers and retail consumers. The ability of a finance company to provide financing services at competitive rates is subject to various factors, including:
the performance of loans and leases in their portfolio, which could be materially affected by delinquencies, defaults or prepayments;
wholesale auction values of used vehicles;
higher than expected vehicle return rates and the residual value performance of vehicles they lease; and
fluctuations in interest rates and currency exchange rates.
Any financial services provider, including our joint ventures and controlled finance companies, will also face other demands on its capital, including the need or desire to satisfy funding requirements for dealers or consumers of our competitors as well as liquidity issues relating to other investments. Furthermore, they may be subject to regulatory changes that may increase their costs, which may impair their ability to provide competitive financing products to our dealers and retail consumers.
To the extent that a financial services provider is unable or unwilling to provide sufficient financing at competitive rates to our dealers and retail consumers, such dealers and retail consumers may not have sufficient access to financing to purchase or lease our vehicles. As a result, our vehicle sales and market share may suffer, which could have a material adverse effect on our business, financial condition and results of operations.
Vehicle retail sales depend heavily on affordable interest rates for vehicle financing.
In certain regions, including NAFTA, financing for new vehicle sales has been available at relatively low interest rates for several years due to, among other things, expansive government monetary policies. As interest rates rise generally, market rates for new vehicle financing are expected to rise as well, which may make our vehicles less affordable to retail consumers or steer consumers to less expensive vehicles that tend to be less profitable for us, adversely affecting our financial condition and results of operations. Additionally, if consumer interest rates increase substantially or if financial service providers tighten lending standards or restrict their lending to certain classes of credit, consumers may not desire to or be able to obtain financing to purchase or lease our vehicles. Furthermore, because purchasers of our vehicles may be relatively more sensitive to changes in the availability and adequacy of financing and macroeconomic conditions, our vehicle sales may be disproportionately affected by changes in financing conditions relative to the vehicle sales of our competitors.
Our business operations and reputation may be impacted by various types of claims, lawsuits, and other contingent obligations.
We are involved in various disputes, claims, lawsuits, investigations and other legal proceedings relating to several matters, including product liability, warranty, vehicle safety, emissions and fuel economy, product performance, asbestos, personal injury, dealers, suppliers and other contractual relationships, environment, securities law, labor, antitrust, intellectual property, tax and other matters. We estimate such potential claims and contingent liabilities and, where appropriate, record provisions to address these contingent liabilities. The ultimate outcome of the legal proceedings pending against us is uncertain, and such proceedings could have a material adverse effect on our financial condition or results of operations. Furthermore, additional facts may come to light or we could, in the future, be subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our business, financial condition and results of operations. While we maintain insurance coverage with respect to certain claims, not all claims or potential losses can be covered by insurance, and even if claims could be covered by insurance, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against any such claims. See also Note 20, Provisions, and Note 25, Guarantees granted, commitments and contingent liabilities,26, Equity within the Consolidated Financial Statements included elsewhere in this report for additional information. Further, publicity regarding such investigations and lawsuits, whether or not they have merit, may adversely affect our reputation anddetail.
In accordance with the perceptioncombination agreement, on January 4, 2021 FCA declared a conditional special cash distribution of our vehicles with retail customers, which may adversely affect demand for our vehicles, and have a material adverse effect€1.84 per common share (approximately US$2.26 based on our business, financial condition and results of operations. For additional risks regarding certain proceedings, see “We are currently cooperating with diesel emissions investigations by several governmental agencies and are subjectthe closing spot rate at December 31, 2020) corresponding to a numbertotal distribution of related private lawsuits.”approximately €2.9 billion, payable to holders of FCA common shares of record as of the close of business on Friday, January 15, 2021. The cash distribution was paid on January 29, 2021.
A significant security breach compromisingThe FCA Board of Directors intended to recommend to the electronic control systems contained in our vehicles could damage our reputation, disrupt our business and adversely impact our ability2020 Annual General Meeting of Shareholders an annual ordinary dividend distribution to compete.
Our vehicles, as well as vehicles manufactured by other original equipment manufacturers (or “OEMs”), contain interconnected and increasingly complex systems that control various vehicle processes including engine, transmission, safety, steering, brakes, window and door lock functions. These systems are susceptible to cybercrime, including threatsholders of intentional disruption and theftFCA common shares of personal information, which are increasing in terms of sophistication and frequency. A significant malfunction, disruption or security breach compromising the electronic control systems contained in our vehicles could damage our reputation, expose us to significant liability and could have a material adverse effect on our business, financial condition and results of operations.
A significant malfunction, disruption or security breach compromising the operation of our information technology systems could damage our reputation, disrupt our business and adversely impact our ability to compete.
Our ability to keep our business operating effectively depends€0.70 (approximately US$0.79, based on the functional and efficient operationclosing spot rate at December 31, 2019) per common share. On May 13, 2020, the board of our information, data processing and telecommunications systems, including our vehicle design, manufacturing, inventory tracking and billing and payment systems. These systems are regularly the targetdirectors of threats from third parties. A significant or large-scale malfunction or interruption of any one of our computer or data processing systems, including through the exploitation of a weakness in our systems or the systems of our vendors, could have a material adverse effect on our ability to manage and keep our manufacturing and other operations running effectively, and damage our reputation. A malfunction or security breach that results in a wide or sustained disruption to our business could have a material adverse effect on our business, financial condition and results of operations.
In addition to supporting our operations, we use our systems to collect and store confidential and sensitive data, including information about our business, our consumers and our employees. As our technology continues to evolve, we anticipate that we will collect and store even more data in the future and that our systems will increasingly use remote communication features that are sensitive to both willful and unintentional security breaches. Much of our value is derived from our confidential business information, including vehicle design, proprietary technology and trade secrets, and to the extent the confidentiality of such information is compromised, we may lose our competitive advantage and our vehicle shipments may suffer. We also collect, retain and use personal information, including data we gather from consumers for product development and marketing purposes, and data we obtain from employees. In the event of a breach in security that allows third parties access to this personal information, we are subject to a variety of ever-changing laws on a global basis that require us to provide notification to the data owners, and that subject us to lawsuits, fines and other means of regulatory enforcement. For example, the General Data Protection Regulation (Regulation (EU) 2016/679), which will go into effect in the European Union in May 2018, allows for the assessment of fines of up to 4% of annual worldwide revenue in the event of certain types of data breaches.
Our reputation could also suffer in the event of a data breach, which could cause consumers to purchase their vehicles from our competitors. Ultimately, any significant compromise in the integrity of our data security could have a material adverse effect on our business, financial condition and results of operations.
There can be no assurance that we will be able to offset the earnings power lost in the event we choose to separate a portion of our Components segment from the Group.
In 2017, we announced that we are considering the separation of a portion of our Components segment from the Group, with a final decision likely to be announced in the first half of 2018. Any such separation may not result in an improvement in our financial condition and could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to adequately protect our intellectual property rights, which may harm our business.
Our success depends, in part, on our ability to protect our intellectual property rights. If we fail to protect our intellectual property rights, others may be able to compete against us using intellectual property that is the same as or similar to our own. In addition, there can be no guarantee that our intellectual property rights are sufficient to provide us with a competitive advantage against others who offer products similar to ours. Despite our efforts, we may be unable to prevent third parties from infringing our intellectual property and using our technology for their competitive advantage. Any such infringement could have a material adverse effect on our business, financial condition and results of operations.
The laws of some countries in which we operate do not offer the same protection of our intellectual property rights as do the laws of the U.S. or Europe. In addition, effective intellectual property enforcement may be unavailable or limited in certain countries, making it difficult for us to protect our intellectual property from misuse or infringement there. Our inability to protect our intellectual property rights in some countries could have a material adverse effect on our business, financial condition and results of operations.
Our reliance on joint arrangements in certain emerging markets may adversely affect the development of our business in those regions.
We intend to expand our presence in emerging markets, including China and India, through partnerships and joint ventures. For instance, GAC Fiat Chrysler Automobiles Co. (“GAC FCA JV”), our joint venture with Guangzhou Automobile Group Co., Ltd., has commenced local production ofN.V. announced the Jeep Cherokee, Jeep Renegade and the all-new Jeep Compass for the Chinese market, expanding the portfolio of Jeep SUVs currently availabledecision to Chinese consumers. We also have a joint operation with TATA Motors Limited for the production of certain of our vehicles, engines and transmissionsnot distribute an ordinary dividend in India.
Our reliance on joint arrangements2020 related to enter or expand our presence in these markets may expose us to risk of conflict with our joint arrangement partners and the need to divert management resources to oversee these shareholder arrangements. Further, as these arrangements require cooperation with third party partners, these joint arrangements may not be able to make decisions as quickly as we would if we were operating on our own or may take actions that are different from what we would do on a standalone basisfinancial year 2019, in light of the needimpact from the COVID-19 crisis.
GROUP OVERVIEW
Prior to consider our partners’ interests. Asthe completion of the merger, FCA was a result, we may be less able to respond timely to changesglobal automotive group engaged in market dynamics, which could have a material adverse effect on our business, financial conditiondesigning, engineering, manufacturing, distributing and results of operations.
We face risks associated with increases in costs, disruptions of supply or shortages of raw materials, parts,selling vehicles, components and production systems usedworldwide through over a hundred manufacturing facilities and over forty research and development centers. At December 31, 2020, FCA had operations in our vehicles.
We useforty countries and sold its vehicles directly or through distributors and dealers in more than a varietyhundred and thirty countries. FCA designed, engineered, manufactured, distributed and sold vehicles for the mass-market under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia and Ram brands and the SRT performance vehicle designation. For its mass-market vehicle brands, FCA centralized design, engineering, development and manufacturing operations, to allow it to efficiently operate on a global scale. FCA historically supported its vehicle shipments with the sale of raw materials in our business including steel, aluminum, lead, resinrelated service parts and copper, and precious metals such as platinum, palladium and rhodium,accessories, as well as energy. The pricesservice contracts, worldwide under the Mopar brand name for these raw materials fluctuate,mass-market vehicles. In addition, it designed, engineered, manufactured, distributed and market conditions can affect our ability to manage our Cost of revenues oversold luxury vehicles under the short term. We may not be successful in managing our exposure to these risks. Substantial increasesMaserati brand. FCA made available retail and dealer financing, leasing and rental services through its subsidiaries, joint ventures and commercial arrangements with third party financial institutions. In addition, FCA historically operated in the pricescomponents and production systems sectors under the Teksid and Comau brands. Refer to Note 3, Scope of consolidation in the Consolidated Financial Statements included elsewhere in this report for raw materials would increase our operating costs and could reduce profitability if the increased costs cannot be offset by changes in vehicle prices or countered by productivity gains. In particular, certain raw materials are sourced from a limited number of suppliers and from a limited number of countries. We cannot guarantee that we will be able to maintain arrangements with these suppliers that assure access to these raw materials, and in some cases this access may be affected by factors outside of our control and the control of our suppliers. For instance, natural or man-made disasters or civil unrest may have severe and unpredictable effectsdetail on the priceexpected sale of certain raw materialsTeksid's cast iron automotive components business. As announced in the future.
As with raw materials, we are also at risk for supply disruption and shortages in parts and components for use in our vehicles for many reasons including, but not limited to, supplier disputes, particularly with regard to warranty recovery claims, supplier financial distress, tight credit markets, natural or man-made disasters, or production difficulties. WeDecember 2019, Stellantis will continue to work with suppliers to monitor potential disruptions and shortages and to mitigate the effects of any emerging shortages on our production volumes and revenues. However, there can be no assurances that these events will not have an adverse effect on our production in the future, and any such effect may be material.
Any interruption in the supply or any increase in the cost of raw materials, parts, components and systems could negatively impact our ability to achieve our vehicle shipment objectives and profitability. The potential impact of an interruption is particularly high in instances where a part or component is sourced exclusively from a single supplier. Long-term interruptions in supply of raw materials, parts, components and systems may result in a material impact on vehicle production, vehicle shipment objectives, and profitability. Cost increases which cannot be recouped through increases in vehicle prices, or countered by productivity gains, could have a material adverse effect on our business, financial condition and results of operations.
Labor laws and collective bargaining agreements with our labor unions could impact our ability to increase the efficiency of our operations.
Substantially all of our production employees are represented by trade unions, are covered by collective bargaining agreements and/or are protected by applicable labor relations regulations that may restrict our ability to modify operations and reduce costs quickly in response to changes in market conditions. See Item 6D. Employees for a description of these arrangements. These and other provisions in our collective bargaining agreements may impede our ability to restructure our business successfully to compete more effectively, especially with those automakers whose employees are not represented by trade unions or are subject to less stringent regulations, which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to risks associated with exchange rate fluctuations, interest rate changes, credit risk and other market risks.
We operate in numerous markets worldwide and are exposed to market risks stemming from fluctuations in currency and interest rates. The exposure to currency risk is mainly linked to the differences in geographic distribution of our manufacturing activities and commercial activities, resulting in cash flows from sales being denominated in currencies different from those connected to purchases or production activities. Additionally, a significant portion of our operating cash flow is generated in U.S. Dollars and, although we have significant U.S. Dollar-denominated debt, the majority of our indebtedness is denominated in Euro and Brazilian Real.
We use various forms of financing to cover funding requirements for our industrial activities and for providing financing to our dealers and consumers. Moreover, liquidity for industrial activities is also principally invested in variable-rate or short-term financial instruments. Our financial services businesses normally operate a matching policy to offset the impact of differences in rates of interest on the financed portfolio and related liabilities. Nevertheless, changes in interest rates can affect our Net revenues, finance costs and margins.
In addition, although we manage risks associated with fluctuations in currency and interest rates through financial hedging instruments, fluctuations in currency or interest rates could have a material adverse effect on our business, financial condition and results of operations.
Our financial services activities are also subject to the risk of insolvency of dealers and retail consumers, as well as unfavorable economic conditions in markets where these activities are carried out. Despite our efforts to mitigate such risks through the credit approval policies applied to dealers and retail consumers, there can be no assurances that we will be able to successfully mitigate such risks, particularly with respect to a general change in economic conditions.
We are a Dutch public company with limited liability, and our shareholders may have rights different from those of shareholders of companies organized in the U.S.
The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions. We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and the responsibilities of members of our board of directors in companies governed by the laws of other jurisdictions including the U.S. In the performance of its duties, our board of directors is required by Dutch law to consider our interests and the interests of our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.
It may be difficult to enforce U.S. judgments against us.
We are incorporated under the laws of the Netherlands, and a substantial portion of our assets are outside of the U.S. Most of our directors and senior management and our independent auditors are resident outside the U.S., and all or a substantial portion of their respective assets may be located outside the U.S. As a result, it may be difficult for U.S. investors to effect service of process within the U.S. upon these persons. It may also be difficult for U.S. investors to enforce within the U.S. judgments predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof. In addition, there is uncertainty as to whether the courts outside the U.S. would recognize or enforce judgments of U.S. courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof. Therefore, it may be difficult to enforce U.S. judgments against us, our directors and officers and our independent auditors.
We operate so as to be treated as exclusively resident in the United Kingdom for tax purposes, but the relevant tax authorities may treat us as also being tax resident elsewhere.
We are not a company incorporated in the United Kingdom (“UK”). Therefore, whether we are resident in the UK for tax purposes depends on whether our “central management and control” is located (in whole or in part) in the UK. The test of “central management and control” is largely a question of fact and degree based on all the circumstances, rather than a question of law. Nevertheless, the decisions of the UK courts and the published practice of Her Majesty’s Revenue & Customs (“HMRC”), suggest that we, a group holding company, are likely to be regarded as having become UK-resident on this basis from incorporation and remaining so if, as we intend, (i) at least half of the meetings of our Board of Directors are held in the UK with a majority of directors present in the UK for those meetings; (ii) at those meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting us and our subsidiaries; (iii) those meetings are properly minuted; (iv) at least some of our directors, together with supporting staff, are based in the UK; and (v) we have permanent staffed office premises in the UK.
Although it has been accepted by HMRC that our “central management and control” is in the UK, we would nevertheless not be treated as UK-resident if (a) we were concurrently resident in another jurisdiction (applying the tax residence rules of that jurisdiction) that has a double tax treaty with the UK and (b) there were a tie-breaker provision in that tax treaty which allocated exclusive residence to that other jurisdiction.
Our residence for Italian tax purposes is largely a question of fact based on all circumstances. We set up and we have thus far maintained, and intend to continue to maintain, our management and organizational structure in such a manner that we should not be regarded as an Italian tax resident either for Italian domestic law purposes or for the purposes of the Italy-UK tax treaty and should be deemed resident in the UK from its incorporation for the purposes of the Italy-UK tax treaty. Because this analysis is highly factual and may depend on future changes in our management and organizational structure, there can be no assurance regarding the final determination of our tax residence. Should we be treated as an Italian tax resident, we would be subject to taxation in Italy on our worldwide income and may be required to comply with withholding tax and/or reporting obligations provided under Italian tax law, which could result in additional costs and expenses.
Although it has been accepted that our “central management and control” is in the UK, we would be resident in the Netherlands for Dutch corporate income tax and Dutch dividend withholding tax purposes on the basis that we are incorporated there. Nonetheless, we can be regarded as solely resident in either the UK or the Netherlands under the Netherlands-UK tax treaty if the UK and Dutch competent authorities agree that this is the case. We have received a ruling from the UK and Dutch competent authorities that we should be treated as resident solely in the UK for the purposes of the treaty. If there is a change over time to the facts upon which this ruling issued by the competent authorities is based, the ruling may be withdrawn or cease to apply.
We do not expect a UK exit from the European Union resulting from the referendum held in June 2016 to affect our tax residency in the UK; however, we are unable to predict with certainty whether the discussions to implement the UK's exit from the European Union will ultimately have any impact on this matter.
The UK’s controlled foreign company taxation rules may reduce net returns to shareholders.
On the assumption that we continue to be resident for tax purposes in the UK, we will be subject to the UK controlled foreign company (“CFC”) rules. The CFC rules can subject UK-tax-resident companies (in this case, us) to UK tax on the profits of certain companies not resident for tax purposes in the UK in which they have at least a 25 percent direct or indirect interest. Interests of connected or associated persons may be aggregated with those of the UK-tax-resident company when applying this 25 percent threshold. For a company to be a CFC, it must be treated as directly or indirectly controlled by persons resident for tax purposes in the UK. The definition of control is broad (it includes economic rights) and captures some joint ventures.
We expect, however, that our principal operating activities should fall within one or more exemptions from the CFC rules.
Although we do not expect the UK’s CFC rules to have an adverse impact on our financial position, the effect of the CFC rules on us is not yet certain. We will continue to monitor developments in this regard and seek to mitigate any adverse UK tax implications which may arise. However, the possibility cannot be excluded that the CFC rules could have a material adverse effect on our business, financial condition and results of operations.
If we are deemed to not maintain a permanent establishment in Italy, we could experience a material increase in our tax liability.
Whether we have maintained a permanent establishment in Italy following the Merger (an “Italian P.E.”) is largely a question of fact based on all the circumstances. We believe that, on the understanding that we should be a UK-resident company under the Italy-UK tax treaty, we are likely to be treated as maintaining an Italian P.E. because we have maintained and intend to continue to maintain sufficient employees, facilities and activities in Italy to qualify as maintaining an Italian P.E. Should this be the case (i) the embedded gains on our assets connected with the Italian P.E. cannot be taxed as a result of the Merger; (ii) our tax-deferred equity reserves cannot be taxed, inasmuch as they have been recorded in the Italian P.E.’s financial accounts; and (iii) the Italian fiscal unit that was headed by Fiat before the Merger (the “Fiscal Unit”), continues with respect to our Italian subsidiaries whose shareholdings are part of the Italian P.E.'s net worth.
FCA filed a ruling request with the Italian tax authorities in respect of the continuation of the Fiscal Unit via the Italian P.E. on April 16, 2014. The Italian tax authorities issued the ruling on December 10, 2014 (the “2014 Ruling”), confirming that the Fiscal Unit may continue via the Italian P.E. Moreover, in another ruling issued on October 9, 2015 (the “2015 Ruling”), the Italian tax authorities confirmed that the separation of Ferrari from the Groupits holding in Comau.
In 2020, FCA shipped 3.4 million vehicles (including the first demergerFCA Group's unconsolidated joint ventures), resulting in Net revenues of certain assets held through€86.7 billion and Net profit of €24 million, and generated €0.6 billion of Industrial free cash flows (See Non-GAAP Financial Measures). At December 31, 2020, FCA’s available liquidity was €31.4 billion (including €7.3 billion available under undrawn committed credit lines).
Refer to "About this Report" included elsewhere in this report for further detail on the Italian P.E.) would qualify as a tax-free, neutral transaction from an ItalianPSA information presented below:
In 2020, PSA was the second largest car manufacturer in Europe based on the volume of sold vehicles and operated 18 production sites across the world. PSA sold 2.5 million vehicles and generated revenue of €60.7 billion and operating income tax perspective. Lastly,of €3.1 billion in a ruling released on October 28, 2016, the Italian tax authorities confirmed that the Italian P.E. could determine its computation basefiscal year ended December 31, 2020. PSA designed, engineered, manufactured, distributed and sold vehicles for the purposes of the Italian regime on notional interest deduction (Aiuto alla Crescita Economica) without taking into account certain anti-avoidance provisions (the “2016 Ruling”, and together with the 2014 Ruling and the 2015 Ruling, the “Rulings”). However, the Rulings are not assessments of certain sets of facts and circumstances. Therefore, even though the 2014 Ruling confirms that the Fiscal Unit may continue via the Italian P.E. and the 2015 Ruling and the 2016 Ruling assume such a P.E. to exist, this does not rule out that the Italian tax authorities may in the future verify whether FCA actually has a P.E. in Italy and potentially challenge the existence of such a P.E. Because the analysis is highly factual, there can be no assurance regarding our maintenance of an Italian P.E. following the Merger.
Risks Related to Our Liquidity and Existing Indebtedness
Limitations on our liquidity and access to funding may limit our ability to execute our business strategies and improve our financial condition and results of operations.
Our performance depends on, among other things, our ability to finance debt repayment obligations and planned investments from operating cash flow, available liquidity, the renewal or refinancing of existing bank loans and/or facilities and possible access to capital markets or other sources of financing. Although we have measures in place that are designed to ensure that adequate levels of working capital and liquidity are maintained, declines in sales volumes could have a negative impact on the cash-generating capacity of our operating activities. For a discussion of these factors, see Item 5B. Liquidity and Capital Resources. In addition, our current credit rating is below investment grade and any deterioration may significantly affect our funding and prospects.
We could, therefore, find ourselves in the position of having to seek additional financing and/or having to refinance existing debt, including in unfavorable market conditions, with limited availability of funding and a general increase in funding costs. Any limitations on our liquidity, due to a decrease in vehicle shipments, the amount of or restrictions in our existing indebtedness, conditions in the credit markets, general economic conditions or otherwise, may adversely impact our ability to execute our business strategies and impair our financial condition and results of operations. In addition, any actual or perceived limitations of our liquidity may limit the ability or willingness of counterparties, including dealers, consumers, suppliers, lenders and financial service providers, to do business with us, which could have a material adverse effect on our business, financial condition and results of operations.
We have significant outstanding indebtedness, which may limit our ability to obtain additional funding on competitive terms and limit our financial and operating flexibility.
Although we have reduced our net indebtedness significantly over the past several years, the extent of our indebtedness may still have important consequences on our operations and financial results, including:
we may not be able to secure additional funds for working capital, capital expenditures, debt service requirements or general corporate purposes;
we may need to use a portion of our projected future cash flow from operations to pay principal and interest on our indebtedness, which may reduce the amount of funds available to us for other purposes, including product development;
we are more financially leveraged than our competitors, which may put us at a competitive disadvantage; and
we may not be able to adjust rapidly to changing market conditions, which may make us more vulnerable to a downturn in general economic conditions or our business.
These risks may be exacerbated by volatility in the financial markets, particularly those resulting from perceived strains on the finances and creditworthiness of several governments and financial institutions.
Restrictive covenants in our debt agreements could limit our financial and operating flexibility.
The indentures governing certain of our outstanding public indebtedness, and other credit agreements to which companies in the Group are a party, contain covenants that restrict the ability of certain companies in the Group to, among other things:
incur additional debt;
make certain investments;
sell certain assets or merge with or into other companies;
use assets as security in other transactions; and
enter into sale and leaseback transactions.
For more information regarding our credit facilities and debt, see Item 5B. Liquidity and Capital Resources.
Restrictions arising out of FCA US’s Tranche B Term Loan may hinder our ability to manage our operations on a consolidated, global basis.
FCA US is party to a tranche B term loan maturing on December 31, 2018 (the “Tranche B Term Loan”). The credit agreement that governs the Tranche B Term Loan includes covenants that restrict FCA US’s ability to enter into sale and leaseback transactions, purchase or redeem capital stock, prepay other debt, incur or guarantee additional indebtedness, incur liens, transfer and sell assets or engage in certain business combinations or undertake various other business activities.
These restrictive covenants could have an adverse effect on our business by limiting our ability to take advantage of mergers and acquisitions, joint ventures or other corporate opportunities. Additionally, the credit agreement requires FCA US to maintain borrowing base collateral coverage and a minimum liquidity threshold. Future indebtedness may also contain other and more restrictive covenants. A breach of any of the covenants or restrictions in the credit agreement that governs the Tranche B Term Loan could represent an event of default on the indebtedness of FCA US, which could result in foreclosure on pledged properties and trigger a cross-default under certain of our indebtedness.
Substantially all of the assets of FCA US and its U.S. subsidiary guarantors are unconditionally pledged as securitymass-market under the credit agreement that governs its Tranche B Term LoanPeugeot, Citroën, DS Automobiles, Opel and could become subject to lenders’ contractual rights if an event of default were to occur.Vauxhall brands.
FCA US is an obligor and several of its U.S. subsidiaries are guarantors of FCA US’s Tranche B Term Loan. The obligations under the credit agreement governing the Tranche B Term Loan are secured by senior priority security interests in substantially all of the assets of FCA US and its U.S. subsidiary guarantors. The collateral includes 100 percent of the equity interests in FCA US’s U.S. subsidiaries and 65 percent of the equity interests in certain of its non-U.S. subsidiaries held directly by FCA US and its U.S. subsidiary guarantors. An event of default under the credit agreement that governs FCA US’s Tranche B Term Loan could trigger its lenders’ contractual rights to enforce their security interest in these assets.
We may be exposed to shortfalls in our pension plans.
Certain of our defined benefit pension plans are currently underfunded. As of December 31, 2017, our defined benefit pension plans were underfunded by approximately €4.3 billion and may be subject to significant minimum contributions in future years. Our pension funding obligations may increase significantly if the investment performance of plan assets does not keep pace with benefit payment obligations. Mandatory funding obligations may increase because of lower than anticipated returns on plan assets, whether as a result of overall weak market performance or particular investment decisions, changes in the level of interest rates used to determine required funding levels, changes in the level of benefits provided for by the plans, or any changes in applicable law related to funding requirements. Our defined benefit plans currently hold significant investments in equity and fixed income securities, as well as investments in less liquid instruments such as private equity, real estate and certain hedge funds. Due to the complexity and magnitude of certain investments, additional risks may exist, including the effects of significant changes in investment policy, insufficient market capacity to complete a particular investment strategy and an inherent divergence in objectives between the ability to manage risk in the short term and the ability to quickly re-balance illiquid and long-term investments.
To determine the appropriate level of funding and contributions to our defined benefit plans, as well as the investment strategy for the plans, we are required to make various assumptions, including an expected rate of return on plan assets and a discount rate used to measure the obligations under defined benefit pension plans. Interest rate increases generally will result in a decline in the value of investments in fixed income securities and the present value of the obligations. Conversely, interest rate decreases will generally increase the value of investments in fixed income securities and the present value of the obligations. See Item 5. Operating and Financial Review—Critical Accounting Estimates—Pension Plans.
Any reduction in the discount rate or the value of plan assets, or any increase in the present value of obligations, may increase our pension expenses and required contributions and, as a result, could constrain liquidity and materially adversely affect our financial condition and results of operations. If we fail to make required minimum funding contributions, we could be subject to reportable event disclosure to the U.S. Pension Benefit Guaranty Corporation, as well as interest and excise taxes calculated based upon the amount of any funding deficiency.
Risks Related to our Common Shares
Our maintenance of two exchange listings may adversely affect liquidity in the market for our common shares and could result in pricing differentials of our common shares between the two exchanges.
Our common shares are listed and traded on both the New York Stock Exchange (“NYSE”) and the Mercato Telematico Azionario (“MTA”) operated by Borsa Italiana. The dual listing of our common shares may split trading between the two markets and may result in limited trading liquidity of the shares in one or both markets, which may adversely affect the development of an active trading market for our common shares on either or both exchanges and may result in price differentials between the exchanges. Differences in the trading schedules, as well as volatility in the exchange rate of the two trading currencies, among other factors, may result in different trading prices for our common shares on the two exchanges, which may contribute to volatility in the trading of our shares.
The loyalty voting structure may affect the liquidity of our common shares and reduce our common share price.
Our loyalty voting structure may limit the liquidity of our common shares and adversely affect the trading prices of our common shares. The loyalty voting structure is intended to reward shareholders for maintaining long-term share ownership by granting initial shareholders and persons holding our common shares continuously for at least three years at any time following the effectiveness of the Merger the option to elect to receive our special voting shares. Our special voting shares cannot be traded and, immediately prior to the deregistration of common shares from the FCA Loyalty Register, any corresponding special voting shares shall be transferred to us for no consideration (om niet). This loyalty voting structure is designed to encourage a stable shareholder base and, conversely, it may deter trading by those shareholders who are interested in gaining or retaining our special voting shares. Therefore, the loyalty voting structure may reduce liquidity in our common shares and adversely affect their trading price.
The loyalty voting structure may make it more difficult for shareholders to acquire a controlling interest, change our management or strategy or otherwise exercise influence over us, and the market price of our common shares may be lower as a result.
The provisions of our articles of association which establish the loyalty voting structure may make it more difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change of control were considered favorably by shareholders holding a majority of our common shares. As a result of the loyalty voting structure, a relatively large proportion of our voting power could be concentrated in a relatively small number of shareholders who would have significant influence over us. As of February 15, 2018, Exor N.V., which controls FCA, owns 29.18 percent of the FCA common shares, had a voting interest in FCA of 42.34 percent due to its participation in the loyalty voting structure and as a result will have the ability to exercise significant influence on matters involving our shareholders. Such shareholders participating in the loyalty voting structure could effectively prevent change of control transactions that may otherwise benefit our shareholders. The loyalty voting structure may also prevent or discourage shareholders' initiatives aimed at changing our management or strategy or otherwise exerting influence over us.
There may be potential Passive Foreign Investment Company tax considerations for U.S. Shareholders.
Shares of our stock held by a U.S. holder would be stock of a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes with respect to a U.S. Shareholder if for any taxable year in which such U.S. Shareholder held our common shares, after the application of applicable look-through rules (i) 75 percent or more of our gross income for the taxable year consists of passive income (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations), or (ii) at least 50 percent of its assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of passive income. U.S. persons who own shares of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the dividends they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
While we believe that shares of our stock are not stock of a PFIC for U.S. federal income tax purposes, this conclusion is based on a factual determination made annually and thus is subject to change. Moreover, shares of our stock may become stock of a PFIC in future taxable years if there were to be changes in our assets, income or operations.
Tax consequences of our loyalty voting structure are uncertain.
No statutory, judicial or administrative authority directly discusses how the receipt, ownership, or disposition of special voting shares should be treated for Italian, UK or U.S. tax purposes and as a result, the tax consequences in those jurisdictions are uncertain.
The fair market value of our special voting shares, which may be relevant to the tax consequences, is a factual determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, the special voting shares are not transferable (other than, in very limited circumstances, together with our associated common shares) and a shareholder will receive amounts in respect of the special voting shares only if we are liquidated, we believe and intend to take the position that the fair market value of each special voting share is minimal. However, the relevant tax authorities could assert that the value of the special voting shares as determined by us is incorrect.
The tax treatment of the loyalty voting structure is unclear and shareholders are urged to consult their tax advisors in respect of the consequences of acquiring, owning and disposing of special voting shares.
Tax may be required to be withheld from dividend payments.
Although the UK and Dutch competent authorities have ruled that we should be treated as solely resident in the UK for the purposes of the Netherlands-UK double tax treaty, under Dutch domestic law dividend payments made by us to Dutch residents are still subject to Dutch dividend withholding tax and we would have no obligation to pay additional amounts in respect of such payments.
Should Dutch or Italian withholding taxes be imposed on future dividends or distributions with respect to our common shares, whether such withholding taxes are creditable against a tax liability to which a shareholder is otherwise subject depends on the laws of such shareholder’s jurisdiction and such shareholder’s particular circumstances. Shareholders are urged to consult their tax advisors in respect of the consequences of the potential imposition of Dutch and/or Italian withholding taxes. See “We operate so as to be treated as exclusively resident in the United Kingdom for tax purposes, but the relevant tax authorities may treat it as also being tax resident elsewhere.” in the section —Risks Related to Our Business, Strategy and Operations, above.
Item 4. Information on the Company
A. History and Development of the Company
History of FCA
Fiat Chrysler Automobiles N.V. was incorporated as a public limited liability company (naamloze vennootschap) under the laws of the Netherlands on April 1, 2014 and became the parent company of the FCA Group on October 12, 2014. Its principal office is located at 25 St. James's Street, London SW1A 1HA, United Kingdom (telephone number: +44 (0) 20 7766 0311).
Fiat S.p.A., the predecessor to FCA, was founded as Fabbrica Italiana Automobili Torino on July 11, 1899 in Turin, Italy as an automobile manufacturer. Fiat opened its first factory in 1900 in Corso Dante in Turin with 150 workers producing 24 cars. In 1902, Giovanni Agnelli, Fiat’sFiat S.p.A.’s founder, became the Managing Director of the company.
Beginning in 2008, Fiat worked to expand the scope of its automotive operations, having concluded that significantly greater scale was necessary to enable it to compete effectively in the increasingly competitive global automotive market.
In April 2009, Fiat and Old Carco LLC, formerly known as Chrysler LLC (“Old Carco”) entered into an agreement, pursuant to which FCA US LLC, formerlythen known as Chrysler Group LLC, (“FCA US”) agreed to purchaseacquired the principal operating assets of Old Carco and to assume certainthe former Chrysler LLC in 2009 as part of Old Carco's liabilities. Old Carco traced its roots to the company originally founded by Walter P. Chrysler in 1925 that, since that time, expanded through the acquisitiona government-sponsored restructuring of the DodgeNorth American automotive industry. Between 2009 and Jeep brands.
Following the closing of that transaction in June 2009,2014, Fiat held anS.p.A. expanded its initial 20 percent ownership interest in FCA US. Overto 100 percent of the following years, Fiat acquired additional ownership interests inof FCA US and in Januaryon October 12, 2014, Fiat purchased allS.p.A. completed a corporate reorganization resulting in the establishment of FCA NV as the parent company of the equity interestsFCA Group, with its principal executive offices in the United Kingdom. FCA US that it did not then hold, resulting incommon shares commenced trading on the Milan Mercato Telematico Azionario (“MTA”) and the New York Stock Exchange (“NYSE”) on October 13, 2014. As a result, FCA US becoming an indirect 100 percent owned subsidiary.NV, as successor of Fiat S.p.A., became the parent company of the FCA Group.
In January 2011, the separation of Fiat'sFiat S.p.A.'s non-automotive capital goods businessesbusiness was completed with the creation of Fiat Industrial, now known as CNH Industrial N.V. (“CNHI”).
Corporate Reorganization
On October 12, 2014, Fiat completed a corporate reorganization resulting in the establishment of FCA NV, organized in the Netherlands, as the parent company of the Group with its principal executive offices in the United Kingdom.
On October 13, 2014, FCA common shares commenced trading on the NYSE and on the MTA. As a result, FCA NV, as successor of Fiat S.p.A., is the parent company of the Group.
Ferrari Spin-off
The spin-off of Ferrari N.V. was approved on December 3, 2015 at the extraordinary general meeting of FCA shareholders. The Group classified the Ferrari segment as a discontinued operation for the year ended December 31, 2015 and, consequently, the results of Ferrari were excluded from the Group's continuing operations, with the after-tax result of Ferrari's operations shown as a single line item within the Consolidated Income Statement for the year ended December 31, 2015.
The spin-off of Ferrari N.V. from the FCA Group was completed onin January 3, 2016. The assets and liabilities of the Ferrari segment were distributed to holders of FCA shares and mandatory convertible securities. Since Exor
Magneti Marelli Sale
On October 22, 2018, FCA announced a definitive agreement to sell its Magneti Marelli business to CK Holdings Co., Ltd, completing the sale on May 2, 2019. Refer to Note 3, Scope of consolidation within the Consolidated Financial Statements included elsewhere within this report for additional information.
FCA-PSA Merger
On December 17, 2019, FCA and PSA entered into a combination agreement providing for a merger of their businesses.
On January 16, 2021, PSA merged with and into FCA. By virtue of the merger, FCA issued 1.742 FCA common shares for each outstanding PSA ordinary share and each PSA ordinary share ceased to exist. Each issued and outstanding common share of FCA remained unchanged as one common share in FCA. The surviving entity changed its name to Stellantis N.V., on January 17, 2021, which controlswas the accounting acquisition date for the business combination. Refer to the section “About this report” included elsewhere in this report and consolidates FCA, continued to control and consolidate Ferrari N.V.,Note 31, Subsequent events included within the spin-off of Ferrari N.V. was accountedConsolidated Financial Statements for at book value without any gain or lossadditional information on the distribution.legal and accounting impacts arising from the merger.
B. Business Overview
Business Summary
We are a global automotive group engaged in designing, engineering, manufacturing, distributing and selling vehicles, components and production systems worldwide through 159 manufacturing facilities and 87 research and development centers. We have operationsStellantis has sales in more than 40130 countries, industrial operations in nearly 30 countries, a strong R&D global footprint and sellleading market positions in North America, Europe and Latin America.
The principal office of Stellantis is located at Singaporestraat 92-100, Lijnden P7 1175 RA, The Netherlands (telephone number: +31 20 3421 707). Its agent for U.S. federal securities law purposes is Christopher J. Pardi, c/o FCA US LLC, 1000 Chrysler Drive, Auburn Hills, Michigan 48326.
Faurecia Distribution
On January 25, 2021, an extraordinary general meeting of the shareholders was convened in order to approve the distribution by Stellantis to the holders of its common shares of up to 54,297,006 ordinary shares of Faurecia (an automotive equipment supplier) and up to €308 million, which are the proceeds received by Peugeot S.A. from the sale of certain ordinary shares of Faurecia in October 2020. The distribution represents the legacy PSA ownership in Faurecia and approximately 39 percent of the share capital of Faurecia. The extraordinary general meeting of shareholders to approve the distribution will be held on March 8, 2021.
Major Shareholders
As of March 3, 2021, the largest shareholders of Stellantis were Exor N.V. (“Exor”) (holding 14.40 percent of the outstanding common shares), Établissements Peugeot Frères (“EPF”) (holding 7.19 percent of the outstanding common shares), Bpifrance Participations S.A. via Lion Participations SAS (“BPI”) (holding 6.18 percent of the outstanding common shares) and Dongfeng Motor Group Company Ltd. and Dongfeng Motor (Hong-Kong) International Co Ltd. (“Dongfeng”) (holding 5.62 percent of the outstanding common shares). As of March 3, 2021, none of these shareholders held any special voting shares of Stellantis.
Upon the effectiveness of the merger, on January 16, 2021, PSA shareholders received 1.742 FCA common shares for each PSA ordinary share held immediately prior to the merger as consideration in connection with the merger, which represented 1,545,220,196 shares. In addition, all special voting shares of FCA held by Exor were repurchased by FCA for no consideration. Therefore, none of our vehiclesmajor shareholders held any special voting shares immediately following the merger. Refer to Note 31, Subsequent events included within the Consolidated Financial Statements included elsewhere in this report for additional detail on the merger.
As ofMarch 3, 2021 the share capital of the Company consists of the following: 3,119,934,695 common shares and 208,622 special voting shares are issued and outstanding.
Based on the information in Stellantis’s shareholder register, regulatory filings with the AFM and the SEC and other sources available to Stellantis, the following persons owned, directly or indirectly, in excess of three percent of Stellantis’s capital and/or voting interest as of March 3, 2021:
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| Stellantis Shareholders | | Number of Issued Common Shares(1) | | Percentage of Issued Common Shares |
Exor(2) | | 449,410,092 | | | 14.40 | |
EPF(3) | | 224,228,121 | | | 7.19 | |
BPI(4) | | 192,703,907 | | | 6.18 | |
Dongfeng(5) | | 175,283,907 | | | 5.62 | |
(1)Issued shares includes common shares as well as 449,618,714 special voting shares of which 208,622 are owned by shareholders and 449,410,092 are held in treasury by Stellantis N.V. Refer also to Corporate Governance - Articles of Association and Information on Stellantis Shares - Share Capital for additional information.
(2)Exor owns 449,410,092 common shares (12.59 percent of the issued shares).
(3)EPF, through distributorsFFP and dealersits subsidiary Maillot I, owns 224,228,121 common shares (6.28 percent of the issued shares)
(4)BPI owns 192,703,907 common shares (5.40 percent of the issued shares). BPI is a joint venture of EPIC Bpifrance (Bpi Groupe) and Caisse des Dépots et Consignations (both holding a 49.3% interest in Bpifrance SA). Caisse des Dépots et Consignations also (directly and indirectly) holds an additional 9.338.752 Stellantis Common Shares, representing an additional 0.30% of the common shares and 0.26% of the issued share capital and voting rights of Stellantis
(5)Dongfeng owns 175,283,907 common shares (4.91 percent of the issued shares). Refer to “Risk Factors - Resales of Stellantis common shares following the merger may cause the market value of Stellantis common shares to decline.” included elsewhere in this report for additional information on the requirement for Dongfeng to sell part of its shareholding.
Based on the information in FCA’s shareholder register and other sources available to us, as of January 4, 2021, approximately 450 million FCA common shares, or approximately 29% percent of the FCA common shares, were held in the United States. As of the same date, approximately 740 record holders of FCA common shares had registered addresses in the United States. In addition, based on the information in PSA’s shareholders register and other sources available to PSA, as of December 31, 2020, approximately 167 million PSA ordinary shares, or approximately 18.6 percent of the PSA ordinary shares, were held in the United States. Information on the portion of Stellantis common shares held in the United States or the number of record holders in the United States as of a date following the merger is not yet available.
Until the date that is three years after closing of the merger, Exor, BPI and EPF are subject to a lock-up in respect of their shareholdings in Stellantis, except that BPI is permitted to reduce its shareholdings by a stake no greater than 2.5 percent of Stellantis common shares. We have agreed to release each such shareholder from its respective lock-up obligation in the event the Board of Directors recommends a transaction in which a person or group would acquire 50 percent or more of the Stellantis common shares (including a merger of Stellantis with or into another entity unless the shareholders of Stellantis immediately prior to the merger are entitled to receive more than 140 countries. the majority of the share capital and voting rights in the surviving entity of the merger).
Expected Merger Synergies
As a result of the merger, we expect that we will achieve significant synergies from the integration of the legacy FCA and PSA businesses, in particular in the following four areas:
•Technology, Platforms and Products. The sharing and convergence of PSA’s and FCA’s respective platforms, modules and systems, along with the optimization of R&D investments, with manufacturing processes and tooling, is expected to create significant efficiencies, in particular, as investments will be amortized over the combined Group production;
•Purchasing. Procurement savings are expected to result from leveraging the Group’s enlarged scale, leading to lower product costs (in particular in respect to electric or high tech components), improved price alignment and broader access to new suppliers;
•Selling, General and Administrative Expenses (“SG&A”). Savings are expected from the integration of functions such as sales and marketing, and the optimization of costs in regions where both FCA and PSA had a well-established presence (i.e., Europe and Latin America); and
•All Other Functions. Synergies are expected from the optimization of other functions, including logistics, where savings are expected from the optimization of logistics for new cars and the effect of the procurement volume increase on FCA’s and PSA’s combined expenditures, as well as supply chain, quality and after-market operations.
We design, engineer, manufacture, distributeexpect that annual industrial synergies at steady state will be more than €5 billion, with approximately 80 percent of synergies expected to be achieved by the end of 2024. Approximately 75 percent of synergies are expected to arise from technology, platform and sellproduct convergences and procurement savings, and the remaining approximately 25% of synergies from SG&A and all other functions. Synergy savings are expected to exceed implementation costs within the first year, and the total one-time costs to achieve these synergies is currently estimated at approximately €4 billion.
Overview of Our Business
FCA’s activities during the year ended December 31, 2020, were carried out through the following five reportable segments:
(i)North America: FCA’s operations to support the distribution and sale of mass-market vehicles forin the mass-marketUnited States, Canada, Mexico and Caribbean islands, primarily under the Abarth,Jeep, Ram, Dodge, Chrysler, Fiat, Alfa Romeo and Abarth brands;
(ii)LATAM: FCA’s operations to support the distribution and sale of mass-market vehicles in South and Central America, primarily under the Fiat, Jeep, Dodge and Ram brands, with the largest focus of its business in Brazil and Argentina;
(iii)APAC: FCA’s operations to support the distribution and sale of mass-market vehicles in the Asia Pacific region (mostly in China, Japan, India, Australia and South Korea) carried out in the region through both subsidiaries and joint ventures, primarily under the Jeep, Fiat, Alfa Romeo, Abarth, Fiat Professional, Ram and Chrysler Dodge,brands;
(iv)EMEA: FCA’s operations to support the distribution and sale of mass-market vehicles in Europe (which includes the 27 members of the European Union, the UK and the members of the European Free Trade Association), the Middle East and Africa, primarily under the Fiat, Fiat Professional, Jeep, Alfa Romeo, Lancia, Abarth, Ram and Ram brandsDodge brands; and
(v)Maserati: the SRT performance vehicle designation. For our mass-market vehicle brands, we have centralized design, engineering, development, and manufacturing, operations, which allow us to efficiently operate on a global scale. We support our vehicle shipments with theworldwide distribution and sale of related service parts and accessories, as well as service contracts, worldwide under the Mopar brand name for mass-market vehicles. In addition, we design, engineer, manufacture, distribute and sell luxury vehicles under the Maserati brand. We make available retail and dealer financing, leasing and rental services through our subsidiaries, joint ventures and commercial arrangements with third party financial institutions. In addition, we operate in the components and production systems sectors under the Magneti Marelli, Teksid and Comau brands.
Our activities are carried out through the following six reportable segments:
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(i) | NAFTA: our operations to support distribution and sale of mass-market vehicles in the United States, Canada, Mexico and Caribbean islands, primarily under the Jeep, Ram, Dodge, Chrysler, Fiat, Alfa Romeo and Abarth brands.
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(ii) | LATAM: our operations to support the distribution and sale of mass-market vehicles in South and Central America, primarily under the Fiat, Jeep, Dodge and Ram brands, with the largest focus of our business in Brazil and Argentina.
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(iii) | APAC: our operations to support the distribution and sale of mass-market vehicles in the Asia Pacific region (mostly in China, Japan, Australia, South Korea and India) carried out in the region through both subsidiaries and joint ventures, primarily under the Jeep, Fiat, Alfa Romeo, Abarth, Fiat Professional, Dodge and Chrysler brands.
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(iv) | EMEA: our operations to support the distribution and sale of mass-market vehicles in Europe (which includes the 28 members of the European Union and the members of the European Free Trade Association), the Middle East and Africa, primarily under the Fiat, Fiat Professional, Jeep, Alfa Romeo, Lancia, Abarth, Ram and Dodge brands.
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(v) | Maserati: the design, engineering, development, manufacturing, worldwide distribution and sale of luxury vehicles under the Maserati brand.
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(vi) | Components: production and sale of lighting components, body control units, suspensions, shock absorbers, electronic systems, and exhaust systems and activities in powertrain (engine and transmissions) components, engine control units, plastic molding components and in the after-market carried out under the Magneti Marelli brand name; cast iron components for engines, gearboxes, transmissions and suspension systems, and aluminum cylinder heads and engine blocks under the Teksid brand name; and design and production of industrial automation systems and related products for the automotive industry under the Comau brand name.
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WeFCA also holdowned or held interests in companies operating in other activities and businesses. These activities arewere grouped under “Other Activities”, which primarily consistsconsisted of FCA’s industrial automation systems design and production business, under the Comau brand name, and its cast iron and aluminum business, which produced cast iron components for engines, gearboxes, transmissions and suspension systems, and aluminum cylinder heads and engine blocks, under the Teksid brand name, as well as companies that provideprovided services, including accounting, payroll, tax, insurance, purchasing, information technology, facility management and security for the FCA Group, and managemanaged central treasury activities. Refer to Note 3, Scope of consolidation in the Consolidated Financial Statements included elsewhere in this report for detail on the announced sale of Teksid's cast iron automotive components business.
In 2017, we shipped 4.4 million vehicles, had Net revenues of €110.9 billionand Net profit of €3.5 billion. At
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
During the year ended December 31, 2017, we had available liquidity2020, PSA’s business was organized into three main divisions:
•the automotive division, covered the design, manufacture and sale of €20.4 billion (including €7.6 billion availablepassenger vehicles and light commercial vehicles under undrawn committedthe Peugeot, Citroën and DS brands (collectively, “PCD”), and Opel and Vauxhall brands (collectively, “OV”), as well as after-sales, maintenance, repair and spare parts operations;
•the automotive equipment division, which corresponded to the operations of the Faurecia group and comprised four business groups which included interiors (covering instrument panels, door panels and complete cockpits), seating, clean mobility (covering exhaust systems technology) and Clarion Electronics (covering cockpit electronics and low-speed advanced driver assistance systems); and
•the finance division, corresponded to Banque PSA Finance (“BPF”). BPF which operated in 17 countries and provided retail financing to customers of the Peugeot, Citroën, DS, Opel and Vauxhall brands, as well as wholesale financing to the brands’ dealer networks. BPF primarily operated through two major partnerships in Europe, with Group Santander Consumer Finance (“Santander”) for the Peugeot, Citroën and DS brands, and with BNP Paribas Personal Finance (“BNP”) for the Opel and Vauxhall brands. BPF is a regulated credit lines)institution overseen by European and we had Net industrial debt of €2.4 billion (See Item 5. OperatingFrench banking regulators, including the European Central Bank and Financial Review—Non-GAAP Financial Measures—Net Debt).
the French Autorité de Contrôle Prudentiel et de Résolution.
Mass-Market VehiclesPSA’s other activities were reported under “Other Businesses”, which mainly included the activities of PSA’s holding company, Peugeot S.A., PSA’s 25 percent interest in the GEFCO Group, an automotive logistics and supply chain management company and its Free2Move brand, which combines PSA’s connected car and mobility service offerings.
Definitions and abbreviations
Passenger cars include sedans, station wagons and three- and five-door hatchbacks, that may range in size from “micro” or “A-segment” vehicles of less than 3.7 meters in length to “large” or “F-segment” cars that are greater than 5.1 meters in length.
Utility vehicles (“UVs”) include sport utility vehicles (“SUVs”), which are available with four-wheel drive systems that provide true off-road capabilities, and crossover utility vehicles, (“CUVs”), which are not designed for heavy off-road use. UVs can be divided among six main groups, ranging from “micro” or “A-segment”, defined as UVs that are less than 3.9 meters in length, to “large” or “F-segment”, defined as UVs that are greater than 5.2 meters in length.
Light trucks may be divided between vans (also known as light commercial vehicles, or “LCVs”), which typically are used for the transportation of goods or groups of people, and pickup trucks, which are light motor vehicles with an open-top rear cargo area. Minivans, also known as multi-purpose vehicles (“MPVs”) typically have seating for up to eight passengers.
A vehicle is characterized as “all-new” if its vehicle platform is significantly different from the platform used in the prior model year and/or it has had a full exterior renewal.
A vehicle is characterized as “significantly refreshed” if it continues its previous vehicle platform but has extensive changes or upgrades from the prior model year.
Design and Manufacturing
We sellFCA has historically sold mass-market vehicles in the SUV, passenger car, truck and light commercial vehicleLCV markets. OurFCA’s SUV and CUV portfolio includes the Jeep Gladiator, Grand Cherokee, Jeep Cherokee, JeepWrangler, Renegade, the all-new Jeep Compass, Maserati Levante, Dodge Durango, Journey and the all-new Alfa Romeo Stelvio. OurThe passenger car product portfolio includes vehicles such as the Fiat 500, Alfa Romeo Giulia, Maserati Quattroporte, Dodge Challenger and Charger, Chrysler 300 and Lancia Ypsilon and minivans such as the Chrysler Pacifica. We sellFCA sold light duty and heavy-dutyheavy duty pickup trucks such as the Ram 1500, andRam 2500/3500, or the Fiat Toro and our light commercial vehiclesFiat Strada, and chassis cabs such as the all-new Ram 3500/4500/5500. FCA’s LCVs include vans such as the Fiat Professional Doblò, Fiat Professional Ducato and Ram ProMaster. In addition, full electric versions of the Fiat 500 and Fiat Ducato, and PHEV versions of the Chrysler Pacifica, Jeep Commander, Jeep Wrangler, Jeep Compass and Jeep Renegade are also offered.
Our efforts to respond to customer demand have led to a number of important initiatives, including localized production of Jeep vehicles in Italy, China, India and Brazil.
We haveFCA deployed World Class Manufacturing (“WCM”) principles throughout ourits manufacturing operations. WCM principles were developed by the WCM Association, a non-profit organization dedicated to developing superior manufacturing standards. We areFCA was the only OEMOriginal Equipment Manufacturer (“OEM”) that is a member of the WCM Association. WCM fosters a manufacturing culture that targets improved safety, quality and efficiency, as well as the elimination of all types of waste. Unlike some other advanced manufacturing programs, WCM is designed to prioritize issues, focus on those initiatives believed likely to yield the most significant savings and improvements, and direct resources to those initiatives. WeFCA also offeroffered several types of WCM programs to ourits suppliers whereby they can learn and incorporate WCM principles into their own operations.
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
PSA historically sold mass-market vehicles in the passenger car and LCV markets. PSA’s passenger car product portfolio included vehicles such as Peugeot 108, 208, 308, 2008, 3008, 5008, 508 and Citroën C1, C3, C3 Aircross, C4, C4 Cactus, C4 Spacetourer, C5 Aircross, DS 3 Crossback, DS 7 Crossback and Opel Vauxhall Corsa, Astra, Crossland, Grandland, Mokka, Insignia. PSA’s LCVs included vans such as Peugeot Partner, Expert, Boxer, Rifter and Traveller as well as Citroën Berlingo, Jumpy, Jumper and Spacetourer and Opel Vauxhall Combo, Vivaro, Movano and Zafira Life.
Research and Development
FCA historically engaged in research and development activities aimed at improving the design, performance, safety, energy efficiency, reliability, consumer perception and sustainability of its products and services. As of December 31, 2020, FCA operated 44 research and development centers worldwide with a combined headcount of approximately 18 thousand employees supporting its research and development efforts.
With respect to product development, FCA’s recent research initiatives were mainly concentrated in the areas of mobility electrification, automated driving, and connectivity technologies. Significant activity also continued to reduce overall vehicle energy demand, fuel consumption and emissions based on traditional technologies. In particular, fuel consumption and emissions reduction activities were primarily focused on powertrain technologies, including engines, transmissions, axles and drivelines, hybrid and electric propulsion and alternative fuels.
Vehicle Energy Demand
Vehicle energy demand-focused research and development recently concentrated on reducing weight, aerodynamic drag, tire rolling resistance, brake drag torque, driveline parasitic losses, heating and air conditioning, and electrical loads. FCA also continued to refine technical solutions and systems aimed at improving energy use according to operating conditions, such as active grille shutters, active front air dams, adjustable height suspension, variable speed fuel pumps, variable displacement air conditioning compressors and high efficiency brushless electric motors for cooling fans.
Powertrain Technologies
Electrified Vehicles Technology
FCA’s suite of electrification technologies included 12 volt engine stop/start, 48 volt mild hybrid, high voltage plug-in hybrid, and full battery electric vehicles. These developments occurred at FCA’s technical centers primarily in Auburn Hills (Michigan, USA), Modena and Turin (Italy). Substantial work was also performed with suppliers and universities located around the globe.
In addition, a fully electric variant of the Fiat 500, the Fiat 500e, launched in October 2020 and is manufactured for the European market at the Mirafiori plant in Turin, Italy. The Fiat 500e is offered in electric ranges of 320 km and 180 km. The Fiat Ducato Electric was also unveiled in 2019 and is expected to be launched in early 2021 in Europe.
In 2020, a new 12-volt BSG 3 cylinder 1.0L naturally-aspirated engine was launched in the Fiat Panda, Fiat 500 and Lancia Ypsilon in Europe. The new Maserati Ghibli mild hybrid launched in September 2020 equipped with a 2.0L turbo with ebooster and 48-volt BSG, the first step in Maserati’s electrification path.
The Chrysler Pacifica plug-in hybrid achieves an efficiency rating of 82 miles per gallon equivalent (“MPGe”), based on U.S. Environmental Protection Agency testing standards and has an approximately 72 percent reduction in CO2 compared to the non-hybrid Chrysler Pacifica. Power to the wheels is supplied via a 16 kWh battery through the hybrid electric drive system, which is comprised of a specially adapted version of the award winning Pentastar 3.6L V-6 engine and the eFlite hybrid transmission.
At the 2019 Geneva International Motor Show, FCA presented plug-in hybrid variants of the Jeep Renegade and Jeep Compass. The electric units are integrated into the new 1.3L turbo gasoline engine to increase efficiency and overall power with the simultaneous action of the internal combustion engine and the electric motor delivering up to 240 hp. The Jeep Renegade and Compass 4xe launched in mid-2020 for the European market, with the ability to travel 0-100 km/h in almost 7.5 seconds and drive up to 50 km on full electric propulsion at zero emission. The Jeep hybrid lineup is expected to be further expanded in early 2021 with the launch of the Jeep Wrangler 4xe for North America, Europe and China markets.
In 2018, FCA launched three applications of mild hybrids using belt starter generator (“BSG”) technology. BSG technology offers improvements in fuel economy and a reduction in CO2 emissions. The 48 volt mild hybrid technology is marketed as “eTorque” in the Jeep Wrangler equipped with the 3.6L V-6 engine, and the Ram 1500 5.7L V-8 and 3.6L V-6 applications. The system offers faster and smoother stop/start functionality, a real-time powertrain efficiency optimization manager which balances motor and engine torque, enhanced and extended fuel shut-off during certain maneuvers, and regenerative braking to recharge the 48 volt battery. The system also delivers significant gains in fuel economy.
The development of a Battery Hub at the Mirafiori plant in Turin, Italy, has begun and is expected to be dedicated to battery assembly and also host prototyping. Furthermore, in the Mirafiori plant area and close to the Battery Hub, a Battery Lab with state-of-the-art equipment for battery testing will be set up and be operational in early 2022.
FCA’s internal research and development activities have also been supplemented via collaboration with academic partners. One such example is a project in partnership with McMaster University (Canada), focused on developing next-generation, energy efficient, high performance, cost effective electrified powertrain components and control systems suitable for a range of vehicle applications. In Italy, a partnership with Polytechnic of Turin is in place, mainly focused on resources training and development of new electrified powertrain components.
Engines
In 2020, FCA continued development of the global small and global medium displacement gasoline engine families to improve fuel economy and emissions, adding new versions to better suit market needs. The global small engine (“GSE”) family includes three and four cylinder naturally aspirated and turbocharged versions. Each engine family features a modular approach using a shared cylinder design, allowing for different engine configurations, displacements, efficiency and power outputs. These engine families have been fully deployed to cover a large range of vehicle applications including features and technologies such as direct fuel injection, downsizing, integrated exhaust manifold, MultiAir variable valve lift, turbocharging, and cooled exhaust gas recirculation. All of these features enable the engine families to be competitive with respect to fuel consumption, performance, weight, noise, vibration and harshness behavior.
In 2020, FCA also developed a new 3.0L V-6 gasoline engine adding turbulent jet ignition (TJI) technology, dramatically increasing power output. A 1.0L GSE three cylinder engine mild hybrid was launched in EMEA in 2020, while a high output supercharged version of the global medium engine T4 was developed to support the Maserati lineup.
Transmissions, Axles and Driveline
In support of global fuel consumption and CO2 requirements, FCA introduced two hybridized transmission systems. The 2020 Jeep Renegade 4xe and Compass 4xe feature two electric motors (engine mounted and replacing the rear axle) and a 6-speed automatic transmission to facilitate seamless transitions between conventional and EV driving modes. In the 2021 Jeep Wrangler 4xe, FCA introduced an 8-speed plug-in hybrid transmission with a compact electric motor with output up to 100 kilowatts and 245 Newton-meters of torque. These products join the dedicated hybrid transmission (the eFlite) used in the Chrysler Pacifica plug-in hybrid and Jeep Commander plug-in hybrid produced by GAC Fiat Chrysler Automobiles Co., FCA’s joint venture with Guangzhou Automobiles Group Co., Ltd in China.
Additionally, FCA continued to investigate technologies to improve the efficiency of its 8 and 9-speed transmissions with lower viscosity automatic transmission fluid, auxiliary electric oil pumps and advanced torque converter designs.
The 6-speed manual transmission for rear-wheel drive applications, introduced on the Jeep Wrangler and Jeep Gladiator, offers optimized ratio spread to allow the engine to operate more efficiently. Industrialization began in 2019 for enhanced and updated variants of FCA’s small and midsize front-wheel drive manual transmissions and high efficiency bearings have been incorporated in updates to midsize front-wheel drive manual transmissions.
The 2021 Ram 1500 TRX introduces a new, larger center section rear axle with electronic locking differential and an upgraded front axle for increased performance and off-road capability. Additionally, upgraded axles and drivelines were provided to support increased power and torque ratings on the Maserati Levante, Ghibli and Quattroporte.
The 2021 Jeep Gladiator introduces an Off-Road Plus software feature to enhance traction performance, allowing the rear axle to lock in 4HI mode and at higher speeds. The 2021 Jeep Wrangler 4xe with hybrid transmission offers a transfer case for improved noise, vibration and harshness. The 2021 Ram Heavy Duty Max Tow offers an upgraded rear axle to support increased torque and payload capability. The 2021 Alfa Romeo Giulia and Stelvio offer new front and rear axle ratios that contribute to reduced CO₂. Additionally, the 2021 Chrysler Pacifica also offers an all-wheel drive option for improved all-weather performance.
Compressed Natural Gas
FCA was historically among the EU-market leaders in compressed natural gas (“CNG”) propulsion. From 1997 to 2020, FCA’s output of CNG-powered vehicles in Europe exceeded 780,000 vehicles.
Automated Driving Technology
In July 2020, FCA announced a second phase of its collaboration with Waymo (formerly the Google self-driving car project). The first phase integrated Waymo’s self-driving technology into the Chrysler Pacifica Hybrid as a development platform for the fully automated fleets that Waymo is operating in several cities around the United States. The second phase is expected to focus on LCVs to explore the potential of Level 4 automation for goods distribution.
FCA has launched “partial automation” vehicle technology with SAE Level 2 capability on the all-new full electric Fiat 500 and Maserati Quattroporte models and includes Mobileye vision technology. Previous versions of this technology had been limited to designated highways, but these vehicles allow the technology to be used on a wider variety of road types. Expanded Level 2 capability is expected to be released on additional vehicles in 2021.
Started with Aptiv in 2018, FCA’s development of an SAE Level 2+ (hands-off the wheel) automated driving system is now testing a fleet of vehicles with this capability with a planned launch in 2021.
A team of FCA engineers has been integrated in an autonomous vehicle development team with BMW in Munich, Germany to work on development of an SAE Level 3 (hands-off the wheel, eyes-off the road) capable automated driving platform. Beginning in 2020, FCA had prototype vehicles running early versions of this system on public roads in Italy and the U.S.
Connectivity
FCA launched cloud-based global connectivity in EMEA and China in 2019 and in North America in 2020. The roll-out is expected to be extended to Latin America in early 2021. This connectivity platform allows software updates to key systems in the vehicle and the addition of new or upgraded features via over-the-air services. The connectivity services leverage a new infotainment system based on the Android operating system. The unit, launched in the all-new full electric Fiat 500 in 2020 in EMEA, supports new connected features in the e-Mobility platform. The Dynamic Range Mapping app determines the maximum distance that can be driven based on the state of the charge and other factors, then overlays an area that can be driven onto the display map. The app also allows viewing of the charging points located nearby and displays a graphic indication of those that can be reached based on current battery charge level.
Maps are kept up to date using over-the-air updates. The My Car service can also check the battery charge of the all-new full electric Fiat 500 remotely. The My Remote app enables customers to schedule vehicle charging for the most convenient time slots, locate the nearest public charging stations, pay directly from their smartphone providing access to a network of 200,000 charging points throughout Europe, find the car’s exact location, lock and unlock the doors, turn the lights on and off, and program the air conditioning system. The same e-Mobility features are expected to be progressively made available for all legacy FCA PHEV and BEV vehicles.
Compliance-focused Initiatives by Region
The regulatory environment outlook across FCA’s four major regions showed continued CO2 reductions, ranging from 25-30 percent between 2019 and 2024. This anticipated regulatory stringency balanced with customer preferences guided research and development for future products and is highlighted below by region and key product segment.
North America
The U.S. policy is complex with three separate CO2 regulations, but it also contains a flexible array of new technology incentives to encourage industry movement toward an electrified future. For instance, U.S. regulation includes a tax credit to purchasers of up to U.S.$7,500 to incentivize demand and help to offset relatively low fuel prices and increasing consumer preference for SUVs and pickup trucks. This incentive is available on the first 200,000 qualifying electrified vehicles sold by each OEM and then begins to phase-out.
U.S. consumers tend to have long commutes and ready access to charging capability at home. FCA planned, by 2022, for more than 5 percent of its overall fleet (including commercial vehicles) to be high voltage electrified powertrain versions, with a focus on plug-in systems, more than 15 percent of the fleet to be equipped with mild hybrid systems and less than 80 percent to retain conventional internal combustion engines. The compliance strategy for the combined company is currently being assessed by Stellantis management.
Canadian CO2 policy largely mirrors U.S. requirements without the separate Corporate Average Fuel Economy (“CAFE”) rules. FCA’s technology plan and mix rates in Canada were consistent with its U.S. plans. Within Canada, British Columbia and Quebec have separate zero emission vehicle (“ZEV”) mandates which FCA expected to meet with a combination of ZEV vehicle sales and purchased credits.
LATAM
With its ability to grow sugar cane in high volume, Brazil is able to address CO2 reduction with a different approach. Today about 30 percent of vehicle fuel usage in Brazil consists of sugar cane produced ethanol. Sugar cane ethanol is 80 percent renewable from “well” (or field) to wheels and provides approximately 12.5 percent CO2 reduction on an equivalent 30/70 fuel mix E100/E22 basis. The Brazilian government recently launched a plan (RenovaBio) to improve quality and productiveness of ethanol, targeting an increase of share on Ethanol E100 in the fuel matrix from the current 30 percent to 40 percent in 2022 and to 55 percent in 2030. In addition, the Brazilian government and we are working very closely on research and development opportunities to further reduce CO2 emissions through improvements to ethanol-fueled engines.
Brazilian consumers already widely use ethanol fuel, readily available in the current retail fuel market. FCA expected that Brazilian CO2 fleet reduction targets would be met through 2025 with increased usage and efficiency of its ethanol based engines and without any high voltage electrification. The compliance strategy for the combined company is currently being assessed by Stellantis management.
APAC
China is leading the rapid change in this region. The Chinese government has stated intentions to become the global leader in electrification, connectivity and autonomous driving in the next decade. The regulatory policies include requirements on corporate fuel economy and new energy vehicle credit and incentives for new energy vehicles which are defined as battery electric, plug-in hybrid, or fuel cell vehicles.
Some large cities provide consumers with license plate incentives for new energy vehicles. Given these incentives can be as high as €12,500 per vehicle, we believe they will be successful in driving the market toward electrification.
From a consumer perspective, China has the highest number of first time car buyers in the world. Since much of the vehicle consumer demographic resides in urban areas, access to public charging is expected to be a critical element to achieving China’s electrified objectives.
FCA’s plan was, by 2022, for more than 18 percent of its overall fleet (including commercial vehicles) to use high voltage electrification, 10 percent of the fleet to be equipped with a mild hybrid system and approximately 72 percent of the fleet to retain conventional internal combustion engines. The compliance strategy for the combined company is currently being assessed by Stellantis management.
In contrast to China, India continues to be a cost sensitive market with a developing infrastructure. As a result, increased regulatory requirements were expected to be met through application of shared conventional technologies while the industry continues to investigate electrification options.
EMEA
Europe represents the most challenging combination of regulatory stringency and consumer price sensitivity. The EU drove a significant reduction in CO2 in 2020, and metropolitan areas are implementing low emission zones in an attempt to improve air quality in city centers. Conventional internal combustion engine applications will likely be restricted, especially with aging vehicles. The CO2 financial penalty structure is very significant.
Many consumers in Europe need reduced cost of vehicle ownership given high fuel prices and pressure on disposable income. As the demand for diesels continues to decrease, we intend to use mild hybrids as a replacement. The region will need to address the development of charging infrastructure so that zero emission vehicles are more convenient for consumers.
As previously announced, FCA introduced electrification technology on several models in 2020 including plug-in hybrid versions of the Jeep Renegade and Jeep Compass, an all-new full battery electric Fiat 500, as well as the inclusion of mild hybrid technology on the Fiat 500, Fiat Panda and Lancia Ypsilon. Maserati also launched a mild hybrid on the Ghibli in 2020. Leasys, a rental services subsidiary of FCA’s joint venture with Crédit Agricole Consumer Finance S.A., is expected to play a meaningful role in supporting these technologies to the market by leveraging its suite of mobility services. The compliance strategy for the combined company is currently being assessed by Stellantis management.
PSA
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
PSA historically focused on innovation and research and development in order to address the challenges faced by the automotive industry, including environmental and safety regulations, emerging mobility trends, networking needs and autonomous driving. PSA aimed to address customers’ expectations, limit the environmental impact of its vehicles by reducing their CO2 and other pollutant emissions and offer additional services, such as connectivity and autonomous driving.
Key areas of focus were clean technologies, optimization of internal combustion engines, new electric powertrains, vehicle optimization, connected cars and self-driving.
During the year ended December 31, 2020, PSA’s global research and development function was structured around five hubs, with around 15 thousand R&D employees.
During the same period, the R&D hub in Europe was comprised of:
•a R&D center in France that served as the main research and development site of PSA and was focused on the design and engineering of vehicles and sub-assemblies, as well as PSA’s core technology strategy, which sought to develop environmentally-friendly vehicles that support the energy transition, and intelligent, connected and autonomous cars to assist drivers.
•a R&D center in Germany that was tasked with developing all new Opel and Vauxhall cars, light commercial vehicles for all of PSA’s brands, fuel-cell vehicle innovations and the next four-cylinder petrol engine generation of PSA.
The R&D hub in Morocco supported R&D projects (such as Citroën AMI) and technologies and contributed to PSA’s growth in the Middle East and Africa region.
The R&D hub in China was responsible for the development of vehicles for sale in the Asian market and contributed to core technologies development, engine adaptation, local integration and industrialization.
The R&D hub in Latin America was dedicated to flex fuel engines, derivative body styles, local integration and manufacturing.
The R&D hub in India focused on developing PSA’s “smart car” program.
Intellectual Property
FCA historically owned a significant number of patents, trade secrets, licenses, trademarks and service marks, including, in particular, the marks of its vehicle and component and production systems brands, which related to its products and services. We expect the number to grow as we continue to pursue technological innovations. We file patent applications in Europe, the U.S. and around the world to protect technology and improvements considered important to our business. No single legacy FCA patent is material to our business as a whole.
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
PSA historically developed a portfolio of valuable innovations protected by intellectual property rights. While we consider all of the legacy PSA intellectual property to be important, we do not believe that the expiration or termination of any specific subset of such patents, trademarks, design patents or utility model registrations would materially affect our business as a whole.
Property, Plant and Equipment
As of December 31, 2020, FCA operated 109 manufacturing facilities (including vehicle and light commercial vehicle assembly, powertrain and components plants, and excluding joint ventures), of which 28 were located in Italy, 11 in the rest of Europe, 28 in the U.S., 11 in Mexico, 9 in Canada, 13 in Brazil, 2 in Argentina, 3 in China with the remaining plants in various other countries. FCA companies have also historically owned other significant properties including parts distribution centers, research laboratories, test tracks, warehouses and office buildings. The total carrying value of FCA’s property, plant and equipment as of December 31, 2020 was €27.6 billion.
A number of FCA’s manufacturing facilities and equipment, including land and industrial buildings, plant and machinery and other assets, were and are subject to mortgages and other security interests granted to secure indebtedness to certain financial institutions. As of December 31, 2020, property, plant and equipment reported as pledged as collateral for loans amounted to approximately €1.1 billion, excluding Right-of-use assets (refer to Note 11, Property, plant and equipment).
FCA was not aware of any environmental issues that would materially affect the utilization of FCA’s fixed assets. See Industrial Environmental Control.
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
As of December 31, 2020, PSA operated 34 manufacturing facilities, of which 15 were located in France, 15 in the rest of Europe, two in Brazil, one in Argentina and one in Morocco. PSA also owned significant properties, including distribution centers, research laboratories, test tracks, warehouses and office buildings.
In addition, PSA operated several joint ventures for the production of vehicles and for the production of powertrains.
Supply of Raw Materials, Parts and Components
FCA historically purchased a variety of components (including mechanical, steel, electrical and electronic, plastic components as well as castings and tires), raw materials, supplies, utilities, logistics and other services from numerous suppliers. The purchase of raw materials, parts and components historically typically accounted for 70-80 percent of total Cost of revenues. Of these purchases, 10-15 percent historically related to the cost of raw materials, including steel, rubber, aluminum, resin, copper, lead, and precious metals (including platinum, palladium and rhodium).
FCA’s historical focus on quality improvement, cost reduction, product innovation and production flexibility required the company to rely upon suppliers with a focus on quality and the ability to provide cost reductions. FCA had value relationships with suppliers, and in recent years, worked to establish closer ties with a significantly reduced number of suppliers by selecting those that enjoy a leading position in the relevant markets. In addition, FCA sourced some of the parts and components for vehicles internally from Teksid. Subsequent to the announced sale of Teksid's cast iron business, Stellantis expects to enter into a long-term supply agreement with the acquirer, Tupy S.A. FCA previously agreed to a multi-year supply agreement with Magneti Marelli in connection with the sale of that business. FCA did not experience any major loss of production as a result of material or parts shortages in recent years, although, like most of its competitors, FCA regularly sourced some of its systems, components, parts, equipment and tooling from a single provider or limited number of providers. However, we are at risk of production delays and lost production should any supplier fail to deliver goods and services on time. For example, a global semiconductor shortage impacted our production volumes in early 2021. See also “Risk Factors - We face risks associated with increases in costs, disruption of supply or shortages of raw materials, parts, components and systems used in our vehicles.” and “Risk Factors - Business interruptions resulting from the coronavirus (COVID-19) pandemic could continue to cause disruption to the manufacture and sale of our products and the provision of our services and adversely impact our business.”
Supply of raw materials, parts and components can also be disrupted or interrupted by natural disasters. In such circumstances, FCA historically worked proactively with suppliers to identify material and part shortages and take steps to mitigate their impact by deploying additional personnel, accessing alternative sources of supply and managing its production schedules. FCA also continued to refine processes to identify emerging capacity constraints in the supplier tiers given the ramp up in manufacturing volumes to meet volume targets. Furthermore, FCA continuously monitored supplier performance according to key metrics such as part quality, delivery, performance, financial solvency and sustainability.
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
PSA’s automotive division purchases historically included:
•direct material parts: purchases of vehicle parts, mechanical subassemblies and raw materials;
•purchases of spare parts and accessories; and
•indirect machinery and equipment: selling, general and administrative expenses attributable to the automotive division’s purchases and costs related to services, commercial facilities, motorsport, information technology and telecommunications.
Employees
At December 31, 2020, FCA had a total of 189,512 employees (excluding employees of joint arrangements, associates and unconsolidated subsidiaries), a 1.2 percent decrease from December 31, 2019 and a 4.5 percent decrease over December 31, 2018. The following table provides a breakdown of these employees as of December 31, 2020, 2019 and 2018, indicated by type of contract and region.
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| Hourly | | Salaried | | Total |
| 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Europe | 36,162 | | 37,609 | | 40,446 | | 22,315 | | 23,027 | | 24,170 | | 58,477 | | 60,636 | | 64,616 |
North America(1) | 72,773 | | 72,667 | | 74,703 | | 22,335 | | 22,954 | | 22,326 | | 95,108 | | 95,621 | | 97,029 |
| Latin America | 25,188 | | 24,525 | | 26,004 | | 7,020 | | 7,088 | | 7,062 | | 32,208 | | 31,613 | | 33,066 |
| Asia | 204 | | 230 | | 253 | | 3,284 | | 3,413 | | 3,313 | | 3,488 | | 3,643 | | 3,566 |
| Rest of the world | 44 | | 46 | | 46 | | 187 | | 193 | | 222 | | 231 | | 239 | | 268 |
| Total | 134,371 | | 135,077 | | 141,452 | | 55,141 | | 56,675 | | 57,093 | | 189,512 | | 191,752 | | 198,545 |
(1) Refers to the geographical area and not FCA’s North America reporting segment.
FCA maintained dialogue with trade unions and employee representatives to achieve consensus-based solutions for responding to different market conditions in each geographic area. We have had no significant instances of labor unrest overall, and no significant local labor actions in the past three years.
In Europe, FCA established a European Works Council (the “EWC”) in 1997 to ensure workers the right to information and consultation as required by European Union regulations applicable to community-scale undertakings. The EWC was established on the basis of an agreement initially signed in 1996 and subsequently revised and amended with a further amendment executed in July 2016. The amendment increased the number of total seats from 20 to 24 so that additional employees from new countries within the scope of the EWC are represented.
The exit of Magneti Marelli from the FCA Group required the composition of the European Works Council (EWC), to be redefined, which was not completed during 2020. At the request of the Trade Unions, an extraordinary meeting was granted on December 18, 2020, in order to guarantee the continuity of information and consultation, especially in view of the merger project between FCA and PSA.
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
At December 31, 2020, PSA employed approximately 204,000 employees, out of which approximately 110,000 were employed in the Automotive Division, approximately 3,000 in the Finance Division and approximately 91,000 in the Automotive Equipment Division, under permanent or fixed term contracts, including apprenticeships. Approximately 73 percent of PSA’s employees were based in Europe.
Trade Unions and Collective Bargaining
FCA employees were historically free to join any trade union provided they do so in accordance with local law and the rules of the related trade union. The FCA Group historically recognized and respected the right of its employees to be represented by trade unions or other representatives in accordance with local applicable legislation and practice.
During the year ended December 31, 2020, a large portion of FCA’s workers in Italy, the U.S., Canada and Mexico were represented by trade unions. In addition to the rights granted to all Italian trade unions and workers concerning freedom of association, in the Italian collective labor agreement FCA agreed an additional service by paying the trade union dues on behalf of the employees.
Collective bargaining at various levels resulted in major agreements being reached with trade unions on both wage and employment conditions in several countries. Based on an average figure that includes the Sevel plant (Italy), 87 percent of FCA’s employees worldwide are covered by collective bargaining agreements.
In Italy, substantially all of FCA’s employees were covered by collective bargaining agreements. FCA continued to apply the terms of the company-specific collective labor agreement (CCSL), which was renewed on March 11, 2019 until December 2022 with the Trade Unions FIM-CISL, UILM-UIL, FISMIC, UGLM and AQCFR. The Agreement covered about 52,300 employees and includes:
•the increase in the basic contractual salary of 2 percent per year;
•the strengthening (+1.5 percent) of the annual bonus calculated on the basis of production efficiencies achieved and the plant’s WCM audit status;
•the increase (+0.5 percent) of the contribution paid by the company to supplementary pension fund;
•several further initiatives aimed at increasing the flexibility of working time and new ways of working linked to the technological and organizational evolution of work; and
•a new classification of workers, capable of interpreting the continuous evolution of professional skills.
During the year, also in consideration of the COVID-19 pandemic, new regulations on agile work, introduced by the CCSL renewal, were widely implemented. In April 2020, a Protocol, containing the guidelines for dealing with the health emergency and operating safely in the workplace, was signed with all the Trade Unions. This Protocol was updated several times during the year, in line with the evolution of the pandemic risk.
In December 2019, the UAW-represented workforce ratified a new four-year collective bargaining agreement that builds on the company’s commitment to grow its U.S. manufacturing operations by providing for total investments of U.S.$9 billion and the creation of 7,900 new or secured jobs. The provisions of the agreement continued certain opportunities for success-based compensation upon meeting certain quality and financial performance metrics. The agreement, which covers about 49,200 employees, included a ratification bonus of U.S.$9,000 for “Traditional” and “In-progression” employees and U.S.$3,500 for temporary employees, as well as lump-sum payments, both of which are in lieu of further wage increases, totaling U.S.$499 million (€446 million) that were paid to UAW members on December 27, 2019. Lump sum payments made in lieu of future wage increases are being amortized over the contract period.
In September 2020, the four-year collective bargaining agreement that was entered into in September 2016 with Unifor in Canada expired. FCA entered into a three-year labor agreement with Unifor in Canada that was ratified on October 19, 2020. The terms of this agreement provides a $7,250 Canadian dollars (“CAD$”) lump sum payment for all active employees, CAD$500 for all eligible temporary part-time employees, up-front lump sum payments of CAD$7,250 to all employees on indefinite layoff and lump sum retirement allowance of CAD$3,625 for employees who retired during 2020. The total ratification bonus of approximately CAD$59 million (€38 million) was paid on November 20, 2020. The agreement covers more than 9,200 employees and expires in October 2023. The lump sum payments, which were made in lieu of future wage increases, are being amortized ratably over three-year contract period.
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
PSA historically actively supported employee freedom of association and representation and respected the independence and pluralism of unions at all its facilities. As of December 31, 2020, 98 percent of PSA’s Automotive Division employees were represented by unions or by employee representatives.
As of December 31, 2020, 93 percent of PSA’s Automotive Division employees worldwide were covered by a collective bargaining agreement.
The Global Works Council of PSA was the body bringing together employee representatives of PSA at the global level.
PSA also established a Union-Management Strategy Committee, an international body designed to allow more and earlier involvement of the employee representatives in PSA’s strategy.
Sales Overview
New vehicle sales representrepresented sales of FCA vehicles primarily by dealers and distributors, or, directly by FCA in some cases, directly by us, to retail customers and fleet customers. Sales includeincluded mass-market and luxury vehicles manufactured at ourFCA plants, as well as vehicles manufactured by our joint ventures and third party contract manufacturers and distributed under our brands and through our network.FCA brands. Sales figures excludeexcluded sales of vehicles that weFCA contract manufacturemanufactured for other OEMs. While vehicle sales arewere illustrative of ourFCA’s competitive position and the demand for ourits vehicles, sales arewere not directly correlated to our Net revenues, Cost of revenues or other measures of financial performance in any given period, as such results arewere primarily driven by our vehicle shipments to dealers and distributors. For a discussion of ourFCA’s shipments, seeItem 5A. Operating Results— FINANCIAL OVERVIEW—FCA Shipment Information. The following table shows FCA new vehicle sales by geographic market for the periods presented.
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| | Years ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | (millions of units) |
| North America | | 2.0 | | 2.5 | | 2.5 |
| LATAM | | 0.5 | | 0.6 | | 0.6 |
| APAC | | 0.1 | | 0.2 | | 0.2 |
| EMEA | | 1.1 | | 1.3 | | 1.4 |
| Total Mass-Market Vehicle Brands | | 3.7 | | 4.6 | | 4.7 |
| Maserati | | 0.02 | | 0.03 | | 0.04 |
| Total Worldwide | | 3.8 | | 4.6 | | 4.8 |
|
| | | | | | | | | |
| | | Years ended December 31 |
| | | 2017 | | 2016 | | 2015 |
| | | (millions of units) |
| NAFTA | | 2.4 |
| | 2.6 |
| | 2.6 |
|
| LATAM | | 0.5 |
| | 0.5 |
| | 0.6 |
|
| APAC | | 0.3 |
| | 0.2 |
| | 0.2 |
|
| EMEA | | 1.5 |
| | 1.4 |
| | 1.3 |
|
| Total Mass-Market Vehicle Brands | | 4.7 |
| | 4.7 |
| | 4.7 |
|
| Maserati | | 0.05 |
| | 0.04 |
| | 0.04 |
|
| Total Worldwide | | 4.8 |
| | 4.7 |
| | 4.7 |
|
NAFTA
NAFTANorth America Sales and Competition
The following table presents FCA mass-market vehicle sales and estimated market share in the NAFTANorth America segment for the periods presented:
| | | | | | | | | | | | | | | | Years ended December 31, |
| | | Years ended December 31 | | 2020(1),(2) | | 2019(1),(2) | | 2018(1),(2) |
| | | 2017(1),(2) | | 2016(1),(2) | | 2015(1),(2),(3) | |
| NAFTA | | Sales | | Market Share | | Sales | | Market Share | | Sales | | Market Share | |
| North America | | North America | | Sales | | Market Share | | Sales | | Market Share | | Sales | | Market Share |
| | | Thousands of units (except percentages) | | Thousands of units (except percentages) |
| U.S. | | 2,059 |
| | 11.7 | % | | 2,244 |
| | 12.6 | % | | 2,253 |
| | 12.6 | % | U.S. | | 1,821 | | 12.2% | | 2,204 | | 12.6% | | 2,235 | | 12.6% |
| Canada | | 267 |
| | 13.0 | % | | 279 |
| | 14.2 | % | | 291 |
| | 15.1 | % | Canada | | 179 | | 11.6% | | 223 | | 11.6% | | 225 | | 11.3% |
| Mexico and Other | | 86 |
| | 5.5 | % | | 88 |
| | 5.3 | % | | 87 |
| | 6.3 | % | Mexico and Other | | 48 | | 5.0% | | 63 | | 4.7% | | 74 | | 5.1% |
| Total | | 2,412 |
| | 11.4 | % | | 2,611 |
| | 12.2 | % | | 2,631 |
| | 12.4 | % | Total | | 2,048 | | 11.8% | | 2,490 | | 12.0% | | 2,534 | | 12.0% |
(1) Certain fleet sales that arewere accounted for as operating leases are included in vehicle sales.
(2) Estimated market share data presented arewere based on management’s estimates of industry sales data, which useused certain data provided by third-party sources, including IHS Markit and Ward’s Automotive.
(3) Sales information has been restated to be consistent with reporting methodology disclosed in the FCA US press release issued July 26, 2016.
The following table presents estimated new vehicle market share information for
usFCA and
ourFCA’s principal competitors in the U.S.,
ourhistorically FCA’s largest market in the
NAFTANorth America segment:
| | | | | Years ended December 31 | | Years ended December 31, |
| U.S. | | 2017 | | 2016 | | 2015 | U.S. | | 2020 | | 2019 | | 2018 |
| Automaker | | Percentage of industry | Automaker | | Percentage of industry |
| GM | | 17.1 | % | | 17.0 | % | | 17.3 | % | GM | | 17.1% | | 16.5% | | 16.7% |
| Ford | | 14.7 | % | | 14.6 | % | | 14.7 | % | Ford | | 13.7% | | 13.8% | | 14.1% |
| Toyota | | 13.9 | % | | 13.7 | % | | 14.0 | % | Toyota | | 14.2% | | 13.6% | | 13.7% |
| FCA | | 11.7 | % | | 12.6 | % | | 12.6 | % | FCA | | 12.2% | | 12.6% | | 12.6% |
| Honda | | 9.3 | % | | 9.2 | % | | 8.9 | % | Honda | | 9.0% | | 9.2% | | 9.1% |
| Hyundai/Kia | | Hyundai/Kia | | 8.2% | | 7.6% | | 7.2% |
| Nissan | | 9.1 | % | | 8.8 | % | | 8.3 | % | Nissan | | 6.0% | | 7.7% | | 8.4% |
| Hyundai/Kia | | 7.3 | % | | 8.0 | % | | 7.8 | % | |
| Other | | 16.9 | % | | 16.1 | % | | 16.4 | % | Other | | 19.6% | | 19.0% | | 18.2% |
| Total | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total | | 100.0% | | 100.0% | | 100.0% |
After a sharp decline from 2007 to 2010, the U.S. automotive market sales steadily improved through 2015, remained stable in 2016 and slightly declined in 2017. U.S. industry sales, including medium and heavy-duty vehicles, increased from 10.6 million units in 2009 to 17.914.9 million units in 2016, before slightly decreasing to 17.6 million units in 2017.2020. The strong recovery in the automotive sector, in 2015from 2009 through 2019, was supported by robust macroeconomic and automotive specific factors, such as growth in per capita disposable income, improved consumer confidence, the increasing age of vehicles in operation, improved consumer access to affordably priced financing and higher prices of used vehicles. While these contributing factors remain relatively strong, someThe decrease in the 2020 U.S. industry sales was significantly driven by the impacts of them have begun to moderate in 2016 and 2017, which has resulted in a plateauing of auto sales, albeit at high levelsCOVID-19 on a historic basis.the U.S. automotive industry.
OurFCA’s vehicle line-up in the NAFTANorth America segment leveragesprimarily leveraged the brand recognition of the Jeep, Ram, Dodge and Chrysler brands to offer utility vehicles, pickup trucks, cars and minivans under those brands, as well as vehicles in smaller segments, such as the Fiat 500 in the micro/small-segment and the Fiat 500X and Jeep Renegade in the small SUV/crossover segment. Our vehiclebrands. Vehicle sales and profitability in the NAFTANorth America segment arewere generally weighted towards larger vehicles such as utility vehicles, trucks and vans, whileconsistent with overall industry sales trends in the NAFTANorth America segment, generally are more evenlywhich have become increasingly weighted between smallertowards utility vehicles and larger vehicles. In 2017 we begantrucks in recent years.
The decrease in 2020 sales compared to distribute2019, resulted primarily from COVID-19 related suspension of production during the all-new Alfa Romeo Giulia and Stelvio infirst half of 2020, partially offset by the NAFTA region.positive performance of the Jeep Gladiator, which was launched during 2019, which despite the impact of COVID-19 saw strong sales for the full year 2020.
NAFTANorth America Distribution
In the NAFTANorth America segment, ourFCA’s vehicles arewere sold primarily to dealers in ourits dealer network for sale to retail consumers and to fleet customers. Fleet sales in the commercial channel arewere typically more profitable than sales in the government and daily rental channels since they more often involve customized vehicles with more optional features and accessories; however, vehicle orders in the commercial channel arewere usually smaller in size than the orders made in the daily rental channel. Fleet sales in the government channel arewere generally more profitable than fleet sales in the daily rental channel primarily due to the mix of products included in each respective channel.
NAFTANorth America Dealer and Customer Financing
In the NAFTANorth America segment, we doFCA did not have a captive finance company or joint venture and instead relyrelied upon independent financial service providers, including Santander Consumer USA Inc. (“SCUSA”) to provide financing for dealers and retail customers in the U.S. In February 2013, weFCA entered into a private label financing agreement with SCUSA (the “SCUSA Agreement”), under which SCUSA provideswill continue to provide a wide range of wholesale and retail financial services to our dealers and retail customers in the U.S., under the Chrysler Capital brand name and covering the Chrysler, Jeep, Dodge, Ram, Fiat and FiatAlfa Romeo brands.
The SCUSA Agreement has a ten year term from February 2013,expiring in April 2023, subject to early termination in certain circumstances, including the failure by a party to comply with certain of its ongoing obligations under the agreement. Under the SCUSA Agreement, SCUSA has certain rights, including limited exclusivity to participate in specified minimum percentages of certain retail financing rate subvention programs. SCUSA’s exclusivity rights arewhich will continue to be subject to SCUSA maintaining certain performance standards and price competitiveness based on minimum approval rates and market benchmark rates to be determined through a steering committee process as set out in the SCUSA Agreement.
On June 28, 2019, FCA US entered into an amendment (the “Amendment”) to the SCUSA Agreement. The Amendment modified certain terms of the agreement, with the remaining term unchanged through to April 2023, and in connection with its execution, SCUSA made a one-time, nonrefundable, non-contingent, cash payment of U.S.$60 million (€53 million) to FCA US as part of a negotiated resolution of open matters. Refer to Note 25, Guarantees granted, commitments and contingent liabilities, within FCA’s Consolidated Financial Statements included elsewhere in this report.
As of December 31, 2017,2020, SCUSA was providingprovided wholesale lines of credit to approximately 98 percent of ourFCA’s dealers in the U.S., while Ally Financial Inc. (“Ally”) was at 3532 percent. For the year ended December 31, 2017, we estimate that2020, approximately 8588 percent of the vehicles purchased by ourFCA’s U.S. retail customers were financed or leased, of which approximately 4453 percent financed or leased through SCUSA (26(39 percent) and Ally (18(14 percent). Alfa Romeo brand development within the U.S. iswas also supported by dealer and retail customer financing with primary financial institutions. Additionally, we haveFCA had arrangements with a number of financial institutions to provide a variety of dealer and retail customer financing programs in Canada and a private label agreement with Inbursa Group in Mexico.
LATAM
LATAM Sales and Competition
The following table presents FCA mass-market vehicle sales and market share in the LATAM segment for the periods presented: |
| | | | | | | | | | | | | | | | | | |
| | | Years ended December 31 |
| | | 2017(1) | | 2016(1) | | 2015(1) |
| LATAM | | Sales | | Market Share | | Sales | | Market Share | | Sales | | Market Share |
| | | Thousands of units (except percentages) |
| Brazil | | 380 |
| | 17.5 | % | | 365 |
| | 18.4 | % | | 483 |
| | 19.5 | % |
| Argentina | | 105 |
| | 12.2 | % | | 79 |
| | 11.6 | % | | 74 |
| | 11.9 | % |
| Other LATAM | | 28 |
| | 2.5 | % | | 29 |
| | 2.9 | % | | 27 |
| | 2.7 | % |
| Total | | 513 |
| | 12.4 | % | | 473 |
| | 12.9 | % | | 584 |
| | 14.2 | % |
______________________________ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2020(1) | | 2019(1) | | 2018(1) |
| LATAM | | Sales | | Market Share | | Sales | | Market Share | | Sales | | Market Share |
| | Thousands of units (except percentages) |
| Brazil | | 434 | | 22.2% | | 497 | | 18.7% | | 434 | | 17.5% |
| Argentina | | 49 | | 15.2% | | 54 | | 12.4% | | 99 | | 12.8% |
| Other LATAM | | 19 | | 2.5% | | 29 | | 2.7% | | 33 | | 2.9% |
| Total | | 502 | | 16.5% | | 580 | | 13.9% | | 566 | | 12.8% |
_______________________________________________________________________________________________________________________________________________
(1) Estimated market share data presented arewere based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Markit, National Organization of Automotive Vehicles Distribution and Association of Automotive Producers.
The following table presents ourFCA’s mass-market vehicle market share information and ourFCA’s principal competitors in Brazil, ourFCA’s largest market in the LATAM segment:
| | | Brazil | | Years ended December 31 | Brazil | | Years ended December 31, |
| | | 2017(1) | | 2016(1) | | 2015(1) | | 2020(1) | | 2019(1) | | 2018(1) |
| Automaker | | Percentage of industry | Automaker | | Percentage of industry |
| FCA | | FCA | | 22.2% | | 18.7% | | 17.5% |
| GM | | 18.1 | % | | 17.4 | % | | 15.6 | % | GM | | 17.3% | | 17.9% | | 17.6% |
| FCA | | 17.5 | % | | 18.4 | % | | 19.5 | % | |
| Volkswagen | | 12.5 | % | | 12.1 | % | | 15.2 | % | Volkswagen | | 17.0% | | 15.6% | | 14.8% |
| Ford | | 9.5 | % | | 9.1 | % | | 10.2 | % | Ford | | 7.1% | | 8.2% | | 9.2% |
| Other | | 42.4 | % | | 43.0 | % | | 39.5 | % | Other | | 36.4% | | 39.6% | | 40.9% |
| Total | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total | | 100.0% | | 100.0% | | 100.0% |
(1) OurFCA’s estimated market share data presented arewere based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Markit, National Organization of Automotive Vehicles Distribution and Association of Automotive Producers.
Automotive industry volumes within the countries in which the LATAM segment operates increased 13historically operated decreased 27.3 percent from 2016,2019 to 4.13.0 million vehicles (cars and light commercial vehicles) in 2017,2020, which was primarily driven by the impact of COVID-19 on the LATAM automotive industry. Overall there was a 926.7 percent increasedecrease in Brazil's industry vehicle sales in Brazil, reflecting improvingCOVID-19 related impacts partially offset by continued improvement in market conditions combined with an increaseduring the second half of 262020, and a 26.5 percent decline in Argentina's industry vehicle sales.sales in Argentina, reflecting the impact of COVID-19 and the continued economic challenges in Argentina.
Although Group revenuesThe FCA Group's market share in LATAM increased 29 percent from 2016, the Group's market share decreased 50260 basis points from 12.913.9 percent to 12.416.5 percent, due to strong competition.primarily reflecting market share growth in Brazil. In Brazil, overall market share decreasedincreased 350 basis points to 22.2 percent from 18.4 percent to 17.518.7 percent while, in Argentina, overall market share increased 280 basis points to 12.215.2 percent from 11.612.4 percent in 2016.2019.
Vehicle salesFCA’s vehicle line-up in LATAM historically leveraged the LATAM segment leverage the namebrand recognition of Fiat, andas well as the relatively urban population of countries like Brazil, to offer Fiat brand Segment A and Boffered vehicles in our key markets insmaller segments, such as the LATAM segment. In Brazil,all-new Fiat Uno as well as the Fiat Mobi, Argo and Cronos. Fiat also leadsled the pickup truck market in Brazil, with the Fiat Strada and all-new Fiat Strada (27.9 percent market share) and the Fiat Toro at 19.4(18.8 percent and 17.9market share). Jeep led the SUV segment in Brazil with 20.8 percent respectively, while Jeep is continuing its momentum in the small and medium SUV segments with the all-new Jeep Compass increasing market share to 12.2 percentbased on the performance of the Jeep Renegade and the Jeep Renegade having a segment share of 9.5 percent.Compass.
LATAM Distribution
In the LATAM segment, we generally enterFCA historically entered into multiple dealer agreements with a single dealer, covering one or more pointsindividual dealerships. Outside the major markets of sale. Outside Brazil and Argentina, our major markets, we distribute ourFCA mainly distributed its vehicles mainly through general distributors and their dealer networks.distributors.
LATAM Dealer and Customer Financing
In the LATAM segment, we provideFCA provided access to dealer and retail customer financing both through both 100 percent owned captive finance companies and also through strategic relationships with financial institutions.
WeFCA will continue to have two 100 percent owned captive finance companies in the LATAM segment:segment that offered dealer and retail customer financing: Banco Fidis S.A. (“Banco Fidis”) in Brazil and FCA Compañia Financiera S.A. in Argentina. These captive finance companies offer dealer and retail customer financing. In addition, in Brazil weFCA will continue to have two significant commercial partnerships with Banco Itaù and Bradesco to provide financing to retail customers purchasing FCA branded vehicles. Banco Itaù is a leading vehicle retail financing company in Brazil. ThisBrazil and FCA’s partnership was renewed in August 2013 for a ten-year term ending in 2023. Under this agreement, which applied only to FCA’s retail customers purchasing Fiat branded vehicles, Banco Itaù haswill continue to have exclusivity on ourFCA’s promotional campaigns and preferential rights on non-promotional financing. WeFCA will continue to receive commissions in connection with each vehicle financing above a certain threshold. This agreement applies only to our retail customers purchasing Fiat branded vehicles. In July 2015, FCA Fiat Chrysler Automoveis Brasil (“FCA Brasil”) and Banco Fidis signed a ten-year partnership contract with Bradesco, one of the leading Brazilian banks, through its affiliate Bradesco Financiamentos, whereby Bradesco Financiamentos finances retail sales of Jeep, Chrysler, Dodge and Ram vehicles in Brazil. Under this agreement, Bradesco haswill continue to have exclusivity on promotional campaigns and FCA Brasil promotes Bradesco as itsFCA Brasil’s official financial partner. Banco Fidis iswill continue to be in charge of the commercial management of this partnership and receivesreceived commissions for this partnership agreement and for acting as banking agent, based on profitability and penetration.
APAC
APAC Sales and Competition
The following table presents FCA vehicle sales and market share in the APAC segment for the periods presented:segment: | | | | | Years ended December 31 | | Years ended December 31, |
| | | 2017(1),(4) | | 2016(1),(4) | | 2015(1),(4) | | 2020(1),(4) | | 2019(1),(4) | | 2018(1),(4) |
| APAC | | Sales | | Market Share | | Sales | | Market Share | | Sales | | Market Share | APAC | | Sales | | Market Share | | Sales | | Market Share | | Sales | | Market Share |
| | | Thousands of units (except percentages) | | Thousands of units (except percentages) |
China(2) | | 215 |
| | 0.9 | % | | 176 |
| | 0.8 | % | | 139 |
| | 0.8 | % | China(2) | | 56 | | 0.3% | | 92 | | 0.4% | | 163 | | 0.8% |
| Japan | | 21 |
| | 0.5 | % | | 20 |
| | 0.5 | % | | 17 |
| | 0.4 | % | Japan | | 24 | | 0.6% | | 24 | | 0.6% | | 22 | | 0.5% |
India(3) | | 15 |
| | 0.5 | % | | 7 |
| | 0.2 | % | | 9 |
| | 0.3 | % | India(3) | | 6 | | 0.2% | | 12 | | 0.4% | | 19 | | 0.6% |
| Australia | | 13 |
| | 1.1 | % | | 18 |
| | 1.6 | % | | 35 |
| | 3.1 | % | Australia | | 8 | | 0.9% | | 9 | | 0.8% | | 11 | | 1.0% |
| South Korea | | 8 |
| | 0.5 | % | | 7 |
| | 0.4 | % | | 7 |
| | 0.4 | % | South Korea | | 9 | | 0.5% | | 10 | | 0.7% | | 8 | | 0.5% |
| APAC 5 major Markets | | 272 |
| | 0.8 | % | | 228 |
| | 0.7 | % | | 207 |
| | 0.7 | % | APAC 5 major Markets | | 103 | | 0.4% | | 147 | | 0.5% | | 223 | | 0.7% |
| Other APAC | | 5 |
| | — |
| | 5 |
| | — |
| | 8 |
| | — |
| Other APAC | | 5 | | — | | 5 | | — | | 5 | | — |
| Total | | 277 |
| | — |
| | 233 |
| | — |
| | 215 |
| | — |
| Total | | 108 | | | | 152 | | — | | 228 | | — |
(1) Estimated market share data presented arewere based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Markit and NationalChina Association of Automobile Manufacturing Associations.Manufacturers. Effective January 2019, industry data sourced from China Passenger Car Association.
(2) Sales data include vehicles soldshipped by ourFCA’s joint venturesventure in China.
(3) India market share is based on wholesale volumes.
(4) Sales reflect retail deliveries. APAC industry reflects aggregate for major markets where the FCA Group competes (China, Australia, Japan, South Korea, and India). Market share is based on retail registrations except, as noted above, in India where market share is based on wholesale volumes.
The automotive industry in the APAC segment has shown a year-over-year growth. Industrydecline, with industry sales in the five key markets (China, India, Japan, Australia and South Korea) where we competedecreasing by 7.8 percent to 28.8 million. The 2020 decline in the market was primarily due to the impacts of COVID-19 on the automotive industry. Overall for the ten year period in the five key markets in which FCA competes, industry sales have historically increased from 16.1 million in 2009 to 33.528.8 million in 2017,2020, a compound annual growth rate (“CAGR”) of approximately 105 percent. Industry demand increased across the regiondecreased from 2019 to 2020 with decreases in 2017 with growth inChina (6.4 percent), Australia (13.9 percent), India (+9(18.0 percent), and Japan (+6(11.4 percent), with China and Australia flat, offsetting a 3 percent decrease partially offset by increases in industry demand in South Korea.Korea (6.8 percent).
We sellFCA sold a range of vehicles in the APAC segment, including small and compact cars and utility vehicles. Although ourFCA’s smallest mass-market segment by vehicle sales, we believeFCA believed the APAC segment represents a significant growth opportunity and we have invested in building relationships with key joint venture partners in China and India in order to increase ourFCA’s presence in the region. In 2010, the GAC Fiat Chrysler Automobiles Co. (“GAC FCA JVJV”), FCA’s joint venture with Guangzhou Automobiles Group Co., Ltd., was formed for the production of Fiat brand passenger cars due to the demand for mid-size vehicles in China.formed. In 2015, we expanded local production by the GAC FCA JVwas expanded with the production of the Jeep Cherokee and in 2016 we continued the transition to local SUV production in China with the production of the Jeep Renegade and the all-new Jeep Compass at the Guangzhou plant of the GAC FCA JV.Compass. In 2016, the Jeep brand also made its return to India, with the launches of the imported Jeep Wrangler and Jeep Grand Cherokee. In 2017, weFCA launched the imported Alfa Romeo Giulia and Alfa Romeo Stelvio in China and local production of the all-new Jeep Compass was launched in the Ranjangaon, India plant. In 2018, FCA launched the Grand Commander in China, a premium seven-seater SUV produced at the GAC FCA JV plant in Changsha, China, with the Jeep Commander PHEV, a 5-passenger plug-in hybrid SUV developed for saleChina, following in India and other right-hand drive countries.2019. In other parts of the APAC segment, we distributeFCA distributed vehicles that we manufacturewere manufactured in the U.S., Europe and EuropeIndia through ourFCA’s dealers and distributors.
APAC Distribution
In the key markets in the APAC segment (China, Australia, India, Japan and South Korea), we sell ourFCA sold its vehicles through 100 percent owned subsidiaries or through ourFCA’s joint venture to local independent dealers. In other markets where we doFCA did not have a substantial presence, we haveFCA had agreements with general distributors for the distribution of our vehicles through their networks.distributors.
APAC Dealer and Customer Financing
In the APAC segment, we operateFCA operated a 100 percent owned captive finance company, FCA Automotive Finance Co., Ltd, which supports FCA sales activities in China on a non-exclusive basis our sales activities in China through dealer and retail customer financing. Cooperation agreements are also in place with third partythird-party financial institutions to provide dealer network and retail customer financing in India, South Korea, Australia and Japan.
EMEA
EMEA Sales and Competition
The following table presents passenger carFCA vehicle sales and light commercial vehicle salesmarket share in the EMEA segment for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2020(1),(2),(3) | | 2019(1),(2),(3) | | 2018(1),(2),(3) |
| EMEA | | Sales | | Market Share | | Sales | | Market Share | | Sales | | Market Share |
| | Thousands of units (except percentages) |
| Italy | | 380 | | 24.7% | | 521 | | 24.8% | | 571 | | 27.3% |
| Germany | | 127 | | 4.0% | | 130 | | 3.3% | | 155 | | 4.0% |
| France | | 85 | | 4.2% | | 127 | | 4.7% | | 139 | | 5.3% |
| Spain | | 54 | | 5.3% | | 87 | | 5.9% | | 97 | | 6.4% |
| UK | | 38 | | 1.9% | | 53 | | 2.0% | | 62 | | 2.3% |
| Other Europe | | 184 | | 4.5% | | 244 | | 4.7% | | 252 | | 4.9% |
| Europe* | | 868 | | 6.3% | | 1,162 | | 6.4% | | 1,276 | | 7.1% |
| Other EMEA** | | 216 | | — | | 165 | | — | | 152 | | — |
| Total | | 1,084 | | — | | 1,327 | | — | | 1,428 | | — |
|
| | | | | | | | | | | | | | | | | | |
| | | Years ended December 31 |
| | | 2017(1),(2),(3) | | 2016(1),(2),(3) | | 2015(1),(2),(3) |
EMEA
Passenger Cars | | Sales | | Market Share | | Sales | | Market Share | | Sales | | Market Share |
| | | Thousands of units (except percentages) |
| Italy | | 558 |
| | 28.3 | % | | 528 |
| | 28.9 | % | | 446 |
| | 28.3 | % |
| Germany | | 104 |
| | 3.0 | % | | 97 |
| | 2.9 | % | | 90 |
| | 2.8 | % |
| France | | 88 |
| | 4.2 | % | | 80 |
| | 4.0 | % | | 71 |
| | 3.7 | % |
| Spain | | 67 |
| | 5.4 | % | | 60 |
| | 5.2 | % | | 47 |
| | 4.5 | % |
| UK | | 60 |
| | 2.4 | % | | 84 |
| | 3.1 | % | | 83 |
| | 3.2 | % |
| Other Europe | | 158 |
| | 3.6 | % | | 136 |
| | 3.3 | % | | 127 |
| | 3.3 | % |
| Europe* | | 1,035 |
| | 6.6 | % | | 985 |
| | 6.5 | % | | 864 |
| | 6.1 | % |
| Other EMEA** | | 116 |
| | — |
| | 113 |
| | — |
| | 124 |
| | — |
|
| Total | | 1,151 |
| | — |
| | 1,098 |
| | — |
| | 988 |
| | — |
|
_____________________________
* 2827 members of the European Union, and the UK for the periods presented, and members of the European Free Trade Association (other than Italy, Germany, UK, France, and Spain).
** Market share not included in Other EMEA because ourFCA presence iswas less than one percent.
(1) Certain fleet sales accounted for as operating leases arewere included in vehicle sales.
(2) Estimated market share data iswere presented based on the European Automobile Manufacturers Association (ACEA) Registration Databases and national Registration Offices databases.
(3) Sale data includes vehicle sales by ourFCA’s joint venture in Turkey.
|
| | | | | | | | | | | | | | | | | | |
| | | Years ended December 31 |
| | | 2017(1),(2),(3) | | 2016(1),(2),(3) | | 2015(1),(2),(3) |
EMEA
Light Commercial
Vehicles | | Group Sales | | Market Share | | Group Sales | | Market Share | | Group Sales | | Market Share |
| | | Thousands of units (except percentages) |
| Europe* | | 260 |
| | 11.4 | % | | 250 |
| | 11.6 | % | | 217 |
| | 11.3 | % |
| Other EMEA** | | 75 |
| | — |
| | 69 |
| | — |
| | 77 |
| | — |
|
| Total | | 335 |
| | — |
| | 319 |
| | — |
| | 294 |
| | — |
|
* 28 members of the European Union and members of the European Free Trade Association.
** Market share not included in Other EMEA because our presence is less than one percent.
(1) Certain fleet sales accounted for as operating leases are included in vehicle sales.
(2) Estimated market share data is presented based on the national Registration Offices databases on products categorized under light commercial vehicles.
(3) Sale data includes vehicle sales by our joint venture in Turkey.
The following table summarizes new passenger vehicle market share information and ourFCA’s principal competitors in Europe, ourhistorically FCA’s largest market in the EMEA segment:
| | | | | Years ended December 31 | | Years ended December 31, |
| Europe-Passenger Cars | | 2017(*) | | 2016(*) | | 2015(*) | Europe-Passenger Cars | | 2020(1) | | 2019(1) | | 2018(1) |
| Automaker | | Percentage of industry | Automaker | | Percentage of industry |
| Volkswagen | | 23.8 | % | | 24.1 | % | | 24.8 | % | Volkswagen | | 25.4% | | 24.6% | | 23.9% |
| PSA | | 12.1 | % | | 9.7 | % | | 10.4 | % | PSA | | 14.4% | | 15.6% | | 16.0% |
| Renault | | 10.4 | % | | 10.1 | % | | 9.6 | % | Renault | | 10.3% | | 10.5% | | 10.5% |
FCA (1) | | 6.7 | % | | 6.6 | % | | 6.1 | % | |
| BMW | | 6.7 | % | | 6.8 | % | | 6.6 | % | BMW | | 7.1% | | 6.6% | | 6.6% |
| Hyundai/Kia | | Hyundai/Kia | | 7.0% | | 6.7% | | 6.7% |
| Daimler | | Daimler | | 6.4% | | 6.4% | | 6.2% |
FCA(2) | | FCA(2) | | 5.9% | | 6.0% | | 6.5% |
| Toyota | | Toyota | | 5.8% | | 5.1% | | 4.9% |
| Ford | | 6.6 | % | | 6.9 | % | | 7.2 | % | Ford | | 5.5% | | 6.1% | | 6.4% |
| Daimler | | 6.3 | % | | 6.2 | % | | 5.9 | % | |
| Toyota | | 4.6 | % | | 4.3 | % | | 4.3 | % | |
| GM | | 3.8 | % | | 6.6 | % | | 6.7 | % | |
| Other | | 19.0 | % | | 18.7 | % | | 18.4 | % | Other | | 12.2% | | 12.4% | | 12.3% |
| Total | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total | | 100.0% | | 100.0% | | 100.0% |
*(1) Including all 2827 European Union (EU) Member States (and the UK for the periods presented) and the 4 European Free Trade Association member states, or EFTA member states.
(1)(2) Market share data iswere presented based on the European Automobile Manufacturers Association, or ACEA Registration Databases, which also includes Maserati within ourFCA Group for all periods presented; includes Ferrari within our Group for 2015.presented.
In 2017,2020, the automotive industry in EU 27+EFTA+UK declined 24.3 percent, with all major markets recording double digit decreases, primarily reflecting the impacts of COVID-19. Despite the decline in the industry demand, the Fiat brand continued its leadership in the European A minicar segment in EU 28+EFTA, with Fiat 500 and Fiat Panda accounting for 29.136.0 percent of market share in the segment and(up 694 basis points from 2019) with the Fiat 500 remaining segment leader,leader. The Jeep Brand posted sales of more than 125 thousand vehicles, with sales up 3.5 percent. The Fiat brand increased its presence also in the medium-compact and compact sedan segments thanks to the ramp up of the Fiat Tipo.
Volumes were higher in the light commercial vehicle segment, with industry sales up 6 percent over the prior year to about 2.3 million units. Overall Alfa Romeo sales increased 29.5 percent over 2016, with the all-new Alfa Romeo Stelvio introduced during the year.Brand decreasing in comparison to 2019.
In Europe, FCA’s sales arewere historically largely weighted to passenger cars, with approximately 38.839 percent of our total vehicle sales in the small car segment for 2017,2020, reflecting demand for smaller vehicles due to driving conditions prevalent in many European cities and stringent environmental regulations.
EMEA Distribution
In Europe, ourFCA’s relationship with individual dealer entities can bemay have been represented by a number of contracts (typically, we enter into one agreement per brand of vehicles to be sold), and the dealer can sell those vehicles through one or more points of sale. In many markets, points of sale tend to be physically small and carry limited inventory.
In Europe, we sell ourFCA sold its vehicles directly to independent and our ownFCA owned dealer entities located in most European markets, as well as to fleet customers (including government and rental). In other markets in the EMEA segment in which we doFCA did not have a substantial presence, we haveFCA had agreements with general distributors for the distribution of our vehicles through their existing distribution networks.
distributors.
EMEA Dealer and Customer Financing
In the EMEA segment, dealer and retail customer financing iswas primarily managed by FCA Bank, ourFCA’s joint venture with Crédit Agricole Consumer Finance S.A. (“CACF”). FCA Bank operatesoperated in Europe, including the five major markets of Italy, France, Germany, Spain and the UK. WeUK, and provided dealer and retail financing and, within selected countries, also rentals to support the mass-market vehicle brands. FCA Bank provided its services to the Maserati luxury brand, as well as certain other OEMs, including Ferrari. FCA began this joint venture in 2007 and in July 2013 we reached an agreementhave agreed with Crédit Agricole to extend its term through December 31, 2021. Under2024, which may be automatically renewed unless notice of non-renewal is provided no later than three years before end of the agreement, term.
FCA Bank will continue to benefit from the financial support of Crédit Agricole while continuing to strengthen its position as an active player in the securitization and debt markets. FCA Bank provides dealer and retail financing and, within selected countries, also rental, to support our mass-market vehicle brands. FCA Bank provides its services to Maserati and Ferrari luxury brands, as well as certain other OEMs.
We also operateoperated a joint venture, KocKoç Fiat Kredi, providing financial services mainly to retail customers in Turkey, and operate vendor programs with bank partners in other markets to provide access to dealer and retail customer financing in those markets.
Maserati
Maserati, a luxury vehicle brand founded in 1914, became part of the FCA Group in 1993. In 2013, the Maserati brand was re-launched by the introduction of the next generation Quattroporte and the introduction of the all-new Ghibli (luxury four door(both luxury four-door sedans), the first addressedin the flagship large sedan segment and the second was designed to addressin the luxury full-size sedan vehicle segment. Maserati’s current vehicles also include the GranTurismo, the brand’s first modern two door, four seattwo-door, four-seat coupe, also available in a convertible version and the Maserati Levante, the first SUV in Maserati's history, whichhistory.
In July 2020, Maserati debuted the new Ghibli Hybrid. In addition, the brand started production in 2017 accounted for more than 50%2020 of the refreshed versions of the Ghibli, Quattroporte and Levante. On September 9, 2020 and September 10, 2020, Maserati volumes.hosted the “MMXX: Time to be Audacious” event in Modena, Italy, to reaffirm its commitment to invest in and elevate the iconic brand. The event started with the world premiere of the all-new Maserati MC20 super sport car, equipped with the new Maserati-built Nettuno engine. A fully electric version of the MC20 will also be available in 2022.
The following table shows the distribution of Maserati sales by geographic regions as a percentage of total sales for each
yearof the years ended December 31,
2017, 20162020, 2019 and
2015:2018: | | | | | | | | | As a percentage of 2020 sales | As a percentage of 2019 sales | As a percentage of 2018 sales |
| | As a percentage of 2017 sales | As a percentage of 2016 sales | As a percentage of 2015 sales | |
| U.S. | | U.S. | 30 | % | 31 | % | 32 | % |
| China | 30 | % | 30 | % | 22 | % | China | 26 | % | 24 | % | 24 | % |
| U.S. | 28 | % | 31 | % | 37 | % | |
Europe Top 4 countries(1) | 16 | % | 15 | % | 14 | % | Europe Top 4 countries(1) | 15 | % | 17 | % | 17 | % |
| Japan | 4 | % | 3 | % | 5 | % | Japan | 5 | % | 5 | % | 4 | % |
| Other countries | 22 | % | 21 | % | 22 | % | Other countries | 24 | % | 23 | % | 23 | % |
| Total | 100 | % | 100 | % | 100 | % | Total | 100 | % | 100 | % | 100 | % |
_____________________________
(1) Europe Top 4 Countries by sales includesare Italy, UK, Germany and Switzerland.
In 2017,2020, a total of 4917 thousand Maserati vehicles were sold to retail consumers, an increasea decrease of 2235 percent compared to 2016, with increased2019 as a result of reduced sales in all major regions overChina, the prior year.U.S., EMEA and other key markets, partially due to lower industry volumes in Maserati relevant segments as a result of COVID-19.
FCA Bank provideshistorically provided access to dealer and retail customer financing for Maserati brand vehicles in Europe and ourFCA’s 100 percent owned captive finance company, FCA Automotive Finance Co. Ltd, providesprovided dealer and retail financing on a non-exclusive basis in China. In other regions, we relyFCA relied on local agreements with financial services providers for the financing of Maserati brand vehicles to dealers and end customers.
PSA
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
The following tables presents PSA vehicle sales in the geographic areas indicated for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Region | 2020 volume(1) | | % | | 2019 volume(1) | | % | | 2018 volume(1) | | % | | 2020 vs. 2019 % change | | 2019 vs. 2018 % change |
| Europe | 1,545,975 | | | 61.53 | | | 2,083,408 | | | 59.88 | | | 2,101,963 | | | 54.21 | | | (25.80) | | | (0.88) | |
| Middle East and Africa | 144,711 | | | 5.76 | | | 129,074 | | | 3.71 | | | 260,009 | | | 6.71 | | | 12.11 | | | (50.36) | |
| China | 45,965 | | | 1.83 | | | 108,649 | | | 3.12 | | | 251,701 | | | 6.49 | | | (57.69) | | | (56.83) | |
| Latin America | 94,301 | | | 3.75 | | | 134,645 | | | 3.87 | | | 174,147 | | | 4.49 | | | (29.96) | | | (22.68) | |
| India and Asia Pacific | 32,370 | | | 1.29 | | | 34,826 | | | 1.00 | | | 36,780 | | | 0.95 | | | (7.05) | | | (5.31) | |
| Eurasia | 16,466 | | | 0.66 | | | 15,063 | | | 0.43 | | | 15,108 | | | 0.39 | | | 9.31 | | | (0.30) | |
| PCD Total | 1,879,788 | | | 74.82 | | | 2,505,665 | | | 72.01 | | | 2,839,708 | | | 73.23 | | | (24.98) | | | (11.76) | |
| PSA Total | 2,512,475 | | | 100 | | | 3,479,096 | | | 100 | | | 3,877,765(2) | | 100 | | | (27.78) | | | (10.28) | |
(1) Including CKD kits.
(2) Including approximately 144,000 vehicles sold in 2018 in Iran by Iran Khodro and IKAP, of which 141,000 were sold under a Peugeot license.
Components | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Region | 2020 volume(1) | | % | | 2019 volume(1) | | % | | 2018 volume(1) | | % | | 2020 vs. 2019 % change | | 2019 vs. 2018 % change |
| Europe | 577,518 | | | 22.99 | | | 936,321 | | | 26.91 | | | 1,004,197 | | | 25.90 | | | (38.32) | | | (6.76) | |
| Middle East and Africa | 52,408 | | | 2.09 | | | 35,192 | | | 1.01 | | | 31,989 | | | 0.82 | | | 48.92 | | | 10.01 | |
| China | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Latin America | 1,056 | | | 0.04 | | | 1,094 | | | 0.03 | | | 1,110 | | | 0.03 | | | (3.47) | | | (1.44) | |
| India and Asia Pacific | 382 | | | 0.02 | | | 248 | | | 0.01 | | | 581 | | | 0.01 | | | 54.03 | | | (57.31) | |
| Eurasia | 1,323 | | | 0.05 | | | 576 | | | 0.02 | | | 180 | | | — | | | 129.69 | | | 220 | |
| OV Total | 632,687 | | | 25.18 | | | 973,431 | | | 27.98 | | | 1,038,057 | | | 26.77 | | | (35.00) | | | (6.23) | |
| PSA Total | 2,512,475 | | | 100 | | | 3,479,096 | | | 100 | | | 3,877,765 | | | 100 | | | (27.78) | | | (10.28) | |
(1) Including CKD kits.
We sell components and production systems under the following brands:
Magneti Marelli. Founded in 1919 as a joint venture between Fiat and Ercole Marelli, Magneti Marelli is focused on the design and production of state-of-the-art automotive systems and components. Through Magneti Marelli, we design and manufacture automotive lighting systems, powertrain (engines and transmissions) components and engine control units, electronic systems, suspension systems, shock absorbers, exhaust systems, and plastic components and modules. The Automotive Lighting business line, headquartered in Reutlingen, Germany, is dedicated to the development, production and sale of automotive exterior lighting products worldwide. The Powertrain business line is dedicated to the production of engine and transmission components for automobiles, motorbikes and light commercial vehicles and has a global presence due to its own research and development centers, applied research centers and production plants. The Electronic Systems business line provides know-how in the development and production of hardware and software in mechatronics, instrument clusters, telematics and satellite navigation. We also provide aftermarket parts and services and operate in the motor-sport business, in particular electronic and electro-mechanical systems for championship motor-sport racing, under the Magneti Marelli brand.
In 2017, Magneti Marelli acquired a stake in LeddarTech, a Canadian company that develops proprietary LiDAR (Light Detection And Ranging) technology for autonomous vehicles and driver assistance systems, for joint development of this technology for autonomous driving.
With 85 production facilities and 46 research and development centers (including joint ventures), Magneti Marelli has a presence in 19 countries and supplies all the major OEMs across the globe. In several countries, Magneti Marelli’s activities are carried out through a number of joint ventures with local partners with the goal of entering more easily into new markets by leveraging the partners' local relationships. Thirty-four percent of Magneti Marelli’s 2017 revenue is derived from sales to the Group.
Teksid. Originating from Fiat’s 1917 acquisition of Ferriere Piemontesi, the Teksid brand was established in 1978 and today specializes in castings production. Teksid produces iron engine blocks, cylinder heads, engine components, transmission parts, gearboxes andsuspensions. Teksid Aluminum produces aluminum engine blocks and cylinder heads. Forty-four percent of Teksid’s 2017 revenue is derived from sales to the Group.
Comau. Founded in 1973, Comau, which originally derived its name from the acronyms of COnsorzio MAcchine Utensili (consortium of machine tools), supplies advanced manufacturing systems through an international network. Comau operates primarily in the field of integrated automation technology, delivering advanced turnkey systems to its customers. Through Comau, we develop and sell a wide range of industrial applications, including robotics, and provide support service and training to customers. Comau’s main activities include innovative and high performance body welding and assembly systems and robotics, powertrain metal-cutting systems, mechanical assembly systems and testing. Comau’s automation technology is primarily used in the automotive industry, and also in other industries. Comau also provides maintenance services in Latin America. Twenty-five percent of Comau’s 2017 revenue is derived from sales to the Group.
Supply of Raw Materials, Parts and Components
We purchase a variety of components (including mechanical, steel, electrical and electronic, plastic components as well as castings and tires), raw materials, supplies, utilities, logistics and other services from numerous suppliers. Of these purchases, 10-15 percent relate to the cost of raw materials, including steel, rubber, aluminum, resin, copper, lead, and precious metals (including platinum, palladium and rhodium). Historically the purchase of raw materials, parts and components have accounted for 70-80 percent of total Cost of revenues.
Our focus on quality improvement, cost reduction, product innovation and production flexibility requires us to rely upon suppliers with a focus on quality and the ability to provide cost reductions. We value our relationships with suppliers, and in recent years, we have worked to establish closer ties with a significantly reduced number of suppliers by selecting those that enjoy a leading position in the relevant markets. In addition, we source some of the parts and components for our vehicles internally from Magneti Marelli and Teksid. Although we have not experienced any major loss of production as a result of material or parts shortages in recent years, because we, like most of our competitors, regularly source some of our systems, components, parts, equipment and tooling from a single provider or limited number of providers, we are at risk of production delays and lost production should any supplier fail to deliver goods and services on time.
Supply of raw materials, parts and components may also be disrupted or interrupted by natural disasters. In such circumstances, we work proactively with our suppliers to identify material and part shortages and take steps to mitigate their impact by deploying additional personnel, accessing alternative sources of supply and managing our production schedules. We also continue to refine our processes to identify emerging capacity constraints in the supplier tiers given the ramp up in manufacturing volumes to meet our volume targets. Furthermore, we continuously monitor supplier performance according to key metrics such as part quality, delivery performance, financial solvency and sustainability.
Cyclical Nature of the Business
As is typical in the automotive industry, ourFCA’s vehicle sales arewere highly sensitive to general economic conditions, availability of low interest rate vehicle financing for dealers and retail customers and other external factors, including fuel prices, and as a result maycould vary substantially from quarter to quarter and year to year. Retail consumers tendhistorically tended to delay the purchase of a new vehicle when disposable income and consumer confidence arewere low. In addition, ourFCA’s vehicle production volumes and related revenues maycould vary from month to month, sometimes due to plant shutdowns, which maycould occur for several reasons including production changes from one model year to the next.next and actions to balance vehicle supply and demand fluctuations and also to adjust dealer stock levels appropriately. Plant shutdowns, whether associated with model year changeovers or other factors such as temporary supplier interruptions, cancould have a negative impact on ourFCA’s revenues and working capital as we continueFCA continued to pay suppliers under standard contractestablished terms while we doFCA did not receive proceeds from vehicle sales. Refer to Item 5B. Liquidity and Capital Resources—FCA Liquidity Overview for additional information.information, including discussion of the impact of the COVID-19 pandemic and the actions taken by FCA in response.
Legal Proceedings
As a global group with a diverse business portfolio, the Group is exposed to numerousVarious legal risks, particularly in the areas of product liability, competitionproceedings, claims and antitrust law, environmental risks and tax matters, dealer and supplier relationships and intellectual property rights. Various disputes, claims, lawsuits,governmental investigations and other legal proceedings are pending against usthe Group on a wide range of topics including product liability, warranty, vehicle safety, emissions and fuel economy, product performance, asbestos, personal injury, dealers, suppliers,competition, tax and securities matters, alleged violations of law, labor, dealer, supplier and other contractual relationships, environment, securities law, labor, antitrust, intellectual property taxrights, product warranties and otherenvironmental matters. Some of these proceedings allege defects in specific component parts or systems (including air bags,airbags, seats, seat belts, brakes, ball joints, transmissions, engines and fuel systems), in ourvarious vehicle models or allege general design defects relating to vehicle handling and stability, sudden unintended movement or crashworthiness. These proceedings seek recovery for damage to property, personal injuries or wrongful death and in some cases include a claim for exemplary or punitive damages. Adverse decisionsFor a further discussion of legal proceedings which may have, or have had in onethe recent past, significant effects on our financial position or moreprofitability, refer to the description below and to Note 25, Guarantees granted, commitments and contingent liabilities within the Consolidated Financial Statements included elsewhere in this report.
FCA
Takata airbag inflators
Putative class action lawsuits were filed in March 2018 against FCA US in the U.S. District Courts for the Southern District of Florida and the Eastern District of Michigan, asserting claims under federal and state laws alleging economic loss due to Takata airbag inflators installed in certain of our vehicles.
Emissions Matters
On January 10, 2019, FCA announced that FCA US had reached final settlements on civil environmental and consumer claims with the U.S. Environmental Protection Agency (“EPA”), the Civil Division of the U.S. Department of Justice (“DoJ”), the California Air Resources Board, the State of California, 49 other States and U.S. Customs and Border Protection, for which FCA accrued €748 million during the year ended December 31, 2018. Approximately €350 million of the accrual was related to civil penalties to resolve differences over diesel emissions requirements. A portion of the accrual was attributable to settlement of a putative class action on behalf of consumers in connection with which FCA US agreed to pay an average of $2,800 per vehicle to eligible customers affected by the recall. That settlement received final court approval on May 3, 2019. Nevertheless, we continue to defend individual claims from approximately 3,200 consumers that have exercised their right to opt out of the class action settlement and pursue their own individual claims against us (the “Opt-Out Litigation”). FCA US has engaged in further discovery in the Opt-Out Litigation and participated in court-sponsored settlement conferences, but have reached settlement agreements with less than 100 of these proceedings could require usremaining plaintiffs. As of December 31, 2020, FCA’s best estimate of a probable loss was reflected in the amount previously accrued.
In the U.S., FCA US remains subject to pay substantial damages,a diesel emissions-related investigation by the DoJ, Criminal Division. In September 2019, the DoJ filed criminal charges against an employee of FCA US for, among other things, fraud, conspiracy, false statements and violations of the Clean Air Act primarily in connection with efforts to obtain regulatory approval of the vehicles that were the subject of the civil settlements described above. FCA has continued discussions with the DoJ, Criminal Division to determine whether it can reach an appropriate resolution of their investigation as it relates to FCA US, which may involve the payment of penalties and other non-financial sanctions. While the outcome of these discussions is uncertain and we cannot predict whether or undertake service actions, recall campaignswhen any settlement may be reached with the DoJ, Criminal Division, or the ultimate outcome of its investigation, FCA accrued approximately €200 million during the three months ended September 30, 2020 as its best estimate of probable loss with regard to matters under discussion. We also remain subject to a number of related private lawsuits (the “Non Opt-Out Litigation”). In September 2020, FCA settled the diesel emissions-related investigation with the U.S. Securities and Exchange Commission (the “SEC”) for an amount that is not material to the FCA Group and which had been accrued during the three months ended June 30, 2020.
FCA also received inquiries from other costly actions.
Diesel Emissions Mattersregulatory authorities in a number of jurisdictions as they examine the on-road tailpipe emissions of several automakers’ vehicles and, when jurisdictionally appropriate, we continue to cooperate with these governmental agencies and authorities.
In Europe, we have beenare working with the Italian Ministry of Transport (“MIT”) and the Dutch Vehicle Regulator (“RDW”), the authorities that certified FCA diesel vehicles for sale in the European Union, and the UK Driver and Vehicle Standards Agency (“DVSA”). Wein connection with their review of several of our vehicles.
FCA also initially responded to inquiries from the German authority, the Kraftfahrt-Bundesamt (“KBA”), regarding emissions test results for ourits vehicles, reported by KBA, and we discussed the KBA reported test results, ourits emission control calibrations and the features of the vehicles in question. After these initial discussions, the MIT, which has sole authority for regulatory compliance of the vehicles it has certified, asserted its exclusive jurisdiction over the matters raised by the KBA, tested the vehicles, determined that the vehicles complied with applicable European regulations and informed the KBA of its determination. Thereafter, mediations have beenwere held under European Commission (“EC”) rules, between the MIT and the German Ministry of Transport and Digital Infrastructure, (“BMVI”), which oversees the KBA, in an effort to resolve their differences. The mediation was concluded with no action being taken with respect to FCA. In May 2017, the EC announced its intention to open an infringement procedure against Italy regarding Italy's alleged failure to respond to EC's concerns regarding certain FCA emission control calibrations. The MIT has responded to the EC's allegations by confirming that the vehicles' approval process was correctly performed, which was borne outproperly performed.
In December 2019, the MIT notified us that the Dutch Ministry of Infrastructure and Water Management (“I&W”) had been communicating with the MIT regarding certain irregularities allegedly found by the RDW and the Dutch Center of Research TNO in material Italy provided during the mediation process.
emission levels of certain Jeep Grand Cherokee Euro 5 models and a vehicle model of another OEM that contains a Euro 6 diesel engine supplied by us. In January 2020, the Dutch Parliament published a letter from the I&W summarizing the conclusions of the RDW regarding those vehicles and engines and indicating an intention to order a recall and report their findings to the Public Prosecutor, the EC and other Member States. FCA engaged with the RDW to present its positions and cooperate to reach an appropriate resolution of this matter. FCA proposed certain updates to the relevant vehicles that have been tested and approved by the RDW and are now being implemented. Nevertheless, this matter is still pending. In addition, at the request of the French Consumer Protection Agency, the French public prosecutor has beenJuge d’Instruction du Tribunal de Grande Instance of Paris is investigating diesel vehicles of a number of automakers including FCA, regarding whether the sale of those vehicles violated French consumer protection laws.
The resultsIn July 2020, unannounced inspections took place at several of these inquiries cannot be predictedFCA’s sites in Germany, Italy and the UK at this time; however, the interventioninitiative of the Public Prosecutors of Frankfurt am Main and of Turin, as part of their investigations of potential violations of diesel emissions regulations and consumer protection laws. We are cooperating with the investigations. Several FCA companies and its Dutch dealers were recently served with a purported class action filed in the Netherlands by a Dutch foundation seeking monetary damages and vehicle buybacks in connection with alleged emissions non-compliance of certain FCA E5 and E6 diesel vehicles. A similar claim has been announced in the UK but not yet served on the Company. We are also defending a number of governmental agencies and authorities has required significant management time, which may divert attention from other key aspectsindividual consumer claims alleging emissions non-compliance of certain of our business plan, or may lead to further enforcement actions as well as penalties or obligations to modify or recall vehicles anyin Germany.
In December 2018, the Korean Ministry of which may haveEnvironment (“MOE”) announced its determination that approximately 2,400 FCA vehicles imported into Korea during 2015, 2016 and 2017 were not emissions compliant and that the vehicles with a material adverse effect on our business, results of operations and reputation.
On January 12, 2017, the U.S. Environmental Protection Agency (“EPA”) and the California Air Resource Board (“CARB”) issued Notices of Violation related to certain software-based features in the emissions control systems in approximately 100,000 2014-2016 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles. On May 23, 2017, the Environmental and Natural Resources Divisionsubsequent update of the U.S. Departmentemission control calibrations voluntarily performed by FCA, although compliant, would have required re-homologation of Justice (“DOJ-ENRD”) filedthe vehicles concerned. In May 2019, the MOE revoked certification of the above-referenced vehicles and announced an administrative fine for an amount not material to the Group. FCA appealed the MOE’s decision. Our subsidiary in Seoul, Korea is also cooperating with local criminal authorities in connection with their review of this matter, with the Korean Fair Trade Commission regarding a civil lawsuit against uspurported breach of the Act on Fair Labeling and Advertisement in connection with the concerns raised bysubject vehicles and with the EPA. The complaint alleges that software-based features were not disclosed to the EPA as required during the vehicle emissions certification process, resultingMOE in violations of the Clean Air Act. The complaint also alleges that certain of the software features bypass, defeat or render inoperative the vehicles’ emission control systems, causing the vehicles to emit higher levels of oxides of nitrogen (NOx) during certain normal real world driving conditions than during federal emissions tests. A number of private lawsuits relating to the vehicles have been filed in U.S. state and federal courts principally on behalf of consumers asserting fraud, violation of consumer protection laws, and other civil claims, including a putative class action that is proceeding in U.S. federal court in Northern District of California, and a numberconnection with their review of other governmental agencies and authorities, including the U.S. Department of Justice, the U.S. Securities and Exchange Commission and various states Attorneys General have commenced related investigations.
We are unable to predict the outcome of these investigations and litigation at this stage and due to the range of possible outcomes, we are unable to reliably estimate a range of probable losses. It is possible that the resolution of these matters may adversely affect our reputation with consumers, which may negatively impact demand for our vehicles and could have a material adverse effect on our business, financial condition and results of operations.legacy FCA vehicles.
U.S. Sales Reporting Investigations
In July 2016, we confirmed thatOn September 27, 2019, the U.S. Securities and Exchange Commission had commenced anSEC announced the resolution of its investigation into ourFCA’s reporting of vehicle unit sales to end customers in the U.S. andwhich included its agreement to pay an amount that inquirieswas not material to the FCA Group. FCA also cooperated with a DoJ investigation into similarthe same issues, have been received from the U.S. Departmentoutcome of Justice. These vehicle unit sales reports relate to unit sales volumes primarily by dealers to consumers, while we generally recognize revenues based on shipments to dealerswhich remains uncertain. Any resolution of that matter may involve the payment of penalties and other customers and not on vehicle unit sales to consumers. We continue to cooperate with these investigations. We are also aware ofsanctions.
As previously reported, two putative securities class action lawsuits pendingwere filed against usFCA in the U.S. District Court for the Eastern District of Michigan making allegations with regard to ourits reporting of vehicle unit sales to end consumers in the U.S. AtThese lawsuits were consolidated into a single action and on October 4, 2018, FCA entered into an agreement in principle to settle the consolidated litigation, subject to court approval, for an amount that was not material to the FCA Group. On June 5, 2019, the Court granted final approval to this stage, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.settlement.
UAW-Chrysler National Training Center Investigation
In connectionOn January 27, 2021, FCA US announced that it reached an agreement with an on-going governmentthe U.S. Attorney’s Office for the Eastern District of Michigan to resolve its investigation into matters atpast misconduct of certain former FCA US employees involving the UAW-Chrysler National Training Center (“NTC”).Pursuant to the U.S. Department of Justice has brought charges against a number of individuals including two formeragreement, which remains subject to court approval, FCA US employees and individuals associated with the UAW for, among other things, tax fraud and conspiringagreed to provide money or other things of valueplead guilty to a UAW officer and UAW employees while acting in the interestssingle count of FCA US, in violation ofconspiracy to violate the Labor Management Relations (Taft-Hartley) Act. We believeAct and the payment of a fine in an amount that is not material to the financial statements and which had previously been accrued during the quarter ended September 30, 2020.FCA US was a victimalso agreed to implement an independent compliance monitor for three years with respect to the dissolution of these actsthe NTC and we continueinternal controls as they relate to cooperate with this investigation. the trusts being implemented to replace the NTC.
Several putative class action lawsuits have been filed against FCA US in U.S. federal court alleging harm to UAW workers as a result of these acts. AtThose actions have been dismissed both at the trial court stage and on appeal. Three plaintiffs in these lawsuits also filed charges alleging unfair labor practices with the U.S. National Labor Relations Board (the “Board”). The Board issued a complaint regarding these allegations and is seeking a cease and desist order as well as the posting of a notification with respect to the alleged practices.
On July 20, 2020, a group of employees in our Toledo, Ohio Jeep plant filed a lawsuit in U.S. District Court for the Northern District of Ohio against FCA US, the UAW and certain individuals claiming violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act and civil conspiracy.On October 20, 2020, FCA US filed a motion to dismiss and the plaintiffs filed a motion for leave to file a second amended complaint on December 13, 2020. On October 16, 2020, a group of current and former employees in FCA’s Trenton Engine Complex filed a lawsuit in U.S. District Court for the Eastern District of Michigan, making similar claims.
General Motors Litigation
On November 20, 2019, General Motors LLC and General Motors Company (collectively, “GM”) filed a lawsuit in the U.S. District Court for the Eastern District of Michigan against FCA US, FCA NV and certain individuals, claiming violations of the RICO Act, unfair competition and civil conspiracy in connection with allegations that FCA US paid bribes to UAW officials that corrupted the bargaining process with the UAW and as a result FCA US enjoyed unfair labor costs and operational advantages that caused harm to GM. GM also claimed that FCA US had made concessions to the UAW in collective bargaining that the UAW was then able to extract from GM through pattern bargaining which increased costs to GM and that this early stage, we are unablewas done by FCA US in an effort to reliably evaluateforce a merger between GM and FCA NV.
On July 8, 2020, the likelihoodcourt dismissed GM’s lawsuit with prejudice. On August 3, 2020, GM filed a motion requesting that the court amend or alter its judgement, which the court denied. GM has appealed the dismissal to the U.S. Court of Appeals for the Sixth Circuitand oral argument on that appeal is scheduled for March 4, 2021. Following dismissal of its Federal court case, GM also filed an action against FCA US and FCA NV in Michigan state court, making substantially the same claims as it made in the federal litigation.On November 24, 2020, FCA US and FCA NV filed a loss willmotion for summary disposition in the state court case and GM filed a motion to compel discovery on December 16, 2020. Oral arguments on FCA’s motion for summary disposition and GM’s motion for expedited discovery were held on February 26, 2021 and were adjourned to be incurred or estimatecontinued on March 5, 2021.
Tigershark Engine
Putative class action lawsuits have been filed against FCA US and consolidated into a rangesingle action in U.S. District court in Michigan asserting claims under federal and state laws claiming manufacturing and design defects in certain vehicles equipped with the 2.4L Tigershark engine, which has been installed in approximately 1.6 million vehicles sold in the U.S. The claims allege excessive oil consumption and related excess emissions.
PSA
Anticompetitive Practices in the Automotive Equipment Market
The European Commission and the United States Department of possible loss.
For additional information regardingJustice (on March 25, 2014), the foregoingCompetition Commission of South Africa (on November 27, 2014) and other legal proceedings, refer to Note 25, Guarantees granted, commitments and contingent liabilities, within our Consolidated Financial Statements included elsewherethe Brazilian competition authority (CADE) (on May 19, 2017) initiated an inquiry covering certain suppliers of emission control systems, including Faurecia, on the basis of allegations of anticompetitive practices in this report.market involving the exchange of commercially sensitive information between competitors. These investigations have been closed or resolved with respect to Faurecia: the European Commission terminated the investigation on April 28, 2017; an agreement was reached with the CADE on September 5, 2018; in December 2018, the United States Department of Justice informed Faurecia that it was no longer subject to an inquiry; and on May 18, 2020 an agreement was reached with the Competition Commission of South Africa, involving the payment of a non-material settlement amount by Faurecia.
Faurecia has reached agreements, for non-material amounts, with plaintiffs in all three class actions that were filed in the United States District Court for the Eastern District of Michigan against several suppliers of emissions control systems, including Faurecia, alleging anticompetitive practices with respect to exhaust systems. The settlement agreements have been validated by the court.
In Canada, two class actions for similar allegations have been filed. They have been subject to agreements for non-material amounts. These agreements are under validation by the court. All the inquiries that have been initiated are now closed.
Finance
Following an investigation conducted in May 2017 against various financial captives located in Italy, including Banca PSA Italia S.p.A. (and extended to BPF in its capacity as parent company) and Opel Finance S.p.A, aiming for possible exchanges of sensitive information between these captives, notably through professional associations, the Italian competition authority, in early 2019, sentenced all captives, as well as their parent companies, and professional associations for a cumulative amount exceeding €678 million.
BPF, Banca PSA Italia S.p.A. and Opel Finance S.p.A., which were fined approximately €38.5 million, €6 million and €10 million respectively (it being specified that Opel Finance S.p.A. was jointly and severally convicted with General Motors, which was, at the beginning of the proceedings, its parent company), had appealed against this decision.
On November 24, 2020, the court (TAR Lazio in Rome) overturned the Italian competition authority’s decision in its entirety. At the end of December 2020, the Italian competition authority decided to appeal this decision before the Council of State.
Diesel Emissions Investigation and Recalls
In April 2016, the French Directorate General for Competition, Consumer Affairs and Fraud Control (“DGCCRF”) initiated an investigation regarding emissions from diesel engines, including engines used in PSA vehicles. In February 2017, the French Ministry of Economy issued a press release announcing that the DGCCRF referred the case to the prosecutor’s office of Versailles. None of PSA or its employees have been charged with any criminal offence. PSA continues to cooperate with the relevant French judicial authorities and present PSA’s position on any concerns raised during this investigation.
PSA’s subsidiary Opel Automobile GmbH is performing recalls of 95,781 Opel vehicles built by Adam Opel GmbH between 2013 and 2016 to update the emissions control system software to improve real driving emissions. After Opel Automobile GmbH initiated voluntary field campaigns on these vehicles, as agreed with the KBA, the KBA ordered in 2018 that these campaigns be changed into mandatory recalls to update all outstanding vehicles. As of December 31, 2020, more than 78 percent of the vehicles have so far received the software update, and specifically in Germany, more than 96 percent. Opel Automobile GmbH also faces a number of related private lawsuits (not class actions).
Environmental and Other Regulatory Matters
WeAs Stellantis, we engineer, manufacture and sell our products and offer our services around the world, subject to requirements applicable to our products that relate to vehicle emissions, fuel economy, emission control software calibration and on-board diagnostics, as well as those applicable to our manufacturing facilities that relate to stack emissions, the treatment of waste, water and hazardous materials, prohibitions on soil contamination, and worker health and safety. Our vehicles and the engines that power them must also comply with extensive regional, national and local laws and regulations and industry self-regulations (including those that regulate end-of-life vehicles (“ELVs”) and the chemical content of our parts). In addition, vehicle safety regulations are becoming increasingly strict.
We believe we are substantially in compliance with the relevant global regulatory requirements affecting our facilities and products taken as a whole, although we may from time to time fail to meet a particular regulatory requirement. For example, in 2015, FCA US entered into a consent order with NHTSA to resolve issues raised by NHTSA with respect to FCA US's execution of recall campaigns in which FCA US agreed to pay a cash fine to NHTSA and invest to enhance certain recall and service campaign completion rates. We consistently monitor the relevant global regulatory requirements affecting our facilities and products and adjust our operations and processes as we seek to remain in compliance. Compliance with these requirements involves significant costs and risks. See “Item 3D.Risk Factors-Laws,Factors-Risks Related to the Legal and Regulatory Environment in which We Operate-Current and more stringent future or incremental laws, regulations and governmental policies, including those regarding increased fuel economyefficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business. and may increase our cost of compliance, result in additional liabilities and negatively affect our operations and results. ” and “Risk Factors-Risks Related to the Legal and “Item 3D.Risk Factors-We are currently cooperating withRegulatory Environment in which We Operate-We remain subject to ongoing diesel emissions investigations by several governmental agencies and are subject to a number of related private lawsuits.lawsuits, which may lead to further claims, lawsuits and enforcement actions, and result in additional penalties, settlements or damage awards and may also adversely affect our reputation with consumers.”
Automotive Tailpipe Emissions
Numerous laws and regulations limit automotiveplace limits on vehicle emissions, including vehiclestandards on tailpipe exhaust emission standards, vehicle evaporative emissionemissions standards and onboardevaporative emissions. These standards govern a category of emissions called “criteria emissions” that does not include greenhouse gases (“GHGs”). Related laws impose requirements on how vehicles’ emission control software is designed to ensure emissions are controlled in all driving conditions, as well as requirements to employ diagnostic system requirements. Advanced onboard diagnostic systems are usedsoftware to identify and diagnose problems with emission control systems. Emission and onboardcomponents, which if undiagnosed could lead to higher emissions. This diagnostic requirements become more challenging each year and we expect these emissions and emissions certification requirements will continue to become even more rigorous worldwide.software is called an on-board diagnostic system (“OBD”).
NAFTA Region
Under the U.S. Clean Air Act, EPA and CARBAll global jurisdictions require emission compliance certification before a vehicle can be sold in the U.S. or in California (and many other states that have adopted the California emissions requirements). Both agencies impose limits on tailpipe and evaporative emissions of certain non-greenhouse gas pollutants from new motor vehicles and engines, and in some cases dictate the pollution control methods our engines must employ.
In 2014, EPA issued new tailpipe and evaporative emission standards and fuel requirements under its Tier 3 Vehicle Emission and Fuel Standards Program. These Tier 3 standards are generally more stringent than the prior standards and are also generally aligned with California’s Low Emission Vehicle (“LEV”) III tailpipe and evaporative standards, discussed below. These standards increase the requirementsmanufacturers to conduct pre- and post-production vehicle testing to demonstrate compliance with these emissions limits for the estimated useful life of a vehicle. vehicle as a prerequisite to obtaining emission compliance certification before any vehicle can be sold.
These regulations require that FCA Italy producedrequirements become more challenging each year, especially in light of increased global scrutiny of diesel emission control software calibration and Maserati branded vehicles sold inwe expect these emissions and certification requirements will continue to become even more rigorous worldwide.
North America Region
The U.S. Environmental Protection Agency (“EPA”) has established federal Tier 3 emissions standards, and federal law allows the U.S. must be included in the Group's fleet as reportedCalifornia Air Resource Board (“CARB”) to also establish its Low Emission Vehicle (“LEV”) III emission standards. The stringencies of these parallel federal and state emissions standards are generally aligned.
EPA and CARB.
In addition, we have implemented hardware andCARB both review manufacturers’ emission control software systems in all our vehicles in connection with onboard diagnostic monitoring requirements. Conditions identified through these systems could leaddesign as part of their emission certification evaluation, whereas EPA has delegated to vehicle recalls (or other remedial actions such as extended warranties) with significant costs for related inspections, repairs or per-vehicle penalties.CARB to administer OBD software requirements.
In addition to its LEV III emissions standards, CARB regulations also require that a specified percentage of cars and certain light-duty trucks sold in California must bequalify as zero emission vehicles, such as electric vehicles, hybrid electric vehicles or hydrogen fuel cell vehicles. A manufacturer can earn credits towardPer the requirement for zero emission vehicles through the sale of advanced-technology vehicles such as hybrid electric vehicles or natural gas vehicles with extremely low tailpipe emissionsEPA’s and over-complying with the applicable federalNHTSA’s September 2019 (“SAFE 1 Rule”) and April 2020 (“SAFE 2 Rule”) greenhouse gas (“GHG”) standards (whereinand fuel economy rulemaking, the manufacturer retires such federal GHG credits and applies them toward its CaliforniaSAFE 1 Rule provides that NHTSA’s corporate average fuel economy constitutionally preempts California’s zero emission vehicle obligations). Such(“ZEV”) program. California and other stakeholders have challenged the SAFE 1 and SAFE 2 Rules in federal court.
Federal law further allows other states to adopt CARB’s LEV III criteria emission, GHG credits require increasing volumes of zero emission vehicles with each model year. Our strategy for compliance with the zero emission vehicle requirements involves the sale of a variety of vehicles, including battery electric vehicles, internal combustion engine vehicles certified to very low tailpipe emissions and zero evaporative emissions, and hybrid electric vehicles. Our compliance strategy is also supported by the purchase of credits fromZEV standards. Thirteen other OEMs. In accordance with the applicable phase-in period, the Group's compliance with zero emission vehicles regulations includes Maserati vehicles sold in the U.S., beginning with the 2018 model year.
In addition to California, twelve states as well as the Province of Quebec, Canada, currently useenforce California’s LEV III standards in lieu of the federal EPA standards, and 10ten states, as well as the Canadian Provinces of Quebec and British Columbia, have also adopted California’s zeroZEV requirements.
Manufacturers must comply with EPA’s and CARB’s criteria emission vehicle requirements.standards at a vehicle-level as well as a sales-weighted fleet level, whereas CARB’s ZEV requirements, to the extent enforceable, are fleet-only standards. For purposes of reporting fleet compliance, both EPA and CARB require that the Group’s U.S. fleet include FCA Italy-produced and Maserati-branded vehicles sold in the U.S.
For a discussion of inquiries into our compliance with certain regulations in the U.S., see Note 25, Guarantees granted, commitments and contingent liabilities within the Consolidated Financial Statements included elsewhere in this report. See also “Risk Factors-Risks Related to the Legal and Regulatory Environment in which we Operate-Current and future more stringent or incremental laws, regulations and governmental policies, including those regarding increased fuel efficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business and may increase our cost of compliance and negatively affect our operations and results.”
LATAM Region
Certain countries in South America follow U.S. procedures, standards and onboard diagnosticOBD requirements, while others follow the European procedures, standards and onboard diagnostic requirements described below under —EMEA Region.—EMEA Region. In Brazil, vehicle emission standards are regulated by the Ministry of the Environment and have been in place since 1988 for passenger cars and light commercial vehicles and extended to light diesel vehicles in 2012.vehicles. The next phase of regulations are currently under discussion and(PROCONVE L7) is expected to be aligned with fuel efficiency and safety standards in January 2022.2022 and a second step (PROCONVE L8) will come into effect in January 2025 with fleet target limits (US BIN methodology) and real driving emission limits. Argentina has implemented regulations that mirror the European Commission Euro 5 standards for all new vehicles. In Chile, implementation of Euro 6 standards is set for 2022.
APAC Region
China 5 standards, which mirror Euro 5 standards, are currently in place in China. These standards define limits for polluting emissions and implemented European onboard diagnostic requirements nationwide for newly registered vehicles. The Fiat Viaggio, Fiat Ottimo, Jeep Cherokee, Jeep Renegade and the all-new Jeep Compass launched in China have been developed with the intent to meet China 5 standards. Nationwide implementation of China 5 standards has been required for gasoline engines beginning in 2017 and will be required for light duty diesel engines beginning in 2018. China 6 standards were released in 2016 and will beare required nationwide beginning in January 2021 with China 6a thresholds and by July 2020.2023 with China 6b thresholds. China 6a and 6b have more stringent tailpipe emissions thresholds than Euro 6, implement OBD requirements similar to U.S. OBD and evaporative emission control requirements, and add real driving emissions (“RDE”) and U.S. onboard refueling vapor recovery requirements. Some regions within China are considering implementingimplemented China 6 standards prior to July6b in 2019 such as Shanghai, Guangzhou, Shenzhen, Yangtze River Delta, Pearl River Delta, Chengdu, Chongqing and Tianjin. Beijing implemented China 6b at the beginning of 2020.
South Korea implemented regulations that are similar to California’s LEV III regulations beginning in 2016.2016 and became fully required in 2019 for all gasoline vehicles. Diesel vehicles are required to meet Euro 6 EU emissions requirements. Japan adopted the Worldwide Harmonized Light Vehicle Testing Procedures (“WLTP”) without Extra High phase in 2018 for new models and for all models beginning in 2016, which defineJanuary 2021. WLTP is a global harmonized standard for regulating GHGgreenhouse gas (“GHG”) emissions, non-GHG pollutants, and fuel or energy consumption for light-duty vehicles and electric range for battery electric vehicles or hybrids. India currently follows dual emission norms (Bharat Stage IV in select cities andimplemented nationwide Bharat Stage III in the rest of India). India adopted Bharat Stage IV emissionVI (“BSVI”) Emission norms (equivalent to Euro 4 standards) across India6) beginning April 2020. Stage 2 of BSVI norms (with more stringent OBD limits, RDE and an in-use performance ratio) will be implemented beginning April 2023. In addition, Australia is developing a revised Regulatory Impact Statement to introduce mandatory Euro 6 standards beginning in 2017. The Indian government recently announced that India will migrate to Bharat Stage VI emission norms in 2020, skipping2027 while Euro 5 equivalent norms.standards are expected to remain in force until that time.
EMEA Region
In Europe, emissions are regulated by the European Commission (“EC”) and the United Nations Economic Commission for Europe (“UNECE”). The EC imposes standardized emission control requirements on vehicles sold in all 28 European Union (“EU”)27 EU member states, while non-EU countries bound by the “1958 UN Agreement” (an agreement concerning the adoption of uniform technical prescriptions for wheeled vehicles, equipment and parts which can be fitted or used on wheeled vehicles and the conditions for reciprocal recognition of approvals granted on the basis of these prescriptions) apply regulations under the UNECE framework. EU Member States can provide tax incentives for the purchase of vehicles that meet emission standards earlier than the compliance date. As a result, vehicles must meet emission requirements and receive specific approval from an appropriate Member State authority before they can be sold in any EU Member State. These regulatory requirements include random testing of newly assembled vehicles and a manufacturer in-use surveillance program. EU and UNECE requirements are equivalent in terms of stringency and implementation.
Euro 6 emission levels are in effect for all passenger cars and light commercial vehicles and require additional technologies and further increase the cost of diesel engines compared to prior Euro 5 standards. These new technologies have put additional cost pressures on the already challenging European market for small and mid-size diesel-powered vehicles. Further requirements of Euro 6 have been developed by the EC and are effective for all new passenger cars registered in 2018.and light commercial vehicles. In addition ato WLTP, the new RDE test procedure to directly assess the regulated emissions of light duty vehicles under real driving conditions became effectiveis effective. More stringent test requirements related to RDE, as well as requirements relating to On-board Fuel and/or Energy Consumption Monitoring Device for newly homologated passenger cars in 2017 and will becomeFuel Consumption Monitoring, is effective for all new passenger cars registered in 2019after January 1, 2021 and will become effective for new light commercial vehicles registered in 2020.after January 1, 2022. For a discussion of inquiries into our compliance with certain regulationsfrom relevant governmental agencies in the European Union, see Note 25,Guarantees granted, commitments and contingent liabilities within the Consolidated Financial Statements included elsewhere in this report. See also “Risk Factors-Risks Related to the Legal and Regulatory Environment in which we Operate-We remain subject to diesel emissions investigations by several governmental agencies and to a number of related private lawsuits, as well as other claims and lawsuits which may lead to further enforcement actions, penalties or damage awards and may also adversely affect our reputation with consumers”
Automotive Fuel Economy and Greenhouse Gas Emissions
NAFTAFCA historically pursued compliance with fuel economy and greenhouse gas regulations in the markets where it operated through the most cost effective combination of developing, manufacturing and selling vehicles with better fuel economy and lower GHG emissions, purchasing compliance credits, and, as allowed by the U.S. federal Corporate Average Fuel Economy (“CAFE”) program, paying regulatory penalties. The cost of each of these components of FCA’s strategy has increased and is expected to continue to increase in the future. The compliance strategy for the combined company is currently being assessed by Stellantis management.
North America Region
SinceIn the U.S., since the enactment of the 1975 Energy Policy and Conservation Act, the National Highway Traffic Safety Administration (“NHTSA”) has enforced minimum Corporate Average Fuel Economy (“CAFE”)CAFE for fleets of new passenger cars and light-duty trucks sold in the U.S. Thesefor each model year. CAFE standards apply to all new domestic and imported passenger car and light-duty truck fleets and currently require year-over-year increases in fuel economy through 2025. The requirement is scaled based on vehicle footprint size. The CAFE standards require that passenger cars imported into the U.S. from outside of NAFTANorth America are averaged separately from those manufactured within NAFTA,North America, and domestic cars and light duty trucks are also considered separately. A civil fine can be paid in lieu of compliance with CAFE standards, and the policy allows for the trading of CAFE credits as a compliance flexibility.
In addition,2012, EPA promulgated its GHG rule under the EPA enforcesfederal Clean Air Act, which required manufacturers to comply with a similar footprint-based GHG standard, that isthe stringency of which also footprint based and increasing in stringency year over yearincreases year-over-year through 2025. This requirement corresponds to an equivalent fuel economy target of 54.5mpg inThe GHG rule does not require separate domestic passenger car compliance reporting but, like the 2025 model year.CAFE program, light trucks are reported separately from passenger cars. Various flexibilities exist to reach this target,comply with the two standards, including utilizing advanced technology components and more environmentally friendly refrigerants. A civil fine cannot be paid in lieu ofto achieve compliance with GHG standards. The U.S. issued EPA’s GHG standards and NHTSA’s CAFE fuel economy standards as a joint rule, and in so doing, allowed CARB to enforce its own GHG rule, so long as CARB did not apply a different standard of stringency to EPA’s GHG rule. The CAFE statute specifically preempts states from enforcing a fuel economy rule.
In 2018 EPA and NHTSA were required to conduct a “mid-term review” to evaluate the appropriateness of model year 2022-2025 CAFE/GHG standards (the stringency of which had been established in 2016) as well as the original market- and technology cost consumer tolerance-based assumptions the agencies made as a basis for light duty vehicles, ten states includingthose standards. This review concluded that those standards were inappropriate, which required the U.S. government to adopt a new Joint Rule with new GHG and CAFE standards. In late 2018, California have enactedwithdrew its commitment to the federal government that California would enforce its GHG rule to the identical stringency of the prevailing federal rule.
In September 2019, EPA and NHTSA issued the first two parts of a zero emission vehicle mandate requiringnew rule, which the agencies called the Safer Affordable Fuel Efficient Vehicle Rule (the “SAFE Rule”). SAFE Rule Part 1 establishes that due to the significant similarity of the determination of any vehicle’s fuel economy and associated GHG emissions, the CAFE statute preempts California’s GHG and ZEV programs. In a certain percentageparallel determination, EPA withdrew its permission for CARB to enforce its own GHG and ZEV programs. California and other stakeholders challenged SAFE Part 1 in federal court. FCA and other OEMs formed a coalition, which intervened in this litigation supporting EPA and NHTSA’s position. The coalition subsequently withdrew from the litigation.
In April 2020, EPA and NHTSA issued SAFE Part 2, which established new and much less stringent GHG and CAFE standards. Again, California and other stakeholders challenged SAFE Part 2 in federal court; in this case, FCA and several members of its automotive trade association, the Alliance for Automotive Innovation (the “AAI”), intervened supporting EPA and NHTSA’s position.
On August 31, 2020, the U.S. Court of Appeals for the Second Circuit vacated a final rule published by NHTSA in July 2019 that had reversed NHTSA’s 2016 increase to the base rate of the CAFE penalty from $5.50 to $14.00. The base rate applies to each OEM’s fleet in each state to be zero emission - either battery electric vehicles or fuel cell vehicles. Thistenth of a mile per gallon (“MPG”) that a manufacturer’s fleet-wide average MPG is below the CAFE standard, also increases in stringency through 2025. The policy does allow for a limitedand is multiplied by the number of salesvehicles in the manufacturer’s fleet to arrive at an aggregate penalty. On January 14, 2021, NHTSA published an interim final rule with immediate effect, the result of partial zero emission vehicleswhich would be to apply the increased fine rate that resulted from the Second Circuit’s ruling to future model years. In particular, NHTSA’s new rule imposes a CAFE penalty base rate of $5.50 through 2021 Model Year and plug-in electric hybrids as a flexibility for manufacturers.increases the CAFE penalty base rate to $14.00 prospectively from the 2022 Model Year. Several non-governmental organizations and state attorneys general have initiated litigation to overturn NHTSA’s interim final rule.
For heavy duty vehicles (>8,500 pound gross vehicle weight rating), the GHG and fuel consumption standard is utility based (payload and towing) and is increasing in stringency through 2027. Similar to passenger cars GHG standards, flexibilities exist to meet GHGthe regulation. A civil fine cannot be paid in lieu ofto achieve compliance with heavy duty vehicle GHG standards.
The approach and technologies being developed to meet U.S. requirements are intended to also enable compliance in the Canadian and Mexican markets.markets have adopted GHG standards derived from the U.S. government’s footprint-based structure and generally align with its technology-adoption compliance approach.
In 2012, Mexico adopted a fleet average target of 155.1-199.5 grams of CO2 per kilometer. The annual target is based on the footprint of each vehicle and since 2012 the stringency of the annual target has increased annually and will do so until 2025, when it will reach 85-116.7 grams of CO2 per kilometer. The Mexican government has also made available CO2 credits for the use of efficient technologies, including electric vehicles, off-cycle technologies and efficient air conditioning systems.
LATAM Region
In 2012,July 2018, the Brazilian government issuedfirst regulations related to the Rota 2030 Program were enacted in Brazil. Rota 2030 is a CO2 reduction decree which provided indirect tax incentiveslong-term program (three cycles of five years each) that replaced the Inovar Auto Program and establishes mandatory requirements for vehicle commercialization in Brazil: (a) adhesion to manufacturers who met certain requirements. Participating companies hadVehicle Labeling Program; (b) commitment to meet vehicleachieve a minimum level of energy efficiency targets on vehicles sold from October 1, 2016efficiency; and (c) commitment to September 30, 2017achieve a minimum level of structural performance and maintain the required level until September 30, 2020. We have met the energy efficiency requirements of this program.driver assistance technologies. The program has additional targets that result in additional tax incentives based on the magnitude and timing of target accomplishment.
Brazil recently released a draft proposalregulation for the next phase of Energy Efficiency (CO2/fuel efficiency) beginning in 2022. This proposal2022 incorporates twothree fleets split into passenger, large SUV and light commercial vehicle categories, and incorporatescategories. Among other things, the “well to wheel” CO2 concept into the vehicle targets. The proposalrule rewards the improvement of sugar cane ethanol combustion efficiency and also recognizes and provides credit flexibilities for technologies that provide benefits in conditions that are not seen on the standardized government test cycle.cycles.
In Argentina, although there is no current mandatory greenhouse gas requirement, the government is in the process of a CO2 standard revision which is expected to be finalized by year end 2021.
APAC Region
In China, Phase IV of the Corporate Average Fuel Consumption (or “CAFC”(“CAFC”) is currently in place and provides an industry target of 5.0 liters per 100 kilometers by 2020. Each OEM must meet a specific fleet average fuel consumption target as related to vehicle weight. The phase-in of this fleet-average requirement began in 2016, with increasing stringency each year through 2020. Additional provisions for Phase IV include meeting a quota for New Energy Vehicles (“NEVs”) credit beginning in 2019. NEVs consist of plug-in electric hybrids, battery electric vehicles, and fuel cell vehicles. NoCurrently, no off-cycle credit flexibilities exist in the China regulation, although credit multipliers are granted for NEVs.
A draft version of the Phase V rule has been distributed by the Chinese government with increasing stringency reaching a target of 4.0 liters per 100 kilometers by 2025.
In September 2017, China’s Ministry of Industry and Information Technology released administrative rules regarding CAFC and NEV credits that will becomebecame effective onin April 1, 2018. Non-compliance with the CAFC target in these administrative rules can be offset through carry-forward CAFC credits, transfer of CAFC credits within affiliates, the OEMs use of its own NEV credits, or the purchase of NEV credits. Non-compliance with the NEV target can only be offset by the purchase of NEV credits. The homologation of new products that exceed CAFC targets will be suspended for local OEMs that are unable to offset CAFC and/or NEV deficits for 2016 and 2017 until the deficits are offset. Importers who did not comply
Beginning in 2021, China will adopt WLTP for conventional and plug-in hybrid electric vehicles and a unique Chinese test cycle will be applicable to battery electric vehicles in the same year. The 2021-2023 Phase V CAFC and NEV Credit rules have been released by the Chinese government with increasing stringency reaching a target of 4.6 liters per 100 kilometers by 2025. The final management rules for 2024-2025 CAFC targets for 2016 and 2017 must provideNEV Credits are expected to be issued at a practicable improvement plan or offset deficits; otherwise, the homologation of their new vehicles that exceed CAFC targets may be impacted.later date.
Additional markets within the APAC region have enacted fuel consumption and GHG targets. For example, India began enforcing a phase I CAFC limittargets (CO2~130gm/km @ 1037 kg) starting in April 2017 with a second, more stringent phase II CAFC targets (CO2~113gm/km @ 1145 kg) beginning in April 2022.
South Korea hasimplemented a phase II of CAFE/CO2 standards beginning in 2016.Phase III, with more stringent targets, became effective January 1, 2021. Japan implemented a new phase of CAFE/CO2 standards beginning in 2016 with increased targets for 2020.
In Japan, auto manufacturers are required to achieve the 2015 fuel economy standard for eachin 2020 that switches from vehicle weight class (2020average to corporate average fuel economy standard will be a corporate average).economy. In Australia, although there is no mandatory greenhouse gas requirement,GHG standard, the government is in the midstFederal Chamber of Automotive Industries (“FCAI”) member companies implemented a voluntary CO2 standard revision which is expected to result in a CO2 target for light vehicles.vehicles starting in 2020.
EMEA Region
Each automobile manufacturer must meet a specific sales-weighted fleet average target for CO2 emissions as related to vehicle weight. This legislationregulation sets an industry fleet average target of 95 grams of CO2 per kilometer starting in 2020 for passenger cars (130g/km until 2019). In order to promote the sale of ultra-efficient vehicles, automobile manufacturers that sell vehicles emitting less than 50 grams of CO2 per kilometer earn additional CO2 credits.credits from 2020 to 2022. Furthermore, automobile manufacturers that make use of innovative technologies, or eco-innovations, which improve real-world fuel economy but may not show in the test cycle,cycles, such as solar panels or low-emissivity glass,LED lighting, may gain a non-transferablean average credit for the manufacturer's fleet of up to seven grams of CO2 per kilometer. The European Commission has issued a proposal for the next phase beginning in 2025 having a 15% reduction from the 2021 levels.
The EU has also adopted standards for regulating CO2 emissions from light commercial vehicles.vehicles (“LCVs”). This regulation modeled after CO2 emissions regulation for passenger cars, requires that new light commercial vehiclesLCVs meet a fleet average CO2 target of 175 grams of CO2 per kilometer. Additionally, an EU long-term target for 2020 of 147 grams of CO2 per kilometer has beenin 2020 (175g/km until 2019).
In April 2019, the Regulation (EU) 2019/631 which sets new CO2 emissions targets starting from 2025 and 2030 was adopted and requires a 15 percent reduction from 2021 levels in 2025 (both passenger cars and LCV), a 37.5 percent reduction for light commercial vehicles.passenger cars and a 31 percent reduction for LCV in 2030 from 2021 levels.
A new regulatory test procedure, for measuring CO2 emissions and fuel consumption from light duty vehicles, the Worldwide Harmonized Light Vehicles Test Procedure is effective for new passenger car typesWLTP entered into force in the EU. In September 2018 the new test procedure will become effective for all newregistered passenger cars and in September 2019 for light commercial vehicles, replacing the existing New European Driving Cycle. The test procedureall registered LCVs. WLTP is expected to provide CO2 emission emissions and fuel consumption values that are more representative of real driving conditionsconditions.
The quantity of CO2 emissions in 2021 will be affected not only by market evolution (such as the expected reduction of diesel market share), but also by the commercialization of low-emission and is not currentlyelectrified vehicles. Finally, according to applicable EU regulations, current pooling arrangements for emissions compliance for passenger cars entered into by FCA are expected to haveapply in 2021.In 2020, FCA entered into a material adverse impact on ourpooling arrangement for emissions compliance strategy.for LCVs with another OEM.
InOther countries in the EMEA region other countries,outside of the EU perimeter, such as Switzerland and Saudi Arabia, have introduced specific regulations aimed to reduce vehicle CO2 emissions or fuel consumption. FCA assumes for the time being that theThe United Kingdom willis expected to continue to followfollowing the EU GHG policy post-Brexit.
38Management of end-of-life products
In European markets, pursuant to the EU End-of-Life Vehicle Directive (2000/53/EC) (the “EU ELV Directive”), all vehicle manufacturers are required to collect and recycle their own branded vehicles from the vehicles’ last owners or holders, when such cars have reached the end of their lives. The EU has decided to review the EU ELV Directive. The European Automobile Manufacturers Association (Association des Constructeurs Européens d’Automobiles) is currently focusing on defining country-specific best-practice processes for the treatment of ELVs in order to ensure better environmental results.
Vehicle Safety
NAFTANorth America Region
Under U.S. federal law, all vehicles sold in the U.S. must comply with Federal Motor Vehicle Safety Standards (“FMVSS”) promulgated by NHTSA, and must be certified by their manufacturer as being in compliance with all such standards at the time of the first purchase of the vehicle. In addition, if a vehicle contains a defect that is related to motor vehicle safety or does not comply with an applicable FMVSS, the manufacturer must notify NHTSA and vehicle owners and provide a remedy at no cost. Moreover, the TREAD Act authorized NHTSA to promulgate regulations requiring Early Warning Reporting (or “EWR”(“EWR”). EWR requires manufacturers to provide NHTSA several categories of information, including all claims which involve one or more fatalities or injuries; all incidents of which the manufacturer receives actual notice which involve fatalities or injuries which are alleged or proven to have been caused by a possible defect in such manufacturer’s motor vehicle or motor vehicle equipment in the U.S.; and all claims involving one or more fatalityfatalities in a foreign country when the possible defect is in a motor vehicle or motor vehicle equipment that is identical or substantially similar to a motor vehicle or motor vehicle equipment offered for sale in the U.S., as well as aggregate data on property damage claims from alleged defects in a motor vehicle or in motor vehicle equipment; warranty claims; consumer complaints and field reports about alleged or possible defects. The rules also require reporting of customer satisfaction campaigns, consumer advisories, recalls, or other activity involving the repair or replacement of motor vehicles or items of motor vehicle equipment, even if not safety related. In early 2017, NHTSA began to engage with the industry regarding potential changes to the EWR program and it is currently unclear whether these changes will be voluntary, or will be incorporated into future regulatory requirements.
NHTSA has secured a voluntary commitment from manufacturers, including FCA, to equip future vehicles with automatic electronic braking systems. The commitment will make these braking systems standard on virtually all light-duty cars and trucks with a gross vehicle weight of 8,500 pounds or less beginning no later than September 1, 2022 and on virtually all trucks with a gross vehicle weight between 8,501 pounds and 10,000 pounds beginning no later than September 1, 2025. Compliance with these new requirements and commitments, as well as other possible prospective NHTSA requirements, is likely to be costly.
In 2017, NHTSA updated guidelines forSeptember 2019, the testingAlliance of Automobile Manufacturers, Inc. and deploymentthe Association of automated driving systems, providing additional clarityGlobal Automakers, Inc. announced a voluntary commitment from auto manufacturers, including FCA, to introduce technology including a combination of auditory and alignment with OEM requests. Additionally,visual alerts to remind parents and caregivers to check the back seat upon leaving a vehicle to help address the risk of pediatric heatstroke in September 2017,children left in cars. The commitment is to install such technology in essentially all new cars and trucks by the U.S. House of Representatives passed a bill that encourages safe testing and commercial deployment of “highly automated vehicles” (“HAVs”) and “automated driving system” (“ADS”) - equipped vehicles. A similar bill was reported out of the Senate Commerce Committee in October 2017. Both bills would direct a series of rulemakings eventually affecting manufacturers. The final bill could require that manufacturers introducing a HAV2025 model year or ADS-equipped vehicle into interstate commerce must provide the U.S. Department of Transportation with a Safety Evaluation Report that describes how the manufacturer is addressing nine areas regarding vehicle safety, with civil penalties for false or misleading reports. sooner.
At times, organizations like NHTSA or the U.S. Insurance Institute of Highway Safety (“IIHS”) issue or reissue safety ratings applicable to vehicles. In October 2019, NHTSA does not have future changesannounced a plan to propose significant updates and upgrades to its New Car Assessment Program, noted in its rulemaking plan. In 2017,also known as the IIHS continuedFive-star Safety Ratings Program. The details are not known at this time, but are expected to introduceinclude new tests and modified its “Top Safety Pick” protocol. Pursuanttest dummies, changes to the mandatory label, new protocol, severaltest procedures and evaluation of our vehicles' top ratings would be downgraded until new technologies are introduced such as new forward lighting systems. Thistechnologies. Depending on the content of the final changes, this set of changes could impact the market competitiveness of the effectedaffected vehicles.
In 2016, NHTSA issued a Notice of Proposed Rulemaking (“NPRM”) designed to enable vehicle-to-vehicle (“V2V”) communication technology. In 2017, NHTSA removed the V2V technology from its rulemaking plan. AnyRulemaking in this area has been inactive since then, and any additional costs that would have been associated with the NPRM are deferred for the foreseeable future. However, NHTSA has engaged with industry to confirm continued interest in facilitating the growth of this technology.
Furthermore, NHTSA has issued non-binding guidelines for addressing cybersecurity issues in the design and manufacture of new motor vehicles, as well as guidance for the investigation and validation of cybersecurity measures.
In November 2020, voters in the State of Massachusetts passed a ballot initiative appearing to conflict with NHTSA cybersecurity guidelines and may require manufacturers to disable or compromise some of the cybersecurity measures they have put in place. The complete effects of this new law are still under review. In the meantime, the AAI, an association to which FCA belongs, has filed a lawsuit seeking to enjoin enforcement of the new law and the litigation is pending.
A new Federal Motor Vehicle Safety Standard requiring artificial sound in electric and hybrid electric vehicles will take effect for new motor vehicles built on or after March 1, 2021. The artificial sound is intended to provide audible notice of the presence of the electric or hybrid electric vehicle to persons with impaired vision.
In January 2018, Mexico a newissued an amendment to the Consumers' Protection Law (“CPL”) regarding safety regulationregulations based on U.S. standards is expected to take effect in 2018 which will,standards. The CPL, among other things, includeincludes a deadline for vehicle manufacturers to provide to the Federal Consumer Protection Agency (i) the launch date and a detailed description of every safety campaign applicable to vehicles sold in Mexico, (ii) mandatory recall campaigns, based on international agencies' investigations and guidelines, and (iii) mandatory repurchase, repair or replacement (with a new vehicle model having the same characteristics) of defective products.
vehicles that risk the consumer's safety, health or life or threatens the consumer's personal financial condition, and (iv) mandatory product withdrawal, when the Federal Consumer Protection Agency determines that the vehicle could risk the consumer's safety, health or life or affect the consumer's personal financial condition. The rules of the CPL became effective as of December 20, 2019 and in addition to the rules mentioned above, the consumer may also be eligible for compensation related to a recall.
LATAM Region
Vehicles sold in the LATAM region are subject to different vehicle safety regulations according to each country, generally based on European and United Nations standards. Brazil published a draft of its 10 year safety regulatory roadmap in 2017. This roadmap provides a staged approach to implementation of new testing requirements and active safety technology. The more costly active safety technologies would be scheduled for implementation after 2024. In July 2018, the first regulation related to Rota 2030 was enacted. Rota 2030 is a long-term program (three cycles of five years each) which includes principles related to mandatory safety for all vehicles sold in Brazil. These regulations were approved by the Brazilian Congress and sanctioned by the Brazilian President in December 2018 as well as ordinary regulations to address certain minimum requirements and other metrics.
APAC Region
Many countries in the Asia Pacific region, including Australia, China, India, Japan and South Korea Japan and India, have adopted or are adopting measures for pedestrian protectiontheir own new car assessment program and vehicle safety regulations. For example,As UN ECE1958 agreement countries, Australia, Japan and South Korea accept UN ECE safety requirements and are harmonizing their regulations with UN ECE. The U.S.-Korea Free Trade Agreement allows for the sale in Korea of U.S. vehicles that are manufactured in the U.S.
Most of the Chinese vehicle safety regulations are equivalent to UN ECE, but China has unique electric vehicle safety regulations and has developed a roadmap of the autonomous driving and connectivity regulations. China published the Regulation for Administration of Recall of Defective Vehicles effective in 2013 and the Implementation Provisions on the Regulation for Administration of Recall of Defective Vehicles effective in 2016. SuchIn 2019, State Administration for Market Supervision and Regulation in China issued a notice requiring close supervision of defects reporting and recall of new regulations have further strengthened the requirements for vehicle manufacturers in China. In addition, energy vehicles.
India has implemented vehicle crash regulations effective in 2017 for new models and 2019 for all models and pedestrian protection regulations effective in 2020 for all models. The draft rules for vehicle recalls was published by the Indian Government for public objection or suggestion and the final rules will be published in the near future. Also, brake and electronic stability control system regulations will be aligned to EU regulations beginning in 2022 for all models.
In South Korea, amendments to major provisions relating to vehicle accidents, fire incidents, defect reporting and recall procedures have been proposed that may considerably increase the liabilities and penalties of vehicle manufacturers.
EMEA Region
Vehicles sold in Europe are subject to vehicle safety regulations established by the EU or, in very limited cases and aspects, by individual Member States. In 2009, the EU established a simplifieduniform legal framework for vehicle safety, repealing more than 50 then-existing directives and replacing them with a single regulation known as the “General Safety Regulation” (“GSR”) aimed at incorporating relevant United Nations standards. The incorporation of United Nations standards commenced in 2012. Discussions have begunIn 2014, discussions began in Europe for a comprehensive upgrade to the “General Safety Regulation”GSR; implementation of the upgraded GSR for new vehicles and if implemented, could requirevehicle types will begin in 2022. The updated GSR will lead to the implementation of a variable suite of passive and active safety technologies, depending on vehicle type and classification. The significant items under discussion for mainstreamthe most common vehicles includes automaticinclude advanced emergency braking, intelligent speed assistance, emergency lane keeping, driver drowsiness and attention warning, advanced driver distraction warning, reversing detection, event data recorder, protection of pedestrians, cyclists and other vulnerable road users, and an expanded scope forof front and side crash testing. The timelineAlso included are the introduction of automated vehicle provisions, such as a driver availability monitoring system or vehicle platooning. Effective as of September 1, 2020, Regulation (EU) 2018/858 improved the current legal framework for compulsory implementation is estimatedEU type-approval and, in particular, has introduced new provisions on market surveillance. This new regime on market surveillance specifies the obligations of the economic operators in the automotive supply chain (manufacturers, manufacturer’s representatives, importers and distributors), the responsibilities of the enforcement authorities in the Member States, and the measures to begin for new vehicle types in 2021.be taken when vehicles and related components on the market appear to be affected by serious safety or environmental risks. In addition, beginning in 2018, in-vehicle emergency call systems will bebecame mandatory for new typestype-approved vehicles in the EU, markets.Israel and Turkey markets in 2018. In Russia, a similar in-vehicle emergency call system became mandatory in 2015 and there are nowcurrently draft regulations for these systems in manysome countries in the Middle East region.
Industrial Environmental Control
Our operations are subject to a wide range of environmental protection laws including those laws regulating air emissions, water discharges, waste management and environmental clean-up. Certain environmental statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal, or ownership of a disposal site. Under certain circumstances, these laws impose joint and several liability as well as liability for related damages to natural resources. OurFCA’s Environmental Management System (or “EMS”(“EMS”) formalizes ourformalized its commitment to responsible management of the environment. Applied at all plants operating worldwide, the EMS consists of methodologies and processes designed to prevent or reduce the environmental impact of our manufacturing activities.
Implementing the EMS which ISO 14001 is compliant withan internationally agreed standard that sets out the requirements for an EMS. At December 31, 2020, the majority of the ISO 14001 standard is one of our main objectives. Receipt ofFCA's manufacturing plants had an ISO 14001 certification confirms that an organization has a management system capable of keeping the environmental impact of its operations under control and that it systematically seeks to improve this systemcertified EMS in a way that is coherent, effective and, above all, sustainable.place.
Our attention to environmental and sustainability issues is also reflected through our internal World Class Manufacturing system, which currently covers the majority of our plants.
Workplace Health and Safety
FCA aims to provide all employees with a safe, healthy and productive work environment at every site worldwide and in every area of activity. Accordingly, the Group focuses on identifying and evaluating safety risks, implementing safety and ergonomic standards, promoting employee awareness and safe behavior and encouraging a healthy lifestyle.
TheFCA’s goal of achieving zero accidents iswas formalized in the targets set by FCA, as well as through global adoption of an Occupational Health and Safety Management System (“OHSMS”) certified to the then-applicable Occupational Health and Safety Assessment Series (“OHSAS”) 18001 governing standard. The International Organization for Standardization later adopted the OHSAS 18001 standard.standard as ISO 45001. At December 31, 2017,2020, the vast majority of ourFCA’s manufacturing plants had an OHSMSwere ISO 45001 certified.
PSA’s global health and safety policy was revised in place that was OHSAS 18001 certified.
EffectiveSeptember 2019 and aimed at eliminating avoidable workplace injuries and illnesses for every individual working for PSA, including temporary employees and contractors. PSA’s workplace health and safety management is also supported bysystem was based on the applicationhealth and safety recommendations of WCM tools and methodologies, active involvement of employees, development of specific competencies and targeted investment.the International Labour Organization (ILO-OSH 2001).
Applicability of Banking Law and Regulation to Financial Services
Several of our captiveFCA's legacy finance companies each of which provides financial services to our customers, are regulated as financial institutions in the jurisdictions in which they operate. In Italy, FCA Bank S.p.A., incorporated in Italy, is subject to European Central Bank (“ECB”) and Bank of Italy supervision. Within FCA Bank Group, two subsidiaries (the Austrian FCA Bank G.m.b.H. and the Portuguese FCA Capital Portugal I.F.I.C., S.A.), are subject to the supervision of the ECB and of the local central banks, whereas certain other subsidiaries are subject to the supervision of the local Supervisory Financial or Banking Authority. Banco Fidis S.A., incorporated in Brazil, is subject to Brazilian Central Bank supervision. FCA Compañia Financiera S.A., incorporated in Argentina, is subject to Argentinian Central Bank supervision. FCA Automotive Finance Co., Ltd, incorporated in China, is subject to the supervision of the Chinese Banking and Insurance Regulatory Commission and People’s Bank of China.
PSA’s legacy finance companies are also regulated as financial institutions. In France, Compagnie pour la location de véhicules (CLV), Crédipar, Opel Bank SA and PSA Banque France are subject to the supervision of ECB and the French local supervisory banking authority. In Germany, PSA Bank Deutschland GmbH is subject to the supervision of the ECB and the German local supervisory banking authority. In Italy, Banca PSA Italia S.p.A. is subject to ECB and Bank of Italy supervision. In Spain, PSA Financial Services Spain EFC SA is subject to the supervision of the Bank of Spain. Banco Fidis S.A. and Banco PSA Finance Brasil S.A. are subject to Brazilian Central Bank supervision. Dongfeng Peugeot Citroën Auto Finance Company Ltd and Dongfeng Peugeot Citroën Financial Leasing are subject to the supervision of the Chinese Banking and Insurance Regulatory Commission and People’s Bank of China.
As a result thoseof the regulation described above, these companies are subject to regulation in a wide range of areas including solvency, capital requirements, reporting, customer protection and account administration, among other matters.
C. Organizational Structure
The following table sets forth a listFINANCIAL OVERVIEW
Management's Discussion and Analysis of the principal subsidiaries that are directly or indirectly controlled by FCA. Companies in the list are grouped according to eachFinancial Condition and Results of our reportable segments as well as our holding and other companies.
For each principal subsidiary, the following information is provided: name, country of incorporation or residence, and the percentage interest held by FCA and its subsidiaries at December 31, 2017.
Principal Subsidiaries at December 31, 2017: |
| | | | | |
Name
| | Country
| | Percentage
Interest Held
|
NAFTA | | | | |
FCA US LLC | | USA (Delaware) | | 100.00 |
|
FCA Canada Inc. | | Canada | | 100.00 |
|
FCA Mexico, S.A. de C.V. | | Mexico | | 100.00 |
|
LATAM | | | | |
FCA Fiat Chrysler Automoveis Brasil LTDA | | Brazil | | 100.00 |
|
FCA Automobiles Argentina S.A. | | Argentina | | 100.00 |
|
Banco Fidis S.A. | | Brazil | | 100.00 |
|
APAC | | | | |
Chrysler Group (China) Sales Limited | | People’s Republic of China | | 100.00 |
|
FCA Japan Ltd. | | Japan | | 100.00 |
|
FCA Australia Pty Ltd. | | Australia | | 100.00 |
|
FCA Automotive Finance Co. Ltd. | | People’s Republic of China | | 100.00 |
|
EMEA | | | | |
FCA Italy S.p.A. | | Italy | | 100.00 |
|
FCA Melfi S.r.l. | | Italy | | 100.00 |
|
FCA Poland Spólka Akcyjna | | Poland | | 100.00 |
|
|
| | | | | |
Name
| | Country
| | Percentage
Interest Held
|
FCA Powertrain Poland Sp. z o.o. | | Poland | | 100.00 |
|
FCA Serbia d.o.o. Kragujevac | | Serbia | | 66.67 |
|
FCA Germany AG | | Germany | | 100.00 |
|
FCA France S.A. | | France | | 100.00 |
|
Fiat Chrysler Automobiles UK Ltd. | | United Kingdom | | 100.00 |
|
Fiat Chrysler Automobiles Spain S.A. | | Spain | | 100.00 |
|
Fidis S.p.A. | | Italy | | 100.00 |
|
Maserati | | | | |
Maserati S.p.A. | | Italy | | 100.00 |
|
Maserati (China) Cars Trading Co. Ltd. | | People's Republic of China | | 100.00 |
|
Maserati North America Inc. | | USA (Delaware) | | 100.00 |
|
Components | | | | |
Magneti Marelli S.p.A. | | Italy | | 99.99(1)
|
|
Automotive Lighting LLC | | USA (Delaware) | | 100.00 |
|
Automotive Lighting Reutlingen GmbH | | Germany | | 99.99 |
|
Teksid S.p.A. | | Italy | | 100.00 |
|
Comau S.p.A. | | Italy | | 100.00 |
|
COMAU LLC | | USA (Delaware) | | 100.00 |
|
Holding Companies and Other Companies | | | | |
FCA North America Holdings LLC | | USA (Delaware) | | 100.00 |
|
Fiat Chrysler Finance S.p.A. | | Italy | | 100.00 |
|
Fiat Chrysler Finance Europe S.A. | | Luxembourg | | 100.00 |
|
Fiat Chrysler Finance North America, Inc. | | USA (Delaware) | | 100.00 |
|
Fiat Chrysler Finance US Inc. | | USA (Delaware) | | 100.00 |
|
___________________________(1) FCA holds 100 percent of the voting interest in Magneti Marelli S.p.A.
D. Property, Plant and Equipment
As of December 31, 2017, we operated 159 manufacturing facilities (excluding joint ventures and including vehicle and light commercial vehicle assembly, powertrain and components plants), of which 37 were located in Italy, 31 in the rest of Europe, 30 in the U.S., 19 in Brazil, 14 in Mexico, 6 in Canada, 4 in Argentina and the remaining plants in other countries. We also own other significant properties including parts distribution centers, research laboratories, test tracks, warehouses and office buildings. The total carrying value of our property, plant and equipment as of December 31, 2017 was €29.0 billion.
A number of our manufacturing facilities and equipment, such as land and industrial buildings, plant and machinery and other assets, are subject to mortgages and other security interests granted to secure indebtedness to certain financial institutions. As of December 31, 2017, our property, plant and equipment (excluding property, plant and equipment of FCA US) reported as pledged as collateral for loans amounted to approximately €2,372 million, as compared to €1,940 million at December 31, 2016.
Substantially all the property, plant and equipment of FCA US and its U.S. subsidiary guarantors are unconditionally pledged as security under its Tranche B Term Loan, other than its Auburn Hills, Michigan headquarters and technology center, which are not pledged. For a description of the Tranche B Term Loan, see Item 5B. Liquidity and Capital Resources.
We believe that planned production capacity is adequate to satisfy anticipated retail demand and our operations are designed to be flexible enough to accommodate the planned product design changes required to meet global market conditions and new product programs (such as through leveraging existing production capacity in each region for export needs).
The following table provides information about our significant vehicle assembly plants as of December 31, 2017, excluding joint ventures:
|
| | | | | |
Country | | Location
| | Covered Area (square meters) |
NAFTA | | | | |
U.S. | | Belvidere | | 357,888 |
|
U.S. | | Jefferson North | | 199,596 |
|
U.S. | | Sterling Heights | | 252,317 |
|
U.S. | | Toledo North | | 225,468 |
|
U.S. | | Toledo Supplier Park | | 114,267 |
|
U.S. | | Warren Truck | | 296,193 |
|
Mexico | | Toluca | | 306,570 |
|
Mexico | | Saltillo | | 221,010 |
|
Canada | | Brampton | | 221,687 |
|
Canada | | Windsor | | 299,925 |
|
LATAM | | | | |
Brazil | | Betim | | 677,945 |
|
Brazil | | Pernambuco | | 534,482 |
|
Argentina | | Cordoba | | 227,162 |
|
EMEA | | | | |
Italy | | Cassino | | 580,940 |
|
Italy | | Melfi | | 453,962 |
|
Italy | | Pomigliano | | 494,727 |
|
Italy | | Turin (Mirafiori) | | 495,160 |
|
Poland | | Tychy | | 421,324 |
|
Serbia | | Kragujevac | | 369,907 |
|
We have three vehicle assembly plants for Maserati in Italy (including two plants owned by FCA Italy), as well as 70 manufacturing plants worldwide for Magneti Marelli (excluding joint ventures), 13 plants for Comau and 5 for Teksid.
We are not aware of any environmental issues that would materially affect the utilization of our fixed assets. See Item 4B. Business Overview—Environmental and Other Regulatory Matters—Industrial Environmental Control.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE GROUPOperations
The following discussion of ourFCA’s financial condition and results of operations should be read together with the information included under “Business Overview,” “Selected Financial Data”“GROUP OVERVIEW”, “FCA SELECTED FINANCIAL DATA” and the FCA Consolidated Financial Statements included elsewhere in this report. This discussion includes forward-looking statements and involves numerous risks and uncertainties relating to Stellantis, including, but not limited to, those described under “Forward-Looking“Cautionary Statements Concerning Forward Looking Statements” and “Item 3D. Risk Factors.”“Risk Factors”. Actual results may differ materially from those contained in any forward looking statements.
Overview
As described in Item 4B. Business Overview—Business Summary, our activities are carried out through six reportable segments: four regional mass-market vehicle segments (NAFTA, LATAM, APACManagement's Discussion and EMEA), Maserati, our global luxury brand segment, and a global Components segment.
In 2017, we shipped 4.4 million vehicles, we had Net revenues of €110.9 billion and Net profit of €3.5 billion. At December 31, 2017, we had available liquidity of €20.4 billion (including €7.6 billion available under undrawn committed credit lines) and we had net industrial debt of €2.4 billion (See Item 5. Operating and Financial Review—Non-GAAP Financial Measures—Net Debt).
Our Business Plan
In May 2014, we announced our 2014-2018 Business Plan, which focused on: strengthening and differentiating our portfolio of brands, including the globalization of Jeep and Alfa Romeo; volume growth; continued platform convergence and focus on cost efficiencies, as well as enhancing margins and strengthening our capital structure. In January 2016, we updated the plan primarily to respond to changes in customer trends, certain regional political and economic uncertainties, as well as to account for the separation of Ferrari from the Group.
In 2017, we continued to make significant strides toward accomplishing these objectives, by:
Completing the globalization of Jeep production with the addition of localized production in India;
Continuing to grow global Jeep volumes in markets outside NAFTA, as we focused on reducing Jeep fleet volumes in the U.S.;
Continued executionAnalysis of the NAFTA capacity realignment plan with the relocationFinancial Condition and Results of Jeep Cherokee assembly in May 2017, production launchOperations of the all-new Jeep Wrangler in December 2017 and preparation for the launch of the all-new Ram 1500 in January 2018;
Achieving strong results at Maserati with an Adjusted EBIT margin of 13.8%FCA Group for the year from 9.7% in 2016;
Further globalizing the Alfa Romeo brand with worldwide launches of the all-new Alfa Romeo Giulia and Stelvio;
Improving our Group Adjusted EBIT margins 90 basis points from 2016 to 6.4%; and
Further reducing Net industrial debt to €2.4 billion from €4.6 billion atended December 31, 2016.
Notwithstanding the market, competitive and economic changes since May 2014, we have reaffirmed our intent to deliver significant positive operating cash flows2018 was previously included in the final year ofsection “FINANCIAL OVERVIEW” in the Business Plan2019 Annual Report and reiterated our goal to achieve a Net industrial cash position byForm 20-F, as filed with the end of 2018.SEC on February 25, 2020, and has not been included in this report.
Trends, Uncertainties and Opportunities
The trends, uncertainties and opportunities facing Stellantis are summarized below:
Impact of the COVID-19 pandemic. Our operations have been, and continue to be, affected by the recent and ongoing outbreak of COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020. In response to the pandemic, many governments in affected jurisdictions have imposed travel bans, quarantines, lockdowns and other emergency public safety measures including closures of businesses.
In the first half of 2020, both FCA and PSA temporarily suspended production across their facilities for extended periods of time. Both companies restarted production and vehicle sales once governments in various jurisdictions permitted, in accordance with applicable health and safety protocols. New restrictions were imposed by the governments of several jurisdictions in which we operate during the last quarter of 2020, as a result of the “second wave” of the outbreak.
The COVID-19 crisis has resulted in disruptions in our manufacturing operations and our supply chain, lower capacity utilization, shutdowns at our facilities as well as unfavorable working capital movements (for example because under our supply terms, during periods when our facilities were shutdown, we were required to pay suppliers for components purchased in an earlier high volume environment), with an adverse impact on FCA and PSA’s results.
The COVID-19 pandemic also resulted in significant decline in the demand for our products. In 2020 compared to 2019, FCA’s Net revenues decreased by 20 percent and consolidated shipments fell by 24 percent. PSA’s business was similarly impacted by the COVID-19 pandemic during the course of 2020, as PSA’s revenues decreased by 19 percent and total world sales fell by 28 percent. The COVID-19 pandemic continues to have a severe and negative impact on the global economy.
During 2020, FCA took several key actions to secure its liquidity and financial position, including drawing on existing bilateral lines of credit, securing additional credit facilities and issuing notes under its Medium Term Note Programme. In addition, measures were taken to reduce cash outflows, including a temporary suspension of a significant number of capital expenditure programs, delaying non-essential spending, temporary lay-offs, salary cuts and deferrals, and significant reductions to marketing and other discretionary spend. PSA also took several actions in order to secure its liquidity and financial position. In April 2020, PSA signed a new €3 billion syndicated line of credit and in May 2020, it issued €1 billion of 2.75 percent notes due 2026 under its European Medium-Term Notes program.
While the second half of 2020 signaled a steady recovery for FCA’s and PSA’s operations, given the dynamic nature of the outbreak, the extent to which COVID-19 will in the future impact our business, results of operations and financial condition are affected by a number of factors, including those that are outside our control.remains highly uncertain and cannot be accurately predicted at this time.
Shipments and Sales. Vehicle shipments are generally driven by our plans to meetexpectations of consumer demand. Consumer demand for vehicles, which is affected by economic conditions, availability and cost of dealer and customer financing and incentives offered to retail customers, as discussed further below. We
In FCA’s historical financial information presented in this report, transfer of control, and therefore revenue recognition, generally recognize revenue uponcorresponds to vehicle shipment which is when the risks and rewards of ownership of a vehicle are transferred to our customers.dealers or distributors. This generally occurs upon the release of the vehicle to the carrier responsible for transporting the vehicle to the dealer or distributor, or when the vehicle is made available to the dealer or distributor. Shipments and revenue recognition are generally not necessarily directly correlated with retail sales by dealers, which may be affected by other factors including dealer decisions as to their appropriate inventory levels.
PSA historically recognized revenue at the same time as the transfer of risks and rewards of the ownership of goods sold. For new vehicles, this transfer generally corresponded to the date when the vehicles were made available to independent dealers or, in the case of direct sales to end-customers through owned dealers, the delivery date of the vehicle to end-customers.
Product Development and Technology. An integral part of our Business Plan, and aA key driver of consumer demand, and therefore our shipments,performance, has been the continued refresh, renewal and growthevolution of our vehicle portfolio, and we have committed significant capital and resources toward the introduction of new vehicles on new platforms, with additions of new powertrain technology.powertrains and other new technologies. In order to realize a return on the significant investments we have made to sustain market share and to achieve competitive operating margins, we will have to continue significant investment in new vehicle launches. We believe efforts in developing common vehicle platforms and powertrains have accelerated the time-to-market for many of our newFCA’s vehicle launches and over time resulted in cost savings. We expect this positive trend to be further supported by the combination with PSA, as a result of the ongoing integration. However, achieving the benefits of integration and particularly the convergence of platforms will require significant investments over the medium term.
The costs associated with product development, vehicle improvements and launches can impact our Net profit. In addition, our ability to continue to make the necessary investments in product development, and recover the related costs, depends in large part on the market acceptance and success of the new or significantly refreshed vehicles we introduce. For example,New launches are supported by marketing and profitability studies carried out several years prior to their actual launch, which increases the risk of not meeting customer preference, resulting in late 2017 we launched production of the all-new four door Jeep Wrangler in NAFTAlower volumes than forecasted or selling at lower prices and we intend to launch the all-new two door and four door Jeep Wranglers, all-new Ram 1500 pickup and a refreshed Jeep Cherokee in various markets in 2018. During a new vehicle launch and introduction to the market, we typically incur increased selling, general and advertising expenses associated with the advertising campaigns and related promotional activity.impacting profitability.
Costs we incurFCA incurred in the initial research phase for new projects (which may relate to vehicle models, vehicle platforms, powertrains or technology) arewere historically expensed as incurred and reported as Research and development costs. Costs we incurFCA incurred for product development arewere historically capitalized and recognized as intangible assets if and when the following two conditions arewere both satisfied: (i) development expenditures can be measured reliably and (ii) the technical feasibility of the project, and the anticipated volumes and pricing indicate it is probable that the development expenditures will generate future economic benefits. Capitalized development expenditures includeincluded all costs that may be directly attributed to the development process. Such capitalized development expenditures arewere amortized on a straight-line basis commencing from start of production over the expected economic useful life of the product developed and based on an end date that FCA estimated to correspond to the end of the useful life of such amortization isproduct, FCA recognized and reported such amortization as Research and development costs in ourits Consolidated Income Statement. If vehicle production is terminated prior toAny changes in the expected end date amortization of capitalized development expenditures is accelerated over the remaining useful economic life of that vehicle model or platform. If vehicle production is terminated(extensions, accelerations or terminations) resulted in a prospective change in the current period all unamortized capitalizedover which the asset was amortized.
PSA’s research and development expenses historically included the cost of scientific and technical activities, intellectual property rights, and the education and training necessary for the development, production or implementation and marketing of new or substantially improved materials, methods, products, processes, systems or services. Development expenditures are expensed duringwere historically recognized as an intangible asset if PSA could demonstrate (i) its intention to complete the intangible asset as well as the availability of technical, financial and other resources for this purpose; (ii) that period.it was probable that the future economic benefits attributable to the development expenditure will flow to the entity; and (iii) that the cost of the asset could be measured reliably. Capitalized development costs included related borrowing costs.
Future developments in our product portfolio to support our growth strategies and their related development expenditures could lead to significant capitalization of development assets. Our timeTime to market is approximatelyfor FCA and PSA was historically at least 24 months, but variesvaried depending on our product, from the date the design is signed-off for tooling and production, after which the project goes into production, resulting in an increase in amortization. Therefore, our operating results are impacted by the cyclicality of our research and development expenditures based on our product portfolio strategies and our product plans.
In order to meet expected changes in consumer demand and regulatory requirements, we intend to invest significant resources in product development and research and development. New markets for alternative fuel source vehicles and autonomous vehicles are also beginningcontinuing to emerge.emerge and we expect both to invest resources in these areas and to optimize our R&D investments as a result of the progressive integration with the PSA business. In addition, global demand continues to shift from passenger cars to utility vehicles and away from diesel-powered vehicles.
Profitability. Our results of operations reflect the profitability of the vehicles we sell, which tends to vary based upon a number of factors, including vehicle size and model, the content of those vehicles, brand positioning, and the mix of internal-combustion, electric and hybrid engines. Vehicle profitability also depends on sales prices to dealers and fleet customers, net of sales incentives, costs of materials and components, as well as transportation and warranty costs.
FCA’s and PSA’s larger vehicles, such as UVs and pickup trucks, have historically been more profitable on a per vehicle basis than smaller vehicles. In recent years, consumer preferences for certain larger vehicles, such as SUVs, have increased; however, there is no guarantee this trend will continue.
Newly introduced internal-combustion models are generally more profitable than older models, and vehicles equipped with additional options are generally more profitable than those with fewer options. As a result, our ability to offer attractive vehicle options and upgrades is critical to our ability to increase our profitability on these vehicles. In addition, in the U.S. and Europe, our vehicle sales to dealers for sale to their retail consumers are normally more profitable than our fleet sales, in part because the retail consumers are more likely to prefer additional optional features while fleet customers increasingly tend to concentrate purchases on smaller, more fuel-efficient vehicles with fewer optional features, which have historically had a lower profitability per unit.
Vehicles sold under certain brand and model names are generally more profitable when there is strong brand recognition of those vehicles. In some cases this is tied to a long history of the brands and models, and in other cases to customers identifying these vehicles as being more modern and responsive to customer needs.
In addition, against a backdrop of significant technological development, changing consumer patterns and new competitive forces, the cost of complying with tightening regulatory requirements could negatively impact our profitability. Vehicle models that are equipped with electric or PHEV engines tend to be less profitable than those equipped with internal-combustion engines, with the significant costs of batteries largely accounting for this differential. Although battery prices are expected to gradually decline in the coming years and are partially offset in some cases by governmental subsidies and tax exemptions, we expect that in the near term the profitability of vehicles equipped with electric or PHEV engines will continue to lag behind those equipped with internal-combustion engines.
In addition, competition among manufacturers for market share in the growing electric vehicle and PHEV market has led to a race to reduce prices, which adversely impacts profitability. We expect that this trend will continue in the near term.
Pricing. Our profitability depends in part on our ability to invest resources in allmaintain or improve pricing on the sale of these areas in orderour vehicles to dealers and fleet customers and will also be significantly impacted by our ability to pass along the increased costs of the technology needed to meet future demand.increased regulatory compliance requirements as well as emerging trends in the automotive industry, such as electrification, autonomous driving, mobility and connected cars.
Import duties and tariffs affecting raw materials or component pricing may in some instances increase the price charged to our customers, where the market can accept such price increases in that particular market, or otherwise decrease our profitability if we are unable to increase prices to our customers.
In addition, the automotive industry continues to experience intense price competition resulting from the variety of available competitive vehicles and excess global manufacturing capacity. Historically, manufacturers have promoted products by offering dealer, retail and fleet incentives, including cash rebates, option package discounts, and subsidized financing or leasing programs, leading to increased price pressure and sharpened competition within the industry. The amount and types of incentives are dependent on numerous factors, including market competition level, consumer demand, economic conditions, marketing strategy, model age and time of year, due to industry seasonality. We plan to continue to use such incentives to price vehicles competitively and to manage demand and support inventory management profitability.
Production costs. Cost of revenues includesProduction costs include purchases (including costs related to the purchase of components and raw materials), labor costs, depreciation, amortization, logistic and product warranty and recall campaign costs. We purchase a variety of components, raw materials, supplies, utilities, logistics and other services from numerous suppliers. These purchases have historically accounted for 70-80 percent of total Cost of revenues. Fluctuations in Cost of revenuesproduction costs are primarily related to the number of vehicles we produce and sell along with shifts in vehicle mix, as newer models of vehicles generally have more technologically advanced components and enhancements and therefore higher costs per unit. Cost of revenues
Production costs may also be affected but generally to a lesser extent, by fluctuations in raw material prices. For example, some of the batteries integrated in our electric and hybrid models integrate rare raw materials, which are exposed to heightened shortage risks and potentially rising procurement costs. The cost of raw materials has historically comprised 10-15 percent of theFCA’s total purchases described above, while the remaining portion of purchases is made of components, conversion of raw materials and overhead costs. In 2020, PSA’s purchases of raw materials amounted to around 23 percent of its total purchasing budget (including raw materials used in the manufacturing of components and systems purchased from suppliers) in Europe for its automotive division.
We typically seek to manage these costs and minimize their volatility by using fixed price purchase contracts, commercial negotiations and technical efficiencies. Because of these effects and relatively more stable commodities markets, for the periods reported, changes in component and raw materialPSA has also traditionally used commodity hedging instruments.
Despite our efforts, our production costs generally have not had a material effect on the period to period comparisons of our Cost of revenues. Nevertheless, our Cost of revenues related to raw materials and components have increased as a result of tariffs introduced in recent years; uncertainty related to tariffs and trade policy in our larger markets including the U.S., the European Union and China has made it more difficult to predict our raw material and components costs. Our production costs have also increased as we have significantly enhanced the content of our vehicles as we renew and refresh our product offerings. Over time, technological advancements and improved material sourcing may reduce the cost to us of the additional enhancements. In addition, we seek to recover higher costs through pricing actions, but even when competitivemarket conditions permit this, there may be a time lag between the increase in our costs and our ability to realize improved pricing. Accordingly, our results are typically adversely affected, at least in the short term, until price increases are accepted in the market.
Further, in many markets where our vehicles are sold, we are required to pay import duties on those vehicles, which are included in Cost of revenues.production costs. We reflect these costs in the price charged to our customers to the extent market conditions permit. However, for many of our vehicles, particularly in the mass-market vehicle segments, we cannot always pass along increases in those duties to our dealers and distributors and remain competitive. Our ability to price our vehicles to recover those increased costs has affected, and will continue to affect, our profitability.
Pricing. Our profitability depends in part on our ability to maintain or improve pricing on the sale of our vehicles to dealers and fleet customers and will also be significantly impacted by our ability to pass along the increased costs of the technology needed to meet increased regulatory compliance requirements.
In addition, the automotive industry continues to experience intense price competition resulting from the variety of available competitive vehicles and excess global manufacturing capacity. Historically, manufacturers have promoted products by offering dealer, retail and fleet incentives, including cash rebates, option package discounts, guaranteed depreciation programs, and subsidized financing or leasing programs. The amount and types of incentives are dependent on numerous factors, including market competition level, vehicle demand, economic conditions, model age and time of year, due to industry seasonality. We plan to continue to use such incentives to price vehicles competitively and to manage demand and support inventory management profitability.
Vehicle Profitability. Our results of operations reflect the profitability of the vehicles we sell, which tends to vary based upon a number of factors, including vehicle size, content of those vehicles and brand positioning. Vehicle profitability also depends on sales prices to dealers and fleet customers, net of sales incentives, costs of materials and components, as well as transportation and warranty costs. In the NAFTA segment, our larger vehicles such as our larger SUVs and pickup trucks have historically been more profitable than other vehicles and accounted for approximately 62 percent of our total U.S. retail vehicle shipments in 2017. In recent years, consumer preferences for certain larger vehicles, such as SUVs, have increased; however, in the past consumer preferences have periodically shifted away from larger vehicles, which affects their profitability on a per unit and aggregate basis.
In all mass-market vehicle segments throughout the world, vehicles equipped with additional options are generally more profitable for us. As a result, our ability to offer attractive vehicle options and upgrades is critical to our ability to increase our profitability on these vehicles. In addition, in the U.S. and Europe, our vehicle sales to dealers for sale to their retail consumers are normally more profitable than our fleet sales, as the retail consumers typically prefer additional optional features while fleet customers increasingly tend to concentrate purchases on smaller, more fuel-efficient vehicles with fewer optional features, which have historically had a lower profitability per unit.
Vehicles sold under certain brand and model names are generally more profitable when there is strong brand recognition of those vehicles. In some cases this is tied to a long history for those brands and models, and in other cases to customers identifying these vehicles as being more modern and responsive to customer needs. For instance, in the EMEA segment, our vehicles in the Fiat 500 family tend to be more profitable than older model vehicles of similar size.
Economic Conditions. Demand for new vehicles tends to reflect economic conditions in the various markets in which we operate because retail sales depend on individual purchasing decisions, which in turn are affected by many factors including employment levels, consumer confidence and levels of disposable income. Fleet sales and sales of light commercial vehicles are also influenced by economic conditions, which drive vehicle utilization and investment activity. Further, demand for light commercial vehicles and pickup trucks is driven, in part, by construction and infrastructure projects. Therefore, our performance is affected by the macroeconomic trends in the markets in which we operate.
Regulation. Regulation. We are subject to a complex regulations in marketsset of regulatory regimes throughout the world in which vehicle safety, vehicle emissions and fuel economy regulations have become increasingly stringent whichand the related enforcement regimes increasingly active. These developments may affect our vehicle sales as well as our profitability and profitability.reputation. We must comply withare subject to applicable national and local regulations with which we must comply in order to continue operations in virtually every market, including a number of markets wherein which we derive substantial revenue, such as North America, Latin America, Europe and Asia.revenue. Developing, engineering and manufacturing vehicles that meet these requirements and therefore may be sold in those markets requires a significant expenditure of management time and financial resources. The cost of designing
FCA historically pursued compliance with fuel economy and manufacturing vehicles that comply with evolving standards - as well as the potential for governmental fines or penalties if we fail to comply - have increased and are expected to continue to increasegreenhouse gas regulations in the future.markets where it operated through the most cost effective combination of developing, manufacturing and selling vehicles with better fuel economy and lower emissions, purchasing regulatory emissions credits and paying regulatory penalties. However, we expect that, as a result of the integration of the FCA and PSA business following the merger, we will be able to deploy electrification technologies and CO2 abating technologies across our range of brands in a shorter timeframe and react more quickly to changes in regulation, with potential savings in the compliance effort. However, these costs and the costs incurred to meet other regulatory requirements may be difficult to pass through to customers, so the increased costs may affect our results of operations and profitability.
Further, developments in regulatory requirements in China, the largest single market in the world in 2017,2020, limit in some respects, the product offerings we can pursue as we expand the scope of our operations in that country. Refer to Item 3D.“Risk Factors - Laws,Factors-Risks Related to the Legal and Regulatory Environment in which We Operate- Current and more stringent future or incremental laws, regulations and governmental policies, including those regarding increased fuel efficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business. business and may increase our cost of compliance, result in additional liabilities and negatively affect our operations and results. ” for more information. In addition, a U.S. federal regulation prohibits U.S. states such as California from imposing their own environmental greenhouse gas regulatory requirements on the vehicles that we sell, which has resulted in litigation and uncertainty regarding the applicability of those state regulations. The U.S. federal government is also undertaking a review of federal environmental regulations applicable to our vehicles, as well as the stringency of nationwide fuel economy standards.
Consolidation.Merger integration. The automotive industrycombination of FCA and PSA was completed on January 16, 2021. The merger was implemented by way of a legal cross-border merger of PSA with and into FCA. The merger has been accounted for using the acquisition method of accounting in accordance with IFRS 3, Business Combinations, with PSA being identified as the acquirer for accounting purposes. The merger is exceptionally capital intensivenot reflected in the historical financial statements of FCA presented in this report.
We expect that the integration of the FCA and capital expendituresPSA businesses will foster our innovation capability and researchfurther drive development in new energy vehicles, sustainable mobility, autonomous driving and development requirements in our industry have continued to grow significantly in recent years as we pursue technological innovations and respond to a number of challenges. Compliance with enhanced emissions and safety regulations continue to impose new and increasing capital requirements as doesconnectivity. The integration process started immediately after the development of proprietary components. While we continue to implement our Business Plan,merger, and we believeexpect that it will allow us to achieve savings, gains and synergies in several areas, including technology, platforms and products, procurement, selling, general and administrative expenses, logistics and other functions, and that such synergies will result in improved profitability. The integration process involves inherent costs which will impact our businessresults in the near term, although we expect that those costs will continuebe more than offset by the positive effects of the integration. Challenges in the integration process may arise and the anticipated benefits of the integration may take longer than expected to growbe realized or not be realized at all.
Tariffs and Trade Policy. There has been a recent and significant increase in activity and speculation regarding tariffs and duties between governments in various regions, in particular the United States and its trading partners, China and the European Union, as well as between the European Union and the United Kingdom. Tariffs or duties may reduce consumer demand and/or make our operating margins will continue to improve, ifproducts less profitable. In addition, the availability and price at which we are unable to reduce our capital requirements either through cooperation or consolidation with other manufacturers, we may not be able to reduce component development costs, optimize manufacturing investments or product allocationsource components and improve utilization of tooling, machinery and equipment, as a result of which our product development and manufacturing costs will continue to restrict our profitability and return on capital. Although there canraw materials globally may be no assurance that these challenges can be overcome through large scale integration or product development and manufacturing collaboration, if we are unable to pursue such benefits our returns on capital employed and valuation may suffer.adversely affected.
Components Segment. In 2017, our Chief Executive Officer announced that we are considering the separation of a portion of our Components segment from the Group, with a final decision to likely be announced in the first half of 2018. Depending on the businesses involved and the form of transaction, such a separation could materially impact our financial condition and results of operations.
Dealer and Customer Financing. Because dealers and retail customers finance their purchases ofGiven that a large percentage of the vehicles we sell to dealers and retail customers worldwide are financed, the availability and cost of financing is a significant factor affecting our vehicle shipment volumes and Net revenues. Availability of customer financing could affect the vehicle mix, as customers who have access to greater financing are able to purchase higher priced vehicles, whereas when customer financing is constrained, vehicle mix could shift towards less expensive vehicles. The low interest rate environment in recent years has had the positive effect of reducing the effective cost of vehicle ownership. While interest rates in the U.S. and Europe have been at historically low levels, the U.S. Federal Reserve has recently raised interest rates, which may impact consumer financing rates, and the availability and terms of financing will likely continue to change over time, impacting our results. We operate in many regions without a controlled finance company, as we provide access to financing through joint ventures and third party arrangements in several of our key markets. Therefore, we may be less able to ensure availability of financing for our dealers and retail customers in those markets than our competitors that own and operate affiliated finance companies.
Effects of Foreign Exchange Rates. Foreign exchange rates, including the U.S. Dollar/Euro exchange rate, have fluctuated significantly in 2017, and may continue to do so in the future. We are affected by fluctuations in foreign exchange rates (i) through translation of foreign currency financial statements into Euro for consolidation, which we refer to as the translation impact, and (ii) through transactions by entities in the Group in currencies other than their own functional currencies, which we refer to as the transaction impact. Given our presence in numerous countries outside the Eurozone, a strengthening of foreign currencies (in particular of the U.S. Dollar, given the size of our U.S. operations, a strengthening of the U.S. dollaroperations) against the Euro generally would have a positive effect on our financial results, which are reported in Euro, and on our operations in relation to sales in the U.S.those countries of vehicles and components produced in Europe. We are primarily financed byForeign exchange rates, including the U.S. Dollar/Euro exchange rate, have fluctuated significantly in 2020, and may continue to do so in the future. Additionally, a mixsignificant portion of Euro,our operating cash flow is expected to be generated in U.S. dollarDollars and, Brazilian Realalthough a portion of our debt is denominated debt.in U.S. Dollars, the majority of our indebtedness is denominated in Euro. Given the mix of our debt and liquidity, strengthening of the U.S. dollar against the Euro generally would have a positive impact on our net debtcash position.
In order to reduce the impacts of Foreign Exchange Rates, we hedgeforeign exchange rates, FCA historically hedged a percentage of certain exposures. Refer to Item 11.QuantitativeNote 30, Qualitative and Qualitative Disclosures - Quantitativequantitative information on foreign currency exchange rate risk for additional information.
Critical Accounting Estimates
The Consolidated Financial Statements require the use of estimates, judgments and assumptions that affect the carrying amount of assets and liabilities, the disclosure of contingent assets and liabilities and the amounts of income and expenses recognized. The estimates and associated assumptions are based on elements that are known when the financial statements are prepared, on historical experience and on any other factors that are considered to be relevant.
The estimates and underlying assumptions, which are based on management's best judgment, are reviewed by the Group periodically and when circumstances require. Actual results could differ from the estimates, which would require adjustment accordingly. The effects of any changes in estimates are recognized in the period in which the adjustment is made, or in future periods.
The following represent certain critical accounting policies that require the use of judgment or significant estimates to be made for which there is a risk that a material difference may arise in respect of the carrying amounts of assets and liabilities in the future. Also refer to Note 2, Basis of Preparation, within our Consolidated Financial Statements included elsewhere in this report for our significant accounting policies.
Pension Plans
The Group sponsors both non-contributory and contributory defined benefit pension plans primarily in the U.S. and Canada. The majority of the plans are funded plans. The non-contributory pension plans cover certain hourly and salaried employees and the 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. 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.
The Group’s defined benefit pension plans are accounted for on an actuarial basis, which requires the use of estimates and assumptions to determine the net liability or net asset. The Group estimates the present value of the projected future payments to all participants taking into consideration parameters of a financial nature such as discount rates, the rates of salary increases and the likelihood of potential future events estimated by using demographic assumptions, which may have an effect on the amount and timing of future payments, such as mortality, dismissal and retirement rates, which are developed to reflect actual and projected plan experience. Mortality rates are developed using our plan-specific populations, recent mortality information published by recognized experts in this field, primarily the U.S. Society of Actuaries and the Canadian Institute of Actuaries, and other data where appropriate to reflect actual and projected plan experience. The expected amount and timing of contributions is based on an assessment of minimum funding requirements. From time to time contributions are made beyond those that are legally required.
Plan obligations and costs are based on existing retirement plan provisions. Assumptions regarding any potential future changes to benefit provisions beyond those to which the Group is presently committed are not made. Significant differences in actual experience or significant changes in assumptions may affect the pension obligations and pension expense. The effects of actual results differing from assumptions and of changing assumptions are included in Other comprehensive income/(loss). Of these assumptions, changes in discount rates are most likely to have a material effect on the pension obligations. Refer toNote 2, Basis of Preparation - Use of Estimates, within our Consolidated Financial Statements included elsewhere in this report, for additional information on the sensitivity of carrying amounts of the Group's defined benefit obligations to changes in discount rates.
Refer to Note 19, Employee benefits liabilities, within our Consolidated Financial Statements included elsewhere in this report for a detailed discussion of assumptions used to calculate the pension benefit obligations and the fair value hierarchy measurement and inputs used to determine the fair value of significant plan assets by class.
Other Post-Employment Benefits
The Group provides health care, legal, severance indemnity, life insurance benefits and other postretirement benefits to certain hourly and salaried employees. Upon retirement, these employees may become eligible for continuation of certain benefits. Benefits and eligibility rules may be modified periodically.
These other post-retirement employee benefits (“OPEB”) are accounted for on an actuarial basis, which requires the selection of various assumptions. The estimation of the Group’s obligations, costs and liabilities associated with OPEB, 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 estimated by using demographic assumptions, which may have an effect on the amount and timing of future payments, such as mortality, dismissal and retirement rates, which are developed to reflect actual and projected plan experience, as well as legal requirements for retirement in respective countries. Mortality rates are developed using our plan-specific populations, recent mortality information published by recognized experts in this field and other data where appropriate to reflect actual and projected plan experience.
Plan obligations and costs are based on existing plan provisions. Assumptions regarding any potential future changes to benefit provisions beyond those to which the Group is presently committed are not made. Significant differences in actual experience or significant changes in assumptions may affect the OPEB obligations and OPEB expense. Of these assumptions, changes in discount rates and health care cost trends are most likely to have a material effect on the OPEB obligations. Refer toNote 2, Basis of Preparation - Use of Estimates, within our Consolidated Financial Statements included elsewhere in this report, for additional information on the sensitivity of carrying amounts of the Group's OPEB obligations to changes in discount rates and health care costs.
Refer toNote 19, Employee benefits liabilities, within our Consolidated Financial Statements included elsewhere in this report for additional information and a detailed discussion of the assumptions used to calculate the Group's OPEB obligations.
Recoverability of non-current assets with definite useful lives
Non-current assets with definite useful lives include property, plant and equipment, intangible assets and assets held for sale. Intangible assets with definite useful lives mainly consist of capitalized development expenditures, primarily related to the NAFTA and EMEA segments. The Group periodically reviews the carrying amount of non-current assets with definite useful lives when events or circumstances indicate that an asset may be impaired. The recoverability of non-current assets with definite useful lives is based on the estimated future cash flows, using the Group’s current business plan, of the cash generating units (“CGUs”) to which the assets relate. The global automotive industry is experiencing significant change as a result of evolving regulatory requirements for fuel efficiency, greenhouse gas emissions and other tailpipe emissions and emerging technology changes, such as autonomous driving. Our business plan could change in response to these evolving requirements and emerging technologies, which may result in changes to our estimated future cash flows and could affect the recoverability of our non-current assets with definite useful lives. Any change in recoverability would be accounted for at the time such change to the business plan occurs.
For the years ended December 31, 2017, 2016 and 2015, the impairment tests performed compared the carrying amount of the assets included in the respective CGUs to their value in use and was determined using a discounted cash flow methodology. A cash generating unit (“CGU”) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The value in use of the CGUs, which was based primarily on unobservable inputs, was determined using pre-tax estimated future cash flows attributable to the CGUs that were discounted using a pre-tax discount rate reflecting current market assessments of the time value of money and the risks specific to the CGUs.
During the year ended December 31, 2017, impairment losses totaling €229 million were recognized. The most significant components of this impairment loss were in EMEA, related to changes in the global product portfolio and in LATAM, related to product portfolio changes. It was determined that the carrying amount of the CGUs exceeded their value in use and accordingly an impairment charge of €142 million was recognized in EMEA and €56 million in LATAM. In addition, during the second quarter of 2017, due to the continued deterioration of the economic conditions in Venezuela, an impairment test, which compared the carrying amount of certain of FCA Venezuela's assets to their fair value using a market approach, resulted in impairment losses of €21 million.
During the year ended December 31, 2016, impairment losses totaling €195 million were recognized. The most significant component of this impairment loss related to the impairment of capitalized development expenditures for the locally produced Fiat Viaggio and Ottimo vehicles as a result of the Group's capacity realignment to SUV production in China. It was determined that the carrying amount of the CGUs exceeded the capitalized development expenditures' value in use which resulted in an impairment charge of €90 million. In addition, due to the continued deterioration of the economic conditions in Venezuela, an impairment test which compared the carrying amount of certain of FCA Venezuela's assets to their fair value using a market approach, resulted in an impairment charge of €43 million.
During the year ended December 31, 2015, impairment losses totaling €713 million were recognized. The most significant component of this impairment loss related to the decision taken by the Group during the fourth quarter of 2015 to realign a portion of its manufacturing capacity in the NAFTA region, as part of the plan to improve NAFTA margins and to better meet market demand for Ram pickup trucks and Jeep vehicles within the Group's existing plant infrastructure. The approval of this plan was deemed to be an indicator of impairment for certain of our vehicle platform CGUs due to the significant changes to the extent to which the assets are expected to be used. It was determined that the carrying amount of the CGUs exceeded their value in use and an impairment charge of €598 million was recorded for the year ended December 31, 2015, of which €422 million related to tangible asset impairments and €176 million related to the impairment of capitalized development expenditures.
Initial Recognition and Subsequent Recoverability of Goodwill and Intangible Assets with Indefinite Useful Lives
The Group allocates the purchase price of our business combinations to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values, with the excess purchase price over those fair values being recorded as goodwill. The fair value assigned to identifiable intangible assets acquired is supported by valuations that involve the use of a large number of estimates and assumptions provided by management. The assumptions and estimates applied are based on best estimates at the respective acquisition dates.
In accordance with IAS 36 - Impairment of Assets, goodwill and intangible assets with indefinite useful lives are not amortized and are tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired.
Goodwill and intangible assets with indefinite useful lives are allocated to operating segments or CGUs within operating segments. The impairment test is performed by comparing the carrying amount (which mainly comprises property, plant and equipment, goodwill, brands and capitalized development expenditures) and the recoverable amount of each CGU or group of CGUs to which Goodwill has been allocated. The recoverable amount a CGU is the higher of its fair value less costs of disposal and its value in use. The balance of Goodwill and intangible assets with indefinite useful lives recognized by the Group primarily relates to the acquisition of FCA US. Goodwill has been allocated to the NAFTA, EMEA, APAC and LATAM operating segments.
The assumptions used in the impairment test represent management’s best estimate of the expected cash flows for the period under consideration. Changes to our current estimates due to unanticipated events could have a significant impact on our Consolidated Financial Statements. Refer toNote 2, Basis of Preparation within our Consolidated Financial Statements included elsewhere in this report for a detailed discussion of the key assumptions used for the goodwill impairment test.
Recoverability of Deferred Tax Assets
Deferred tax assets are recognized to the extent that it is probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax assets to be utilized. The recoverability of deferred tax assets is dependent on the Group’s ability to generate sufficient future taxable income in the period in which it is assumed that the deductible temporary differences reverse and tax losses carried forward can be utilized. In making this assessment, the Group considers future taxable income arising on the most recent budgets and plans, prepared by using the same criteria described for testing the impairment of assets and goodwill. Moreover, the Group estimates the impact of the reversal of taxable temporary differences on earnings and it also considers the period over which these assets could be recovered.
The estimates and assumptions are subject to uncertainty especially as it relates to future performance in Latin America and the Eurozone. Therefore changes in current estimates due to unanticipated events could have a significant impact on our Consolidated Financial Statements. The effects of any changes in judgment about our deferred tax assets and their recoverability will be reported in the interim period in which they occur.
As of December 31, 2017, the Group had total deferred tax assets on deductible temporary differences of €6,798 million (€10,159 million at December 31, 2016), of which €940 million was not recognized (€551 million at December 31, 2016). At December 31, 2017, the Group also had deferred tax assets on tax loss carry-forwards of €4,718 million (€4,444 million at December 31, 2016), of which €3,740 million was not recognized (€3,197 million at December 31, 2016). In addition, the Group also had deferred tax liabilities on taxable temporary differences of €5,220 million at December 31, 2017 (€7,350 million at December 31, 2016).
Included in the above amounts, as of December 31, 2017, the Group had total deferred tax assets of €3,256 million (€2,902 million at December 31, 2016) in Italy which are primarily attributable to Italian tax loss carry-forwards that can be carried forward indefinitely. The Group recognized €898 million (€750 million at December 31, 2016) of these deferred tax assets as the Group expects sufficient Italian taxable income will be generated in future periods which will allow the use of these deferred tax assets. As a result, €2,358 million of deferred tax assets in Italy were not recognized as of December 31, 2017 (€2,152 million at December 31, 2016).
Also included in the above amounts, as of December 31, 2017, the Group had total deferred tax assets of €1,287 million in Brazil (€1,276 million at December 31, 2016) primarily attributable to Brazilian tax loss carry-forwards which can be carried forward indefinitely. During the year ended December 31, 2017, deferred tax assets decreased due to €281 million related to the reversal of the Brazilian indirect tax liability and €453 million that was written off as the Group revised its outlook on Brazil to reflect the slower pace of recovery and outlook for the subsequent years, largely resulting from increased political uncertainty, and concluded that a portion of the deferred tax assets in Brazil was no longer recoverable. The Group continues to recognize Brazilian deferred tax assets of €148 million (€976 million at December 31, 2016) as the Group considers it probable that we will have sufficient taxable income in the future that will allow us to realize these deferred tax assets.
Refer to Note 7, Tax Expense, within our Consolidated Financial Statements included elsewhere in this report for additional information.
Sales Incentives
The Group records the estimated cost of sales incentive programs offered to dealers and consumers as a reduction to revenue at the time of sale to the dealer. This estimated cost represents the incentive programs offered to dealers and consumers, as well as the expected modifications to these programs in order to facilitate sales of the dealer inventory. Subsequent adjustments to sales incentive programs related to vehicles previously sold to dealers are recognized as an adjustment to Net revenues in the period the adjustment is determinable.
The Group uses price discounts to adjust vehicle pricing in response to a number of market and product factors, including: pricing actions and incentives offered by competitors, economic conditions, the amount of excess industry production capacity, the intensity of market competition, consumer demand for the product and the desire to support promotional campaigns. The Group may offer a variety of sales incentive programs at any given point in time, including: cash offers to dealers and consumers and subvention programs offered to customers, or lease subsidies, which reduce the retail customer’s monthly lease payment or cash due at the inception of the financing arrangement, or both. Sales incentive programs are generally brand, model and region specific for a defined period of time.
Multiple factors are used in estimating the future incentive expense by vehicle line including the current incentive programs in the market, planned promotional programs and the normal incentive escalation incurred as the model year ages. The estimated incentive rates are reviewed monthly and changes to planned rates are adjusted accordingly, thus impacting revenues. As there are a multitude of inputs affecting the calculation of the estimate for sales incentives, an increase or decrease of any of these variables could have a significant effect on Net revenues.
Product warranties, recall campaigns and product liabilities
The Group establishes reserves for product warranties at the time the sale is recognized. The Group issues various types of product warranties under which the performance of products delivered is generally guaranteed for a certain period or term. The accrual for product warranties includes the expected costs of warranty obligations imposed by law or contract, as well as the expected costs for policy coverage, recall actions and buyback commitments. The estimated future costs of these actions are principally based on assumptions regarding the lifetime warranty costs of each vehicle line and each model year of that vehicle line, as well as historical claims experience for the Group’s vehicles. In addition, the number and magnitude of additional service actions expected to be approved, and policies related to additional service actions, are taken into consideration. Due to the uncertainty and potential volatility of these estimated factors, changes in the assumptions used could materially affect the results of operations.
The Group periodically initiates voluntary service and recall actions to address various customer satisfaction as well as safety and emissions issues related to vehicles sold. Included in the reserve is the estimated cost of these service and recall actions. In NAFTA, we accrue estimated costs for recalls at the time of sale, which are based on historical claims experience as well as an additional actuarial analysis that gives greater weight to the more recent calendar year trends in recall campaign activity. In other regions and sectors, however, there generally is not sufficient historical data to support the application of an actuarial-based estimation technique. As a result, estimated recall costs for the other regions and sectors are accrued at the time when they are probable and reasonably estimable, which typically occurs once a specific recall campaign is approved and is announced.
Estimates of the future costs of these actions are inevitably imprecise due to numerous uncertainties, including the enactment of new laws and regulations, the number of vehicles affected by a service or recall action and the nature of the corrective action. It is reasonably possible that the ultimate cost of these service and recall actions may require the Group to make expenditures in excess of (or less than) established reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated. The estimate of warranty and additional service and recall action obligations is periodically reviewed during the year. Experience has shown that initial data for any given model year can be volatile; therefore, our process relies upon long-term historical averages until sufficient data is available. As actual experience becomes available, it is used to modify the historical averages to ensure that the forecast is within the range of likely outcomes. Resulting accruals are then compared with current spending rates to ensure that the balances are adequate to meet expected future obligations.
In addition, the Group makes provisions for estimated product liability costs arising from property damage and personal injuries including wrongful death, and potential exemplary or punitive damages alleged to be the result of product defects. By nature, these costs can be infrequent, difficult to predict and have the potential to vary significantly in amount. The valuation of the reserve is actuarially determined on an annual basis based on, among other factors, the number of vehicles sold and product liability claims incurred. Costs associated with these provisions are recorded in the Consolidated Income Statement and any subsequent adjustments are recorded in the period in which the adjustment is determined.
Other Contingent Liabilities
The Group makes provisions in connection with pending or threatened disputes or legal proceedings when it is considered probable that there will be an outflow of funds and when the amount can be reasonably estimated. If an outflow of funds becomes possible or probable but the amount cannot be measured with sufficient reliability, the matter is disclosed in the Consolidated Financial Statements. The Group is the subject of legal proceedings covering a wide range of matters in various jurisdictions. Due to the uncertainty inherent in such matters, it is difficult to predict the outflow of funds that could result from such disputes with any certainty. The Group monitors the status of pending legal proceedings and consults with experts on legal and tax matters on a regular basis. It is therefore possible that the provisions for the Group’s legal proceedings and litigation may vary as the result of future developments in pending matters and that actual outflows of funds differ from the amounts provided.
Litigation
Various legal proceedings, claims and governmental investigations are pending against the Group on a wide range of topics, including vehicle safety, emissions and fuel economy, competition, tax and securities laws, labor, dealer, supplier and other contractual relationships, intellectual property rights, product warranties and environmental matters. Some of these proceedings allege defects in specific component parts or systems (including airbags, seats, seat belts, brakes, ball joints, transmissions, engines and fuel systems) in various vehicle models or allege general design defects relating to vehicle handling and stability, sudden unintended movement or crashworthiness. These proceedings seek recovery for damage to property, personal injuries or wrongful death and in some cases include a claim for exemplary or punitive damages. Adverse decisions in one or more of these proceedings could require the Group to pay substantial damages, or undertake service actions, recall campaigns or other costly actions.
Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Moreover, the cases and claims against the Group are often derived from complex legal issues which are subject to differing degrees of uncertainty, including the facts and circumstances of each particular case, the manner in which the applicable law is likely to be interpreted and applied and the jurisdiction and the different laws involved. An accrual is established in connection with pending or threatened litigation if it is probable there will be an outflow of funds and when the amount can be reasonably estimated. If an outflow of funds becomes probable, but the amount cannot be estimated, the matter is disclosed in the notes to the Consolidated Financial Statements. Since these accruals represent estimates, the resolution of some of these matters could require the Group to make payments in excess of the amounts accrued or may require the Group to make payments in an amount or range of amounts that could not be reasonably estimated.
The Group monitors the status of pending legal procedures and consults with experts on legal and tax matters on a regular basis. As such, the provisions for the Group’s legal proceedings and litigation may vary as a result of future developments in pending matters.
Share-Based Compensation
The Group accounts for share-based compensation plans in accordance with IFRS 2 - Share-based Payment, which requires measuring share-based compensation expense based on fair value.
The grant date fair value of certain FCA equity-awards with performance conditions that include market conditions is measured using the Monte Carlo simulation model. The Monte Carlo simulation model requires the input of subjective assumptions, including the expected volatility of our common stock, interest rates and correlation coefficient between our common stock and the relevant market index. The grant date fair value of certain restricted stock unit FCA awards is calculated as the closing price of our common stock on the date of grant taking into account the terms and conditions upon which the instruments were granted.
Management uses its best estimate incorporating both publicly observable data and discounted cash flow methodologies in the measurement of fair value for liability-classified awards. The Group updates the measurement of the fair value of these awards on a regular basis. It is therefore possible that the amount of share-based payments reserve and liabilities for share-based payments may vary as the result of a significant change in the assumptions and estimates used.
Refer to Note 18,Share-based compensation, within the Consolidated Financial Statements included elsewhere in this report for additional information on the Group's share-based compensation plans.
information.
FCA Shipment Information
As discussed in GROUP OVERVIEW—Overview of Our Business, FCA’s activities were carried out through five reportable segments: four regional mass-market vehicle segments (North America, LATAM, APAC and EMEA) and the Maserati global luxury brand segment. The following table sets forth vehicle shipment information by segment. Vehicle shipments are generally aligned with current period production which is driven by plans to meet consumer demand. Revenue was recognized when control of FCA’s vehicles, services or parts had been transferred and the FCA Group’s performance obligations to customers had been satisfied. FCA historically determined that its customers from the sale of vehicles and service parts were generally dealers, distributors or fleet customers. Transfer of control, and therefore revenue recognition, generally corresponded to the date when the vehicles or service parts were made available to the customer, or when the vehicles or service parts were released to the carrier responsible for transporting them to the customer. New Standards Applicable from January 1, 2017
For new standards, amendments and interpretationsvehicle sales through the Guaranteed Depreciation Program (“GDP”) were recognized as revenue when control of the vehicle transferred to the fleet customer, except in situations where the FCA Group issued by the IASB that are effective from January 1, 2017, reference should be madea put option for which there was a significant economic incentive to exercise. Refer to Note 2, Basis of Preparationpreparation, within the Consolidated Financial Statements included elsewhere in this report.report for further details on FCA’s revenue recognition policy.
For a description of FCA’s dealers and distributors see GROUP OVERVIEW—Sales Overview. Accordingly, the number of vehicles sold does not necessarily correspond to the number of vehicles shipped for which revenues were recorded in any given period. | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| (thousands of units) | | 2020 | | 2019 | | |
| North America | | 1,842 | | 2,401 | | |
| LATAM | | 475 | | 577 | | |
| APAC | | 62 | | 76 | | |
| EMEA | | 858 | | 1,199 | | |
| Maserati | | 17 | | 19 | | |
| Total Consolidated shipments | | 3,254 | | 4,272 | | |
| Joint venture shipments | | 181 | | 146 | | |
| Total Combined shipments | | 3,435 | | 4,418 | | |
For discussion of shipments for North America, LATAM, APAC, EMEA and Maserati for 2020 as compared to 2019, refer to —Results by Segment below.
Non-GAAP Financial Measures
We monitor ourDuring the financial years presented within this report, FCA monitored its operations through the use of several non-generally accepted accounting principles (“non-GAAP”) financial measures: Net debt, Net industrial debt, Adjusted Earnings Before Interest and Taxes (“Adjusted EBIT”), Adjusted net profit, Adjusted diluted earnings per share (“Adjusted diluted EPS”), Industrial free cash flows and certain information provided on a constant exchange rate (“CER”) basis. We believe that these non-GAAP financial measures provideprovided useful and relevant information regarding ourFCA’s operating results and enhanceenhanced the overall ability to assess ourFCA’s financial performance and financial position.performance. They provide us withprovided comparable measures which facilitatefacilitated FCA management’s ability to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions. These and similar measures are widely used in the industry in which we operate,FCA operated, however, these financial measures may not be comparable to other similarly titled measures of other companies and are not intended to be substitutes for measures of financial performance and financial position as prepared in accordance with IFRS as issued by the IASB as well as IFRS adopted by the European Union. The purpose of the non-IFRS financial measures outlined below is primarily to provide investors with relevant and useful information on FCA's financial performance.
These non-GAAP measures should not be considered indicative of the non-GAAP measures that will be used by Stellantis going forward, which may include alternative measures in addition to, or in place of, these measures. Where Stellantis will use the same or a similar measure going forward, these may be defined differently to the measures presented below.
Adjusted EBIT: excludes certain adjustments from Net Debtprofit from continuing operations including gains/(losses) on the disposal of investments, restructuring, impairments, asset write-offs and unusual income/(expenses) that are considered rare or discrete events that are infrequent in nature, and also excludes Net Industrial Debtfinancial expenses and Tax expense/(benefit).
Adjusted EBIT was used for internal reporting to assess performance and as part of the FCA Group's forecasting, budgeting and decision making processes as it provides additional transparency to the FCA Group's core operations. We believe Net debt isthis non-GAAP measure was useful in providing a measurebecause it excludes items that are not believed to be indicative of the FCA’s ongoing operating performance and allowed management to view operating trends, perform analytical comparisons and benchmark performance between periods and among FCA’s segments. We also believe that Adjusted EBIT was useful for analysts and investors to understand how management assessed the FCA Group’s total indebtedness after consideration of cash and cash equivalents and current securities.
Due to different sources of cash flows used for the repayment of the financial debt between industrial activities and financial services (by cash from operations for industrial activities and by collection of financial receivables for financial services) and the different business structure and leverage implications, we provideongoing operating performance on a separate analysis of Net debt between industrial activities and financial services.
The division between industrial activities and financial services represents a sub-consolidation based on the core business activities (industrial or financial services) of each Group company. The sub-consolidation for industrial activities also includes companies that perform centralized treasury activities, such as raising funding in the market and financing Group companies, but do not, however, provide financing to third parties. Financial services includes companies that provide retail and dealer financing as well as leasing and rental services in support of the mass-market vehicle brands in certain geographical segments and for the Maserati luxury brand.consistent basis. In addition, activities of financial services include providing factoring services to industrial activities, as an alternative to factoring from third parties. Operating results of such financial services activities are included within the respective region or sector in which they operate.
Net industrial debt (i.e., Net debt of industrial activities) is management’s primary measure for analyzing our financial leverage and capital structure and isAdjusted EBIT was one of the key targetsmetrics used to measure our performance. Net industrial debt is computed as: debt plus derivative financial liabilities related to industrial activities less (i) cashin the determination of the annual performance bonus and cash equivalents, (ii) current available-for-salethe achievement of certain performance objectives established under the terms of the 2019-2021 and held-for-trading securities, (iii) current financial receivables from Group or jointly controlled financial services entities and (iv) derivative financial assets and collateral deposits; therefore, debt, cash and cash equivalentsthe 2020-2022 equity incentive plans for the FCA Chief Executive Officer and other financial assets/liabilities pertainingeligible employees, including members of the FCA Group Executive Council (“GEC”).
Refer to financial services entities are excludedthe sections FCA Group Results and Results by Segment below for further discussion and for a reconciliation of this non-GAAP measure to Net profit from continuing operations, which is the computation of Net industrial debt. Net industrial debtmost directly comparable measure included in the Consolidated Income Statement. Adjusted EBIT should not be considered as a substitute for Net profit from continuing operations, cash flow or other methods of analyzing FCA’s results as reported under IFRS.
Adjusted net profit: is calculated as Net profit from continuing operations excluding post-tax impacts of the same items excluded from Adjusted EBIT, as well as financial income/(expenses) and tax income/(expenses) considered rare or discrete events that are infrequent in nature.
We believe this non-GAAP measure was useful because it also excludes items that we do not believe are indicative of FCA’s ongoing operating performance and provides investors with a more meaningful comparison of FCA’s ongoing operating performance. We also believe that Adjusted net profit was useful for analysts and investors to understand how management assessed its ongoing operating performance on a consistent basis. In addition, Adjusted net profit was one of the metrics used in the determination of the annual performance bonus for the FCA Chief Executive Officer and other eligible employees, including members of the FCA Group Executive Council.
Refer to the section FCA Group Results below for further discussion and for a reconciliation of this non-GAAP measure to Net profit from continuing operations, which is the most directly comparable measure included in the Consolidated Income Statement. Adjusted net profit should not be considered as a substitute for Net profit from continuing operations, cash flow or other methods of analyzing FCA’s results as reported under IFRS.
Adjusted diluted EPS: is calculated by adjusting Diluted earnings per share from continuing operations for the impact per share of the same items excluded from Adjusted net profit.
We believe this non-GAAP measure was useful because it also excludes items that FCA did not believe were indicative of its ongoing operating performance and provided investors with a more meaningful comparison of FCA's ongoing quality of earnings. Its purpose was to provide investors relevant and useful information in this respect.
Refer to the section FCA Group Results below for a reconciliation of this non-GAAP measure to Diluted earnings per share from continuing operations, which is the most directly comparable measure included in the Consolidated Financial Statements. Adjusted diluted EPS should not be considered as a substitute for Basic earnings per share, Diluted earnings per share from continuing operations or other methods of analyzing quality of earnings as reported under IFRS.
Industrial free cash flows: was FCA’s key cash flow metric, and is calculated as Cash flows from operating activities less: cash flows or otherfrom operating activities from discontinued operations; cash flows from operating activities related to financial measures under IFRS;services, net of eliminations; investments in addition, Netproperty, plant and equipment and intangible assets for industrial debt depends onactivities; adjusted for net intercompany payments between continuing operations and discontinued operations; and adjusted for discretionary pension contributions in excess of those required by the amountpension plans, net of tax. The timing of Industrial free cash and cash equivalents at each balance sheet date, whichflows may be affected by the timing of monetization of receivables and the payment of accounts payable, as well as changes in other components of working capital, which can vary from period to period due to, among other things, cash management initiatives and other factors, some of which may be outside of the FCA Group’s control. Net industrial debt should therefore be evaluated alongside these other measures
We believe this non-GAAP measure was useful because it provides investors with relevant information on how management assessed and measured its cash flows from ongoing operating activities and as reported under IFRS for a complete view of the Company’s capital structuresuch was FCA's key cash flow metric. Its purpose was to provide both management and liquidity.investors relevant and useful information about FCA's cash generation capacity and performance.
Refer to Item 5A. Liquidity and Capital Markets—Net Debt below Resources—Industrial free cash flows for further information and the reconciliation of thesethis non-GAAP measuresmeasure to Debt,Cash flows from operating activities, which is the most directly comparable measure included in ourthe Consolidated Statement of Financial Position.
Adjusted EBIT: excludes certain adjustments from Net profit from continuing operations including gains/(losses) on the disposal of investments, restructuring, impairments, asset write-offs and unusual income/(expenses) that are considered rare or discrete events that are infrequent in nature, and also excludes Net financial expenses and Tax expense/(benefit).
Adjusted EBIT is used for internal reporting to assess performance and as part of the Group's forecasting, budgeting and decision making processes as it provides additional transparency to the Group's core operations. We believe this non-GAAP measure is useful because it excludes items that we do not believe are indicative of the Group’s ongoing operating performance and allows management to view operating trends, perform analytical comparisons and benchmark performance between periods and among our segments. We also believe that Adjusted EBIT is useful for analysts and investors to understand how management assesses the Group’s ongoing operating performance on a consistent basis. In addition, Adjusted EBIT is one of the metrics used in the determination of the annual performance bonus for the Chief Executive Officer of the Group and other eligible employees, including members of the Group Executive Council.
Refer to the section —Group Results below for further discussion and for a reconciliation of this non-GAAP measure to Net profit from continuing operations, which is the most directly comparable measure included in our Consolidated Income Statement. Adjusted EBITCash Flows. Industrial free cash flows should not be considered as a substitute for Net profit from continuing operations, cash flow or other methods of analyzing our results as reported under IFRS.
Adjusted Net Profit: is calculated as Net profit from continuing operations excluding post-tax impacts of the same items excluded from Adjusted EBIT, as well as financial income/(expenses) and tax income/(expenses) considered rare or discrete events that are infrequent in nature.
We believe this non-GAAP measure is useful because it also excludes items that we do not believe are indicative of the Group’s ongoing operating performance and provides investors with a more meaningful comparison of the Group's ongoing operating performance. In addition, Adjusted net profit is one of the metrics used in the determination of the annual performance bonus and the achievement of certain performance objectives established under the terms of the equity incentive plan for the Chief Executive Officer of the Group and other eligible employees, including members of the Group Executive Council.
Refer to the section —Group Results below for further discussion and for a reconciliation of this non-GAAP measure to Net profit from continuing operations, which is the most directly comparable measure included in our Consolidated Income Statement. Adjusted net profit should not be considered as a substitute for Net profit from continuing operations, cash flow or other methods of analyzing our results as reported under IFRS.
Constant Currency Information: Thethe discussion within Item 5A. Operating Results—the section FCA Group Results of Operations includes information about ourFCA’s results at constant exchange rates (“CER”),CER, which is calculated by applying the prior year average exchange rates to translate current financial data expressed in local currency in which the relevant financial statements are denominated (see Note 2, Basis of Preparationpreparation, within the Consolidated Financial Statements included elsewhere in this report for the exchange rates applied). Although we doFCA management did not believe that this non-GAAP measure is a substitute for GAAP measures, wethey believe that results excluding the effect of currency fluctuations provideprovided additional useful information to investors regarding the operating performance and trends in ourFCA’s business on a local currency basis.
The purpose of this non-GAAP measure is to provide such useful information to investors.
A. Operating Results
Shipment Information
As discussed in Item 4B. Business Overview—Business Summary, our activities are carried out through six reportable segments: four regional mass-market vehicle segments (NAFTA, LATAM, APAC and EMEA), the Maserati global luxury brand segment and a global Components segment. The following table sets forth our vehicle shipment information by segment (excluding the Components segment). Vehicle shipments are generally aligned with current period production which is driven by our plans to meet consumer demand. Revenue is recognized when the risks and rewards of ownership of a vehicle have been transferred to our customers, which generally corresponds to the date when the vehicles are made available to dealers or distributors, or when the vehicles are released to the carrier responsible for transporting vehicles to dealers or distributors. Revenues related to new vehicle sales with a buy-back commitment, or through the Guaranteed Depreciation Program (“GDP”), under which the Group guarantees the residual value or otherwise assumes responsibility for the minimum resale value of the vehicle, are not recognized at the time of delivery but are accounted for similar to an operating lease and rental income is recognized over the contractual term of the lease on a straight line basis. For a description of our dealers and distributors see Item 4B. Business Overview—Mass-Market Vehicles. Accordingly, the number of vehicles sold does not necessarily correspond to the number of vehicles shipped for which revenues are recorded in any given period.
|
| | | | | | | | | |
| | | Years ended December 31 |
| (thousands of units) | | 2017 | | 2016 | | 2015 |
| NAFTA | | 2,401 |
| | 2,587 |
| | 2,726 |
|
| LATAM | | 521 |
| | 456 |
| | 553 |
|
| APAC | | 85 |
| | 91 |
| | 149 |
|
| EMEA | | 1,365 |
| | 1,306 |
| | 1,142 |
|
| Maserati | | 51 |
| | 42 |
| | 32 |
|
| Total Consolidated shipments | | 4,423 |
| | 4,482 |
| | 4,602 |
|
| Joint venture shipments | | 317 |
| | 238 |
| | 136 |
|
| Total Combined shipments | | 4,740 |
| | 4,720 |
| | 4,738 |
|
For discussion of shipments for NAFTA, LATAM, APAC, EMEA and Maserati for 2017 as compared to 2016 and for 2016 as compared to 2015, refer to —Results by Segment below.
Results of Operations
FCA Group Results – 20172020 compared to 2016 and 2016 compared to 20152019
The following is a discussion of the Group'sFCA’s results of operations for the year ended December 31, 20172020 as compared to the year ended December 31, 2016 and2019.
| | | | | | | | | | | | | | |
| | Years ended December 31, |
| (€ million) | | 2020 | | 2019 |
| Net revenues | | € | 86,676 | | | € | 108,187 | |
| Cost of revenues | | 75,962 | | | 93,164 | |
| Selling, general and other costs | | 5,501 | | | 6,455 | |
| Research and development costs | | 2,979 | | | 3,612 | |
| Result from investments | | 179 | | | 209 | |
| Gains on disposal of investments | | 4 | | | 15 | |
| Restructuring costs | | 73 | | | 154 | |
| Net financial expenses | | 988 | | | 1,005 | |
| Profit before taxes | | 1,356 | | | 4,021 | |
| Tax expense | | 1,332 | | | 1,321 | |
| Net profit from continuing operations | | 24 | | | 2,700 | |
| Profit from discontinued operations, net of tax | | — | | | 3,930 | |
| Net profit | | € | 24 | | | € | 6,630 | |
| | | | |
| Net profit/(loss) attributable to: | | | | |
| Owners of the parent | | € | 29 | | | € | 6,622 | |
| Non-controlling interests | | € | (5) | | | € | 8 | |
| | | | |
| Net profit/(loss) from continuing operations attributable to: | | | | |
| Owners of the parent | | € | 29 | | | € | 2,694 | |
| Non-controlling interests | | € | (5) | | | € | 6 | |
| | | | |
| Net profit from discontinued operations attributable to: | | | | |
| Owners of the parent | | € | — | | | € | 3,928 | |
| Non-controlling interests | | € | — | | | € | 2 | |
COVID-19 impacts
The COVID-19 pandemic had significant negative impacts on FCA's results for the year ended December 31, 2016 as compared2020. The contraction of global demand, temporary suspensions of production in all regions and closure of a majority of dealerships during the first quarter significantly contributed to reduced combined shipments. This trend continued into the second quarter, with further market and production disruption before recovering significantly during the third and fourth quarter. As a result, combined shipments were down 22.2% for the year ended December 31, 2015.2020, as compared to the same period in 2019. There were related reductions in both Net revenues (of 19.9%) and Cost of revenues (of 18.5%) for the year ended December 31, 2020, as compared to the same period in 2019. Selling, general and other costs were down 14.8% for the year ended December 31, 2020, as compared to the same period in 2019, primarily due to mitigating actions taken in response to the pandemic, including reductions in marketing and advertising expenses. Adjusted EBIT decreased 43.9% for the year ended December 31, 2020, as compared to the same period in 2019, primarily due to reduced volumes despite strong North America results. Industrial free cash flows of €0.6 billion for the year ended December 31, 2020, primarily reflected strong cash generation during the second half of the year more than offsetting significant pandemic-related cash absorption during the first half.
|
| | | | | | | | | | | | |
| | | Years ended December 31 |
| (€ million) | | 2017 | | 2016 | | 2015 |
| Net revenues | | € | 110,934 |
| | € | 111,018 |
| | € | 110,595 |
|
| Cost of revenues | | 93,975 |
| | 95,295 |
| | 97,620 |
|
| Selling, general and other costs | | 7,385 |
| | 7,568 |
| | 7,576 |
|
| Research and development costs | | 3,230 |
| | 3,274 |
| | 2,864 |
|
| Result from investments | | 410 |
| | 316 |
| | 143 |
|
| Reversal of a Brazilian indirect tax liability | | 895 |
| | — |
| | — |
|
| Gains on disposal of investments | | 76 |
| | 13 |
| | — |
|
| Restructuring costs | | 95 |
| | 88 |
| | 53 |
|
| Net financial expenses | | 1,469 |
| | 2,016 |
| | 2,366 |
|
| Profit before taxes | | 6,161 |
| | 3,106 |
| | 259 |
|
| Tax expense | | 2,651 |
| | 1,292 |
| | 166 |
|
| Net profit from continuing operations | | 3,510 |
| | 1,814 |
| | 93 |
|
| Profit from discontinued operations, net of tax | | — |
| | — |
| | 284 |
|
| Net profit | | € | 3,510 |
| | € | 1,814 |
| | € | 377 |
|
| Net profit attributable to: | | | | | | |
| Owners of the parent | | € | 3,491 |
| | € | 1,803 |
| | € | 334 |
|
| Non-controlling interests | | € | 19 |
| | € | 11 |
| | € | 43 |
|
Net revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) |
| | Years ended December 31, | | 2020 vs. 2019 |
| (€ million) | | 2020 | | 2019 | | % Actual | | % CER |
| Net revenues | | € | 86,676 | | € | 108,187 | | (19.9) | % | | (17.1) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| (€ million) | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Net revenues | | € | 110,934 |
| | € | 111,018 |
| | € | 110,595 |
| | (0.1 | )% | | 1.0 | % | | 0.4 | % | | 1.2 | % |
For a discussion of Net revenues for each of our sixthe five FCA reportable segments (NAFTA,(North America, LATAM, APAC, EMEA Maserati and Components)Maserati) for 20172020 as compared to 2016 and for 2016 as compared to 2015,2019 see —Results by Segment below.
Cost of revenues
| | | | | | | | | | | Increase/(Decrease) | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 | | Years ended December 31, | | 2020 vs. 2019 |
| (€ million) | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER | (€ million) | | 2020 | | 2019 | | % Actual | | % CER |
| Cost of revenues | | € | 93,975 |
| | € | 95,295 |
| | € | 97,620 |
| | (1.4 | )% | | (0.3 | )% | | (2.4 | )% | | (1.6 | )% | Cost of revenues | | € | 75,962 | | € | 93,164 | | (18.5) | % | | (15.6) | % |
| Cost of revenues as % of Net revenues | | 84.7 | % | | 85.8 | % | | 88.3 | % | | | Cost of revenues as % of Net revenues | | 87.6 | % | | 86.1% | | |
Cost of revenues includesincluded purchases (including commodity costs), labor costs, depreciation, amortization, logistic, product warranty and recall campaign costs.
The decrease in Cost of revenues in 20172020 compared to 20162019 was primarily related to (i) lower volumes (ii)across all segments, mainly due to the temporary suspension of production during the first half of the year and demand disruptions as a result of COVID-19, as well as foreign exchange translation effects, (iii) purchasing efficiencies, and (iv) the charges recognized in 2016, which were higher than the charges recognized in 2017, for the estimated costs of recall campaigns related to an industry-wide recall for airbag inflators manufactured by Takata Corporation. These wereimpacts, partially offset by (v)improved mix in North America and EMEA.
•During the year ended December 31, 2020, impairment losses and supplier obligations of €927 million were recognized. Of this, €13 million of supplier obligations were recognized within Cost of revenues in the Consolidated income statement and impairments totaling €914 million were recognized, primarily in relation to:
•For the three months ended March 31, 2020, the FCA Group reviewed its business and operations to take into consideration the estimated impacts and effects of the COVID-19 pandemic, including the estimated impact on the macroeconomic environment, the market outlook and the FCA Group’s operations. Using the updated information, FCA performed an assessment of the recoverability of certain of its assets as of March 31, 2020. Specifically, FCA reviewed FCA’s cash generating units (“CGUs”) and goodwill and intangible assets with indefinite useful lives for indicators of impairment. Certain CGUs, primarily those that were expected to be more sensitive to the current market outlook, in North America, EMEA, LATAM and Maserati segments, as well as goodwill allocated to EMEA and LATAM segments, were found to have indicators of impairment, and were therefore subject to impairment testing. As a result of this impairment testing, impairment charges totaling €450 million, primarily as a result of reduced volume expectations, were recognized on CGUs within the EMEA, LATAM and Maserati segments composed of €247 million of Property, plant and equipment recognized within Cost of revenues and €203 million of previously capitalized development costs recognized within Research and development costs. Of these charges, €178 million relates to the EMEA segment, €161 million relates to the LATAM segment, and €111 million relates to the Maserati segment, which is incremental to the impairment recognized in the Maserati segment discussed below.
•In addition to the impairments discussed above, during the three months ended March 31, 2020, certain assets within the Maserati segment were impaired in connection with decisions that were made regarding the planned utilization of certain assembly assets to more efficiently utilize the FCA Group's manufacturing capacity as part of the implementation of the previously announced Maserati product renewal activities. As a result of these decisions, impairment charges were recognized totaling €177 million, composed of €85 million of Property, plant and equipment recognized within Cost of revenues and €92 million of previously capitalized development expenditures recognized within Research and development costs. Impairment expense of €16 million was also recognized in North America for property, plant and equipment relating to idled assets.
•During the three months ended September 30, 2020, the FCA Group changed FCA’s strategy for the future B-Segment platform in EMEA, which was under development. As a result of the change in strategy, assets totaling €74 million were impaired within the EMEA segment, composed of €4 million of Property, plant and equipment and €70 million of previously capitalized research and development expenditures, which were recognized within Cost of revenues and Research and development costs, respectively, as well as €13 million of supplier obligations.
•During the three months ended December 31, 2020, impairment losses totaling €197 million were recognized, of which €120 million related to vehicle mixplatform impairments in the North America segment as a result of the increase in the CAFE fine rate applicable starting with model year 2022 vehicles, composed of €37 million of Property, plant and (vi) higher productequipment recognized within Cost of revenues and €83 million of previously capitalized development expenditures recognized within Research and development costs. In addition, impairment expense of €56 million was recognized in relation to capitalized development costs which were no longer planned to be used by the FCA Group. Of these, €44 million was not allocated to a specific region as the impaired assets were used to produce vehicles sold in several of FCA’s regions, while €9 million relates to the Maserati segment and €3 million relates to the EMEA segment. Furthermore, impairment expense of €18 million was also recognized in North America for content enhancements. The decrease inproperty, plant and equipment for idled assets.
Included within Cost of revenues wasfor 2020 were amounts of €706 million (€425 million in 2019), which represent primarily attributable to decreasesthe accrual of regulatory expenses and the utilization of regulatory credits, mainly in NAFTANorth America and APAC, which were partially offset by increases in LATAM, EMEA, and Maserati.EMEA.
The decrease in Cost of revenues also included significant costs that contribute to regulatory compliance but which are not separately quantifiable as they are elements within broader initiatives, such as technology deployment in NAFTAterms of powertrain upgrades and alternative powertrains, along with actions to improve vehicle demand energy. For further detail, refer to Environmental and Other Regulatory Matters included elsewhere in 2017 compared to 2016 was primarily due to (i) lower volumes (ii) foreign exchange translation effects, (iii) purchasing savings, and (iv) the charges recognized for the estimated costs of recall campaigns related to an industry-wide recall for airbag inflators manufactured by Takata Corporation, which were predominantly recognized in 2016. These were partially offset by (v) mix, (vi) higher product costs for content enhancements and (vii) increased costs for the capacity realignment plan.
The decrease in Cost of revenues in APAC in 2017 compared to 2016 was mainly due to (i) lower volumes due to planned reductions of Jeep imports in China, (ii) vehicle mix, and (iii) the final settlement of insurance recoveries relating to Tianjin, China, port explosions in 2015 (see below). These were partially offset by (iv) higher industrial costs from negative foreign exchange impacts.
The increase in Cost of revenues in LATAM in 2017 compared to 2016 was mainly due to (i) higher volumes, (ii) vehicle mix, (iii) foreign exchange translation effects, (iv) higher input cost inflation and (v) higher depreciation and amortization related to new vehicles.
The increase in Cost of revenues in EMEA in 2017 compared to 2016 was mainly due to (i) higher volumes and (ii) vehicle mix, which were partially offset by (iii) purchasing and manufacturing efficiencies.
The increase in Cost of revenues in Maserati in 2017 compared to 2016 was mainly due to due to (i) higher volumes, partially offset by (ii) foreign exchange translation effects and (iii) lower industrial costs.
The decrease in Cost of revenues in 2016 compared to 2015 was primarily related to (i) lower volumes, (ii) purchasing and manufacturing efficiencies, net of higher product costs for content enhancements and (iii) lower warranty costs, which were partially offset by (iv) vehicle mix. The decrease in Cost of revenues was primarily attributable to decreases in NAFTA and APAC, which were partially offset by increases in EMEA and Maserati.this report.
Selling, general and other costs
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) |
| | Years ended December 31, | | 2020 vs. 2019 |
| (€ million) | | 2020 | | 2019 | | % Actual | | % CER |
| Selling, general and other costs | | € | 5,501 | | € | 6,455 | | (14.8) | % | | (11.9) | % |
| Selling, general and other costs as % of Net revenues | | 6.3% | | 6.0% | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| (€ million) | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Selling, general and other costs | | € | 7,385 |
| | € | 7,568 |
| | € | 7,576 |
| | (2.4 | )% | | (1.6 | )% | | (0.1 | )% | | 0.9 | % |
| Selling, general and other costs as% of Net revenues | | 6.7 | % | | 6.8 | % | | 6.9 | % | | |
Selling, general and other costs includesincluded advertising, personnel and administrative costs. Advertising costs amounted to approximately 45 percent, 4739 percent and 47 percent of total Selling, general and other costs for the years ended December 31, 2017, 20162020 and 2015,2019 respectively.
The decrease in Selling, general and other costs in 2017 as compared with 2016 primarily relates to (i) lower advertising and marketing costs, primarily in NAFTA, (ii) foreign exchange translation effects and (iii) cost efficiencies, mainly in NAFTA and EMEA, which were partially offset by increased launch costs for Alfa Romeo in NAFTA, APAC and EMEA.
Selling, general and other costs in 2016 was consistent with 2015 and primarily reflected (i) higher advertising costs in NAFTA to support product launches, mainly related to the all-new Chrysler Pacifica, (ii) higher advertising costs in EMEA, mainly for new product launches, particularly the Alfa Romeo brand, and (iii) an increase in Maserati for commercial launch activities, which were offset by (iv) lower marketing costs in APAC, which are incurred by the GAC FCA JV as a result of the shift to localized production in China, and (v) lower costs in LATAM primarily driven by continued cost reduction initiatives to right-size to market volume.
Research and development costs
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) |
| | Years ended December 31, | | 2020 vs. 2019 |
| (€ million) | | 2020 | | 2019 | | % Actual | | % CER |
| Research and development expenditures expensed | | € | 1,226 | | € | 1,305 | | (6.1) | % | | (4.7) | % |
| Amortization of capitalized development expenditures | | 1,250 | | 1,358 | | (8.0) | % | | (4.9) | % |
| Impairment and write-off of capitalized development expenditures | | 503 | | 949 | | (47.0) | % | | (45.2) | % |
| Total Research and development costs | | € | 2,979 | | € | 3,612 | | (17.5) | % | | (15.4) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| (€ million) | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Research and development expenditures expensed | | € | 1,696 |
| | € | 1,661 |
| | € | 1,449 |
| | 2.1 | % | | 3.4 | % | | 14.6 | % | | 15.0 | % |
| Amortization of capitalized development expenditures | | 1,424 |
| | 1,492 |
| | 1,194 |
| | (4.6 | )% | | (4.4 | )% | | 25.0 | % | | 25.5 | % |
| Impairment and write-off of capitalized development expenditures | | 110 |
| | 121 |
| | 221 |
| | (9.1 | )% | | (9.9 | )% | | (45.2 | )% | | (45.2 | )% |
| Total Research and development costs | | € | 3,230 |
| | € | 3,274 |
| | € | 2,864 |
| | (1.3 | )% | | (0.7 | )% | | 14.3 | % | | 14.8 | % |
| | | | | Years ended December 31 | | Years ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2020 | | 2019 |
| Research and development expenditures expensed as % of Net revenues | | 1.5 | % | | 1.5 | % | | 1.3 | % | Research and development expenditures expensed as % of Net revenues | | 1.4 | % | | 1.2 | % |
| Amortization of capitalized development expenditures as % of Net revenues | | 1.3 | % | | 1.3 | % | | 1.1 | % | Amortization of capitalized development expenditures as % of Net revenues | | 1.4 | % | | 1.3 | % |
| Impairment and write-off of capitalized development expenditures as % of Net revenues | | 0.1 | % | | 0.1 | % | | 0.2 | % | Impairment and write-off of capitalized development expenditures as % of Net revenues | | 0.6 | % | | 0.9 | % |
| Total Research and development costs as % of Net revenues | | 2.9 | % | | 2.9 | % | | 2.6 | % | Total Research and development costs as % of Net revenues | | 3.4 | % | | 3.3 | % |
The following table summarizes ourFCA’s research and development expenditures for the years ended December 31, 2017, 20162020 and 2015:2019:
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, | | Increase/(Decrease) |
| (€ million) | | 2020 | | 2019 | | 2020 vs. 2019 |
| Capitalized development expenditures | | € | 2,640 | | | € | 2,889 | | | (8.6) | % |
| Research and development expenditures expensed | | 1,226 | | 1,305 | | (6.1) | % |
| Total Research and development expenditures | | € | 3,866 | | | € | 4,194 | | | (7.8) | % |
| Capitalized development expenditures as % of Total Research and development expenditures | | 68.3 | % | | 68.9 | % | | |
| Total Research and development expenditures as % of Net revenues | | 4.5 | % | | 3.9 | % | | |
|
| | | | | | | | | | | | | | | | | | |
| | | Years ended December 31 | | Increase/(Decrease) |
| (€ million) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Capitalized development expenditures | | € | 2,586 |
| | € | 2,558 |
| | € | 2,504 |
| | 1.1 | % | | 2.2 | % |
| Research and development expenditures expensed | | 1,696 |
| | 1,661 |
| | 1,449 |
| | 2.1 | % | | 14.6 | % |
| Total Research and development expenditures | | € | 4,282 |
| | € | 4,219 |
| | € | 3,953 |
| | 1.5 | % | | 6.7 | % |
| Capitalized development expenditures as % of Total Research and development expenditures | | 60.4 | % | | 60.6 | % | | 63.3 | % | | | | |
| Total Research and development expenditures as % of Net revenues | | 3.9 | % | | 3.8 | % | | 3.6 | % | | | | |
We conductFCA historically conducted research and development for new vehicles and technology to improve the performance, safety, fuel efficiency, reliability, consumer perception and environmental impact of ourits vehicles. Research and development costs consistconsisted primarily of material costs, services and personnel related expenses that support the development of new and existing vehicles with powertrain technologies. For further details of research and development costs, see Item 5. Operating and Financial Review—Trends, Uncertainties and Opportunities—Opportunities—Product Development and Technologyand Item 5C.Overview of Our Business - Research and Development Patents and Licenses, etc..
The decrease in amortizationResearch and development expenditures expensed in 2020 compared to 2019 was primarily due to the temporary suspension of a significant number of programs in response to the COVID-19 pandemic.
The decrease in the Amortization of capitalized development expenditurecosts in 20172020 compared to 20162019 was mainly attributable to changesprimarily the result of previously recognized impairments in the expected lifecycle of certain modelsLATAM, Maserati and foreign exchange translation effects, which wasEMEA, partially offset by the increase attributable to all-new Maserati Levante, all-new Alfa Romeo Giulia, and Stelvio, all-new Jeep Compass, and all-new Fiat Argoincreases in LATAM.North America.
The impairmentdecrease in Impairment and write-off of capitalized development expenditures during the year ended December 31, 2017 mainly related2020 was primarily due to globalhigher level of impairments during 2019 arising from the rationalization of product portfolio changes in EMEA and changesplans, primarily for Europe in the LATAM product portfolio.A-segment as well as for Alfa Romeo, resulted in the recognition of asset impairment charges for certain platforms. Refer to Cost of Revenues above for additional detail on impairments recognized during the year ended December 31, 2020.
The increasedecrease in amortization of capitalizedtotal Research and development expenditures in 20162020 compared to 2015 was mainly attributable2019 reflects the temporary suspension of a significant number of capital expenditure programs in response to the all-new Chrysler Pacifica in NAFTA,COVID-19 pandemic, foreign exchange translation impacts due to the all-new Alfa Romeo Giulia in EMEAdevaluation of the U.S. Dollar and Brazilian Real against the all-new Maserati Levante.
TheEuro, as well as lower impairment and write-off of capitalized development expenditures during the year ended December 31, 2016 mainly related to the Group's realignment to SUV production in China, which resulted in an impairment charge of €90 million for the locally-produced Fiat Viaggio and Ottimo vehicles.costs.
Result from investments
| | | | | Years ended December 31 | | Increase/(Decrease) | | Years ended December 31, | | Increase/(Decrease) |
| (€ million) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 | (€ million) | | 2020 | | 2019 | | 2020 vs. 2019 |
| Result from investments | | € | 410 |
| | € | 316 |
| | € | 143 |
| | 29.7 | % | | 121.0 | % | Result from investments | | € | 179 | | | € | 209 | | | (14.4) | % |
The increasedecrease in Result from investments in 20172020 compared to 2016, and in 2016 compared to 20152019 was primarily attributable to improved results from thelower GAC FCA JV in APAC, due to the increased localized production in China, as well as improved results from the FCA Bank.
Reversal of a Brazilian indirect tax liability
In June 2017, the Group reversed a Brazilian indirect tax liability of €895 million, reflecting certain court decisions. As this liability related to the Group’s Brazilian operations in multiple segments and given the significant and unusual nature of the item, it was not attributed to the results of the related segments and was excluded from Group Adjusted EBIT (refer to Note 22, Other liabilities and Tax payables) for the year ended December 31, 2017.results.
Net financial expenses
| | | | | Years ended December 31 | | Increase/(Decrease) | | Years ended December 31, | | Increase/(Decrease) |
| (€ million) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 | (€ million) | | 2020 | | 2019 | | 2020 vs. 2019 |
| Net financial expenses | | € | 1,469 |
| | € | 2,016 |
| | € | 2,366 |
| | (27.1 | )% | | (14.8 | )% | Net financial expenses | | € | 988 | | | € | 1,005 | | | (1.7) | % |
The decrease in Net financial expenses in 20172020 compared to 2016, and in 2016 compared to 20152019 was primarily due to lower interest expense on pension liabilities, increases in capitalized interest and favorable foreign exchange translation impacts from the continuationweakening of the planned reductionBrazilian Real, partially offset by costs relating to the new credit facilities entered into during 2020 and the drawdown of revolving credit facilities for part of the year prior to being repaid by December 2020, which were actions taken in gross debt.order to strengthen the liquidity position of the FCA Group in the context of the COVID-19 pandemic.
Tax expense
|
| | | | | | | | | | | | | | | | | |
| | | Years ended December 31 | | Increase/(Decrease) |
| (€ million) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Tax expense | | € | 2,651 |
| | € | 1,292 |
| | € | 166 |
| | 105.2 | % | | n.m. |
| Effective tax rate | | 43.0 | % | | 40.2 | % | | 54.4 | % | | +280 bps |
| | -1,420 bps |
__________________________
n.m. = Number is not meaningful.
The increase in Tax expense in 2017 compared to 2016 was primarily attributable to (i) higher profit before taxes, particularly in NAFTA, (ii) net decreases in generation and usage of tax credits, (iii) the impact of the December 2017 U.S. tax reform of €88 million and (iv) a decrease in Brazilian deferred tax assets of €734 million, composed of:
€281 million related to the reversal of a Brazilian indirect tax liability mentioned above; and
€453 million that was written off as the Group revised its outlook on Brazil to reflect the slower pace of recovery and outlook for subsequent years, largely resulting from increased political uncertainty, and concluded that a portion of the deferred tax asset was no longer recoverable.
These items were excluded from Group Adjusted net profit. | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, | | Increase/(Decrease) |
| (€ million) | | 2020 | | 2019 | | 2020 vs. 2019 |
| Tax expense | | € | 1,332 | | | € | 1,321 | | 0.8 | % |
| Effective tax rate | | 97.0 | % | | 32.7 | % | | +6,430 bps |
The increase in the effective tax rate to 43.097 percent in 20172020 from 40.233 percent in 20162019 was primarily duerelated to (i) reduced generationtax expense related to the write-down of Deferred tax assets in Italy and usages of tax credits in NAFTA,Brazil for the three months ended March 31, 2020, as described below; and (ii) a decrease in BrazilianNorth America profit before tax, which significantly impacted the unfavorable effective tax rate impact of current year unrecognized Deferred tax assets, primarily in Italy and Brazil.
For the three months ended March 31, 2020, the FCA Group reviewed its business and operations to take into consideration the estimated impacts and effects of the COVID-19 pandemic, including the estimated impact on the macroeconomic environment, the market outlook and the FCA Group’s operations. As such, the FCA Group assessed its ability to generate sufficient taxable income in the future that would allow realization of net deferred tax assets whichin Italy and Brazil, primarily in relation to tax loss carry-forwards in each respective country. As a result of this assessment, a write-down of €549 million of deferred tax assets was partially offset by (iii)recorded for the year ended December 31, 2020. Of this write-down, €446 million primarily related to Italian tax benefits recorded on changesloss carry-forwards and €103 million related to prior years’Brazilian tax positions.loss carry-forwards.
The increase in Tax expense in 2016 compared to 2015 was primarily attributable to higher profits in NAFTA.Net profit from continuing operations
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, | | Increase/(Decrease) |
| (€ million) | | 2020 | | 2019 | | 2020 vs. 2019 |
| Net profit from continuing operations | | € | 24 | | € | 2,700 | | (99.1) | % |
The decrease in the effective tax rateNet profit from continuing operations in 2020 compared to 40.2 percent in 2016 from 54.4 percent in 20152019 was mainlyprimarily due to lower operating results across all segments relating to the decreasedCOVID-19 pandemic and the impact of writedowns of deferred tax assets not recognized.in Italy and Brazil, referred to above, partially offset by lower total impairments recognized during the year ended December 31, 2020.
Profit from discontinued operations, net of tax
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, | | Increase/(Decrease) |
| (€ million) | | 2020 | | 2019 | | 2020 vs. 2019 |
| Profit from discontinued operations, net of tax | | € | — | | | € | 3,930 | | | n.m. |
|
| | | | | | | | | | | | | | | | | |
| | | Years ended December 31 | | Increase/(Decrease) |
| (€ million) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Profit from discontinued operations, net of tax | | € |
|
| | € |
|
| | € | 284 |
| | — |
| | n.m. |
__________________________
n.m. = Number isnumber not meaningful
The spin-offMagneti Marelli, including the gain on sale of Ferrari was approved on December 3, 2015€3,771 million and our Ferrari operating segmentrelated tax expense of €2 million, was presented as a discontinued operation in the Consolidated Financial Statements for the yearyears ended December 31, 2015. The spin-off of Ferrari N.V. from2019, until May 2, 2019 when the Groupsale was completed on January 3, 2016.completed. For more information, refer to Note 3, Scope of consolidation, within ourthe Consolidated Financial Statements included elsewhere in this report.
Net profit from continuing operations
|
| | | | | | | | | | | | | | | | | |
| | | Years ended December 31 | | Increase/(Decrease) |
| (€ million) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Net profit from continuing operations | | € | 3,510 |
| | € | 1,814 |
| | € | 93 |
| | 93.5 | % | | n.m. |
__________________________
n.m. = Number is not meaningful
The increase in Net profit from continuing operations in 2017 compared to 2016 was mainly driven by improved operating performance in 2017, lower financial expenses, as well as the €895 million gain from the reversal of a Brazilian indirect tax liability, which were partially offset by higher income taxes for the year.
The increase in Net profit from continuing operations in 2016 compared to 2015 was mainly driven by improved operating performance in 2016 as well as costs recognized in 2015 associated to the NAFTA capacity realignment and change in estimate for future recall campaigns.
Adjusted EBIT
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| (€ million) | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Adjusted EBIT | | € | 7,054 |
| | € | 6,056 |
| | € | 4,794 |
| | 16.5 | % | | 18.8 | % | | 26.3 | % | | 27.4 | % |
| Adjusted EBIT margin (%) | | 6.4 | % | | 5.5 | % | | 4.3 | % | | +90 bps |
| | — |
| | +120 bps |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) |
| | Years ended December 31, | | 2020 vs. 2019 |
| (€ million) | | 2020 | | 2019 | | % Actual | | % CER |
| Adjusted EBIT | | € | 3,742 | | € | 6,668 | | (43.9) | % | | (42.0) | % |
| Adjusted EBIT margin (%) | | 4.3 | % | | 6.2 | % | | -190 bps | | — | |
The following charts present ourFCA’s Adjusted EBIT walk by segment for 20172020 as compared to 2016 and for 2016 as compared2019:
For the year ended December 31, 2019, the Adjusted EBIT related to 2015.Magneti Marelli that was excluded from the FCA Group’s Adjusted EBIT result was €218 million, net of intercompany eliminations. For more information, refer to Note 3, Scope of consolidation, within the Consolidated Financial Statements included elsewhere in this report.
For a discussion of Adjusted EBIT for each of our sixFCA’s five reportable segments (NAFTA,(North America, LATAM, APAC, EMEA Maserati and Components)Maserati) in 20172020 as compared to 2016 and for 2016 as compared to 2015,2019 see —Results by Segment below.
The following table summarizes the reconciliation of Net profit from continuing operations to Adjusted EBIT:
|
| | | | | | | | | | | | |
| | | Years ended December 31 |
| (€ million) | | 2017 | | 2016 | | 2015 |
| Net profit from continuing operations | | € | 3,510 |
| | € | 1,814 |
| | € | 93 |
|
| Tax expense | | 2,651 |
| | 1,292 |
| | 166 |
|
| Net financial expenses | | 1,469 |
| | 2,016 |
| | 2,366 |
|
| Adjustments: | | | | | | |
| Reversal of a Brazilian indirect tax liability | | (895 | ) | | — |
| | — |
|
| Impairment expense | | 229 |
| | 225 |
| | 118 |
|
| Recall campaigns - airbag inflators | | 102 |
| | 414 |
| | — |
|
| Restructuring costs | | 95 |
| | 88 |
| | 53 |
|
| Resolution of certain Components legal matters | | 43 |
| | — |
| | — |
|
| Deconsolidation of Venezuela | | 42 |
| | — |
| | — |
|
| Costs for recall - contested with supplier | | — |
| | 132 |
| | — |
|
| NAFTA capacity realignment | | (38 | ) | | 156 |
| | 834 |
|
Tianjin (China) port explosions (insurance recoveries)/costs
| | (68 | ) | | (55 | ) | | 142 |
|
| Gains on disposal of investments | | (76 | ) | | (13 | ) | | — |
|
| Change in estimate for future recall campaign costs | | — |
| | — |
| | 761 |
|
| NHTSA Consent Order and amendment | | — |
| | — |
| | 144 |
|
| Currency devaluations | | — |
| | 19 |
| | 163 |
|
| Other | | (10 | ) | | (32 | ) | | (46 | ) |
| Total Adjustments | | (576 | ) | | 934 |
| | 2,169 |
|
| Adjusted EBIT | | € | 7,054 |
| | € | 6,056 |
| | € | 4,794 |
|
| | | | | | | | | | | | | | |
| | Years ended December 31, |
| (€ million) | | 2020 | | 2019 |
| Net profit from continuing operations | | € | 24 | | | € | 2,700 | |
| Tax expense | | 1,332 | | | 1,321 | |
| Net financial expenses | | 988 | | | 1,005 | |
| Adjustments: | | | | |
| Impairment expense and supplier obligations | | 927 | | | 1,542 | |
| Provision of U.S. investigation matters | | 222 | | | — | |
| Restructuring costs, net of reversals | | 73 | | | 154 | |
| Gains on disposal of investments | | (4) | | | (15) | |
| Brazilian indirect tax - reversal of liability/recognition of credits | | — | | | (164) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Other | | 180 | | | 125 | |
| Total Adjustments | | 1,398 | | | 1,642 | |
| Adjusted EBIT | | € | 3,742 | | | € | 6,668 | |
During the year ended December 31, 20172020 Adjusted EBIT excluded adjustments primarily related to:
•€895927 million gain on the reversal of a liability for Brazilian indirect taxes, as reported above;
€229impairment expense and supplier obligations, primarily of which €450 million charge relatingrelated to asset impairments primarilyof CGUs in EMEA, LATAM and EMEA, resulting from changes in the product portfolio, as well as,Maserati, €87 million related to impairments of certain real estateB-Segment assets and supplier obligations in Venezuela;
€102 million charge relating to an expansion of the scope of the Takata airbag inflator recalls, of which €29EMEA, €177 million related to the previously announced recallimpairments of certain assets in NAFTA and €73Maserati, €120 million related to impairments in North America as a result of the preventative safety campaignschange in LATAM. During 2016, estimated coststhe CAFE fine rate, €56 million of recall campaignsimpairments related to Takata airbag inflatorspreviously capitalized development costs which are no longer planned to be used by the FCA Group, and €34 million of €414 million were recorded withinidle assets in North America, as described in Cost of revenues in and Research and development costs above;
•€222 million provision recognized for estimated probable loss to settle matters under investigation by the Consolidated Income Statement for the year ended December 31, 2016,U.S. Department of Justice primarily related to adjust the warranty provision for an expansion in May 2016 of the population recalled. As the charges for the warranty adjustment were due to an industry-wide recall resulting from parts manufactured by Takata, and, due to the financial uncertainty of Takata, we determined these charges were unusual in nature, and as such, the charges for both 2016 and 2017 were excluded from Adjusted EBITcriminal investigations associated with U.S. diesel emissions matters (refer to Note 25 - Guarantees granted, commitments and contingent liabilities, within ourliabilities in the Consolidated Financial Statements included elsewhere in this report); and
•€180 million of Other costs, primarily including costs incurred for the FCA-PSA merger and for litigation proceedings (refer to Note 25, Guarantees granted, commitments and contingent liabilities, in the Consolidated Financial Statements included elsewhere in this report for additional information);
€95 million restructuring costs, primarily €75 million of workforce restructuring costs related to LATAM;
€43 million relating to the resolution of certain Components legal matters;
€42 million net loss resulting from deconsolidation of our operations in Venezuela. Refer to Note 3 - Scope of Consolidation;
€38 million income related to adjustments to reserves for the NAFTA capacity realignment plan. During the year ended December 31, 2015, as part of the plan to improve margins in NAFTA, the Group realigned a portion of its manufacturing capacity in the region to better meet market demand for Ram pickup trucks and Jeep vehicles within the Group's existing plant infrastructure. As a result, in 2015, a total of €834 million, of which €422 million related to tangible asset impairments, €236 million related to the payment of supplemental unemployment benefits due to planned extended downtime at certain plants associated with the implementation of the new manufacturing plan and €176 million related to the impairment of capitalized development costs with no future economic benefit, was recorded during 2015 and excluded from Adjusted EBIT. During the year ended December 31, 2016, net incremental costs of €156 million from the implementation of the plan were recognized and also excluded from Adjusted EBIT;
€68 million income reflecting final insurance recoveries related to the explosions at the Port of Tianjin, China. On August 12, 2015, a series of explosions which occurred at a container storage station at the Port of Tianjin impacted several storage areas containing approximately 25,000 FCA branded vehicles, of which approximately 13,300 were owned by FCA and approximately 11,400 vehicles were previously sold to our distributor. As a result of the explosions, nearly all of the vehicles at the Port of Tianjin were affected and some were destroyed. During the year ended December 31, 2015, a total cost of €142 million was excluded from Adjusted EBIT, of which €89 million that related to incremental incentives for vehicles affected by the explosion was recorded as a reduction to Net revenues and €53 million relating to the write-down of the affected inventory reduced Cost of revenues. During the year ended December 31, 2016, €55 million of insurance recoveries relating to Tianjin were excluded from Adjusted EBIT. Insurance recoveries related to losses incurred in connection with the explosions at the Port of Tianjin are excluded from Adjusted EBIT to the extent the insured loss to which the recovery relates was excluded from Adjusted EBIT. Insurance recoveries are included in Adjusted EBIT to the extent they relate to costs, increased incentives or business interruption losses that were included in Adjusted EBIT; and
€76 million gain on disposal of investments, primarily related to a €49 million gain on the disposal of the Group's publishing business.further details).
During the year ended December 31, 20162019 Adjusted EBIT excluded adjustments primarily related to:
•€2251,542 million charges relating to asset impairments, primarily resulting from the Group's capacity realignmentimpairment expense of €1,376 million recognized in relation to SUV productionthe rationalization of product portfolio plans, as well as impairment expense of €98 million in China, which resultedNorth America, €62 million in an impairment chargeMaserati, and supplier obligations of €90€6 million for locally-produced Fiat Viaggio and Ottimo vehicles, and €73in EMEA;
•€154 million of impairment lossesrestructuring costs, mainly related to LATAM, EMEA and asset write-offs,North America, primarily includes €76 million of which €43write-down of Property, plant and equipment and €118 million related to certainthe recognition of FCA Venezuela's assets dueprovisions for restructuring, partially offset by the reversal of previously recorded provisions, primarily €46 million in EMEA;
•€164 million of gains in relation to the continued deteriorationrecognition of credits for amounts paid in prior years in relation to indirect taxes in Brazil (refer to Note 15, Trade and other receivables in the economic conditionsConsolidated Financial Statements included elsewhere in Venezuela;this report); and
•€414125 million charge for the estimated costs of recall campaigns related to Takata airbag inflators, referred to above;
€88 million restructuringOther costs, primarily relating to LATAMlitigation proceedings (refer to Note 25, Guarantees granted, commitments and Components;
€132 million which was recorded within Cost of revenuescontingent liabilities in the Consolidated Income Statement, related to estimated costs associated with a recallFinancial Statements included elsewhere in this report for which costs were contested with a supplier. Although FCA believed the supplier has responsibility for the recall, only a partial recovery of the estimated costs was recognized pursuant to a cost sharing agreement;further details).
€156 million relating to the NAFTA capacity alignment referred to above; and
€55 million insurance recoveries relating to the Tianjin port explosions referred to above.
DuringAdjusted net profit
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, | | Increase/(Decrease) |
| (€ million) | | 2020 | | 2019 | | 2020 vs. 2019 |
| Adjusted net profit | | € | 1,863 | | | € | 4,297 | | | (56.6) | % |
The decrease in Adjusted net profit in the year ended December 31, 2015 Adjusted EBIT excluded adjustments primarily related to:
€118 million charges relating to asset impairments in EMEA and APAC;
€53 million restructuring costs, primarily relating to LATAM and Components;
€834 million relating to the NAFTA capacity alignment referred to above;
€142 million relating to the Tianjin port explosions referred to above;
€761 million for estimated future recall campaign costs for vehicles sold in the U.S. and Canada in periods prior to the third quarter of 2015, as a result of increases in both the cost and frequency of recall campaigns and increased regulatory activity across the industry in the U.S. and Canada, an additional actuarial analysis that gave greater weight to the more recent calendar year trends in recall campaign experience was added to the adequacy assessment to estimate future recall costs;
€144 million, which was recognized within Selling, general and other costs within the Consolidated Income Statement, as a result of a consent order agreed with the U.S. National Highway Traffic Safety Administration (“NHTSA”), resolving issues raised by the NHTSA with respect to FCA US’s execution of twenty-three recall campaigns in NHTSA’s Special Order issued to FCA US in 2015, and deficiencies identified in FCA US’s Transportation Recall Enhancement, Accountability, and Documentation (TREAD) reporting; and
€163 million of currency devaluations, of which €83 million related to the devaluation of the Argentinian Peso resulting from changes in monetary policy and €80 million related to Venezuela as a result of the adoption of the Marginal Currency System (the “SIMADI”) exchange rate at June 30, 2015 and the write-down of inventory to the lower of cost or net realizable value.
Adjusted net profit
|
| | | | | | | | | | | | | | | | | | |
| | | Years ended December 31 | | Increase/(Decrease) |
| (€ million) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| Adjusted net profit | | € | 3,770 |
| | € | 2,516 |
| | € | 1,708 |
| | 49.8 | % | | 47.3 | % |
The increase in Adjusted net profit in 20172020 compared to 2016, and in 2016 compared to 2015,2019 was primarily driven by improved operating performance and the reduction inlower Net financial expenses, which wereprofit from continuing operations partially offset by the increaseimpact of writedowns of deferred tax assets in Tax expense.Italy and Brazil, referred to above.
The following table summarizes the reconciliation of Net profit from continuing operations, which is the most directly comparable measure included in the Consolidated Income Statement, to Adjusted net profit:
| | | | | Years ended December 31 | | Years ended December 31, |
| (€ million) | | 2017 | | 2016 | | 2015 | (€ million) | | 2020 | | 2019 |
| Net profit from continuing operations | | € | 3,510 |
| | € | 1,814 |
| | € | 93 |
| Net profit from continuing operations | | € | 24 | | | € | 2,700 | |
| Adjustments (as above) | | (576 | ) | | 934 |
| | 2,169 |
| Adjustments (as above) | | 1,398 | | | 1,642 | |
| Tax impact on adjustments | | 14 |
| | (232 | ) | | (554 | ) | Tax impact on adjustments | | (108) | | | (122) | |
| Brazil deferred tax assets write-off | | 453 |
| | — |
| | — |
| |
| Reduction of deferred tax assets related to reversal of a Brazilian indirect tax liability | | 281 |
| | — |
| | — |
| |
| Impact of U.S. tax reform | | 88 |
| | — |
| | — |
| |
| Net derecognition of deferred tax assets and other tax adjustments | | Net derecognition of deferred tax assets and other tax adjustments | | 549 | | | 77 | |
| | Total adjustments, net of taxes | | 260 |
| | 702 |
| | 1,615 |
| Total adjustments, net of taxes | | 1,839 | | | 1,597 | |
| Adjusted net profit | | € | 3,770 |
| | € | 2,516 |
| | € | 1,708 |
| Adjusted net profit | | € | 1,863 | | | € | 4,297 | |
During the year ended December 31, 2017,2020, Adjusted net profit excluded adjustments related to:
•€14108 million expensebenefit reflecting the tax impact on the items excluded from Adjusted EBIT above; and
•€453549 million expense relating to the write-offloss from write-down of deferred tax assets in Italy and Brazil as reported above;
€281 million expense arising on decrease in deferred tax assets relatedthe FCA Group reviewed its business and operations to take into consideration the releasepotential impacts and effects of the Brazilian indirect tax liability noted above;COVID-19 pandemic, including the estimated impact on economic and
€88 million expense relating to the impact of December 2017 U.S. tax reform. This estimate may change, potentially materially, as a result of regulations or regulatory guidance that may be issued, changes in the interpretations affecting assumptions underlying the estimate, refinement of our calculations and actions that may be taken, including actions in response to the tax reform act. market outlook.
During the year ended December 31, 20162019 Adjusted net profit excluded adjustments related to:
•€232122 million gain,benefit reflecting the tax impact on the items excluded from Adjusted EBIT above.above; and
During•€77 million charge reflecting net derecognition of deferred tax assets and other tax adjustments.
Adjusted diluted EPS
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, | | Increase/(Decrease) |
| (€ per share) | | 2020 | | 2019 | | 2020 vs. 2019 |
| Adjusted diluted EPS | | € | 1.19 | | € | 2.73 | | (56.4) | % |
The following table summarizes the year ended December 31, 2015reconciliation of Diluted earnings per share from continuing operations, which is the most directly comparable measure included in the Consolidated Financial Statements, to Adjusted net profit excluded adjustments related to:diluted earnings per share:
€554 million gain, reflecting the tax impact on the items excluded from Adjusted EBIT above. | | | | | | | | | | | | | | |
| | Years ended December 31, |
| (€ per share except otherwise noted) | | 2020 | | 2019 |
| Diluted earnings per share from continuing operations | | € | 0.02 | | | € | 1.71 | |
| Impact of adjustments above, net of taxes, on Diluted earnings per share from continuing operations | | 1.17 | | | 1.02 | |
| Adjusted diluted earnings per share | | € | 1.19 | | | € | 2.73 | |
| Weighted average number of shares outstanding for Diluted earnings per share from continuing operations (thousand) | | 1,577,313 | | | 1,570,850 | |
Results by Segment – 20172020 compared to 2016 and 2016 compared to 20152019
| | | (€ million, except shipments which are in thousands of units) | | Net revenues | | Adjusted EBIT | | Shipments | (€ million, except shipments which are in thousands of units) | | Net revenues | | Adjusted EBIT | | Shipments |
| | Years ended December 31 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| NAFTA | | € | 66,094 |
| | € | 69,094 |
| | € | 69,992 |
| | € | 5,227 |
| | € | 5,133 |
| | € | 4,450 |
| | 2,401 |
| | 2,587 |
| | 2,726 |
| |
| North America | | North America | | € | 60,322 | | | € | 73,357 | | | € | 5,351 | | | € | 6,690 | | | 1,842 | | | 2,401 | |
| LATAM | | 8,004 |
| | 6,197 |
| | 6,431 |
| | 151 |
| | 5 |
| | (87 | ) | | 521 |
| | 456 |
| | 553 |
| LATAM | | 5,305 | | | 8,461 | | | 6 | | | 501 | | | 475 | | | 577 | |
| APAC | | 3,250 |
| | 3,662 |
| | 4,885 |
| | 172 |
| | 105 |
| | 52 |
| | 85 |
| | 91 |
| | 149 |
| APAC | | 2,381 | | | 2,814 | | | (116) | | | (36) | | | 62 | | | 76 | |
| EMEA | | 22,700 |
| | 21,860 |
| | 20,350 |
| | 735 |
| | 540 |
| | 213 |
| | 1,365 |
| | 1,306 |
| | 1,142 |
| EMEA | | 16,284 | | | 20,571 | | | (918) | | | (6) | | | 858 | | | 1,199 | |
| Maserati | | 4,058 |
| | 3,479 |
| | 2,411 |
| | 560 |
| | 339 |
| | 105 |
| | 51 |
| | 42 |
| | 32 |
| Maserati | | 1,384 | | | 1,603 | | | (232) | | | (199) | | | 17 | | | 19 | |
| Components | | 10,115 |
| | 9,659 |
| | 9,770 |
| | 536 |
| | 445 |
| | 395 |
| | — |
| | — |
| | — |
| |
| Other activities | | 727 |
| | 779 |
| | 844 |
| | (189 | ) | | (244 | ) | | (150 | ) | | — |
| | — |
| | — |
| Other activities | | 2,188 | | | 3,009 | | | (283) | | | (173) | | | — | | | — | |
Unallocated items & eliminations(1) | | (4,014 | ) | | (3,712 | ) | | (4,088 | ) | | (138 | ) | | (267 | ) | | (184 | ) | | — |
| | — |
| | — |
| Unallocated items & eliminations(1) | | (1,188) | | | (1,628) | | | (66) | | | (109) | | | — | | | — | |
| Total | | € | 110,934 |
| | € | 111,018 |
| | € | 110,595 |
| | € | 7,054 |
| | € | 6,056 |
| | € | 4,794 |
| | 4,423 |
| | 4,482 |
| | 4,602 |
| Total | | € | 86,676 | | | € | 108,187 | | | € | 3,742 | | | € | 6,668 | | | 3,254 | | | 4,272 | |
___________________________(1) Primarily includesIncludes intercompany transactions which are eliminated in consolidation; also includesconsolidation and certain costs related to the launch of the Alfa Romeo Giulia platform, which werethat are not allocated to the regional mass-market vehicle segments due to the limited number of shipments.
segments.
The following is a discussion of Net revenues, Adjusted EBIT and shipments for each segment for the year ended December 31, 20172020 as compared to the year ended December 31, 2016, and for the year ended December 31, 2016 as compared to the year ended December 31, 2015. We review2019. FCA historically reviewed changes in ourits results of operations with the following operational drivers:
•Volume: reflects changes in products sold to our customers, primarily dealers and fleet customers. Change in volumes iswas driven by industry volume, market share and changes in dealer stock levels. Vehicles manufactured and distributed by our unconsolidated subsidiaries are not included within volume;
•Mix: generally reflects the changes in product mix, including mix among vehicle brands and models, as well as changes in regional market and distribution channel mix, including mix between retail and fleet customers;
•Net price: primarily reflects changes in prices to ourFCA’s customers including higher pricing related to content enhancement, net of discounts, price rebates and other sales incentive programs, as well as related foreign currency transaction effects;
•Industrial costs: primarily include cost changes to manufacturing and purchasing of materials that are associated with content, technology and enhancement of vehicle features, as well as industrial efficiencies and inefficiencies, recall campaign and warranty costs, research and development costs and related foreign currency transaction effects;
•Selling, general and administrative costs (“SG&A”): primarily include costs for advertising and promotional activities, purchased services, information technology costs and other costs not directly related to the development and manufacturing of ourFCA’s products; and
•Other: includes other items not mentioned above, such as foreign currency exchange translation and results from joint ventures and associates.
NAFTA
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Shipments (thousands of units) | | 2,401 |
| | 2,587 |
| | 2,726 |
| | (7.2 | )% | | — |
| | (5.1 | )% | | — |
|
| Net revenues (€ million) | | € | 66,094 |
| | € | 69,094 |
| | € | 69,992 |
| | (4.3 | )% | | (2.6 | )% | | (1.3 | )% | | (1.2 | )% |
| Adjusted EBIT (€ million) | | € | 5,227 |
| | € | 5,133 |
| | € | 4,450 |
| | 1.8 | % | | 4.0 | % | | 15.3 | % | | 15.1 | % |
| Adjusted EBIT margin (%) | | 7.9 | % | | 7.4 | % | | 6.4 | % | | +50 bps |
| | — |
| | +100 bps |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Increase/(Decrease) |
| | Years ended December 31, | | 2020 vs. 2019 |
| | 2020 | | 2019 | | % Actual | | % CER |
| Shipments (thousands of units) | | 1,842 | | | 2,401 | | | (23.3) | % | | — | |
| Net revenues (€ million) | | € | 60,322 | | | € | 73,357 | | | (17.8) | % | | (16.0) | % |
| Adjusted EBIT (€ million) | | € | 5,351 | | | € | 6,690 | | | (20.0) | % | | (18.4) | % |
| Adjusted EBIT margin (%) | | 8.9 | % | | 9.1 | % | | -20 bps | | — | |
Shipments
The decrease in vehicleNorth America shipments in 20172020 compared to 20162019 was primarily driven bydue to COVID-19 production and market impacts, with reductions in overall Dodge brand, primarily due to discontinuance of the Grand Caravan, as well as lower fleetJeep Grand Cherokee, Jeep Cherokee and Ram 1500 volumes. Ram 1500 volumes were down primarily as a result of planned fleet sales reductions, primarily for Jeep, andre-tooling in the discontinuancethird quarter of the Jeep Patriot, Dodge Dart and Chrysler 200, which was partially offset by increased shipments for the Ram and Alfa Romeo brands, Jeep Grand Cherokee and the all-new Jeep Compass. Shipments reflected decreases in (i) the U.S. of 189 thousand units (-9 percent), which were partially offset by increases in (ii) Mexico of 4 thousand units (+4 percent), with shipments in (iii) Canada remaining flat during the period.
The decrease in vehicle shipments in 2016 compared to 2015 was driven by the planned phase-out of the Chrysler 200 and Dodge Dart in connection with the NAFTA capacity realignment plan to better meet market demand for pickup trucks and utility vehicles. Shipments reflected decreases in (i) the U.S. of 106 thousand units (-5 percent), (ii) Canada of 29 thousand units (-10 percent) and (iii) Mexico of 4 thousand units (-4 percent).2020.
Net revenues
The decrease in NAFTANorth America Net revenues in 20172020 compared to 20162019 was primarily attributabledue to a €1.7 billion net decrease resulting from lower shipments (as described above), net of favorable vehicleand negative foreign exchange translation impacts, partially offset by positive model and channel mix, and €1.2 billion from negative foreign currency translation effects.
The decrease in NAFTA Net revenues in 2016 compared to 2015 was primarily attributable to a €1.0 billionas well as favorable net decrease resulting from lower shipments (as described above), net of favorable vehicle mix, which was partially offset by an increase in net pricing of €0.1 billion, which was partially offset by negative foreign currency transaction effects from the Canadian Dollar and Mexican Peso.
pricing.
Adjusted EBIT
The following charts reflectchart reflects the change in NAFTANorth America Adjusted EBIT by operational driver for 20172020 as compared to 2016 and for 2016 as compared to 2015:2019:
The increasedecrease in NAFTANorth America Adjusted EBIT in 20172020 compared to 20162019 was primarily attributable to:
favorable mix, net•lower volumes;
•recall campaign costs as well as higher compliance costs driven by non-repeat of lower shipments, as described above;
positive pricing,prior year benefit due to the CAFE fine rate reduction in the U.S. on MY2019 vehicles sold in prior periods, partially offset by higher incentives purchasing savings, included within Industrial costs; and
•negative foreign exchange impacts due to the Canadian Dollar; andtranslation impacts.
lower SG&A expenditure, primarily due to lower advertising costs.
These were partially offset by:
higher industrial costs due to higher product costs for content enhancements and increased costs for the capacity realignment plan, partially offset by purchasing efficiencies and lower warranty costs;
negative foreign exchange translation effects; and
a prior year one-off residual values adjustment, included within Other above.
The increase in NAFTA Adjusted EBIT in 2016 compared to 2015 was primarily attributable to:
improved vehicle mix, net of lower shipments, as described above;
•positive net price, as described above;pricing;
•favorable model and channel mix; and
decrease in industrial costs primarily related to purchasing savings, lower warranty costs,•reduced advertising expense and positive foreign currency transaction effects, net of higher product costs for content enhancements and higher manufacturing costs.cost efficiency actions.
These were partially offset by:
higher SG&A expenditure, primarily due to increased advertising costs.
LATAM
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Shipments (thousands of units) | | 521 |
| | 456 |
| | 553 |
| | 14.3 | % | | — |
| | (17.5 | )% | | — |
|
| Net revenues (€ million) | | € | 8,004 |
| | € | 6,197 |
| | € | 6,431 |
| | 29.2 | % | | 23.6 | % | | (3.6 | )% | | 0.7 | % |
| Adjusted EBIT (€ million) | | € | 151 |
| | € | 5 |
| | € | (87 | ) | | n.m. |
| | n.m. |
| | n.m. |
| | n.m. |
|
| Adjusted EBIT margin (%) | | 1.9 | % | | 0.1 | % | | (1.4 | )% | | +180 bps |
| | — |
| | +150 bps |
| | — |
|
__________________________n.m. = Number is not meaningful. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Increase/(Decrease) |
| | Years ended December 31, | | 2020 vs. 2019 |
| | 2020 | | 2019 | | % Actual | | % CER |
| Shipments (thousands of units) | | 475 | | | 577 | | | (17.7) | % | | — | |
| Net revenues (€ million) | | € | 5,305 | | | € | 8,461 | | | (37.3) | % | | (18.6) | % |
| Adjusted EBIT (€ million) | | € | 6 | | | € | 501 | | | (98.8) | % | | (98.7) | % |
| Adjusted EBIT margin (%) | | 0.1 | % | | 5.9 | % | | -580 bps | | — | |
Shipments
The increase in vehicle shipments in 2017 compared to 2016 was primarily attributable to improving market conditions and the success of the Fiat Mobi, the all-new Fiat Argo and Jeep Compass, partially offset by the discontinued Fiat Palio Family. Shipments reflected (i) an increase of 31 thousand units (+9 percent) in Brazil and (ii) an increase of 30 thousand units (+37 percent) in Argentina.
The decrease in vehicleLATAM shipments in 20162020 compared to 20152019 was primarily attributabledue to poor trading conditionsCOVID-19 related market disruption and production suspension in Brazil due to continued macroeconomic weakness,and Argentina, with lower volumes across most models partially offset by the locally producedhigher all-new Fiat Toro and Jeep Compass. Shipments reflects (i) a decrease of 106 thousand units (-23 percent) in Brazil, which reflected the poor trading conditions in Brazil due to the continued macroeconomic weakness, partially offset by (ii) an increase of 10 thousand units (+12 percent) in Argentina.
Strada volumes.
Net revenues
The increase in LATAM Net revenues in 2017 compared to 2016 was primarily attributable to €1.4 billion from higher shipments (as described above) and favorable vehicle mix, €0.2 billion from positive net pricing, partially offset by increased incentives, and €0.3 billion from favorable foreign currency translation effects.
The decrease in LATAM Net revenues in 20162020 compared to 20152019 was primarily attributabledue to a €0.1 billion net increase resultinglower shipments and negative foreign exchange translation effects from favorable vehiclethe weakening of the Brazilian Real, as well as unfavorable mix netand non-repeat of lower volumes (as described above), which was partially offset by €0.3 billion from unfavorable foreign currency effects.prior year one-off recognition of credits related to indirect taxes.
Adjusted EBIT
The following charts reflectchart reflects the change in LATAM Adjusted EBIT by operational driver for 20172020 as compared to 2016 and 2016 as compared to 2015.2019:
The increasedecrease in LATAM Adjusted EBIT in 20172020 compared to 20162019 was primarily attributable to:
increased volumes•lower volumes; and favorable vehicle mix;
favorable net pricing, partially offset by increased incentives;•product cost inflation and
lower indirect taxes in Brazil. negative foreign exchange transaction effects, included within Industrial costs above.
These were partially offset by:
higher industrial costs due to input cost inflation;•reduced advertising and general and administrative costs.
higher depreciation and amortization related to new vehicles.
The increase in LATAM Adjusted EBIT in 2016 compared to 2015 was primarily attributable to:
favorable volume and mix, as described above; and
a decrease in SG&A driven by continued cost reduction initiatives to right-size to market volume.
These were partially offset by:
lower net price resulting from strong competition in Brazil; and
higher industrial costs due to higher product costs driven by inflation and depreciation and amortization related to new products.
APAC
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Increase/(Decrease) |
| | Years ended December 31, | | 2020 vs. 2019 |
| | 2020 | | 2019 | | % Actual | | % CER |
| Combined shipments (thousands of units) | | 102 | | | 149 | | | (31.5) | % | | — | |
| Consolidated shipments (thousands of units) | | 62 | | | 76 | | | (18.4) | % | | — | |
| Net revenues (€ million) | | € | 2,381 | | | € | 2,814 | | | (15.4) | % | | (13.0) | % |
| Adjusted EBIT (€ million) | | € | (116) | | | € | (36) | | | (222.2) | % | | (213.2) | % |
| Adjusted EBIT margin (%) | | (4.9) | % | | (1.3) | % | | -360 bps | | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Combined shipments (thousands of units) | | 290 |
| | 233 |
| | 189 |
| | 24.5 | % | | — |
| | 23.3 | % | | — |
|
| Consolidated shipments (thousands of units) | | 85 |
| | 91 |
| | 149 |
| | (6.6 | )% | | — |
| | (38.9 | )% | | — |
|
| Net revenues (€ million) | | € | 3,250 |
| | € | 3,662 |
| | € | 4,885 |
| | (11.3 | )% | | (9.2 | )% | | (25.0 | )% | | (23.9 | )% |
| Adjusted EBIT (€ million) | | € | 172 |
| | € | 105 |
| | € | 52 |
| | 63.8 | % | | 71.8 | % | | 101.9 | % | | 114.1 | % |
| Adjusted EBIT margin (%) | | 5.3 | % | | 2.9 | % | | 1.1 | % | | +240 bps |
| | — |
| | +180 bps |
| | — |
|
The continued transition to localizedFCA Group locally produced and distributed the Jeep productionCherokee, Renegade, Compass, Grand Commander and Commander PHEV through the 50% owned GAC FCA JV. The results of the GAC FCA JV in China resulted in higher combined shipments (which include shipments from consolidated subsidiaries and unconsolidated joint ventures) and lower consolidated shipments (which only include shipments from consolidated subsidiaries and our operations in India) in 2017 compared to 2016 and 2016 compared to 2015. The GAC FCA JV was fully operational in 2017, with the production of three Jeep sport utility vehicle (“SUV”) models (Cherokee, Renegade and all-new Compass) as compared to the production of only one Jeep SUV model (Cherokee) in 2016. As a result of the increased local production by the GAC FCA JV, the Group is importing fewer vehicles into China. As the GAC FCA JV iswere accounted for using the equity method, with recognition of accounting,FCA’s share of the resultsnet income of the joint venture are recognized in the line item Result from investments within the Consolidated Income Statement, rather than being consolidatedStatement. FCA also produced the Jeep Compass through its joint operation with Fiat India Automobiles Private Limited (“FIAPL”) and recognized its related interest in the joint operation on a line by line basis. The shift to localized production
Shipments of FCA’s consolidated subsidiaries, which includes vehicles produced by FIAPL, were reported in China has the effectboth consolidated and combined shipments. Shipments of decreasing Net revenues and other lines of the Consolidated Income Statement due to fewer shipments through our consolidated operations in China. As this trend continues, the results from the GAC FCA JV and Adjusted EBIT become increasingly important to understanding our results from operations in APAC.
Shipments
The slight decreasewere not included in consolidated shipments in 2017 compared to 2016 was primarily attributable to planned reductions of Jeep imports in China, partially offset by the launch of Alfa Romeo in the region and Jeep Compass production in India. The increasewere only included in combined shipments in 2017 as compared to 2016 was due to the continued ramp up in localized Jeep production through the GAC FCA JV.shipments.
Shipments
The decrease in combined and consolidated shipments in 20162020 compared to 2015 was primarily attributable to the transition to local Jeep production in China, as well as lower volumes in Australia due to pricing actions to offset the weakened Australian Dollar. The increase in combined shipments in 2016 as compared to 20152019 was due to localized Jeep production throughCOVID-19 related market disruption throughout the GAC FCA JV.region.
Net revenues
The decrease in APAC Net revenues in 20172020 compared to 20162019 was primarily due to lower consolidated shipments, as described above, lower parts and componentscomponent sales to the GAC FCA JV and negative foreign exchange translation effects.
The decrease in APAC Net revenues in 2016 compared to 2015 was primarily due to lower consolidated shipments, as described above, which was partially offset by favorable vehicle mix from imported vehicles and increased sales of components.
Adjusted EBIT
The following charts reflectchart reflects the change in APAC Adjusted EBIT by operational driver for 20172020 as compared to 2016 and for 2016 as compared to 2015.2019;
The increasedecrease in APAC Adjusted EBIT in 20172020 compared to 20162019 was primarily attributable to:
insurance recoveries included within Adjusted EBIT of €93 million relating to the Tianjin (China) port explosions;•lower Net revenues, and
favorable vehicle mix and •lower incentives; and
improved results from the GAC FCA JV (included in results, included within Other above).
These were partially offset by:
launch•reduced marketing expense and general and administrative costs related to the Alfa Romeo brand; and
higher industrial costs from negative foreign exchange transaction effects.
The increase in APAC Adjusted EBIT in 2016 compared to 2015 was primarily attributable to:
a decrease in SG&A, mainly due to marketing costs incurred by the GAC FCA JV from 2016 onwards; and
improved results from the GAC FCA JV driven by the local production of Jeep in China and favorable foreign currency effects (reflected within Other).
These were partially offset by:
negative effect from volume and mix with lower imported volumes, net of favorable vehicle mix, as described above;
lower net price due to incentives to complete the sell-out of discontinued and other imported vehicles; and
higher industrial costs due to unfavorable foreign currency transaction effects.
EMEA
| | | | | | | | | | | | | | | | | | | | Increase/(Decrease) |
| | | | | Increase/(Decrease) | | Years ended December 31, | | 2020 vs. 2019 |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 | | 2020 | | 2019 | | % Actual | | % CER |
| | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER | |
| Shipments (thousands of units) | | 1,365 |
| | 1,306 |
| | 1,142 |
| | 4.5 | % | | — |
| | 14.4 | % | | — |
| |
| Combined shipments (thousands of units) | | Combined shipments (thousands of units) | | 999 | | | 1,272 | | | (21.5) | % | | — | |
| Consolidated shipments (thousands of units) | | Consolidated shipments (thousands of units) | | 858 | | | 1,199 | | | (28.4) | % | | — | |
| Net revenues (€ million) | | € | 22,700 |
| | € | 21,860 |
| | € | 20,350 |
| | 3.8 | % | | 4.4 | % | | 7.4 | % | | 8.7 | % | Net revenues (€ million) | | € | 16,284 | | | € | 20,571 | | | (20.8) | % | | (20.5) | % |
| Adjusted EBIT (€ million) | | € | 735 |
| | € | 540 |
| | € | 213 |
| | 36.1 | % | | 35.6 | % | | 153.5 | % | | n.m. |
| Adjusted EBIT (€ million) | | € | (918) | | | € | (6) | | | n.m. | | n.m. |
| Adjusted EBIT margin (%) | | 3.2 | % | | 2.5 | % | | 1.0 | % | | +70 bps |
| | — |
| | +150 bps |
| | — |
| Adjusted EBIT margin (%) | | (5.6) | % | | — | % | | -560 bps | | — | |
n.m. = Number isnumber not meaningful.meaningful
Shipments
The increasedecrease in vehicleEMEA combined and consolidated shipments in 20172020 compared to 20162019 was primarily attributable to the all-new Alfa Romeo StelvioCOVID-19 market disruption and Jeep Compass, as well as theproduction suspension impacts, with overall lower Fiat Tipo Family. Shipments reflected (i) an increase in passenger car shipmentsbrand volumes, primarily due to 1,068 thousand units (+6 percent)lower Fiat 500, 500X and (ii) an increase in shipments of light commercial vehicles (“LCVs”) to 297 thousand units (+1 percent).
The increase in vehicle shipments in 2016 compared to 2015 was primarily attributable to the all-new Fiat Tipo family,Panda models, partially offset by higher Jeep Renegade and all-new Alfa Romeo Giulia. Shipments reflected (i) an increase in passenger car shipments to 1,012 thousand units (+13 percent) and (ii) an increase in shipments of light commercial vehicles to 294 thousand units (+19 percent).Compass volumes.
Net revenues
The increasedecrease in EMEA Net revenues in 20172020 compared to 20162019 was primarily attributable to a positive effectlower volumes of €1.6 billion related to increases in volumes (as described above)vehicles and favorable mix. This wasspare parts, partially offset by negativefavorable model mix and positive net pricing and by negative foreign currency exchange impacts including depreciation of the British Pound sterling.pricing.
The increase in EMEA Net revenues in 2016 compared to 2015 was primarily attributable to a positive effect of €2.3 billion related to the increase in volumes (as described above) and favorable vehicle mix. This was partially offset by unfavorable foreign currency effects of €0.3 billion.
Adjusted EBIT
The following charts reflectchart reflects the change in EMEA Adjusted EBIT by operational driver for 20172020 as compared to 2016 and for 2016 as compared to 2015.2019:
The increasedecrease in EMEA Adjusted EBIT in 20172020 compared to 20162019 was primarily attributable to:
•lower volumes;
•less favorable overall mix; and
•higher volumescompliance and favorable vehicle mix, as described above;
lower industrialproduct electrification costs, mainly due to purchasing and manufacturing cost efficiencies, partially offset by higher amortization and depreciationincluded within Industrial costs related to new vehicles; and
improved results from the FCA Bank joint venture (included in Other above). above.
These were partially offset by:
unfavorable•positive net pricing, primarily duerelated to higher incentivesnewly-launched electrified vehicles;
•lower fixed costs from cost containment and negative foreign currency effects, including depreciation of the British Pound sterling.restructuring actions implemented in prior periods; and
The increase in EMEA Adjusted EBIT in 2016 compared to 2015 was primarily attributable to:
higher volumes and vehicle mix improvement, as described above; and
improved results from the FCA Bank and Tofas joint ventures (included in Other above).
These were partially offset by:
an increase in industrial costs mainly due to higher research and development costs, net of purchasing and manufacturing efficiencies; and
an increase in SG&A mainly due to higher advertising costs to support new product launches, particularly for the Alfa Romeo brand.
•reduced marketing costs.
Maserati
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Shipments (thousands of units) | | 51 |
| | 42 |
| | 32 |
| | 21.4 | % | | — |
| | 31.3 | % | | — |
|
| Net revenues (€ million) | | € | 4,058 |
| | € | 3,479 |
| | € | 2,411 |
| | 16.6 | % | | 19.3 | % | | 44.3 | % | | 47.0 | % |
| Adjusted EBIT (€ million) | | € | 560 |
| | € | 339 |
| | € | 105 |
| | 65.2 | % | | 67.7 | % | | 222.9 | % | | 228.9 | % |
| Adjusted EBIT margin (%) | | 13.8 | % | | 9.7 | % | | 4.4 | % | | +410 bps |
| | — |
| | +530 bps |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Increase/(Decrease) |
| | Years ended December 31, | | 2020 vs. 2019 |
| | 2020 | | 2019 | | % Actual | | % CER |
| Shipments (thousands of units) | | 16.9 | | | 19.3 | | | (12.4) | % | | — | |
| Net revenues (€ million) | | € | 1,384 | | | € | 1,603 | | | (13.7) | % | | (12.8) | % |
| Adjusted EBIT (€ million) | | € | (232) | | | € | (199) | | | (16.6) | % | | (16.0) | % |
| Adjusted EBIT margin (%) | | (16.8) | % | | (12.4) | % | | -440 bps | | — | |
Shipments
The increasedecrease in Maserati shipments in 20172020 compared to 20162019 was primarily attributabledue to increaseCOVID-19 market and production impacts, with lower volumes mainly in shipments for the Maserati Levante, partially offset by lower Maserati Ghibli and Quattroporte volumes, which drove higher shipments in China (+31 percent), Europe (+25 percent) and North America, (+11) percent.
The increase in Maserati shipments in 2016 compared to 2015 was primarily attributable to the launch of the all-new Maserati Levante, which drove significantly higher shipments in China (+91 percent), Europe (+37 percent)EMEA and North America (+14 percent).China.
Net revenues
The increasedecrease in Maserati Net revenues in 20172020 compared to 20162019 was primarily driven by higher shipments, partially offset by negative foreign exchange effects.
The increase in Maserati Net revenues in 2016 compareddue to 2015 was primarily driven by higher shipments and
favorable vehicle and market mix.lower shipments.
Adjusted EBIT
The increasedecrease in Maserati Adjusted EBIT in 20172020 compared to 2016 was primarily due to:
higher shipments (as described above); and
lower industrial costs primarily due to manufacturing and purchasing efficiencies.
These were partially offset by:
negative foreign currency exchange effects.
The increase in Maserati Adjusted EBIT in 2016 compared to 2015 was primarily due to:
positive effect from volume and mix (as described above), which was partially offset by;
an increase in industrial costs and commercial launch activities.
Components
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Increase/(Decrease) |
| | | Years ended December 31 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | 2017 | | 2016 | | 2015 | | % Actual | | % CER | | % Actual | | % CER |
| Net revenues (€ million) | | € | 10,115 |
| | € | 9,659 |
| | € | 9,770 |
| | 4.7 | % | | 5.1 | % | | (1.1 | )% | | 1.1 | % |
| Adjusted EBIT (€ million) | | € | 536 |
| | € | 445 |
| | € | 395 |
| | 20.4 | % | | 22.4 | % | | 12.7 | % | | 15.9 | % |
| Adjusted EBIT margin (%) | | 5.3 | % | | 4.6 | % | | 4.0 | % | | +70 bps |
| | — |
| | +60 bps |
| | — |
|
Net revenues
The increase in Net revenues in 2017 compared to 2016 was primarily due to higher volumes from all three businesses (Magneti Marelli, Comau and Teksid).
The decrease in Net revenues in 2016 compared to 20152019 was primarily due to lower volumes at Comau and unfavorable foreign currency transaction effects, which were largely offset by volume increases at Magneti Marelli, mainly fromhigher marketing costs to support the lighting business line.
Adjusted EBIT
The increase in Adjusted EBIT in 2017 compared to 2016 was primarily related to the positive effect of increased volumes and lower industrial costs primarily resulting from World Class Manufacturing initiatives at Magneti Marelli, which wasnew brand strategy partially offset by unfavorable mixlower depreciation and unfavorable net pricing.amortization.
The increase in Adjusted EBIT in 2016 compared
Liquidity and Capital Resources
COVID-19 Liquidity actions
During 2020, FCA management took several key actions to 2015 was primarily relatedsecure its liquidity and financial position, including drawing on existing bilateral lines of credit totaling €1.5 billion and securing an additional incremental bridge credit facility of €3.5 billion, structured as a bridge to the positive effect from volume and mix,capital markets, which was partially offsetavailable to be drawn beginning in April and then replaced as noted below. In addition, measures were taken to reduce cash outflows, including: a temporary suspension of a significant number of capital expenditure programs, with no programs cancelled; delaying non-essential spending; temporary lay-offs, salary cuts and deferrals; and significant reductions to marketing and other discretionary spend. On April 21, 2020, the FCA Group drew down its €6.25 billion syndicated revolving credit facility, which was then subsequently repaid by higher industrial costs mainlyDecember 31, 2020. On June 24, 2020, the FCA Group announced that FCA Italy S.p.A., a wholly owned subsidiary of Fiat Chrysler Automobiles N.V., and other Italian companies in the FCA Group had signed a 3-year, €6.3 billion credit facility with Intesa Sanpaolo, Italy’s largest banking group. On July 1, 2020, the FCA Group confirmed pricing of an offering of €3.5 billion of notes under the Medium Term Note Programme, with settlement on July 7, 2020. The offering comprised (i) €1.25 billion in principal amount of 3.375% notes due to inflationJuly 2023, (ii) € 1.25 billion in principal amount of 3.875% notes due January 2026, and unfavorable foreign currency effects, net(iii) €1.0 billion in principal amount of purchasing and industrial efficiencies.
Recent Developments
On January 11, 2018,4.500% notes due July 2028, each at an issue price of 100% of the applicable principal amount. The issuance replaced in full the €3.5 billion bridge credit facility above, which was fully cancelled on July 7, 2020, in connection with the settlement of the notes offering. Additionally, on September 18, 2020, FCA announced that it will invest more than $1 billionentered into an agreement for a €485 million five-year loan with the European Investment Bank (“EIB”) to modernizesupport production of plug-in hybrid electric (“PHEV”) vehicles, which is in addition to the Warren Truck Assembly Plant to produce€300 million facility entered into in March 2020 before the next generation Ram Heavy Duty truck, which will relocate from its current production location in Saltillo, Mexico, in 2020. The Saltillo Truck Assembly Plant will be repurposed to produce further commercial vehicles for global distribution.COVID-19 pandemic.
B. Liquidity and Capital Resources
FCA Liquidity Overview
We requireFCA historically required significant liquidity in order to meet ourits obligations and fund ourthe business. Short-term liquidity iswas required to purchase raw materials, parts and components for vehicle production, as well as to fund selling, administrative, research and development, and other expenses. In addition to ourFCA’s general working capital and operational needs, we expectFCA expected to use significant amounts of cash for the following purposes: (i) capital expenditures to support ourFCA’s existing and future products, (ii) principal and interest payments under ourFCA’s financial obligations and (iii) pension and employee benefit payments. We makeFCA made capital investments in the regions in which we operateFCA operates primarily related to initiatives to introduce new products, including for electrification and autonomous driving, enhance manufacturing efficiency, improve capacity and for maintenance, and for regulatory and environmental compliance. Our capital expenditures in 2018 are expected to be within the range of €8.0 to €8.5 billion, which we plan to fund primarily with cash generated from our operating activities, as well as with credit lines provided to certain of our Group entities.
OurFCA’s business and results of operations dependdepended on ourFCA’s ability to achieve certain minimum vehicle shipment volumes. As is typical for an automotive manufacturer, we haveFCA had significant fixed costs and, as such, changes in ourits vehicle shipment volumes cancould have a significant effect on profitability and liquidity. WeFCA generally receivereceived payment from dealers and distributors shortly after shipment, whereas there iswas a lag between the time we receiveFCA received parts and materials from ourFCA’s suppliers and the time we areFCA was required to pay for them. Therefore, during periods of increasing vehicle shipments, there iswas generally a corresponding positive impact on ourFCA’s cash flow and liquidity. Conversely, during periods in which vehicle shipments decline,declined, there iswas generally a corresponding negative impact on ourFCA’s cash flow and liquidity. Delays in shipments of vehicles, including delays in shipments in order to address quality issues, tendtended to negatively affect ourFCA’s cash flow and liquidity. In addition, the timing of ourFCA’s collections of receivables for export shipments of vehicles, fleet sales, as well as sales of powertrain systems and pre-assembled parts of vehicles tendtended to be longer due to different payment terms. Although weFCA regularly enterentered into factoring transactions for such receivables in order to accelerate collections and transfer relevant risks to the factor, a change in vehicle shipment volumes maycould cause fluctuations in ourFCA’s working capital. The increased internationalization of ourFCA’s product portfolio maycould also affect ourFCA’s working capital requirements as there maycould be an increased requirement to ship vehicles to countries different from where they are produced. In addition, working capital cancould be affected by the trend and seasonality of shipments of vehicles with a buy-back commitment.
Management believes that the funds currently available, in addition to those funds that will be generated from operating and financing activities, will enable the Group to meet its obligations and fund its businesses including funding planned investments, working capital needs as well as fulfill its obligations to repay its debts in the ordinary course of business.
Fidis S.p.A., ourFCA’s 100 percent owned captive finance company, supportssupported working capital needs in all regions at a FCA Group level (including Components andthe Maserati segments)segment), as well as selected suppliers, through the offering of receivable and payable financing activity (also known as factoring). In addition, Fidis S.p.A. also providesprovided financing to selected dealers in Italy.
Liquidity needs arewere met primarily through cash generated from operations, including the sale of vehicles, service and parts to dealers, distributors and other consumers worldwide.
The operating cash management and liquidity investment of the FCA Group arewas coordinated with the objective of ensuring effective and efficient management of the FCA Group’s funds. The companies raiseFCA Group raised capital in the financial markets through various funding sources.
In March 2016, FCA US entered into amendments to the credit agreements that govern its tranche B term loans due in 2017 and 2018, (collectively, the “Tranche B Term Loans”) to, among other items, eliminate covenants restricting the provision of guarantees and payment of dividends by FCA US for the benefit of the rest of the Group, to enable a unified financing platform and to provide free flow of capital within the Group (refer to the section —Capital Market and Other Financing Transactions - FCA US Tranche B Term Loans below). As a result, since then, FCA US's cash management activities are no longer managed separately from the rest of the Group.
On March 6, 2017, Fiat Chrysler Finance US Inc. (“FCF US”), a finance subsidiary, was incorporated under the laws of Delaware and became an indirect, 100 percent owned subsidiary of the Company. On May 9, 2017, FCF US and the Company filed an automatically effective shelf registration statement with the SEC on Form F-3. If FCF US issues debt securities, they will be fully and unconditionally guaranteed by the Company. No other subsidiary of the Company will guarantee such indebtedness.
Certain notes issued by FCA and its treasury subsidiaries includeincluded covenants which maycould be affected by circumstances related to certain subsidiaries (including FCA Italy and FCA US); in particular, there arewere cross-default clauses which maycould accelerate repayments in the event that such subsidiaries failfailed to pay certain of their debt obligations.
Long-term liquidity requirements maycould involve some level of debt refinancing as outstanding debt becomes due or we areFCA was required to make principal payments. Although we believe that our current level of total available liquidity is sufficient to meet our short-term and long-term liquidity requirements, weFCA regularly evaluateevaluated opportunities to improve ourits liquidity position in order to enhance financial flexibility and to achieve and maintain a liquidity and capital position consistent with that of other companies in ourFCA’s industry.
However, any actual or perceived limitations of ourFCA’s liquidity may limit the ability or willingness of counterparties, including dealers, consumers, suppliers, lenders and financial service providers, to do business with us,FCA, or require usFCA to restrict additional amounts of cash to provide collateral security for ourits obligations. OurFCA’s liquidity levels are subject to a number of risks and uncertainties, including those described in Item 3D. Risk Factors.
For additional information on distribution of profits, refer to ADDITIONAL INFORMATION FOR NETHERLANDS CORPORATE GOVERNANCE - Dividends, for additional information on Stellantis’s distribution of profits, and Note 26, Equity within the Consolidated Financial Statements included elsewhere in this report, for additional information in relation to the FCA Group’s distribution of profits.
Available Liquidityliquidity
The following table summarizes our availableFCA’s Available liquidity: | | | | | At December 31 | | At December 31, |
| (€ million) | | 2017 | | 2016 | | 2015 (1) | (€ million) | | 2020 | | 2019 | |
Cash, cash equivalents and current securities(2) | | € | 12,814 |
| | € | 17,559 |
| | € | 21,144 |
| |
Undrawn committed credit lines(3) | | 7,563 |
| | 6,242 |
| | 3,413 |
| |
Cash, cash equivalents and current securities(1) | | Cash, cash equivalents and current securities(1) | | € | 24,084 | | € | 15,494 | |
| Undrawn committed credit lines | | Undrawn committed credit lines | | 7,338 | | 7,575 | |
| Cash, cash equivalents and current securities - included with Assets held for sale | | Cash, cash equivalents and current securities - included with Assets held for sale | | 27 | | 17 | |
Total Available liquidity(4)(2) | | € | 20,377 |
| | € | 23,801 |
| | € | 24,557 |
| | € | 31,449 | | | € | 23,086 | | |
_____________________________
(1) The assets of the Ferrari segment were classified as Assets held for distribution within the Consolidated Statement of Financial Position at December 31, 2015. These assets, as well as, the undrawn revolving credit facility of €500 million of Ferrari at December 31, 2015, are not included within the figures presented.
(2) Current securities are comprised of short-term or marketable securities which represent temporary investments but do not satisfy all the requirements to be classified as cash equivalents as they may not be able to be readily converted into cash, or they are subject to significant risk of change in value (even if they are short-term in nature or marketable).
(3) Excludes(2) Historically, the undrawn €0.1 billion long-term dedicated credit linesmajority of FCA’s liquidity was available to fund scheduled investments at December 31, 2017 (€0.3 billion was undrawn at December 31, 2016 and December 31, 2015, respectively).
(4) The majority of our liquidity is available to ourits treasury operations in Europe and U.S.; however, liquidity iswas also available to certain subsidiaries which operate in other countries. Cash held in such countries may be subject to restrictions on transfer depending on the foreign jurisdictions in which these subsidiaries operate. Based on oura review of such transfer restrictions in the countries in which we operateFCA operated and maintainmaintained material cash balances, we doFCA did not believe such transfer restrictions had an adverse impact on the FCA Group's ability to meet its liquidity requirements at the dates presented above.
OurThe following table summarizes FCA’s drawn and undrawn committed credit lines:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2020 | | At December 31, 2019 |
| Facility | | Drawn | | Available | | Facility | | Drawn | | Available |
| (€ million) |
| Revolving Credit Facilities | € | 6,250 | | | € | — | | | € | 6,250 | | | € | 6,250 | | | € | — | | | € | 6,250 | |
| | | | | | | | | | | |
| Other revolving lines of credit | 1,088 | | | — | | | 1,088 | | | 1,325 | | | — | | | 1,325 | |
| Total committed credit lines at the end of period | € | 7,338 | | | € | — | | | € | 7,338 | | | € | 7,575 | | | € | — | | | € | 7,575 | |
Available liquidity isat December 31, 2020 increased €8.4 billion from December 31, 2019 primarily as a result of increased credit facilities and issuance of notes and free cash flow, partially offset by the repayment of borrowings during the period and negative foreign exchange translations.
FCA’s Available liquidity was historically subject to intra-month and seasonal fluctuations resulting from business and collection payment cycles as well as to changes in foreign exchange conversion rates. Refer to the section — Cash Flows below for additional information regarding the change in cash and cash equivalents and refer to Note 29, Explanatory notes to the Consolidated Statement of Cash Flows, within the Consolidated Financial Statements included elsewhere in this report for additional information.
FCA’s liquidity was principally denominated in U.S. Dollar and Euro. Out of the total €12.8€24.1 billion of cash, cash equivalents and current securities available at December 31, 20172020 (€17.615.5 billion at December 31, 2016, €21.1 billion at December 31, 2015)2019), €7.0€12.5 billion or 54.751.9 percent were denominated in U.S. Dollar (€9.89.3 billion, or 55.760.0 percent, at December 31, 20162019) and €12.6€6.0 billion, or 59.7 percent, at December 31, 2015) and €2.3 billion, or 18.024.9 percent, were denominated in Euro (€3.32.0 billion, or 18.812.9 percent, at December 31, 20162019).
European Investment Bank Borrowings
On March 18, 2020, FCA announced that it entered into an agreement for a €300 million five-year loan with the European Investment Bank (“EIB”) to support specific investments to be implemented by FCA through 2021. The investments are primarily to support the manufacturing deployment of the advanced vehicle powertrain electrification technologies and, €3.4in particular, the setup of production lines for the manufacturing of PHEV vehicles at FCA’s production plant in Melfi (Italy) and the manufacturing of battery electric vehicles (“BEV”) at the production plant in Mirafiori (Italy). The loan was fully drawn on March 26, 2020.
On September 18, 2020, FCA announced that it entered into an agreement for a €485 million five-year loan with the EIB to support production of PHEVs at the Pomigliano plant in Campania (Italy). The additional borrowings also support research, development and innovation for electrification, connectivity and self-driving technologies mainly conducted at FCA's laboratories in Turin (Italy). The loan was fully drawn on September 30, 2020.
Incremental Bridge Credit Facility
On March 26, 2020, FCA announced that it had entered into a new €3.5 billion or 16.1 percent,credit facility (the “Bridge Credit Facility”). The Bridge Credit Facility, initially entered into with two banks and then successfully syndicated to thirteen banks, including the two original underwriting banks, was available for general corporate purposes and for working capital needs of the group and was structured as a bridge facility to capital markets. On July 7, 2020, the Bridge Credit Facility was cancelled. Refer to Notes below for further information.
Revolving Credit Facilities
On March 26, 2020, the tenor of the three-year Tranche A of FCA’s €6.25 billion revolving credit facility (as amended, the “RCF”), for €3.125 billion, was extended by one year to April 27, 2023, with the Tranche B maturity unchanged at December 31, 2015).
In March 2017,2024. On April 21, 2020, FCA announced that, in light of the Group amendedcontinuing uncertainty relating to the impacts of COVID-19, it had drawn down its syndicated€6.25 billion revolving credit facility originally signed in June 2015 (asand last amended the “RCF”).in March 2019. The amendment increased€6.25 billion draw down was subsequently repaid by December 31, 2020, with the RCF from €5.0being fully available as of December 31, 2020.
Intesa Sanpaolo Credit Facility
On June 24, 2020, FCA Italy S.p.A., a wholly-owned subsidiary of Fiat Chrysler Automobiles N.V., and other Italian companies in the FCA Group entered into a facility agreement with Intesa Sanpaolo for borrowings of up to €6.3 billion to €6.25 billionfinance FCA’s activities in Italy. The facility is unsecured and extendedguaranteed by FCA N.V., subsequently Stellantis N.V., and will mature in March 2023, amortizing in five equal quarterly installments with the RCF’s final maturity tofirst such installment due on March 31, 2022. The RCF, which is available for general corporate purposes and for the working capital needsSACE (Italy’s export credit agency) will guarantee 80 percent of the Group, is structuredborrowings under that facility pursuant to the recently enacted Italian Liquidity Decree. The facility and borrowings under the facility are at interest rates within a range that could be obtained in two tranches: €3.125 billion, with a 37-month tenor and two extension options of 1-year and of 11-months exercisable on the first and second anniversarymarket.
The covenants of the amendment signing date, respectively,credit facility include financial covenants which apply under certain conditions, as well as negative pledge, pari passu, cross-default and €3.125 billion,change of control clauses. Failure to comply with these covenants, and in certain cases if not suitably remedied, can lead to the requirement of early repayment of any outstanding amounts.
In connection with SACE’s guarantee, the FCA Group provided the following industrial commitments applicable while any loans are outstanding under the facility: (i) to continue to carry out certain Italian investment projects currently underway and previously announced; (ii) not to delocalize outside Italy production of vehicles under such investment projects; and (iii) to pursue the goal of reducing temporary layoffs for employees engaged under such investment projects in Italy to nil by the end of 2023, each with agreed milestones for implementation. If the industrial commitments previously described are not implemented by the agreed milestones, the FCA Group, subsequently the Stellantis Group, may at its option: (i) implement those industrial commitments within an additional six-month period following the milestones; (ii) negotiate and agree alternative milestones and/or commitments with the Italian government; or (iii) repay the loan at any time within 18 months (including a 60-month tenor. The amendment was accounted for as a debt modification and, as a result,6 months negotiation period) from the remaining unamortized debt issuance costspoint of non-compliance.
In addition, while loans under the facility are outstanding, FCA N.V. has committed not to approve or pay dividends or other shareholder distributions in the 2020 calendar year (except dividends related to the original €5.0 billion RCFmerger with Peugeot S.A.), and the new costs associatedItalian subsidiaries of the FCA Group have committed not to distribute dividends or to make other shareholder distributions until May 26, 2021.
During the year ended December 31, 2020, €6.3 billion of the facility was drawn down.
Notes
On April 15, 2020, the FCA NV repaid in full at maturity U.S.$1.5 billion of 4.5 percent unsecured notes issued in April 2015.
On July 1, 2020, FCA confirmed pricing of an offering of €3.5 billion of notes under the Medium Term Note Programme, with settlement on July 7, 2020. The offering comprised (i) €1.25 billion in principal amount of 3.375% notes due July 2023, (ii) €1.25 billion in principal amount of 3.875% notes due January 2026, and (iii) €1.0 billion in principal amount of 4.500% notes due July 2028, each at an issue price of 100% of the applicable principal amount. The issuance replaced in full the €3.5 billion Bridge Credit Facility, which was previously fully undrawn and was fully cancelled on July 7, 2020, in connection with the amendment will be amortized over the lifesettlement of the RCF. At December 31, 2017,notes offering.
Refer to Note 21, Debt in the €6.25 billion RCF was undrawn.
At December 31, 2017,Consolidated Financial Statements included elsewhere in this report for further information regarding FCA’s undrawn committed credit lines totaling €7.6 billion included the €6.25 billion RCF and approximately €1.3 billion of other revolving credit facilities. At December 31, 2016, undrawn committed credit lines totaling €6.2 billion included the original €5.0 billion RCF and approximately €1.2 billion of other revolving credit facilities.lines.
The €3.4 billion decrease in total available liquidity from December 31, 2016 to December 31, 2017 primarily reflects the reduction in gross debt, which was partially offset by cash generated by operations, net of investing activities, and the increase in available undrawn committed credit lines of €1.3 billion, almost entirely related to the increase of the Group's RCF of €1.25 billion, as described above. Refer to the section —Cash Flows below for additional information.
Cash Flows
Year EndedendedDecember 31, 20172020compared to the Years Endedyear ended December 31, 2016 and 20152019
The following table summarizes theFCA’s cash flows from operating, investing and financing activities for each of the years ended December 31, 2017, 20162020 and 2015. Also, refer to our Consolidated Statement of Cash Flows and Note 29, Explanatory notes to the Consolidated Statement of Cash Flows, within our Consolidated Financial Statements included elsewhere in this report for additional information.2019.
| | | | | Years ended December 31 | | Years ended December 31, |
| (€ million) | | 2017 | | 2016 | | 2015 (1) | (€ million) | | 2020 | | 2019(1) |
| Cash flows from operating activities - continuing operations | | € | 10,385 |
| | € | 10,594 |
| | € | 9,224 |
| Cash flows from operating activities - continuing operations | | € | 9,183 | | | € | 10,770 | |
| Cash flows from operating activities - discontinued operations | | — |
| | — |
| | 527 |
| |
| Cash flows used in operating activities - discontinued operations | | Cash flows used in operating activities - discontinued operations | | — | | | (308) | |
| Cash flows used in investing activities - continuing operations | | (9,296 | ) | | (9,039 | ) | | (8,874 | ) | Cash flows used in investing activities - continuing operations | | (7,915) | | | (8,178) | |
Cash flows from investing activities - net cash proceeds, disposal of discontinued operations(2) | | Cash flows from investing activities - net cash proceeds, disposal of discontinued operations(2) | | — | | | 5,348 | |
| Cash flows used in investing activities - discontinued operations | | — |
| | — |
| | (426 | ) | Cash flows used in investing activities - discontinued operations | | — | | | (155) | |
| Cash flows used in financing activities - continuing operations | | (4,473 | ) | | (5,127 | ) | | (5,195 | ) | |
| Cash flows from/(used in) financing activities - continuing operations | | Cash flows from/(used in) financing activities - continuing operations | | 9,087 | | | (6,152) | |
| Cash flows from financing activities - discontinued operations | | — |
| | — |
| | 2,067 |
| Cash flows from financing activities - discontinued operations | | — | | | 325 | |
| Translation exchange differences | | (1,296 | ) | | 228 |
| | 681 |
| Translation exchange differences | | (1,513) | | | 212 | |
| Total change in cash and cash equivalents | | (4,680 | ) | | (3,344 | ) | | (1,996 | ) | Total change in cash and cash equivalents | | 8,842 | | | 1,862 | |
| | Cash and cash equivalents at beginning of the period | | 17,318 |
| | 20,662 |
| | 22,840 |
| Cash and cash equivalents at beginning of the period | | 15,014 | | | 12,450 | |
| Cash and cash equivalents at end of the period - included within Assets held for distribution | | — |
| | — |
| | 182 |
| |
| Add: Cash and cash equivalents at beginning of the period included within Assets held for sale | | Add: Cash and cash equivalents at beginning of the period included within Assets held for sale | | 17 | | | 719 | |
| Total change in cash and cash equivalents | | Total change in cash and cash equivalents | | 8,842 | | | 1,862 | |
Less: Cash and cash equivalents at end of the period included within Assets held for sale(3) | | Less: Cash and cash equivalents at end of the period included within Assets held for sale(3) | | 27 | | | 17 | |
| Cash and cash equivalents at end of the period | | € | 12,638 |
| | € | 17,318 |
| | € | 20,662 |
| Cash and cash equivalents at end of the period | | € | 23,846 | | | € | 15,014 | |
_________________________(1) FerrariMagneti Marelli operating results and cash flows for the four months prior to the completion of the disposal on May 2, 2019, were excluded from the FCA Group's continuing operations and are presented as a single line item within the Consolidated Income Statements and StatementsConsolidated Statement of Cash Flows for the year ended December 31, 20152019 following the classification of FerrariMagneti Marelli as a discontinued operationoperation. All amounts presented above exclude net intercompany amounts (received by)/paid by Magneti Marelli to/from the FCA Group totaling €(200) million for the year ended December 31, 2015.
Operating Activities — Year Ended December 31, 2017
For2019 within operating activities, €(41) million for the year ended December 31, 2017, net cash from operating activities of €10,3852019 within investing activities; and €405 million was primarily the result of (i) net profit from continuing operations of €3,510 million adjusted to add back €5,890 million for depreciation and amortization expense, in addition to a net decrease of €1,057 million in deferred tax assets mainly related to LATAM, and other non-cash items of €199 million; (ii) €102 million dividends received mainly from our equity method investments and (iii) the negative effect of the change in working capital of €459 million primarily driven by (a) €1,666 million increase in inventories related to ramp-up of new models at year end, including the all-new Alfa Romeo Stelvio and the new Jeep Wrangler, as well as volume increases in LATAM and Maserati, and (b) increase in trade receivables of €206 million, which were partially offset by (c) increase in trade payables of €1,086 million primarily related to increased production volumes in NAFTA and LATAM in the fourth quarter of 2017 as compared to the same period in 2016, and (d) a €327 million positive impact from increases in other payables and receivables, primarily related to tax payables and higher deferred revenue.
Operating Activities — Year Ended December 31, 2016
For the year ended December 31, 2016,2019 within financing activities.
(2) Included within Cash flows from investing activities - net cash from operating activitiesproceeds, disposal of €10,594 million was primarily the result of (i) net profit from continuingdiscontinued operations of €1,814 million adjusted to add back €5,956 million for depreciation and amortization expense and other non-cash items of €111 million, (ii) a net increase of €1,519 million in provisions mainly due to the increase in the warranty provision of €414 million in NAFTA for recall campaigns related to an industry wide recall for airbag inflators resulting from parts manufactured by Takata, estimated net costs of €132 million associated with a recall for which costs are being contested with a supplier, and an increase in accrued sales incentives primarily related to NAFTA and EMEA; (iii) €123 million dividends received mainly from our equity method investments and (iv) the positive effect of the change in working capital of €777 million that was primarily driven by (a) decrease in trade receivables of €177 million, (b) increase in trade payables of €776 million mainly related to increased production levels in EMEA, that was partially offset by reduced activity in LATAM and the effect of localized Jeep production in China, (c) €295 million increase in other payables and receivables primarily related to the net payment of taxes and deferred expenses, which were partially offset by (d) €471 million increase in inventories mainly related to the increased production of new vehicle models in EMEA.
Operating Activities — Year Ended December 31, 2015
For the year ended December 31, 2015, net2019, is €5,348 million reflecting the aggregate cash flows arising from operating activitiesthe disposal of €9,751 million was primarilyMagneti Marelli through the result of (i) net profit from continuing operations of €93 million adjusted to add back €5,414 million for depreciation and amortization expense and other non-cash items of €812 million which included (a) total €713 million non-cash charges for asset impairments that mainly related to asset impairments in connection with the realignmentcompletion of the Group's manufacturing capacity in NAFTA to better meet market demand for pickup truckssale transaction on May 2, 2019, consisting of €5,774 million cash consideration net of €426 million cash balances transferred.
(3) The assets and utility vehicles and (b) €80 million charge recognized as a resultliabilities of the adoptioncast iron automotive components business of Teksid were classified as Assets held for sale and Liabilities held for sale within the SIMADI exchange rate to remeasure our Venezuelan subsidiary’s net monetary assets in U.S. Dollar (reported, for the effect on cash and cash equivalents, within “Translation exchange differences”); (ii) a net increaseConsolidated Statement of €3,206 million in provisions mainly related to an increase in the warranty provision, which included the change in estimate for future recall campaign costs in NAFTA, and higher accrued sales incentives primarily related to increased sales volumes in NAFTA; (iii) €112 million dividends received mainly from our equity method investments; and (iv) €527 million of cash flows from discontinued operations, which were partially offset by (v) the negative effect of the change in working capital of €158 million primarily driven by (a) €958 million increase in inventories, which reflects the increased consumer demand for our vehicles and inventory buildup in NAFTA due to production changeovers, (b) €191 million increase in trade receivables, (c) €580 million decrease in changes in other payables and receivables primarily related to the net payment of taxes and deferred expenses, which were partially offset by (d) €1,571 million increase in trade payables, mainly related to increased production levels in EMEA.
Investing Activities — Year EndedFinancial Position at December 31, 2017
For the year ended2020 and at December 31, 2017, net cash used in investing activities of €9,296 million was primarily the result of (i) €8,666 million of capital expenditures, including €2,586 million of capitalized development expenditures primarily related to NAFTA and EMEA, that supported investments in existing and future products, including investments in electrification and autonomous driving, and (ii) a €838 million net increase in receivables from financing activities primarily related to the increase in the lending portfolio of the financial services activities of the Group in China and Europe, which were partially offset by (iii) proceeds received of €144 million from the sale of FCA's investment in CNH Industrial N.V. (“CNHI”), which was recognized in the line Change in securities within the Statement of Cash Flows (refer2019. Refer to Note 13, Other Financial Assets in the3, Scope of consolidation within FCA’s Consolidated Financial Statements included elsewhere in this report).report.
Investing Activities — Year Ended December 31, 2016
For the year ended December 31, 2016, net cash used in investing activities of €9,039 million was primarily the result of (i) €8,815 million of capital expenditures, including €2,558 million of capitalized development expenditures that supported investments in existing and future products, which primarily relatedAlso, refer to the mass-market vehicle operations in NAFTA and EMEA as well as the investment in the Alfa Romeo brand, (ii) a total of €116 million for investments in joint ventures, associates and unconsolidated subsidiaries that primarily related to an additional investment in the GAC FCA JV and (iii) €483 million of a net increase in receivables from financing activities that primarily related to the increase in lending portfolio of the financial services activities of the Group in China and Europe.
Investing Activities — Year Ended December 31, 2015
For the year ended December 31, 2015, net cash used in investing activities of €9,300 million was primarily the result of (i) €8,819 million of capital expenditures, including €2,504 million of capitalized development expenditures, that supported investments in existing and future products. Capital expenditures primarily related to the mass-market vehicle operations in NAFTA and EMEA, investment in the Alfa Romeo brand and the completion of the plant in Pernambuco, Brazil; (ii) a total of €266 million for investments in joint ventures, associates and unconsolidated subsidiaries, of which €171 million was for the GAC FCA JV; and (iii) €426 million of cash flows used by discontinued operations, which were partially offset by €410 million of a net decrease in receivables from financing activities which primarily related to the decreased lending portfolio of the financial services activities of the Group in Brazil and China.
Financing Activities —Year Ended December 31, 2017
For the year ended December 31, 2017, net cash used in financing activities of €4,473 million was primarily the result of (i) the voluntary prepayment in February 2017 of the outstanding principal and accrued interest of U.S.$1,826 million (€1,721 million) FCA US's tranche B term loan maturing May 24, 2017 (the “Tranche B Term Loan due 2017”), (ii) the repayment at maturity of three notes under the Medium Term Note Programme (“MTN Programme”, previously referred to as the Global Medium Term Note Programme, or “GMTN” Programme), one with a principal amount of €850 million, one with a principal amount of €1,000 million and one with a principal amount of CHF 450 million (€385 million), and (iii) the repayment of other long-term debt, net of proceeds, of a principal amount of €889 million.
Financing Activities —Year Ended December 31, 2016
For the year ended December 31, 2016, net cash used in financing activities of €5,127 million was primarily the result of (i) the repayment at maturity of three notes issued under the MTN Programme, two of which were for an aggregate principal amount of €2,000 million and one for a principal amount of CHF 400 million (€373 million) and (ii) the repayment of other long-term debt for a total of €4,618 million, which included the (a) €1,800 million (U.S.$2.0 billion) of cash used for the voluntary prepayments of principal of FCA US's Tranche B Term Loans (refer to the section —Capital Market and Other Financing Transactions below), (b) the payment of the financial liability related to the mandatory convertible securities of €213 million upon their conversion to FCA shares and (c) repayments at maturity of other long-term debt of €2,605 million primarily in Brazil, which were partially offset by (iii) the issuance of a new note under the MTN Programme for a principal amount of €1,250 million (refer to the section —Capital Market and Other Financing Transactions below) and (iv) proceeds from other long-term debt for a total of €1,342 million, which included the proceeds from the €250 million loan entered into with the European Investment Bank (“EIB”) in December 2016 (refer to the section —Capital Market and Other Financing Transactions below).
Financing Activities —Year Ended December 31, 2015
For the year ended December 31, 2015, net cash used in financing activities of €3,128 million was primarily the result of (i) the prepayment of FCA US's secured senior notes due June 15, 2019 for an aggregate principal amount of €2,518 million and the prepayment of FCA US's secured senior notes due June 15, 2021 for an aggregate principal amount of €2,833 million; (ii) the repayment at maturity of two notes that had been issued under the MTN Programme, one for a principal amount of €1,500 million and another for a principal amount of CHF 425 million (€390 million); and (iii) the repayment of other long-term debt for a total of €4,412 million, which included (a) the repayment of the EIB loan of €250 million at maturity, the prepayment of our Mexican development banks credit facilities of €414 million as part of FCA Mexico's refinancing transaction completed in March 2015, (b) total payments of €244 million on the Canada HCT Notes, and (c) other repayments of borrowings, primarily in Brazil and FCA treasury companies, which were partially offset by (iv) proceeds from FCA's issuance of U.S.$3,000 million (€2,840 million) total principal amount of unsecured senior notes due in 2020 and 2023; (v) proceeds from other long-term debt for a total of €3,061 million, which included (a) the disbursement received of €0.4 billion under the Mexico Bank Loan of €0.8 billion (U.S.$0.9 billion) as part of FCA Mexico's refinancing transaction completed in March 2015, (b) proceeds from the €600 million loan granted by the EIB and SACE (refer to the section —Capital Market and Other Financing Transactions below) and (c) other financing transactions, primarily in Brazil; (vi) net proceeds from the Ferrari initial public offering in October 2015; and (vii) net proceeds of €2.0 billion from the draw-down of the syndicated loan facilities entered into by Ferrari N.V. in November 2015, included within Cash flows from financing activities - discontinued operations.
Net Debt
The following table details our Net debt at December 31, 2017 and 2016 and provides a reconciliation of this non-GAAP measure to Debt, which is the most directly comparable measure included in our Consolidated Statement of Financial Position.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | At December 31 |
| | | 2017 | | 2016 |
| (€ million) | | Industrial
Activities | | Financial
Services | | Consolidated | | Industrial
Activities | | Financial
Services | | Consolidated |
| Third parties debt (principal) | | € | (16,375 | ) | | € | (1,647 | ) | | € | (18,022 | ) | | € | (22,499 | ) | | € | (1,535 | ) | | € | (24,034 | ) |
Capital market(1) | | (9,443 | ) | | (308 | ) | | (9,751 | ) | | (12,055 | ) | | (417 | ) | | (12,472 | ) |
| Bank debt | | (6,219 | ) | | (986 | ) | | (7,205 | ) | | (9,026 | ) | | (733 | ) | | (9,759 | ) |
Other debt (2) | | (713 | ) | | (353 | ) | | (1,066 | ) | | (1,418 | ) | | (385 | ) | | (1,803 | ) |
Accrued interest and other adjustments(3) | | 53 |
| | (2 | ) | | 51 |
| | (11 | ) | | (3 | ) | | (14 | ) |
| Debt with third parties | | (16,322 | ) | | (1,649 | ) | | (17,971 | ) | | (22,510 | ) | | (1,538 | ) | | (24,048 | ) |
Intercompany, net (4) | | 844 |
| | (844 | ) | | — |
| | 627 |
| | (627 | ) | | — |
|
Current financial receivables from jointly-controlled financial services companies(5) | | 285 |
| | — |
| | 285 |
| | 80 |
| | — |
| | 80 |
|
| Debt, net of intercompany and current financial receivables from jointly-controlled financial services companies | | (15,193 | ) | | (2,493 | ) | | (17,686 | ) | | (21,803 | ) | | (2,165 | ) | | (23,968 | ) |
Derivative financial assets/(liabilities), net and collateral deposits(6) | | 204 |
| | 2 |
| | 206 |
| | (144 | ) | | (6 | ) | | (150 | ) |
| Current debt securities | | 176 |
| | — |
| | 176 |
| | 204 |
| | 37 |
| | 241 |
|
| Cash and cash equivalents | | 12,423 |
| | 215 |
| | 12,638 |
| | 17,167 |
| | 151 |
| | 17,318 |
|
| Debt classified as held for sale | | — |
| | — |
| | — |
| | (9 | ) | | — |
| | (9 | ) |
| Total Net debt | | € | (2,390 | ) | | € | (2,276 | ) | | € | (4,666 | ) | | € | (4,585 | ) | | € | (1,983 | ) | | € | (6,568 | ) |
(1) IncludesCash Flows and Note 29, Explanatory notes issued under the Medium Term Programme, or MTN Programme, and other notes (€9,422 million at December 31, 2017 and €12,055 million at December 31, 2016) and other debt instruments (€329 million at December 31, 2017 and €417 million at December 31, 2016) issued in financial markets, mainly from LATAM financial services companies.
(2) Includes the Canada HCT note (nil at December 31, 2017 and €261 million at December 31, 2016), asset-backed financing, i.e. sales of receivables for which de- recognition is not allowed under IFRS (€360 million December 31, 2017 and €411 million at December 31, 2016) and arrangements accounted for as a lease under IFRIC 4 - Determining whether an arrangement contains a lease, and other debt.
(3) Includes adjustments for fair value accounting on debt and net (accrued)/deferred interest and other amortizing cost adjustments.
(4) Net amount between industrial activities entities' financial receivables due from financial services entities (€983 million at December 31, 2017 and €755 million at December 31, 2016) and industrial activities entities' financial payables due to financial services entities (€139 million at December 31, 2017 and €128 million at December 31, 2016).
(5) Financial receivables due from FCA Bank.
(6) Fair value of derivative financial instruments (net positive €145 million at December 31, 2017 and net negative €218 million at December 31, 2016) and collateral deposits (€61 million at December 31, 2017 and €68 million at December 31, 2016).
As of December 31, 2017, Net debt was €4,666 million as compared to €6,568 million as at December 31, 2016. Excluding positive foreign currency translation effects, Net debt decreased by €1.7 billion, with net debt from industrial activities decreasing by €2.2 billion (refer to —Change in Net Industrial Debt, below), which was partially offset by an increase of €0.3 billion in net debt from financial services that was used to support the increase in financing activities in China and Europe.
Change in Net Industrial Debt
As described in Item 5. Operating and Financial Review—Non GAAP Financial Measures, Net industrial debt is management’s primary measure for analyzing our financial leverage and capital structure and is one of the key targets used to measure our performance. The following section sets forth an explanation of the changes in our Net industrial debt during 2017 and 2016.
At December 31, 2017, Net industrial debt of €2,390 million decreased by €2,195 million from €4,585 million at December 31, 2016 primarily as a result of (i) cash flow from industrial operating activities of €10,239 million, which represents the majority of the consolidated cash flow from operating activities of €10,385 million (refer to the section —Consolidated Statement of Cash Flows above), (ii) proceeds received of €144 million from the sale of FCA's investment in CNHI as noted above, (iii) €165 million positive change in hedging derivatives positions, and (iv) a €276 million change in the scope of activities, which were partially offset by (v) investments in industrial activities of €8,663 representing investments in property, plant and equipment and intangible assets.
At December 31, 2016, Net industrial debt of €4,585 million decreased by €464 million from €5,049 million at December 31, 2015 primarily as a result of (i) cash flow from industrial operating activities of €10,563 million, which represents the majority of the consolidated cash flow from operating activities of €10,594 million (refer to the section —Cash Flows above), which was partially offset by (ii) investments in industrial activities of €8,812 million representing investments in property, plant and equipment and intangible assets and (iii) negative foreign currency translation effects of €859 million primarily due to the strengthening of the Brazilian Real.
Capital Market and Other Financing Transactions
Notes Issued Through The MTN Programme
Certain notes issued by the Group are governed by the terms and conditions of the MTN Programme (previously known as the Global Medium Term Note Programme, or “GMTN” Programme). A maximum of €20 billion may be used under this programme, of which notes of €6.9 billion were outstanding at December 31, 2017 (€9.2 billion at December 31, 2016). The MTN Programme is guaranteed by FCA NV. We may from time to time buy back notes in the market that have been issued. Such buybacks, if made, depend upon market conditions, the Group's financial situation and other factors which could affect such decisions.
Changes in notes issued under the MTN Programme during 2017 were due to the:
repayment at maturity of a note in March 2017 with a principal amount of €850 million;
repayment at maturity of a note in June 2017 with a principal amount of €1,000 million; and
repayment at maturity of a note in November 2017 with a principal amount of CHF 450 million (€385 million).
Changes in notes issued under the MTN Programme during 2016 were due to the:
issuance of a 3.75 percent note at par in March 2016 with a principal amount of €1,250 million, due in March 2024. The note is listed on the Irish Stock Exchange;
repayment at maturity of a note in April 2016 with a principal amount of €1,000 million;
repayment at maturity of a note in October 2016 with a principal amount of €1,000 million; and
repayment at maturity of a note in November 2016 with a principal amount of CHF 400 million (€373 million).
As of December 31, 2017, FCA was in compliance with the covenants of the notes issued under the MTN Programme (refer to Note 21, Debt, within ourFCA’s Consolidated Financial Statements included elsewhere in this report for information related toadditional information.
Industrial free cash flows
As described in Non-GAAP Financial Measures, Industrial free cash flows was FCA management's key cash flow metric. The following table provides a reconciliation of Cash flows from operating activities, the outstanding notes at December 31, 2017 and 2016 under the MTN Programme and the related covenants).
Other Notes
In 2015, FCA NV issued U.S.$1.5 billion (€1.4 billion) principal amount of 4.5 percent unsecured senior debt securities due April 15, 2020 (the “2020 Notes”) and U.S.$1.5 billion (€1.4 billion) principal amount of 5.25 percent unsecured senior debt securities due April 15, 2023 (the “2023 Notes”) at an issue price of 100 percent of their principal amount. The 2020 Notes and the 2023 Notes, collectively referred to as the “Notes”, rank pari passu in right of payment with respect to all of FCA's existing and future senior unsecured indebtedness and senior in right of payment to any of FCA's future subordinated indebtedness and existing indebtedness, which is by its terms subordinated in right of payment to the Notes. Interest on the 2020 Notes and the 2023 Notes is payable semi-annually in April and October.
Bank Debt
FCA US Tranche B Term Loans
On February 24, 2017, FCA US prepaid the U.S.$1,826 million (€1,721 million) outstanding principal and accrued interest for its tranche B term loan maturing May 24, 2017. The prepayment was made with cash on hand and did not result in a material loss on extinguishment.
At December 31, 2017, €836 million (€948 million at December 31, 2016), whichmost directly comparable measure included accrued interest, was outstanding under FCA US's Tranche B Term Loan maturing December 31, 2018 (the “Tranche B Term Loan due 2018”). On April 12, 2017, FCA US amended the credit agreement that governs the Tranche B Term Loan due 2018. The amendment reduced the applicable interest rate spreads by 0.50 percent per annum and reduced the LIBOR floor by 0.75 percent per annum, to 0.00 percent. In addition, the base rate floor was eliminated. As a result, the Tranche B Term Loan due 2018 bears interest, at FCA US's option, either at a base rate plus 1.0 percent per annum or at LIBOR plus 2.0 percent per annum. FCA US may prepay, refinance or re-price the Tranche B Term Loan due 2018 without premium or penalty.
On March 15, 2016, FCA US entered into amendments to the credit agreements that govern the Tranche B Term Loans, to, among other items, eliminate covenants restricting the provision of guarantees and payment of dividends by FCA US for the benefit of the rest of the Group, to enable a unified financing platform and to provide free flow of capital within the Group. In conjunction with these amendments, FCA US made a U.S.$2.0 billion (€1.8 billion) voluntary prepayment of principal at par with cash on hand, of which U.S.$1,288 million (€1,159 million) was applied to the Tranche B Term Loan due 2017 and U.S.$712 million (€641 million) was applied to the Tranche B Term Loan due 2018. Accrued interest related to the portion of principal prepaid of the Tranche B Term Loans and related transaction fees were also paid.
The prepayments of principal were accounted for as debt extinguishments, and as a result, a non-cash charge of €10 million was recorded within Net financial expenses in the Consolidated Income Statement of Cash Flows, to Industrial free cash flows for the years ended December 31, 2020 and 2019. Except as otherwise noted, all amounts presented below exclude Magneti Marelli.
| | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| (€ million) | | 2020 | | 2019 | | |
| Cash flows from operating activities (including discontinued operations) | | € | 9,183 | | | € | 10,462 | | | |
| Less: Cash flows from operating activities - discontinued operations | | — | | | (308) | | | |
| Cash flows from operating activities - continuing operations | | 9,183 | | | 10,770 | | | |
| Less: Operating activities not attributable to industrial activities | | 29 | | | 74 | | | |
| Less: Capital expenditures for industrial activities | | 8,598 | | | 8,383 | | | |
| Add: Net intercompany payments between continuing and discontinued operations | | — | | | (200) | | | |
| Add back: Discretionary pension contribution, net of tax | | 68 | | | — | | | |
| Industrial free cash flows | | € | 624 | | | € | 2,113 | | | |
Industrial free cash flows for the year ended December 31, 2016, which consisted2020 decreased €1.5 billion as compared to 2019, primarily reflecting significant pandemic-related cash absorption during the first half of the write-offyear and lower overall full year performance, partially offset by strong cash generation during the second half of the remaining unamortized debt issuance costs. The amendments toyear.
Rating Agency updates
FCA N.V.
On May 28, 2020, Moody’s Investors Service confirmed the remaining principal balance were analyzed“Ba1” Corporate Family Rating on FCA N.V. and the “Ba2” ratings on the senior unsecured instruments issued or guaranteed by FCA N.V., with the outlook on all ratings developing. This rating action concluded a lender-by-lender basisreview with direction uncertain that began on March 25, 2020.
On August 18, 2020, DBRS confirmed the Issuer Rating and accounted forSenior Unsecured Debt rating of FCA N.V. at BBB (low), removing the rating from Under Review with Negative Implications, placed on March 27, 2020 as debt modifications in accordance with IAS 39 - Financial Instruments: Recognition and Measurement. As such, the debt issuance costs for eacha result of the amendments were capitalized and are amortized over the respective remaining termsglobal escalation of the Tranche B Term Loans. For eachCOVID-19 pandemic, and changing the outlook from Stable to Negative.
On January 8, 2021, S&P Global Ratings confirmed that it had upgraded the long term corporate credit rating of FCA N.V. from “BB+” to “BBB-”, with Outlook Stable. The short-term credit rating was upgraded from “B” to “A-3”.
On January 11, 2021, Moody’s Investors Service confirmed that it had upgraded the Tranche B Term Loans,Issuer Rating of FCA US prepaidN.V. from “Ba1” to “Baa3”, and the scheduled quarterly principal payments, withrating on the remaining balance appliedbonds issued or guaranteed by FCA N.V. from “Ba2” to the principal balance due at maturity. Periodic interest payments, however, continue“Baa3”. The short-term rating was upgraded from “(P) NP” to be required.“(P) P-3”. The outlook on all ratings is stable.
As of December 31, 2017, FCA US was in compliance with the covenants of the credit agreement that governs the Tranche B Term Loan due 2018 (referRefer to Note 21, Debt for further information regarding the FCA Group's Capital Resources. Refer to Note 30, Qualitative and quantitative information on financial risks for further information regarding the FCA Groups’s qualitative and quantitative information on financial risks. Refer to Contractual Obligations, within our Consolidated Financial Statements included elsewhere in this report, for further information related toon the covenants).
European Investment Bank Borrowings
FCA has financing agreements with the European Investment Bank (“EIB”) for a total of €1.1 billion outstandingGroup’s significant contractual commitments as at December 31, 2017 (€1.3 billion outstanding2020.
Stellantis N.V.
On January 18, 2021, Fitch confirmed the Long-term Issuer Default Rating of Stellantis N.V. at December 31, 2016), which includedBBB- with Outlook stable.
On January 27, 2021, DBRS confirmed the residual debt due under the following facilities:
| |
• | the facility for €250 million (maturing in December 2019) entered into in December 2016 to support the Group's investment plan (2017-2019) in research and development centers in Italy, which includes a number of key objectives such as greater fuel efficiency, a reduction in CO2 emissions by petrol and alternative fuel engines and the study of new hybrid architectures, as well as certain capital expenditures for facilities located in southern Italy;
|
| |
•
| the facility for €600 million (maturing in July 2018), entered into in June 2015 (50 percent guaranteed by SACE) to support the Group's investment plan (2015-2017) for production and research and development sites in both northern and southern Italy, to develop efficient vehicle technologies for vehicle safety and new vehicle architectures; |
the facility for €400 million (maturing in November 2018), entered into in November 2013 (50 percent guaranteed by SACE)Issuer rating and Senior Unsecured Debt rating of Stellantis N.V. from “BBB (low)” to support certain investments and research and development programs in Italy; and
the facility for €500 million (maturing in June 2021), entered into in May 2011 (guaranteed by SACE and the Serbian Authorities) for an investment program relating to the modernization and expansion of production capacity of an automotive plant in Serbia.
Brazil
Our Brazilian subsidiaries have access to various local bank facilities in order to fund investments and operations. Total debt outstanding under those facilities amounted to a principal amount of €3.2 billion at December 31, 2017 (€4.0 billion at December 31, 2016). The loans primarily include subsidized loans granted by public financing institutions such as Banco Nacional do Desenvolvimento (“BNDES”)“BBB”, with the aimtrend on all ratings stable.
Refer to support industrial projects in certain areas. This provided the Group the opportunity to fund large investments in Brazil with loans of sizeable amounts at attractive rates. At December 31, 2017, outstanding subsidized loans amounted to €2.1 billion (€2.6 billion at December 31, 2016), of which €1.3 billion (€1.6 billion at December 31, 2016), related to the construction of the plant in Pernambuco (Brazil), which has been supported by subsidized credit lines totaling Brazilian Real (“BRL”) 6.5 billion (€1.6 billion). Approximately €0.1 billion (€0.3 billion at December 31, 2016), of committed credit lines contracted to fund scheduled investments in the area were undrawn at December 31, 2017.
Mexico Bank Loan
FCA Mexico, S.A. de C.V., (“FCA Mexico”), our principal operating subsidiary in Mexico, has a non-revolving loan agreement (“Mexico Bank Loan”) maturing on March 20, 2022 and bears interest at one-month LIBOR plus 3.35 percent per annum. At December 31, 2017, the Mexico Bank Loan had an outstanding balance of €0.4 billion (€0.5 billion at December 31, 2016). As of December 31, 2017, we may prepay all or any portion of the loan without premium or penalty. The Mexico Bank Loan requires FCA Mexico to maintain certain fixed and other assets as collateral, and comply with certain covenants, including, but not limited to, financial maintenance covenants, limitations on liens, incurrence of debt and asset sales. As of December 31, 2017, FCA Mexico was in compliance with all covenants under the Mexico Bank Loan (refer to Note 21, Debt, within our Consolidated Financial Statements"About this Report" included elsewhere in this report for further detail on the PSA information presented below:
PSA Liquidity Overview
PSA historically relied on a diversified financing strategy and a conservative liquidity policy in order to meet its general financing needs. PSA’s liquidity requirements historically arose primarily from the need to fund general working capital and operational requirements, service its debt, make dividend payments and fund capital expenditure related to the covenants).new product and services development, manufacturing efficiency, improved capacity and compliance with regulatory and environmental requirements. PSA’s liquidity sources were historically cash holdings, cash generated from operations, proceeds from bonds issuances, bank borrowings, sales of receivables, available borrowings under confirmed lines of credit and, if necessary, issuances of convertible bonds or other debt instruments.
Other Debt
During the year ended December 31, 2017, FCA US's Canadian subsidiary madePSA historically used multiple sources of short-term financing and overdraft facilities including short-term loans, bank overdrafts, payments issued but not yet debited from bank accounts, and factoring liabilities on the Canada Health Care Trust (“HCT”) Tranche B Note totaling €272 million, which included a scheduled payment of principalassets that have not been derecognized. The PCD, OV and accrued interest, and the prepayment of the remaining scheduled payments due on the Canada HCT Tranche B Note. The prepayment, of €226 million, was accounted for as a debt extinguishment, and as a result, a gain on extinguishment of €9 million was recorded within Net financial expenses in the Consolidated Income Statement for the year ended December 31, 2017. This Canada HCT Note represented FCA US’s principal Canadian subsidiary’s remaining 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” (nowautomotive equipment segments met part of Unifor), which represented employees, retirees and dependents.
At December 31, 2016, Other debt included the unsecured Canada HCT Tranche B Note totaling €278 million, including accrued interest. During the year ended December 31, 2016, FCA US's Canadian subsidiary made payments on the Canada HCT Notes totaling €148 million, which included accrued interest and the prepayment of all scheduled payments due on the Canada HCT Tranche C Note. The prepayment on the Canada HCT Tranche C Note made on July 15, 2016 resulted in a loss on extinguishment of debt of €8 million that was recorded within Nettheir funding needs by selling receivables to financial expenses in the Consolidated Income Statement for the year ended December 31, 2016.
Debt secured by assets
At December 31, 2017, debt secured by assets of the Group (excluding FCA US) amounted to €743 million (€914 million at December 31, 2016), of which €140 million (€433 million at December 31, 2016) 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 for the Group (excluding FCA US) amounted to €2,372 million at December 31, 2017 (€1,940 million at December 31, 2016).
At December 31, 2017, debt secured by assets of FCA US amounted to €1,441 million and included €836 million relating to the Tranche B Term Loan due 2018, €141 million due to creditors for assets acquired under finance leases and €464 million for other debt and financial commitments. At December 31, 2016, debt secured by assets of FCA US amounted to €3,446 million and included €2,678 million relating to the Tranche B Term Loans, €207 million due to creditors for assets acquired under finance leases and €561 million for other debt and financial commitments.
C. Research and Development, Patents and Licenses, etc.
Research and Development
We engage in research and development activities aimed at improving the design, performance, safety, fuel efficiency, reliability, consumer perception and sustainability of our products and services.institutions.
As of December 31, 2017, we operated 87 research2020, PSA’s cash and development centers worldwide with a combined headcountcash equivalents, which mainly included money mutual funds, bank deposits, money market notes and commercial paper, totaled €22,893 million and PSA had €7,339 million available in undrawn lines of approximately 21 thousand employees supporting our research and development efforts. Our personnel support product development efforts and have expertise in a numbercredit. As of disciplines, including mechanical, electrical, materials, computer science and chemical engineering. We also provide several internal programs through which a portion of our engineers receive cross-training in various technical and business functions.
In 2017, total expenditures for research and development amounted to €4.3 billion, representing 3.9 percent of Net revenues attributable to industrial operations (excluding revenue from financial services). Total expenditures for research and development for the year ended December 31, 2017 increased 1.5 percent2020, cash and cash equivalents were primarily held in euro.
PSA’s available liquidity was subject to intra-month and seasonal fluctuations resulting from €4.2 billionbusiness and collection payment cycles as well as to changes in foreign exchange conversion rates. PSA’s liquidity resources were also subject to change based on the evolution of market and general economic conditions. Decreases in liquidity could result from lower than expected cash flows from operations, including decreases caused by weaker demand or lower selling prices for PSA’s products, or higher production costs. PSA’s liquidity could also be impacted by any limitations on the availability of its existing debt as a result of financing covenants and its ability to refinance existing debt or raise additional debt as well as the terms of such debt.
PSA Bonds and Other Borrowings
Total borrowings of the manufacturing and sales companies of PSA and Faurecia as of December 31, 2020 was €9,791 million, primarily consisting of bond issuances of €7,865 million, with contractual maturities ranging from the year ended December 31, 2016, which was in line with the Group's product development established in the Business Plan.
The following table summarizes our researchfirst quarter of 2023 and development expenditures in the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | | |
| | | Years ended December 31 |
| (€ million) | | 2017 | | 2016 | | 2015 |
| Capitalized development expenditures | | € | 2,586 |
| | € | 2,558 |
| | € | 2,504 |
|
| Research and development expenditures expensed | | 1,696 |
| | 1,661 |
| | 1,449 |
|
| Total Research and development expenditures | | € | 4,282 |
| | € | 4,219 |
| | € | 3,953 |
|
| Capitalized development expenditures as % of Total Research and development expenditures | | 60.4 | % |
| 60.6 | % | | 63.3 | % |
The following table summarizes our research and development cost in the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | | |
| | | Years ended December 31 |
(€ million) | | 2017 | | 2016 | | 2015 |
| Research and development expenditures expensed | | € | 1,696 |
| | € | 1,661 |
| | € | 1,449 |
|
| Amortization of capitalized development expenditures | | 1,424 |
| | 1,492 |
| | 1,194 |
|
| Impairment and write-off of capitalized development expenditures | | 110 |
| | 121 |
| | 221 |
|
| Total Research and development costs | | € | 3,230 |
| | € | 3,274 |
| | € | 2,864 |
|
We focus the majority of our research efforts in two areas aimed at improving vehicle efficiency and reducing fuel consumption and emissions: vehicle energy demand (including weight, aerodynamic drag, rolling resistance, heating, air-conditioning and auxiliaries) and powertrain technologies (engines, transmissions, axles and drivelines, hybrid and electric propulsion and alternative fuels). In addition, we have recently begun increasing our research focus on autonomous driving technology.
Vehicle Energy Demand
Our research focuses on reducing weight, aerodynamic drag, tire rolling resistance and driveline losses. We also continue to research conventional and hybrid vehicle technologies aimed at improving recovery of kinetic energy and re-use of thermal energy to reduce overall energy consumption and CO2 emissions.
We have introduced engine stop-start (“ESS”) and smart charging technology in order to further reduce fuel consumption. ESS technology turns off the engine and fuel flow automatically when the vehicle comes to a halt and re-starts the engine upon the driver disengaging the brake. Smart charging technology allows for the optimization of electric generation while recovering kinetic energy and is widely employed in Fiat and Alfa Romeo models, and have been adopted in certain Jeep, Dodge, Ram and Chrysler brand vehicles.
We have also introduced active aerodynamic devices, which are automatically activated under certain conditions, to improve aerodynamic drag and reduce fuel consumption and CO2 emissions, while also improving thermal management (decreased defrost time and improved powertrain warm up). These active aerodynamic devices include active grille shutters and adjustable height suspension, and have been adopted in certain Jeep, Ram, Chrysler, Alfa Romeo and Maserati brand vehicles. Further, we have introduced smart actuators, such as a variable speed fuel pump and brushless motor for cooling fan, to reduce fuel consumption. Such smart actuators only require the energy needed for each specific working condition, avoiding electric energy waste.
Powertrain Technologies
The evolution of our proprietary technologies like MultiAir and MultiJet (increased fuel pressure and improved injection pattern) has progressed in combination with other technologies, such as direct injection, variable displacement oil pumps, two-step valve lift systems, cooled exhaust gas recirculation systems, and electronic thermostats, leading to the development of more efficient powertrain architectures.
The latest generation MultiAir technology brings further improvements in fuel efficiency and CO2 emissions via improved intake valve event control, building on the progress of the previous generation.
The wider use of smart technologies, which provide dynamic management of the vehicle’s powertrain systems, has contributed to an improved balance between performance and fuel economy. These technologies include smart charging, optimized engine cooling systems and cylinder deactivation. Gasoline and diesel engines are expected to continue to play a prominent role in mobility in upcoming years. The value of thermal management, or using available “waste” thermal energy, is being leveraged in multiple products. This approach allows vehicle systems to operate at higher efficiency by tailoring individual components to run at more optimal temperatures. The Group believes that there is still significant potential to reduce the fuel consumption and emission levels of these engines through technological advancements.
Gasoline engines
Completely new global small and medium gasoline engine families are being developed to improve fuel economy and emission levels. These new engine families feature a modular approach from a shared cylinder design (allowing for different engine configurations, displacements, efficiency and power outputs) and are expected to cover a large range of vehicle applications and introduce features and technologies such as direct injection, downsizing, turbocharging, and cooled exhaust gas recirculation to improve efficiency, while also addressing internal friction and thermal management. In particular, both a 1.0L three cylinder and a 1.3L four cylinder Firefly global small engine launched in the LATAM region in the third quarter of 2016,2033, and the first global medium engine application (a 2.0L turbo four cylinder engine) launched in the Alfa Romeo Giulia inother borrowings of €1,926 million, with contractual maturities ranging from 2021 to the fourth quarter of 2016.2026.
LookingPSA Covenants
Certain debt issued by the manufacturing and sales companies of PSA, other than Faurecia, contained customary covenants and events of default, which were common for debt of companies in the automotive industry.These included “negative pledge” clauses whereby the borrower undertook, subject to certain exceptions, not to grant any collateral to any third parties, “material adverse changes” clauses, which applied in the event of a major negative change in the results of operations or financial condition of PSA, “pari passu” clauses, which ensured that lenders enjoy the same treatment as other creditors, “cross-default” clauses, whereby if one loan went into default other loans became repayable immediately, clauses whereby the borrower undertook to provide regular information to the future, FCA Group has been engaged inlenders, clauses whereby the developmentborrower undertook to comply with applicable legislation and change of newcontrol clauses. Other than Faurecia, none of the manufacturing and improved temperature aluminum alloys for engine use. This work has demonstrated an aluminum alloy capable of a 50% increase in strength at 300° Celsius when comparedsales companies’ borrowings were subject to other currently used aluminum alloys. While still in very early development, this type of alloy strength behavior has the potential to provide increased design flexibility for cylinder heads and blocks and help to enable increased engine efficiency.
Hybrid and Battery Propulsion
The all-new Chrysler Pacifica Hybrid launched, in 2016, achieves an efficiency rating of 84 miles per gallon equivalent (MPGe),specific acceleration clauses based on U.S. Environmental Protection Agency standards. The Pacifica Hybrid provides an estimated range of 33 miles solely on zero-emissions electric power, with its battery capable of being recharged in approximately two hours using a level 2 240 volt charger. When the battery’s energy is depleted to a certain threshold, the Pacifica Hybrid operates like a conventional hybrid.
Power to the wheels is supplied by the hybrid electric drive system and comprised of a specially adapted new version of the award-winning Pentastar 3.6-liter V-6 engine and the all-new eFlite hybrid transmission.
Additional electrification technologies are also being developed, including a mild hybrid using belt starter generator (“BSG”) technology. BSG technology offers improvement in fuel economy and a reduction in CO2 emissions.
Natural Gas and Biofuel engines
A fundamental aspect of our vehicle emission reduction strategy is the use of alternative fuels, from natural gas to biofuels, in order to offer technologies that are aligned with the fuels available in various markets, and capable of reducing emission levels. For example, in Brazil, we have a full range of Flexfuel vehicles that run on varying blends of gasoline and bioethanol.
We also believe that in certain markets compressed natural gas is a viable near to medium-term option for promoting compliance with fuel economy and emissions requirements. We offer a range of bi-fuel (natural gas/gasoline) vehicles in Europe, targeting a wide variety of private and commercial consumers. Safety and comfort remain uncompromised, as the natural gas tanks in these vehicles are fully integrated into the vehicle structure. The Group recently completed a significant natural gas direct injection research activity that demonstrated the significant opportunity afforded by direct injection of gaseous high octane fuels and may open the door for future developments.
Diesel engines
In recent years, diesel research has focused on the combustion process and after-treatment technologies. Although diesel engines are expected to remain an important part of our portfolio, future diesel research efforts are likely to focus on the truck, LCV, larger SUV and larger passenger car segments.
Transmissions
Our transmission portfolio includes manual transmissions, dual dry clutch transmissions (“dDCTs”) and automatic transmissions.
minimum credit ratings.
In support of global fuel consumption and CO2 requirements, FCA has developed its first dedicated hybrid transmission (the eFlite), used in the Chrysler Pacifica hybrid. The new eFlite hybrid transmission architecture is an electrically variable front wheel drive transaxle with an input split configuration and incorporates two electric motors, both capable of driving in Electric Vehicle mode. The lubrication and cooling system makes use of two pumps, one electrically operated and one mechanically driven. The FCA team expects future hybrid vehicle portfolio growth with the eFlite transmission and similar electrified propulsion systems.
Our automatic transmission portfolio includes 8- and 9-speed units developed in an effort to provide our customers with improved efficiency, performance and drive comfort. Long travel damper and pendulum damper technologies are used to allow the engine to operate at a lower speed and higher torque. In this area the engine is more efficient at converting the fuel energy to mechanical energy.
Other improvements in the transmission are used to reduce the power consumption of the transmission. The 2nd generation TorqueFlite 8-speed improves transmission efficiency via improved line pressure control and reduced clutch drag. The addition of transmission oil heaters allows for the transmission to quickly warm up to operating temperatures and improve transmission efficiency.
We are investigating many other technologies to increase transmission system efficiency such as selectable one-way clutches and reduced oil viscosity.
Axles and Driveline
We focus on producing lightweight axle and driveline systems that provide capability and efficiency across our entire portfolio of vehicles. Additionally, we have deployed automatic axle disconnect systems on the majority of our four-wheel and all-wheel drive equipped vehicles to reduce parasitic losses and improve fuel economy during normal driving conditions. Future development activities are focused on optimized system design and material selection to reduce overall system weight without sacrificing capability or performance.
Virtual Engineering
Over the last several years, we have taken advantage of the rapid expansion in computing power and developed new tools and processes. This has allowed us to simulate and improve the behavior of complex propulsion systems on high performance computers long before the physical parts are built. This process also allows development of efficient propulsion system designs while saving on the cost of expensive physical prototypes.
Autonomous Driving Technology
In 2016, we announced a collaboration with Waymo (formerly the Google self-driving car project) to integrate its self-driving technology into Chrysler Pacifica Hybrid minivans. Production of the first 100 Chrysler Pacifica Hybrid minivans built to enable fully self-driving operations was completed in late 2016.
In 2017, we launched Highway Assist autonomous vehicle technology on several Maserati models. This system includes Mobileye vision technology to enable autonomous driving on designated highways. We also announced the signing of a memorandum of understanding in 2017 to join BMW Group, Intel and Mobileye in developing an autonomous driving platform scalable for Level 3 to Level 4/5 automated driving that can be used by multiple OEMs.
In 2017, we also revealed the Chrysler Portal concept, a semi-autonomous electric-powered vehicle that is designed with a suite of sensing technologies that enable Level 3 autonomous driving, with the potential to be upgraded as advances in technology enable higher levels of autonomy.
Intellectual Property
We own a significant number of patents, trade secrets, licenses, trademarks and service marks, including, in particular, the marks of our vehicle and component and production systems brands, which relate to our products and services. We expect the number to grow as we continue to pursue technological innovations. We file patent applications in Europe, the U.S. and around the world to protect technology and improvements considered important to our business. No single patent is material to our business as a whole.
D. Trend Information
Refer to Item 5. Operating and Financial Review—Trends, Uncertainties and Opportunities for information required by this item.
E. Off-Balance Sheet Arrangements
We have entered into various off-balance sheet arrangements with unconsolidated third parties in the ordinary course of business, including financial guarantees. Such arrangements are described in more detail below. For additional information see Note 25, Guarantees granted, commitments and contingent liabilities, within our Consolidated Financial Statements included elsewhere in this report.
Financial Guarantees
At December 31, 2017 we had pledged guarantees on the debt or commitments of third parties totaling €5 million as well as guarantees of €4 million on related party debt which related to unconsolidated entities or dealers.
F. Tabular Disclosure ofPSA Contractual Obligations and Contingencies
The following tabletables summarizes payments due under our significantPSA’s contractual commitmentsobligations as of December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments due by period |
| (€ million) | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than
5 years |
Long-term debt(1) | | € | 15,138 |
| | € | 4,600 |
| | € | 4,454 |
| | € | 3,114 |
| | € | 2,970 |
|
Capital lease obligations(2) | | 289 |
| | 79 |
| | 123 |
| | 16 |
| | 71 |
|
Interest on other liabilities(3) | | 2,376 |
| | 796 |
| | 901 |
| | 514 |
| | 165 |
|
Operating lease obligations(4) | | 1,503 |
| | 352 |
| | 457 |
| | 298 |
| | 396 |
|
Unconditional minimum purchase obligations(5) | | 2,491 |
| | 817 |
| | 1,098 |
| | 523 |
| | 53 |
|
Purchase obligations(6) | | 2,208 |
| | 2,097 |
| | 110 |
| | 1 |
| | — |
|
Pension contribution requirements(7) | | 92 |
| | 92 |
| | — |
| | — |
| | — |
|
| Total | | € | 24,097 |
| | € | 8,833 |
| | € | 7,143 |
| | € | 4,466 |
| | € | 3,655 |
|
_____________________________
(1) Amounts2020. It shows undiscounted cash flows from financial liabilities and derivative instruments. The amounts presented relate to thereflect principal amounts of long-term debt and exclude the related interest expense that will be paid when due, fair value adjustments, discounts, premiumspremia and loan origination fees. debt issuance costs. Foreign currency cash flows and variable indexed cash flows were determined based on market data as of December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period as of December 31, 2020 |
| (€ million) | | Within one year | | Between one and three years | | Between three and five years | | After five years | | Total |
| Bonds—principal repayments | | | | | | | | | | |
| Manufacturing and sales companies—excluding Faurecia | | € | (112) | | | € | (886) | | | € | (1,513) | | | € | (2,839) | | | € | (5,350) | |
| Faurecia | | — | | | — | | | (1,000) | | | (2,150) | | | (3,150) | |
| Other long-term debt—principal repayments | | | | | | | | | | |
| Manufacturing and sales companies—excluding Faurecia | | (109) | | | (338) | | | (348) | | | — | | | (795) | |
| Faurecia | | (47) | | | (592) | | | (503) | | | (10) | | | (1,152) | |
| Total bonds and other borrowings | | | | | | | | | | |
| Manufacturing and sales companies—excluding Faurecia | | (221) | | | (1,224) | | | (1,861) | | | (2,839) | | | (6,145) | |
| Faurecia | | (47) | | | (592) | | | (1,503) | | | (2,160) | | | (4,302) | |
| Lease liabilities | | | | | | | | | | |
| Manufacturing and sales companies—excluding Faurecia | | (156) | | | (271) | | | (162) | | | (235) | | | (824) | |
| Faurecia | | (182) | | | (288) | | | (202) | | | (304) | | | (976) | |
| Total derivative instruments | | — | | | — | | | — | | | — | | | — | |
| Non-cancellable lease commitments | | (22) | | | (18) | | | (17) | | | (91) | | | (148) | |
| Capital commitments for the acquisition of non-current assets and other | | (1,016) | | | (233) | | | (35) | | | (95) | | | (1,379) | |
| Pensions | | (4) | | | — | | | — | | | — | | | (4) | |
| Liabilities related to vehicles sold with a buyback commitment | | (2,026) | | | (1,299) | | | (255) | | | (1) | | | (3,581) | |
| Total | | € | (3,674) | | | € | (3,925) | | | € | (4,035) | | | € | (5,725) | | | € | (17,359) | |
PSA Off-Balance Sheet Arrangements
| | | | | | | | | | | |
| (€ million) | | Year ended
December 31, 2020 | | | |
| Capital commitments for the acquisition of non-current assets | | € | 1,379 | | | | |
| Non-cancellable lease commitments | | 149 | | | | |
| Guarantees given | | 1,308 | | | | |
| Pledged or mortgaged assets | | 170 | | | | |
| Total | | € | 3,006 | | | | |
PSA Contingent Liabilities
Automotive
The customs agreement governing the automotive industry between Brazil and Argentina provided for the payment of penalties by the Argentinian automotive industry if the average ratio of imports to exports vis-à-vis Brazil exceeded a certain threshold over the 2015–2029 period. Penalties could be payable by PSA if the automotive industry as a whole and PSA do not hit the required ratio. No provision had been made by PSA with respect to this matter due to the uncertainties surrounding developments in the automotive markets in Argentina and Brazil and the steps that PSA could take between now and 2029.
In addition, as part of its partnership with Toyota Motor Europe, PSA has agreed to cover costs arising from commercial disputes relating to commercial vehicles marketed under the Toyota brand, up to a maximum amount of €205 million over the course of 20.5 years.
Commitment related to the GEFCO Group
In 2012, JSC Russian Railways (RZD) acquired from PSA a 75 percent stake in the GEFCO group. Following this acquisition, PSA entered into certain logistics and transportation service agreements with the GEFCO group pursuant to which PSA gave guarantees regarding the satisfactory performance of the logistics contracts, and an exclusivity clause. At December 31, 2020, PSA had not identified any material risks associated with these guarantees.
PSA Quantitative and Qualitative Disclosures about Market Risk
In the course of its business, PSA was historically exposed to liquidity risks, as well as interest rate, counterparty, currency and other market risks, which arose in the normal course of business from PSA’s operations and its source of finance. PSA’s historical overall risk management program focused on the unpredictability of financial markets and commodity prices and sought to minimize potential adverse effects on its performance. PSA International S.A. (“PSAI”) was primarily responsible for the central management of currency, interest rate and commodity risks under the supervision of the PSA Managing Board. With the exception of certain proprietary transactions involving currency instruments that were subject to very strict exposure limits and had very limited impact on consolidated profit, PSA used derivative instruments only for purposes of hedging exposures to currency, interest rate and commodity risks.
Stellantis Liquidity and Capital resources considerations
Management believes that the funds currently available to Stellantis at the date of this report, in addition to those funds that would be generated from operating and financing activities, will enable the Group to meet its obligations and fund its businesses including funding planned investments, working capital needs as well as fulfill the Group’s obligations to repay its debts in the ordinary course of business.
RISK MANAGEMENT
Risk Management
Stellantis will evaluate the adoption of a group-wide risk management system with the intention of continuing the assurance of the achievement of the Group’s objectives.
This will include suitable procedures and processes for the identification, assessment, monitoring and mitigation of the Group’s risks.
Until the adoption of a group-wide risk management system for Stellantis, the legacy companies of the FCA and PSA groups will continue to rely on the separate risk management approaches as applied during the year ended December 31, 2020, and outlined below. Information relating to the risk management policies for PSA has been included for context only. Refer to “About this report” included elsewhere in this report.
FCA’s Approach
Risk management was historically an important business driver and integral to the achievement of FCA’s long-term business plan. FCA took an integrated approach to risk management, where risk and opportunity assessment were at the core of the leadership team agenda. FCA’s success as an organization depended on its ability to identify and capitalize on the opportunities generated by the business and the markets in which it has competed. By managing the associated risks, FCA sought to achieve a balance between its goals of growth and return and the related risks.
Risk Management Framework
FCA’s risk management framework (the “Framework”) was based on the COSO Framework (Committee of Sponsoring Organizations of the Treadway Commission Report - Enterprise Risk Management model) and the principles of the Dutch Corporate Governance Code. The Framework consisted of a set of policies, procedures and organizational structures aimed at identifying, measuring, managing and monitoring the principal risks to which FCA was exposed. The Framework was integrated within FCA’s organization and corporate governance and supported the protection of corporate assets, the efficiency and effectiveness of business processes, the reliability of financial information and compliance with laws and regulations.
The Framework consisted of the following three levels of oversight:
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| Level 1 | Operating areas, which identify and assess risks as well as establish specific actions for the management of risks |
| Level 2 | Specific individuals identified as risk owners, which define methodologies and tools for both monitoring and managing risks |
| Level 3 | Enterprise risk management (“ERM”) function, which supports the assessment and monitoring of our risks and facilitates discussions of our risks at Group level |
In addition to the three levels of oversight, the results of the ERM risk assessment process were part of the risk assessment of FCA Group Audit & Compliance function in defining its audit plan and accordingly, with specific audits planned for global enterprise risk management (“ERM”) significant risks..
Appetite for Significant Risk
FCA aligned its risk appetite to its business plan. Risk boundaries were set through FCA’s strategy, Code of Conduct, budgets and policies. FCA established risk management committees responsible for supporting risk governance in their respective region/sector. A Global Risk Management Committee (“GRMC”) was established to promote a culture of proactive risk monitoring and management by the relevant risk owners throughout the FCA Group. The GRMC was chaired by the FCA Group CFO and other members are representatives from the legal, risk management, internal audit functions and from business operations. The mission of the GRMC was to provide broad process oversight and to facilitate our integrated risk assessment process. Responsibilities included:
▪Providing guidance to the ERM program
▪Reviewing the results of the annual Enterprise Risk Assessment (“ERA”).
▪Identifying risks to be discussed at FCA Group level (GEC, Group Product Committee or other relevant governance function).
▪Assisting in the development of the Company’s risk appetite and risk tolerance, which support disclosures required in FCA’s Annual Report.
▪Reviewing risk management disclosure in the Annual Report.
▪Reviewing the design of the FCA Group’s Enterprise Risk Management function, including reporting lines of authority, communications and control functions to ensure they are appropriate.
In addition, FCA utilized the operational focus of its Product (Group and Regional) and Commercial Committees, both of which included senior management, to support risk governance. The Product Committees oversaw capital investment, engineering and product development, while the Commercial Committee oversaw matters related to sales and marketing. Through an integrated approach FCA’s various committees supported the FCA Group Executive Council (“GEC”), CFO, CEO and Board of Directors (through the Audit Committee) with risk oversight. FCA’s risk appetite differed by risk category as shown below.
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| Risk category | Category description | Risk appetite |
| Strategic | Risk that may arise from the pursuit of FCA’s business plan, from strategic changes in the business environment, and/or from adverse strategic business decisions. | We are prepared to take risks in a responsible way that takes our stakeholders’ interests into account and are consistent with our business plan. |
| Operational | Risk relating to internal processes, people and systems or external events (including legal and reputational risks). | We look to mitigate operational risks to the maximum extent based on cost/benefit considerations. |
| Financial | Risk relating to uncertainty of return and the potential for financial loss due to financial performance. | We seek capital market and other transactions to strengthen our financial position while allowing us to finance our operations on a consolidated global basis. |
| Compliance | Risk of non-compliance with relevant regulations and laws, internal policies and procedures. | We hold ourselves, as well as our employees, responsible for acting with honesty, integrity and respect, including complying with our Code of Conduct, applicable laws and regulations everywhere we do business. |
For additionalfurther information seeon credit, liquidity and financial market risk refer to Note 21, Debt30, Qualitative and quantitative information on financial risks, within the Consolidated Financial Statements included elsewhere in this report.
(2) Capital lease obligations consist mainlySignificant risks identified and control measures taken
An enterprise risk assessment was performed on an annual basis. Risks identified to have high or medium-high residual risk rating within the FCA Group were considered significant risks. Results of industrial buildingsthe assessment were consolidated into an FCA Group report for review and plant, machineryvalidation with the GRMC. In addition, the most significant risks to the FCA Group were discussed with the GEC and equipment usedFCA Group CEO to support the monitoring of these risks along with the respective mitigation efforts. Once validated, results were discussed with the Audit Committee, assisting the Board of Directors in their responsibility for strategic oversight of risk management activities.
Each key global focus risk was classified by risk categories and control measures and mitigating actions were subsequently defined for each identified risk. The risks, control measures and mitigating actions presented below are not all-inclusive. The sequence in which these risks and mitigating actions are presented does not reflect any order of importance, likelihood or materiality.
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| Risk Category | Key Global Risk Description | Control / Mitigating Actions |
| Compliance | Regulatory Compliance
FCA’s ability to achieve regulatory compliance targets with vehicle fuel economy (“FE”), greenhouse gas (“GHG”) and zero emission vehicle (“ZEV”) requirements, that could have also impact our reputation
| Group Product Committee (“GPC”) managed approval for investments in FE/ GHG/ZEV related compliance ensured governance of program timing and monitored compliance impact relating to changes in the short and long range plan. Continued reduction of CO2 emissions was achieved through a combination of technologies aligned to the vehicle mix, consumer needs and regulatory framework in each market.
Central coordination and oversight of internal checks and conformity activities under senior management to promote consistency in approach and process across FCA operations.
The FCA Code of Conduct clearly and affirmatively required employees to report issues of non-compliance, in addition, the “Leave No Doubt” program encouraged employees, contractors, suppliers and dealers to report any issue which may concern vehicle safety, emissions or regulatory compliance. FCA continuously worked to improve on emission compliance tools and implemented these tools throughout the organization as appropriate. |
| Operational | Customer Satisfaction
FCA’s ability to produce vehicles to meet product quality standards, gain market acceptance and satisfy customer expectations. | Quality and Customer satisfaction was managed on a global basis, targeting 1st Quartile performance in each region. Quality and Customer satisfaction performance was reviewed in the monthly GEC, against an annual plan that was sanctioned at GPC, and driven through regional Product committees and monthly warranty and customer tables.
World Class Manufacturing (“WCM”) principles deployed throughout our manufacturing operations, fostered a manufacturing culture that targets improved safety, quality and efficiency.
Quality considerations ranged from customer expectations to functional requirements are analyzed from the earliest stages of design. A cross-functional initiative within FCA focused on managing risks and implementing solutions for new vehicles. The program helped identify and avoid potential issues earlier in the vehicle development process and made implementing solutions more cost effective. |
| Operational | Company Cybersecurity and ICT(1) Recovery
FCA’s ability to protect our systems globally against a security incident or system failure, ensuring the proper recovery plan management, that may lead to a significant business disruption, loss of confidential information, or breach of data privacy resulting in financial and/ or reputational damage.
(1) Information and communications technology | Multilayered cybersecurity controls were in place in FCA; a cybersecurity program was continuously developedfor identifying and mitigating emerging risks according to the changing threat scenario. Furthermore FCA’s dedicated cyber risk insurance coverage was designed on the basis of a comprehensive and thorough analysis of: •the threats of exposure of vital company assets, including the information that must be protected and at which level •policies and procedures in place to reduce the risk of attack in the event of a security breach •plans and procedures in place to neutralize threats and remedy security issues. |
| Operational | Interruption of Critical Supplies and risk of scarcity of raw materials
FCA’s ability to manage our critical supplies to prevent interruption resulting in production blockages, and ability to face shortage and increased cost of raw materials. | Active monitoring of the financial health of suppliers to mitigate disruption due to financial distress of companies in our supply chain.
Monitoring political, environmental and economic events, globally, to anticipate or identify events that could lead to supply chain disruption so that mitigating action can be taken. |
| | | | | | | | |
| Risk Category | Key Global Risk Description | Control / Mitigating Actions |
| Operational / Strategic | Talent Management - Attraction, Development & Retention of Critical Resources
FCA’s ability to globally manage all aspects of Talent Management - including attraction, development and retention in order to meet current and future needs along with our business strategies. | Convergence of key HR talent management processes, metrics, and reporting, along with adding global HR process oversight and governance, was initiated in 2019 and included: •Globally consistent Talent Management programs designed to attract, develop, assess and retain talent worldwide. •Consolidation of standardized retention/attrition metrics and reporting, including global views by function with internal and external benchmarks. •Monitoring of specific KPIs for key position succession planning and talent development. •Global Diversity Council chaired by the CEO and GEC leadership to drive company values and goals to promote Diversity & Inclusion across the company. •Administered and leveraged new global learning management system (available anytime and anywhere) to facilitate competences development delivering technical, compliance and managerial training contents |
| Strategic | Technology Development and Product Launch
FCA’s ability to efficiently develop and launch products with new technologies (e.g., electrification and propulsion, autonomous driving and connected vehicles) to meet regulatory requirements, customer expectations and profitability targets. | Additional headcount approved to consolidate the Technology Development organization in the critical areas (Software, Electrification and Controls).
Staffing in execution (internal talent transfer, external talent acquisition). In addition the team explored Partnerships with suppliers and potential acquisition targets to cover urgent needs and ensure timely delivery.
Collaborative efforts with strategic partnerships allowed leveraging of capabilities and resources to achieve synergies and economies of scale needed to advance technology applications.
GEC and Product Committees' reviewed product plans and commercialization strategies in order to define investment needs in the near and long-term.
Regular monitoring at the GEC enforced the review of new technologies; their applications in line with the product launch status and cadence, as well as what is required to successfully execute the programs. |
| Strategic | Product Portfolio & Technology Strategies
FCA’s ability to create a product portfolio that supports achievement of strategic objectives, including completeness of product range and technological content. | GEC and Product Committees' reviewed and approved product plans and actions in order to define investment needs in the near and long-term.
Partnerships with major technology players to share resources, including data for validation and reliability testing, as well as underlying investments. |
| Strategic | Commercial Policies (Pricing)
FCA’s ability to manage volume, price and market mix to ensure competitive pricing consistent with competitors’ achievements and internal targets. | Sales and marketing (including pricing) monitored by the Commercial Committees. |
Control measures and comprehensive mitigation actions listed above for key global risks were monitored throughout the year by FCA Senior Management in the regions and business sectors to ensure that these were relevant and sufficient, under the oversight of the related Global Leaders. As needed, control measures and mitigation actions were enhanced to ensure risks are appropriately addressed. We believe this approach allowed FCA to address risk on a timely basis and ensure effectiveness of the control measures taken.
In addition to the above risk considerations, FCA identified risk factors that affected or could significantly impact in the near future its business related to merger with PSA and the ongoing COVID-19 pandemic.
In particular, with reference to the merger, the overall risk is related to the achievement of the anticipated benefits of the merger which is subject to a number of uncertainties, including general competitive factors in the marketplace. Consequently, the potential risk is that the anticipated benefits of the merger will not be realized in full or in part, including the risk that expected synergies will not be achieved or not be achieved in the expected timeframe.
With reference to the COVID-19 pandemic, business interruptions resulting from it could cause further disruption to the manufacture and sale of FCA’s, now Stellantis’s, products and the provision of its services and could adversely impact its business.
This aspect was also part of the FCA assessment of the significant risk “Interruption of critical supplies” and mitigated with the proper internal procedures and controls.
Current or planned improvements in the overall FCA risk management system
As FCA, we continued to engage the business in key risk areas, benchmark our processes with peer companies and explore opportunities for improvement, in order to strengthen and improve ERM Governance, monitor risks in a more predictive way and evaluate remediation plans.
In an effort to escalate risk awareness, we engaged in risk discussions throughout the FCA Group in 2020, including deployment of a risk management training module, in order to reduce FCA’s company risk exposure and enhance risk response and elevate awareness.
Continued integration in the risk discussion was pursued with the inclusion of sustainability-related topics, such as climate change related risks and vehicle fuel economy aspects.
As Stellantis, we will continue engaging the business in reviewing our management and monitoring activities for key risks throughout the Group in the upcoming year. As we continue to evolve our Group ERM program, we will strive to identify best practices and refine our processes to identify and escalate risk developments.
Further information regarding the risks we face, and the potential impact on results or financial position, are described in Risk Factors below.
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
Groupe PSA Protection, Audit and Risk Management Department (“DPAR”)
At PSA, DPAR was in charge of the Risk Management Approach and ensured the appropriate application of the Risk Management System which was deployed Group-wide. DPAR, which reported to the Head of HR Department, was responsible for defining and coordinating on a global basis all actions intended to protect the employees and tangible and intangible assets of the Group against the risks arising from malicious acts of all kinds.
At a Groupe PSA level, DPAR identified the major risks “Group Top-Risks” (from the “Top Management Risks” and each department’s ones) once a year at interviews conducted with a representative range of the Group’s executive officers and managers. The mapping of the “Group Top-Risks” was reviewed every year by the Global Executive Committee (GEC) and presented to the Supervisory Board’s Finance and Audit Committee.
The GEC validated the action plans for dealing with the “Group Top-Risks”.
At department level, the major risks were reported on an annual basis (year-end) called “METRIC Review”. Each department was responsible for identifying and checking its own risks to which it was exposed and implementing the necessary action plans to mitigate them.
The METRIC review was conducted by each representative of the Group’s Protection network (ICRCs) within the executive committee to which it belonged. This review assessed the past year in terms of risk management and compliance and validated action plans for the coming year.
Specific risk management and control procedures cover particular risks.
Groupe PSA’s Code of Ethics was directly available to all Group employees, who were required formally to accept the terms of the Code. An Ethics & Compliance Committee chaired by the General Secretary met on a quarterly basis.
Anti-fraud measures were the responsibility of the Group Ethics & Compliance Committee, which delegated their implementation, investigation, records management and reporting to DPAR.
The Legal Affairs Department, which reported to the General Secretary, produced or checked the Group’s contractual commitments. It was also in charge of organising the Group’s defence in the event of disputes with third parties. It thus helped limit and manage the legal risks to which the Group was exposed.
The Management Control Department, which reported to the CFO, was responsible for overseeing the Group’s business and financial performance and proposed annual and medium-term targets for growth, operating margin and return on capital employed to executive management.
DPAR checked that the risk management procedures are correctly applied.
DPAR verified compliance with rules via audits. The annual audit plan, which was defined independently, was based on the “Group Top-Risks” and was subsequently submitted to executive management for approval and presented to the Supervisory Board’s Finance and Audit Committee. DPAR was also responsible for assessing the degree of maturity of the risk management system and making recommendations for improving its effectiveness.
The Finance and Audit Committee of the Supervisory Board ensured that the risk management and internal control system operated effectively. The General Secretary reported to the Supervisory Board on the systems in place and their degree of maturity, as well as the “Group Top-Risks” map, with particular emphasis on risks which could have an impact on the Company’s financial and accounting information.
Risk Factors
As Stellantis, we face a variety of risks in our business. The amounts reportedrisks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently believe to be immaterial, may also become important factors that affect us.
Risks Related to the Merger
We may fail to realize some or all of the anticipated benefits of the merger, which could adversely affect the value of our shares.
Before the closing of the merger on January 16, 2021, FCA and PSA operated independently as separate companies. The success of the merger will depend, in part, on our ability to realize the anticipated cost savings, synergies, growth opportunities and other benefits from combining the businesses. The achievement of the anticipated benefits of the merger is subject to a number of uncertainties, including general competitive factors in the marketplace and whether we are able to integrate the businesses of FCA and PSA in an efficient and effective manner and establish and implement effective operational principles and procedures. Failure to achieve these anticipated benefits could result in increased costs, decreases in our revenues and diversion of management’s time and energy, and could materially impact our business, cash flows, financial condition or results of operations. If we are not able to successfully achieve these objectives, the anticipated cost savings, synergies, growth opportunities and other benefits that we expect to achieve as a result of the merger may not be realized fully, or at all, or may take longer than expected to realize.
We have to devote significant management attention and resources to integrating the business practices and operations of FCA and PSA. Potential difficulties that we may encounter as part of the integration process include complexities associated with managing our business, such as difficulty integrating manufacturing processes, systems and technology, in a seamless manner, as well as integration of the FCA and PSA workforces. We have also incurred significant costs associated with the transaction and expect to incur significant costs in the future, including relating to the migration of our headquarters to the Netherlands. In addition, the integration of FCA’s and PSA’s businesses may result in additional and unforeseen expenses, capital investments and financial risks, such as the incurrence of unexpected write-offs, the possible effect of adverse tax treatments and unanticipated or unknown liabilities relating to FCA, PSA or the merger. All of these factors could decrease or delay the expected accretive effect of the merger.
It is possible that the integration process could take longer or be more costly than anticipated or could result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with suppliers, customers and employees, achieve the anticipated benefits of the merger or maintain quality standards. An inability to realize the full extent of, or any of, the anticipated benefits of the merger, as well as any delays encountered in the integration process, could have an adverse effect on our business, cash flows, financial condition or results of operations, which may affect the value of our common shares.
Uncertainties associated with the merger integration may cause a loss of management personnel or other key legacy employees of FCA or PSA which could adversely affect our future business and operations.
We depend on the experience and industry knowledge of our management personnel and other key employees to execute on our business objectives. Our success also depends, in part, upon our ability to attract and retain management personnel and other key employees. Current employees may experience uncertainty about their roles within Stellantis, which may have an adverse effect on our ability to retain management and other key personnel.
FCA’s consolidated financial statements and the selected financial information included in this annual report may not be indicative of, and may differ materially from, our future results of operations following the merger.
FCA’s consolidated financial statements and the selected financial information included in this report have been prepared on the basis of FCA’s historical accounts and represent FCA’s historical operations prior to the merger. In the future, the financial statements of Stellantis will be based on PSA’s accounts, where the historical assets and liabilities of FCA will be recorded based on the acquisition method of accounting. As a result, FCA’s historical financial information incorporated in this report is not indicative of the future operating results, cash flows or financial position of Stellantis upon consummation of the merger on January 16, 2021. Under IFRS 3, Business Combinations, January 17, 2021 is the acquisition date for the business combination. FCA’s consolidated financial statements do not include the minimumimpact of the merger, nor future events that may occur, including the costs of integrating the legacy FCA and PSA businesses as well as any future nonrecurring charges resulting from the merger, and do not consider potential impacts of current market conditions on revenues or cost efficiencies nor the effects of the purchase method of accounting of the merger in accordance with IFRS 3, Business Combinations.
There can be no assurance that the Faurecia Distribution will occur promptly, or at all.
On January 25, 2021, the Board of Directors resolved to convene an extraordinary shareholders meeting, to be held on March 8, 2021, in order to approve the proposed distribution to the Stellantis shareholders, through a reduction of the share capital of Stellantis, of (i) our Faurecia ordinary shares, representing approximately 39 percent of the share capital of Faurecia, and (ii) cash equal to approximately 308 million euro (corresponding to the proceeds of the sale by PSA, prior to the merger, of approximately seven percent of the Faurecia ordinary shares) (the “Faurecia Distribution”). The approval of Stellantis shareholders is required for the Faurecia Distribution, and it may not be obtained. Therefore, there can be no assurance that the Faurecia Distribution will occur promptly or at all.
Risks Related to the Ownership of Our Shares
Our maintenance of three exchange listings may adversely affect liquidity in the market for our common shares and result in pricing differentials of Stellantis common shares between the three exchanges.
Our common shares are currently traded on the NYSE, MTA and Euronext Paris. The tripartite listing of our common shares may adversely affect the liquidity of the shares in one or several markets. In addition, the tripartite listing of our common shares may result in price differentials between the exchanges. Differences in the trading schedules, as well as volatility in the exchange rate of the trading currencies, among other factors, may result in different trading prices for our common shares on the three exchanges.
Our loyalty voting structure may concentrate voting power in a small number of our shareholders and such concentration may increase over time.
Shareholders who hold our common shares for an uninterrupted period of at least three years may elect to receive one special voting share in addition to each common share held, provided that such shares have been registered in the Loyalty Register upon application by the relevant holder. If our shareholders holding a significant number of common shares for an uninterrupted period of at least three years elect to receive special voting shares, a relatively large proportion of voting power could be concentrated in a relatively small number of shareholders who would have significant influence over Stellantis. As a result, the ability of other shareholders to influence decisions would be reduced.
The loyalty voting structure may affect the liquidity of our common shares and reduce our share price.
Our loyalty voting structure could reduce the liquidity of our common shares and adversely affect the trading prices of our common shares. The loyalty voting structure is intended to reward our shareholders for maintaining long-term share ownership by granting persons holding shares continuously for at least three years the option to elect to receive special voting shares. Special voting shares cannot be traded and, immediately prior to the transfer of our common shares from the Loyalty Register, any corresponding special voting shares will be transferred to us for no consideration (om niet). This loyalty voting structure is designed to encourage a stable shareholder base and, conversely, it may deter trading by those shareholders who are interested in gaining or retaining special voting shares. Therefore, the loyalty voting structure may reduce liquidity in our common shares and adversely affect their trading price.
The loyalty voting structure may prevent or frustrate attempts by our shareholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common shares may be lower as a result.
Our loyalty voting structure may make it more difficult for a third party to acquire, or attempt to acquire, control of us, even if a change of control were considered favorably by shareholders holding a majority of our common shares. As a result of the loyalty voting structure, a relatively large proportion of voting power could be concentrated in a relatively small number of shareholders, which may make it more difficult for third parties to seek to acquire control of us by purchasing shares that do not benefit from the additional voting power of the special voting shares. The possibility or expectation of a change of control transaction typically leads to higher trading prices and conversely, if that possibility is low, trading prices may be lower. The loyalty voting structure may also prevent or discourage shareholders’ initiatives aimed at changing our management.
Resales of Stellantis common shares following the merger may cause the market value of Stellantis common shares to decline.
Several reference shareholders of Stellantis are subject to restrictions on share sales for a three-year period following the merger, but will be free to sell once those restrictions expire. Furthermore, Dongfeng is required to sell approximately 36 million Stellantis common shares to third parties by December 31, 2022; in addition, Dongfeng is not subject to any resale restriction relating to its other Stellantis common shares. All other shareholders, which own the majority of our common shares, are not subject to any resale restrictions. The resale of such shares in the public market from time to time, particularly on the part of Dongfeng, or on the part of any Reference Shareholder following expiration of the lock-up, or the perception that such resales may occur could have the effect of depressing the market value for Stellantis common shares.
Risks Related to Our Business, Strategy and Operations
Business interruptions resulting from the coronavirus (COVID-19) pandemic could continue to cause disruption to the manufacture and sale of our products and the provision of our services and adversely impact our business.
On March 11, 2020, the COVID-19 outbreak was declared a global pandemic by the World Health Organization (“WHO”), leading to government-imposed quarantines, travel restrictions, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for businesses to curtail or cease normal operations. The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, as well as restrictions on business and individual activities, has led to a global economic slowdown and a significant decrease in demand in the global automotive market, which may persist even after certain restrictions related to the COVID-19 outbreak are lifted.
FCA and PSA took a number of steps as a result of the pandemic, in line with advice provided by the WHO and the public health measures imposed in the countries in which they operated. For example, in the first half of 2020, FCA and PSA implemented a temporary suspension of production across all of their facilities, which lasted, depending on the region, several weeks or months.
As a result of the restrictions described above, and consumer reaction to the COVID-19 outbreak in general, showroom traffic at our dealers has dropped significantly and many dealers have temporarily ceased operations, thereby reducing the demand for our products and leading to dealers purchasing fewer vehicles, parts and accessories. In addition, the COVID-19 outbreak has caused significant disruptions of our supply chain and may cause additional disruptions in the future. These disruptions may negatively impact the availability and price at which we are able to source components and raw materials globally, which could reduce the number of vehicles we will be able to manufacture and sell. We may not be able to pass on increases in the price of components and raw materials to our customers, which may adversely impact our results of operations. Furthermore, the COVID-19 pandemic may lead to financial distress for our suppliers or dealers, as a result of which they may have to permanently discontinue or substantially reduce their operations. The pandemic may also lead to downward pressure on vehicle prices and contribute to an already challenging pricing environment in the automotive industry. In addition, the COVID-19 outbreak has led to higher working capital needs and reduced liquidity or limitations in the supply of credit, which may lead to higher costs of capital for us. Lastly, COVID-19 has resulted in a sharp increase in unemployment rates compared to pre-COVID-19 levels. We expect that the economic uncertainty and higher unemployment may result in higher defaults in our consumer financing portfolio and prolonged unemployment may negatively impact demand for both new and used vehicles. These and other factors arising from the COVID-19 pandemic have had, and could continue to have, a material adverse impact on our business, financial condition and results of operations.
Our automotive operations generally realize minimal revenue while their respective plants are shut down, but they continue to incur expenses. The negative cash impact is exacerbated by the fact that, despite not producing vehicles, we have to continue to pay suppliers for components purchased earlier in a high volume environment. In addition, FCA and PSA deferred a significant number of capital expenditure programs, delayed or eliminated non-essential spending, and significantly reduced marketing expenses. These measures could have a material adverse effect on our ability to maintain full production levels.
Further, even during times when restrictions on movement and business operations are eased, we may still elect to shut down some, or all, of our production sites and other facilities, either in the event of an outbreak of COVID-19 among our employees, or as a preventive measure to contain the spread of the virus and protect the health of our workforce and their respective communities. Such restrictions on movement and business operations may be reimposed by governments in response to future recurrences or “waves” of the outbreak.
In addition, future government-sponsored liquidity or stimulus programs in response to the COVID-19 pandemic may not be available to our customers, suppliers, dealers, or the combined group, and if available, the terms may be unattractive or may be insufficient to address the impact of COVID-19.
The extent to which the COVID-19 pandemic will impact our results will depend on the scale, duration, severity and geographic reach of future developments, which are highly uncertain and cannot be predicted. Following relaxation of restrictions in the late spring and summer of 2020, further waves of the pandemic have led to renewed restrictive measures including new regional or national lockdowns in several countries in which we operate. Although vaccination programs are being rolled out in many jurisdictions, the pace of vaccination is unclear and the efficacy on large populations is untested. The ultimate impact of the COVID-19 outbreak will depend on the length and severity of restrictions on business and individuals, the pandemic’s impact on customers, dealers, and suppliers, how quickly normal economic conditions, operations and demand for vehicles resume, the severity of the current economic downturn, any permanent behavioral changes that the pandemic may cause and any additional actions to contain the spread or mitigate the impact of the outbreak, whether government-mandated or elected by us. The future impact of COVID-19 developments will be greater if the regions and markets that are most profitable for us are particularly affected. See “If our vehicle shipment volumes deteriorate, particularly shipments of pickup trucks and larger sport utility vehicles in the U.S. market, and shipments of vehicles in the European market, our results of operations and financial condition will suffer”. These disruptions could have a material adverse effect on our business, financial condition and results of operations. In addition, the COVID-19 pandemic may exacerbate many of the other risks described in this report, including, but not limited to, the general economic conditions in which we operate, increases in the cost of raw materials and components and disruptions to our supply chain and liquidity.
If our vehicle shipment volumes deteriorate, particularly shipments of pickup trucks and larger sport utility vehicles in the U.S. market, and overall shipments of vehicles in the European market, our results of operations and financial condition will suffer.
As is typical for automotive manufacturers, we have significant fixed costs primarily due to our substantial investment in product development, property, plant and equipment and the requirements of collective bargaining agreements and other applicable labor relations regulations. As a result, changes in certain vehicle shipment volumes could have a disproportionately large effect on our profitability. In particular, our profitability would be impacted in the event of lower volumes of pickup trucks and larger SUVs in North America, and in the event of overall lower volumes in Europe.
Our profitability in North America, a region which contributed a majority of FCA’s profit in each of the last three years, is particularly dependent on demand for pickup trucks and larger SUVs. FCA’s pickup trucks and larger SUVs have historically been more profitable than other FCA vehicles and accounted for approximately 72 percent of FCA’s total U.S. retail vehicle shipments in 2020. A shift in consumer demand away from these vehicles within the North America region, and towards compact and mid-size passenger cars, whether in response to higher fuel prices or other factors, could adversely affect our profitability. Dependence on pickup trucks and larger SUVs in North America is expected to continue.
Historically, PSA’s operating results have reflected a dependence on European markets, which increased with the purchase of the Opel and Vauxhall brands in August 2017. PSA generated a substantial majority of its profits and approximately 79 and 77 percent of its revenue in the European markets in the fiscal years 2019 and 2020, respectively. Therefore, we are significantly exposed to a slowdown or downturn in economic conditions in Europe, as well as enhanced competition in, or a deterioration of, the European vehicle market, that would trigger a decline in vehicle shipments in that market.
In addition, our larger vehicles, such as SUVs, tend to be priced higher and be more profitable on a per vehicle basis than smaller vehicles, both across and within vehicle lines. In recent years, the profitability of these models has been supported by strong consumer preference for SUVs, but there is no guarantee that this trend will continue in the future. For additional information on factors affecting our vehicle profitability, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Trends, Uncertainties and Opportunities – Vehicle Profitability”.
Moreover, we operate with negative working capital as we generally receive payment for vehicles within a few days of shipment, whereas there is a lag between the time when parts and materials are received from suppliers and when we pay for such parts and materials. Accordingly, in periods in which vehicle shipments decline materially, we may suffer a significant negative impact on cash flow and liquidity as we continue to pay suppliers for components purchased in a high-volume environment during a period in which we receive lower proceeds from vehicle shipments. If vehicle shipments decline, or if they were to fall short of our assumptions, due to downturn in economic conditions, changes in consumer confidence, geopolitical events, inability to produce sufficient quantities of certain vehicles, enhanced competition in certain markets, loss of market share, limited access to financing or other factors, such decline or shortfall could have a material adverse effect on our business, financial condition and results of operations.
Our business may be adversely affected by global financial markets, general economic conditions, enforcement of government incentive programs, and geopolitical volatility as well as other macro developments over which we have little or no control.
With operations worldwide, our business, financial condition and results of operations may be influenced by macroeconomic factors within the various countries in which we operate, including changes in gross domestic product, the level of consumer and business confidence, changes in interest rates for, or availability of, consumer and business credit, the rate of unemployment, foreign currency controls and changes in exchange rates, as well as geopolitical risks, such as government instability, social unrest, the rise of nationalism and populism and disputes between sovereign states.
We are subject to other risks, such as increases in energy and fuel prices and fluctuations in prices of raw materials, including as a result of tariffs or other protectionist measures, changes to vehicle purchase incentive programs, and contractions in infrastructure spending in the jurisdictions in which we operate. In addition, these factors may also have an adverse effect on our ability to fully utilize our industrial capacity in some of the jurisdictions in which we operate. Unfavorable developments in any one or a combination of these risks (which may vary from country to country) could have a material adverse effect on our business, financial condition and results of operations and on our ability to execute planned strategies. For further discussion of risks related to the automotive industry, see “Risk Factors—Risks Related to the Industry in which We Operate”.
We have operations in a number of emerging markets, including Turkey, China, Brazil, Argentina, India and Russia and are particularly susceptible to risks relating to local political conditions, import and/or export restrictions (including the imposition of tariffs on raw materials and components we procure and on the vehicles we sell), and compliance with local laws and regulations in these markets. For example, in Brazil, FCA has historically received certain tax benefits and other government grants, that favorably affected FCA’s results of operations which, if not further extended, would expire at the end of 2025. Expiration of these tax benefits and government grants without their renewal or any change in the amount of such tax benefits or government grants could have a material adverse effect on our business, financial condition and results of operations.
We are also subject to other risks inherent to operating globally. For a discussion of certain tax-related risks related to our operating globally, see “Risk Factors—Risks Related to Taxation—We and our subsidiaries are subject to tax laws and treaties of numerous jurisdictions. Future changes to such laws or treaties could adversely affect us and our subsidiaries and our shareholders and holders of special voting shares. In addition, the interpretation of these laws and treaties is subject to challenge by the relevant governmental authorities”. European developments in data and digital taxation may also negatively affect some of our automated driving and infotainment connected services. Unfavorable developments in any one or a combination of these risk areas (which may vary from country to country) could have a material adverse effect on our business, financial condition and results of operations and on our ability to execute planned strategies.
On June 23, 2016, a majority of voters in a national referendum in the United Kingdom voted in favor of Brexit. The United Kingdom left the European Union on January 31, 2020. On December 24, 2020, the European Union and the United Kingdom announced that they had reached a new bilateral trade and cooperation deal governing the future relationship between the European Union and the United Kingdom (the “EU-UK Trade and Cooperation Agreement”) which was formally approved by the European Council, acting by the unanimity of all 27 EU member states, on December 29, 2020 and by the UK parliament on December 30, 2020. The EU-UK Trade and Cooperation Agreement became effective on a provisional basis from January 1, 2021, subject to ratification by the EU following consent by the European Parliament. The potential consequences are unclear if the European Parliament were to fail to approve the EU-UK Trade and Cooperation Agreement.
Under the terms of the EU-UK Trade and Cooperation Agreement, exports of motor vehicles and parts between the European Union and the United Kingdom are exempt from tariffs, to the extent the goods comply with certain “rules of origin” (i.e. if the goods contain a sufficient quantity of EU or UK inputs). We are currently assessing the full impact of the EU-UK Trade and Cooperation Agreement on our operations and on our supply chain. The application of the rules of origin may result in increased costs for us or for our suppliers (which, in turn, they would seek to pass on to us), and difficulties in the procurement of parts. In addition, the new customs procedures set forth in the EU-UK Trade and Cooperation Agreement result in increased complexity.
While the EU-UK Trade and Cooperation Agreement provides clarity with respect to the intended relationship between the European Union and the United Kingdom going forward, significant uncertainty remains around the details of such relationship, which will continue to be defined, and the full extent of the consequences of Brexit. The foregoing could have a material adverse effect on our business, financial condition and results of operations. Furthermore, Brexit could lead to fluctuations in the exchange rate between the pound sterling and the euro, which could adversely impact the sale of vehicles we import into, or export from, the United Kingdom. In 2020, PSA sold approximately 264,000 vehicles in the United Kingdom, which represented approximately 10 percent of total vehicles sold by PSA during that period. During the same period, FCA sold approximately 38,000 vehicles in the United Kingdom, approximately 1 percent of the total vehicles sold by FCA in 2020.
In recent years, there has been a significant increase in activity and speculation regarding tariffs and other barriers to trade imposed between governments in various regions, in particular the U.S. and its trading partners, China and the European Union. For example, we manufacture a significant number of our vehicles outside the U.S. (particularly in Canada, Mexico and Italy) for import into the U.S. We also manufacture vehicles in the U.S. that are exported to China. Tariffs or duties that impact our products could reduce consumer demand, make our products less profitable or the cost of required raw materials more expensive or delay or limit our access to these raw materials, each of which could have a material adverse effect on our business, financial condition and results of operations. In addition, a continued escalation in tariff or duty activity between the U.S. and its major trading partners could negatively impact global economic activity, which could in turn reduce demand for our products.
We may be unsuccessful in efforts to increase the growth of some of our brands that we believe have global appeal and reach, which could have material adverse effects on our business.
We intend to focus on volume growth and margin expansion strategies, which include the renewal of key products, the launch of white-space products, the implementation of various electrified powertrain applications and partnerships relating to the development of autonomous driving technologies. Historically, FCA experienced challenges in expanding the product range and global sales of certain brands, in particular, Alfa Romeo. As a result, FCA rationalized its product plans, which resulted in the recognition of impairment charges in the third quarter of 2019. PSA experienced challenges with respect to the visibility of its brands in China and Russia, which led to reduced sales for PSA’s products in those markets. In addition, we may not be successful in positioning our DS brand as a premium brand in light of competition from established premium brands that benefit from favorable reputations and significant marketing budgets.
Our strategies continue to require significant investments in products, powertrains, production facilities, marketing and distribution networks. If we are unable to achieve our volume growth and margin expansion goals, we may be unable to earn a sufficient return on these investments, which could have a material adverse effect on our business, financial condition and results of operations. Our growth and investment strategy may also be adversely impacted by future potential developments of the COVID-19 pandemic. See “Business interruptions resulting from the coronavirus (COVID-19) pandemic could continue to cause disruption to the manufacture and sale of our products and the provision of our services and adversely impact our business”.
Our future performance depends on our ability to offer innovative, attractive and fuel efficient products.
Our success depends on, among other things, our ability to develop innovative, high-quality products that are attractive to consumers and provide adequate profitability.
We may not be able to effectively compete with other automakers with regard to electrification, autonomous driving, mobility, artificial intelligence and other emerging trends in the industry. In addition, we may fail to sufficiently adapt our business model to new forms of mobility, such as car-sharing, car-pooling and connected services. Such changes to mobility may also lead to a decrease in sales, as new forms of mobility gain market acceptance as alternatives to outright vehicle ownership by end users.
In certain cases, the technologies that we plan to employ are not yet commercially practical and depend on significant future technological advances by us, our partners and suppliers. These advances may not occur in a timely or feasible manner, we may not obtain rights to use these technologies and the funds that we have budgeted or expended for these purposes may not be adequate. Further, our competitors and others are pursuing similar and other competing technologies, and they may acquire and implement similar or superior technologies sooner than we will or on an exclusive basis or at a significant cost advantage. Even where we are able to develop competitive technologies, we may not be able to profit from such developments as anticipated. For example, the advent of electric and plug-in hybrid vehicles has fueled highly competitive pricing among automakers in order to win market share, which may significantly and adversely affect profits with respect to the sale of such vehicles. Furthermore, technological capabilities acquired through costly investment may prove short-lived, for example, if hybrid cars were replaced by fully electric cars sooner than expected. In addition, vehicle electrification may negatively affect after-sales revenues as electric vehicles are expected to require fewer repairs.
Further, as a result of the extended product development cycle and inherent difficulty in predicting consumer acceptance, a vehicle that is expected to be attractive may not generate sales in sufficient quantities and at high enough prices to be profitable. It can take several years to design and develop a new vehicle, and a number of factors may lengthen that schedule. For example, if we determine that a safety or emissions defect, mechanical defect or non-compliance with regulation exists with respect to a vehicle model prior to retail launch, the launch of such vehicle could be delayed until we remedy the defect or non-compliance. Various elements may also contribute to consumers’ acceptance of new vehicle designs, including competitors’ product introductions, fuel prices, general economic conditions and changes in consumer preferences. In addition, vehicles we develop in order to comply with government regulations, particularly those related to fuel efficiency, greenhouse gas and tailpipe emissions standards, may not be attractive to consumers or may not generate sales in sufficient quantities and at high enough prices to be profitable.
If we fail to develop products that contain desirable technologies and are attractive to and accepted by consumers, the residual value of our vehicles could be negatively impacted. In addition, the increasing pace of inclusion of new innovations and technologies in our and our competitors’ vehicles could also negatively impact the residual value of our vehicles. A deterioration in residual value could increase the cost that consumers pay to lease our vehicles or increase the amount of subvention payments that we make to support our leasing programs.
The failure to develop and offer innovative, attractive and relevant products on a timely basis could have a material adverse effect on our business, financial condition and results of operations.
Our success largely depends on the ability of our management team to operate and manage effectively and our ability to attract and retain experienced management and employees.
Our success largely depends on the ability of our senior executives and other members of management to effectively manage the company and individual areas of the business. Our management team is critical to the execution of our direction and the implementation of our strategies. We may not be able to replace these individuals with persons of equivalent experience and capabilities. Attracting and retaining qualified and experienced personnel in each of our regions is critical to our competitive position in the automotive industry. If we are unable to find adequate replacements or to attract, retain and incentivize senior executives, other key employees or new qualified personnel, such inability could have a material adverse effect on our business, financial condition and results of operations.
Labor laws and collective bargaining agreements with our labor unions could impact our ability to increase the efficiency of our operations, and we may be subject to work stoppages in the event we are unable to agree on collective bargaining agreement terms or have other disagreements.
Substantially all of our production employees are represented by trade unions, covered by collective bargaining agreements or protected by applicable labor relations regulations that may restrict our ability to modify operations and reduce personnel costs quickly in response to changes in market conditions and demand for our products. As of December 31, 2020, approximately 87 percent of FCA’s employees and 93 percent of PSA’s Automotive Division employees were covered by collective bargaining agreements. See the section “—Trade Unions and Collective Bargaining”of this report for a description of these arrangements with regard to each of PSA and FCA. These and other provisions in our collective bargaining agreements may impede our ability to restructure our business successfully in order to compete more effectively, especially with automakers whose employees are not represented by trade unions or are subject to less stringent regulations, which could have a material adverse effect on our business, financial condition and results of operations. In addition, we may be subject to work stoppages in the event that we and our labor unions are unable to agree on collective bargaining agreement terms or have other disagreements. Any such work stoppage could have a material adverse effect on our business, financial condition and results of operations.
If we fail to accurately forecast demand for our vehicles, our profitability may be affected.
We take steps to improve efficiency in our manufacturing, supply chain and logistics processes. This includes planning production based on sales forecasts, and in particular producing certain vehicle models with specified features based on forecasted dealer and end customer orders, which is expected to allow us to more efficiently and cost effectively manage our supply chain. This practice may result in higher finished goods inventory in certain periods when we anticipate increased dealer and end customer orders. Further, while it is expected that our analytical tools should enable us to align production with dealer and end customer orders, if such orders do not meet our forecasts, our profitability on these vehicles may be affected.
Our reliance on partnerships in order to offer consumers and dealers financing and leasing services exposes us to risks, including that our competitors may be able to offer consumers and dealers financing and leasing services on better terms than our consumers and dealers are able to obtain.
Our dealers enter into wholesale financing arrangements to purchase vehicles from us to hold in inventory and facilitate retail sales, and retail consumers use a variety of finance and lease programs to acquire vehicles. Unlike many of our competitors, we do not own and operate a wholly-owned finance company dedicated solely to our mass-market vehicle operations in the U.S. and the majority of key markets in Europe, Asia and South America. We instead partner with specialized financial services providers through joint ventures and commercial agreements with third parties, including third party financial institutions, in order to provide financing to our dealers and retail consumers including in the U.S. and key markets in Europe, Asia and South America. Our reliance on partnerships in these key markets may increase the risk that our dealers and retail consumers will not have access to sufficient financing on acceptable terms, which may adversely affect our vehicle sales in the future.
Furthermore, many of our competitors are better able to implement financing programs designed to maximize vehicle sales in a manner that optimizes profitability for them and their finance companies on an aggregate basis. Since our ability to compete depends on access to appropriate sources of financing for dealers and retail consumers, our reliance on partnerships in those markets could have a material adverse effect on our business, financial condition and results of operations.
Potential capital constraints may impair the financial services providers’ ability to provide competitive financing products to our dealers and retail consumers. For example, any financial services provider, including our joint ventures and controlled finance companies, will also face other demands on its capital, including the need or desire to satisfy funding requirements for dealers or consumers of our competitors as well as liquidity issues relating to other investments. Furthermore, they may be subject to regulatory changes that may increase their cost of capital or capital requirements.
To the extent that a financial services provider is unable or unwilling to provide sufficient financing at competitive rates to our dealers and retail consumers, such dealers and retail consumers may not have sufficient access to financing to purchase or lease vehicles. As a result, our vehicle sales and market share may suffer, which could have a material adverse effect on our business, financial condition and results of operations.
We face risks related to changes in product distribution methods.
We are exposed to risks inherent in certain new methods of distribution, including the digitalization of points of sale and, more broadly, the transformation of our sales network in order to respond to developing trends in the automotive industry such as consumers’ shift towards online sales. Delays in the digital transformation of distribution methods, both at points of sale and in sales networks, as well as increased costs, whether as a result of the transformation of our sales network or new distribution methods, could impact our ability to effectively compete with other automakers. In addition, our employees may lack the necessary skills or training to implement or utilize such new distribution methods. If there is a delay or failure to implement new distribution methods or such transitions are not successful, there may be a material adverse effect on our business, financial condition and results of operations.
A significant security breach compromising the electronic control systems contained in our vehicles could damage our reputation, disrupt our business and adversely impact our ability to compete.
Our vehicles, as well as vehicles manufactured by other original equipment manufacturers (“OEMs”), contain complex systems that control various vehicle processes including engine, transmission, safety, steering, brakes, window and door lock functions. These electronic control systems, which are increasingly connected to external cloud-based systems, are susceptible to cybercrime, including threats of intentional disruptions, loss of control over the vehicle, loss of functionality or services and theft of personal information. These disruptions are likely to increase in terms of sophistication and frequency as the level of connectivity and autonomy in our vehicles increases. In addition, we may rely on third parties for connectivity and automation technology and services, including for the collection of our customers’ data. These third parties could unlawfully resell or otherwise misuse such information, or suffer data breaches. A significant malfunction, disruption or security breach compromising the electronic control systems contained in our vehicles could damage our reputation, expose us to significant liability and could have a material adverse effect on our business, financial condition and results of operations.
A significant malfunction, disruption or security breach compromising the operation of our information technology systems could damage our reputation, disrupt our business and adversely impact our ability to compete.
Our ability to keep our business operating effectively depends on the functional and efficient operation of our information, data processing and telecommunications systems, including our vehicle design, manufacturing, inventory tracking and billing and payment commitmentssystems, as well as other central information systems and applications, employee workstations and other IT equipment. In addition, our vehicles are increasingly connected to external cloud-based systems while our industrial facilities have become more computerized. Our systems, and in particular those of our financing activities and joint venture partners following the digitalization of their operations, are susceptible to cybercrime and are regularly the target of threats from third parties, which could result in data theft, loss of control of data processed in an external cloud, compromised IT networks and stoppages in operations. A significant or large-scale malfunction or interruption of any one of our computer or data processing systems, including through the exploitation of a weakness in our systems or the systems of our suppliers or service providers, could have a material adverse effect on our ability to manage and keep our manufacturing and other operations running effectively, and may damage our reputation. A malfunction or security breach that results in a wide or sustained disruption to our business could have a material adverse effect on our business, financial condition and results of operations.
In addition to supporting our operations, our systems collect and store confidential and sensitive data, including information about our business, consumers and employees. As technology continues to evolve, it is expected that we will collect and store even more data in the future and that our systems will increasingly use remote communication features that are sensitive to both willful and unintentional security breaches. Much of our value is derived from our confidential business information, including vehicle design, proprietary technology and trade secrets, and to the extent the confidentiality of such information is compromised, we may lose our competitive advantage and our vehicle shipments may suffer. We also collect, retain and use personal information, including data gathered from consumers for product development and marketing purposes, and data obtained from employees. In the event of a breach in security that allows third parties access to this personal information, we will be subject to a variety of laws on a global basis that could require us to provide notification to the data owners and subject us to lawsuits, fines and other means of regulatory enforcement.
For example, the General Data Protection Regulation (Regulation (EU) 2016/679) (the “GDPR”) has increased the stringency of European Union data protection requirements and related penalties. Non-compliance with the GDPR can result in fines of the higher of €20 million or four percent of annual worldwide revenue. GDPR has required changes to FCA’s and PSA’s existing business practices and systems in order to ensure compliance and address concerns of customers and business partners. In addition, the California Consumer Privacy Act of 2018 became effective on January 1, 2020 and provides California residents with new data privacy rights. Several other U.S. states are also considering adopting laws and regulations imposing obligations regarding the handling of personal data. Complying with any new data protection-related regulatory requirements could force us to incur substantial expenses or require us to change our business practices in a manner that has a material adverse effect on our business, financial condition and results of operations.
Our reputation could also suffer in the event of a data breach, which could cause consumers to purchase their vehicles from our competitors. Ultimately, any significant compromise in the integrity of our data security could have a material adverse effect on our business, financial condition and results of operations.
Our reliance on joint arrangements in certain emerging markets may adversely affect the development of our business in those regions.
We operate, or expect to expand our presence, in emerging markets, such as China and India, through partnerships and joint ventures. For instance, we operate the GAC FCA joint venture with Guangzhou Automobiles Group Co., Ltd., which locally produces the Jeep Cherokee, Jeep Renegade, Jeep Compass, Jeep Grand Commander and Jeep Commander PHEV (plug-in hybrid electric vehicle) primarily for the Chinese market, expanding the portfolio of Jeep SUVs currently available to Chinese consumers. Similarly, we operate a joint venture in China with Dongfeng Motor Group, namely Dongfeng Peugeot Citroën Automobile (“DPCA”), which manufactures vehicles under the Dongfeng Peugeot and Dongfeng Citroën brands in China, and Dongfeng Peugeot Citroën Automobile Sales Co (“DPCS”), which markets the vehicles produced by DPCA in China. In India, we have a joint operation with TATA Motors Limited for the production of certain of our vehicles, engines and transmissions and joint ventures with CK Birla Group for the manufacture of vehicles and powertrains.
Although our sales in the markets where these arrangements exist are currently limited, our ability to grow in these markets is important to our strategy and any issues with these arrangements may adversely affect those growth prospects. Our reliance on joint arrangements to enter or expand our presence in emerging markets may expose us to the risk of disagreement with our joint arrangement partners and the need to divert management resources to oversee these arrangements. Further, as these arrangements require cooperation with third party partners, these joint arrangements may not be able to make decisions as quickly as we would if we were operating on our own or may take actions that are different from what we would do on a standalone basis in light of the need to consider our partners’ interests. As a result, we may be less able to respond timely to changes in market dynamics, which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to the Industry in which We Operate
The automotive industry is highly competitive and cyclical, and we may suffer from those factors more than some of our competitors.
Substantially all of our revenues are generated in the automotive industry, which is highly competitive and cyclical, encompassing the production and distribution of passenger cars, light commercial vehicles and components and systems. We face competition from other international passenger car and light commercial vehicle manufacturers and distributors and components suppliers in Europe, North America, Latin America, the Middle East, Africa and the Asia Pacific region. These markets are all highly competitive in terms of product quality, innovation, the introduction of new technologies, response to new regulatory requirements, pricing, fuel economy, reliability, safety, consumer service and financial services offered. Some of our competitors are also better capitalized than we are and command larger market shares, which may enable them to compete more effectively in these markets. In addition, we are exposed to the risk of new entrants in the automotive market, which may have technological, marketing and other capabilities, or financial resources, that are superior to ours and of other traditional automobile manufacturers and may disrupt the industry in a way that is detrimental to us.
If our competitors are able to successfully integrate with one another or enter into significant partnerships with non-OEM technology companies, and we are not able to adapt effectively to increased competition, our competitors’ integration could have a material adverse effect on our business, financial condition and results of operations.
In the automotive business, sales to consumers and fleet customers are cyclical and subject to changes in the general condition of the economy, the readiness of consumers and fleet customers to buy and their ability to obtain financing, as well as the possible introduction of measures by governments to stimulate demand, particularly related to new technologies (for example, technologies related to compliance with evolving emissions regulations). The automotive industry is characterized by the constant renewal of product offerings through frequent launches of new models and the incorporation of new technologies in those models. A negative trend in the automotive industry or our inability to adapt effectively to external market conditions, coupled with more limited capital than our principal competitors, could have a material adverse effect on our business, financial condition and results of operations.
Intense competition, excess global manufacturing capacity and the proliferation of new products being introduced in key segments is expected to continue to put downward pressure on inflation-adjusted vehicle prices and contribute to a challenging pricing environment in the automotive industry for the foreseeable future. In the event that industry shipments decrease and overcapacity intensifies, our competitors may attempt to make their vehicles more attractive or less expensive to consumers by adding vehicle enhancements, providing subsidized financing or leasing programs, or by reducing vehicle prices whether directly or by offering option package discounts, price rebates or other sales incentives in certain markets. Manufacturers in countries that have lower production costs may also choose to export lower-cost automobiles to more established markets. In addition, our profitability depends in part on our ability to adjust pricing to reflect increasing technological costs (see “—Our future performance depends on our ability to offer innovative, attractive and fuel efficient products”). An increase in any of these risks could have a material adverse effect on our business, financial condition and results of operations.
Vehicle retail sales depend heavily on affordable interest rates and availability of credit for vehicle financing and a substantial increase in interest rates could adversely affect our business.
In certain regions, including Europe and North America, financing for new vehicle sales has been available at relatively low interest rates for several years due to, among other things, expansive government monetary policies. If interest rates rise, market rates for new vehicle financing will generally be expected to rise as well, which may make our vehicles less affordable to retail consumers or steer consumers to less expensive vehicles that would be less profitable for us, adversely affecting our financial condition and results of operations. Additionally, if consumer interest rates increase substantially or if financial service providers tighten lending standards or restrict their lending to certain classes of credit, consumers may not desire or be able to obtain financing to purchase or lease our vehicles. Furthermore, because purchasers of our vehicles may be relatively more sensitive to changes in the availability and adequacy of financing and macroeconomic conditions, our vehicle sales may be disproportionately affected by changes in financing conditions relative to the vehicle sales of our competitors. As a result, a substantial increase in consumer interest rates or tightening of lending standards could have a material adverse effect on our business, financial condition and results of operations.
We face risks associated with increases in costs, disruptions of supply or shortages of raw materials, parts, components and systems used in our vehicles.
We use a variety of raw materials in our business, including steel, aluminum, lead, polymers, elastomers, resin and copper, and precious metals such as platinum, palladium and rhodium, as well as electricity and natural gas. Also, as we begin to implement various electrified powertrain applications throughout our portfolio, we will also depend on a significant supply of lithium, nickel and cobalt, which are used in lithium-ion batteries. The prices for these raw materials fluctuate, and market conditions can affect our ability to manage our costs. Increased market power of raw material suppliers may contribute to such prices increasing. Additionally, as production of electric vehicles increases, we may face shortages of raw materials and lithium cells and be forced to pay higher prices to obtain them. We may not be successful in managing our exposure to these risks. Substantial increases in the prices for raw materials would increase our operating costs and could reduce profitability if the increased costs cannot be offset by higher vehicle prices or productivity gains. In particular, certain raw materials are sourced from a limited number of suppliers and from a limited number of countries, particularly those needed in catalytic converters and lithium-ion batteries. From time to time these may be susceptible to supply shortages or disruptions. In addition, our industrial efficiency will depend in part on the optimization of the raw materials and components used in the manufacturing processes. If we fail to optimize these processes, we may face increased production costs.
We are also exposed to the risk of price fluctuations and supply disruptions and shortages, including due to supplier disputes, particularly with regard to warranty recovery claims, supplier financial distress, tight credit markets, trade restrictions, tariffs, natural or man-made disasters, epidemics or pandemics of diseases, or production difficulties. For example, a global semiconductor shortage impacted our production volumes in early 2021. It is not possible to guarantee that we will be able to maintain arrangements with suppliers that assure access to these raw materials at reasonable prices. Fluctuations in the price of parts and components can adversely affect our costs and profitability, and any such effect may be material. Further, trade restrictions and tariffs may be imposed, leading to increases in the cost of raw materials and delayed or limited access to purchases of raw materials, each of which could have a material adverse effect on our business, financial condition and results of operations.
Any interruption in the supply or any increase in the cost of raw materials, parts, components and systems could negatively impact our ability to achieve our vehicle shipment objectives and profitability and delay commercial launches. The potential impact of an interruption is particularly high in instances where a part or component is sourced exclusively from a single supplier. Long-term interruptions in the supply of raw materials, parts, components and systems may result in a material impact on vehicle production, vehicle shipment objectives, and profitability. Cost increases which cannot be recouped through increases in vehicle prices, or countered by productivity gains, could have a material adverse effect on our business, financial condition and results of operations. This risk can increase during periods of economic uncertainty such as the crisis resulting from the outbreak of COVID-19, or as a result of regional economic disruptions such as that experienced in LATAM due to the deterioration in Argentina’s economic condition in recent years. With respect to the impact of the outbreak of COVID-19 on the supply chain of FCA and PSA, see “—Business interruptions resulting from the coronavirus (COVID-19) pandemic could continue to cause disruption to the manufacture and sale of our products and the provision of our services and adversely impact our business”.
We are subject to risks related to natural and industrial disasters, terrorist attacks and climatic or other catastrophic events.
Our production facilities are subject to risks related to natural disasters, such as earthquakes, fires, floods, hurricanes, other climatic phenomena, environmental disasters and other events beyond our control, such as power loss and uncertainties arising out of armed conflicts or terrorist attacks.
Any catastrophic loss or significant damage to any of our facilities would likely disrupt our operations, delay production, and adversely affect our product development schedules, shipments and revenue. For example, in 2011, the earthquake off the coast of Fukushima in Japan disrupted part of PSA’s diesel engine production due to a supply shortage at one of its Japanese suppliers.
The occurrence of a major incident at a single manufacturing site could compromise the production and sale of several hundred thousand vehicles. In addition, any such catastrophic loss or significant damage could result in significant expense to repair or replace the facility and could significantly curtail our research and development efforts in the affected area, which could have a material adverse consequence on our business, financial condition and results of operations.
Measures taken, particularly in Europe, to protect against climate change, such as implementing an energy management plan, which sets out steps to reuse lost heat from industrial processes, making plants more compact and reducing logistics-related CO2 emissions, as well as using renewable energy, may also lead to increased capital expenditures.
We are subject to risks associated with exchange rate fluctuations, interest rate changes and credit risk.
We operate in numerous markets worldwide and are exposed to risks stemming from fluctuations in currency and interest rates. The exposure to currency risk is mainly linked to differences in the geographic distribution of our manufacturing and commercial activities, resulting in cash flows from sales being denominated in currencies different from those of purchases or production activities. Additionally, a significant portion of our operating cash flow is generated in U.S. Dollars and, although a portion of our debt is denominated in U.S. Dollars, the majority of our indebtedness is denominated in Euro.
We use various forms of financing to cover funding requirements for our activities. Moreover, liquidity for industrial activities is principally invested in variable and fixed rate or short-term financial instruments. FCA’s legacy financial services businesses normally operate a matching policy to offset the impact of differences in rates of interest on the financed portfolio and related liabilities. Banque PSA Finance also operates a matching policy by using appropriate financial instruments to match interest rates on its loans and related liabilities. Nevertheless, changes in interest rates can affect our net revenues, finance costs and margins.
In addition, although we manage risks associated with fluctuations in currency and interest rates through financial hedging instruments, fluctuations in currency or interest rates could have a material adverse effect on our business, financial condition and results of operations.
Our financial services activities are also subject to the risk of insolvency of dealers and retail consumers. Despite our efforts to mitigate such risks through the credit approval policies applied to dealers and retail consumers, we may not be able to successfully mitigate such risks.
Risks Related to the Legal and Regulatory Environment in which We Operate
Current and more stringent future or incremental laws, regulations and governmental policies, including those regarding increased fuel efficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business and may increase our cost of compliance, result in additional liabilities and negatively affect our operations and results.
As we seek to comply with government regulations, particularly those related to fuel efficiency, vehicle safety and greenhouse gas and tailpipe emissions standards, we must devote significant financial and management resources, as well as vehicle engineering and design attention, to these legal requirements. Greenhouse gas emissions standards also apply to our production facilities in several jurisdictions in which we operate, which may require investments to upgrade facilities and increase operating costs. In addition, a failure to decrease the energy consumption of plants may lead to penalties, each of which may adversely affect our profitability. In addition, the European Union’s Green Deal could result in changes to laws and regulations, including requiring, or incentivizing, financial institutions to reduce lending to industries responsible for significant greenhouse gas emissions, which could result in an increase in the cost of our European financings.
Our production facilities are also be subject to a broad range of additional requirements governing environmental, health and safety matters, including those relating to registration, use, storage and disposal of hazardous materials and discharges to water and air (including emissions of sulphur oxide, nitrogen oxide, volatile organic compounds and other pollutants). A failure to comply with such requirements, or additional requirements imposed in the future, may result in substantial penalties, claims and liabilities which could have a material adverse effect on our business, financial condition and results of operations. We may also incur substantial cleanup costs and third-party claims as a result of environmental impacts that may be associated with our current or former properties or operations.
Regulatory requirements in relation to CO2 emissions from vehicles, such as the Corporate Average Fuel Efficiency (CAFE) standards in the U.S., are increasingly stringent. On August 31, 2020, the U.S. Court of Appeals for the Second Circuit vacated a final rule published by the National Highway Traffic Safety Administration (“NHTSA”) in July 2019 that had reversed NHTSA’s 2016 increase to the base rate of the CAFE penalty from $5.50 to $14.00. The base rate applies to each tenth of a mile per gallon (“MPG”) that a manufacturer’s fleet-wide average MPG is below the CAFE standard, and is multiplied by the number of vehicles in the manufacturer’s fleet to arrive at an aggregate penalty. On January 14, 2021, NHTSA published an interim final rule with immediate effect, the result of which would be to apply the increased fine rate that resulted from the Second Circuit’s ruling to future model years. In particular, NHTSA’s new rule imposes a CAFE penalty base rate of $5.50 through 2021 Model Year and increases the CAFE penalty base rate to $14.00 prospectively from the 2022 Model Year. Several non-governmental organizations and state attorneys general have initiated litigation to overturn NHTSA’s interim final rule.
An increasing number of cities globally have also introduced restricted traffic zones, which do not permit entry to vehicles unless they meet strict emissions standards. As a result, consumer demand may shift towards vehicles that are able to meet these standards, which in turn could lead to higher research and development costs and production costs for us. A failure to comply with applicable emissions standards may lead to significant fines, vehicle recalls, the suspension of sales and third-party claims and may adversely affect our reputation. We are particularly exposed to the risk of such penalties, given our sale of light vehicles in markets where regulations on fuel consumption are very stringent, particularly in Europe. In addition, the harmful effects of atmospheric pollutants, including greenhouse gases, on ecosystems and human health have become an area of major public concern and media attention. As a result, we may suffer significant adverse reputational consequences, in addition to penalties, in the event of non-compliance with applicable regulations.
The number and scope of regulatory requirements, along with the costs associated with compliance, are expected to increase significantly in the future, particularly with respect to vehicle emissions. These costs could be difficult to pass through to consumers, particularly if consumers are not prepared to pay more for lower-emission vehicles. For a further discussion of the regulations applicable to us, see the section “Group Overview—Environmental and Other Regulatory Matters” in this report. For example, EU regulations governing passenger car and LCV fleet average CO2 emissions became significantly more stringent in 2020, imposing material penalties if targets are exceeded. The increased cost of producing lower-emitting vehicles may lead to lower margins and/or lower volumes of vehicles sold. Given the significant portion of our sales in Europe, our vehicles will be particularly exposed to such regulatory changes, as well as other European regulatory developments (including surcharges), which may have a serious impact on the number of cars we sell in this region and therefore on our profitability.
A U.S. federal regulation prohibits U.S. states such as California from imposing their own environmental greenhouse gas regulatory requirements on the vehicles that we sell, which has resulted in litigation and uncertainty regarding the applicability of those state regulations. The U.S. federal government is also undertaking a review of federal environmental regulations applicable to our vehicles, as well as the stringency of nationwide fuel economy standards. Uncertainty regarding these regulations, and the outcome of these proceedings, may increase our costs of compliance. Furthermore, some of our competitors may be capable of responding more swiftly to increased regulatory requirements, or may bear lower compliance costs, thereby strengthening their competitive position compared to ours. See “The automotive industry is highly competitive and cyclical, and we may suffer from those factors more than some of our competitors”.
Most of our suppliers face similar environmental requirements and constraints. A failure by our suppliers to meet applicable environmental laws or regulations may lead to a disruption of our supply chain or an increase in the cost of raw materials and components used in production and could have a material adverse effect on our business, financial condition and results of operations.
We remain subject to ongoing diesel emissions investigations by several governmental agencies and to a number of related private lawsuits, which may lead to further claims, lawsuits and enforcement actions, and result in additional penalties, settlements or damage awards and may also adversely affect our reputation with consumers.
On January 10, 2019, FCA announced that FCA US had reached final settlements on civil environmental and consumer claims with the U.S. Environmental Protection Agency (“EPA”), the Civil Division of the U.S. Department of Justice (“DoJ”), the California Air Resources Board, the State of California, 49 other States and U.S. Customs and Border Protection, for which we accrued €748 million during the year ended December 31, 2018. Approximately €350 million of the accrual was related to civil penalties to resolve differences over diesel emissions requirements. A portion of the accrual was attributable to settlement of a putative class action on behalf of consumers in connection with which FCA US agreed to pay an average of $2,800 per vehicle to eligible customers affected by the recall. That settlement received final court approval on May 3, 2019. Nevertheless, FCA US continues to defend individual claims from approximately 3,200 consumers that have exercised their right to opt out of the class action settlement and pursue their own individual claims against us (the “Opt-Out Litigation”). FCA US has engaged in further discovery in the Opt-Out Litigation and participated in court-sponsored settlement conferences, but has reached settlement agreements with less than 100 of these remaining plaintiffs.
In the U.S., FCA US remains subject to a diesel emissions-related investigation by the DoJ, Criminal Division. In September 2019, the DoJ filed criminal charges against an employee of FCA US for, among other things, fraud, conspiracy, false statements and violations of the Clean Air Act primarily in connection with efforts to obtain regulatory approval of the vehicles that were the subject of the civil settlements described above. FCA US has continued discussions with the DoJ, Criminal Division to determine whether it can reach an appropriate resolution of their investigation as it relates to FCA US, which may involve the payment of penalties and other non-financial sanctions. We also remain subject to a number of related private lawsuits (the “Non Opt-Out Litigation”).
FCA also received inquiries from other regulatory authorities in a number of jurisdictions as they examine the on-road tailpipe emissions of several automakers’ vehicles and, when jurisdictionally appropriate, we continue to cooperate with these governmental agencies and authorities.
In Europe, we are working with the Italian Ministry of Transport (“MIT”) and the Dutch Vehicle Regulator (“RDW”), the authorities that certified FCA diesel vehicles for sale in the European Union, and the UK Driver and Vehicle Standards Agency in connection with their review of several of our vehicles.
FCA also initially responded to inquiries from the German authority, the Kraftfahrt-Bundesamt (“KBA”), regarding emissions test results for our vehicles, and we discussed the KBA reported test results, our emission control calibrations and the features of the vehicles in question. After these initial discussions, the MIT, which has sole authority for regulatory compliance of the vehicles it has certified, asserted its exclusive jurisdiction over the matters raised by the KBA, tested the vehicles, determined that the vehicles complied with applicable European regulations and informed the KBA of its determination. Thereafter, mediations have been held under European Commission (“EC”) rules, between the MIT and the German Ministry of Transport and Digital Infrastructure, which oversees the KBA, in an effort to resolve their differences. The mediation was concluded with no action being taken with respect to FCA. In May 2017, the EC announced its intention to open an infringement procedure against Italy regarding Italy's alleged failure to respond to EC's concerns regarding certain FCA emission control calibrations. The MIT has responded to the EC's allegations by confirming that the vehicles' approval process was properly performed.
In December 2019, the MIT notified FCA that the Dutch Ministry of Infrastructure and Water Management (“I&W”) had been communicating with the MIT regarding certain irregularities allegedly found by the RDW and the Dutch Center of Research TNO in the emission levels of certain Jeep Grand Cherokee Euro 5 models and a vehicle model of another OEM that contains a Euro 6 diesel engine supplied by us. In January 2020, the Dutch Parliament published a letter from the I&W summarizing the conclusions of the RDW regarding those vehicles and engines and indicating an intention to order a recall and report their findings to the Public Prosecutor, the EC and other Member States. FCA engaged with the RDW to present our positions and cooperate to reach an appropriate resolution of this matter. FCA proposed certain updates to the relevant vehicles that have been tested and approved by the RDW and are now being implemented. Nevertheless, this matter is still pending. In addition, at the request of the French Consumer Protection Agency, the Juge d’Instruction du Tribunal de Grande Instance of Paris is investigating diesel vehicles of a number of automakers including FCA, regarding whether the sale of those vehicles violated French consumer protection laws.
In July 2020, unannounced inspections took place at several of our sites in Germany, Italy and the UK at the initiative of the Public Prosecutors of Frankfurt am Main and of Turin, as part of their investigations of potential violations of diesel emissions regulations and consumer protection laws. We are cooperating with the investigations. Several FCA companies and our Dutch dealers were recently served with a purported class action filed in the Netherlands by a Dutch foundation seeking monetary damages and vehicle buybacks in connection with alleged emissions non-compliance of certain FCA E5 and E6 diesel vehicles. A similar claim has been announced in the UK but not yet served on the Company. We are also defending a number of individual consumer claims alleging emissions non-compliance of certain of our vehicles in Germany.
In December 2018, the Korean Ministry of Environment (“MOE”) announced its determination that approximately 2,400 FCA vehicles imported into Korea during 2015, 2016 and 2017 were not emissions compliant and that the vehicles with a subsequent update of the emission control calibrations voluntarily performed by FCA, although compliant, would have required re-homologation of the vehicles concerned. In May 2019, the MOE revoked certification of the above-referenced vehicles and announced an administrative fine for an amount not material to the Group. We have appealed the MOE’s decision. Our subsidiary in Seoul, Korea is also cooperating with local criminal authorities in connection with their review of this matter, with the Korean Fair Trade Commission regarding a purported breach of the Act on Fair Labeling and Advertisement in connection with the subject vehicles and with the MOE in connection with their review of other FCA vehicles.
In April 2016, the French Directorate General for Competition, Consumer Affairs and Fraud Control (“DGCCRF”) initiated an investigation regarding emissions from diesel engines, including engines used in PSA vehicles. In February 2017, the French Ministry of Economy issued a press release announcing that the DGCCRF referred the case to the prosecutor’s office of Versailles. None of PSA or its employees have been charged with any criminal offense. We continue to cooperate with the relevant French judicial authorities and present our position on any concerns raised during this investigation.
Our subsidiary, Opel Automobile GmbH, is performing recalls of 95,781 Opel vehicles built by Adam Opel GmbH between 2013 and 2016 to update the emissions control system software. After Opel Automobile GmbH initiated voluntary field campaigns on these vehicles, as agreed with the KBA, the KBA ordered in 2018 that these campaigns be changed into mandatory recalls to update all outstanding vehicles. As of December 31, 2020, more than 78 percent of the vehicles had received the software update, and specifically in Germany, more than 96 percent. Opel Automobile GmbH also faces a number of related private lawsuits (not class actions). .
The results of the unresolved governmental inquiries and private litigation cannot be predicted at this time and these inquiries and litigation may lead to further enforcement actions, penalties or damage awards, any of which may have a material adverse effect on our business, financial condition and results of operations. It is also possible that these matters and their ultimate resolution may adversely affect our reputation with consumers, which may negatively impact demand for our vehicles and consequently could have a material adverse effect on our business, financial condition and results of operations.
Our business operations and reputation may be impacted by various types of claims, lawsuits, and other contingencies.
We are involved in various disputes, claims, lawsuits, investigations and other legal proceedings relating to several matters, including product liability, warranty, vehicle safety, emissions and fuel economy, product performance, asbestos, personal injury, dealers, suppliers and other contractual relationships, alleged violations of law, environment, securities, labor, antitrust, intellectual property, tax and other matters. We estimate such leases.potential claims and contingent liabilities and, where appropriate, record provisions to address these contingent liabilities. The ultimate outcome of the legal proceedings pending against us is uncertain, and such proceedings could have a material adverse effect on our financial condition or results of operations. Furthermore, additional facts may come to light or we could, in the future, be subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our business, financial condition and results of operations. While we maintain insurance coverage with respect to certain claims, not all claims or potential losses can be covered by insurance, and even if claims could be covered by insurance, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against any such claims. Further, publicity regarding such investigations and lawsuits, whether or not they have merit, may adversely affect our reputation and the perception of our vehicles with retail customers, which may adversely affect demand for our vehicles, and have a material adverse effect on our business, financial condition and results of operations.
For example, in November 2019, General Motors LLC and General Motors Company (collectively, “GM”) filed a lawsuit in the U.S. District Court for the Eastern District of Michigan against FCA US, FCA NV and certain individuals, claiming violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, unfair competition and civil conspiracy in connection with allegations that FCA US paid bribes to UAW officials that corrupted the bargaining process with the UAW and as a result FCA US enjoyed unfair labor costs and operational advantages that caused harm to GM. GM also claimed that FCA US had made concessions to the UAW in collective bargaining that the UAW was then able to extract from GM through pattern bargaining which increased costs to GM in an effort to force a merger between GM and FCA NV. The court dismissed the lawsuit with prejudice on July 8, 2020 on the basis that the alleged conduct did not constitute a violation of RICO. On August 3, 2020, GM filed a motion requesting that the court amend or alter its judgment, which the court denied. On August 17, 2020, GM provided notice of appeal to the U.S. Court of Appeals for the Sixth Circuit. GM has also filed an action against FCA in Michigan state court, making substantially the same claims as it made in the federal litigation. In that case, FCA US and FCA NV filed a motion for summary disposition on November 24, 2020, and GM filed a motion to compel discovery on December 16, 2020. Oral arguments on FCA’s motion for summary disposition and GM’s motion for expedited discovery were held on February 26, 2021 and were adjourned to be continued on March 5, 2021.
In addition, FCA and other Brazilian taxpayers have had significant disputes with the Brazilian tax authorities regarding the application of Brazilian tax law. We believe that it is more likely than not that there will be no significant impact from these disputes. However, given the current economic conditions and uncertainty in Brazil, new tax laws or more significant changes such as tax reform may be introduced and enacted. Changes to the application of existing tax laws may also occur or the realization of accumulated tax benefits may be limited, delayed or denied. Any of these events could have a material adverse effect on our business, financial condition and results of operations.
For additional risks regarding certain proceedings, see “We remain subject to ongoing diesel emissions investigations by several governmental agencies and to a number of related private lawsuits,which may lead to further claims, lawsuits and enforcement actions, and result in additional penalties, settlements or damage awards and may also adversely affect our reputation with consumers”.
We face risks related to quality and vehicle safety issues, which could lead to product recalls and warranty obligations that may result in direct costs, and any resulting loss of vehicle sales could have material adverse effects on our business.
Our performance is, in part, dependent on complying with quality and safety standards, meeting customer expectations and maintaining our reputation for designing, building and selling safe, high-quality vehicles. Given the global nature of our business, these standards and expectations may vary according to the markets in which we operate. For example, vehicle safety standards imposed by regulations are increasingly stringent. In addition, consumers’ focus on vehicle safety may increase further with the advent of autonomous and connected cars. If we fail to meet or adhere to required vehicle safety standards, we may face penalties, become subject to other claims or liabilities or be required to recall vehicles.
The automotive industry in general has experienced a sustained increase in recall activity to address performance, compliance or safety-related issues. For example, in November 2019, FCA voluntarily recalled more than 700,000 SUVs worldwide due to problems with an electrical connection that could result in a vehicle stall. FCA’s costs related to vehicle recalls have been significant and typically include the cost of replacement parts and labor to remove and replace parts. Our costs related to vehicle recalls could increase in the future.
Recall costs substantially depend on the nature of the remedy and the number of vehicles affected and may arise many years after a vehicle’s sale. Product recalls may also harm our reputation, force us to halt the sale of certain vehicles and cause consumers to question the safety or reliability of our products. Given the intense regulatory activity across the automotive industry, ongoing compliance costs are expected to remain high. Any costs incurred, or lost vehicle sales, resulting from product recalls could materially adversely affect our financial condition and results of operations. Moreover, if we face consumer complaints, or receive information from vehicle rating services that calls into question the safety or reliability of one of our vehicles and we do not issue a recall, or if we do not do so on a timely basis, our reputation may also be harmed and we may lose future vehicle sales. We are also obligated under the terms of our warranty agreements to make repairs or replace parts in our vehicles at our expense for a specified period of time. These factors, including any failure rate that exceeds our assumptions, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to laws and regulations relating to corruption and bribery, as well as stakeholder expectations relating to human rights in the supply chain and a failure to meet these legislative and stakeholder standards could lead to enforcement actions, penalties or damage awards and may also adversely affect our reputation with consumers.
We are subject to laws and regulations relating to corruption and bribery, including those of the U.S., the United Kingdom and France, which have an international reach and which cover the entirety of our value chain in all countries in which we operate. We also have significant interactions with governments and governmental agencies in the areas of licensing, permits, regulatory, compliance and environmental matters among others. A failure to comply with laws and regulations relating to corruption and bribery may lead to significant penalties and enforcement actions and could also have a long-term impact on our presence in one, or more, of the markets in which such compliance failures have occurred.
In addition, our customers may have expectations relating to the production conditions and origin of the products they purchase. Therefore, it is important for us to seek to demonstrate transparency across the entire supply chain, which may result in additional costs being incurred. A failure by us, or any of our suppliers or subcontractors, to comply with employment or other production standards and expectations may result in adverse consequences to our reputation, disruptions to our supply chain and increased costs as a result of remedial measures needing to be undertaken to meet stakeholder expectations, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to adequately protect our intellectual property rights, which may harm our business.
Our success depends, in part, on our ability to protect our intellectual property rights. If we fail to protect our intellectual property rights, others may be able to compete against us using intellectual property that is the same as or similar to our own. In addition, there can be no guarantee that our intellectual property rights will be sufficient to provide us with a competitive advantage against others who offer products similar to our products. For example, another OEM has produced a vehicle closely resembling one of FCA’s Jeep models for sale in the U.S. FCA brought proceedings to stop these practices and rulings have been in FCA’s favor. In response, the OEM has attempted to gain approval for a redesigned model. We are seeking to enjoin this practice as well, but cannot be certain of the final outcome. More generally, despite our efforts, we may be unable to prevent third parties from infringing our intellectual property and using our technology for their competitive advantage. Any such infringement could have a material adverse effect on our business, financial condition and results of operations.
The laws of some countries in which we operate do not offer the same protection of intellectual property rights as do the laws of the U.S. or Europe. In addition, effective intellectual property enforcement may be unavailable or limited in certain countries, making it difficult to protect our intellectual property from misuse or infringement there. Our inability to protect our intellectual property rights in some countries could have a material adverse effect on our business, financial condition and results of operations.
It may be difficult to enforce U.S. judgments against us.
We are incorporated under the laws of the Netherlands, and a substantial portion of our assets is outside of the U.S. Most of our directors and senior management and our independent auditors are resident outside the U.S., and all or a substantial portion of their respective assets may be located outside the U.S. As a result, it may be difficult for U.S. investors to effect service of process within the U.S. upon these persons. It may also be difficult for U.S. investors to enforce within the U.S. judgments predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof. In addition, there is uncertainty as to whether the courts outside the U.S. would recognize or enforce judgments of U.S. courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof. Therefore, it may be difficult to enforce U.S. judgments against us, our directors and officers and our independent auditors.
As an employer with a large workforce, we face risks related to the health and safety of our employees, as well as reputational risk related to diversity, inclusion and equal opportunity.
We employ a significant number of people who are exposed to health and safety risks as a result of their employment. Working conditions can cause stress or discomfort that can impact employees’ health and may result in adverse consequences for our productivity. In addition, as an automotive manufacturer, a significant number of our employees are shift workers in production facilities, involving physical demands which may lead to occupational injury or illness. The use or presence of certain chemicals in production processes may adversely affect the health of our employees or create a safety risk. As a result, we could be exposed to liability from claims brought by current or former employees and our reputation, productivity, business, financial condition and results of operations may be affected.
Our stakeholders are expected to place increased emphasis on the importance of diversity, inclusion and equal opportunity in the workplace, against a backdrop of developing legal requirements in these areas. We may suffer adverse effects on our reputation if we fail to meet our stakeholders’ expectations, which could result in an adverse effect on our business, financial condition and results of operations.
Risks Related to Our Liquidity and Existing Indebtedness
Limitations on our liquidity and access to funding, as well as our significant outstanding indebtedness, may restrict our financial and operating flexibility and our ability to execute our business strategies, obtain additional funding on competitive terms and improve our financial condition and results of operations.
Our performance depends on, among other things, our ability to finance debt repayment obligations and planned investments from operating cash flow, available liquidity, the renewal or refinancing of existing bank loans and/or facilities and possible access to capital markets or other sources of financing. Our indebtedness may have important consequences on our operations and financial results, including:
•we may not be able to secure additional funds for working capital, capital expenditures, debt service requirements or general corporate purposes;
•we may need to use a portion of our projected future cash flow from operations to pay principal and interest on our indebtedness, which may reduce the amount of funds available to us for other purposes, including product development; and
•we may not be able to adjust rapidly to changing market conditions, which may make us more vulnerable to a downturn in general economic conditions or our business.
The COVID-19 pandemic put significant pressure on FCA’s and PSA’s liquidity, leading to an increase in the level of net indebtedness, which could increase the aforementioned risks. During the year ended December 31, 2020, FCA took several actions to secure its liquidity and financial position, including drawing on existing bilateral lines of credit totaling €1.5 billion, completing an offering of €3.5 billion of notes under its Medium Term Note Programme, and entering into a new €6.3 billion credit facility with Intesa Sanpaolo, Italy’s largest banking group. FCA also drew its €6.25 billion syndicated revolving credit facility, which has since been repaid. PSA also took several actions during the year ended December 31, 2020 in order to secure its liquidity and financial position. In April 2020, PSA signed a new €3 billion syndicated line of credit, which was undrawn as of the date of this report, and in May 2020, PSA issued €1 billion of 2.75 percent notes due 2026 under its European Medium-Term Notes program. Our liquidity could also be adversely affected if our vehicle shipments decline materially, whether as a result of COVID-19 or otherwise. In addition, while our credit ratings are investment grade, any deterioration of our credit ratings may significantly affect our funding and prospects.
We could, therefore, find ourselves in the position of having to seek additional financing or having to refinance existing debt, including in unfavorable market conditions, with limited availability of funding and a general increase in funding costs. Any limitations on our liquidity, due to a decrease in vehicle shipments, the amount of, or restrictions in, our existing indebtedness, conditions in the credit markets, our perceived creditworthiness, general economic conditions or otherwise, may adversely impact our ability to execute our business strategies and impair our financial condition and results of operations. In addition, any actual or perceived limitations of our liquidity may limit the ability or willingness of counterparties, including dealers, consumers, suppliers, lenders and financial service providers, to do business with us, which could have a material adverse effect on our business, financial condition and results of operations.
We may be exposed to shortfalls in our pension plans which may increase our pension expenses and required contributions and, as a result, could constrain liquidity and materially adversely affect our financial condition and results of operations.
Certain of our defined benefit pension plans are currently underfunded. For example, as of December 31, 2020, FCA’s defined benefit pension plans were underfunded by approximately €4.1 billion and may be subject to significant minimum contributions in future years. Our pension funding obligations may increase significantly if the investment performance of plan assets does not keep pace with benefit payment obligations. Mandatory funding obligations may increase because of lower than anticipated returns on plan assets, whether as a result of overall weak market performance or particular investment decisions, changes in the level of interest rates used to determine required funding levels, changes in the level of benefits provided for by the plans, or any changes in applicable law related to funding requirements. Our defined benefit plans currently hold significant investments in equity and fixed income securities, as well as investments in less liquid instruments such as private equity, real estate and certain hedge funds. Due to the complexity and magnitude of certain investments, additional risks may exist, including the effects of significant changes in investment policy, insufficient market capacity to complete a particular investment strategy and an inherent divergence in objectives between the ability to manage risk in the short term and the ability to quickly re-balance illiquid and long-term investments.
To determine the appropriate level of funding and contributions to our defined benefit plans, as well as the investment strategy for the plans, we are required to make various assumptions, including an expected rate of return on plan assets and a discount rate used to measure the obligations under defined benefit pension plans. Interest rate increases generally will result in a decline in the value of investments in fixed income securities and the present value of the obligations. Conversely, interest rate decreases will generally increase the value of investments in fixed income securities and the present value of the obligations. See Note 21, Debt,2, Basis of preparation-Significant accounting policies—Employee benefits within the FCA Consolidated Financial Statements included elsewhere in this report.
(3) Amounts includeAny reduction in the discount rate or the value of plan assets, or any increase in the present value of obligations, may increase our pension expenses and required contributions and, as a result, could constrain liquidity and materially adversely affect our financial condition and results of operations. If we fail to make required minimum funding contributions to our U.S. pension plans, it could be subject to reportable event disclosure to the U.S. Pension Benefit Guaranty Corporation, as well as interest paymentsand excise taxes calculated based upon the amount of any funding deficiency.
Risks Related to Taxation
The French tax authorities may deny, revoke or disregard in whole or in part the rulings confirming the neutral tax treatment of the merger for former PSA and the transfer of tax losses carried forward by the legacy PSA French tax consolidated group.
Several tax ruling requests have been granted by the French tax authorities regarding certain tax consequences of the merger.
In particular, the French tax authorities have confirmed (i) that the merger will fulfill the conditions to benefit from the favorable corporate income tax regime set forth in Article 210 A of the French Tax Code (which mainly provides for a deferral of taxation of the capital gains realized by PSA as a result of the transfer of all its assets and liabilities pursuant to the merger).
Such tax regimes and tax rulings are subject to certain conditions being met and are based on contractual termscertain declarations, representations and current interest rates on our debt and capital lease obligations. Interest rates based on variable rates included aboveundertakings given by us to the French tax authorities. If the French tax authorities consider that the relevant declarations, representations, conditions or undertakings were determined usingnot correct or are not complied with, they could revoke or disregard the current interest ratesrulings that have been granted in effect at December 31, 2017.respect of the merger.
(4) Operating lease obligations mainly relate to leases for commercial and industrial properties used in our business. The amounts reported above includeIn addition, as required by law, a tax ruling request has also been filed with the minimum rental and payment commitments due under such leases.
(5) Unconditional minimum purchase obligations relate to our unconditional purchase obligations to purchase a fixed or minimum quantity of goods and/or services from suppliers with fixed and determinable price provisions. From time to time, in the ordinary course of our business, we enter into various arrangements with key suppliersFrench tax authorities in order to establish strategic and technological advantages.
(6) Purchase obligations are comprisedallow for the transfer of (i) the repurchase price guaranteed to certain customers on sales with a buy-back commitment in an aggregate amount of €1,252 million, (ii) commitments to purchase tangible fixed assets, mainly in connection with planned capital expenditure of various group companies, in an aggregate amount of approximately €540 million, and (iii) commitments to purchase intangible assets relating to regulatory emissions credits for an aggregate amount of approximately €416 million.
(7) Pension contribution requirements are based on the estimate of our minimum funding requirements under our funded pension plans. We may elect to make contributions in excesslarge majority of the minimum funding requirements. The Group contributionsFrench tax losses carried forward of the former PSA French tax consolidated group to pension plans for 2018 are expected to be €92 million, of which €56 million relate to the U.S. and Canada, with €2 million being discretionary contributions and €54 million will be made to satisfy minimum funding requirements. Our minimum funding requirements after 2018 will depend on several factors, including investment performance and interest rates. Therefore, the above excludes payments beyond 2018, since we cannot predict with reasonable reliability the timing and amounts of future minimum funding requirements. Refer to Note 19, Employee benefits liabilities, within the Consolidated Financial Statements included elsewhere in this report for expected benefit payments for the Group's pension plansour French permanent establishment and for the Group's unfunded health carecarry-forward of French tax losses transferred to our French permanent establishment against future profits of our French permanent establishment and life insurance plans.
certain companies of the former PSA French tax consolidated group pursuant to Articles 223 I-6 and 1649 nonies of the French Tax Code. As of the date of this report, this ruling has not yet been granted by the French tax authorities.
Product warranties, recall campaigns and product liabilities
The contractual obligations set forth above do not include payments for product warranty and recall campaign costs. We issue various types of product warranties under which we generally guaranteeIf the performance of products delivered for a certain period of time. The estimated future costs of product warranties are principally based on assumptions regardingFrench tax authorities consider that the lifetime warranty costs of each vehicle line and each model year of that vehicle line, as well as historical claims experienceapplicable conditions to allow for the Group’s vehicles. Wetransfer of French tax losses carried forward of the former PSA French tax consolidation are not fulfilled, the French tax authorities could deny the benefit of such transfer and therefore refuse to grant the requested ruling or agree on a partial transfer only. If this ruling is granted, the French tax authorities could also periodically initiate voluntary servicerevoke or disregard this ruling on the basis that the relevant declarations, representations and recall actionsundertakings are not correct or complied with or if the conditions provided under French tax law are not met.
A decision by the French tax authorities to address various customer satisfaction, safety and emissions issues relateddeny, revoke or disregard the tax rulings in the future would likely result in significant adverse tax consequences to us that could have a significant effect on our results of operations or financial position. If the vehiclesrequested tax rulings are denied or revoked, the main adverse tax consequences for us would be that we sell. In NAFTA, we accrue estimated costs for recalls(i) all unrealized capital gains at the level of former PSA at the time of the merger would be taxed; and (ii) the tax losses carried forward at the level of former PSA would not be transferred to our French permanent establishment or would be forfeited.
We operate so as to be treated exclusively as a resident of the Netherlands for tax purposes after the transfer of our tax residency to the Netherlands, but the tax authorities of other jurisdictions may treat us as also being a resident of another jurisdiction for tax purposes.
Since we are incorporated under Dutch law, we are considered to be resident in the Netherlands for Dutch corporate income tax and Dutch dividend withholding tax purposes. In addition, with effect from January 17, 2021 and taking into account the sanitary restrictions and limitations applicable under the current COVID-19 crisis, we intend to maintain our management and organizational structure in such a manner that we (i) should be regarded to have our residence for tax purposes (including, for the avoidance of doubt, withholding tax and tax treaty eligibility purposes) exclusively in the Netherlands, (ii) should not be regarded as a tax resident of any other jurisdiction (and in particular of France or Italy) either for domestic law purposes or for the purposes of any applicable tax treaty (notably any applicable tax treaty with the Netherlands) and (iii) should be deemed resident only in the Netherlands, including for the purposes of the France-Netherlands and Italy-Netherlands tax treaties. We also hold permanent establishments in France and Italy.
However, the determination of our tax residency primarily depends upon our place of effective management, which is a question of fact based on all circumstances. Because the determination of our residency is highly fact sensitive, no assurance can be given regarding the final determination of our tax residency.
If we were concurrently resident in the Netherlands and in another jurisdiction (applying the tax residency rules of that jurisdiction), we may be treated as being tax resident in both jurisdictions, unless such other jurisdiction has a double tax treaty with the Netherlands that includes either (i) a tie-breaker provision which allocates exclusive residence to one jurisdiction only or (ii) a rule providing that the residency needs to be determined based on a mutual agreement procedure and the jurisdictions involved agree (or, as the case may be, are compelled to agree through arbitration) that we are resident in one jurisdiction exclusively for treaty purposes. In the latter case, if no agreement is reached in respect of the determination of the residency, the treaty may not apply and we could be treated as being tax resident in both jurisdictions.
A failure to achieve or maintain exclusive tax residency in the Netherlands could result in significant adverse tax consequences to us, our subsidiaries and our shareholders and could result in tax consequences for our shareholders that differ from those described in the section entitled “Taxation”. The impact of this risk would differ based on the views taken by each relevant tax authority and, in respect of the taxation of Stellantis shareholders and holders of special voting shares, on the specific situation of each Stellantis shareholder or each holder of special voting shares.
We may not qualify for benefits under the tax treaties entered into between the Netherlands and other countries.
With effect from January 17, 2021, and taking into account the sanitary restrictions and limitations applicable under the current COVID-19 crisis, we operate in a manner such that we will be eligible for benefits under the tax treaties entered into between the Netherlands and other countries, notably France, Italy and the U.S. However, our ability to qualify for such benefits depends upon (i) our being treated as a Dutch tax resident for purposes of the relevant tax treaty, (ii) the fulfillment of the requirements contained in each applicable treaty as modified by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (including, but not limited to, any principal purpose test clause) and applicable domestic laws, (iii) the facts and circumstances surrounding our operations and management and (iv) the interpretation of the relevant tax authorities and courts.
Our failure to qualify for benefits under the tax treaties entered into between the Netherlands and other countries could result in significant adverse tax consequences to us, our subsidiaries and our shareholders and could result in tax consequences for our shareholders that differ from those described in the section entitled “Taxation”.
The tax consequences of the Loyalty Voting Structure are uncertain.
No statutory, judicial or administrative authority directly discusses how the receipt, ownership, or disposition of special voting shares should be treated for French, Italian, U.K., or U.S. tax purposes, and as a result, the tax consequences in those jurisdictions are uncertain.
In addition, the fair market value of the special voting shares, which may be relevant to the tax consequences, is a factual determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, the special voting shares are not transferable and a shareholder will receive amounts in respect of the special voting shares only if we are liquidated, we believe and intend to take the position that the value of each special voting share is minimal. However, the relevant tax authorities could assert that the value of the special voting shares as determined by us is incorrect, which could result in significant adverse tax consequences to shareholders holding special voting shares.
The tax treatment of the loyalty voting structure is unclear and shareholders are urged to consult their tax advisors in respect of the consequences of acquiring, owning and disposing of special voting shares. See “Taxation” for further discussion.
There may be potential Passive Foreign Investment Company tax considerations for U.S. Shareholders.
We would be a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax purposes with respect to a U.S. shareholder (as defined in “Taxation—Material U.S. Federal Income Tax Consequences”) if for any taxable year in which such U.S. shareholder held our common shares, after the application of applicable “look-through rules” (i) 75% or more of our gross income for the taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations), or (ii) at least 50% of our assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of “passive income”. U.S. persons who own shares of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the dividends they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
In particular, if we were treated as a PFIC for U.S. federal income tax purposes for any taxable year during which a U.S. shareholder owned our common shares, then any gain realized by the U.S. shareholder on the sale or other disposition of our common shares would in general not be treated as capital gain. Instead, a U.S. shareholder would be treated as if it had realized such gain ratably over its holding period for our common shares. Amounts allocated to the year of disposition and to years before we became a PFIC would be taxed as ordinary income and amounts allocated to each other taxable year would be taxed at the highest tax rate applicable to individuals or corporations, as appropriate, in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. Similar treatment may apply to certain “excess distributions” as defined in the Code.
While we believe our common shares are not stock of a PFIC for U.S. federal income tax purposes, this conclusion is a factual determination made annually and thus may be subject to change. Moreover, we may become a PFIC in future taxable years if there were to be changes in our assets, income or operations. In addition, because the determination of whether a foreign corporation is a PFIC is primarily factual and because there is little administrative or judicial authority on which to rely to make a determination, the IRS may take the position that we are a PFIC. See “Taxation” for a further discussion.
The IRS may not agree with the determination that we should not be treated as a domestic corporation for U.S. federal income tax purposes, and adverse tax consequences could result to us and our shareholders if the IRS were to successfully challenge such determination.
Section 7874 of the Code provides that, under certain circumstances, a non-U.S. corporation will be treated as a U.S. “domestic” corporation for U.S. federal income tax purposes. In particular, certain mergers of foreign corporations with U.S. subsidiaries can, in certain circumstances, implicate these rules.
We do not believe we should be treated as a U.S. “domestic” corporation for U.S. federal income tax purposes. However, the relevant law is not entirely clear, is subject to detailed but relatively new regulations (the application of which is uncertain in various respects, and whose interaction with general principles of U.S. tax law remains untested) and is subject to various other uncertainties. Therefore, the IRS could assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to Code Section 7874. In addition, changes to Section 7874 of the Code or the U.S. Treasury Regulations promulgated thereunder, or interpretations thereof, could affect our status as a foreign corporation. Such changes could potentially have retroactive effect. If the IRS successfully challenged our status as a foreign corporation, significant adverse tax consequences would result for us and for certain of our shareholders. For example, if we were treated as a domestic corporation in the U.S., we would be subject to U.S. federal income tax on our worldwide income as if we were a U.S. domestic corporation, and dividends we pay to non-U.S. shareholders would generally be subject to U.S. federal withholding tax, among other adverse tax consequences. If we were treated as a U.S. domestic corporation, such treatment could materially increase our U.S. federal income tax liability.
The closing of the merger was not conditioned on our not being treated as a domestic corporation for U.S. federal income tax purposes or upon a receipt of an opinion of counsel to that effect. In addition, neither former FCA nor former PSA requested a ruling from the IRS regarding the U.S. federal income tax consequences of the merger. Accordingly, while we do not believe we will be treated as a domestic corporation, no assurance can be given that the IRS will agree, or that if it challenges such treatment, it will not succeed.
The existence of a permanent establishment in France for us is a question of fact based on historical claims experienceall the circumstances.
We maintain a permanent establishment in France to which the assets and liabilities of former PSA were allocated upon the merger for French tax purposes. However, no assurance can be given regarding the existence of a permanent establishment in France and the allocation of each asset and liability to such permanent establishment because such determination is highly fact sensitive and may vary in case of future changes in our management and organizational structure.
If we were to fail to maintain a permanent establishment in France, the main adverse tax consequences would be that (i) all unrealized capital gains at the level of the permanent establishment at that time would be taxed and (ii) the tax losses carried forward that may still be available at that time would be forfeited. In addition, if, in the future, any of former PSA’s assets and liabilities cease to be allocated to such establishment, this may result in (i) Stellantis being taxed in France on unrealized capital gains or profits with respect to the assets and liabilities deemed transferred outside of France and (ii) a portion of the tax losses carried forward that may still be available at that time being forfeited.
We and our subsidiaries are subject to tax laws and treaties of numerous jurisdictions. Future changes to such laws or treaties could adversely affect us and our subsidiaries and our shareholders and holders of special voting shares. In addition, the interpretation of these laws and treaties is subject to challenge by the relevant governmental authorities.
We and our subsidiaries are subject to tax laws, regulations and treaties in the Netherlands, France, Italy, the U.S. and the numerous other jurisdictions in which we and our affiliates operate. These laws, regulations and treaties could change on a prospective or retroactive basis, and any such change could adversely affect us and our subsidiaries and our shareholders and holders of special voting shares.
Furthermore, these laws, regulations and treaties are inherently complex and we and our subsidiaries will be obligated to make judgments and interpretations about the application of these laws, regulations and treaties to us and our subsidiaries and our operations and businesses. The interpretation and application of these laws, regulations and treaties could differ from that of the relevant governmental authority, which could result in administrative or judicial procedures, actions or sanctions, which could be material.
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Introduction
Stellantis N.V. is a public company with limited liability, incorporated and organized under the laws of the Netherlands. Following the cross-border legal merger of Peugeot S.A. with and into Fiat Chrysler Automobiles N.V. (the “merger”), the Company was renamed Stellantis N.V. The Company qualifies as a foreign private issuer under the New York Stock Exchange (“NYSE”) listing standards and its common shares are listed on the NYSE, on the regulated market of Euronext in Paris (“Euronext Paris”) and on the Mercato Telematico Azionario managed by Borsa Italiana S.p.A(“MTA”).
In accordance with the NYSE listing rules, the Company is permitted to follow home country practice with regard to certain corporate governance standards. The Company has adopted, except as discussed below, the best practice provisions of the revised Dutch corporate governance code issued by the Dutch Corporate Governance Code Committee, which entered into force on January 1, 2018 (the “Dutch Corporate Governance Code”) and was applicable as from the financial year starting January, 1 2017. The Dutch Corporate Governance Code contains principles and best practice provisions that regulate relations inter alia between the board of directors of a company and its committees and its relationship with the general meeting of shareholders.
In this report, the Company addresses its overall corporate governance structure. The Company discloses, and intends to disclose, any material departure from the best practice provisions of the Dutch Corporate Governance Code in its current and future annual reports.
Corporate Offices and Home Member State
The Company is incorporated under the laws of the Netherlands. It has its corporate seat (statutaire zetel) in Amsterdam, the Netherlands, and the place of effective management of the Company is in the Netherlands.
The business address of the Board of Directors and the senior managers is Singaporestraat 92-100, 1175 RA Lijnden, the Netherlands.
The Company is registered at the Dutch trade register under number 60372958.
The Netherlands is Stellantis’s home member state for the purposes of the EU Transparency Directive (Directive 2004/109/EC, as amended).
Pursuant to Article 3 of the Company’s articles of association (the “Articles of Association”), the objects for which the Company is established are to carry on, either directly or through wholly or partially-owned companies and entities, activities relating in whole or in any part to passenger and commercial vehicles, transport, mechanical engineering, energy, engines, capital machinery and equipment and related goods and propulsion, as well as an additional actuarial analysis that gives greater weightany other manufacturing, commercial, financial or service activity.
Board of Directors
Pursuant to the Company’s Articles of Association, its board of directors (the “Board of Directors”) consists of three or more recent calendar year trendsdirectors (the “Directors”). The current slate of eleven Directors was elected on January 4, 2021, based on certain nomination arrangements included in recall campaign activity. Inthe combination agreement. The election became effective as of January 17, 2021 (the “Governance Effective Time”), when the Stellantis governance came into force. Following the Governance Effective Time, the initial term of office of each of the Chairman, Chief Executive Officer, Senior Independent Director and Vice Chairman is five years. The initial term of office for each of the other regions and sectors, however, there generallyDirectors is not sufficient historical data to supportfour years beginning on the applicationGovernance Effective Time. Such initial terms of office shall lapse immediately after the close of the first annual general meeting held after four or five years (as applicable) have lapsed since the Governance Effective Time. Under the Articles of Association, after the initial term, the term of office of Directors is for a period of two years, provided that unless a Director has resigned at an actuarial-based estimation technique. Asearlier date the term of office will lapse immediately after the close of the first annual Stellantis general meeting held after two years have lapsed following the appointment. Each Director may be re-appointed for an unlimited number of terms at any subsequent general meeting of shareholders.
The Board of Directors as a result, estimated recall costswhole is responsible for the other regions and sectors are accrued at the time when they are probable and reasonably estimable, which typically occurs once it is determined a specific recall campaign is approved and is announced. Estimatesstrategy of the future costsCompany. The Board of all these actions are inevitably imprecise due to numerous uncertainties, includingDirectors is composed of two executive Directors (i.e., the enactment of new laws and regulations, the number of vehicles affected by a service or recall actionChairman and the natureChief Executive Officer) and nine non-executive Directors. The Chief Executive Officer has day-to-day responsibility for the management of the corrective action. ItCompany. Pursuant to Article 22 of the Articles of Association, the general authority to represent the Company shall be vested in the Board of Directors and the Chief Executive Officer acting individually. Pursuant to article 3(b) of the Regulations of the Board of Directors, if the Chairman is reasonably possiblean executive director, he/she will be consulted and work together with the Chief Executive Officer on that basis on important strategic matters affecting the ultimate costsCompany: budget/long-term strategic planning; mergers and acquisition transactions, including significant joint-ventures, investments and divestments; strategic evolution of these servicesthe brand portfolio and recall actions may require ussignificant product investment; appointments, succession planning and compensation for key positions in the Global Executive Committee; institutional relationships, including relationships with key governmental stakeholders, particularly on matters of strategic significance; significant public relations matters and major communication events/topics; interaction with principal shareholders and key partners; and providing leadership to make expenditures in excessthe Board of established reserves over an extended period of timeDirectors and, in a range of amounts that cannot be reasonably estimated. At December 31, 2017, our product warranty and recall campaigns provision was €6,725 million.
Other Repurchase Obligations
Refer to Note 25, Guarantees granted, commitments and contingent liabilities, within the Consolidated Financial Statements included elsewhere in this report, for information relatedcrisis circumstances, to the Group's other repurchase obligations.executive management on governance matters and ad hoc crisis management, in each case, without prejudice to the powers of the Board of Directors.
G. Safe Harbor
SeeOn certain key industrial matters, the section entitled Forward-Looking Statements atCEO is supported by the beginningkey governance committees, in particular the Strategy Council, Business Review and Global Programme and Allocation Committees, which are responsible for executing the decisions of this report.
Item 6. Directors, Senior Managementthe CEO and Employees
A.Board of Directors and Senior Management
Directorsthe day-to-day management of the Company, primarily to the extent it relates to its operational management, including reviewing the operating performance of the businesses and Management of FCAcollaborating on certain operational matters.
Set forth below are the names, year of birth and position of each of the persons currently serving as directors of FCA.Stellantis. The business address of each person listed below is c/o FCA, 25 St. James’s Street, London SW1A 1HA, United Kingdom.Singaporestraat 92-100, 1175 RA Lijnden, the Netherlands. The Board of Directors of FCA has been appointed effective as of April 14, 2017 and its term of office of the Chairman, Chief Executive Officer, Senior Independent Director and Vice Chairman will expire onimmediately after the next Shareholders’close of the annual general meeting currently scheduled on April 13, 2018.of shareholders that will be held in 2026. The term of office of the other Directors will expire immediately after the close of the annual general meeting of shareholders that will be held in 2025.
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| Name | | | | Year of Birth | | Position | | Nationality |
| John Elkann | | 1976M | | executive director1976 | | Chairman and Executive Director | | Italian – U.S. |
Sergio MarchionneCarlos Tavares | | 1952M | | executive director1958 | | Chief Executive Officer and Executive Director | | Portuguese |
Andrea AgnelliRobert Peugeot | | 1975M | | non-executive director1950 | | Vice Chairman and Non-Executive Director | | French |
Tiberto Brandolini d’AddaHenri de Castries | | 1948M | | non-executive director1954 | | Senior Independent Director and Non-Executive Director | | French |
Glenn EarleAndrea Agnelli | | 1958M | | non-executive director1975 | | Non-Executive Director | | Italian |
Valerie A. MarsFiona Clare Cicconi | | 1959F | | non-executive director1966 | | Non-Executive Director | | British – Italian |
Ruth J. SimmonsJacques de Saint-Exupéry | | 1945M | | non-executive director1957 | | Non-Executive Director | | French |
Ronald L. ThompsonNicolas Dufourcq | | 1949M | | non-executive director1963 | | Non-Executive Director | | French |
Michelangelo A. VolpiAnn Frances Godbehere | | 1966F | | non-executive director1955 | | Non-Executive Director | | Canadian – British |
Patience WheatcroftWan Ling Martello | | 1951F | | non-executive director1958 | | Non-Executive Director | | U.S. |
Ermenegildo ZegnaKevin Scott | | 1955M | | non-executive director1972 | | Non-Executive Director | | U.S. |
In accordance with the combination agreement, Kevin Scott and Wan Ling Martello were nominated by FCA; Henri de Castries and Ann Godbehere by PSA; John Elkann and Andrea Agnelli by Exor; Nicolas Dufourcq by BPI; Robert Peugeot by EPF/FFP; and Fiona Clare Cicconi and Jacques de Saint-Exupéry in representation of FCA and PSA employees, respectively. See “—Articles of Association and Information on Stellantis Shares —Nomination Rights” below for a description of certain binding nomination arrangements set forth in the Articles of Association, which will apply to future terms of office.
We have determined that the following six of our eleven Board of Directors members qualify as independent for purposes of NYSE rules, Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Dutch Corporate Governance Code: Fiona Clare Cicconi, Henri de Castries, Nicolas Dufourcq, Ann Frances Godbehere, Wan Ling Martello, and Kevin Scott. The Board of Directors has also appointed Henri de Castries as Senior Independent Director and non-executive Director in accordance with Section 2.1.9 of the Dutch Corporate Governance Code.
Directors are expected to prepare themselves for and to attend all Board of Directors meetings, the annual general meeting of shareholders and the meetings of the committees on which they serve, with the understanding that, on occasion, a Director may be unable to attend a meeting.
During 2020, there were thirteen meetings of the FCA Board of Directors. The average attendance at those meetings was 100 percent.
Summary biographies for persons who are currently directorsthe current Directors of FCAStellantis are included below:
John Elkann(executive director) - (Chairman and Executive Director) – John Elkann is currently Chairman and Executive Director of FCA.Stellantis. He was appointed Chairman of Fiat S.p.A. on April 21, 2010 where he previously served as Vice Chairman beginning in 2004 and as a board member from 1997. Mr.1997, he became Chairman of FCA on October 12, 2014 and he became Chairman of Stellantis on the Governance Effective Time. John Elkann is also Chairman and Chief Executive Officer of Exor N.V. and Chairman of Giovanni Agnelli B.V.
Born in New York in 1976, Mr.John Elkann obtained a scientific baccalaureate from the Lycée Victor Duruy in Paris, and graduated in Engineering from Politecnico, the Engineering University of Turin (Italy). While at university, he gained work experience in various companies of the FCA Group in the UKUnited Kingdom and Poland (manufacturing) as well as in France (sales and marketing). He started his professional career in 2001 at General Electric as a member of the Corporate Audit Staff, with assignments in Asia, the U.S.United States and Europe. Mr.John Elkann is Chairman of PartnerRe, Vice Chairman of Ferrari N.V. and Ferrari S.p.A., Chairman of GEDI Gruppo Editoriale S.p.A. and a board member of PartnerRe Ltd. He also was a board member of The Economist Group and of GEDI Gruppo Editoriale S.p.A. Mr.from 2009 to 2020. John Elkann is a member of the Board of Trustees and of the Nominating Committee of the Museum of Modern Art (MoMA). He also serves as Vice Chairman of the Giovanni Agnelli Foundation.
Sergio Marchionne(executive director) - Sergio Marchionne
Carlos Tavares (Chief Executive Officer and Executive Director) – Carlos Tavares is currently servesChief Executive Officer and Executive Director of Stellantis. He joined the PSA Managing Board on January 1, 2014, he was appointed as Chairman of the PSA Managing Board on March 31, 2014 and he was appointed as Chief Executive Officer and Executive Director of FCA and Chairman and Chief Executive Officer of both FCA US and FCA Italy. In addition, he is also Chairman of CNHI and Chairman and Chief Executive Officer of Ferrari N.V. and Ferrari S.p.A.
Stellantis on the Governance Effective Time. Born in Chieti (Italy)Portugal in 1952, he has dual Canadian1958, Carlos Tavares graduated from École Centrale de Paris.
He held various positions within the Renault Group between 1981 and Italian citizenship. He holds a Bachelor of Arts with a major in Philosophy from2004, before joining the University of Toronto and a Bachelor of Laws from Osgoode Hall Law School at York University in Toronto, as well as a Master of Business Administration and a Bachelor of Commerce from the University of Windsor (Canada). Mr. Marchionne is a barrister, solicitor and chartered accountant.
Mr. Marchionne began his professional career in Canada. From 1983 to 1985, he worked for Deloitte & Touche. From 1985 to 1988, heNissan Group. Carlos Tavares was with the Lawson Mardon Group of Toronto. From 1989 to 1990, he served asappointed Executive Vice President, of Glenex Industries. From 1990 to 1992, he was Chief Financial Officer at Acklands Ltd. From 1992 to 1994, also in Toronto, he held the position of Vice President of Legal and Corporate Development and Chief Financial Officer of the Lawson Mardon Group. From 1994 to 2000, he covered various positions of increasing responsibility at Algroup, headquartered in Zurich (Switzerland), until becoming its Chief Executive Officer. He then went on to head the Lonza Group Ltd, first as Chief Executive Officer (2000-2001) and then as Chairman (2002).
In February 2002, he became Chief Executive Officer of the SGS Group of Geneva. In March 2006, he was appointed Chairman of the company,Management Committee Americas and President of Nissan North America in 2009, before being appointed as Chief Operating Officer of Renault, a position which he continues to hold. From 2008 to April 2010, heheld until 2013. Carlos Tavares also servedserves as non-executive Vice Chairmana director of Airbus Holding S.A., and Senior Independent Director of UBS.
In 2010, Mr. Marchionne joined the Board of Directors of Exor S.p.A. (now Exor N.V.) and, in 2015, was appointed non-executive Vice Chairman. As of September 2013, he is also Chairman of CNH Industrial N.V., the company resulting from the mergers of Fiat Industrial S.p.A. and CNH Global N.V.
Mr. Marchionne is currently a member of the Boardboard of Philip Morris International Inc. and the Peterson Institute for International Economics, as well as Chairmandirectors of the CouncilEuropean Automobile Manufacturers’ Association (ACEA).
Robert Peugeot (non-executive Director) –Robert Peugeot, chairman of FFP’s board, is Vice Chairman and non-executive Director of Stellantis. Robert Peugeot joined the PSA Supervisory Board as permanent representative of FFP on April 25, 2014 and became Vice Chairman and non-executive Director of Stellantis on the Governance Effective Time. Born in France in 1950, Robert Peugeot is a graduate of École Centrale de Paris and Institut Européen d’Administration des Affaires (INSEAD).
Robert Peugeot has held various executive positions within PSA. From 1998 to 2007, he was vice-president for the United Statesinnovation and Italyquality, and a member of the J.P. Morgan International Council. Mr. MarchionnePSA’s Executive Committee. In addition, Robert Peugeot serves as chairman of the board of FFP S.A.; director of Établissements Peugeot Frères S.A.; director of Faurecia S.E.; director of FFP Investment UK Ltd.; chairman of F&P S.A.S.; managing director of S.A.R.L. CHP Gestion; managing director of SC Rodom; permanent representative of F&P S.A.S. on the board of directors of Safran S.A.; member of the supervisory board of Signa Prime; director of Sofina S.A.; member of the supervisory board of Soparexo S.C.A.; director of Tikehau Capital Advisors S.A.S; and permanent representative of Maillot II S.A.S, on the board of directors of Sicav Armene 2.
He is recipienta Knight of ad honorem degreesthe French National Order of Merit and a Knight of the French Legion of Honour.
Henri de Castries (non- executive Director) –Henri de Castries is Senior Independent Director and non-executive Director of Stellantis. Born in Industrial EngineeringFrance in 1954, he is a graduate of École des Hautes Etudes Commerciales (HEC) and ManagementÉcole Nationale d’Administration (ENA).
Henri de Castries was the chairman of the management board of AXA S.A. from Polytechnic University in Turin (Italy), in Economics2000 and chairman and chief executive officer from April 2010 until September 2016. He previously worked for the UniversityFrench Finance Ministry Inspection Office and the French Treasury Department. In addition, Henri de Castries currently serves as chairman of Cassino (Italy)Europe and in Mechatronics Engineering fromspecial advisor of General Atlantic; chairman of the Universityboard of Trento (Italy)directors of AXA Assurances IARD Mutuelle; chairman of the board of directors of AXA Assurances Vie Mutuelle; member of the global advisory council of Leapfrog Investments Ltd; director of HSBC Holdings plc.; and vice-chairman of the board of directors of Nestlé S.A. Henri de Castries became Senior Independent Director and non-executive Director of Stellantis on the Governance Effective Time.
Andrea Agnelli (non-executive Director) – Andrea Agnelli is a non-executive Director of Stellantis. Andrea Agnelli is Chairman of Lamse (since 2007), a Masters honoris causa in Business Administration from the CUOA Foundation (Italy), an honorary Doctor of Laws from the University of Windsor (Canada) and Walsh College in Troy (Michigan), and honorary doctorates in Business Administration from the University of Toledo (Ohio), in Science from Oakland University in Rochester (Michigan) and in Humane Letters from Indiana University Kokomo (Indiana).
Mr. Marchionne also holds the honor of Cavaliere del Lavoro.
Andrea Agnelli(non-executive director) - Andrea Agnelli has beenfinancial holding company, Chairman of Juventus Football Club S.p.A. since May 2010 and is also(since 2010), Chairman of Lamse S.p.A., a holding company“Fondazione del Piemonte per l’Oncologia” (since 2017) and Chairman of which he is a founding shareholder. the “European Club Association” (since 2017, board member since 2012).
Born in Turin in 1975, he studied at Oxford (St. Clare’s International College) and Milan (Università Commerciale Luigi Bocconi). While at university, he gained professional experience both in Italy and abroad, including positions at: Iveco-Ford in London; Piaggio in Milan; Auchan Hypermarché in Lille; Schroder Salomon Smith Barney in London; and, finally, Juventus Football Club S.p.A. in Turin.
Mr.Andrea Agnelli began his professional career in 1999 at Ferrari Idea in Lugano where he was responsible for promoting and developing the Ferrari brand in non-automotive areas. In November 2000, he movedbefore moving to Paris and assumed responsibility for marketing at Uni Invest SA, a Banque San Paolo company specialized in managed investment products. Mr. Agnelli worked atLausanne to join Philip Morris International, in Lausanne from 2001 to 2004, where he initially had responsibility for marketing and sponsorships and, subsequently, corporate communication.2004. In 2005, Mr. Agnellihe returned to Turin to work in strategic development for IFIL Investments S.p.A. (now ExorEXOR N.V.) and he joined the Board of Directors of IFI S.p.A. (now Exor N.V.) in May 2006. Mr..
Andrea Agnelli is also a non-executive director of Exor N.V.
Mr. Agnelli is a Directorboard member of Giovanni Agnelli B.V., board member of Exor N.V., a member of UEFA’s Executive Committee and a member of the advisory boardAdvisory Board of BlueGem Capital Partners LLP. He is also a member of the European Club Association’s executive board since 2012 and Chairman since 2017. Since July 2014,Previously he has served as a board member of theLega Serie A National League of Professionals and as board member of the Foundation for the General Mutuality in Professional Team Sports. In September 2015, he was appointed to the UEFA Executive Committee as an ECA representative.
Mr.“Fondazione per la mutualità generale negli sport professionistici”. Andrea Agnelli was appointed to the Boardboard of Directorsdirectors of Fiat S.p.A. on May 30, 2004, and became a member of the Boardboard of Directorsdirectors of FCA on October 12, 2014.
Tiberto Brandolini d’Adda (non-executive director) - Born in Lausanne (Switzerland) in 1948, Tiberto Brandolini d’Adda is a graduate in commercial law from the University of Parma. From 1972 to 1974, Mr. Brandolini d’Adda gained his initial work experience in the international department of Fiat S.p.A. and then at Lazard Bank in London. In 1975, he was appointed assistant to the Director General for Enterprise Policy at the European Economic Commission in Brussels. He joined Ifint in 1976 as General Manager for France. In 1985, he was appointed General Manager for Europe and then, in 1993, Managing Director of Exor Group (formerly Ifint) where he also served as Vice Chairman from 2003 until 2007. He has extensive international experience as a main Board Director of several companies, including: Le Continent, Bolloré Investissement, Société Foncière Lyonnaise, Safic-Alcan and Chateau Margaux.
Mr. Brandolini d’Adda served as Director and then, from 1997 to 2003, as Chairman of the conseil de surveillance of Club Mediterranée. He served as Vice Chairman of Exor S.p.A. (now Exor N.V.), formed through the merger between IFI and IFIL Investments, from 2009 to May 2015. He was Chairman of Exor S.A. (Luxembourg) from 2007 until September 2017. In May 2004, he was appointed Chairman of the conseil de surveillance of Worms & Cie, where he had served as Deputy Chairman since 2000. In May 2005, he became Chairman and Chief Executive Officer of Sequana Capital (formerly Worms & Cie), then Chairman of the Board of Sequana from 2007 until 2013. He has been a member of the Board of Vittoria Assicurazioni S.p.A. from 2004 until 2010. He has also been a member of the Board of Société Générale de Surveillance S.A. (SGS) from 2005 to 2013. Mr. Brandolini d’Adda currently serves as Honorary Chairman of Exor N.V. and is also an independent member of the Board of Directors of YAFA S.p.A. In addition, since 2015, he has been an independent Board member of LumX Asset Management (Suisse) S.A. (formerly Gottex Fund Management Holdings Limited). He is a Director of Giovanni Agnelli B.V. Mr. Brandolini d’Adda is Officier de la Légion d’Honneur.
Mr. Brandolini d’Adda was appointed to the Board of Directors of Fiat S.p.A. on May 30, 2004 and became a member of the Board of Directors of FCA on October 12, 2014.
Glenn Earle(non-executive director) - Born in Douglas, Isle of Man in 1958, Glenn Earle is a member of the Board of Directors of Affiliated Managers Group, Inc. and Deputy Chairman of educational charity Teach First. Mr. Earle retired in December 2011 from Goldman Sachs International, where he was most recently a Managing Director and the Chief Operating Officer. Mr. Earle was also Chief Executive of Goldman Sachs International Bank and his other responsibilities included co-Chairmanship of the firm's Global Commitments and Capital Committees and membership on the Goldman Sachs International Executive Committee. He previously worked at Goldman Sachs in various roles in New York, Frankfurt and London from 1987, becoming a Partner in 1996. From 1979 to 1985, he worked in the Latin America department at Grindlays Bank/ANZ in London and New York, leaving as a Vice President.
Mr. Earle is a graduate of Emmanuel College, Cambridge and of Harvard Business School, where he earned a Master of Business Administration with High Distinction and was a Baker Scholar and Loeb, Rhoades Fellow. His other activities include membership of The Higher Education Commission and the Advisory Board of the Sutton Trust. His previous responsibilities include membership of the Board of Trustees of the Goldman Sachs Foundation and of the Ministerial Task Force for Gifted and Talented Youth, Chairmanship of the Advisory Board of Cambridge University Judge Business School, Vice Chairman of Rothesay Life Group, Trustee and Director of The Royal National Theatre and member of the Advisory Committee of Hayfin Capital Management LLP.
Mr. Earle was appointed to the Board of Directors of Fiat S.p.A. in June 2014 and became a member of the Board of Directors of FCAStellantis on October 12, 2014.the Governance Effective Time.
Valerie Mars(non-executive director) -
Fiona Clare Cicconi (non-executive Director) – Fiona Clare Cicconi is an employee representative on the Stellantis Board of Directors. Born in New YorkLondon in 1959. Valerie Mars serves as Senior1966, Fiona Clare Cicconi became Head of People Operations for Google in January 2021. Prior to that she was Executive Vice President & Head of Corporate Development for Mars, Incorporated, a diversified food business, operating in over 120 countries and one of the largest privately held companies in the world. In this position, she focuses on acquisitions, joint ventures and divestitures for the company. She served on the Mars, Incorporated Audit Committee and Remuneration Committee and is a member of the board of Royal Canin.
Additionally, Ms. Mars is a member of the Rabobank North America Advisory Board. She served on the board of Celebrity Inc., a NASDAQ listed company,Chief Human Resources Officer at AstraZeneca PLC from 1994 to September 2000. Previously, Ms. Mars was the Director of Corporate Development for Masterfoods Europe. Her European work experience began in 1996 when she became General Manager of Masterfoods Czech and Slovak Republics. Ms. Mars joined M&M/Mars on a part time basis in 1992 and began working on special projects. She worked on due diligence for acquisitions and was part of the company’s Innovation Team and VO2Max Team. Prior to joining Mars, Incorporated, Ms. Mars was a controller with Whitman Heffernan Rhein, a boutique investment company. She began2014. Fiona Clare Cicconi started her career with Manufacturers Hanover Trust Company as a training program participantat General Electric, where she held various human resources roles within the oil and rose to Assistant Secretary. Ms. Mars is involved ingas business. Subsequently, she spent a number of communityyears at Cisco, overseeing human resources in Southern Europe and educational organizationsthen industrial and currently serves on the Board of Conservation International, including its Audit Committee. She is also Director Emeritus of The Open Space Institute. Previouslyemployee relations in EMEA, before joining F. Hoffmann La Roche in 2006. There, she served on the Hotchkiss School Alumni Nominating Committee and the Prague American Chamber of Commerce Board.
Ms. Mars holds a Bachelor of Arts degree from Yale University and a Master of Business Administration from the Columbia Business School.
Ms. Mars was appointed to the Board of Directors of FCA on October 12, 2014.
Ruth J. Simmons (non-executive director) - Born in Grapeland (Texas, USA) in 1945, Ruth J. Simmons servedmost recently responsible for global human resources for Global Technical Operations. Fiona Clare Cicconi became an employee representative on the Board of Directors of FCA USStellantis on the Governance Effective Time.
Fiona Clare Cicconi holds a diploma in international business studies from 2012Leeds Metropolitan University.
Jacques de Saint-Exupéry (non-executive Director) –Jacques de Saint-Exupéry is an employee representative on the Stellantis Board of Directors. Born in France in 1957, Jacques de Saint-Exupéry graduated from the Bordeaux Business School.
Jacques de Saint-Exupéry has held various positions within PSA since 1984. Since 2011, he has been working within the management control team covering the activities of the corporate finance and treasury department as well as the financial communication department.
In addition, Jacques de Saint-Exupéryhas been involved in trade-union activity since 2008, including as secretary of the works council of PSA. Jacques de Saint-Exupéry became an employee representative on the Stellantis Board of Directors on the Governance Effective Time.
Nicolas Dufourcq (non-executive Director) –Nicolas Dufourcq is a non-executive Director of Stellantis. Born in France in 1963, Nicolas Dufourcq is a graduate of École des Hautes Etudes Commerciales (HEC) and École Nationale d’Administration (ENA).
Nicolas Dufourcq began his career at the French Ministry of Economy and Finance in 1988 and then joined the French Ministry of Health and Social Affairs in 1992, before joining France Telecom in 1994. In 1998, he created Wanadoo, the internet access leader, a subsidiary of France Telecom, and listed it for €20bn in 2000. Between 1998 and 2003, he was CEO of Wanadoo and executive director of France Telecom in charge of the internet, cable and pay TV. Nicolas Dufourcq joined Capgemini in 2003, where he was in charge of the central and southern Europe region. From 2004 to 2014.2013, he served as chief financial officer and deputy chief executive officer of Capgemini. Since February 7, 2013, Nicolas Dufourcq has been the chief executive officer of Bpifrance SA. In addition, Nicolas Dufourcq serves as chief executive officer of Bpifrance Financement S.A.; chief executive officer of Bpifrance Investissement S.A.S.; chief executive officer of Bpifrance Assurance Export S.A.S.; chairman and chief executive officer of Bpifrance Participations S.A.; permanent representative of Bpifrance Participations S.A. on the board of directors of Orange; vice-chairman of the supervisory board of STMicroelectronics N.V.; and member of the supervisory committee of Doctolib S.A.S. Nicolas Dufourcq became a non-executive Director of Stellantis on the Governance Effective Time.
Ann Frances Godbehere (non–executive Director) –Ann Frances Godbehere is a non-executive Director of Stellantis. Ann Frances Godbehere was born in Canada in 1955.
Ann Frances Godbehere started her career with Sun Life of Canada in 1976 in Montreal, Canada, and joined M&G Group in 1981, where she served as senior vice president and controller for life and health, and property and casualty businesses throughout North America. She joined Swiss Re in 1996, after it acquired the M&G Group, and served as chief financial officer from 2003 to 2007. From 2008 to 2009, she was interim chief financial officer and an executive director of Northern Rock bank in the initial period following its nationalization. Ann Frances Godbehere has also held several non-executive director positions at Prudential plc, British American Tobacco plc, UBS AG, and UBS Group AG. Most recently, and until May 2019, Ann Frances Godbehere served as a non-executive director of Rio Tinto plc and Rio Tinto Limited. She was also Presidenta senior independent director of Brown University from 2001 to 2012, ProfessorRio Tinto plc. In addition, Ann Frances Godbehere serves as non-executive director of Royal Dutch Shell plc. She is also a fellow of the Institute of Chartered Professional Accountants and a fellow of the Certified General Accountants Association of Canada. Ann Frances Godbehere became a non-executive Director of Stellantis on the Governance Effective Time.
Wan Ling Martello (non-executive Director) – Wan Ling Martello is a non-executive Director of Stellantis. Born in Manila, the Department of Comparative Literature and the Department of African Studies of Brown University from 2001 to 2014, andPhilippines, in 1958, Wan Ling Martello currently serves as Interim Presidenta partner and cofounder at BayPine, a private equity firm, a role she has held since 2020. From 2015 to 2018, Wan Ling Martello served as executive vice president and chief executive officer of Prairie View A&M University.the Asia, Oceania, and sub-Saharan Africa regions at Nestlé.
From 2012 to 2015, Wan Ling Martello served as Nestlé’s chief financial officer, and from 2011 to 2012 she served as Nestlé’s executive vice president. From 2005 to 2011, Wan Ling Martello was a senior executive at Walmart Stores, Inc., a retail corporation, where she served as executive vice president for global ecommerce and executive vice president, chief financial officer & strategy. Wan Ling Martello has served on the board of directors of Alibaba Group since 2015 and of Uber Technologies, Inc. since 2017. Wan Ling Martello became a non-executive Director of Stellantis on the Governance Effective Time.
Wan Ling Martello holds an MBA from the University of Minnesota and a BS from the University of the Philippines.
Kevin Scott (non-executive Director) – Kevin Scott is a non-executive Director of Stellantis. Born in Lynchburg, Virginia, in 1972, Kevin Scott is executive vice president of technology & research, and the chief technology officer of Microsoft since 2017. Kevin Scott’s 20-year career in technology spans both academia and industry as researcher, engineer and leader.
Prior to joining Brown University, Ms. SimmonsMicrosoft, Kevin Scott was Presidentsenior vice president of Smith College, where she startedengineering and operations at LinkedIn from 2011 to 2016. Earlier in his career, Kevin Scott oversaw mobile ads engineering at Google, including the firstintegration of Google’s acquisition of AdMob. At AdMob, Kevin Scott was responsible for engineering programand operations for the world’s leading platform for mobile monetization. Before joining AdMob, Kevin Scott held numerous leadership positions at a U.S. women’s college. She also was Vice Provost at Princeton UniversityGoogle in the search and Provost at Spelman College and held various positions of increasing responsibility until becoming Associate Deanadvertising divisions of the faculty at Princeton University. Ms. Simmons was previously Assistant Deancompany. Kevin Scott became a non-executive Director of Stellantis on the Governance Effective Time.
Kevin Scott is the founder of the non-profit organization Behind the Tech, a member of the Anita Borg Institute’s board of trustees and then Associate Deana director of The Scott Foundation.
Kevin Scott holds an M.S. in computer science from Wake Forest University, a B.S. in computer science from University of Lynchburg, and has completed most of his Ph.D. in computer science at the University of Southern California. She alsoVirginia.
Messrs. John Elkann and Andrea Agnelli, both Directors of Stellantis, are cousins.
Amount and Composition of the Remuneration of the Board of Directors
Details of theremuneration of the Board of Directors and its committees are set forth within the section “REMUNERATION REPORT” included elsewhere within this report.
Directors' Share Ownership
The table below shows the number of Stellantis common shares owned by members of the Board of Directors as at March 3, 2021:
| | | | | | | | | | | | | | |
| Directors Owning Stellantis Common Shares | | Shares | | Percent of Class |
| John Elkann | | 298,435 | | | — | % |
| Carlos Tavares | | 567,892 | | | — | % |
| Robert Peugeot | | 1,742 | | | — | % |
| Henri de Castries | | — | | | — | % |
| Andrea Agnelli | | 36,102 | | | — | % |
| Fiona Clare Cicconi | | — | | | — | % |
| Jacques de Saint-Exupéry | | 348 | | | — | % |
| Nicolas Dufourcq | | — | | | — | % |
| Ann Frances Godbehere | | — | | | — | % |
| Wan Ling Martello | | — | | | — | % |
| Kevin Scott | | — | | | — | % |
No members of senior management beneficially own 1% or more of the Company’s common shares.
Board Practices and Committees
Board Regulations
On January 17, 2021, the Board of Directors adopted its current regulations that deal with matters that concern the Board of Directors and its committees internally.
The regulations contain provisions concerning the manner in which meetings of the Board of Directors are called and held, various positions including Acting Directorthe decision-making process. The regulations provide that meetings may be held by telephone or video conference, provided that all participating Directors can follow the proceedings and participate in real-time discussion of international programsthe items on the agenda.
The Board of Directors can only adopt valid resolutions when the majority of the Directors in office are present at the California State University (Northridge), Assistant Deanmeeting or be represented thereat.
A Director may only be represented by another Director authorized in writing.
A Director may not act as a proxy for more than one other Director.
All resolutions shall be adopted by the favorable vote of the majority of the Directors present or represented at the Collegemeeting, in accordance with the regulations adopted by the Board of Liberal Arts, Assistant ProfessorDirectors. Each Director shall have one vote.
The Board of French atDirectors shall be authorized to adopt resolutions without convening a meeting if all Directors shall have expressed their opinions in writing, unless one or more Directors shall object in writing against the Universityresolution being adopted in this way prior to the adoption of New Orleans, Admissions Officer at Radcliffe College, instructor in French at the George Washington University and an interpreter-Language Services Division at the U.S. Department of State.resolution.
Ms. Simmons also servesThe regulations are available on the boardsCompany’s website.
Committees
On January 17, 2021, the Board of Rice University, Square Inc.,Directors appointed the following internal committees: (i) an Audit Committee; (ii) a Governance and Mondelez International Inc.Sustainability Committee; and (iii) a Remuneration Committee, with such appointments becoming effective as ofthe Governance Effective Time.
Ms. Simmons is a graduate
The Audit Committee
On January 17, 2021, the Board of Dillard University in New Orleans, and received her Ph.D. in Romance languages and literatures from Harvard University. She is a FellowDirectors adopted the current charter of the American AcademyAudit Committee. The Audit Committee is responsible for assisting and advising the Board of ArtsDirectors with respect to, inter alia: (i) the integrity of the Company’s financial statements, including any published interim reports, related press releases and Sciencesother related corporate communications; (ii) the adequacy and effectiveness of the Company’s internal control over financial reporting, financial reporting procedures and disclosure controls and procedures; (iii) the Company’s policy on tax planning; (iv) the Company’s financing; (v) the Company’s applications of information and communication technology, including risks relating to cybersecurity; (vi) the systems of internal controls that management and the Board of Directors have established; (vii) the Company’s compliance with legal and regulatory requirements; (viii) the Company’s compliance with recommendations and observations of internal and independent auditors; (ix) the open and ongoing communications regarding the Company’s financial position and results of operations between the Board of Directors, the independent auditors, the Company’s management and internal audit department (x) the Company’s policies and procedures for addressing certain actual or perceived conflicts of interest; (xi) the qualifications, independence, oversight and remuneration of the Company’s independent auditors and any non-audit services provided to the Company by the independent auditors; (xii) the selection of the independent auditor by recommending an independent auditor for nomination, appointment or dismissal by the Company’s general meeting of shareholders; (xiii) the performance of the Company’s internal auditors and independent auditors; (xiv) risk management and risk assessment guidelines and policies, including major financial risk exposure, and the steps taken to monitor and control such risks; and (xv) the implementation and effectiveness of the Company’s ethics and compliance program.
The Audit Committee currently consists of Ann Frances Godbehere (Chairperson), Wan Ling Martello and Henri de Castries. The Audit Committee is elected by the Board of Directors and is comprised of independent Directors. The Senior Independent Director or a former executive Director may not serve as chairman of the Audit Committee. Audit Committee members are required (i) not to have any material relationship with the Company or perform the functions of auditors or accountants for the Company; (ii) to be “independent”, for purposes of NYSE rules, Rule 10A-3 of the Exchange Act and the Dutch Corporate Governance Code; and (iii) to be “financially literate” and have “accounting or selected financial management expertise” (as determined by the Board of Directors). At least one member of the CouncilAudit Committee should be a “financial expert” as defined by the Sarbanes-Oxley Act and the rules of the SEC and section 2(3) of the decree on Foreign Relations.the establishment of an audit committee (Besluit instelling auditcommissie). No Audit Committee member may serve on more than four audit committees for other public companies, absent a waiver from the Board of Directors which must be disclosed in the Company’s annual report. Unless decided otherwise by the Audit Committee, the independent auditors of the Company, the Chief Financial Officer and the head of internal audit attend its meetings while the CEO is entitled to attend meetings of the Audit Committee unless the Audit Committee determines otherwise and shall attend the meetings of the Audit Committee if the Audit Committee so requires. The Audit Committee shall meet with the independent auditors at least once per year outside the presence of the executive Directors and management.
Ms. SimmonsOur Board of Directors has determined that all Audit Committee members are “audit committee financial experts”. All Audit Committee members are independent directors under the NYSE rules, Rule 10A-3 of the Exchange Act and the Dutch Corporate Governance Code.
During 2020, thirteen meetings of FCA’s Audit Committee were held. The average attendance of its members at those meetings was appointed98 percent. The Committee reviewed the FCA Group financial results on a quarterly basis with the assistance of the FCA Group Chief Financial Officer and other Company officers mainly from finance and legal departments, focusing on main business drivers in addition to key accounting and reporting matters. Independent Auditors attended all the meetings providing regular information to the Committee on their activity with specific focus on the areas of major audit risks such as the evaluation of assets and liabilities requiring management judgment. The Committee received updates on legal and compliance matters, with the General Counsel attending the Committee meetings. The Committee also reviewed the Registration Statement on Form F-4 and the Admission Prospectus for listing of the Stellantis shares resulting from the merger of Peugeot S.A. with and into Fiat Chrysler Automobiles N.V. and the admission to trading on the New York Stock Exchange, Euronext Paris, and Mercato Telematico Azionario. Internal Audit activity was reviewed on a regular basis with the Chief Audit, Sustainability and Compliance Officer attending all the meetings and discussing with the Committee the main findings and remediating actions. Internal control over financial reporting was part of these reviews as well. In line with the policy adopted by the Group, the Committee was regularly involved in the review and approval of transactions entered into with related parties.
The Remuneration Committee
On January 17, 2021, the Board of Directors adopted the current charter of the Remuneration Committee. The Remuneration Committee is responsible for, inter alia, assisting and advising the Board of Directors in: (i) determining executive compensation consistent with the Company’s remuneration policy; (ii) reviewing and approving the overall compensation strategy of the Company and the remuneration structure for the executive Directors; (iii) administering equity incentive plans and deferred compensation benefit plans; (iv) discussing with management the Company’s policies and practices related to compensation and issuing recommendations thereon; and (v) preparing the remuneration report.
The Remuneration Committee currently consists of Wan Ling Martello (Chairperson), Andrea Agnelli, Henri de Castries, Fiona Clare Cicconi and Robert Peugeot. The Remuneration Committee is elected by the Board of Directors, which shall appoint one of its members as Chairperson of the Remuneration Committee, and is comprised of at least three non-executive Directors, more than half of whom shall be independent under Dutch Corporate Governance Code. Unless decided otherwise by the Remuneration Committee, the Head of Human Resources of the Company attends its meetings. For a period of four years from January 17, 2021, the Chairperson shall be selected from among the independent directors nominated by FCA (or his or her replacement), and shall meet the requirements set forth in Section 5.1.4 of the Dutch Corporate Governance Code as Chairperson of the Remuneration Committee.
During 2020, four meetings of FCA’s Compensation Committee were held with 100 percent attendance of its members at those meetings. The Compensation Committee reviewed the Remuneration Report and it also recommended the Amendment of the Remuneration Policy of the Board of Directors, also in view of the Revised Shareholders Rights Directive. Further details of the activities of the Compensation Committee are included in the REMUNERATION REPORT section included elsewhere in this report.
The Governance and Sustainability Committee
On January 17, 2021, the Board of Directors adopted the current charter of the Governance and Sustainability Committee. The Governance and Sustainability Committee is responsible for, inter alia, assisting and advising the Board of Directors with: (i) the identification of the criteria, professional and personal qualifications for candidates to serve as Directors; (ii) periodic assessment of the size and composition of the Board of Directors; (iii) periodic assessment of the performance of individual Directors and reporting on this to the Board of Directors; (iv) proposals for nomination and re-nomination of executive and non-executive Directors; (v) supervision of the policy on the selection and appointment criteria for senior management; (vi) proposing and supervising the policy regarding succession planning for the Board of Directors and senior management; (vii) monitoring and evaluating reports on the Group’s sustainable development policies and practices, management standards, strategy, performance and governance globally; and (viii) reviewing, assessing and making recommendations as to strategic guidelines for sustainability-related issues, and reviewing the annual Sustainability Report.
The Governance and Sustainability Committee currently consists of Henri de Castries (Chairperson), Andrea Agnelli, Fiona Clare Cicconi, Nicolas Dufourcq and Kevin Scott. The Governance and Sustainability Committee is elected by the Board of Directors and is comprised of at least three non-executive Directors according to its charter. More than half of its members shall be independent under the Dutch Corporate Governance Code. For a period of four years from January 17, 2021, the Chairperson shall be selected among the independent directors nominated by PSA (or his or her replacement).
During 2020, the FCA Governance and Sustainability Committee met four times with 100 percent attendance of its members at those meetings. The Committee reviewed the Board of Director’s and Committee’s assessments, the sustainability achievements and objectives, the recommendations and designations in view of the merger for Directors’ election.
Indemnification of Directors
Under Dutch law, indemnification provisions may be included in a company’s articles of association. Under the Articles of Association, Stellantis is required to indemnify any and all of its Directors, officers, former Directors, former officers (including former directors and officers of PSA) and any person who may have served at its request as a director or officer of another company in which it owns shares or of which it is a creditor who were or are made a party or are threatened to be made a party or are involved in, any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative (each, a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding against any and all liabilities, damages, reasonable and documented expenses (including reasonably incurred and substantiated attorney’s fees), financial effects of judgments, fines, penalties (including excise and similar taxes and punitive damages) and amounts paid in settlement in connection with such Proceeding by any of them. Notwithstanding the above, no indemnification will be made in respect of any claim, issue or matter as to which any of the above-mentioned indemnified persons will be adjudged in a final and non-appealable decision to be liable for gross negligence or willful misconduct in the performance of such person’s duty to Stellantis. This indemnification by Stellantis is not exclusive of any other rights to which those indemnified may be entitled otherwise.
Conflict of Interest
A Director shall not participate in discussions and decision-making with respect to a matter in relation to which he or she has a direct or indirect personal interest which is in conflict with the interests of the Company and the business associated with the Company (“Conflict of Interest”), which shall be determined outside the presence of the Director concerned. All transactions where there is a Conflict of Interest must be concluded on terms that are customary in the branch concerned and approved by the Board of Directors. In addition, the Board of Directors as a whole may determine that there is such a strong appearance of a Conflict of Interest of a Director in relation to a specific matter that it would be inappropriate for such Director to participate in discussions and the decision making process with respect to such matter. A Director shall promptly report any Conflict of Interest to the Chairman (or to the Senior Independent Director or another Director in case of the Chairman) and shall provide all relevant information concerning such Conflict of Interest.
At least annually, each Director shall assess in good faith whether he or she is independent under (a) best practice provision 2.1.8 of the Dutch Corporate Governance Code, (b) the requirements of Rule 10A-3 under the Exchange Act, and (c) Section 303A of the NYSE Listed Company Manual.
The Directors shall inform the Board of Directors through the Senior non-executive Director or the Secretary of the Board of Directors as to all material information regarding any circumstances or relationships that may impact their characterization as “independent” or impact the assessment of their interests, including by responding promptly to the annual questionnaires circulated by or on behalf of the Secretary that are designed to elicit relevant information regarding such Director's business and other relationships relevant to the determination of independence.
Based on each Director’s assessment described above, the Board of Directors shall make a determination at least annually regarding such Director’s independence. These annual determinations shall be conclusive, absent a change in circumstances from those disclosed to the Board of Directors of FCA on October 12, 2014.that necessitates a change in such determination.
Ronald L. Thompson(non-executive director) - Born in Detroit (Michigan, USA) in 1949, Ronald L. Thompson served on the Board of Directors of FCA US from 2009 to 2014. Mr. Thompson is currently chairman of the board of trustees for Teachers Insurance and Annuity Association (TIAA), a for-profit life insurance company that serves the retirement and financial needs of faculty and employees of colleges and universities, hospitals, cultural institutions and other nonprofit organizations. He also serves on the Board of Trustees for Washington University in St. Louis, Missouri, on the Board of Trustees of the Medical University of South Carolina Foundation, and as a member of the Advisory Board of Plymouth Venture Partners Fund.
Mr. Thompson was previously the Chief Executive Officer and Chairman of Midwest Stamping Company of Maumee, Ohio, a manufacturer of medium and heavy gauge metal components for the automotive market. He sold the company in late 2005. Mr. Thompson has served on the boards of many different companies including Commerce Bank of St. Louis, GR Group (U.S.), Illinova Corporation, Interstate Bakeries Corporation, McDonnell Douglas Corporation, Midwest Stamping Company, Ralston Purina Company and Ryerson Tull, Inc. He was also a member of the Board of Directors of the National Association of Manufacturers. He was Chairman and Chief Executive Officer at GR Group, General Manager at Puget Sound Pet Supply Company and Chairman and Chief Executive Officer at Evaluation Technologies. Mr. Thompson has served on the faculties of Old Dominion University, Virginia State University and the University of Michigan.
Mr. Thompson holds a Ph.D. and a Master of Science in Agricultural Economics from Michigan State University and a Bachelor of Business Administration from the University of Michigan.
Mr. Thompson was appointed Senior Non-Executive Director of FCA on October 12, 2014.
Michelangelo A. Volpi(non-executive director) - Born in Milan (Italy) in 1966, Michelangelo Volpi has been a partner at Index Ventures since 2009. He is focused on investments in the enterprise software infrastructure and consumer Internet sectors. Mr. Volpi led the investment by Index Ventures in Hortonworks (HDP), Pure Storage (PSTG), Cloud.com (CTRX) and StorSimple (MSFT) and is currently a director of Sonos, Wealthfront, Lookout, Elastic, Confluent, Blue Bottle Coffee, Slack, and Zuora. Mr. Volpi also serves on the board of Exor N.V.
Mr. Volpi performed in various executive roles for 13 years at Cisco Systems from 1994. He served as the company’s Chief Strategy Officer, where he was responsible for Cisco’s corporate strategy as well as business development, strategic alliances, advanced Internet projects, legal services, and government affairs. During this tenure, Mr. Volpi was instrumental in the creation of the company’s acquisition and investment strategies, as Cisco acquired more than 70 companies during his tenure. He then became Senior Vice President & General Manager of the Routing and Service Provider Technology Group, where he led Cisco’s business for the Service Provider market, and was also responsible for all of Cisco’s routing products. Mr. Volpi began his career as a product development engineer at Hewlett Packard’s Optoelectronics Division. Prior to Index, he was the CEO of Joost - an innovator in the field of premium video services delivered over the Internet.
Mr. Volpi has a B.S. in Mechanical Engineering and an M.S. in Manufacturing Systems Engineering from Stanford University, and an M.B.A. from the Stanford Graduate School of Business. He is a trustee of the Stanford Business School Trust and The Castilleja School in Palo Alto, CA.
Mr. Volpi was appointed to the Board of Directors of FCA on April 14, 2017.
Patience Wheatcroft(non-executive director) - Born in Chesterfield (United Kingdom) in 1951, Patience Wheatcroft is a British national and graduate in law from the University of Birmingham. She is also a member of the House of Lords since 2011 and a financial commentator and journalist. Ms. Wheatcroft currently serves as Non-executive Director of the wealth management company St. James’s Place PLC. Ms. Wheatcroft has a broad range of experience in the media and corporate world with past positions at the Wall Street Journal Europe, where she was Editor-in-Chief, The Sunday Telegraph, The Times, Mail on Sunday, as well as serving as Non-executive Director of Barclays Group PLC and Shaftesbury PLC.
Ms. Wheatcroft is also on the Board of Trustees of the British Museum.
Ms. Wheatcroft was appointed to the Board of Directors of Fiat S.p.A. in April 2012 and became a member of the Board of Directors of FCA on October 12, 2014.
Ermenegildo Zegna (non-executive director) - Born in Turin (Italy) in 1955, Ermenegildo Zegna has been Chief Executive Officer of the Ermenegildo Zegna Group since 1997, having served on the board since 1989. Previously, he held senior executive positions within the Zegna Group including the U.S., after a retail experience at Bloomingdale’s, New York. He is also a member of the International Advisory Board of IESE Business School of Navarra and he is board member of the Camera Nazionale della Moda Italiana and of the Council for the United States and Italy. In 2011, he was nominated Cavaliere del Lavoro by the President of the Italian Republic.
Zegna is a vertically integrated company that covers sourcing wool at the markets of origin and apparel manufacturing with marketing right through directly operated stores.
A graduate in economics from the University of London, Mr. Zegna also studied at the Harvard Business School.
Mr. Zegna was appointed to the Board of Directors of FCA on October 12, 2014.
Management
The Group’s management is led by FCA’sStellantis’s Chief Executive Officer who is supported by a Group Executive Council (“GEC”).team of Senior Managers. From an operational perspective, each of our reportable segmentsregions are led by Chief Operating Officers (COO), who are accountable for the Profit and Loss of the segment and management of segment resources, including industrial and commercial activities. The most significant of these responsibilities relate to our four regions.Officers. These are supported centrally by corporate functions, including a Chief FinancialPlanning Officer, Head of Finance and General Counsel. With the exception of the General Counsel, each of these members of senior management are members of the GEC.
The regional COOs and leaders of the key corporate functions are:
Sergio Marchionne•Carlos Tavares as Chief Executive Officer and Chief Operating OfficerOfficer;
•Michael Manley as Head of NAFTA;Americas;
Alfredo Altavilla•Maxime Picat as Chief Operating Officer EMEA (and Head of Business Development);Enlarged Europe;
Stefan Ketter•Mark Stewart as Chief Operating Officer LATAM (and Chief Manufacturing Officer);North America;
•Antonio Filosa as Chief Operating Officer of China;South America;
Paul Alcala•Samir Cherfan as Chief Operating Officer APAC (excluding China);Middle East & Africa;
•Gregoire Olivier as Chief Operating Officer China;
•Carl Smiley as Chief Operating Officer India and Asia Pacific;
•Olivier Bourges as Chief Planning Officer;
•Richard K. Palmer as Chief Financial OfficerOfficer; and Chief Operating Officer Systems and Castings; and
•Giorgio Fossati as General Counsel.
Summary biographies for these individuals are included below. For the biography of Mr. Marchionne,Carlos Tavares, see above.
Alfredo Altavilla Michael Manley - Alfredo AltavillaBorn in Edenbridge (UK) in 1964, Michael Manley is currently Head of Americas. He was appointed Chief Operating Officer EMEA on November 12, 2012. He has also been a member of the GEC and Head of Business Development since September 1, 2011.
Mr. Altavilla began his career as an assistant at Università Cattolica, Milan. In 1990, he joined Fiat Auto, where he initially focused on international ventures in the area of strategic planning and product development. In 1995, he was appointed head of Fiat Auto’s Beijing office and in 1999, head of Asian Operations. Mr. Altavilla has been involved in Business Development since 2001, becoming responsible for coordination of the alliance with General Motors in 2002 and, in 2004, being assigned responsibility for management of all alliances. In September 2004, he was appointed Chairman of FGP (Fiat/GM Powertrain JV) and Senior Vice President of Business Development of Fiat Auto. In July 2005, he became Chief Executive Officer of Türk Otomobil Fabrikasil A.S. (“Tofas”) - a 50-50 joint venture between Fiat AutoChrysler Automobiles N.V. on July 21, 2018. In addition, he also served as ad interim Chief Operating Officer for the EMEA region from July to September 2018 and Koç Holding listed onChief Operating Officer for the Istanbul stock exchange - while retaining his roleNorth America region from October 2018 to December 2018. Mr. Manley's appointment as head of Business Development. In November 2006, Mr. Altavilla was named Chief Executive Officer of FPT - Fiat Powertrain Technologies. He became a member of the Board of DirectorsDirector of FCA USwas formalized in July 2009the extraordinary meeting of shareholders held on September 7, 2018.
Previously, Mr. Manley has served as Head of Jeep brand, Head of Ram brand and in October 2009,Chief Operating Officer for the APAC region. He was also the lead Chrysler Group executive for international activities outside of North America, where he was namedresponsible for implementing the co-operation agreements for distribution of Chrysler Group products through Fiat’s international distribution network.
Prior to those roles, Mr. Manley was Executive Vice President of Business Development for the Group. From November 2010 to November 2012, Mr. Altavilla was President- International Sales and Chief Executive Officer of Iveco. He was a member of the Fiat Industrial Executive Council (“FIEC”) from January 2011 to November 2012. Mr. Altavilla holds a degree in Economics from Università Cattolica, Milan. He was born in Taranto, Italy in 1963.
Stefan Ketter - Stefan Ketter was appointed Chief Operating Officer LATAM in October 2015. He has also been a member of the GEC and Chief Manufacturing Officer since September 2011. Mr. Ketter was appointed Chief Manufacturing Officer of the Group in January 2008.
Mr. Ketter entered BMW Munich in 1986 as a trainee and held positions of growing responsibility in the technical area until 1996, when he was appointed Quality Manager. In 1996, Mr. Ketter joined Audi and, in 1997, he became Quality Director of America Latina VW Group. In this framework, he was charged with the set-up of a new plant in Brazil for export to the U.S. In 2002, Mr. Ketter was assigned responsibility for Quality & Service of Volkswagen of America, where he integrated Group activities and regional operations. In 2004, he was named head of Quality at Fiat Group Automobiles, and in 2005 he took over responsibility for Manufacturing. In additionGlobal Product Planning Operations. Appointed to this position in 2006, December 2008, he was responsible for product planning and all sales activities outside North America.
Mr. Ketter took on responsibility for coordinating implementation of WCM forManley joined DaimlerChrysler in 2000 as Director - Network Development, DaimlerChrysler United Kingdom, Ltd., bringing with him extensive experience in the Group. Mr. Ketter was born in Sao Paulo, Brazil in 1959. He has a degree in Mechanical Engineeringinternational automobile business at the Technical University of Munich and has taken Business Management courses at Insead in France.distributor level.
Daphne Zheng - Daphne Zheng was appointed Chief Operating Officer China and member of the GEC in January 2017. Ms. Zheng most recently served as the Managing Director of the Sales Joint Venture in China with Guangzhou Automotive Group Co., Ltd., and previously has held senior positions in Sales and Marketing with FCA in China since 2008.
Prior to that appointment, she served as Vice President at Honeywell China in 2007 and Global Vice President at Onstar in the United States in 2005. Ms. Zheng began her career in 1993 as a journalist at China Daily and later joined GM China serving as the Director of Public Relations. She holds a Master of Business Administration degree from Rutgers University and a bachelor’s degree in journalism from Shanghai International Studies University. Ms. Zheng was born in Shanghai, China in 1970.
Paul Alcala - Paul Alcala was appointed Chief Operating Officer APAC (excluding China) and member of the GEC in January 2017. He most recently served as the Head of China Developments and the Vice Chairman for the Manufacturing and Sales Joint Ventures in China with Guangzhou Automotive Group Co., Ltd. Prior to this, he was Head of Aftersales for Maserati, Director of Customer Care and Call Centers for FCA US as well as Director of International Service and Parts at FCA US. Mr. Alcala also served as General Manager of Beijing Jeep Corp. and Chief Executive of Chrysler de Venezuela. He was also Director of Manufacturing and Chief Financial Officer of Chrysler de Venezuela. Mr. Alcala joined the former Chrysler Corporation in 1987 and held a series of positions of increasing responsibility in the U.S., Europe, Latin America and Asia Pacific.
Mr. Alcala holds a Master of Business Administration from Duke UniversityAshridge Management College in Ashridge, England, and a Bachelor of Science in engineering from Southbank University in London, England.
Maxime Picat – Maxime Picat is currently Chief Operating Officer Enlarged Europe. He joined Groupe PSA in 1998 and has a broad industrial experience; after various jobs in manufacturing in Mulhouse, he became manufacturing manager at the Group’s Sochaux plant before being appointed as managing Director for the manufacturing facility of Wuhan, China, in 2007. In 2011, he was appointed Managing Director of DongFeng Peugeot Citroën Automobiles (DPCA) in China, having previously held the role of Deputy Managing Director between 2008 and January 2011. In 2012, he was appointed Chief Executive Officer for the Peugeot Brand. Since 2016, he has been Executive Vice President for Europe and Member of the Managing Board.
Mr. Picat was born in Schiltigheim, France in 1974. He is a civil engineering graduate from the Ecole des Mines Paris.
Mark Stewart - Mark Stewart is currently Chief Operating Officer North America. He was appointed Chief Operating Officer for the North America region and named a member of the Group Executive Council (GEC) on December 6, 2018. Previously, Mr. Stewart was Vice President of Operations for Amazon since 2017. He was the lead executive for customer fulfillment across 200 operations facilities in North America. In this position, he was also responsible for overseeing operations, procurement, construction, and engineering with teams dedicated to pursuing automation, artificial intelligence and advanced robotics and conveyance. Prior to that, Mr. Stewart was Executive Vice President and Chief Operating Officer for ZF TRW Automotive from 2015. He also held a number of positions with increasing responsibility at TRW Automotive, Inc., from 2006. He spent the first years of his career in manufacturing with TRW Inc., and later Tower Automotive, Inc. where he served as Director of Operations and Executive Vice President. Mr. Stewart has been based in the U.S., Belgium, Germany, and China with a variety of experiences in production, quality, and engineering.
He holds a Bachelor of Engineering from Vanderbilt University and a Master of Business Administration from the University of Michigan.Tennessee. Mr. AlcalaStewart was born in Royal Oak,Madison (Alabama, USA), in 1967.
Antonio Filosa - Antonio Filosa is currently Chief Operating Officer South America. He was named Chief Operating Officer of the LATAM region and a member of the GEC in March 2018. Previously, Mr. Filosa served as the Head of Argentina as well as the Head of Alfa Romeo and Maserati brands for the Latin America region, positions he held since 2016 and 2018, respectively.
Prior to those roles, he was responsible for all Purchasing activities in the LATAM region. Mr. Filosa has held a series of positions with increasing responsibility within the FCA Group including serving as plant manager of the Betim facility. He joined the FCA Group in 1999.
Mr. Filosa holds a master’s degree in engineering from Politecnico di Milano (Italy). Mr. Filosa was born in Castellammare di Stabia, Italy in 1973.
Samir Cherfan – Samir Cherfan is currently Chief Operating Officer Middle East & Africa. He has a broad experience across the automotive value chain including R&D, manufacturing, product & program management, and sales and marketing for various automotive groups. He started his career with Renault Group in 1992. During the first 11 years, he held various management positions in research, engineering and modules development and production. He then joined the program management department for 7 years and became program director of mid-range models designed for international markets. In 2010, he moved to the front line as Managing Director of Eastern Paris retail network at Renault Retail Group. In 2012, he joined Nissan Group in the Middle East, as Sales and Marketing Director before being appointed Managing Director one year later. He joined Groupe PSA in 2017 as Sales and Marketing Senior Vice President for Middle East and Africa region (MEA). In 2019, he was nominated Director of MEA Region and Executive Vice President. Mr. Cherfan is also head of the industrial and commercial diversity reduction cross functional team.
Mr. Cherfanwas born in Hadath, Lebanon in 1967. He is an engineer graduate of Polytech Sorbonne, Paris, France.
Gregoire Olivier – Gregoire Olivier is currently Chief Operating Officer China. He has held a variety of operational responsibilities in the industrial sector for twenty years before joining PSA in 2006. He started as a civil servant in the French Ministry of Industry in 1984, and was appointed advisor to the Prime Minister for Industry and Environment in 1990. From 1992 to 1998, he worked for Pechiney, first as General Manager of Aluminium of Greece, then from 1995 as Chicago plant manager and subsequently Vice President of American National Can. From 1998 to 2000, he was head of the Electronics Division then General Manager of the Battery manufacturer SAFT. He was appointed CEO of the electronics company SAGEM in 2001, becoming SAFRAN in 2006. Mr. Olivier entered Groupe PSA in 2006, as CEO of Faurecia. He joined the PSA Executive Committee as SVP Programs and Strategy in 2007 and moved to China in 2010 as SVP China and South East Asia. He came back in 2016 as SVP Mobility Services, and became General Secretary in 2018, supervising Chinese activities from April 2020 onwards.
Mr. Olivier was born in Algiers, Algeria in 1960. He is a graduate of Ecole Polytechnique (France), holds an engineering degree from Ecole des Mines de Paris and an MBA from the University of Chicago.
Carl Smiley – Carl Smiley is currently Chief Operating Officer India and Asia Pacific. He was appointed Chief Purchasing & Supply Chain Officer and a member of FCA’s GEC in January 2019.
Previously, Mr. Smiley was a Senior Vice President and General Manager for TE Connectivity for the Asia Pacific Region since 2012. From 2006 to 2011, Mr. Smiley held a number of advancing roles within Magna Steyr.
Mr. Smiley began his career at General Motors and spent time in quality, purchasing, production management and supplier quality within the U.S., China and Mexico.
He holds a Bachelor of Arts from Alma College (Alma, Michigan) and a Master of Management with a focus on International Business and Finance from Regent University (Virginia Beach), Virginia. Mr. Smiley was born in Detroit, Michigan, USAU.S. in 1961.1970.
Olivier Bourges – Olivier Bourges is currently Chief Planning Officer. He joined Groupe PSA in 2014 to become General Secretary of the Company. He moved on to become Planning Executive Vice President in 2018, in charge of Corporate Planning (company strategic planning and Business Development), Global Product Planning, Vehicle Programs management and Corporate CO2 management. He is also responsible within the Global Executive Committee for the sales finance activities. Prior to joining PSA, he held several positions in Renault, mainly as Investor Relations Officer or Vehicles Program Controller and later on as Corporate Controller, and in Nissan, responsible for Corporate Planning and Vehicle Program Management in North America. He started his career at the French Treasury where he held several positions in the banking supervisory activities and in the state owned companies supervisory activities. He also worked for the World Bank in Washington D.C.
Mr. Bourges was born in Auxerre, France in 1966. He is a graduate of Sciences Po Paris and the Ecole Nationale d’Administration.
Richard K. Palmer- Richard K. Palmer is currently Chief Financial Officer. He was appointed FCA’s Chief Financial Officer and a member of theits GEC in September 2011. He was also named Head of Business Development in July 2018. On April 12, 2019 he was appointed to the Board of Directors of FCA as an executive member. Previously he also served as Chief Operating Officer Systems and Castings effective January 2016.Castings. In his current role, Mr. Palmer is responsible for all financial activities of the Group including control, treasury and tax. Mr. Palmer was Chief Financial Officer of FCA US from June 2009 until 2017. Mr. Palmer joined FCA US from the former Fiat Group Automobiles, where he held the position of Chief Financial Officer beginning in December 2006. In 2003, he joined the Group as Chief Financial Officer of Comau, and in 2005, moved to Iveco in the same role.
Prior to that appointment, he was Finance Manager for several business units at General Electric Oil and Gas. Mr. Palmer spent the first years of his career in audit with PricewaterhousePrice Waterhouse and later with United Technologies Corporation. Mr. Palmer served as a member of the Board of directorsDirectors of R.R. Donnelley & Sons Company from 2013 to September 2016. SinceFrom October 1, 2016 to September 2019, Mr. Palmer has served as member of the Board of directorsDirectors of LSC Communications, Inc., which was spun off from R.R. Donnelly and Sons Company, on that date.Company.
Mr. Palmer is a Chartered Accountant and member of ICAEW (UK) and holds a Bachelor of Science degree in Microbiology from the University of Warwick (UK). Mr. Palmer was born in Keynsham, England in 1966.
Giorgio Fossati - Giorgio Fossati is currently General Counsel. He was appointed Corporate General Counsel of FCA in November 2014. He is also General Counsel - EMEA. Previously, Mr. Fossati was General Counsel of Fiat, a position to which he was appointed in 2011. Previously he had been General Counsel of Fiat Auto since 2002, following other positions of increasing responsibility within the Fiat Legal department. Prior to that, Mr. Fossati worked in positions of increasing responsibility in the legal department at Iveco S.p.A.
Mr. Fossati earned his master’s degree in law from the University of Turin School of Law. He is an Italian citizen. Mr. Fossati was born in Turin,Orbassano, Italy in 1961.
B.The aggregate compensation expense for FCA senior management was €76 million for the year ended December 31, 2020, which included €61 million for share-based compensation expense, €5 million for short term employee benefits and €5 million for pension and similar benefits.
Articles of Association and Information on Stellantis Shares
The following is a summary of material information relating to Stellantis common shares, including summaries of certain provisions of the Articles of Association, the terms and conditions in respect of Stellantis special voting shares (the “Terms and Conditions of Special Voting Shares”) and the applicable Dutch law provisions in effect at the date of this report. The summaries of the Articles of Association and the Terms and Conditions of Special Voting Shares as set forth in this report are qualified in their entirety by reference to the full text of the Articles of Association and the Terms and Conditions of Special Voting Shares.
Share Capital
As at December 31, 2020, prior to the closing of the merger, the authorized share capital of FCA was €40,000,000, divided into 2,000,000,000 FCA common shares with a nominal value of €0.01 each and 2,000,000,000 special voting shares with a nominal value of €0.01 each. At the Effective Time, (i) by way of a deed of amendment to the Articles of Association, FCA’s authorized share capital was increased to €90,000,000, divided into 4,500,000,000 common shares with a nominal value of €0.01 each and 4,500,000,000 special voting shares with a nominal value of €0.01 each; (ii) FCA issued 1,545,220,196 new common shares to PSA shareholders, corresponding to an exchange ratio of 1.742 FCA common shares for each outstanding PSA ordinary share. As of the Governance Effective Time, by way of a deed of amendment to the Articles of Association, (i) FCA’s name was changed into Stellantis; (ii) the authorized share capital of Stellantis was divided into 4,500,000,000 common shares with a nominal value of €0.01 each, 4,050,000,000 class A special voting shares with a nominal value of €0.01 each and 450,000,000 class B special voting shares with a nominal value of €0.01 each; (iii) the special voting shares of FCA were converted into class B special voting shares at the Governance Effective Time. The special voting shares held by Exor prior to the closing of the merger were repurchased by FCA at the Effective Time for no consideration. The Articles of Association provide that, following the deposit by the Board of Directors of a declaration at the Dutch Trade Register that the class B special voting shares held by Stellantis on the Effective Date were canceled, the authorized share capital of Stellantis shall amount to €90,000,000, divided into 4,500,000,000 common shares with a nominal value of €0.01 each, 4,499,750,000 class A special voting shares and 250,000 class B special voting shares. As of March 3, 2021 there were 208,622 class B special voting shares and no class A special voting shares outstanding, and the above mentioned declaration has not been filed with the Dutch Trade Register. As of the same date, the Company held 449,410,092 class B special voting shares in treasury. At the extraordinary general meeting of the shareholders held on January 4, 2021, the shareholders approved inter alia the proposal to increase and, subsequently, decrease the Stellantis issued share capital in connection with the Faurecia Distribution, which remains subject to approval by the general meeting of shareholders of Stellantis to be held on March 8, 2021 and compliance with certain formalities under Dutch law.
On July 31, 2017, PSA issued 39,727,324 equity warrants in favor of General Motors Group, at the unit price of €16.3386515, giving entitlement to subscribe for PSA ordinary shares, on the basis of one PSA ordinary share for one equity warrant, at an exercise price of €1.00 per PSA ordinary share, between July 31, 2022 and July 31, 2026. At the Effective Time, each of the 39,727,324 outstanding equity warrants was converted into one equity warrant giving entitlement to subscribe 1.742 Stellantis common shares (each, a “Warrant”) at an exercise price equal to €1.00 per Warrant, between July 31, 2022 and July 31, 2026. As of the date of this report, the exercise of the Warrants may result in the issuance of up to 69,204,998 new common shares, subject to adjustment in connection with certain transactions carried out by Stellantis, as further described below. General Motors and its affiliates do not have the right to sell or transfer the Warrants other than to General Motors affiliates. General Motors and its affiliates do not have any governance or voting rights in respect of the Warrants, and are obligated to sell the common shares received within 35 days from the date of exercise of the Warrants. The terms and conditions of the Warrants provide for protection of the rights of warrant holders in connection with certain transactions carried out by the issuer where the record date to benefit from or participate in such transactions and, in particular, to benefit from any dividend or other distribution announced or voted on or before that date, is prior to the delivery date of the underlying shares upon exercise of the Warrants. The contemplated transactions include, among others, any free allocation of shares or other securities to shareholders, regrouping or splitting of shares, increase of the par value of the common shares, merger, demerger, repayment of share capital, dividends and other distributions. The terms and conditions of the Warrants set out the calculation formula to adjust the exercise ratio, provided that any such adjustment will be made such that the value of the common shares that would have been obtained had the Warrants been exercised immediately before one of the contemplated transactions is equal, to the nearest 100th of a share, to the value of the shares that would have been obtained had the Warrants been exercised immediately after such transaction.
Stellantis common shares and special voting shares have been created under the laws of the Netherlands.
Stellantis common shares are registered shares represented by an entry in the shareholders’ register of Stellantis. The Board of Directors may determine that, for the purpose of trading and transfer of shares on a foreign stock exchange, share certificates will be issued in such a form as will comply with the requirements of such a foreign stock exchange and Dutch law. A register of shareholders is maintained by Stellantis in the Netherlands and a branch register is maintained in the United States on Stellantis’s behalf by Computershare Trust Company, N.A., which serves as Stellantis’s branch registrar and transfer agent in the United States.
Beneficial interests in Stellantis common shares that are traded on the NYSE are held through the book-entry system provided by The Depository Trust Company (“DTC”) and are registered in Stellantis’s register of shareholders in the name of Cede & Co., as DTC’s nominee. Beneficial interests in Stellantis common shares traded on the MTA are held through Monte Titoli S.p.A., the Italian central clearing and settlement system, as a participant (through Euroclear Bank) in DTC. Beneficial interests in Stellantis common shares traded on Euronext Paris are held through Euroclear France and its intermediaries Euroclear Bank and J.P. Morgan, the latter acting as a participant in DTC.
Special voting shares are registered shares represented by an entry in the shareholders’ register of Stellantis. No share certificates have been issued with respect to the special voting shares. No right of pledge may be established on special voting shares and the voting rights attributable to special voting shares may not be assigned to a usufructuary.
Additional information on FCA’s equity as of December 31, 2020 is contained in Note 26, Equity, to the Consolidated Financial Statements included elsewhere in this report.
Directors
Set forth below is a summary of the material provisions of the Articles of Association relating to our Directors. This summary does not restate the Articles of Association in their entirety.
The members of the Board of Directors are appointed by the general meeting of shareholders, taking into account the nomination rights set out in the Articles of Association and further described under “—Nomination Rights”.
The initial term of office of each of the Chairman, CEO, Senior Independent Director and Vice Chairman is five years, in each case beginning on the Governance Effective Time. The initial term of office for each of the other Directors is four years beginning on the Governance Effective Time. Such initial terms of office shall lapse immediately after the close of the first annual general meeting of shareholders held after four or five years (as applicable) have lapsed since the Governance Effective Time. Under Articles of Association, after the initial term, the term of office of the Directors is for a period of two years, provided that unless a Director has resigned at an earlier date the term of office shall lapse immediately after the close of the first annual general meeting of shareholders held two years following the appointment. Each Director may be reappointed for an unlimited number of terms.
Stellantis has a policy in respect of the remuneration of the members of the Board of Directors. With due observation of the remuneration policy, the Board of Directors may determine the remuneration for directors in respect of the performance of their duties. The Board of Directors must submit plans to award shares or the right to subscribe for shares to the general meeting of shareholders for its approval.
Stellantis shall not grant the Directors any personal loans or guarantees.
Additional information on the Board of Directors is contained in theReport of the Non-Executive Directors included elsewhere in this report.
Nomination Rights
The Articles of Association provide for certain rights of Exor, EPF/FFP and BPI (each a “Nominating Shareholder”) to nominate the number of Directors mentioned below for future terms of office of the Board of Directors. In particular, and subject to the terms and conditions set forth in the Articles of Association:
•Exor shall have the right to nominate two (2) directors;
•BPI (or EPF/FFP, as further described below) shall have the right to nominate one (1) director; and
•EPF/FFP shall have the right to nominate one (1) director.
Notwithstanding the above:
•if the number of Stellantis common shares held by BPI, and/or any of its affiliates, or EPF/FFP, and/or any of their affiliates, falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, such shareholder will no longer be entitled to nominate a Director (in which case, any Director nominated by BPI or EPF/FFP, as the case may be, will be required to resign as promptly as reasonably practicable (and in any case, within ten days of the relevant threshold no longer being met)); and
•if, at any time within the six years following the Effective Time or on the sixth anniversary of the Effective Time, both (i) the number of Stellantis common shares held by EPF/FFP and/or their affiliates increases to a number of shares corresponding to eight percent or more of the issued and outstanding Stellantis common shares and (ii) the number of Stellantis common shares held by BPI and/or its affiliates falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, then EPF/FFP will be entitled to nominate a second Director to the Board of Directors in replacement of the BPI nominee (the “EPF/FFP Additional Director”).
As an exception to the foregoing paragraph, if at any time within the six years following the Effective Time:
•the number of Stellantis common shares held by BPI and its affiliates, on the one hand, or EPF/FFP and their affiliates, on the other hand, represents between four percent and five percent of the issued and outstanding Stellantis common shares (the “Threshold Stake”);
•either BPI or EPF/FFP has not otherwise lost its right to nominate a Director in accordance with the preceding paragraph; and
•the number of Stellantis common shares held by BPI, EPF/FFP and their respective affiliates represents, in aggregate, eight percent or more of the issued and outstanding Stellantis common shares,
the Nominating Shareholder which holds the Threshold Stake will maintain its right to nominate a Director (the “Residual Director”) to the Board of Directors until the sixth anniversary of the Effective Time (it being understood that while BPI is entitled to nominate a Director pursuant to this exception, EPF/FFP will not be entitled to nominate the EPF/FFP Additional Director).
Additionally, Exor’s right to nominate representative(s) to the Board of Directors will decrease in the event Exor and/or its affiliates reduce their equity ownership in Stellantis as follows:
•if the number of shares held by Exor and/or its affiliates falls below the number of shares corresponding to eight percent of the issued and outstanding Stellantis common shares, Exor will be entitled to nominate one Director instead of two; and
•if the number of shares held by Exor and/or its affiliates falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, Exor will no longer be entitled to nominate a Director.
In such cases, the Director designated by Exor for resignation from among the Directors nominated by Exor will be required to resign as promptly as reasonably practicable (and in any case, within ten days of the relevant threshold no longer being met) after the number of Stellantis common shares held by Exor and/or its affiliates falls below the applicable threshold.
Any event or series of events (including any issue of new shares) other than a transfer (including transfer under universal title) of Stellantis common shares will be disregarded for the purpose of determining whether the applicable Nominating Shareholder reaches the relevant threshold(s).
Pursuant to the Articles of Association, the general meeting of shareholders may at all times overrule a binding nomination for the appointment of a Director by a two-thirds majority of the votes cast, with such two-thirds majority of the votes cast representing more than half of the issued and outstanding share capital of Stellantis.
Additionally, the Articles of Association provide that the nomination rights of a Nominating Shareholder lapse upon a Change of Control of such Nominating Shareholder. A “Change of Control” is defined in Article 1.1. of Stellantis Articles of Association as any direct or indirect transfer carried out by a shareholder that is not an individual through one or a series of related transactions as a result of which (i) a majority of the voting rights in such shareholder; (ii) the de facto ability to direct the casting of a majority of the votes exercisable at general meetings of such shareholder; and/or (iii) the ability to appoint or remove a majority of the directors, executive directors or board members or executive officers of such shareholder or to direct the casting of a majority of the voting rights at meetings of the board of directors, management board or similar governing body of such shareholder has been transferred to the transferee of such shares, provided that no Change of Control will be deemed to have occurred if (a) the transfer of ownership and/or control is an intragroup transfer under the same controlling person, (b) the transfer of ownership and/or control is the result of the succession or the liquidation of assets between spouses or the inheritance, inter vivos donation or other transfer to a spouse or a relative up to and including the fourth degree, (c) the fair market value of the Qualifying Common Shares (as defined under “—Loyalty Voting Structure”) held by such shareholder represents less than 20 percent of the total assets of the Transferred Group at the time of the transfer and the Qualifying Common Shares held by such shareholder, in the sole judgment of Stellantis, are not otherwise material to the Transferred Group or the change of control transaction.
Article 1.1 of Stellantis Articles of Association defines “Transferred Group” as the relevant shareholder together with its affiliates, if any, over which control was transferred as part of the same Change of Control transaction.
No Liability to Further Capital Calls
All of the outstanding Stellantis common shares and special voting shares are fully paid and non-assessable.
Discriminating Provisions
Except for the voting limitations described in this section under “—General Meeting of Shareholders and Voting Rights —Voting Limitations”, there are no provisions of the Articles of Association that discriminate against a shareholder because of its ownership of a certain number of shares.
Rights of Pre-emption
Under Dutch law and the Articles of Association, each Stellantis shareholder has a right of pre-emption in proportion to the aggregate nominal value of its common shares upon the issuance of new Stellantis common shares, or the granting of rights to subscribe for Stellantis common shares. Exceptions to this right of pre-emption include the issuance of new Stellantis common shares, or the granting of rights to subscribe for Stellantis common shares: (i) to employees of Stellantis or another member of its Group pursuant to an equity incentive plan of Stellantis; (ii) against payment in kind (contribution other than in cash); and (iii) to persons exercising a previously granted right to subscribe for Stellantis common shares. Shareholders do not have any right of pre-emption in connection with the issuance of special voting shares. Rights of pre-emption may be exercised during a period of at least two weeks after the announcement of an issuance of new Stellantis common shares in the Dutch State Gazette.
The general meeting of shareholders may resolve to limit or exclude the rights of pre-emption upon an issuance of Stellantis common shares, which resolution requires approval of at least two-thirds of the votes cast if less than one-half of the issued and outstanding share capital is represented at the general meeting of shareholders. If more than one-half of the issued and outstanding share capital is present or represented at the general meeting of shareholders, an absolute majority of the votes cast is required. The Articles of Association, or the general meeting of shareholders, may also designate the Board of Directors to resolve to limit or exclude the rights of pre-emption in relation to the issuance of Stellantis common shares. Pursuant to Dutch law, the designation by the general meeting of shareholders may be granted to the Board of Directors for a specified period of time of not more than five years and only if the Board of Directors has also been designated or is simultaneously designated the authority to resolve to issue Stellantis common shares. In the proposal to the general meeting of shareholders in respect of the Board of Directors’ authority to resolve to limit or exclude such rights of pre-emption, the reasons for the proposal and the choice of the intended price of issue will be explained in writing.
The Board of Directors is irrevocably designated in the Articles of Association as the competent body to exclude or limit rights of pre-emption for an initial period of three years from January 16, 2021 in connection with the relevant authority to issue Stellantis common shares referred to under “—Issuance of Shares”, which designation may be extended by the general meeting of shareholders for additional periods up to a maximum of five years per period.
Repurchase of Shares
Upon agreement with the relevant shareholder, Stellantis may acquire fully paid-up shares in its own share capital at any time for no consideration (om niet), or, subject to certain provisions of Dutch law and the Articles of Association, for consideration if: (i) Stellantis’s shareholders’ equity less the payment required to make the acquisition does not fall below the sum of called-up and paid-in share capital and any reserves to be maintained pursuant to Dutch law and the Articles of Association; (ii) Stellantis would thereafter not hold a pledge over Stellantis common shares, or together with its subsidiaries, hold Stellantis common shares with an aggregate nominal value exceeding 50 percent of Stellantis’s issued share capital; and (iii) the Board of Directors has been authorized to do so by the general meeting of shareholders.
Stellantis’s equity, as shown in the last confirmed and adopted balance sheet, after deduction of the acquisition price for shares in the share capital of Stellantis, the amount of the loans as referred to in Article 2:98c of the Dutch Civil Code and distributions from profits or reserves to any other persons that became due by the company and its subsidiary companies after the date of the balance sheet, shall be decisive for purposes of items (i) and (ii) referred to in the immediately preceding paragraph. If no annual accounts have been confirmed and adopted when more than six months have expired after the end of any financial year, then an acquisition in reliance on the immediately preceding paragraph shall not be allowed until the relevant annual accounts are adopted.
The acquisition of fully paid-up shares by Stellantis other than for no consideration (om niet) requires authorization by the general meeting of shareholders. Such authorization may be granted to the Board of Directors for a period not exceeding 18 months and shall specify the number of shares, the manner in which the shares may be acquired and the price range within which shares may be acquired. The authorization is not required for the acquisition by Stellantis of shares for employees of Stellantis, or another member of its Group, under a scheme applicable to such employees and no authorization is required for repurchase of shares acquired in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. In case of acquisition of shares by Stellantis for employees of Stellantis, such shares must be officially listed on the price list of an exchange.
Stellantis may, jointly with its subsidiaries, hold Stellantis common shares in its own capital exceeding one-tenth of its issued and outstanding capital for no more than three years after acquisition of such Stellantis common shares for no consideration (om niet) or in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. Any Stellantis common shares held by Stellantis in excess of the amount permitted shall transfer to all members of the Board of Directors jointly at the end of the last day of such three-year period. Each member of the Board of Directors shall be jointly and severally liable to compensate Stellantis for the value of the Stellantis common shares at such a time, with interest payable at the statutory rate on such shares. The term Stellantis common shares as used in this paragraph shall include depositary receipts for shares and shares in respect of which Stellantis holds a right of pledge.
No votes may be cast at a general meeting of shareholders on the Stellantis common shares held by Stellantis or its subsidiaries. In addition, no voting rights may be cast at a general meeting of shareholders in respect of Stellantis common shares for which depositary receipts have been issued that are owned by Stellantis. Nonetheless, the holders of a right of usufruct or pledge in respect of shares held by Stellantis and its subsidiaries in Stellantis share capital are not excluded from the right to vote on such shares if the right of usufruct or pledge was granted prior to the time such shares were acquired by Stellantis or its subsidiaries. Neither Stellantis nor any of its subsidiaries may cast votes in respect of a share on which it or its subsidiaries holds a right of usufruct or pledge.
Reduction of Share Capital
The Stellantis common shares held in treasury by Stellantis and all issued class A special voting shares may be cancelled, and the nominal value of shares may be reduced, with the approval of the general meeting of shareholders.
A resolution to reduce the share capital requires a majority of at least two-thirds of the votes cast at the general meeting of shareholders if less than one-half of the issued and outstanding share capital is present or represented at the meeting. If more than one-half of the issued and outstanding share capital is present or represented at a general meeting of shareholders, an absolute majority of the votes cast is required.
Class A special voting shares may be cancelled by resolution taken by a majority of at least two-thirds of the votes cast at a general meeting of shareholders, subject to the approval of the meeting of holders of the class A special voting shares. Cancellation of class A special voting shares shall take place without repayment of the nominal value of the special voting shares, and such nominal value shall be added to the special capital reserve.
Any reduction of the nominal value of the Stellantis common shares without repayment must be made pro rata on all common shares. Any reduction of the nominal value of the special voting shares shall take place without repayment.
A partial repayment on Stellantis common shares shall only be allowed in implementation of a resolution to reduce the nominal value of the Stellantis common shares. Such partial repayment must be made in respect of all Stellantis common shares on a pro rata basis. The pro rata requirement may be waived with the consent of all the holders of Stellantis common shares.
Any proposal for a cancellation or reduction of nominal value is subject to general requirements of Dutch law with respect to reductions of share capital.
Transfer of Shares
In accordance with the provisions of Dutch law, pursuant to Article 13 of the Articles of Association, the transfer of Stellantis common shares or the creation of a right in rem in such shares requires a deed intended for that purpose and, save when Stellantis is a party to the deed, written acknowledgment by Stellantis of the transfer.
Common shares that have been entered into DTC’s book-entry system will be registered in the name of Cede & Co. as nominee for DTC and transfers of beneficial ownership of shares held through DTC will be effected by electronic transfer made by DTC participants. Article 13 of the Articles of Association does not apply to the trading of such Stellantis common shares on a regulated market or the equivalent of a regulated market.
Transfers of shares held outside of (i) DTC or another direct registration system maintained by Computershare Trust Company, N.A., Stellantis’s transfer agent in New York, (ii) Monte Titoli S.p.A. or (iii) Euroclear France (collectively, the “Regular Trading Systems”) and not represented by certificates are effected by a deed intended for that purpose (including a stock transfer instrument) and, save where Stellantis is a party to the deed, require written acknowledgement by Stellantis. Transfer of common shares for which registered certificates have been issued is effected by presenting and surrendering the certificates to the transfer agent. A valid transfer requires the registered certificates to be properly endorsed for transfer as provided for in the certificates and accompanied by proper instruments of transfer and stock transfer tax stamps for, or funds to pay, any applicable stock transfer taxes. Stellantis may acknowledge the transfer by making an annotation on such certificate as proof of the acknowledgement or by replacing the surrendered certificate by a new share certificate registered in the name of the transferee.
Stellantis common shares are freely transferable. The number of Stellantis common shares registered in the Loyalty Register pursuant to Stellantis’s loyalty voting structure and special voting shares is subject to the transfer restrictions described under “—General Meeting of Shareholders and Voting Rights—General Meetings and —Loyalty Voting Structure—Terms and Conditions of the Special Voting Shares—Withdrawal of Special Voting Shares”.
Exchange Controls and Other Limitations Affecting Shareholders
Under Dutch law, there are no exchange control restrictions on investments in, or payments on, Stellantis common shares. There are no special restrictions in the Articles of Association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote Stellantis common shares.
Annual Accounts and Independent Auditor
Stellantis’s financial year is the calendar year. Within four months after the end of each financial year, the Board of Directors shall prepare and publish the annual accounts, consisting of a balance sheet, a profit and loss account and explanatory notes and which must be accompanied by an annual report and an auditor’s report, alongside any other information that would need to be made public in accordance with the applicable provisions of law and the requirements of any stock exchange on which Stellantis common shares are listed. Stellantis shall make such annual accounts, annual report and auditor’s report available for inspection at Stellantis’s office. All members of the Board of Directors are required to sign the annual accounts and in case the signature of any member is missing, the reason for this must be stated. The annual accounts are to be adopted by the annual general meeting of shareholders. The annual accounts, the annual report and independent auditor’s report are made available through Stellantis’s website to the shareholders for review as from the day of the notice convening the annual general meeting of shareholders. If it is justified in view of Stellantis’s activities or the international structure of its group, as determined by the Board of Directors, Stellantis’s annual accounts or its consolidated accounts may be prepared in a foreign currency.
Payment of Dividends
Stellantis may make distributions to the shareholders and other persons entitled to distributions only to the extent that its shareholders’ equity exceeds the sum of the paid-up and called-up portion of the share capital and the reserves that must be maintained in accordance with Dutch law and the Articles of Association. No distribution of profits or other distributions may be made to Stellantis itself for shares that Stellantis holds in its own share capital.
Stellantis may make a distribution of profits to the shareholders after the adoption of its statutory annual accounts. The Board of Directors, or the general meeting of shareholders upon a proposal of the Board of Directors, may resolve to make distributions from Stellantis’s share premium reserve or from any other reserve (other than the special capital reserve), provided that payments from reserves other than the Special Voting Shares Dividend Reserve may only be made to holders of Stellantis common shares.
Holders of special voting shares shall not receive any dividends in respect of the special voting shares; however, Stellantis shall maintain a separate dividend reserve for the special voting shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the special voting shares (as further described under “—Loyalty Voting Structure —General Meeting of Shareholders and —Voting Rights—General Meetings”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares Dividend Reserve, shall require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares, and shall be made exclusively to the holders of special voting shares in proportion to the aggregate nominal value of their special voting shares.
From the profits shown in the annual accounts, as adopted, such amounts shall be reserved as the Board of Directors may determine. The profits remaining thereafter shall first be applied to allocate and add to the Special Voting Shares Dividend Reserve an amount equal to one percent of the aggregate nominal amount of all special voting shares outstanding at the end of the financial year to which the annual accounts pertain. The special voting shares shall not carry any other entitlement to the profits.
Insofar as the profits have not been distributed or allocated to the reserves, they may, by resolution of the general meeting of shareholders, be distributed as dividends on the Stellantis common shares only. The Board of Directors may resolve that distributions will be made payable either in euro or in another currency. The Board of Directors, or the general meeting of shareholders upon a proposal by the Board of Directors, may resolve that a distribution will, wholly or partially, be made other than in cash, including in the form of Stellantis common shares or shares in another listed company, provided that, in case of a distribution in the form of Stellantis common shares, the Board of Directors has been designated as the body competent to pass a resolution for the issuance of shares.
The Board of Directors will have the power to declare one or more interim dividends or other distributions, subject to certain provisions of Dutch law and certain conditions set forth in the Articles of Association.
Dividends and other distributions will be made payable in the manner and at such date(s) as the Board of Directors or the general meeting of shareholders upon a proposal by the Board of Directors will determine.
The right to dividends and distributions shall lapse if the dividends or distributions are not claimed within five years following the day after the date on which they first became payable. Any dividends or other distributions made in violation of the Articles of Association or Dutch law shall have to be repaid by the shareholders who knew, or should have known, of such violation.
Information on the payment of dividends is contained in the section “OTHER INFORMATION” elsewhere in this report.
Amendments to the Articles of Association, including Variation of Rights
A resolution of the general meeting of shareholders to amend the Articles of Association or to wind up Stellantis may be approved only if proposed by the Board of Directors and approved by a vote of an absolute majority of the votes cast, provided that a resolution to amend Stellantis’s corporate seat and/or place of effective management will require a majority of at least two-thirds of the votes cast.
The rights of shareholders may be changed only by amending the Articles of Association in compliance with Dutch law, provided that rights specific to Nominating Shareholders set out in the Articles of Association cannot be amended without the prior written approval of such shareholder.
Dissolution and Liquidation
The general meeting of shareholders may resolve to dissolve Stellantis upon a proposal of the Board of Directors thereto. In the event of dissolution, Stellantis will be liquidated in accordance with Dutch law and the Articles of Association and the liquidation shall be arranged by the members of the Board of Directors, unless the general meeting of shareholders appoints other liquidators. The general meeting of shareholders will appoint, and decide on the remuneration of, the liquidators. During liquidation, the provisions of the Articles of Association will remain in force as long as possible.
If Stellantis is dissolved and liquidated, whatever remains of Stellantis’s equity after all its debts have been discharged shall first be applied to distribute the aggregate balance of share premium reserves and other reserves (other than the Special Voting Shares Dividend Reserve) to holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each holder; secondly, from any balance remaining, an amount equal to the aggregate amount of the nominal value of Stellantis common shares will be distributed to the holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each of them; thirdly, from any balance remaining, an amount equal to the aggregate amount of the Special Voting Shares Dividend Reserve will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; fourthly, from any balance remaining, the aggregate amount of the nominal value of the special voting shares will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; and, lastly, any balance remaining will be distributed to the holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each of them.
Liability of Directors
Under Dutch law, the management of a company with a one-tier board structure like Stellantis is a joint undertaking and each member of the Board of Directors can be held jointly and severally liable to Stellantis for damages in the event of improper or negligent performance of his or her duties. Furthermore, members of the Board of Directors can be held liable to third parties based on tort pursuant to certain provisions of the Dutch Civil Code. All Directors are jointly and severally liable for failure of one or more co-directors. An individual Director is only exempted from liability if he or she proves that he or she cannot be held culpable for the mismanagement and that he or she has not been negligent in seeking to prevent the consequences of the mismanagement. In this regard a Director may, however, refer to the allocation of tasks between the Directors. In certain circumstances, Directors may incur additional specific civil and criminal liabilities.
Election and Removal of Directors
The Articles of Association provide that the Board of Directors shall be composed of three or more members.
Any Director may be suspended or dismissed at any time by resolution of the general meeting of shareholders. A resolution of the general meeting of shareholders to suspend or dismiss a Director appointed upon a binding nomination will require a majority of at least two-thirds of the votes cast, with such two-thirds majority of the votes cast representing more than half of the issued and outstanding share capital, unless the person who made the binding nomination for such director supports the suspension or dismissal (as the case may be), in which case an absolute majority of the votes cast is required.
Loyalty Voting Structure
Stellantis adopted the loyalty voting structure summarized below on January 17, 2021.
Shareholders of Stellantis may at any time elect to participate in the loyalty voting structure by requesting that Stellantis registers all or some of their common shares in a separate register the (“Loyalty Register”). The registration of common shares in the Loyalty Register blocks such shares from trading in the Regular Trading Systems. If such number of common shares (the “Electing Common Shares”) have been registered in the Loyalty Register (and thus blocked from trading in the Regular Trading Systems) for an uninterrupted period of three years in the name of the same shareholder (such a share a “Qualifying Common Share”), the relevant shareholder becomes eligible to receive one class A special voting share for each Qualifying Common Share. If, at any time, such common shares are de-registered from the Loyalty Register for whatever reason, the relevant shareholder shall lose its entitlement to hold a corresponding number of special voting shares. From January 17, 2021, shareholders will only be able to receive class A special voting shares and not class B special voting shares. Class B special voting shares were created at the Governance Effective Time in order to be held by FCA shareholders (other than Exor) who held FCA special voting shares prior to such time. The Board of Directors may resolve at any time that class B special voting shares shall be exchanged for class A special voting shares in accordance with the Terms and Conditions of Special Voting Shares.
A holder of Electing Common Shares or Qualifying Common Shares may at any time request the de-registration of some or all of the number of such shares from the Loyalty Register, which will allow such shareholder to freely trade such common shares. From the moment of such a request, the holder of Electing Common Shares or Qualifying Common Shares shall be considered to have waived his or her rights to cast any votes associated with such special voting shares to be de-registered from the Loyalty Register. Upon the de-registration from the Loyalty Register, the relevant number of common shares will therefore cease to be Electing Common Shares or Qualifying Common Shares. Any de-registration request would automatically trigger a mandatory transfer requirement pursuant to which the relevant special voting shares will be acquired by Stellantis for no consideration (om niet) in accordance with the Terms and Conditions of Special Voting Shares.
Stellantis common shares are freely transferable. However, any transfer or disposal of Stellantis common shares with which special voting shares are associated would trigger the de-registration of such common shares from the Loyalty Register and the transfer of all relevant special voting shares to Stellantis. Special voting shares are not admitted to listing and are transferable only in very limited circumstances (including, among other things, transfers to affiliates or to relatives through succession, donation or other transfers, provided that the corresponding Qualifying Common Shares are also transferred to such party, or transfers with the approval of the Board of Directors). In particular, no shareholder shall, directly or indirectly: (a) sell, dispose of or transfer any special voting share or otherwise grant any right or interest in any special voting share, other than as permitted pursuant to the Articles of Association or the Terms and Conditions of Special Voting Shares; or (b) create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over any special voting share or any interest in any special voting share.
The purpose of the loyalty voting structure is to grant long-term shareholders an extra voting right by means of granting a special voting share (shareholders holding special voting shares are entitled to exercise one vote for each special voting share held and one vote for each Stellantis common share held), without entitling such shareholders to any economic rights, other than those pertaining to the common shares. However, under Dutch law, the special voting shares cannot be totally excluded from economic entitlements. As a result, pursuant to the Articles of Association, holders of special voting shares are entitled to a minimum dividend, which is allocated to a separate special voting shares dividend reserve (the “Special Voting Shares Dividend Reserve”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares Dividend Reserve will require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares. The powers to vote upon the distribution from the Special Voting Shares Dividend Reserve and the cancellation of all class A special voting shares are the only powers that are granted to that meeting pursuant to the Articles of Association, which can only be convened by the Board of Directors as it deems necessary. The special voting shares do not have any other economic entitlement.
Section 11 of the Terms and Conditions of Special Voting Shares includes liquidated damages provisions intended to discourage any attempt by holders to violate the Terms and Conditions of Special Voting Shares. These liquidated damages provisions may be enforced by Stellantis by means of a legal action brought by Stellantis in the courts of Amsterdam, the Netherlands. In particular, a violation of the provisions of the Terms and Conditions of Special Voting Shares concerning the transfer of special voting shares may lead to the imposition of liquidated damages.
Pursuant to Section 13 of the Terms and Conditions of Special Voting Shares, any amendment to the Terms and Conditions of Special Voting Shares (other than merely technical, non-material amendments) may only be made with the approval of the shareholders at a general meeting of shareholders.
Special Voting Shares Foundation
Pursuant to the Articles of Association, Stichting Stellantis SVS, a Dutch foundation (stichting) (the “SVS Foundation”) has an option right to subscribe for a number of class A special voting shares up to the number of class A special voting shares included in the Company’s authorized share capital from time to time. This option right can only be exercised by the SVS Foundation to facilitate the loyalty voting structure as set forth in the Articles of Association and the Terms and Conditions of Special Voting Shares. An option right has been granted to the SVS Foundation for an unlimited period and is intended to ensure that holders of Qualifying Common Shares in the future will receive their special voting shares without requiring a resolution from the general meeting of shareholders. Under the structure of the SVS Foundation, once a shareholder of the Company becomes entitled to receive one special voting share for each Qualifying Common Share, the Company issues such special voting shares to the SVS Foundation pursuant to the SVS Foundation’s exercise of its option right and, thereafter, the SVS Foundation transfers the special voting shares to such shareholder. Issuing shares to the SVS Foundation is a technical device to ensure that special voting shares will be available for issue to eligible shareholders once such shareholders acquire the right to the special voting shares.
Terms and Conditions of the Special Voting Shares
The Terms and Conditions of Special Voting Shares apply to the issuance, allocation, acquisition, holding, repurchase and transfer of special voting shares in the issued share capital of Stellantis and to certain aspects of Electing Common Shares, Qualifying Common Shares and Stellantis common shares which are registered in the Loyalty Register.
Special Capital Reserve
Stellantis will maintain a separate capital reserve for the purpose of facilitating any issuance or cancellation of special voting shares. No distribution shall be made from the special capital reserve, except that the Board of Directors shall be authorized to resolve upon (i) any distribution out of the special capital reserve to pay up special voting shares or (ii) re-allocation of amounts to credit or debit the special capital reserve against or in favor of the share premium reserve.
Withdrawal of Special Voting Shares
Following a mandatory transfer to Stellantis of special voting shares after a de-registration of Qualifying Common Shares from the Loyalty Register, Stellantis may continue to hold the special voting shares as treasury stock, but will not be entitled to vote any such treasury stock. Alternatively, Stellantis may withdraw and cancel the special voting shares held in treasury, as a result of which the nominal value of such shares will be allocated to the special capital reserves of Stellantis. Stellantis may also cancel all issued and outstanding class A special voting shares subject to approval of the meeting of holders of the class A special voting shares. Consequently, the loyalty voting feature will terminate as to the relevant Qualifying Common Shares being deregistered from the Loyalty Register. No shareholder required to transfer special voting shares to Stellantis pursuant to the Terms and Conditions of Special Voting Shares will be entitled to any consideration for such special voting shares and each shareholder expressly waives any rights in that respect as a condition to participation in the loyalty voting structure.
Change of Control
A shareholder with common shares registered in the Loyalty Register must promptly notify Stellantis in the event of a Change of Control (as defined above) with respect to such shareholder and must make a de-registration request with respect to his or her Qualifying Common Shares or Electing Common Shares registered in the Loyalty Register. The de-registration request leads to a withdrawal of the special voting shares as described under “—Withdrawal of Special Voting Shares”. Notwithstanding Stellantis not receiving any such notification, it may, upon becoming aware of a Change of Control, initiate the de-registration of the relevant shareholder’s Qualifying Common Shares or Electing Common Shares.
General Meeting of Shareholders and Voting Rights
General Meetings
At least one general meeting of shareholders shall be held every year, with such meeting to be held within six months after the close of the financial year. The purpose of the annual general meeting of shareholders is, inter alia, the adoption of the annual accounts, the allocation of profits (including the proposal to distribute dividends), granting discharge to Directors in respect of the performance of their duties, the appointment of Directors, if applicable, and the discussion of any other item duly included in the agenda.
Furthermore, general meetings of shareholders shall be held as often as the Board of Directors, the Chairman, the Senior Independent Director or the CEO deem it necessary to hold them or as otherwise required by Dutch law (including in the event Stellantis’s equity has decreased to an amount equal to or less than one-half of the paid-up and called-up part of Stellantis’s issued capital, as referred to in Section 2:108a of the Dutch Civil Code), without prejudice to what is provided in the next paragraph.
Shareholders individually or jointly representing at least ten percent of the issued share capital may request in writing, stating the matters to be dealt with, that the Board of Directors call a general meeting of shareholders.
If the Board of Directors fails to take the necessary steps to ensure a meeting can be held within eight weeks, then such shareholders may, on their application, be authorized by the interim provisions judge of the court (voorzieningenrechter van de rechtbank) to convene a general meeting of shareholders. The interim provisions judge (voorzieningenrechter van de rechtbank) shall reject the application if he or she is not satisfied that the applicants have previously requested in writing, stating the exact subjects to be discussed, that the Board of Directors convene a general meeting of shareholders.
General meetings of shareholders will be held in Amsterdam or Haarlemmermeer (Schiphol Airport), the Netherlands, and shall be called by the Board of Directors, the Chairman, the Senior Independent Director or the CEO, in such manner as is required to comply with the law and the applicable stock exchange regulations, no later than on the 42nd day prior to the day of the meeting. All convocations of general meetings of shareholders and all announcements, notifications and communications to shareholders shall be made by means of an announcement on Stellantis’s corporate website and such an announcement shall remain accessible until the relevant general meeting of shareholders.
Any communication to be addressed to the general meeting of shareholders by virtue of Dutch law or the Articles of Association may be either included in the notice referred to in the preceding sentence or, to the extent provided for in such notice, on Stellantis’s corporate website and/or in a document made available for inspection at the office of Stellantis and such other place(s) as the Board of Directors shall determine. Convocations of general meetings of shareholders may be sent to shareholders entitled to attend through the use of an electronic means of communication to the address provided by such shareholders to Stellantis for this purpose. The notice shall state the place, date and hour of the meeting and the agenda of the meeting as well as the other information required by law and the Articles of Association. An item proposed in writing by such a number of shareholders who, individually or in the aggregate, hold at least three percent of Stellantis’s issued share capital, will be included in the notice or will be announced in a manner similar to the announcement of the notice, provided that Stellantis has received the relevant request, including the reasons for putting the relevant item on the agenda, no later than the 60th day before the day of the meeting.
Convocation, Agenda, Minutes and Attendance
The agenda of the annual general meeting of shareholders shall contain, inter alia, the following items:
(a)adoption of the annual accounts;
(b)non-binding advisory vote on the remuneration report;
(c)discussion of the policy of Stellantis on additions to reserves and on dividends, if any;
(d)granting of discharge to the Directors in respect of the performance of their duties in the relevant financial year;
(e)if applicable, the appointment of Directors;
(f)if applicable, the proposal to pay a dividend;
(g)if applicable, discussion of any substantial change in the corporate governance structure of Stellantis; and
(h)any matters decided upon by the person(s) convening the meeting and any matters placed on the agenda with due observance of applicable Dutch law.
The Board of Directors will provide the general meeting of shareholders with all requested information, unless this would be contrary to an overriding interest of Stellantis. If the Board of Directors invokes an overriding interest, it must give reasons.
When convening a general meeting of shareholders, the Board of Directors shall determine that, for the purpose of Article 24 and Article 26 of the Articles of Association, persons with the right to vote or attend meetings will be considered those persons who have these rights at the 28th day prior to the day of the meeting (the “Record Date”) and are registered as such in a register to be designated by the Board of Directors for such purpose, irrespective of whether they will have these rights at the date of the meeting. In addition to the Record Date, the notice of the meeting shall further state the manner in which shareholders and other parties with meeting rights may register for the meeting, the final registration date for that general meeting of shareholders (which final registration date will be the seventh day prior to the meeting unless otherwise determined by the Board of Directors (the “Final Registration Date”)) and the manner in which the right to vote or attend the meeting can be exercised.
The general meeting of shareholders shall be presided over by the Chairman, or, in his absence, by the Senior Independent Director or, in the absence of both the Chairman and the Senior Independent Director, by the person chosen by the Board of Directors to act as chairman for such meeting. One of the persons present designated for that purpose by the chairman of the meeting shall act as secretary and take minutes of the business transacted. The minutes shall be adopted by the chairman and secretary of the meeting and signed by them in witness of such adoption. The minutes of the general meeting of shareholders shall be made available, on request, to shareholders no later than three months after the end of the meeting, after which shareholders shall have the opportunity to react to the minutes in the following three months. In the event an amendment to the minutes is required, the amended minutes will then be adopted by the chairman and the secretary of the meeting and signed by them in witness of such adoption. If an official notarial record is made of the business transacted at the meeting then minutes need not be drawn up and it shall suffice that the official notarial record be signed by the notary.
As a prerequisite to attending the general meeting of shareholders and, to the extent applicable, exercising voting rights, the shareholders and other persons entitled to attend the meeting shall be required to inform the Board of Directors in writing of their intention to attend the general meeting of shareholders within the time frame mentioned in the convening notice. At the latest, this notice must be received by the Board of Directors on the Final Registration Date. Shareholders and those permitted by Dutch law to attend the general meetings of shareholders may choose to be represented at any meeting by a proxy duly authorized in writing, provided they notify Stellantis in writing of their wish to be represented at such time and place as shall be stated in the notice of the meeting. Such proxy is also authorized in writing if the proxy is documented electronically. The Board of Directors may determine further rules concerning the deposit of the powers of attorney; these shall be mentioned in the notice of the meeting. The chairman of the meeting shall decide on the admittance to the meeting of persons other than those who are entitled to attend.
For each general meeting of shareholders, the Board of Directors may decide that shareholders shall be entitled to attend, address and exercise voting rights at such a meeting through the use of electronic means of communication, provided that shareholders who participate in the meeting are capable of being identified through the electronic means of communication and have direct cognizance of the discussions at the meeting and the exercising of voting rights (if applicable). The Board of Directors may set requirements for the use of electronic means of communication and state these in the convening notice. Furthermore, the Board of Directors may, for each general meeting of shareholders, decide that votes cast by the use of electronic means of communication prior to the meeting and received by the Board of Directors shall be considered to be votes cast at the meeting. Such votes may not be cast prior to the Record Date. The notice will state whether the foregoing provisions regarding electronic voting apply and the procedure for exercising the electronic voting rights.
Prior to being allowed admittance to a general meeting of shareholders, a shareholder and each person entitled to attend the meeting, or its attorney, shall sign an attendance list, while stating his or her name and, to the extent applicable, the number of votes to which he or she is entitled. Each shareholder and other person attending a general meeting of shareholders by the use of electronic means of communication and identified in accordance with the above shall be registered on the attendance list by the Board of Directors. In case an attorney attends the meeting on behalf of a shareholder or another person entitled to attend, the name(s) of the person(s) on whose behalf the attorney is acting, shall also be stated. The chairman of the meeting may decide that the attendance list must also be signed by other persons present at the meeting.
The chairman of the meeting may determine the time during which shareholders and others entitled to attend the general meeting of shareholders may speak, if he or she considers this desirable, with a view to the orderly conduct of the meeting as well as other procedures that the chairman considers desirable for the efficient and orderly conduct of the business of the meeting.
Stellantis is exempt from the proxy rules under the Exchange Act.
Voting Rights at General Meetings
Subject to the restrictions described under “—Voting Limitations,” every Stellantis share (whether common share or special voting share) shall confer the right to cast one vote at a general meeting of shareholders. Shares in respect of which Dutch law determines that no votes may be cast shall be disregarded for the purposes of determining the proportion of shareholders voting, present or represented or the proportion of the share capital present or represented. All resolutions shall be passed with an absolute majority of the votes validly cast unless otherwise specified in the Articles of Association or the Dutch Civil Code. Blank votes shall not be counted as votes cast.
All votes shall be cast in writing or electronically. The chairman of the meeting may, however, determine that voting by raising hands or in another manner shall be permitted. Voting by acclamation shall be permitted if none of the shareholders present or represented objects. No voting rights shall be exercised in the general meeting of shareholders for shares owned by the Company or by a subsidiary of the Company. However, pledgees and usufructuaries of shares owned by the Company and its subsidiaries shall not be excluded from exercising their voting rights if the right of pledge or usufruct was created before the shares were owned by the Company or a subsidiary. Neither the Company nor any of its subsidiaries may exercise voting rights for shares in respect of which it holds a right of pledge or usufruct.
Without prejudice to the Articles of Association, the Company shall determine for each resolution passed:
(a)the number of shares on which valid votes have been cast;
(b)the percentage that the number of shares as referred to under (a) represents in the issued and outstanding share capital;
(c)the aggregate number of votes validly cast; and
(d)the aggregate number of votes cast in favor of and against a resolution, as well as the number of abstentions.
Voting Limitations
No shareholder, acting alone or in concert, together with votes exercised by affiliates of such shareholder or pursuant to proxies or other arrangements conferring the right to vote, shall be able to exercise, directly or indirectly, voting rights at a general meeting of shareholders reaching or exceeding the Voting Threshold (i.e., 30 percent or more of the votes that could be cast at any general meeting of shareholders), including after giving effect to any voting rights exercisable through Stellantis special voting shares. Any voting right reaching or exceeding the Voting Threshold shall be suspended. Furthermore, the Articles of Association provide that, before each general meeting of shareholders, any shareholder that would be able to exercise voting rights reaching or exceeding the Voting Threshold must notify Stellantis, in writing, of its shareholding and total voting rights in Stellantis and provide, upon written request by Stellantis, within three days of such request being made, any information necessary to ascertain the composition, nature and size of the equity interest of that person and any other person acting in concert with it. The Voting Threshold restriction (i) may be removed following a resolution passed to that effect by the meeting of Stellantis shareholders with a majority of at least two-thirds of the votes cast (for the avoidance of doubt, without giving effect to any voting rights exercisable through Stellantis special voting shares, and subject to the aforementioned Voting Threshold) and (ii) shall lapse upon any person holding more than 50 percent of the issued Stellantis common shares (other than Stellantis special voting shares) as a result of a public offer for Stellantis common shares.
Shareholders’ Votes on Certain Transactions
Any important change in the identity or character of Stellantis must be approved by the general meeting of shareholders, including (i) the transfer to a third party of the business of Stellantis or practically the entire business of Stellantis; (ii) the entry into or breaking off of any long-term cooperation of Stellantis or a subsidiary with another legal entity or company or as a fully liable partner of a general partnership or limited partnership, where such entry into or breaking off is of far-reaching importance to Stellantis; and (iii) the acquisition or disposal by Stellantis or a subsidiary of an interest in the capital of a company with a value of at least one-third of Stellantis’s assets according to the consolidated balance sheet with explanatory notes included in the last adopted annual accounts of Stellantis.
Meetings of Holders of Shares of a Specific Class
Meetings of holders of shares of a specific class shall be held as frequently and whenever such a meeting is required by virtue of any statutory regulation or any provision in the Articles of Association.
Meetings of holders of shares of a specific class may be convened no later than on the sixth day before the day of such meeting. The provisions applicable to general meetings of shareholders, except those concerning the frequency, ultimate timing, notice period, right to put an item on the agenda and required agenda items, will apply mutatis mutandis to the meetings of holders of shares of a specific class. See “—Voting Rights at General Meetings” and “—Voting Limitations”.
Issuance of shares
The general meeting of shareholders, or alternatively the Board of Directors if it has been designated to do so at the general meeting of shareholders shall have authority to resolve on any issuance of shares and rights to subscribe for shares.
The Board of Directors has been irrevocably authorized, for a period of three years from January 16, 2021 to issue common shares and rights to subscribe for common shares up to in aggregate (i) ten percent of the issued common shares for general corporate purposes as of January 16, 2021, plus (ii) an additional ten percent of the issued common shares as of such date, if the issuance and/or the granting of rights to subscribe for common shares occurs in connection with the acquisition of an enterprise or a corporation, or, if such issuance and/or the granting of rights to subscribe for common shares is otherwise necessary in the opinion of the Board of Directors. The Board of Directors will also be designated, for a period of three years from January 16, 2021 as the authorized body to limit or exclude the rights of pre-emption of shareholders in connection with the foregoing authority of the Board of Directors to issue Stellantis common shares and grant rights to subscribe for Stellantis common shares. Refer to the “Rights of Pre-emption” section elsewhere in this report.
The general meeting of shareholders, or the Board of Directors if so designated in accordance with the Articles of Association, shall decide on the price and the further terms and conditions of issuance, with due observance of what is required in relation thereto under Dutch law and the Articles of Association.
If the Board of Directors is designated by the general meeting of shareholders to have authority to decide on the issuance of shares or rights to subscribe for shares, such a designation shall specify the class of shares and the maximum number of shares or rights to subscribe for shares that can be issued under such a designation. When making such designation the duration of the Board of Directors’ relevant authority, which shall not be for more than five years, shall be resolved upon at the same time. The designation may be extended from time to time for periods not exceeding five years. The designation may not be withdrawn unless otherwise provided in the resolution in which the designation is made.
Payment for shares shall be made in cash unless another form of consideration has been agreed. Payment in a currency other than euro may only be made with the consent of the Board of Directors.
Disclosure of Holdings under Dutch Law
As a result of the listing of Stellantis common shares on the MTA and Euronext Paris, pursuant to Chapter 5.3 of the Dutch Financial Markets Supervision Act (“FMSA”), which chapter is an implementation of Directive 2004/109/EC as amended by Directive 2013/50/EU into Dutch law, any person who, directly or indirectly, acquires or disposes of an actual or potential capital interest and/or actual or potential voting rights in Stellantis must without delay notify the AFM of such acquisition or disposal if, as a result of such acquisition or disposal, the percentage of capital interest and/or voting rights held by such person reaches, exceeds or falls below the following thresholds: three percent, five percent, ten percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 percent, 60 percent, 75 percent and 95 percent (the “Notification Thresholds”).
For the purpose of calculating the percentage of capital interest or voting rights, the following interests must, inter alia, be taken into account: (i) shares and/or voting rights directly held (or acquired or disposed of) by any person; (ii) shares and/or voting rights held (or, acquired or disposed of) by such person’s controlled entities or by a third party for such person’s account; (iii) voting rights held (or acquired or disposed of) by a third party with whom such person has concluded an oral or written voting agreement; (iv) voting rights acquired pursuant to an agreement providing for a temporary transfer of voting rights in consideration for a payment; and (v) shares which such person, or any controlled entity or third party referred to above, may acquire pursuant to any option or other right to acquire shares.
As a consequence of the above, special voting shares must be added to Stellantis common shares for the purposes of the above thresholds.
For the purpose of calculating the percentage of capital interest or voting rights, the following instruments qualify as ‘shares’: (i) shares; (ii) depositary receipts for shares (or negotiable instruments similar to such receipts); (iii) negotiable instruments for acquiring the instruments under (i) or (ii) (such as convertible bonds); and (iv) options for acquiring the instruments under (i) or (ii).
Controlled entities (within the meaning of the FMSA) do not themselves have notification obligations under the FMSA as their direct and indirect interests are attributed to their (ultimate) parent. If a person who has a three percent or larger interest in Stellantis’s share capital or voting rights ceases to be a controlled entity it must immediately notify the AFM and all notification obligations under the FMSA will become applicable to such former controlled entity.
Special rules apply to the attribution of shares and/or voting rights which are part of the property of a partnership or other form of joint ownership. A holder of a pledge or right of usufruct in respect of shares can also be subject to notification obligations if such person has, or can acquire, the right to vote on the shares. The acquisition of (conditional) voting rights by a pledgee or beneficial owner may also trigger notification obligations as if the pledgee or beneficial owner were the legal holder of the shares and/or voting rights.
Furthermore, when calculating the percentage of capital interest, a person is also considered to be in possession of shares if (i) such person holds a financial instrument the value of which is (in part) determined by the value of the shares or any distributions associated therewith and which does not entitle such person to acquire any shares; (ii) such person may be required to purchase shares on the basis of an option; or (iii) such person has concluded another contract whereby such person acquires an economic interest comparable to that of holding a share.
If a person’s capital interest and/or voting rights reaches, exceeds or falls below the above-mentioned thresholds as a result of a change in Stellantis’s issued and outstanding share capital or voting rights, such person is required to make a notification not later than on the fourth trading day after the AFM has published Stellantis’s notification as described below.
The notification to the AFM should indicate whether the interest is held directly or indirectly, and whether the interest is an actual or a potential interest.
In addition, each person who is or ought to be aware that, as a result of the exchange of certain financial instruments, such as options for shares, his or her actual capital or voting interest in Stellantis, reaches, exceeds or falls below any of the Notification Thresholds, vis-à-vis his or her most recent notification to the AFM, must give notice to the AFM no later than the fourth trading day after he or she became or ought to be aware of this change.
Stellantis is required to notify the AFM promptly of any change of one percent or more in its issued and outstanding share capital or voting rights since a previous notification. Other changes in Stellantis’s issued and outstanding share capital or voting rights must be notified to the AFM within eight days after the end of the quarter in which the change occurred.
In addition to the above described notification obligations pertaining to capital interest or voting rights, pursuant to Regulation (EU) No. 236/2012, as last amended by ESMA Decision of December 16, 2020, ESMA70-155-11608, notification must be made of any net short position of 0.1 percent in the issued share capital of Stellantis and of every subsequent 0.1 percent above this threshold. Notifications starting at 0.5 percent and every subsequent 0.1 percent above this threshold will be made public via the short selling register of the AFM. To calculate whether a natural person or legal person has a net short position, their short positions and long positions must be set off. A short transaction in a share can only be contracted if a reasonable case can be made that the shares sold can actually be delivered, which requires confirmation of a third party that the shares have been located. Furthermore, gross short positions are required to be notified in the event that a threshold is reached, exceeded or fallen below. With regard to gross short positions, the same disclosure thresholds as for holders of capital interests and/or voting rights apply.
The AFM keeps a public register of all notifications made pursuant to these disclosure obligations and publishes any notification received which can be accessed via www.afm.nl. The notifications referred to in this paragraph should be made through the online notification system of the AFM.
Non-compliance with these disclosure obligations is an economic offense and may lead to criminal prosecution. The AFM may impose administrative penalties for non-compliance and may publish the imposed penalties. In addition, a civil court can impose measures against any person that fails to notify or incorrectly notifies the AFM of matters required to be notified. A claim requiring that such measures be imposed may be instituted by Stellantis and/or by one or more shareholders who alone or together with others represent at least three percent of the issued and outstanding share capital of Stellantis or are able to exercise at least three percent of the voting rights. The measures that the civil court may impose include:
•an order requiring appropriate disclosure;
•suspension of the right to exercise the voting rights for a period of up to three years as determined by the court;
•voiding a resolution adopted by the general meeting of shareholders, if the court determines that the resolution would not have been adopted but for the exercise of the voting rights of the person with a duty to disclose, or suspension of a resolution adopted by the general meeting of shareholders until the court makes a decision about such voiding; and
•an order to refrain, during a period of up to five years as determined by the court, from acquiring shares and/or voting rights in Stellantis.
Shareholders are advised to consult with their own legal advisers to determine whether the disclosure obligations apply to them.
Mandatory Bid Requirement
Under Dutch law, any person who, acting alone or in concert with others, directly or indirectly acquires 30 percent or more of Stellantis’s voting rights will be required to launch a public offer for all outstanding shares in Stellantis’s share capital for a fair purchase price determined by law. A fair price is considered a price which is equal to the highest price paid by such person or the persons acting in concert with it for Stellantis’s shares in the year prior to the announcement of the offer or, in the absence of such a purchase, the average share price of Stellantis’s shares in the year prior to the announcement of the offer. At the request of the offeror, Stellantis, or any of the Stellantis shareholders, the Enterprise Chamber of the Court of Appeal in Amsterdam (Ondernemingskamer van het Gerchtshof te Amsterdam) (the “Dutch Enterprise Chamber”) may determine a different fair price. If a 30 percent shareholder fails to make a public offer, the Dutch Enterprise Chamber may require such shareholder to do so upon the request of, among others, Stellantis or any of the Stellantis shareholders.
Dutch Financial Reporting Supervision Act
On the basis of the Dutch Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving, or the “FRSA”), the AFM supervises the application of financial reporting standards by, amongst others, companies whose corporate seat is in the Netherlands and whose securities are listed on a regulated Dutch or foreign stock exchange.
Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from Stellantis regarding its application of the applicable financial reporting standards and (ii) recommend to us the making available of further explanations. If we do not comply with such a request or recommendation, the AFM may request that the Enterprise Chamber order us to (i) make available further explanations as recommended by the AFM; (ii) provide an explanation of the way we have applied the applicable financial reporting standards to our financial reports; or (iii) prepare our financial reports in accordance with the Enterprise Chamber’s instructions.
Compulsory Acquisition
Pursuant to article 2:92a of the Dutch Civil Code, a shareholder who, for its own account, holds at least 95 percent of the issued share capital of Stellantis may institute proceedings against the other shareholders jointly for the transfer of their shares to it. The proceedings are held before the Dutch Enterprise Chamber and can be instituted by means of a writ of summons served upon each of the minority shareholders in accordance with the provisions of the Dutch Code of Civil Procedure. The Dutch Enterprise Chamber may grant the claim for the squeeze-out in relation to all minority shareholders and will determine the price to be paid for the shares, if necessary after appointment of one to three expert(s) who will offer an opinion to the Dutch Enterprise Chamber on the value to be paid for the shares of the minority shareholders. Once the order to transfer becomes final before the Dutch Enterprise Chamber, the person acquiring the shares must give written notice of the date and place of payment and the price to the holders of the shares to be acquired whose addresses are known to it. Unless the addresses of all of them are known to it, it must also publish the same in a Dutch daily newspaper with a national circulation. A shareholder can only appeal against the judgment of the Dutch Enterprise Chamber before the Dutch Supreme Court.
In addition, pursuant to article 2:359c of the Dutch Civil Code, following a public offer, a holder of at least 95 percent of the issued share capital and of voting rights of Stellantis has the right to require the minority shareholders to sell their shares to it. Any such request must be filed with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer. Conversely, pursuant to article 2:359d of the Dutch Civil Code, each minority shareholder has the right to require the holder of at least 95 percent of the issued share capital and the voting rights of Stellantis to purchase its shares in such a case. The minority shareholder must file such a claim with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer.
Disclosure of Trades in Listed Securities
Pursuant to the FMSA, each member of the Board of Directors must notify the AFM:
•within two weeks after his or her appointment of the number of shares he or she holds and the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital; and
•subsequently of each change in the number of shares he or she holds and of each change in the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital, immediately after the relevant change.
Furthermore, pursuant to Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 (as amended and supplemented, the “Market Abuse Regulation”), each of the members of the Board of Directors and any other person discharging managerial responsibilities within Stellantis and who in that capacity is authorized to make decisions affecting the future developments and business prospects of Stellantis and has regular access to inside information relating, directly or indirectly, to Stellantis (each, a “PDMR”) must notify the AFM of all transactions, conducted or carried out for his or her own account, relating to Stellantis common shares, special voting shares or financial instruments the value of which is (in part) determined by the value of Stellantis common shares or special voting shares.
In addition, persons that are closely associated with members of the Board of Directors or any of the other PDMRs must notify the AFM of all transactions conducted for their own account relating to Stellantis’s shares or financial instruments, the value of which is (in part) determined by the value of Stellantis’s shares. The Market Abuse Regulation designates the following categories of persons: (i) the spouse or any partner considered by applicable law as equivalent to the spouse; (ii) dependent children; (iii) other relatives who have shared the same household for at least one year as of the relevant transaction date; and (iv) any legal person, trust or partnership, among other things, whose managerial responsibilities are discharged by a member of the board of directors or any other PDMR or by a person referred to under (i), (ii) or (iii) above.
The notifications pursuant to the Market Abuse Regulation described above must be made to the AFM no later than the third business day following the relevant transaction date by means of a standard form. Such notifications under the Market Abuse Regulation may however be postponed until the date that the value of the transactions carried out on a person’s own account, together with the transactions carried out by the persons associated with that person, reaches or exceeds the amount of €5,000 in the calendar year in question. Any subsequent transaction must be notified as set forth above. The AFM keeps a public register of all notifications made pursuant to the FMSA and the Market Abuse Regulation.
Non-compliance with these reporting obligations could lead to criminal penalties, administrative fines and cease-and-desist orders (and the publication of such penalties, fines and orders), imprisonment or other sanctions.
Shareholder Disclosure and Reporting Obligations under U.S. Law
Holders of Stellantis common shares are subject to certain U.S. reporting requirements under the Exchange Act for shareholders owning more than five percent of any class of equity securities registered pursuant to Section 12 of the Exchange Act. Among the reporting requirements are disclosure obligations intended to keep investors aware of any plans or proposals that may lead to a change of control of an issuer.
If Stellantis were to fail to qualify as a foreign private issuer in the future, Section 16(a) of the Exchange Act would require Stellantis’s directors and executive officers, and persons who own more than ten percent of a registered class of Stellantis’s equity securities, to file reports of ownership of, and transactions in, Stellantis’s equity securities with the SEC. Such directors, executive officers and ten percent stockholders would also be required to furnish Stellantis with copies of all Section 16 reports they file.
Disclosure Requirements under Italian law and European Union law
Further disclosure requirements will apply to Stellantis under Italian law and French law by virtue of the listing of Stellantis’s shares on the MTA and Euronext Paris, respectively. Summarized below are the most significant requirements to be complied with by Stellantis in connection with the admission to trading of Stellantis common shares on the MTA and the admission to listing and trading on Euronext Paris. The breach of the obligations described below may result in the application of fines and criminal penalties (including, for instance, those provided for insider trading and market manipulation).
In particular, the following main disclosure obligations will apply to Stellantis:
•The following articles of Legislative Decree no. 58/1998, or the Italian Financial Act (as well as the implementing regulations enacted by CONSOB thereunder) effective as of the date of this report: article 92 (equal treatment principle), article 113-ter (general provisions on regulated disclosures), article 114 (information to be provided to the public), article 114-bis (information concerning the allocation of financial instruments to corporate officers, employees and collaborators), article 115 (information to be disclosed to CONSOB upon the authority’s request), articles 180 through 187-quaterdecies (relating to insider trading and market manipulation) and article 193 (fines for breach of disclosures duties);
•the General Regulation of the AMF, article 223-16 (obligation to disclose on a monthly basis the total number of shares and voting rights comprising Stellantis’s share capital if these numbers have changed compared to the most recently disclosed numbers) and article 223-20 (obligation to file with the AMF certain changes to the Articles of Association). The information required to be published in France may be published in French or English; and
•the applicable law concerning market abuse and, in particular, article 7 (Inside information), article 17 (Public disclosure of inside information), article 18 (Insider lists) and article 19 (Managers’ transactions) of the Market Abuse Regulation, as well as implementing regulations promulgated thereunder.
In addition to the above, the applicable provisions set forth under the market rules (including those relating to the timing for the payment of dividends and relevant “ex date” and “record date”) will apply to Stellantis.
The foregoing is based on the current legal framework and, therefore, it may vary following any potential regulatory changes adopted by the concerned member states and competent authorities.
Disclosure of Inside Information - Article 17 of the Market Abuse Regulation
Pursuant to the Market Abuse Regulation, Stellantis has to disclose to the public, without delay, any inside information which: (i) is of a precise nature; (ii) has not been made public; (iii) directly concerns Stellantis; and (iv) if it were made public, would be likely to have a significant effect on the prices of Stellantis’s financial instruments (as such term is defined under the Market Abuse Regulation) or on the price of related derivative financial instruments (the “Inside Information”). In this regard:
•information is deemed to be of a precise nature if: (a) it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred, or which may reasonably be expected to occur and (b) it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the financial instruments (e.g., Stellantis’s common shares) or the related derivative financial instrument. In this respect, in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the intermediate steps of that process which are connected with bringing about or resulting in those future circumstances or that future event, may be deemed to be information of precise nature.
•information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments or the related derivative financial instruments means information a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
An intermediate step in a protracted process is deemed to be Inside Information if, by itself, it satisfies the criteria of Inside Information as referred to above.
The above disclosure requirement has to be complied with through the publication of a press release by Stellantis in accordance with the Market Abuse Regulation and Dutch, Italian and French law, which discloses to the public the relevant Inside Information. In addition, any Inside Information disseminated by Stellantis in any jurisdiction is required to be made public in a manner that permits full and prompt access to, and correct and timely evaluation of, such information by the public in compliance with the Market Abuse Regulation.
Under specific circumstances, the AFM, CONSOB and the AMF may request Stellantis and/or its main shareholders to disclose to the public, or provide, specific information or documentation. For this purpose, the AFM, CONSOB and the AMF have broad powers under applicable EU regulations, as well as Italian and French law, to, among other things, carry out inspections or investigations or request information from the members of the Board of Directors or the external auditors.
Stellantis may, under its own responsibility, delay disclosure to the public of Inside Information provided that all of the following conditions are met: (a) immediate disclosure is likely to prejudice the legitimate interests of Stellantis; (b) delay of disclosure is not likely to mislead the public; and (c) Stellantis is able to ensure the confidentiality of that information.
In the case of a protracted process that occurs in stages and that is intended to bring about, or that results in, a particular circumstance or a particular event, Stellantis may under its own responsibility delay the public disclosure of Inside Information relating to this process, subject to the conditions set forth under (a), (b) and (c) above.
Insiders’ List - Article 18 of the Market Abuse Regulation
Stellantis, as well as persons acting on its behalf or on its account, are required to draw up and keep regularly updated, a list of all persons who have access to Inside Information and who are working for them under a contract of employment, or otherwise performing tasks pursuant to which they have access to Inside Information, such as advisers, accountants or credit rating agencies (the “insider list”).
Stellantis, or any person acting on its behalf or on its account, is required to take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of Inside Information.
Prohibition on Insider Dealing – Article 14 of the Market Abuse Regulation
It is prohibited for any person to make use of inside information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates, as well as an attempt to do so (“insider dealing”). The use of inside information by cancelling or amending of an order concerning a financial instrument also constitutes insider dealing. In addition, it is prohibited for any person to disclose inside information to anyone else (except where the disclosure is made strictly as part of the person’s regular duty or function) or, whilst in possession of inside information, recommend or induce anyone to acquire or dispose of financial instruments to which the information relates. Furthermore, it is prohibited for any person to engage in or attempt to engage in market manipulation, for instance by conducting transactions which could lead to an incorrect or misleading signal of the supply of, the demand for or the price of a financial instrument.
Prohibition to Trade During Closed Periods – Article 19 of the Market Abuse Regulation
A PDMR is not permitted to (directly or indirectly) conduct any transactions on its own account or for the account of a third party, relating to shares or debt instruments of the Company or other financial instruments linked thereto, during a closed period of 30 calendar days before the announcement of an annual or semi-annual financial report of the Company.
Transparency Directive
The Netherlands is the Company’s home member state for the purposes of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 (as amended by Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013) as a consequence of which the Company will be subject to the FMSA in respect of certain ongoing transparency and disclosure obligations.
Public Tender Offers
Certain rules provided for under Italian law with respect to both voluntary and mandatory public tender offers will apply to any offer launched for Stellantis common shares. In particular, among other things, the provisions concerning the tender offer price and the procedure, including the obligation to communicate the decision to launch a tender offer, the content of the offer document and the disclosure of the tender offer will be supervised by CONSOB and will be subject to Italian law.
Stellantis Policies
On January 17, 2021, the Board of Directors approved an amended insider trading policy, as described further below under “—Insider Trading Policy”.
On the same day, the Board of Directors resolved that, for a transitional period to be further determined by the Board of Directors, the FCA code of conduct and other corporate and compliance policies (other than FCA's insider trading policy) as in place immediately prior to the merger shall remain applicable to the former FCA business, and the PSA code of ethics and other corporate and compliance policies (other than PSA's insider trading policy) as in place immediately prior to the merger shall remain applicable to the former PSA business. The description below refers to the policies governing the former FCA business. The Company is currently engaged in the harmonization of the former FCA and PSA corporate and compliance policies, with the objective of adopting group-wide Stellantis policies as soon as practicable.
Code of Conduct
During the year ended December 31, 2020, FCA and all of its subsidiaries referred to the principles contained in the FCA Code of Conduct (“FCA Code of Conduct”), as approved by the Board of Directors on April 29, 2015 and updated in January 2017.
The FCA Code of Conduct applied to all board members and officers of FCA and its subsidiaries, as well as full-time and part-time employees of FCA and any of its subsidiaries. The FCA Code of Conduct also applied to all temporary, contract and all other individuals and companies that acted on behalf of FCA, wherever they were located in the world.
The FCA Code of Conduct represented a set of values recognized, adhered to and promoted by the FCA Group, which understood that conduct based on the principles of diligence, integrity and fairness is an important driver of social and economic development. The FCA Code of Conduct provided a pillar of the integrity system which regulated the decision-making processes and operating approach of the FCA Group and its employees in the interests of stakeholders. The FCA Code of Conduct amplified aspects of conduct related to economic, social and environmental dimensions, underscoring the importance of dialog with stakeholders. Explicit reference was made in the FCA Code of Conduct to the UN’s Universal Declaration on Human Rights, the principal Conventions of the International Labor Organization (“ILO”), the OECD Guidelines for Multinational Enterprises, the U.S. Foreign Corrupt Practices Act (“FCPA”) and United Kingdom Bribery Act (“UKBA”).
The FCA Code of Conduct was supplemented by Practices aimed to provide specific guidance to all workforce members on how to effectively apply the Principles under the FCA Code of Conduct in relation to various topics such as: the Environment, Health and Safety, Anti-corruption, Suppliers, Respect of Human Rights, Conflicts of Interest, Data Privacy, Information Assets Protection, Antitrust and Export controls. Moreover FCA published on the FCA Website an updated version of the Company Sustainability Guidelines to cover specific business matters detailing FCA’s accountability and commitment to a culture of responsibility and integrity.
FCA endeavored to ensure that the FCA Code of Conduct was regarded as a best practice of business conduct and observed by those third parties with whom it maintained business relationships of a lasting nature such as suppliers, dealers, advisors and agents. In fact, FCA Group contracts worldwide included specific clauses relating to recognition and adherence to the principles underlying the FCA Code of Conduct, as well as compliance with local regulations, particularly those related to corruption, money-laundering, terrorism and other crimes constituting liability for legal persons.
Following completion of the merger, the former FCA and PSA businesses initially continued to apply their own existing codes of conduct, up to the adoption by the Stellantis Board of Directors of the new code of conduct for Stellantis (the “Stellantis Code of Conduct”) at its meeting on March 2, 2021.
The Stellantis Code of Conduct continues to be a pillar of the integrity system, regulating the decision-making processes and operating approach of the Group and its employees in the interests of stakeholders. Integrity is regarded as a source of competitiveness, a foundation of the Group’s sustainable growth and the way to build day after day Stellantis’s reputation as a Company that customers, the workforce and stakeholders can trust and rely on. The Stellantis Code of Conduct sets the ethical principles of integrity that will guide the Group and its workforce ensuring compliance with laws, regulations and best practices.
Explicit reference is made to the United Nations (“UN”) declaration on human rights and the ILO declaration on fundamental principles and rights at work.
The Stellantis Code of Conduct applies to the members of the Stellantis Board of Directors, officers and to all full-time or part-time employees, temporary workers and contract workers. Based on the Stellantis Code of Conduct, Stellantis also expects its stakeholders, including suppliers, dealers, distributors, and Joint Venture partners, to act with integrity and in accordance with the Stellantis Code of Conduct.
The Stellantis Code of Conduct focuses on four main areas:
(a)the protection of the Stellantis workforce, including a commitment to diversity, fairness, and health and safety;
(b)the way Stellantis conducts business by engaging in sustainable practices, with a specific reference to the environmental protection, and in accordance with applicable law, including vehicle safety and emissions laws and regulations, anti-money laundering, competition, export and trade regulations, insider trading, data privacy, anti-bribery and private corruption, lobby and political contribution;
(c)the interaction with external parties, including the avoidance of conflicts of interest and the support of our communities; and
(d)the protection of Stellantis assets and information.
The Stellantis Code of Conduct, like its FCA predecessor, will be supplemented by a set of policies and procedures, that will be developed based on a process of harmonization of the former FCA and PSA ethics and compliance policies.
Members of the workforce have the responsibility to become familiar with the Stellantis Code of Conduct, abide by it, and report any conduct that they believe may be in violation of the Stellantis Code of Conduct. Retaliation against anyone who reports a matter in good faith is strictly prohibited and will be subject to disciplinary action.
Stellantis, and previously FCA, closely monitors the effectiveness of and compliance with the Stellantis Code of Conduct (and previously the FCA Code of Conduct). Violations of the Stellantis Code of Conduct are essentially determined through, among others: periodic activities carried out by Internal Audit according to the annual Audit Plan that is based on a group risk assessment process; allegations received; and checks forming part of the standard operating procedures. Internal Audit investigates violations of the Stellantis Code of Conduct also through specific Business Ethics Audits. On a regular basis, the Chief Audit and Compliance Officer informs the Chief Executive Officer and the Audit Committee on the major findings. For all Stellantis Code of Conduct violations, disciplinary measures taken are commensurate with the seriousness of the case and comply with local legislation.
The Stellantis Code of Conduct is available on the Governance section of the Group’s website at https://www.stellantis.com/en/group/governance/corporate-regulations.
Insider Trading Policy
The insider trading policy was initially adopted on October 10, 2014 by the board of directors of Fiat Investments. This policy was amended by the Board of Directors of FCA on July 28, 2016 following the new applicable law concerning market abuse and, in particular, the MAR Regulation and its implementing regulations; the policy was further revised by the Board of Directors on October 2, 2019, effective as of November 4, 2019, to improve its effectiveness and scope. On January 17, 2021, the Board of Directors amended the policy in connection with the listing of Stellantis’s common shares on Euronext Paris. The insider trading policy sets forth guidelines and recommendations to all Directors, officers and employees of the Group with respect to transactions in the Company’s securities. This policy, which also applies to immediate family members and members of the households of persons covered by the policy, is designed to prevent insider trading or allegations of insider trading, and to protect the Company’s integrity and ethical conduct.
Sustainability Practices
The Group is committed to operating in an environmentally and socially-responsible manner. For a full description of sustainability governance, guidelines, targets and results, refer to the section NON-FINANCIAL INFORMATION elsewhere in this report.
Diversity Policy
On December 20, 2017, the Board of Directors adopted a diversity policy for the Board of Directors (the “Diversity Policy”), as the Company believes that diversity in the composition of the Board of Directors in terms of age, gender, expertise, work and personal background and nationality is an important means of promoting debate, balanced decision-making and independent actions of the Board of Directors.
The Company applies the following aspects of diversity to the Board of Directors: age, gender, expertise, work and personal background and nationality. The Company considers each of these aspects key drivers to support the above-mentioned goals and to achieve sufficient diversity of views and the expertise needed for a proper understanding of current affairs and longer-term risks and opportunities related to the Company’s business. The Board of Directors and its Governance and Sustainability Committee consider such factors when evaluating nominees for election to the Board of Directors and during the annual performance assessment process.
Concrete targets that the Company aims to achieve, with an overriding emphasis based on merit, within the next several years, are that (a) at least 30% of the seats of the Board of Directors are occupied by women and at least 30% by men; (b) the nationality of the members of the Board of Directors shall be reasonably consistent with the geographic spread of Stellantis’s business in such manner that no nationality shall count for more than 60% of the members of the Board of Directors; and (c) the age of the members of the Board of Directors should be more diverse by having one or more members of the Board of Directors aged under 50 at the day of their nomination; provided that in the selection of a candidate on the basis of the defined diversity criteria, rules and generally accepted principles of non-discrimination (on grounds such as ethnic origin, race, disability or sexual orientation) will be taken into account.
To ensure its correct implementation, the Diversity Policy has been considered in the adoption of a profile for non-executive Directors and will be taken into account in the nomination of executive Directors, as well as in nominating and recommending non-executive Directors. In the 2020 financial year, the targets relating to nationality and age have been realized.
Compliance with Dutch Corporate Governance Code
The Dutch Corporate Governance Code contains principles and best practice provisions that regulate, among other things, relations between the Board of Directors and the shareholders (including the general meeting of shareholders). The Dutch Corporate Governance Code is divided into five chapters which address the following topics: (i) long-term value creation; (ii) effective management and supervision; (iii) remuneration; (iv) the general meeting of shareholders; and (v) one-tier governance structure.
Dutch companies whose shares are listed on a regulated market, such as the MTA or Euronext Paris, or comparable system, such as the NYSE, are required under Dutch law to disclose in their annual reports whether or not they apply the provisions of the Dutch Corporate Governance Code and, in the event that they do not apply a certain provision, to explain the reasons why they have chosen to deviate.
Stellantis acknowledges the importance of good corporate governance and supports the best practice provisions of the Dutch Corporate Governance Code.
The Dutch Corporate Governance Code was revised in December 2016 and the revised Dutch Corporate Governance Code became effective on January 1, 2018, being applicable retrospectively from the 2017 financial year. Consequently, FCA has reported in 2018 regarding its application of the revised Dutch Corporate Governance Code over the 2017 financial year.
While the Company endorses the principles and best practice provisions of the Dutch Corporate Governance Code, its current corporate governance structure applies the following best practice provisions as follows:
•The initial term of appointment of the Chairman, Chief Executive Officer, Senior Independent Director and Vice Chairman amounts to five years instead of the 4-year term prescribed by the Dutch Corporate Governance Code. FCA and PSA agreed upon such initial term as part of the merger negotiations between both parties and taking into account the best interests of the Company.
•The Company does not have a retirement schedule as referred to in best practice provision 2.2.4. of the Dutch Corporate Governance Code, because, pursuant to the Articles of Association, the term of office of the Directors is approximately two years.
•Although the Board of Directors has appointed a non-executive Director with the title of Vice-Chairman, this person does not qualify as a vice-chairperson within the meaning of best practice provision 2.3.7 of the Dutch Corporate Governance Code. The Board of Directors has however appointed a non-executive Director as the chairperson referred to by Dutch law, with the title Senior Independent Director. Pursuant to Board of Directors’ regulations, the Chairman, or in his or her absence the Senior Independent Director, or in his or her absence, any other non-executive Director chosen by a majority of the Directors present at a meeting, will preside at a meeting of the Board of Directors. In addition, the Chairman of Stellantis acts as contact person for individual Directors regarding any conflict of interest of the Senior Independent Director. It is believed that this is sufficient to ensure that the functions assigned to the vice-chairperson by the Dutch Corporate Governance Code are properly discharged.
•Pursuant to best practice provision 4.1.8 of the Dutch Corporate Governance Code, every executive and non-executive Director nominated for appointment should attend the general meeting of shareholders at which votes will be cast on his or her nomination. By publishing the relevant biographical details and curriculum vitae of each nominee for (re)appointment, the Company ensures that the Company’s general meeting of shareholders is well informed in respect of the nominees for (re)appointment and, in practice, only the executive Directors will therefore be present at the general meeting of shareholders.
Differences between Dutch Corporate Governance Practices and NYSE Listing Standards
The discussion below summarizes the significant differences between our corporate governance practices and the NYSE standards applicable to U.S. companies, as well as certain ways in which our governance practices (see above section Compliance with Dutch Corporate Governance Code) deviate from those suggested in the Dutch Corporate Governance Code.
•The NYSE requires that when an audit committee member of a U.S. domestic listed company serves on four or more audit committees of public companies, the listed company should disclose (either on its website or in its annual proxy statement or annual report filed with the SEC) that the board of directors has determined that this simultaneous service would not impair the director’s service to the listed company. Dutch law does not require the Company to make such a determination.
•The Audit Committee is elected by the Board of Directors and is comprised of at least three independent Directors. Audit Committee members are also required (i) not to have any material relationship with the Company or to serve as auditors or accountants for the Company; (ii) to be “independent” for the purposes of NYSE rules, Rule 10A-3 of the Exchange Act and the Dutch Corporate Governance Code; and (iii) to be “financially literate” and have “accounting or selected financial management expertise” (as determined by the Board of Directors). Furthermore, the Audit Committee may not be chaired by the Chairperson of the Board of Directors or by a former executive of the Company. Currently, the Audit Committee consists of Ann Frances Godbehere (Chairperson), Wan Ling Martello and Henri de Castries.
•In contrast to NYSE rules applicable to U.S. companies which require that external auditors be appointed by the Audit Committee, the general rule under Dutch law is that external auditors are appointed by the general meeting of shareholders. In accordance with the requirements of Dutch law, the appointment and removal of our independent registered public accounting firm must be resolved upon at a general meeting of shareholders. Our Audit Committee is responsible for the recommendation to the shareholders of the appointment or dismissal and compensation of the independent registered public accounting firm and oversees and evaluates the work of our independent registered public accounting firm.
•NYSE rules require a U.S. listed company to have a compensation committee and a nominating/corporate governance committee composed entirely of independent directors. As a foreign private issuer, we do not have to comply with this requirement; however the Dutch Corporate Governance Code also requires us to have a Remuneration Committee and a selection and appointment committee (which we call our Governance and Sustainability Committee). Our Remuneration Committee Charter states that more than half of the members of the Remuneration Committee must be independent under the Dutch Corporate Governance Code. Three out of five of the current members of the Remuneration Committee are independent under both the NYSE rules and the Dutch Corporate Governance Code.
•Under NYSE listing standards, shareholders of U.S. companies must be given the opportunity to vote on all equity compensation plans and to approve material revisions to those plans, with the limited exceptions set forth in the NYSE rules. As a foreign private issuer, we are permitted to follow our home country laws regarding shareholder approval of compensation plans, and under Dutch law such approval from shareholders is not required for equity compensation plans for employees other than the members of the Board of Directors, to the extent the authority to grant equity rights has been delegated at a general meeting of shareholders to the Board of Directors. For equity compensation plans for members of the Board of Directors and/or in the event that the authority to issue shares and/or rights to subscribe for shares has not been delegated to the Board of Directors, approval by the general meeting of shareholders is required.
Report of the Non-Executive Directors
Introduction
This report renders an account of the supervision exercised by the non-executive Directors of FCA in the 2020 financial year as referred to in best practice provision 5.1.5 of the Dutch Corporate Governance Code.
It was the responsibility of the non-executive Directors of FCA to supervise the policies carried out by the executive Directors of FCA and the general affairs of FCA and its affiliated enterprise, including the implementation of the strategy of FCA regarding long-term value creation. In so doing, the non-executive Directors of FCA acted solely in the interest of FCA. With a view to maintaining supervision on FCA, during the 2020 financial year the non-executive Directors of FCA regularly discussed FCA’s long-term business plans, the implementation of such plans and the risks associated with such plans with the executive Directors of FCA.
According to the Articles of Association of FCA then in force the FCA Board of Directors was a one-tier board and consisted of three or more members, comprising both members having responsibility for the day-to-day management of FCA (executive Directors) and members not having such day-to-day responsibility (non-executive Directors). The FCA Articles of Association provided for the possibility to allocate tasks between the executive and non-executive Directors of FCA. Regardless of an allocation of tasks, all Directors of FCA remained collectively responsible for the proper management and strategy of the Company (including supervision thereof in case of non-executive Directors of FCA).
The composition of the FCA Board of Directors during the year ended December 31, 2020, was as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year of Birth | | Name | | | | Nationality |
| 1976 | | J. Elkann | | M | | ITA |
| 1964 | | M. Manley | | M | | UK |
| 1966 | | R. Palmer | | M | | UK |
| 1949 | | R. L. Thompson | | M | | USA |
| 1960 | | J. Abbott | | M | | UK |
| 1975 | | A. Agnelli | | M | | ITA |
| 1948 | | T. Brandolini d'Adda | | M | | CH |
| 1958 | | G. Earle | | M | | UK |
| 1959 | | V. A. Mars | | F | | USA |
| 1966 | | M. A. Volpi | | M | | ITA |
| 1951 | | P. Wheatcroft | | F | | UK |
| 1955 | | E. Zegna | | M | | ITA |
Details of the current composition of the Board of Directors (including the non-executive Directors) and its committees are set forth in the section “Board of Directors” above.
Supervision by the non-executive Directors
The non-executive Directors of FCA supervised the policies carried out by the executive Directors of FCA and the general affairs of FCA and its affiliated enterprises. In so doing, during the 2020 financial year the non-executive Directors of FCA have also focused on the effectiveness of FCA’s internal risk management and control systems, the integrity and quality of the financial reporting and FCA’s long-term business plans, the implementation of such plans and the associated risks.
The non-executive Directors of FCA also determined the remuneration of the executive Directors of FCA and nominated candidates for FCA's Director appointments. Furthermore, pursuant to the FCA Articles of Association, the Board of Directors of FCA had the possibility to allocate certain specific responsibilities to one or more individual Directors of FCA or to a committee comprised of eligible Directors of FCA and its subsidiaries. In this respect, the Board of Directors of FCA allocated certain specific responsibilities to the Audit Committee, the Compensation Committee and the Governance and Sustainability Committee.
According to the Audit Committee charter in place in 2020, the responsibilities of the Audit Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) the integrity of FCA's financial statements, including any published interim reports; (2) FCA's policy on tax planning adopted by management; (3) FCA's financing; (4) the application by FCA of information and communication technology; (5) the system of internal controls that FCA's management and/or FCA's Board of Directors established; (6) FCA's compliance with legal and regulatory requirements; (7) FCA's compliance with recommendations and observations of internal and independent auditors; (8) FCA's policies and procedures for addressing certain actual or perceived conflicts of interest; (9) the qualifications, independence and remunerations of FCA's independent auditors and any non-audit services provided to FCA by the independent auditors; (10) the functioning of FCA's internal auditors and independent auditors; (11) risk management guidelines and policies; and (12) the implementation and effectiveness of FCA's ethics and compliance program.
The FCA Audit Committee consisted of Mr. Glenn Earle (Chairman), Mr. Thompson, Ms. Wheatcroft and Ms. Mars.
During 2020, thirteen meetings of FCA’s Audit Committee were held. The average attendance of its members at those meetings was 98 percent. The Committee reviewed the FCA Group financial results on a quarterly basis with the assistance of the FCA Group Chief Financial Officer and other Company officers mainly from finance and legal departments, focusing on main business drivers in addition to key accounting and reporting matters. Independent Auditors attended all the meetings providing regular information to the Committee on their activity with specific focus on the areas of major audit risks such as the evaluation of assets and liabilities requiring management judgment. The Committee received updates on legal and compliance matters, with the General Counsel attending the Committee meetings. The Committee also reviewed the Form F-4 and the Admission Prospectus for listing of the Stellantis shares resulting from the merger of Peugeot S.A. with and into Fiat Chrysler Automobiles N.V. and the admission to trading on the New York Stock Exchange, Euronext Paris, and Mercato Telematico Azionario. Internal Audit activity was reviewed on a regular basis with the Chief Audit, Sustainability and Compliance Officer attending all the meetings and discussing with the Committee the main findings and remediating actions. Internal control over financial reporting was part of these reviews as well. In line with the policy adopted by the Group, the Committee was regularly involved in the review and approval of transactions entered into with related parties.
According to the Compensation Committee charter in place in 2020, the responsibilities of the Compensation Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) compensation for executive Directors; (2) FCA's remuneration policy; (3) compensation of non-executive Directors; and (4) remuneration reports.
The FCA Remuneration Committee consisted of Mr. Zegna (Chairman), Ms. Mars and Mr. Volpi.
During 2020, four meetings of FCA’s Compensation Committee were held with 100 percent attendance of its members at those meetings. The Compensation Committee reviewed the Remuneration Report and it also recommended the Amendment of the Remuneration Policy of the Board of Directors, also in view of the Revised Shareholders Rights Directive. Further details of the activities of the Compensation Committee are included in the REMUNERATION REPORT section included elsewhere in this report.
According to the Governance and Sustainability Committee charter in place in 2020, the responsibilities of the Governance and Sustainability Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) drawing up the selection criteria and appointment procedures for Directors; (2) periodic assessment of the size and composition of the FCA Board of Directors and as appropriate making proposals for a composition profile of the FCA Board of Directors; (3) periodic assessment of the performance of individual directors and reporting this to the FCA Board of Directors; (4) proposals to the non-executive Directors for the nomination and re-nomination of Directors to be elected by the Stellantis shareholders; (5) supervision of the policy on the selection and appointment criteria for senior management and on succession planning; and (6) monitoring, evaluation and reporting on the sustainable policies and practices, management standards, strategy, performance and governance globally of FCA and its subsidiaries.
The FCA Governance and Sustainability Committee consisted of Mr. Elkann (Chairman), Ms. Wheatcroft and Ms. Mars.
During 2020, the FCA Governance and Sustainability Committee met four times with 100 percent attendance of its members at those meetings. The Committee reviewed the Board of Director’s and Committee’s assessments, the sustainability achievements and objectives, the recommendations and designations in view of the merger for Directors’ election.
Details on the current duties of the Audit Committee, Compensation Committee and Governance and Sustainability Committee, are set forth in the sections “The Audit Committee”, “The Remuneration Committee” and “The Governance and Sustainability Committee”, within “Board Practices and Committees” above.
During the 2020 financial year, the non-executive Directors of FCA supervised the adoption and implementation of the strategies and policies by FCA, received updates on legal and compliance matters and they were regularly involved in the review and approval of transactions entered into with related parties. The non-executive Directors of FCA also reviewed the reports of the Board of Directors of FCA and its committees, the sustainability achievement and objectives and the recommendations for the appointment of FCA Directors. In connection with the merger, the shareholders of FCA approved at the extraordinary general meeting held on January 4, 2021 changes to the composition of the Board of Directors as of the Governance Effective Time (being January 17, 2021), approving the appointment of the members of the Board of Directors of Stellantis, who reviewed this annual report, including the Remuneration Report and the 2020 Company’s financial results.
During 2020, there were 13 meetings of the Board of Directors of FCA. Portions of these meetings took place without the executive Directors of FCA being present. The average attendance at those meetings was 100 percent. An overview of the attendance of the individual FCA Directors per meeting of the Board of Directors of FCA and its committees set out against the total number of such meetings is set out below:
| | | | | | | | | | | | | | |
| Name | Meeting Board of Directors | Audit Committee | Governance and Sustainability Committee | Compensation Committee |
John Elkann(1) | 13/13 | - | 4/4 | - |
Michael Manley(2) | 13/13 | - | - | - |
Richard K. Palmer(2) | 13/13 | - | - | - |
Ronald L. Thompson(2) | 13/13 | 13/13 | - | - |
Andrea Agnelli(1) | 13/13 | - | - | - |
Tiberto Brandolini d’Adda(2) | 13/13 | - | - | - |
Glenn Earle(2) | 13/13 | 13/13 | - | - |
Valerie A. Mars(2) | 13/13 | 12/13 | 4/4 | 4/4 |
Michelangelo A. Volpi(2) | 13/13 | - | - | 4/4 |
Patience Wheatcroft(2) | 13/13 | 13/13 | 4/4 | - |
Ermenegildo Zegna(2) | 13/13 | - | - | 4/4 |
John Abbott(2) | 13/13 | - | - | - |
(1) Messrs. John Elkann and Andrea Agnelli were re-appointed as directors at the extraordinary general meeting of shareholders held on January 4, 2021.
(2) Board member of FCA until January 17, 2021.
During these meetings, the key topics discussed were, amongst others: the COVID-19 Emergency, including the decisions to close FCA’s facilities to protect the health and safety of the workforce, the measures to be implemented in order to restart the production activities minimizing any sanitary risks, and the implementing of the remote working to the extent possible; several actions to preserve and enhance liquidity; the FCA Group’s strategy and the several steps related to the implementation of the Combination Agreement with Groupe PSA; analysis of investments, the FCA Group’s financial results and reporting, acquisitions and divestitures, executive compensation, product plan and technological developments, risk management, legal and compliance matters, sustainability, human resources, implementation and amendment of the Remuneration Policy, and the Remuneration Report.
Independence of the non-executive Directors
The non-executive Directors are required by Dutch law to act solely in the interest of the Company. The Dutch Corporate Governance Code stipulates the corporate governance rules relating to the independence of non-executive Directors and requires under most circumstances that a majority of the non-executive Directors be “independent.”
The FCA Board of Directors determined that, in 2020, seven of FCA’s twelve Board of Directors members qualified as independent for purposes of NYSE rules, Rule 10A-3 of the Exchange Act, and the Dutch Corporate Governance Code. The remaining directors, being John Elkann, Michael Manley, Richard K. Palmer, Andrea Agnelli and Tiberto Brandolini d’Adda, did not qualify as independent for the purposes referred to in the preceding sentence.
Evaluation by the non-executive Directors
The non-executive Directors of FCA were responsible for supervising the FCA Board of Directors and its committees, as well as the individual executive and non-executive Directors of FCA, and are assisted by the Governance and Sustainability Committee in this respect.
In accordance with the Governance and Sustainability Committee Charter in place in 2020, the Governance and Sustainability Committee assisted and advised the FCA Board of Directors with respect to periodic assessment of the performance of individual Directors. In this respect, the Governance and Sustainability Committee had, amongst others, in 2020, the duties and responsibilities to review the FCA Board of Directors’ performance, the performance of its committees and to contribute to the process to designate candidates to the Board of Directors of Stellantis.
In 2020, the Governance and Sustainability Committee of FCA focused on the periodic assessment of the performance of the Board of Directors of FCA, its committees and the individual Directors of FCA during the meeting held on February 19, 2020. Consideration was given to what actions, if any, could enhance and further improve the functioning of the Board of Directors of FCA and its committees, as well as steps that could be taken to address specific requests or perceived areas for improvement.
The non-executive Directors of FCA were regularly informed by each committee as referred to in best practice provision 2.3.5 of the Dutch Corporate Governance Code and the conclusions of those committees were taken into account when drafting this report of the non-executive Directors of FCA.
The non-executive Directors of FCA were able to review and evaluate the performance of FCA’s Audit Committee, Governance and Sustainability Committee and Compensation Committee in 2020. Based on the evaluations, there was no need to amend the size or composition of FCA’s Audit Committee, Governance and Sustainability Committee and Compensation Committee, nor to amend their charters during the year 2020. However, the charters were amended at the Governance Effective Time in connection with the implementation of the Stellantis governance arrangements following the merger. Details on the current charters of the Audit Committee, the Governance and Sustainability Committee and the Compensation Committee, are set forth in the sections “The Audit Committee”, “The Remuneration Committee” and “The Governance and Sustainability Committee”, within “Board Practices and Committees” above.
Also, pursuant to FCA’s Compensation Committee Charter, the Compensation Committee implemented and oversaw the Remuneration Policy as it applied to non-executive Directors of FCA, executive Directors of FCA and senior officers reporting directly to the executive Directors of FCA. The Compensation Committee administered all the equity incentive plans and the deferred compensation benefits plans of FCA. On the basis of the assessments performed, the non-executive Directors determined the remuneration of the executive Directors of FCA and nominated candidates for the FCA Director appointments.
The non-executive Directors of FCA have supervised the performance of FCA’s Audit Committee, Compensation Committee and Governance and Sustainability Committee.
REMUNERATION REPORT
In this Remuneration Report, the Compensation Committee of the Board of Directors (the “Compensation Committee”) provides a comprehensive overview, in accordance with article 2:135b of the Dutch Civil Code, of the remuneration paid and owed to the individual members of the Board of Directors (the “FCA Board”) in 2020. The remuneration of the Directors in 2020 reflects remuneration actions approved by the FCA Board, at the recommendation of the Compensation Committee, in accordance with the remuneration policy of the Company and adopted during the June 26, 2020 Annual General Meeting (the “Remuneration Policy”). 2020 was an exceptional year requiring remuneration measures in response to the business impacts of COVID 19 and the upcoming merger of FCA with Groupe PSA, which was completed on January 16, 2021.
In line with article 2:135b of the Dutch Civil Code this report will be subject to an advisory vote at the 2021 Annual General Meeting. The 2019 Remuneration Report was presented to the shareholders for an advisory vote at the June 26, 2020 Annual General Meeting and received a 91.07% shareholder support. Therefore, the Compensation Committee decided not to change the structure and level of disclosure of the 2020 Remuneration Report.
Remuneration Reportpolicy
This section provides an overview of the Remuneration Policy for FCA’s Executive Directors. The Remuneration Policy, in accordance with Dutch law and Corporate Governance Code was presented to shareholders at the June 26, 2020 Annual General Meeting and received 90.56% shareholder approval. The merger of FCA with Groupe PSA, will lead to some changes to the Remuneration Policy. A revised Remuneration Policy will be presented for a shareholder vote at the 2021 Annual General Meeting and once approved will be available on the Stellantis website.
Objectives and principles
The quality of our leadership and their commitment to the Company are fundamental to our success. FCA’s global remuneration principles support our business strategy and growth objectives in athe diverse and evolving global market.markets in which we compete. Our remuneration policies are designed to reward competitively the achievement ofappropriately pay-for-performance with an emphasis on creating long-term sustainable performance and to attract, motivate and retain highly qualified executives who are committed to performing their roles in the long-term interest of our shareholders. Given the changing international standards regarding responsible and sound remuneration, ashareholder value, avoiding arrangements that risk pay for failure. A variety of factors are taken into consideration such as the complexity of functions, the scope of responsibilities, the alignment of risks and rewards, national and international legislation andwhen evaluating compensation arrangements, including the long-term objectives of the Company and its shareholders.shareholders and a clear framework of compensation best practices which keep pace with ever-evolving US and European market-specific best practices.
Within the scope of FCA’s Remuneration Policy, forthe remuneration of the Executive Directors
The compensation for our executive directors is determined by the FCA Board at the recommendation of Directors based on recommendations from the Compensation CommitteeCommittee. This annual Remuneration Report describes how the pay programs and practices of the Board ofExecutive Directors (the “Compensation Committee”) and Non-Executive Directors were implemented in 2020, in accordance with the Company’s Remuneration Policy for Executive Directors (the “Remuneration Policy”). The current Remuneration Policy was approved by the shareholders of Fiat Chrysler Automobiles N.V. at the 2017 annual general meeting of FCA shareholders and is reviewed annually by the Compensation Committee. Our Remuneration Policy is available in full on the Company’s website at www.fcagroup.com.
The Compensation Committee reviews the Remuneration Policy and its implementation. The Compensation Committee concluded that there were no reasons to recommend adjustments to the Remuneration Policy at the 2018 annual general meeting of FCA shareholders with regard to its executive directors. This report describes the Company’s compensation principles and structure for the executive directors and summarizes the significant compensation decisions made by the FCA Compensation Committee in 2017.
Financial Year 2017 - Select Business Highlights
A key tenet of the Remuneration Policy is pay for performance. The Group had record results for 2017, achieving or exceeding all key targets for 2017. To provide perspective of the Group’s performance in 2017, the following table highlights some of the key achievements during the year:Policy.
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|
2017 Financial Highlights |
Achieved or exceeded all key targets for 2017 and in first four years of the five-year business plan |
Record results with Adjusted EBIT at €7.1 billion and margin up 90 bps to 6.4% |
Continued profitability in all segments with year over year Adjusted EBIT and margin growth |
Cash flows from industrial operating activities of €1.6 billion contributed to €2.2 billion reduction in Net industrial debt |
Introduction of Alfa Romeo Giulia and Stelvio in major global premium markets - brand announced return to Formula 1 for 2018 season |
All-new Jeep Wrangler production started in Q4 ’17; Next-generation Ram 1500 and new Jeep Cherokee on schedule for 2018 |
Moody’s and S&P improved outlook on FCA’s ratings to positive from stable; Fitch upgraded FCA and maintained outlook at positive |
In May 2014, we presented a five-year business plan, which was subsequently updated and is available on the Investor Relations page of the Company's website. We have successfully achieved the business plan key targets established for 2014, 2015, 2016 and 2017 and confirmed the key business plan targets for 2018.
The guiding principleprinciples of our Remuneration Policy isdirect our efforts to provide a compensation structure that allows FCA to attract and retain the most highly qualified executive talent and to motivate such executives to achieve business and financial goals that create long-term value for shareholders and other stakeholders in a manner consistent with our core business and leadership values. FCA’s compensation philosophy as set forth in the Remuneration Policy, aims to provide compensation to its executive directors as outlined below.
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| | | | |
| Alignment with FCA's strategy | Compensation is strongly linked to the achievement of the Group's publicly disclosed performance targets. |
| Pay for performance | Compensation must reinforce our performance-driven culture and principles of meritocracy. As such, the majority of pay is linked directly to the Group's performance through both short and long-term variable pay instruments. |
| Competitiveness | Compensation shouldwill be competitive against the comparable market and set in a manner to attract, retain and motivate expert leaders and highly qualified executives.executives in geographies where we directly compete. |
| Long-term shareholder value creation | Targets triggering any variable compensation payment should directly align with the interest of shareholders.shareholders and other stakeholders to promote the long-term success of the Company and constructed to avoid excessive levels of compensation. |
| Compliance | Our compensation policies and plans are designed to comply with applicable laws and corporate governance requirements.
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| Risk prudence | The compensation structure should avoid incentives that encourage unnecessary or excessive risks that could threaten the Company's value.value or reputation. |
2020 Financial Year - Highlights summary
A key tenet of FCA's Remuneration Policy is pay for performance. The FCA Group reported positive full year 2020 results despite the impact of COVID-19 on the FCA Group and automotive industry as a whole. The following highlights some of the key achievements during the year:
•Positive operating results with Adjusted EBIT of €3.7 billion, with North American Adjusted EBIT of €5.4 billion, and Industrial free cash flows of €0.6 billion, despite the impact of COVID-19 on the results for the first half of 2020;
◦For the fourth quarter of 2020, the FCA Group reported record results with all segments profitable; record North America Adjusted EBIT of €2.2 billion and margin of 11.6%, and sequential improvement in LATAM despite continued market downturn from COVID-19;
•The FCA Group maintained market leadership in LATAM and Brazil;
•The FCA Group’s available liquidity was strong at December 31, 2020 at €31.4 billion;
•FCA and Groupe PSA continued progress for the completion of the 50/50 merger to create 3rd largest global OEM by revenues and 4th by volume, with the merger finalized on January 16, 2021;
The following table highlights the financial metrics in the year:
| | | | | | | | | | | | | | | | |
| Financial Metric | | 2020 | | | | Change from 2019 |
| | (€ million, except as otherwise noted) |
| Worldwide combined shipments (in thousands of units) | | 3,435 | | | | | (22) | % |
| Net revenues | | 86,676 | | | | | (20) | % |
| Net profit from continuing operations | | 24 | | | | | (99) | % |
Adjusted EBIT(1) | | 3,742 | | | | | (44) | % |
Adjusted EBIT margin(1) | | 4.3 | % | | | | -190 bps |
Adjusted Net profit(1) | | 1,863 | | | | | (57) | % |
| Diluted earnings per share from continuing operations (€ per share) | | 0.02 | | | | | (99) | % |
Adjusted diluted earnings per share(1) (€ per share) | | 1.19 | | | | | (56) | % |
| Cash flows from operating activities - continuing operations | | 9,183 | | | | | (15) | % |
Industrial free cash flows(1) | | 624 | | | | | (70) | % |
(1) Refer to FINANCIAL OVERVIEW - Non-GAAP Financial Measures for additional detail and definitions of these performance metrics.
Director's Total Remuneration in 2020
The following table summarizes the remuneration paid or awarded to the members of the FCA Board for the year ended December 31, 2020. Of the Directors only John Elkann and Andrea Agnelli will stay on as members of the Board after the merger.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fixed Remuneration | | Variable Remuneration | | | | | | |
| Directors of FCA | Office held | Year | | Base salary(1) | | Annual Fee (12) | | Fringe benefits | | Short-term incentive(2) | | Long-term incentive (3) | | Retirement Benefits Expense | | Total Remuneration(13) | | Proportion of Fixed Remuneration | | Proportion of Variable Remuneration |
| | | | (€) | | | | |
| Executive Directors |
| ELKANN, John Philipp | Chairman | 2020 | | 218,877 | | | — | | | 461,210 | | (4) | — | | 1,711,090 | | — | | | 2,391,177 | | | 28 | % | | 72 | % |
| | 2019 | | 893,276 | | | — | | | 672,284 | | | — | | 2,284,386 | | — | | | 3,849,946 | | | 41 | % | | 59 | % |
| MANLEY, Michael | CEO | 2020 | | 1,225,709 | | | — | | | 79,230 | | (5) | 1,680,972 | | 5,703,204 | | 3,040,443 | | (6), (7) | 11,729,558 | | | 11 | % | | 89 | % |
| | 2019 | | 1,429,241 | | | — | | | 30,389 | | | 1,203,243 | | 8,819,249 | | 1,798,791 | | | 13,280,913 | | | 11 | % | | 89 | % |
| PALMER, Richard | CFO | 2020 | | 1,158,076 | | | — | | | 73,561 | | (8) | 1,001,579 | | 1,859,481 | | 378,845 | | (6) | 4,471,542 | | | 28 | % | | 72 | % |
| | 2019 | | 923,916 | | | — | | | 53,351 | | | 501,128 | | 2,309,323 | | 247,570 | | | 4,035,288 | | | 24 | % | | 76 | % |
| | | | | | | | | | | | | | | | | | | | |
| Non-Executive Directors |
| ABBOTT, John | Director | 2020 | | — | | | 43,775 | | | — | | | — | | — | | — | | | 43,775 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | — | | | — | | — | | — | | | 178,655 | | | 100 | % | | — | % |
| AGNELLI, Andrea | Director | 2020 | | — | | | 43,775 | | | 2,113 | | (10) | — | | — | | — | | | 45,888 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | 1,502 | | | — | | — | | — | | | 180,157 | | | 100 | % | | — | % |
| BRANDOLINI D'ADDA, Tiberto | Director | 2020 | | — | | | 43,775 | | | 916 | | (10) | — | | — | | — | | | 44,691 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | 2,313 | | | — | | — | | — | | | 180,968 | | | 100 | % | | — | % |
| EARLE, Glenn | Director | 2020 | | — | | | 48,153 | | | 23,482 | | (10) | — | | — | | — | | | 71,635 | | | 100 | % | | — | % |
| | 2019 | | — | | | 196,521 | | | 19,128 | | | — | | — | | — | | | 215,649 | | | 100 | % | | — | % |
| MARS, Valerie | Director | 2020 | | — | | | 48,153 | | | 12,750 | | (10) | — | | — | | — | | | 60,903 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 16,475 | | | — | | — | | — | | | 208,529 | | | 100 | % | | — | % |
| SIMMONS, Ruth J. | Director | 2020 | | — | | | — | | | — | | | — | | — | | — | | | — | | | — | % | | — | % |
| | 2019 | | — | | | 91,561 | | | 8,274 | | | — | | — | | — | | | 99,835 | | | 100 | % | | — | % |
THOMPSON, Ronald L. (11) | Director | 2020 | | — | | | 51,436 | | | 6,795 | | (10) | — | | — | | — | | | 58,231 | | | 100 | % | | — | % |
| | 2019 | | — | | | 209,920 | | | 10,604 | | | — | | — | | — | | | 220,524 | | | 100 | % | | — | % |
| VOLPI, Michelangelo A. | Director | 2020 | | — | | | 44,870 | | | 7,499 | | (10) | — | | — | | — | | | 52,369 | | | 100 | % | | — | % |
| | 2019 | | — | | | 183,122 | | | 6,287 | | | — | | — | | — | | | 189,409 | | | 100 | % | | — | % |
| WHEATCROFT, Patience | Director | 2020 | | — | | | 47,058 | | | 12,632 | | (10) | — | | — | | — | | | 59,690 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 12,230 | | | — | | — | | — | | | 204,284 | | | 100 | % | | — | % |
| ZEGNA, Ermenegildo | Director | 2020 | | — | | | 47,058 | | | 20,979 | | (10) | — | | — | | — | | | 68,037 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 13,572 | | | — | | — | | — | | | 205,626 | | | 100 | % | | — | % |
| Total 2020 | | | | 2,602,662 | | | 418,053 | | | 701,167 | | | 2,682,551 | | | 9,273,775 | | | 3,419,288 | | | 19,097,496 | | | | | |
(1) As described in the chart below, the Executive Directors requested base salary cuts due to the business impact of COVID-19;
(2) The amounts represent the bonus earned for the performance year 2020 which will be paid in 2021;
(3) The amounts represent the Company's 2020 expense relating to grants issued to the Executive Directors under the Long Term Equity Incentive Plan;
(4) The stated amount includes the use of transport and insurance premiums;
(5) The stated amount includes the use of transport and cost of residential security;
(6) Both the CEO and CFO have fully vested post retirement pension benefits that were provided to them prior to their appointments to Executive Directors. The expense relating to this benefit is included in aggregate compensation expense for executives with strategic responsibilities in Note 24, Related party transactions, within the Consolidated Financial Statements included elsewhere in this report.
(7) Includes one-time expense of €2.0 million due to accelerated vesting of a Supplemental Retirement Benefit due to the merger with Groupe PSA;
(8) The stated amount includes the use of transport, insurance premiums and tax preparation
(9) Represents remuneration paid or earned since his appointment to the Board on April 12,2019 to December 31, 2019;
(10) The stated amount refers to certain automobile perquisites, which are subject to taxes for the imputed income on the purchase or lease of Company vehicles, and tax preparation;
(11) Upon departure from the Board, FCA US legacy Board payments in the amount of €8,692,605 were owed and delivered;
(12) As described in the chart below, the Non-Executive Directors requested an annual fee reduction from $200,000 to $50,000; and
(13) The FCA merger with Groupe PSA led to the financial accrual of certain retention awards for the CEO and CFO in 2020. Such awards were not earned or paid in 2020, but are due in the future. Additional information about the awards can be found in the section “Impact of Merger with Groupe PSA.”
1. Remuneration of Executive Directors
Summary Overview of Remuneration Elements
Remuneration of the executive directors is simple and transparent in design, and consists of the following key elements, all of which have been benchmarked and confirmed by an external compensation consultant:
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| Element | Description | 2020 Application |
| Annual base salary | Market based fixed cash compensation set competitively to approved multinational peer group | Due to the unprecedented circumstances as a result of COVID 19, the Chairman, CEO and CFO requested base salary cuts in 2020.
Base salary as follows: •Chairman: U.S.$250,000, the Chairman’s 2019 base salary was $1,000,000 •CEO: U.S.$1.4 million, the CEO’s 2019 base salary was $1,600,000 and was competitively set upon appointment in 2018 •CFO: U.S.$1,322,750, the CFO’s 2019 base salary was $1,430,000; carry-over legacy compensation approved by the Compensation Committee in 2019 upon his appointment to Executive Director |
| Short-term incentive (“Annual Bonus”) | Annual Bonus payout in cash subject to the achievement of annually pre-established, challenging financial objectives and thus demonstrably linked to the performance of the Company | In February 2020, the Compensation Committee approved the 2020 bonus plan design and metrics. The plan design and metrics were consistent with the previous years. After careful consideration that included benchmarking compensation practices amid the COVID-19 pandemic’s effect on the business and industry, the Compensation Committee agreed to revise the 2020 bonus plan design and metrics in accordance with their authority to temporarily deviate from the remuneration policy in case of exceptional circumstances. To maintain focus in navigating the business through the pandemic crisis and continuing the progress in planning for the merger with Groupe PSA, the Board of Directors, at the recommendation of the Compensation Committee, in July 2020, agreed to the following framework in determining a modified bonus plan design for FY 2020. •A financial trigger of Adjusted EBITDA greater than €5,000 million must be achieved in order for the Committee to consider any variable incentive bonus payment •In the event the established financial trigger is satisfied, any bonus will be based on the Company’s performance against its revised 2020 business plan (weighted 75%) and relative performance versus peer companies (weighted 25%) •The payout for target performance would be reduced from 100% to 50% of current bonus target and the minimum and maximum payouts for 2020 performance is 0% to 80% of current bonus target respectively
The Chairman continued to be ineligible for an annual bonus payout.
CEO: target bonus payout of 150% of base salary reduced to 75% of base salary, range of 0% to 300% of base salary was reduced to 0% to 120% of base salary
CFO: target bonus payout of 100% of base salary reduced to 50% of base salary, range of 0% to 150% of base salary was reduced to 0% to 80% of base salary
Base salary for purposes of calculating CEO and CFO bonus is prior to base salary cuts due to COVID 19. |
| | | | | | | | |
| Element | Description | 2020 Application |
| Long-term incentive (“LTI”) | Long-term incentive to align Executive Directors to strategic goals and reward for sustained long-term growth
Two components ◦performance share units ◦restricted (retention) share units
Performance component is subject to the achievement of predetermined challenging performance and market objectives comprised of two equally weighted metrics, relative Total Shareholder Return (“TSR”) and Adjusted EBIT
Maximum payout: 225 percent of the target number of TSR performance share units granted and 100 percent of the target number of Adjusted EBIT performance share units granted | A new LTI Plan design was approved by the shareholders at the 2019 Annual General Meeting. This new design incorporated annual rolling LTI plan grants directly linked to three-year performance periods. With this approach, the intent is to deliver a consistent long-term incentive opportunity vesting annually, providing company and individual performance conditions are met. As provided in the 2019 Remuneration Report grants were awarded in 2019 for the 2019-2021 three-year performance period (with a transitional vesting schedule). In 2020, grants were awarded for the 2020-2022 cumulative performance period with cliff vesting in 2023.
Chairman: Target annual LTI grant: 300 percent of base salary of which 75% is performance share units and 25% is restricted (retention) share units. In 2020, a grant of 382,560 units was awarded for the 2020 - 2022 performance period.
CEO: Target annual LTI grant: 625 percent of base salary of which 75% is performance share units and 25% is restricted (retention) share units. In 2020, a grant of 1,275,150 units was awarded for the 2020 - 2022 performance period.
CFO: Target annual LTI grant: 210 percent of base salary of which 66.7% is performance share units and 33.3% is restricted (retention) share units. In 2020, a grant of 382,950 units was awarded for the 2020 - 2022 performance period.
Base salary for purposes of calculating CEO and CFO bonus is prior to base salary cuts due to COVID 19
As disclosed in Form-4 filed with the U.S. Securities and Exchange Commission, the Board of Directors approved the treatment of equity awards for the Company’s officers, including the Chairman, the CEO and the CFO at the time of the merger (The Board of Groupe PSA approved the same treatment of equity awards for its executive officers). This treatment provided for each holder of outstanding FCA equity awards to be entitled to receive a substitute Stellantis restricted share unit award for each outstanding FCA unit. The number of Stellantis common shares received is equal to the number of FCA shares subject to the original FCA equity award. The number of Stellantis common shares received would be based on performance at target or, in the event that FCA’s performance exceeds the target level as assessed by the FCA Board or a committee of the FCA Board immediately before the effective time of the merger, at that assessed level. Each Stellantis restricted share unit award will continue to be governed by the same terms and conditions (including service-based vesting terms, but not performance-based vesting terms) as were applicable to the relevant FCA equity awards immediately prior to the effective time of the merger. |
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| Element | Description | 2020 Application |
| Post Retirement Benefits | The CEO participates in a defined contribution plan for U.S. based salaried employees and has a supplemental retirement benefit and a retiree health care benefit.
The Chairman and the CFO participate in a retiree health care benefit plan. | Chairman: Effective January 1, 2019 waived post mandate benefit of 5 times base salary. Eligible for a retiree healthcare plan provided to executives in Italy which provides for a reimbursement of a portion of health care costs incurred in retirement.
CEO: Consistent with US CEO compensation benchmarks, a supplemental retirement benefit of three times annual base salary is provided. This benefit requires five years of CEO service for 100% vesting and 3 years of service for 50% vesting. The supplemental retirement benefit agreement provides for accelerated vesting at the time of the merger. Eligible for Executive Postretirement Health Care Plan which provides healthcare coverage in the United States upon retirement. In 2020, a cost of €2.0 million was recognized in connection with these benefits.
CFO: Eligible for a retiree healthcare plan provided to executives in Italy which provides for a reimbursement of a portion of health care costs incurred in retirement. |
| Other benefits | Executive directors may receive usual and customary fringe benefits such as severance, company cars, medical insurance, accident and disability insurance, tax preparation, financial counseling, tuition reimbursement and tax equalization | Chairman severance: 1 times annual base salary
On December 15, 2020, the Board of Directors, at the recommendation of the Compensation Committee, approved the following changes to the Chairman’s company-provided benefits: •Life Insurance and Accidental Death & Disability insurance coverages were removed, •broader network of medical providers and coverage was added to the current medical plan, and •comprehensive annual executive health screening benefit was added in line with external benchmarks
CEO severance: 1 times annual base salary linked to non-compete and other restrictive covenants for 1 year replaced with the right to receive a cash retention award at the time of the merger, as described in Impact of Merger with Groupe PSAbelow
CFO severance: Carry-over, pre Executive Director arrangement of 2 times base salary linked to non-compete and other restrictive covenants for 2 years replaced with the right to receive a cash retention award at the time of the merger, as described in Impact of Merger with Groupe PSAbelow
CEO and CFO change of control provision: severance and accelerated vesting of outstanding awards under the Equity Incentive Plan in case of termination following change of control within 24 months by the company (unless for cause) or by the Executive Director for good reason were replaced with the right to receive a cash retention award, as described in Impact of Merger with Groupe PSAbelow
In 2020 no severance benefits were paid or due to Executive Directors. |
Implementation in 2020
Compensation Peer Group
For 2017, ourThe Company periodically benchmarks its executive compensation peer group was utilizedprograms and the compensation offered to evaluate relative pay level alignment with Company performance. In April 2016, our Compensation Committee reviewed the suitability of our potentialDirectors against peer companies which are companies operatingand monitors compensation levels and trends in similar industries with whom we are most likely to compete for executive level talent, and approved a new peer group that was used in 2017. the market.
The Compensation Committee strives to identify a peer group that best reflects all aspects of FCA’sthe Company’s business and considers public listing, industry practices, geographic reach, and revenue proximity. Marketproximity, with market capitalization was considered as a secondary characteristic. For 2014 and 2015, we used two peer groups - U.S. peers and European peers - with a combined total of 46Our peer group companies. Our competitors used one group for purposes of benchmarking compensation. In order to better align FCA with its peers, in 2016, the Compensation Committee replaced the previously used two-peer group structure. A refined, consolidated and condensed international peer group, withrepresents a blend of both U.S. and European companies, was believed to better recognizeCompanies in recognition of the relevant talent market for our executives. In addition to including all U.S. and European automobile manufacturers, primary consideration was given toour peer group includes U.S. and European companies that have significant manufacturing and/or engineering operations and a global market presence. In April 2016,
For 2020, the Compensation Committee approvedupdated the new peer group of 26 companies listed below. The list is divided between 14 U.S.to remove Johnson Controls and 12 European companies, similar to the composition of our senior executive team.add ABB.
Peer Group CompaniesCompanies: |
| | | |
Airbus Group | Daimler AG | Johnsons Controls Inc. | The 3M Company |
ArcelorMittal SA | Deere & Company | Lockheed Martin Corporation | ThyssenKrupp AG |
Bayer AG | Ford Motor Company | Northrop Grumman Corporation | United Technologies Corporation |
BMW Group AG | General Dynamics Corporation | PSA Peugeot Citroen | Volkswagen AG |
The Boeing Company | General Electric Company | Raytheon Company | The Volvo Group |
Caterpillar Inc. | General Motors Company | Renault SA | |
Continental AG | Honeywell International Inc. | Siemens AG | |
Summary Overview of Remuneration Elements
The executive directors’ remuneration is simple and transparent in design, and consists of the following key elements:
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| | |
Remuneration Element | Description | Purpose |
Base salary | Fixed cash compensation | Attracts and rewards high performing executives via market competitive pay |
Short-term variable incentive(1)
| •
Performance objectives are annually predetermined and are based on achievements of specific measures•
Comprised of three equally-weighted metrics, Adjusted EBIT, Adjusted net profit, and Net industrial debt•
Target payout is 100 percent and maximum payout is 250 percent of base salary | •
Drives Company-wide and individual performance•
Rewards annual performance•
Motivates executive directors to achieve performance objectives that are key to our annual operating and strategic plans•
Aligns executive directors’ and shareholder interests |
Long-term variable incentive(1)
| •
All equity awards are based on achievements of publicly disclosed multi-year financial targets•
Performance criteria comprised of two equally weighted metrics, relative Total Shareholder Return (“TSR”) and Adjusted net profit•
Awards have three vesting opportunities, one third after each of 2016, 2017 and 2018 based on cumulative results•
Awards may be earned at a level from 0% to 125% of the target number of awards granted | •
Encourages executive directors to achieve multi-year strategic and financial objectives•
Motivates executive directors to deliver sustained long-term growth•
Aligns executive directors’ and shareholder interests through long-term value creation•
Enhances retention of key talent |
Pension and retirement savings | •
The Chief Executive Officer (or “CEO”) participates in a Company-wide pension scheme and a supplemental retirement benefit•
Both the CEO and Chairman have retirement savings benefits in an amount equal to five times their last annual base compensation | Provides security and productivity set forth in greater detail under the legacy arrangement description as described below |
Other benefits | Executive directors may receive typical benefits such as severance (linked to a non-compete restriction), company cars, medical insurance, accident and disability insurance, tax preparation, financial counseling and tax equalization | Facilitates strong performance, consistent with offerings of peer group companies |
(1) The Chairman receives fixed compensation only and is not eligible for any variable compensation.
2017 Remuneration of Executive Directors
Our executive compensation program is designed to align the interests of our executive directors with those of our shareholders. It is designed to reward our executive directors based on the achievement of sustained financial and operating performance as well as demonstrated leadership. We aim to attract, engage, and retain high-performing executives who help us achieve immediate and future success and maintain our position as an industry leader. We support a shared, one-company mindset of performance and accountability to deliver on business objectives.
Executive Directors Realized Compensation
The following table was introduced in 2017 to provide a common context for understanding compensation. Realized compensation as shown below, is the amount that our executive directors actually received in 2017. Realized compensation includes actual base compensation earned, actual annual bonus, and value of equity awards that vested during the year. In 2017, our Chairman’s realized cash compensation was €1,770,411 and our CEO's realized cash compensation was €9,676,303.
The objective of our CEO’s compensation reward structure is to pay for performance and incentivize our CEO to manage the Company from the perspective of an owner over the long term. In 2017 our CEO continued to successfully execute on delivering the 2014-2018 business plan, with the Company achieving its business plan targets for the fourth year in a row. In addition, the Company delivered a strong 280% total shareholder return for the period 2014-2017. The Company has also outpaced the returns of the ten automobile manufacturers represented in our Relative TSR peer group (listed later in this report).
Our CEO’s compensation is strictly aligned with pay for performance. Following three consecutive years of no vesting or payout of shares under our Long Term Incentive (“LTI”) program, in 2017 2,795,500 vested FCA shares were received by the CEO representing underlying PSU awards for compensation for the 2014-2016 period. These shares were awarded for performance in respect of each of 2014, 2015 and 2016 for a total value of €28,989,324, equating to an average in equity based compensation of €9,663,108 for each of the three years. Our CEO did not monetize the FCA shares that were delivered to him in 2017 under the LTI program (other than to pay associated taxes) and continues to own these shares, demonstrating alignment with FCA shareholders.
Realized compensation differs from the total compensation set forth in the Directors' Compensation table later in this report, and is in line with accounting and actuarial assumptions. The amounts in the table below are intended to clarify and complement, and do not serve as a substitute for the amounts reported in the compensation tables.
|
| | | | | | |
| Cash Compensation | | Equity Compensation |
| 2017
Fixed and Variable Compensation
| | 2017 FCA Units
(delivered and held)
|
Executive Directors' Compensation | Base Compensation | Annual Bonus | Base Compensation + Annual Bonus | | Total FCA shares delivered for three year (2014-2016) performance period under LTI program
(100% at risk and performance based)
|
J. Elkann | €1,770,411 | None | €1,770,411 | | None |
S. Marchionne | €3,540,822 | €6,135,481 | €9,676,303 | | Annualized
931,833 units
(€9,663,108(1))
| Total Delivered over 3 Years
2,795,500 units
(€28,989,324(1))
|
(1) No shares were received by our CEO in 2014, 2015 and 2016 under the LTI program. In 2017 the shares delivered were not monetized, other than to pay for associated taxes. This amount represents the value of 2,795,500 shares on an annual basis, using the March 13, 2017 vest date, to value the units:
- 2,795,500 total units/3 (number of years in performance period) = 931,833 shares per year;
- 931,833 units per year x €10.37/unit = €9,663,108
Total value delivered over 3 years: €9,663,108 x 3 = €28,989,324
CEO performance based equity earned for 2014-2016 which vested in 2017: |
| | | | | | | | |
YearABB | Business Plan Targets AchievedContinental AG | Honeywell International Inc. | 3 Year LTI
Adjusted Net Profit Target Achieved
| | 3 Year LTI
Relative TSR Target Achieved
| | CEO LTI Vesting Rates Against Maximum Opportunity | The 3M Company |
2014Airbus Group | üDaimler AG | Lockheed Martin Corporation | ü | | FCA #1 | | No vesting payment opportunity | Performance Period 2014-2016ThyssenKrupp AG |
2015ArcelorMittal SA | üDeere & Company | Northrop Grumman Corporation | | No vesting payment opportunityUnited Technologies Corporation |
2016Bayer AG | üFord Motor Company | Groupe PSA | | No vesting payment opportunityVolkswagen AG |
| BMW Group AG | General Dynamics Corporation | 100% in 2017Raytheon Company | |
| The Volvo Group |
| The Boeing Company | General Electric Company | | Renault SA | |
| Caterpillar Inc. | Total FCA Shareholder Return of 280%(1)
General Motors Company | |
January 1, 2014Siemens AG | ———————––——––—————————————————————Ø
| December 31, 2017 |
| Median Peer Group Total Shareholder Return of 24%
(10 Automobile Manufacturers)
| |
(1) Calculated using split adjusted closing prices on December 31, 2013 and December 29, 2017, per the Borsa Italiana FCA listing.
Executive Directors’ Compensation
In 2017, no changes were made to any of the elements of compensation set forth above for either of the executive directors. The target compensation of the CEO is comprised of base compensation, short-term variable pay and long-term variable pay. The Chairman is not eligible for any form of variable compensation. For 2017, 81 percent of the CEO's target compensation was at-risk performance based compensation. In 2016, the Group entered into a written agreement with the CEO and a written agreement with the Chairman, memorializing the previously agreed terms and conditions of their service with the Company. The material terms of the CEO's and Chairman's respective agreements are described below within the discussion of their remuneration.
Target Elements of CEO Compensation
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Elements of Compensation | Salary
19%
| Incentive Bonus Target
19%
| Total Long-Term Incentives
62%
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Fixed vs. Variable | Fixed
19%
| Variable
81%
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Internal Pay RatiosVariable components
The Compensation Committee considered internal pay ratios within the Company and its affiliated enterprise, as provided for by the updated Dutch Governance Code. Multiple scenario analyses were developed comparing the pay of executive directors to the median FCA employee’s pay for 2017 and the previous year. Scenarios included executive director pay ratio reviews, considering the following:
Base salary earned for 2017.
Cash bonus and any other cash incentives paid for performance year ending in 2017.
Non-monetary compensation and contributions into retirement programs during the year.
Grant date fair value (per accounting valuation) for any stock-based award granted in 2017, (the method defined under US proxy-reporting rules for 2017).
Based on initial survey data provided by an external consultant, the range of ratios utilizing theAs noted above, components were determined to be consistent with the median among large US companies (over 50,000 employees).
The Company is not disclosing pay ratios for 2017 compensation as the Dutch code does not describe the methodology to determine and disclose such ratios. The Company will continue to monitor the internal equity of the executive directors' compensation pursuant to the new and still evolving guidance under the Dutch Corporate Governance Code.
Base Salary
The base salary for our executive directors has remained unchanged for four consecutive years (2014, 2015, 2016 and 2017). In addition, the Company does not guarantee annual base pay increases for executive directors and their agreements do not contemplate automatic base salary increases. Base salary is the only fixed component of our executive directors’ total cash compensation and is intended to provide market-competitive pay to attract and retain well-qualified senior executives and expert leaders. Base salary is based on the individual’s skills, scope of job responsibilities, experience and competitive market data. The base salaries of our executive directorsExecutive Directors are evaluated together with other components of compensation to ensure that they are in line with our overall compensation philosophy and are aligned with performance.
With FCA’s formation in October 2014, an annual base salary of U.S. $4.0 million for our CEO and an annual base salary of U.S. $2.0 million for our Chairman were approved. This decision was reached using compensation benchmarking and peer group analysis in consultation with the Company’s external compensation consultant. The Company believes that paying our executive directors at or above these benchmarks is necessary and appropriate to incentivize and retain uniquely qualified executive directors to lead the Company through the business cycle and position the Company for long-term growth.
Variable Components
The CEO is eligible to receive short-term variable compensation, subject tocontingent on the achievement of pre-established operating and financial performance targets. The variable components of the CEO’s remuneration, both short and long-term,Scenario analysis are linkedcarried out annually to predetermined, measurable objectives which serve to motivate strong performance and shareholder returns and are approved by the non-executive directors. The non-executive directors believe that placing significantly more weight on the long-term component is appropriate for the CEO position because it focuses efforts on the Company’s long-term objectives.
On an annual basis, we examine the relationship between the performance criteria chosen and the possible outcomes for the variable remuneration of our CEO (scenario analysis). When such analysis was carried out for the 2017 financial year, the Company foundoutcomes. Such analyses help ensure a strong link between remuneration and performance and concluded thatensure the chosen performance criteria are appropriate under both the short-term and long-term incentive components of total remuneration instrongly support of the Company’s strategic objectives.
Short-Term Variable Incentive
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OUR COMPENSATION PHILOSOPHY IS DESIGNED TO REWARD
PERFORMANCE AND LEADERSHIP
The short-term variable elements and calculations for the CEO follow the same philosophy as the company-wide Performance and Leadership Bonus Plan for all eligible FCA employees.
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The primary objective of the short-term variable incentive isIn February 2020, prior to motivate achievement of the business priorities for the current year. The CEO’s short-term variable incentive is based solely on annual financial objectives proposedimpacts driven by the Compensation Committee and approved byCOVID 19 pandemic, the non-executive directors each year. The short-term variable incentive program applies rigorous performance measures to ensure a link between annual payout and Company performance.
Our Methodology for Determining Annual Bonus Awards
With regard to the determination of the CEO’s annual performance2020 bonus the Compensation Committee:
approves the objectives and maximum allowable bonus;
selects the metrics and weighting of objectives;
sets the stretch objectives;
reviews any unusual items that occurred in the performance year to determine the appropriate overall measurement of achievement of the objectives; and
approves the final bonus determination.
For 2017, the Compensation Committee approved the same plan design and metrics utilized in 2016.
Target bonus amount is expressed as a percentage of salary.
The individual target percentage for our CEO is 100 percent.
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◦ | This target is below external market benchmarks and is below the 25th percentile for the compensation peer group (this relative positioning further reinforces the value we place on a longer term perspective)
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The Company performance factor is based on three metrics:
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◦ | Adjusted net profit; and |
Each objective is equally weighedwere approved by the FCA Board, at one-third.
Each objective pays out independently.
To earn any incentive, the threshold performance must be at least 90 percentrecommendation of the specific target established.
To earnCompensation Committee. The plan design was consistent with the maximum payout of 250 percent of target, actual results must be achieved at 150 percent or greater ofprevious year. The metrics were set with challenging hurdles, directly in line with the target performance for each of the performance metrics.
There is no minimum bonus payout; payout is zero for below threshold performance.
The Compensation Committee established the annual financial performance goals based on the Company’s 2017 financial plan presented to the Board of Directors. In addition the Compensation Committee considered the Company’s performance relative to theGroup’s business plan and considered input from the external compensation consultant to ensure the goals arewere linked to long-termlong term shareholder value creation. The 2017
After careful consideration that included benchmarking compensation practices amid the COVID-19 pandemic’s effect on the business and industry, the FCA Board again at the recommendation of the Compensation Committee, agreed to revise the 2020 bonus plan goals were setdesign and metrics. To maintain focus in navigating the business through the pandemic crisis and continuing the progress in planning for the merger with challenging hurdles, and areGroupe PSA, the FCA Board agreed in line withJuly, 2020, to the Group's initial external guidance and our five-yearfollowing framework in determining a modified performance bonus for the FY 2020:
•A financial trigger of Adjusted EBITDA greater than €5,000 million must be achieved in order for the FCA Board to consider any variable incentive payment
•In the event the financial trigger is satisfied, any bonus will be based on the Company’s financial performance against its revised 2020 business plan as set forth below.
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| 2017 Performance Metric | Weight | Threshold (€ millions) | Target (€ millions) | Maximum (€ millions) |
Adjusted EBIT(1) | 1/3 | 6,300 |
| 7,000 |
| 10,500 |
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Adjusted net profit(2) | 1/3 | 2,700 |
| 3,000 |
| 4,500 |
|
Net industrial debt(3) | 1/3 | (2,750 | ) | (2,500 | ) | (1,250 | ) |
(1) Adjusted EBIT excludes certain adjustments from Net profit from continuing operations including: gains/(losses) on the disposal of investments, restructuring, impairments, asset write offs and unusual income/(expenses) which are considered rare or discrete events that are infrequent in nature, and also excludes Net financial expenses and Tax expense.
(2) Adjusted net profit is calculated as Net profit from continuing operations excluding post-tax impacts of the same items excluded from Adjusted EBIT, as well as financial income/(expenses) and tax income/(expenses) considered rare or discrete events that are infrequent in nature.
(3) Net industrial debt is computed as: debt plus derivative financial liabilities related to industrial activities less (i) cash and cash equivalents, (ii) current available-for-sale and held-for-trading securities, (iii) current financial receivables from Group or jointly controlled financial services entities and (iv) derivative financial assets and collateral deposits; therefore, debt, cash(weighted 75%), relative performance versus peer companies (weighted 25%) and other financial assets/liabilities pertainingfactors the Committee deems relevant to financial services entities are excluded frommeasure the computation of Net industrial debt.
Discussion of 2017 Results
overall performance. The Compensation Committee reviews resultswill qualitatively assess relevant factors to which all performance criteria as a whole have been achieved and achievement and presents the results to the non-executive Directors, typicallylevel of bonus payout reflecting such performance.
•As illustrated in the first quarterchart below:
◦For the CEO, any payout for target performance was reduced from 150% of each year in connectionbase salary to 75% and maximum payout was reduced from 300% of base salary to 120%
◦For the CFO, any payout for target performance was reduced from 100% of base salary to 50% and maximum payout was reduced from 150% of base salary to 80%
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| Executive Director | | 2020 Bonus Target | | 2020 Payout at Target Performance | | 2020 Maximum Payout | | 2019 Bonus Target | | 2019 Payout at Target Performance | | 2019 Maximum Payout |
| CEO | | $2.4 million
(150% of base salary) | | $1.2 million
(75% of base salary) | | $1.92 million
(120% of base salary) | | $2.4 million
(150% of base salary) | | $2.4 million
(150% of base salary) | | $4.8 million
(300% of base salary) |
| CFO | | $1.43 million
(100% of base salary) | | $715,000
(50% of base salary) | | $1,144,000
(80% of base salary) | | $1.43 million
(100% of base salary) | | $1.43 million
(100% of base salary) | | $2.145 million
(150% of base salary) |
Executive Director's 2020 Bonus Calculation
In 2020, the Company achieved the financial trigger of adjusted EBITDA greater than €5,000 million. As a result, the Compensation Committee could consider a bonus award aligned with the completionreduced payout thresholds described above. The Compensation Committee’s approach considered the financial performance of net revenue, adjusted EBIT and Industrial Free Cash Flow against the year-end earnings release.
Significant growth and improvement were achieved in 2017 in each of the three key performance criteria linked to the CEO’s annual incentive:
Adjusted EBIT increased 16 percent to €7,054 million from 2016.
Adjusted net profit increased 50 percent from 2016 (€3,770 million in 2017 as compared to €2,516 million in 2016).
Net industrial debt reduced to €2,390 million at December 31, 2017 (was €4,585 million at December 31, 2016).
CEO Bonus Calculation
revised 2020 business plan. The Compensation Committee determinedalso considered the Company’s year over year performance of these measures and the spending of capital expenditures during the crisis versus its peers’ companies. Despite the impact of COVID-19, the Company achieved (1) 2020 financial results that exceeded the CEO earned an annual bonus for 2017 of U.S. $5.2 million (€4.6 million) as determined byrevised 2020 business plan, (2) favorable performance versus its peers, and (3) significant efforts to complete the achievement50/50 merger with Groupe PSA to form Stellantis.
Consequently, the FCA Board, at the recommendation of the Company performance factors illustrated above with an overall CompanyCompensation Committee, approved a company performance factor of 130.8%. 80% for the 2020 annual bonus payout.
CEO 2020 Calculation
The Chairman is not eligiblebonus earned by the CEO for any formperformance year 2020, payable in 2021, was U.S. $1,920,000 (€1,680,972) based on the corresponding company performance factor of short-term variable compensation.80%.
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| Base Salary | | Bonus Target % | | Company Performance Factor | | Bonus Earned |
| $ | 1,600,000 | | X | 150 | % | X | 80 | % | = | $ | 1,920,000 | |
CFO 2020 Calculation
The bonus earned by the CFO for performance year 2020, payable in 2021, was U.S. $1,144,000 (€1,001,579) based on the corresponding weighted company performance factor of 80%.
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| Base Salary | | Bonus Target % | | Company Performance Factor | | Bonus Earned |
| $ | 1,430,000 | | X | 100 | % | X | 80 | % | = | $ | 1,144,000 | |
Long-Term IncentivesIncentive
Long-term incentive compensation is a critical component of our executive compensation program. This compensation component is designed to motivate and reward long-term stockholder value creation and the attainment of the Group's performance goals, to retain top talent and create an ownership alignment with shareholders. Long-term incentives are an important retention tool that management and the Compensation Committee use to align the financial interests of executives and other key contributors with sustained shareholder value creation. We believe the long-term component of compensation for our CEO should be aligned with the interests of our shareholders. The CEO's long-term incentives are 100 percent performance-based. The Chairman is not eligible for long-term incentives.
FCA’s long-term variable incentives consist of a share-based incentive plan that links a portion of the variable component to the achievement of pre-established performance targets consistent with the Company’s five-year business plan that was published in May 2014 and subsequently updated. These awards increase the link between performance, realized compensation and shareholder interests, by delivering greater value to the CEO as shareholder value increases. Long-term incentive awards are intended to emphasize future compensation and encourage the delivery of results over a longer period of time as well as to serve as a retention tool. They are specifically designed to motivate our executives to achieve significant returns for our shareholders over the long-term.
EquityLong Term Incentive Plan
On October 29, 2014, in connectionA new LTI Plan design was approved by shareholders at the April 12, 2019 Annual General Meeting. This design incorporated annual rolling grants directly linked to a three-year performance period. In 2019 grants were awarded for the first three-year performance period 2019 – 2021 with the formation of FCA and the presentationa transitional vesting schedule so that participants of the 2014-2018 businessprevious 2014 -2018 LTI plan did not again deliver results for three years without earning a long term incentive payout opportunity. In 2020, grants were awarded for the Board of Directors approved a new LTI program, covering the five year2020-2022 cumulative performance period with cliff vesting in 2023.
LTI Plans Vesting Schedule
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| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| 2019 - 2021 Plan | | 2019 Grant PSU’s and RSU’s | | Performance Period | | |
| | 1/3 vests | | 1/3 vests | | 1/3 vests | | |
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| 2020 - 2022 Plan | | | | 2020 Grant PSU’s and RSU’s | | Performance Period |
| | | | | | | | Cliff vests |
Annual awards granted under the Fiat Chrysler Automobiles N.V. Equity Incentive Plan (“EIP”), under which equity awards can be granted to eligible individuals.LTI plan are comprised of a split of performance share units and restricted (retention) share units. The LTI program is consistent with the Company’s business plan that was published in May 2014 and subsequently updated. The target setting process for the LTI program is built on the foundation of our rigorous business planning process which is determined by the overall business environment, industry and competitive market factors, as well as Company-wide business goals. Moreover, the targets are in line with external forward-looking guidance that we provide to analysts and investors.
Theperformance based awards vesting under the LTI programplan are conditional on meeting two independent, equally weighted cumulative three-year metrics, Adjusted net profitEBIT and Relative TSR, which are weighted equally at target.TSR. Each metric has thresholdminimum and target performance levels such thatlevels; performance below thresholdthe minimum results in no awards being earned. Accordingly,
As shown in the CEO may earn between 0 percent and 125 percent oftables below, the target number of awards granted. The Adjusted net profitEBIT component payout begins at 80 percent80% of target achievement and has a maximum payout at 100 percent of target.100% for target achievement. The Relative TSR component hasearns partial vesting if the Company is ranked seventh or better among an industry specific peer group of eleven,sixteen, including the Company, and a maximum payout of 150 percent,225%, if the Company is ranked first among the elevensixteen companies. The plan allows no payout if the Company is ranked below the median of the designated peer group over the performance period.
Listed below are the Adjusted EBIT and TSR payout scales:
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| Adjusted EBIT Payout Scale | | TSR Payout Scale |
| % Achieved | Payout % of Target | FCA Rank | Payout % of Target |
| 100.0% | 100.0% | 1 | 225.0% |
| 95.0% | 87.5% | 2 | 180.0% |
| 90.0% | 75.0% | 3 | 145.0% |
| 85.0% | 62.5% | 4 | 120.0% |
| 80.0% | 50.0% | 5 | 100.0% |
| 6 | 75.0% |
| 7 | 50.0% |
| 8-16 | 0.0% |
Listed below is the Relative TSR peer group. The awards have three vesting opportunities, the first after 2014-2016 results, the second after 2014-2017 results, and the third after the full 2014-2018 results.
2014-2018 Performance Cycle Relative TSR Metric Peers
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| Volkswagen AG | Toyota Motor Corporation | Daimler AG | General Motors Company |
| Ford Motor Company | Honda Motor Co. Ltd. | BMW Group | The Hyundai Motor Company |
Groupe PSA Peugeot Citroen | Renault SA | Nissan Motor Co. | KIA Motors |
| Suzuki Motor Corporation | Mazda Motor Corporation | Tesla Inc. | |
CEO’s Long-Term Incentive Equity Awards
All outstanding units from the 2019 and 2020 grants, will be settled in accordance with the treatment of equity grants awarded toawards at the CEO. The CEO has one outstanding performance based equity award, consistingtime of an aggregatethe merger as approved by the Board of 4,489,496 performance share units at targetDirectors and the shareholders as part of their approval of the merger and as set forth in the Directors' CompensationCombination Agreement. (The Board of Groupe PSA approved the same treatment for its equity awards). This treatment provides for each holder of outstanding FCA equity awards to be entitled to receive a substitute Stellantis restricted share unit award for each outstanding FCA unit. The number of Stellantis common shares received is equal to the number of FCA shares subject to the original FCA equity award. The number of Stellantis common shares received would be based on performance at target or, in the event that FCA’s performance had exceeded the target level as assessed by the FCA Board or a committee of the FCA Board immediately before the effective time of the merger, at that assessed level. Each Stellantis restricted share unit award will continue to be governed by the same terms and conditions (including service-based vesting terms, but not performance-based vesting terms) as were applicable to the relevant FCA equity awards immediately prior to the effective time of the merger.
Share Plans Granted to Directors
The following table below, which was grantedprovides an overview of the share plans held by the Executive Directors for the five-year 2014-2018year ended December 31, 2020:
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| Name of Director, Position | Specification of Plan | Performance Period | Grant Date(1) | Vesting Date | End of the Holding Period (1) | Opening Balance - January 1, 2020(2) | Shares Granted(3) | Shares Vested(4) | Closing Balance - December 31, 2020(5) | Share-Based Compensation Expense |
| ELKANN, John Philipp, Chairman | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 154,660 | | — | | 51,552 | | 103,108 | | € | 627,672 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 463,981 | | — | | 113,883 | | 350,098 | | € | 835,607 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 95,640 | | — | | 95,640 | | € | 130,099 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 286,920 | | — | | 286,920 | | € | 117,703 | |
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| MANLEY, Michael, CEO | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 515,490 | | — | | 171,829 | | 343,661 | | € | 2,092,095 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 1,546,470 | | — | | 379,580 | | 1,166,890 | | € | 2,785,123 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 318,790 | | — | | 318,790 | | € | 433,649 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 956,360 | | — | | 956,360 | | € | 392,328 | |
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| PALMER, Richard, CFO | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 206,402 | | — | | 68,800 | | 137,602 | | € | 837,672 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 412,804 | | — | | 101,322 | | 311,482 | | € | 743,435 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 127,650 | | — | | 127,650 | | € | 173,642 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 255,300 | | — | | 255,300 | | € | 104,732 | |
(1) In 2019, the Board approved holding requirements for Executive Directors effective for grants issued after January 1, 2020. The grants issued in 2019 are not subject to these holding requirements.
(2) Includes the dilution adjustment reported in 2019 Remuneration Report resulting from the payment of the extraordinary cash distribution to holders of FCA common shares on May 30, 2019.
(3) The fair market value of the shares granted on May 1, 2020 for the Chairman was €2,968,739, the CEO was €9,895,410 and the CFO was €2,971,766
(4) The fair market value of the shares that vested on May 11, 2020 for the Chairman was €1,286,157, the CEO was €4,286,872 and the CFO was €1,322,596. The units delivered was based on the achievement of 88.9% of the 2019 Adjusted EBIT target resulting in a payout of 72.27% of the target Adjusted EBIT performance periodshare units and wasthe achievement of the 6th ranking among the 16 Relative TSR peer group resulting in a payout of 75% of the target Relative TSR performance share units. In accordance with the LTI plan equity award agreements, the units not vested based on achievement less than target, are carried forward and included in the Closing Balance at December 31, 2020.
(5) Treatment of the outstanding units for the CEO and CFO will be settled in accordance with their respective retention agreements as described in Impact of Merger with Groupe PSA below.
In 2021, prior to the Annual General Meeting, the Compensation Committee will present a new Long Term Incentive Plan design for approval by the Board of Directors. The new LTI plan is subject to shareholder approval at the 2021 Annual General Meeting.
Impact of Merger with Groupe PSA
The FCA Board, at the recommendation of the Compensation committee recognizing the critical role of the CEO and CFO in continuing the progress in planning for the merger with Groupe PSA, approved retention agreements for the CEO and CFO conditional upon the merger occurring. The terms of the agreements are described below and have been approved by the shareholders as part of the merger.
Retention Arrangements
The CEO and CFO are entitled to retention benefits under which they are eligible to receive a one-time cash award, payable at certain times after closing of the merger. Additionally, under FCA’s Equity Incentive Plan, certain changes in 2015. The award levelroles following the closing of the merger (including no longer serving as a member of the board of directors) entitles LTI plan participants to a qualifying termination of employment, with cumulated accelerated vesting of all awards under the plan and design for the one time grant covering the five-year performance period was based on market competitive analysis providedseverance payments as contemplated by the Compensation Committee’s external compensation consultant. The actual payout thattheir employment agreement as applicable.
With respect to the CEO, may realizesuch entitlements will be replaced, with effect from the merger, with the right to receive a cash retention award, which is payable on his performance-based LTI award depends ona specified date after closing of the achievementmerger upon the satisfaction of critical operation and relative stock performance targets established bycertain conditions. The CEO’s entitlement will (1) replace, effective as of the Compensation Committee forclosing of the 2014-2018 performance period. Themerger, the CEO’s FCA performance share units can convert into sharesand FCA restricted share units, vesting at closing of the Companymerger as indicated above, calculated based on the value of such awards at the end of years 3, 4, and 5closing of the performance period, subject tomerger, (2) replace certain vesting conditions.
The first performance trancheother severance rights, with such portion of the CEO’s equityretention award granted in 2015 vested on March 13, 2017 based on performance achieved during the 2014-2016 performance period. For the 2014-2016 performance period, performance share units were earned at 100% of target for Adjusted net profit achievement and at 150% of target for Relative TSR achievement. Accordingly 2,795,500 shares were delivered to the CEO.
The second performance tranche of the CEO’s equity award granted in 2015 will vest based on cumulative performance achieved during the 2014-2017 performance period. Satisfaction of this performance will be assessed by the Compensation Committee in 2018. The maximum opportunity for this second vesting of the CEO’s equity award is 2,805,935 units. The third and final performance tranche of the CEO's equity award granted in 2015 will vest based on cumulative performance achieved during the 2014-2018 performance period. Satisfaction of this performance will be assessed by the Compensation Committee in 2019. The LTI program does not impose a further holding period after vesting, given that the awards do not vest until after year three of the performance period, and the full vesting opportunity does not occur until after year five of the performance period.
Pension and Retirement Savings
Based on legacy arrangements which were developed to assist in incentivizing the executive directors during an extremely challenging period, certain retirement benefits were provided to the executive directors. Both executive directors have retirement savings benefits in an aggregate amount equal to five times their last annual base compensation. The award is payable quarterly over a period of 20 years commencing three months after the conclusion of services with the Company, with an option for a lump sum payment. The CEO also participates in legacy pension plans for which the Company mandatorily pays defined contributions to social security institutions.In 2017, a cost of €1.3 million was recognized in connection with these post-mandate benefits and €3.0 million was paid in social security contributions.
Non-compete Restrictions and Severance
In connection with our CEO’s written agreement entered into in 2016, he agreed to a non-compete restriction under which he committed not to directly or indirectly work for or associate with any business that competes with the Company for two years after termination of his services. In addition, under the agreement, if the Company terminates his services for reasons other than for cause (as defined) or if he terminates his services for good reason (as defined), the Company will pay the CEO an amount equal to the sum of twoone times the sum of hisCEO’s annual base salary, and annual bonus, in each case in the amount received for the last fiscal year prior to termination of his services, plus a pro-rated annual bonus for the year in which the termination occurs, based on actual performance goal achievement through the termination date (the “Severance”). If within twenty-four months following a change of control (as defined), the CEO’s services are involuntarily terminated by the Company (other than for cause), or are terminated by(3) provide the CEO for good reason,a recognition award with a value equivalent to approximately five times his annual base salary. In addition, the CEO is entitled to receive the Severance and accelerated vesting of awards under the EIP. If the CEO leaves the Company then pursuant to his agreement, he may not work for a competitor for two years after the termination date. The CEO will not be entitled to certain facilitations regarding the Severance if he is terminated for cause.purchase of vehicles manufactured by FCA.
In connectionWith respect to the CFO, the above mentioned entitlements have been replaced with our Chairman’s written agreement entered into in 2016, if the Company terminates his services for reasonsright to receive a cash retention award, payable on a specified date after closing of the merger upon satisfaction of certain conditions. The CFO’s entitlement will (1) replace, effective as of the closing of the merger, the CFO’s FCA performance share units and FCA restricted share units, vesting at closing of the merger as indicated above, calculated based on the value of such awards at the closing of the merger, (2) replace certain other than for cause (as defined) or if he terminates his services for good reason (as defined),severance rights, with such portion of the Company will pay the Chairman an amountretention award equal to two times the CFO’s annual base salary, and (3) provide the CFO a recognition award with a value equivalent to approximately two times his annual base salary, using the base salary as in effect for the last fiscal year prior to termination of services.salary.
Other Benefits
We offer customary perquisites to ourThe CEO and Chairman. The executive directors mayCFO will also be entitled to usual and customary fringe benefits such as personal use of aircraft, company car and driver, personal/home security, medical insurance, accident and disability insurance, tax preparation, financial counseling and tax equalization. The Remuneration Policy also enables the Compensation Committee to grant other benefits to the executive directors in particular circumstances.
Tax Equalization
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Action Taken | Rationale |
Tax equalization for executive directors | Maintain respective home country taxation on all income for services, in the event of incremental taxes |
The executive directors, by nature of their role in our geographically diverse company, may be subject to tax on their incomea non-competition covenant and non-solicitation of employees’ covenant, which continue for services in multiple countries. Given the executive directors are subject to tax on their worldwide income in their respective home countries, the Company studied the prevalent practice for handling incremental tax costs incurred by globally mobile executives. Based on that analysis, the Board decided to tax equalize alltwo years and three years, respectively, following any termination of the employment earnings, including equity income, to the executive directors’ respective home country effective tax rate, if incremental taxes over their home country tax rate would arise.his employment.
Stock Ownership
Our Board recognizes the critical role that executive stock ownership has in aligning the interests of management with those of shareholders. While the Company does not maintain a formal stock ownership policy, the CEO’s stock holdings, when viewed as a multiple of his 2017 base salary, was significantly greater than common market practice of five times base salary. Our CEO consistently retains most of his equity awards upon vesting (other thanShare Plans Granted to cover associated tax obligations) demonstrating alignment with shareholder interests. The share ownership record for Mr. Marchionne reflects that he has historically held a substantial amount of equity in the Company, owning over 3 million shares on an annual basis from February 2012-2013 and over 6 million shares on an annual basis from 2014-2017.
Recoupment of Incentive Compensation (Clawback Policy)
The Company is dedicated to maintaining and enhancing a culture focused on integrity and accountability. The Company’s EIP defines the terms and conditions for any subsequent long-term incentive program. The Company's agreement with its CEO, the employment agreements with members of management, including its executive officers and the EIP allow the Company to recover, or “clawback”, incentive compensation with the ability to retroactively make adjustments if any cash or equity incentive award is predicated upon achieving financial results and the financial results were subject to an accounting restatement. In addition, the CEO and each of the Company’s executive officers will repay net amounts received for their 2016 and 2017 annual bonuses, restricted share units and performance share units if, during the two years after payment, (i) FCA restates its financial statements for any vesting or performance period covered by the compensation (a “covered period”), (ii) “cause”, as defined in executive’s employment agreement, existed during a covered period, or (iii) the executive engaged in certain conduct that has been materially injurious to the Company.
Equity Incentive Plan - Long Term Incentive Program
|
| | | | | | | | | | |
2014 - 2016 | | 2014 - 2017 | | 2014 - 2018 | | 2017 and 2018 Vesting |
| | | | | | | | | | |
Performance Periods | | Awards subject to reduction/cancellation/recovery based on clawback policy |
| | | | | | | | | | |
1st and 2nd tranche equity awards based on 2014 – 2016 and 2014 – 2017 performance achieved, respectively
| | Award in share of common stock |
Annual Bonus Plan
|
| | | | | | | | | | |
2016 and 2017 | | 2016 and 2017 Clawback |
| | | | | | | | | | |
Annual Performance Periods | | Awards subject to reduction/cancellation/recovery |
| | | | | | | | | | |
Results based on performance in 2016 and 2017 | | Awards in cash in first quarter of 2017 and 2018 |
Insider Trading Policy
The Company maintains an insider trading policy applicable to all directors, employees, members of the households and immediate family members (including spouse and children) of persons listed and other unrelated persons, if they are supported by the persons listed. The insider trading policy provides that the aforementioned individuals may not buy, sell or engage in other transactions in the Company’s stock while in possession of material non-public information; buy or sell securities of other companies while in possession of material non-public information about those companies they become aware of as a result of business dealings between the Company and those companies; disclose material non-public information to any unauthorized persons outside of the Company; or engage in hedging transactions through the use of certain derivatives, such as put and call options involving the Company’s securities. The insider trading policy also restricts trading to defined window periods which follow the Company’s quarterly earnings releases.
Prohibition On Short Sales (Anti-hedging)
To ensure alignment with shareholders' interest and to further strengthen our compensation risk management policies and practice, the Company’s insider trading policy prohibits all individuals to whom the policy applies from engaging in a short sale of the Company's or its subsidiaries' securities and derivatives (such as options, puts, calls, or warrants).
Remuneration for Non-Executive Directors
Remuneration of non-executive directors is set forth in the Remuneration Policy. The current remuneration for the non-executive directors is shown in the table below.
|
| | |
Non-Executive Director Compensation | U.S.$ |
|
Annual cash retainer | 200,000 |
|
Additional retainer for Audit Committee member | 10,000 |
|
Additional retainer for Audit Committee Chair | 20,000 |
|
Additional retainer for Compensation/Governance Committee member | 5,000 |
|
Additional retainer for Compensation/Governance Committee Chair | 15,000 |
|
Additional retainer for Lead Independent Director | 25,000 |
|
At the 2017 annual general meeting of FCA shareholders, the Company's shareholders approved amendments to the Remuneration Policy to introduce the principle that non-executive directors are paid in cash. Pursuant to the amendment, implemented shortly after the 2017 annual general meeting of shareholders, non-executive directors are to be paid in cash, and no longer have the option to elect to receive their annual retainer fee, committee membership, and committee chair fee payments in the form of common shares. Remuneration of non-executive directors is fixed and not dependent on the Group's financial results. Non-executive directors are not eligible for variable compensation and do not participate in any incentive plans. Non-executive directors are also entitled to certain automobile perquisites, which are subject to taxes for the imputed income on the purchase or lease of Company vehicles.
Directors' Compensation
The following table summarizes the remuneration paid to the membersprovides an overview of the Board ofshare plans held by the Executive Directors for the year ended December 31, 2017.2020:
|
| | | | | | | | | | | | | | | |
| Directors of FCA | | Office held | | In office from/to | Annual fee (€) | | Annual incentive (1) (€) | | Other compensation (€) | | Total (€) |
| ELKANN John Philipp | | Chairman | | 01/01/2017 - 12/31/2017 | 1,770,411 |
| | — |
| | 405,399 |
| (2) | 2,175,810 |
|
| MARCHIONNE Sergio | | CEO | | 01/01/2017 - 12/31/2017 | 3,540,822 |
| | 4,631,395 |
| | 2,737,479 |
| (3) | 10,909,696 |
|
| AGNELLI Andrea | | Director | | 01/01/2017 - 12/31/2017 | 179,501 |
| (4) | — |
| | — |
| | 179,501 |
|
| BRANDOLINI D'ADDA Tiberto | | Director | | 01/01/2017 - 12/31/2017 | 179,501 |
| (4) | — |
| | — |
| | 179,501 |
|
| EARLE Glenn | | Director | | 01/01/2017 - 12/31/2017 | 197,449 |
| (4) | — |
| | 17,435 |
| (5) | 214,884 |
|
| MARS Valerie | | Director | | 01/01/2017 - 12/31/2017 | 192,961 |
| (4) | — |
| | 5,133 |
| (5) | 198,094 |
|
| SIMMONS Ruth J. | | Director | | 01/01/2017 - 12/31/2017 | 183,986 |
| (4) | — |
| | 6,108 |
| (5) | 190,094 |
|
| THOMPSON Ronald L. | | Director | | 01/01/2017 - 12/31/2017 | 210,911 |
| (4) | — |
| | 5,599 |
| (5) | 216,510 |
|
| VOLPI Michelangelo A. | | Director | | 04/15/2017 - 12/31/2017 | 90,733 |
| | | | — |
| | 90,733 |
|
| WHEATCROFT Patience | | Director | | 01/01/2017 - 12/31/2017 | 192,961 |
| (4) | — |
| | 11,180 |
| (5) | 204,141 |
|
| WOLF Stephen M. | | Director | | 01/01/2017 - 04/14/2017 | 97,802 |
| (4) | — |
| | 2,036 |
| (5) | 99,838 |
|
| ZEGNA Ermenegildo | | Director | | 01/01/2017 - 12/31/2017 | 188,535 |
| (4) | — |
| | 7,738 |
| (5) | 196,273 |
|
| Total | | | | | 7,025,573 |
| | 4,631,395 |
| | 3,198,107 |
| | 14,855,075 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of Director, Position | Specification of Plan | Performance Period | Grant Date(1) | Vesting Date | End of the Holding Period (1) | Opening Balance - January 1, 2020(2) | Shares Granted(3) | Shares Vested(4) | Closing Balance - December 31, 2020(5) | Share-Based Compensation Expense |
| ELKANN, John Philipp, Chairman | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 154,660 | | — | | 51,552 | | 103,108 | | € | 627,672 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 463,981 | | — | | 113,883 | | 350,098 | | € | 835,607 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 95,640 | | — | | 95,640 | | € | 130,099 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 286,920 | | — | | 286,920 | | € | 117,703 | |
| | | | | | | | | | |
| MANLEY, Michael, CEO | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 515,490 | | — | | 171,829 | | 343,661 | | € | 2,092,095 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 1,546,470 | | — | | 379,580 | | 1,166,890 | | € | 2,785,123 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 318,790 | | — | | 318,790 | | € | 433,649 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 956,360 | | — | | 956,360 | | € | 392,328 | |
| | | | | | | | | | |
| PALMER, Richard, CFO | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 206,402 | | — | | 68,800 | | 137,602 | | € | 837,672 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 412,804 | | — | | 101,322 | | 311,482 | | € | 743,435 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 127,650 | | — | | 127,650 | | € | 173,642 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 255,300 | | — | | 255,300 | | € | 104,732 | |
_________________________(1) In 2019, the Board approved holding requirements for Executive Directors effective for grants issued after January 1, 2020. The annual incentive represents the bonus paidgrants issued in 2018 for the 2017 performance year.2019 are not subject to these holding requirements.
(2) The stated amount includesIncludes the usedilution adjustment reported in 2019 Remuneration Report resulting from the payment of transport and insurance premiums.the extraordinary cash distribution to holders of FCA common shares on May 30, 2019.
(3) The stated amount includes insurance premiums, tax preparation and tax equalization.
(4) Non-executive directors who elected to receive a portion of their annual retainer fee in common shares of FCA, prior to the change in Remuneration Policy approved at the 2017 annual general meeting of FCA shareholders. The amount of the annual fee reported includes the fair market value of the shares received.granted on May 1, 2020 for the Chairman was €2,968,739, the CEO was €9,895,410 and the CFO was €2,971,766
(4) The fair market value of the shares that vested on May 11, 2020 for the Chairman was €1,286,157, the CEO was €4,286,872 and the CFO was €1,322,596. The units delivered was based on the achievement of 88.9% of the 2019 Adjusted EBIT target resulting in a payout of 72.27% of the target Adjusted EBIT performance share units and the achievement of the 6th ranking among the 16 Relative TSR peer group resulting in a payout of 75% of the target Relative TSR performance share units. In accordance with the LTI plan equity award agreements, the units not vested based on achievement less than target, are carried forward and included in the Closing Balance at December 31, 2020.
(5) Treatment of the outstanding units for the CEO and CFO will be settled in accordance with their respective retention agreements as described in Impact of Merger with Groupe PSA below.
In 2021, prior to the Annual General Meeting, the Compensation Committee will present a new Long Term Incentive Plan design for approval by the Board of Directors. The stated amount refersnew LTI plan is subject to shareholder approval at the 2021 Annual General Meeting.
Impact of Merger with Groupe PSA
The FCA Board, at the recommendation of the Compensation committee recognizing the critical role of the CEO and CFO in continuing the progress in planning for the merger with Groupe PSA, approved retention agreements for the CEO and CFO conditional upon the merger occurring. The terms of the agreements are described below and have been approved by the shareholders as part of the merger.
Retention Arrangements
The CEO and CFO are entitled to retention benefits under which they are eligible to receive a one-time cash award, payable at certain times after closing of the merger. Additionally, under FCA’s Equity Incentive Plan, certain changes in roles following the closing of the merger (including no longer serving as a member of the board of directors) entitles LTI plan participants to a qualifying termination of employment, with cumulated accelerated vesting of all awards under the plan and severance payments as contemplated by their employment agreement as applicable.
With respect to the CEO, such entitlements will be replaced, with effect from the merger, with the right to receive a cash retention award, which is payable on a specified date after closing of the merger upon the satisfaction of certain conditions. The CEO’s entitlement will (1) replace, effective as of the closing of the merger, the CEO’s FCA performance share units and FCA restricted share units, vesting at closing of the merger as indicated above, calculated based on the value of such awards at the closing of the merger, (2) replace certain other severance rights, with such portion of the retention award equal to one times the CEO’s annual base salary, and (3) provide the CEO a recognition award with a value equivalent to approximately five times his annual base salary. In addition, the CEO will be entitled to certain automobile perquisites, which arefacilitations regarding the purchase of vehicles manufactured by FCA.
With respect to the CFO, the above mentioned entitlements have been replaced with the right to receive a cash retention award, payable on a specified date after closing of the merger upon satisfaction of certain conditions. The CFO’s entitlement will (1) replace, effective as of the closing of the merger, the CFO’s FCA performance share units and FCA restricted share units, vesting at closing of the merger as indicated above, calculated based on the value of such awards at the closing of the merger, (2) replace certain other severance rights, with such portion of the retention award equal to two times the CFO’s annual base salary, and (3) provide the CFO a recognition award with a value equivalent to approximately two times his annual base salary.
The CEO and CFO will also be subject to taxesa non-competition covenant and non-solicitation of employees’ covenant, which continue for the imputed income on the purchase or leasetwo years and three years, respectively, following any termination of Company vehicles.his employment.
Share Plans GrantedCapital
As at December 31, 2020, prior to Directors
The following table gives an overviewthe closing of the merger, the authorized share planscapital of FCA was €40,000,000, divided into 2,000,000,000 FCA common shares with a nominal value of €0.01 each and 2,000,000,000 special voting shares with a nominal value of €0.01 each. At the Effective Time, (i) by way of a deed of amendment to the Articles of Association, FCA’s authorized share capital was increased to €90,000,000, divided into 4,500,000,000 common shares with a nominal value of €0.01 each and 4,500,000,000 special voting shares with a nominal value of €0.01 each; (ii) FCA issued 1,545,220,196 new common shares to PSA shareholders, corresponding to an exchange ratio of 1.742 FCA common shares for each outstanding PSA ordinary share. As of the Governance Effective Time, by way of a deed of amendment to the Articles of Association, (i) FCA’s name was changed into Stellantis; (ii) the authorized share capital of Stellantis was divided into 4,500,000,000 common shares with a nominal value of €0.01 each, 4,050,000,000 class A special voting shares with a nominal value of €0.01 each and 450,000,000 class B special voting shares with a nominal value of €0.01 each; (iii) the special voting shares of FCA were converted into class B special voting shares at the Governance Effective Time. The special voting shares held by the Chief Executive Officer and other Board Members.
|
| | | | | | | | | | | |
| Name / Plan | Grant Date | Vesting Date | Number of shares under award at January 1, 2017 | Fair Value on Grant Date (1) | Shares Granted (1) | Shares Vested | Number of shares under award at December 31, 2017 |
Agnelli / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.34 | 4,970 |
| 4,970 |
| — |
|
Brandolini / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.34 | 4,970 |
| 4,970 |
| — |
|
Earle / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.35 | 6,283 |
| 6,283 |
| — |
|
Mars / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.34 | 4,970 |
| 4,970 |
| — |
|
Simmons / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.35 | 9,432 |
| 9,432 |
| — |
|
Thompson / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.34 | 4,970 |
| 4,970 |
| — |
|
Wheatcroft / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.34 | 4,970 |
| 4,970 |
| — |
|
Wolf / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.35 | 9,320 |
| 9,320 |
| — |
|
Zegna / 2017 FCA Share Grants | 01/2017 - 04/2017 | 01/2017 - 04/2017 | — |
| U.S.$10.34 | 4,970 |
| 4,970 |
| — |
|
Marchionne / FCA LTI awards (2),(3),(4) | 04/16/2015 | 2017 / 2018 / 2019 | 6,709,200 |
| U.S.$14.84 | — |
| 2,795,500 |
| 4,472,800 |
|
1) PriorExor prior to the 2017 annualclosing of the merger were repurchased by FCA at the Effective Time for no consideration. The Articles of Association provide that, following the deposit by the Board of Directors of a declaration at the Dutch Trade Register that the class B special voting shares held by Stellantis on the Effective Date were canceled, the authorized share capital of Stellantis shall amount to €90,000,000, divided into 4,500,000,000 common shares with a nominal value of €0.01 each, 4,499,750,000 class A special voting shares and 250,000 class B special voting shares. As of March 3, 2021 there were 208,622 class B special voting shares and no class A special voting shares outstanding, and the above mentioned declaration has not been filed with the Dutch Trade Register. As of the same date, the Company held 449,410,092 class B special voting shares in treasury. At the extraordinary general meeting of FCAthe shareholders non-executive directors could electheld on January 4, 2021, the shareholders approved inter alia the proposal to receive a portionincrease and, subsequently, decrease the Stellantis issued share capital in connection with the Faurecia Distribution, which remains subject to approval by the general meeting of their annual retainer feeshareholders of Stellantis to be held on March 8, 2021 and compliance with certain formalities under Dutch law.
On July 31, 2017, PSA issued 39,727,324 equity warrants in favor of General Motors Group, at the unit price of €16.3386515, giving entitlement to subscribe for PSA ordinary shares, on the basis of one PSA ordinary share for one equity warrant, at an exercise price of €1.00 per PSA ordinary share, between July 31, 2022 and July 31, 2026. At the Effective Time, each of the 39,727,324 outstanding equity warrants was converted into one equity warrant giving entitlement to subscribe 1.742 Stellantis common shares (each, a “Warrant”) at an exercise price equal to €1.00 per Warrant, between July 31, 2022 and July 31, 2026. As of FCA ratherthe date of this report, the exercise of the Warrants may result in the issuance of up to 69,204,998 new common shares, subject to adjustment in connection with certain transactions carried out by Stellantis, as further described below. General Motors and its affiliates do not have the right to sell or transfer the Warrants other than to General Motors affiliates. General Motors and its affiliates do not have any governance or voting rights in cash.respect of the Warrants, and are obligated to sell the common shares received within 35 days from the date of exercise of the Warrants. The fairterms and conditions of the Warrants provide for protection of the rights of warrant holders in connection with certain transactions carried out by the issuer where the record date to benefit from or participate in such transactions and, in particular, to benefit from any dividend or other distribution announced or voted on or before that date, is prior to the delivery date of the underlying shares upon exercise of the Warrants. The contemplated transactions include, among others, any free allocation of shares or other securities to shareholders, regrouping or splitting of shares, increase of the par value of the common shares, merger, demerger, repayment of share capital, dividends and other distributions. The terms and conditions of the Warrants set out the calculation formula to adjust the exercise ratio, provided that any such adjustment will be made such that the value of the common shares that would have been obtained had the Warrants been exercised immediately before one of the contemplated transactions is equal, to the nearest 100th of a share, to the value of the shares receivedthat would have been obtained had the Warrants been exercised immediately after such transaction.
Stellantis common shares and shownspecial voting shares have been created under the laws of the Netherlands.
Stellantis common shares are registered shares represented by an entry in the tableshareholders’ register of Stellantis. The Board of Directors may determine that, for the purpose of trading and transfer of shares on a foreign stock exchange, share certificates will be issued in such a form as will comply with the requirements of such a foreign stock exchange and Dutch law. A register of shareholders is includedmaintained by Stellantis in the annual amount of the annual fee reportedNetherlands and a branch register is maintained in the Directors' compensation table above.United States on Stellantis’s behalf by Computershare Trust Company, N.A., which serves as Stellantis’s branch registrar and transfer agent in the United States.
Beneficial interests in Stellantis common shares that are traded on the NYSE are held through the book-entry system provided by The Depository Trust Company amended the Remuneration Policy for its non-executive directors at the 2017 annual general meeting(“DTC”) and are registered in Stellantis’s register of shareholders to state thatin the non-executive directors’ compensation will be paid entirelyname of Cede & Co., as DTC’s nominee. Beneficial interests in cash.
(2) During 2016, the Compensation Committee, in accordance with the terms of the LTI plan, adjusted the equity awards to make holders of the Company’s LTI awards whole for the diminution in value of an FCA share resulting from the Ferrari spin-off. In January 2017, the Compensation Committee, in accordance with the terms of the LTI plan, adjusted the equity awards to make holders of the Company’s LTI awards whole for the diminution in value of an FCA share resulting from the distribution of the Company's 16.7 percent ownership interest in RCS Media Group S.p.A. For LTI awards, the actual value of units received will dependStellantis common shares traded on the Company’s performance,MTA are held through Monte Titoli S.p.A., the Italian central clearing and settlement system, as described above. Fair value is calculateda participant (through Euroclear Bank) in DTC. Beneficial interests in Stellantis common shares traded on Euronext Paris are held through Euroclear France and its intermediaries Euroclear Bank and J.P. Morgan, the latter acting as a participant in DTC.
Special voting shares are registered shares represented by multiplyingan entry in the per unit valueshareholders’ register of the award by the number of units correspondingStellantis. No share certificates have been issued with respect to the most probable outcomespecial voting shares. No right of pledge may be established on special voting shares and the performance conditionsvoting rights attributable to special voting shares may not be assigned to a usufructuary.
Additional information on FCA’s equity as of the grant date. The per unit valueDecember 31, 2020 is based on the closing price of the Company’s stock on the grant date, adjustedcontained in Note 26, Equity, to reflect the relative TSR modifiers using a Monte Carlo simulation that includes multiple inputs such as stock price, performance period, volatility and dividend yield.
|
| | | | | |
| Event | Number of shares under award | Conversion Factor | Fair Value on award date | Dilution Adjustment | Number of adjusted shares |
| Ferrari Spin-off | 4,320,000 | 1.5440 | U.S.$9.61 | 2,350,080 | 6,670,080 |
| RCS Media Group S.p.A. | 6,670,080 | 1.005865 | U.S.$ 9.56 | 39,120 | 6,709,200 |
(3) In January, 2018, the Compensation Committee in accordance with the terms of the LTI plan, adjusted the equity awards to make holders of the Company’s LTI awards whole for the diminution in value of an FCA share resulting from the distribution of the ordinary shares in GEDI Gruppo Editoriale S.p.A. (GEDI). For LTI awards, the actual value of units received will depend on the Company’s performance as described above. Fair value is calculated by multiplying the per unit value of the award by the number of units corresponding in the most probable outcome of the performance conditions as of the grant date. The per unit is based on the Company’s stock on the grant date, adjusted to reflect the relative TSR modifiers using a Monte Carlo simulation that includes multiple inputs such as stock price, performance period, volatility and dividend yield.
|
| | | | | |
| Event | Number of shares under award | Conversion Factor | Fair Value on award date | Dilution Adjustment | Number of adjusted shares |
| GEDI | 4,472,800 | 1.003733 | U.S.$9.52 | 16,696 | 4,489,496 |
(4) This number represents the maximum opportunity for the first vesting of the CEO’s equity award.
The total cost recognized in 2017 by the Company in connection with the share plans referenced above was approximately €14 million.
Executive Officers’ Compensation
Refer to Note 24, Related party transactions, within the Consolidated Financial Statements included elsewhere in this report for detailreport.
Directors
Set forth below is a summary of the material provisions of the Articles of Association relating to our Directors. This summary does not restate the Articles of Association in their entirety.
The members of the Board of Directors are appointed by the general meeting of shareholders, taking into account the nomination rights set out in the Articles of Association and further described under “—Nomination Rights”.
The initial term of office of each of the Chairman, CEO, Senior Independent Director and Vice Chairman is five years, in each case beginning on the Governance Effective Time. The initial term of office for each of the other Directors is four years beginning on the Governance Effective Time. Such initial terms of office shall lapse immediately after the close of the first annual general meeting of shareholders held after four or five years (as applicable) have lapsed since the Governance Effective Time. Under Articles of Association, after the initial term, the term of office of the Directors is for a period of two years, provided that unless a Director has resigned at an earlier date the term of office shall lapse immediately after the close of the first annual general meeting of shareholders held two years following the appointment. Each Director may be reappointed for an unlimited number of terms.
Stellantis has a policy in respect of the remuneration of the members of the Board of Directors. With due observation of the remuneration policy, the Board of Directors may determine the remuneration for directors in respect of the performance of their duties. The Board of Directors must submit plans to award shares or the right to subscribe for shares to the general meeting of shareholders for its approval.
Stellantis shall not grant the Directors any personal loans or guarantees.
Additional information on the Board of Directors is contained in theReport of the Non-Executive Directors included elsewhere in this report.
Nomination Rights
The Articles of Association provide for certain rights of Exor, EPF/FFP and BPI (each a “Nominating Shareholder”) to nominate the number of Directors mentioned below for future terms of office of the Board of Directors. In particular, and subject to the terms and conditions set forth in the Articles of Association:
•Exor shall have the right to nominate two (2) directors;
•BPI (or EPF/FFP, as further described below) shall have the right to nominate one (1) director; and
•EPF/FFP shall have the right to nominate one (1) director.
Notwithstanding the above:
•if the number of Stellantis common shares held by BPI, and/or any of its affiliates, or EPF/FFP, and/or any of their affiliates, falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, such shareholder will no longer be entitled to nominate a Director (in which case, any Director nominated by BPI or EPF/FFP, as the case may be, will be required to resign as promptly as reasonably practicable (and in any case, within ten days of the relevant threshold no longer being met)); and
•if, at any time within the six years following the Effective Time or on the sixth anniversary of the Effective Time, both (i) the number of Stellantis common shares held by EPF/FFP and/or their affiliates increases to a number of shares corresponding to eight percent or more of the issued and outstanding Stellantis common shares and (ii) the number of Stellantis common shares held by BPI and/or its affiliates falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, then EPF/FFP will be entitled to nominate a second Director to the Board of Directors in replacement of the BPI nominee (the “EPF/FFP Additional Director”).
As an exception to the foregoing paragraph, if at any time within the six years following the Effective Time:
•the number of Stellantis common shares held by BPI and its affiliates, on the one hand, or EPF/FFP and their affiliates, on the other hand, represents between four percent and five percent of the issued and outstanding Stellantis common shares (the “Threshold Stake”);
•either BPI or EPF/FFP has not otherwise lost its right to nominate a Director in accordance with the preceding paragraph; and
•the number of Stellantis common shares held by BPI, EPF/FFP and their respective affiliates represents, in aggregate, compensation expenseeight percent or more of the issued and outstanding Stellantis common shares,
the Nominating Shareholder which holds the Threshold Stake will maintain its right to nominate a Director (the “Residual Director”) to the Board of Directors until the sixth anniversary of the Effective Time (it being understood that while BPI is entitled to nominate a Director pursuant to this exception, EPF/FFP will not be entitled to nominate the EPF/FFP Additional Director).
Additionally, Exor’s right to nominate representative(s) to the Board of Directors will decrease in the event Exor and/or its affiliates reduce their equity ownership in Stellantis as follows:
•if the number of shares held by Exor and/or its affiliates falls below the number of shares corresponding to eight percent of the issued and outstanding Stellantis common shares, Exor will be entitled to nominate one Director instead of two; and
•if the number of shares held by Exor and/or its affiliates falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, Exor will no longer be entitled to nominate a Director.
In such cases, the Director designated by Exor for executivesresignation from among the Directors nominated by Exor will be required to resign as promptly as reasonably practicable (and in any case, within ten days of the relevant threshold no longer being met) after the number of Stellantis common shares held by Exor and/or its affiliates falls below the applicable threshold.
Any event or series of events (including any issue of new shares) other than a transfer (including transfer under universal title) of Stellantis common shares will be disregarded for the purpose of determining whether the applicable Nominating Shareholder reaches the relevant threshold(s).
Pursuant to the Articles of Association, the general meeting of shareholders may at all times overrule a binding nomination for the appointment of a Director by a two-thirds majority of the votes cast, with strategic responsibilities.such two-thirds majority of the votes cast representing more than half of the issued and outstanding share capital of Stellantis.
Additionally, the Articles of Association provide that the nomination rights of a Nominating Shareholder lapse upon a Change of Control of such Nominating Shareholder. A “Change of Control” is defined in Article 1.1. of Stellantis Articles of Association as any direct or indirect transfer carried out by a shareholder that is not an individual through one or a series of related transactions as a result of which (i) a majority of the voting rights in such shareholder; (ii) the de facto ability to direct the casting of a majority of the votes exercisable at general meetings of such shareholder; and/or (iii) the ability to appoint or remove a majority of the directors, executive directors or board members or executive officers of such shareholder or to direct the casting of a majority of the voting rights at meetings of the board of directors, management board or similar governing body of such shareholder has been transferred to the transferee of such shares, provided that no Change of Control will be deemed to have occurred if (a) the transfer of ownership and/or control is an intragroup transfer under the same controlling person, (b) the transfer of ownership and/or control is the result of the succession or the liquidation of assets between spouses or the inheritance, inter vivos donation or other transfer to a spouse or a relative up to and including the fourth degree, (c) the fair market value of the Qualifying Common Shares (as defined under “—Loyalty Voting Structure”) held by such shareholder represents less than 20 percent of the total assets of the Transferred Group at the time of the transfer and the Qualifying Common Shares held by such shareholder, in the sole judgment of Stellantis, are not otherwise material to the Transferred Group or the change of control transaction. C.Article 1.1 of Stellantis Articles of Association defines “Transferred Group” as the relevant shareholder together with its affiliates, if any, over which control was transferred as part of the same Change of Control transaction.
No Liability to Further Capital Calls
All of the outstanding Stellantis common shares and special voting shares are fully paid and non-assessable.
Discriminating Provisions
Except for the voting limitations described in this section under “—General Meeting of Shareholders and Voting Rights —Voting Limitations”, there are no provisions of the Articles of Association that discriminate against a shareholder because of its ownership of a certain number of shares.
Rights of Pre-emption
Under Dutch law and the Articles of Association, each Stellantis shareholder has a right of pre-emption in proportion to the aggregate nominal value of its common shares upon the issuance of new Stellantis common shares, or the granting of rights to subscribe for Stellantis common shares. Exceptions to this right of pre-emption include the issuance of new Stellantis common shares, or the granting of rights to subscribe for Stellantis common shares: (i) to employees of Stellantis or another member of its Group pursuant to an equity incentive plan of Stellantis; (ii) against payment in kind (contribution other than in cash); and (iii) to persons exercising a previously granted right to subscribe for Stellantis common shares. Shareholders do not have any right of pre-emption in connection with the issuance of special voting shares. Rights of pre-emption may be exercised during a period of at least two weeks after the announcement of an issuance of new Stellantis common shares in the Dutch State Gazette.
The general meeting of shareholders may resolve to limit or exclude the rights of pre-emption upon an issuance of Stellantis common shares, which resolution requires approval of at least two-thirds of the votes cast if less than one-half of the issued and outstanding share capital is represented at the general meeting of shareholders. If more than one-half of the issued and outstanding share capital is present or represented at the general meeting of shareholders, an absolute majority of the votes cast is required. The Articles of Association, or the general meeting of shareholders, may also designate the Board Practicesof Directors to resolve to limit or exclude the rights of pre-emption in relation to the issuance of Stellantis common shares. Pursuant to Dutch law, the designation by the general meeting of shareholders may be granted to the Board of Directors for a specified period of time of not more than five years and only if the Board of Directors has also been designated or is simultaneously designated the authority to resolve to issue Stellantis common shares. In the proposal to the general meeting of shareholders in respect of the Board of Directors’ authority to resolve to limit or exclude such rights of pre-emption, the reasons for the proposal and the choice of the intended price of issue will be explained in writing.
The Board of Directors is irrevocably designated in the Articles of Association as the competent body to exclude or limit rights of pre-emption for an initial period of three years from January 16, 2021 in connection with the relevant authority to issue Stellantis common shares referred to under “—Issuance of Shares”, which designation may be extended by the general meeting of shareholders for additional periods up to a maximum of five years per period.
Repurchase of Shares
Upon agreement with the relevant shareholder, Stellantis may acquire fully paid-up shares in its own share capital at any time for no consideration (om niet), or, subject to certain provisions of Dutch law and the Articles of Association, for consideration if: (i) Stellantis’s shareholders’ equity less the payment required to make the acquisition does not fall below the sum of called-up and paid-in share capital and any reserves to be maintained pursuant to Dutch law and the Articles of Association; (ii) Stellantis would thereafter not hold a pledge over Stellantis common shares, or together with its subsidiaries, hold Stellantis common shares with an aggregate nominal value exceeding 50 percent of Stellantis’s issued share capital; and (iii) the Board of Directors has been authorized to do so by the general meeting of shareholders.
Stellantis’s equity, as shown in the last confirmed and adopted balance sheet, after deduction of the acquisition price for shares in the share capital of Stellantis, the amount of the loans as referred to in Article 2:98c of the Dutch Civil Code and distributions from profits or reserves to any other persons that became due by the company and its subsidiary companies after the date of the balance sheet, shall be decisive for purposes of items (i) and (ii) referred to in the immediately preceding paragraph. If no annual accounts have been confirmed and adopted when more than six months have expired after the end of any financial year, then an acquisition in reliance on the immediately preceding paragraph shall not be allowed until the relevant annual accounts are adopted.
The acquisition of fully paid-up shares by Stellantis other than for no consideration (om niet) requires authorization by the general meeting of shareholders. Such authorization may be granted to the Board of Directors for a period not exceeding 18 months and shall specify the number of shares, the manner in which the shares may be acquired and the price range within which shares may be acquired. The authorization is not required for the acquisition by Stellantis of shares for employees of Stellantis, or another member of its Group, under a scheme applicable to such employees and no authorization is required for repurchase of shares acquired in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. In case of acquisition of shares by Stellantis for employees of Stellantis, such shares must be officially listed on the price list of an exchange.
Stellantis may, jointly with its subsidiaries, hold Stellantis common shares in its own capital exceeding one-tenth of its issued and outstanding capital for no more than three years after acquisition of such Stellantis common shares for no consideration (om niet) or in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. Any Stellantis common shares held by Stellantis in excess of the amount permitted shall transfer to all members of the Board of Directors jointly at the end of the last day of such three-year period. Each member of the Board of Directors shall be jointly and severally liable to compensate Stellantis for the value of the Stellantis common shares at such a time, with interest payable at the statutory rate on such shares. The term Stellantis common shares as used in this paragraph shall include depositary receipts for shares and shares in respect of which Stellantis holds a right of pledge.
No votes may be cast at a general meeting of shareholders on the Stellantis common shares held by Stellantis or its subsidiaries. In addition, no voting rights may be cast at a general meeting of shareholders in respect of Stellantis common shares for which depositary receipts have been issued that are owned by Stellantis. Nonetheless, the holders of a right of usufruct or pledge in respect of shares held by Stellantis and its subsidiaries in Stellantis share capital are not excluded from the right to vote on such shares if the right of usufruct or pledge was granted prior to the time such shares were acquired by Stellantis or its subsidiaries. Neither Stellantis nor any of its subsidiaries may cast votes in respect of a share on which it or its subsidiaries holds a right of usufruct or pledge.
Reduction of Share Capital
The Stellantis common shares held in treasury by Stellantis and all issued class A special voting shares may be cancelled, and the nominal value of shares may be reduced, with the approval of the general meeting of shareholders.
A resolution to reduce the share capital requires a majority of at least two-thirds of the votes cast at the general meeting of shareholders if less than one-half of the issued and outstanding share capital is present or represented at the meeting. If more than one-half of the issued and outstanding share capital is present or represented at a general meeting of shareholders, an absolute majority of the votes cast is required.
Class A special voting shares may be cancelled by resolution taken by a majority of at least two-thirds of the votes cast at a general meeting of shareholders, subject to the approval of the meeting of holders of the class A special voting shares. Cancellation of class A special voting shares shall take place without repayment of the nominal value of the special voting shares, and such nominal value shall be added to the special capital reserve.
Any reduction of the nominal value of the Stellantis common shares without repayment must be made pro rata on all common shares. Any reduction of the nominal value of the special voting shares shall take place without repayment.
A partial repayment on Stellantis common shares shall only be allowed in implementation of a resolution to reduce the nominal value of the Stellantis common shares. Such partial repayment must be made in respect of all Stellantis common shares on a pro rata basis. The pro rata requirement may be waived with the consent of all the holders of Stellantis common shares.
Any proposal for a cancellation or reduction of nominal value is subject to general requirements of Dutch law with respect to reductions of share capital.
Transfer of Shares
In accordance with the provisions of Dutch law, pursuant to Article 13 of the Articles of Association, the transfer of Stellantis common shares or the creation of a right in rem in such shares requires a deed intended for that purpose and, save when Stellantis is a party to the deed, written acknowledgment by Stellantis of the transfer.
Common shares that have been entered into DTC’s book-entry system will be registered in the name of Cede & Co. as nominee for DTC and transfers of beneficial ownership of shares held through DTC will be effected by electronic transfer made by DTC participants. Article 13 of the Articles of Association does not apply to the trading of such Stellantis common shares on a regulated market or the equivalent of a regulated market.
Transfers of shares held outside of (i) DTC or another direct registration system maintained by Computershare Trust Company, N.A., Stellantis’s transfer agent in New York, (ii) Monte Titoli S.p.A. or (iii) Euroclear France (collectively, the “Regular Trading Systems”) and not represented by certificates are effected by a deed intended for that purpose (including a stock transfer instrument) and, save where Stellantis is a party to the deed, require written acknowledgement by Stellantis. Transfer of common shares for which registered certificates have been issued is effected by presenting and surrendering the certificates to the transfer agent. A valid transfer requires the registered certificates to be properly endorsed for transfer as provided for in the certificates and accompanied by proper instruments of transfer and stock transfer tax stamps for, or funds to pay, any applicable stock transfer taxes. Stellantis may acknowledge the transfer by making an annotation on such certificate as proof of the acknowledgement or by replacing the surrendered certificate by a new share certificate registered in the name of the transferee.
Stellantis common shares are freely transferable. The number of Stellantis common shares registered in the Loyalty Register pursuant to Stellantis’s loyalty voting structure and special voting shares is subject to the transfer restrictions described under “—General Meeting of Shareholders and Voting Rights—General Meetings and —Loyalty Voting Structure—Terms and Conditions of the Special Voting Shares—Withdrawal of Special Voting Shares”.
Exchange Controls and Other Limitations Affecting Shareholders
Under Dutch law, there are no exchange control restrictions on investments in, or payments on, Stellantis common shares. There are no special restrictions in the Articles of Association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote Stellantis common shares.
Annual Accounts and Independent Auditor
Stellantis’s financial year is the calendar year. Within four months after the end of each financial year, the Board of Directors shall prepare and publish the annual accounts, consisting of a balance sheet, a profit and loss account and explanatory notes and which must be accompanied by an annual report and an auditor’s report, alongside any other information that would need to be made public in accordance with the applicable provisions of law and the requirements of any stock exchange on which Stellantis common shares are listed. Stellantis shall make such annual accounts, annual report and auditor’s report available for inspection at Stellantis’s office. All members of the Board of Directors are required to sign the annual accounts and in case the signature of any member is missing, the reason for this must be stated. The annual accounts are to be adopted by the annual general meeting of shareholders. The annual accounts, the annual report and independent auditor’s report are made available through Stellantis’s website to the shareholders for review as from the day of the notice convening the annual general meeting of shareholders. If it is justified in view of Stellantis’s activities or the international structure of its group, as determined by the Board of Directors, Stellantis’s annual accounts or its consolidated accounts may be prepared in a foreign currency.
Payment of Dividends
Stellantis may make distributions to the shareholders and other persons entitled to distributions only to the extent that its shareholders’ equity exceeds the sum of the paid-up and called-up portion of the share capital and the reserves that must be maintained in accordance with Dutch law and the Articles of Association. No distribution of profits or other distributions may be made to Stellantis itself for shares that Stellantis holds in its own share capital.
Stellantis may make a distribution of profits to the shareholders after the adoption of its statutory annual accounts. The Board of Directors, or the general meeting of shareholders upon a proposal of the Board of Directors, may resolve to make distributions from Stellantis’s share premium reserve or from any other reserve (other than the special capital reserve), provided that payments from reserves other than the Special Voting Shares Dividend Reserve may only be made to holders of Stellantis common shares.
Holders of special voting shares shall not receive any dividends in respect of the special voting shares; however, Stellantis shall maintain a separate dividend reserve for the special voting shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the special voting shares (as further described under “—Loyalty Voting Structure —General Meeting of Shareholders and —Voting Rights—General Meetings”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares Dividend Reserve, shall require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares, and shall be made exclusively to the holders of special voting shares in proportion to the aggregate nominal value of their special voting shares.
From the profits shown in the annual accounts, as adopted, such amounts shall be reserved as the Board of Directors may determine. The profits remaining thereafter shall first be applied to allocate and add to the Special Voting Shares Dividend Reserve an amount equal to one percent of the aggregate nominal amount of all special voting shares outstanding at the end of the financial year to which the annual accounts pertain. The special voting shares shall not carry any other entitlement to the profits.
Insofar as the profits have not been distributed or allocated to the reserves, they may, by resolution of the general meeting of shareholders, be distributed as dividends on the Stellantis common shares only. The Board of Directors may resolve that distributions will be made payable either in euro or in another currency. The Board of Directors, or the general meeting of shareholders upon a proposal by the Board of Directors, may resolve that a distribution will, wholly or partially, be made other than in cash, including in the form of Stellantis common shares or shares in another listed company, provided that, in case of a distribution in the form of Stellantis common shares, the Board of Directors has been designated as the body competent to pass a resolution for the issuance of shares.
The Board of Directors will have the power to declare one or more interim dividends or other distributions, subject to certain provisions of Dutch law and certain conditions set forth in the Articles of Association.
Dividends and other distributions will be made payable in the manner and at such date(s) as the Board of Directors or the general meeting of shareholders upon a proposal by the Board of Directors will determine.
The right to dividends and distributions shall lapse if the dividends or distributions are not claimed within five years following the day after the date on which they first became payable. Any dividends or other distributions made in violation of the Articles of Association or Dutch law shall have to be repaid by the shareholders who knew, or should have known, of such violation.
Information on the payment of dividends is contained in the section “OTHER INFORMATION” elsewhere in this report.
Amendments to the Articles of Association, including Variation of Rights
A resolution of the general meeting of shareholders to amend the Articles of Association or to wind up Stellantis may be approved only if proposed by the Board of Directors and approved by a vote of an absolute majority of the votes cast, provided that a resolution to amend Stellantis’s corporate seat and/or place of effective management will require a majority of at least two-thirds of the votes cast.
The rights of shareholders may be changed only by amending the Articles of Association in compliance with Dutch law, provided that rights specific to Nominating Shareholders set out in the Articles of Association cannot be amended without the prior written approval of such shareholder.
Dissolution and Liquidation
The general meeting of shareholders may resolve to dissolve Stellantis upon a proposal of the Board of Directors thereto. In the event of dissolution, Stellantis will be liquidated in accordance with Dutch law and the Articles of Association and the liquidation shall be arranged by the members of the Board of Directors, unless the general meeting of shareholders appoints other liquidators. The general meeting of shareholders will appoint, and decide on the remuneration of, the liquidators. During liquidation, the provisions of the Articles of Association will remain in force as long as possible.
If Stellantis is dissolved and liquidated, whatever remains of Stellantis’s equity after all its debts have been discharged shall first be applied to distribute the aggregate balance of share premium reserves and other reserves (other than the Special Voting Shares Dividend Reserve) to holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each holder; secondly, from any balance remaining, an amount equal to the aggregate amount of the nominal value of Stellantis common shares will be distributed to the holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each of them; thirdly, from any balance remaining, an amount equal to the aggregate amount of the Special Voting Shares Dividend Reserve will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; fourthly, from any balance remaining, the aggregate amount of the nominal value of the special voting shares will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; and, lastly, any balance remaining will be distributed to the holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each of them.
Liability of Directors
Under Dutch law, the management of a company with a one-tier board structure like Stellantis is a joint undertaking and each member of the Board of Directors can be held jointly and severally liable to Stellantis for damages in the event of improper or negligent performance of his or her duties. Furthermore, members of the Board of Directors can be held liable to third parties based on tort pursuant to certain provisions of the Dutch Civil Code. All Directors are jointly and severally liable for failure of one or more co-directors. An individual Director is only exempted from liability if he or she proves that he or she cannot be held culpable for the mismanagement and that he or she has not been negligent in seeking to prevent the consequences of the mismanagement. In this regard a Director may, however, refer to the allocation of tasks between the Directors. In certain circumstances, Directors may incur additional specific civil and criminal liabilities.
Election and Removal of Directors
The Articles of Association provide that the Board of Directors shall be composed of three or more members.
Any Director may be suspended or dismissed at any time by resolution of the general meeting of shareholders. A resolution of the general meeting of shareholders to suspend or dismiss a Director appointed upon a binding nomination will require a majority of at least two-thirds of the votes cast, with such two-thirds majority of the votes cast representing more than half of the issued and outstanding share capital, unless the person who made the binding nomination for such director supports the suspension or dismissal (as the case may be), in which case an absolute majority of the votes cast is required.
Loyalty Voting Structure
Stellantis adopted the loyalty voting structure summarized below on January 17, 2021.
Shareholders of Stellantis may at any time elect to participate in the loyalty voting structure by requesting that Stellantis registers all or some of their common shares in a separate register the (“Loyalty Register”). The registration of common shares in the Loyalty Register blocks such shares from trading in the Regular Trading Systems. If such number of common shares (the “Electing Common Shares”) have been registered in the Loyalty Register (and thus blocked from trading in the Regular Trading Systems) for an uninterrupted period of three years in the name of the same shareholder (such a share a “Qualifying Common Share”), the relevant shareholder becomes eligible to receive one class A special voting share for each Qualifying Common Share. If, at any time, such common shares are de-registered from the Loyalty Register for whatever reason, the relevant shareholder shall lose its entitlement to hold a corresponding number of special voting shares. From January 17, 2021, shareholders will only be able to receive class A special voting shares and not class B special voting shares. Class B special voting shares were created at the Governance Effective Time in order to be held by FCA shareholders (other than Exor) who held FCA special voting shares prior to such time. The Board of Directors may resolve at any time that class B special voting shares shall be exchanged for class A special voting shares in accordance with the Terms and Conditions of Special Voting Shares.
A holder of Electing Common Shares or Qualifying Common Shares may at any time request the de-registration of some or all of the number of such shares from the Loyalty Register, which will allow such shareholder to freely trade such common shares. From the moment of such a request, the holder of Electing Common Shares or Qualifying Common Shares shall be considered to have waived his or her rights to cast any votes associated with such special voting shares to be de-registered from the Loyalty Register. Upon the de-registration from the Loyalty Register, the relevant number of common shares will therefore cease to be Electing Common Shares or Qualifying Common Shares. Any de-registration request would automatically trigger a mandatory transfer requirement pursuant to which the relevant special voting shares will be acquired by Stellantis for no consideration (om niet) in accordance with the Terms and Conditions of Special Voting Shares.
Stellantis common shares are freely transferable. However, any transfer or disposal of Stellantis common shares with which special voting shares are associated would trigger the de-registration of such common shares from the Loyalty Register and the transfer of all relevant special voting shares to Stellantis. Special voting shares are not admitted to listing and are transferable only in very limited circumstances (including, among other things, transfers to affiliates or to relatives through succession, donation or other transfers, provided that the corresponding Qualifying Common Shares are also transferred to such party, or transfers with the approval of the Board of Directors). In particular, no shareholder shall, directly or indirectly: (a) sell, dispose of or transfer any special voting share or otherwise grant any right or interest in any special voting share, other than as permitted pursuant to the Articles of Association or the Terms and Conditions of Special Voting Shares; or (b) create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over any special voting share or any interest in any special voting share.
The purpose of the loyalty voting structure is to grant long-term shareholders an extra voting right by means of granting a special voting share (shareholders holding special voting shares are entitled to exercise one vote for each special voting share held and one vote for each Stellantis common share held), without entitling such shareholders to any economic rights, other than those pertaining to the common shares. However, under Dutch law, the special voting shares cannot be totally excluded from economic entitlements. As a result, pursuant to the Articles of Association, holders of special voting shares are entitled to a minimum dividend, which is allocated to a separate special voting shares dividend reserve (the “Special Voting Shares Dividend Reserve”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares Dividend Reserve will require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares. The powers to vote upon the distribution from the Special Voting Shares Dividend Reserve and the cancellation of all class A special voting shares are the only powers that are granted to that meeting pursuant to the Articles of Association, which can only be convened by the Board of Directors as it deems necessary. The special voting shares do not have any other economic entitlement.
Section 11 of the Terms and Conditions of Special Voting Shares includes liquidated damages provisions intended to discourage any attempt by holders to violate the Terms and Conditions of Special Voting Shares. These liquidated damages provisions may be enforced by Stellantis by means of a legal action brought by Stellantis in the courts of Amsterdam, the Netherlands. In particular, a violation of the provisions of the Terms and Conditions of Special Voting Shares concerning the transfer of special voting shares may lead to the imposition of liquidated damages.
Pursuant to Section 13 of the Terms and Conditions of Special Voting Shares, any amendment to the Terms and Conditions of Special Voting Shares (other than merely technical, non-material amendments) may only be made with the approval of the shareholders at a general meeting of shareholders.
Special Voting Shares Foundation
Pursuant to the Articles of Association, Stichting Stellantis SVS, a Dutch foundation (stichting) (the “SVS Foundation”) has an option right to subscribe for a number of class A special voting shares up to the number of class A special voting shares included in the Company’s authorized share capital from time to time. This option right can only be exercised by the SVS Foundation to facilitate the loyalty voting structure as set forth in the Articles of Association and the Terms and Conditions of Special Voting Shares. An option right has been granted to the SVS Foundation for an unlimited period and is intended to ensure that holders of Qualifying Common Shares in the future will receive their special voting shares without requiring a resolution from the general meeting of shareholders. Under the structure of the SVS Foundation, once a shareholder of the Company becomes entitled to receive one special voting share for each Qualifying Common Share, the Company issues such special voting shares to the SVS Foundation pursuant to the SVS Foundation’s exercise of its option right and, thereafter, the SVS Foundation transfers the special voting shares to such shareholder. Issuing shares to the SVS Foundation is a technical device to ensure that special voting shares will be available for issue to eligible shareholders once such shareholders acquire the right to the special voting shares.
Terms and Conditions of the Special Voting Shares
The Terms and Conditions of Special Voting Shares apply to the issuance, allocation, acquisition, holding, repurchase and transfer of special voting shares in the issued share capital of Stellantis and to certain aspects of Electing Common Shares, Qualifying Common Shares and Stellantis common shares which are registered in the Loyalty Register.
Special Capital Reserve
Stellantis will maintain a separate capital reserve for the purpose of facilitating any issuance or cancellation of special voting shares. No distribution shall be made from the special capital reserve, except that the Board of Directors shall be authorized to resolve upon (i) any distribution out of the special capital reserve to pay up special voting shares or (ii) re-allocation of amounts to credit or debit the special capital reserve against or in favor of the share premium reserve.
Withdrawal of Special Voting Shares
Following a mandatory transfer to Stellantis of special voting shares after a de-registration of Qualifying Common Shares from the Loyalty Register, Stellantis may continue to hold the special voting shares as treasury stock, but will not be entitled to vote any such treasury stock. Alternatively, Stellantis may withdraw and cancel the special voting shares held in treasury, as a result of which the nominal value of such shares will be allocated to the special capital reserves of Stellantis. Stellantis may also cancel all issued and outstanding class A special voting shares subject to approval of the meeting of holders of the class A special voting shares. Consequently, the loyalty voting feature will terminate as to the relevant Qualifying Common Shares being deregistered from the Loyalty Register. No shareholder required to transfer special voting shares to Stellantis pursuant to the Terms and Conditions of Special Voting Shares will be entitled to any consideration for such special voting shares and each shareholder expressly waives any rights in that respect as a condition to participation in the loyalty voting structure.
Change of Control
A shareholder with common shares registered in the Loyalty Register must promptly notify Stellantis in the event of a Change of Control (as defined above) with respect to such shareholder and must make a de-registration request with respect to his or her Qualifying Common Shares or Electing Common Shares registered in the Loyalty Register. The de-registration request leads to a withdrawal of the special voting shares as described under “—Withdrawal of Special Voting Shares”. Notwithstanding Stellantis not receiving any such notification, it may, upon becoming aware of a Change of Control, initiate the de-registration of the relevant shareholder’s Qualifying Common Shares or Electing Common Shares.
General Meeting of Shareholders and Voting Rights
General Meetings
At least one general meeting of shareholders shall be held every year, with such meeting to be held within six months after the close of the financial year. The purpose of the annual general meeting of shareholders is, inter alia, the adoption of the annual accounts, the allocation of profits (including the proposal to distribute dividends), granting discharge to Directors in respect of the performance of their duties, the appointment of Directors, if applicable, and the discussion of any other item duly included in the agenda.
Furthermore, general meetings of shareholders shall be held as often as the Board of Directors, the Chairman, the Senior Independent Director or the CEO deem it necessary to hold them or as otherwise required by Dutch law (including in the event Stellantis’s equity has decreased to an amount equal to or less than one-half of the paid-up and called-up part of Stellantis’s issued capital, as referred to in Section 2:108a of the Dutch Civil Code), without prejudice to what is provided in the next paragraph.
Shareholders individually or jointly representing at least ten percent of the issued share capital may request in writing, stating the matters to be dealt with, that the Board of Directors call a general meeting of shareholders.
If the Board of Directors fails to take the necessary steps to ensure a meeting can be held within eight weeks, then such shareholders may, on their application, be authorized by the interim provisions judge of the court (voorzieningenrechter van de rechtbank) to convene a general meeting of shareholders. The interim provisions judge (voorzieningenrechter van de rechtbank) shall reject the application if he or she is not satisfied that the applicants have previously requested in writing, stating the exact subjects to be discussed, that the Board of Directors convene a general meeting of shareholders.
General meetings of shareholders will be held in Amsterdam or Haarlemmermeer (Schiphol Airport), the Netherlands, and shall be called by the Board of Directors, the Chairman, the Senior Independent Director or the CEO, in such manner as is required to comply with the law and the applicable stock exchange regulations, no later than on the 42nd day prior to the day of the meeting. All convocations of general meetings of shareholders and all announcements, notifications and communications to shareholders shall be made by means of an announcement on Stellantis’s corporate website and such an announcement shall remain accessible until the relevant general meeting of shareholders.
Any communication to be addressed to the general meeting of shareholders by virtue of Dutch law or the Articles of Association may be either included in the notice referred to in the preceding sentence or, to the extent provided for in such notice, on Stellantis’s corporate website and/or in a document made available for inspection at the office of Stellantis and such other place(s) as the Board of Directors shall determine. Convocations of general meetings of shareholders may be sent to shareholders entitled to attend through the use of an electronic means of communication to the address provided by such shareholders to Stellantis for this purpose. The notice shall state the place, date and hour of the meeting and the agenda of the meeting as well as the other information required by law and the Articles of Association. An item proposed in writing by such a number of shareholders who, individually or in the aggregate, hold at least three percent of Stellantis’s issued share capital, will be included in the notice or will be announced in a manner similar to the announcement of the notice, provided that Stellantis has received the relevant request, including the reasons for putting the relevant item on the agenda, no later than the 60th day before the day of the meeting.
Convocation, Agenda, Minutes and Attendance
The agenda of the annual general meeting of shareholders shall contain, inter alia, the following items:
(a)adoption of the annual accounts;
(b)non-binding advisory vote on the remuneration report;
(c)discussion of the policy of Stellantis on additions to reserves and on dividends, if any;
(d)granting of discharge to the Directors in respect of the performance of their duties in the relevant financial year;
(e)if applicable, the appointment of Directors;
(f)if applicable, the proposal to pay a dividend;
(g)if applicable, discussion of any substantial change in the corporate governance structure of Stellantis; and
(h)any matters decided upon by the person(s) convening the meeting and any matters placed on the agenda with due observance of applicable Dutch law.
The Board of Directors will provide the general meeting of shareholders with all requested information, unless this would be contrary to an overriding interest of Stellantis. If the Board of Directors invokes an overriding interest, it must give reasons.
When convening a general meeting of shareholders, the Board of Directors shall determine that, for the purpose of Article 24 and Article 26 of the Articles of Association, persons with the right to vote or attend meetings will be considered those persons who have these rights at the 28th day prior to the day of the meeting (the “Record Date”) and are registered as such in a register to be designated by the Board of Directors for such purpose, irrespective of whether they will have these rights at the date of the meeting. In addition to the Record Date, the notice of the meeting shall further state the manner in which shareholders and other parties with meeting rights may register for the meeting, the final registration date for that general meeting of shareholders (which final registration date will be the seventh day prior to the meeting unless otherwise determined by the Board of Directors (the “Final Registration Date”)) and the manner in which the right to vote or attend the meeting can be exercised.
The general meeting of shareholders shall be presided over by the Chairman, or, in his absence, by the Senior Independent Director or, in the absence of both the Chairman and the Senior Independent Director, by the person chosen by the Board of Directors to act as chairman for such meeting. One of the persons present designated for that purpose by the chairman of the meeting shall act as secretary and take minutes of the business transacted. The minutes shall be adopted by the chairman and secretary of the meeting and signed by them in witness of such adoption. The minutes of the general meeting of shareholders shall be made available, on request, to shareholders no later than three months after the end of the meeting, after which shareholders shall have the opportunity to react to the minutes in the following three months. In the event an amendment to the minutes is required, the amended minutes will then be adopted by the chairman and the secretary of the meeting and signed by them in witness of such adoption. If an official notarial record is made of the business transacted at the meeting then minutes need not be drawn up and it shall suffice that the official notarial record be signed by the notary.
As a prerequisite to attending the general meeting of shareholders and, to the extent applicable, exercising voting rights, the shareholders and other persons entitled to attend the meeting shall be required to inform the Board of Directors in writing of their intention to attend the general meeting of shareholders within the time frame mentioned in the convening notice. At the latest, this notice must be received by the Board of Directors on the Final Registration Date. Shareholders and those permitted by Dutch law to attend the general meetings of shareholders may choose to be represented at any meeting by a proxy duly authorized in writing, provided they notify Stellantis in writing of their wish to be represented at such time and place as shall be stated in the notice of the meeting. Such proxy is also authorized in writing if the proxy is documented electronically. The Board of Directors may determine further rules concerning the deposit of the powers of attorney; these shall be mentioned in the notice of the meeting. The chairman of the meeting shall decide on the admittance to the meeting of persons other than those who are entitled to attend.
For each general meeting of shareholders, the Board of Directors may decide that shareholders shall be entitled to attend, address and exercise voting rights at such a meeting through the use of electronic means of communication, provided that shareholders who participate in the meeting are capable of being identified through the electronic means of communication and have direct cognizance of the discussions at the meeting and the exercising of voting rights (if applicable). The Board of Directors may set requirements for the use of electronic means of communication and state these in the convening notice. Furthermore, the Board of Directors may, for each general meeting of shareholders, decide that votes cast by the use of electronic means of communication prior to the meeting and received by the Board of Directors shall be considered to be votes cast at the meeting. Such votes may not be cast prior to the Record Date. The notice will state whether the foregoing provisions regarding electronic voting apply and the procedure for exercising the electronic voting rights.
Prior to being allowed admittance to a general meeting of shareholders, a shareholder and each person entitled to attend the meeting, or its attorney, shall sign an attendance list, while stating his or her name and, to the extent applicable, the number of votes to which he or she is entitled. Each shareholder and other person attending a general meeting of shareholders by the use of electronic means of communication and identified in accordance with the above shall be registered on the attendance list by the Board of Directors. In case an attorney attends the meeting on behalf of a shareholder or another person entitled to attend, the name(s) of the person(s) on whose behalf the attorney is acting, shall also be stated. The chairman of the meeting may decide that the attendance list must also be signed by other persons present at the meeting.
The chairman of the meeting may determine the time during which shareholders and others entitled to attend the general meeting of shareholders may speak, if he or she considers this desirable, with a view to the orderly conduct of the meeting as well as other procedures that the chairman considers desirable for the efficient and orderly conduct of the business of the meeting.
Stellantis is exempt from the proxy rules under the Exchange Act.
Voting Rights at General Meetings
Subject to the restrictions described under “—Voting Limitations,” every Stellantis share (whether common share or special voting share) shall confer the right to cast one vote at a general meeting of shareholders. Shares in respect of which Dutch law determines that no votes may be cast shall be disregarded for the purposes of determining the proportion of shareholders voting, present or represented or the proportion of the share capital present or represented. All resolutions shall be passed with an absolute majority of the votes validly cast unless otherwise specified in the Articles of Association or the Dutch Civil Code. Blank votes shall not be counted as votes cast.
All votes shall be cast in writing or electronically. The chairman of the meeting may, however, determine that voting by raising hands or in another manner shall be permitted. Voting by acclamation shall be permitted if none of the shareholders present or represented objects. No voting rights shall be exercised in the general meeting of shareholders for shares owned by the Company or by a subsidiary of the Company. However, pledgees and usufructuaries of shares owned by the Company and its subsidiaries shall not be excluded from exercising their voting rights if the right of pledge or usufruct was created before the shares were owned by the Company or a subsidiary. Neither the Company nor any of its subsidiaries may exercise voting rights for shares in respect of which it holds a right of pledge or usufruct.
Without prejudice to the Articles of Association, the Company shall determine for each resolution passed:
(a)the number of shares on which valid votes have been cast;
(b)the percentage that the number of shares as referred to under (a) represents in the issued and outstanding share capital;
(c)the aggregate number of votes validly cast; and
(d)the aggregate number of votes cast in favor of and against a resolution, as well as the number of abstentions.
Voting Limitations
No shareholder, acting alone or in concert, together with votes exercised by affiliates of such shareholder or pursuant to proxies or other arrangements conferring the right to vote, shall be able to exercise, directly or indirectly, voting rights at a general meeting of shareholders reaching or exceeding the Voting Threshold (i.e., 30 percent or more of the votes that could be cast at any general meeting of shareholders), including after giving effect to any voting rights exercisable through Stellantis special voting shares. Any voting right reaching or exceeding the Voting Threshold shall be suspended. Furthermore, the Articles of Association provide that, before each general meeting of shareholders, any shareholder that would be able to exercise voting rights reaching or exceeding the Voting Threshold must notify Stellantis, in writing, of its shareholding and total voting rights in Stellantis and provide, upon written request by Stellantis, within three days of such request being made, any information necessary to ascertain the composition, nature and size of the equity interest of that person and any other person acting in concert with it. The Voting Threshold restriction (i) may be removed following a resolution passed to that effect by the meeting of Stellantis shareholders with a majority of at least two-thirds of the votes cast (for the avoidance of doubt, without giving effect to any voting rights exercisable through Stellantis special voting shares, and subject to the aforementioned Voting Threshold) and (ii) shall lapse upon any person holding more than 50 percent of the issued Stellantis common shares (other than Stellantis special voting shares) as a result of a public offer for Stellantis common shares.
Shareholders’ Votes on Certain Transactions
Any important change in the identity or character of Stellantis must be approved by the general meeting of shareholders, including (i) the transfer to a third party of the business of Stellantis or practically the entire business of Stellantis; (ii) the entry into or breaking off of any long-term cooperation of Stellantis or a subsidiary with another legal entity or company or as a fully liable partner of a general partnership or limited partnership, where such entry into or breaking off is of far-reaching importance to Stellantis; and (iii) the acquisition or disposal by Stellantis or a subsidiary of an interest in the capital of a company with a value of at least one-third of Stellantis’s assets according to the consolidated balance sheet with explanatory notes included in the last adopted annual accounts of Stellantis.
Meetings of Holders of Shares of a Specific Class
Meetings of holders of shares of a specific class shall be held as frequently and whenever such a meeting is required by virtue of any statutory regulation or any provision in the Articles of Association.
Meetings of holders of shares of a specific class may be convened no later than on the sixth day before the day of such meeting. The provisions applicable to general meetings of shareholders, except those concerning the frequency, ultimate timing, notice period, right to put an item on the agenda and required agenda items, will apply mutatis mutandis to the meetings of holders of shares of a specific class. See “—Voting Rights at General Meetings” and “—Voting Limitations”.
Issuance of shares
The general meeting of shareholders, or alternatively the Board of Directors if it has been designated to do so at the general meeting of shareholders shall have authority to resolve on any issuance of shares and rights to subscribe for shares.
The Board of Directors has been irrevocably authorized, for a period of three years from January 16, 2021 to issue common shares and rights to subscribe for common shares up to in aggregate (i) ten percent of the issued common shares for general corporate purposes as of January 16, 2021, plus (ii) an additional ten percent of the issued common shares as of such date, if the issuance and/or the granting of rights to subscribe for common shares occurs in connection with the acquisition of an enterprise or a corporation, or, if such issuance and/or the granting of rights to subscribe for common shares is otherwise necessary in the opinion of the Board of Directors. The Board of Directors will also be designated, for a period of three years from January 16, 2021 as the authorized body to limit or exclude the rights of pre-emption of shareholders in connection with the foregoing authority of the Board of Directors to issue Stellantis common shares and grant rights to subscribe for Stellantis common shares. Refer to Item 6A.the “Rights of Pre-emption” section elsewhere in this report.
The general meeting of shareholders, or the Board of Directors if so designated in accordance with the Articles of Association, shall decide on the price and the further terms and conditions of issuance, with due observance of what is required in relation thereto under Dutch law and the Articles of Association.
If the Board of Directors is designated by the general meeting of shareholders to have authority to decide on the issuance of shares or rights to subscribe for shares, such a designation shall specify the class of shares and the maximum number of shares or rights to subscribe for shares that can be issued under such a designation. When making such designation the duration of the Board of Directors’ relevant authority, which shall not be for more than five years, shall be resolved upon at the same time. The designation may be extended from time to time for periods not exceeding five years. The designation may not be withdrawn unless otherwise provided in the resolution in which the designation is made.
Payment for shares shall be made in cash unless another form of consideration has been agreed. Payment in a currency other than euro may only be made with the consent of the Board of Directors.
Disclosure of Holdings under Dutch Law
As a result of the listing of Stellantis common shares on the MTA and Euronext Paris, pursuant to Chapter 5.3 of the Dutch Financial Markets Supervision Act (“FMSA”), which chapter is an implementation of Directive 2004/109/EC as amended by Directive 2013/50/EU into Dutch law, any person who, directly or indirectly, acquires or disposes of an actual or potential capital interest and/or actual or potential voting rights in Stellantis must without delay notify the AFM of such acquisition or disposal if, as a result of such acquisition or disposal, the percentage of capital interest and/or voting rights held by such person reaches, exceeds or falls below the following thresholds: three percent, five percent, ten percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 percent, 60 percent, 75 percent and 95 percent (the “Notification Thresholds”).
For the purpose of calculating the percentage of capital interest or voting rights, the following interests must, inter alia, be taken into account: (i) shares and/or voting rights directly held (or acquired or disposed of) by any person; (ii) shares and/or voting rights held (or, acquired or disposed of) by such person’s controlled entities or by a third party for such person’s account; (iii) voting rights held (or acquired or disposed of) by a third party with whom such person has concluded an oral or written voting agreement; (iv) voting rights acquired pursuant to an agreement providing for a temporary transfer of voting rights in consideration for a payment; and (v) shares which such person, or any controlled entity or third party referred to above, may acquire pursuant to any option or other right to acquire shares.
As a consequence of the above, special voting shares must be added to Stellantis common shares for the purposes of the above thresholds.
For the purpose of calculating the percentage of capital interest or voting rights, the following instruments qualify as ‘shares’: (i) shares; (ii) depositary receipts for shares (or negotiable instruments similar to such receipts); (iii) negotiable instruments for acquiring the instruments under (i) or (ii) (such as convertible bonds); and (iv) options for acquiring the instruments under (i) or (ii).
Controlled entities (within the meaning of the FMSA) do not themselves have notification obligations under the FMSA as their direct and indirect interests are attributed to their (ultimate) parent. If a person who has a three percent or larger interest in Stellantis’s share capital or voting rights ceases to be a controlled entity it must immediately notify the AFM and all notification obligations under the FMSA will become applicable to such former controlled entity.
Special rules apply to the attribution of shares and/or voting rights which are part of the property of a partnership or other form of joint ownership. A holder of a pledge or right of usufruct in respect of shares can also be subject to notification obligations if such person has, or can acquire, the right to vote on the shares. The acquisition of (conditional) voting rights by a pledgee or beneficial owner may also trigger notification obligations as if the pledgee or beneficial owner were the legal holder of the shares and/or voting rights.
Furthermore, when calculating the percentage of capital interest, a person is also considered to be in possession of shares if (i) such person holds a financial instrument the value of which is (in part) determined by the value of the shares or any distributions associated therewith and which does not entitle such person to acquire any shares; (ii) such person may be required to purchase shares on the basis of an option; or (iii) such person has concluded another contract whereby such person acquires an economic interest comparable to that of holding a share.
If a person’s capital interest and/or voting rights reaches, exceeds or falls below the above-mentioned thresholds as a result of a change in Stellantis’s issued and outstanding share capital or voting rights, such person is required to make a notification not later than on the fourth trading day after the AFM has published Stellantis’s notification as described below.
The notification to the AFM should indicate whether the interest is held directly or indirectly, and whether the interest is an actual or a potential interest.
In addition, each person who is or ought to be aware that, as a result of the exchange of certain financial instruments, such as options for shares, his or her actual capital or voting interest in Stellantis, reaches, exceeds or falls below any of the Notification Thresholds, vis-à-vis his or her most recent notification to the AFM, must give notice to the AFM no later than the fourth trading day after he or she became or ought to be aware of this change.
Stellantis is required to notify the AFM promptly of any change of one percent or more in its issued and outstanding share capital or voting rights since a previous notification. Other changes in Stellantis’s issued and outstanding share capital or voting rights must be notified to the AFM within eight days after the end of the quarter in which the change occurred.
In addition to the above described notification obligations pertaining to capital interest or voting rights, pursuant to Regulation (EU) No. 236/2012, as last amended by ESMA Decision of December 16, 2020, ESMA70-155-11608, notification must be made of any net short position of 0.1 percent in the issued share capital of Stellantis and of every subsequent 0.1 percent above this threshold. Notifications starting at 0.5 percent and every subsequent 0.1 percent above this threshold will be made public via the short selling register of the AFM. To calculate whether a natural person or legal person has a net short position, their short positions and long positions must be set off. A short transaction in a share can only be contracted if a reasonable case can be made that the shares sold can actually be delivered, which requires confirmation of a third party that the shares have been located. Furthermore, gross short positions are required to be notified in the event that a threshold is reached, exceeded or fallen below. With regard to gross short positions, the same disclosure thresholds as for holders of capital interests and/or voting rights apply.
The AFM keeps a public register of all notifications made pursuant to these disclosure obligations and publishes any notification received which can be accessed via www.afm.nl. The notifications referred to in this paragraph should be made through the online notification system of the AFM.
Non-compliance with these disclosure obligations is an economic offense and may lead to criminal prosecution. The AFM may impose administrative penalties for non-compliance and may publish the imposed penalties. In addition, a civil court can impose measures against any person that fails to notify or incorrectly notifies the AFM of matters required to be notified. A claim requiring that such measures be imposed may be instituted by Stellantis and/or by one or more shareholders who alone or together with others represent at least three percent of the issued and outstanding share capital of Stellantis or are able to exercise at least three percent of the voting rights. The measures that the civil court may impose include:
•an order requiring appropriate disclosure;
•suspension of the right to exercise the voting rights for a period of up to three years as determined by the court;
•voiding a resolution adopted by the general meeting of shareholders, if the court determines that the resolution would not have been adopted but for the exercise of the voting rights of the person with a duty to disclose, or suspension of a resolution adopted by the general meeting of shareholders until the court makes a decision about such voiding; and
•an order to refrain, during a period of up to five years as determined by the court, from acquiring shares and/or voting rights in Stellantis.
Shareholders are advised to consult with their own legal advisers to determine whether the disclosure obligations apply to them.
Mandatory Bid Requirement
Under Dutch law, any person who, acting alone or in concert with others, directly or indirectly acquires 30 percent or more of Stellantis’s voting rights will be required to launch a public offer for all outstanding shares in Stellantis’s share capital for a fair purchase price determined by law. A fair price is considered a price which is equal to the highest price paid by such person or the persons acting in concert with it for Stellantis’s shares in the year prior to the announcement of the offer or, in the absence of such a purchase, the average share price of Stellantis’s shares in the year prior to the announcement of the offer. At the request of the offeror, Stellantis, or any of the Stellantis shareholders, the Enterprise Chamber of the Court of Appeal in Amsterdam (Ondernemingskamer van het Gerchtshof te Amsterdam) (the “Dutch Enterprise Chamber”) may determine a different fair price. If a 30 percent shareholder fails to make a public offer, the Dutch Enterprise Chamber may require such shareholder to do so upon the request of, among others, Stellantis or any of the Stellantis shareholders.
Dutch Financial Reporting Supervision Act
On the basis of the Dutch Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving, or the “FRSA”), the AFM supervises the application of financial reporting standards by, amongst others, companies whose corporate seat is in the Netherlands and whose securities are listed on a regulated Dutch or foreign stock exchange.
Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from Stellantis regarding its application of the applicable financial reporting standards and (ii) recommend to us the making available of further explanations. If we do not comply with such a request or recommendation, the AFM may request that the Enterprise Chamber order us to (i) make available further explanations as recommended by the AFM; (ii) provide an explanation of the way we have applied the applicable financial reporting standards to our financial reports; or (iii) prepare our financial reports in accordance with the Enterprise Chamber’s instructions.
Compulsory Acquisition
Pursuant to article 2:92a of the Dutch Civil Code, a shareholder who, for its own account, holds at least 95 percent of the issued share capital of Stellantis may institute proceedings against the other shareholders jointly for the transfer of their shares to it. The proceedings are held before the Dutch Enterprise Chamber and can be instituted by means of a writ of summons served upon each of the minority shareholders in accordance with the provisions of the Dutch Code of Civil Procedure. The Dutch Enterprise Chamber may grant the claim for the squeeze-out in relation to all minority shareholders and will determine the price to be paid for the shares, if necessary after appointment of one to three expert(s) who will offer an opinion to the Dutch Enterprise Chamber on the value to be paid for the shares of the minority shareholders. Once the order to transfer becomes final before the Dutch Enterprise Chamber, the person acquiring the shares must give written notice of the date and place of payment and the price to the holders of the shares to be acquired whose addresses are known to it. Unless the addresses of all of them are known to it, it must also publish the same in a Dutch daily newspaper with a national circulation. A shareholder can only appeal against the judgment of the Dutch Enterprise Chamber before the Dutch Supreme Court.
In addition, pursuant to article 2:359c of the Dutch Civil Code, following a public offer, a holder of at least 95 percent of the issued share capital and of voting rights of Stellantis has the right to require the minority shareholders to sell their shares to it. Any such request must be filed with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer. Conversely, pursuant to article 2:359d of the Dutch Civil Code, each minority shareholder has the right to require the holder of at least 95 percent of the issued share capital and the voting rights of Stellantis to purchase its shares in such a case. The minority shareholder must file such a claim with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer.
Disclosure of Trades in Listed Securities
Pursuant to the FMSA, each member of the Board of Directors must notify the AFM:
•within two weeks after his or her appointment of the number of shares he or she holds and the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital; and
•subsequently of each change in the number of shares he or she holds and of each change in the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital, immediately after the relevant change.
Furthermore, pursuant to Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 (as amended and supplemented, the “Market Abuse Regulation”), each of the members of the Board of Directors and Senior Managementany other person discharging managerial responsibilities within Stellantis and who in that capacity is authorized to make decisions affecting the future developments and business prospects of Stellantis and has regular access to inside information relating, directly or indirectly, to Stellantis (each, a “PDMR”) must notify the AFM of all transactions, conducted or carried out for additional informationhis or her own account, relating to Stellantis common shares, special voting shares or financial instruments the value of which is (in part) determined by the value of Stellantis common shares or special voting shares.
In addition, persons that are closely associated with members of the Board of Directors or any of the other PDMRs must notify the AFM of all transactions conducted for their own account relating to Stellantis’s shares or financial instruments, the value of which is (in part) determined by the value of Stellantis’s shares. The Market Abuse Regulation designates the following categories of persons: (i) the spouse or any partner considered by applicable law as equivalent to the spouse; (ii) dependent children; (iii) other relatives who have shared the same household for at least one year as of the relevant transaction date; and (iv) any legal person, trust or partnership, among other things, whose managerial responsibilities are discharged by a member of the board of directors or any other PDMR or by a person referred to under (i), (ii) or (iii) above.
The notifications pursuant to the Market Abuse Regulation described above must be made to the AFM no later than the third business day following the relevant transaction date by means of a standard form. Such notifications under the Market Abuse Regulation may however be postponed until the date that the value of the transactions carried out on a person’s own account, together with the transactions carried out by the persons associated with that person, reaches or exceeds the amount of €5,000 in the calendar year in question. Any subsequent transaction must be notified as set forth above. The AFM keeps a public register of all notifications made pursuant to the FMSA and the Market Abuse Regulation.
Non-compliance with these reporting obligations could lead to criminal penalties, administrative fines and cease-and-desist orders (and the publication of such penalties, fines and orders), imprisonment or other sanctions.
Shareholder Disclosure and Reporting Obligations under U.S. Law
Holders of Stellantis common shares are subject to certain U.S. reporting requirements under the Exchange Act for shareholders owning more than five percent of any class of equity securities registered pursuant to Section 12 of the Exchange Act. Among the reporting requirements are disclosure obligations intended to keep investors aware of any plans or proposals that may lead to a change of control of an issuer.
If Stellantis were to fail to qualify as a foreign private issuer in the future, Section 16(a) of the Exchange Act would require Stellantis’s directors and executive officers, and persons who own more than ten percent of a registered class of Stellantis’s equity securities, to file reports of ownership of, and transactions in, Stellantis’s equity securities with the SEC. Such directors, executive officers and ten percent stockholders would also be required to furnish Stellantis with copies of all Section 16 reports they file.
Disclosure Requirements under Italian law and European Union law
Further disclosure requirements will apply to Stellantis under Italian law and French law by virtue of the listing of Stellantis’s shares on the MTA and Euronext Paris, respectively. Summarized below are the most significant requirements to be complied with by Stellantis in connection with the admission to trading of Stellantis common shares on the MTA and the admission to listing and trading on Euronext Paris. The breach of the obligations described below may result in the application of fines and criminal penalties (including, for instance, those provided for insider trading and market manipulation).
In particular, the following main disclosure obligations will apply to Stellantis:
•The following articles of Legislative Decree no. 58/1998, or the Italian Financial Act (as well as the implementing regulations enacted by CONSOB thereunder) effective as of the date of this report: article 92 (equal treatment principle), article 113-ter (general provisions on regulated disclosures), article 114 (information to be provided to the public), article 114-bis (information concerning the Company’s Directorsallocation of financial instruments to corporate officers, employees and collaborators), article 115 (information to be disclosed to CONSOB upon the authority’s request), articles 180 through 187-quaterdecies (relating to insider trading and market manipulation) and article 193 (fines for breach of disclosures duties);
•the General Regulation of the AMF, article 223-16 (obligation to disclose on a monthly basis the total number of shares and voting rights comprising Stellantis’s share capital if these numbers have changed compared to the most recently disclosed numbers) and article 223-20 (obligation to file with the AMF certain changes to the Articles of Association). The information required to be published in France may be published in French or English; and
•the applicable law concerning market abuse and, in particular, article 7 (Inside information), article 17 (Public disclosure of inside information), article 18 (Insider lists) and article 19 (Managers’ transactions) of the Market Abuse Regulation, as well as implementing regulations promulgated thereunder.
In addition to the above, the applicable provisions set forth under the market rules (including those relating to the timing for the payment of dividends and relevant “ex date” and “record date”) will apply to Stellantis.
The foregoing is based on the current legal framework and, therefore, it may vary following any potential regulatory changes adopted by the concerned member states and competent authorities.
Disclosure of Inside Information - Article 17 of the Market Abuse Regulation
Pursuant to the Market Abuse Regulation, Stellantis has to disclose to the public, without delay, any inside information which: (i) is of a precise nature; (ii) has not been made public; (iii) directly concerns Stellantis; and (iv) if it were made public, would be likely to have a significant effect on the prices of Stellantis’s financial instruments (as such term is defined under the Market Abuse Regulation) or on the price of related derivative financial instruments (the “Inside Information”). In this item.regard:
•information is deemed to be of a precise nature if: (a) it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred, or which may reasonably be expected to occur and (b) it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the financial instruments (e.g., Stellantis’s common shares) or the related derivative financial instrument. In this respect, in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the intermediate steps of that process which are connected with bringing about or resulting in those future circumstances or that future event, may be deemed to be information of precise nature.
•information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments or the related derivative financial instruments means information a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
An intermediate step in a protracted process is deemed to be Inside Information if, by itself, it satisfies the criteria of Inside Information as referred to above.
The above disclosure requirement has to be complied with through the publication of a press release by Stellantis in accordance with the Market Abuse Regulation and Dutch, Italian and French law, which discloses to the public the relevant Inside Information. In addition, any Inside Information disseminated by Stellantis in any jurisdiction is required to be made public in a manner that permits full and prompt access to, and correct and timely evaluation of, such information by the public in compliance with the Market Abuse Regulation.
Under specific circumstances, the AFM, CONSOB and the AMF may request Stellantis and/or its main shareholders to disclose to the public, or provide, specific information or documentation. For this purpose, the AFM, CONSOB and the AMF have broad powers under applicable EU regulations, as well as Italian and French law, to, among other things, carry out inspections or investigations or request information from the members of the Board of Directors or the external auditors.
Stellantis may, under its own responsibility, delay disclosure to the public of Inside Information provided that all of the following conditions are met: (a) immediate disclosure is likely to prejudice the legitimate interests of Stellantis; (b) delay of disclosure is not likely to mislead the public; and (c) Stellantis is able to ensure the confidentiality of that information.
In the case of a protracted process that occurs in stages and that is intended to bring about, or that results in, a particular circumstance or a particular event, Stellantis may under its own responsibility delay the public disclosure of Inside Information relating to this process, subject to the conditions set forth under (a), (b) and (c) above.
Insiders’ List - Article 18 of the Market Abuse Regulation
Stellantis, as well as persons acting on its behalf or on its account, are required to draw up and keep regularly updated, a list of all persons who have access to Inside Information and who are working for them under a contract of employment, or otherwise performing tasks pursuant to which they have access to Inside Information, such as advisers, accountants or credit rating agencies (the “insider list”).
Stellantis, or any person acting on its behalf or on its account, is required to take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of Inside Information.
Prohibition on Insider Dealing – Article 14 of the Market Abuse Regulation
It is prohibited for any person to make use of inside information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates, as well as an attempt to do so (“insider dealing”). The use of inside information by cancelling or amending of an order concerning a financial instrument also constitutes insider dealing. In addition, it is prohibited for any person to disclose inside information to anyone else (except where the disclosure is made strictly as part of the person’s regular duty or function) or, whilst in possession of inside information, recommend or induce anyone to acquire or dispose of financial instruments to which the information relates. Furthermore, it is prohibited for any person to engage in or attempt to engage in market manipulation, for instance by conducting transactions which could lead to an incorrect or misleading signal of the supply of, the demand for or the price of a financial instrument.
Prohibition to Trade During Closed Periods – Article 19 of the Market Abuse Regulation
A PDMR is not permitted to (directly or indirectly) conduct any transactions on its own account or for the account of a third party, relating to shares or debt instruments of the Company or other financial instruments linked thereto, during a closed period of 30 calendar days before the announcement of an annual or semi-annual financial report of the Company.
Transparency Directive
The Netherlands is the Company’s home member state for the purposes of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 (as amended by Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013) as a consequence of which the Company will be subject to the FMSA in respect of certain ongoing transparency and disclosure obligations.
Public Tender Offers
Certain rules provided for under Italian law with respect to both voluntary and mandatory public tender offers will apply to any offer launched for Stellantis common shares. In particular, among other things, the provisions concerning the tender offer price and the procedure, including the obligation to communicate the decision to launch a tender offer, the content of the offer document and the disclosure of the tender offer will be supervised by CONSOB and will be subject to Italian law.
Stellantis Policies
On January 17, 2021, the Board of Directors approved an amended insider trading policy, as described further below under “—Insider Trading Policy”.
On the same day, the Board of Directors resolved that, for a transitional period to be further determined by the Board of Directors, the FCA code of conduct and other corporate and compliance policies (other than FCA's insider trading policy) as in place immediately prior to the merger shall remain applicable to the former FCA business, and the PSA code of ethics and other corporate and compliance policies (other than PSA's insider trading policy) as in place immediately prior to the merger shall remain applicable to the former PSA business. The description below refers to the policies governing the former FCA business. The Company is currently engaged in the harmonization of the former FCA and PSA corporate and compliance policies, with the objective of adopting group-wide Stellantis policies as soon as practicable.
Code of Conduct
During the year ended December 31, 2020, FCA and all of its subsidiaries referred to the principles contained in the FCA Code of Conduct (“FCA Code of Conduct”), as approved by the Board of Directors on April 29, 2015 and updated in January 2017.
The FCA Code of Conduct applied to all board members and officers of FCA and its subsidiaries, as well as full-time and part-time employees of FCA and any of its subsidiaries. The FCA Code of Conduct also applied to all temporary, contract and all other individuals and companies that acted on behalf of FCA, wherever they were located in the world.
The FCA Code of Conduct represented a set of values recognized, adhered to and promoted by the FCA Group, which understood that conduct based on the principles of diligence, integrity and fairness is an important driver of social and economic development. The FCA Code of Conduct provided a pillar of the integrity system which regulated the decision-making processes and operating approach of the FCA Group and its employees in the interests of stakeholders. The FCA Code of Conduct amplified aspects of conduct related to economic, social and environmental dimensions, underscoring the importance of dialog with stakeholders. Explicit reference was made in the FCA Code of Conduct to the UN’s Universal Declaration on Human Rights, the principal Conventions of the International Labor Organization (“ILO”), the OECD Guidelines for Multinational Enterprises, the U.S. Foreign Corrupt Practices Act (“FCPA”) and United Kingdom Bribery Act (“UKBA”).
The FCA Code of Conduct was supplemented by Practices aimed to provide specific guidance to all workforce members on how to effectively apply the Principles under the FCA Code of Conduct in relation to various topics such as: the Environment, Health and Safety, Anti-corruption, Suppliers, Respect of Human Rights, Conflicts of Interest, Data Privacy, Information Assets Protection, Antitrust and Export controls. Moreover FCA published on the FCA Website an updated version of the Company Sustainability Guidelines to cover specific business matters detailing FCA’s accountability and commitment to a culture of responsibility and integrity.
FCA endeavored to ensure that the FCA Code of Conduct was regarded as a best practice of business conduct and observed by those third parties with whom it maintained business relationships of a lasting nature such as suppliers, dealers, advisors and agents. In fact, FCA Group contracts worldwide included specific clauses relating to recognition and adherence to the principles underlying the FCA Code of Conduct, as well as compliance with local regulations, particularly those related to corruption, money-laundering, terrorism and other crimes constituting liability for legal persons.
Following completion of the merger, the former FCA and PSA businesses initially continued to apply their own existing codes of conduct, up to the adoption by the Stellantis Board of Directors of the new code of conduct for Stellantis (the “Stellantis Code of Conduct”) at its meeting on March 2, 2021.
The Stellantis Code of Conduct continues to be a pillar of the integrity system, regulating the decision-making processes and operating approach of the Group and its employees in the interests of stakeholders. Integrity is regarded as a source of competitiveness, a foundation of the Group’s sustainable growth and the way to build day after day Stellantis’s reputation as a Company that customers, the workforce and stakeholders can trust and rely on. The Stellantis Code of Conduct sets the ethical principles of integrity that will guide the Group and its workforce ensuring compliance with laws, regulations and best practices.
Explicit reference is made to the United Nations (“UN”) declaration on human rights and the ILO declaration on fundamental principles and rights at work.
The Stellantis Code of Conduct applies to the members of the Stellantis Board of Directors, officers and to all full-time or part-time employees, temporary workers and contract workers. Based on the Stellantis Code of Conduct, Stellantis also expects its stakeholders, including suppliers, dealers, distributors, and Joint Venture partners, to act with integrity and in accordance with the Stellantis Code of Conduct.
The Stellantis Code of Conduct focuses on four main areas:
(a)the protection of the Stellantis workforce, including a commitment to diversity, fairness, and health and safety;
(b)the way Stellantis conducts business by engaging in sustainable practices, with a specific reference to the environmental protection, and in accordance with applicable law, including vehicle safety and emissions laws and regulations, anti-money laundering, competition, export and trade regulations, insider trading, data privacy, anti-bribery and private corruption, lobby and political contribution;
(c)the interaction with external parties, including the avoidance of conflicts of interest and the support of our communities; and
(d)the protection of Stellantis assets and information.
The Stellantis Code of Conduct, like its FCA predecessor, will be supplemented by a set of policies and procedures, that will be developed based on a process of harmonization of the former FCA and PSA ethics and compliance policies.
Members of the workforce have the responsibility to become familiar with the Stellantis Code of Conduct, abide by it, and report any conduct that they believe may be in violation of the Stellantis Code of Conduct. Retaliation against anyone who reports a matter in good faith is strictly prohibited and will be subject to disciplinary action.
Stellantis, and previously FCA, closely monitors the effectiveness of and compliance with the Stellantis Code of Conduct (and previously the FCA Code of Conduct). Violations of the Stellantis Code of Conduct are essentially determined through, among others: periodic activities carried out by Internal Audit according to the annual Audit Plan that is based on a group risk assessment process; allegations received; and checks forming part of the standard operating procedures. Internal Audit investigates violations of the Stellantis Code of Conduct also through specific Business Ethics Audits. On a regular basis, the Chief Audit and Compliance Officer informs the Chief Executive Officer and the Audit Committee on the major findings. For all Stellantis Code of Conduct violations, disciplinary measures taken are commensurate with the seriousness of the case and comply with local legislation.
The Stellantis Code of Conduct is available on the Governance section of the Group’s website at https://www.stellantis.com/en/group/governance/corporate-regulations.
Insider Trading Policy
The insider trading policy was initially adopted on October 13,10, 2014 by the board of directors of Fiat Investments. This policy was amended by the Board of Directors of FCA appointedon July 28, 2016 following the following internal committees: (i) an Audit Committee; (ii) a Governancenew applicable law concerning market abuse and, Sustainability Committee;in particular, the MAR Regulation and (iii) a Compensation Committee, such appointment becoming effective as ofits implementing regulations; the Merger effective date. On March 23, 2015,policy was further revised by the Board of Directors appointed Ms. Valerie Marson October 2, 2019, effective as additional memberof November 4, 2019, to improve its effectiveness and scope. On January 17, 2021, the Board of Directors amended the policy in connection with the listing of Stellantis’s common shares on Euronext Paris. The insider trading policy sets forth guidelines and recommendations to all Directors, officers and employees of the Audit Committee.
The Audit Committee consistsGroup with respect to transactions in the Company’s securities. This policy, which also applies to immediate family members and members of the following members:households of persons covered by the policy, is designed to prevent insider trading or allegations of insider trading, and to protect the Company’s integrity and ethical conduct.
Sustainability Practices
The Group is committed to operating in an environmentally and socially-responsible manner. For a full description of sustainability governance, guidelines, targets and results, refer to the section NON-FINANCIAL INFORMATION elsewhere in this report.
Diversity Policy
|
| |
Name
| Position
|
Glenn Earle | Chairman |
Ronald L. Thompson | Member |
Patience Wheatcroft | Member |
Valerie Mars | Member |
On December 20, 2017, the Board of Directors adopted the current charter of the Audit Committee. The function of the Audit Committee is to assist the Board of Directors’ oversight of, inter alia: (i) the integrity of the Company’s financial statements, including any published interim reports; (ii) the Company’s financing; (iii) the systems of internal controls that management and/ora diversity policy for the Board of Directors have established; (iv) the Company’s compliance with legal and regulatory requirements; (v) the Company’s policies and procedures for addressing certain actual or perceived conflicts of interest; (vi) risk management guidelines and policies; and (vii) the implementation and effectiveness of the Company’s ethics and compliance program. The Audit Committee shall be comprised of at least three non-executive directors elected by the Board of Directors. Each member of the Audit Committee shall:
neither have a material relationship with(the “Diversity Policy”), as the Company as determined bybelieves that diversity in the Board of Directors nor be performing the functions of auditors or accountants for the Company;
be an “independent” membercomposition of the Board of Directors under the rulesin terms of age, gender, expertise, work and personal background and nationality is an important means of promoting debate, balanced decision-making and independent actions of the NYSEBoard of Directors.
The Company applies the following aspects of diversity to the Board of Directors: age, gender, expertise, work and Rule 10A-3 underpersonal background and nationality. The Company considers each of these aspects key drivers to support the Securities Exchange Actabove-mentioned goals and to achieve sufficient diversity of 1934, orviews and the Exchange Act,expertise needed for a proper understanding of current affairs and longer-term risks and opportunities related to the Company’s business. The Board of Directors and its Governance and Sustainability Committee consider such factors when evaluating nominees for election to the Board of Directors and during the annual performance assessment process.
Concrete targets that the Company aims to achieve, with an overriding emphasis based on merit, within the meaningnext several years, are that (a) at least 30% of the seats of the Board of Directors are occupied by women and at least 30% by men; (b) the nationality of the members of the Board of Directors shall be reasonably consistent with the geographic spread of Stellantis’s business in such manner that no nationality shall count for more than 60% of the members of the Board of Directors; and (c) the age of the members of the Board of Directors should be more diverse by having one or more members of the Board of Directors aged under 50 at the day of their nomination; provided that in the selection of a candidate on the basis of the defined diversity criteria, rules and generally accepted principles of non-discrimination (on grounds such as ethnic origin, race, disability or sexual orientation) will be taken into account.
To ensure its correct implementation, the Diversity Policy has been considered in the adoption of a profile for non-executive Directors and will be taken into account in the nomination of executive Directors, as well as in nominating and recommending non-executive Directors. In the 2020 financial year, the targets relating to nationality and age have been realized.
Compliance with Dutch Corporate Governance Code
The Dutch Corporate Governance Code contains principles and best practice provisions that regulate, among other things, relations between the Board of Directors and the shareholders (including the general meeting of shareholders). The Dutch Corporate Governance Code is divided into five chapters which address the following topics: (i) long-term value creation; (ii) effective management and supervision; (iii) remuneration; (iv) the general meeting of shareholders; and (v) one-tier governance structure.
Dutch companies whose shares are listed on a regulated market, such as the MTA or Euronext Paris, or comparable system, such as the NYSE, are required under Dutch law to disclose in their annual reports whether or not they apply the provisions of the Dutch Corporate Governance Code;Code and, in the event that they do not apply a certain provision, to explain the reasons why they have chosen to deviate.
be “financially literate”Stellantis acknowledges the importance of good corporate governance and have “accounting or selected financial management expertise” qualifications, as determined bysupports the Board of Directors.
At least one member of the Audit Committee shall be a “financial expert” as defined in rules of the SEC and section 2(3)best practice provisions of the Dutch Decree on the Establishment of an audit committee.Corporate Governance Code.
The Dutch Corporate Governance Code was revised in December 2016 and Sustainability Committee consiststhe revised Dutch Corporate Governance Code became effective on January 1, 2018, being applicable retrospectively from the 2017 financial year. Consequently, FCA has reported in 2018 regarding its application of the revised Dutch Corporate Governance Code over the 2017 financial year.
While the Company endorses the principles and best practice provisions of the Dutch Corporate Governance Code, its current corporate governance structure applies the following members:best practice provisions as follows:
•The initial term of appointment of the Chairman, Chief Executive Officer, Senior Independent Director and Vice Chairman amounts to five years instead of the 4-year term prescribed by the Dutch Corporate Governance Code. FCA and PSA agreed upon such initial term as part of the merger negotiations between both parties and taking into account the best interests of the Company. |
| |
Name
| Position
|
John Elkann | Chairman |
Patience Wheatcroft | Member |
Ruth J. Simmons | Member |
•The Company does not have a retirement schedule as referred to in best practice provision 2.2.4. of the Dutch Corporate Governance Code, because, pursuant to the Articles of Association, the term of office of the Directors is approximately two years.
On December 20, 2017,•Although the Board of Directors adoptedhas appointed a non-executive Director with the current chartertitle of Vice-Chairman, this person does not qualify as a vice-chairperson within the meaning of best practice provision 2.3.7 of the Dutch Corporate Governance and Sustainability Committee.Code. The function of the Governance and Sustainability Committee is to assist the Board of Directors has however appointed a non-executive Director as the chairperson referred to by Dutch law, with respectthe title Senior Independent Director. Pursuant to Board of Directors’ regulations, the determination of, inter alia: (i)Chairman, or in his or her absence the identificationSenior Independent Director, or in his or her absence, any other non-executive Director chosen by a majority of the criteria, professional and personal qualifications for candidates to serve as directors; (ii) periodic assessment of the size and compositionDirectors present at a meeting, will preside at a meeting of the Board of Directors; (iii) periodic assessmentDirectors. In addition, the Chairman of Stellantis acts as contact person for individual Directors regarding any conflict of interest of the performance of individual directors and reportingSenior Independent Director. It is believed that this is sufficient to ensure that the functions assigned to the Boardvice-chairperson by the Dutch Corporate Governance Code are properly discharged.
•Pursuant to best practice provision 4.1.8 of Directors; (iv) proposals for appointment and reappointments ofthe Dutch Corporate Governance Code, every executive and non-executive directors; (v) supervisionDirector nominated for appointment should attend the general meeting of shareholders at which votes will be cast on his or her nomination. By publishing the relevant biographical details and curriculum vitae of each nominee for (re)appointment, the Company ensures that the Company’s general meeting of shareholders is well informed in respect of the selection criterianominees for (re)appointment and, appointment procedure for senior management; (vi) monitoringin practice, only the executive Directors will therefore be present at the general meeting of shareholders.
Differences between Dutch Corporate Governance Practices and evaluating reportsNYSE Listing Standards
The discussion below summarizes the significant differences between our corporate governance practices and the NYSE standards applicable to U.S. companies, as well as certain ways in which our governance practices (see above section Compliance with Dutch Corporate Governance Code) deviate from those suggested in the Dutch Corporate Governance Code.
•The NYSE requires that when an audit committee member of a U.S. domestic listed company serves on four or more audit committees of public companies, the Group’s sustainable development policies and practices, management standards, strategy, performance and governance globally; and (vii) reviewing, assessing and making recommendations aslisted company should disclose (either on its website or in its annual proxy statement or annual report filed with the SEC) that the board of directors has determined that this simultaneous service would not impair the director’s service to strategic guidelines for sustainability-related issues, and reviewing the annual Sustainability Report. listed company. Dutch law does not require the Company to make such a determination.
•The Governance and SustainabilityAudit Committee is elected by the Board of Directors and is comprised of at least three directors,independent Directors. Audit Committee members are also required (i) not to have any material relationship with the Company or to serve as auditors or accountants for the Company; (ii) to be “independent” for the purposes of NYSE rules, Rule 10A-3 of the Exchange Act and the Dutch Corporate Governance Code; and (iii) to be “financially literate” and have “accounting or selected financial management expertise” (as determined by the Board of Directors). Furthermore, the Audit Committee may not be chaired by the Chairperson of the Board of Directors or by a former executive of the Company. Currently, the Audit Committee consists of Ann Frances Godbehere (Chairperson), Wan Ling Martello and Henri de Castries.
•In contrast to NYSE rules applicable to U.S. companies which require that external auditors be appointed by the Audit Committee, the general rule under Dutch law is that external auditors are appointed by the general meeting of shareholders. In accordance with the requirements of Dutch law, the appointment and removal of our independent registered public accounting firm must be resolved upon at most onea general meeting of whom may be an executive directorshareholders. Our Audit Committee is responsible for the recommendation to the shareholders of the appointment or dismissal and compensation of the independent registered public accounting firm and oversees and evaluates the work of our independent registered public accounting firm.
•NYSE rules require a U.S. listed company to have a compensation committee and a nominating/corporate governance committee composed entirely of independent directors. As a foreign private issuer, we do not have to comply with this requirement; however the Dutch Corporate Governance Code also requires us to have a Remuneration Committee and a selection and appointment committee (which we call our Governance and Sustainability Committee). Our Remuneration Committee Charter states that more than half of whom shallthe members of the Remuneration Committee must be independent under the Dutch Corporate Governance Code, elected by the BoardCode. Three out of Directors.
The Compensation committee consistsfive of the following members:current members of the Remuneration Committee are independent under both the NYSE rules and the Dutch Corporate Governance Code.
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| | |
Name | | Position
|
Ermenegildo Zegna | | Chairman |
Valerie A. Mars | | Member |
Michelangelo Volpi | | Member |
On December 20, 2017,•Under NYSE listing standards, shareholders of U.S. companies must be given the opportunity to vote on all equity compensation plans and to approve material revisions to those plans, with the limited exceptions set forth in the NYSE rules. As a foreign private issuer, we are permitted to follow our home country laws regarding shareholder approval of compensation plans, and under Dutch law such approval from shareholders is not required for equity compensation plans for employees other than the members of the Board of Directors, adoptedto the current charterextent the authority to grant equity rights has been delegated at a general meeting of the Compensation Committee. The function of the Compensation Committee isshareholders to assist and advise the Board of Directors’ oversight of: (i) executive compensation; (ii) remuneration policyDirectors. For equity compensation plans for members of the Board of Directors and/or in the event that the authority to be pursued; (iii) compensationissue shares and/or rights to subscribe for shares has not been delegated to the Board of Directors, approval by the general meeting of shareholders is required.
Report of the Non-Executive Directors
Introduction
This report renders an account of the supervision exercised by the non-executive directors; and (iv) remuneration report. The Compensation Committee shall be comprisedDirectors of at least three non-executive directors, at most oneFCA in the 2020 financial year as referred to in best practice provision 5.1.5 of whom may not be independent under the Dutch Corporate Governance Code, electedCode.
It was the responsibility of the non-executive Directors of FCA to supervise the policies carried out by the executive Directors of FCA and the general affairs of FCA and its affiliated enterprise, including the implementation of the strategy of FCA regarding long-term value creation. In so doing, the non-executive Directors of FCA acted solely in the interest of FCA. With a view to maintaining supervision on FCA, during the 2020 financial year the non-executive Directors of FCA regularly discussed FCA’s long-term business plans, the implementation of such plans and the risks associated with such plans with the executive Directors of FCA.
According to the Articles of Association of FCA then in force the FCA Board of Directors.
D. Employees
Human capital isDirectors was a crucial factor in our success,one-tier board and consisted of three or more members, comprising both in termsmembers having responsibility for the day-to-day management of building a position among global leaders inFCA (executive Directors) and members not having such day-to-day responsibility (non-executive Directors). The FCA Articles of Association provided for the automobile sectorpossibility to allocate tasks between the executive and in creating value that is sustainable overnon-executive Directors of FCA. Regardless of an allocation of tasks, all Directors of FCA remained collectively responsible for the long-term. Recognizing performance and leadership, encouraging professional development, creating equal opportunity for individuals to develop and providing attractive career paths within the organization are all an essential part of our commitment toward our employees. Through a structured, global human resources management process, we identify and develop talent and motivate employees. Some of our initiatives to meet this objective include:
Performance and Leadership Management, an appraisal system adopted worldwide to assess our manager, professional and salaried employees, and evaluation of our hourly workers through WCM performance management metrics;
talentproper management and succession planning, aimed at identifyingstrategy of the most talented employees and fast-tracking their development;Company (including supervision thereof in case of non-executive Directors of FCA).
training and skill-building initiatives;
internal recruitment programs to foster cross-sector and intercompany transfers;
employee satisfaction and engagement surveys to monitor satisfaction levels, needs and requestsThe composition of employees; and
flexible work arrangements, commuting programs and dedicated wellness programs.
Atthe FCA Board of Directors during the year ended December 31, 2017, we had a total of 235,915 employees (excluding employees of certain joint ventures), a 2.1 percent increase from December 31, 2016 and a 0.6 percent increase over December 31, 2015. The following table provides a breakdown of these employees2020, was as of December 31, 2017, 2016 and 2015, indicated by type of contract and region.
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hourly | | Salaried | | Total |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Europe | 53,735 |
| | 55,106 |
| | 58,194 |
| | 32,591 |
| | 32,637 |
| | 33,604 |
| | 86,326 |
| | 87,743 |
| | 91,798 |
|
| North America | 77,943 |
| | 70,856 |
| | 67,720 |
| | 24,197 |
| | 23,594 |
| | 22,490 |
| | 102,140 |
| | 94,450 |
| | 90,210 |
|
| Latin America | 30,852 |
| | 31,081 |
| | 34,574 |
| | 7,992 |
| | 9,250 |
| | 9,625 |
| | 38,844 |
| | 40,331 |
| | 44,199 |
|
| Asia | 2,668 |
| | 2,798 |
| | 2,562 |
| | 5,756 |
| | 5,533 |
| | 5,680 |
| | 8,424 |
| | 8,331 |
| | 8,242 |
|
| Rest of the world | 4 |
| | 4 |
| | 4 |
| | 177 |
| | 160 |
| | 168 |
| | 181 |
| | 164 |
| | 172 |
|
| Total | 165,202 |
| | 159,845 |
| | 163,054 |
| | 70,713 |
| | 71,174 |
| | 71,567 |
| | 235,915 |
| | 231,019 |
| | 234,621 |
|
We maintain dialogue with trade unions and employee representatives to achieve consensus-based solutions for responding to different market conditions in each geographic area. We have had no significant instances of labor unrest overall, and no significant local labor actions in the past three years.
In Europe, we established a European Works Council (or “EWC”) in 1997 to ensure workers the right to information and consultation as required by European Union regulations applicable to community-scale undertakings. The EWC was established on the basis of an agreement initially signed in 1996 and subsequently revised and amended with a further amendment executed in July 2016. The new amendment, which is effective until the end of 2018, increased the number of total seats from 20 to 24 so that additional employees from new countries within the scope of the EWC are represented.
Trade Unions and Collective Bargaining
FCA employees are free to join any trade union provided they do so in accordance with local law and the rules of the related trade union. The Group recognizes and respects the right of its employees to be represented by trade unions or other representatives in accordance with local applicable legislation and practice.
In Italy, 40.3 percent of our workers were trade union members in 2017 (including an association which was recognized as a trade union in 2017), compared with 34.7 percent of workers in 2016. In addition to the rights granted to all Italian trade unions and workers concerning freedom of association, we provide an additional service to our Italian employees by paying the trade union dues on their behalf.
A large portion of our workers in the U.S., Canada and Mexico are represented by trade unions.
Collective bargaining at various levels resulted in major agreements being reached with trade unions on both wage and employment conditions in several countries. Approximately 85.3 percent of our employees worldwide are covered by collective bargaining agreements.
In Italy, all of our employees are covered by collective bargaining agreements. In April, 2015, a four-year compensation agreement was signed by FCA companies in Italy within the automobiles business. The new compensation agreement was subsequently included into the new labor agreement and was extended to all FCA companies in Italy on July 7, 2015. The compensation arrangement was effective retrospectively from January 1, 2015 through December 31, 2018 and incentivizes all employees toward achievement of the productivity, quality and profitability targets established in the 2015-2018 period of the Group's Business Plan by including a continuous shift cycle (with a total of 20 shifts per week) and adding two variable additional elements to base pay:
an annual bonus calculated on the basis of production efficiencies achieved and the plant’s WCM audit status; and
a component linked to achievement of the financial targets established in the 2015-2018 period of the Business Plan (“Business Plan Bonus”) for the EMEA region, including the activities of the premium brands Alfa Romeo and Maserati. A portion of the Business Plan Bonus is a guaranteed amount based on employees' base salaries and is paid over four years in quarterly installments, while the remaining portion is to be paid in March 2019 to active employees as of December 31, 2018, with at least two years of service during 2015 through 2018.
In October 2015, FCA US and the UAW agreed to a new four-year national collective bargaining agreement, which will expire in September 2019. The provisions of the agreement continue certain opportunities for success-based compensation upon meeting certain quality and financial performance metrics. The agreement closes the pay gap between “Traditional” and “In-progression” employees over an eight year period and will continue to provide UAW-represented employees with a simplified adjusted profit sharing plan. The adjusted profit sharing plan was effective for 2016
and was directly aligned with NAFTA profitability. The agreement included lump-sum payments in lieu of further wage increases of primarily U.S.$4,000 for “Traditional” employees and U.S.$3,000 for “In-progression” employees totaling approximately $141 million (€126 million) that was paid to UAW members on November 6, 2015.
In September 2016, the four-year collective bargaining agreement that was entered into in September 2012 with Unifor in Canada expired. FCA entered into a new four year labor agreement with Unifor in Canada that was ratified on October 16, 2016. The terms of this agreement provide a two percent wage increase in the first and fourth years of the agreement for employees hired prior to September 24, 2012 and will continue to close the pay gap for employees hired on or after September 24, 2012 by revising a ten year progressive pay scale plan. The agreement includes a lump sum payment in lieu of further wage increases of $6,000 Canadian dollars (“CAD$”) per employee totaling approximately CAD$55 million (approximately €38 million) that was paid to Unifor members on November 4, 2016. These payments will be amortized ratably over the four-year labor agreement period. The new agreement expires September 2020.
E. Share Ownership
The table below shows the number of FCA common shares owned at February 19, 2018 by members of FCA’s board and GEC.
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| | | | | | | | | | | | | | | | | | | |
FCA Directors Owning FCA Common Shares at February 19, 2018Year of Birth | | SharesName | | Percent of Class | | Nationality |
Sergio Marchionne1976 | | 16,415,500J. Elkann |
| M | 1.07%* |
ITA |
John Elkann1964 | | 133,000M. Manley |
| M | — | %UK |
Andrea Agnelli1966 | | 36,102R. Palmer |
| M | — | %UK |
Tiberto Brandolini d’Adda1949 | | 25,973R. L. Thompson |
| M | — | %USA |
Glenn Earle1960 | | 34,136J. Abbott |
| M | — | %UK |
Valerie Mars1975 | | 25,973A. Agnelli |
| M | — | %ITA |
Ruth J. Simmons1948 | | 50,881T. Brandolini d'Adda |
| M | — | %CH |
Ronald L. Thompson1958 | | 25,973G. Earle |
| M | — | %UK |
Patience Wheatcroft1959 | | 25,973V. A. Mars |
| F | — | %USA |
Ermenegildo1966 | | M. A. Volpi | | M | | ITA |
| 1951 | | P. Wheatcroft | | F | | UK |
| 1955 | | E. Zegna | | 29,008M |
| | — | %ITA |
_____________________________Details of the current composition of the Board of Directors (including the non-executive Directors) and its committees are set forth in the section “Board of Directors” above.
* Interest in full share capital,Supervision by the non-executive Directors
The non-executive Directors of FCA supervised the policies carried out by the executive Directors of FCA and percentagethe general affairs of overall voting rights, is 0.84 percentFCA and its affiliated enterprises. In so doing, during the 2020 financial year the non-executive Directors of FCA have also focused on the effectiveness of FCA’s internal risk management and control systems, the integrity and quality of the financial reporting and FCA’s long-term business plans, the implementation of such plans and the associated risks.
ExceptThe non-executive Directors of FCA also determined the remuneration of the executive Directors of FCA and nominated candidates for FCA's Director appointments. Furthermore, pursuant to the Executive Director as noted above, no membersFCA Articles of senior management beneficially own 1%Association, the Board of Directors of FCA had the possibility to allocate certain specific responsibilities to one or more individual Directors of FCA or to a committee comprised of eligible Directors of FCA and its subsidiaries. In this respect, the Board of Directors of FCA allocated certain specific responsibilities to the Audit Committee, the Compensation Committee and the Governance and Sustainability Committee.
According to the Audit Committee charter in place in 2020, the responsibilities of the Company's common shares.Audit Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) the integrity of FCA's financial statements, including any published interim reports; (2) FCA's policy on tax planning adopted by management; (3) FCA's financing; (4) the application by FCA of information and communication technology; (5) the system of internal controls that FCA's management and/or FCA's Board of Directors established; (6) FCA's compliance with legal and regulatory requirements; (7) FCA's compliance with recommendations and observations of internal and independent auditors; (8) FCA's policies and procedures for addressing certain actual or perceived conflicts of interest; (9) the qualifications, independence and remunerations of FCA's independent auditors and any non-audit services provided to FCA by the independent auditors; (10) the functioning of FCA's internal auditors and independent auditors; (11) risk management guidelines and policies; and (12) the implementation and effectiveness of FCA's ethics and compliance program.
The FCA Audit Committee consisted of Mr. Glenn Earle (Chairman), Mr. Thompson, Ms. Wheatcroft and Ms. Mars.
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
Exor N.V. isDuring 2020, thirteen meetings of FCA’s Audit Committee were held. The average attendance of its members at those meetings was 98 percent. The Committee reviewed the largest shareholder of FCA through its 29.18 percent shareholding interest in our issued common shares (as of February 15, 2018). AsGroup financial results on a resultquarterly basis with the assistance of the loyalty voting mechanism, ExorFCA Group Chief Financial Officer and other Company officers mainly from finance and legal departments, focusing on main business drivers in addition to key accounting and reporting matters. Independent Auditors attended all the meetings providing regular information to the Committee on their activity with specific focus on the areas of major audit risks such as the evaluation of assets and liabilities requiring management judgment. The Committee received updates on legal and compliance matters, with the General Counsel attending the Committee meetings. The Committee also reviewed the Form F-4 and the Admission Prospectus for listing of the Stellantis shares resulting from the merger of Peugeot S.A. with and into Fiat Chrysler Automobiles N.V.’s voting power is 42.34 percent.
Consequently, Exor N.V. could strongly influence and the admission to trading on the New York Stock Exchange, Euronext Paris, and Mercato Telematico Azionario. Internal Audit activity was reviewed on a regular basis with the Chief Audit, Sustainability and Compliance Officer attending all matters submitted to a votethe meetings and discussing with the Committee the main findings and remediating actions. Internal control over financial reporting was part of FCA shareholders, including approval of annual dividends, election and removal of directorsthese reviews as well. In line with the policy adopted by the Group, the Committee was regularly involved in the review and approval of extraordinary business combinations.transactions entered into with related parties.
Exor N.V. is controlled by Giovanni Agnelli BV (“GA”)According to the Compensation Committee charter in place in 2020, the responsibilities of the Compensation Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) compensation for executive Directors; (2) FCA's remuneration policy; (3) compensation of non-executive Directors; and (4) remuneration reports.
The FCA Remuneration Committee consisted of Mr. Zegna (Chairman), which holds 52.99Ms. Mars and Mr. Volpi.
During 2020, four meetings of FCA’s Compensation Committee were held with 100 percent attendance of its share capital. GA ismembers at those meetings. The Compensation Committee reviewed the Remuneration Report and it also recommended the Amendment of the Remuneration Policy of the Board of Directors, also in view of the Revised Shareholders Rights Directive. Further details of the activities of the Compensation Committee are included in the REMUNERATION REPORT section included elsewhere in this report.
According to the Governance and Sustainability Committee charter in place in 2020, the responsibilities of the Governance and Sustainability Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) drawing up the selection criteria and appointment procedures for Directors; (2) periodic assessment of the size and composition of the FCA Board of Directors and as appropriate making proposals for a private limited liability company under Dutch lawcomposition profile of the FCA Board of Directors; (3) periodic assessment of the performance of individual directors and reporting this to the FCA Board of Directors; (4) proposals to the non-executive Directors for the nomination and re-nomination of Directors to be elected by the Stellantis shareholders; (5) supervision of the policy on the selection and appointment criteria for senior management and on succession planning; and (6) monitoring, evaluation and reporting on the sustainable policies and practices, management standards, strategy, performance and governance globally of FCA and its subsidiaries.
The FCA Governance and Sustainability Committee consisted of Mr. Elkann (Chairman), Ms. Wheatcroft and Ms. Mars.
During 2020, the FCA Governance and Sustainability Committee met four times with 100 percent attendance of its capital dividedmembers at those meetings. The Committee reviewed the Board of Director’s and Committee’s assessments, the sustainability achievements and objectives, the recommendations and designations in sharesview of the merger for Directors’ election.
Details on the current duties of the Audit Committee, Compensation Committee and currentlyGovernance and Sustainability Committee, are set forth in the sections “The Audit Committee”, “The Remuneration Committee” and “The Governance and Sustainability Committee”, within “Board Practices and Committees” above.
During the 2020 financial year, the non-executive Directors of FCA supervised the adoption and implementation of the strategies and policies by FCA, received updates on legal and compliance matters and they were regularly involved in the review and approval of transactions entered into with related parties. The non-executive Directors of FCA also reviewed the reports of the Board of Directors of FCA and its committees, the sustainability achievement and objectives and the recommendations for the appointment of FCA Directors. In connection with the merger, the shareholders of FCA approved at the extraordinary general meeting held byon January 4, 2021 changes to the composition of the Board of Directors as of the Governance Effective Time (being January 17, 2021), approving the appointment of the members of the AgnelliBoard of Directors of Stellantis, who reviewed this annual report, including the Remuneration Report and Nasi families, descendants of Giovanni Agnelli, founder of Fiat. Its present principal business activity is to purchase, administer and dispose of equity interests in public and private entities and, in particular, to ensure the cohesion and continuity2020 Company’s financial results.
During 2020, there were 13 meetings of the administrationBoard of Directors of FCA. Portions of these meetings took place without the executive Directors of FCA being present. The average attendance at those meetings was 100 percent. An overview of the attendance of the individual FCA Directors per meeting of the Board of Directors of FCA and its controlling equity interests. The directorscommittees set out against the total number of GA are such meetings is set out below:
| | | | | | | | | | | | | | |
| Name | Meeting Board of Directors | Audit Committee | Governance and Sustainability Committee | Compensation Committee |
John Elkann(1) | 13/13 | - | 4/4 | - |
Michael Manley(2) | 13/13 | - | - | - |
Richard K. Palmer(2) | 13/13 | - | - | - |
Ronald L. Thompson(2) | 13/13 | 13/13 | - | - |
Andrea Agnelli(1) | 13/13 | - | - | - |
Tiberto Brandolini d’Adda(2) | 13/13 | - | - | - |
Glenn Earle(2) | 13/13 | 13/13 | - | - |
Valerie A. Mars(2) | 13/13 | 12/13 | 4/4 | 4/4 |
Michelangelo A. Volpi(2) | 13/13 | - | - | 4/4 |
Patience Wheatcroft(2) | 13/13 | 13/13 | 4/4 | - |
Ermenegildo Zegna(2) | 13/13 | - | - | 4/4 |
John Abbott(2) | 13/13 | - | - | - |
(1) Messrs. John Elkann and Andrea Agnelli were re-appointed as directors at the extraordinary general meeting of shareholders held on January 4, 2021.
(2) Board member of FCA until January 17, 2021.
During these meetings, the key topics discussed were, amongst others: the COVID-19 Emergency, including the decisions to close FCA’s facilities to protect the health and safety of the workforce, the measures to be implemented in order to restart the production activities minimizing any sanitary risks, and the implementing of the remote working to the extent possible; several actions to preserve and enhance liquidity; the FCA Group’s strategy and the several steps related to the implementation of the Combination Agreement with Groupe PSA; analysis of investments, the FCA Group’s financial results and reporting, acquisitions and divestitures, executive compensation, product plan and technological developments, risk management, legal and compliance matters, sustainability, human resources, implementation and amendment of the Remuneration Policy, and the Remuneration Report.
Independence of the non-executive Directors
The non-executive Directors are required by Dutch law to act solely in the interest of the Company. The Dutch Corporate Governance Code stipulates the corporate governance rules relating to the independence of non-executive Directors and requires under most circumstances that a majority of the non-executive Directors be “independent.”
The FCA Board of Directors determined that, in 2020, seven of FCA’s twelve Board of Directors members qualified as independent for purposes of NYSE rules, Rule 10A-3 of the Exchange Act, and the Dutch Corporate Governance Code. The remaining directors, being John Elkann, Michael Manley, Richard K. Palmer, Andrea Agnelli and Tiberto Brandolini d’Adda, Alessandro Nasi, Andrea Agnelli, Eduardo Teodorani-Fabbri, Luca Ferrero de’ Gubernatis Ventimiglia, Jeroen Prellerdid not qualify as independent for the purposes referred to in the preceding sentence.
Evaluation by the non-executive Directors
The non-executive Directors of FCA were responsible for supervising the FCA Board of Directors and Florence Hinnen.its committees, as well as the individual executive and non-executive Directors of FCA, and are assisted by the Governance and Sustainability Committee in this respect.
In accordance with the Governance and Sustainability Committee Charter in place in 2020, the Governance and Sustainability Committee assisted and advised the FCA Board of Directors with respect to periodic assessment of the performance of individual Directors. In this respect, the Governance and Sustainability Committee had, amongst others, in 2020, the duties and responsibilities to review the FCA Board of Directors’ performance, the performance of its committees and to contribute to the process to designate candidates to the Board of Directors of Stellantis.
In 2020, the Governance and Sustainability Committee of FCA focused on the periodic assessment of the performance of the Board of Directors of FCA, its committees and the individual Directors of FCA during the meeting held on February 19, 2020. Consideration was given to what actions, if any, could enhance and further improve the functioning of the Board of Directors of FCA and its committees, as well as steps that could be taken to address specific requests or perceived areas for improvement.
The non-executive Directors of FCA were regularly informed by each committee as referred to in best practice provision 2.3.5 of the Dutch Corporate Governance Code and the conclusions of those committees were taken into account when drafting this report of the non-executive Directors of FCA.
The non-executive Directors of FCA were able to review and evaluate the performance of FCA’s Audit Committee, Governance and Sustainability Committee and Compensation Committee in 2020. Based on the informationevaluations, there was no need to amend the size or composition of FCA’s Audit Committee, Governance and Sustainability Committee and Compensation Committee, nor to amend their charters during the year 2020. However, the charters were amended at the Governance Effective Time in FCA’s shareholder register, regulatory filingsconnection with the Netherlands Authorityimplementation of the Stellantis governance arrangements following the merger. Details on the current charters of the Audit Committee, the Governance and Sustainability Committee and the Compensation Committee, are set forth in the sections “The Audit Committee”, “The Remuneration Committee” and “The Governance and Sustainability Committee”, within “Board Practices and Committees” above.
Also, pursuant to FCA’s Compensation Committee Charter, the Compensation Committee implemented and oversaw the Remuneration Policy as it applied to non-executive Directors of FCA, executive Directors of FCA and senior officers reporting directly to the executive Directors of FCA. The Compensation Committee administered all the equity incentive plans and the deferred compensation benefits plans of FCA. On the basis of the assessments performed, the non-executive Directors determined the remuneration of the executive Directors of FCA and nominated candidates for the Financial Markets (Autoriteit Financiële Markten,FCA Director appointments.
The non-executive Directors of FCA have supervised the “AFM”performance of FCA’s Audit Committee, Compensation Committee and Governance and Sustainability Committee.
REMUNERATION REPORT
In this Remuneration Report, the Compensation Committee of the Board of Directors (the “Compensation Committee”) provides a comprehensive overview, in accordance with article 2:135b of the Dutch Civil Code, of the remuneration paid and owed to the individual members of the Board of Directors (the “FCA Board”) in 2020. The remuneration of the Directors in 2020 reflects remuneration actions approved by the FCA Board, at the recommendation of the Compensation Committee, in accordance with the remuneration policy of the Company and adopted during the June 26, 2020 Annual General Meeting (the “Remuneration Policy”). 2020 was an exceptional year requiring remuneration measures in response to the business impacts of COVID 19 and the SECupcoming merger of FCA with Groupe PSA, which was completed on January 16, 2021.
In line with article 2:135b of the Dutch Civil Code this report will be subject to an advisory vote at the 2021 Annual General Meeting. The 2019 Remuneration Report was presented to the shareholders for an advisory vote at the June 26, 2020 Annual General Meeting and received a 91.07% shareholder support. Therefore, the Compensation Committee decided not to change the structure and level of disclosure of the 2020 Remuneration Report.
Remuneration policy
This section provides an overview of the Remuneration Policy for FCA’s Executive Directors. The Remuneration Policy, in accordance with Dutch law and Corporate Governance Code was presented to shareholders at the June 26, 2020 Annual General Meeting and received 90.56% shareholder approval. The merger of FCA with Groupe PSA, will lead to some changes to the Remuneration Policy. A revised Remuneration Policy will be presented for a shareholder vote at the 2021 Annual General Meeting and once approved will be available on the Stellantis website.
Objectives and principles
The quality of our leadership and their commitment to the Company are fundamental to our success. FCA’s global remuneration principles support our business strategy and growth objectives in the diverse and evolving markets in which we compete. Our remuneration policies are designed to appropriately pay-for-performance with an emphasis on creating long-term shareholder value, avoiding arrangements that risk pay for failure. A variety of factors are taken into consideration when evaluating compensation arrangements, including the long-term objectives of the Company and its shareholders and a clear framework of compensation best practices which keep pace with ever-evolving US and European market-specific best practices.
Within the scope of FCA’s Remuneration Policy, the remuneration of the Executive Directors is determined by the FCA Board at the recommendation of the Compensation Committee. This annual Remuneration Report describes how the pay programs and practices of the Executive Directors and Non-Executive Directors were implemented in 2020, in accordance with the Remuneration Policy.
The guiding principles of our Remuneration Policy direct our efforts to provide a compensation structure that allows FCA to attract and retain the most highly qualified executive talent and to motivate such executives to achieve business and financial goals that create long-term value for shareholders and other sources availablestakeholders in a manner consistent with our core business and leadership values. FCA’s compensation philosophy aims to FCA, the following persons owned, directly or indirectly, in excess of three percent of FCA's capital and/or voting interest. As follows the common shares' holding of FCAprovide compensation to its executive directors as of February 15, 2018:outlined below.
|
| | | | | | |
| FCA Shareholders | | Number of Issued Common Shares | | Percentage Owned |
Exor N.V.(1) | | 449,410,092 |
| | 29.18 |
|
Baillie Gifford & Co. (2) | | 52,231,297 |
| | 3.39 |
|
_____________________________
| | | | | |
(1)Alignment with FCA's strategy | In addition, Exor N.V. holds 375,803,870 special voting shares; Exor N.V.'s beneficial ownership in FCACompensation is 42.34 percent, calculated asstrongly linked to the ratioachievement of (i) the aggregate number of common and special voting shares owned by Exor N.V. and (ii) the aggregate number of outstanding common shares and issued special voting shares. |
| Group's publicly disclosed performance targets. |
(2)Pay for performance | Baillie Gifford & Co., as an investment adviserCompensation must reinforce our performance-driven culture and principles of meritocracy. As such, the majority of pay is linked directly to the Group's performance through both short and long-term variable pay instruments. |
| Competitiveness | Compensation will be competitive against the comparable market and set in accordancea manner to attract, retain and motivate expert leaders and highly qualified executives in geographies where we directly compete. |
| Long-term shareholder value creation | Targets triggering any variable compensation payment should directly align with rule 240.13d-1(b), beneficially owns 78,283,320 common shares with sole dispositive power (4.02 percentthe interest of shareholders and other stakeholders to promote the long-term success of the issued shares),Company and constructed to avoid excessive levels of which 52,231,297 common sharescompensation. |
| Compliance | Our compensation policies and plans are helddesigned to comply with sole voting power (2.68 percent ofapplicable laws and corporate governance requirements. |
| Risk prudence | The compensation structure should avoid incentives that encourage unnecessary or excessive risks that could threaten the issued shares).Company's value or reputation. |
2020 Financial Year - Highlights summary
A key tenet of FCA's Remuneration Policy is pay for performance. The FCA Group reported positive full year 2020 results despite the impact of COVID-19 on the informationFCA Group and automotive industry as a whole. The following highlights some of the key achievements during the year:
•Positive operating results with Adjusted EBIT of €3.7 billion, with North American Adjusted EBIT of €5.4 billion, and Industrial free cash flows of €0.6 billion, despite the impact of COVID-19 on the results for the first half of 2020;
◦For the fourth quarter of 2020, the FCA Group reported record results with all segments profitable; record North America Adjusted EBIT of €2.2 billion and margin of 11.6%, and sequential improvement in FCA’s shareholder registerLATAM despite continued market downturn from COVID-19;
•The FCA Group maintained market leadership in LATAM and other sourcesBrazil;
•The FCA Group’s available liquidity was strong at December 31, 2020 at €31.4 billion;
•FCA and Groupe PSA continued progress for the completion of the 50/50 merger to us, ascreate 3rd largest global OEM by revenues and 4th by volume, with the merger finalized on January 16, 2021;
The following table highlights the financial metrics in the year:
| | | | | | | | | | | | | | | | |
| Financial Metric | | 2020 | | | | Change from 2019 |
| | (€ million, except as otherwise noted) |
| Worldwide combined shipments (in thousands of units) | | 3,435 | | | | | (22) | % |
| Net revenues | | 86,676 | | | | | (20) | % |
| Net profit from continuing operations | | 24 | | | | | (99) | % |
Adjusted EBIT(1) | | 3,742 | | | | | (44) | % |
Adjusted EBIT margin(1) | | 4.3 | % | | | | -190 bps |
Adjusted Net profit(1) | | 1,863 | | | | | (57) | % |
| Diluted earnings per share from continuing operations (€ per share) | | 0.02 | | | | | (99) | % |
Adjusted diluted earnings per share(1) (€ per share) | | 1.19 | | | | | (56) | % |
| Cash flows from operating activities - continuing operations | | 9,183 | | | | | (15) | % |
Industrial free cash flows(1) | | 624 | | | | | (70) | % |
(1) Refer to FINANCIAL OVERVIEW - Non-GAAP Financial Measures for additional detail and definitions of January 31, 2018, approximately 440 million FCA common shares,these performance metrics.
Director's Total Remuneration in 2020
The following table summarizes the remuneration paid or 29 percentawarded to the members of the FCA common shares, were heldBoard for the year ended December 31, 2020. Of the Directors only John Elkann and Andrea Agnelli will stay on as members of the Board after the merger.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fixed Remuneration | | Variable Remuneration | | | | | | |
| Directors of FCA | Office held | Year | | Base salary(1) | | Annual Fee (12) | | Fringe benefits | | Short-term incentive(2) | | Long-term incentive (3) | | Retirement Benefits Expense | | Total Remuneration(13) | | Proportion of Fixed Remuneration | | Proportion of Variable Remuneration |
| | | | (€) | | | | |
| Executive Directors |
| ELKANN, John Philipp | Chairman | 2020 | | 218,877 | | | — | | | 461,210 | | (4) | — | | 1,711,090 | | — | | | 2,391,177 | | | 28 | % | | 72 | % |
| | 2019 | | 893,276 | | | — | | | 672,284 | | | — | | 2,284,386 | | — | | | 3,849,946 | | | 41 | % | | 59 | % |
| MANLEY, Michael | CEO | 2020 | | 1,225,709 | | | — | | | 79,230 | | (5) | 1,680,972 | | 5,703,204 | | 3,040,443 | | (6), (7) | 11,729,558 | | | 11 | % | | 89 | % |
| | 2019 | | 1,429,241 | | | — | | | 30,389 | | | 1,203,243 | | 8,819,249 | | 1,798,791 | | | 13,280,913 | | | 11 | % | | 89 | % |
| PALMER, Richard | CFO | 2020 | | 1,158,076 | | | — | | | 73,561 | | (8) | 1,001,579 | | 1,859,481 | | 378,845 | | (6) | 4,471,542 | | | 28 | % | | 72 | % |
| | 2019 | | 923,916 | | | — | | | 53,351 | | | 501,128 | | 2,309,323 | | 247,570 | | | 4,035,288 | | | 24 | % | | 76 | % |
| | | | | | | | | | | | | | | | | | | | |
| Non-Executive Directors |
| ABBOTT, John | Director | 2020 | | — | | | 43,775 | | | — | | | — | | — | | — | | | 43,775 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | — | | | — | | — | | — | | | 178,655 | | | 100 | % | | — | % |
| AGNELLI, Andrea | Director | 2020 | | — | | | 43,775 | | | 2,113 | | (10) | — | | — | | — | | | 45,888 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | 1,502 | | | — | | — | | — | | | 180,157 | | | 100 | % | | — | % |
| BRANDOLINI D'ADDA, Tiberto | Director | 2020 | | — | | | 43,775 | | | 916 | | (10) | — | | — | | — | | | 44,691 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | 2,313 | | | — | | — | | — | | | 180,968 | | | 100 | % | | — | % |
| EARLE, Glenn | Director | 2020 | | — | | | 48,153 | | | 23,482 | | (10) | — | | — | | — | | | 71,635 | | | 100 | % | | — | % |
| | 2019 | | — | | | 196,521 | | | 19,128 | | | — | | — | | — | | | 215,649 | | | 100 | % | | — | % |
| MARS, Valerie | Director | 2020 | | — | | | 48,153 | | | 12,750 | | (10) | — | | — | | — | | | 60,903 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 16,475 | | | — | | — | | — | | | 208,529 | | | 100 | % | | — | % |
| SIMMONS, Ruth J. | Director | 2020 | | — | | | — | | | — | | | — | | — | | — | | | — | | | — | % | | — | % |
| | 2019 | | — | | | 91,561 | | | 8,274 | | | — | | — | | — | | | 99,835 | | | 100 | % | | — | % |
THOMPSON, Ronald L. (11) | Director | 2020 | | — | | | 51,436 | | | 6,795 | | (10) | — | | — | | — | | | 58,231 | | | 100 | % | | — | % |
| | 2019 | | — | | | 209,920 | | | 10,604 | | | — | | — | | — | | | 220,524 | | | 100 | % | | — | % |
| VOLPI, Michelangelo A. | Director | 2020 | | — | | | 44,870 | | | 7,499 | | (10) | — | | — | | — | | | 52,369 | | | 100 | % | | — | % |
| | 2019 | | — | | | 183,122 | | | 6,287 | | | — | | — | | — | | | 189,409 | | | 100 | % | | — | % |
| WHEATCROFT, Patience | Director | 2020 | | — | | | 47,058 | | | 12,632 | | (10) | — | | — | | — | | | 59,690 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 12,230 | | | — | | — | | — | | | 204,284 | | | 100 | % | | — | % |
| ZEGNA, Ermenegildo | Director | 2020 | | — | | | 47,058 | | | 20,979 | | (10) | — | | — | | — | | | 68,037 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 13,572 | | | — | | — | | — | | | 205,626 | | | 100 | % | | — | % |
| Total 2020 | | | | 2,602,662 | | | 418,053 | | | 701,167 | | | 2,682,551 | | | 9,273,775 | | | 3,419,288 | | | 19,097,496 | | | | | |
(1) As described in the United States. Aschart below, the Executive Directors requested base salary cuts due to the business impact of COVID-19;
(2) The amounts represent the same date, approximately 1,100 record holders had registered addressesbonus earned for the performance year 2020 which will be paid in 2021;
(3) The amounts represent the United States.Company's 2020 expense relating to grants issued to the Executive Directors under the Long Term Equity Incentive Plan;
(4) The stated amount includes the use of transport and insurance premiums; B. Related Party Transactions(5) The stated amount includes the use of transport and cost of residential security;
(6) Both the CEO and CFO have fully vested post retirement pension benefits that were provided to them prior to their appointments to Executive Directors. The related parties of the Group are entities and individuals capable of exercising control, joint control or significant influence over FCA and its subsidiaries, companies belongingexpense relating to Exor N.V. (including CNHI) and unconsolidated subsidiaries, associates or joint ventures of the Group. Members of FCA’s Board of Directors, Board of Statutory Auditors (through the date of the Merger) andthis benefit is included in aggregate compensation expense for executives with strategic responsibilities and their families are also considered related parties. From January 3, 2016, which was the date of the spin-off from the Group, transactions carried out with Ferrari N.V., being controlled by Exor N.V, are related party transactions.
The Group carries out transactions with unconsolidated subsidiaries, jointly-controlled entities, associates and other related parties, on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved. Transactions carried out by the Group, which have had an effect on Net revenues, Cost of revenues, and Trade receivables and payables, with unconsolidated subsidiaries, jointly-controlled entities, associates and other related parties, are primarily of a commercial nature. Refer to Note 24, Related party transactions,, within the Consolidated Financial Statements included elsewhere in this report,report.
(7) Includes one-time expense of €2.0 million due to accelerated vesting of a Supplemental Retirement Benefit due to the merger with Groupe PSA;
(8) The stated amount includes the use of transport, insurance premiums and tax preparation
(9) Represents remuneration paid or earned since his appointment to the Board on April 12,2019 to December 31, 2019;
(10) The stated amount refers to certain automobile perquisites, which are subject to taxes for further detailsthe imputed income on our related party transactions.the purchase or lease of Company vehicles, and tax preparation;
(11) Upon departure from the Board, FCA US legacy Board payments in the amount of €8,692,605 were owed and delivered; C. Interests(12) As described in the chart below, the Non-Executive Directors requested an annual fee reduction from $200,000 to $50,000; and
(13) The FCA merger with Groupe PSA led to the financial accrual of Expertscertain retention awards for the CEO and Counsel
Not applicable.
CFO in 2020. Such awards were not earned or paid in 2020, but are due in the future. Additional information about the awards can be found in the section “Impact of Merger with Groupe PSA.”
Item 8. Financial Information1. Remuneration of Executive Directors
Summary Overview of Remuneration Elements A. Consolidated StatementsRemuneration of the executive directors is simple and Other Financial Informationtransparent in design, and consists of the following key elements, all of which have been benchmarked and confirmed by an external compensation consultant:
Consolidated Financial Statements | | | | | | | | |
| Element | Description | 2020 Application |
| Annual base salary | Market based fixed cash compensation set competitively to approved multinational peer group | Due to the unprecedented circumstances as a result of COVID 19, the Chairman, CEO and CFO requested base salary cuts in 2020.
Base salary as follows: •Chairman: U.S.$250,000, the Chairman’s 2019 base salary was $1,000,000 •CEO: U.S.$1.4 million, the CEO’s 2019 base salary was $1,600,000 and was competitively set upon appointment in 2018 •CFO: U.S.$1,322,750, the CFO’s 2019 base salary was $1,430,000; carry-over legacy compensation approved by the Compensation Committee in 2019 upon his appointment to Executive Director |
| Short-term incentive (“Annual Bonus”) | Annual Bonus payout in cash subject to the achievement of annually pre-established, challenging financial objectives and thus demonstrably linked to the performance of the Company | In February 2020, the Compensation Committee approved the 2020 bonus plan design and metrics. The plan design and metrics were consistent with the previous years. After careful consideration that included benchmarking compensation practices amid the COVID-19 pandemic’s effect on the business and industry, the Compensation Committee agreed to revise the 2020 bonus plan design and metrics in accordance with their authority to temporarily deviate from the remuneration policy in case of exceptional circumstances. To maintain focus in navigating the business through the pandemic crisis and continuing the progress in planning for the merger with Groupe PSA, the Board of Directors, at the recommendation of the Compensation Committee, in July 2020, agreed to the following framework in determining a modified bonus plan design for FY 2020. •A financial trigger of Adjusted EBITDA greater than €5,000 million must be achieved in order for the Committee to consider any variable incentive bonus payment •In the event the established financial trigger is satisfied, any bonus will be based on the Company’s performance against its revised 2020 business plan (weighted 75%) and relative performance versus peer companies (weighted 25%) •The payout for target performance would be reduced from 100% to 50% of current bonus target and the minimum and maximum payouts for 2020 performance is 0% to 80% of current bonus target respectively
The Chairman continued to be ineligible for an annual bonus payout.
CEO: target bonus payout of 150% of base salary reduced to 75% of base salary, range of 0% to 300% of base salary was reduced to 0% to 120% of base salary
CFO: target bonus payout of 100% of base salary reduced to 50% of base salary, range of 0% to 150% of base salary was reduced to 0% to 80% of base salary
Base salary for purposes of calculating CEO and CFO bonus is prior to base salary cuts due to COVID 19. |
| | | | | | | | |
| Element | Description | 2020 Application |
| Long-term incentive (“LTI”) | Long-term incentive to align Executive Directors to strategic goals and reward for sustained long-term growth
Two components ◦performance share units ◦restricted (retention) share units
Performance component is subject to the achievement of predetermined challenging performance and market objectives comprised of two equally weighted metrics, relative Total Shareholder Return (“TSR”) and Adjusted EBIT
Maximum payout: 225 percent of the target number of TSR performance share units granted and 100 percent of the target number of Adjusted EBIT performance share units granted | A new LTI Plan design was approved by the shareholders at the 2019 Annual General Meeting. This new design incorporated annual rolling LTI plan grants directly linked to three-year performance periods. With this approach, the intent is to deliver a consistent long-term incentive opportunity vesting annually, providing company and individual performance conditions are met. As provided in the 2019 Remuneration Report grants were awarded in 2019 for the 2019-2021 three-year performance period (with a transitional vesting schedule). In 2020, grants were awarded for the 2020-2022 cumulative performance period with cliff vesting in 2023.
Chairman: Target annual LTI grant: 300 percent of base salary of which 75% is performance share units and 25% is restricted (retention) share units. In 2020, a grant of 382,560 units was awarded for the 2020 - 2022 performance period.
CEO: Target annual LTI grant: 625 percent of base salary of which 75% is performance share units and 25% is restricted (retention) share units. In 2020, a grant of 1,275,150 units was awarded for the 2020 - 2022 performance period.
CFO: Target annual LTI grant: 210 percent of base salary of which 66.7% is performance share units and 33.3% is restricted (retention) share units. In 2020, a grant of 382,950 units was awarded for the 2020 - 2022 performance period.
Base salary for purposes of calculating CEO and CFO bonus is prior to base salary cuts due to COVID 19
As disclosed in Form-4 filed with the U.S. Securities and Exchange Commission, the Board of Directors approved the treatment of equity awards for the Company’s officers, including the Chairman, the CEO and the CFO at the time of the merger (The Board of Groupe PSA approved the same treatment of equity awards for its executive officers). This treatment provided for each holder of outstanding FCA equity awards to be entitled to receive a substitute Stellantis restricted share unit award for each outstanding FCA unit. The number of Stellantis common shares received is equal to the number of FCA shares subject to the original FCA equity award. The number of Stellantis common shares received would be based on performance at target or, in the event that FCA’s performance exceeds the target level as assessed by the FCA Board or a committee of the FCA Board immediately before the effective time of the merger, at that assessed level. Each Stellantis restricted share unit award will continue to be governed by the same terms and conditions (including service-based vesting terms, but not performance-based vesting terms) as were applicable to the relevant FCA equity awards immediately prior to the effective time of the merger. |
| | | | | | | | |
| Element | Description | 2020 Application |
| Post Retirement Benefits | The CEO participates in a defined contribution plan for U.S. based salaried employees and has a supplemental retirement benefit and a retiree health care benefit.
The Chairman and the CFO participate in a retiree health care benefit plan. | Chairman: Effective January 1, 2019 waived post mandate benefit of 5 times base salary. Eligible for a retiree healthcare plan provided to executives in Italy which provides for a reimbursement of a portion of health care costs incurred in retirement.
CEO: Consistent with US CEO compensation benchmarks, a supplemental retirement benefit of three times annual base salary is provided. This benefit requires five years of CEO service for 100% vesting and 3 years of service for 50% vesting. The supplemental retirement benefit agreement provides for accelerated vesting at the time of the merger. Eligible for Executive Postretirement Health Care Plan which provides healthcare coverage in the United States upon retirement. In 2020, a cost of €2.0 million was recognized in connection with these benefits.
CFO: Eligible for a retiree healthcare plan provided to executives in Italy which provides for a reimbursement of a portion of health care costs incurred in retirement. |
| Other benefits | Executive directors may receive usual and customary fringe benefits such as severance, company cars, medical insurance, accident and disability insurance, tax preparation, financial counseling, tuition reimbursement and tax equalization | Chairman severance: 1 times annual base salary
On December 15, 2020, the Board of Directors, at the recommendation of the Compensation Committee, approved the following changes to the Chairman’s company-provided benefits: •Life Insurance and Accidental Death & Disability insurance coverages were removed, •broader network of medical providers and coverage was added to the current medical plan, and •comprehensive annual executive health screening benefit was added in line with external benchmarks
CEO severance: 1 times annual base salary linked to non-compete and other restrictive covenants for 1 year replaced with the right to receive a cash retention award at the time of the merger, as described in Impact of Merger with Groupe PSAbelow
CFO severance: Carry-over, pre Executive Director arrangement of 2 times base salary linked to non-compete and other restrictive covenants for 2 years replaced with the right to receive a cash retention award at the time of the merger, as described in Impact of Merger with Groupe PSAbelow
CEO and CFO change of control provision: severance and accelerated vesting of outstanding awards under the Equity Incentive Plan in case of termination following change of control within 24 months by the company (unless for cause) or by the Executive Director for good reason were replaced with the right to receive a cash retention award, as described in Impact of Merger with Groupe PSAbelow
In 2020 no severance benefits were paid or due to Executive Directors. |
Implementation in 2020
Compensation Peer Group
The Company periodically benchmarks its executive compensation programs and the compensation offered to Item 18. Financial StatementsDirectors against peer companies and monitors compensation levels and trends in the market.
The Compensation Committee strives to identify a peer group that best reflects all aspects of the Company’s business and considers public listing, industry practices, geographic reach, and revenue proximity, with market capitalization considered as secondary characteristic. Our peer group represents a blend of both U.S. and European Companies in recognition of the relevant talent market for our Consolidated Financial Statementsexecutives. In addition to including U.S. and report ofEuropean automobile manufacturers, our independent registered public accounting firm.
Export Sales
Refer to Item 4B. Business Overview forpeer group includes U.S. and European companies that have significant manufacturing and/or engineering operations and a discussion of our sales and distribution channels.
Legal Proceedings
Refer to Item 4B. Business Overview—Legal Proceedings for information on significant legal proceedings.
Dividend Policyglobal market presence.
For 2017,2020, the Compensation Committee updated the peer group to remove Johnson Controls and add ABB.
Peer Group Companies:
| | | | | | | | | | | |
| ABB | Continental AG | Honeywell International Inc. | The 3M Company |
| Airbus Group | Daimler AG | Lockheed Martin Corporation | ThyssenKrupp AG |
| ArcelorMittal SA | Deere & Company | Northrop Grumman Corporation | United Technologies Corporation |
| Bayer AG | Ford Motor Company | Groupe PSA | Volkswagen AG |
| BMW Group AG | General Dynamics Corporation | Raytheon Company | The Volvo Group |
| The Boeing Company | General Electric Company | Renault SA | |
| Caterpillar Inc. | General Motors Company | Siemens AG | |
Variable components
As noted above, our Executive Directors are eligible to receive variable compensation, contingent on the achievement of pre-established operating and financial performance targets. Scenario analysis are carried out annually to examine the relationship between the performance criteria chosen and possible outcomes. Such analyses help ensure a strong link between remuneration and performance and ensure the performance criteria strongly support the Company’s strategic objectives.
Short-Term Incentive
In February 2020, prior to the business impacts driven by the COVID 19 pandemic, the 2020 bonus plan design and metrics were approved by the FCA Board, at the recommendation of the Compensation Committee. The plan design was consistent with the previous year. The metrics were set with challenging hurdles, directly in line with the Group’s business plan and considered input from the external compensation consultant to ensure the goals were linked to long term shareholder value creation.
After careful consideration that included benchmarking compensation practices amid the COVID-19 pandemic’s effect on the business and industry, the FCA Board again at the recommendation of the Compensation Committee, agreed to revise the 2020 bonus plan design and metrics. To maintain focus in navigating the business through the pandemic crisis and continuing the progress in planning for the merger with Groupe PSA, the FCA Board agreed in July, 2020, to the following framework in determining a modified performance bonus for the FY 2020:
•A financial trigger of Adjusted EBITDA greater than €5,000 million must be achieved in order for the FCA Board to consider any variable incentive payment
•In the event the financial trigger is satisfied, any bonus will be based on the Company’s financial performance against its revised 2020 business plan (weighted 75%), relative performance versus peer companies (weighted 25%) and other factors the Committee deems relevant to measure the overall performance. The Compensation Committee will qualitatively assess relevant factors to which all performance criteria as a whole have been achieved and the level of bonus payout reflecting such performance.
•As illustrated in the chart below:
◦For the CEO, any payout for target performance was reduced from 150% of base salary to 75% and maximum payout was reduced from 300% of base salary to 120%
◦For the CFO, any payout for target performance was reduced from 100% of base salary to 50% and maximum payout was reduced from 150% of base salary to 80%
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Executive Director | | 2020 Bonus Target | | 2020 Payout at Target Performance | | 2020 Maximum Payout | | 2019 Bonus Target | | 2019 Payout at Target Performance | | 2019 Maximum Payout |
| CEO | | $2.4 million
(150% of base salary) | | $1.2 million
(75% of base salary) | | $1.92 million
(120% of base salary) | | $2.4 million
(150% of base salary) | | $2.4 million
(150% of base salary) | | $4.8 million
(300% of base salary) |
| CFO | | $1.43 million
(100% of base salary) | | $715,000
(50% of base salary) | | $1,144,000
(80% of base salary) | | $1.43 million
(100% of base salary) | | $1.43 million
(100% of base salary) | | $2.145 million
(150% of base salary) |
Executive Director's 2020 Bonus Calculation
In 2020, the Company achieved the financial trigger of adjusted EBITDA greater than €5,000 million. As a result, the Compensation Committee could consider a bonus award aligned with the reduced payout thresholds described above. The Compensation Committee’s approach considered the financial performance of net revenue, adjusted EBIT and Industrial Free Cash Flow against the revised 2020 business plan. The Compensation Committee also considered the Company’s year over year performance of these measures and the spending of capital expenditures during the crisis versus its peers’ companies. Despite the impact of COVID-19, the Company achieved (1) 2020 financial results that exceeded the revised 2020 business plan, (2) favorable performance versus its peers, and (3) significant efforts to complete the 50/50 merger with Groupe PSA to form Stellantis.
Consequently, the FCA Board, at the recommendation of the Compensation Committee, approved a company performance factor of 80% for the 2020 annual bonus payout.
CEO 2020 Calculation
The bonus earned by the CEO for performance year 2020, payable in 2021, was U.S. $1,920,000 (€1,680,972) based on the corresponding company performance factor of 80%.
| | | | | | | | | | | | | | | | | | | | |
| Base Salary | | Bonus Target % | | Company Performance Factor | | Bonus Earned |
| $ | 1,600,000 | | X | 150 | % | X | 80 | % | = | $ | 1,920,000 | |
CFO 2020 Calculation
The bonus earned by the CFO for performance year 2020, payable in 2021, was U.S. $1,144,000 (€1,001,579) based on the corresponding weighted company performance factor of 80%.
| | | | | | | | | | | | | | | | | | | | |
| Base Salary | | Bonus Target % | | Company Performance Factor | | Bonus Earned |
| $ | 1,430,000 | | X | 100 | % | X | 80 | % | = | $ | 1,144,000 | |
Long-Term Incentive
Long Term Incentive Plan
A new LTI Plan design was approved by shareholders at the April 12, 2019 Annual General Meeting. This design incorporated annual rolling grants directly linked to a three-year performance period. In 2019 grants were awarded for the first three-year performance period 2019 – 2021 with a transitional vesting schedule so that participants of the previous 2014 -2018 LTI plan did not again deliver results for three years without earning a long term incentive payout opportunity. In 2020, grants were awarded for the 2020-2022 cumulative performance period with cliff vesting in 2023.
LTI Plans Vesting Schedule
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| 2019 - 2021 Plan | | 2019 Grant PSU’s and RSU’s | | Performance Period | | |
| | 1/3 vests | | 1/3 vests | | 1/3 vests | | |
| | | | | | | | | | |
| 2020 - 2022 Plan | | | | 2020 Grant PSU’s and RSU’s | | Performance Period |
| | | | | | | | Cliff vests |
Annual awards granted under the LTI plan are comprised of a split of performance share units and restricted (retention) share units. The performance based awards vesting under the LTI plan are conditional on meeting two independent, equally weighted cumulative three-year metrics, Adjusted EBIT and Relative TSR. Each metric has minimum and target performance levels; performance below the minimum results in no awards being earned.
As shown in the tables below, the Adjusted EBIT component payout begins at 80% of target achievement and has a maximum payout at 100% for target achievement. The Relative TSR component earns partial vesting if the Company is ranked seventh or better among an industry specific peer group of sixteen, including the Company, and a maximum payout of 225%, if the Company is ranked first among the sixteen companies. The plan allows no payout if the Company is ranked below the median of the designated peer group over the performance period.
Listed below are the Adjusted EBIT and TSR payout scales:
| | | | | | | | | | | | | | |
| Adjusted EBIT Payout Scale | | TSR Payout Scale |
| % Achieved | Payout % of Target | FCA Rank | Payout % of Target |
| 100.0% | 100.0% | 1 | 225.0% |
| 95.0% | 87.5% | 2 | 180.0% |
| 90.0% | 75.0% | 3 | 145.0% |
| 85.0% | 62.5% | 4 | 120.0% |
| 80.0% | 50.0% | 5 | 100.0% |
| 6 | 75.0% |
| 7 | 50.0% |
| 8-16 | 0.0% |
Listed below is the Relative TSR peer group:
| | | | | | | | | | | |
| Volkswagen AG | Toyota Motor Corporation | Daimler AG | General Motors Company |
| Ford Motor Company | Honda Motor Co. Ltd. | BMW Group | The Hyundai Motor Company |
| Groupe PSA | Renault SA | Nissan Motor Co. | KIA Motors |
| Suzuki Motor Corporation | Mazda Motor Corporation | Tesla Inc. | |
All outstanding units from the 2019 and 2020 grants, will be settled in accordance with the treatment of equity awards at the time of the merger as approved by the Board of Directors has not recommended a dividend payment on FCA common shares in order to further fund capital requirementsand the shareholders as part of their approval of the Group’s Business Plan.
The objectives identified by the Group for managing capital are to create value for shareholders as a whole, safeguard business continuitymerger 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 and in particular the level of net debt and the generation of cash from its industrial activities. In order to reach these objectives, the Group aims at a continuous improvement in the profitability of the business in which it operates. Further, in general, the Board of Directors may make proposals to shareholders at a general meeting of shareholders to reduce or increase share capital or, where permitted by law, to distribute reserves. In this context, the Group may also make purchases of treasury shares, without exceeding the limits authorized by shareholders at a general meeting of shareholders, under the same logic of creating value, compatible with the objectives of achieving financial equilibrium and an improvement in its rating.
For additional information on distribution of profits, refer to Item 10B. Memorandum and Article of Association.
B. Significant Changes
Except as otherwise disclosed within this report on Form 20-F, no significant change has occurred since the date of the audited Consolidated Financial Statements included elsewhere in this report.
Item 9. The Offer and Listing
A. Offer and Listing Details
On October 13, 2014, our common shares began trading on the NYSE under the symbol “FCAU” and on the MTA under the symbol “FCA”. Prior to October 13, 2014, our ordinary shares were listed and traded on the MTA under the symbol “Fiat”.
The following table presents the high and low closing market prices of FCA common shares as reported on the NYSE and the MTA for each of the periods indicated. The Ferrari spin-off was completed on January 3, 2016. Beginning on January 4, 2016, FCA common shares have been traded excluding Ferrari. The share prices presented in this table have not been retroactively adjusted for the spin-off.
|
| | | | | | | | | | | |
| | NYSE | | MTA |
| | High | | Low | | High | | Low |
| | (in U.S.$) | | (in €) |
Period ended December 31, 2014(1) | 13.610 |
| | 8.740 |
| | 11.170 |
| | 6.875 |
|
| Year ended December 31, 2015 | 16.720 |
| | 11.250 |
| | 15.800 |
| | 9.465 |
|
| First Quarter 2015 | 16.720 |
| | 11.250 |
| | 15.800 |
| | 9.465 |
|
| Second Quarter 2015 | 16.710 |
| | 14.330 |
| | 15.630 |
| | 12.800 |
|
| Third Quarter 2015 | 16.560 |
| | 12.210 |
| | 14.960 |
| | 11.080 |
|
| Fourth Quarter 2015 | 16.470 |
| | 13.090 |
| | 14.520 |
| | 11.850 |
|
| Year ended December 31, 2016 | 9.120 |
| | 5.680 |
| | 8.735 |
| | 5.110 |
|
| First Quarter 2016 | 9.070 |
| | 5.880 |
| | 8.365 |
| | 5.230 |
|
| Second Quarter 2016 | 8.260 |
| | 5.960 |
| | 7.355 |
| | 5.355 |
|
| Third Quarter 2016 | 7.000 |
| | 5.680 |
| | 6.330 |
| | 5.110 |
|
| Fourth Quarter 2016 | 9.120 |
| | 6.160 |
| | 8.735 |
| | 5.605 |
|
| Year ended December 31, 2017 | 18.500 |
| | 9.490 |
| | 15.660 |
| | 8.780 |
|
| First Quarter 2017 | 11.580 |
| | 9.490 |
| | 10.820 |
| | 8.780 |
|
| Second Quarter 2017 | 11.650 |
| | 9.700 |
| | 10.600 |
| | 9.015 |
|
| Third Quarter 2017 | 17.950 |
| | 10.960 |
| | 15.160 |
| | 9.650 |
|
| Fourth Quarter 2017 | 18.500 |
| | 16.530 |
| | 15.660 |
| | 13.990 |
|
| Monthly | | | | | | | |
| August 2017 | 15.130 |
| | 11.610 |
| | 12.650 |
| | 9.820 |
|
| September 2017 | 17.950 |
| | 15.530 |
| | 15.160 |
| | 13.120 |
|
| October 2017 | 17.960 |
| | 16.530 |
| | 15.290 |
| | 13.990 |
|
| November 2017 | 18.150 |
| | 17.050 |
| | 15.660 |
| | 14.420 |
|
| December 2017 | 18.500 |
| | 16.950 |
| | 15.510 |
| | 14.130 |
|
| January 2018 | 24.810 |
| | 18.430 |
| | 19.844 |
| | 15.160 |
|
(1) From October 13, 2014.
The following table presents the high and low closing market prices of Fiat ordinary shares as reported on the MTA for each of the periods indicated:
|
| | | | | |
| | MTA |
| | High | | Low |
| | (in €) |
| Year ended December 31, 2012 | 4.842 |
| | 3.314 |
|
| Year ended December 31, 2013 | 6.450 |
| | 3.890 |
|
| Period from January 1, 2014 through October 10, 2014 | 9.070 |
| | 6.465 |
|
B. Plan of Distribution
Not applicable.
C. Markets
Our common shares are listed and traded on the NYSE under the symbol “FCAU” and on the MTA under the symbol “FCA”. Prior to the effectiveness of the Merger, Fiat's ordinary shares were listed and traded on the MTA under the symbol “Fiat”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Article of Association
A copy of our articles of association has been filed as Exhibit 3.1 to the Form F-4 filed by FCA on July 3, 2014 and is also incorporated by reference as Exhibit 3.1 to the Form F-4 filed by FCA on May 19, 2015.
THE FCA SHARES, ARTICLES OF ASSOCIATION AND TERMS AND CONDITIONS OF THE SPECIAL VOTING SHARES
FCA was incorporated as a public limited liability company (naamloze vennootschap) under the laws of the Netherlands on April 1, 2014 in contemplation of the Merger under the name Fiat Investments N.V. Upon effectiveness of the Merger, this name was changed to Fiat Chrysler Automobiles N.V. FCA’s corporate seat (statutaire zetel) is in Amsterdam, the Netherlands, and its registered office and principal place of business is located at 25 St. James’ Street, London SW1A 1HA, United Kingdom. FCA is registered with the Trade Register of the Dutch Chamber of Commerce under number 60372958. Its telephone number is +44 (0) 20 7766 0311.
Following is a summary of material information relating to the FCA common shares, including summaries of certain provisions of the FCA Articles of Association (the “FCA Articles of Association”), the terms and conditions in respect of the FCA special voting shares (the “Terms and Conditions of Special Voting Shares”) and the applicable Dutch law provisions in effect at the date of this report. The summaries of the FCA Articles of Association and the Terms and Conditions of Special Voting Shares as set forth in this report are qualified in their entirety by referencethe Combination Agreement. (The Board of Groupe PSA approved the same treatment for its equity awards). This treatment provides for each holder of outstanding FCA equity awards to be entitled to receive a substitute Stellantis restricted share unit award for each outstanding FCA unit. The number of Stellantis common shares received is equal to the full textnumber of FCA shares subject to the original FCA equity award. The number of Stellantis common shares received would be based on performance at target or, in the event that FCA’s performance had exceeded the target level as assessed by the FCA Board or a committee of the FCA ArticlesBoard immediately before the effective time of Association,the merger, at that assessed level. Each Stellantis restricted share unit award will continue to be governed by the same terms and conditions (including service-based vesting terms, but not performance-based vesting terms) as were applicable to the Terms and Conditionsrelevant FCA equity awards immediately prior to the effective time of Special Voting Shares.the merger.
Share Capital
TheAs at December 31, 2020, prior to the closing of the merger, the authorized share capital of FCA is forty million Euro (€40,000,000),was €40,000,000, divided into two billion (2,000,000,000)2,000,000,000 FCA common shares with a nominal value of one Euro cent (€0.01) per share€0.01 each and two billion (2,000,000,000)2,000,000,000 special voting shares nominal value of one Euro cent (€0.01) per share.
Fiat Investments N.V. was incorporated with an issued capital of €200,000, fully paid and divided into 20,000,000 common shares having a nominal value of €0.01 each. CapitalAt the Effective Time, (i) by way of a deed of amendment to the Articles of Association, FCA’s authorized share capital was increased to €350,000 on May 13, 2014.
On October 29, 2014,€90,000,000, divided into 4,500,000,000 common shares with a nominal value of €0.01 each and 4,500,000,000 special voting shares with a nominal value of €0.01 each; (ii) FCA issued 1,545,220,196 new common shares to PSA shareholders, corresponding to an exchange ratio of 1.742 FCA common shares for each outstanding PSA ordinary share. As of the Governance Effective Time, by way of a deed of amendment to the Articles of Association, (i) FCA’s name was changed into Stellantis; (ii) the authorized share capital of Stellantis was divided into 4,500,000,000 common shares with a nominal value of €0.01 each, 4,050,000,000 class A special voting shares with a nominal value of €0.01 each and 450,000,000 class B special voting shares with a nominal value of €0.01 each; (iii) the special voting shares of FCA were converted into class B special voting shares at the Governance Effective Time. The special voting shares held by Exor prior to the closing of the merger were repurchased by FCA at the Effective Time for no consideration. The Articles of Association provide that, following the deposit by the Board of Directors of FCA resolveda declaration at the Dutch Trade Register that the class B special voting shares held by Stellantis on the Effective Date were canceled, the authorized share capital of Stellantis shall amount to authorize€90,000,000, divided into 4,500,000,000 common shares with a nominal value of €0.01 each, 4,499,750,000 class A special voting shares and 250,000 class B special voting shares. As of March 3, 2021 there were 208,622 class B special voting shares and no class A special voting shares outstanding, and the above mentioned declaration has not been filed with the Dutch Trade Register. As of the same date, the Company held 449,410,092 class B special voting shares in treasury. At the extraordinary general meeting of the shareholders held on January 4, 2021, the shareholders approved inter alia the proposal to increase and, subsequently, decrease the Stellantis issued share capital in connection with the Faurecia Distribution, which remains subject to approval by the general meeting of shareholders of Stellantis to be held on March 8, 2021 and compliance with certain formalities under Dutch law.
On July 31, 2017, PSA issued 39,727,324 equity warrants in favor of General Motors Group, at the unit price of €16.3386515, giving entitlement to subscribe for PSA ordinary shares, on the basis of one PSA ordinary share for one equity warrant, at an exercise price of €1.00 per PSA ordinary share, between July 31, 2022 and July 31, 2026. At the Effective Time, each of the 39,727,324 outstanding equity warrants was converted into one equity warrant giving entitlement to subscribe 1.742 Stellantis common shares (each, a “Warrant”) at an exercise price equal to €1.00 per Warrant, between July 31, 2022 and July 31, 2026. As of the date of this report, the exercise of the Warrants may result in the issuance of up to a maximum of 90,000,00069,204,998 new common shares, undersubject to adjustment in connection with certain transactions carried out by Stellantis, as further described below. General Motors and its affiliates do not have the framework equity incentive plan which had been adopted beforeright to sell or transfer the closingWarrants other than to General Motors affiliates. General Motors and its affiliates do not have any governance or voting rights in respect of the Merger. Any issuanceWarrants, and are obligated to sell the common shares received within 35 days from the date of exercise of the Warrants. The terms and conditions of the Warrants provide for protection of the rights of warrant holders in connection with certain transactions carried out by the issuer where the record date to benefit from or participate in such transactions and, in particular, to benefit from any dividend or other distribution announced or voted on or before that date, is prior to the delivery date of the underlying shares upon exercise of the Warrants. The contemplated transactions include, among others, any free allocation of shares thereunder inor other securities to shareholders, regrouping or splitting of shares, increase of 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 shareholder approval. During 2017 a total of 12,069,116 common shares were issued under the framework equity incentive plan.
On December 16, 2014, FCA completed the following capital transactions:
FCA completed the sale of 100 million common shares, nominalpar value €0.01 per share, consisting of the common shares, previously held by FCA as treasury sharesmerger, demerger, repayment of share capital, dividends and additionalother distributions. The terms and conditions of the Warrants set out the calculation formula to adjust the exercise ratio, provided that any such adjustment will be made such that the value of the common shares that FCA issued to replenishwould have been obtained had the share capital canceled in accordance with applicable law followingWarrants been exercised immediately before one of the exercise by Fiat S.p.A. shareholders of cash exit rights under Italian law in connection with the cross-border merger of Fiat into FCA.
FCA issued an aggregate notional amount of U.S.$2,875 million of mandatory convertible securities due 2016; the mandatory convertible securities were convertible into common sharescontemplated transactions is equal, to the conversion rate calculated based on thenearest 100th of a share, price relative to the applicable market value (“AMV”), as defined inof the prospectus, as follows:shares that would have been obtained had the Warrants been exercised immediately after such transaction.
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◦ | Maximum Conversion Rate: 262,895,750(1) shares if the AMV ≤ Initial Price (U.S.$7.0829(2)), in aggregate the Maximum Number of Shares
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Stellantis common shares and special voting shares have been created under the laws of the Netherlands.
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◦ | A number of shares equivalent to the value of U.S.$64.7675(3) (i.e., U.S.$64.7675(3) / AMV), if Initial Price (U.S.$7.0829(2)) ≤ the AMV ≤ Threshold Appreciation Price (U.S.$8.3224(4))
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◦ | Minimum Conversion Rate: 223,741,125(5) shares if the AMV ≥ Threshold Appreciation Price (U.S.$8.3224(4)), in aggregate the Minimum Number of Shares
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On December 15, 2016, each U.S.$100 notional amount of the mandatory convertible securities was converted to 8.3077 of FCA's common shares based upon the average volume weighted average prices of FCA common shares on the New York Stock Exchange during the 20 consecutive trading day period beginning November 14, 2016 and ending on December 12, 2016 (inclusive), which resulted in a total of 238,846,375 FCA common shares that were issued.
At December 31, 2014, there were 1,250,000 common shares reserved for issuance under the FCA Non-Executive Directors’ Compensation Plan in the following 5 years. During 2015, a total of 83,172 common shares were issued at fair market value. Fair market value equals the average of the highest and lowest sale price of a common share during normal trading hours on the NYSE on the last trading day of the applicable plan year quarter. During 2016, a total of 163,333 common shares were issued at fair market value. During 2017, a total of 54,855 common shares were issued at fair market value.
FCAStellantis common shares are registered shares represented by an entry in the shareshareholders’ register of FCA.Stellantis. The FCA Board of Directors may determine that, for the purpose of trading and transfer of shares on a foreign stock exchange, such share certificates shallwill be issued in such a form as shallwill comply with the requirements of such a foreign stock exchange.exchange and Dutch law. A register of shareholders is maintained by FCAStellantis in the Netherlands and a branch register is maintained in the U.S.United States on FCA’sStellantis’s behalf by the Transfer Agent,Computershare Trust Company, N.A., which serves as Stellantis’s branch registrar and transfer agent.agent in the United States.
Beneficial interests in FCAStellantis common shares that are traded on the NYSE are held through the book-entry system provided by The Depository Trust Company (“DTC”) and are registered in FCA’sStellantis’s register of shareholders in the name of Cede & Co., as DTC’s nominee. Beneficial interests in the FCAStellantis common shares traded on the MTA are held through Monte Titoli S.p.A., the Italian central clearing and settlement system, as a participant (through Euroclear Bank) in DTC. Beneficial interests in Stellantis common shares traded on Euronext Paris are held through Euroclear France and its intermediaries Euroclear Bank and J.P. Morgan, the latter acting as a participant in DTC.
Special voting shares are registered shares represented by an entry in the shareholders’ register of Stellantis. No share certificates have been issued with respect to the special voting shares. No right of pledge may be established on special voting shares and the voting rights attributable to special voting shares may not be assigned to a usufructuary.
Additional information on FCA’s equity as of December 31, 2020 is contained in Note 26, Equity, to the Consolidated Financial Statements included elsewhere in this report.
Directors
Set forth below is a summary description of the material provisions of the FCA Articles of Association relating to our directors. TheDirectors. This summary does not restate the FCA Articles of Association in their entirety.
FCA’s directors serve onThe members of the FCA Board of Directors for aare appointed by the general meeting of shareholders, taking into account the nomination rights set out in the Articles of Association and further described under “—Nomination Rights”.
The initial term of approximately one year, such term endingoffice of each of the Chairman, CEO, Senior Independent Director and Vice Chairman is five years, in each case beginning on the day thatGovernance Effective Time. The initial term of office for each of the other Directors is four years beginning on the Governance Effective Time. Such initial terms of office shall lapse immediately after the close of the first annual general meeting of shareholders is held inafter four or five years (as applicable) have lapsed since the following calendar year. FCA’s shareholders appointGovernance Effective Time. Under Articles of Association, after the directorsinitial term, the term of office of the FCA BoardDirectors is for a period of Directorstwo years, provided that unless a Director has resigned at aan earlier date the term of office shall lapse immediately after the close of the first annual general meeting.meeting of shareholders held two years following the appointment. Each directorDirector may be reappointed for an unlimited number of terms. The general meeting of shareholders determines whether a director is an executive director or a non-executive director.
(1) Effective May 13, 2016, the maximum number of shares was adjusted from 261,363,375 to 262,895,750 as a result of the distribution of the Group's investment in RCS MediaGroup S.p.A
(2) Effective January 15, 2016, Initial price was adjusted from U.S.$11.00 to U.S.$7.1244 as a result of the spin-off of Ferrari N.V. and effective May 13, 2016, Initial price was subsequently adjusted from U.S.$7.1244 to U.S.$7.0829 as a result of the distribution of the Group's investment in RCS MediaGroup S.p.A
(3) Effective January 15, 2016, Stated amount was adjusted from U.S.$100.00 to U.S.$64.7675 as a result of the spin-off of Ferrari N.V.
(4) Effective January 15, 2016, Threshold appreciation price was adjusted from U.S.$12.9250 to U.S.$8.3712 as a result of the spin-off of Ferrari N.V. and effective May 13, 2016, was subsequently adjusted from U.S.$8.3712 to U.S.$8.3224 as a result of the distribution of the Group's investment in RCS MediaGroup S.p.A
(5) Effective May 13, 2016, the minimum number of shares was adjusted from 222,435,875 to 223,741,125 as a result of the distribution of the Group's investment in RCS MediaGroup S.p.A
The FCA Board of Directors is a single board and consists of three or more members, comprising both members having responsibility for the day-to-day management of FCA (executive directors) and members not having such day-to-day responsibility (non-executive directors). The tasks of the executive and non-executive directors in a one-tier board such as FCA’s Board of Directors may be allocated under or pursuant to the FCA Articles of Association, provided that the general meeting of shareholders has stipulated whether such director is appointed as executive or as non-executive director and furthermore provided that the task to supervise the performance by the directors of their duties can only be performed by the non-executive directors. In addition, an executive director may not be appointed chairman of the board or delegated the task of establishing the remuneration of executive directors or nominating directors for appointment. Tasks that are not allocated fall within the power of the FCA Board of Directors as a whole. Regardless of an allocation of tasks, all directors remain collectively responsible for the proper management and strategy of FCA (including supervision thereof in case of non-executive directors).
FCAStellantis has a policy in respect of the remuneration of the members of the FCA Board of Directors. With due observation of the remuneration policy, the FCA Board of Directors may determine the remuneration for the directors in respect of the performance of their duties. The FCA Board of Directors must submit to the general meeting of shareholders for its approval plans to award shares or the right to subscribe for shares. The policy was partially amended as approved byshares to the General Meetinggeneral meeting of Shareholders held on April 14, 2017 by introducing the principle that non-executive directors are paid in cash. Nonetheless, the Board of Directors, upon recommendation of the Compensation Committee, may determine that the retainer fee may be converted, in whole or in part, into common shares of the Company upon payment.shareholders for its approval.
FCAStellantis shall not grant the directorsDirectors any personal loans or guarantees.
Additional information on the Board of Directors is contained in theReport of the Non-Executive Directors included elsewhere in this report.
Nomination Rights
The Articles of Association provide for certain rights of Exor, EPF/FFP and BPI (each a “Nominating Shareholder”) to nominate the number of Directors mentioned below for future terms of office of the Board of Directors. In particular, and subject to the terms and conditions set forth in the Articles of Association:
•Exor shall have the right to nominate two (2) directors;
•BPI (or EPF/FFP, as further described below) shall have the right to nominate one (1) director; and
•EPF/FFP shall have the right to nominate one (1) director.
Notwithstanding the above:
•if the number of Stellantis common shares held by BPI, and/or any of its affiliates, or EPF/FFP, and/or any of their affiliates, falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, such shareholder will no longer be entitled to nominate a Director (in which case, any Director nominated by BPI or EPF/FFP, as the case may be, will be required to resign as promptly as reasonably practicable (and in any case, within ten days of the relevant threshold no longer being met)); and
•if, at any time within the six years following the Effective Time or on the sixth anniversary of the Effective Time, both (i) the number of Stellantis common shares held by EPF/FFP and/or their affiliates increases to a number of shares corresponding to eight percent or more of the issued and outstanding Stellantis common shares and (ii) the number of Stellantis common shares held by BPI and/or its affiliates falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, then EPF/FFP will be entitled to nominate a second Director to the Board of Directors in replacement of the BPI nominee (the “EPF/FFP Additional Director”).
As an exception to the foregoing paragraph, if at any time within the six years following the Effective Time:
•the number of Stellantis common shares held by BPI and its affiliates, on the one hand, or EPF/FFP and their affiliates, on the other hand, represents between four percent and five percent of the issued and outstanding Stellantis common shares (the “Threshold Stake”);
•either BPI or EPF/FFP has not otherwise lost its right to nominate a Director in accordance with the preceding paragraph; and
•the number of Stellantis common shares held by BPI, EPF/FFP and their respective affiliates represents, in aggregate, eight percent or more of the issued and outstanding Stellantis common shares,
the Nominating Shareholder which holds the Threshold Stake will maintain its right to nominate a Director (the “Residual Director”) to the Board of Directors until the sixth anniversary of the Effective Time (it being understood that while BPI is entitled to nominate a Director pursuant to this exception, EPF/FFP will not be entitled to nominate the EPF/FFP Additional Director).
Additionally, Exor’s right to nominate representative(s) to the Board of Directors will decrease in the event Exor and/or its affiliates reduce their equity ownership in Stellantis as follows:
•if the number of shares held by Exor and/or its affiliates falls below the number of shares corresponding to eight percent of the issued and outstanding Stellantis common shares, Exor will be entitled to nominate one Director instead of two; and
•if the number of shares held by Exor and/or its affiliates falls below the number of shares corresponding to five percent of the issued and outstanding Stellantis common shares, Exor will no longer be entitled to nominate a Director.
In such cases, the Director designated by Exor for resignation from among the Directors nominated by Exor will be required to resign as promptly as reasonably practicable (and in any case, within ten days of the relevant threshold no longer being met) after the number of Stellantis common shares held by Exor and/or its affiliates falls below the applicable threshold.
Any event or series of events (including any issue of new shares) other than a transfer (including transfer under universal title) of Stellantis common shares will be disregarded for the purpose of determining whether the applicable Nominating Shareholder reaches the relevant threshold(s).
Pursuant to the Articles of Association, the general meeting of shareholders may at all times overrule a binding nomination for the appointment of a Director by a two-thirds majority of the votes cast, with such two-thirds majority of the votes cast representing more than half of the issued and outstanding share capital of Stellantis.
Additionally, the Articles of Association provide that the nomination rights of a Nominating Shareholder lapse upon a Change of Control of such Nominating Shareholder. A “Change of Control” is defined in Article 1.1. of Stellantis Articles of Association as any direct or indirect transfer carried out by a shareholder that is not an individual through one or a series of related transactions as a result of which (i) a majority of the voting rights in such shareholder; (ii) the de facto ability to direct the casting of a majority of the votes exercisable at general meetings of such shareholder; and/or (iii) the ability to appoint or remove a majority of the directors, executive directors or board members or executive officers of such shareholder or to direct the casting of a majority of the voting rights at meetings of the board of directors, management board or similar governing body of such shareholder has been transferred to the transferee of such shares, provided that no Change of Control will be deemed to have occurred if (a) the transfer of ownership and/or control is an intragroup transfer under the same controlling person, (b) the transfer of ownership and/or control is the result of the succession or the liquidation of assets between spouses or the inheritance, inter vivos donation or other transfer to a spouse or a relative up to and including the fourth degree, (c) the fair market value of the Qualifying Common Shares (as defined under “—Loyalty Voting Structure”) held by such shareholder represents less than 20 percent of the total assets of the Transferred Group at the time of the transfer and the Qualifying Common Shares held by such shareholder, in the sole judgment of Stellantis, are not otherwise material to the Transferred Group or the change of control transaction.
Article 1.1 of Stellantis Articles of Association defines “Transferred Group” as the relevant shareholder together with its affiliates, if any, over which control was transferred as part of the same Change of Control transaction.
No Liability to Further Capital Calls
All of the outstanding Stellantis common shares and special voting shares are fully paid and non-assessable.
Discriminating Provisions
Except for the voting limitations described in this section under “—General Meeting of Shareholders and Voting Rights —Voting Limitations”, there are no provisions of the Articles of Association that discriminate against a shareholder because of its ownership of a certain number of shares.
Rights of Pre-emption
Under Dutch law and the Articles of Association, each Stellantis shareholder has a right of pre-emption in proportion to the aggregate nominal value of its common shares upon the issuance of new Stellantis common shares, or the granting of rights to subscribe for Stellantis common shares. Exceptions to this right of pre-emption include the issuance of new Stellantis common shares, or the granting of rights to subscribe for Stellantis common shares: (i) to employees of Stellantis or another member of its Group pursuant to an equity incentive plan of Stellantis; (ii) against payment in kind (contribution other than in cash); and (iii) to persons exercising a previously granted right to subscribe for Stellantis common shares. Shareholders do not have any right of pre-emption in connection with the issuance of special voting shares. Rights of pre-emption may be exercised during a period of at least two weeks after the announcement of an issuance of new Stellantis common shares in the Dutch State Gazette.
The general meeting of shareholders may resolve to limit or exclude the rights of pre-emption upon an issuance of Stellantis common shares, which resolution requires approval of at least two-thirds of the votes cast if less than one-half of the issued and outstanding share capital is represented at the general meeting of shareholders. If more than one-half of the issued and outstanding share capital is present or represented at the general meeting of shareholders, an absolute majority of the votes cast is required. The Articles of Association, or the general meeting of shareholders, may also designate the Board of Directors to resolve to limit or exclude the rights of pre-emption in relation to the issuance of Stellantis common shares. Pursuant to Dutch law, the designation by the general meeting of shareholders may be granted to the Board of Directors for a specified period of time of not more than five years and only if the Board of Directors has also been designated or is simultaneously designated the authority to resolve to issue Stellantis common shares. In the proposal to the general meeting of shareholders in respect of the Board of Directors’ authority to resolve to limit or exclude such rights of pre-emption, the reasons for the proposal and the choice of the intended price of issue will be explained in writing.
The Board of Directors is irrevocably designated in the Articles of Association as the competent body to exclude or limit rights of pre-emption for an initial period of three years from January 16, 2021 in connection with the relevant authority to issue Stellantis common shares referred to under “—Issuance of Shares”, which designation may be extended by the general meeting of shareholders for additional periods up to a maximum of five years per period.
Repurchase of Shares
Upon agreement with the relevant shareholder, Stellantis may acquire fully paid-up shares in its own share capital at any time for no consideration (om niet), or, subject to certain provisions of Dutch law and the Articles of Association, for consideration if: (i) Stellantis’s shareholders’ equity less the payment required to make the acquisition does not fall below the sum of called-up and paid-in share capital and any reserves to be maintained pursuant to Dutch law and the Articles of Association; (ii) Stellantis would thereafter not hold a pledge over Stellantis common shares, or together with its subsidiaries, hold Stellantis common shares with an aggregate nominal value exceeding 50 percent of Stellantis’s issued share capital; and (iii) the Board of Directors has been authorized to do so by the general meeting of shareholders.
Stellantis’s equity, as shown in the last confirmed and adopted balance sheet, after deduction of the acquisition price for shares in the share capital of Stellantis, the amount of the loans as referred to in Article 2:98c of the Dutch Civil Code and distributions from profits or reserves to any other persons that became due by the company and its subsidiary companies after the date of the balance sheet, shall be decisive for purposes of items (i) and (ii) referred to in the immediately preceding paragraph. If no annual accounts have been confirmed and adopted when more than six months have expired after the end of any financial year, then an acquisition in reliance on the immediately preceding paragraph shall not be allowed until the relevant annual accounts are adopted.
The acquisition of fully paid-up shares by Stellantis other than for no consideration (om niet) requires authorization by the general meeting of shareholders. Such authorization may be granted to the Board of Directors for a period not exceeding 18 months and shall specify the number of shares, the manner in which the shares may be acquired and the price range within which shares may be acquired. The authorization is not required for the acquisition by Stellantis of shares for employees of Stellantis, or another member of its Group, under a scheme applicable to such employees and no authorization is required for repurchase of shares acquired in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. In case of acquisition of shares by Stellantis for employees of Stellantis, such shares must be officially listed on the price list of an exchange.
Stellantis may, jointly with its subsidiaries, hold Stellantis common shares in its own capital exceeding one-tenth of its issued and outstanding capital for no more than three years after acquisition of such Stellantis common shares for no consideration (om niet) or in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. Any Stellantis common shares held by Stellantis in excess of the amount permitted shall transfer to all members of the Board of Directors jointly at the end of the last day of such three-year period. Each member of the Board of Directors shall be jointly and severally liable to compensate Stellantis for the value of the Stellantis common shares at such a time, with interest payable at the statutory rate on such shares. The term Stellantis common shares as used in this paragraph shall include depositary receipts for shares and shares in respect of which Stellantis holds a right of pledge.
No votes may be cast at a general meeting of shareholders on the Stellantis common shares held by Stellantis or its subsidiaries. In addition, no voting rights may be cast at a general meeting of shareholders in respect of Stellantis common shares for which depositary receipts have been issued that are owned by Stellantis. Nonetheless, the holders of a right of usufruct or pledge in respect of shares held by Stellantis and its subsidiaries in Stellantis share capital are not excluded from the right to vote on such shares if the right of usufruct or pledge was granted prior to the time such shares were acquired by Stellantis or its subsidiaries. Neither Stellantis nor any of its subsidiaries may cast votes in respect of a share on which it or its subsidiaries holds a right of usufruct or pledge.
Reduction of Share Capital
The Stellantis common shares held in treasury by Stellantis and all issued class A special voting shares may be cancelled, and the nominal value of shares may be reduced, with the approval of the general meeting of shareholders.
A resolution to reduce the share capital requires a majority of at least two-thirds of the votes cast at the general meeting of shareholders if less than one-half of the issued and outstanding share capital is present or represented at the meeting. If more than one-half of the issued and outstanding share capital is present or represented at a general meeting of shareholders, an absolute majority of the votes cast is required.
Class A special voting shares may be cancelled by resolution taken by a majority of at least two-thirds of the votes cast at a general meeting of shareholders, subject to the approval of the meeting of holders of the class A special voting shares. Cancellation of class A special voting shares shall take place without repayment of the nominal value of the special voting shares, and such nominal value shall be added to the special capital reserve.
Any reduction of the nominal value of the Stellantis common shares without repayment must be made pro rata on all common shares. Any reduction of the nominal value of the special voting shares shall take place without repayment.
A partial repayment on Stellantis common shares shall only be allowed in implementation of a resolution to reduce the nominal value of the Stellantis common shares. Such partial repayment must be made in respect of all Stellantis common shares on a pro rata basis. The pro rata requirement may be waived with the consent of all the holders of Stellantis common shares.
Any proposal for a cancellation or reduction of nominal value is subject to general requirements of Dutch law with respect to reductions of share capital.
Transfer of Shares
In accordance with the provisions of Dutch law, pursuant to Article 13 of the Articles of Association, the transfer of Stellantis common shares or the creation of a right in rem in such shares requires a deed intended for that purpose and, save when Stellantis is a party to the deed, written acknowledgment by Stellantis of the transfer.
Common shares that have been entered into DTC’s book-entry system will be registered in the name of Cede & Co. as nominee for DTC and transfers of beneficial ownership of shares held through DTC will be effected by electronic transfer made by DTC participants. Article 13 of the Articles of Association does not apply to the trading of such Stellantis common shares on a regulated market or the equivalent of a regulated market.
Transfers of shares held outside of (i) DTC or another direct registration system maintained by Computershare Trust Company, N.A., Stellantis’s transfer agent in New York, (ii) Monte Titoli S.p.A. or (iii) Euroclear France (collectively, the “Regular Trading Systems”) and not represented by certificates are effected by a deed intended for that purpose (including a stock transfer instrument) and, save where Stellantis is a party to the deed, require written acknowledgement by Stellantis. Transfer of common shares for which registered certificates have been issued is effected by presenting and surrendering the certificates to the transfer agent. A valid transfer requires the registered certificates to be properly endorsed for transfer as provided for in the certificates and accompanied by proper instruments of transfer and stock transfer tax stamps for, or funds to pay, any applicable stock transfer taxes. Stellantis may acknowledge the transfer by making an annotation on such certificate as proof of the acknowledgement or by replacing the surrendered certificate by a new share certificate registered in the name of the transferee.
Stellantis common shares are freely transferable. The number of Stellantis common shares registered in the Loyalty Register pursuant to Stellantis’s loyalty voting structure and special voting shares is subject to the transfer restrictions described under “—General Meeting of Shareholders and Voting Rights—General Meetings and —Loyalty Voting Structure—Terms and Conditions of the Special Voting Shares—Withdrawal of Special Voting Shares”.
Exchange Controls and Other Limitations Affecting Shareholders
Under Dutch law, there are no exchange control restrictions on investments in, or payments on, Stellantis common shares. There are no special restrictions in the Articles of Association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote Stellantis common shares.
Annual Accounts and Independent Auditor
Stellantis’s financial year is the calendar year. Within four months after the end of each financial year, the Board of Directors shall prepare and publish the annual accounts, consisting of a balance sheet, a profit and loss account and explanatory notes and which must be accompanied by an annual report and an auditor’s report, alongside any other information that would need to be made public in accordance with the applicable provisions of law and the requirements of any stock exchange on which Stellantis common shares are listed. Stellantis shall make such annual accounts, annual report and auditor’s report available for inspection at Stellantis’s office. All members of the Board of Directors are required to sign the annual accounts and in case the signature of any member is missing, the reason for this must be stated. The annual accounts are to be adopted by the annual general meeting of shareholders. The annual accounts, the annual report and independent auditor’s report are made available through Stellantis’s website to the shareholders for review as from the day of the notice convening the annual general meeting of shareholders. If it is justified in view of Stellantis’s activities or the international structure of its group, as determined by the Board of Directors, Stellantis’s annual accounts or its consolidated accounts may be prepared in a foreign currency.
Payment of Dividends
Stellantis may make distributions to the shareholders and other persons entitled to distributions only to the extent that its shareholders’ equity exceeds the sum of the paid-up and called-up portion of the share capital and the reserves that must be maintained in accordance with Dutch law and the Articles of Association. No distribution of profits or other distributions may be made to Stellantis itself for shares that Stellantis holds in its own share capital.
Stellantis may make a distribution of profits to the shareholders after the adoption of its statutory annual accounts. The Board of Directors, or the general meeting of shareholders upon a proposal of the Board of Directors, may resolve to make distributions from Stellantis’s share premium reserve or from any other reserve (other than the special capital reserve), provided that payments from reserves other than the Special Voting Shares Dividend Reserve may only be made to holders of Stellantis common shares.
Holders of special voting shares shall not receive any dividends in respect of the special voting shares; however, Stellantis shall maintain a separate dividend reserve for the special voting shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the special voting shares (as further described under “—Loyalty Voting Structure —General Meeting of Shareholders and —Voting Rights—General Meetings”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares Dividend Reserve, shall require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares, and shall be made exclusively to the holders of special voting shares in proportion to the aggregate nominal value of their special voting shares.
From the profits shown in the annual accounts, as adopted, such amounts shall be reserved as the Board of Directors may determine. The profits remaining thereafter shall first be applied to allocate and add to the Special Voting Shares Dividend Reserve an amount equal to one percent of the aggregate nominal amount of all special voting shares outstanding at the end of the financial year to which the annual accounts pertain. The special voting shares shall not carry any other entitlement to the profits.
Insofar as the profits have not been distributed or allocated to the reserves, they may, by resolution of the general meeting of shareholders, be distributed as dividends on the Stellantis common shares only. The Board of Directors may resolve that distributions will be made payable either in euro or in another currency. The Board of Directors, or the general meeting of shareholders upon a proposal by the Board of Directors, may resolve that a distribution will, wholly or partially, be made other than in cash, including in the form of Stellantis common shares or shares in another listed company, provided that, in case of a distribution in the form of Stellantis common shares, the Board of Directors has been designated as the body competent to pass a resolution for the issuance of shares.
The Board of Directors will have the power to declare one or more interim dividends or other distributions, subject to certain provisions of Dutch law and certain conditions set forth in the Articles of Association.
Dividends and other distributions will be made payable in the manner and at such date(s) as the Board of Directors or the general meeting of shareholders upon a proposal by the Board of Directors will determine.
The right to dividends and distributions shall lapse if the dividends or distributions are not claimed within five years following the day after the date on which they first became payable. Any dividends or other distributions made in violation of the Articles of Association or Dutch law shall have to be repaid by the shareholders who knew, or should have known, of such violation.
Information on the payment of dividends is contained in the section “OTHER INFORMATION” elsewhere in this report.
Amendments to the Articles of Association, including Variation of Rights
A resolution of the general meeting of shareholders to amend the Articles of Association or to wind up Stellantis may be approved only if proposed by the Board of Directors and approved by a vote of an absolute majority of the votes cast, provided that a resolution to amend Stellantis’s corporate seat and/or place of effective management will require a majority of at least two-thirds of the votes cast.
The rights of shareholders may be changed only by amending the Articles of Association in compliance with Dutch law, provided that rights specific to Nominating Shareholders set out in the Articles of Association cannot be amended without the prior written approval of such shareholder.
Dissolution and Liquidation
The general meeting of shareholders may resolve to dissolve Stellantis upon a proposal of the Board of Directors thereto. In the event of dissolution, Stellantis will be liquidated in accordance with Dutch law and the Articles of Association and the liquidation shall be arranged by the members of the Board of Directors, unless the general meeting of shareholders appoints other liquidators. The general meeting of shareholders will appoint, and decide on the remuneration of, the liquidators. During liquidation, the provisions of the Articles of Association will remain in force as long as possible.
If Stellantis is dissolved and liquidated, whatever remains of Stellantis’s equity after all its debts have been discharged shall first be applied to distribute the aggregate balance of share premium reserves and other reserves (other than the Special Voting Shares Dividend Reserve) to holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each holder; secondly, from any balance remaining, an amount equal to the aggregate amount of the nominal value of Stellantis common shares will be distributed to the holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each of them; thirdly, from any balance remaining, an amount equal to the aggregate amount of the Special Voting Shares Dividend Reserve will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; fourthly, from any balance remaining, the aggregate amount of the nominal value of the special voting shares will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; and, lastly, any balance remaining will be distributed to the holders of Stellantis common shares in proportion to the aggregate nominal value of Stellantis common shares held by each of them.
Liability of Directors
Under Dutch law, the management of a company with a one-tier board structure like Stellantis is a joint undertaking and each member of the Board of Directors can be held jointly and severally liable to Stellantis for damages in the event of improper or negligent performance of his or her duties. Furthermore, members of the Board of Directors can be held liable to third parties based on tort pursuant to certain provisions of the Dutch Civil Code. All Directors are jointly and severally liable for failure of one or more co-directors. An individual Director is only exempted from liability if he or she proves that he or she cannot be held culpable for the mismanagement and that he or she has not been negligent in seeking to prevent the consequences of the mismanagement. In this regard a Director may, however, refer to the allocation of tasks between the Directors. In certain circumstances, Directors may incur additional specific civil and criminal liabilities.
Election and Removal of Directors
The Articles of Association provide that the Board of Directors shall be composed of three or more members.
Any Director may be suspended or dismissed at any time by resolution of the general meeting of shareholders. A resolution of the general meeting of shareholders to suspend or dismiss a Director appointed upon a binding nomination will require a majority of at least two-thirds of the votes cast, with such two-thirds majority of the votes cast representing more than half of the issued and outstanding share capital, unless the person who made the binding nomination for such director supports the suspension or dismissal (as the case may be), in which case an absolute majority of the votes cast is required.
LoyaltyDiscriminating Provisions
Except for the voting limitations described in this section under “—General Meeting of Shareholders and Voting StructureRights —Voting Limitations”, there are no provisions of the Articles of Association that discriminate against a shareholder because of its ownership of a certain number of shares.
FCA issued special voting shares withRights of Pre-emption
Under Dutch law and the Articles of Association, each Stellantis shareholder has a right of pre-emption in proportion to the aggregate nominal value of one Euro cent (€0.01) per share, to those shareholders of Fiat who elected to receive such special votingits common shares upon closingthe issuance of the Merger in addition to FCA common shares, provided they met the conditions more fully described under “Terms and Conditions of the Special Voting Shares” below.
Subject to meeting certain conditions, FCA common shares can be registered in the loyalty register of FCA, or the Loyalty Register, and may qualify as qualifyingnew Stellantis common shares, or the Qualifying Common Shares. The holdersgranting of Qualifying Common Shares are entitledrights to receive without consideration one FCAsubscribe for Stellantis common shares. Exceptions to this right of pre-emption include the issuance of new Stellantis common shares, or the granting of rights to subscribe for Stellantis common shares: (i) to employees of Stellantis or another member of its Group pursuant to an equity incentive plan of Stellantis; (ii) against payment in kind (contribution other than in cash); and (iii) to persons exercising a previously granted right to subscribe for Stellantis common shares. Shareholders do not have any right of pre-emption in connection with the issuance of special voting shares. Rights of pre-emption may be exercised during a period of at least two weeks after the announcement of an issuance of new Stellantis common shares in the Dutch State Gazette.
The general meeting of shareholders may resolve to limit or exclude the rights of pre-emption upon an issuance of Stellantis common shares, which resolution requires approval of at least two-thirds of the votes cast if less than one-half of the issued and outstanding share capital is represented at the general meeting of shareholders. If more than one-half of the issued and outstanding share capital is present or represented at the general meeting of shareholders, an absolute majority of the votes cast is required. The Articles of Association, or the general meeting of shareholders, may also designate the Board of Directors to resolve to limit or exclude the rights of pre-emption in relation to the issuance of Stellantis common shares. Pursuant to Dutch law, the designation by the general meeting of shareholders may be granted to the Board of Directors for a specified period of time of not more than five years and only if the Board of Directors has also been designated or is simultaneously designated the authority to resolve to issue Stellantis common shares. In the proposal to the general meeting of shareholders in respect of eachthe Board of Directors’ authority to resolve to limit or exclude such Qualifying Common Share. Pursuant torights of pre-emption, the termsreasons for the proposal and conditionsthe choice of the FCA special voting shares, orintended price of issue will be explained in writing.
The Board of Directors is irrevocably designated in the Terms and Conditions, and for so longArticles of Association as the FCAcompetent body to exclude or limit rights of pre-emption for an initial period of three years from January 16, 2021 in connection with the relevant authority to issue Stellantis common shares remainreferred to under “—Issuance of Shares”, which designation may be extended by the general meeting of shareholders for additional periods up to a maximum of five years per period.
Repurchase of Shares
Upon agreement with the relevant shareholder, Stellantis may acquire fully paid-up shares in the Loyalty Register, such FCA common shares shall not be sold, disposed of, transferred, except in very limited circumstancesits own share capital at any time for no consideration (i.e., transfers to affiliates or to relatives through succession, donation or other transfers, defined in the Terms and Conditions as the “Loyalty Transferee”om niet), but a shareholder may create or, permitsubject to exist any pledge lien, fixed or floating charge or other encumbrance over such FCA common shares, provided thatcertain provisions of Dutch law and the voting rights in respectArticles of such FCA common sharesAssociation, for consideration if: (i) Stellantis’s shareholders’ equity less the payment required to make the acquisition does not fall below the sum of called-up and paid-in share capital and any corresponding special voting shares remain with such shareholder at all times. FCA’s shareholders who wantreserves to directly or indirectly sell, disposebe maintained pursuant to Dutch law and the Articles of trade or transfer such FCAAssociation; (ii) Stellantis would thereafter not hold a pledge over Stellantis common shares, or otherwise grant any right or interest therein, or create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over such FCAtogether with its subsidiaries, hold Stellantis common shares with a potential transferan aggregate nominal value exceeding 50 percent of voting rights relatingStellantis’s issued share capital; and (iii) the Board of Directors has been authorized to such encumbrances will need to submit a de-registration requestdo so by the general meeting of shareholders.
Stellantis’s equity, as shown in the last confirmed and adopted balance sheet, after deduction of the acquisition price for shares in the share capital of Stellantis, the amount of the loans as referred to in Article 2:98c of the TermsDutch Civil Code and Conditions,distributions from profits or reserves to any other persons that became due by the company and its subsidiary companies after the date of the balance sheet, shall be decisive for purposes of items (i) and (ii) referred to in order to transferthe immediately preceding paragraph. If no annual accounts have been confirmed and adopted when more than six months have expired after the end of any financial year, then an acquisition in reliance on the immediately preceding paragraph shall not be allowed until the relevant FCA commonannual accounts are adopted.
The acquisition of fully paid-up shares toby Stellantis other than for no consideration (om niet) requires authorization by the regular trading system (“the Regular Trading System”) except that an FCA shareholdergeneral meeting of shareholders. Such authorization may transfer FCA common shares included in the Loyalty Registerbe granted to a Loyalty Transferee (as defined in the Terms and Conditions) of such FCA shareholder without transferring such shares from the Loyalty Register to the Regular Trading System.
FCA’s shareholders who seek to qualify to receive special voting shares can also request to have their FCA common shares registered in the Loyalty Register. Upon registration in the Loyalty Register such shares will be eligible to be treated as Qualifying Common Shares, provided they meet the conditions more fully described under “Terms and Conditions of the Special Voting Shares” below.
Notwithstanding the fact that Article 13 of the FCA Articles of Association permits the Board of Directors for a period not exceeding 18 months and shall specify the number of FCAshares, the manner in which the shares may be acquired and the price range within which shares may be acquired. The authorization is not required for the acquisition by Stellantis of shares for employees of Stellantis, or another member of its Group, under a scheme applicable to approve transferssuch employees and no authorization is required for repurchase of shares acquired in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. In case of acquisition of shares by Stellantis for employees of Stellantis, such shares must be officially listed on the price list of an exchange.
Stellantis may, jointly with its subsidiaries, hold Stellantis common shares in its own capital exceeding one-tenth of its issued and outstanding capital for no more than three years after acquisition of such Stellantis common shares for no consideration (om niet) or in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. Any Stellantis common shares held by Stellantis in excess of the amount permitted shall transfer to all members of the Board of Directors jointly at the end of the last day of such three-year period. Each member of the Board of Directors shall be jointly and severally liable to compensate Stellantis for the value of the Stellantis common shares at such a time, with interest payable at the statutory rate on such shares. The term Stellantis common shares as used in this paragraph shall include depositary receipts for shares and shares in respect of which Stellantis holds a right of pledge.
No votes may be cast at a general meeting of shareholders on the Stellantis common shares held by Stellantis or its subsidiaries. In addition, no voting rights may be cast at a general meeting of shareholders in respect of Stellantis common shares for which depositary receipts have been issued that are owned by Stellantis. Nonetheless, the holders of a right of usufruct or pledge in respect of shares held by Stellantis and its subsidiaries in Stellantis share capital are not excluded from the right to vote on such shares if the right of usufruct or pledge was granted prior to the time such shares were acquired by Stellantis or its subsidiaries. Neither Stellantis nor any of its subsidiaries may cast votes in respect of a share on which it or its subsidiaries holds a right of usufruct or pledge.
Reduction of Share Capital
The Stellantis common shares held in treasury by Stellantis and all issued class A special voting shares the special voting shares cannot be traded and are transferrable only in very limited circumstances (i.e., to a Loyalty Transferee described above, or to FCA for no consideration (om niet)).
The special voting shares have immaterial economic entitlements. Such economic entitlements are designed to comply with Dutch law but are immaterial for investors. The special voting shares carry the same voting rights as FCA common shares.
Section 10 of the Terms and Conditions include liquidated damages provisions intended to deter any attempt by holders to circumvent the terms of the special voting shares. Such liquidated damages provisions may be enforced by FCA by meanscancelled, and the nominal value of a legal action brought by FCA before competent courts of Amsterdam, the Netherlands. In particular, a violation of the provisions of the Terms and Conditions concerning the transfer of special voting shares “Electing Common Shares” (common shares registered in the Loyalty Register for the purpose of becoming Qualifying Common Shares in accordance with the FCA Articles of Association) and Qualifying Common Shares may lead to the imposition of liquidated damages. Because we expect the restrictions on transfers of the special voting shares to be effective in practice we do not expect the liquidated damages provisions to be used.
Pursuant to Section 12 of the Terms and Conditions, any amendment to the Terms and Conditions (other than merely technical, non-material amendments and unless such amendment is required to ensure compliance with applicable law or regulations or the listing rules of any securities exchange on which the FCA common shares are listed) may only be madereduced, with the approval of the general meeting of shareholders.
A resolution to reduce the share capital requires a holdermajority of Qualifying Common Sharesat least two-thirds of the votes cast at the general meeting of shareholders if less than one-half of the issued and outstanding share capital is present or Electing Common Shares may requestrepresented at the de-registrationmeeting. If more than one-half of such shares from the Loyalty Register to enable free trading thereof inissued and outstanding share capital is present or represented at a general meeting of shareholders, an absolute majority of the “Regular Trading System.” Upon the de-registration from the Loyalty Register, such shares will cease to be Electing Common Shares or Qualifying Common Shares as the case may be and will be freely tradable and voting rights attached to the correspondingvotes cast is required.
Class A special voting shares willmay be suspended with immediate effect and suchcancelled by resolution taken by a majority of at least two-thirds of the votes cast at a general meeting of shareholders, subject to the approval of the meeting of holders of the class A special voting shares. Cancellation of class A special voting shares shall take place without repayment of the nominal value of the special voting shares, and such nominal value shall be transferredadded to FCAthe special capital reserve.
Any reduction of the nominal value of the Stellantis common shares without repayment must be made pro rata on all common shares. Any reduction of the nominal value of the special voting shares shall take place without repayment.
A partial repayment on Stellantis common shares shall only be allowed in implementation of a resolution to reduce the nominal value of the Stellantis common shares. Such partial repayment must be made in respect of all Stellantis common shares on a pro rata basis. The pro rata requirement may be waived with the consent of all the holders of Stellantis common shares.
Any proposal for no consideration (om niet).a cancellation or reduction of nominal value is subject to general requirements of Dutch law with respect to reductions of share capital.
Transfer of Shares
In accordance with the provisions of Dutch law, pursuant to Article 13 of the Articles of Association, the transfer of Stellantis common shares or the creation of a right in rem in such shares requires a deed intended for that purpose and, save when Stellantis is a party to the deed, written acknowledgment by Stellantis of the transfer.
Common shares that have been entered into DTC’s book-entry system will be registered in the name of Cede & Co. as nominee for DTC and transfers of beneficial ownership of shares held through DTC will be effected by electronic transfer made by DTC participants. Article 13 of the Articles of Association does not apply to the trading of such Stellantis common shares on a regulated market or the equivalent of a regulated market.
Transfers of shares held outside of (i) DTC or another direct registration system maintained by Computershare Trust Company, N.A., Stellantis’s transfer agent in New York, (ii) Monte Titoli S.p.A. or (iii) Euroclear France (collectively, the “Regular Trading Systems”) and not represented by certificates are effected by a deed intended for that purpose (including a stock transfer instrument) and, save where Stellantis is a party to the deed, require written acknowledgement by Stellantis. Transfer of common shares for which registered certificates have been issued is effected by presenting and surrendering the certificates to the transfer agent. A valid transfer requires the registered certificates to be properly endorsed for transfer as provided for in the certificates and accompanied by proper instruments of transfer and stock transfer tax stamps for, or funds to pay, any applicable stock transfer taxes. Stellantis may acknowledge the transfer by making an annotation on such certificate as proof of the acknowledgement or by replacing the surrendered certificate by a new share certificate registered in the name of the transferee.
Stellantis common shares are freely transferable. The number of Stellantis common shares registered in the Loyalty Register pursuant to Stellantis’s loyalty voting structure and special voting shares is subject to the transfer restrictions described under “—General Meeting of Shareholders and Voting Rights—General Meetings and —Loyalty Voting Structure—Terms and Conditions of the Special Voting Shares—Withdrawal of Special Voting Shares”.
Exchange Controls and Other Limitations Affecting Shareholders
Under Dutch law, there are no exchange control restrictions on investments in, or payments on, Stellantis common shares. There are no special restrictions in the Articles of Association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote Stellantis common shares.
Annual Accounts and Independent Auditor
Stellantis’s financial year is the calendar year. Within four months after the end of each financial year, the Board of Directors shall prepare and publish the annual accounts, consisting of a balance sheet, a profit and loss account and explanatory notes and which must be accompanied by an annual report and an auditor’s report, alongside any other information that would need to be made public in accordance with the applicable provisions of law and the requirements of any stock exchange on which Stellantis common shares are listed. Stellantis shall make such annual accounts, annual report and auditor’s report available for inspection at Stellantis’s office. All members of the Board of Directors are required to sign the annual accounts and in case the signature of any member is missing, the reason for this must be stated. The Termsannual accounts are to be adopted by the annual general meeting of shareholders. The annual accounts, the annual report and Conditionsindependent auditor’s report are made available through Stellantis’s website to the shareholders for review as from the day of the notice convening the annual general meeting of shareholders. If it is justified in view of Stellantis’s activities or the international structure of its group, as determined by the Board of Directors, Stellantis’s annual accounts or its consolidated accounts may be prepared in a foreign currency.
Payment of Dividends
Stellantis may make distributions to the shareholders and other persons entitled to distributions only to the extent that its shareholders’ equity exceeds the sum of the paid-up and called-up portion of the share capital and the reserves that must be maintained in accordance with Dutch law and the Articles of Association. No distribution of profits or other distributions may be made to Stellantis itself for shares that Stellantis holds in its own share capital.
Stellantis may make a distribution of profits to the shareholders after the adoption of its statutory annual accounts. The Board of Directors, or the general meeting of shareholders upon a proposal of the Board of Directors, may resolve to make distributions from Stellantis’s share premium reserve or from any other reserve (other than the special capital reserve), provided that payments from reserves other than the Special Voting Shares Dividend Reserve may only be made to holders of Stellantis common shares.
Holders of special voting shares shall not receive any dividends in respect of the special voting shares; however, Stellantis shall maintain a separate dividend reserve for the special voting shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the special voting shares (as further described under “—Loyalty Voting Structure —General Meeting of Shareholders and —Voting Rights—General Meetings”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares applyDividend Reserve, shall require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares, and shall be made exclusively to the issuance, allocation, acquisition, holding, repurchase and transferholders of special voting shares in proportion to the share capitalaggregate nominal value of FCAtheir special voting shares.
From the profits shown in the annual accounts, as adopted, such amounts shall be reserved as the Board of Directors may determine. The profits remaining thereafter shall first be applied to allocate and add to the Special Voting Shares Dividend Reserve an amount equal to one percent of the aggregate nominal amount of all special voting shares outstanding at the end of the financial year to which the annual accounts pertain. The special voting shares shall not carry any other entitlement to the profits.
Insofar as the profits have not been distributed or allocated to the reserves, they may, by resolution of the general meeting of shareholders, be distributed as dividends on the Stellantis common shares only. The Board of Directors may resolve that distributions will be made payable either in euro or in another currency. The Board of Directors, or the general meeting of shareholders upon a proposal by the Board of Directors, may resolve that a distribution will, wholly or partially, be made other than in cash, including in the form of Stellantis common shares or shares in another listed company, provided that, in case of a distribution in the form of Stellantis common shares, the Board of Directors has been designated as the body competent to pass a resolution for the issuance of shares.
The Board of Directors will have the power to declare one or more interim dividends or other distributions, subject to certain aspectsprovisions of Electing CommonDutch law and certain conditions set forth in the Articles of Association.
Dividends and other distributions will be made payable in the manner and at such date(s) as the Board of Directors or the general meeting of shareholders upon a proposal by the Board of Directors will determine.
The right to dividends and distributions shall lapse if the dividends or distributions are not claimed within five years following the day after the date on which they first became payable. Any dividends or other distributions made in violation of the Articles of Association or Dutch law shall have to be repaid by the shareholders who knew, or should have known, of such violation.
Information on the payment of dividends is contained in the section “OTHER INFORMATION” elsewhere in this report.
Amendments to the Articles of Association, including Variation of Rights
A resolution of the general meeting of shareholders to amend the Articles of Association or to wind up Stellantis may be approved only if proposed by the Board of Directors and approved by a vote of an absolute majority of the votes cast, provided that a resolution to amend Stellantis’s corporate seat and/or place of effective management will require a majority of at least two-thirds of the votes cast.
The rights of shareholders may be changed only by amending the Articles of Association in compliance with Dutch law, provided that rights specific to Nominating Shareholders set out in the Articles of Association cannot be amended without the prior written approval of such shareholder.
Dissolution and Liquidation
The general meeting of shareholders may resolve to dissolve Stellantis upon a proposal of the Board of Directors thereto. In the event of dissolution, Stellantis will be liquidated in accordance with Dutch law and the Articles of Association and the liquidation shall be arranged by the members of the Board of Directors, unless the general meeting of shareholders appoints other liquidators. The general meeting of shareholders will appoint, and decide on the remuneration of, the liquidators. During liquidation, the provisions of the Articles of Association will remain in force as long as possible.
If Stellantis is dissolved and liquidated, whatever remains of Stellantis’s equity after all its debts have been discharged shall first be applied to distribute the aggregate balance of share premium reserves and other reserves (other than the Special Voting Shares Qualifying Common Shares and FCADividend Reserve) to holders of Stellantis common shares which are or will be registered in proportion to the Loyalty Register.
Application for Special Voting Shares
An FCA shareholder may at any time elect to participate in the loyalty voting structure by requesting that FCA register all or someaggregate nominal value of the number of FCAStellantis common shares held by such FCA shareholder ineach holder; secondly, from any balance remaining, an amount equal to the Loyalty Register. Such election shall be effective and registration in the Loyalty Register shall occur asaggregate amount of the endnominal value of the calendar month during which the election is made. If such FCA common shares (i.e. Electing Common Shares) have been registered in the Loyalty Register (and thus blocked from trading in the Regular Trading System) for an uninterrupted period of three years in the name of the same shareholder, the holder of such FCAStellantis common shares will be entitleddistributed to receive one FCA special voting share for each such FCA common share that has been registered. If at any moment in time such FCAthe holders of Stellantis common shares are de-registeredin proportion to the aggregate nominal value of Stellantis common shares held by each of them; thirdly, from any balance remaining, an amount equal to the Loyalty Register for whatever reason,aggregate amount of the relevant shareholder loses its entitlement to hold a corresponding number of FCA special voting shares.
Withdrawal of Special Voting Shares
As described above, a holder of Qualifying Common Shares or Electing Common Shares may request that some or all of its Qualifying Common Shares or Electing Common Shares Dividend Reserve will be de-registered from the Loyalty Register and if held outside the Regular Trading System, transfer such shares backdistributed to the Regular Trading System, which will allow such shareholder to freely trade its FCA common shares, as described below. From the momentholders of such request, the holder of Qualifying Common Shares shall be considered to have waived his rights to cast any votes associated with the FCA special voting shares which were issued and allocated in respectproportion to the aggregate nominal value of such Qualifying Common Shares. Any such request would automatically trigger a mandatory transfer requirement pursuant to which the FCAspecial voting shares held by each of them; fourthly, from any balance remaining, the aggregate amount of the nominal value of the special voting shares will be offered and transferreddistributed to FCA for no consideration (om niet)the holders of special voting shares in accordance withproportion to the FCA Articlesaggregate nominal value of Association and the Terms and Conditions. FCA may continue to hold the special voting shares as treasury stock, butheld by each of them; and, lastly, any balance remaining will not be entitleddistributed to vote any such treasury stock. Alternatively, FCA may withdraw and cancel the special votingholders of Stellantis common shares as a result of whichin proportion to the aggregate nominal value of suchStellantis common shares willheld by each of them.
Liability of Directors
Under Dutch law, the management of a company with a one-tier board structure like Stellantis is a joint undertaking and each member of the Board of Directors can be allocatedheld jointly and severally liable to Stellantis for damages in the event of improper or negligent performance of his or her duties. Furthermore, members of the Board of Directors can be held liable to third parties based on tort pursuant to certain provisions of the Dutch Civil Code. All Directors are jointly and severally liable for failure of one or more co-directors. An individual Director is only exempted from liability if he or she proves that he or she cannot be held culpable for the mismanagement and that he or she has not been negligent in seeking to prevent the consequences of the mismanagement. In this regard a Director may, however, refer to the special capital reservesallocation of FCA. Consequently,tasks between the loyalty voting feature will terminate as to the relevant Qualifying Common Shares being deregistered from the Loyalty Register. No shareholder required to transfer special voting shares pursuant to the TermsDirectors. In certain circumstances, Directors may incur additional specific civil and Conditions shall be entitled to any purchase price for such special voting sharescriminal liabilities.
Election and each shareholder expressly waives any rights in that respect as a condition to participation in the loyalty voting structure.Removal of Directors
Change of Control
A shareholder who is a holder of Qualifying Common Shares or Electing Common Shares must promptly notify the Agent and FCA upon the occurrence of a “change of control” as defined in the FCAThe Articles of Association as described below. The changeprovide that the Board of control will trigger the de-registrationDirectors shall be composed of three or more members.
Any Director may be suspended or dismissed at any time by resolution of the relevant Electing Common Shares or Qualifying Common Shares or the relevant FCA common shares in the Loyalty Register. The voting rights attached to the special voting shares issued and allocated in respectgeneral meeting of shareholders. A resolution of the relevant Qualified Common Shares will be suspendedgeneral meeting of shareholders to suspend or dismiss a Director appointed upon a direct or indirect change of control in respect of the relevant holder of such Qualifying Common Shares that are registered in the Loyalty Register.
For the purposes of this section a “change of control” shall mean, in respect of any FCA shareholder that is not an individual (natuurlijk persoon), any direct or indirect transfer in one or a series of related transactions as a result of which (i)binding nomination will require a majority of at least two-thirds of the voting rights ofvotes cast, with such shareholder; (ii) the de facto ability to direct the casting of atwo-thirds majority of the votes exercisable at general meetingscast representing more than half of shareholders ofthe issued and outstanding share capital, unless the person who made the binding nomination for such shareholder; and/director supports the suspension or (iii)dismissal (as the ability to appoint or remove acase may be), in which case an absolute majority of the directors, executive directors or board members or executive officers of such shareholder or to direct the casting of a majority or more of the voting rights at meetings of the board of directors, governing body or executive committee of such shareholder has been transferred to a new owner, provided that no change of control shall be deemed to have occurred if (a) the transfer of ownership and/or controlvotes cast is an intragroup transfer under the same parent company, (b) the transfer of ownership and /or control is the result of the succession or the liquidation of assets between spouses or the inheritance, inter vivos donation or other transfer to a spouse or a relative up to and including the fourth degree or (c) the fair market value of the Qualifying Common Shares held by such shareholder represents less than twenty percent (20%) of the total assets of the Transferred Group at the time of the transfer and the Qualifying Common Shares held by such shareholder, in the sole judgment of the company, are not otherwise material to the Transferred Group or the change of control transaction. “Transferred Group” shall mean the relevant shareholder together with its affiliates, if any, over which control was transferred as part of the same change of control transaction within the meaning of the definition of change of control.required.
Liability to Further Capital Calls
All of the outstanding FCA common shares and special voting shares are fully paid and non-assessable.
Discriminating Provisions
ThereExcept for the voting limitations described in this section under “—General Meeting of Shareholders and Voting Rights —Voting Limitations”, there are no provisions of the FCA Articles of Association that discriminate against a shareholder because of its ownership of a substantialcertain number of shares.
Additional Issuances and Rights of Preference
Issuance of Shares
The general meeting of shareholders of FCA has the authority to resolve on any issuance of shares. In such a resolution, the general meeting of shareholders must determine the price and other terms of issuance. The Board of Directors of FCA may have the power to issue shares if it has been authorized to do so by the general meeting of shareholders, or pursuant to the FCA Articles of Association. Under Dutch law, such authorization may not exceed a period of five years, but may be renewed by a resolution of the general meeting of shareholders for subsequent five-year periods at any time. The FCA Board of Directors has been designated by the FCA Articles of Association as the competent body to issue FCA common shares and special voting shares up to the maximum aggregate amount of the FCA authorized share capital for an initial period of five years from October 12, 2014, which may be extended by the general meeting of shareholders with additional consecutive periods of up to a maximum of five years each.
FCA will not be required to obtain approval from a general meeting of shareholders to issue shares pursuant to the exercise of a right to subscribe for shares that was previously granted pursuant to authority granted by the shareholders or pursuant to delegated authority by the Board of Directors. The general meeting of shareholders shall, for as long as any such designation of the Board of Directors for this purpose is in force, no longer has authority to decide on the issuance of shares.
Rights of Pre-emption
Under Dutch law and the FCA Articles of Association, each FCAStellantis shareholder has a right of pre-emption in proportion to the aggregate nominal value of its shareholdingcommon shares upon the issuance of new FCAStellantis common shares, (oror the granting of rights to subscribe for FCAStellantis common shares).shares. Exceptions to this right of pre-emption include the issuance of new FCAStellantis common shares, (oror the granting of rights to subscribe for Stellantis common shares):shares: (i) to employees of FCAStellantis or another member of its Group pursuant to a stock compensationan equity incentive plan of FCA;Stellantis; (ii) against payment in kind (contribution other than in cash); and (iii) to persons exercising a previously granted right to subscribe for FCAStellantis common shares.
In the event of an issuance of special voting shares, shareholders shall Shareholders do not have any right of pre-emption.pre-emption in connection with the issuance of special voting shares. Rights of pre-emption may be exercised during a period of at least two weeks after the announcement of an issuance of new Stellantis common shares in the Dutch State Gazette.
The general meeting of shareholders may resolve to limit or exclude the rights of pre-emption upon an issuance of FCAStellantis common shares, which resolution requires approval of at least two-thirds of the votes cast if less than halfone-half of the issued and outstanding share capital is represented at the general meeting of shareholders. If more than one-half of the issued and outstanding share capital is present or represented at the general meeting of shareholders, an absolute majority of the votes cast is required. The FCA Articles of Association, or the general meeting of shareholders, may also designate the FCA Board of Directors to resolve to limit or exclude the rights of pre-emption in relation to the issuance of FCAStellantis common shares. Pursuant to Dutch law, the designation by the general meeting of shareholders may be granted to the FCA Board of Directors for a specified period of time of not more than five years and only if the FCA Board of Directors has also been designated or is simultaneously designated the authority to resolve to issue FCAStellantis common shares. In the proposal to the general meeting of shareholders in respect of the Board of Directors’ authority to resolve to limit or exclude such rights of pre-emption, the reasons for the proposal and the choice of the intended price of issue will be explained in writing.
The FCA Board of Directors is irrevocably designated in the FCA Articles of Association as the competent body to exclude or limit rights of pre-emption for an initial period of fivethree years from October 12, 2014January 16, 2021 in connection with the relevant authority to issue Stellantis common shares referred to under “—Issuance of Shares”, which designation may be extended by the general meeting of shareholders withfor additional periods up to a maximum of five years per period.
Repurchase of Shares
Upon agreement with the relevant FCA shareholder, FCAStellantis may acquire fully paid-up shares in its own sharesshare capital at any time for no consideration (om niet), or, subject to certain provisions of Dutch law and the FCA Articles of Association, for consideration if: (i) FCA’sStellantis’s shareholders’ equity less the payment required to make the acquisition does not fall below the sum of called-up and paid-in share capital and any statutory reserves;reserves to be maintained pursuant to Dutch law and the Articles of Association; (ii) FCAStellantis would thereafter not hold a pledge over FCAStellantis common shares, or together with its subsidiaries, hold FCAStellantis common shares with an aggregate nominal value exceeding 50 percent of the FCA’sStellantis’s issued share capital; and (iii) the FCA Board of Directors has been authorized to do so by the general meeting of shareholders.
Stellantis’s equity, as shown in the last confirmed and adopted balance sheet, after deduction of the acquisition price for shares in the share capital of Stellantis, the amount of the loans as referred to in Article 2:98c of the Dutch Civil Code and distributions from profits or reserves to any other persons that became due by the company and its subsidiary companies after the date of the balance sheet, shall be decisive for purposes of items (i) and (ii) referred to in the immediately preceding paragraph. If no annual accounts have been confirmed and adopted when more than six months have expired after the end of any financial year, then an acquisition in reliance on the immediately preceding paragraph shall not be allowed until the relevant annual accounts are adopted.
The acquisition of fully paid-up shares by FCAStellantis other than for no consideration (om niet) requires authorization by the general meeting of shareholders. Such authorization may be granted to the Board of Directors for a period not exceeding 18 months and shall specify the number of shares, the manner in which the shares may be acquired and the price range within which shares may be acquired. The authorization is not required for the acquisition by Stellantis of shares for employees of FCAStellantis, or another member of its Group, under a scheme applicable to such employees and no authorization is required for repurchase of shares acquired in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. SuchIn case of acquisition of shares by Stellantis for employees of Stellantis, such shares must be officially listed on athe price list of an exchange.
At a general meeting of shareholders, the shareholders may resolve to designate the Board of Directors as the competent body to resolve on FCA acquiring any FCA’s fully paid up FCA common shares other than for no consideration (om niet) for a period of up to 18 months.
FCAStellantis may, jointly with its subsidiaries, hold FCAStellantis common shares in its own capital exceeding one-tenth of its issued and outstanding capital for no more than three years after acquisition of such FCAStellantis common shares for no consideration (om niet) or in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. Any FCAStellantis common shares held by FCAStellantis in excess of the amount permitted shall transfer to all members of the FCA Board of Directors jointly at the end of the last day of such three-year period. Each member of the FCA Board of Directors shall be jointly and severally liable to compensate FCAStellantis for the value of the FCAStellantis common shares at such a time, with interest payable at the statutory rate thereon fromon such time.shares. The term FCAStellantis common shares as used in this paragraph shall include depositary receipts for shares and shares in respect of which FCAStellantis holds a right of pledge.
No votes may be cast at a general meeting of shareholders on the FCAStellantis common shares held by FCAStellantis or its subsidiaries. AlsoIn addition, no voting rights may be cast at a general meeting of shareholders in respect of FCAStellantis common shares for which depositary receipts have been issued that are owned by FCA.Stellantis. Nonetheless, the holders of a right of usufruct or pledge in respect of shares held by FCAStellantis and its subsidiaries in FCA’sStellantis share capital are not excluded from the right to vote on such shares if the right of usufruct or pledge was granted prior to the time such shares were acquired by FCAStellantis or its subsidiaries. Neither FCAStellantis nor any of its subsidiaries may cast votes in respect of a share on which it or its subsidiaries holds a right of usufruct or pledge. No right of pledge may be established on special voting shares and the voting rights attributable to special voting shares may not be assigned to a usufructuary.
Reduction of Share Capital
Shareholders at a general meeting have the power to cancelThe Stellantis common shares acquiredheld in treasury by FCA or to reduceStellantis and all issued class A special voting shares may be cancelled, and the nominal value of shares may be reduced, with the shares. approval of the general meeting of shareholders.
A resolution to reduce the share capital requires a majority of at least two-thirds of the votes cast at the general meeting of shareholders if less than one-half of the issued and outstanding share capital is present or represented at the meeting. If more than one-half of the issued and outstanding share capital is present or represented at thea general meeting a simpleof shareholders, an absolute majority of the votes cast is required.
Class A special voting shares may be cancelled by resolution taken by a majority of at least two-thirds of the votes cast at a general meeting of shareholders, is required. subject to the approval of the meeting of holders of the class A special voting shares. Cancellation of class A special voting shares shall take place without repayment of the nominal value of the special voting shares, and such nominal value shall be added to the special capital reserve.
Any reduction of the nominal value of the Stellantis common shares without repayment must be made pro rata on all common shares. Any reduction of the nominal value of the special voting shares shall take place without repayment.
A partial repayment on Stellantis common shares shall only be allowed in implementation of a resolution to reduce the nominal value of the Stellantis common shares. Such partial repayment must be made in respect of all Stellantis common shares on a pro rata basis. The pro rata requirement may be waived with the consent of all the holders of Stellantis common shares.
Any proposal for a cancellation or reduction of nominal value is subject to general requirements of Dutch law with respect to reductionreductions of share capital.
Transfer of Shares
In accordance with the provisions of Dutch law, pursuant to Article 1213 of the FCA Articles of Association, the transfer of Stellantis common shares or the creation of FCA shares or a right in rem thereon in such shares requires a deed intended for that purpose and, save when the companyStellantis is a party to the deed, written acknowledgment by the companyStellantis of the transfer.
The transfer of FCA common shares that have not been entered into a book-entry system will be effected in accordance with Article 12 of the FCA Articles of Association.
Common shares that have been entered into the DTCDTC’s book-entry system will be registered in the name of Cede & Co., as nominee for DTC and transfers of beneficial ownership of shares held through DTC will be effected by electronic transfer made by DTC participants. Article 1213 of the FCA Articles of Association does not apply to the trading of such FCAStellantis common shares on a regulated market or the equivalent thereof.
of a regulated market.
Transfers of shares held outside of (i) DTC (including Monte Titoli S.p.A., as a participant in DTC) or another direct registration system maintained by Computershare US, FCA’sTrust Company, N.A., Stellantis’s transfer agent in New York, (ii) Monte Titoli S.p.A. or (iii) Euroclear France (collectively, the Transfer Agent,“Regular Trading Systems”) and not represented by certificates are effected by a deed intended for that purpose (including a stock transfer instrumentinstrument) and, save where Stellantis is a party to the deed, require the written acknowledgement by FCA.Stellantis. Transfer of common shares for which registered certificates have been issued is effected by presenting and surrendering the certificates to the Transfer Agent.transfer agent. A valid transfer requires the registered certificates to be properly endorsed for transfer as provided for in the certificates and accompanied by proper instruments of transfer and stock transfer tax stamps for, or funds to pay, any applicable stock transfer taxes. Stellantis may acknowledge the transfer by making an annotation on such certificate as proof of the acknowledgement or by replacing the surrendered certificate by a new share certificate registered in the name of the transferee.
FCAStellantis common shares are freely transferable. As described below, special voting shares are generally not transferable.
At any time, a holderThe number of FCAStellantis common shares that are registered in the Loyalty Register (i.e. Electing Common Shares or Qualifying Common Shares) wishingpursuant to transfer such FCA common shares other than in limited specified circumstances (i.e., transfers to affiliates or to relatives through succession, donation or other transfers) must first request a de-registration of such shares from the Loyalty RegisterStellantis’s loyalty voting structure and if held outside the Regular Trading System, transfer such common shares back into the Regular Trading System. After de-registration from the Loyalty Register, such FCA common shares no longer qualify as Electing Common Shares or Qualifying Common Shares, as a result, the holder of such FCA common shares is required to offer and transfer the special voting shares associated with such FCA common shares that were previously Qualifying Common Sharesis subject to FCA for no consideration (om niet) asthe transfer restrictions described in detail in under “—General Meeting of Shareholders and Voting Rights—“General Meetings and —Loyalty Voting Structure-TermsStructure—Terms and Conditions of the Special Voting Shares-WithdrawalShares—Withdrawal of Special Voting Shares”.
Exchange Controls and Other Limitations Affecting Shareholders
Under Dutch law, there are no exchange control restrictions on investments in, or payments on, Stellantis common shares. There are no special restrictions in the Articles of Association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote Stellantis common shares.
Annual Accounts and Independent Auditor
FCA’sStellantis’s financial year is the calendar year. Pursuant to FCA’s deed of incorporation, the first financial year of FCA ended on December 31, 2014. Within four months after the end of each financial year, the FCA Board of Directors willshall prepare and publish the annual accounts, consisting of a balance sheet, a profit and loss account and explanatory notes and which must be accompanied by an annual report and an auditor’s report, alongside any other information that would need to be made public in accordance with the applicable provisions of law and will publish the requirements of any stock exchange on which Stellantis common shares are listed. Stellantis shall make such annual accounts, and annual report and will make thoseauditor’s report available for inspection at FCA’s registeredStellantis’s office. All members of the FCA Board of Directors are required to sign the annual accounts and in case the signature of any member is missing, the reason for this must be stated. The annual accounts are to be adopted by the annual general meeting of shareholders at the annual general meeting, at which meeting the members of the FCA Board of Directors will be discharged from liability for performance of their duties with respect to any matter disclosed in the annual accounts for the relevant financial year insofar this appears from the annual accounts.shareholders. The annual accounts, the annual report and independent auditor’s report are made available through FCA’sStellantis’s website to the shareholders for review as from the day of the notice convening the annual general meeting of shareholders. If it is justified in view of Stellantis’s activities or the international structure of its group, as determined by the Board of Directors, Stellantis’s annual accounts or its consolidated accounts may be prepared in a foreign currency.
Payment of Dividends
FCAStellantis may make distributions to the shareholders and other persons entitled to the distributable profitsdistributions only to the extent that its shareholders’ equity exceeds the sum of the paid-up and called-up portion of the share capital and the reserves that must be maintained in accordance with Dutch law.law and the Articles of Association. No distribution of profits or other distributions may be made to FCAStellantis itself for shares that FCAStellantis holds in its own share capital.
FCAStellantis may only make a distribution of dividendsprofits to the shareholders after the adoption of its statutory annual accounts demonstrating that such distribution is legally permitted.accounts. The FCABoard of Directors, or the general meeting of shareholders upon a proposal of the Board of Directors, may determine that other freely distributableresolve to make distributions shall be made, in whole or in part, from FCA’sStellantis’s share premium reserve or from any other reserve (other than the special capital reserve), provided that payments from reserves other than the Special Voting Shares Dividend Reserve may only be made to the shareholders that are entitled to the relevant reserve upon the dissolutionholders of FCA and provided further that the policy of FCA on additions to reserves and dividends is duly observed.Stellantis common shares.
Holders of special voting shares willshall not receive any dividenddividends in respect of the special voting shares,shares; however, FCA maintainsStellantis shall maintain a separate dividend reserve for the special voting shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the special voting shares. This allocation establishes a reserve forshares (as further described under “—Loyalty Voting Structure —General Meeting of Shareholders and —Voting Rights—General Meetings”). A distribution from the amount that would otherwise be paid. The special voting shares do not carry any entitlement to any other reserve. Any distribution outSpecial Voting Shares Dividend Reserve or the (partial) release of the special dividend reserve or the partial or full release of such reserve requiresSpecial Voting Shares Dividend Reserve, shall require a prior proposal from the FCA Board of Directors and a subsequent resolution of the meeting of holders of special voting shares, and shall be made exclusively to the holders of special voting shares in proportion to the aggregate nominal value of their special voting shares.
From the profits shown in the annual accounts, as adopted, such amounts shall be reserved as the Board of Directors may determine. The profits remaining thereafter shall first be applied to allocate and add to the Special Voting Shares Dividend Reserve an amount equal to one percent of the aggregate nominal amount of all special voting shares outstanding at the end of the financial year to which the annual accounts pertain. The special voting shares shall not carry any other entitlement to the profits.
Insofar as the profits have not been distributed or allocated to the reserves, they may, by resolution of the general meeting of shareholders, be distributed as dividends on the FCAStellantis common shares only. The general meeting of shareholders may resolve, on the proposal of the FCA Board of Directors, to declare and distribute dividends in U.S. Dollar. The FCA Board of Directors may decide, subject to the approvalresolve that distributions will be made payable either in euro or in another currency. The Board of Directors, or the general meeting of shareholders andupon a proposal by the FCA Board of Directors, havingmay resolve that a distribution will, wholly or partially, be made other than in cash, including in the form of Stellantis common shares or shares in another listed company, provided that, in case of a distribution in the form of Stellantis common shares, the Board of Directors has been designated as the body competent to pass a resolution for the issuance of shares, that a distribution shall, whollyshares.
The Board of Directors will have the power to declare one or partially,more interim dividends or other distributions, subject to certain provisions of Dutch law and certain conditions set forth in the Articles of Association.
Dividends and other distributions will be made payable in the formmanner and at such date(s) as the Board of shares,Directors or thatthe general meeting of shareholders shall be givenupon a proposal by the option to receive a distribution either in cash or in the formBoard of shares.Directors will determine.
The right to dividends and distributions willshall lapse if the dividends or distributions are not claimed within five years following the day after the date on which they first became payable. Any dividends or other distributions made in violation of the FCA Articles of Association or Dutch law willshall have to be repaid by the shareholders who knew, or should have known, of such violation.
General Meetings and Voting Rights
Annual Meeting
An annual general meeting of shareholders must be held within six months from the end of FCA’s preceding financial year. The purpose of the annual general meeting of shareholders is to discuss, among other things, the annual report, the adoption of the annual accounts, allocation of profits (including the proposal to distribute dividends), release of members of the FCA Board of Directors from liability for their management and supervision, and other proposals brought up for discussion by the FCA Board of Directors.
General Meeting and Place of Meetings
Other general meetings of shareholders will be held if requested by the FCA Board of Directors, the Chairman or the Chief Executive Officer, or as otherwise required by Dutch law, or by the written request (stating the exact subjects to be discussed) of one or more shareholders representing in aggregate at least 10 percent of the issued share capital of the company (taking into account the relevant provisions of Dutch law, and the FCA Articles of Association and the applicable stock exchange regulations). General meetings of shareholders will be held in Amsterdam or Haarlemmermeer (Schiphol Airport), the Netherlands.
Convocation Notice and Agenda
General meetings of shareholders can be convened by a notice, specifying the subjects to be discussed, the place and the time of the meeting and admission and participation procedure, issued at least 42 days before the meeting. All convocations, announcements, notifications and communications to shareholders and other persons entitled to attend a general meeting of shareholders must be madeInformation on the company’s corporate website in accordance with the relevant provisionspayment of Dutch law. The agenda for a general meeting of shareholders may contain the items requested by one or more shareholders representing at least three percent of the issued share capital of the company, taking into account the relevant provisions of Dutch law. Requests must be made in writing, including the reasons for adding the relevant item on the agenda, and received by the FCA Board of Directors at least 60 days before the day of the meeting.
Admission and Registration
Each shareholder entitled to vote, and each person holding a usufruct or pledge to whom the right to vote on the FCA common shares accrues, shall be authorized to attend the general meeting of shareholders, to address the general meeting of shareholders and to exercise their voting rights. The registration date of each general meeting of shareholdersdividends is the twenty-eighth day prior to the date of the general meeting of shareholders so as to establish which shareholders are entitled to attend and vote at the general meeting of shareholders. Only holders of shares and other persons entitled to vote or attend the general meeting of shareholders, at such registration date are entitled to attend and vote at the general meeting of shareholders. The convocation notice for the meeting shall state the registration date and the manner in which the persons entitled to attend the general meeting of shareholders may register and exercise their rights.
Those entitled to attend a general meeting of shareholders may be represented at a general meeting of shareholders by a proxy authorized in writing. The requirement that a proxy must be in written form is also fulfilled when it is recorded electronically.
Members of the FCA Board of Directors have the right to attend a general meeting of shareholders. In these general meetings of shareholders, they have an advisory role.
Voting Rights
Each FCA common share and each special voting share confers the right on the holder to cast one vote at a general meeting of shareholders. Resolutions are passed by a simple majority of the votes cast, unless Dutch law or the FCA Articles of Association prescribes a larger majority. Under Dutch law and/or the FCA Articles of Association, the following matters require at least two-thirds of the votes cast at a meeting if less than half of the issued share capital is present or represented:
a resolution to reduce the issued share capital;
a resolution to amend the FCA Articles of Association;
a resolution to restrict or exclude rights of pre-emption;
a resolution to authorize the FCA Board of Directors to restrict or exclude shareholder rights of pre-emption;
a resolution to enter into a legal merger or a legal demerger; or
a resolution to dissolve FCA.
Shareholders’ Votes on Certain Transactions
Any important changecontained in the identity or character of FCA must be approved by the general meeting of shareholders, including (i) the transfer to a third party of the business of FCA or practically the entire business of FCA; (ii) the entry into or breaking off of any long-term cooperation of FCA or a subsidiary with another legal entity or company or as a fully liable partner of a general partnership or limited partnership, where such entry into or breaking off is of far-reaching importance to FCA; and (iii) the acquisition or disposal by FCA or a subsidiary of an interestsection “OTHER INFORMATION” elsewhere in the capital of a company with a value of at least one-third of FCA’s assets according to the Consolidated Statement of Financial Position with explanatory notes included in the last adopted annual accounts of FCA.this report.
Amendments to the FCA Articles of Association, including Variation of Rights
A resolution of the general meeting of shareholders to amend the FCA Articles of Association or to wind up FCAStellantis may be approved only if proposed by the FCA Board of Directors and must be approved by a vote of an absolute majority of the votes cast, provided that a resolution to amend Stellantis’s corporate seat and/or place of effective management will require a majority of at least two-thirds of the votes cast if less than one-half of the issued share capital is present or represented at such general meeting of shareholders.cast.
The rights of shareholders may be changed only by amending the FCA Articles of Association in compliance with Dutch law.law, provided that rights specific to Nominating Shareholders set out in the Articles of Association cannot be amended without the prior written approval of such shareholder.
Dissolution and Liquidation
The general meeting of shareholders may resolve to dissolve FCA,Stellantis upon a proposal of the FCA Board of Directors thereto. A majority of at least two-thirds of the votes cast shall be required if less than one-half of the issued capital is present or represented at the meeting. In the event of dissolution, FCAStellantis will be liquidated in accordance with Dutch law and the FCA Articles of Association and the liquidation shall be arranged by the members of the FCA Board of Directors, unless the general meeting of shareholders appoints other liquidators. The general meeting of shareholders will appoint, and decide on the remuneration of, the liquidators. During liquidation, the provisions of the FCA Articles of Association will remain in force as long as possible.
If FCAStellantis is dissolved and liquidated, whatever remains of FCA’sStellantis’s equity after all its debts have been discharged shall first be applied to distribute the aggregate balance of share premium reserves and other reserves (other than the special dividend reserve),Special Voting Shares Dividend Reserve) to holders of FCAStellantis common shares in proportion to the aggregate nominal value of the FCAStellantis common shares held by each holder; secondly, from any balance remaining, an amount equal to the aggregate amount of the nominal value of the FCAStellantis common shares will be distributed to the holders of FCAStellantis common shares in proportion to the aggregate nominal value of FCAStellantis common shares held by each of them; thirdly, from any balance remaining, an amount equal to the aggregate amount of the special voting shares dividend reserveSpecial Voting Shares Dividend Reserve will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; fourthly, from any balance remaining, the aggregate amount of the nominal value of the special voting shares will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; and, lastly, any balance remaining will be distributed to the holders of FCAStellantis common shares in proportion to the aggregate nominal value of FCAStellantis common shares held by each of them.
Liability of Directors
Under Dutch law, the management of a company with a one-tier board structure like Stellantis is a joint undertaking and each member of the Board of Directors can be held jointly and severally liable to FCAStellantis for damages in the event of improper or negligent performance of theirhis or her duties. Further,Furthermore, members of the Board of Directors can be held liable to third parties based on tort pursuant to certain provisions of the Dutch Civil Code. All directorsDirectors are jointly and severally liable for failure of one or more co-directors. An individual directorDirector is only exempted from liability if he or she proves that he or she cannot be held seriously culpable for the mismanagement and that he or she has not been negligent in seeking to prevent the consequences of the mismanagement. In this regard a directorDirector may, however, refer to the allocation of tasks between the directors.Directors. In certain circumstances, directorsDirectors may incur additional specific civil and criminal liabilities.
Election and Removal of Directors
The Articles of Association provide that the Board of Directors shall be composed of three or more members.
Any Director may be suspended or dismissed at any time by resolution of the general meeting of shareholders. A resolution of the general meeting of shareholders to suspend or dismiss a Director appointed upon a binding nomination will require a majority of at least two-thirds of the votes cast, with such two-thirds majority of the votes cast representing more than half of the issued and outstanding share capital, unless the person who made the binding nomination for such director supports the suspension or dismissal (as the case may be), in which case an absolute majority of the votes cast is required.
Loyalty Voting Structure
Stellantis adopted the loyalty voting structure summarized below on January 17, 2021.
Shareholders of Stellantis may at any time elect to participate in the loyalty voting structure by requesting that Stellantis registers all or some of their common shares in a separate register the (“Loyalty Register”). The registration of common shares in the Loyalty Register blocks such shares from trading in the Regular Trading Systems. If such number of common shares (the “Electing Common Shares”) have been registered in the Loyalty Register (and thus blocked from trading in the Regular Trading Systems) for an uninterrupted period of three years in the name of the same shareholder (such a share a “Qualifying Common Share”), the relevant shareholder becomes eligible to receive one class A special voting share for each Qualifying Common Share. If, at any time, such common shares are de-registered from the Loyalty Register for whatever reason, the relevant shareholder shall lose its entitlement to hold a corresponding number of special voting shares. From January 17, 2021, shareholders will only be able to receive class A special voting shares and not class B special voting shares. Class B special voting shares were created at the Governance Effective Time in order to be held by FCA shareholders (other than Exor) who held FCA special voting shares prior to such time. The Board of Directors may resolve at any time that class B special voting shares shall be exchanged for class A special voting shares in accordance with the Terms and Conditions of Special Voting Shares.
A holder of Electing Common Shares or Qualifying Common Shares may at any time request the de-registration of some or all of the number of such shares from the Loyalty Register, which will allow such shareholder to freely trade such common shares. From the moment of such a request, the holder of Electing Common Shares or Qualifying Common Shares shall be considered to have waived his or her rights to cast any votes associated with such special voting shares to be de-registered from the Loyalty Register. Upon the de-registration from the Loyalty Register, the relevant number of common shares will therefore cease to be Electing Common Shares or Qualifying Common Shares. Any de-registration request would automatically trigger a mandatory transfer requirement pursuant to which the relevant special voting shares will be acquired by Stellantis for no consideration (om niet) in accordance with the Terms and Conditions of Special Voting Shares.
Stellantis common shares are freely transferable. However, any transfer or disposal of Stellantis common shares with which special voting shares are associated would trigger the de-registration of such common shares from the Loyalty Register and the transfer of all relevant special voting shares to Stellantis. Special voting shares are not admitted to listing and are transferable only in very limited circumstances (including, among other things, transfers to affiliates or to relatives through succession, donation or other transfers, provided that the corresponding Qualifying Common Shares are also transferred to such party, or transfers with the approval of the Board of Directors). In particular, no shareholder shall, directly or indirectly: (a) sell, dispose of or transfer any special voting share or otherwise grant any right or interest in any special voting share, other than as permitted pursuant to the Articles of Association or the Terms and Conditions of Special Voting Shares; or (b) create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over any special voting share or any interest in any special voting share.
The purpose of the loyalty voting structure is to grant long-term shareholders an extra voting right by means of granting a special voting share (shareholders holding special voting shares are entitled to exercise one vote for each special voting share held and one vote for each Stellantis common share held), without entitling such shareholders to any economic rights, other than those pertaining to the common shares. However, under Dutch law, the special voting shares cannot be totally excluded from economic entitlements. As a result, pursuant to the Articles of Association, holders of special voting shares are entitled to a minimum dividend, which is allocated to a separate special voting shares dividend reserve (the “Special Voting Shares Dividend Reserve”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares Dividend Reserve will require a prior proposal from the Board of Directors and Officersa subsequent resolution of the meeting of holders of special voting shares. The powers to vote upon the distribution from the Special Voting Shares Dividend Reserve and the cancellation of all class A special voting shares are the only powers that are granted to that meeting pursuant to the Articles of Association, which can only be convened by the Board of Directors as it deems necessary. The special voting shares do not have any other economic entitlement.
Under Dutch law, indemnificationSection 11 of the Terms and Conditions of Special Voting Shares includes liquidated damages provisions intended to discourage any attempt by holders to violate the Terms and Conditions of Special Voting Shares. These liquidated damages provisions may be includedenforced by Stellantis by means of a legal action brought by Stellantis in the courts of Amsterdam, the Netherlands. In particular, a company’s articlesviolation of association. Under the FCAprovisions of the Terms and Conditions of Special Voting Shares concerning the transfer of special voting shares may lead to the imposition of liquidated damages.
Pursuant to Section 13 of the Terms and Conditions of Special Voting Shares, any amendment to the Terms and Conditions of Special Voting Shares (other than merely technical, non-material amendments) may only be made with the approval of the shareholders at a general meeting of shareholders.
Special Voting Shares Foundation
Pursuant to the Articles of Association, FCAStichting Stellantis SVS, a Dutch foundation (stichting) (the “SVS Foundation”) has an option right to subscribe for a number of class A special voting shares up to the number of class A special voting shares included in the Company’s authorized share capital from time to time. This option right can only be exercised by the SVS Foundation to facilitate the loyalty voting structure as set forth in the Articles of Association and the Terms and Conditions of Special Voting Shares. An option right has been granted to the SVS Foundation for an unlimited period and is intended to ensure that holders of Qualifying Common Shares in the future will receive their special voting shares without requiring a resolution from the general meeting of shareholders. Under the structure of the SVS Foundation, once a shareholder of the Company becomes entitled to receive one special voting share for each Qualifying Common Share, the Company issues such special voting shares to the SVS Foundation pursuant to the SVS Foundation’s exercise of its option right and, thereafter, the SVS Foundation transfers the special voting shares to such shareholder. Issuing shares to the SVS Foundation is a technical device to ensure that special voting shares will be available for issue to eligible shareholders once such shareholders acquire the right to the special voting shares.
Terms and Conditions of the Special Voting Shares
The Terms and Conditions of Special Voting Shares apply to the issuance, allocation, acquisition, holding, repurchase and transfer of special voting shares in the issued share capital of Stellantis and to certain aspects of Electing Common Shares, Qualifying Common Shares and Stellantis common shares which are registered in the Loyalty Register.
Special Capital Reserve
Stellantis will maintain a separate capital reserve for the purpose of facilitating any issuance or cancellation of special voting shares. No distribution shall be made from the special capital reserve, except that the Board of Directors shall be authorized to resolve upon (i) any distribution out of the special capital reserve to pay up special voting shares or (ii) re-allocation of amounts to credit or debit the special capital reserve against or in favor of the share premium reserve.
Withdrawal of Special Voting Shares
Following a mandatory transfer to Stellantis of special voting shares after a de-registration of Qualifying Common Shares from the Loyalty Register, Stellantis may continue to hold the special voting shares as treasury stock, but will not be entitled to vote any such treasury stock. Alternatively, Stellantis may withdraw and cancel the special voting shares held in treasury, as a result of which the nominal value of such shares will be allocated to the special capital reserves of Stellantis. Stellantis may also cancel all issued and outstanding class A special voting shares subject to approval of the meeting of holders of the class A special voting shares. Consequently, the loyalty voting feature will terminate as to the relevant Qualifying Common Shares being deregistered from the Loyalty Register. No shareholder required to transfer special voting shares to Stellantis pursuant to the Terms and Conditions of Special Voting Shares will be entitled to any consideration for such special voting shares and each shareholder expressly waives any rights in that respect as a condition to participation in the loyalty voting structure.
Change of Control
A shareholder with common shares registered in the Loyalty Register must promptly notify Stellantis in the event of a Change of Control (as defined above) with respect to such shareholder and must make a de-registration request with respect to his or her Qualifying Common Shares or Electing Common Shares registered in the Loyalty Register. The de-registration request leads to a withdrawal of the special voting shares as described under “—Withdrawal of Special Voting Shares”. Notwithstanding Stellantis not receiving any such notification, it may, upon becoming aware of a Change of Control, initiate the de-registration of the relevant shareholder’s Qualifying Common Shares or Electing Common Shares.
General Meeting of Shareholders and Voting Rights
General Meetings
At least one general meeting of shareholders shall be held every year, with such meeting to be held within six months after the close of the financial year. The purpose of the annual general meeting of shareholders is, inter alia, the adoption of the annual accounts, the allocation of profits (including the proposal to distribute dividends), granting discharge to Directors in respect of the performance of their duties, the appointment of Directors, if applicable, and the discussion of any other item duly included in the agenda.
Furthermore, general meetings of shareholders shall be held as often as the Board of Directors, the Chairman, the Senior Independent Director or the CEO deem it necessary to hold them or as otherwise required by Dutch law (including in the event Stellantis’s equity has decreased to an amount equal to or less than one-half of the paid-up and called-up part of Stellantis’s issued capital, as referred to in Section 2:108a of the Dutch Civil Code), without prejudice to what is provided in the next paragraph.
Shareholders individually or jointly representing at least ten percent of the issued share capital may request in writing, stating the matters to be dealt with, that the Board of Directors call a general meeting of shareholders.
If the Board of Directors fails to take the necessary steps to ensure a meeting can be held within eight weeks, then such shareholders may, on their application, be authorized by the interim provisions judge of the court (voorzieningenrechter van de rechtbank) to convene a general meeting of shareholders. The interim provisions judge (voorzieningenrechter van de rechtbank) shall reject the application if he or she is not satisfied that the applicants have previously requested in writing, stating the exact subjects to be discussed, that the Board of Directors convene a general meeting of shareholders.
General meetings of shareholders will be held in Amsterdam or Haarlemmermeer (Schiphol Airport), the Netherlands, and shall be called by the Board of Directors, the Chairman, the Senior Independent Director or the CEO, in such manner as is required to indemnify its directors, officers, former directors, former officerscomply with the law and the applicable stock exchange regulations, no later than on the 42nd day prior to the day of the meeting. All convocations of general meetings of shareholders and all announcements, notifications and communications to shareholders shall be made by means of an announcement on Stellantis’s corporate website and such an announcement shall remain accessible until the relevant general meeting of shareholders.
Any communication to be addressed to the general meeting of shareholders by virtue of Dutch law or the Articles of Association may be either included in the notice referred to in the preceding sentence or, to the extent provided for in such notice, on Stellantis’s corporate website and/or in a document made available for inspection at the office of Stellantis and such other place(s) as the Board of Directors shall determine. Convocations of general meetings of shareholders may be sent to shareholders entitled to attend through the use of an electronic means of communication to the address provided by such shareholders to Stellantis for this purpose. The notice shall state the place, date and hour of the meeting and the agenda of the meeting as well as the other information required by law and the Articles of Association. An item proposed in writing by such a number of shareholders who, individually or in the aggregate, hold at least three percent of Stellantis’s issued share capital, will be included in the notice or will be announced in a manner similar to the announcement of the notice, provided that Stellantis has received the relevant request, including the reasons for putting the relevant item on the agenda, no later than the 60th day before the day of the meeting.
Convocation, Agenda, Minutes and Attendance
The agenda of the annual general meeting of shareholders shall contain, inter alia, the following items:
(a)adoption of the annual accounts;
(b)non-binding advisory vote on the remuneration report;
(c)discussion of the policy of Stellantis on additions to reserves and on dividends, if any;
(d)granting of discharge to the Directors in respect of the performance of their duties in the relevant financial year;
(e)if applicable, the appointment of Directors;
(f)if applicable, the proposal to pay a dividend;
(g)if applicable, discussion of any substantial change in the corporate governance structure of Stellantis; and
(h)any matters decided upon by the person(s) convening the meeting and any matters placed on the agenda with due observance of applicable Dutch law.
The Board of Directors will provide the general meeting of shareholders with all requested information, unless this would be contrary to an overriding interest of Stellantis. If the Board of Directors invokes an overriding interest, it must give reasons.
When convening a general meeting of shareholders, the Board of Directors shall determine that, for the purpose of Article 24 and Article 26 of the Articles of Association, persons with the right to vote or attend meetings will be considered those persons who have these rights at the 28th day prior to the day of the meeting (the “Record Date”) and are registered as such in a register to be designated by the Board of Directors for such purpose, irrespective of whether they will have these rights at the date of the meeting. In addition to the Record Date, the notice of the meeting shall further state the manner in which shareholders and other parties with meeting rights may register for the meeting, the final registration date for that general meeting of shareholders (which final registration date will be the seventh day prior to the meeting unless otherwise determined by the Board of Directors (the “Final Registration Date”)) and the manner in which the right to vote or attend the meeting can be exercised.
The general meeting of shareholders shall be presided over by the Chairman, or, in his absence, by the Senior Independent Director or, in the absence of both the Chairman and the Senior Independent Director, by the person chosen by the Board of Directors to act as chairman for such meeting. One of the persons present designated for that purpose by the chairman of the meeting shall act as secretary and take minutes of the business transacted. The minutes shall be adopted by the chairman and secretary of the meeting and signed by them in witness of such adoption. The minutes of the general meeting of shareholders shall be made available, on request, to shareholders no later than three months after the end of the meeting, after which shareholders shall have the opportunity to react to the minutes in the following three months. In the event an amendment to the minutes is required, the amended minutes will then be adopted by the chairman and the secretary of the meeting and signed by them in witness of such adoption. If an official notarial record is made of the business transacted at the meeting then minutes need not be drawn up and it shall suffice that the official notarial record be signed by the notary.
As a prerequisite to attending the general meeting of shareholders and, to the extent applicable, exercising voting rights, the shareholders and other persons entitled to attend the meeting shall be required to inform the Board of Directors in writing of their intention to attend the general meeting of shareholders within the time frame mentioned in the convening notice. At the latest, this notice must be received by the Board of Directors on the Final Registration Date. Shareholders and those permitted by Dutch law to attend the general meetings of shareholders may choose to be represented at any meeting by a proxy duly authorized in writing, provided they notify Stellantis in writing of their wish to be represented at such time and place as shall be stated in the notice of the meeting. Such proxy is also authorized in writing if the proxy is documented electronically. The Board of Directors may determine further rules concerning the deposit of the powers of attorney; these shall be mentioned in the notice of the meeting. The chairman of the meeting shall decide on the admittance to the meeting of persons other than those who are entitled to attend.
For each general meeting of shareholders, the Board of Directors may decide that shareholders shall be entitled to attend, address and exercise voting rights at such a meeting through the use of electronic means of communication, provided that shareholders who participate in the meeting are capable of being identified through the electronic means of communication and have serveddirect cognizance of the discussions at FCA’sthe meeting and the exercising of voting rights (if applicable). The Board of Directors may set requirements for the use of electronic means of communication and state these in the convening notice. Furthermore, the Board of Directors may, for each general meeting of shareholders, decide that votes cast by the use of electronic means of communication prior to the meeting and received by the Board of Directors shall be considered to be votes cast at the meeting. Such votes may not be cast prior to the Record Date. The notice will state whether the foregoing provisions regarding electronic voting apply and the procedure for exercising the electronic voting rights.
Prior to being allowed admittance to a general meeting of shareholders, a shareholder and each person entitled to attend the meeting, or its attorney, shall sign an attendance list, while stating his or her name and, to the extent applicable, the number of votes to which he or she is entitled. Each shareholder and other person attending a general meeting of shareholders by the use of electronic means of communication and identified in accordance with the above shall be registered on the attendance list by the Board of Directors. In case an attorney attends the meeting on behalf of a shareholder or another person entitled to attend, the name(s) of the person(s) on whose behalf the attorney is acting, shall also be stated. The chairman of the meeting may decide that the attendance list must also be signed by other persons present at the meeting.
The chairman of the meeting may determine the time during which shareholders and others entitled to attend the general meeting of shareholders may speak, if he or she considers this desirable, with a view to the orderly conduct of the meeting as well as other procedures that the chairman considers desirable for the efficient and orderly conduct of the business of the meeting.
Stellantis is exempt from the proxy rules under the Exchange Act.
Voting Rights at General Meetings
Subject to the restrictions described under “—Voting Limitations,” every Stellantis share (whether common share or special voting share) shall confer the right to cast one vote at a general meeting of shareholders. Shares in respect of which Dutch law determines that no votes may be cast shall be disregarded for the purposes of determining the proportion of shareholders voting, present or represented or the proportion of the share capital present or represented. All resolutions shall be passed with an absolute majority of the votes validly cast unless otherwise specified in the Articles of Association or the Dutch Civil Code. Blank votes shall not be counted as votes cast.
All votes shall be cast in writing or electronically. The chairman of the meeting may, however, determine that voting by raising hands or in another manner shall be permitted. Voting by acclamation shall be permitted if none of the shareholders present or represented objects. No voting rights shall be exercised in the general meeting of shareholders for shares owned by the Company or by a subsidiary of the Company. However, pledgees and usufructuaries of shares owned by the Company and its subsidiaries shall not be excluded from exercising their voting rights if the right of pledge or usufruct was created before the shares were owned by the Company or a subsidiary. Neither the Company nor any of its subsidiaries may exercise voting rights for shares in respect of which it holds a right of pledge or usufruct.
Without prejudice to the Articles of Association, the Company shall determine for each resolution passed:
(a)the number of shares on which valid votes have been cast;
(b)the percentage that the number of shares as referred to under (a) represents in the issued and outstanding share capital;
(c)the aggregate number of votes validly cast; and
(d)the aggregate number of votes cast in favor of and against a resolution, as well as the number of abstentions.
Voting Limitations
No shareholder, acting alone or in concert, together with votes exercised by affiliates of such shareholder or pursuant to proxies or other arrangements conferring the right to vote, shall be able to exercise, directly or indirectly, voting rights at a general meeting of shareholders reaching or exceeding the Voting Threshold (i.e., 30 percent or more of the votes that could be cast at any general meeting of shareholders), including after giving effect to any voting rights exercisable through Stellantis special voting shares. Any voting right reaching or exceeding the Voting Threshold shall be suspended. Furthermore, the Articles of Association provide that, before each general meeting of shareholders, any shareholder that would be able to exercise voting rights reaching or exceeding the Voting Threshold must notify Stellantis, in writing, of its shareholding and total voting rights in Stellantis and provide, upon written request by Stellantis, within three days of such request being made, any information necessary to ascertain the composition, nature and size of the equity interest of that person and any other person acting in concert with it. The Voting Threshold restriction (i) may be removed following a resolution passed to that effect by the meeting of Stellantis shareholders with a majority of at least two-thirds of the votes cast (for the avoidance of doubt, without giving effect to any voting rights exercisable through Stellantis special voting shares, and subject to the aforementioned Voting Threshold) and (ii) shall lapse upon any person holding more than 50 percent of the issued Stellantis common shares (other than Stellantis special voting shares) as a directorresult of a public offer for Stellantis common shares.
Shareholders’ Votes on Certain Transactions
Any important change in the identity or officercharacter of Stellantis must be approved by the general meeting of shareholders, including (i) the transfer to a third party of the business of Stellantis or practically the entire business of Stellantis; (ii) the entry into or breaking off of any long-term cooperation of Stellantis or a subsidiary with another legal entity or company or as a fully liable partner of a general partnership or limited partnership, where such entry into or breaking off is of far-reaching importance to Stellantis; and (iii) the acquisition or disposal by Stellantis or a subsidiary of an interest in which FCA ownsthe capital of a company with a value of at least one-third of Stellantis’s assets according to the consolidated balance sheet with explanatory notes included in the last adopted annual accounts of Stellantis.
Meetings of Holders of Shares of a Specific Class
Meetings of holders of shares or of which FCAa specific class shall be held as frequently and whenever such a meeting is a creditor who were or are made a party or are threatened to be made a party or are involved in,required by virtue of any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative (each a “Proceeding”),statutory regulation or any appealprovision in the Articles of Association.
Meetings of holders of shares of a specific class may be convened no later than on the sixth day before the day of such meeting. The provisions applicable to general meetings of shareholders, except those concerning the frequency, ultimate timing, notice period, right to put an item on the agenda and required agenda items, will apply mutatis mutandis to the meetings of holders of shares of a Proceedingspecific class. See “—Voting Rights at General Meetings” and “—Voting Limitations”.
Issuance of shares
The general meeting of shareholders, or alternatively the Board of Directors if it has been designated to do so at the general meeting of shareholders shall have authority to resolve on any inquiry issuance of shares and rights to subscribe for shares.
The Board of Directors has been irrevocably authorized, for a period of three years from January 16, 2021 to issue common shares and rights to subscribe for common shares up to in aggregate (i) ten percent of the issued common shares for general corporate purposes as of January 16, 2021, plus (ii) an additional ten percent of the issued common shares as of such date, if the issuance and/or investigation that could leadthe granting of rights to such a Proceeding, against any and all liabilities, damages, reasonable and documented expenses (including reasonably incurred and substantiated attorney’s fees), financial effects of judgments, fines, penalties (including excise and similar taxes and punitive damages) and amounts paid in settlementsubscribe for common shares occurs in connection with the acquisition of an enterprise or a corporation, or, if such Proceeding by anyissuance and/or the granting of them. Notwithstandingrights to subscribe for common shares is otherwise necessary in the above, no indemnification shall be made in respect of any claim, issue or matter as to which anyopinion of the above-mentioned indemnified persons shallBoard of Directors. The Board of Directors will also be adjudgeddesignated, for a period of three years from January 16, 2021 as the authorized body to be liable for gross negligencelimit or willful misconductexclude the rights of pre-emption of shareholders in connection with the performance of such person’s duty to FCA. This indemnification by FCA is not exclusive of any other rights to which those indemnified may be entitled otherwise. FCA has purchased directors’ and officers’ liability insurance for the membersforegoing authority of the Board of Directors to issue Stellantis common shares and certain other officers, substantiallygrant rights to subscribe for Stellantis common shares. Refer to the “Rights of Pre-emption” section elsewhere in line with that purchased by similarly situated companies.
Dutch Corporate Governance Codethis report.
The Dutch Corporate Governance Code contains principles and best practice provisions that regulate relations betweengeneral meeting of shareholders, or the boardBoard of Directors if so designated in accordance with the Articles of Association, shall decide on the price and the shareholders (includingfurther terms and conditions of issuance, with due observance of what is required in relation thereto under Dutch law and the Articles of Association.
If the Board of Directors is designated by the general meeting of shareholders). The Dutch Corporate Governance Code is divided into five chapters which addressshareholders to have authority to decide on the following topics: (i) long-term value creation; (ii) effective managementissuance of shares or rights to subscribe for shares, such a designation shall specify the class of shares and supervision; (iii) remuneration; (iv) the general meeting; and (v) one-tier governance structure.
Dutch companies whosemaximum number of shares are listed onor rights to subscribe for shares that can be issued under such a government-recognized stock exchange,designation. When making such asdesignation the NYSE or the MTA, are required under Dutch law to disclose in their annual reports whether or not they apply the provisionsduration of the Dutch Corporate Governance Code and, inBoard of Directors’ relevant authority, which shall not be for more than five years, shall be resolved upon at the event that they do not apply a certain provision, to explain the reasons why they have chosen to deviate.
FCA acknowledges the importance of good corporate governance and supports the best practice provisions of the Dutch Corporate Governance Code. Therefore, FCA intends to comply with the relevant best practice provisions of the Dutch Corporate Governance Code except assame time. The designation may be notedextended from time to time for periods not exceeding five years. The designation may not be withdrawn unless otherwise provided in FCA’s annual reports.the resolution in which the designation is made.
The Dutch Corporate Governance Code was revisedPayment for shares shall be made in December 2016 andcash unless another form of consideration has been agreed. Payment in a currency other than euro may only be made with the revised Dutch Corporate Governance Code entered into force on January 1, 2018, being applicable retroactively as from the financial year 2017. Consequently, FCA must report in 2018 regarding its applicationconsent of the revised Dutch Corporate Governance Code over the 2017 financial year.Board of Directors.
Disclosure of Holdings under Dutch Law
As a result of the listing of the FCAStellantis common shares on the MTA chapterand Euronext Paris, pursuant to Chapter 5.3 of the Dutch Financial Markets Supervision Act (“AFS”FMSA”) applies, pursuant to, which chapter is an implementation of Directive 2004/109/EC as amended by Directive 2013/50/EU into Dutch law, any person who, directly or indirectly, acquires or disposes of an actual or potential capital interest and/or actual or potential voting rights in FCAStellantis must promptly give written notice towithout delay notify the AFM of such acquisition or disposal by means of a standard form if, as a result of such acquisition or disposal, the percentage of capital interest and/or voting rights held by such person reaches, exceeds or falls below the following thresholds: 3three percent, 5five percent, 10ten percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 percent, 60 percent, 75 percent and 95 percent.percent (the “Notification Thresholds”).
For the purpose of calculating the percentage of capital interest or voting rights, the following interests must, inter alia, be taken into account: (i) shares and/or voting rights directly held (or acquired or disposed of) by any person; (ii) shares and/or voting rights held (or, acquired or disposed of) by such person’s controlled entities or by a third party for such person’s account; (iii) voting rights held (or acquired or disposed of) by a third party with whom such person has concluded an oral or written voting agreement; (iv) voting rights acquired pursuant to an agreement providing for a temporary transfer of voting rights in consideration for a payment; and (v) shares which such person, or any controlled entity or third party referred to above, may acquire pursuant to any option or other right to acquire shares.
As a consequence of the above, special voting shares shallmust be added to FCAStellantis common shares for the purposes of the above thresholds.
For the purpose of calculating the percentage of capital interest or voting rights, the following instruments qualify as ‘shares’: (i) shares; (ii) depositary receipts for shares (or negotiable instruments similar to such receipts); (iii) negotiable instruments for acquiring the instruments under (i) or (ii) (such as convertible bonds); and (iv) options for acquiring the instruments under (i) or (ii).
Controlled entities (within the meaning of the AFS)FMSA) do not themselves have notification obligations under the AFSFMSA as their direct and indirect interests are attributed to their (ultimate) parent. If a person who has a three percent or larger interest in FCA’sStellantis’s share capital or voting rights ceases to be a controlled entity it must immediately notify the AFM and all notification obligations under the AFSFMSA will become applicable to such former controlled entity.
Special rules apply to the attribution of shares and/or voting rights which are part of the property of a partnership or other form of joint ownership. A holder of a pledge or right of usufruct in respect of shares can also be subject to notification obligations if such person has, or can acquire, the right to vote on the shares. The acquisition of (conditional) voting rights by a pledgee or beneficial owner may also trigger notification obligations as if the pledgee or beneficial owner were the legal holder of the shares and/or voting rights.
Furthermore, when calculating the percentage of capital interest, a person is also considered to be in possession of shares if (i) such person holds a financial instrument the value of which is (in part) determined by the value of the shares or any distributions associated therewith and which does not entitle such person to acquire any shares; (ii) such person may be obligedrequired to purchase shares on the basis of an option; or (iii) such person has concluded another contract whereby such person acquires an economic interest comparable to that of holding a share.
If a person’s capital interest and/or voting rights reaches, exceeds or falls below the above-mentioned thresholds as a result of a change in FCA’sStellantis’s issued and outstanding share capital or voting rights, such person is required to make a notification not later than on the fourth trading day after the AFM has published FCA’sStellantis’s notification as described below.
FollowingThe notification to the implementation of Directive 2013/50/EU intoAFM should indicate whether the AFS, every holder of three percentinterest is held directly or more ofindirectly, and whether the issued and outstanding share capitalinterest is an actual or voting rights whose interest has changed compareda potential interest.
In addition, each person who is or ought to his most recent notification, and which holder knows or should knowbe aware that, pursuant to this change his interest reaches or crosses a threshold as a result of certain acts (as described above and including the exchange of acertain financial instrumentinstruments, such as options for shares, his or a contract (pursuant to which the holder is deemed to have issued and outstanding sharesher actual capital or voting rights atinterest in Stellantis, reaches, exceeds or falls below any of the Notification Thresholds, vis-à-vis his disposal)), must notifyor her most recent notification to the AFM, must give notice to the AFM no later than the fourth trading day after he or she became or ought to be aware of this change.
FCAStellantis is required to notify the AFM promptly of any change of one percent or more in its issued and outstanding share capital or voting rights since a previous notification. Other changes in FCA’sStellantis’s issued and outstanding share capital or voting rights must be notified to the AFM within eight days after the end of the quarter in which the change occurred.
In addition to the above described notification obligations pertaining to capital interest or voting rights, pursuant to Regulation (EU) NoNo. 236/2012, as last amended by ESMA Decision of December 16, 2020, ESMA70-155-11608, notification must be made of any net short position of 0.20.1 percent in the issued share capital of FCA,Stellantis and of every subsequent 0.1 percent above this threshold. Notifications starting at 0.5 percent and every subsequent 0.1 percent above this threshold will be made public via the short selling register of the AFM. To calculate whether a natural person or legal person has a net short position, their short positions and long positions must be set off. A short transaction in a share can only be contracted if a reasonable case can be made that the shares sold can actually be delivered, which requires confirmation of a third party that the shares have been located. Furthermore, gross short positions shallare required to be notified in the event that a threshold is reached, exceeded or fallen below. With regard to gross short positions, the same disclosure thresholds as for holders of capital interests and/or voting rights apply.
Furthermore, each member of the Board of Directors must notify the AFM:
within two weeks after his/ her appointment of the number of shares he/she holds and the number of votes he/she is entitled to cast in respect of FCA’s issued and outstanding share capital; and
subsequently of each change in the number of shares he/she holds and of each change in the number of votes he/she is entitled to cast in respect of FCA’s issued and outstanding share capital, immediately after the relevant change.
The AFM keeps a public register of all notifications made pursuant to these disclosure obligations and publishes any notification received which can be accessed via www.afm.nl. The notifications referred to in this paragraph should be made in writing by means of a standard form or electronically through the online notification system of the AFM.
Non-compliance with these disclosure obligations is an economic offense and may lead to criminal prosecution. The AFM may impose administrative penalties for non-compliance and may publish the publication thereof.imposed penalties. In addition, a civil court can impose measures against any person whothat fails to notify or incorrectly notifies the AFM of matters required to be notified. A claim requiring that such measures be imposed may be instituted by FCAStellantis and/or by one or more shareholders who alone or together with others represent at least three percent of the issued and outstanding share capital of FCAStellantis or are able to exercise at least three percent of the voting rights. The measures that the civil court may impose include:
•an order requiring appropriate disclosure;
•suspension of the right to exercise the voting rights for a period of up to three years as determined by the court;
•voiding a resolution adopted by the general meeting of shareholders, if the court determines that the resolution would not have been adopted but for the exercise of the voting rights of the person with a duty to disclose, or suspension of a resolution adopted by the general meeting of shareholders until the court makes a decision about such voiding; and
•an order to refrain, during a period of up to five years as determined by the court, from acquiring shares and/or voting rights in FCA.Stellantis.
Shareholders are advised to consult with their own legal advisers to determine whether the disclosure obligations apply to them.
Mandatory Bid Requirement
Under Dutch law, any person who, acting alone or in concert with others, who, directly or indirectly acquires 30 percent or more of FCA’sStellantis’s voting rights will be obligedrequired to launch a public offer for all outstanding shares in FCA’sStellantis’s share capital. An exceptioncapital for a fair purchase price determined by law. A fair price is made for shareholders who, whether aloneconsidered a price which is equal to the highest price paid by such person or the persons acting in concert with others, had an interestit for Stellantis’s shares in the year prior to the announcement of at leastthe offer or, in the absence of such a purchase, the average share price of Stellantis’s shares in the year prior to the announcement of the offer. At the request of the offeror, Stellantis, or any of the Stellantis shareholders, the Enterprise Chamber of the Court of Appeal in Amsterdam (Ondernemingskamer van het Gerchtshof te Amsterdam) (the “Dutch Enterprise Chamber”) may determine a different fair price. If a 30 percent shareholder fails to make a public offer, the Dutch Enterprise Chamber may require such shareholder to do so upon the request of, FCA’s voting rights beforeamong others, Stellantis or any of the shares were first listed on the MTA and who still maintained such an interest after such first listing. Immediately after the first listing of FCA common shares on the MTA, Exor N.V. held more than 30 percent of FCA’s voting rights. Therefore, Exor N.V.’s interest in FCA was grandfathered and the exception that applies to it will continue to apply to it for as long as its holding of shares represents over 30 percent of FCA’s voting rights.Stellantis shareholders.
Dutch Financial Reporting Supervision Act
On the basis of the Dutch Financial Reporting Supervision Act (Wet(Wet toezicht financiële verslaggeving), (orverslaggeving, or the “FRSA”), the AFM supervises the application of financial reporting standards by, amongst others, companies whose corporate seat is in the Netherlands and whose securities are listed on a regulated Dutch or foreign stock exchange.
Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from FCAStellantis regarding its application of the applicable financial reporting standards and (ii) recommend to us the making available of further explanations. If we do not comply with such a request or recommendation, the AFM may request that the Enterprise Chamber order us to (i) make available further explanations as recommended by the AFM; (ii) provide an explanation of the way we have applied the applicable financial reporting standards to our financial reports; or (iii) prepare our financial reports in accordance with the Enterprise Chamber’s instructions.
Compulsory Acquisition
Pursuant to article 2:92a of the Dutch Civil Code, a shareholder who, for its own account, holds at least 95 percent of the issued share capital of FCAStellantis may institute proceedings against the other shareholders jointly for the transfer of their shares to it. The proceedings are held before the Dutch Enterprise Chamber and can be instituted by means of a writ of summons served upon each of the minority shareholders in accordance with the provisions of the Dutch Code of Civil Procedure. The Dutch Enterprise Chamber may grant the claim for the squeeze-out in relation to all minority shareholders and will determine the price to be paid for the shares, if necessary after appointment of one orto three expert(s) who will offer an opinion to the Dutch Enterprise Chamber on the value to be paid for the shares of the minority shareholders. Once the order to transfer becomes final before the Dutch Enterprise Chamber, the person acquiring the shares must give written notice of the date and place of payment and the price to the holders of the shares to be acquired whose addresses are known to it. Unless the addresses of all of them are known to it, it must also publish the same in a Dutch daily newspaper with a national circulation. A shareholder can only appeal against the judgment of the Dutch Enterprise Chamber before the Dutch Supreme Court.
In addition, pursuant to article 2:359c of the Dutch Civil Code, following a public offer, a holder of at least 95 percent of the issued share capital and of voting rights of FCAStellantis has the right to require the minority shareholders to sell their shares to it. Any such request must be filed with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer. Conversely, pursuant to article 2:359d of the Dutch Civil Code, each minority shareholder has the right to require the holder of at least 95 percent of the issued share capital and the voting rights of FCAStellantis to purchase its shares in such a case. The minority shareholder must file such a claim with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer.
Disclosure of Trades in Listed Securities
Pursuant to the AFSFMSA, each member of the Board of Directors must notify the AFM:
•within two weeks after his or her appointment of the number of shares he or she holds and the Market Abusenumber of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital; and
•subsequently of each change in the number of shares he or she holds and of each change in the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital, immediately after the relevant change.
Furthermore, pursuant to Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 (as amended and supplemented, the “Market Abuse Regulation”), each of the members of the FCA Board of Directors and any other person discharging managerial responsibilities within FCAStellantis and who in that capacity is authorized to make decisions affecting the future developments and business prospects of FCAStellantis and who has regular access to inside information relating, directly or indirectly, to FCAStellantis (each, an “Insider”a “PDMR”) must notify the AFM of all transactions, conducted or carried out for his/his or her own account, relating to FCAStellantis common shares, special voting shares or financial instruments the value of which is (in part) determined by the value of FCAStellantis common shares or special voting shares.
In addition, persons whothat are closely associated with members of the Board of Directors or any of the other InsidersPDMRs must notify the AFM of all transactions conducted for their own account relating to FCA’sStellantis’s shares or financial instruments, the value of which is (in part) determined by the value of FCA’sStellantis’s shares. The Market Abuse Regulation designates the following categories of persons: (i) the spouse or any partner considered by applicable law as equivalent to the spouse; (ii) dependent children; (iii) other relatives who have shared the same household for at least one year atas of the relevant transaction date; and (iv) any legal person, trust or partnership, among other things, whose managerial responsibilities are discharged by a member of the Boardboard of Directorsdirectors or any other InsiderPDMR or by a person referred to under (i), (ii) or (iii) above.
The AFMnotifications pursuant to the Market Abuse Regulation described above must be notified of transactions effected in either FCA’s shares or financial instruments,made to the value of which is (in part) determined byAFM no later than the value of FCA’s sharesthird business day following the relevant transaction date by means of a standard form. NotificationsSuch notifications under the Market Abuse Regulation may however be postponed until the date that the value of the transactions carried out on a person’s own account, together with the transactions carried out by the persons associated with that person, reaches or exceeds the amount of €5,000 in the calendar year in question. Any subsequent transaction must be notified as set forth above. The AFM keeps a public register of all notifications made pursuant to the AFSFMSA and the Market Abuse Regulation.
Non-compliance with these reporting obligations could lead to criminal penalties, administrative fines and cease-and-desist orders (and the publication thereof)of such penalties, fines and orders), imprisonment or other sanctions.
Shareholder Disclosure and Reporting Obligations under U.S. Law
Holders of FCAStellantis common shares are subject to certain U.S. reporting requirements under the Exchange Act for shareholders owning more than 5five percent of any class of equity securities registered pursuant to Section 12 of the Exchange Act. Among the reporting requirements are disclosure obligations intended to keep investors aware of significant accumulations of sharesany plans or proposals that may lead to a change of control of an issuer.
If FCAStellantis were to fail to qualify as a foreign private issuer in the future, Section 16(a) of the Exchange Act would require FCA’sStellantis’s directors and executive officers, and persons who own more than ten percent of a registered class of FCA’sStellantis’s equity securities, to file reports of ownership of, and transactions in, FCA’sStellantis’s equity securities with the SEC. Such directors, executive officers and ten percent stockholders would also be required to furnish FCAStellantis with copies of all Section 16 reports they file.
Further disclosure requirements shall apply to FCA under Italian law by virtue of the listing of FCA’s shares on the MTA. Summarized below are the most significant disclosure requirements to be complied with by FCA. Further requirements may be imposed by CONSOB and/or Borsa Italiana S.p.A. upon admission to listing of FCA’s shares on the MTA.
The breach of the obligations described below may be used in the application of fines and criminal penalties (including, for instance, those provided for insider trading and market manipulation).
Disclosure Requirements under Italian law and European Union law
Further disclosure requirements will apply to Stellantis under Italian law and French law by virtue of the listing of Stellantis’s shares on the MTA and Euronext Paris, respectively. Summarized below are the most significant requirements to be complied with by FCAStellantis in connection with the admission to listingtrading of FCAStellantis common shares on the MTA.MTA and the admission to listing and trading on Euronext Paris. The breach of the obligations described below may result in the application of fines and criminal penalties (including, for instance, those provided for insider trading and market manipulation).
In particular, the following main disclosure obligations shallwill apply to FCA:Stellantis:
the•The following articles of Legislative Decree no. 58/1998, or the Italian Financial Act (as well as the implementing regulations enacted by CONSOB thereunder) effective as of the date of this report: article 92 (equal treatment principle), article 114-bis (to113-ter (general provisions on regulated disclosures), article 114 (information to be provided to the extent applicable to Dutch companies, informationpublic), article 114-bis (information concerning the allocation of financial instruments to corporate officers, employees and collaborators), article 115 (information to be disclosed to CONSOB) and articleCONSOB upon the authority’s request), articles 180 and the followingthrough 187-quaterdecies (relating to insider trading and market manipulation) and article 193 (fines for breach of disclosures duties);
•the General Regulation of the AMF, article 223-16 (obligation to disclose on a monthly basis the total number of shares and voting rights comprising Stellantis’s share capital if these numbers have changed compared to the most recently disclosed numbers) and article 223-20 (obligation to file with the AMF certain changes to the Articles of Association). The information required to be published in France may be published in French or English; and
•the applicable law concerning market abuse and, in particular, Regulation (UE) 596/2014 (the “MAR Regulation”) and its implementing measures: article 7 (Inside information), article 17 (Public disclosure of inside information) and, article 18 (Insider lists) and article 19 (Managers’ transactions) of the Market Abuse Regulation, as well as the implementing regulations.regulations promulgated thereunder.
In addition to the above, the applicable provisions set forth under the market rules (including those relating to the timing for the payment of dividends) shalldividends and relevant “ex date” and “record date”) will apply to FCA.Stellantis.
It remains understood that theThe foregoing is based on the current legal framework and, therefore, it may vary following any potential regulatory interventionchanges adopted by the concerned Member Statesmember states and competent authorities.
Disclosure of Inside Information - Article 17 of the MARMarket Abuse Regulation
Pursuant to the MARMarket Abuse Regulation, FCA shallStellantis has to disclose to the public, without delay, any inside information which: (i) is of a precise nature; (ii) has not been made public; (iii) relates directly to FCA or FCA’s common shares;concerns Stellantis; and (iv) if it were made public, would be likely to have a significant effect on the prices of FCA’s common sharesStellantis’s financial instruments (as such term is defined under the Market Abuse Regulation) or on the price of related derivative financial instruments (the “Inside Information”). In this regard,regard:
“•information shall beis deemed to be of a precise nature” if: (a) it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred, or which may reasonably be expected to occur and (b) it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the financial instruments (i.e.(e.g., FCA’sStellantis’s common shares) or the related derivative financial instrument. In this respect, in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the intermediate steps of that process which are connected with bringing about or resulting in those future circumstances or that future event, may be deemed to be information of precise information.nature.
“•information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments or the related derivative financial instruments” shall mean means information a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
An intermediate step in a protracted process shall beis deemed to be Inside Information if, by itself, it satisfies the criteria of Inside Information as referred to above.
The above disclosure requirement shallhas to be complied with through the publication of a press release by FCA,Stellantis in accordance with the modalities set forth from time to time underMarket Abuse Regulation and Dutch, Italian and ItalianFrench law, disclosingwhich discloses to the public the relevant Inside Information. In addition, any Inside Information disseminated by Stellantis in any jurisdiction is required to be made public in a manner that permits full and prompt access to, and correct and timely evaluation of, such information by the public in compliance with the Market Abuse Regulation.
Under specific circumstances, the AFM, CONSOB and the AMF may at any time request: (a) FCArequest Stellantis and/or its main shareholders to disclose to the public, specific information or documentation where deemed appropriate or necessary or alternatively (b) to be provided withprovide, specific information or documentation. For this purpose, the AFM, CONSOB has wideand the AMF have broad powers under applicable EU regulations, as well as Italian and French law, to, among other things, carry out inspections or investigations or request information tofrom the members of the managing board, the membersBoard of the supervisory boardDirectors or to the external auditor.auditors.
FCA shall publish and transmit to CONSOB any information disseminated in any non EU-countries where FCA’s common shares are listed (i.e., the U.S.), if this information is significant for the purposes of the evaluation of FCA’s common shares listed on the MTA.
FCAStellantis may, onunder its own responsibility, delay disclosure to the public of Inside Information provided that all of the following conditions are met: (a) immediate disclosure is likely to prejudice the legitimate interests of FCA;Stellantis; (b) delay of disclosure is not likely to mislead the public; and (c) FCAStellantis is able to ensure the confidentiality of that information.
In the case of a protracted process that occurs in stages and that is intended to bring about, or that results in, a particular circumstance or a particular event, FCAStellantis may onunder its own responsibility delay the public disclosure of Inside Information relating to this process, subject to pointsthe conditions set forth under (a), (b) and (c) above.
Insiders’ RegisterList - Article 18 of the MARMarket Abuse Regulation
FCA,Stellantis, as well as persons acting on its behalf or on its account, shallare required to draw up and keep regularly updated, a list of all persons who have access to Inside Information and who are working for them under a contract of employment, or otherwise performing tasks throughpursuant to which they have access to Inside Information, such as advisers, accountants or credit rating agencies (the “insider list”).
FCAStellantis, or any person acting on its behalf or on its account, shallis required to take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of Inside Information.
Prohibition on Insider Dealing – Article 14 of the Market Abuse Regulation
It is prohibited for any person to make use of inside information.information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates, as well as an attempt to do so (“insider dealing”). The use of inside information by cancelling or amending of an order concerning a financial instrument also constitutes insider dealing. In addition, it is prohibited for any person to disclose inside information to anyone else (except where the disclosure is made strictly as part of the person’s regular duty or function) or, whilst in possession of inside information, recommend or induce anyone to acquire or dispose of financial instruments to which the information relates. Furthermore, it is prohibited for any person to engage in or attempt to engage in market manipulation, for instance by conducting transactions which could lead to an incorrect or misleading signal of the supply of, the demand for or the price of a financial instrument.
Prohibition to Trade During Closed Periods – Article 19 of the Market Abuse Regulation
A PDMR is not permitted to (directly or indirectly) conduct any transactions on its own account or for the account of a third party, relating to shares or debt instruments of the Company or other financial instruments linked thereto, during a closed period of 30 calendar days before the announcement of an annual or semi-annual financial report of the Company.
Transparency Directive
The Netherlands is the Company’s home member state for the purposes of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 (as amended by Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013) as a consequence of which the Company will be subject to the FMSA in respect of certain ongoing transparency and disclosure obligations.
Public Tender OffersLoyalty Voting Structure
Certain rules providedStellantis adopted the loyalty voting structure summarized below on January 17, 2021.
Shareholders of Stellantis may at any time elect to participate in the loyalty voting structure by requesting that Stellantis registers all or some of their common shares in a separate register the (“Loyalty Register”). The registration of common shares in the Loyalty Register blocks such shares from trading in the Regular Trading Systems. If such number of common shares (the “Electing Common Shares”) have been registered in the Loyalty Register (and thus blocked from trading in the Regular Trading Systems) for under Italian lawan uninterrupted period of three years in the name of the same shareholder (such a share a “Qualifying Common Share”), the relevant shareholder becomes eligible to receive one class A special voting share for each Qualifying Common Share. If, at any time, such common shares are de-registered from the Loyalty Register for whatever reason, the relevant shareholder shall lose its entitlement to hold a corresponding number of special voting shares. From January 17, 2021, shareholders will only be able to receive class A special voting shares and not class B special voting shares. Class B special voting shares were created at the Governance Effective Time in order to be held by FCA shareholders (other than Exor) who held FCA special voting shares prior to such time. The Board of Directors may resolve at any time that class B special voting shares shall be exchanged for class A special voting shares in accordance with respectthe Terms and Conditions of Special Voting Shares.
A holder of Electing Common Shares or Qualifying Common Shares may at any time request the de-registration of some or all of the number of such shares from the Loyalty Register, which will allow such shareholder to both voluntary and mandatory public tender offers shall apply to any offer launched for FCA’sfreely trade such common shares. In particular,From the moment of such a request, the holder of Electing Common Shares or Qualifying Common Shares shall be considered to have waived his or her rights to cast any votes associated with such special voting shares to be de-registered from the Loyalty Register. Upon the de-registration from the Loyalty Register, the relevant number of common shares will therefore cease to be Electing Common Shares or Qualifying Common Shares. Any de-registration request would automatically trigger a mandatory transfer requirement pursuant to which the relevant special voting shares will be acquired by Stellantis for no consideration (om niet) in accordance with the Terms and Conditions of Special Voting Shares.
Stellantis common shares are freely transferable. However, any transfer or disposal of Stellantis common shares with which special voting shares are associated would trigger the de-registration of such common shares from the Loyalty Register and the transfer of all relevant special voting shares to Stellantis. Special voting shares are not admitted to listing and are transferable only in very limited circumstances (including, among other things, transfers to affiliates or to relatives through succession, donation or other transfers, provided that the provisions concerningcorresponding Qualifying Common Shares are also transferred to such party, or transfers with the tender offer price, the contentapproval of the offer document and the disclosureBoard of the tender offer will be subjectDirectors). In particular, no shareholder shall, directly or indirectly: (a) sell, dispose of or transfer any special voting share or otherwise grant any right or interest in any special voting share, other than as permitted pursuant to the supervision by CONSOB and Italian law.
Election and Removal of Directors
FCA’s Articles of Association provideor the Terms and Conditions of Special Voting Shares; or (b) create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over any special voting share or any interest in any special voting share.
The purpose of the loyalty voting structure is to grant long-term shareholders an extra voting right by means of granting a special voting share (shareholders holding special voting shares are entitled to exercise one vote for each special voting share held and one vote for each Stellantis common share held), without entitling such shareholders to any economic rights, other than those pertaining to the common shares. However, under Dutch law, the special voting shares cannot be totally excluded from economic entitlements. As a result, pursuant to the Articles of Association, holders of special voting shares are entitled to a minimum dividend, which is allocated to a separate special voting shares dividend reserve (the “Special Voting Shares Dividend Reserve”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares Dividend Reserve will require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares. The powers to vote upon the distribution from the Special Voting Shares Dividend Reserve and the cancellation of all class A special voting shares are the only powers that FCA’sare granted to that meeting pursuant to the Articles of Association, which can only be convened by the Board of Directors as it deems necessary. The special voting shares do not have any other economic entitlement.
Section 11 of the Terms and Conditions of Special Voting Shares includes liquidated damages provisions intended to discourage any attempt by holders to violate the Terms and Conditions of Special Voting Shares. These liquidated damages provisions may be enforced by Stellantis by means of a legal action brought by Stellantis in the courts of Amsterdam, the Netherlands. In particular, a violation of the provisions of the Terms and Conditions of Special Voting Shares concerning the transfer of special voting shares may lead to the imposition of liquidated damages.
Pursuant to Section 13 of the Terms and Conditions of Special Voting Shares, any amendment to the Terms and Conditions of Special Voting Shares (other than merely technical, non-material amendments) may only be made with the approval of the shareholders at a general meeting of shareholders.
Special Voting Shares Foundation
Pursuant to the Articles of Association, Stichting Stellantis SVS, a Dutch foundation (stichting) (the “SVS Foundation”) has an option right to subscribe for a number of class A special voting shares up to the number of class A special voting shares included in the Company’s authorized share capital from time to time. This option right can only be exercised by the SVS Foundation to facilitate the loyalty voting structure as set forth in the Articles of Association and the Terms and Conditions of Special Voting Shares. An option right has been granted to the SVS Foundation for an unlimited period and is intended to ensure that holders of Qualifying Common Shares in the future will receive their special voting shares without requiring a resolution from the general meeting of shareholders. Under the structure of the SVS Foundation, once a shareholder of the Company becomes entitled to receive one special voting share for each Qualifying Common Share, the Company issues such special voting shares to the SVS Foundation pursuant to the SVS Foundation’s exercise of its option right and, thereafter, the SVS Foundation transfers the special voting shares to such shareholder. Issuing shares to the SVS Foundation is a technical device to ensure that special voting shares will be available for issue to eligible shareholders once such shareholders acquire the right to the special voting shares.
Terms and Conditions of the Special Voting Shares
The Terms and Conditions of Special Voting Shares apply to the issuance, allocation, acquisition, holding, repurchase and transfer of special voting shares in the issued share capital of Stellantis and to certain aspects of Electing Common Shares, Qualifying Common Shares and Stellantis common shares which are registered in the Loyalty Register.
Special Capital Reserve
Stellantis will maintain a separate capital reserve for the purpose of facilitating any issuance or cancellation of special voting shares. No distribution shall be made from the special capital reserve, except that the Board of Directors shall be composedauthorized to resolve upon (i) any distribution out of the special capital reserve to pay up special voting shares or (ii) re-allocation of amounts to credit or debit the special capital reserve against or in favor of the share premium reserve.
Withdrawal of Special Voting Shares
Following a mandatory transfer to Stellantis of special voting shares after a de-registration of Qualifying Common Shares from the Loyalty Register, Stellantis may continue to hold the special voting shares as treasury stock, but will not be entitled to vote any such treasury stock. Alternatively, Stellantis may withdraw and cancel the special voting shares held in treasury, as a result of which the nominal value of such shares will be allocated to the special capital reserves of Stellantis. Stellantis may also cancel all issued and outstanding class A special voting shares subject to approval of the meeting of holders of the class A special voting shares. Consequently, the loyalty voting feature will terminate as to the relevant Qualifying Common Shares being deregistered from the Loyalty Register. No shareholder required to transfer special voting shares to Stellantis pursuant to the Terms and Conditions of Special Voting Shares will be entitled to any consideration for such special voting shares and each shareholder expressly waives any rights in that respect as a condition to participation in the loyalty voting structure.
Change of Control
A shareholder with common shares registered in the Loyalty Register must promptly notify Stellantis in the event of a Change of Control (as defined above) with respect to such shareholder and must make a de-registration request with respect to his or her Qualifying Common Shares or Electing Common Shares registered in the Loyalty Register. The de-registration request leads to a withdrawal of the special voting shares as described under “—Withdrawal of Special Voting Shares”. Notwithstanding Stellantis not receiving any such notification, it may, upon becoming aware of a Change of Control, initiate the de-registration of the relevant shareholder’s Qualifying Common Shares or Electing Common Shares.
General Meeting of Shareholders and Voting Rights
General Meetings
At least one general meeting of shareholders shall be held every year, with such meeting to be held within six months after the close of the financial year. The purpose of the annual general meeting of shareholders is, inter alia, the adoption of the annual accounts, the allocation of profits (including the proposal to distribute dividends), granting discharge to Directors in respect of the performance of their duties, the appointment of Directors, if applicable, and the discussion of any other item duly included in the agenda.
Furthermore, general meetings of shareholders shall be held as often as the Board of Directors, the Chairman, the Senior Independent Director or the CEO deem it necessary to hold them or as otherwise required by Dutch law (including in the event Stellantis’s equity has decreased to an amount equal to or less than one-half of the paid-up and called-up part of Stellantis’s issued capital, as referred to in Section 2:108a of the Dutch Civil Code), without prejudice to what is provided in the next paragraph.
Shareholders individually or jointly representing at least ten percent of the issued share capital may request in writing, stating the matters to be dealt with, that the Board of Directors call a general meeting of shareholders.
If the Board of Directors fails to take the necessary steps to ensure a meeting can be held within eight weeks, then such shareholders may, on their application, be authorized by the interim provisions judge of the court (voorzieningenrechter van de rechtbank) to convene a general meeting of shareholders. The interim provisions judge (voorzieningenrechter van de rechtbank) shall reject the application if he or she is not satisfied that the applicants have previously requested in writing, stating the exact subjects to be discussed, that the Board of Directors convene a general meeting of shareholders.
General meetings of shareholders will be held in Amsterdam or Haarlemmermeer (Schiphol Airport), the Netherlands, and shall be called by the Board of Directors, the Chairman, the Senior Independent Director or the CEO, in such manner as is required to comply with the law and the applicable stock exchange regulations, no later than on the 42nd day prior to the day of the meeting. All convocations of general meetings of shareholders and all announcements, notifications and communications to shareholders shall be made by means of an announcement on Stellantis’s corporate website and such an announcement shall remain accessible until the relevant general meeting of shareholders.
Any communication to be addressed to the general meeting of shareholders by virtue of Dutch law or the Articles of Association may be either included in the notice referred to in the preceding sentence or, to the extent provided for in such notice, on Stellantis’s corporate website and/or in a document made available for inspection at the office of Stellantis and such other place(s) as the Board of Directors shall determine. Convocations of general meetings of shareholders may be sent to shareholders entitled to attend through the use of an electronic means of communication to the address provided by such shareholders to Stellantis for this purpose. The notice shall state the place, date and hour of the meeting and the agenda of the meeting as well as the other information required by law and the Articles of Association. An item proposed in writing by such a number of shareholders who, individually or in the aggregate, hold at least three percent of Stellantis’s issued share capital, will be included in the notice or more members.will be announced in a manner similar to the announcement of the notice, provided that Stellantis has received the relevant request, including the reasons for putting the relevant item on the agenda, no later than the 60th day before the day of the meeting.
Convocation, Agenda, Minutes and Attendance
The agenda of the annual general meeting of shareholders shall contain, inter alia, the following items:
(a)adoption of the annual accounts;
(b)non-binding advisory vote on the remuneration report;
(c)discussion of the policy of Stellantis on additions to reserves and on dividends, if any;
(d)granting of discharge to the Directors in respect of the performance of their duties in the relevant financial year;
(e)if applicable, the appointment of Directors;
(f)if applicable, the proposal to pay a dividend;
(g)if applicable, discussion of any substantial change in the corporate governance structure of Stellantis; and
(h)any matters decided upon by the person(s) convening the meeting and any matters placed on the agenda with due observance of applicable Dutch law.
The Board of Directors will provide the general meeting of shareholders with all requested information, unless this would be contrary to an overriding interest of Stellantis. If the Board of Directors invokes an overriding interest, it must give reasons.
When convening a general meeting of shareholders, the Board of Directors shall determine that, for the purpose of Article 24 and Article 26 of the Articles of Association, persons with the right to vote or attend meetings will be considered those persons who have these rights at the 28th day prior to the day of the meeting (the “Record Date”) and are appointedregistered as such in a register to be designated by the Board of Directors for such purpose, irrespective of whether they will have these rights at the date of the meeting. In addition to the Record Date, the notice of the meeting shall further state the manner in which shareholders and other parties with meeting rights may register for the meeting, the final registration date for that general meeting of shareholders (which final registration date will be the seventh day prior to the meeting unless otherwise determined by the Board of Directors (the “Final Registration Date”)) and the manner in which the right to vote or attend the meeting can be exercised.
The general meeting of shareholders shall be presided over by the Chairman, or, in his absence, by the Senior Independent Director or, in the absence of both the Chairman and the Senior Independent Director, by the person chosen by the Board of Directors to act as chairman for such meeting. One of the persons present designated for that purpose by the chairman of the meeting shall act as secretary and take minutes of the business transacted. The minutes shall be adopted by the chairman and secretary of the meeting and signed by them in witness of such adoption. The minutes of the general meeting of shareholders shall be made available, on request, to shareholders no later than three months after the end of the meeting, after which shareholders shall have the opportunity to react to the minutes in the following three months. In the event an amendment to the minutes is required, the amended minutes will then be adopted by the chairman and the secretary of the meeting and signed by them in witness of such adoption. If an official notarial record is made of the business transacted at the meeting then minutes need not be drawn up and it shall suffice that the official notarial record be signed by the notary.
As a prerequisite to attending the general meeting of shareholders and, to the extent applicable, exercising voting rights, the shareholders and other persons entitled to attend the meeting shall be required to inform the Board of Directors in writing of their intention to attend the general meeting of shareholders within the time frame mentioned in the convening notice. At the latest, this notice must be received by the Board of Directors on the Final Registration Date. Shareholders and those permitted by Dutch law to attend the general meetings of shareholders may choose to be represented at any meeting by a simpleproxy duly authorized in writing, provided they notify Stellantis in writing of their wish to be represented at such time and place as shall be stated in the notice of the meeting. Such proxy is also authorized in writing if the proxy is documented electronically. The Board of Directors may determine further rules concerning the deposit of the powers of attorney; these shall be mentioned in the notice of the meeting. The chairman of the meeting shall decide on the admittance to the meeting of persons other than those who are entitled to attend.
For each general meeting of shareholders, the Board of Directors may decide that shareholders shall be entitled to attend, address and exercise voting rights at such a meeting through the use of electronic means of communication, provided that shareholders who participate in the meeting are capable of being identified through the electronic means of communication and have direct cognizance of the discussions at the meeting and the exercising of voting rights (if applicable). The Board of Directors may set requirements for the use of electronic means of communication and state these in the convening notice. Furthermore, the Board of Directors may, for each general meeting of shareholders, decide that votes cast by the use of electronic means of communication prior to the meeting and received by the Board of Directors shall be considered to be votes cast at the meeting. Such votes may not be cast prior to the Record Date. The notice will state whether the foregoing provisions regarding electronic voting apply and the procedure for exercising the electronic voting rights.
Prior to being allowed admittance to a general meeting of shareholders, a shareholder and each person entitled to attend the meeting, or its attorney, shall sign an attendance list, while stating his or her name and, to the extent applicable, the number of votes to which he or she is entitled. Each shareholder and other person attending a general meeting of shareholders by the use of electronic means of communication and identified in accordance with the above shall be registered on the attendance list by the Board of Directors. In case an attorney attends the meeting on behalf of a shareholder or another person entitled to attend, the name(s) of the person(s) on whose behalf the attorney is acting, shall also be stated. The chairman of the meeting may decide that the attendance list must also be signed by other persons present at the meeting.
The chairman of the meeting may determine the time during which shareholders and others entitled to attend the general meeting of shareholders may speak, if he or she considers this desirable, with a view to the orderly conduct of the meeting as well as other procedures that the chairman considers desirable for the efficient and orderly conduct of the business of the meeting.
Stellantis is exempt from the proxy rules under the Exchange Act.
Voting Rights at General Meetings
Subject to the restrictions described under “—Voting Limitations,” every Stellantis share (whether common share or special voting share) shall confer the right to cast one vote at a general meeting of shareholders. Shares in respect of which Dutch law determines that no votes may be cast shall be disregarded for the purposes of determining the proportion of shareholders voting, present or represented or the proportion of the share capital present or represented. All resolutions shall be passed with an absolute majority of the votes validly cast unless otherwise specified in the Articles of Association or the Dutch Civil Code. Blank votes shall not be counted as votes cast.
All votes shall be cast in writing or electronically. The chairman of the meeting may, however, determine that voting by raising hands or in another manner shall be permitted. Voting by acclamation shall be permitted if none of the shareholders present or represented objects. No voting rights shall be exercised in the general meeting of shareholders for shares owned by the Company or by a subsidiary of the Company. However, pledgees and usufructuaries of shares owned by the Company and its subsidiaries shall not be excluded from exercising their voting rights if the right of pledge or usufruct was created before the shares were owned by the Company or a subsidiary. Neither the Company nor any of its subsidiaries may exercise voting rights for shares in respect of which it holds a right of pledge or usufruct.
Without prejudice to the Articles of Association, the Company shall determine for each resolution passed:
(a)the number of shares on which valid votes have been cast;
(b)the percentage that the number of shares as referred to under (a) represents in the issued and outstanding share capital;
(c)the aggregate number of votes validly cast; and
(d)the aggregate number of votes cast in favor of and against a resolution, as well as the number of abstentions.
Voting Limitations
No shareholder, acting alone or in concert, together with votes exercised by affiliates of such shareholder or pursuant to proxies or other arrangements conferring the right to vote, shall be able to exercise, directly or indirectly, voting rights at a general meeting of shareholders. shareholders reaching or exceeding the Voting Threshold (i.e., 30 percent or more of the votes that could be cast at any general meeting of shareholders), including after giving effect to any voting rights exercisable through Stellantis special voting shares. Any voting right reaching or exceeding the Voting Threshold shall be suspended. Furthermore, the Articles of Association provide that, before each general meeting of shareholders, any shareholder that would be able to exercise voting rights reaching or exceeding the Voting Threshold must notify Stellantis, in writing, of its shareholding and total voting rights in Stellantis and provide, upon written request by Stellantis, within three days of such request being made, any information necessary to ascertain the composition, nature and size of the equity interest of that person and any other person acting in concert with it. The Voting Threshold restriction (i) may be removed following a resolution passed to that effect by the meeting of Stellantis shareholders with a majority of at least two-thirds of the votes cast (for the avoidance of doubt, without giving effect to any voting rights exercisable through Stellantis special voting shares, and subject to the aforementioned Voting Threshold) and (ii) shall lapse upon any person holding more than 50 percent of the issued Stellantis common shares (other than Stellantis special voting shares) as a result of a public offer for Stellantis common shares.
Shareholders’ Votes on Certain Transactions
Any important change in the identity or character of Stellantis must be approved by the general meeting of shareholders, including (i) the transfer to a third party of the business of Stellantis or practically the entire business of Stellantis; (ii) the entry into or breaking off of any long-term cooperation of Stellantis or a subsidiary with another legal entity or company or as a fully liable partner of a general partnership or limited partnership, where such entry into or breaking off is of far-reaching importance to Stellantis; and (iii) the acquisition or disposal by Stellantis or a subsidiary of an interest in the capital of a company with a value of at least one-third of Stellantis’s assets according to the consolidated balance sheet with explanatory notes included in the last adopted annual accounts of Stellantis.
Meetings of Holders of Shares of a Specific Class
Meetings of holders of shares of a specific class shall be held as frequently and whenever such a meeting is required by virtue of any statutory regulation or any provision in the Articles of Association.
Meetings of holders of shares of a specific class may be convened no later than on the sixth day before the day of such meeting. The provisions applicable to general meetings of shareholders, except those concerning the frequency, ultimate timing, notice period, right to put an item on the agenda and required agenda items, will apply mutatis mutandis to the meetings of holders of shares of a specific class. See “—Voting Rights at General Meetings” and “—Voting Limitations”.
Issuance of shares
The general meeting of shareholders, mayor alternatively the Board of Directors if it has been designated to do so at the general meeting of shareholders shall have authority to resolve on any time suspend issuance of shares and rights to subscribe for shares.
The Board of Directors has been irrevocably authorized, for a period of three years from January 16, 2021 to issue common shares and rights to subscribe for common shares up to in aggregate (i) ten percent of the issued common shares for general corporate purposes as of January 16, 2021, plus (ii) an additional ten percent of the issued common shares as of such date, if the issuance and/or dismiss any director.
C. Material Contracts
Forthe granting of rights to subscribe for common shares occurs in connection with the acquisition of an enterprise or a discussioncorporation, or, if such issuance and/or the granting of our Medium Term Notes Programme, our 2020 Notesrights to subscribe for common shares is otherwise necessary in the opinion of the Board of Directors. The Board of Directors will also be designated, for a period of three years from January 16, 2021 as the authorized body to limit or exclude the rights of pre-emption of shareholders in connection with the foregoing authority of the Board of Directors to issue Stellantis common shares and 2023 Notes, refergrant rights to Note 21, Debt, within our Consolidated Financial Statements includedsubscribe for Stellantis common shares. Refer to the “Rights of Pre-emption” section elsewhere in this report.
For a discussionThe general meeting of our mandatory convertibles securitiesshareholders, or the Board of Directors if so designated in accordance with the Articles of Association, shall decide on the price and the Company’s equity plans, referfurther terms and conditions of issuance, with due observance of what is required in relation thereto under Dutch law and the Articles of Association.
If the Board of Directors is designated by the general meeting of shareholders to Note 26, Equityhave authority to decide on the issuance of shares or rights to subscribe for shares, such a designation shall specify the class of shares and Note 18, Share-based compensationthe maximum number of shares or rights to subscribe for shares that can be issued under such a designation. When making such designation the duration of the Board of Directors’ relevant authority, which shall not be for more than five years, shall be resolved upon at the same time. The designation may be extended from time to time for periods not exceeding five years. The designation may not be withdrawn unless otherwise provided in the resolution in which the designation is made.
Payment for shares shall be made in cash unless another form of consideration has been agreed. Payment in a currency other than euro may only be made with the consent of the Board of Directors.
Disclosure of Holdings under Dutch Law
As a result of the listing of Stellantis common shares on the MTA and Euronext Paris, pursuant to Chapter 5.3 of the Dutch Financial Markets Supervision Act (“FMSA”), which chapter is an implementation of Directive 2004/109/EC as amended by Directive 2013/50/EU into Dutch law, any person who, directly or indirectly, acquires or disposes of an actual or potential capital interest and/or actual or potential voting rights in Stellantis must without delay notify the AFM of such acquisition or disposal if, as a result of such acquisition or disposal, the percentage of capital interest and/or voting rights held by such person reaches, exceeds or falls below the following thresholds: three percent, five percent, ten percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 percent, 60 percent, 75 percent and 95 percent (the “Notification Thresholds”).
For the purpose of calculating the percentage of capital interest or voting rights, the following interests must, inter alia, be taken into account: (i) shares and/or voting rights directly held (or acquired or disposed of) by any person; (ii) shares and/or voting rights held (or, acquired or disposed of) by such person’s controlled entities or by a third party for such person’s account; (iii) voting rights held (or acquired or disposed of) by a third party with whom such person has concluded an oral or written voting agreement; (iv) voting rights acquired pursuant to an agreement providing for a temporary transfer of voting rights in consideration for a payment; and (v) shares which such person, or any controlled entity or third party referred to above, may acquire pursuant to any option or other right to acquire shares.
As a consequence of the above, special voting shares must be added to Stellantis common shares for the purposes of the above thresholds.
For the purpose of calculating the percentage of capital interest or voting rights, the following instruments qualify as ‘shares’: (i) shares; (ii) depositary receipts for shares (or negotiable instruments similar to such receipts); (iii) negotiable instruments for acquiring the instruments under (i) or (ii) (such as convertible bonds); and (iv) options for acquiring the instruments under (i) or (ii).
Controlled entities (within the meaning of the FMSA) do not themselves have notification obligations under the FMSA as their direct and indirect interests are attributed to their (ultimate) parent. If a person who has a three percent or larger interest in Stellantis’s share capital or voting rights ceases to be a controlled entity it must immediately notify the AFM and all notification obligations under the FMSA will become applicable to such former controlled entity.
Special rules apply to the attribution of shares and/or voting rights which are part of the property of a partnership or other form of joint ownership. A holder of a pledge or right of usufruct in respect of shares can also be subject to notification obligations if such person has, or can acquire, the right to vote on the shares. The acquisition of (conditional) voting rights by a pledgee or beneficial owner may also trigger notification obligations as if the pledgee or beneficial owner were the legal holder of the shares and/or voting rights.
Furthermore, when calculating the percentage of capital interest, a person is also considered to be in possession of shares if (i) such person holds a financial instrument the value of which is (in part) determined by the value of the shares or any distributions associated therewith and which does not entitle such person to acquire any shares; (ii) such person may be required to purchase shares on the basis of an option; or (iii) such person has concluded another contract whereby such person acquires an economic interest comparable to that of holding a share.
If a person’s capital interest and/or voting rights reaches, exceeds or falls below the above-mentioned thresholds as a result of a change in Stellantis’s issued and outstanding share capital or voting rights, such person is required to make a notification not later than on the fourth trading day after the AFM has published Stellantis’s notification as described below.
The notification to the AFM should indicate whether the interest is held directly or indirectly, and whether the interest is an actual or a potential interest.
In addition, each person who is or ought to be aware that, as a result of the exchange of certain financial instruments, such as options for shares, his or her actual capital or voting interest in Stellantis, reaches, exceeds or falls below any of the Notification Thresholds, vis-à-vis his or her most recent notification to the AFM, must give notice to the AFM no later than the fourth trading day after he or she became or ought to be aware of this change.
Stellantis is required to notify the AFM promptly of any change of one percent or more in its issued and outstanding share capital or voting rights since a previous notification. Other changes in Stellantis’s issued and outstanding share capital or voting rights must be notified to the AFM within our Consolidated Financial Statements included elsewhereeight days after the end of the quarter in which the change occurred.
In addition to the above described notification obligations pertaining to capital interest or voting rights, pursuant to Regulation (EU) No. 236/2012, as last amended by ESMA Decision of December 16, 2020, ESMA70-155-11608, notification must be made of any net short position of 0.1 percent in the issued share capital of Stellantis and of every subsequent 0.1 percent above this threshold. Notifications starting at 0.5 percent and every subsequent 0.1 percent above this threshold will be made public via the short selling register of the AFM. To calculate whether a natural person or legal person has a net short position, their short positions and long positions must be set off. A short transaction in a share can only be contracted if a reasonable case can be made that the shares sold can actually be delivered, which requires confirmation of a third party that the shares have been located. Furthermore, gross short positions are required to be notified in the event that a threshold is reached, exceeded or fallen below. With regard to gross short positions, the same disclosure thresholds as for holders of capital interests and/or voting rights apply.
The AFM keeps a public register of all notifications made pursuant to these disclosure obligations and publishes any notification received which can be accessed via www.afm.nl. The notifications referred to in this report.paragraph should be made through the online notification system of the AFM.
Non-compliance with these disclosure obligations is an economic offense and may lead to criminal prosecution. The AFM may impose administrative penalties for non-compliance and may publish the imposed penalties. In addition, a civil court can impose measures against any person that fails to notify or incorrectly notifies the AFM of matters required to be notified. A claim requiring that such measures be imposed may be instituted by Stellantis and/or by one or more shareholders who alone or together with others represent at least three percent of the issued and outstanding share capital of Stellantis or are able to exercise at least three percent of the voting rights. The measures that the civil court may impose include: D. Exchange Controls•an order requiring appropriate disclosure;
•suspension of the right to exercise the voting rights for a period of up to three years as determined by the court;
•voiding a resolution adopted by the general meeting of shareholders, if the court determines that the resolution would not have been adopted but for the exercise of the voting rights of the person with a duty to disclose, or suspension of a resolution adopted by the general meeting of shareholders until the court makes a decision about such voiding; and
•an order to refrain, during a period of up to five years as determined by the court, from acquiring shares and/or voting rights in Stellantis.
Shareholders are advised to consult with their own legal advisers to determine whether the disclosure obligations apply to them.
Mandatory Bid Requirement
Under Dutch law, there are no foreign exchange control restrictions on investmentsany person who, acting alone or in concert with others, directly or payments on, the FCA common shares. There are no special restrictions in the FCA Articles of Association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote the FCA common shares.
E. Taxation
Material U.S. Federal Income Tax Consequences
This section describes the material U.S. federal income tax consequences of owning FCA stock. It applies solely to persons that hold shares as capital assets for U.S. federal income tax purposes. This section does not apply to members of a special class of holders subject to special rules, including:
a dealer in securities or foreign currencies;
a regulated investment company;
a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
a tax-exempt organization;
a bank, financial institution, or insurance company;
a person liable for alternative minimum tax;
a person that actually or constructively owns 10indirectly acquires 30 percent or more of Stellantis’s voting rights will be required to launch a public offer for all outstanding shares in Stellantis’s share capital for a fair purchase price determined by votelaw. A fair price is considered a price which is equal to the highest price paid by such person or the persons acting in concert with it for Stellantis’s shares in the year prior to the announcement of the offer or, in the absence of such a purchase, the average share price of Stellantis’s shares in the year prior to the announcement of the offer. At the request of the offeror, Stellantis, or any of the Stellantis shareholders, the Enterprise Chamber of the Court of Appeal in Amsterdam (Ondernemingskamer van het Gerchtshof te Amsterdam) (the “Dutch Enterprise Chamber”) may determine a different fair price. If a 30 percent shareholder fails to make a public offer, the Dutch Enterprise Chamber may require such shareholder to do so upon the request of, among others, Stellantis or any of the Stellantis shareholders.
Dutch Financial Reporting Supervision Act
On the basis of the Dutch Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving, or the “FRSA”), the AFM supervises the application of financial reporting standards by, amongst others, companies whose corporate seat is in the Netherlands and whose securities are listed on a regulated Dutch or foreign stock exchange.
Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from Stellantis regarding its application of the applicable financial reporting standards and (ii) recommend to us the making available of further explanations. If we do not comply with such a request or recommendation, the AFM may request that the Enterprise Chamber order us to (i) make available further explanations as recommended by the AFM; (ii) provide an explanation of the way we have applied the applicable financial reporting standards to our financial reports; or (iii) prepare our financial reports in accordance with the Enterprise Chamber’s instructions.
Compulsory Acquisition
Pursuant to article 2:92a of the Dutch Civil Code, a shareholder who, for its own account, holds at least 95 percent of the issued share capital of Stellantis may institute proceedings against the other shareholders jointly for the transfer of their shares to it. The proceedings are held before the Dutch Enterprise Chamber and can be instituted by means of a writ of summons served upon each of the minority shareholders in accordance with the provisions of the Dutch Code of Civil Procedure. The Dutch Enterprise Chamber may grant the claim for the squeeze-out in relation to all minority shareholders and will determine the price to be paid for the shares, if necessary after appointment of one to three expert(s) who will offer an opinion to the Dutch Enterprise Chamber on the value to be paid for the shares of the minority shareholders. Once the order to transfer becomes final before the Dutch Enterprise Chamber, the person acquiring the shares must give written notice of the date and place of payment and the price to the holders of the shares to be acquired whose addresses are known to it. Unless the addresses of all of them are known to it, it must also publish the same in a Dutch daily newspaper with a national circulation. A shareholder can only appeal against the judgment of the Dutch Enterprise Chamber before the Dutch Supreme Court.
In addition, pursuant to article 2:359c of the Dutch Civil Code, following a public offer, a holder of at least 95 percent of the issued share capital and of voting rights of Stellantis has the right to require the minority shareholders to sell their shares to it. Any such request must be filed with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer. Conversely, pursuant to article 2:359d of the Dutch Civil Code, each minority shareholder has the right to require the holder of at least 95 percent of the issued share capital and the voting rights of Stellantis to purchase its shares in such a case. The minority shareholder must file such a claim with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer.
Disclosure of Trades in Listed Securities
Pursuant to the FMSA, each member of the Board of Directors must notify the AFM:
•within two weeks after his or her appointment of the number of shares he or she holds and the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital; and
•subsequently of each change in the number of shares he or she holds and of each change in the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital, immediately after the relevant change.
Furthermore, pursuant to Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 (as amended and supplemented, the “Market Abuse Regulation”), each of the members of the Board of Directors and any other person discharging managerial responsibilities within Stellantis and who in that capacity is authorized to make decisions affecting the future developments and business prospects of Stellantis and has regular access to inside information relating, directly or indirectly, to Stellantis (each, a “PDMR”) must notify the AFM of all transactions, conducted or carried out for his or her own account, relating to Stellantis common shares, special voting shares or financial instruments the value of FCA;which is (in part) determined by the value of Stellantis common shares or special voting shares.
In addition, persons that are closely associated with members of the Board of Directors or any of the other PDMRs must notify the AFM of all transactions conducted for their own account relating to Stellantis’s shares or financial instruments, the value of which is (in part) determined by the value of Stellantis’s shares. The Market Abuse Regulation designates the following categories of persons: (i) the spouse or any partner considered by applicable law as equivalent to the spouse; (ii) dependent children; (iii) other relatives who have shared the same household for at least one year as of the relevant transaction date; and (iv) any legal person, trust or partnership, among other things, whose managerial responsibilities are discharged by a member of the board of directors or any other PDMR or by a person that holds shares as part of a straddlereferred to under (i), (ii) or a hedging, conversion, or other risk reduction transaction for U.S. federal income tax purposes;(iii) above.
a person that acquired sharesThe notifications pursuant to the exerciseMarket Abuse Regulation described above must be made to the AFM no later than the third business day following the relevant transaction date by means of employee stock optionsa standard form. Such notifications under the Market Abuse Regulation may however be postponed until the date that the value of the transactions carried out on a person’s own account, together with the transactions carried out by the persons associated with that person, reaches or otherwiseexceeds the amount of €5,000 in the calendar year in question. Any subsequent transaction must be notified as compensation;set forth above. The AFM keeps a public register of all notifications made pursuant to the FMSA and the Market Abuse Regulation.
Non-compliance with these reporting obligations could lead to criminal penalties, administrative fines and cease-and-desist orders (and the publication of such penalties, fines and orders), imprisonment or other sanctions.
Shareholder Disclosure and Reporting Obligations under U.S. Law
Holders of Stellantis common shares are subject to certain U.S. reporting requirements under the Exchange Act for shareholders owning more than five percent of any class of equity securities registered pursuant to Section 12 of the Exchange Act. Among the reporting requirements are disclosure obligations intended to keep investors aware of any plans or proposals that may lead to a person whose functional currency is not the U.S. Dollar.
change of control of an issuer.
If Stellantis were to fail to qualify as a foreign private issuer in the future, Section 16(a) of the Exchange Act would require Stellantis’s directors and executive officers, and persons who own more than ten percent of a registered class of Stellantis’s equity securities, to file reports of ownership of, and transactions in, Stellantis’s equity securities with the SEC. Such directors, executive officers and ten percent stockholders would also be required to furnish Stellantis with copies of all Section 16 reports they file.
Disclosure Requirements under Italian law and European Union law
Further disclosure requirements will apply to Stellantis under Italian law and French law by virtue of the listing of Stellantis’s shares on the MTA and Euronext Paris, respectively. Summarized below are the most significant requirements to be complied with by Stellantis in connection with the admission to trading of Stellantis common shares on the MTA and the admission to listing and trading on Euronext Paris. The breach of the obligations described below may result in the application of fines and criminal penalties (including, for instance, those provided for insider trading and market manipulation).
In particular, the following main disclosure obligations will apply to Stellantis:
•The following articles of Legislative Decree no. 58/1998, or the Italian Financial Act (as well as the implementing regulations enacted by CONSOB thereunder) effective as of the date of this report: article 92 (equal treatment principle), article 113-ter (general provisions on regulated disclosures), article 114 (information to be provided to the public), article 114-bis (information concerning the allocation of financial instruments to corporate officers, employees and collaborators), article 115 (information to be disclosed to CONSOB upon the authority’s request), articles 180 through 187-quaterdecies (relating to insider trading and market manipulation) and article 193 (fines for breach of disclosures duties);
•the General Regulation of the AMF, article 223-16 (obligation to disclose on a monthly basis the total number of shares and voting rights comprising Stellantis’s share capital if these numbers have changed compared to the most recently disclosed numbers) and article 223-20 (obligation to file with the AMF certain changes to the Articles of Association). The information required to be published in France may be published in French or English; and
•the applicable law concerning market abuse and, in particular, article 7 (Inside information), article 17 (Public disclosure of inside information), article 18 (Insider lists) and article 19 (Managers’ transactions) of the Market Abuse Regulation, as well as implementing regulations promulgated thereunder.
In addition to the above, the applicable provisions set forth under the market rules (including those relating to the timing for the payment of dividends and relevant “ex date” and “record date”) will apply to Stellantis.
The foregoing is based on the Internal Revenue Codecurrent legal framework and, therefore, it may vary following any potential regulatory changes adopted by the concerned member states and competent authorities.
Disclosure of 1986,Inside Information - Article 17 of the Market Abuse Regulation
Pursuant to the Market Abuse Regulation, Stellantis has to disclose to the public, without delay, any inside information which: (i) is of a precise nature; (ii) has not been made public; (iii) directly concerns Stellantis; and (iv) if it were made public, would be likely to have a significant effect on the prices of Stellantis’s financial instruments (as such term is defined under the Market Abuse Regulation) or on the price of related derivative financial instruments (the “Inside Information”). In this regard:
•information is deemed to be of a precise nature if: (a) it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred, or which may reasonably be expected to occur and (b) it is specific enough to enable a conclusion to be drawn as amended,to the Code,possible effect of that set of circumstances or event on the prices of the financial instruments (e.g., Stellantis’s common shares) or the related derivative financial instrument. In this respect, in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the intermediate steps of that process which are connected with bringing about or resulting in those future circumstances or that future event, may be deemed to be information of precise nature.
•information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments or the related derivative financial instruments means information a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
An intermediate step in a protracted process is deemed to be Inside Information if, by itself, it satisfies the criteria of Inside Information as referred to above.
The above disclosure requirement has to be complied with through the publication of a press release by Stellantis in accordance with the Market Abuse Regulation and Dutch, Italian and French law, which discloses to the public the relevant Inside Information. In addition, any Inside Information disseminated by Stellantis in any jurisdiction is required to be made public in a manner that permits full and prompt access to, and correct and timely evaluation of, such information by the public in compliance with the Market Abuse Regulation.
Under specific circumstances, the AFM, CONSOB and the AMF may request Stellantis and/or its legislative history, existingmain shareholders to disclose to the public, or provide, specific information or documentation. For this purpose, the AFM, CONSOB and proposedthe AMF have broad powers under applicable EU regulations, published rulings and court decisions, as well as on applicable tax treaties, all asItalian and French law, to, among other things, carry out inspections or investigations or request information from the members of the date hereof. These lawsBoard of Directors or the external auditors.
Stellantis may, under its own responsibility, delay disclosure to the public of Inside Information provided that all of the following conditions are met: (a) immediate disclosure is likely to prejudice the legitimate interests of Stellantis; (b) delay of disclosure is not likely to mislead the public; and (c) Stellantis is able to ensure the confidentiality of that information.
In the case of a protracted process that occurs in stages and that is intended to bring about, or that results in, a particular circumstance or a particular event, Stellantis may under its own responsibility delay the public disclosure of Inside Information relating to this process, subject to change, possiblythe conditions set forth under (a), (b) and (c) above.
Insiders’ List - Article 18 of the Market Abuse Regulation
Stellantis, as well as persons acting on its behalf or on its account, are required to draw up and keep regularly updated, a retroactive basis.list of all persons who have access to Inside Information and who are working for them under a contract of employment, or otherwise performing tasks pursuant to which they have access to Inside Information, such as advisers, accountants or credit rating agencies (the “insider list”).
If an entityStellantis, or arrangement treated as a partnershipany person acting on its behalf or on its account, is required to take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of Inside Information.
Prohibition on Insider Dealing – Article 14 of the Market Abuse Regulation
It is prohibited for U.S. federal income tax purposes holds shares,any person to make use of inside information by acquiring or disposing of, for its own account or for the U.S. federal income tax treatmentaccount of a partner will generally depend onthird party, directly or indirectly, financial instruments to which that information relates, as well as an attempt to do so (“insider dealing”). The use of inside information by cancelling or amending of an order concerning a financial instrument also constitutes insider dealing. In addition, it is prohibited for any person to disclose inside information to anyone else (except where the statusdisclosure is made strictly as part of the partner andperson’s regular duty or function) or, whilst in possession of inside information, recommend or induce anyone to acquire or dispose of financial instruments to which the tax treatmentinformation relates. Furthermore, it is prohibited for any person to engage in or attempt to engage in market manipulation, for instance by conducting transactions which could lead to an incorrect or misleading signal of the partnership. A partner in an entity treated as a partnership for U.S. federal income tax purposes holding shares should consult its tax advisors with regard to the U.S. federal income tax treatmentsupply of, the ownershipdemand for or the price of FCA stock.a financial instrument.
No statutory, judicial or administrative authority directly discusses how the ownership of FCA stock should be treated for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences
Prohibition to Trade During Closed Periods – Article 19 of the ownershipMarket Abuse Regulation
A PDMR is not permitted to (directly or indirectly) conduct any transactions on its own account or for the account of FCA stock are uncertain. Shareholders should consult their own tax advisors regardinga third party, relating to shares or debt instruments of the U.S. federal,Company or other financial instruments linked thereto, during a closed period of 30 calendar days before the announcement of an annual or semi-annual financial report of the Company.
Transparency Directive
The Netherlands is the Company’s home member state and local and foreign and other tax consequences of owning and disposing of FCA stock in their particular circumstances.
Forfor the purposes of this discussion, a “U.S. Shareholder” is a beneficial owner of shares that is:
an individual that is a citizen or residentDirective 2004/109/EC of the United States;
a corporation, or other entity taxableEuropean Parliament and of the Council of 15 December 2004 (as amended by Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013) as a corporation, created or organized underconsequence of which the laws of the United States;
an estate whose income is subject to U.S. federal income tax regardless of its source; or
a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust.
Tax Consequences of Owning FCA Stock
Taxation of Dividends
Under the U.S. federal income tax laws, andCompany will be subject to the discussion of PFIC taxation below, a U.S. Shareholder must include in its gross income the gross amount of any dividend paid by FCA to the extent of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Dividends will be taxed as ordinary income to the extent that they are paid out of FCA’s current or accumulatedearnings and profits. Dividends paid to a non-corporate U.S. Shareholder by certain “qualified foreign corporations” that constitute qualified dividend income are taxable to the shareholder at the preferential ratesapplicable to long-term capital gains provided that the shareholder holds the shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. For this purpose, stock of FCA is treated as stock of a qualified foreign corporation if FCA is eligible for the benefits of an applicable comprehensive income tax treaty with the United States or if such stock is listed on an established securities market in the United States. The common shares of FCA are listed on the NYSE and FCA expects to be eligible for the benefits of such a treaty. Accordingly, subject to the discussion of PFIC taxation below, dividends FCA pays with respect to the shares will constitute qualified dividend income, assuming the holding period requirements are met.
A U.S. Shareholder must include any foreign tax withheld from the dividend payment in this gross amount even though the shareholder does not in fact receive the amount withheld. The dividend is taxable to a U.S. Shareholder when the U.S. Shareholder receives the dividend, actually or constructively.
The dividend will not be eligible for the dividends-received deduction allowed to U.S. corporationsFMSA in respect of dividends received from other U.S. corporations.certain ongoing transparency and disclosure obligations.
Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the U.S. Shareholder’s basis in the shares of FCA stock, causing a reduction in the U.S. Shareholder’s adjusted basis in FCA stock, and thereafter as capital gain.
Subject to certain limitations, any non-U.S. tax withheld and paid over to a non-U.S. taxing authority is eligible for credit against a U.S. Shareholder’s U.S. federal income tax liability except to the extent a refund of the tax withheld is available to the U.S. Shareholder under non-U.S. tax law or under an applicable tax treaty. The amount allowed to a U.S. Shareholder as a credit is limited to the amount of the U.S. Shareholder’s U.S. federal income tax liability that is attributable to income from sources outside the U.S. and is computed separately with respect to different types of income that the U.S. Shareholder receives from non-U.S. sources. Subject to the discussion below regarding Section 904(h) of the Code, dividends paid by FCA will be foreign source income and depending on the circumstances of the U.S. Shareholder, will be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to a U.S. Shareholder.
Under Section 904(h) of the Code, dividends paid by a foreign corporation that is treated as 50 percent or more owned, by vote or value, by U.S. persons may be treated as U.S. source income (rather than foreign source income) for foreign tax credit purposes, to the extent the foreign corporation earns U.S. source income. In certain circumstances, U.S. Shareholders may be able to choose the benefits of Section 904(h)(10) of the Code and elect to treat dividends that would otherwise be U.S. source dividends as foreign source dividends, but in such a case the foreign tax credit limitations would be separately determined with respect to such “resourced” income. In general, therefore, the application of Section 904(h) of the Code may adversely affect a U.S. Shareholder’s ability to use foreign tax credits. FCA does not believe that it is 50 percent or more owned by U.S. persons, but this conclusion is a factual determination and is subject to change; no assurance can therefore be given that FCA may not be treated as 50 percent or more owned by U.S. persons for purposes of Section 904(h) of the Code. U.S. Shareholders are strongly urged to consult their own tax advisors regarding the possible impact if Section 904(h) of the Code should apply.
Taxation of Capital Gains
Subject to the discussion of PFIC taxation below, a U.S. Shareholder that sells or otherwise disposes of its FCA common shares will recognize capital gain or loss for U.S. federal incometax purposes equal to the difference between the U.S. Dollar value of the amount that the U.S. Shareholder realizes and the U.S. Shareholder’s tax basis in those shares. Capital gain of a noncorporate U.S. Shareholder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will be U.S. source income or loss for foreign tax credit limitation purposes. The deduction of capital losses is subject to limitations.
Loyalty Voting Structure
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT, OWNERSHIP OR DISPOSITION OF SPECIAL VOTING SHARES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES AND AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES ARE UNCERTAIN. ACCORDINGLY, WE URGE U.S. SHAREHOLDERS TO CONSULT THEIR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND DISPOSITION OF SPECIAL VOTING SHARES.Stellantis adopted the loyalty voting structure summarized below on January 17, 2021.
If a U.S. Shareholder receives specialShareholders of Stellantis may at any time elect to participate in the loyalty voting shares afterstructure by requesting that Stellantis registers all or some of their common shares in a separate register the (“Loyalty Register”). The registration of common shares in the Loyalty Register blocks such shares from trading in the Regular Trading Systems. If such number of common shares (the “Electing Common Shares”) have been registered in the Loyalty Register (and thus blocked from trading in the Regular Trading Systems) for an uninterrupted period of three years in the name of the same shareholder (such a share a “Qualifying Common Share”), the relevant shareholder becomes eligible to receive one class A special voting share for each Qualifying Common Share. If, at any time, such common shares are de-registered from the Loyalty Register for whatever reason, the relevant shareholder shall lose its entitlement to hold a corresponding number of special voting shares. From January 17, 2021, shareholders will only be able to receive class A special voting shares and not class B special voting shares. Class B special voting shares were created at the Governance Effective Time in order to be held by FCA shareholders (other than Exor) who held FCA special voting shares prior to such time. The Board of Directors may resolve at any time that class B special voting shares shall be exchanged for class A special voting shares in accordance with the Terms and Conditions of Special Voting Shares.
A holder of Electing Common Shares or Qualifying Common Shares may at any time request the de-registration of some or all of the number of its FCAsuch shares from the Loyalty Register, which will allow such shareholder to freely trade such common shares. From the moment of such a request, the holder of Electing Common Shares or Qualifying Common Shares shall be considered to have waived his or her rights to cast any votes associated with such special voting shares to be registered onde-registered from the Loyalty Register. Upon the de-registration from the Loyalty Register, the tax consequencesrelevant number of common shares will therefore cease to be Electing Common Shares or Qualifying Common Shares. Any de-registration request would automatically trigger a mandatory transfer requirement pursuant to which the receipt ofrelevant special voting shares is unclear. While distributionswill be acquired by Stellantis for no consideration (om niet) in accordance with the Terms and Conditions of stockSpecial Voting Shares.
Stellantis common shares are tax-free in certain circumstances, the distributionfreely transferable. However, any transfer or disposal of Stellantis common shares with which special voting shares are associated would be taxable if it were considered to result in a “disproportionate distribution.” A disproportionate distribution is a distribution or seriestrigger the de-registration of distributions, including deemed distributions, that havesuch common shares from the effectLoyalty Register and the transfer of the receipt of cash or other property by some shareholders of FCA and an increase in the proportionate interest of other shareholders of FCA in FCA’s assets or earnings and profits. It is possible that the distribution ofall relevant special voting shares to a U.S. Shareholder that has requested all or some of the number of its FCA common shares be registered on the Loyalty Register and a distribution of cash in respect of FCA common shares could be considered together to constitute a “disproportionate distribution.” Unless FCA has not paid cash dividends in the 36 months prior to a U.S. Shareholder’s receipt of special voting shares and FCA does not intend to pay cash dividends in the 36 months following a U.S. Shareholder’s receipt of special voting shares, FCA intends to treat the receipt of special voting shares as a distribution that is subject to tax as described above in “Consequences of Owning FCA Stock—Taxation of Dividends.” The amount of the dividend should equal the fair market value of the special voting shares received. For the reasons stated above, FCA believes and intends to take the position that the value of each special voting share is minimal. However, because the fair market value of the special voting shares is factual and is not governed by any guidance that directly addresses such a situation, the IRS could assert that the value of the special voting shares (and thus the amount of the dividend) as determined by FCA is incorrect.
Ownership ofStellantis. Special Voting Shares
FCA believes that U.S. Shareholders holding special voting shares should not have to recognize income in respect of amounts transferred to the special voting shares dividend reserve that are not paid out as dividends. Section 305 of the Code may, in certain circumstances, require a holder of preferred shares to recognize income even if no dividends are actually received on such shares if the preferred shares are redeemable at a premium and the redemption premium results in a “constructive distribution.” Preferred shares for this purpose refer to shares that do not participate in corporate growth to any significant extent. FCA believes that Section 305 of the Code should not apply to any amounts transferred to the special voting shares dividend reserve that are not paid out as dividends so as to require current income inclusion by U.S. Shareholders because, among other things, (i) the special voting shares are not redeemable on a specific dateadmitted to listing and a U.S. Shareholder isare transferable only entitledin very limited circumstances (including, among other things, transfers to receive amounts in respectaffiliates or to relatives through succession, donation or other transfers, provided that the corresponding Qualifying Common Shares are also transferred to such party, or transfers with the approval of the Board of Directors). In particular, no shareholder shall, directly or indirectly: (a) sell, dispose of or transfer any special voting shares upon liquidation, (ii) Section 305 of the Code does not require the recognition of incomeshare or otherwise grant any right or interest in respect of a redemption premium if the redemption premium does not exceed a de minimis amount and, even if the amounts transferredany special voting share, other than as permitted pursuant to the Articles of Association or the Terms and Conditions of Special Voting Shares; or (b) create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over any special voting shares dividend reserve that are not paid out as dividends are considered redemption premium, the amount of the redemption premium is likely to be “de minimis” as such term is usedshare or any interest in the applicable Treasury Regulations. FCA therefore intends to take the position that the transfer of amounts to theany special voting shares dividend reserve that are not paid out as dividends does not result in a “constructive distribution,” and this determination is binding on all U.S. Shareholders of special voting shares other than a U.S. Shareholder that explicitly discloses its contrary determination in the manner prescribed by the applicable regulations. However, because the tax treatmentshare.
The purpose of the loyalty voting structure is unclearto grant long-term shareholders an extra voting right by means of granting a special voting share (shareholders holding special voting shares are entitled to exercise one vote for each special voting share held and because FCA’s determinationone vote for each Stellantis common share held), without entitling such shareholders to any economic rights, other than those pertaining to the common shares. However, under Dutch law, the special voting shares cannot be totally excluded from economic entitlements. As a result, pursuant to the Articles of Association, holders of special voting shares are entitled to a minimum dividend, which is not binding on the IRS, it is possible that the IRS could disagree with FCA’s determination and require current income inclusion in respect of such amounts transferredallocated to thea separate special voting shares dividend reserve (the “Special Voting Shares Dividend Reserve”). A distribution from the Special Voting Shares Dividend Reserve or the (partial) release of the Special Voting Shares Dividend Reserve will require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares. The powers to vote upon the distribution from the Special Voting Shares Dividend Reserve and the cancellation of all class A special voting shares are the only powers that are granted to that meeting pursuant to the Articles of Association, which can only be convened by the Board of Directors as it deems necessary. The special voting shares do not paidhave any other economic entitlement.
Section 11 of the Terms and Conditions of Special Voting Shares includes liquidated damages provisions intended to discourage any attempt by holders to violate the Terms and Conditions of Special Voting Shares. These liquidated damages provisions may be enforced by Stellantis by means of a legal action brought by Stellantis in the courts of Amsterdam, the Netherlands. In particular, a violation of the provisions of the Terms and Conditions of Special Voting Shares concerning the transfer of special voting shares may lead to the imposition of liquidated damages.
Pursuant to Section 13 of the Terms and Conditions of Special Voting Shares, any amendment to the Terms and Conditions of Special Voting Shares (other than merely technical, non-material amendments) may only be made with the approval of the shareholders at a general meeting of shareholders.
Special Voting Shares Foundation
Pursuant to the Articles of Association, Stichting Stellantis SVS, a Dutch foundation (stichting) (the “SVS Foundation”) has an option right to subscribe for a number of class A special voting shares up to the number of class A special voting shares included in the Company’s authorized share capital from time to time. This option right can only be exercised by the SVS Foundation to facilitate the loyalty voting structure as set forth in the Articles of Association and the Terms and Conditions of Special Voting Shares. An option right has been granted to the SVS Foundation for an unlimited period and is intended to ensure that holders of Qualifying Common Shares in the future will receive their special voting shares without requiring a resolution from the general meeting of shareholders. Under the structure of the SVS Foundation, once a shareholder of the Company becomes entitled to receive one special voting share for each Qualifying Common Share, the Company issues such special voting shares to the SVS Foundation pursuant to the SVS Foundation’s exercise of its option right and, thereafter, the SVS Foundation transfers the special voting shares to such shareholder. Issuing shares to the SVS Foundation is a technical device to ensure that special voting shares will be available for issue to eligible shareholders once such shareholders acquire the right to the special voting shares.
Terms and Conditions of the Special Voting Shares
The Terms and Conditions of Special Voting Shares apply to the issuance, allocation, acquisition, holding, repurchase and transfer of special voting shares in the issued share capital of Stellantis and to certain aspects of Electing Common Shares, Qualifying Common Shares and Stellantis common shares which are registered in the Loyalty Register.
Special Capital Reserve
Stellantis will maintain a separate capital reserve for the purpose of facilitating any issuance or cancellation of special voting shares. No distribution shall be made from the special capital reserve, except that the Board of Directors shall be authorized to resolve upon (i) any distribution out as dividends.of the special capital reserve to pay up special voting shares or (ii) re-allocation of amounts to credit or debit the special capital reserve against or in favor of the share premium reserve.
Withdrawal of Special Voting Shares
The tax treatmentFollowing a mandatory transfer to Stellantis of a U.S. Shareholder that has its special voting shares redeemed for zero consideration after removing its common sharesa de-registration of Qualifying Common Shares from the Loyalty Register, is unclear. It is possible that a U.S. Shareholder would recognize a lossStellantis may continue to the extent of the U.S. Shareholder’s basis in itsspecial voting shares, which should equal (i) ifhold the special voting shares as treasury stock, but will not be entitled to vote any such treasury stock. Alternatively, Stellantis may withdraw and cancel the special voting shares held in treasury, as a result of which the nominal value of such shares will be allocated to the special capital reserves of Stellantis. Stellantis may also cancel all issued and outstanding class A special voting shares subject to approval of the meeting of holders of the class A special voting shares. Consequently, the loyalty voting feature will terminate as to the relevant Qualifying Common Shares being deregistered from the Loyalty Register. No shareholder required to transfer special voting shares to Stellantis pursuant to the Terms and Conditions of Special Voting Shares will be entitled to any consideration for such special voting shares and each shareholder expressly waives any rights in that respect as a condition to participation in the loyalty voting structure.
Change of Control
A shareholder with common shares registered in the Loyalty Register must promptly notify Stellantis in the event of a Change of Control (as defined above) with respect to such shareholder and must make a de-registration request with respect to his or her Qualifying Common Shares or Electing Common Shares registered in the Loyalty Register. The de-registration request leads to a withdrawal of the special voting shares as described under “—Withdrawal of Special Voting Shares”. Notwithstanding Stellantis not receiving any such notification, it may, upon becoming aware of a Change of Control, initiate the de-registration of the relevant shareholder’s Qualifying Common Shares or Electing Common Shares.
General Meeting of Shareholders and Voting Rights
General Meetings
At least one general meeting of shareholders shall be held every year, with such meeting to be held within six months after the close of the financial year. The purpose of the annual general meeting of shareholders is, inter alia, the adoption of the annual accounts, the allocation of profits (including the proposal to distribute dividends), granting discharge to Directors in respect of the performance of their duties, the appointment of Directors, if applicable, and the discussion of any other item duly included in the agenda.
Furthermore, general meetings of shareholders shall be held as often as the Board of Directors, the Chairman, the Senior Independent Director or the CEO deem it necessary to hold them or as otherwise required by Dutch law (including in the event Stellantis’s equity has decreased to an amount equal to or less than one-half of the paid-up and called-up part of Stellantis’s issued capital, as referred to in Section 2:108a of the Dutch Civil Code), without prejudice to what is provided in the next paragraph.
Shareholders individually or jointly representing at least ten percent of the issued share capital may request in writing, stating the matters to be dealt with, that the Board of Directors call a general meeting of shareholders.
If the Board of Directors fails to take the necessary steps to ensure a meeting can be held within eight weeks, then such shareholders may, on their application, be authorized by the interim provisions judge of the court (voorzieningenrechter van de rechtbank) to convene a general meeting of shareholders. The interim provisions judge (voorzieningenrechter van de rechtbank) shall reject the application if he or she is not satisfied that the applicants have previously requested in writing, stating the exact subjects to be discussed, that the Board of Directors convene a general meeting of shareholders.
General meetings of shareholders will be held in Amsterdam or Haarlemmermeer (Schiphol Airport), the Netherlands, and shall be called by the Board of Directors, the Chairman, the Senior Independent Director or the CEO, in such manner as is required to comply with the law and the applicable stock exchange regulations, no later than on the 42nd day prior to the day of the meeting. All convocations of general meetings of shareholders and all announcements, notifications and communications to shareholders shall be made by means of an announcement on Stellantis’s corporate website and such an announcement shall remain accessible until the relevant general meeting of shareholders.
Any communication to be addressed to the general meeting of shareholders by virtue of Dutch law or the Articles of Association may be either included in the notice referred to in the preceding sentence or, to the extent provided for in such notice, on Stellantis’s corporate website and/or in a document made available for inspection at the office of Stellantis and such other place(s) as the Board of Directors shall determine. Convocations of general meetings of shareholders may be sent to shareholders entitled to attend through the use of an electronic means of communication to the address provided by such shareholders to Stellantis for this purpose. The notice shall state the place, date and hour of the meeting and the agenda of the meeting as well as the other information required by law and the Articles of Association. An item proposed in writing by such a number of shareholders who, individually or in the aggregate, hold at least three percent of Stellantis’s issued share capital, will be included in the notice or will be announced in a manner similar to the announcement of the notice, provided that Stellantis has received the relevant request, including the reasons for putting the relevant item on the agenda, no later than the 60th day before the day of the meeting.
Convocation, Agenda, Minutes and Attendance
The agenda of the annual general meeting of shareholders shall contain, inter alia, the following items:
(a)adoption of the annual accounts;
(b)non-binding advisory vote on the remuneration report;
(c)discussion of the policy of Stellantis on additions to reserves and on dividends, if any;
(d)granting of discharge to the Directors in respect of the performance of their duties in the relevant financial year;
(e)if applicable, the appointment of Directors;
(f)if applicable, the proposal to pay a dividend;
(g)if applicable, discussion of any substantial change in the corporate governance structure of Stellantis; and
(h)any matters decided upon by the person(s) convening the meeting and any matters placed on the agenda with due observance of applicable Dutch law.
The Board of Directors will provide the general meeting of shareholders with all requested information, unless this would be contrary to an overriding interest of Stellantis. If the Board of Directors invokes an overriding interest, it must give reasons.
When convening a general meeting of shareholders, the Board of Directors shall determine that, for the purpose of Article 24 and Article 26 of the Articles of Association, persons with the right to vote or attend meetings will be considered those persons who have these rights at the 28th day prior to the day of the meeting (the “Record Date”) and are registered as such in a register to be designated by the Board of Directors for such purpose, irrespective of whether they will have these rights at the date of the meeting. In addition to the Record Date, the notice of the meeting shall further state the manner in which shareholders and other parties with meeting rights may register for the meeting, the final registration date for that general meeting of shareholders (which final registration date will be the seventh day prior to the meeting unless otherwise determined by the Board of Directors (the “Final Registration Date”)) and the manner in which the right to vote or attend the meeting can be exercised.
The general meeting of shareholders shall be presided over by the Chairman, or, in his absence, by the Senior Independent Director or, in the absence of both the Chairman and the Senior Independent Director, by the person chosen by the Board of Directors to act as chairman for such meeting. One of the persons present designated for that purpose by the chairman of the meeting shall act as secretary and take minutes of the business transacted. The minutes shall be adopted by the chairman and secretary of the meeting and signed by them in witness of such adoption. The minutes of the general meeting of shareholders shall be made available, on request, to shareholders no later than three months after the end of the meeting, after which shareholders shall have the opportunity to react to the minutes in the following three months. In the event an amendment to the minutes is required, the amended minutes will then be adopted by the chairman and the secretary of the meeting and signed by them in witness of such adoption. If an official notarial record is made of the business transacted at the meeting then minutes need not be drawn up and it shall suffice that the official notarial record be signed by the notary.
As a prerequisite to attending the general meeting of shareholders and, to the extent applicable, exercising voting rights, the shareholders and other persons entitled to attend the meeting shall be required to inform the Board of Directors in writing of their intention to attend the general meeting of shareholders within the time frame mentioned in the convening notice. At the latest, this notice must be received by the Board of Directors on the Final Registration Date. Shareholders and those permitted by Dutch law to attend the general meetings of shareholders may choose to be represented at any meeting by a proxy duly authorized in writing, provided they notify Stellantis in writing of their wish to be represented at such time and place as shall be stated in the notice of the meeting. Such proxy is also authorized in writing if the proxy is documented electronically. The Board of Directors may determine further rules concerning the deposit of the powers of attorney; these shall be mentioned in the notice of the meeting. The chairman of the meeting shall decide on the admittance to the meeting of persons other than those who are entitled to attend.
For each general meeting of shareholders, the Board of Directors may decide that shareholders shall be entitled to attend, address and exercise voting rights at such a meeting through the use of electronic means of communication, provided that shareholders who participate in the meeting are capable of being identified through the electronic means of communication and have direct cognizance of the discussions at the meeting and the exercising of voting rights (if applicable). The Board of Directors may set requirements for the use of electronic means of communication and state these in the convening notice. Furthermore, the Board of Directors may, for each general meeting of shareholders, decide that votes cast by the use of electronic means of communication prior to the meeting and received by the Board of Directors shall be considered to be votes cast at the meeting. Such votes may not be cast prior to the Record Date. The notice will state whether the foregoing provisions regarding electronic voting apply and the procedure for exercising the electronic voting rights.
Prior to being allowed admittance to a general meeting of shareholders, a shareholder and each person entitled to attend the meeting, or its attorney, shall sign an attendance list, while stating his or her name and, to the extent applicable, the number of votes to which he or she is entitled. Each shareholder and other person attending a general meeting of shareholders by the use of electronic means of communication and identified in accordance with the above shall be registered on the attendance list by the Board of Directors. In case an attorney attends the meeting on behalf of a shareholder or another person entitled to attend, the name(s) of the person(s) on whose behalf the attorney is acting, shall also be stated. The chairman of the meeting may decide that the attendance list must also be signed by other persons present at the meeting.
The chairman of the meeting may determine the time during which shareholders and others entitled to attend the general meeting of shareholders may speak, if he or she considers this desirable, with a view to the orderly conduct of the meeting as well as other procedures that the chairman considers desirable for the efficient and orderly conduct of the business of the meeting.
Stellantis is exempt from the proxy rules under the Exchange Act.
Voting Rights at General Meetings
Subject to the restrictions described under “—Voting Limitations,” every Stellantis share (whether common share or special voting share) shall confer the right to cast one vote at a general meeting of shareholders. Shares in respect of which Dutch law determines that no votes may be cast shall be disregarded for the purposes of determining the proportion of shareholders voting, present or represented or the proportion of the share capital present or represented. All resolutions shall be passed with an absolute majority of the votes validly cast unless otherwise specified in the Articles of Association or the Dutch Civil Code. Blank votes shall not be counted as votes cast.
All votes shall be cast in writing or electronically. The chairman of the meeting may, however, determine that voting by raising hands or in another manner shall be permitted. Voting by acclamation shall be permitted if none of the shareholders present or represented objects. No voting rights shall be exercised in the general meeting of shareholders for shares owned by the Company or by a subsidiary of the Company. However, pledgees and usufructuaries of shares owned by the Company and its subsidiaries shall not be excluded from exercising their voting rights if the right of pledge or usufruct was created before the shares were receivedowned by the Company or a subsidiary. Neither the Company nor any of its subsidiaries may exercise voting rights for shares in respect of which it holds a right of pledge or usufruct.
Without prejudice to the Articles of Association, the Company shall determine for each resolution passed:
(a)the number of shares on which valid votes have been cast;
(b)the percentage that the number of shares as referred to under (a) represents in the issued and outstanding share capital;
(c)the aggregate number of votes validly cast; and
(d)the aggregate number of votes cast in favor of and against a resolution, as well as the number of abstentions.
Voting Limitations
No shareholder, acting alone or in concert, together with votes exercised by affiliates of such shareholder or pursuant to proxies or other arrangements conferring the right to vote, shall be able to exercise, directly or indirectly, voting rights at a general meeting of shareholders reaching or exceeding the Voting Threshold (i.e., 30 percent or more of the votes that could be cast at any general meeting of shareholders), including after giving effect to any voting rights exercisable through Stellantis special voting shares. Any voting right reaching or exceeding the Voting Threshold shall be suspended. Furthermore, the Articles of Association provide that, before each general meeting of shareholders, any shareholder that would be able to exercise voting rights reaching or exceeding the Voting Threshold must notify Stellantis, in writing, of its shareholding and total voting rights in Stellantis and provide, upon written request by Stellantis, within three days of such request being made, any information necessary to ascertain the composition, nature and size of the equity interest of that person and any other person acting in concert with it. The Voting Threshold restriction (i) may be removed following a resolution passed to that effect by the meeting of Stellantis shareholders with a majority of at least two-thirds of the votes cast (for the avoidance of doubt, without giving effect to any voting rights exercisable through Stellantis special voting shares, and subject to the aforementioned Voting Threshold) and (ii) shall lapse upon any person holding more than 50 percent of the issued Stellantis common shares (other than Stellantis special voting shares) as a result of a public offer for Stellantis common shares.
Shareholders’ Votes on Certain Transactions
Any important change in the identity or character of Stellantis must be approved by the general meeting of shareholders, including (i) the transfer to a third party of the business of Stellantis or practically the entire business of Stellantis; (ii) the entry into or breaking off of any long-term cooperation of Stellantis or a subsidiary with another legal entity or company or as a fully liable partner of a general partnership or limited partnership, where such entry into or breaking off is of far-reaching importance to Stellantis; and (iii) the acquisition or disposal by Stellantis or a subsidiary of an interest in the capital of a company with a value of at least one-third of Stellantis’s assets according to the consolidated balance sheet with explanatory notes included in the last adopted annual accounts of Stellantis.
Meetings of Holders of Shares of a Specific Class
Meetings of holders of shares of a specific class shall be held as frequently and whenever such a meeting is required by virtue of any statutory regulation or any provision in the Articles of Association.
Meetings of holders of shares of a specific class may be convened no later than on the sixth day before the day of such meeting. The provisions applicable to general meetings of shareholders, except those concerning the frequency, ultimate timing, notice period, right to put an item on the agenda and required agenda items, will apply mutatis mutandis to the meetings of holders of shares of a specific class. See “—Voting Rights at General Meetings” and “—Voting Limitations”.
Issuance of shares
The general meeting of shareholders, or alternatively the Board of Directors if it has been designated to do so at the general meeting of shareholders shall have authority to resolve on any issuance of shares and rights to subscribe for shares.
The Board of Directors has been irrevocably authorized, for a period of three years from January 16, 2021 to issue common shares and rights to subscribe for common shares up to in aggregate (i) ten percent of the issued common shares for general corporate purposes as of January 16, 2021, plus (ii) an additional ten percent of the issued common shares as of such date, if the issuance and/or the granting of rights to subscribe for common shares occurs in connection with theMerger, acquisition of an enterprise or a corporation, or, if such issuance and/or the basis allocatedgranting of rights to the special voting shares, and (ii) if the special voting shares were received after the requisite holding period on the Loyalty Register, the amount that was included in income upon receipt. Such loss would be a capital loss and would be a long-term capital loss if a U.S. Shareholder has held its special voting sharessubscribe for more than one year. It is also possible that a U.S. Shareholder would not be allowed to recognize a loss upon the redemption of its special voting shares and instead a U.S. Shareholder should increase the basis in its FCA common shares by an amount equal tois otherwise necessary in the basis in its special voting shares. Such basis increase in a U.S. Shareholder’s FCA common shares would decrease the gain, or increase the loss, that a U.S. Shareholder would recognize upon the sale or other taxable disposition of its FCA common shares.
THE U.S. FEDERAL INCOME TAX TREATMENT OF THE LOYALTY VOTING STRUCTURE IS UNCLEAR AND U.S. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS IN RESPECT OF THE CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF SPECIAL VOTING SHARES.
PFIC Considerations—Consequences of Holding FCA Stock
FCA believes that shares of its stock are not stock of a PFIC for U.S. federal income tax purposes, but this conclusion is based on a factual determination made annually and thus is subject to change. As discussed in greater detail below, if shares of FCA stock were to be treated as stock of a PFIC, gain realized (subject to the discussion below regarding a mark-to-market election) on the sale or other disposition of shares of FCA stock would not be treated as capital gain, and a U.S. Shareholder would be treated as if such U.S. Shareholder had realized such gain and certain “excess distributions” ratably over the U.S. Shareholder’s holding period for its shares of FCA stock and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respectopinion of the tax attributableBoard of Directors. The Board of Directors will also be designated, for a period of three years from January 16, 2021 as the authorized body to each such year. With certain exceptions, a U.S. Shareholder’s shareslimit or exclude the rights of FCA stock would be treated as stock in a PFIC if FCA were a PFIC at any time during such U.S. Shareholder’s holding period in the shares. Dividends received from FCA would not be eligible for the special tax rates applicable to qualified dividend income if FCA were treated as a PFIC in the taxable years in which the dividends are paid or in the preceding taxable year (regardlesspre-emption of whether the U.S. holder held shares of FCA stock in such year) but instead would be taxable at rates applicable to ordinary income.
FCA would be a PFIC with respect to a U.S. Shareholder if for any taxable year in which the U.S. Shareholder held shares of FCA stock, after the application of applicable “look-through rules”:
75 percent or more of FCA’s gross income for the taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated partiesshareholders in connection with the active conductforegoing authority of the Board of Directors to issue Stellantis common shares and grant rights to subscribe for Stellantis common shares. Refer to the “Rights of Pre-emption” section elsewhere in this report.
The general meeting of shareholders, or the Board of Directors if so designated in accordance with the Articles of Association, shall decide on the price and the further terms and conditions of issuance, with due observance of what is required in relation thereto under Dutch law and the Articles of Association.
If the Board of Directors is designated by the general meeting of shareholders to have authority to decide on the issuance of shares or rights to subscribe for shares, such a tradedesignation shall specify the class of shares and the maximum number of shares or business,rights to subscribe for shares that can be issued under such a designation. When making such designation the duration of the Board of Directors’ relevant authority, which shall not be for more than five years, shall be resolved upon at the same time. The designation may be extended from time to time for periods not exceeding five years. The designation may not be withdrawn unless otherwise provided in the resolution in which the designation is made.
Payment for shares shall be made in cash unless another form of consideration has been agreed. Payment in a currency other than euro may only be made with the consent of the Board of Directors.
Disclosure of Holdings under Dutch Law
As a result of the listing of Stellantis common shares on the MTA and Euronext Paris, pursuant to Chapter 5.3 of the Dutch Financial Markets Supervision Act (“FMSA”), which chapter is an implementation of Directive 2004/109/EC as definedamended by Directive 2013/50/EU into Dutch law, any person who, directly or indirectly, acquires or disposes of an actual or potential capital interest and/or actual or potential voting rights in applicable Treasury Regulations);Stellantis must without delay notify the AFM of such acquisition or
at least disposal if, as a result of such acquisition or disposal, the percentage of capital interest and/or voting rights held by such person reaches, exceeds or falls below the following thresholds: three percent, five percent, ten percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 percent, 60 percent, 75 percent and 95 percent (the “Notification Thresholds”).
For the purpose of its assetscalculating the percentage of capital interest or voting rights, the following interests must, inter alia, be taken into account: (i) shares and/or voting rights directly held (or acquired or disposed of) by any person; (ii) shares and/or voting rights held (or, acquired or disposed of) by such person’s controlled entities or by a third party for such person’s account; (iii) voting rights held (or acquired or disposed of) by a third party with whom such person has concluded an oral or written voting agreement; (iv) voting rights acquired pursuant to an agreement providing for a temporary transfer of voting rights in consideration for a payment; and (v) shares which such person, or any controlled entity or third party referred to above, may acquire pursuant to any option or other right to acquire shares.
As a consequence of the above, special voting shares must be added to Stellantis common shares for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of passive income.
Because the determination whether a foreign corporation is a PFIC is primarily factual and there is little administrative or judicial authority on which to rely to make a determination, the IRS might not agree that FCA is not a PFIC. Moreover, no assurance can be given that FCA would not become a PFIC for any future taxable year if there were to be changes in FCA’s assets, income or operations.
If FCA were to be treated as a PFIC for any taxable year (and regardless of whether FCA remains a PFIC for subsequent taxable years), each U.S. Shareholder that is treated as owning FCA stock for purposes of the PFICabove thresholds.
For the purpose of calculating the percentage of capital interest or voting rights, the following instruments qualify as ‘shares’: (i) shares; (ii) depositary receipts for shares (or negotiable instruments similar to such receipts); (iii) negotiable instruments for acquiring the instruments under (i) or (ii) (such as convertible bonds); and (iv) options for acquiring the instruments under (i) or (ii).
Controlled entities (within the meaning of the FMSA) do not themselves have notification obligations under the FMSA as their direct and indirect interests are attributed to their (ultimate) parent. If a person who has a three percent or larger interest in Stellantis’s share capital or voting rights ceases to be a controlled entity it must immediately notify the AFM and all notification obligations under the FMSA will become applicable to such former controlled entity.
Special rules apply to the attribution of shares and/or voting rights which are part of the property of a partnership or other form of joint ownership. A holder of a pledge or right of usufruct in respect of shares can also be subject to notification obligations if such person has, or can acquire, the right to vote on the shares. The acquisition of (conditional) voting rights by a pledgee or beneficial owner may also trigger notification obligations as if the pledgee or beneficial owner were the legal holder of the shares and/or voting rights.
Furthermore, when calculating the percentage of capital interest, a person is also considered to be in possession of shares if (i) would be liable to pay U.S. federal income tax atsuch person holds a financial instrument the highest applicable income tax rates on (a) ordinary income uponvalue of which is (in part) determined by the receiptvalue of excess distributions (the portion ofthe shares or any distributions received by the U.S. Shareholder on FCA stock in a taxable year in excess of 125 percent of the average annual distributions received by the U.S. Shareholder in the three preceding taxable years or, if shorter, the U.S. Shareholder’s holding period for the FCA stock)associated therewith and (b) onwhich does not entitle such person to acquire any gain from the disposition of FCA stock, plus interest onshares; (ii) such amounts, as if such excess distributions or gain had been recognized ratably over the U.S. Shareholder’s holding period of the FCA stock, and (ii)person may be required to annually file Form 8621 withpurchase shares on the IRS reporting information concerning FCA.basis of an option; or (iii) such person has concluded another contract whereby such person acquires an economic interest comparable to that of holding a share.
If FCA werea person’s capital interest and/or voting rights reaches, exceeds or falls below the above-mentioned thresholds as a result of a change in Stellantis’s issued and outstanding share capital or voting rights, such person is required to make a notification not later than on the fourth trading day after the AFM has published Stellantis’s notification as described below.
The notification to the AFM should indicate whether the interest is held directly or indirectly, and whether the interest is an actual or a potential interest.
In addition, each person who is or ought to be treatedaware that, as a PFIC for any taxable year and provided that FCA common shares are treated as “marketable stock” within the meaning of applicable Treasury Regulations, which FCA believes will be the case, a U.S. Shareholder may make a mark-to-market election. Under a mark-to-market election, any excessresult of the fair market valueexchange of the FCA commoncertain financial instruments, such as options for shares, at the close of any taxable year over the U.S. Shareholder’s adjusted tax basishis or her actual capital or voting interest in the FCA common shares is included in the U.S. Shareholder’s income as ordinary income. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend incomeStellantis, reaches, exceeds or long-term capital gains. In addition, the excess, iffalls below any of the U.S. Shareholder’s adjusted tax basis atNotification Thresholds, vis-à-vis his or her most recent notification to the closeAFM, must give notice to the AFM no later than the fourth trading day after he or she became or ought to be aware of this change.
Stellantis is required to notify the AFM promptly of any taxable year overchange of one percent or more in its issued and outstanding share capital or voting rights since a previous notification. Other changes in Stellantis’s issued and outstanding share capital or voting rights must be notified to the fair market valueAFM within eight days after the end of the FCA common shares is deductiblequarter in an amount equalwhich the change occurred.
In addition to the lesserabove described notification obligations pertaining to capital interest or voting rights, pursuant to Regulation (EU) No. 236/2012, as last amended by ESMA Decision of December 16, 2020, ESMA70-155-11608, notification must be made of any net short position of 0.1 percent in the issued share capital of Stellantis and of every subsequent 0.1 percent above this threshold. Notifications starting at 0.5 percent and every subsequent 0.1 percent above this threshold will be made public via the short selling register of the amount of the excessAFM. To calculate whether a natural person or the amount of thelegal person has a net mark-to-market gainsshort position, their short positions and long positions must be set off. A short transaction in a share can only be contracted if a reasonable case can be made that the U.S. Shareholder included in income in prior years. A U.S. Shareholder’s tax basis in FCA common shares wouldsold can actually be adjusted to reflect any such income or loss. Gain realized on the sale, exchange or other dispositiondelivered, which requires confirmation of FCA common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of FCA common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Shareholder. It is not expecteda third party that the special voting shares would be treated as “marketable stock” and eligible for the mark-to-market election.
The adverse consequences of owning stock in a PFIC could also be mitigated if a U.S. Shareholder makes a valid “qualified electing fund” election, or QEF election, which, among other things, would require a U.S. Shareholder to include currently in income its pro rata share of the PFIC’s net capital gain and ordinary earnings, based on earnings and profits as determined for U.S. federal income tax purposes. Because of the administrative burdens involved, FCA does not intend to provide information to its shareholders that would be required to make such election effective.
A U.S. Shareholder which holds FCA stock during a period when FCA is a PFIC will be subject to the foregoing rules for that taxable year and all subsequent taxable years with respect to that U.S. Shareholder’s holding of FCA stock, even if FCA ceases to be a PFIC, subject to certain exceptions for U.S. Shareholders which made a mark-to-market or QEF election. U.S. Shareholdershave been located. Furthermore, gross short positions are strongly urged to consult their tax advisors regarding the PFIC rules, and the potential tax consequences to them if FCA were determined to be a PFIC.
Medicare Tax on Net Investment Income
A U.S. person that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8 percent tax, the Medicare tax, on the lesser of (i) the U.S. person’s “net investment income” (or undistributed net investment income in the case of an estate or trust) for the relevant taxable year and (ii) the excess of the U.S. person’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between U.S.$125,000 and U.S.$250,000, depending on the individual’s circumstances). A shareholder’s net investment income generally includes its dividend income and its net gains from the disposition of shares, unless such dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If a shareholder is a U.S. person that is an individual, estate or trust, the shareholder is urged to consult the shareholder’s tax advisors regarding the applicability of the Medicare tax to the shareholder’s income and gains in respect of the shareholder’s investment in FCA stock.
Information with Respect to Foreign Financial Assets
Owners of “specified foreign financial assets” with an aggregate value in excess of U.S.$50,000, (and in some cases, a higher threshold) may be required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons; (ii) financial instruments and contracts that have non-U.S. issuers or counterparties; and (iii) interests in foreign entities. U.S. Shareholders are urged to consult their tax advisors regarding the application of this legislation to their ownership of FCA stock.
Backup Withholding and Information Reporting
Information reporting requirements for a noncorporate U.S. Shareholder, on IRS Form 1099, will apply to:
dividend payments or other taxable distributions made to such U.S. Shareholder within the U.S.; and
the payment of proceeds to such U.S. Shareholder from the sale of FCA stock effected at a U.S. office of a broker.
Additionally, backup withholding (currently at a 28 percent rate) may apply to such payments to a non-corporate U.S. Shareholder that:
fails to provide an accurate taxpayer identification number;
is notified by the IRS that such U.S. Shareholder has failed to report all interest and dividends required to be shown on such U.S. Shareholder’s federal income tax returns;notified in the event that a threshold is reached, exceeded or
in certain circumstances, fails fallen below. With regard to comply with applicable certification requirements.
A person may obtain a refund of any amounts withheld undergross short positions, the backup withholding rules that exceed the person’s income tax liability by properly filing a refund claim with the IRS.
Material Netherlands Tax Consequences
This section describes solely the material Dutch tax consequences of the acquisition, ownership and disposal of FCA common shares and, if applicable, FCA special voting shares by Non-resident holders of such shares (as defined below). It does not consider every aspect of Dutch taxation that may be relevant to a particular holder of FCA common shares and, if applicable, FCA special voting shares in special circumstances or who is subject to special treatment under applicable law. Shareholders and any potential investor should consult their own tax advisors regarding the Dutch tax consequences of acquiring, owning and disposing of FCA common shares and, if applicable, FCA special voting shares in their particular circumstances.
Where in this section English terms and expressions are used to refer to Dutch concepts, the meaning to be attributed to such terms and expressions shall be the meaning to be attributed to the equivalent Dutch concepts under Dutch tax law. Where in this section the terms “the Netherlands” and “Dutch” are used, these refer solely to the European part of the Kingdom of the Netherlands. This summary also assumes that the board shall control the conduct of the affairs of FCA and shall procure that FCA is organized in accordance with the facts, based upon which the competent authorities of the United Kingdom and The Netherlands have ruled that FCA should be treatedsame disclosure thresholds as solely resident of the United Kingdom for the application of the tax treaty as concluded between the United Kingdom and The Netherlands. A change in facts and circumstances based upon which the ruling was issued may invalidate the contents of this section, which will not be updated to reflect any such change.
This description is based on the tax law of the Netherlands (unpublished case law not included) as it stands at the date of this Form. The law upon which this description is based is subject to change, possibly with retroactive effect. Any such change may invalidate the contents of this description, which will not be updated to reflect such change.
Where in this Dutch taxation discussion reference is made to “a holder of FCA common shares and, if applicable, FCA special voting shares”, that concept includes, without limitation:
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1. | an owner of one or more FCA common shares and/or FCA special voting shares who in addition to the title to such FCA common shares and/or FCA special voting shares, has an economic interest in such FCA common shares and/or FCA special voting shares; |
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2. | a person who or an entity that holds the entire economic interest in one or more FCA common shares and/or FCA special voting shares; |
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3. | a person who or an entity that holds an interest in an entity, such as a partnership or a mutual fund, that is transparent for Dutch tax purposes, the assets of which comprise one or more FCA common shares and/or FCA special voting shares, within the meaning of 1. or 2. above; or |
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4. | a person who is deemed to hold an interest in FCA common shares and/or FCA special voting shares, as referred to under 1. to 3., pursuant to the attribution rules of article 2.14a, of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001), with respect to property that has been segregated, for instance in a trust or a foundation.
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Scope of the summary
The summary of Dutch taxes set out in this section “Material Dutch tax consequences” only applies to a holder of FCA common shares and, if applicable FCA special voting shares who is a Non-Resident holder of such shares. For the purpose of this summary a holder of FCA common shares and, if applicable FCA special voting shares is a Non-Resident holder of such shares if such holder is neither a resident nor deemed to be resident in The Netherlands for purposes of Dutch income tax or corporation tax as the case may be.
This summary does not describe the tax considerations for holders of FCA common sharescapital interests and/or voting rights apply.
The AFM keeps a public register of all notifications made pursuant to these disclosure obligations and if applicable FCA special voting shares who are individualspublishes any notification received which can be accessed via www.afm.nl. The notifications referred to in this paragraph should be made through the online notification system of the AFM.
Non-compliance with these disclosure obligations is an economic offense and derive benefits from FCA common sharesmay lead to criminal prosecution. The AFM may impose administrative penalties for non-compliance and if applicable FCA special voting sharesmay publish the imposed penalties. In addition, a civil court can impose measures against any person that are a remunerationfails to notify or deemedincorrectly notifies the AFM of matters required to be notified. A claim requiring that such measures be imposed may be instituted by Stellantis and/or by one or more shareholders who alone or together with others represent at least three percent of the issued and outstanding share capital of Stellantis or are able to exercise at least three percent of the voting rights. The measures that the civil court may impose include:
•an order requiring appropriate disclosure;
•suspension of the right to exercise the voting rights for a remuneration in connectionperiod of up to three years as determined by the court;
•voiding a resolution adopted by the general meeting of shareholders, if the court determines that the resolution would not have been adopted but for the exercise of the voting rights of the person with past, presenta duty to disclose, or future employment performed in The Netherlands or management activities and functions or membershipsuspension of a management board (bestuurder) orresolution adopted by the general meeting of shareholders until the court makes a supervisory board (commissaris) of a Netherlands resident entity bydecision about such holder or certain individuals relatedvoiding; and
•an order to such holder (as defined in The Dutch Income Tax Act 2001).
Taxes on income and capital gains
A Non-Resident holder (as defined above) of FCA common shares and, if applicable, FCA special voting shares will not be subject to any Dutch taxes on income or capital gains in respect of any benefits derived or deemed to be derived by such holder from such holder’s FCA common shares and, if applicable, FCA special voting shares, including any capital gain realized on the disposal thereof, unless:
such holder derives profits from an enterprise directly, or pursuant to a co-entitlement to the net value of such enterprise, other than as a holder of securities, which enterprise either is managed in the Netherlands or carried on, in whole or in part, through a permanent establishment or a permanent representative which is taxable in the Netherlands, and such holder’s FCA common shares and, if applicable, FCA special voting shares are attributable to such enterprise; or
such holder is an individual and such holder derives benefits from FCA common shares and, if applicable, FCA special voting shares that are taxable as benefits from miscellaneous activities (resultaat uit overige werkzaamheden) in the Netherlands. Such holder may, inter alia, derive, or be deemed to derive, benefits from FCA common shares and, if applicable, FCA special voting shares that are taxable as benefits from miscellaneous activities if such holder’s investment activities go beyond the activities of an active portfolio investor, for instance in the case of use of insider knowledge or comparable forms of special knowledge.
Benefits derived or deemed to be derived from certain miscellaneous activities by a child or a foster child who is under eighteen years of age are attributed to the parent who exercises, or the parents who exercise, authority over the child, irrespective of the country of residence of the child.
Dividend withholding tax
FCA is generally required to withhold Dutch dividend withholding tax at a rate of 15 percent from dividends distributed by it. However, the competent authorities of the United Kingdom and The Netherlands have ruled that FCA is resident of the United Kingdom for the application of the tax treaty as concluded between The Netherlands and the United Kingdom. Consequently payments made by FCA on the common shares and or the special voting shares to non-resident shareholders may be made free from Dutch dividend withholding tax.
Gift and inheritance taxes
If a holder of FCA common shares and, if applicable, FCA special voting shares disposes of FCA common shares and, if applicable, FCA special voting shares by way of gift, in form or in substance, or if a holder of FCA common shares and, if applicable, FCA special voting shares who is an individual dies, no Dutch gift tax or Dutch inheritance tax, as applicable, will be due, unless:
the donor is, or the deceased was, resident or deemed to be resident in the Netherlands for purposes of Dutch gift tax or Dutch inheritance tax, as applicable; or
the donor made a gift of FCA common shares and, if applicable, FCA special voting shares, then became a resident or deemed resident of the Netherlands, and died as a resident or deemed resident of the Netherlands within 180 days of the date of the gift.
For purposes of the above, a gift of FCA common shares and, if applicable, FCA special voting shares made under a condition precedent is deemed to be made at the time the condition precedent is satisfied.
Value Added Tax
No Dutch value added tax will arise in respect of any payment in consideration for the issue of FCA common shares and, if applicable, FCA special voting shares.
Registration taxes and duties
No Dutch registration tax, transfer tax, stamp duty or any other similar documentary tax or duty, other than court fees, is payable in the Netherlands by a holder in respect of or in connection with (i) the subscription, issue, placement or allotment of FCA common shares and, if applicable, FCA special voting shares, (ii) the enforcement by way of legal proceedings (including the enforcement of any foreign judgment in the courts of the Netherlands) of the documents relating to the issue of FCA common shares and, if applicable, FCA special voting shares or the performance by FCA of FCA’s obligations under such documents, or (iii) the transfer of FCA common shares and, if applicable, FCA special voting shares.
Material UK Tax Consequences
This section describes the material United Kingdom tax consequences of the ownership of FCA common shares for U.S. Shareholders. It does not purport to be a complete analysis of all potential UK tax consequences of holding FCA common shares. This section is based on current UK tax law and what is understood to be the current practice of H.M. Revenue and Customs, as well as on applicable tax treaties. This law and practice and these treaties are subject to change, possibly on a retroactive basis.
This section applies only to shareholders of FCA that are U.S. Shareholders, that are not resident or domiciled in the UK, that are not individuals temporarily non-resident in the UK forrefrain, during a period of up to five years as determined by the court, from acquiring shares and/or voting rights in Stellantis.
Shareholders are advised to consult with their own legal advisers to determine whether the disclosure obligations apply to them.
Mandatory Bid Requirement
Under Dutch law, any person who, acting alone or in concert with others, directly or indirectly acquires 30 percent or more of Stellantis’s voting rights will be required to launch a public offer for all outstanding shares in Stellantis’s share capital for a fair purchase price determined by law. A fair price is considered a price which is equal to the highest price paid by such person or the persons acting in concert with it for Stellantis’s shares in the year prior to the announcement of the offer or, in the absence of such a purchase, the average share price of Stellantis’s shares in the year prior to the announcement of the offer. At the request of the offeror, Stellantis, or any of the Stellantis shareholders, the Enterprise Chamber of the Court of Appeal in Amsterdam (Ondernemingskamer van het Gerchtshof te Amsterdam) (the “Dutch Enterprise Chamber”) may determine a different fair price. If a 30 percent shareholder fails to make a public offer, the Dutch Enterprise Chamber may require such shareholder to do so upon the request of, among others, Stellantis or any of the Stellantis shareholders.
Dutch Financial Reporting Supervision Act
On the basis of the Dutch Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving, or the “FRSA”), the AFM supervises the application of financial reporting standards by, amongst others, companies whose corporate seat is in the Netherlands and whose securities are listed on a regulated Dutch or foreign stock exchange.
Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from Stellantis regarding its application of the applicable financial reporting standards and (ii) recommend to us the making available of further explanations. If we do not comply with such a request or recommendation, the AFM may request that holdthe Enterprise Chamber order us to (i) make available further explanations as recommended by the AFM; (ii) provide an explanation of the way we have applied the applicable financial reporting standards to our financial reports; or (iii) prepare our financial reports in accordance with the Enterprise Chamber’s instructions.
Compulsory Acquisition
Pursuant to article 2:92a of the Dutch Civil Code, a shareholder who, for its own account, holds at least 95 percent of the issued share capital of Stellantis may institute proceedings against the other shareholders jointly for the transfer of their shares as an investment (other than through an individual savings account),to it. The proceedings are held before the Dutch Enterprise Chamber and that arecan be instituted by means of a writ of summons served upon each of the absolute beneficial ownerminority shareholders in accordance with the provisions of boththe Dutch Code of Civil Procedure. The Dutch Enterprise Chamber may grant the claim for the squeeze-out in relation to all minority shareholders and will determine the price to be paid for the shares, if necessary after appointment of one to three expert(s) who will offer an opinion to the Dutch Enterprise Chamber on the value to be paid for the shares of the minority shareholders. Once the order to transfer becomes final before the Dutch Enterprise Chamber, the person acquiring the shares must give written notice of the date and any dividends paid on them. This section does not applyplace of payment and the price to membersthe holders of any special classthe shares to be acquired whose addresses are known to it. Unless the addresses of shareholders subjectall of them are known to special rules, such as:it, it must also publish the same in a Dutch daily newspaper with a national circulation. A shareholder can only appeal against the judgment of the Dutch Enterprise Chamber before the Dutch Supreme Court.
a charity;
persons acquiring their shares in connection with an office or employment;
a dealer in securities;
an insurance company; or
a collective investment scheme.
In addition, this section may not apply to:pursuant to article 2:359c of the Dutch Civil Code, following a public offer, a holder of at least 95 percent of the issued share capital and of voting rights of Stellantis has the right to require the minority shareholders to sell their shares to it. Any such request must be filed with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer. Conversely, pursuant to article 2:359d of the Dutch Civil Code, each minority shareholder has the right to require the holder of at least 95 percent of the issued share capital and the voting rights of Stellantis to purchase its shares in such a case. The minority shareholder must file such a claim with the Dutch Enterprise Chamber within three months after the end of the acceptance period of the public offer.
Disclosure of Trades in Listed Securities
Pursuant to the FMSA, each member of the Board of Directors must notify the AFM:
•within two weeks after his or her appointment of the number of shares he or she holds and the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital; and
•subsequently of each change in the number of shares he or she holds and of each change in the number of votes he or she is entitled to cast in respect of Stellantis’s issued and outstanding share capital, immediately after the relevant change.
Furthermore, pursuant to Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 (as amended and supplemented, the “Market Abuse Regulation”), each of the members of the Board of Directors and any shareholdersother person discharging managerial responsibilities within Stellantis and who in that either alone or together, with one or more associated persons, such as personal trustscapacity is authorized to make decisions affecting the future developments and connected persons, controlbusiness prospects of Stellantis and has regular access to inside information relating, directly or indirectly, to Stellantis (each, a “PDMR”) must notify the AFM of all transactions, conducted or carried out for his or her own account, relating to Stellantis common shares, special voting shares or financial instruments the value of which is (in part) determined by the value of Stellantis common shares or special voting shares.
In addition, persons that are closely associated with members of the Board of Directors or any of the other PDMRs must notify the AFM of all transactions conducted for their own account relating to Stellantis’s shares or financial instruments, the value of which is (in part) determined by the value of Stellantis’s shares. The Market Abuse Regulation designates the following categories of persons: (i) the spouse or any partner considered by applicable law as equivalent to the spouse; (ii) dependent children; (iii) other relatives who have shared the same household for at least ten percentone year as of the voting rightsrelevant transaction date; and (iv) any legal person, trust or partnership, among other things, whose managerial responsibilities are discharged by a member of the board of directors or any other PDMR or by a person referred to under (i), (ii) or (iii) above.
The notifications pursuant to the Market Abuse Regulation described above must be made to the AFM no later than the third business day following the relevant transaction date by means of a standard form. Such notifications under the Market Abuse Regulation may however be postponed until the date that the value of the transactions carried out on a person’s own account, together with the transactions carried out by the persons associated with that person, reaches or exceeds the amount of €5,000 in the calendar year in question. Any subsequent transaction must be notified as set forth above. The AFM keeps a public register of all notifications made pursuant to the FMSA and the Market Abuse Regulation.
Non-compliance with these reporting obligations could lead to criminal penalties, administrative fines and cease-and-desist orders (and the publication of such penalties, fines and orders), imprisonment or other sanctions.
Shareholder Disclosure and Reporting Obligations under U.S. Law
Holders of Stellantis common shares are subject to certain U.S. reporting requirements under the Exchange Act for shareholders owning more than five percent of any class of equity securities registered pursuant to Section 12 of the Exchange Act. Among the reporting requirements are disclosure obligations intended to keep investors aware of any plans or proposals that may lead to a change of control of an issuer.
If Stellantis were to fail to qualify as a foreign private issuer in the future, Section 16(a) of the Exchange Act would require Stellantis’s directors and executive officers, and persons who own more than ten percent of a registered class of Stellantis’s equity securities, to file reports of ownership of, and transactions in, Stellantis’s equity securities with the SEC. Such directors, executive officers and ten percent stockholders would also be required to furnish Stellantis with copies of all Section 16 reports they file.
Disclosure Requirements under Italian law and European Union law
Further disclosure requirements will apply to Stellantis under Italian law and French law by virtue of the listing of Stellantis’s shares on the MTA and Euronext Paris, respectively. Summarized below are the most significant requirements to be complied with by Stellantis in connection with the admission to trading of Stellantis common shares on the MTA and the admission to listing and trading on Euronext Paris. The breach of the obligations described below may result in the application of fines and criminal penalties (including, for instance, those provided for insider trading and market manipulation).
In particular, the following main disclosure obligations will apply to Stellantis:
•The following articles of Legislative Decree no. 58/1998, or the Italian Financial Act (as well as the implementing regulations enacted by CONSOB thereunder) effective as of the date of this report: article 92 (equal treatment principle), article 113-ter (general provisions on regulated disclosures), article 114 (information to be provided to the public), article 114-bis (information concerning the allocation of financial instruments to corporate officers, employees and collaborators), article 115 (information to be disclosed to CONSOB upon the authority’s request), articles 180 through 187-quaterdecies (relating to insider trading and market manipulation) and article 193 (fines for breach of disclosures duties);
•the General Regulation of the AMF, article 223-16 (obligation to disclose on a monthly basis the total number of shares and voting rights comprising Stellantis’s share capital if these numbers have changed compared to the most recently disclosed numbers) and article 223-20 (obligation to file with the AMF certain changes to the Articles of FCA;Association). The information required to be published in France may be published in French or English; and
•the applicable law concerning market abuse and, in particular, article 7 (Inside information), article 17 (Public disclosure of inside information), article 18 (Insider lists) and article 19 (Managers’ transactions) of the Market Abuse Regulation, as well as implementing regulations promulgated thereunder.
In addition to the above, the applicable provisions set forth under the market rules (including those relating to the timing for the payment of dividends and relevant “ex date” and “record date”) will apply to Stellantis.
The foregoing is based on the current legal framework and, therefore, it may vary following any person holding shares aspotential regulatory changes adopted by the concerned member states and competent authorities.
Disclosure of Inside Information - Article 17 of the Market Abuse Regulation
Pursuant to the Market Abuse Regulation, Stellantis has to disclose to the public, without delay, any inside information which: (i) is of a borrowerprecise nature; (ii) has not been made public; (iii) directly concerns Stellantis; and (iv) if it were made public, would be likely to have a significant effect on the prices of Stellantis’s financial instruments (as such term is defined under the Market Abuse Regulation) or on the price of related derivative financial instruments (the “Inside Information”). In this regard:
•information is deemed to be of a stock loanprecise nature if: (a) it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an interim holder underevent which has occurred, or which may reasonably be expected to occur and (b) it is specific enough to enable a repo.
Shareholders should consult their own tax advisorsconclusion to be drawn as to the possible effect of that set of circumstances or event on the UK tax consequencesprices of owning and disposing of FCAthe financial instruments (e.g., Stellantis’s common shares in their particular circumstances.
Tax Consequences of Owning FCA Common Shares
Taxation of Dividends
Dividend payments may be made without withholdingshares) or deduction for or on account of UK income tax.
A U.S. Shareholder will not be liable to account for income or corporation tax in the UK on dividends paid on the shares unless the shareholder carries on a trade (or profession or vocation) in the UK and the dividends are either a receipt of that trade or,related derivative financial instrument. In this respect, in the case of corporation tax,a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the sharesintermediate steps of that process which are heldconnected with bringing about or resulting in those future circumstances or that future event, may be deemed to be information of precise nature.
•information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments or the related derivative financial instruments means information a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
An intermediate step in a protracted process is deemed to be Inside Information if, by itself, it satisfies the criteria of Inside Information as referred to above.
The above disclosure requirement has to be complied with through the publication of a press release by Stellantis in accordance with the Market Abuse Regulation and Dutch, Italian and French law, which discloses to the public the relevant Inside Information. In addition, any Inside Information disseminated by Stellantis in any jurisdiction is required to be made public in a manner that permits full and prompt access to, and correct and timely evaluation of, such information by the public in compliance with the Market Abuse Regulation.
Under specific circumstances, the AFM, CONSOB and the AMF may request Stellantis and/or its main shareholders to disclose to the public, or provide, specific information or documentation. For this purpose, the AFM, CONSOB and the AMF have broad powers under applicable EU regulations, as well as Italian and French law, to, among other things, carry out inspections or investigations or request information from the members of the Board of Directors or the external auditors.
Stellantis may, under its own responsibility, delay disclosure to the public of Inside Information provided that all of the following conditions are met: (a) immediate disclosure is likely to prejudice the legitimate interests of Stellantis; (b) delay of disclosure is not likely to mislead the public; and (c) Stellantis is able to ensure the confidentiality of that information.
In the case of a protracted process that occurs in stages and that is intended to bring about, or that results in, a particular circumstance or a particular event, Stellantis may under its own responsibility delay the public disclosure of Inside Information relating to this process, subject to the conditions set forth under (a), (b) and (c) above.
Insiders’ List - Article 18 of the Market Abuse Regulation
Stellantis, as well as persons acting on its behalf or on its account, are required to draw up and keep regularly updated, a list of all persons who have access to Inside Information and who are working for them under a contract of employment, or otherwise performing tasks pursuant to which they have access to Inside Information, such as advisers, accountants or credit rating agencies (the “insider list”).
Stellantis, or any person acting on its behalf or on its account, is required to take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of Inside Information.
Prohibition on Insider Dealing – Article 14 of the Market Abuse Regulation
It is prohibited for any person to make use of inside information by acquiring or disposing of, for its own account or for the account of a UK permanent establishment throughthird party, directly or indirectly, financial instruments to which that information relates, as well as an attempt to do so (“insider dealing”). The use of inside information by cancelling or amending of an order concerning a financial instrument also constitutes insider dealing. In addition, it is prohibited for any person to disclose inside information to anyone else (except where the disclosure is made strictly as part of the person’s regular duty or function) or, whilst in possession of inside information, recommend or induce anyone to acquire or dispose of financial instruments to which the tradeinformation relates. Furthermore, it is carried on (unless, if certain conditions are met,prohibited for any person to engage in or attempt to engage in market manipulation, for instance by conducting transactions which could lead to an incorrect or misleading signal of the trade is carried on through an independent brokersupply of, the demand for or investment manager).the price of a financial instrument.
Taxation
Prohibition to Trade During Closed Periods – Article 19 of Capital Gainsthe Market Abuse Regulation
A disposal of FCA common shares by a shareholder thatPDMR is not resident inpermitted to (directly or indirectly) conduct any transactions on its own account or for the United Kingdom for tax purposes will not give riseaccount of a third party, relating to shares or debt instruments of the Company or other financial instruments linked thereto, during a chargeable gainclosed period of 30 calendar days before the announcement of an annual or allowable loss unless that shareholder carries on a trade, profession or vocation insemi-annual financial report of the United Kingdom through a branch, agency or permanent establishment (excluding, if certain conditions are met, an independent broker or investment manager) and has used, held or acquired FCA common sharesCompany.
Transparency Directive
The Netherlands is the Company’s home member state for the purposes of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 (as amended by Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013) as a consequence of which the Company will be subject to the FMSA in respect of certain ongoing transparency and disclosure obligations.
Public Tender Offers
Certain rules provided for under Italian law with respect to both voluntary and mandatory public tender offers will apply to any offer launched for Stellantis common shares. In particular, among other things, the provisions concerning the tender offer price and the procedure, including the obligation to communicate the decision to launch a tender offer, the content of the offer document and the disclosure of the tender offer will be supervised by CONSOB and will be subject to Italian law.
Stellantis Policies
On January 17, 2021, the Board of Directors approved an amended insider trading policy, as described further below under “—Insider Trading Policy”.
On the same day, the Board of Directors resolved that, trade, profession or vocation orfor a transitional period to be further determined by the Board of Directors, the FCA code of conduct and other corporate and compliance policies (other than FCA's insider trading policy) as in place immediately prior to the merger shall remain applicable to the former FCA business, and the PSA code of ethics and other corporate and compliance policies (other than PSA's insider trading policy) as in place immediately prior to the merger shall remain applicable to the former PSA business. The description below refers to the policies governing the former FCA business. The Company is currently engaged in the harmonization of the former FCA and PSA corporate and compliance policies, with the objective of adopting group-wide Stellantis policies as soon as practicable.
Code of Conduct
During the year ended December 31, 2020, FCA and all of its subsidiaries referred to the principles contained in the FCA Code of Conduct (“FCA Code of Conduct”), as approved by the Board of Directors on April 29, 2015 and updated in January 2017.
The FCA Code of Conduct applied to all board members and officers of FCA and its subsidiaries, as well as full-time and part-time employees of FCA and any of its subsidiaries. The FCA Code of Conduct also applied to all temporary, contract and all other individuals and companies that branch, agency or permanent establishment.acted on behalf of FCA, wherever they were located in the world.
The FCA Code of Conduct represented a set of values recognized, adhered to and promoted by the FCA Group, which understood that conduct based on the principles of diligence, integrity and fairness is an important driver of social and economic development. The FCA Code of Conduct provided a pillar of the integrity system which regulated the decision-making processes and operating approach of the FCA Group and its employees in the interests of stakeholders. The FCA Code of Conduct amplified aspects of conduct related to economic, social and environmental dimensions, underscoring the importance of dialog with stakeholders. Explicit reference was made in the FCA Code of Conduct to the UN’s Universal Declaration on Human Rights, the principal Conventions of the International Labor Organization (“ILO”), the OECD Guidelines for Multinational Enterprises, the U.S. Foreign Corrupt Practices Act (“FCPA”) and United Kingdom Bribery Act (“UKBA”).
The FCA Code of Conduct was supplemented by Practices aimed to provide specific guidance to all workforce members on how to effectively apply the Principles under the FCA Code of Conduct in relation to various topics such as: the Environment, Health and Safety, Anti-corruption, Suppliers, Respect of Human Rights, Conflicts of Interest, Data Privacy, Information Assets Protection, Antitrust and Export controls. Moreover FCA published on the FCA Website an updated version of the Company Sustainability Guidelines to cover specific business matters detailing FCA’s accountability and commitment to a culture of responsibility and integrity.
FCA endeavored to ensure that the FCA Code of Conduct was regarded as a best practice of business conduct and Stamp Duty Reserve Taxobserved by those third parties with whom it maintained business relationships of a lasting nature such as suppliers, dealers, advisors and agents. In fact, FCA Group contracts worldwide included specific clauses relating to recognition and adherence to the principles underlying the FCA Code of Conduct, as well as compliance with local regulations, particularly those related to corruption, money-laundering, terrorism and other crimes constituting liability for legal persons.
No liabilityFollowing completion of the merger, the former FCA and PSA businesses initially continued to UK stamp dutyapply their own existing codes of conduct, up to the adoption by the Stellantis Board of Directors of the new code of conduct for Stellantis (the “Stellantis Code of Conduct”) at its meeting on March 2, 2021.
The Stellantis Code of Conduct continues to be a pillar of the integrity system, regulating the decision-making processes and operating approach of the Group and its employees in the interests of stakeholders. Integrity is regarded as a source of competitiveness, a foundation of the Group’s sustainable growth and the way to build day after day Stellantis’s reputation as a Company that customers, the workforce and stakeholders can trust and rely on. The Stellantis Code of Conduct sets the ethical principles of integrity that will guide the Group and its workforce ensuring compliance with laws, regulations and best practices.
Explicit reference is made to the United Nations (“UN”) declaration on human rights and the ILO declaration on fundamental principles and rights at work.
The Stellantis Code of Conduct applies to the members of the Stellantis Board of Directors, officers and to all full-time or Stamp Duty Reserve Tax (“SDRT”) will arisepart-time employees, temporary workers and contract workers. Based on the issueStellantis Code of Conduct, Stellantis also expects its stakeholders, including suppliers, dealers, distributors, and Joint Venture partners, to act with integrity and in accordance with the Stellantis Code of Conduct.
The Stellantis Code of Conduct focuses on four main areas:
(a)the protection of the Stellantis workforce, including a commitment to diversity, fairness, and health and safety;
(b)the way Stellantis conducts business by engaging in sustainable practices, with a specific reference to the environmental protection, and in accordance with applicable law, including vehicle safety and emissions laws and regulations, anti-money laundering, competition, export and trade regulations, insider trading, data privacy, anti-bribery and private corruption, lobby and political contribution;
(c)the interaction with external parties, including the avoidance of conflicts of interest and the support of our communities; and
(d)the protection of Stellantis assets and information.
The Stellantis Code of Conduct, like its FCA predecessor, will be supplemented by a set of policies and procedures, that will be developed based on a process of harmonization of the former FCA and PSA ethics and compliance policies.
Members of the workforce have the responsibility to become familiar with the Stellantis Code of Conduct, abide by it, and report any conduct that they believe may be in violation of the Stellantis Code of Conduct. Retaliation against anyone who reports a matter in good faith is strictly prohibited and will be subject to disciplinary action.
Stellantis, and previously FCA, closely monitors the effectiveness of and compliance with the Stellantis Code of Conduct (and previously the FCA Code of Conduct). Violations of the Stellantis Code of Conduct are essentially determined through, among others: periodic activities carried out by Internal Audit according to the annual Audit Plan that is based on a group risk assessment process; allegations received; and checks forming part of the standard operating procedures. Internal Audit investigates violations of the Stellantis Code of Conduct also through specific Business Ethics Audits. On a regular basis, the Chief Audit and Compliance Officer informs the Chief Executive Officer and the Audit Committee on the major findings. For all Stellantis Code of Conduct violations, disciplinary measures taken are commensurate with the seriousness of the case and comply with local legislation.
The Stellantis Code of Conduct is available on the Governance section of the Group’s website at https://www.stellantis.com/en/group/governance/corporate-regulations.
Insider Trading Policy
The insider trading policy was initially adopted on October 10, 2014 by the board of directors of Fiat Investments. This policy was amended by the Board of Directors of FCA common shareson July 28, 2016 following the new applicable law concerning market abuse and, in particular, the MAR Regulation and its implementing regulations; the policy was further revised by the Board of Directors on October 2, 2019, effective as of November 4, 2019, to shareholders. FCA will not maintain any share register inimprove its effectiveness and scope. On January 17, 2021, the UK and, accordingly, (i) UK stamp duty will not normally be payableBoard of Directors amended the policy in connection with a transferthe listing of Stellantis’s common shares on Euronext Paris. The insider trading policy sets forth guidelines and recommendations to all Directors, officers and employees of the Group with respect to transactions in the Company’s securities. This policy, which also applies to immediate family members and members of the households of persons covered by the policy, is designed to prevent insider trading or allegations of insider trading, and to protect the Company’s integrity and ethical conduct.
Sustainability Practices
The Group is committed to operating in an environmentally and socially-responsible manner. For a full description of sustainability governance, guidelines, targets and results, refer to the section NON-FINANCIAL INFORMATION elsewhere in this report.
Diversity Policy
On December 20, 2017, the Board of Directors adopted a diversity policy for the Board of Directors (the “Diversity Policy”), as the Company believes that diversity in the composition of the Board of Directors in terms of age, gender, expertise, work and personal background and nationality is an important means of promoting debate, balanced decision-making and independent actions of the Board of Directors.
The Company applies the following aspects of diversity to the Board of Directors: age, gender, expertise, work and personal background and nationality. The Company considers each of these aspects key drivers to support the above-mentioned goals and to achieve sufficient diversity of views and the expertise needed for a proper understanding of current affairs and longer-term risks and opportunities related to the Company’s business. The Board of Directors and its Governance and Sustainability Committee consider such factors when evaluating nominees for election to the Board of Directors and during the annual performance assessment process.
Concrete targets that the Company aims to achieve, with an overriding emphasis based on merit, within the next several years, are that (a) at least 30% of the seats of the Board of Directors are occupied by women and at least 30% by men; (b) the nationality of the members of the Board of Directors shall be reasonably consistent with the geographic spread of Stellantis’s business in such manner that no nationality shall count for more than 60% of the members of the Board of Directors; and (c) the age of the members of the Board of Directors should be more diverse by having one or more members of the Board of Directors aged under 50 at the day of their nomination; provided that the instrument of transfer is executed and retained outside the UK and no other action is taken in the UKselection of a candidate on the basis of the defined diversity criteria, rules and generally accepted principles of non-discrimination (on grounds such as ethnic origin, race, disability or sexual orientation) will be taken into account.
To ensure its correct implementation, the Diversity Policy has been considered in the adoption of a profile for non-executive Directors and will be taken into account in the nomination of executive Directors, as well as in nominating and recommending non-executive Directors. In the 2020 financial year, the targets relating to nationality and age have been realized.
Compliance with Dutch Corporate Governance Code
The Dutch Corporate Governance Code contains principles and best practice provisions that regulate, among other things, relations between the Board of Directors and the shareholders (including the general meeting of shareholders). The Dutch Corporate Governance Code is divided into five chapters which address the following topics: (i) long-term value creation; (ii) effective management and supervision; (iii) remuneration; (iv) the general meeting of shareholders; and (v) one-tier governance structure.
Dutch companies whose shares are listed on a regulated market, such as the MTA or Euronext Paris, or comparable system, such as the NYSE, are required under Dutch law to disclose in their annual reports whether or not they apply the provisions of the Dutch Corporate Governance Code and, in the event that they do not apply a certain provision, to explain the reasons why they have chosen to deviate.
Stellantis acknowledges the importance of good corporate governance and supports the best practice provisions of the Dutch Corporate Governance Code.
The Dutch Corporate Governance Code was revised in December 2016 and the revised Dutch Corporate Governance Code became effective on January 1, 2018, being applicable retrospectively from the 2017 financial year. Consequently, FCA has reported in 2018 regarding its application of the revised Dutch Corporate Governance Code over the 2017 financial year.
While the Company endorses the principles and best practice provisions of the Dutch Corporate Governance Code, its current corporate governance structure applies the following best practice provisions as follows:
•The initial term of appointment of the Chairman, Chief Executive Officer, Senior Independent Director and Vice Chairman amounts to five years instead of the 4-year term prescribed by the transferorDutch Corporate Governance Code. FCA and PSA agreed upon such initial term as part of the merger negotiations between both parties and taking into account the best interests of the Company.
•The Company does not have a retirement schedule as referred to in best practice provision 2.2.4. of the Dutch Corporate Governance Code, because, pursuant to the Articles of Association, the term of office of the Directors is approximately two years.
•Although the Board of Directors has appointed a non-executive Director with the title of Vice-Chairman, this person does not qualify as a vice-chairperson within the meaning of best practice provision 2.3.7 of the Dutch Corporate Governance Code. The Board of Directors has however appointed a non-executive Director as the chairperson referred to by Dutch law, with the title Senior Independent Director. Pursuant to Board of Directors’ regulations, the Chairman, or transferee,in his or her absence the Senior Independent Director, or in his or her absence, any other non-executive Director chosen by a majority of the Directors present at a meeting, will preside at a meeting of the Board of Directors. In addition, the Chairman of Stellantis acts as contact person for individual Directors regarding any conflict of interest of the Senior Independent Director. It is believed that this is sufficient to ensure that the functions assigned to the vice-chairperson by the Dutch Corporate Governance Code are properly discharged.
•Pursuant to best practice provision 4.1.8 of the Dutch Corporate Governance Code, every executive and (ii) no UK SDRTnon-executive Director nominated for appointment should attend the general meeting of shareholders at which votes will be payable in respectcast on his or her nomination. By publishing the relevant biographical details and curriculum vitae of any agreement to transfer FCA common shares.
Tax Consequenceseach nominee for (re)appointment, the Company ensures that the Company’s general meeting of Participating in the Loyalty Voting Structure
A U.S. Shareholder that would not be subject to tax on dividends or capital gains in respect of FCA common shares will not be subject to taxshareholders is well informed in respect of the special voting shares.nominees for (re)appointment and, in practice, only the executive Directors will therefore be present at the general meeting of shareholders.
FCA will not maintain any share register
Differences between Dutch Corporate Governance Practices and NYSE Listing Standards
The discussion below summarizes the significant differences between our corporate governance practices and the NYSE standards applicable to U.S. companies, as well as certain ways in which our governance practices (see above section Compliance with Dutch Corporate Governance Code) deviate from those suggested in the UKDutch Corporate Governance Code.
•The NYSE requires that when an audit committee member of a U.S. domestic listed company serves on four or more audit committees of public companies, the listed company should disclose (either on its website or in its annual proxy statement or annual report filed with the SEC) that the board of directors has determined that this simultaneous service would not impair the director’s service to the listed company. Dutch law does not require the Company to make such a determination.
•The Audit Committee is elected by the Board of Directors and accordingly, no liabilityis comprised of at least three independent Directors. Audit Committee members are also required (i) not to UK stamp dutyhave any material relationship with the Company or SDRT will arise to serve as auditors or accountants for the Company; (ii) to be “independent” for the purposes of NYSE rules, Rule 10A-3 of the Exchange Act and the Dutch Corporate Governance Code; and (iii) to be “financially literate” and have “accounting or selected financial management expertise” (as determined by the Board of Directors). Furthermore, the Audit Committee may not be chaired by the Chairperson of the Board of Directors or by a former executive of the Company. Currently, the Audit Committee consists of Ann Frances Godbehere (Chairperson), Wan Ling Martello and Henri de Castries.
•In contrast to NYSE rules applicable to U.S. companies which require that external auditors be appointed by the Audit Committee, the general rule under Dutch law is that external auditors are appointed by the general meeting of shareholders. In accordance with the requirements of Dutch law, the appointment and removal of our independent registered public accounting firm must be resolved upon at a general meeting of shareholders. Our Audit Committee is responsible for the recommendation to the shareholders of the appointment or dismissal and compensation of the independent registered public accounting firm and oversees and evaluates the work of our independent registered public accounting firm.
•NYSE rules require a U.S. listed company to have a compensation committee and a nominating/corporate governance committee composed entirely of independent directors. As a foreign private issuer, we do not have to comply with this requirement; however the Dutch Corporate Governance Code also requires us to have a Remuneration Committee and a selection and appointment committee (which we call our Governance and Sustainability Committee). Our Remuneration Committee Charter states that more than half of the members of the Remuneration Committee must be independent under the Dutch Corporate Governance Code. Three out of five of the current members of the Remuneration Committee are independent under both the NYSE rules and the Dutch Corporate Governance Code.
•Under NYSE listing standards, shareholders of U.S. companies must be given the opportunity to vote on all equity compensation plans and to approve material revisions to those plans, with the limited exceptions set forth in the NYSE rules. As a foreign private issuer, we are permitted to follow our home country laws regarding shareholder approval of compensation plans, and under Dutch law such approval from shareholders is not required for equity compensation plans for employees other than the members of the Board of Directors, to the extent the authority to grant equity rights has been delegated at a general meeting of shareholders to the Board of Directors. For equity compensation plans for members of the Board of Directors and/or in the event that the authority to issue shares and/or rights to subscribe for shares has not been delegated to the Board of Directors, approval by the general meeting of shareholders is required.
Report of the Non-Executive Directors
Introduction
This report renders an account of the supervision exercised by the non-executive Directors of FCA in the 2020 financial year as referred to in best practice provision 5.1.5 of the Dutch Corporate Governance Code.
It was the responsibility of the non-executive Directors of FCA to supervise the policies carried out by the executive Directors of FCA and the general affairs of FCA and its affiliated enterprise, including the implementation of the strategy of FCA regarding long-term value creation. In so doing, the non-executive Directors of FCA acted solely in the interest of FCA. With a view to maintaining supervision on FCA, during the 2020 financial year the non-executive Directors of FCA regularly discussed FCA’s long-term business plans, the implementation of such plans and the risks associated with such plans with the executive Directors of FCA.
According to the Articles of Association of FCA then in force the FCA Board of Directors was a one-tier board and consisted of three or more members, comprising both members having responsibility for the day-to-day management of FCA (executive Directors) and members not having such day-to-day responsibility (non-executive Directors). The FCA Articles of Association provided for the possibility to allocate tasks between the executive and non-executive Directors of FCA. Regardless of an allocation of tasks, all Directors of FCA remained collectively responsible for the proper management and strategy of the Company (including supervision thereof in case of non-executive Directors of FCA).
The composition of the FCA Board of Directors during the year ended December 31, 2020, was as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year of Birth | | Name | | | | Nationality |
| 1976 | | J. Elkann | | M | | ITA |
| 1964 | | M. Manley | | M | | UK |
| 1966 | | R. Palmer | | M | | UK |
| 1949 | | R. L. Thompson | | M | | USA |
| 1960 | | J. Abbott | | M | | UK |
| 1975 | | A. Agnelli | | M | | ITA |
| 1948 | | T. Brandolini d'Adda | | M | | CH |
| 1958 | | G. Earle | | M | | UK |
| 1959 | | V. A. Mars | | F | | USA |
| 1966 | | M. A. Volpi | | M | | ITA |
| 1951 | | P. Wheatcroft | | F | | UK |
| 1955 | | E. Zegna | | M | | ITA |
Details of the current composition of the Board of Directors (including the non-executive Directors) and its committees are set forth in the section “Board of Directors” above.
Supervision by the non-executive Directors
The non-executive Directors of FCA supervised the policies carried out by the executive Directors of FCA and the general affairs of FCA and its affiliated enterprises. In so doing, during the 2020 financial year the non-executive Directors of FCA have also focused on the issue or repurchaseeffectiveness of special voting shares.FCA’s internal risk management and control systems, the integrity and quality of the financial reporting and FCA’s long-term business plans, the implementation of such plans and the associated risks.
F. DividendsThe non-executive Directors of FCA also determined the remuneration of the executive Directors of FCA and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
You may read and copy any document we file with or furnishnominated candidates for FCA's Director appointments. Furthermore, pursuant to the SEC atFCA Articles of Association, the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain documents we file withBoard of Directors of FCA had the possibility to allocate certain specific responsibilities to one or furnishmore individual Directors of FCA or to a committee comprised of eligible Directors of FCA and its subsidiaries. In this respect, the Board of Directors of FCA allocated certain specific responsibilities to the SECAudit Committee, the Compensation Committee and the Governance and Sustainability Committee.
According to the Audit Committee charter in place in 2020, the responsibilities of the Audit Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) the integrity of FCA's financial statements, including any published interim reports; (2) FCA's policy on tax planning adopted by management; (3) FCA's financing; (4) the application by FCA of information and communication technology; (5) the system of internal controls that FCA's management and/or FCA's Board of Directors established; (6) FCA's compliance with legal and regulatory requirements; (7) FCA's compliance with recommendations and observations of internal and independent auditors; (8) FCA's policies and procedures for addressing certain actual or perceived conflicts of interest; (9) the qualifications, independence and remunerations of FCA's independent auditors and any non-audit services provided to FCA by the independent auditors; (10) the functioning of FCA's internal auditors and independent auditors; (11) risk management guidelines and policies; and (12) the implementation and effectiveness of FCA's ethics and compliance program.
The FCA Audit Committee consisted of Mr. Glenn Earle (Chairman), Mr. Thompson, Ms. Wheatcroft and Ms. Mars.
During 2020, thirteen meetings of FCA’s Audit Committee were held. The average attendance of its members at those meetings was 98 percent. The Committee reviewed the FCA Group financial results on a quarterly basis with the assistance of the FCA Group Chief Financial Officer and other Company officers mainly from finance and legal departments, focusing on main business drivers in addition to key accounting and reporting matters. Independent Auditors attended all the meetings providing regular information to the Committee on their activity with specific focus on the SEC's website at www.sec.gov.areas of major audit risks such as the evaluation of assets and liabilities requiring management judgment. The addressCommittee received updates on legal and compliance matters, with the General Counsel attending the Committee meetings. The Committee also reviewed the Form F-4 and the Admission Prospectus for listing of the SEC’s website is provided solely for information purposesStellantis shares resulting from the merger of Peugeot S.A. with and is not intendedinto Fiat Chrysler Automobiles N.V. and the admission to be an active link. You may visit the website or call the SEC at 1-800-732-0330 for further information about its public reference room. Reports and other information concerning the business of FCA may also be inspected at the offices oftrading on the New York Stock Exchange, 11 Wall Street, New York, New York 10005.Euronext Paris, and Mercato Telematico Azionario. Internal Audit activity was reviewed on a regular basis with the Chief Audit, Sustainability and Compliance Officer attending all the meetings and discussing with the Committee the main findings and remediating actions. Internal control over financial reporting was part of these reviews as well. In line with the policy adopted by the Group, the Committee was regularly involved in the review and approval of transactions entered into with related parties.
WeAccording to the Compensation Committee charter in place in 2020, the responsibilities of the Compensation Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) compensation for executive Directors; (2) FCA's remuneration policy; (3) compensation of non-executive Directors; and (4) remuneration reports.
The FCA Remuneration Committee consisted of Mr. Zegna (Chairman), Ms. Mars and Mr. Volpi.
During 2020, four meetings of FCA’s Compensation Committee were held with 100 percent attendance of its members at those meetings. The Compensation Committee reviewed the Remuneration Report and it also make ourrecommended the Amendment of the Remuneration Policy of the Board of Directors, also in view of the Revised Shareholders Rights Directive. Further details of the activities of the Compensation Committee are included in the REMUNERATION REPORT section included elsewhere in this report.
According to the Governance and Sustainability Committee charter in place in 2020, the responsibilities of the Governance and Sustainability Committee were to assist and advice the FCA Board of Directors inter alia with respect to: (1) drawing up the selection criteria and appointment procedures for Directors; (2) periodic assessment of the size and composition of the FCA Board of Directors and as appropriate making proposals for a composition profile of the FCA Board of Directors; (3) periodic assessment of the performance of individual directors and reporting this to the FCA Board of Directors; (4) proposals to the non-executive Directors for the nomination and re-nomination of Directors to be elected by the Stellantis shareholders; (5) supervision of the policy on the selection and appointment criteria for senior management and on succession planning; and (6) monitoring, evaluation and reporting on the sustainable policies and practices, management standards, strategy, performance and governance globally of FCA and its subsidiaries.
The FCA Governance and Sustainability Committee consisted of Mr. Elkann (Chairman), Ms. Wheatcroft and Ms. Mars.
During 2020, the FCA Governance and Sustainability Committee met four times with 100 percent attendance of its members at those meetings. The Committee reviewed the Board of Director’s and Committee’s assessments, the sustainability achievements and objectives, the recommendations and designations in view of the merger for Directors’ election.
Details on the current duties of the Audit Committee, Compensation Committee and Governance and Sustainability Committee, are set forth in the sections “The Audit Committee”, “The Remuneration Committee” and “The Governance and Sustainability Committee”, within “Board Practices and Committees” above.
During the 2020 financial year, the non-executive Directors of FCA supervised the adoption and implementation of the strategies and policies by FCA, received updates on legal and compliance matters and they were regularly involved in the review and approval of transactions entered into with related parties. The non-executive Directors of FCA also reviewed the reports of the Board of Directors of FCA and its committees, the sustainability achievement and objectives and the recommendations for the appointment of FCA Directors. In connection with the merger, the shareholders of FCA approved at the extraordinary general meeting held on January 4, 2021 changes to the composition of the Board of Directors as of the Governance Effective Time (being January 17, 2021), approving the appointment of the members of the Board of Directors of Stellantis, who reviewed this annual report, including the Remuneration Report and the 2020 Company’s financial results.
During 2020, there were 13 meetings of the Board of Directors of FCA. Portions of these meetings took place without the executive Directors of FCA being present. The average attendance at those meetings was 100 percent. An overview of the attendance of the individual FCA Directors per meeting of the Board of Directors of FCA and its committees set out against the total number of such meetings is set out below:
| | | | | | | | | | | | | | |
| Name | Meeting Board of Directors | Audit Committee | Governance and Sustainability Committee | Compensation Committee |
John Elkann(1) | 13/13 | - | 4/4 | - |
Michael Manley(2) | 13/13 | - | - | - |
Richard K. Palmer(2) | 13/13 | - | - | - |
Ronald L. Thompson(2) | 13/13 | 13/13 | - | - |
Andrea Agnelli(1) | 13/13 | - | - | - |
Tiberto Brandolini d’Adda(2) | 13/13 | - | - | - |
Glenn Earle(2) | 13/13 | 13/13 | - | - |
Valerie A. Mars(2) | 13/13 | 12/13 | 4/4 | 4/4 |
Michelangelo A. Volpi(2) | 13/13 | - | - | 4/4 |
Patience Wheatcroft(2) | 13/13 | 13/13 | 4/4 | - |
Ermenegildo Zegna(2) | 13/13 | - | - | 4/4 |
John Abbott(2) | 13/13 | - | - | - |
(1) Messrs. John Elkann and Andrea Agnelli were re-appointed as directors at the extraordinary general meeting of shareholders held on January 4, 2021.
(2) Board member of FCA until January 17, 2021.
During these meetings, the key topics discussed were, amongst others: the COVID-19 Emergency, including the decisions to close FCA’s facilities to protect the health and safety of the workforce, the measures to be implemented in order to restart the production activities minimizing any sanitary risks, and the implementing of the remote working to the extent possible; several actions to preserve and enhance liquidity; the FCA Group’s strategy and the several steps related to the implementation of the Combination Agreement with Groupe PSA; analysis of investments, the FCA Group’s financial results and reporting, acquisitions and divestitures, executive compensation, product plan and technological developments, risk management, legal and compliance matters, sustainability, human resources, implementation and amendment of the Remuneration Policy, and the Remuneration Report.
Independence of the non-executive Directors
The non-executive Directors are required by Dutch law to act solely in the interest of the Company. The Dutch Corporate Governance Code stipulates the corporate governance rules relating to the independence of non-executive Directors and requires under most circumstances that a majority of the non-executive Directors be “independent.”
The FCA Board of Directors determined that, in 2020, seven of FCA’s twelve Board of Directors members qualified as independent for purposes of NYSE rules, Rule 10A-3 of the Exchange Act, and the Dutch Corporate Governance Code. The remaining directors, being John Elkann, Michael Manley, Richard K. Palmer, Andrea Agnelli and Tiberto Brandolini d’Adda, did not qualify as independent for the purposes referred to in the preceding sentence.
Evaluation by the non-executive Directors
The non-executive Directors of FCA were responsible for supervising the FCA Board of Directors and its committees, as well as other information filedthe individual executive and non-executive Directors of FCA, and are assisted by the Governance and Sustainability Committee in this respect.
In accordance with or furnishedthe Governance and Sustainability Committee Charter in place in 2020, the Governance and Sustainability Committee assisted and advised the FCA Board of Directors with respect to periodic assessment of the performance of individual Directors. In this respect, the Governance and Sustainability Committee had, amongst others, in 2020, the duties and responsibilities to review the FCA Board of Directors’ performance, the performance of its committees and to contribute to the SEC available, free of charge, through our website, at www.fcagroup.com, as soon as reasonably practicable after those reports and other information are electronically filed with or furnishedprocess to designate candidates to the SEC. Board of Directors of Stellantis.
In 2020, the Governance and Sustainability Committee of FCA focused on the periodic assessment of the performance of the Board of Directors of FCA, its committees and the individual Directors of FCA during the meeting held on February 19, 2020. Consideration was given to what actions, if any, could enhance and further improve the functioning of the Board of Directors of FCA and its committees, as well as steps that could be taken to address specific requests or perceived areas for improvement.
The informationnon-executive Directors of FCA were regularly informed by each committee as referred to in best practice provision 2.3.5 of the Dutch Corporate Governance Code and the conclusions of those committees were taken into account when drafting this report of the non-executive Directors of FCA.
The non-executive Directors of FCA were able to review and evaluate the performance of FCA’s Audit Committee, Governance and Sustainability Committee and Compensation Committee in 2020. Based on our website is not incorporated by reference in this report.
I. Subsidiary Information
Not applicable.
Item 11. Quantitativethe evaluations, there was no need to amend the size or composition of FCA’s Audit Committee, Governance and Qualitative Disclosures
QuantitativeSustainability Committee and Qualitative Disclosures about Market Risk
DueCompensation Committee, nor to amend their charters during the nature of our business, we are exposed to a variety of market risks, including foreign currency exchange rate risk, interest rate risk and commodity price risk.
Our exposure to foreign currency exchange rate risk arises bothyear 2020. However, the charters were amended at the Governance Effective Time in connection with the geographical distributionimplementation of the Stellantis governance arrangements following the merger. Details on the current charters of the Audit Committee, the Governance and Sustainability Committee and the Compensation Committee, are set forth in the sections “The Audit Committee”, “The Remuneration Committee” and “The Governance and Sustainability Committee”, within “Board Practices and Committees” above.
Also, pursuant to FCA’s Compensation Committee Charter, the Compensation Committee implemented and oversaw the Remuneration Policy as it applied to non-executive Directors of FCA, executive Directors of FCA and senior officers reporting directly to the executive Directors of FCA. The Compensation Committee administered all the equity incentive plans and the deferred compensation benefits plans of FCA. On the basis of the assessments performed, the non-executive Directors determined the remuneration of the executive Directors of FCA and nominated candidates for the FCA Director appointments.
The non-executive Directors of FCA have supervised the performance of FCA’s Audit Committee, Compensation Committee and Governance and Sustainability Committee.
REMUNERATION REPORT
In this Remuneration Report, the Compensation Committee of the Board of Directors (the “Compensation Committee”) provides a comprehensive overview, in accordance with article 2:135b of the Dutch Civil Code, of the remuneration paid and owed to the individual members of the Board of Directors (the “FCA Board”) in 2020. The remuneration of the Directors in 2020 reflects remuneration actions approved by the FCA Board, at the recommendation of the Compensation Committee, in accordance with the remuneration policy of the Company and adopted during the June 26, 2020 Annual General Meeting (the “Remuneration Policy”). 2020 was an exceptional year requiring remuneration measures in response to the business impacts of COVID 19 and the upcoming merger of FCA with Groupe PSA, which was completed on January 16, 2021.
In line with article 2:135b of the Dutch Civil Code this report will be subject to an advisory vote at the 2021 Annual General Meeting. The 2019 Remuneration Report was presented to the shareholders for an advisory vote at the June 26, 2020 Annual General Meeting and received a 91.07% shareholder support. Therefore, the Compensation Committee decided not to change the structure and level of disclosure of the 2020 Remuneration Report.
Remuneration policy
This section provides an overview of the Remuneration Policy for FCA’s Executive Directors. The Remuneration Policy, in accordance with Dutch law and Corporate Governance Code was presented to shareholders at the June 26, 2020 Annual General Meeting and received 90.56% shareholder approval. The merger of FCA with Groupe PSA, will lead to some changes to the Remuneration Policy. A revised Remuneration Policy will be presented for a shareholder vote at the 2021 Annual General Meeting and once approved will be available on the Stellantis website.
Objectives and principles
The quality of our industrial activities comparedleadership and their commitment to the Company are fundamental to our success. FCA’s global remuneration principles support our business strategy and growth objectives in the diverse and evolving markets in which we sellcompete. Our remuneration policies are designed to appropriately pay-for-performance with an emphasis on creating long-term shareholder value, avoiding arrangements that risk pay for failure. A variety of factors are taken into consideration when evaluating compensation arrangements, including the long-term objectives of the Company and its shareholders and a clear framework of compensation best practices which keep pace with ever-evolving US and European market-specific best practices.
Within the scope of FCA’s Remuneration Policy, the remuneration of the Executive Directors is determined by the FCA Board at the recommendation of the Compensation Committee. This annual Remuneration Report describes how the pay programs and practices of the Executive Directors and Non-Executive Directors were implemented in 2020, in accordance with the Remuneration Policy.
The guiding principles of our products,Remuneration Policy direct our efforts to provide a compensation structure that allows FCA to attract and retain the most highly qualified executive talent and to motivate such executives to achieve business and financial goals that create long-term value for shareholders and other stakeholders in relationa manner consistent with our core business and leadership values. FCA’s compensation philosophy aims to provide compensation to its executive directors as outlined below.
| | | | | |
| Alignment with FCA's strategy | Compensation is strongly linked to the achievement of the Group's publicly disclosed performance targets. |
| Pay for performance | Compensation must reinforce our performance-driven culture and principles of meritocracy. As such, the majority of pay is linked directly to the Group's performance through both short and long-term variable pay instruments. |
| Competitiveness | Compensation will be competitive against the comparable market and set in a manner to attract, retain and motivate expert leaders and highly qualified executives in geographies where we directly compete. |
| Long-term shareholder value creation | Targets triggering any variable compensation payment should directly align with the interest of shareholders and other stakeholders to promote the long-term success of the Company and constructed to avoid excessive levels of compensation. |
| Compliance | Our compensation policies and plans are designed to comply with applicable laws and corporate governance requirements. |
| Risk prudence | The compensation structure should avoid incentives that encourage unnecessary or excessive risks that could threaten the Company's value or reputation. |
2020 Financial Year - Highlights summary
A key tenet of FCA's Remuneration Policy is pay for performance. The FCA Group reported positive full year 2020 results despite the impact of COVID-19 on the FCA Group and automotive industry as a whole. The following highlights some of the key achievements during the year:
•Positive operating results with Adjusted EBIT of €3.7 billion, with North American Adjusted EBIT of €5.4 billion, and Industrial free cash flows of €0.6 billion, despite the impact of COVID-19 on the results for the first half of 2020;
◦For the fourth quarter of 2020, the FCA Group reported record results with all segments profitable; record North America Adjusted EBIT of €2.2 billion and margin of 11.6%, and sequential improvement in LATAM despite continued market downturn from COVID-19;
•The FCA Group maintained market leadership in LATAM and Brazil;
•The FCA Group’s available liquidity was strong at December 31, 2020 at €31.4 billion;
•FCA and Groupe PSA continued progress for the completion of the 50/50 merger to create 3rd largest global OEM by revenues and 4th by volume, with the merger finalized on January 16, 2021;
The following table highlights the financial metrics in the year:
| | | | | | | | | | | | | | | | |
| Financial Metric | | 2020 | | | | Change from 2019 |
| | (€ million, except as otherwise noted) |
| Worldwide combined shipments (in thousands of units) | | 3,435 | | | | | (22) | % |
| Net revenues | | 86,676 | | | | | (20) | % |
| Net profit from continuing operations | | 24 | | | | | (99) | % |
Adjusted EBIT(1) | | 3,742 | | | | | (44) | % |
Adjusted EBIT margin(1) | | 4.3 | % | | | | -190 bps |
Adjusted Net profit(1) | | 1,863 | | | | | (57) | % |
| Diluted earnings per share from continuing operations (€ per share) | | 0.02 | | | | | (99) | % |
Adjusted diluted earnings per share(1) (€ per share) | | 1.19 | | | | | (56) | % |
| Cash flows from operating activities - continuing operations | | 9,183 | | | | | (15) | % |
Industrial free cash flows(1) | | 624 | | | | | (70) | % |
(1) Refer to FINANCIAL OVERVIEW - Non-GAAP Financial Measures for additional detail and definitions of these performance metrics.
Director's Total Remuneration in 2020
The following table summarizes the remuneration paid or awarded to the members of the FCA Board for the year ended December 31, 2020. Of the Directors only John Elkann and Andrea Agnelli will stay on as members of the Board after the merger.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fixed Remuneration | | Variable Remuneration | | | | | | |
| Directors of FCA | Office held | Year | | Base salary(1) | | Annual Fee (12) | | Fringe benefits | | Short-term incentive(2) | | Long-term incentive (3) | | Retirement Benefits Expense | | Total Remuneration(13) | | Proportion of Fixed Remuneration | | Proportion of Variable Remuneration |
| | | | (€) | | | | |
| Executive Directors |
| ELKANN, John Philipp | Chairman | 2020 | | 218,877 | | | — | | | 461,210 | | (4) | — | | 1,711,090 | | — | | | 2,391,177 | | | 28 | % | | 72 | % |
| | 2019 | | 893,276 | | | — | | | 672,284 | | | — | | 2,284,386 | | — | | | 3,849,946 | | | 41 | % | | 59 | % |
| MANLEY, Michael | CEO | 2020 | | 1,225,709 | | | — | | | 79,230 | | (5) | 1,680,972 | | 5,703,204 | | 3,040,443 | | (6), (7) | 11,729,558 | | | 11 | % | | 89 | % |
| | 2019 | | 1,429,241 | | | — | | | 30,389 | | | 1,203,243 | | 8,819,249 | | 1,798,791 | | | 13,280,913 | | | 11 | % | | 89 | % |
| PALMER, Richard | CFO | 2020 | | 1,158,076 | | | — | | | 73,561 | | (8) | 1,001,579 | | 1,859,481 | | 378,845 | | (6) | 4,471,542 | | | 28 | % | | 72 | % |
| | 2019 | | 923,916 | | | — | | | 53,351 | | | 501,128 | | 2,309,323 | | 247,570 | | | 4,035,288 | | | 24 | % | | 76 | % |
| | | | | | | | | | | | | | | | | | | | |
| Non-Executive Directors |
| ABBOTT, John | Director | 2020 | | — | | | 43,775 | | | — | | | — | | — | | — | | | 43,775 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | — | | | — | | — | | — | | | 178,655 | | | 100 | % | | — | % |
| AGNELLI, Andrea | Director | 2020 | | — | | | 43,775 | | | 2,113 | | (10) | — | | — | | — | | | 45,888 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | 1,502 | | | — | | — | | — | | | 180,157 | | | 100 | % | | — | % |
| BRANDOLINI D'ADDA, Tiberto | Director | 2020 | | — | | | 43,775 | | | 916 | | (10) | — | | — | | — | | | 44,691 | | | 100 | % | | — | % |
| | 2019 | | — | | | 178,655 | | | 2,313 | | | — | | — | | — | | | 180,968 | | | 100 | % | | — | % |
| EARLE, Glenn | Director | 2020 | | — | | | 48,153 | | | 23,482 | | (10) | — | | — | | — | | | 71,635 | | | 100 | % | | — | % |
| | 2019 | | — | | | 196,521 | | | 19,128 | | | — | | — | | — | | | 215,649 | | | 100 | % | | — | % |
| MARS, Valerie | Director | 2020 | | — | | | 48,153 | | | 12,750 | | (10) | — | | — | | — | | | 60,903 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 16,475 | | | — | | — | | — | | | 208,529 | | | 100 | % | | — | % |
| SIMMONS, Ruth J. | Director | 2020 | | — | | | — | | | — | | | — | | — | | — | | | — | | | — | % | | — | % |
| | 2019 | | — | | | 91,561 | | | 8,274 | | | — | | — | | — | | | 99,835 | | | 100 | % | | — | % |
THOMPSON, Ronald L. (11) | Director | 2020 | | — | | | 51,436 | | | 6,795 | | (10) | — | | — | | — | | | 58,231 | | | 100 | % | | — | % |
| | 2019 | | — | | | 209,920 | | | 10,604 | | | — | | — | | — | | | 220,524 | | | 100 | % | | — | % |
| VOLPI, Michelangelo A. | Director | 2020 | | — | | | 44,870 | | | 7,499 | | (10) | — | | — | | — | | | 52,369 | | | 100 | % | | — | % |
| | 2019 | | — | | | 183,122 | | | 6,287 | | | — | | — | | — | | | 189,409 | | | 100 | % | | — | % |
| WHEATCROFT, Patience | Director | 2020 | | — | | | 47,058 | | | 12,632 | | (10) | — | | — | | — | | | 59,690 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 12,230 | | | — | | — | | — | | | 204,284 | | | 100 | % | | — | % |
| ZEGNA, Ermenegildo | Director | 2020 | | — | | | 47,058 | | | 20,979 | | (10) | — | | — | | — | | | 68,037 | | | 100 | % | | — | % |
| | 2019 | | — | | | 192,054 | | | 13,572 | | | — | | — | | — | | | 205,626 | | | 100 | % | | — | % |
| Total 2020 | | | | 2,602,662 | | | 418,053 | | | 701,167 | | | 2,682,551 | | | 9,273,775 | | | 3,419,288 | | | 19,097,496 | | | | | |
(1) As described in the chart below, the Executive Directors requested base salary cuts due to the business impact of COVID-19;
(2) The amounts represent the bonus earned for the performance year 2020 which will be paid in 2021;
(3) The amounts represent the Company's 2020 expense relating to grants issued to the Executive Directors under the Long Term Equity Incentive Plan;
(4) The stated amount includes the use of transport and insurance premiums;
(5) The stated amount includes the use of transport and cost of residential security;
(6) Both the CEO and CFO have fully vested post retirement pension benefits that were provided to them prior to their appointments to Executive Directors. The expense relating to this benefit is included in aggregate compensation expense for executives with strategic responsibilities in Note 24, Related party transactions, within the Consolidated Financial Statements included elsewhere in this report.
(7) Includes one-time expense of €2.0 million due to accelerated vesting of a Supplemental Retirement Benefit due to the merger with Groupe PSA;
(8) The stated amount includes the use of transport, insurance premiums and tax preparation
(9) Represents remuneration paid or earned since his appointment to the Board on April 12,2019 to December 31, 2019;
(10) The stated amount refers to certain automobile perquisites, which are subject to taxes for the imputed income on the purchase or lease of Company vehicles, and tax preparation;
(11) Upon departure from the Board, FCA US legacy Board payments in the amount of €8,692,605 were owed and delivered;
(12) As described in the chart below, the Non-Executive Directors requested an annual fee reduction from $200,000 to $50,000; and
(13) The FCA merger with Groupe PSA led to the financial accrual of certain retention awards for the CEO and CFO in 2020. Such awards were not earned or paid in 2020, but are due in the future. Additional information about the awards can be found in the section “Impact of Merger with Groupe PSA.”
1. Remuneration of Executive Directors
Summary Overview of Remuneration Elements
Remuneration of the executive directors is simple and transparent in design, and consists of the following key elements, all of which have been benchmarked and confirmed by an external borrowings denominatedcompensation consultant:
| | | | | | | | |
| Element | Description | 2020 Application |
| Annual base salary | Market based fixed cash compensation set competitively to approved multinational peer group | Due to the unprecedented circumstances as a result of COVID 19, the Chairman, CEO and CFO requested base salary cuts in 2020.
Base salary as follows: •Chairman: U.S.$250,000, the Chairman’s 2019 base salary was $1,000,000 •CEO: U.S.$1.4 million, the CEO’s 2019 base salary was $1,600,000 and was competitively set upon appointment in 2018 •CFO: U.S.$1,322,750, the CFO’s 2019 base salary was $1,430,000; carry-over legacy compensation approved by the Compensation Committee in 2019 upon his appointment to Executive Director |
| Short-term incentive (“Annual Bonus”) | Annual Bonus payout in cash subject to the achievement of annually pre-established, challenging financial objectives and thus demonstrably linked to the performance of the Company | In February 2020, the Compensation Committee approved the 2020 bonus plan design and metrics. The plan design and metrics were consistent with the previous years. After careful consideration that included benchmarking compensation practices amid the COVID-19 pandemic’s effect on the business and industry, the Compensation Committee agreed to revise the 2020 bonus plan design and metrics in accordance with their authority to temporarily deviate from the remuneration policy in case of exceptional circumstances. To maintain focus in navigating the business through the pandemic crisis and continuing the progress in planning for the merger with Groupe PSA, the Board of Directors, at the recommendation of the Compensation Committee, in July 2020, agreed to the following framework in determining a modified bonus plan design for FY 2020. •A financial trigger of Adjusted EBITDA greater than €5,000 million must be achieved in order for the Committee to consider any variable incentive bonus payment •In the event the established financial trigger is satisfied, any bonus will be based on the Company’s performance against its revised 2020 business plan (weighted 75%) and relative performance versus peer companies (weighted 25%) •The payout for target performance would be reduced from 100% to 50% of current bonus target and the minimum and maximum payouts for 2020 performance is 0% to 80% of current bonus target respectively
The Chairman continued to be ineligible for an annual bonus payout.
CEO: target bonus payout of 150% of base salary reduced to 75% of base salary, range of 0% to 300% of base salary was reduced to 0% to 120% of base salary
CFO: target bonus payout of 100% of base salary reduced to 50% of base salary, range of 0% to 150% of base salary was reduced to 0% to 80% of base salary
Base salary for purposes of calculating CEO and CFO bonus is prior to base salary cuts due to COVID 19. |
| | | | | | | | |
| Element | Description | 2020 Application |
| Long-term incentive (“LTI”) | Long-term incentive to align Executive Directors to strategic goals and reward for sustained long-term growth
Two components ◦performance share units ◦restricted (retention) share units
Performance component is subject to the achievement of predetermined challenging performance and market objectives comprised of two equally weighted metrics, relative Total Shareholder Return (“TSR”) and Adjusted EBIT
Maximum payout: 225 percent of the target number of TSR performance share units granted and 100 percent of the target number of Adjusted EBIT performance share units granted | A new LTI Plan design was approved by the shareholders at the 2019 Annual General Meeting. This new design incorporated annual rolling LTI plan grants directly linked to three-year performance periods. With this approach, the intent is to deliver a consistent long-term incentive opportunity vesting annually, providing company and individual performance conditions are met. As provided in the 2019 Remuneration Report grants were awarded in 2019 for the 2019-2021 three-year performance period (with a transitional vesting schedule). In 2020, grants were awarded for the 2020-2022 cumulative performance period with cliff vesting in 2023.
Chairman: Target annual LTI grant: 300 percent of base salary of which 75% is performance share units and 25% is restricted (retention) share units. In 2020, a grant of 382,560 units was awarded for the 2020 - 2022 performance period.
CEO: Target annual LTI grant: 625 percent of base salary of which 75% is performance share units and 25% is restricted (retention) share units. In 2020, a grant of 1,275,150 units was awarded for the 2020 - 2022 performance period.
CFO: Target annual LTI grant: 210 percent of base salary of which 66.7% is performance share units and 33.3% is restricted (retention) share units. In 2020, a grant of 382,950 units was awarded for the 2020 - 2022 performance period.
Base salary for purposes of calculating CEO and CFO bonus is prior to base salary cuts due to COVID 19
As disclosed in Form-4 filed with the U.S. Securities and Exchange Commission, the Board of Directors approved the treatment of equity awards for the Company’s officers, including the Chairman, the CEO and the CFO at the time of the merger (The Board of Groupe PSA approved the same treatment of equity awards for its executive officers). This treatment provided for each holder of outstanding FCA equity awards to be entitled to receive a substitute Stellantis restricted share unit award for each outstanding FCA unit. The number of Stellantis common shares received is equal to the number of FCA shares subject to the original FCA equity award. The number of Stellantis common shares received would be based on performance at target or, in the event that FCA’s performance exceeds the target level as assessed by the FCA Board or a committee of the FCA Board immediately before the effective time of the merger, at that assessed level. Each Stellantis restricted share unit award will continue to be governed by the same terms and conditions (including service-based vesting terms, but not performance-based vesting terms) as were applicable to the relevant FCA equity awards immediately prior to the effective time of the merger. |
| | | | | | | | |
| Element | Description | 2020 Application |
| Post Retirement Benefits | The CEO participates in a defined contribution plan for U.S. based salaried employees and has a supplemental retirement benefit and a retiree health care benefit.
The Chairman and the CFO participate in a retiree health care benefit plan. | Chairman: Effective January 1, 2019 waived post mandate benefit of 5 times base salary. Eligible for a retiree healthcare plan provided to executives in Italy which provides for a reimbursement of a portion of health care costs incurred in retirement.
CEO: Consistent with US CEO compensation benchmarks, a supplemental retirement benefit of three times annual base salary is provided. This benefit requires five years of CEO service for 100% vesting and 3 years of service for 50% vesting. The supplemental retirement benefit agreement provides for accelerated vesting at the time of the merger. Eligible for Executive Postretirement Health Care Plan which provides healthcare coverage in the United States upon retirement. In 2020, a cost of €2.0 million was recognized in connection with these benefits.
CFO: Eligible for a retiree healthcare plan provided to executives in Italy which provides for a reimbursement of a portion of health care costs incurred in retirement. |
| Other benefits | Executive directors may receive usual and customary fringe benefits such as severance, company cars, medical insurance, accident and disability insurance, tax preparation, financial counseling, tuition reimbursement and tax equalization | Chairman severance: 1 times annual base salary
On December 15, 2020, the Board of Directors, at the recommendation of the Compensation Committee, approved the following changes to the Chairman’s company-provided benefits: •Life Insurance and Accidental Death & Disability insurance coverages were removed, •broader network of medical providers and coverage was added to the current medical plan, and •comprehensive annual executive health screening benefit was added in line with external benchmarks
CEO severance: 1 times annual base salary linked to non-compete and other restrictive covenants for 1 year replaced with the right to receive a cash retention award at the time of the merger, as described in Impact of Merger with Groupe PSAbelow
CFO severance: Carry-over, pre Executive Director arrangement of 2 times base salary linked to non-compete and other restrictive covenants for 2 years replaced with the right to receive a cash retention award at the time of the merger, as described in Impact of Merger with Groupe PSAbelow
CEO and CFO change of control provision: severance and accelerated vesting of outstanding awards under the Equity Incentive Plan in case of termination following change of control within 24 months by the company (unless for cause) or by the Executive Director for good reason were replaced with the right to receive a cash retention award, as described in Impact of Merger with Groupe PSAbelow
In 2020 no severance benefits were paid or due to Executive Directors. |
Implementation in foreign currencies.2020
Compensation Peer Group
The Company periodically benchmarks its executive compensation programs and the compensation offered to Directors against peer companies and monitors compensation levels and trends in the market.
The Compensation Committee strives to identify a peer group that best reflects all aspects of the Company’s business and considers public listing, industry practices, geographic reach, and revenue proximity, with market capitalization considered as secondary characteristic. Our peer group represents a blend of both U.S. and European Companies in recognition of the relevant talent market for our executives. In addition to including U.S. and European automobile manufacturers, our peer group includes U.S. and European companies that have significant manufacturing and/or engineering operations and a global market presence.
For 2020, the Compensation Committee updated the peer group to remove Johnson Controls and add ABB.
Peer Group Companies:
| | | | | | | | | | | |
| ABB | Continental AG | Honeywell International Inc. | The 3M Company |
| Airbus Group | Daimler AG | Lockheed Martin Corporation | ThyssenKrupp AG |
| ArcelorMittal SA | Deere & Company | Northrop Grumman Corporation | United Technologies Corporation |
| Bayer AG | Ford Motor Company | Groupe PSA | Volkswagen AG |
| BMW Group AG | General Dynamics Corporation | Raytheon Company | The Volvo Group |
| The Boeing Company | General Electric Company | Renault SA | |
| Caterpillar Inc. | General Motors Company | Siemens AG | |
Variable components
As noted above, our Executive Directors are eligible to receive variable compensation, contingent on the achievement of pre-established operating and financial performance targets. Scenario analysis are carried out annually to examine the relationship between the performance criteria chosen and possible outcomes. Such analyses help ensure a strong link between remuneration and performance and ensure the performance criteria strongly support the Company’s strategic objectives.
Short-Term Incentive
In February 2020, prior to the business impacts driven by the COVID 19 pandemic, the 2020 bonus plan design and metrics were approved by the FCA Board, at the recommendation of the Compensation Committee. The plan design was consistent with the previous year. The metrics were set with challenging hurdles, directly in line with the Group’s business plan and considered input from the external compensation consultant to ensure the goals were linked to long term shareholder value creation.
After careful consideration that included benchmarking compensation practices amid the COVID-19 pandemic’s effect on the business and industry, the FCA Board again at the recommendation of the Compensation Committee, agreed to revise the 2020 bonus plan design and metrics. To maintain focus in navigating the business through the pandemic crisis and continuing the progress in planning for the merger with Groupe PSA, the FCA Board agreed in July, 2020, to the following framework in determining a modified performance bonus for the FY 2020:
•A financial trigger of Adjusted EBITDA greater than €5,000 million must be achieved in order for the FCA Board to consider any variable incentive payment
•In the event the financial trigger is satisfied, any bonus will be based on the Company’s financial performance against its revised 2020 business plan (weighted 75%), relative performance versus peer companies (weighted 25%) and other factors the Committee deems relevant to measure the overall performance. The Compensation Committee will qualitatively assess relevant factors to which all performance criteria as a whole have been achieved and the level of bonus payout reflecting such performance.
•As illustrated in the chart below:
◦For the CEO, any payout for target performance was reduced from 150% of base salary to 75% and maximum payout was reduced from 300% of base salary to 120%
◦For the CFO, any payout for target performance was reduced from 100% of base salary to 50% and maximum payout was reduced from 150% of base salary to 80%
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| Executive Director | | 2020 Bonus Target | | 2020 Payout at Target Performance | | 2020 Maximum Payout | | 2019 Bonus Target | | 2019 Payout at Target Performance | | 2019 Maximum Payout |
| CEO | | $2.4 million
(150% of base salary) | | $1.2 million
(75% of base salary) | | $1.92 million
(120% of base salary) | | $2.4 million
(150% of base salary) | | $2.4 million
(150% of base salary) | | $4.8 million
(300% of base salary) |
| CFO | | $1.43 million
(100% of base salary) | | $715,000
(50% of base salary) | | $1,144,000
(80% of base salary) | | $1.43 million
(100% of base salary) | | $1.43 million
(100% of base salary) | | $2.145 million
(150% of base salary) |
Executive Director's 2020 Bonus Calculation
In 2020, the Company achieved the financial trigger of adjusted EBITDA greater than €5,000 million. As a result, the Compensation Committee could consider a bonus award aligned with the reduced payout thresholds described above. The Compensation Committee’s approach considered the financial performance of net revenue, adjusted EBIT and Industrial Free Cash Flow against the revised 2020 business plan. The Compensation Committee also considered the Company’s year over year performance of these measures and the spending of capital expenditures during the crisis versus its peers’ companies. Despite the impact of COVID-19, the Company achieved (1) 2020 financial results that exceeded the revised 2020 business plan, (2) favorable performance versus its peers, and (3) significant efforts to complete the 50/50 merger with Groupe PSA to form Stellantis.
Consequently, the FCA Board, at the recommendation of the Compensation Committee, approved a company performance factor of 80% for the 2020 annual bonus payout.
CEO 2020 Calculation
The bonus earned by the CEO for performance year 2020, payable in 2021, was U.S. $1,920,000 (€1,680,972) based on the corresponding company performance factor of 80%.
| | | | | | | | | | | | | | | | | | | | |
| Base Salary | | Bonus Target % | | Company Performance Factor | | Bonus Earned |
| $ | 1,600,000 | | X | 150 | % | X | 80 | % | = | $ | 1,920,000 | |
CFO 2020 Calculation
The bonus earned by the CFO for performance year 2020, payable in 2021, was U.S. $1,144,000 (€1,001,579) based on the corresponding weighted company performance factor of 80%.
| | | | | | | | | | | | | | | | | | | | |
| Base Salary | | Bonus Target % | | Company Performance Factor | | Bonus Earned |
| $ | 1,430,000 | | X | 100 | % | X | 80 | % | = | $ | 1,144,000 | |
Long-Term Incentive
Long Term Incentive Plan
A new LTI Plan design was approved by shareholders at the April 12, 2019 Annual General Meeting. This design incorporated annual rolling grants directly linked to a three-year performance period. In 2019 grants were awarded for the first three-year performance period 2019 – 2021 with a transitional vesting schedule so that participants of the previous 2014 -2018 LTI plan did not again deliver results for three years without earning a long term incentive payout opportunity. In 2020, grants were awarded for the 2020-2022 cumulative performance period with cliff vesting in 2023.
LTI Plans Vesting Schedule
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| 2019 - 2021 Plan | | 2019 Grant PSU’s and RSU’s | | Performance Period | | |
| | 1/3 vests | | 1/3 vests | | 1/3 vests | | |
| | | | | | | | | | |
| 2020 - 2022 Plan | | | | 2020 Grant PSU’s and RSU’s | | Performance Period |
| | | | | | | | Cliff vests |
Annual awards granted under the LTI plan are comprised of a split of performance share units and restricted (retention) share units. The performance based awards vesting under the LTI plan are conditional on meeting two independent, equally weighted cumulative three-year metrics, Adjusted EBIT and Relative TSR. Each metric has minimum and target performance levels; performance below the minimum results in no awards being earned.
As shown in the tables below, the Adjusted EBIT component payout begins at 80% of target achievement and has a maximum payout at 100% for target achievement. The Relative TSR component earns partial vesting if the Company is ranked seventh or better among an industry specific peer group of sixteen, including the Company, and a maximum payout of 225%, if the Company is ranked first among the sixteen companies. The plan allows no payout if the Company is ranked below the median of the designated peer group over the performance period.
Listed below are the Adjusted EBIT and TSR payout scales:
| | | | | | | | | | | | | | |
| Adjusted EBIT Payout Scale | | TSR Payout Scale |
| % Achieved | Payout % of Target | FCA Rank | Payout % of Target |
| 100.0% | 100.0% | 1 | 225.0% |
| 95.0% | 87.5% | 2 | 180.0% |
| 90.0% | 75.0% | 3 | 145.0% |
| 85.0% | 62.5% | 4 | 120.0% |
| 80.0% | 50.0% | 5 | 100.0% |
| 6 | 75.0% |
| 7 | 50.0% |
| 8-16 | 0.0% |
Listed below is the Relative TSR peer group:
| | | | | | | | | | | |
| Volkswagen AG | Toyota Motor Corporation | Daimler AG | General Motors Company |
| Ford Motor Company | Honda Motor Co. Ltd. | BMW Group | The Hyundai Motor Company |
| Groupe PSA | Renault SA | Nissan Motor Co. | KIA Motors |
| Suzuki Motor Corporation | Mazda Motor Corporation | Tesla Inc. | |
All outstanding units from the 2019 and 2020 grants, will be settled in accordance with the treatment of equity awards at the time of the merger as approved by the Board of Directors and the shareholders as part of their approval of the merger and as set forth in the Combination Agreement. (The Board of Groupe PSA approved the same treatment for its equity awards). This treatment provides for each holder of outstanding FCA equity awards to be entitled to receive a substitute Stellantis restricted share unit award for each outstanding FCA unit. The number of Stellantis common shares received is equal to the number of FCA shares subject to the original FCA equity award. The number of Stellantis common shares received would be based on performance at target or, in the event that FCA’s performance had exceeded the target level as assessed by the FCA Board or a committee of the FCA Board immediately before the effective time of the merger, at that assessed level. Each Stellantis restricted share unit award will continue to be governed by the same terms and conditions (including service-based vesting terms, but not performance-based vesting terms) as were applicable to the relevant FCA equity awards immediately prior to the effective time of the merger.
Share Plans Granted to Directors
The following table provides an overview of the share plans held by the Executive Directors for the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of Director, Position | Specification of Plan | Performance Period | Grant Date(1) | Vesting Date | End of the Holding Period (1) | Opening Balance - January 1, 2020(2) | Shares Granted(3) | Shares Vested(4) | Closing Balance - December 31, 2020(5) | Share-Based Compensation Expense |
| ELKANN, John Philipp, Chairman | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 154,660 | | — | | 51,552 | | 103,108 | | € | 627,672 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 463,981 | | — | | 113,883 | | 350,098 | | € | 835,607 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 95,640 | | — | | 95,640 | | € | 130,099 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 286,920 | | — | | 286,920 | | € | 117,703 | |
| | | | | | | | | | |
| MANLEY, Michael, CEO | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 515,490 | | — | | 171,829 | | 343,661 | | € | 2,092,095 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 1,546,470 | | — | | 379,580 | | 1,166,890 | | € | 2,785,123 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 318,790 | | — | | 318,790 | | € | 433,649 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 956,360 | | — | | 956,360 | | € | 392,328 | |
| | | | | | | | | | |
| PALMER, Richard, CFO | 2019 LTI RSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 206,402 | | — | | 68,800 | | 137,602 | | € | 837,672 | |
| 2019 LTI PSU | 2019 - 2021 | May 15, 2019 | May 1, 2020
May 1, 2021
May 1, 2022 | | 412,804 | | — | | 101,322 | | 311,482 | | € | 743,435 | |
| 2020 LTI RSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 127,650 | | — | | 127,650 | | € | 173,642 | |
| 2020 LTI PSU | 2020-2022 | May 1, 2020 | May 1, 2023 | May 1, 2025 | — | | 255,300 | | — | | 255,300 | | € | 104,732 | |
(1) In 2019, the Board approved holding requirements for Executive Directors effective for grants issued after January 1, 2020. The grants issued in 2019 are not subject to these holding requirements.
(2) Includes the dilution adjustment reported in 2019 Remuneration Report resulting from the payment of the extraordinary cash distribution to holders of FCA common shares on May 30, 2019.
(3) The fair market value of the shares granted on May 1, 2020 for the Chairman was €2,968,739, the CEO was €9,895,410 and the CFO was €2,971,766
(4) The fair market value of the shares that vested on May 11, 2020 for the Chairman was €1,286,157, the CEO was €4,286,872 and the CFO was €1,322,596. The units delivered was based on the achievement of 88.9% of the 2019 Adjusted EBIT target resulting in a payout of 72.27% of the target Adjusted EBIT performance share units and the achievement of the 6th ranking among the 16 Relative TSR peer group resulting in a payout of 75% of the target Relative TSR performance share units. In accordance with the LTI plan equity award agreements, the units not vested based on achievement less than target, are carried forward and included in the Closing Balance at December 31, 2020.
(5) Treatment of the outstanding units for the CEO and CFO will be settled in accordance with their respective retention agreements as described in Impact of Merger with Groupe PSA below.
In 2021, prior to the Annual General Meeting, the Compensation Committee will present a new Long Term Incentive Plan design for approval by the Board of Directors. The new LTI plan is subject to shareholder approval at the 2021 Annual General Meeting.
Impact of Merger with Groupe PSA
The FCA Board, at the recommendation of the Compensation committee recognizing the critical role of the CEO and CFO in continuing the progress in planning for the merger with Groupe PSA, approved retention agreements for the CEO and CFO conditional upon the merger occurring. The terms of the agreements are described below and have been approved by the shareholders as part of the merger.
Retention Arrangements
The CEO and CFO are entitled to retention benefits under which they are eligible to receive a one-time cash award, payable at certain times after closing of the merger. Additionally, under FCA’s Equity Incentive Plan, certain changes in roles following the closing of the merger (including no longer serving as a member of the board of directors) entitles LTI plan participants to a qualifying termination of employment, with cumulated accelerated vesting of all awards under the plan and severance payments as contemplated by their employment agreement as applicable.
With respect to the CEO, such entitlements will be replaced, with effect from the merger, with the right to receive a cash retention award, which is payable on a specified date after closing of the merger upon the satisfaction of certain conditions. The CEO’s entitlement will (1) replace, effective as of the closing of the merger, the CEO’s FCA performance share units and FCA restricted share units, vesting at closing of the merger as indicated above, calculated based on the value of such awards at the closing of the merger, (2) replace certain other severance rights, with such portion of the retention award equal to one times the CEO’s annual base salary, and (3) provide the CEO a recognition award with a value equivalent to approximately five times his annual base salary. In addition, the CEO will be entitled to certain facilitations regarding the purchase of vehicles manufactured by FCA.
With respect to the CFO, the above mentioned entitlements have been replaced with the right to receive a cash retention award, payable on a specified date after closing of the merger upon satisfaction of certain conditions. The CFO’s entitlement will (1) replace, effective as of the closing of the merger, the CFO’s FCA performance share units and FCA restricted share units, vesting at closing of the merger as indicated above, calculated based on the value of such awards at the closing of the merger, (2) replace certain other severance rights, with such portion of the retention award equal to two times the CFO’s annual base salary, and (3) provide the CFO a recognition award with a value equivalent to approximately two times his annual base salary.
The CEO and CFO will also be subject to a non-competition covenant and non-solicitation of employees’ covenant, which continue for two years and three years, respectively, following any termination of his employment.
Stock Ownership
Our exposureBoard recognizes the critical role that executive stock ownership and retention has in aligning the interests of management with those of shareholders. In 2019, the Board approved stock ownership and retention guidelines for Executive Directors.
The Chairman and CEO are subject to interest rate risk arisesstock ownership guidelines which require owning shares with an aggregate value of not less than six (6) times base salary. The CFO is subject to stock ownership guidelines which requires owning shares with an aggregate value of not less than three (3) times base salary. Executive Directors are required to meet their required level of ownership prior to February 21, 2024 (five years from the needdate of Board approval) and, once achieved, maintain their required level until the Executive Director ceases to fund industrialbe subject to these ownership guidelines or becomes subject to a lower ownership level.
The Chairman and CEO are required to retain one hundred percent (100%) of net, after-tax shares of Common stock issued upon vesting and settlement of any equity awards granted until the fifth (5th) anniversary of the grant date of such award. The CFO, in accordance with his carry-over pre-Executive Director arrangement is required to retain fifty percent (50%) of any net, after- tax shares of Common stock issued upon vesting and settlement of any equity awards granted until the ownership guidelines are met. These retention requirements apply to Common stock issued upon vesting and settlement of any equity awards granted after January 1, 2020.
Remuneration to Former Executive Directors
Remaining obligations owing to the estate of Sergio Marchionne will be made as set forth in Mr. Marchionne’s employment agreement, including his post mandate benefit. We expect all obligations to be settled in 2021.
2. Remuneration for Non-Executive Directors
Remuneration of non-executive directors is set forth in the Remuneration Policy. The current remuneration for the non-executive directors is shown in the table below.
| | | | | | | | |
| Non-Executive Director Compensation | | U.S.$ |
| Annual cash retainer | | 200,000 |
| Additional retainer for Audit Committee member | | 10,000 | |
| Additional retainer for Audit Committee Chair | | 20,000 | |
| Additional retainer for Compensation/Governance Committee member | | 5,000 |
| Additional retainer for Compensation/Governance Committee Chair | | 15,000 |
| Additional retainer for Lead Independent Director | | 25,000 | |
In 2020, due to the unprecedented circumstances as a result of COVID 19, the non-executive directors requested a reduction in 2020 compensation. As shown in the table below, all non-executive directors retainers were reduced by 75%.
| | | | | | | | |
| 2020 Non-Executive Director Compensation | | U.S.$ |
| Annual cash retainer | | 50,000 | |
| Additional retainer for Audit Committee member | | 2,500 | |
| Additional retainer for Audit Committee Chair | | 5,000 | |
| Additional retainer for Compensation/Governance Committee member | | 1,250 | |
| Additional retainer for Compensation/Governance Committee Chair | | 3,750 | |
| Additional retainer for Lead Independent Director | | 6,250 | |
At the 2017 annual general meeting of FCA shareholders, the Company's shareholders approved amendments to the Remuneration Policy to introduce the principle that non-executive directors are paid in cash. Remuneration of non-executive directors is fixed and not dependent on the Group's financial operating activitiesresults. Non-executive directors are not eligible for variable compensation and do not participate in any incentive plans. Non-executive directors are entitled to certain automobile perquisites, which are subject to taxes for the imputed income on the purchase or lease of Company vehicles.
3. Recoupment of Incentive Compensation (Claw back Policy)
The Company is dedicated to maintaining and enhancing a culture focused on integrity and accountability. Employment agreements with members of management, including its executive officers, and also the Equity Incentive Plan (“EIP”), allow the Company to recover, or clawback, incentive compensation, including the ability to retroactively adjust if any cash or equity incentive award is predicated upon achieving financial results and the necessityfinancial results were subject to deploy surplus funds. Changesan accounting restatement. In addition, the CEO and each of the Company’s executive officers will repay net amounts received for their, 2018, 2019 and 2020 annual bonuses, restricted share units and performance share units if, during the two years after payment, (i) FCA restates its financial statements for any vesting or performance period covered by the compensation (“covered period”), (ii) “cause”, as defined in market interest ratesexecutive’s employment agreement, existed during a covered period, or (iii) the executive engaged in certain conduct that has been materially injurious to the Company. In the financial year 2020, no situation occurred which variable remuneration has been, or had to be, reclaimed.
4. Insider Trading Policy
The Company maintains an insider trading policy applicable to all directors, employees, members of the households and immediate family members (including spouse and children) of persons listed and other unrelated persons, if they are supported by the persons listed. The insider trading policy provides that the aforementioned individuals may have the effect of either increasingnot buy, sell or decreasing our Net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions.
Our exposure to commodity price risk arises from the risk of changes occurringengage in other transactions in the priceCompany’s stock while in possession of certain raw materialsmaterial non-public information; buy or sell securities of other companies while in possession of material non-public information about those companies they become aware of as a result of business dealings between the Company and energy usedthose companies; disclose material non-public information to any unauthorized persons outside of the Company; or engage in production. Changes in the price of raw materials and energy could have a significant effect on our results by indirectly affecting costs and product margins.
These risks could significantly affect our financial position and results, and for this reason we systematically identify, and monitor these risks, in order to detect potential negative effects in advance and take the necessary actions to mitigate them, primarily through our operating and financing activities and if required,hedging transactions through the use of derivative financial instruments in accordancecertain derivatives, such as put and call options involving the Company’s securities. The insider trading policy also restricts trading by specified individuals to defined window periods which follow the Company’s quarterly earnings releases.
To ensure alignment with shareholders' interest and to further strengthen our establishedcompensation risk management policies.policies and practice, the Company’s insider trading policy prohibits all individuals to whom the policy applies from engaging in a short sale of the Company's or its subsidiaries' securities and derivatives (such as options, puts, calls, or warrants).
Our policy permits derivatives5. Compliance with the Remuneration Policy
The remuneration paid to be used onlyexecutive and non-executive directors for managing2020 was done in line with the exposureapplicable remuneration policy. We refer to fluctuationsthe paragraphs on Summary Overview of Remuneration Elements, Short Term Incentive Calculations 2020 and Long Term Incentive Calculations 2020 above, for an elaboration on how the remunerations in foreign currency exchange rates and interest rates as well as commodity prices connected with future cash flows and assets and liabilities, and not for speculative purposes.the Remuneration Report contribute to the long-term performance of the Company.
We utilize derivative financial instruments designated as fair value hedges mainly to hedge:
the foreign currency exchange rate risk on financial instruments denominated in foreign currency; and
the interest rate risk on fixed rate loans and borrowings.6. Terms of engagement
The instruments used for these hedgesExecutive Directors are mainly foreign currency forward contracts, interest rate swaps and combined interest rate and foreign currency financial instruments.
We use derivative financial instruments as cash flow hedges for the purpose of pre-determining:
the exchange rate at which forecasted transactions denominated in foreign currencies will be transacted at and accounted for;
the interest paid on borrowings, both to match the fixed interest received on loans (customer financing activity), and to achieve a targeted mix of floating versus fixed rate funding; and
the price of certain commodities.
The foreign currency exchange rate exposure on forecasted commercial flows is hedged by foreign currency swaps and forward contracts. Interest rate exposures are usually hedged by interest rate swaps and, in limited cases, by forward rate agreements. Exposure to changes in the price of commodities is generally hedged by using commodity swaps and commodity options. In order to manage the Group's foreign currency risk related to its investments in foreign operations, the Group enters into net investment hedges, in particular foreign currency swaps and forward contracts.
Counterparties to these agreements are major financial institutions.
The following section provides qualitative and quantitative disclosures on the effect that these risks may have. The quantitative data reported below does not have any predictive value, in particular the sensitivity analysis on financial market risks does not reflect the complexity of the market or the reaction which may result from any changes that are assumed to take place.
Financial instruments heldemployed by the funds that manage pension plan assets are not included in this analysis.
Quantitative information on foreign currency exchange rate risk
The Group is exposed to risk resulting from changes in foreign currency exchange rates, which can affect its earnings and equity. In particular:
where a Group company incurs costs in a currency different from that of its revenues, any change in exchange rates can affect the operating results of that company;
the principal exchange rates to which the Group is exposed are:
| |
◦ | EUR/U.S.$, relating to sales and purchases in U.S.$ made by Italian companies (primarily for Maserati and Alfa Romeo vehicles) and to sales and purchases in Euro made by FCA US; |
| |
◦ | U.S.$/CAD, primarily relating to FCA Canada's sales of U.S. produced vehicles, net of FCA US sales of Canadian produced vehicles; |
| |
◦ | CNY, in relation to sales in China originating from FCA US and from Italian companies (primarily for Maserati and Alfa Romeo vehicles); |
| |
◦ | GBP, AUD, MXN, CHF, and ARS in relation to sales in the UK, Australian, Mexican, Swiss, and Argentinian markets; |
| |
◦ | PLN and TRY, relating to manufacturing costs incurred in Poland and Turkey; |
| |
◦ | JPY mainly in relation to purchase of parts from Japanese suppliers and sales of vehicles in Japan; and |
| |
◦ | U.S.$/BRL, EUR/BRL, relating to Brazilian manufacturing operations and the related import and export flows. |
The Group’s policy is to use derivative financial instruments to hedge a percentage of certain exposures subject to foreign currency exchange rate risk for the upcoming 12 months (including such risk before or beyond that date where it is deemed appropriate in relation to the characteristics of the business) and to hedge the exposure resulting from firm commitments unless not deemed appropriate.
Group companies may have trade receivables or payables denominated in a currency different from their respective functional currency. In addition, in a limited number of cases, it may be convenient from an economic point of view, or it may be required under local market conditions, for Group companies to obtain financing or use funds in a currency different from their respective functional currency. Changes in exchange rates may result in exchange gains or losses arising from these situations. The Group’s policy is to hedge, whenever deemed appropriate, the exposure resulting from receivables, payables and securities denominated in foreign currencies different from the respective Group companies' functional currency.
Certain of the Group’s companies are located in countries which are outside of the Eurozone, in particular the U.S., Brazil, Canada, Poland, Serbia, Turkey, Mexico, Argentina, the Czech Republic, India, China, Australia and South Africa. As the Group's reporting currency is the Euro, the income statements of those entities, which have a reporting currency other than the Euro, are translated into Euro using the average exchange rate for the period. In addition, the monetary assets and liabilities of these consolidated companies are translated into Euro at the period-end foreign exchange rate. The effects of these changes in foreign exchange rates are recognized directly in the Cumulative translation adjustments reserve included within Other comprehensive income. Changes in exchange rates may lead to effects on the translated balances of revenues, costs and monetary assets and liabilities reported in Euro, even when corresponding items are unchanged in the respective local currency of these companies.
The Group monitors its principal exposure to conversion exchange risk, and in certain circumstances, enters into derivatives for the purpose of hedging the specific risk.
There have been no substantial changes in 2017 in the nature or structure of exposure to foreign currency exchange rate risk or in the Group’s hedging policies.
The potential loss in fair value of derivative financial instruments held for foreign currency exchange rate risk management (currency swaps/forwards, cross-currency interest rate and currency swaps) at December 31, 2017 resulting from a 10 percent change in the exchange rates would have been approximately €1,010 million (€1,453 million at December 31, 2016).
This analysis assumes that a hypothetical, unfavorable and instantaneous 10 percent change in exchange rates is applied in the measurement of the fair value of derivative financial instruments. Receivables, payables and future trade flows whose hedging transactions have been analyzed were not included in this analysis. It is reasonable to assume that changes in market exchange rates will produce the opposite effect, of an equal or greater amount, on the underlying transactions that have been hedged.
Quantitative information on interest rate risk
The manufacturing companies and treasuries of the Group make use of external borrowings and invest in monetary and financial market instruments. In addition, Group companies sell receivables resulting from their trading activities on a continuing basis. Changes in market interest rates can affect the cost of the various forms of financing, including the sale of receivables, or the return on investments, and the employment of funds, thus negatively impacting the net financial expenses incurred by the Group.
In addition, the financial services companies provide loans (mainly to customers and dealers), financing themselves using various forms of direct debt or asset-backed financing (e.g. factoring of receivables). Where the characteristics of the variability of the interest rate applied to loans granted differ from those of the variability of the cost of the financing obtained, changes in the current level of interest rates can affect the operating result of those companies and the Group as a whole.
In order to manage these risks, the Group uses interest rate derivative financial instruments, mainly interest rate swaps and forward rate agreements, when available in the market, with the object of mitigating, under economically acceptable conditions, the potential variability of interest rates on Net profit.
In assessing the potential impact of changes in interest rates, the Group segregates fixed rate financial instruments (for which the impact is assessed in terms of fair value) from floating rate financial instruments (for which the impact is assessed in terms of cash flows).
The fixed rate financial instruments used by the Group consist principally of part of the portfolio of the financial services companies (basically customer financing and financial leases) and part of debt (including subsidized loans and notes).
The potential loss in fair value of fixed rate financial instruments (including the effect of interest rate derivative financial instruments) held at December 31, 2017, resulting from a hypothetical 10 percent change in market interest rates, would have been approximately €71 million (approximately €56 million at December 31, 2016).
Floating rate financial instruments consist principally of cash and cash equivalents, loans provided by the financial services companies to the sales network and part of debt. The effect of the sale of receivables is also considered in the sensitivity analysis as well as the effect of hedging derivative instruments.
A hypothetical 10 percent change in short-term interest rates at December 31, 2017, applied to floating rate financial assets and liabilities, operations for the sale of receivables and derivative financial instruments, would have resulted in an increase in Net financial expenses (before taxes), on an annual basis, of approximately €27 million (€30 million at December 31, 2016).
This analysis is based on the assumption that there is an unfavorable change of 10 percent proportionate to interest rate levels across homogeneous categories. A homogeneous category is definedCompany on the basis of an employment agreement for an indefinite period of time and are employed at will, meaning either party can terminate the currencyemployment relationship at any time. They are appointed in whichtheir Corporate role for a period of approximately one year (i.e. until the financial assetsgeneral meeting in the calendar year following the year of appointment).
7. Derogations and liabilities are denominated. In addition,deviations from the sensitivity analysis appliedRemuneration Policy
For 2020, no derogations or deviations were made to floating rate financial instruments assumes that cashthe applicable remuneration policy.
8. Internal Pay Ratios and cash equivalents and other short-term financial assets and liabilities which expire during the projected 12-month period will be renewed or reinvested in similar instruments, bearing the hypothetical short-term interest rates.Comparative Information
Quantitative information on commodity price riskInternal Pay Ratios
The Group has entered into derivative contractsCompensation Committee considers internal pay ratios within the Company when setting the Executive Directors’ compensation. In line with the guidance provided under the Dutch Corporate Governance Code and the Dutch Civil Code, the CEO pay ratio and five-year average employee compensation are to be disclosed in the annual Remuneration Report.
To meet the five year trend of average employee compensation requirement, total personnel costs reported in the annual report (refer to Note 8, Other information by nature within the Consolidated financial statements included elsewhere in this report) less any Executive Director compensation divided by the average headcount reported in the annual report (refer to Note 8, Other information by nature within the Consolidated financial statements included elsewhere in this report) less any Executive Directors who are included in the total average headcount was utilized and is illustrated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Employees excluding Executive Directors | | 2016(1) | | 2017 | | 2018 | | 2019 | | 2020 | | 5 year average |
| Personnel Costs (€ billions) | | 13.2 | | | 11.7 | | | 11.7 | | | 11.4 | | | 10.3 | | | 11.7 | |
| Average number of employees | | 235,480 | | | 197,038 | | | 203,120 | | | 198,770 | | | 191,703 | | | 205,222 | |
| Average employee compensation (€) | | 56,056 | | | 59,379 | | | 57,601 | | | 57,353 | | | 53,729 | | | 56,824 | |
(1) These amounts reflect the Personnel Cost and Average number of employees as per the 2016 annual report on Form 20-F as filed with the SEC, and have not been restated to exclude the results of Magneti Marelli following the classification of Magneti Marelli as a discontinued operation.
A five-year trend of the CEO’s pay ratio as required is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016(1) | | 2017(1) | | 2018(2) | | 2019(3) | | 2020(3) | | 5 year average |
| CEO Compensation (€) | | | | | | | | | | | | |
| Current CEO (€) | | € | — | | | € | — | | | € | 2,980,429 | | | € | 13,280,913 | | | € | 11,729,558 | | | |
| Former CEO (€) | | 13,066,520 | | | 15,209,696 | | | 10,966,555 | | | — | | | — | | | |
| | 13,066,520 | | | 15,209,696 | | | 13,946,984 | | | 13,280,913 | | | 11,729,558 | | | 13,446,734 | |
| Average employee compensation (€) | | € | 56,056 | | | € | 59,379 | | | € | 57,601 | | | € | 57,353 | | | € | 53,729 | | | € | 56,824 | |
| CEO Pay Ratio | | 233 | | | 256 | | | 242 | | | 232 | | | 218 | | | 237 | |
(1) Total reported in 2017 and 2016 annual report in the Director's Remuneration table plus pension and retirement savings costs for certain commodities to hedge its exposure to commodity price risk associated with buying raw materialsformer CEO.
(2) Total reported in 2018 Directors Remuneration table for former and energy usedcurrent CEO
(3) Total reported in its normal operations.2020 and 2019 Director’s total remuneration for the current CEO
Comparative Table over Remuneration and Company Performance
In connectionline with the commodity price derivative contracts outstanding at December 31, 2017,new guidance provided under the Dutch Corporate Governance Code and the Dutch Civil Code, the performance of the company, the remuneration of each director, and of the average employee remuneration other than directors from 2016 to 2020 financial years is disclosed in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company Performance | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| | | | | | | | | | |
| Net revenues (€ million) | | € | 105,798 | | | € | 105,730 | | | € | 110,412 | | | € | 108,187 | | | € | 86,676 | |
| | | | | | | | | | |
| Net profit/(loss) from continuing operations (€ million) | | 1,713 | | | 3,291 | | | 3,330 | | | 2,700 | | | 24 | |
| | | | | | | | | | |
| Diluted earnings/(loss) per share from continuing operations (€) | | € | 1.12 | | | € | 2.11 | | | € | 2.12 | | | € | 1.71 | | | € | 0.02 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Directors Remuneration | Position | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| | | € |
ELKANN, John Philipp(1) | Chairman | | € | 2,442,373 | | | € | 2,175,810 | | | € | 3,118,489 | | | € | 3,849,946 | | | € | 2,391,177 | |
MANLEY, Michael(2) | CEO | | — | | | — | | | 2,980,429 | | | 13,280,913 | | | 11,729,558 | |
PALMER, Richard(3) | CFO | | — | | | — | | | — | | | 4,035,288 | | | 4,471,542 | |
ABBOTT, John(4) | Director | | — | | | — | | | 86,677 | | | 178,655 | | | 43,775 | |
AGNELLI, Andrea(4) | Director | | 180,668 | | | 179,501 | | | 169,355 | | | 180,157 | | | 45,888 | |
BRANDOLINI D'ADDA, Tiberto(4) | Director | | 180,668 | | | 179,501 | | | 170,429 | | | 180,968 | | | 44,691 | |
EARLE, Glenn(4) | Director | | 219,102 | | | 214,884 | | | 204,682 | | | 215,649 | | | 71,635 | |
MARS, Valerie(4) | Director | | 199,666 | | | 198,094 | | | 190,100 | | | 208,529 | | | 60,903 | |
SIMMONS, Ruth J.(4) | Director | | 191,418 | | | 190,094 | | | 180,505 | | | 99,835 | | | — | |
THOMPSON, Ronald L.(4) | Director | | 218,518 | | | 216,510 | | | 205,909 | | | 220,524 | | | 58,231 | |
VOLPI, Michelangelo A.(4) | Director | | — | | | 90,733 | | | 173,588 | | | 189,409 | | | 52,369 | |
WHEATCROFT, Patience(4) | Director | | 216,064 | | | 204,141 | | | 193,875 | | | 204,284 | | | 59,690 | |
ZEGNA, Ermenegildo(4) | Director | | € | 193,327 | | | € | 196,273 | | | € | 191,242 | | | € | 205,626 | | | € | 68,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average employee remuneration | | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| | | € |
| | | | | | | | | | | |
| Average employee remuneration | | | € | 56,056 | | | € | 59,379 | | | € | 57,601 | | | € | 57,353 | | | € | 53,729 | |
(1) The Chairman’s remuneration from 2016 through 2018 consisted of a hypothetical 10 percentbase salary only and did not include variable compensation. The change in the price2016 - 2018 results from varying levels of the commodities at that date would have causeduse of transport, in addition 2018 includes pension expense which prior to 2018 was included in the Post Retirement section of the Report. In 2019, the Chairman’s remuneration changed to include a fair value lossreduction in annual fee and the introduction of €51 million (fair value lossa long term incentive.
(2) Appointed to the Board on July 21, 2018. 2019 represented the first full year of €35 million at December 31, 2016). Future trade flows whose hedging transactions have been analyzed were not considered in this analysis. It is reasonableremuneration.
(3) Appointed to assume that changes in commodity prices will produce the opposite effect,Board on April 12, 2019
(4) Directors remuneration consists of an equalannual fee and does not include variable compensation. Year over year changes are a result of coming or greater amount, onleaving the underlying transactions that have been hedged.Board or a Committee.
Item 12. Description of Securities Other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
PART IICONTROLS AND PROCEDURES
Item 13. Defaults, Dividends Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision, and with the participation, of ourits management, including ourthe Chief Executive Officer and Chief Financial Officer, weFCA conducted an evaluation of the effectiveness of ourits disclosure controls and procedures as of December 31, 20172020 pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, ourthe Chief Executive Officer and Chief Financial Officer concluded that ourFCA’s disclosure controls and procedures arewere effective to provide reasonable assurance that information required to be disclosed in ourFCA’s Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to ourFCA management, including ourthe Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
The Company’sFCA’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’sFCA’s internal control system was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with IFRS.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation in accordance with IFRS.
Management assessed the effectiveness of the Company’sFCA’s internal control over financial reporting as of December 31, 2017,2020, using the criteria set forth in the “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management believes that, as of December 31, 2017, the Company’s2020, FCA’s internal control over financial reporting was effective.
The Company’sFCA’s independent registered public accounting firm has issued an audit report on the effectiveness of the Company’sFCA’s internal control over financial reporting. That report is included herein.
Changes in Internal Control
No change to ourFCA’s internal control over financial reporting occurred during the year ended December 31, 20172020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Principal Characteristics of the Internal Control System and Internal Control over Financial Reporting
FCA has designed a system of internal control over financial reporting based on the model provided in the COSO Framework for Internal Controls, according to which the internal control system is defined as a set of rules, procedures and tools designed to provide reasonable assurance of the achievement of corporate objectives. In relation to the financial reporting process, reliability, accuracy, completeness and timeliness of the information contribute to the achievement of such corporate objectives. A periodic evaluation of the system of internal control over financial reporting is designed to provide reasonable assurance regarding the overall effectiveness of the components of the COSO Framework (control environment, risk assessment, control activities, information and communication, and monitoring) in achieving those objectives.
The approach adopted by FCA for the evaluation, monitoring and continuous updating of the system of internal control over financial reporting, is based on a ‘top-down, risk-based’ process consistent with the COSO Framework. This enables focus on areas of higher risk and/or materiality, where there is risk of significant errors, including those attributable to fraud, in the elements of the financial statements and related documents. The key components of the process are:
•identification and evaluation of the source and probability of material errors in elements of financial reporting;
•assessment of the adequacy of key controls in preventing or detecting potential misstatements in elements of financial reporting; and
•verification of the operating effectiveness of controls based on the assessment of the risk of misstatement in financial reporting, with testing focused on areas of higher risk.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Stellantis N.V. (formerly, Fiat Chrysler Automobiles N.V.)
Opinion on Internal Control over Financial Reporting
We have audited Fiat Chrysler Automobiles N.V.’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Fiat Chrysler Automobiles N.V. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 20172020 based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of Fiat Chrysler Automobiles N.V. as of December 31, 20172020 and 2016,2019, and the related consolidated statements of income, comprehensive income, cash flows and changes in equity for each of the three years in the period ended December 31, 2017,2020, and the related notes, and our report dated February 20, 2018March 4, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ EY S.p.A.
Turin, Italy
February 20, 2018
March 4, 2021
Item 16A. Audit Committee Financial Expert
Our board of directors has determined that Glenn Earle and Ronald Thompson are “audit committee financial experts”. Mr. Earle and Mr. Thompson are independent directors under NYSE standards.
Item 16B. Code of Ethics
We have adopted a Code of Conduct, which applies to all of our employees, including our principal executive, principal financial and principal accounting officers. Our Code of Conduct is intended to meet the definition of “code of ethics” under Item 16B of Form 20-F under the Exchange Act. Our Code of Conduct is posted on our website at http://www.fcagroup.com/en-US/governance/code_conduct/. If the provisions of our Code of Conduct that apply to our principal executive officer, principal financial officer or principal accounting officer are amended, or if a waiver is granted, we will disclose such amendment or waiver.
Item 16C. Principal Accountant Fees and Services
EY S.p.A., the member firms of Ernst & Young and their respective affiliates (collectively, the “Ernst & Young Entities”) were appointed to serve as our independent registered public accounting firm for the years ended December 31, 2017 and 2016. We incurred the following fees from the Ernst & Young Entities for professional services for the years ended December 31, 2017 and 2016, respectively:
|
| | | | | | | | |
| | | Years Ended December 31 |
| (€ thousands) | | 2017 | | 2016 |
| Audit fees | | € | 18,601 |
| | € | 19,180 |
|
| Audit-related fees | | 398 |
| | 761 |
|
| Tax fees | | 100 |
| | 241 |
|
| Total | | € | 19,099 |
| | € | 20,182 |
|
“Audit fees” are the aggregate fees billed by the Ernst & Young Entities for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. “Audit-related fees” are fees charged by the Ernst & Young Entities for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.” This category comprises fees for the audit of employee benefit plans and pension plans, agreed-upon procedure engagements and other attestation services subject to regulatory requirements.
Audit Committee’s pre-approval policies and proceduresFCA CONSOLIDATED FINANCIAL STATEMENTS
Our Audit Committee nominates and engages our independent registered public accounting firm to audit our consolidated financial statements. Our Audit Committee has a policy requiring management to obtain the Audit Committee’s approval before engaging our independent registered public accounting firm to provide any other audit or permitted non-audit services to us or our subsidiaries. Pursuant to this policy, which is designed to ensure that such engagements do not impair the independence of our independent registered public accounting firm, the Audit Committee reviews and pre-approves (if appropriate) specific audit and non-audit services in the categories Audit Services, Audit-Related Services, Tax Services, and any other services that may be performed by our independent registered public accounting firm.
Item 16D. Exemptions from the Listing Standards for Audit Committees
None.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Change in Registrant's Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Fiat Chrysler Automobiles N.V. is a company organized under the laws of The Netherlands and qualifies as a foreign private issuer under the NYSE listing standards. In accordance with the NYSE corporate governance rules, listed companies that are foreign private issuers are permitted to follow home-country practice in some circumstances in lieu of the provisions of the corporate governance rules contained in Section 303A of the NYSE Listed Company Manual that are applicable to U.S. companies. In addition, we must disclose any significant ways in which our corporate governance practices differ from those followed by U.S. companies listed on the NYSE.
The Dutch and NYSE corporate governance regimes are similar in many respects. However, certain differences exist between Dutch and NYSE corporate governance rules, as summarized below. We endorse the principles and best practice provisions of the revised Dutch Corporate Governance Code. In contrast to NYSE rules applicable to U.S. companies, the Dutch Corporate Governance Code is based on a “comply or explain” principle. As a result, deviations from best practice provision of the Dutch Corporate Governance Code are allowed, as long as such deviations are explained in the annual report.
The discussion below summarizes the significant differences between our corporate governance practices and the NYSE standards applicable to U.S. companies, as well as certain ways in which our governance practices deviate from those suggested in the Dutch Corporate Governance Code. For a discussion of compensation related matters please see Item 6B. Compensation.
Dutch legal requirements concerning director independence differ in certain respects from the rules applicable to U.S. companies listed on the NYSE. While under most circumstances both regimes require that a majority of board members be “independent,” the definition of this term under the Dutch Corporate Governance Code differs from the definition used under the NYSE corporate governance standards. In some cases the Dutch requirement is more stringent, such as by requiring a longer “look-back” period (five years) for former executive directors and employees, and by considering a non-executive board member serving as director in the Board of a shareholder holding ten percent or more of the company’s shares to be not independent, even if he or she is considered “independent” on the board of directors of the shareholder.
We deviate from the Dutch Corporate Governance Code’s general best practice provision regarding the maximum of one non-executive director affiliated with a shareholder holding ten percent or more of the shares in the company. We believe this is appropriate in light of the position of Exor N.V. as our reference shareholder.
We consider seven of our eleven Board members to be independent. These Board members are all deemed “independent” under the NYSE definition. One of the seven is considered not independent under the Dutch Corporate Governance Code which considers a director of a shareholder holding ten percent or more of the company’s shares as not independent. We believe Mr. Volpi is independent notwithstanding his role as an independent board member of Exor N.V.. We believe however, this is appropriate in light of the position of Exor N.V. as our reference shareholder.
The Company does not have a retirement schedule as referred to in best practice provision 2.2.4 of the Dutch Corporate Governance Code, because pursuant to the Articles of Association the term of office of Directors is approximately one year, such period expiring on the day the first annual general meeting of FCA shareholders is held in the following calendar year. This approach is in line with the general practice for companies listed in the U.S. As the Company is listed at NYSE, the Company also relies on certain US governance policies, one of which is the reappointment of our Directors at each annual general meeting of FCA shareholders.
The Board has not appointed a Vice-chairman in the sense of best practice provision 2.3.7 of the Dutch Corporate Governance Code. The Board has however appointed a Chairman of the Company and one of the non-executive directors as “voorzitter” of the Board of Directors (referred to as the “Senior Non-executive Director”). The Board Regulations provide that in absence of the Senior Non-executive Director any other non-executive director chosen by a majority of the directors present at a meeting shall preside at meetings of the Board of Directors. In addition the Chairman of the Company acts as contact for individual directors regarding the functioning of the Senior Non-executive Director and any conflict of interest or potential conflict of interest of the Senior Non-executive Director can be reported to the Chairman. We believe that this is sufficient to ensure that the functions assigned to the vice-chairman by the Dutch Corporate Governance Code are properly discharged.
Pursuant to best practice provision 4.1.8 of the Dutch Corporate Governance Code, every executive and non-executive Director nominated for appointment should attend the general meeting at which votes will be cast on its nomination. Since, pursuant to the Articles of Association, the term of office of Directors is approximately one year, such period expiring on the day the first annual general meeting of FCA shareholders is held in the following calendar year, all members of the Board of Directors are nominated for (re)appointment each year. By publishing the relevant biographical details and curriculum vitae of each nominee for (re)appointment, the Company ensures that the Company's general meeting of shareholders is well informed in respect of the nominees for (re)appointment and in practice only the executive Directors will therefore be present at the general meeting.
Mr. John Elkann, being an executive Director, has a position on the Governance and Sustainability Committee to which best practice provision 5.1.4 of the Dutch Corporate Governance Code applies. The position of Mr. Elkann as executive Director in this committee inter alia follows from the duties of the governance and sustainability committee, which are more extensive than the duties of a selection and appointment committee and include duties that warrant participation of an executive Director in the view of the Company.
The NYSE requires that, when an audit committee member of a U.S. domestic listed company serves on four or more audit committees of public companies, the listed company should disclose (either on its website or in its annual proxy statement or annual report filed with the SEC) that the board of directors has determined that this simultaneous service would not impair the director’s service to the listed company. Dutch law does not require the Company to make such a determination.
The Audit Committee is elected by the Board of Directors and is comprised of at least three non-executive Directors. Audit Committee members are also required (i) not to have any material relationship with the Company or to serve as auditors or accountants for the Company; (ii) to be “independent”, for purposes of NYSE rules, Rule 10A-3 of the Exchange Act and the Dutch Corporate Governance Code; and (iii) to be “financially literate” and have “accounting or selected financial management expertise” (as determined by the Board of Directors). Furthermore, the Audit Committee may not be chaired by the Chairperson of the Board or by a former executive of the Company. Currently, the Audit Committee consists of Mr. Glenn Earle (Chairman), Mr. Thompson, Ms. Wheatcroft and Ms. Mars.
NYSE rules require a U.S. listed company to have a compensation committee and a nominating/corporate governance committee composed entirely of independent directors. As a foreign private issuer, we do not have to comply with this requirement, however the Dutch Corporate Governance Code also requires us to have a Compensation Committee and a selection and appointment committee (which we call our Governance and Sustainability Committee). Our Compensation Committee Charter states that a maximum of one member of the Compensation Committee may be non-independent according to the Dutch Corporate Governance Code. All the current members of the Compensation Committee are independent under the NYSE rules, while two out of three of them are independent under the Dutch Corporate Governance Code.
In contrast to NYSE rules applicable to U.S. companies, which require that external auditors be appointed by the Audit Committee, the general rule under Dutch law is that external auditors are appointed at a general meeting of shareholders. In accordance with the requirements of Dutch law, the appointment and removal of our independent registered public accounting firm must be resolved upon at a general meeting of shareholders. Our Audit Committee is responsible for the recommendation to the shareholders of the appointment and compensation of the independent registered public accounting firm and oversees and evaluates the work of our independent registered public accounting firm.
Under NYSE listing standards, shareholders of U.S. companies must be given the opportunity to vote on all equity compensation plans and to approve material revisions to those plans, with limited exceptions set forth in the NYSE rules. As a foreign private issuer we are permitted to follow our home country laws regarding shareholder approval of compensation plans, and, under Dutch law, such approval from shareholders is not required for equity compensation plans for employees other than the members of the Board, and to the extent the authority to grant equity rights has been delegated at a general meeting of shareholders to the Board. For equity compensation plans for members of the Board and/or in the event that the authority to issue shares and/or rights to subscribe for shares has not been delegated to the Board, approval at a general meeting of shareholders is required.
While NYSE rules do not require listed companies to have shareholders approve or declare dividends, the Dutch Corporate Governance Code requires that a dividend distribution be a separate agenda item at a general meeting of shareholders, in which the annual accounts are adopted. In our case, Article 23 of our Articles of Association provide that annual dividends must be resolved upon at a general meeting of shareholders. However, interim dividend distribution can be resolved upon by the Board, subject to meeting certain criteria listed in Articles 23 of our Articles of Association. For a discussion of our dividend policy, see Item 10B. Memorandum and Articles of Association—Payment of Dividends.
In accordance with the corporate governance rules of the NYSE applicable to foreign private issuers, we also disclose these differences between our corporate governance practices and those required of domestic companies by the NYSE listing standards on our website at www.fcagroup.com.
Item 16H. Mine Safety Disclosure
Not applicable.
PART III
Item 17. Financial Statements
We have responded to Item 18 in lieu of responding to this item.
Item 18. Financial Statements
The audited Consolidated Financial Statements, as required under Item 18, are attached hereto starting on page F-1 of this Form 20-F.
Item 19. Exhibits
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Exhibit
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| There have not been filed as exhibits to this Form 20-F certain long-term debt instruments, none of which relates to indebtedness that exceeds 10% of the consolidated assets of Fiat Chrysler Automobiles N.V. Fiat Chrysler Automobiles N.V. agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of Fiat Chrysler Automobiles N.V. and its consolidated subsidiaries. |
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99.1 | Consolidated Financial Statements of FCA Bank S.p.A. as of and for the years ended December 31, 2017 and 2016 * |
99.2 | Consolidated Financial Statements of FCA Bank S.p.A. as of and for the years ended December 31, 2016 and 2015 * |
* To be filed by amendment within six months of December 31, 2017.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
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| FIAT CHRYSLER AUTOMOBILES N.V. |
| (Registrant) |
| | |
| By: | /s/ Richard K. Palmer |
| | |
| Name: Richard K. Palmer |
| Title: Chief Financial Officer |
Dated: February 20, 2018 | | |
FIAT CHRYSLER AUTOMOBILES N.V. AND SUBSIDIARIES
Index to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Stellantis N.V. (formerly, Fiat Chrysler Automobiles N.V.)
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial position of Fiat Chrysler Automobiles N.V. (the Company) as of December 31, 20172020 and 2016,2019, and the related consolidated statements of income, comprehensive income, cash flows and changes in equity for each of the three years in the period ended December 31, 2017,2020, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172020 and 2016,2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board, andas well as International Financial Reporting Standards as adopted by the European Union.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2018March 4, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The Critical Audit Matters communicated below are matters arising from the current period audit of financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of Critical Audit Matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the Critical Audit Matters below, providing separate opinions on the Critical Audit Matters or on the accounts or disclosures to which they relate.
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| Valuation of goodwill and other non-current assets with indefinite useful lives, with particular reference to APAC and LATAM goodwill |
| Description of the Matter | At December 31, 2020, the recorded amount of goodwill and other non-current assets with indefinite useful lives was €10,131 million and €2,924 million, respectively. These amounts have primarily been allocated to the Company’s four car mass market operating segments (North America, APAC, LATAM and EMEA) as set out in notes 2 and 9 of the consolidated financial statements. The amount of goodwill allocated to APAC and LATAM was €1,074 million and €515 million, respectively. Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the significant estimation required to determine the Value-In-Use (‘VIU’) of the group of cash generating units (CGUs) to which Goodwill has been allocated. In particular, the determination of the VIU was sensitive to significant assumptions, such as changes in the discount rate, revenue growth rate, operating margin and terminal value, which are affected by expectations about future market or economic conditions, including uncertainties due to the COVID-19 pandemic, particularly those in APAC and LATAM.
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill and other non-current assets with indefinite useful lives impairment assessment process, including controls over management’s review of the significant assumptions described above. To test the determination of the VIU of the Company’s CGUs, we performed audit procedures that included, among others, evaluating the CGUs identified in the current year and testing the allocation of assets and liabilities to the carrying value of each CGU. We assessed the impairment methodology applied by the Company and obtained an understanding of the analysis performed by management for the purposes of the impairment assessment. We assessed the cash flow forecasts for each CGU as compared to the Group’s business plan for the period 2018-2022, including comparisons to industry forecasts and sector data, and evaluated the historical accuracy of the Company’s forecasts by comparison to actual results. We assessed the operational margins, discount rates and long-term growth rates applied within the model, with the support of valuation specialists, by performing independent calculations and sensitivity analyses for each CGU. We also assessed the impacts of COVID-19 pandemic on the assumptions made by management and the adequacy of the disclosures made by the Company in this area.
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| Provision for North America product warranty and recall campaigns |
| Description of the Matter | At December 31, 2020, the provisions for product warranty and recall campaigns amounted to €5,716 million with the most significant amounts related to the North America segment. The Company establishes provisions for product warranty obligations, including the estimated cost of service and recall actions in the North America region, at the time the vehicle is sold. The estimated future costs of these actions, which are recorded in cost of sales in the consolidated income statement, are principally based on assumptions regarding the lifetime warranty costs of each vehicle line and each model year of that vehicle line, as well as historical claims experience for the vehicles. The disclosures on warranty provisions are included in notes 2 and 20 to the consolidated financial statements. Auditing management’s provision for product warranty and recall campaign was complex in consideration of the judgment required to develop assumptions around future costs to be incurred for warranty provisions. The complexity is driven by numerous uncertainties, especially related to the North America region’s warranty and campaign provisions, the number of vehicles affected by a service or recall action and the nature of the corrective action that may result in adjustments to the established reserves. Due to the materiality, the uncertainty, and potential volatility of these estimated future costs and other factors, changes in assumptions used could materially affect the result of the Company’s financial statements.
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| How We Addressed the Matter in Our Audit | The procedures designed to address the matter in our audit included, among others, obtaining an understanding, evaluating the design and testing the operating effectiveness of controls over the Company’s warranty process. We involved actuarial specialists to assist us to evaluate and test the Company's methodology, the assumptions developed by management in determining the warranty provisions, and to perform sensitivity analyses and calculate an independent range of reasonably probable outcomes for the North America product warranty and recall campaigns provision, including evaluating current year development against expectations. We performed other audit procedures to evaluate the data applied in the model including, among others, (i) vouching of the warranty payments made in the year and (ii) obtaining external third-party confirmations in respect of the completeness and accuracy of current year claims. We assessed the adequacy of the disclosures made by the Company in this area.
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| | | | | |
| Recoverability of non-current assets with definite useful lives with reference to EMEA, LATAM and Maserati |
| Description of the Matter | At December 31, 2020, the non-current assets with definite useful lives amounted to €40,101 million. Non-current assets with definite useful lives include property, plant and equipment (€27,582 million) and intangible assets (€12,519 million). Intangible assets with definite useful lives mainly consist of capitalized development expenditures. The Company reviews the carrying amount of non-current assets with definite useful lives when events or circumstances indicate that an asset may be impaired. If indications of impairment are present, the carrying amount of the asset is reduced to its recoverable amount which is the higher of fair value less costs of disposal and its value in use. The recoverable amount is determined at the cash generating unit (CGU) level. The disclosures on non-current assets with definite useful lives are included in notes 2, 10 and 11 of the consolidated financial statements. Auditing management’s assessment of the recoverability of non-current assets with definite useful lives with reference to EMEA, LATAM and Maserati was complex and highly judgmental due to the materiality, the uncertainties involved in and potential volatility of the forecast volumes, contribution margin and other factors, such as the impacts of the COVID-19 pandemic, used in estimating future cash flows of the CGUs to which the assets belong. Changes in the assumptions used could potentially materially affect the recoverability of EMEA, LATAM and Maserati non-current assets with definite useful lives. |
| How We Addressed the Matter in Our Audit | The procedures designed to address the matter in our audit included, among others, obtaining an understanding, evaluating the design and testing the operating effectiveness of controls over the Company’s non-current assets with definite useful lives impairment assessment process, including controls over management’s review of the significant assumptions described above. To test the determination of the recoverable amount of the CGUs, we involved valuation specialists to assist in evaluating the methodology used by the Company, including the impairment test model developed and the discount rates (Weighted Average Cost of Capital) applied, by performing independent calculations and sensitivity analyses for each CGU. We evaluated the key assumptions applied in determining the recoverable amount and evaluated the CGUs identified, tested the allocation of assets to the carrying value of each CGU and assessed the cash flow forecasts for each CGU, in particular by comparing volumes with those forecasted per automotive industry market research reports and margin with that actual of other vehicles from the same brand and/or segment. We evaluated the historical accuracy of the Company's forecasts by comparison to actual results and assessed the adequacy of the disclosures made by the Company in this area. |
/s/ Ernst & YoungEY S.p.A.
We have served as the Company’s auditor since 2012.
Turin, Italy
February 20, 2018
March 4, 2021
FIAT CHRYSLER AUTOMOBILES N.V. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(in € million, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| Note | | 2020 | | 2019 | | 2018 |
| Net revenues | 4 | | € | 86,676 | | | € | 108,187 | | | € | 110,412 | |
| Cost of revenues | | | 75,962 | | | 93,164 | | | 95,011 | |
| Selling, general and other costs | | | 5,501 | | | 6,455 | | | 7,318 | |
| Research and development costs | 5 | | 2,979 | | | 3,612 | | | 3,051 | |
| Result from investments: | | | 179 | | | 209 | | | 235 | |
| Share of the profit of equity method investees | 12 | | 184 | | | 208 | | | 240 | |
| Other income from investments | | | (5) | | | 1 | | | (5) | |
| | | | | | | |
| Gains on disposal of investments | | | 4 | | | 15 | | | 0 | |
| Restructuring costs | | | 73 | | | 154 | | | 103 | |
| Net financial expenses | 6 | | 988 | | | 1,005 | | | 1,056 | |
| Profit before taxes | | | 1,356 | | | 4,021 | | | 4,108 | |
| Tax expense | 7 | | 1,332 | | | 1,321 | | | 778 | |
| Net profit from continuing operations | | | 24 | | | 2,700 | | | 3,330 | |
| Profit from discontinued operations, net of tax | 3 | | 0 | | | 3,930 | | | 302 | |
| Net profit | | | € | 24 | | | € | 6,630 | | | € | 3,632 | |
| | | | | | | |
| Net profit/(loss) attributable to: | | | | | | | |
| Owners of the parent | | | € | 29 | | | € | 6,622 | | | € | 3,608 | |
| Non-controlling interests | | | (5) | | | 8 | | | 24 | |
| | | € | 24 | | | € | 6,630 | | | € | 3,632 | |
| Net profit/(loss) from continuing operations attributable to: | | | | | | | |
| Owners of the parent | | | € | 29 | | | € | 2,694 | | | € | 3,323 | |
| Non-controlling interests | | | (5) | | | 6 | | | 7 | |
| | | € | 24 | | | € | 2,700 | | | € | 3,330 | |
| Earnings per share: | 27 | | | | | | |
| Basic earnings per share | | | € | 0.02 | | | € | 4.23 | | | € | 2.33 | |
| Diluted earnings per share | | | € | 0.02 | | | € | 4.22 | | | € | 2.30 | |
| | | | | | | |
| Earnings per share for Net profit from continuing operations: | 27 | | | | | | |
| Basic earnings per share | | | € | 0.02 | | | € | 1.72 | | | € | 2.15 | |
| Diluted earnings per share | | | € | 0.02 | | | € | 1.71 | | | € | 2.12 | |
|
| | | | | | | | | | | | | |
| | | | Years ended December 31 |
| | Note | | 2017 | | 2016 | | 2015 |
| Net revenues | 4 | | € | 110,934 |
|
| € | 111,018 |
| | € | 110,595 |
|
| Cost of revenues | | | 93,975 |
| | 95,295 |
| | 97,620 |
|
| Selling, general and other costs | | | 7,385 |
| | 7,568 |
| | 7,576 |
|
| Research and development costs | 5 | | 3,230 |
|
| 3,274 |
| | 2,864 |
|
| Result from investments: | | | 410 |
| | 316 |
|
| 143 |
|
| Share of the profit of equity method investees | 12 | | 409 |
| | 313 |
| | 130 |
|
| Other income from investments | | | 1 |
| | 3 |
| | 13 |
|
| Reversal of a Brazilian indirect tax liability | 22 | | 895 |
| | — |
| | — |
|
| Gains on disposal of investments | | | 76 |
| | 13 |
| | — |
|
| Restructuring costs | | | 95 |
| | 88 |
| | 53 |
|
| Net financial expenses | 6 | | 1,469 |
| | 2,016 |
| | 2,366 |
|
| Profit before taxes | | | 6,161 |
| | 3,106 |
| | 259 |
|
| Tax expense | 7 | | 2,651 |
| | 1,292 |
| | 166 |
|
| Net profit from continuing operations | | | 3,510 |
| | 1,814 |
| | 93 |
|
| Profit from discontinued operations, net of tax | 3 | | — |
| | — |
| | 284 |
|
| Net profit | | | € | 3,510 |
|
| € | 1,814 |
|
| € | 377 |
|
| | | | | | | | |
| Net profit attributable to: | | | | | | | |
| Owners of the parent | | | € | 3,491 |
|
| € | 1,803 |
|
| € | 334 |
|
| Non-controlling interests | | | 19 |
| | 11 |
| | 43 |
|
| | | | € | 3,510 |
| | € | 1,814 |
| | € | 377 |
|
| Net profit from continuing operations attributable to: | | | | | | | |
| Owners of the parent | | | € | 3,491 |
| | € | 1,803 |
| | € | 83 |
|
| Non-controlling interests | | | 19 |
| | 11 |
| | 10 |
|
| | | | € | 3,510 |
| | € | 1,814 |
| | € | 93 |
|
| Earnings per share: | 27 | | | | | | |
| Basic earnings per share | | | € | 2.27 |
| | € | 1.19 |
| | € | 0.22 |
|
| Diluted earnings per share | | | € | 2.24 |
| | € | 1.18 |
| | € | 0.22 |
|
| | | | | | | | |
| Earnings per share for Net profit from continuing operations: | 27 | | | | | | |
| Basic earnings per share | | | € | 2.27 |
| | € | 1.19 |
| | € | 0.05 |
|
| Diluted earnings per share | | | € | 2.24 |
| | € | 1.18 |
| | € | 0.05 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
FIAT CHRYSLER AUTOMOBILES N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in € million)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| Note | | 2020 | | 2019 | | 2018 |
| Net profit (A) | | | € | 24 | | | € | 6,630 | | | € | 3,632 | |
| | | | | | | |
| Items that will not be reclassified to the Consolidated Income Statement in subsequent periods: | 26 | | | | | | |
| (Losses)/gains on remeasurement of defined benefit plans | | | (110) | | | (63) | | | 317 | |
Losses on debt instruments measured at
FVOCI | | | (1) | | | 0 | | | 0 | |
Share of (losses)/gains on remeasurement of defined benefit plans for
equity method investees | | | 0 | | | (5) | | | 0 | |
| (Losses)/gains on equity instruments measured at fair value through other comprehensive income | | | (5) | | | 6 | | | (4) | |
| Related tax impact | | | 21 | | | 7 | | | (76) | |
| Items relating to discontinued operations, net of tax | | | 0 | | | (9) | | | 2 | |
| Total items that will not be reclassified to the Consolidated Income Statement in subsequent periods (B1) | | | (95) | | | (64) | | | 239 | |
| | | | | | | |
| Items that may be reclassified to the Consolidated Income Statements in subsequent periods: | 26 | | | | | | |
| (Losses)/gains on cash flow hedging instruments | | | (22) | | | (191) | | | (9) | |
| Exchange (losses)/gains on translating foreign operations | | | (2,696) | | | 268 | | | 126 | |
| Share of Other comprehensive (loss) for equity method investees | | | (104) | | | (15) | | | (103) | |
| Related tax impact | | | 7 | | | 50 | | | (6) | |
| Items relating to discontinued operations, net of tax | | | 0 | | | 9 | | | (91) | |
| Total items that may be reclassified to the Consolidated Income Statement in subsequent periods (B2) | | | (2,815) | | | 121 | | | (83) | |
| | | | | | | |
| Total Other comprehensive income/(loss), net of tax (B1)+(B2)=(B) | | | (2,910) | | | 57 | | | 156 | |
| | | | | | | |
| Total Comprehensive income (A)+(B) | | | € | (2,886) | | | € | 6,687 | | | € | 3,788 | |
| | | | | | | |
| Total Comprehensive income attributable to: | | | | | | | |
| Owners of the parent | | | € | (2,875) | | | € | 6,676 | | | € | 3,763 | |
| Non-controlling interests | | | (11) | | | 11 | | | 25 | |
| | | € | (2,886) | | | € | 6,687 | | | € | 3,788 | |
| Total Comprehensive income attributable to owners of the parent: | | | | | | | |
| Continuing operations | | | € | (2,875) | | | € | 2,749 | | | € | 3,558 | |
| Discontinued operations | | | 0 | | | 3,927 | | | 205 | |
| | | € | (2,875) | | | € | 6,676 | | | € | 3,763 | |
|
| | | | | | | | | | | | | |
| | | | Years ended December 31 |
| | Note | | 2017 | | 2016 | | 2015 |
| Net profit (A) | | | € | 3,510 |
| | € | 1,814 |
| | € | 377 |
|
| | | | | | | | |
| Items that will not be reclassified to the Consolidated Income Statement in subsequent periods: | 26 | | | | | | |
| (Losses)/gains on re-measurement of defined benefit plans | | | (64 | ) | | 584 |
| | 679 |
|
Share of gains/(losses) on re-measurement of defined benefit plans for
equity method investees | | | 2 |
| | (5 | ) | | (2 | ) |
| Related tax impact | | | (21 | ) | | (261 | ) | | (201 | ) |
| Items relating to discontinued operations, net of tax | | | — |
| | — |
| | 3 |
|
| Total items that will not be reclassified to the Consolidated Income Statement in subsequent periods (B1) | | | (83 | ) | | 318 |
| | 479 |
|
| | | | | | | | |
| Items that may be reclassified to the Consolidated Income Statements in subsequent periods: | 26 | | | | | | |
| Gains/(losses) on cash flow hedging instruments | | | 147 |
| | (249 | ) | | 186 |
|
| Gains on available-for-sale financial assets | | | 14 |
| | 15 |
| | 11 |
|
| Exchange (losses)/gains on translating foreign operations | | | (1,942 | ) | | 458 |
| | 1,002 |
|
| Share of Other comprehensive (loss) for equity method investees | | | (121 | ) | | (122 | ) | | (17 | ) |
| Related tax impact | | | (10 | ) | | 69 |
| | (48 | ) |
| Items relating to discontinued operations, net of tax | | | — |
| | — |
| | 18 |
|
| Total items that may be reclassified to the Consolidated Income Statement in subsequent periods (B2) | | | (1,912 | ) | | 171 |
| | 1,152 |
|
| | | | | | | | |
| Total Other comprehensive (loss)/income, net of tax (B1)+(B2)=(B) | | | (1,995 | ) | | 489 |
| | 1,631 |
|
| | | | | | | | |
| Total Comprehensive income (A)+(B) | | | € | 1,515 |
| | € | 2,303 |
| | € | 2,008 |
|
| | | | | | | | |
| Total Comprehensive income attributable to: | | | | | | | |
| Owners of the parent | | | € | 1,491 |
| | € | 2,288 |
| | € | 1,953 |
|
| Non-controlling interests | | | 24 |
| | 15 |
| | 55 |
|
| | | | € | 1,515 |
| | € | 2,303 |
| | € | 2,008 |
|
| Total Comprehensive income attributable to owners of the parent: | | | | | | | |
| Continuing operations | | | € | 1,491 |
| | € | 2,288 |
| | € | 1,685 |
|
| Discontinued operations | | | — |
| | — |
| | 268 |
|
| | | | € | 1,491 |
| | € | 2,288 |
| | € | 1,953 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
FIAT CHRYSLER AUTOMOBILES N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in
(in € million)
| | | | | | | | | | | | | | | | | |
| | | At December 31, |
| Note | | 2020 | | 2019 |
| Assets | | | | | |
| Goodwill and intangible assets with indefinite useful lives | 9 | | € | 13,055 | | | € | 14,257 | |
| Other intangible assets | 10 | | 12,519 | | | 12,447 | |
| Property, plant and equipment | 11 | | 27,582 | | | 28,608 | |
| Investments accounted for using the equity method | 12 | | 2,086 | | | 2,009 | |
| Other financial assets | 13 | | 331 | | | 340 | |
| Deferred tax assets | 7 | | 1,096 | | | 1,689 | |
| Other receivables | 15 | | 1,721 | | | 2,376 | |
| Tax receivables | 15 | | 95 | | | 94 | |
| Prepaid expenses and other assets | | | 394 | | | 535 | |
| Other non-current assets | | | 798 | | | 757 | |
| Total Non-current assets | | | 59,677 | | | 63,112 | |
| Inventories | 14 | | 8,094 | | | 9,722 | |
| Assets sold with a buy-back commitment | | | 852 | | | 1,626 | |
| Trade and other receivables | 15 | | 5,545 | | | 6,628 | |
| Tax receivables | 15 | | 89 | | | 372 | |
| Prepaid expenses and other assets | | | 457 | | | 524 | |
| Other financial assets | 13 | | 851 | | | 670 | |
| Cash and cash equivalents | 17 | | 23,846 | | | 15,014 | |
| Assets held for sale | 3 | | 319 | | | 376 | |
| Total Current assets | | | 40,053 | | | 34,932 | |
| Total Assets | | | € | 99,730 | | | € | 98,044 | |
| Equity and liabilities | | | | | |
| Equity | 26 | | | | |
| Equity attributable to owners of the parent | | | € | 25,737 | | | € | 28,537 | |
| Non-controlling interests | | | 124 | | | 138 | |
| Total Equity | | | 25,861 | | | 28,675 | |
| Liabilities | | | | | |
| Long-term debt | 21 | | 17,036 | | | 8,025 | |
| Employee benefits liabilities | 19 | | 8,328 | | | 8,507 | |
| Provisions | 20 | | 4,966 | | | 5,027 | |
| Other financial liabilities | 16 | | 280 | | | 124 | |
| Deferred tax liabilities | 7 | | 1,845 | | | 1,628 | |
| Tax liabilities | 22 | | 248 | | | 278 | |
| Other liabilities | 22 | | 2,129 | | | 2,426 | |
| Total Non-current liabilities | | | 34,832 | | | 26,015 | |
| Trade payables | | | 20,576 | | | 21,616 | |
| Short-term debt and current portion of long-term debt | 21 | | 4,081 | | | 4,876 | |
| Employee benefit liabilities | 19 | | 592 | | | 544 | |
| Provisions | 20 | | 7,255 | | | 8,978 | |
| Other financial liabilities | 16 | | 353 | | | 194 | |
| Tax liabilities | 22 | | 228 | | | 122 | |
| Other liabilities | 22 | | 5,749 | | | 6,788 | |
| Liabilities held for sale | 3 | | 203 | | | 236 | |
| Total Current liabilities | | | 39,037 | | | 43,354 | |
| Total Equity and liabilities | | | € | 99,730 | | | € | 98,044 | |
|
| | | | | | | | | |
| | | | At December 31 |
| | Note | | 2017 | | 2016 |
| Assets | | | | | |
| Goodwill and intangible assets with indefinite useful lives | 9 | | € | 13,390 |
| | € | 15,222 |
|
| Other intangible assets | 10 | | 11,542 |
| | 11,422 |
|
| Property, plant and equipment | 11 | | 29,014 |
| | 30,431 |
|
| Investments accounted for using the equity method | 12 | | 2,008 |
|
| 1,793 |
|
| Other financial assets | 13 | | 482 |
|
| 649 |
|
| Deferred tax assets | 7 | | 2,004 |
| | 3,699 |
|
| Other receivables | 15 | | 666 |
| | 581 |
|
| Tax receivables | 15 | | 83 |
| | 93 |
|
| Accrued income and prepaid expenses | | | 328 |
| | 372 |
|
| Other non-current assets | | | 508 |
| | 359 |
|
Total Non-current assets | | | 60,025 |
| | 64,621 |
|
| Inventories | 14 | | 12,922 |
|
| 12,121 |
|
| Assets sold with a buy-back commitment | | | 1,748 |
| | 1,533 |
|
| Trade and other receivables | 15 | | 7,887 |
| | 7,273 |
|
| Tax receivables | 15 | | 215 |
| | 206 |
|
| Accrued income and prepaid expenses | | | 377 |
| | 389 |
|
| Other financial assets | 13 | | 487 |
| | 762 |
|
| Cash and cash equivalents | 17 | | 12,638 |
|
| 17,318 |
|
| Assets held for sale | 3 | | — |
|
| 120 |
|
Total Current assets | | | 36,274 |
| | 39,722 |
|
| Total Assets | | | € | 96,299 |
| | € | 104,343 |
|
| Equity and liabilities | | | | | |
| Equity | 26 | | | | |
| Equity attributable to owners of the parent | | | € | 20,819 |
| | € | 19,168 |
|
| Non-controlling interests | | | 168 |
| | 185 |
|
| Total Equity | | | 20,987 |
| | 19,353 |
|
| Liabilities | | | | | |
| Long-term debt | 21 | | 10,726 |
| | 16,111 |
|
| Employee benefits liabilities | 19 | | 8,584 |
|
| 9,052 |
|
| Provisions | 20 | | 5,770 |
| | 6,520 |
|
| Other financial liabilities | 16 | | 1 |
| | 16 |
|
| Deferred tax liabilities | 7 | | 388 |
| | 194 |
|
| Tax payables | 22 | | 74 |
| | 25 |
|
| Other liabilities | 22 | | 2,500 |
| | 3,603 |
|
| Total Non-current liabilities | | | 28,043 |
| | 35,521 |
|
| Trade payables | | | 21,939 |
| | 22,655 |
|
| Short-term debt and current portion of long-term debt | 21 | | 7,245 |
| | 7,937 |
|
| Other financial liabilities | 16 | | 138 |
| | 681 |
|
| Employee benefit liabilities | 19 | | 694 |
| | 811 |
|
| Provisions | 20 | | 9,009 |
| | 9,317 |
|
| Tax payables | 22 | | 309 |
| | 162 |
|
| Other liabilities | 22 | | 7,935 |
| | 7,809 |
|
| Liabilities held for sale | 3 | | — |
| | 97 |
|
| Total Current liabilities | | | 47,269 |
| | 49,469 |
|
| Total Equity and liabilities | | | € | 96,299 |
| | € | 104,343 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
FIAT CHRYSLER AUTOMOBILES N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (in
| | | | | Years ended December 31 | | Years ended December 31, |
| | Note | | 2017 | | 2016 | | 2015 | | Note | | 2020 | | 2019 | | 2018 |
| Cash flows from operating activities: | |
|
| |
|
| |
|
| Cash flows from operating activities: | | | | | | | |
| Net profit from continuing operations | | € | 3,510 |
| | € | 1,814 |
| | € | 93 |
| Net profit from continuing operations | | € | 24 | | | € | 2,700 | | | € | 3,330 | |
| Amortization and depreciation | | 5,890 |
| | 5,956 |
| | 5,414 |
| Amortization and depreciation | | 5,143 | | | 5,445 | | | 5,507 | |
| Net losses on disposal of tangible and intangible assets | | 16 |
| | 13 |
| | 18 |
| Net losses on disposal of tangible and intangible assets | | 3 | | | 19 | | | 1 | |
| Net gains on disposal of investments | | (76 | ) | | (13 | ) | | — |
| Net gains on disposal of investments | | (22) | | | (15) | | | 0 | |
| Other non-cash items | 29 | | (199 | ) | | 111 |
| | 812 |
| Other non-cash items | 29 | | 1,192 | | | 1,541 | | | 129 | |
| Dividends received | | 102 |
| | 123 |
| | 112 |
| Dividends received | | 73 | | | 156 | | | 75 | |
| Change in provisions | | 555 |
| | 1,519 |
| | 3,206 |
| Change in provisions | | (434) | | | (1,744) | | | 842 | |
| Change in deferred taxes | | 1,057 |
| | 389 |
| | (279 | ) | Change in deferred taxes | | 894 | | | 864 | | | 457 | |
| Change due to assets sold with buy-back commitments and GDP vehicles | | (11 | ) | | (95 | ) | | 6 |
| Change due to assets sold with buy-back commitments and GDP vehicles | | (249) | | | (65) | | | 158 | |
| Change in inventories | | (1,666 | ) | | (471 | ) | | (958 | ) | Change in inventories | | 983 | | | 1,017 | | | 1,399 | |
| Change in trade receivables | | (206 | ) | | 177 |
| | (191 | ) | Change in trade receivables | | 366 | | | 100 | | | 19 | |
| Change in trade payables | | 1,086 |
| | 776 |
| | 1,571 |
| Change in trade payables | | 565 | | | 2,020 | | | (1,240) | |
| Change in other payables and receivables | | 327 |
| | 295 |
| | (580 | ) | |
| Cash flows from operating activities - discontinued operations | | — |
| | — |
| | 527 |
| |
| Change in other liabilities, payables and receivables | | Change in other liabilities, payables and receivables | | 645 | | | (1,268) | | | (1,213) | |
| Cash flows (used in)/from operating activities - discontinued operations | | Cash flows (used in)/from operating activities - discontinued operations | | 0 | | | (308) | | | 484 | |
| Total | | 10,385 |
| | 10,594 |
| | 9,751 |
| Total | | 9,183 | | | 10,462 | | | 9,948 | |
| Cash flows used in investing activities: | | | | | | | Cash flows used in investing activities: | |
| Investments in property, plant and equipment and intangible assets | | (8,666 | ) | | (8,815 | ) | | (8,819 | ) | Investments in property, plant and equipment and intangible assets | | (8,600) | | | (8,385) | | | (5,392) | |
| Investments in joint ventures, associates and unconsolidated subsidiaries | | (18 | ) | | (116 | ) | | (266 | ) | Investments in joint ventures, associates and unconsolidated subsidiaries | | (63) | | | (2) | | | (3) | |
| Proceeds from the sale of tangible and intangible assets | | 61 |
| | 36 |
| | 29 |
| Proceeds from the sale of tangible and intangible assets | | 77 | | | 53 | | | 47 | |
| Proceeds from disposal of other investments | | 4 |
| | 55 |
| | — |
| Proceeds from disposal of other investments | | 71 | | | 0 | | | 0 | |
| Net change in receivables from financing activities | | (838 | ) | | (483 | ) | | 410 |
| Net change in receivables from financing activities | | 396 | | | 336 | | | (676) | |
| Change in securities | | 175 |
| | 299 |
| | (239 | ) | Change in securities | | 207 | | | (235) | | | (75) | |
| Other changes | | (14 | ) | | (15 | ) | | 11 |
| Other changes | | (3) | | | 55 | | | (7) | |
| Net cash proceeds from disposal of discontinued operations | | Net cash proceeds from disposal of discontinued operations | | 0 | | | 5,348 | | | 0 | |
| Cash flows used in investing activities - discontinued operations | | — |
| | — |
| | (426 | ) | Cash flows used in investing activities - discontinued operations | | 0 | | | (155) | | | (632) | |
| Total | | (9,296 | ) | | (9,039 | ) | | (9,300 | ) | Total | | (7,915) | | | (2,985) | | | (6,738) | |
| Cash flows (used in) /from financing activities: | 29 | |
|
| |
|
| |
|
| |
| Cash flows from/(used) in financing activities: | | Cash flows from/(used) in financing activities: | 29 | |
| Issuance of notes | | — |
| | 1,250 |
| | 2,840 |
| Issuance of notes | | 3,500 | | | 0 | | | 0 | |
| Repayment of notes | | (2,235 | ) | | (2,373 | ) | | (7,241 | ) | Repayment of notes | | (1,376) | | | (1,480) | | | (1,850) | |
| Proceeds of other long-term debt | | 833 |
| | 1,342 |
| | 3,061 |
| Proceeds of other long-term debt | | 15,215 | | | 329 | | | 935 | |
| Repayment of other long-term debt | | (3,439 | ) | | (4,618 | ) | | (4,412 | ) | Repayment of other long-term debt | | (8,295) | | | (1,163) | | | (2,852) | |
| Net change in short-term debt and other financial assets/liabilities | | 371 |
| | (591 | ) | | (36 | ) | Net change in short-term debt and other financial assets/liabilities | | 43 | | | (782) | | | 1,062 | |
| Net proceeds from initial public offering of 10 percent of Ferrari N.V. | 3 | | — |
| | — |
| | 866 |
| |
| Distributions paid | | (1 | ) | | (18 | ) | | (283 | ) | Distributions paid | | 0 | | | (3,056) | | | (1) | |
| Other changes | | (2 | ) | | (119 | ) | | 10 |
| Other changes | | 0 | | | 0 | | | 11 | |
| Cash flows from financing activities - discontinued operations | | — |
| | — |
| | 2,067 |
| |
| Cash flows from/(used in) financing activities - discontinued operations | | Cash flows from/(used in) financing activities - discontinued operations | | 0 | | | 325 | | | (90) | |
| Total | | (4,473 | ) | | (5,127 | ) | | (3,128 | ) | Total | | 9,087 | | | (5,827) | | | (2,785) | |
| Translation exchange differences | | (1,296 | ) | | 228 |
| | 681 |
| Translation exchange differences | | (1,513) | | | 212 | | | 106 | |
| Total change in Cash and cash equivalents | | (4,680 | ) | | (3,344 | ) | | (1,996 | ) | Total change in Cash and cash equivalents | | 8,842 | | | 1,862 | | | 531 | |
| | Cash and cash equivalents at beginning of the period | | 17,318 |
| | 20,662 |
| | 22,840 |
| Cash and cash equivalents at beginning of the period | | 15,014 | | | 12,450 | | | 12,638 | |
| Cash and cash equivalents at end of the period - included within Assets held for distribution | | — |
| | — |
| | 182 |
| |
| Add: Cash and cash equivalents at beginning of the period included within Assets held for sale | | Add: Cash and cash equivalents at beginning of the period included within Assets held for sale | | 17 | | | 719 | | | 0 | |
| Total change in Cash and cash equivalents | | Total change in Cash and cash equivalents | | 8,842 | | | 1,862 | | | 531 | |
| Less: Cash and cash equivalents at end of the period - included within Assets held for sale | | Less: Cash and cash equivalents at end of the period - included within Assets held for sale | | 27 | | | 17 | | | 719 | |
| Cash and cash equivalents at end of the period | 17 | | € | 12,638 |
| | € | 17,318 |
| | € | 20,662 |
| Cash and cash equivalents at end of the period | 17 | | € | 23,846 | | | € | 15,014 | | | € | 12,450 | |
The accompanying notes are an integral part of the Consolidated Financial Statements.
FIAT CHRYSLER AUTOMOBILES N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in € million)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Attributable to owners of the parent | | | | |
| Share capital | | Other reserves | | Cash flow hedge reserve | | Currency translation differences | | | | Debt
instruments
measured
at FVOCI | | Financial Assets measured at FVOCI | | Remeasure-ment of defined benefit plans | | Cumulative share of OCI of equity method investees | | Non-controlling interests | | Total |
| At December 31, 2017 | 19 | | | 20,921 | | | 68 | | | 970 | | | | | — | | | 3 | | | (810) | | | (352) | | | 168 | | | 20,987 | |
| Impact from the adoption of IFRS 15 and IFRS 9 | — | | | 21 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | — | | | 21 | |
| At January 1, 2018 | 19 | | | 20,942 | | | 68 | | | 970 | | | | | — | | | 3 | | | (810) | | | (352) | | | 168 | | | 21,008 | |
| Capital increase | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 11 | | | 11 | |
| Distributions | — | | | 0 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| Share-based compensation | 0 | | | 82 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | — | | | 82 | |
| Net profit | — | | | 3,608 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 24 | | | 3,632 | |
| Other comprehensive income/(loss) | — | | | 0 | | | (22) | | | 41 | | | | | — | | | (4) | | | 243 | | | (103) | | | 1 | | | 156 | |
Other changes(1) | — | | | 18 | | | (1) | | | 0 | | | | | — | | | 0 | | | 0 | | | 0 | | | (2) | | | 15 | |
| At December 31, 2018 | 19 | | | 24,650 | | | 45 | | | 1,011 | | | | | — | | | (1) | | | (567) | | | (455) | | | 201 | | | 24,903 | |
| Impact from the adoption of IFRS 16 | — | | | 0 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | — | | | 0 | |
| At January 1, 2019 | 19 | | | 24,650 | | | 45 | | | 1,011 | | | | | — | | | (1) | | | (567) | | | (455) | | | 201 | | | 24,903 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions | — | | | (3,056) | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (29) | | | (3,085) | |
| Share-based compensation | 1 | | | 114 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | — | | | 115 | |
| Net profit | — | | | 6,622 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 8 | | | 6,630 | |
| Other comprehensive income/(loss) | — | | | — | | | (138) | | | 270 | | | | | — | | | 6 | | | (64) | | | (20) | | | 3 | | | 57 | |
| Sale of Magneti Marelli | — | | | (109) | | | (6) | | | 97 | | | | | — | | | — | | | 109 | | | — | | | (47) | | | 44 | |
Other changes(1) | — | | | 24 | | | (15) | | | — | | | | | — | | | — | | | — | | | — | | | 2 | | | 11 | |
| At December 31, 2019 | 20 | | | 28,245 | | | (114) | | | 1,378 | | | | | — | | | 5 | | | (522) | | | (475) | | | 138 | | | 28,675 | |
| Capital increase | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | — | | | — | |
| Distributions | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 0 | | | 0 | |
| Share-based compensation | 0 | | | 60 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | — | | | 60 | |
| Net profit | — | | | 29 | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (5) | | | 24 | |
| Other comprehensive income/(loss) | — | | | — | | | (17) | | | (2,688) | | | | | (1) | | | (5) | | | (89) | | | (104) | | | (6) | | | (2,910) | |
Other changes(1) | — | | | 17 | | | (2) | | | — | | | | | — | | | — | | | — | | | — | | | (3) | | | 12 | |
| At December 31, 2020 | € | 20 | | | € | 28,351 | | | € | (133) | | | € | (1,310) | | | | | € | (1) | | | € | 0 | | | € | (611) | | | € | (579) | | | € | 124 | | | € | 25,861 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Attributable to owners of the parent | | | | |
| | Share capital | | Other reserves | | Cash flow hedge reserve | | Currency translation differences | | Available-for-sale financial assets | | Remeasure-ment of defined benefit plans | | Cumulative share of OCI of equity method investees | | Non-controlling interests | | Total |
| At December 31, 2014 | € | 17 |
| | € | 14,338 |
| | € | (69 | ) | | € | 1,479 |
| | € | (37 | ) | | € | (1,578 | ) | | € | (86 | ) | | € | 313 |
| | € | 14,377 |
|
| Distributions | — |
| | (17 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (283 | ) | | (300 | ) |
| Share-based compensation | — |
| | 80 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 80 |
|
| Net profit | — |
| | 334 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 43 |
| | 377 |
|
| Initial public offering of 10 percent Ferrari N.V | — |
| | 869 |
| | 7 |
| | (4 | ) | | — |
| | 1 |
| | — |
| | (7 | ) | | 866 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | 132 |
| | 1,016 |
| | 11 |
| | 479 |
| | (19 | ) | | 12 |
| | 1,631 |
|
| Other changes | — |
| | (149 | ) | | — |
| | 1 |
| | — |
| | — |
| | — |
| | 85 |
| | (63 | ) |
| At December 31, 2015 | 17 |
| | 15,455 |
| | 70 |
| | 2,492 |
| | (26 | ) | | (1,098 | ) | | (105 | ) | | 163 |
| | 16,968 |
|
| Capital increase | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 18 |
| | 18 |
|
| Mandatory Convertible Securities (Note 26) | 2 |
| | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Share-based compensation | — |
| | 98 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 98 |
|
| Net profit | — |
| | 1,803 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| | 1,814 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | (182 | ) | | 456 |
| | 15 |
| | 324 |
| | (128 | ) | | 4 |
| | 489 |
|
| Other changes | — |
| | (42 | ) | | 49 |
| | (36 | ) | | — |
| | 6 |
| | — |
| | (11 | ) | | (34 | ) |
| At December 31, 2016 | 19 |
| | 17,312 |
| | (63 | ) | | 2,912 |
| | (11 | ) | | (768 | ) | | (233 | ) | | 185 |
| | 19,353 |
|
| Capital increase | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
| Demerger of Itedi S.p.A | — |
| | (64 | ) | | — |
| | — |
| | — |
| | 5 |
| | — |
| | (28 | ) | | (87 | ) |
| Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
| Share-based compensation | — |
| | 115 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 115 |
|
| Net profit | — |
| | 3,491 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19 |
| | 3,510 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | 131 |
| | (1,942 | ) | | 14 |
| | (84 | ) | | (119 | ) | | 5 |
| | (1,995 | ) |
| Other changes | — |
| | 67 |
| | — |
| | — |
| | — |
| | 37 |
| | — |
| | (15 | ) | | 89 |
|
| At December 31, 2017 | € | 19 |
| | € | 20,921 |
| | € | 68 |
| | € | 970 |
| | € | 3 |
| | € | (810 | ) | | € | (352 | ) | | € | 168 |
| | € | 20,987 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
FIAT CHRYSLER AUTOMOBILES N.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On January 29, 2014, the Board of Directors of Fiat S.p.A. (“Fiat”) approved a proposed corporate reorganization resulting in the formation of Fiat Chrysler Automobiles N.V. and establishing Fiat Chrysler Automobiles N.V., organized in the Netherlands, as the parent of the FCA Group with its principal executive offices located at 25 St. James's Street, London SW1A 1HA, United Kingdom. Fiat Chrysler Automobiles N.V. was incorporated as a public limited liability company (naamloze vennootschap) under the laws of the Netherlands on April 1, 2014 under the name Fiat Investments N.V.
On October 12, 2014, the cross-border legal merger of Fiat S.p.A. into its 100 percent owned direct subsidiary Fiat Investments N.V. (the “Merger”“2014 Merger”) became effective. The 2014 Merger, which took the form of a reverse merger, resulted in Fiat Investments N.V. being the surviving entity and it was renamed Fiat Chrysler Automobiles N.V. (“FCA NV”).
The FCA Group and its subsidiaries, of which the most significant was FCA US LLC (“FCA US”, formerly known as Chrysler Group LLC), together with its subsidiaries, were engaged in the design, engineering, manufacturing, distribution and sale of automobiles and light commercial vehicles, engines, transmission systems, metallurgical products and production systems. In addition, the FCA Group was also involved in certain other activities, including (mainly captive) services, which represent an insignificant portion of the its business. Refer to Note 3, Scope of consolidation for information on the presentation of Magneti Marelli as a discontinued operation.
On January 16, 2021, Peugeot S.A. (“PSA”) merged with and into Fiat Chrysler Automobiles N.V., with Fiat Chrysler Automobiles N.V. as the surviving company in the merger (the “merger”). On January 17, 2021, the combined company was renamed Stellantis N.V., the current members of the board of directors were appointed and the Stellantis articles of association became effective. On this date, the Stellantis management and board of directors collectively obtained the power and ability to control the assets, liabilities and operations of both FCA and PSA. As such, under IFRS 3, Business Combinations, January 17, 2021 is the acquisition date for the business combination.
In 2021, the merger will be accounted for by Stellantis using the acquisition method of accounting in accordance with IFRS 3, which requires the identification of the acquirer and the acquiree for accounting purposes. Based on the assessment of the indicators under IFRS 3 and consideration of all pertinent facts and circumstances, FCA and PSA’s management determined that PSA is the acquirer for accounting purposes and as such, the merger will be accounted for as a reverse acquisition. As a result, the financial statements of Stellantis N.V. in subsequent filings will represent the historical financial statements of PSA. Refer to Note 31, Subsequent events, included elsewhere in these financial statements for additional detail.
Unless otherwise specified, the terms “Group”, “FCA Group”, “Company” and “FCA”, refer to FCA NV, together with its subsidiaries and its predecessor prior to the completion of the 2014 Merger, or any one or more of them, as the context may require. Any references to “Fiat” refer solely to Fiat S.p.A., the predecessor of FCA NV prior to the 2014 Merger.
The Group Unless otherwise specified, the terms “we”, “our”, “us”, the “Group”, the “Company” and its subsidiaries, of which the most significant is FCA US LLC (“FCA US”)“Stellantis” refer to Stellantis N.V., together with its consolidated subsidiaries, are engaged inor any one or more of them, as the design, engineering, manufacturing, distribution and sale of automobiles and light commercial vehicles, engines, transmission systems, automotive-related components, metallurgical products and production systems. In addition, the Group is also involved in certain other activities, including services (mainly captive), which represent an insignificant portion of the Group's business.context may require.
All references in this report to “Euro” and “€” refer to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended. The FCA Group’s financial information is presented in Euro. All references to “U.S. Dollars,”Dollars”, “U.S. Dollar”, “U.S.$” and “$” refer to the currency of the United States of America (or “U.S.(“U.S.”).
Stellantis has filed a list of subsidiaries and associated companies, prepared in accordance with Sections 379 and 414, Book 2, Dutch Civil Code, at the Dutch trade register of Amsterdam. 2. Basis of Preparation
Authorization of Consolidated Financial Statements and compliance with International Financial Reporting Standards
The Consolidated Financial Statements, together with the notes thereto, of FCA atas of and for the year ended December 31, 20172020 (“The Consolidated Financial Statements”) were authorized for issuance by the Stellantis Board of Directors on February 20, 2018March 4, 2021 and have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), as well as IFRS as adopted by the European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the European Union. The designation “IFRS” also includes International Accounting Standards (“IAS”) as well as all interpretations of the IFRS Interpretations Committee (“IFRIC”).
Basis of Preparationpreparation
The Consolidated Financial Statements arewere prepared under the historical cost method, modified as required for the measurement of certain financial instruments as required, as well as on a going concern basis. In this respect, the Group’s assessment is that no material uncertainties (as defined in IAS 1- 1 - Presentation of Financial Statements) exist about its ability to continue as a going concern.
For the presentation of the Consolidated Income Statement, the Group usesFCA used a classification based on the function of expenses rather than based on their nature as it iswas considered more representative of the format historically used for internal reporting and management purposes and is consistent with international practice in the automotive sector.
COVID-19 impacts
During the first half of 2020, the COVID-19 virus spread worldwide and was declared a pandemic by the World Health Organization on March 11, 2020. In response, many governments in affected jurisdictions imposed travel bans, quarantines and other emergency public safety measures. For example, governments imposed restrictions on travel and the movement and gathering of people, as well as restrictions on economic activity. At March 4, 2021, many of these measures are still in place as certain regions have experienced secondary waves of the pandemic, with increased cases in recent months.
As the severity of the COVID-19 pandemic became apparent, FCA leadership took actions to protect its employees and communities, as well as strengthen FCA’s financial position and limit the impact on FCA’s financial performance.
FCA implemented a temporary suspension of production across its facilities: in APAC starting with China on January 23, 2020; in EMEA, starting with Italy from March 11, 2020; in Maserati beginning March 12, 2020; in North America starting progressively from March 18, 2020; and in LATAM on March 23, 2020. The FCA Group also implemented remote working arrangements, where feasible, across all regions at various stages during the first quarter, and has restricted both domestic and international business travel since late February 2020. These arrangements were structured to ensure continuation of critical activities, including, but not limited to, appropriate functioning of FCA’s internal controls and financial reporting systems and processes.
FCA worked closely with all relevant stakeholders, including unions and dealer representatives, to develop and implement plans to restart production and vehicle sales once governments in various jurisdictions permitted, including the development of enhanced sanitizing and health and safety procedures. On February 19 and February 24, 2020, production restarted at the GAC Fiat Chrysler Automobiles Co. joint venture plants in Guangzhou and Changsha, China, respectively. Production restarted in all North American plants by June 1, 2020; in India on May 18, 2020; Latin America by May 20, 2020; on April 27, 2020 production restarted at the Sevel joint operation in Atessa, Italy, increasing progressively at other plants in the EMEA region and achieving pre-COVID shift patterns during the third quarter. Return to work procedures for offices and other facilities were also phased in with continued widespread use of remote working practices.
On April 3, 2020, FCA announced that the Annual General Meeting of the Company’s shareholders (“AGM”) scheduled for April 16, 2020 would be postponed to late June 2020, including the postponement of the resolution on the proposed 2019 €1.1 billion ordinary dividend. Further to the planned 50/50 merger of their businesses announced in December 2019, on May 13, 2020, the board of directors of Fiat Chrysler Automobiles N.V. and the managing board of Peugeot S.A. announced the decision by each company to not distribute an ordinary dividend in 2020 related to financial year 2019, in light of the impact from the COVID-19 crisis. The postponed AGM was held on June 26, 2020.
Amendment to the FCA PSA combination agreement
On September 14, 2020, FCA and PSA announced an amendment to the combination agreement entered into in December 2019 in order to address the liquidity impact on the automotive industry of the COVID-19 pandemic while preserving the economic value and fundamental balance of the original agreement. Specifically, the special dividend to be paid to FCA’s shareholders was set at €2.9 billion (previously €5.5 billion) with PSA's 46% stake in Faurecia to be distributed to all Stellantis shareholders promptly after closing following approval by the Stellantis Board and shareholders. As announced on October 28, 2020, FCA and PSA agreed to permit PSA to dispose of, prior to closing, a portion of its interest in Faurecia not to exceed 7 percent of Faurecia's outstanding share capital with the proceeds of this disposal, along with the remainder of PSA’s current 46% stake in Faurecia, to be distributed to all Stellantis shareholders. The amendment was unanimously approved by the Boards of both companies with the strong support of their reference shareholders.
Additionally, it was also agreed that the Boards of both PSA and FCA would consider a potential distribution of €500 million to the shareholders of each company before closing or, alternatively, a distribution of €1 billion to be paid following the closing to all Stellantis shareholders. Refer to Note 26, Equity within the Consolidated Financial Statements included elsewhere in this report for additional detail on the proposed special cash distribution to holders of Stellantis common shares.
The COVID-19 pandemic had significant negative impacts on FCA's results for the year ended December 31, 2020. The contraction of global demand, temporary suspensions of production in all regions and closures of a majority of dealerships during the first and second quarter significantly contributed to reduced consolidated shipments.
Refer to the following disclosures for further information regarding the impacts to the consolidated financial statements:
•Note 7, Tax expense for detail on the write-down of deferred tax assets in Italy and Brazil;
•Note 9, Goodwill and intangible assets with indefinite useful lives for detail on assessment of, and impairment testing on, goodwill allocated to the EMEA and LATAM operating segments;
•Note 10, Other intangible assets and Note 11, Property, plant and equipment for detail on assessment of cash generating units (“CGUs”) in North America, EMEA, LATAM and Maserati operating segments and impairments recognized for CGUs in EMEA, LATAM and Maserati operating segments; and
•Note 21, Debt for detail on changes in the FCA Group's liquidity and financial position
Significant Accounting Policiesaccounting policies
Basis of Consolidationconsolidation
Subsidiaries
Subsidiaries are entities over which the FCA Group hashad control. Control iswas achieved when the FCA Group hashad power over the investee, when it iswas exposed to, or hashad rights to, variable returns from its involvement with the investee and hashad the ability to use its power over the investee to affect the amount of the investor’s returns. Subsidiaries arewere consolidated on a line by line basis from the date which control iswas achieved by the FCA Group. The FCA Group reassessesreassessed whether or not it controlscontrolled an investee if facts and circumstances indicateindicated that there arewere changes to one or more of the three elements of control listed above.
The FCA Group recognizesrecognized a non-controlling interest in the acquiree on a transaction-by-transaction basis, either at fair value or at the non-controlling interest’s share of the recognized amounts of the acquiree’s identifiable net assets. Net profit or loss and each component of Other comprehensive income/(loss) arewere attributed to Equity attributable to owners of the parent and to Non-controlling interests. Total comprehensive income/(loss) of subsidiaries iswas attributed to Equity attributable to the owners of the parent and to the non-controlling interest even if this resultsresulted in a deficit balance in Non-controlling interests.
Changes in the FCA Group’s ownership interests in a subsidiary that dodid not result in the FCA Group losing control over the subsidiary arewere accounted for as equity transactions. The carrying amounts of the Equity attributable to owners of the parent and Non-controlling interests arewere adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the carrying amount of the non-controlling interests and the fair value of the consideration paid or received in the transaction iswas recognized directly in the Equity attributable to the owners of the parent.
Subsidiaries arewere deconsolidated from the date on which control ceases.ceased. When the FCA Group ceasesceased to have control over a subsidiary, it derecognizesderecognized the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts, derecognizesderecognized the carrying amount of non-controlling interests in the former subsidiary and recognizesrecognized the fair value of any consideration received from the transaction. Any retained interest in the former subsidiary iswas then remeasured to its fair value.
All intra-group balances and transactions, and any unrealized gains and losses arising from intra-group transactions, arewere eliminated in preparing the Consolidated Financial Statements.
Interests in Joint Ventures and Associates
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
An associate is an entity over which the FCA Group hashad significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control over those policies.
Joint ventures and associates arewere accounted for using the equity method of accounting from the date joint control andor significant influence iswas obtained. On acquisition, of the investment, any excess of the cost ofinvestment over the investment and the Group’s share of the net fair value of the investee’sinvestee's identifiable assets and liabilities iswas recognized as goodwill and iswas included in the carrying amount of the investment. Any excess of the FCA Group’s share of the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment iswas included as income in the determination of the FCA Group’s share of the investee’s profit/(loss) in the acquisition period.
Under the equity method, the investments arewere initially recognized at cost and adjusted thereafter to recognize the FCA Group’s share of the profit/(loss) and other comprehensive income/(loss) of the investee. The FCA Group’s share of the investee’s profit/(loss) iswas recognized in the Consolidated Income Statement. Distributions received from an investee reducereduced the carrying amount of the investment. Post-acquisition movements in Other comprehensive income/(loss) arewere recognized in Other comprehensive income/(loss) with a corresponding adjustment to the carrying amount of the investment.
Unrealized gains arising on transactions between the FCA Group and its joint ventures and associates arewere eliminated to the extent of the FCA Group’s interest in the joint venture or associate. Unrealized losses arewere also eliminated unless the transaction providesprovided evidence of an impairment of the asset transferred.
When the FCA Group’s share of the losses of a joint venture or associate exceeds the Group’sexceeded its interest in that joint venture or associate, the FCA Group discontinuesdiscontinued recognizing its share of further losses. Additional losses arewere provided for and a liability iswas recognized only to the extent that the FCA Group hashad incurred legal or constructive obligations or made payments on behalf of the joint venture or associate.
The FCA Group discontinuesdiscontinued the use of the equity method from the date the investment ceasesceased to be an associate or a joint venture, or when it iswas classified as available-for-sale.
Interests in Joint Operations
A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
When the FCA Group undertakesundertook its activities under joint operations, it recognizesrecognized its related interest in the joint operation including: (i) its assets, including its share of any assets held jointly, (ii) its liabilities, including its share of any liabilities incurred jointly, (iii) its revenue from the sale of its share of the output arising from the joint operation, (iv) its share of the revenue from the sale of the output by the joint operation and (v) its expenses, including its share of any expenses incurred jointly.
Assets held for sale, Assets held for distribution and Discontinued Operations
Pursuant to IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset or disposal group is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such an asset or disposal group, and the sale is highly probable, with the sale expected to be completed within one year from the date of classification.
Non-current assets and disposal groups classified as held for sale arewere measured at the lower of their carrying amount and fair value less costs to sell and arewere presented separately in the Consolidated Statement of Financial Position. Non-current assets and disposal groups arewere not classified as held for sale within the comparative period presented for the Consolidated Statement of Financial Position.
A discontinued operation iswas a component of the FCA Group that either hashad been disposed of or iswas classified as held for sale and (i) representsrepresented either a separate major line of business or a geographical area of operations, (ii) iswas part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or (iii) iswas a subsidiary acquired exclusively with a view to resell and the disposal involves loss of control.
Classification as a discontinued operation occursoccurred upon disposal or, if earlier, when the asset or disposal group meetsmet the criteria to be classified as held for sale, if earlier.sale. When the asset or disposal group iswas classified as a discontinued operation, the comparative information iswas reclassified within the Consolidated Income Statement and the Consolidated Statement of Cash Flows as if the asset or disposal group had been discontinued from the start of the earliest comparative period presented. In addition, when an asset or disposal group was classified as held for sale, depreciation and amortization ceased.
The classification, presentation and measurement requirements of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations outlined above also applyapplied to an asset or disposal group that iswas classified as held for distribution to owners, whereby there must be commitment to the distribution, the asset or disposal group must be available for immediate distribution and the distribution must be highly probable.
Foreign currency
The functional currency of the FCA Group’s entities iswas the currency ofused in their respective primary economic environment.environments. In individual companies, transactions in foreign currencies arewere recorded at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies arewere translated at the exchange rate prevailing at the date of the Consolidated Statement of Financial Position. Exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those initially recorded, arewere recognized in the Consolidated Income Statement.
All assets and liabilities of foreign consolidated companies with a functional currency other than the Euro are translated using the closing rates as at the date of the Consolidated Statement of Financial Position. Income and expenses arewere translated into Euro at the average exchange rate for the period. Translation differences resultingarising from the application of this method arewere classified within Other comprehensive income/(loss) until the disposal of the subsidiary. Average exchange rates for the period arewere used in preparing the Consolidated Statement of Cash Flows to translate the cash flows of foreign subsidiaries in preparing the Consolidated Statement of Cash Flows.subsidiaries.
The principal exchange rates used to translate other currencies into Euro were as follows: | | | | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | Average | | At December 31 | | Average | | At December 31 | | Average | | At December 31 | | Average | | At December 31 | | Average | | At December 31 | | Average | | At December 31 |
| U.S. Dollar (U.S.$) | 1.130 | | 1.199 | | 1.107 | | 1.054 | | 1.109 | | 1.089 | U.S. Dollar (U.S.$) | 1.142 | | 1.227 | | 1.119 | | 1.123 | | 1.181 | | 1.145 |
| Brazilian Real (BRL) | 3.605 | | 3.973 | | 3.857 | | 3.431 | | 3.699 | | 4.312 | Brazilian Real (BRL) | 5.894 | | 6.374 | | 4.413 | | 4.516 | | 4.308 | | 4.444 |
| Chinese Renminbi (CNY) | 7.629 | | 7.804 | | 7.352 | | 7.320 | | 6.972 | | 7.061 | Chinese Renminbi (CNY) | 7.875 | | 8.023 | | 7.735 | | 7.821 | | 7.808 | | 7.875 |
| Canadian Dollar (CAD) | 1.465 | | 1.504 | | 1.466 | | 1.419 | | 1.418 | | 1.512 | Canadian Dollar (CAD) | 1.530 | | 1.563 | | 1.485 | | 1.460 | | 1.529 | | 1.561 |
| Mexican Peso (MXN) | 21.329 | | 23.661 | | 20.664 | | 21.772 | | 17.611 | | 18.915 | Mexican Peso (MXN) | 24.519 | | 24.416 | | 21.557 | | 21.220 | | 22.705 | | 22.492 |
| Polish Zloty (PLN) | 4.257 | | 4.177 | | 4.363 | | 4.410 | | 4.184 | | 4.264 | Polish Zloty (PLN) | 4.443 | | 4.560 | | 4.298 | | 4.257 | | 4.261 | | 4.301 |
| Argentine Peso (ARS) | 18.683 | | 22.595 | | 16.327 | | 16.707 | | 10.271 | | 14.136 | |
Argentine Peso (ARS)(1) | | Argentine Peso (ARS)(1) | 103.043 | | 103.043 | | 67.258 | | 67.258 | | 43.074 | | 43.074 |
| Pound Sterling (GBP) | 0.877 | | 0.887 | | 0.819 | | 0.856 | | 0.726 | | 0.734 | Pound Sterling (GBP) | 0.890 | | 0.899 | | 0.878 | | 0.851 | | 0.885 | | 0.895 |
| Swiss Franc (CHF) | 1.112 | | 1.170 | | 1.090 | | 1.074 | | 1.068 | | 1.084 | Swiss Franc (CHF) | 1.071 | | 1.080 | | 1.112 | | 1.085 | | 1.155 | | 1.127 |
(1) From July 1, 2018 onwards, Argentina’s economy was considered to be hyperinflationary. Transactions after July 1, 2018 for entities with the Argentinian Peso as the functional currency were translated using the spot rate at the end of the period.
Intangible assets
Goodwill
Goodwill represents the excess of the fair value of consideration paid in a business combination over the fair value of net tangible and identifiable intangible assets acquired in a business combination.acquired. Goodwill iswas not amortized but iswas tested for impairment annually or more frequently if events or changes in circumstances indicateindicated that it might be impaired. After initial recognition, Goodwill isgoodwill was measured at cost less any accumulated impairment losses.
Intangible assets with indefinite useful lives
Intangible assets with indefinite useful lives consistconsisted principally of brands which have no legal, contractual, competitive, economic or other factors that limit their useful lives. Intangible assets with indefinite useful lives arewere not amortized but arewere tested for impairment annually, or more frequently if events or changes in circumstances indicateindicated that the asset may be impaired.
Development expenditures
Development expenditures for vehicle production and related components, engines and production systems arewere recognized as an asset if both of the following conditions within IAS 38 – Intangible assets are were met: (i) that development expenditure can be measured reliably and (ii) that the technical feasibility of the product, projected volumes and pricing supportsupported the view that the development expenditure willwould generate future economic benefits. Capitalized development expenditures includeincluded all direct and indirect costs that maycould be directly attributed to the development process. All other development expenditures arewere expensed as incurred.
Capitalized development expenditures arewere amortized on a straight-line basis from when the related asset was available for use, generally from the beginning of production, over the expected life cycle of the models (generally 5-6 years) or powertrains developed (generally 10-12 years). developed.
Property, plant and equipment
Cost
Property, plant and equipment iswas initially recognized at cost and includesincluded the purchase price, any costs directly attributable to bringing the assets to the location and condition necessary to be capable of operating in the manner intended by management and any initial estimate of the costs of dismantling and removing the itemasset and restoring the site on which it is located. Self-constructed assets arewere initially recognized at production cost. Subsequent expenditures and the cost of replacing parts of an asset arewere capitalized only if they increaseincreased the future economic benefits embodied in that asset. All other expenditures arewere expensed as incurred. When such replacement costs arewere capitalized, the carrying amount of the parts that arewere replaced is recognized inwas expensed to the Consolidated Income Statement.
Assets held under finance leases, which provide the Group with substantially all the risks and rewards of ownership, are recognized as assets of the Group at their fair value or at the present value of the minimum lease payments, if lower. The corresponding liability to the lessor is included in the Consolidated Statement of Financial Position within Debt.
Depreciation
During the years ended December 31, 2017, 20162020, 2019 and 2015,2018, assets were depreciated on a straight-line basis over their estimated useful lives usingused the following depreciation rates:
| | | | | |
| |
| Depreciation rates |
| Buildings | 3% - 8%10% |
| Plant, machinery and equipment | 3% - 33% |
| Other assets | 5% - 33% |
Leases under which the lessor retains substantially all the risks and rewards of ownership of the leased assets are classified as operating leases. Operating lease expenditures are expensed on a straight-line basis over the respective lease term.
Borrowing Costs
Borrowing costs that arewere directly attributable to the acquisition, construction or production of property, plant or equipment or an intangible asset that iswas deemed to be a qualifying asset as defined in IAS 23 - Borrowing Costs arewere capitalized. The amount of borrowing costs eligible for capitalization correspondscorresponded to the actual borrowing costs incurred during the period, less any investment income on the temporary investment of any borrowed funds not yet used. The amount of borrowing costs capitalized atin the year ended December 31, 20172020 and 20162019 was €225€320 million and €244€213 million, respectively.
Leases
As a Lessee
At the inception of a contract, the FCA Group assessed whether the contract was, or contained, a lease. A contract was, or contained a lease if the contract conveyed the right to control the use of an identified asset for a period of time in exchange for consideration.
This policy was applied to contracts entered into, or modified, on or after January 1, 2019.
At inception or on reassessment of a contract that contained a lease component, the FCA Group allocated the consideration in the contract to each lease component on the basis of their relative stand-alone prices. Except for real estate properties, the FCA Group elected not to separate non-lease components and would account for the lease and non-lease components as a single lease component.
Right-of-use asset
The FCA Group recognized a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset was initially measured at cost, which comprised the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset was subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful life of the right-to-use asset was determined based on the nature of the asset, taking into consideration the lease term. In addition, the right-of-use asset was periodically reduced by impairment losses, if any, and adjusted for certain corresponding remeasurements of the lease liability.
Lease liability
The lease liability was initially measured at the present value of the lease payments that had not been paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate could not be readily determined, the FCA Group's incremental borrowing rate. The incremental borrowing rate was determined considering macro-economic factors such as the risk free rate based on the relevant currency and term, as well as FCA specific factors contributing to FCA’s credit spread, including the impact of security. The FCA Group primarily used the incremental borrowing rate as the discount rate for its lease liabilities.
Lease payments used to measure the lease liability included the following, if appropriate:
•fixed payments, including in-substance fixed payments;
•variable lease payments that depended on an index or a rate, initially measured using the index or rate applicable as at the commencement date;
•amounts expected to be payable under a residual value guarantee;
•if reasonably certain to exercise, the exercise price under a purchase option, or lease payments in an optional renewal period; and
•penalties for early termination of a lease unless the FCA Group was reasonably certain not to terminate early.
The lease liability was subsequently measured at amortized cost using the effective interest method. It was remeasured when there was a change in future lease payments arising from a change in an index or rate, if there was a change in the FCA Group's estimate of the amount expected to be payable under a residual value guarantee, or if the FCA Group changed its assessment of whether it would exercise a purchase, extension or termination option. When the lease liability was remeasured in this way, a corresponding adjustment was made to the carrying amount of the right-of-use asset, or was recorded in profit or loss if the carrying amount of the right-of-use asset had been reduced to zero.
The FCA Group presented right-of-use assets that did not meet the definition of investment property in Property, plant and equipment and lease liabilities in Long-term debt and Short-term debt and current portion of long-term debt in the Consolidated Statement of Financial Position.
The FCA Group elected to not recognize right-of-use assets and lease liabilities for short-term leases and low-value leases for all classes of leased assets. The FCA Group recognized the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
As a Lessor
When the FCA Group acted as a lessor, it determined at lease inception whether each lease was a finance lease or an operating lease.
To classify each lease, the FCA Group made an overall assessment of whether the lease transferred substantially all the risks and rewards incidental to ownership of the underlying asset. If the risks and rewards were substantially transferred, then the lease was a finance lease; if not, then it was an operating lease. As part of this assessment, the FCA Group considered certain indicators such as whether the lease was for the major part of the economic life of the asset.
Impairment of long-lived assets
AtAnnually, or more frequently if facts or circumstances indicated otherwise, the end of each reporting period, theFCA Group assessesassessed whether there iswas any indication that its finite-lived intangible assets (including capitalized development expenditures) and its property, plant and equipment may behave been impaired.
If indications of impairment arewere present, the carrying amount of the asset iswas reduced to its recoverable amount which iswas the higher of fair value less costs of disposal and its value in use.use, if the carrying amount exceeded the recoverable amount. The recoverable amount iswas determined for the individual asset, unless the asset doesdid not generate cash inflows that arewere largely independent of those from other assets or groups of assets, in which case the asset iswas tested as part of the cash-generating unit (“CGU”) to which the asset belongs.belonged. A CGU iswas the smallest identifiable group of assets that generatesgenerated cash inflows that arewere largely independent of the cash inflows from other assets or groups of assets. In assessing the value in use of an asset or CGU, the estimated future cash flows arewere discounted to their present value using a discount rate that reflectsreflected current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognized if the recoverable amount is lower than the carrying amount.
When an impairment loss for assets no longer existsexisted or hashad decreased, the carrying amount of the asset or CGU iswas increased to the revised estimate of its recoverable amount but not in excess of the carrying amount that would have been recorded had no impairment loss been recognized. The reversal of an impairment loss iswas recognized in the Consolidated Income Statement. Refer to the section— Use of Estimatesestimates below for additional information.
Financial assets and liabilities
Financial assets as defined in IAS 39 – Financial Instruments: Recognition and Measurement, primarily includeincluded trade receivables, receivables from financing activities, investments in other companies, derivative financial instruments, cash and cash equivalents, and debt securities that representrepresented temporary investments of available funds and dodid not satisfy the requirements for being classified as cash equivalents (which include available-for-sale, held-for-trading and held-to-maturity securities), investments in other companies,equivalents.
Financial liabilities primarily consisted of debt, derivative financial instruments, trade payables and other liabilities.
Receivables from dealer financing activities were typically generated by sales of vehicles and were generally managed under dealer network financing programs as wella component of the portfolio of the FCA Group's financial services companies. These receivables were interest bearing with the exception of an initial, limited, non-interest bearing period. The contractual terms governing the relationships with the dealer networks varied according to market and payment terms, which ranged from two to twelve months.
Classification and measurement
The classification of a financial asset was dependent on the FCA Group’s business model for managing such financial assets and their contractual cash flows. The FCA Group considered whether the contractual cash flows represented solely payments of principal and interest that were consistent with a basic lending arrangement. Where the contractual terms introduced exposure to risk or volatility that was inconsistent with a basic lending arrangement, the related financial assets were classified and measured at fair value through profit or loss (“FVPL”).
| | | | | | | | |
| Financial asset cash flow business model | Initial measurement(1) | Measurement category(3) |
| Solely to collect the contractual cash flows (Held to Collect) | Fair Value including transaction costs | Amortized Cost(2) |
| Collect both the contractual cash flows and generate cash flows arising from the sale of assets (Held to Collect and Sell) | Fair Value including transaction costs | Fair value through other comprehensive income (“FVOCI”) |
| Generate cash flows primarily from the sale of assets (Held to Sell) | Fair Value | FVPL |
(1) A trade receivable without a significant financing component, as Cashdefined by IFRS 15, was initially measured at the transaction price.
(2) Receivables with maturities of over one year, which bear no interest or have an interest rate significantly lower than market rates were discounted using market rates.
(3) On initial recognition, the FCA Group could irrevocably designate a financial asset at FVPL that otherwise met the requirements to be measured at amortized cost or at FVOCI if doing so eliminated or significantly reduced an accounting mismatch that would otherwise arise.
Factors considered by the FCA Group in determining the business model for a group of financial assets included:
•past experience on how the cash flows for these assets were collected;
•the frequency, volume and cash equivalents.timing of sales of financial assets in prior periods, the reasons for such sales and future sales activity expectations;
•how the asset’s performance was evaluated and reported to key management personnel; and
•how risks were assessed and managed and how management was compensated.
Financial assets were not reclassified subsequent to their initial recognition unless the FCA Group changed its business model for managing financial assets, in which case all affected financial assets were reclassified on the first day of the first reporting period following the change in the business model.
Cash and cash equivalents includeincluded cash at banks, units in money market funds and other money market securities, primarily comprised of commercial paper and certificatescertificate of depositdeposits that arewere readily convertible into cash, with original maturities of three months or less at the date of purchase. Cash and cash equivalents arewere subject to an insignificant risk of changes in value and consistconsisted of balances across various primary national and international money market instruments. Money market funds consistconsisted of investments in high quality, short-term, diversified financial instruments which canthat could generally be liquidated on demand.
Financial liabilities primarily consist of Debt, Derivative financial instruments, Trade payablesdemand and were measured at FVPL. Cash at banks and Other liabilities.
Measurement
Financial assets are recognized on the basis of the settlement date and, on initial recognition, arecash equivalents were measured at acquisition cost, including transaction costs. Subsequent to initial recognition, available-for-sale and held-for-trading securities are measured at fair value. When market prices are not directly available, the fair value of available-for-sale and held-for trading securities is measured using appropriate valuation techniques (e.g. discounted cash flow analysis based on market information available at the balance sheet date).amortized cost.
Gains and losses on available-for-sale securities are recognized in Other comprehensive income/(loss) until the financial asset is disposed of or is impaired. When the asset is disposed of, the cumulative gains or losses, including those previously recognized in Other comprehensive income/(loss), are reclassified to the Consolidated Income Statement during the period and are recognized within Net financial expenses. Gains and losses arising from changes in the fair value of held-for-trading securities are recognized in the Consolidated Income Statement. When the asset is impaired, the losses are recognized in the Consolidated Income Statement.
Loans and receivables which are not held by the Group for trading (loans and receivables originating in the ordinary course of business) and held-to-maturity securities are measured, to the extent that they have a fixed term, at amortized cost, using the effective interest method. When these financial assets do not have a fixed term, they are measured at acquisition cost. Receivables with maturities of over one year which bear no interest, or have an interest rate significantly lower than market rates, are discounted using market rates. Assessments are made regularly as to whether there is any objective evidence that the asset or group of assets may be impaired. If any such evidence exists, the impairment loss is recognized in the Consolidated Income Statement.
Investments in other companies arewere measured at fair value. Equity investments that do not have afor which there was no quoted market price in an active market and whosethere was insufficient financial information in order to determine fair value cannotcould be reliably measured are measured at cost lessas an estimate of fair value, as permitted by IFRS 9 - Financial Instruments (“IFRS 9”). The FCA Group could irrevocably elect to present subsequent changes in the investment’s fair value in Other comprehensive income (“OCI”) upon the initial recognition of an equity investment that was not held to sell. This election was made on an investment-by-investment basis. Generally, any dividends from these investments were recognized in Other income from investments within Result from investments when the FCA Group’s right to receive payment was established. Other net gains and losses were recognized in OCI and would not be reclassified to the Consolidated Income Statement in subsequent periods. Impairment losses (and the reversal of impairment losses. Forlosses) on equity investments classified as available-for-sale, gains or losses arisingmeasured at FVOCI were not reported separately from other changes in fair value in OCI.
Impairment of financial assets
The FCA Group’s credit risk differed in relation to the type of activity. In particular, receivables from financing activities, such as dealer and retail financing that were carried out through the FCA Group’s financial services companies, were exposed both to the direct risk of default and the deterioration of the creditworthiness of the counterparty, whereas trade receivables arising from the sale of vehicles and spare parts, were mostly exposed to the direct risk of counterparty default. These risks were mitigated by different kinds of securities received and the fact that collection exposure was spread across a large number of counterparties.
The IFRS 9 impairment requirements are recognizedbased on a forward-looking expected credit loss (“ECL”) model. ECL is a probability-weighted estimate of the present value of cash shortfalls.
The calculation of the amount of ECL was based on the risk of default by the counterparty, which was determined by taking into account the information available at the end of each reporting period as to the counterparty’s solvency, the fair value of any guarantees and the FCA Group’s historical experience. The FCA Group considered a financial asset to be in Other comprehensive income/(loss) untildefault when: (i) the borrower was unlikely to pay its obligations in full and without consideration of compensating guarantees or collateral (if any exist); or (ii) the financial asset was more than 90 days past due.
The FCA Group applied two impairment models for financial assets are sold or are impaired, at which time,as set out in IFRS 9: the cumulative Other comprehensive income/(loss) issimplified approach and the general approach. The table below indicates the impairment model used for each of FCA’s financial asset categories. Impairment losses on financial assets were recognized in the Consolidated Income Statement. GainsStatement within the corresponding line items, based on the classification of the counterparty.
| | | | | |
| Financial asset | IFRS 9 impairment model |
| Trade receivables | Simplified approach |
| Receivables from financing activities | General approach |
| Other receivables | General approach |
In order to test for impairment, individually significant receivables and losses arising fromreceivables for which collectability was at risk were assessed individually, while all other receivables were grouped into homogeneous risk categories based on shared risk characteristics such as instrument type, industry or geographical location of the counterparty.
The simplified approach for determining the lifetime ECL allowance was performed in two steps:
•All trade receivables that were in default, as defined above, were individually assessed for impairment; and
•A general reserve was recognized for all other trade receivables (including those not past due) based on historical loss rates.
The FCA Group applied the general approach as determined by IFRS 9 by assessing at each reporting date whether there was a significant increase in credit risk on the financial instrument since initial recognition. The FCA Group considered receivables to have experienced a significant increase in credit risk when certain quantitative or qualitative indicators were met or the borrower was more than 30 days past due on its contractual payments.
The “three-stages” for determining and measuring the impairment based on changes in credit quality since initial recognition are summarized below:
| | | | | | | | |
| Stage | Description | Time period for measurement of ECL |
| Stage 1 | A financial instrument that is not credit-impaired on initial recognition | 12-month ECL |
| Stage 2 | A financial instrument with a significant increase in credit risk since initial recognition | Lifetime ECL |
| Stage 3 | A financial instrument that is credit-impaired or has defaulted | Lifetime ECL |
Considering forward-looking economic information, ECL was determined by projecting the probability of default, exposure at default and loss given default for each future contractual period and for each individual exposure or collective portfolio. The discount rate used in the ECL calculation was the stated effective interest rate or an approximation thereof. Each reporting period, the assumptions underlying the ECL calculation were reviewed and updated as necessary. Since adoption, there were no significant changes in estimation techniques or significant assumptions that led to material changes in the fair valueECL allowance.
The gross carrying amount of held-for-trading investments are recognized ina financial asset was written-off to the Consolidated Income Statement. Investments in other companies for which fair value isextent that there was no realistic prospect of recovery. This was generally the case when the FCA Group determined that a debtor did not available are stated at cost less any impairment losses. Dividends received are included in Otherhave assets or sources of income from investments.
Except for derivativethat could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial instruments, which are described in more detail below, financial liabilities are measured at amortized cost using the effective interest method.
assets that were written off could still be subject to enforcement activities.
Derivative financial instruments
Derivative financial instruments arewere used for economic hedging purposes in order to reduce currency, interest rate and market price risks (primarily related to commodities and securities)commodities). In accordance with IAS 39 - Financial Instruments: Recognition and MeasurementIFRS 9, derivative financial instruments arewere recognized on the basis of the settlement date and, onupon initial recognition, arewere measured at fair value less (in case a financial asset is not measured at FVPL) transaction costs that were directly attributable to the acquisition cost, including transaction costs.of the financial assets. Subsequent to initial recognition, all derivative financial instruments arewere measured at fair value. Furthermore, derivative financial instruments qualifyqualified for hedge accounting only when (i) there iswas formal designation and documentation of the hedging relationship and the FCA Group’s risk management objective and strategy for undertaking the hedge at inception of the hedge and (ii) the hedge iswas expected to be highly effective, its effectiveness can be reliably measured and it is highly effective throughout the financial reporting periods for which it is designated. effective.
When derivative financial instruments qualifyqualified for hedge accounting, the following accounting treatments apply:applied:
•Fair value hedges – Where - where a derivative financial instrument iswas designated as a hedge of the exposure to changes in fair value of a recognized asset or liability that is attributable to a particular risk andthat could affect the Consolidated Income Statement, the gain or loss from remeasuring the hedging instrument at fair value iswas recognized in the Consolidated Income Statement. The gain or loss on the hedged item attributable to the hedged risk adjustsadjusted the carrying amount of the hedged item and iswas recognized in the Consolidated Income Statement.
•Cash flow hedges – Where - where a derivative financial instrument iswas designated as a hedge of the exposure to variability in future cash flows of a recognized asset or liability or a highly probable forecasted transaction and could affect the Consolidated Income Statement, the effective portion of any gain or loss on the derivative financial instrument iswas recognized directly in Other comprehensive income/(loss). When the hedged forecasted transaction results in the recognition of a non-financial asset, the gains and losses previously deferred in Other comprehensive income/(loss) were reclassified and included in the initial measurement of the cost of the non-financial asset. The cumulativeeffective portion of any gain or loss is reclassified from Other comprehensive income/(loss) towas recognized in the Consolidated Income Statement at the same time as the economic effect arising from the hedged item that affectsaffected the Consolidated Income Statement. The gain or loss associated with a hedge or part of a hedge that has becomebecame ineffective iswas recognized in the Consolidated Income Statement immediately.
When a hedging instrument or hedge relationship iswas terminated but the hedged transaction iswas still expected to occur, the cumulative gain or loss realized to the point of termination remains in Other comprehensive income/(loss) and iswas recognized in the Consolidated Income Statement at the same time as the underlying transaction occurs.occurred. If the hedged transaction iswas no longer probable, the cumulative unrealized gain or loss held in Other comprehensive income/(loss) iswas recognized in the Consolidated Income Statement immediately.
•Hedges of a net investment – If - if a derivative financial instrument iswas designated as a hedging instrument for a net investment in a foreign operation, the effective portion of the gain or loss on the derivative financial instrument iswas recognized in Other comprehensive income/(loss). The cumulative gain or loss iswas reclassified from Other comprehensive income/(loss) to the Consolidated Income Statement upon disposal of the foreign operation.
Hedge effectiveness was determined at the inception of the hedge relationship and through periodic prospective effectiveness assessments to ensure the hedge relationships met the effectiveness requirements (including the existence of an economic relationship between the hedged item and hedging instrument). The FCA Group entered into hedge relationships where the critical terms of the hedging instrument matched closely or exactly with the terms of the hedged item, and so a qualitative assessment of effectiveness was performed. In the event there was a hedge relationship where the critical terms of the hedged item did not match closely or perfectly with the critical terms of the hedging instrument, the FCA Group would perform a quantitative assessment to assess effectiveness.
Ineffectiveness was measured by comparing the cumulative changes in fair value of the hedging instrument and cumulative change in fair value of the hedged item arising from the designated risk. The primary potential sources of hedge ineffectiveness were mismatches in timing or the critical terms of the hedged item and the hedging instrument.
The hedge ratio was the relationship between the quantity of the derivative and the hedged item. The FCA Group’s derivatives had the same underlying quantity as the hedged items, therefore the hedge ratio was expected to be one for one.
If hedge accounting cannotcould not be applied, the gains or losses from the fair value measurement of derivative financial instruments arewere recognized immediately in the Consolidated Income Statement.
Refer to Note 16, Derivative financial assets and liabilities, for additional information on the Group's derivative financial instruments.fair value measurements.
Transfers of financial assets
The FCA Group derecognizesderecognized financial assets when the contractual rights to the cash flows arising from the asset arewere no longer held or if it transferstransferred substantially all the risks and rewards of ownership of the financial asset. On derecognition of financial assets, the difference between the carrying amount of the asset and the consideration received or receivable for the transfer of the asset iswas recognized in the Consolidated Income Statement.
The FCA Group transferstransferred certain of its financial, trade and tax receivables, mainly through factoring transactions. Factoring transactions maycould be either with recourse or without recourse. Certain transfers includeincluded deferred payment clauses requiring first loss cover (for example, when the payment by the factor of a minor part of the purchase price iswas dependent on the total amount collected from the receivables) requiring first loss cover,, whereby the transferor hashad priority participation in the losses, or requiresrequired a significant exposure to the variability of cash flows arising from the transferred receivables to be retained. These types of transactions dodid not meet the requirements of IAS 39 – Financial Instruments: Recognition and Measurement,IFRS 9for the derecognition of the assets since the risks and rewards connected with ownership of the financial asset arewere not substantially transferred, and accordingly the FCA Group continuescontinued to recognize these receivables within the Consolidated Statement of Financial Position and recognizesrecognized a financial liability for the same amount under Asset-backed financing, which is included within Debt. The gains and losses arising fromThese types of receivables were classified as held-to-collect, since the transferbusiness model is consistent with the FCA Group’s continued recognition of these receivables are recorded only when they are derecognized.the receivables.
Inventories
Inventories of rawRaw materials, semi-finished products and finished goods areinventories were stated at the lower of cost and net realizable value, with cost being determined on a first-in, first-out (“FIFO”) basis. The measurement of Inventories includesincluded the direct cost of materials and labor as well as indirect costs (variable and fixed). A provision iswas made for obsolete and slow-moving raw materials, finished goods, spare parts and other supplies based on their expected future use and realizable value. Net realizable value iswas the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs for sale and distribution.
The measurement of production systems construction contracts iswas based on the stage of completion, which was determined as the proportion of cost incurred at the balance sheet date over the estimated total contract cost. These items arewere presented net of progress billings received from customers. Any losses on such contracts arewere recorded in the Consolidated Income Statement whenin the period in which they are known.were identified.
Employee benefits
Defined contribution plans
Costs arising from defined contribution plans arewere expensed as incurred.
Defined benefit plans
The FCA Group’s net obligations arewere determined separately for each defined benefit plan by estimating the present value of future benefits that employees havehad earned and deducting the fair value of any plan assets. The present value of defined benefit obligations arewas measured using actuarial techniques and actuarial assumptions that arewere unbiased, mutually compatible and attribute benefits to periods in which the obligation to provide post-employment benefits arisearose by using the Projected Unit Credit Method. Plan assets arewere recognized and measured at fair value.
When the net obligation iswas a potential asset, the recognized amount iswas limited to the present value of any economic benefits available in the form of future refunds or reductions in future contributions to the plan (asset ceiling).
The components of the defined benefit cost arewere recognized as follows:
•Service cost iswas recognized in the Consolidated Income Statement by function and iswas presented inwithin the relevant line items (Cost of revenues, Selling, general and other costs, and Research and development costs);
•Net interest expense on the defined benefit liability or asset isliability/(asset) was recognized in the Consolidated Income Statement within Net financial expenses and iswas determined by multiplying the net liability/(asset) by the discount rate used to discount obligations taking into account the effect of contributions and benefit payments made during the year; and
Re-measurement•Remeasurement components of the net obligations,obligation, which comprise actuarial gains and losses, the return on plan assets (excluding interest income recognized in the Consolidated Income Statement) and any change in the effect of the asset ceiling arewere recognized immediately in Other comprehensive income/(loss). These re-measurementremeasurement components arewere not reclassified to the Consolidated Income Statement in a subsequent period.
Past service costs arising from plan amendments and curtailments and gains and losses on the settlement of a plan arewere recognized immediately in the Consolidated Income Statement.
Other long term employee benefits
The FCA Group’s obligations representrepresented the present value of future benefits that employees havehad earned in return for their service. Re-measurementRemeasurement components on other long term employee benefits arewere recognized in the Consolidated Income Statement in the period in which they arise.arose.
Share-based compensation
We have variousThe FCA Group has several compensation plans that provideprovided for the granting of share-based compensation to certain employees and directors. Share-based compensation plans arewere accounted for in accordance with IFRS 2 -Share-based Payment, which requiresrequired the recognition of share-based compensation expense based on fair value. Compensation
For equity-settled transactions, the cost was determined by the fair value at the date when the grant was determined with reference to the grant-date share price and, where applicable, using a Monte Carlo simulation model. Refer to Note 18 -Share-based compensation for further information.
Share-based compensation expense was recognized within Selling, general and other costs within the Consolidated Income Statement, together with a corresponding increase in equity, over the period in which the service and, where applicable, the performance conditions were fulfilled (“vesting period”). The cumulative expense was recognized for equity-classifiedequity-settled transactions at each reporting date using the graded vesting method and reflected the FCA Group’s best estimate of the number of equity instruments that would ultimately vest. The expense, or credit, in the Consolidated Income Statement for a period represented the movement in cumulative expense recognized as at the beginning and end of that period.
Service and non-market performance conditions were not taken into account when determining the grant date fair value of awards, isbut the likelihood of the conditions being met was assessed as part of the FCA Group’s best estimate of the number of equity instruments that would ultimately vest. Market performance conditions were reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, were considered to be non-vesting conditions. Non-vesting conditions were reflected in the fair value of an award and lead to an immediate expensing of an award unless there were also service and/or performance conditions.
No expense was recognized for awards that do not ultimately vest because non-market performance and/or service conditions had not been met. Where awards included a market or non-vesting condition, the transactions were treated as vested irrespective of whether the market or non-vesting condition was satisfied, provided that all other performance and/or service conditions were satisfied.
When the terms of an equity-settled award were modified, the minimum expense recognized was the grant date fair value of the unmodified award, provided the original vesting terms of the award were met. Any incremental expense between the original grant and the modified grant, measured at the grant date based onof modification, was recognized over the modified vesting terms. Where an award was cancelled by the entity or by the counterparty, any unrecognized element of the fair value of the award and using the Monte Carlo simulation model, which requires the input of subjective assumptions, including the expected volatility of our common stock, interest rates and a correlation coefficient between our common stock and the relevant market index. For those awards with post-vesting contingencies, we apply an adjustment to account for the probability of meeting the contingencies.
Management uses its best estimates incorporating both publicly observable data and discounted cash flow methodologies in the measurement of fair value for liability-classified awards, which are remeasured to fair value at each balance sheet date until the award is settled.
Compensation expense is recognized over the vesting period with an offsetting increase to equity or other liabilities depending on the nature of the award. Share-based compensation expense related to plans with graded vesting are recognized using the graded vesting method. Share-based compensation expense is recognized within Selling, general and other costs withinwas expensed immediately through the Consolidated Income Statement.
For cash-settled transactions, a liability was recognized for the fair value measured initially and at each reporting date up to and including the settlement date. The fair value was expensed over the period until the vesting date, with recognition of a corresponding liability. The approach used to account for vesting conditions when measuring equity-settled transactions also applies to cash-settled transactions.
Revenue recognition
Revenue was recognized when control of FCA’s vehicles, services or parts had been transferred and the FCA Group’s performance obligations to its customers had been satisfied. Revenue was measured as the amount of consideration the FCA Group expected to receive in exchange for transferring goods or providing services. The timing of when the FCA Group transferred the goods or services to the customer could differ from the timing of the customer’s payment. The FCA Group recognized a contract liability when it invoiced an amount to a customer prior to the transfer of the goods or services provided. When the FCA Group gave its customers the right to return eligible goods, the FCA Group estimated the expected returns based on an analysis of historical experiences. Sales, value added and other taxes that the FCA Group collected on behalf of others concurrently with revenue generating activities were excluded from revenue and were recognized within the Other liabilities and the Tax liabilities line items in the Consolidated Statement of Financial Position. Incidental items that were immaterial in the context of the contract were recognized as expense.
The FCA Group also entered into contracts with multiple performance obligations. For these contracts, the FCA Group allocated revenue from the transaction price to the distinct goods and services in the contract on a relative standalone selling price basis. To the extent that the FCA Group sold the good or service separately in the same market, the standalone selling price was the observable price at which the FCA Group sold the good or service separately. For all other goods or services, the FCA Group estimated the standalone selling price using a cost-plus-margin approach.
Sales of goods
The FCA Group had determined that FCA customers from the sale of vehicles and service parts is recognized if it is probable that the economic benefits associated with a transaction will flow to the Groupwere generally dealers, distributors or fleet customers. Transfer of control, and thetherefore revenue can be reliably measured. Revenue is recognized when the risks and rewards of ownership are transferred to our customers, the sales price is agreed or determinable and collectability is reasonably assured. For vehicles, thisrecognition, generally correspondscorresponded to the date when the vehicles areor service parts were made available to dealers or distributors,the customer, or when the vehicles areor service parts were released to the carrier responsible for transporting vehicles to dealers or distributors. Revenue from the sale of vehicles, which subsequentthem to the sale become subject tocustomer. This was also the issuancepoint at which invoices were issued, with payment for vehicles typically historically due immediately and payment for service parts typically historically due in the following month. For component part sales, revenue recognition was consistent with that of service parts. The FCA Group also sold tooling, with control transferring at the point in time when the customer accepted the tooling.
The cost of incentives, if any, was estimated at the inception of a residual value guaranteecontract at the expected amount that would ultimately be paid and was recognized as a reduction to an independent financing provider, is recognized consistent with the timing noted above, provided that significant risks related to the vehicle have been transferred to our customers. At that same time, a provision is made for the estimated residual value risk. Revenues are recognized net of discounts, including but not limited to, sales incentives and customer bonuses. The estimated costs of sales incentive programs include incentives offered to dealers and retail customers, and granting of retail financing at a significant discount to market interest rates. These costs are recognizedrevenue at the time of the salesale. If a vehicle contract transaction had multiple performance obligations, the cost of incentives was allocated entirely to the vehicle as the intent of the vehicle.incentives was to encourage sales of vehicles. If the estimate of the incentive changed following the sale to the customer, the change in estimate was recognized as an adjustment to revenue in the period of the change. Refer to the Use of estimates - Sales incentives for more information on these programs.
New vehicle sales with a buy-back commitment, orsold through the GuaranteeGuaranteed Depreciation Program (“GDP”) underwere recognized as revenue when control of the vehicle transferred to the fleet customer, except in situations where the FCA Group issued a put option for which there was a significant economic incentive to exercise, as discussed below. Upon recognition of the vehicle revenue, the FCA Group guaranteesestablished a liability equal to the estimated amount of any residual value guarantee.
The FCA Group also sold vehicles where, in addition to guaranteeing the residual value, or otherwise assumes responsibilitythe contract included a put option whereby the fleet customer could require the FCA Group to repurchase the vehicles. For these types of arrangements, the FCA Group assessed whether a significant economic incentive existed for the minimum resale valuecustomer to exercise its put option. If the FCA Group determined that a significant economic incentive did not exist for the customer to exercise its put option, then revenue was recognized when control of the vehicle are nottransferred to the fleet customer and a liability was recognized atequal to the timeestimated amount of delivery but arethe residual value guarantee. If the FCA Group determined that a significant economic incentive existed, then the arrangement was accounted for similarsimilarly to an operating lease. Rental income isa repurchase obligation, as described in Lease installments from assets sold with buy-back commitments.
Services provided
When control of a good transferred to the customer prior to the completion of shipping activities for which the FCA Group was responsible, this represented a separate performance obligation for which the shipping revenue was recognized overwhen the contractual term of the lease on a straight-line basis. At the end of the lease term, the Group recognizes revenue for the portion of the vehicle sales price which had not been previously recognized as rental income and recognizes the remainder of the cost of the vehicle within Cost of revenues.
Revenueshipping service was complete. Other revenues from services contracts, separately-pricedprovided were primarily comprised of maintenance plans and extended warrantywarranties, and from construction contracts isalso included connectivity services, and were recognized over the contract period in proportion to the costs expected to be incurred based on FCA’s historical information.experience. These services were either included in the selling price of the vehicle or separately priced. Revenue for services was allocated based on the estimated stand-alone selling price. Costs associated with the sale of contracts were deferredand were subsequently amortized to expense consistent with how the related revenue was recognized. The FCA Group had €204 millionof deferred service contract costs at December 31, 2020 (€224 million at December 31, 2019) and recognized€96 million of amortization expense during the year ended December 31, 2020 (€68 million during the year ended December 31, 2019).
Contract revenues
Revenue from construction contracts, which was comprised of industrial automation systems, included within “Other activities”, was recognized as revenue over the contract period in proportion to the costs expected to be incurred based on FCA’s historical experience. A loss on these contracts iswas recognized if the sum of the expected costs for services under the contract exceeds unearned revenue.exceeded the transaction price.
Lease installments from assets sold with buy-back commitments
F - 16Vehicle sold to fleet customers could include a repurchase obligation, whereby the FCA Group was required to repurchase the vehicles at a given point in time. The FCA Group accounted for such sales as an operating lease. Upon the transfer of vehicles to the fleet customer, the FCA Group recorded a liability equal to the proceeds received within Other liabilities in the Consolidated Statement of Financial Position. The difference between the proceeds received and the guaranteed repurchase amount was recognized as revenue over the contractual term on a straight-line basis. The cost of the vehicle was recorded within Assets sold with a buy-back commitment in the Consolidated Statement of Financial Position and the difference between the cost of the vehicle and the estimated residual value was recognized within Cost of revenues in the Consolidated Income Statement over the contractual term.
Interest income of financial services activities
Interest income, which was primarily generated from the FCA Group by providing dealer and retail financing, was recognized using the effective interest method.
Cost of revenues
Cost of revenues comprisescomprised expenses incurred in the manufacturing and distribution of vehicles and parts, of whichparts. Historically the most significant element was the cost of materials and components areand the most significant. The remaining costs primarily includeincluded labor costs, consisting(consisting of direct and indirect wages,wages), transportation costs, depreciation of property, plant and equipment and amortization of other intangible assets relating to production and transportation costs.production. In addition, expenses which arewere directly attributable to the financial services companies, including interest expense related to their financing as a whole and provisions for risks and write-downs of assets, arewere recorded within Cost of revenues (€5325 million, €77€48 million and €115€75 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively). Cost of revenues also included €397€124 million, €384€195 million and €432€293 million related to the decrease in value for assets sold with buy-back commitments for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. In addition, estimated costs related to product warranty and recall campaigns arewere recorded within Cost of revenues (refer to the section —Use of Estimatesestimates below for further information).
Government Grants
Government grants arewere recognized in the Consolidated Financial Statements when there iswas reasonable assurance of the FCA Group's compliance with the conditions for receiving such grants and that the grants willwould be received. Government grants arewere recognized as income over the same periods necessary to match them withas the related costs which they are intended to offset.
The benefit of a government loan at a below-market rate of interest iswas treated as a government grant. The benefit of the below-market rate of interest iswas measured as the difference between the initial carrying amount of the loan (fair value plus transaction costs) and the proceeds received, and it iswas accounted for in accordance with the policies used for the recognition of government grants.
Taxes
Income taxes includeincluded all taxes which were based on the taxable profits of the FCA Group. Current and deferred taxes arewere recognized as a benefit or expense and arewere included in the Consolidated Income Statement for the period, except for tax arising from (i) a transaction or event which iswas recognized, in the same or a different period, either in Other comprehensive income/(loss) or directly in Equity, or (ii) a business combination.
Deferred taxes arewere accounted for under the full liability method. Deferred tax liabilities arewere recognized for all taxable temporary differences between the carrying amounts of assets or liabilities and their tax base, except to the extent that the deferred tax liabilities arisearose from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which iswas not a business combination and at the time of the transaction, affectsaffected neither accounting profit nor taxable profit. Deferred tax assets arewere recognized for all deductible temporary differences to the extent that it iswas probable that taxable profit willwould be available against which the deductible temporary differences cancould be utilized, unless the deferred tax assets arisearose from the initial recognition of an asset or liability in a transaction that iswas not a business combination and at the time of the transaction, affectsaffected neither accounting profit nor taxable profit.
Deferred tax assets and liabilities arewere measured at the substantively enacted tax rates in the respective jurisdictions in which the FCA Group operates that arewere expected to apply to the period when the asset iswas realized or liability iswas settled.
The FCA Group recognizesrecognized deferred tax liabilities associated with the existence of a subsidiary’s undistributed profits when it was probable that this temporary difference would not reverse in the foreseeable future, except when it iswas able to control the timing of the reversal of the temporary difference, and it is probable that this temporary difference will not reverse in the foreseeable future.difference. The FCA Group recognizesrecognized deferred tax assets associated with the deductible temporary differences on investments in subsidiaries only to the extent that it iswas probable that the temporary differences willwould reverse in the foreseeable future and taxable profit willwould be available against which the temporary difference cancould be utilized.
Deferred tax assets relating to the carry-forward of unused tax losses and tax credits, as well as those arising from deductible temporary differences, arewere recognized to the extent that it iswas probable that future profits willwould be available against which they cancould be utilized. The FCA Group monitorsmonitored unrecognized deferred tax assets at each reporting date and recognizesrecognized a previously unrecognized deferred tax asset to the extent that it hashad become probable that future taxable profit willwould allow the deferred tax asset to be recovered.
F Refer to Use of estimates - 17
Recoverability of deferred tax assets for additional detail.
Current income taxes and deferred taxes arewere offset when they relate to the same taxation authorityjurisdiction and there iswas a legally enforceable right of offset. Other taxes not based on income, such as property taxes and capital taxes, arewere included within Selling, general and other costs.
Refer to Note 7, Tax expense, for additional information on tax expense and deferred tax assets.
Fair Value Measurement
Fair value for measurement and disclosure purposes iswas determined as the priceconsideration that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using a valuation technique. Fair value measurement iswas based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
•in the principal market for the asset or liability; or
•in the absence of a principal market, in the most advantageous market for the asset or liability.
The fair value of an asset or a liability iswas measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their own economic best interest. A fair value measurement of a non-financial asset takestook into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. In estimating fair value, we useFCA used market-observable data to the extent it iswas available. When market-observable data iswas not available, we useFCA used valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
IFRS 13 - Fair Value Measurement establishes a hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (level(Level 1 inputs) and the lowest priority to unobservable inputs (level 3 inputs). In some cases, the inputs used to measure the fair value of an asset or a liability might be categorized within different levels of the fair value hierarchy. In those cases, the fair value measurement iswas categorized in its entirety in the same level of the fair value hierarchy at the lowest level input that is significant to the entire measurement.
Levels used in the hierarchy are as follows:
•Level 1 inputs includeincluded quoted prices (unadjusted) in active markets for identical assets and liabilities that the FCA Group cancould access at the measurement date. Level 1 primarily consistsconsisted of financial instruments such as cash and cash equivalents and certain available-for-sale and held-for-trading securities.
•Level 2 inputs includeincluded those which arewere directly or indirectly observable as of the measurement date. Level 2 instruments includeincluded commercial paper and non-exchange-traded derivatives such as over-the-counter currency and commodity forwards, swaps and option contracts, which arewere valued using models or other valuation methodologies. These models arewere primarily industry-standard models that considerconsidered various assumptions, including quoted forward prices for similar instruments in active markets, quoted prices for identical or similar inputs not in active markets, and observable inputs.
•Level 3 inputs arewere unobservable from objective sources in the market and reflectreflected management judgment about the assumptions market participants would use in pricing the instruments. Instruments in this category includeincluded non-exchange-traded derivatives such as certain over-the-counter commodity option and swap contracts.
Refer to Note 23, Fair value measurement, for additional information on fair value measurements.
Use of Estimatesestimates
The Consolidated Financial Statements arewere prepared in accordance with IFRS which requirerequired the use of estimates, judgments and assumptions that affect the carrying amount of assets and liabilities, the disclosure of contingent assets and liabilities and the amounts of income and expenses recognized. The estimates and associated assumptions arewere based on management's best judgment of elements that arewere known when the financial statements are prepared, on historical experience and on any other factors that are considered to be relevant.
The estimatesEstimates and underlying assumptions which are based on management's best judgment, arewere historically reviewed by the FCA Group periodically and when circumstances require.required. Actual results could differ from the estimates, which would requirerequired adjustment accordingly. The effects of any changes in estimates arewere recognized in the Consolidated Income Statement in the period in which the adjustment iswas made, or in future periods.
The itemsItems requiring estimates for which there iswas a risk that a material difference maycould arise in the future in respect of the carrying amounts of assets and liabilities in the future arewere discussed below.
Employee Benefits
The FCA Group provideshistorically provided post-employment benefits for certain of its active employees and retirees, which varyvaried according to the legal, fiscal and economic conditions of each country in which the FCA Group operatesoperated and may changechanged periodically. The plans arewere classified by the FCA 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.
The FCA Group companies provideprovided certain post-employment benefits, such as pension or health care benefits, to their employees under defined contribution plans whereby the Group paysgroup paid contributions to public or private plans on a legally mandatory, contractual, or voluntary basis. The FCA Group recognizesrecognized the cost for defined contribution plans as incurred and classifiesclassified this by function within Cost of revenues, Selling, general and other costs, and Research and development costs in the Consolidated Income Statement.
Pension plans
The FCA Group sponsorssponsored both non-contributory and contributory defined benefit pension plans primarily in the U.S. and Canada. TheCanada, the majority of the plans are funded plans. The non-contributorywhich were funded. Non-contributory pension plans covercovered certain hourly and salaried employees and the benefits arewere based on a fixed rate for each year of service. Additionally, contributory benefits arewere provided to certain salaried employees under the salaried employees’ retirement plans. 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.
The FCA Group’s defined benefit pension plans arewere accounted for on an actuarial basis, which requiresrequired the use of estimates and assumptions to determine the net liability or net asset. The FCA Group estimatesestimated the present value of the projected future payments to all participants by taking into consideration parameters of a financial nature such as discount rates, the ratesrate of salary increases and the likelihood of potential future events estimated by using demographic assumptions, which maycould have an effect on the amount and timing of future payments, such as mortality, dismissal and retirement rates, which arewere developed to reflect actual and projected plan experience. Mortality rates arewere developed using ourFCA plan-specific populations, recent mortality information published by recognized experts in this field, primarily the U.S. Society of Actuaries and the Canadian Institute of Actuaries, and other data where appropriate to reflect actual and projected plan experience. The expected amount and timing of contributions iswas based on an assessment of minimum funding requirements. From time to time, contributions arewere made beyond those that are legally required.
Plan obligations and costs arewere based on existing retirement plan provisions. Assumptions regarding any potential future changes to benefit provisions beyond those to which the FCA Group iswas presently committed arewere not made. Significant differences in actual experience or significant changes in the following key assumption maycould affect the pension obligations and pension expense:
•Discount rates. OurFCA’s discount rates arewere based on yields of high-quality (AA-rated) fixed income investments for which the timing and amounts of maturities match the timing and amounts of the projected benefit payments.
The effects of actual results differing from assumptions and of amended assumptions arewere included in Other comprehensive income/(loss). The weighted average discount rates used to determine the defined benefit obligation for the defined benefit plans were 3.72.6 percent and 4.33.3 percent at December 31, 20172020 and 2016,2019, respectively.
At December 31, 2017,2020, the effect on the defined benefit obligation of the indicateda decrease or increase in the discount rate, holding all other assumptions constant, wasis as follows:
|
| | | | |
| Effect on pension benefit
obligation increase/(decrease) in Net liability |
| ( € million) |
| 10 basis point decrease in discount rate | 306301 |
|
| 10 basis point increase in discount rate | (299(294) | ) |
Refer to Note 19, Employee benefits liabilities,,for additional information on the FCA Group’s pension plans.
Other post-employment benefits
The FCA Group provideshistorically provided health care, legal, severance, indemnity life insurance benefits and other postretirementpost-retirement benefits to certain hourly and salaried employees. Upon retirement, these employees maycould become eligible for a continuation of certain benefits. Benefits and eligibility rules maycould be modified periodically.
These other post-retirement employeepost-employment benefits (“OPEB”) arewere accounted for on an actuarial basis, which requiresrequired the selection of various assumptions. The estimation of the FCA Group’s obligations, costs and liabilities associated with OPEB requiresrequired 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 estimated by using demographic assumptions, which maycould have an effect on the amount and timing of future payments, such as mortality, dismissal and retirement rates, which arewere developed to reflect actual and projected plan experience, as well as legal requirements for retirement in respective countries. Mortality rates arewere developed using our plan-specific populations, recent mortality information published by recognized experts in this field and other data where appropriate to reflect actual and projected plan experience.
Plan obligations and costs arewere based on existing plan provisions. Assumptions regarding any potential future changes to benefit provisions beyond those to which the FCA Group iswere presently committed arewere not made.
Significant differences in actual experience or significant changes in the following key assumptions maycould affect the OPEB obligation and expense:
•Discount rates. OurFCA’s discount rates arewere based on yields of high-quality (AA-rated) fixed income investments for which the timing and amounts of maturities matchmatched the timing and amounts of the projected benefit payments.
•Health care cost trends. The FCA Group’s health care cost trend assumptions arewere developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends.
At December 31, 2017,2020, the effect of the indicated decreasesa decrease or increasesincrease in the key assumptions affecting the health care, life insurance plans and Italian severance indemnity (trattamento di fine rapporto or “TFR”), holding all other assumptions constant, is shown below:
| | | | | | | | | | | |
| Effect on health
care and life
insurance benefit obligation | | Effect on the TFR
benefit obligation |
| (€ million) |
| 10 basis point / (100 basis point for TFR) decrease in discount rate | 30 | | | 40 | |
| 10 basis point / (100 basis point for TFR) increase in discount rate | (30) | | | (35) | |
| 100 basis point decrease in health care cost trend rate | (36) | | | 0 | |
| 100 basis point increase in health care cost trend rate | 44 | | | 0 | |
|
| | | | | |
| | Effect on health
care and life
insurance benefit obligation | | Effect on the TFR
benefit obligation |
| | (€ million) |
| 10 basis point / (100 basis point for TFR) decrease in discount rate | 30 |
| | 54 |
|
| 10 basis point / (100 basis point for TFR) increase in discount rate | (30 | ) | | (47 | ) |
| 100 basis point decrease in health care cost trend rate | (45 | ) | | — |
|
| 100 basis point increase in health care cost trend rate | 54 |
| | — |
|
Refer to Note 19, Employee benefits liabilities,,for additional information on the FCA Group’s OPEB liabilities.
Recoverability of non-current assets with definite useful lives
Non-current assets with definite useful lives includeincluded property, plant and equipment, intangible assets and assets held for sale. Intangible assets with definite useful lives mainly consist of capitalized development expenditures primarily related to the NAFTANorth America and EMEA segments. The FCA Group periodically reviewsreviewed the carrying amount of non-current assets with definite useful lives when events or circumstances indicateindicated that an asset may be impaired. The recoverability of non-current assets with definite useful lives iswas based on the estimated future cash flows, using the FCA Group’s current business plan, of the cash generating unitsCGUs to which the assets relate. related.
The global automotive industry is experiencinghad historically experienced significant change as a result of evolving regulatory requirements for fuel efficiency, greenhouse gas emissions and other tailpipe emissions andas well as emerging technology changes, such as electrification and autonomous driving. OurFCA’s business plan could change in response to these evolving requirements and emerging technologies or in relation to any future business plans or strategies developed as part of partnerships and collaborations. As FCA continued to assess the potential impacts of these evolving requirements, emerging technologies or future plans and strategies, and of operationalizing and implementing the strategic targets set out in the business plan, including reallocation of our resources, the recoverability of certain of FCA’s assets or CGUs could be impacted in future periods. For example, product development strategies could be affected by regulatory changes as well as changes in the expected costs of implementing electrification, including the cost of batteries. As relevant circumstances change, FCA expects to adjust its product plans which maycould result in changes to our estimated future cash flows andthe expected use of certain of the FCA Group’s vehicle platforms.
These uncertainties could affectresult in either impairments of, or reductions to the recoverabilityexpected useful lives of, our non-current assets with definite useful lives.these platforms, or both. Any change in recoverability would be accounted for at the time such change to the business plan occurs.
For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, the impairment tests performed compared the carrying amount of the assets included in the respective CGUs to their value in use andvalue-in-use. The value-in-use of the CGUs was determined using a discounted cash flow methodology. The value in use of the CGUs, which wasmethodology based primarily on unobservable inputs, was determined usingestimated pre-tax estimated future cash flows attributable to the CGUs that were discounted usingand a pre-tax discount rate reflecting a current market assessmentsassessment of the time value of money and the risks specific to the CGUs.
During the year ended December 31, 2017,2020, impairment losses and supplier obligations of €927 million were recognized. Of this, €13 million of supplier obligations were recognized within Cost of revenues in the Consolidated income statement and impairments totaling €914 million were recognized, primarily in relation to:
•For the three months ended March 31, 2020, the FCA Group reviewed its business and operations to take into consideration the estimated impacts and effects of the COVID-19 pandemic, including the estimated impact on the macroeconomic environment, the market outlook and the FCA Group’s operations. Using the updated information, FCA performed an assessment of the recoverability of certain of its assets as of March 31, 2020. Specifically, FCA reviewed FCA’s cash generating units (“CGUs”) and goodwill and intangible assets with indefinite useful lives for indicators of impairment. Certain CGUs, primarily those that were expected to be more sensitive to the current market outlook, in North America, EMEA, LATAM and Maserati segments, as well as goodwill allocated to EMEA and LATAM segments, were found to have indicators of impairment, and were therefore subject to impairment testing. As a result of this impairment testing, impairment charges totaling €450 million, primarily as a result of reduced volume expectations, were recognized on CGUs within the EMEA, LATAM and Maserati segments composed of €247 million of Property, plant and equipment recognized within Cost of revenues and €203 million of previously capitalized development costs recognized within Research and development costs. Of these charges, €178 million relates to the EMEA segment, €161 million relates to the LATAM segment, and €111 million relates to the Maserati segment, which is incremental to the impairment recognized in the Maserati segment discussed below.
•In addition to the impairments discussed above, during the three months ended March 31, 2020, certain assets within the Maserati segment were impaired in connection with decisions that were made regarding the planned utilization of certain assembly assets to more efficiently utilize the FCA Group's manufacturing capacity as part of the implementation of the previously announced Maserati product renewal activities. As a result of these decisions, impairment charges were recognized totaling €177 million, composed of €85 million of Property, plant and equipment recognized within Cost of revenues and €92 million of previously capitalized development expenditures recognized within Research and development costs. Impairment expense of €16 million was also recognized in North America for property, plant and equipment relating to idled assets.
•During the three months ended September 30, 2020, the FCA Group changed FCA’s strategy for the future B-Segment platform in EMEA, which was under development. As a result of the change in strategy, assets totaling €74 million were impaired within the EMEA segment, composed of €4 million of Property, plant and equipment and €70 million of previously capitalized research and development expenditures, which were recognized within Cost of revenues and Research and development costs, respectively, as well as €13 million of supplier obligations.
•During the three months ended December 31, 2020, impairment losses totaling €229€197 million were recognized, of which €120 million related to vehicle platform impairments in the North America segment as a result of the increase in the CAFE fine rate applicable starting with model year 2022 vehicles, composed of €37 million of Property, plant and equipment recognized within Cost of revenues and €83 million of previously capitalized development expenditures recognized within Research and development costs. In addition, impairment expense of €56 million was recognized in relation to capitalized development costs which were no longer planned to be used by the FCA Group. Of these, €44 million was not allocated to a specific region as the impaired assets were used to produce vehicles sold in several of FCA’s regions, while €9 million relates to the Maserati segment and €3 million relates to the EMEA segment. Furthermore, impairment expense of €18 million was also recognized in North America for property, plant and equipment for idled assets.
During the year ended December 31, 2019, impairment losses totaling €1,589 million were recognized. Of the total impairment charges, €1,376 million was recognized in relation to the rationalization of product portfolio plans, primarily for Europe in the A-segment as well as for Alfa Romeo resulted in the recognition of asset impairment charges for certain platforms, composed of €563 million of Property, plant and equipment recognized within Cost of revenues and €813 million of previously capitalized development costs recognized within Research and development costs and excluded from Adjusted EBIT. Of these charges, €435 million relates to the EMEA segment, €148 million relates to the Maserati segment and the remaining €793 million was not allocated to a specific region as the impaired assets were used to produce vehicles sold in several of FCA’s regions.
During the year ended December 31, 2018, impairment losses totaling €297 million were recognized. The most significant componentscomponent of this impairment loss werewas in EMEA, related toprimarily resulting from changes in product plans in connection with the global product portfolio, and in LATAM, related to product portfolio changes.2018-2022 business plan. It was determined that the carrying amount of the CGUs exceeded their value in usevalue-in-use and accordingly, an impairment charge of €142€262 million was recognized in EMEA, and €56€16 million in LATAM. In addition, during the second quarter of 2017, due to the continued deterioration of the economic conditionsNorth America, €11 million in Venezuela, an impairment test, which compared the carrying amount of certain of FCA Venezuela's assets to their fair value using a market approach, resultedAPAC and €8 million in impairment losses of €21 million.LATAM.
During the year ended December 31, 2016, impairment losses totaling €195 million were recognized. The most significant component of this impairment loss related to the impairment of capitalized development expenditures for the locally produced Fiat Viaggio and Ottimo vehicles as a result of the Group's capacity realignment to SUV production in China. It was determined that the carrying amount of the CGUs exceeded the capitalized development expenditures' value in use which resulted in an impairment charge of €90 million. In addition, due to the continued deterioration of the economic conditions in Venezuela, an impairment test which compared the carrying amount of certain of FCA Venezuela's assets to their fair value using a market approach, resulted in an impairment charge of €43 million.
During the year ended December 31, 2015, impairment losses totaling €713 million were recognized. The most significant component of this impairment loss related to the decision taken by the Group during the fourth quarter of 2015 to realign a portion of its manufacturing capacity in the NAFTA region, as part of the plan to improve NAFTA margins and to better meet market demand for Ram pickup trucks and Jeep vehicles within the Group's existing plant infrastructure. The approval of this plan was deemed to be an indicator of impairment for certain of our vehicle platform CGUs due to the significant changes to the extent to which the assets are expected to be used. It was determined that the carrying amount of the CGUs exceeded their value in use and an impairment charge of €598 million was recorded for the year ended December 31, 2015, of which €422 million related to tangible asset impairments and €176 million related to the impairment of capitalized development expenditures.
Recoverability of Goodwill and Intangible assets with indefinite useful lives
In accordance with IAS 36 - Impairment of Assets, goodwill and intangible assets with indefinite useful lives arewere not amortized and arewere tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired.
Goodwill and intangible assets with indefinite useful lives arewere allocated to operating segments or to CGUs within the operating segments. The impairment test iswas performed by comparing the carrying amount (which mainly comprises property, plant and equipment, goodwill, brands and capitalized development expenditures) and the recoverable amount of each CGUcash generating unit (“CGU”) or group of CGUs to which Goodwill has been allocated. The recoverable amount of a CGU iswas the higher of its fair value less costs of disposal and its value in use.value-in-use. The balance of Goodwill and intangible assets with indefinite useful lives recognized by the FCA Group primarily relatesrelated to the acquisition of FCA US. Goodwill has beenfrom the acquisition of FCA US was allocated to the NAFTA,North America, EMEA, APAC and LATAM operating segments.
Due to the identification of indicators of impairment, primarily as the FCA Group reviewed its business and operations to take into consideration the potential impacts and effects of the COVID-19 pandemic, including the estimated impact on the macro economic environment, the market outlook and the FCA Group’s operations, the goodwill allocated to the EMEA and LATAM operating segments were tested for impairment at March, 31 2020.
Of total Goodwill and intangible assets with indefinite useful lives of €14,614 million at March 31, 2020, €275 million and €577 million (€269 million and €563 million at December 31, 2019) of goodwill was allocated to the EMEA and LATAM segments, respectively. No intangible assets with indefinite useful lives, other than goodwill, were recognized within the EMEA and LATAM segments.
The assumptions used in the goodwill impairment test representfor the EMEA and LATAM segments as of March 31, 2020, represented management’s best estimate for the period under consideration.
•The estimate of the recoverable amount for purposes of performing the EMEA and LATAM goodwill impairment test was determined using value-in-use at March 31, 2020 and was based on the following assumptions:
▪The expected future cash flows covering the period from 2020 through 2024. These expected cash flows reflected the current expectations regarding economic conditions and market trends as well as the segment specific initiatives for the period 2020 to 2024. These cash flows related to the operating segments in their current condition when preparing the financial statements and excluded the estimated cash flows that might arise from future restructuring plans or other structural changes. Key assumptions used in estimating the future cash flows were those related to volumes, sales mix, profit margins, expected conditions regarding market trends and segment, brand and model market share for the respective operating segment over the period considered.
▪The expected future cash flows included a normalized terminal period to estimate the future result beyond the time period explicitly considered which incorporated a long-term growth rate assumption of 2 percent. The long-term EBIT margins were set considering historical margins, the margins incorporated into the plan, and other market data, as adjusted for the stage in the economic cycle of the regions and any specific circumstances (for example, in LATAM, the long-term EBIT margin was adjusted to assume no extension of the Brazilian tax benefits beyond 2025).
▪Pre-tax cash flows were discounted using a pre-tax discount rate which reflects the current market assessment of the time value of money for the period being considered, and the risks specific to those cash flows under consideration. The pre-tax Weighted Average Cost of Capital (“WACC”) applied ranged from 9.5 percent to 16 percent.
•Expected future cash flows are sensitive to changes in the WACC, such that an increase of 25 basis points and 40 basis points in the WACC for the EMEA and LATAM segments respectively, would reduce the recoverable value down to its carrying amount.
The pre-tax WACC was calculated using the Capital Asset Pricing Model technique. The recoverable amounts for EMEA and LATAM operating segments estimated using the assumptions described above were determined to be in excess of the carrying amount of goodwill allocated to the EMEA and LATAM operating segments, respectively. As such, no impairment charges were recognized for goodwill for the three months ended March 31, 2020.
The FCA Group’s goodwill and intangible assets with indefinite useful lives were tested for impairment on October 1, 2020, which is the date the group annually tests goodwill for impairment.
•The estimate of the recoverable amount for purposes of performing the annual impairment test for each of the operating segments was determined using fair value less costs of disposal for the year ended December 31, 2017value-in-use and was based on the following assumptions:
◦The expected future cash flows covering the period from 20182020 through 2022.2024. These expected cash flows reflect the current expectations regarding economic conditions and market trends as well as the FCA Group’s initiatives for the period 20182020 to 2022.2024. These cash flows relate to the respective CGUs in their current 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 arewere based on assumptions that arewere considered reasonable and sustainable and represent the best estimate of expected conditions regarding market trends and segment, brand and model share for the respective operating segment over the period considered. With regards to the LATAM operating segment, expected future cash flows also include the extension of tax benefits and other government grants to the extent such events are considered probable.to:
◦The expected future cash flows includeincluded a normalized terminal period to estimate the future result beyond the time period explicitly considered which incorporatesincorporated a long-term growth rate assumption of 2 percent. The long-term EBIT margins were set considering historical margins, the margins incorporated into the business plan, and other market data, as adjusted for the stage in the economic cycle of the regions and any specific circumstances (for example, in LATAM, the long-term EBIT margin has been adjusted to assume no extension of the Brazilian tax benefits beyond 2025). With regards to:
▪The APAC operating segment, expected future cash flows have historically been sensitive to certain assumptions, primarily the expected margins for the terminal period. While the assumptions used were considered reasonable and achievable and represented the best estimate of expected conditions in the operating segment, management had been and continued to be actively implementing measures to improve operating results by addressing commercial performance and cost structure to allow the achievement of the expected margins and cash flow in APAC. From 2019, the APAC region had become less sensitive to changes in the terminal period EBIT Margin as a result of ongoing actions FCA is taking to improve the competitiveness of its business in China. However, the recoverability of the assets within the APAC region were dependent upon achieving profitable results, which had not been achieved in recent periods.
▪The LATAM operating segment, for the year ended December 31, 2019, expected future cash flows had become sensitive to the expected margins for the terminal period taking into consideration the expectations for the region as well as the economic uncertainties in Argentina, such that a reduction of 90 basis points in the margin for the terminal period would reduce the recoverable value down to its carrying amount. During 2020, the LATAM region had become less sensitive to changes in terminal period EBIT margin, as a result of improved performance outlook in the region.
•For the year ended December 31, 2020, pre-tax cash flows were discounted using a post-taxpre-tax discount rate which reflectsreflected the current market assessment of the time value of money for the period being considered and the risks specific to the operating segment and cash flows under consideration. The Weighted Average Cost of Capital (“WACC”)pre-tax discount rate ranged from approximately 12.39.5 percent to approximately 18.616.8 percent. The pre-tax discount rates were determined using the WACC waswhich were calculated using the Capital Asset Pricing Model technique.
The valuevalues estimated as described above waswere determined to be in excess of the book value of the net capital employedcarrying amount for each operating segment to which Goodwill has beenwas allocated. As such, no0 impairment charges were recognized for Goodwill and Intangible assets with indefinite useful lives for the year ended December 31, 2017.2020.
There were no impairment charges resulting from the impairment tests performed for the years ended December 31, 20162019 and 2015.2018.
Recoverability of deferred tax assets
Deferred tax assets arewere recognized to the extent that it is probable that sufficient taxable profit willwould be available to allow the benefit of part or all of the deferred tax assets to be utilized. The recoverability of deferred tax assets iswas dependent on the FCA Group’s ability to generate sufficient future taxable income in the period in which it is assumed that the deductible temporary differences reverse and tax losses carried forward cancould be utilized. In making this assessment, the FCA Group considersconsidered future taxable income arising based on the most recent budgets and plans, prepared by using the same criteria described for testing the impairment of assets and goodwill.business plan. Moreover, the FCA Group estimatesestimated the impact of the reversal of taxable temporary differences on earnings and it also considersconsidered the period over which these deferred tax assets could be recovered.
The estimates and assumptions areused in the assessment were subject to uncertainty especially as it relatesrelated to the FCA Group’s future performance as compared to the business plan, particularly in Latin AmericaLATAM and the Eurozone.EMEA. Therefore, changes in current estimates due to unanticipated events could have a significant impact on ourthe Consolidated Financial Statements. Refer to Note 7,Tax expensefor additional detail.
For the three months ended March 31, 2020, the FCA Group reviewed its business and operations to take into consideration the estimated impacts and effects of the COVID-19 pandemic, including the estimated impact on the macroeconomic environment, the market outlook and the FCA Group’s operations. As such, the FCA Group assessed its ability to generate sufficient taxable income in the future that would allow realization of net deferred tax assets in Italy and Brazil, primarily in relation to tax loss carry-forwards in each respective country. As a result of this assessment, a write-down of €549 million of deferred tax assets was recorded for the year ended December 31, 2020. Of this write-down, €446 million primarily related to Italian tax loss carry-forwards and €103 million related to Brazilian tax loss carry-forwards.
Sales incentives
The FCA Group recordsrecorded the estimated cost of sales incentive programs offered to dealers and consumers as a reduction to revenue at the time of sale to the dealer. This estimated cost representsrepresented the incentive programs offered to dealers and consumers, as well as the expected modifications to these programs in order to facilitate sales of the dealer inventory. Subsequent adjustments to sales incentive programs related to vehicles previously sold to dealers arewere recognized as an adjustment to Net revenues in the period the adjustment iswas determinable.
The FCA Group usesused price discounts to adjust vehicle pricing in response to a number of market and product factors, including pricing actions and incentives offered by competitors, economic conditions, the amount of excess industry production capacity, the intensity of market competition, consumer demand for the product and the desire to support promotional campaigns. The FCA Group may offeroffered a variety of sales incentive programs at any given point in time, including cash offers to dealers and consumers and subvention programs offered to customers, or lease subsidies, which reducereduced the retail customer’s monthly lease payment or cash due at the inception of the financing arrangement, or both. Sales incentive programs arewere generally brand, model and region specific for a defined period of time.
Multiple factors arewere used in estimating the future incentive expense by vehicle line, including the current incentive programs in the market, planned promotional programs and the normal incentive escalation incurred as the model year ages. The estimated incentive rates arewere reviewed monthly and changes to planned rates arewere adjusted accordingly, thusthereby impacting revenues. As there arewere a multitude of inputs affecting the calculation of the estimate for sales incentives, an increase or decrease of any of these variables could have a significant effect on Net revenues.
Product warranties, recall campaigns and product liabilities
The FCA Group establishesestablished reserves for product warranties at the time the related sale iswas recognized. The Group issuesFCA issued various types of product warranties under which the performance of products delivered iswas generally guaranteed for a certain period or term. The accrual for product warranties includesincluded the expected costs of warranty obligations imposed by law or contract, as well as the expected costs for policy coverage, recall actions and buyback commitments. The estimated future costs of these actions arewere principally based on assumptions regarding the lifetime warranty costs of each vehicle line and each model year of that vehicle line, as well as historical claims experience for the FCA Group’s vehicles. In addition, the number and magnitude of additional service actions expected to be approved and policies related to additional service actions arewere taken into consideration. Due to the uncertainty and potential volatility of these estimated factors, changes in the assumptions used could materially affect the results of operations.
The FCA Group periodically initiatesinitiated voluntary service and recall actions to address various customer satisfaction as well as safety and emissions issues related to vehicles sold. Included in the reserve iswas the estimated cost of these service and recall actions. In NAFTA, we accrueNorth America, FCA accrued estimated costs for recalls at the time of sale, which arewere based on historical claims experience as well as an additional actuarial analysis that givesgave greater weight to the more recent calendar year trends in recall campaign activity. In other regions and sectors, however, there generally iswas not sufficient historical data to support the application of an actuarial-based estimation technique. As a result, estimated recall costs for the other regions and sectors arewere accrued at the time when they arewere probable and reasonably estimable, which typically occursoccurred once a specific recall campaign iswas approved and is announced.
Estimates of the future costs of these actions are inevitably imprecise duewere subject to numerous uncertainties, including the enactment of new laws and regulations, the number of vehicles affected by a service or recall action and the nature of the corrective action. It iswas reasonably possible that the ultimate cost of these service and recall actions may requirecould have required the FCA Group to make expenditures in excess of (or less than) established reserves over an extended period of time and in a range of amounts that cannotcould not be reasonably estimated. The estimate of warranty and additional service and recall action obligations iswas periodically reviewed during the year. Experience has shownshowed that initial data for any given model year cancould be volatile; therefore, ourFCA’s process reliesrelied upon long-term historical averages until sufficient data iswas available. As actual experience becomesbecame available, it iswas used to modify the historical averages to ensure that the forecast iswas within the range of likely outcomes. Resulting accruals arewere then compared with current spending rates to ensure that the balances arewere adequate to meet expected future obligations.
In addition, the FCA Group makesmade provisions for estimated product liability costs arising from property damage and personal injuries including wrongful death, and potential exemplary or punitive damages alleged to be the result of product defects. By nature, these costs cancould be infrequent, difficult to predict and have the potential to vary significantly in amount. The valuation of the reserve iswas actuarially determined on an annual basis based on, among other factors, the number of vehicles sold and product liability claims incurred. Costs associated with these provisions arewere recorded in the Consolidated Income Statement and any subsequent adjustments arewere recorded in the period in which the adjustment is determined.
Litigation
Various legal proceedings, claims and governmental investigations arewere pending against the FCA Group on a wide range of topics, including vehicle safety, emissions and fuel economy, competition, tax and securities laws,matters, alleged violations of law, labor, dealer, supplier and other contractual relationships, intellectual property rights, product warranties and environmental matters. Some of these proceedings allege defects in specific component parts or systems (including airbags, seats, seat belts, brakes, ball joints, transmissions, engines and fuel systems), in various vehicle models or allegealleged general design defects relating to vehicle handling and stability, sudden unintended movement or crashworthiness. These proceedings seekseeked recovery for damage to property, personal injuries or wrongful death and in some cases includeincluded a claim for exemplary or punitive damages. Adverse decisions in one or more of these proceedings could require the FCA Group to pay substantial damages, or undertake service actions, recall campaigns or other costly actions.
Litigation iswas subject to many uncertainties, and the outcome of individual matters iswas not predictable with assurance. Moreover, the cases and claims against the FCA Group arewere often derived from complex legal issues which arethat were subject to differing degrees of uncertainty, including the facts and circumstances of each particular case, the manner in which the applicable law is likely to be interpreted and applied and the jurisdiction and the different laws involved. An accrual isA provision was established in connection with pending or threatened litigation if it iswas probable there willwould be an outflow of funds and when the amount cancould be reasonably estimated. If an outflow of funds becomesbecame probable, but the amount cannotcould not be estimated, the matter iswas disclosed in the notes to the Consolidated Financial Statements. Since these accruals representprovisions represented estimates, the resolution of some of these matters could require the FCA Group to make payments in excess of the amounts accrued or may requirecould have required the FCA Group to make payments in an amount or range of amounts that could not be reasonably estimated.
The FCA Group monitorsmonitored the status of pending legal proceduresproceedings and consultsconsulted with experts on legal and tax matters on a regular basis. As such, the provisions for the FCA Group’s legal proceedings and litigation may vary as a result of future developments in pending matters.
New standards and amendments effective January 1, 2020
Other new standards and amendments
The following amendments and interpretations, which were effective from January 1, 2020, were adopted by the FCA Group. The adoption of these amendments did not have a material impact on the Consolidated Financial Statements.
•In October 2018, the IASB issued amendments to IFRS 3 - Business Combinations which change the definition of a business to enable entities to determine whether an acquisition is a business combination or an asset acquisition.
•In October 2018, the IASB issued amendments to its definition of material in IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates clarifying the definition of materiality to aid in application.
•In September 2019, the IASB issued Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7), which modifies specific hedge accounting requirements to provide relief from the potential effects of uncertainty caused by IBOR reform. In addition, the amendments require companies to provide additional information to investors about hedging relationships directly affected by these uncertainties.
New standards and amendments effective from JanuaryJune 1, 20172020
•In May 2020, the IASB issued an amendment to IFRS 16 - Leases to make it easier for lessees to account for COVID-19 related rent concessions such as rent holidays and temporary rent reductions. The following newamendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. It applies to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021. The amendment does not affect lessors. The amendment is effective June 1, 2020 but can be applied immediately to any financial statements—interim or annual—not yet authorized for issue. The amendment is voluntary and was endorsed by the EU on October 9, 2020. We are currently evaluating the impact of adoption.
New standards and amendments applicable from January 1, 2017 were adopted by the Group:
Amendments to IAS 12 - Income Taxes that clarify how to account for deferred tax assets related to debt instruments measured at fair value. There was no effect to our Consolidated Financial Statements from the adoption of these amendments.
Amendments to IAS 7 - Statement of Cash Flows introducing additional disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The required disclosures have been included in Note 29, Explanatory notes to the Consolidated Statement of Cash Flows.
Amendments to IFRS 12 - Disclosure of Interests in Other Entities, included within the Annual Improvements to IFRS Standards 2014–2016 Cycle. There was no effect to our Consolidated Financial Statements from the adoption of these amendments.
New standards, amendments and interpretations not yet effective
The following new standards and amendments were issued by the IASB. We will comply with the relevant guidance no later than their respective effective dates:
IFRS 15 – Revenue from contracts with customers (“IFRS 15”), which was issued by the IASB in May 2014 and amended in September 2015 and has an effective date from•In January 1, 2018, the Group will adopt the provisions of IFRS 15 and all its amendments using the modified retrospective method with a cumulative adjustment to equity as of January 1, 2018. The standard requires a company to recognize revenue upon transfer of control of goods or services to a customer at an amount that reflects the consideration it expects to receive using a five-step process. The new standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The majority of our revenue will continue to be recognized in a manner consistent with accounting guidance in prior years with the exception of certain GDP vehicles as well as shipping and handling activities that occur after control of the vehicle passes to the customer. Under the new standard, a GDP vehicle sale that contains no option to repurchase or includes a put option for which the customer does not have a significant economic incentive to exercise will be recognized as revenue when control transfers upon shipment of the vehicles, rather than treated as an operating lease in accordance with prior guidance. Shipping and handling activities, when arranged by FCA after control of the vehicle passes to the customer, will be a separate performance obligation in the vehicle sale arrangement for which control passes when the shipping activities are complete. Under current guidance, these activities are not considered a separately identifiable component from the vehicle. The total impact of the cumulative adjustment to equity as of January 1, 2018 is expected to be less than €50 million, and the impact to the Group’s Net profit is expected to be immaterial on an ongoing basis.
In July 2014,2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1), which affects the requirements in IAS 1 for the presentation of liabilities, including clarifying one of the criteria for classifying a liability as non-current. The amendments are effective for annual reporting periods beginning on or after January 1, 2022, with earlier adoption permitted. In July 2020, the IASB deferred the effective date of this amendment to January 1, 2023. We are currently evaluating the impact of adoption.
•In May 2020, the IASB issued Annual Improvements to IFRSs 2018-2020, which includes amendments to the following standards: updating a reference in IFRS 3 - Business Combinations to the Conceptual Framework for Financial Reporting; in IAS 16 - Property, Plant and Equipment, prohibiting the deduction of amounts received from selling items produced whilst preparing the asset for its intended use from the cost of property, plant and equipment; in IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, specifying what costs are to be included when assessing whether a contract will be loss-making; and minor amendments to IFRS 1 - First-time Adoption of International Financial Reporting Standards, IFRS 9 - Financial Instruments, (“IFRS 9”). The standard is effective for financial years beginning on January 1, 2018. IFRS 9 introduces improvements in the accounting requirements for classification and measurement of financial assets, for impairment of financial assets and for hedge accounting. The Group will apply practical expedients permitted by the standard and not restate prior periods. For hedge accounting, the Group will apply the standard prospectively.
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◦ | Financial assets will be classified and measured on the basis of the Group’s business model and characteristics of the financial asset’s cash flows. A financial asset is initially measured either at “amortized cost”, at “fair value through other comprehensive income” or at “fair value through profit or loss”. At the date of initial application of IFRS 9, except for certain receivables managed solely with the intent to be transferred to third parties before maturity that are measured at fair value through profit or loss and certain investments in other companies designated as measured at fair value through other comprehensive income, the measurement of the Group’s financial assets under IFRS 9 has not changed compared to IAS 39. The classification of financial liabilities under IFRS 9 is unchanged compared with the current accounting requirements of IAS 39. |
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◦ | The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only incurred losses as is the case under IAS 39. The expected credit losses will be recorded either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on trade and other receivables. For receivables from financing activities the Group will apply the general approach recording the credit losses either on a 12-month or lifetime basis. |
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◦ | The new hedge accounting rules will align the accounting for hedge instruments more closely with the Group’s risk management practices. Generally, under IFRS 9 more hedge relationships will be eligible for hedge accounting, as the standard introduces a more principles-based approach. The Group has undertaken an assessment of its IAS 39 hedge relationships against the requirements of IFRS 9 and has concluded that the Group’s current hedge relationships will qualify as continuing hedges upon the adoption of IFRS 9. The new standard also introduces expanded disclosure requirements and changes in presentation. |
Overall, the total impact of the cumulative adjustment to equity as of January 1, 2018IAS 41 - Agriculture and the impact to the Group’s net profit is expected to be immaterial.
In January 2016, the IASB issuedIllustrative Examples accompanying IFRS 16 - Leases (“IFRS 16”) which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract and replaces the previous leases standard, IAS 17 - Leases. IFRS 16, which is not applicable to service contracts, but only applicable to leases or lease components of a contract, defines a lease as a contract that conveys to the customer (lessee) the right to use an asset for a period of time in exchange for consideration. IFRS 16 eliminates the classification of leases for the lessee as either operating leases or finance leases as required by IAS 17 and instead, introduces a single lessee accounting model whereby a lessee is required to recognize assets and liabilities for all leases with a term that is greater than 12 months, unless the underlying asset is of low value, and to recognize depreciation of lease assets separately from interest on lease liabilities in the income statement. As IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, a lessor will continue to classify its leases as operating leases or finance leases and to account for those two types of leases differently. IFRS 16 isLeases. The amendments are effective from January 1, 2019 and we2022. We are continuing with our implementation and assessment ofcurrently evaluating the impact of the adoption of this standard on our Consolidated Financial Statements.
adoption.•In June 2016,2020, the IASB issued amendments to IFRS 217 - Share-based Payments, clarifying howInsurance Contracts aimed at helping companies implement the standard and making it easier for them to account for certain types of share-based payment transactions.explain their financial performance. The fundamental principles introduced when the Board first issued IFRS 17 in May 2017 remain unaffected. The amendments, which were developed through IFRIC, providerespond to feedback from stakeholders, are designed to: reduce costs by simplifying some requirements onin the accountingStandard; make financial performance easier to explain; and ease transition by deferring the effective date of the Standard to 2023 and by providing additional relief to reduce the effort required when applying IFRS 17 for (i)the first time. We are currently evaluating the impact of adoption.
•In August 2020, the IASB issued Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16), which is complementary to Interest Rate Benchmark Reform, as issued in September 2019. The amendments address issues that arise as a result of implementation of the reforms, including the effects of vesting and non-vesting conditions onchanges in the measurementcontractual cash flows or hedging relationships arising from the replacement of cash-settled share-based payments, (ii) share-based payment transactionsan interest rate benchmark with a net settlement feature for withholding tax obligations and (iii) a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.an alternative benchmark. The Company will adopt these amendments prospectively fromare effective January 1, 2018.2021. We do not expect a material impact to our Consolidated Financial Statements or disclosures upon adoption of the amendments.
•In September 2016,February 2021, the IASB issued “Applying IFRS 9, Financial Instruments with IFRS 4, Insurance Contracts” (Amendments to IFRS 4). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4: (i) an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets (the “overlay approach”) and (ii) an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4 (the “deferral approach”). We have completed our evaluation and concluded that there is no impact from these amendments on our Consolidated Financial Statements.
In December 2016, the IASB issued Annual Improvements to IFRS Standards 2014–2016 Cycle which included amendments to IAS 28 - Investments in Associates and Joint Ventures (effective January 1, 2018). The amendments clarify, correct or remove redundant wording in the related standard and are not expected to have a material impact to our Consolidated Financial Statements or disclosures upon adoption of the amendments.
In December 2016, the IASB issued IFRIC Interpretation 22 - Foreign Currency Transactions and Advance Consideration which addresses the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. The interpretation is effective January 1, 2018. We do not expect a material impact to our Consolidated Financial Statements upon adoption of the interpretation.
In May 2017, the IASB issued IFRS 17 - Insurance Contracts (“IFRS 17”), which replaces IFRS 4 Insurance Contracts. IFRS 17 requires all insurance contracts to be accounted for in a consistent manner and insurance obligations to be accounted for using current values, instead of historical cost. The new standard requires current measurement of the future cash flows and the recognition of profit over the period that services are provided under the contract. IFRS 17 also requires entities to present insurance service results (including presentation of insurance revenue) separately from insurance finance income or expenses, and requires an entity to make an accounting policy choice of whether to recognize all insurance finance income or expenses in profit or loss or to recognize some of those income or expenses in other comprehensive income. The standard is effective for annual periods beginning on or after January 1, 2021 with earlier adoption permitted. We are currently evaluating the impact of adoption on our Consolidated Financial Statements.
In June 2017, the IASB issued IFRIC Interpretation 23 - Uncertainty over Income Tax Treatment, (the “Interpretation”), which clarifies application of recognition and measurement requirements in IAS 12 - Income Taxes when there is uncertainty over income tax treatments. The Interpretation specifically addresses the following: (i) whether an entity considers uncertain tax treatments separately, (ii) the assumptions an entity makes about the examination of tax treatments by taxation authorities, (iii) how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and (iv) how an entity considers changes in facts and circumstances. The Interpretation does not add any new disclosure requirements, however it highlights the existing requirements in IAS 1 - Presentation of Financial Statements, related and IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors. The amendments to disclosureIAS 1 require companies to disclose their material accounting policies rather than their significant accounting policies, including providing guidance on how to apply the concept of judgments, information about the assumptions made and other estimates and disclosures of tax-related contingencies withinmateriality to accounting policy disclosures. The amendments to IAS 12 - Income Taxes.8 clarify how companies should distinguish change in accounting policies from changes in accounting estimates. The Interpretation is applicableamendments are effective for annual reporting periods beginning on or after January 1, 2019 and it provides a choice of two transition approaches: (i) retrospective2023, with earlier application using IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, only if the application is possible without the use of hindsight, or (ii) retrospective application with the cumulative effect of the initial application recognized as an adjustment to equity on the date of initial application and without restatement of the comparative information. The date of initial application is the beginning of the annual reporting period in which an entity first applies this Interpretation. We are currently evaluating the implementation and the impact of adoption of the interpretation on our Consolidated Financial Statements.
In October 2017, the IASB issued Prepayment Features with Negative Compensation (Amendments to IFRS 9), allowing companies to measure particular prepayable financial assets with so-called negative compensation at amortized cost or at fair value through other comprehensive income if a specified condition is met, instead of at fair value through profit or loss, effective January 1, 2019.permitted. We are currently evaluating the impact of adoption on our Consolidated Financial Statements.
adoption.In October 2017, the IASB issued Long-term interests in associates and joint ventures (Amendments to IAS 28), which clarifies that companies account for long-term interests in an associate or joint venture, to which the equity method is not applied, using IFRS 9, effective January 1, 2019. We are currently evaluating the impact of adoption on our Consolidated Financial Statements.209
In December 2017, the IASB issued the Annual Improvements to IFRSs 2015-2017, a series of amendments to IFRSs in response to issues raised mainly on IFRS 3 - Business Combinations, which clarifies that a company remeasure its previously held interest in a joint operation when it obtains control of the business, on IFRS 11 - Joint Arrangements, a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business, on IAS 12 - Income Taxes, which clarifies that all income tax consequences of dividends (i.e. distribution of profits) should be recognized in profit or loss, regardless of how the tax arises, and on IAS 23 - Borrowing Costs, which clarifies that a company treats as part of general borrowing any borrowing originally made to develop an asset when the asset is ready for its intended use or sale. The effective date of the amendments is January 1, 2019. We are currently evaluating the impact of adoption on our Consolidated Financial Statements.
In February 2018, the IASB issued Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) which specifies how companies determine pension expenses when changes to a defined benefit pension plan occur. IAS 19 Employee Benefits specifies how a company accounts for a defined benefit plan. When a change to a plan-an amendment, curtailment or settlement-takes place, IAS 19 requires a company to remeasure its net defined benefit liability or asset. The amendments require a company to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. The amendments are effective on or after 1 January 2019. We are currently evaluating the impact of adoption on our Consolidated Financial Statements.
3. ScopeAs noted in Note 1, Principal activities, the financial statements of consolidationStellantis N.V. in subsequent filings will represent the historical financial statements of PSA.
The following table sets forth a list of the principal subsidiaries of FCA, which are grouped according to each of ourby its reportable segments, as well as our holding and other companies:
| | | | | | | | | | | | | | |
| Name | | Country | | Percentage
Interest Held |
| North America | | | | |
| FCA US LLC | | USA (Delaware) | | 100.00 |
| FCA Canada Inc. | | Canada | | 100.00 |
| FCA Mexico, S.A. de C.V. | | Mexico | | 100.00 |
| LATAM | | | | |
| FCA Fiat Chrysler Automoveis Brasil LTDA. | | Brazil | | 100.00 |
| FCA Automobiles Argentina S.A. | | Argentina | | 100.00 |
| Banco Fidis S.A. | | Brazil | | 100.00 |
| APAC | | | | |
| Chrysler Group (China) Sales Limited | | People’s Republic of China | | 100.00 |
| FCA Japan Ltd. | | Japan | | 100.00 |
| FCA Australia Pty Ltd. | | Australia | | 100.00 |
| FCA Automotive Finance Co. Ltd. | | People’s Republic of China | | 100.00 |
| Alfa Romeo (Shanghai) Automobiles Sales Co. Ltd. | | People’s Republic of China | | 100.00 |
| EMEA | | | | |
| FCA Italy S.p.A. | | Italy | | 100.00 |
| FCA Poland Spólka Akcyjna | | Poland | | 100.00 |
| FCA Powertrain Poland Sp. z o.o. | | Poland | | 100.00 |
| FCA Serbia d.o.o. Kragujevac | | Serbia | | 66.67 |
| FCA Germany AG | | Germany | | 100.00 |
| FCA France S.A.S. | | France | | 100.00 |
| Fiat Chrysler Automobiles UK Ltd. | | United Kingdom | | 100.00 |
| Fiat Chrysler Automobiles Spain S.A. | | Spain | | 100.00 |
| Fidis S.p.A. | | Italy | | 100.00 |
| Maserati | | | | |
| Maserati S.p.A. | | Italy | | 100.00 |
| Maserati (China) Cars Trading Co. Ltd. | | People's Republic of China | | 100.00 |
| Maserati North America Inc. | | USA (Delaware) | | 100.00 |
| | | | |
| | | | |
Name | | Country | | Percentage
Interest Held |
NAFTA | | | | |
FCA US LLC | | USA (Delaware) | | 100.00 |
FCA Canada Inc. | | Canada | | 100.00 |
FCA Mexico, S.A. de C.V. | | Mexico | | 100.00 |
LATAM | | | | |
FCA Fiat Chrysler Automoveis Brasil LTDA | | Brazil | | 100.00 |
FCA Automobiles Argentina S.A. | | Argentina | | 100.00 |
Banco Fidis S.A. | | Brazil | | 100.00 |
APAC | | | | |
Chrysler Group (China) Sales Limited | | People’s Republic of China | | 100.00 |
FCA Japan Ltd. | | Japan | | 100.00 |
FCA Australia Pty Ltd. | | Australia | | 100.00 |
FCA Automotive Finance Co. Ltd. | | People’s Republic of China | | 100.00 |
EMEA | | | | |
FCA Italy S.p.A. | | Italy | | 100.00 |
FCA Melfi S.r.l. | | Italy | | 100.00 |
FCA Poland Spólka Akcyjna | | Poland | | 100.00 |
FCA Powertrain Poland Sp. z o.o. | | Poland | | 100.00 |
FCA Serbia d.o.o. Kragujevac | | Serbia | | 66.67 |
FCA Germany AG | | Germany | | 100.00 |
FCA France S.A. | | France | | 100.00 |
Fiat Chrysler Automobiles UK Ltd. | | United Kingdom | | 100.00 |
Fiat Chrysler Automobiles Spain S.A. | | Spain | | 100.00 |
Fidis S.p.A. | | Italy | | 100.00 |
Maserati | | | | |
Maserati S.p.A. | | Italy | | 100.00 |
Maserati (China) Cars Trading Co. Ltd. | | People's Republic of China | | 100.00 |
Maserati North America Inc. | | USA (Delaware) | | 100.00 |
Components | | | | |
Magneti Marelli S.p.A. | | Italy | | 99.99 (1)
|
Automotive Lighting LLC | | USA (Delaware) | | 100.00 |
Automotive Lighting Reutlingen GmbH | | Germany | | 99.99 |
Teksid S.p.A. | | Italy | | 100.00 |
Comau S.p.A. | | Italy | | 100.00 |
COMAU LLC | | USA (Delaware) | | 100.00 |
| Holding Companies and Other Companies | | | | |
| FCA North America Holdings LLC | | USA (Delaware) | | 100.00 |
| Fiat Chrysler Finance S.p.A. | | Italy | | 100.00 |
Fiat Chrysler Finance Europe S.A.SENC | | Luxembourg | | 100.00 |
__________________________(1) FCA holds 100 percent of the voting interest in Magneti Marelli S.p.A.
Itedi S.p.A Held for Sale and Discontinued Operations
On August 1, 2016, FCA announced the signing of a framework agreement which set out terms of the proposed integration, through a merger, between FCA's consolidated media and publishing subsidiary, Italiana Editrice S.p.A (“Itedi”), in which FCA had a 77 percent ownership interest, and the Italian media group, GEDI Gruppo Editoriale S.p.A. (“GEDI”), previously known as Gruppo Editoriale L’Espresso S.p.A. All the conditions precedent for the Merger were met and all regulatory approvals from Italian state authorities that regulate the publishing and media sectors were received in June 2017. All the necessary steps for the merger were completed and on June 27, 2017, FCA and Itedi’s non-controlling shareholder, Ital Press Holding S.p.A. (“Ital Press”), transferred 100 percent of the shares of Itedi to GEDI in exchange for newly issued GEDI shares, resulting in CIR S.p.A., the controlling shareholder of GEDI, holding a 43.4 percent ownership interest in GEDI, FCA holding 14.63 percent and Ital Press holding 4.37 percent. Following the completion of the Merger on June 27, 2017, FCA distributed its entire interest in GEDI to holders of FCA common shares on July 2, 2017 in the ratio of 0.0484 GEDI ordinary shares for each FCA common share.
As a result, the Group recorded a gain of €49 million within Gains on disposal in the Consolidated Income Statement for the year ended December 31, 2017.
Itedi was not classified as a discontinued operation as it did not represent a separate major line of business or geographical area of operations for the Group, or a part of it.
The following table summarizes the assets and liabilities of Itedi S.p.A that were classified as held for sale at December 31, 2016:
|
| | | |
| At December 31, 2016 |
| (€ million) |
Assets classified as held for sale | |
Goodwill | € | 54 |
|
Other intangible assets | 7 |
|
Property, plant and equipment | 17 |
|
Trade receivables | 25 |
|
Other | 17 |
|
Total Assets held for sale | € | 120 |
|
| |
Liabilities classified as held for sale | |
Provisions | € | 38 |
|
Trade payables | 19 |
|
Debt and Other | 40 |
|
Total Liabilities held for sale | € | 97 |
|
Magneti Marelli Discontinued Operations and Discontinued OperationsDisposal
On October 26, 2015, Ferrari N.V.,April 5, 2018, the FCA Board of Directors announced that it had authorized FCA management to develop and implement a subsidiary of FCA, completed its initial public offering (“IPO”) in which FCA sold 10 percent of Ferrari N.V. common shares (“Ferrari IPO”) and received net proceeds of approximately €0.9 billion, which resulted in FCA owning 80 percent of Ferrari N.V. common shares, Piero Ferrari owning 10 percent of common shares and public shareholders owning the remaining 10 percent of common shares. The Ferrari IPO was accounted for as an equity transaction, with the effects on Equity attributable to owners of the parent being as follows:
|
| | | |
| At October 26, 2015 |
| (€ million) |
Consideration received | € | 866 |
|
Less: Carrying amount of equity interest sold | (7 | ) |
Effect on Equity attributable to owners of the parent | € | 873 |
|
In connection with the Ferrari IPO and in preparation for the spin-off of the remaining common shares of Ferrari N.V. owned by FCA, FCA carried out an internal corporate restructuring. As part of this reorganization, FCA transferred its shares of Ferrari S.p.A. to Ferrari N.V. and also provided a capital contribution to Ferrari N.V., while Ferrari N.V. issued a note payable to FCA in the amount of €2.8 billion. This internal restructuring was a common control transaction and did not have an accounting impact on the Consolidated Financial Statements. As a result, and in connection with the transactions in which Piero Ferrari exchanged his shares in Ferrari S.p.A. for Ferrari N.V. shares, FCA paid €280 million to Piero Ferrari as consideration for the dilution of his share value due to the issuance of the €2.8 billion note payable, which was recorded as a reduction to non-controlling interests.
On December 3, 2015, an extraordinary general meeting of FCA shareholders was held, whereby the transactions intendedplan to separate FCA’s remaining ownership interest in Ferrari N.V.the Magneti Marelli business from the FCA Group and to distribute that ownership interestshares of a new holding company for Magneti Marelli to holdersthe shareholders of FCA shares and mandatory convertible securities were approved.FCA.
AsAt September 30, 2018, the spin-off of Ferrari N.V.separation within the next twelve months became highly probable with the aforementioned shareholders' approval and since it was available for immediate distribution at that date, the Ferrari segmentMagneti Marelli operations met the criteria to be classified as a disposal group held for distributionsale. It also met the criteria to owners andbe classified as a discontinued operation pursuant to IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations at December 31, 2015Operations.
On October, 22, 2018, FCA announced that it had entered into a definitive agreement to sell its Magneti Marelli business to CK Holdings Co., Ltd. On May 2, 2019, FCA completed the sale of Magneti Marelli for consideration of €5,772 million (including €5,774 million cash consideration, contingent consideration receivable with a fair value of €70 million, contingent consideration payable by FCA of €16 million, costs relating to the transaction of €16 million and a preliminary purchase price adjustment of approximately €40 million). Since Exor N.V., which controls and consolidates FCA (refer to Note 24, Related party transactions), continued to control and consolidate Ferrari N.V. afterOn April 26, 2020, the spin-off, thisfinal purchase price adjustment was deemed to be a common control transaction and was accounted for at book value.agreed, substantially confirming the preliminary amount.
The operating resultsfollowing table shows the calculation of Ferrari were excluded from the Group's continuing operations and presented as a single line item withingain on sale on the Consolidated Income Statement, Consolidated StatementMagneti Marelli transaction:
| | | | | | | | |
| | At May 2, 2019 |
| | (€ million) |
| Intangible assets | | € | 788 | |
| Property, plant and equipment | | 2,146 | |
| Financial receivables | | 10 | |
| Cash and cash equivalents | | 426 | |
| Other assets | | 2,055 | |
| Debt | | (782) | |
| Trade and other payables | | (1,942) | |
| Other liabilities | | (791) | |
| Net assets sold | | € | 1,910 | |
| Consideration | | 5,772 | |
Reclassification of amounts in OCI relating to Magneti Marelli(1) | | (91) | |
| Gain on sale attributable to FCA | | € | 3,771 | |
(1) Excluding amounts related to remeasurement of Comprehensive Income anddefined benefit plans.
Refer to the Consolidated Statement of Cash flows for the year ended December 31, 2015.2020, for the aggregate cash flows arising from the sale of Magneti Marelli, which consists of the cash consideration received net of the cash and cash equivalents transferred in the sale, as disclosed in the table above.
The presentation of the Magneti Marelli business is as follows:
•The operating results of Magneti Marelli have been excluded from the FCA Group’s continuing operations and are presented net of taxes as a single line item within the Consolidated Income Statement up to the completion of the sale transaction on May 2, 2019 and for the year ended December 31, 2018. In order to present the financial effects of a discontinued operation, revenues and expenses arising from intercompany transactions were eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operation. However, no profit or loss is recognized for intercompany transactions within the Consolidated Income Statement.
•Cash flows arising from Magneti Marelli up to the completion of the sale transaction on May 2, 2019, have been presented separately as discontinued cash flows from operating, investing and financing activities within the Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018. These cash flows represent those arising from transactions with third parties.
•In accordance with the IFRS 5, depreciation and amortization on the assets of Magneti Marelli ceased as at September 30, 2018. The impact of ceasing depreciation of the property, plant and equipment and amortization of the intangible assets of Magneti Marelli was €134 million for the period up to the completion of the sale transaction on May 2, 2019 (€96 million for the year ended December 31, 2019), net of tax of €27 million (€20 million for the year ended December 31, 2019).
•The operating results from discontinued operations includes €5 million of interest on lease liabilities for the year ended December 31, 2019.
•Total expenses recognized in the operating results from discontinued operations relating to short-term leases and low-value assets leases amounted to €6 million and €2 million, respectively, for the period up to the completion of the sale transaction on May 2, 2019.
The following table summarizes the operating results of FerrariMagneti Marelli up to the completion of the sale transaction on May 2, 2019, that were excluded from the Consolidated Income Statement for the year endyears ended December 31, 2015: 2019 and 2018:
|
| | | |
| For the year ended December 31, 2015 (1)
|
| (€ million) |
Net revenues | € | 2,596 |
|
Expenses | 2,152 |
|
Net financial expenses/(income) | 16 |
|
Profit before taxes from discontinued operations | 428 |
|
Tax expense | 144 |
|
Profit from discontinued operations, net of tax | € | 284 |
|
| | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2019(1) | | 2018(1) | | |
| | (€ million) |
| Net revenues | | € | 1,657 | | | € | 4,998 | | | |
| Expenses | | 1,447 | | | 4,493 | | | |
| Net financial expenses | | 5 | | | 85 | | | |
| Profit before taxes from discontinued operations | | 205 | | | 420 | | | |
| Tax expense | | 44 | | | 118 | | | |
| Profit after taxes from discontinued operations | | 161 | | | 302 | | | |
| Add: Gain on sale attributable to FCA | | 3,771 | | | 0 | | | |
| Less: Tax expense on gain on sale | | 2 | | | 0 | | | |
| Profit from discontinued operations, net of taxes | | € | 3,930 | | | € | 302 | | | |
(1) Amounts presented are not representative of the income statement and the financial position of FerrariMagneti Marelli on a stand-alone basis; amounts are net of transactions between FerrariMagneti Marelli and other companies of the FCA Group.
The spin-offFCA elected to present both the tax on the gain after the participation exemption of Ferrari N.V. from the Group was completed on January 3, 2016. The assets and liabilities of the Ferrari segment were distributed to holders of FCA shares and mandatory convertible securities without any gain or loss on distribution. FCA shareholders received one common share of Ferrari N.V. for every ten common shares of FCA and holders of the mandatory convertible securities were entitled to receive 0.77369 common shares of Ferrari N.V. for each mandatory convertible security of U.S.$100 notional amount held of record on January 5, 2016. In addition, FCA shareholders participating in the FCA loyalty voting structure received one special voting share of Ferrari N.V. for every ten special voting shares of FCA held of record on January 5, 2016. On January 13, 2016, holders of FCA shares also received a cash payment of €0.01, less any required applicable withholding tax, for each share held of record as of January 5, 2016.
Deconsolidation of FCA Venezuela
Throughout 2017, macroeconomic conditions in Venezuela continued to deteriorate. In the second quarter of 2017, asset impairment charges of €21€55 million relating to certain real estate assets in Venezuela were recognized, recorded within Selling, general and other costs. In December 2017, due to the restrictive monetary policy in Venezuela coupled with the inability to pay dividends and the U.S. Dollar obligations,corresponding utilization of tax losses as well as the deteriorating economic conditions, which has constrained the ability to maintain normal production in Venezuela, we concluded we are no longer able to exert control over our Venezuelaa net nil impact within Profit from discontinued operations, in order to affect our returns. As such, in accordance with IFRS 10 - Consolidated Financial Statements, asnet of December 31, 2017, we deconsolidated our subsidiary FCA Venezuela LLC (“FCA Venezuela”), which resulted in a pre-tax, non-cash charge of €42 million recorded within Selling, generaltax.
Plastic Components and other costs in the Consolidated Income StatementAutomotive Modules Business Held for Sale
During the year ended December 31, 2017. Upon deconsolidation, FCA's investment in2019, certain entities within FCA’s plastic components and automotive modules business met the criteria to be presented as held for sale. On January 31, 2020, the FCA Venezuela was recognized at fair value, which was nil at December 31, 2017 and will be accounted for at cost in subsequent periods.
In March 2016, the Venezuelan government modified its foreign currency exchange systems and the official exchange rate, CENCOEX, was replaced with DIPRO, only available for purchases and sales of essential items, such as food and medicine. In addition, the official exchange rate was devalued from 6.3 VEF to 10 VEF per U.S. Dollar and the SICAD exchange system was terminated. The SIMADI exchange rate was replaced with the “floating” Sistema de Divisa Complementaria, or the “DICOM” exchange rate, available for all transactions not subject to the DIPRO exchange rate. In 2016, the DICOM exchange rate was used to complete the majority of FCA Venezuela's transactions to exchange VEF for U.S. Dollars. At December 31, 2016, the DICOM exchange rate of 674 VEF per U.S. Dollar and total re-measurement charges, including the devaluation and the write-down of SICAD receivables, of €19 million were recorded within Cost of revenues in the Consolidated Income StatementGroup entered into agreements for the year ended December 31, 2016.
In February 2015, the SIMADI rate introduced by the Venezuelan government began trading at 170.0 Venezuelan Bolivar (“VEF”) to U.S. Dollar for entities in the private sector. Also in February 2015, the Venezuelan government also announced that the Supplementary Foreign Currency Administration System (“SICAD I”) and the additional system introduced in March 2014 (“SICAD II”) would be merged into the SICAD, a single exchange system, with a rate starting at 12.0 VEF to U.S. Dollar. Assale of March 31, 2015, the SICAD exchange rate was expected to be used to complete the majority of FCA Venezuela's transactions and as such, it was deemed the appropriate rate to use to convert our VEF denominated monetary assets and liabilities to U.S. Dollar. At June 30, 2015, the Group then adopted the SIMADI exchange rate and recorded a re-measurement charge on our VEF denominated net monetary assets in Venezuela of €53 million using an exchange rate of 197.3 VEF per U.S. Dollar. In addition, we recorded a €27 million charge for the write-down of inventory in Venezuela, as due to pricing controls, we were unable to increase VEF sales prices to compensate for the devaluation. The total charge of €80 million was recorded within Cost of revenues in the Consolidated Income Statement for the year ended December 31, 2015.
The following significant transactions with non-controlling interests occurred:
2017
Disposalseveral of the 16.0 percentgroups of the Group's interest in FMM Pernambuco to the minority interest in January 2017,assets within its plastic components and subsequent lossautomotive modules businesses for a total sale price of control during the third quarter of 2017€47.5 million, resulting in a gain on disposal of €19€5 million.
2016Teksid Cast Iron Components Business Held for Sale
During December 2019, FCA announced that it had entered into an agreement with Tupy S.A. for the sale of FCA’s global cast iron automotive components business, which is operated through FCA’s subsidiary Teksid S.p.A.
The proposed sale includes Teksid’s cast iron production facilities in Brazil, Mexico, Poland and Portugal, in addition to Teksid’s interest in a joint venture in China and as a result the related assets and liabilities (€312 million and €204 million at December 31, 2020, respectively) met the criteria to be presented as held for sale from December 31, 2019. The agreement valued the business at €210 million enterprise value. Consideration, subject to customary purchase price adjustments, will be paid at closing, expected by the end of the second quarter of 2021. The proposed transaction is subject to customary closing conditions, including the receipt of antitrust approvals.
Teksid’s aluminum business is not included in the transaction and will remain part of the Group.
Acquisition of the Assets of Vari-Form Inc.
During the year ended December 31, 2019, FCA N.V., through subsidiaries in Canada, Mexico and Italy, entered into asset purchase agreements for the assets of Vari-Form, a vehicle component manufacturer. The most significant element of these transactions was in Canada for an amount of U.S.$62 million (€55 million), the majority of which was allocated to goodwill, recognized within the North America segment.
There were no significant transactions with non-controlling interests.interests during the years ended December 31, 2020, 2019 and 2018.
2015
Acquisition of the remaining 15.2 percent interest in Teksid S.p.A. from Renault in December 2015. As a result, all the rights and obligations arising from the previous shareholder agreement between FCA and Renault, including the put option, were canceled.
Net revenues were as follows:
| | | | Years ended December 31 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | (€ million) | | (€ million) |
| Revenues from: | | | | | | Revenues from: | |
| Sales of goods | € | 107,219 |
| | € | 107,497 |
| | € | 107,095 |
| Sales of goods | € | 82,510 | | | € | 103,019 | | | € | 104,990 | |
| Services provided | 2,217 |
| | 2,237 |
| | 1,600 |
| Services provided | 3,297 | | | 3,961 | | | 3,871 | |
| Contract revenues | 929 |
| | 737 |
| | 1,309 |
| Contract revenues | 547 | | | 672 | | | 958 | |
| Lease installments from assets sold with a buy-back commitment | 421 |
| | 405 |
| | 403 |
| Lease installments from assets sold with a buy-back commitment | 193 | | | 362 | | | 394 | |
| Interest income of financial services activities | 148 |
| | 142 |
| | 188 |
| Interest income of financial services activities | 129 | | | 173 | | | 199 | |
| Total Net revenues | € | 110,934 |
|
| € | 111,018 |
| | € | 110,595 |
| Total Net revenues | € | 86,676 | | | € | 108,187 | | | € | 110,412 | |
Net revenues attributed by geographical area were as follows:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| (€ million) |
| Net revenues in: | | | | | |
North America(1) | € | 60,783 | | | € | 73,848 | | | € | 73,405 | |
| Brazil | 4,518 | | | 7,423 | | | 6,452 | |
| Italy | 5,454 | | | 7,259 | | | 8,815 | |
| France | 2,420 | | | 3,021 | | | 3,204 | |
| Germany | 2,325 | | | 2,519 | | | 2,755 | |
| China | 1,412 | | | 1,753 | | | 1,974 | |
| Spain | 789 | | | 1,200 | | | 1,397 | |
| United Kingdom | 696 | | | 995 | | | 1,136 | |
| Argentina | 772 | | | 861 | | | 1,384 | |
| Japan | 752 | | | 839 | | | 718 | |
| Turkey | 947 | | | 739 | | | 896 | |
| Australia | 322 | | | 320 | | | 418 | |
| Other countries | 5,486 | | | 7,410 | | | 7,858 | |
| Total Net revenues | € | 86,676 | | | € | 108,187 | | | € | 110,412 | |
(1) Refers to the geographical area and not FCA’s North America reporting segment.
Net revenues attributed by segment for the years ended December 31, 2020, 2019 and 2018 were as follows:
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ million) |
| Net revenues in: | | | | | |
| North America | € | 68,374 |
| | € | 71,047 |
| | € | 71,979 |
|
| Italy | 8,755 |
| | 8,478 |
| | 7,165 |
|
| Brazil | 6,406 |
| | 4,953 |
| | 5,103 |
|
| China | 4,240 |
| | 4,493 |
| | 4,720 |
|
| Germany | 3,990 |
| | 4,160 |
| | 3,794 |
|
| France | 3,487 |
| | 3,266 |
| | 2,852 |
|
| Argentina | 1,817 |
| | 1,409 |
| | 1,175 |
|
| Spain | 1,569 |
| | 1,467 |
| | 1,254 |
|
| Turkey | 1,456 |
| | 1,705 |
| | 1,682 |
|
| United Kingdom | 1,366 |
| | 1,632 |
| | 1,744 |
|
| Japan | 816 |
| | 713 |
| | 625 |
|
| Australia | 497 |
| | 473 |
| | 936 |
|
| Other countries | 8,161 |
| | 7,222 |
| | 7,566 |
|
| Total Net revenues | € | 110,934 |
| | € | 111,018 |
| | € | 110,595 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mass-Market Vehicles | | | | | | |
| 2020 | | North America | | LATAM | | APAC | | EMEA | | Maserati | | Other activities | | Total |
| | (€ million) |
| Revenues from: | | | | | | | | | | | | | | |
| Sales of goods | | € | 58,198 | | | € | 5,031 | | | € | 2,250 | | | € | 15,284 | | | € | 1,323 | | | € | 424 | | | € | 82,510 | |
| Services provided | | 2,045 | | | 206 | | | 17 | | | 765 | | | 53 | | | 211 | | | 3,297 | |
| Construction contract revenues | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 547 | | | 547 | |
| Revenues from goods and services | | 60,243 | | | 5,237 | | | 2,267 | | | 16,049 | | | 1,376 | | | 1,182 | | | 86,354 | |
| | | | | | | | | | | | | | |
| Lease installments from assets sold with a buy-back commitment | | 64 | | | 0 | | | 0 | | | 129 | | | 0 | | | 0 | | | 193 | |
| Interest income from financial services activities | | 0 | | | 60 | | | 50 | | | 13 | | | 6 | | | 0 | | | 129 | |
| Total Net revenues | | € | 60,307 | | | € | 5,297 | | | € | 2,317 | | | € | 16,191 | | | € | 1,382 | | | € | 1,182 | | | € | 86,676 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mass-Market Vehicles | | | | | | |
| 2019 | | North America | | LATAM | | APAC | | EMEA | | Maserati | | Other activities | | Total |
| | (€ million) |
| Revenues from: | | | | | | | | | | | | | | |
| Sales of goods | | € | 70,809 | | | € | 8,059 | | | € | 2,674 | | | € | 19,275 | | | € | 1,563 | | | € | 639 | | | € | 103,019 | |
| Services provided | | 2,388 | | | 297 | | | 27 | | | 950 | | | 29 | | | 270 | | | 3,961 | |
| Construction contract revenues | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 672 | | | 672 | |
| Revenues from goods and services | | 73,197 | | | 8,356 | | | 2,701 | | | 20,225 | | | 1,592 | | | 1,581 | | | 107,652 | |
| | | | | | | | | | | | | | |
| Lease installments from assets sold with a buy-back commitment | | 140 | | | 0 | | | 0 | | | 222 | | | 0 | | | 0 | | | 362 | |
| Interest income from financial services activities | | 0 | | | 93 | | | 61 | | | 19 | | | 0 | | | 0 | | | 173 | |
| Total Net revenues | | € | 73,337 | | | € | 8,449 | | | € | 2,762 | | | € | 20,466 | | | € | 1,592 | | | € | 1,581 | | | € | 108,187 | |
5. Research and development costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mass-Market Vehicles | | | | | | |
| 2018 | | North America | | LATAM | | APAC | | EMEA | | Maserati | | Other activities | | Total |
| | (€ million) |
| Revenues from: | | | | | | | | | | | | | | |
| Sales of goods | | € | 69,908 | | | € | 7,756 | | | € | 2,560 | | | € | 21,516 | | | € | 2,606 | | | € | 644 | | | € | 104,990 | |
| Services provided | | 2,287 | | | 270 | | | 21 | | | 945 | | | 39 | | | 309 | | | 3,871 | |
| Construction contract revenues | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 958 | | | 958 | |
| Revenues from goods and services | | 72,195 | | | 8,026 | | | 2,581 | | | 22,461 | | | 2,645 | | | 1,911 | | | 109,819 | |
| | | | | | | | | | | | | | |
| Lease installments from assets sold with a buy-back commitment | | 158 | | | 0 | | | 0 | | | 235 | | | 0 | | | 1 | | | 394 | |
| Interest income from financial services activities | | 0 | | | 116 | | | 65 | | | 18 | | | 0 | | | — | | | 199 | |
| Total Net revenues | | € | 72,353 | | | € | 8,142 | | | € | 2,646 | | | € | 22,714 | | | € | 2,645 | | | € | 1,912 | | | € | 110,412 | |
The FCA Group recognized a net decrease in Net revenues of €130 million during the year ended December 31, 2020 (net decrease in Net revenues of €4 million during the year ended December 31, 2019, net decrease in Net revenues of €14 million during the year ended December 31, 2018) from performance obligations satisfied in the prior year. This was primarily due to changes in the estimated cost of sales incentive programs occurring after FCA had transferred control of vehicles to the dealers.
| | | | | |
| 5. | Research and development costs |
Research and development costs were as follows:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| (€ million) |
| Research and development expenditures expensed | € | 1,226 | | | € | 1,305 | | | € | 1,448 | |
| Amortization of capitalized development expenditures | 1,250 | | | 1,358 | | 1,456 |
| Impairment and write-off of capitalized development expenditures | 503 | | | 949 | | 147 |
| Total Research and development costs | € | 2,979 | |
| € | 3,612 | | | € | 3,051 | |
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ million) |
| Research and development expenditures expensed | € | 1,696 |
| | € | 1,661 |
| | € | 1,449 |
|
| Amortization of capitalized development expenditures | 1,424 |
| | 1,492 |
| | 1,194 |
|
| Impairment and write-off of capitalized development expenditures | 110 |
| | 121 |
| | 221 |
|
| Total Research and development costs | € | 3,230 |
|
| € | 3,274 |
| | € | 2,864 |
|
FRefer to Note 2, Basis of Preparation - 32
TheUse of estimates - Recoverability of non-current assets with definite useful lives for detail on the impairment and write-off of capitalized development expenditures during the yearyears ended December 31, 2017 mainly related to global product portfolio changes in EMEA2020, 2019 and changes in the LATAM product portfolio.2018.
The impairment and write-off of capitalized development expenditures during the year ended December 31, 2016 mainly related to the Group's capacity realignment to SUV production in China, which resulted in an impairment charge of €90 million for the locally produced Fiat Viaggio and Ottimo vehicles.
The impairment and write-off of capitalized development expenditures during the year ended December 31, 2015 mainly related to the Group's plan to realign a portion of its manufacturing capacity in NAFTA to better meet demand for Ram pickup trucks and Jeep vehicles within the Group's existing plant infrastructure, which resulted in an impairment charge of €176 million for capitalized development expenditures that had no future economic benefit.
Refer to Note 10, Other intangible assets,,for information on capitalized development expenditures.
The following table summarizes the FCA Group’s financial income and expenses, included within the Net financial expenses line item:expenses:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| (€ million) |
| Interest income and other financial income | € | 117 | | | € | 261 | | | € | 249 | |
| | | | | |
| Financial expenses: | | | | | |
| Interest expense and other financial expenses: | 596 | | | 784 | | | 929 | |
| Interest expense on notes | 321 | | | 370 | | | 422 | |
| Interest expense on borrowings from bank | 209 | | | 181 | | | 259 | |
| Other interest cost and financial expenses | 66 | | | 233 | | | 248 | |
Interest on lease liabilities(1) | 94 | | | 88 | | | 0 | |
| Write-down of financial assets | 10 | | | 21 | | | 6 | |
| Losses on disposal of securities | 0 | | | 2 | | | 6 | |
| Net interest expense on employee benefits provisions | 218 | | | 298 | | | 276 | |
| Total Financial expenses | 918 | | | 1,193 | | | 1,217 | |
| Net expenses from derivative financial instruments and exchange rate differences | 187 | | | 73 | | | 88 | |
| Total Financial expenses and Net expenses from derivative financial instruments and exchange rate differences | 1,105 | | | 1,266 | | | 1,305 | |
| | | | | |
| Net Financial expenses | € | 988 | | | € | 1,005 | | | € | 1,056 | |
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ million) |
| Interest income and other financial income | € | 182 |
| | € | 226 |
| | € | 365 |
|
| | | | | | |
| Financial expenses: | | | | | |
| Interest expense and other financial expenses: | 1,128 |
| | 1,500 |
| | 2,084 |
|
| Interest expense on notes | 568 |
| | 749 |
| | 1,112 |
|
| Interest expense on borrowings from bank | 372 |
| | 472 |
| | 512 |
|
| Other interest cost and financial expenses | 188 |
| | 279 |
| | 460 |
|
| Write-down of financial assets | 23 |
| | 76 |
| | 43 |
|
| Losses on disposal of securities | 5 |
| | 6 |
| | 28 |
|
| Net interest expense on employee benefits provisions | 310 |
| | 348 |
| | 350 |
|
| Total Financial expenses | 1,466 |
| | 1,930 |
| | 2,505 |
|
| Net expenses from derivative financial instruments and exchange rate differences | 185 |
| | 312 |
| | 226 |
|
| Total Financial expenses and Net expenses from derivative financial instruments and exchange rate differences | 1,651 |
| | 2,242 |
| | 2,731 |
|
| | | | | | |
| Net Financial expenses | € | 1,469 |
| | € | 2,016 |
| | € | 2,366 |
|
Other interest cost and financial expenses for(1) Interest on lease liabilities previously recognized in accordance with IAS 17 during the year ended December 31, 2017 included a loss of €3 million in relation to the prepayment by FCA US in February 2017 of the outstanding principal and accrued interest2018 was not material for its tranche B term loan (refer to Note 21, Debt). Other interest cost and financial expenses for the year ended December 31, 2017 included a gain on extinguishment of debt of €9 million related to the prepayment of all scheduled payments due on the Canada Health Care Trust (“HCT”) Tranche B Note (refer to Note 21, Debt).
Other interest cost and financial expenses for the year ended December 31, 2016 included a loss on extinguishment of debt totaling €10 million related to the U.S.$2.0 billion (€1.8 billion) voluntary prepayment, with cash on hand, of the principal at par of FCA US's tranche B term loan maturing on May 24, 2017 and FCA US's tranche B term loan maturing on December 31, 2018. Other interest cost and financial expenses for the year ended December 31, 2016 also included a loss on extinguishment of debt of €8 million related to the prepayment of all scheduled payments due on the Canada Health Care Trust (“HCT”) Tranche C Note (refer to Note 21, Debt).
reclassification.
Other interest cost and financial expenses for the year ended December 31, 2015 included a loss on extinguishment of debt totaling €168 million related to the prepayment of the secured senior notes of FCA US due in 2019 and 2021.
The following table summarizes Tax expense:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| (€ million) |
| Current tax expense | € | 239 | | | € | 435 | | | € | 592 | |
| Deferred tax expense | 1,231 | | | 872 | | | 520 | |
Tax (benefit)/expense relating to prior periods(1) | (138) | | | 14 | | | (334) | |
| Total Tax expense | € | 1,332 | | | € | 1,321 | | | € | 778 | |
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ million) |
| Current tax expense | € | 901 |
| | € | 869 |
| | € | 445 |
|
| Deferred tax expense/(benefit) | 1,773 |
| | 391 |
| | (277 | ) |
| Tax expense/(benefit) relating to prior periods | (23 | ) | | 32 |
| | (2 | ) |
| Total Tax expense | € | 2,651 |
| | € | 1,292 |
| | € | 166 |
|
The applicable tax rate used to determine the theoretical income taxes was the statutory rate in the United Kingdom (“UK”), the tax jurisdiction in which FCA NV iswas historically resident. The reconciliation between the theoretical income taxes calculated on the basis of the theoretical tax rate of 19.2519.0 percent in 2017 (202020 (19.0 percent in 20162019 and 20.2519.0 percent in 2015)2018) and income taxes recognized wasis as follows:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| (€ million) |
| Theoretical income taxes | € | 259 | | | € | 766 | | | € | 781 | |
| Tax effect on: | | | | | |
| Recognition and utilization of previously unrecognized deferred tax assets | 0 | | | (159) | | | 0 | |
| Permanent differences | (148) | | | (411) | | | (416) | |
| Tax credits | (119) | | | (112) | | | (135) | |
| Deferred tax assets not recognized and write-downs | 1,417 | | | 976 | | | 633 | |
| Differences between foreign tax rates and the theoretical applicable tax rate and tax holidays | 27 | | | 171 | | | 207 | |
| Taxes relating to prior years | (138) | | | 14 | | | (334) | |
| Tax rate changes | (25) | | | 9 | | | 0 | |
| Withholding tax | 27 | | | 41 | | | 41 | |
| Other differences | 15 | | | 20 | | | (15) | |
Total Tax expense, excluding IRAP(1) | 1,315 | | | 1,315 | | | 762 | |
| Effective tax rate | 97.0% | | 32.7% | | 18.5% |
| IRAP (current and deferred) | 17 | | | 6 | | | 16 | |
| Total Tax expense | € | 1,332 | | | € | 1,321 | | | € | 778 | |
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ million) |
| Theoretical income taxes | € | 1,186 |
| | € | 621 |
| | € | 51 |
|
| Tax effect on: | | | | | |
| Recognition and utilization of previously unrecognized deferred tax assets | (164 | ) | | (42 | ) | | (20 | ) |
| Permanent differences | (397 | ) | | (194 | ) | | (36 | ) |
| Tax credits | (23 | ) | | (340 | ) | | (238 | ) |
| Deferred tax assets not recognized and write-downs | 1,092 |
| | 531 |
| | 303 |
|
| Differences between foreign tax rates and the theoretical applicable tax rate and tax holidays | 924 |
| | 587 |
| | 70 |
|
| Taxes relating to prior years | (23 | ) | | 32 |
| | (2 | ) |
| Tax rate changes | (22 | ) | | — |
| | — |
|
| Withholding tax | 83 |
| | 61 |
| | 49 |
|
| Other differences | 0 |
| | (8 | ) | | (36 | ) |
| Total Tax expense, excluding IRAP | 2,656 |
| | 1,248 |
| | 141 |
|
| Effective tax rate | 43.0 | % | | 40.2 | % | | 54.4 | % |
| IRAP (current and deferred) | (5 | ) | | 44 |
| | 25 |
|
| Total Tax expense | € | 2,651 |
| | € | 1,292 |
| | € | 166 |
|
In 2017, the Company recognized Regional Italian Income Tax (“IRAP”) current tax expense of €33 million (and an expense of €36 million in 2016 and an expense of €16 million in 2015) and the recognized IRAP deferred tax benefit of €38 million (an expense of €8 million in 2016 and an expense of €9 million in 2015). As the IRAP taxable basis differs from Profit before taxes, it is excluded from the effective tax rates above.
The increase in the effective tax rate to 43.097.0 percent in 20172020 from 40.232.7 percent in 20162019 was mainly dueprimarily related to (i) reduced generationtax expense related to the write-down of Deferred tax assets in Italy and utilization of tax credits in NAFTABrazil for the three months ended March 31, 2020, as described below; and (ii) a decrease in Brazilian deferredNorth America profit before tax, assets; partially offset by (iii)which significantly impacted the unfavorable effective tax benefits recorded on changes to prior years’rate impact of current year unrecognized Deferred tax positionsassets, primarily in Italy and (iv) improved performance in EMEA and LATAM.Brazil.
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law in the U.S. on December 22, 2017. The Tax Act includes various changes to U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate. The Tax Act also imposes a one-time tax, at a special reduced tax rate, on the deemed repatriation of the post-1986 unremitted earnings from their non-U.S. subsidiaries to the Company’s U.S. subsidiaries.
Based on the information available as of December 31, 2017, the Company estimated net tax expense of €88 million in 2017 for the effects of the changes in the tax rate, which includes an expense of €117 million, primarily related to the deemed repatriation resulting from the Tax Act. The expense may be adjusted, potentially materially, as a result of regulations or regulatory guidance that may be issued, changes in interpretations affecting assumptions underlying the estimate, refinement of our calculations, and actions that may be taken, including actions in response to the Tax Act.
TheFCA Group recognizeshistorically recognized the amount of Deferred tax assets less the Deferred tax liabilities of the individual companies within Deferred tax assets, where these may be offset. Amounts recognized were as follows:
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (€ million) | | (€ million) |
| Deferred tax assets | € | 2,004 |
|
| € | 3,699 |
| Deferred tax assets | € | 1,096 | | | € | 1,689 | |
| Deferred tax liabilities | (388 | ) | | (194 | ) | Deferred tax liabilities | (1,845) | | | (1,628) | |
| Total Net deferred tax assets | € | 1,616 |
| | € | 3,505 |
| |
| Total Net deferred tax (liabilities) assets | | Total Net deferred tax (liabilities) assets | € | (749) | | | € | 61 | |
The decrease inchange from Net deferred tax assets at December 31, 2017 from2019 to Net deferred tax liabilities at December 31, 20162020 was mainly due to (i) a €1,268 million decreasean increase in deferred tax liabilities in North America related to theprovisions, acceleration of tax depreciation and amortization on capital expenditures, partially offset by utilization of U.S. tax credit carryforwards, revaluation of U.S.and a decrease in deferred tax assets and liabilities due to the Tax Act and reductions to other NAFTAof €549 million for deferred tax assets,asset write-downs in Italy and (ii) a €734 million decrease to Brazil, as described in Note 2, Basis of Preparation - Use of estimates - Recoverability of deferred tax assets; partially offset by (iii) a €178 million increase to EMEA deferred tax assets.
The decrease in Deferred tax assets in Brazil was primarily composed of €281 million related to the reversal of the Brazilian indirect tax liability (refer to Note 22, Other liabilities and Tax payables) and €453 million that was written off as the Group revised its outlook on Brazil to reflect the slower pace of recovery and outlook for the subsequent years, largely resulting from increased political uncertainty, and concluded that a portion of the deferred tax assets in Brazil was no longer recoverable.
The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. We estimated the related changes in our deferred tax assets and deferred tax liabilities, which resulted in a €137 million decrease in Net deferred tax liability (€29 million to the Consolidated Income Statement and €108 million to Equity), and a €71 million decrease in Net deferred tax assets recorded to Other Comprehensive Income. The net tax benefit may be revised in future quarters as the related temporary differences are further evaluated.
additional detail.
The significant components of Deferred tax assets and liabilities and their changes during the years ended December 31, 20172020 and 20162019 were as follows:
| | | | At January 1, 2017 | | Recognized in Consolidated Income Statement | | Recognized in Equity | | Translation
differences
and other
changes | | At December 31, 2017 | | At January 1, 2020 | | Recognized in Consolidated Income Statement | | Recognized in Equity | | | Translation
differences
and other
changes | | At December 31, 2020 |
| | (€ million) | | (€ million) |
| Deferred tax assets arising on: | | | | | | | | | | Deferred tax assets arising on: | | | |
| Provisions | € | 6,149 |
| | € | (1,742 | ) | | € | — |
| | € | (559 | ) | | € | 3,848 |
| Provisions | € | 3,673 | | | € | (100) | | | € | 0 | | | | € | (254) | | | € | 3,319 | |
| Provision for employee benefits | 2,851 |
| | (364 | ) | | (16 | ) | | (643 | ) | | 1,828 |
| Provision for employee benefits | 1,470 | | | 51 | | | (10) | | | | (118) | | | 1,393 | |
| Lease liabilities | | Lease liabilities | 369 | | | (20) | | | 0 | | | | 2 | | | 351 | |
| Intangible assets | 211 |
| | (19 | ) | | — |
| | — |
| | 192 |
| Intangible assets | 151 | | | 7 | | | 0 | | | | (25) | | | 133 | |
| Impairment of financial assets | 195 |
| | (25 | ) | | — |
| | (1 | ) | | 169 |
| Impairment of financial assets | 166 | | | (18) | | | 0 | | | | (7) | | | 141 | |
| Inventories | 251 |
| | 3 |
| | — |
| | (2 | ) | | 252 |
| Inventories | 188 | | | 43 | | | 0 | | | | (30) | | | 201 | |
| Allowances for doubtful accounts | 117 |
| | 19 |
| | — |
| | (14 | ) | | 122 |
| Allowances for doubtful accounts | 105 | | | (6) | | | 0 | | | | (35) | | | 64 | |
| Other | 385 |
| | (13 | ) | | (14 | ) | | 29 |
| | 387 |
| Other | 702 | | | 328 | | | (1) | | | | (3) | | | 1,026 | |
| Total Deferred tax assets | € | 10,159 |
| | € | (2,141 | ) | | € | (30 | ) | | € | (1,190 | ) | | € | 6,798 |
| Total Deferred tax assets | € | 6,824 | | | € | 285 | | | € | (11) | | | | € | (470) | | | € | 6,628 | |
| Deferred tax liabilities arising on: | | | | | | | | | | Deferred tax liabilities arising on: | | | |
| Accelerated depreciation | € | (2,770 | ) | | € | 430 |
| | € | — |
| | € | 449 |
| | € | (1,891 | ) | Accelerated depreciation | € | (2,330) | | | € | (164) | | | € | 0 | | | | € | 197 | | | € | (2,297) | |
| Capitalized development assets | (2,742 | ) | | 399 |
| | — |
| | 227 |
| | (2,116 | ) | Capitalized development assets | (2,601) | | | (554) | | | 0 | | | | 157 | | | (2,998) | |
| Other Intangible assets and Intangible assets with indefinite useful lives | (1,493 | ) | | 238 |
| | — |
| | 406 |
| | (849 | ) | Other Intangible assets and Intangible assets with indefinite useful lives | (948) | | | (17) | | | 0 | | | | 82 | | | (883) | |
| Right-of-use assets | | Right-of-use assets | (365) | | | 27 | | | 0 | | | | 32 | | | (306) | |
| Provision for employee benefits | (14 | ) | | (30 | ) | | — |
| | (6 | ) | | (50 | ) | Provision for employee benefits | (77) | | | (3) | | | 31 | | | | (8) | | | (57) | |
| Other | (331 | ) | | 4 |
| | (10 | ) | | 23 |
| | (314 | ) | Other | (247) | | | (147) | | | 5 | | | | 18 | | | (371) | |
| Total Deferred tax liabilities | € | (7,350 | ) | | € | 1,041 |
| | € | (10 | ) | | € | 1,099 |
| | € | (5,220 | ) | Total Deferred tax liabilities | € | (6,568) | | | € | (858) | | | € | 36 | | | | € | 478 | | | € | (6,912) | |
| Deferred tax asset arising on tax loss carry-forwards | € | 4,444 |
| | € | 522 |
| | € | — |
| | € | (248 | ) | | € | 4,718 |
| Deferred tax asset arising on tax loss carry-forwards | € | 4,861 | | | € | 1,017 | | | € | 0 | | | | € | (516) | | | € | 5,362 | |
| Unrecognized deferred tax assets | (3,748 | ) | | (1,195 | ) | | 9 |
| | 254 |
| | (4,680 | ) | Unrecognized deferred tax assets | (5,056) | | | (1,350) | | | 3 | | | | 576 | | | (5,827) | |
| Total Net deferred tax assets | € | 3,505 |
| | € | (1,773 | ) | | € | (31 | ) | | € | (85 | ) | | € | 1,616 |
| |
| Total Net deferred tax assets (liabilities) | | Total Net deferred tax assets (liabilities) | € | 61 | | | € | (906) | | | € | 28 | | | | € | 68 | | | € | (749) | |
| | | | At January 1, 2016 | | Recognized in
Consolidated
Income
Statement | | Recognized in Equity | | Transfer to assets held for sale | | Translation
differences and other
changes | | At December 31, 2016 | | At January 1, 2019 | | Recognized in
Consolidated
Income
Statement | | Recognized in Equity | | Transferred to Assets/(Liabilities) Held for Sale | | Translation
differences and other
changes | | At December 31, 2019 |
| | (€ million) | | (€ million) |
| Deferred tax assets arising on: | | | | | | | | | | Deferred tax assets arising on: | | |
| Provisions | € | 6,028 |
| | € | (4 | ) | | € | — |
| | € | (6 | ) | | € | 131 |
| | € | 6,149 |
| Provisions | € | 4,127 | | | € | (470) | | | € | 0 | | | € | 10 | | | € | 6 | | | € | 3,673 | |
| Provision for employee benefits | 2,866 |
| | (11 | ) | | (263 | ) | | — |
| | 259 |
| | 2,851 |
| Provision for employee benefits | 1,487 | | | (41) | | | 1 | | | 1 | | | 22 | | | 1,470 | |
| Lease liabilities | | Lease liabilities | 260 | | | 106 | | | 0 | | | (1) | | | 4 | | | 369 | |
| Intangible assets | 249 |
| | (42 | ) | | — |
| | — |
| | 4 |
| | 211 |
| Intangible assets | 166 | | | (15) | | | 0 | | | 0 | | | 0 | | | 151 | |
| Impairment of financial assets | 155 |
| | 47 |
| | — |
| | (2 | ) | | (5 | ) | | 195 |
| Impairment of financial assets | 155 | | | (1) | | | 0 | | | 0 | | | 12 | | | 166 | |
| Inventories | 243 |
| | 6 |
| | — |
| | — |
| | 2 |
| | 251 |
| Inventories | 246 | | | (56) | | | 0 | | | 0 | | | (2) | | | 188 | |
| Allowances for doubtful accounts | 87 |
| | 21 |
| | — |
| | (2 | ) | | 11 |
| | 117 |
| Allowances for doubtful accounts | 96 | | | 13 | | | 0 | | | 0 | | | (4) | | | 105 | |
| Other | 691 |
| | (270 | ) | | 64 |
| | — |
| | (100 | ) | | 385 |
| Other | 685 | | | (22) | | | (4) | | | 1 | | | 42 | | | 702 | |
| Total Deferred tax assets | € | 10,319 |
| | € | (253 | ) | | € | (199 | ) | | € | (10 | ) | | € | 302 |
| | € | 10,159 |
| Total Deferred tax assets | € | 7,222 | | | € | (486) | | | € | (3) | | | € | 11 | | | € | 80 | | | € | 6,824 | |
| Deferred tax liabilities arising on: | | | | | | | | | | Deferred tax liabilities arising on: | |
| Accelerated depreciation | € | (2,746 | ) | | € | (53 | ) | | € | — |
| | € | 1 |
| | € | 28 |
| | € | (2,770 | ) | Accelerated depreciation | € | (2,296) | | | € | (33) | | | € | 0 | | | € | (1) | | | € | 0 | | | € | (2,330) | |
| Capitalized development expenditures | (2,376 | ) | | (310 | ) | | — |
| | — |
| | (56 | ) | | (2,742 | ) | Capitalized development expenditures | (2,440) | | | (129) | | | 0 | | | 0 | | | (32) | | | (2,601) | |
| Other Intangible assets and Intangible assets with indefinite useful lives | (1,427 | ) | | 23 |
| | — |
| | 7 |
| | (96 | ) | | (1,493 | ) | Other Intangible assets and Intangible assets with indefinite useful lives | (912) | | | 36 | | | 0 | | | 0 | | | (72) | | | (948) | |
| Right-of-use assets | | Right-of-use assets | (260) | | | (101) | | | 0 | | | 0 | | | (4) | | | (365) | |
| Provision for employee benefits | (14 | ) | | — |
| | 2 |
| | 1 |
| | (3 | ) | | (14 | ) | Provision for employee benefits | (91) | | | (9) | | | 22 | | | 0 | | | 1 | | | (77) | |
| Other | (390 | ) | | 67 |
| | 5 |
| | — |
| | (13 | ) | | (331 | ) | Other | (424) | | | 156 | | | 38 | | | 0 | | | (17) | | | (247) | |
| Total Deferred tax liabilities | € | (6,953 | ) | | € | (273 | ) | | € | 7 |
| | € | 9 |
| | € | (140 | ) | | € | (7,350 | ) | Total Deferred tax liabilities | € | (6,423) | | | € | (80) | | | € | 60 | | | € | (1) | | | € | (124) | | | € | (6,568) | |
| Deferred tax asset arising on tax loss carry-forwards | € | 3,717 |
| | € | 662 |
| | € | — |
| | € | (20 | ) | | € | 85 |
| | € | 4,444 |
| Deferred tax asset arising on tax loss carry-forwards | € | 4,963 | | | € | 106 | | | € | 0 | | | € | 12 | | | € | (220) | | | € | 4,861 | |
| Unrecognized deferred tax assets | (3,183 | ) | | (527 | ) | | — |
| | 20 |
| | (58 | ) | | (3,748 | ) | Unrecognized deferred tax assets | (4,885) | | | (407) | | | 0 | | | (20) | | | 256 | | | (5,056) | |
| Total Net deferred tax assets | € | 3,900 |
| | € | (391 | ) | | € | (192 | ) | | € | (1 | ) | | € | 189 |
| | € | 3,505 |
| Total Net deferred tax assets | € | 877 | | | € | (867) | | | € | 57 | | | € | 2 | | | € | (8) | | | € | 61 | |
As of December 31, 2017,2020, the FCA Group had total Deferred tax assets on deductible temporary differences of €6,798€6,628 million (€10,1596,824 million at December 31, 2016)2019), of which €940€1,072 million was not recognized (€5511,113 million at December 31, 2016)2019). As of December 31, 2017,2020, the FCA Group also had Deferred tax assets on tax loss carry-forwards of €4,718€5,362 million (€4,4444,861 million at December 31, 2016)2019), of which €3,740€4,755 million was not recognized (€3,1973,943 million at December 31, 2016)2019).
As of December 31, 2017,2020, the FCA Group had total Netnet recognized and unrecognized deferred tax assets of €3,256€3,682 million (€2,9023,263 million at December 31, 2016)2019) in Italy primarily attributable to Italian tax loss carry-forwards that cancould be carried forward indefinitely. A deferred tax asset was recognized for Italian tax loss carry-forwards to the extent the realization of the related tax benefit was supported through achievement of the FCA Group’s business plan. The FCA Group has determined that it is probable that sufficient Italian taxable income will be generated in future periods that will allow uscontinued to realize €898 million ofrecognize Italian Net deferred tax assets of €253 million (€750705 million at December 31, 2016).2019) as the FCA Group considered it probable that FCA would have sufficient taxable income in the future that would allow realization of these net deferred tax assets. The utilization of Italian tax loss carry-forwards for which currently no deferred tax asset was recognized was subject to future sustained profitability, as well as, the achievement of taxable income in periods which are beyond the FCA Group’s business plan and therefore this utilization was uncertain. As a result, €2,358€3,429 million of Net deferred tax assets in Italy were not recognized as of December 31, 20172020 (€2,1522,558 million at December 31, 2016)2019).
As of December 31, 2017,2020, the FCA Group had total Netnet recognized and unrecognized deferred tax assets of €1,287€1,692 million in Brazil (€1,2761,888 million at December 31, 2016)2019), primarily attributable to Brazilian tax loss carry-forwards which canthat could be carried forward indefinitely. The Group continues to recognize Brazilian NetAs of December 31, 2020, a deferred tax assets of €148 million (€976 million at December 31, 2016) asasset was not recognized for Brazilian tax loss carry-forwards since the FCA Group considersdid not consider it probable that we will havethere would be sufficient taxable income in the future that willwould allow us to realizerealization of these net deferred tax assets. The utilization of Brazilian tax loss carry-forwards for which currently no deferred tax asset was recognized was subject to future sustained profitability, as well as, the achievement of taxable income in periods which are beyond the FCA Group’s business plan and therefore this utilization was uncertain. As a result,€1,139 €1,692 million of Net deferred tax assets in Brazil, which includeincluded Brazil tax losses, were not recognized as of December 31, 20172020 (€3001,757 million at December 31, 2016)2019).
As of December 31, 2020, the FCA Group had net recognized and unrecognized deferred tax assets of €173 million (€151 million at December 31, 2019) in the UK primarily attributable to UK tax loss carry-forwards that could be carried forward indefinitely. A deferred tax asset was recognized for the UK tax loss carried forwards to the extent the realization of the related tax benefit was supported through generation of taxable income. The FCA Group recognizes UK Net deferred tax assets of €173 million (€151 million at December 31, 2019) as the FCA Group considered it probable that FCA would have sufficient taxable income in the future that would allow realization of these net deferred tax assets.
The realization of these deferred tax assets was sensitive to the assumptions and judgments used in the determination of the taxable income in the future, as well as, FCA’s ability to affect tax planning strategies, as necessary. The deferred tax assets in the UK could be impacted by future reorganizations or changes in tax residency. Certain jurisdictions within EMEA in which the FCA Group operated could begin to generate profits or taxable income in the future. While FCA had not yet recognized all deferred tax assets in these jurisdictions, it was possible FCA’s assessment of realizability could change, resulting in the recognition of additional deferred tax assets in FCA’s Balance Sheet and the related income tax benefit in FCA’s Income Statement. Refer to Note 2, Basis of Preparation - Use of estimates - Recoverability of deferred tax assets for additional detail.
Deferred tax liabilities on the undistributed earnings of subsidiaries have not been recognized, except in cases where it iswas probable the distribution willwould occur in the foreseeable future.
Total gross deductible and taxable temporary differences and accumulated tax losses at December 31, 2017,2020, together with the amounts for which deferred tax assets have not been recognized, analyzed by year of expiration, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year of expiration |
| At December 31, 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Beyond 2024 | | Unlimited/
Indeterminable |
| (€ million) |
| Temporary differences and tax losses relating to corporate taxation: | | | | | | | | | | | | | |
| Deductible temporary differences | € | 26,844 | | | € | 3,449 | | | € | 2,618 | | | € | 2,514 | | | € | 3,282 | | | € | 14,596 | | | € | 385 | |
| Taxable temporary differences | (28,641) | | | (2,871) | | | (2,707) | | | (2,729) | | | (2,787) | | | (14,594) | | | (2,953) | |
| Tax losses | 20,343 | | | 115 | | | 60 | | | 45 | | | 101 | | | 1,576 | | | 18,446 | |
| Amounts for which deferred tax assets were not recognized | (21,440) | | | (344) | | | (103) | | | (75) | | | (839) | | | (3,008) | | | (17,071) | |
| Temporary differences and tax losses relating to corporate taxation | € | (2,894) | | | € | 349 | | | € | (132) | | | € | (245) | | | € | (243) | | | € | (1,430) | | | € | (1,193) | |
| Temporary differences and tax losses relating to local taxation (i.e. IRAP in Italy): | | | | | | | | | | | | | |
| Deductible temporary differences | € | 10,736 | | | € | 1,088 | | | € | 588 | | | € | 551 | | | € | 1,141 | | | € | 7,241 | | | € | 127 | |
| Taxable temporary differences | (9,572) | | | (896) | | | (713) | | | (713) | | | (764) | | | (6,346) | | | (140) | |
| Tax losses | 4,819 | | | 29 | | | 31 | | | 32 | | | 54 | | | 103 | | | 4,570 | |
Amounts for which deferred tax assets
were not recognized | (6,065) | | | (188) | | | (38) | | | (11) | | | (582) | | | (600) | | | (4,646) | |
| Temporary differences and tax losses relating to local taxation | € | (82) | | | € | 33 | | | € | (132) | | | € | (141) | | | € | (151) | | | € | 398 | | | € | (89) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year of expiration |
| | At December 31, 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Beyond 2021 | | Unlimited/
Indeterminable |
| | (€ million) |
| Temporary differences and tax losses relating to corporate taxation: | | | | | | | | | | | | | |
| Deductible temporary differences | € | 28,720 |
| | € | 3,665 |
| | € | 2,974 |
| | € | 2,786 |
| | € | 3,293 |
| | € | 15,512 |
| | € | 490 |
|
| Taxable temporary differences | (23,028 | ) | | (2,390 | ) | | (2,304 | ) | | (2,323 | ) | | (2,324 | ) | | (10,390 | ) | | (3,297 | ) |
| Tax losses | 18,133 |
| | 147 |
| | 142 |
| | 136 |
| | 155 |
| | 3,844 |
| | 13,709 |
|
| Amounts for which deferred tax assets were not recognized | (17,534 | ) | | (640 | ) | | (292 | ) | | (147 | ) | | (649 | ) | | (3,464 | ) | | (12,342 | ) |
| Temporary differences and tax losses relating to corporate taxation | € | 6,291 |
| | € | 782 |
| | € | 520 |
| | € | 452 |
| | € | 475 |
| | € | 5,502 |
| | € | (1,440 | ) |
| Temporary differences and tax losses relating to local taxation (i.e. IRAP in Italy): | | | | | | | | | | | | | |
| Deductible temporary differences | € | 9,657 |
| | € | 1,177 |
| | € | 761 |
| | € | 599 |
| | € | 1,149 |
| | € | 5,909 |
| | € | 62 |
|
| Taxable temporary differences | (7,993 | ) | | (691 | ) | | (658 | ) | | (671 | ) | | (681 | ) | | (5,153 | ) | | (139 | ) |
| Tax losses | 3,715 |
| | 53 |
| | 36 |
| | 33 |
| | 120 |
| | 2,902 |
| | 571 |
|
Amounts for which deferred tax assets
were not recognized | (4,439 | ) | | (398 | ) | | (157 | ) | | (82 | ) | | (635 | ) | | (2,601 | ) | | (566 | ) |
| Temporary differences and tax losses relating to local taxation | € | 940 |
| | € | 141 |
| | € | (18 | ) | | € | (121 | ) | | € | (47 | ) | | € | 1,057 |
| | € | (72 | ) |
8. | | | | | |
| 8. | Other information by nature |
Personnel costs for the continuing operations of the FCA Group for the years ended December 31, 2017, 20162020, 2019 and 20152018 amounted to €13.2€10.3 billion, €13.2€11.4 billion and €13.4€11.7 billion, respectively, and included costs that were capitalized mainly in connection with product development activities.
For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, the continuing operations of the FCA Group had an average number of employees of 237,150, 235,481191,705, 198,772 and 236,559,203,122, respectively.
Amounts relating to IFRS 16 recognized in Profit before taxes 9. Amounts recognized within Profit before taxes for the year ended December 31, 2020 were as follows:
| | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2020 | | 2019 |
| | (€ million) |
| Depreciation of right-of-use assets | | € | 403 | | | € | 346 | |
| Interest expense on lease liabilities | | 94 | | | 88 | |
| Variable lease payments not included in the measurement of lease liabilities | | 2 | | | 3 | |
| Income from sub-leasing right-of-use assets | | (88) | | | (85) | |
| Expenses relating to short-term leases and to leases of low-value assets | | 78 | | | 186 | |
| Gains arising from sale and leaseback transactions | | (94) | | | (91) | |
| Total expense recognized in Net profit from continuing operations | | € | 395 | | | € | 447 | |
| | | | | |
| 9. | Goodwill and intangible assets with indefinite useful lives |
Goodwill and intangible assets with indefinite useful lives at December 31, 20172020 and 20162019 are summarized below:
|
| | | | | | | | | | | |
| | At January 1, 2017 | | Translation
differences and Other | | At December 31, 2017 |
| | (€ million) |
| Gross amount | € | 12,299 |
| | € | (1,449 | ) | | € | 10,850 |
|
| Accumulated impairment losses | (482 | ) | | 28 |
| | (454 | ) |
| Goodwill | 11,817 |
| | (1,421 | ) | | 10,396 |
|
| Brands | 3,405 |
| | (411 | ) | | 2,994 |
|
| Total Goodwill and intangible assets with indefinite useful lives | € | 15,222 |
| | € | (1,832 | ) | | € | 13,390 |
|
|
| | | | | | | | | | | | | | | |
| |
At January 1, 2016 | | Translation
differences | | Transfer to Assets held for sale | | At December 31, 2016 |
| | (€ million) |
| Gross amount | € | 11,966 |
| | € | 387 |
| | € | (54 | ) | | € | 12,299 |
|
| Accumulated impairment losses | (469 | ) | | (13 | ) | | — |
| | (482 | ) |
| Goodwill | 11,497 |
| | 374 |
| | (54 | ) | | 11,817 |
|
| Brands | 3,293 |
| | 112 |
| | — |
| | 3,405 |
|
| Total Goodwill and intangible assets with indefinite useful lives | € | 14,790 |
| | € | 486 |
| | € | (54 | ) | | € | 15,222 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Goodwill | | | | |
| | Gross amount | | Accumulated impairment losses | | Total Goodwill | | Brands | | Total Goodwill and intangible assets with indefinite useful lives |
| | (€ million) |
| At January 1, 2019 | | € | 11,254 | | | € | (420) | | | € | 10,834 | | | € | 3,136 | | | € | 13,970 | |
| Additions | | 34 | | | 0 | | | 34 | | | 0 | | | 34 | |
| Transfers to Assets held for sale | | (11) | | | 0 | | | (11) | | | 0 | | | (11) | |
| Translation differences and Other | | 162 | | | 46 | | | 208 | | | 56 | | | 264 | |
| At December 31, 2019 | | 11,439 | | | (374) | | | 11,065 | | | 3,192 | | | 14,257 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Translation differences and Other | | (1,190) | | | 256 | | | (934) | | | (268) | | | (1,202) | |
| At December 31, 2020 | | € | 10,249 | | | € | (118) | | | € | 10,131 | | | € | 2,924 | | | € | 13,055 | |
Translation differences in 20172020 and 20162019 primarily related to foreign currency translationtransaction of the U.S. Dollar to the Euro.
Brands
Brands, composed of the Chrysler, Jeep, Dodge, Ram and Mopar brands, resulted from the acquisition of FCA US and are allocated to the NAFTANorth America segment. These rights are protected legally through registration with government agencies and through thetheir continuous use in commerce. As these rights have no legal, contractual, competitive or economic term that limits their useful lives, they arewere classified as intangible assets with indefinite useful lives and arewere therefore not amortized but are instead tested annually for impairment.
For the purpose of impairment testing, the carrying value of Brands iswas historically tested jointly with the goodwill allocated to the NAFTANorth America segment.
Goodwill
At December 31, 2017,2020, Goodwill included €10,311€10,078 million from the acquisition of FCA US (€11,73111,008 million at December 31, 2016)2019). At December 31, 2016, €542020, Goodwill included €32 million (€34 million at December 31, 2019) from the acquisition of goodwill was classified within Assets held for sale as a result of Itedi meeting the held for sale criteria (seeVari-Form (refer to Note 3, Scope of consolidation).
There were no0 impairment charges recognized in respect of Goodwill and intangible assets with indefinite lives during the years ended December 31, 2017, 20162020, 2019 and 2015.2018. Refer to Note 2, Basis of preparation - Use of estimates for discussion of the assumptions and judgments relating to goodwill impairment testing.
The following table summarizes the allocation of Goodwill between FCA's reportable segments:
| | | | | | | | | | | |
| At December 31, |
| 2020 | | 2019 |
| (€ million) |
| North America | € | 8,294 | | | € | 9,059 | |
| APAC | 1,074 | | | 1,174 | |
| LATAM | 515 | | | 563 | |
| EMEA | 248 | | | 269 | |
| Other activities | 0 | | | 0 | |
| Total Goodwill | € | 10,131 | | | € | 11,065 | |
|
| | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | (€ million) |
| NAFTA | € | 8,453 |
| | € | 9,618 |
|
| APAC | 1,099 |
| | 1,250 |
|
| LATAM | 529 |
| | 602 |
|
| EMEA | 253 |
| | 285 |
|
| Components | 62 |
| | 62 |
|
| Total Goodwill | € | 10,396 |
| | € | 11,817 |
|
10. Other intangible assets
|
| | | | | | | | | | | | | | | | | | | |
| | Externally
acquired
development
expenditures | | Internally
generated development expenditures | | Patents,
concessions, licenses and credits | | Other
intangible
assets | | Total |
| | (€ million) |
| Gross carrying amount at January 1, 2016 | € | 9,262 |
| | € | 6,487 |
| | € | 3,120 |
| | € | 701 |
| | € | 19,570 |
|
| Additions | 1,546 |
| | 1,012 |
| | 490 |
| | 58 |
| | 3,106 |
|
| Divestitures | (1 | ) | | (49 | ) | | (80 | ) | | (7 | ) | | (137 | ) |
| Translation differences and other changes | 265 |
| | 217 |
| | 22 |
| | 87 |
| | 591 |
|
| Transfer to Assets held for sale | — |
| | — |
| | — |
| | (38 | ) | | (38 | ) |
| At December 31, 2016 | 11,072 |
| | 7,667 |
| | 3,552 |
| | 801 |
| | 23,092 |
|
| Additions | 1,997 |
| | 589 |
| | 356 |
| | 65 |
| | 3,007 |
|
| Divestitures | (289 | ) | | (40 | ) | | (16 | ) | | (1 | ) | | (346 | ) |
| Translation differences and other changes | (967 | ) | | (130 | ) | | (309 | ) | | (61 | ) | | (1,467 | ) |
| At December 31, 2017 | 11,813 |
| | 8,086 |
| | 3,583 |
| | 804 |
| | 24,286 |
|
Accumulated amortization and impairment losses
at January 1, 2016 | 3,993 |
| | 3,617 |
| | 1,583 |
| | 431 |
| | 9,624 |
|
| Amortization | 962 |
| | 530 |
| | 210 |
| | 56 |
| | 1,758 |
|
| Impairment losses and asset write-offs | 29 |
| | 92 |
| | — |
| | 1 |
| | 122 |
|
| Divestitures | — |
| | (37 | ) | | (20 | ) | | (6 | ) | | (63 | ) |
| Translation differences and other changes | 108 |
| | 86 |
| | 35 |
| | 31 |
| | 260 |
|
| Transfer to Assets held for sale | — |
| | — |
| | — |
| | (31 | ) | | (31 | ) |
| At December 31, 2016 | 5,092 |
| | 4,288 |
| | 1,808 |
| | 482 |
| | 11,670 |
|
| Amortization | 829 |
| | 595 |
| | 371 |
| | 61 |
| | 1,856 |
|
| Impairment losses and asset write-offs | 52 |
| | 58 |
| | — |
| | — |
| | 110 |
|
| Divestitures | (289 | ) | | (35 | ) | | (10 | ) | | — |
| | (334 | ) |
| Translation differences and other changes | (315 | ) | | (73 | ) | | (140 | ) | | (30 | ) | | (558 | ) |
| At December 31, 2017 | 5,369 |
| | 4,833 |
| | 2,029 |
| | 513 |
| | 12,744 |
|
| Carrying amount at December 31, 2016 | € | 5,980 |
| | € | 3,379 |
| | € | 1,744 |
| | € | 319 |
| | € | 11,422 |
|
| Carrying amount at December 31, 2017 | € | 6,444 |
| | € | 3,253 |
| | € | 1,554 |
| | € | 291 |
| | € | 11,542 |
|
| | | | | |
| 10. | Other intangible assets |
Additions included capitalized | | | | | | | | | | | | | | | | | | | | | | | |
| Capitalized development expenditures | | Patents, concessions, licenses and credits | | Other
intangible
assets | | Total |
| (€ million) |
| Gross carrying amount at January 1, 2019 | € | 20,228 | | | € | 3,999 | | | € | 636 | | | € | 24,863 | |
| Additions | 2,889 | | | 600 | | | 67 | | | 3,556 | |
| Divestitures | (338) | | | (127) | | | (82) | | | (547) | |
| Transfer to Assets held for sale | 0 | | | (3) | | | (16) | | | (19) | |
| Translation differences and other changes | 147 | | | 103 | | | (5) | | | 245 | |
| At December 31, 2019 | 22,926 | | | 4,572 | | | 600 | | | 28,098 | |
| Additions | 2,640 | | | 745 | | | 177 | | | 3,562 | |
| Divestitures | (81) | | | (134) | | | (173) | | | (388) | |
| Transfer to Assets held for sale | 0 | | | 0 | | | 0 | | | 0 | |
| Translation differences and other changes | (1,327) | | | (333) | | | (50) | | | (1,710) | |
| At December 31, 2020 | 24,158 | | | 4,850 | | | 554 | | | 29,562 | |
| Accumulated amortization and impairment losses at January 1, 2019 | 10,403 | | | 2,362 | | | 349 | | | 13,114 | |
| Amortization | 1,358 | | | 426 | | | 48 | | | 1,832 | |
| Impairment losses and asset write-offs | 949 | | | 0 | | | 4 | | | 953 | |
| Divestitures | (337) | | | (2) | | | (8) | | | (347) | |
| Transfer to Assets held for sale | 0 | | | (3) | | | (13) | | | (16) | |
| Translation differences and other changes | 46 | | | 72 | | | (3) | | | 115 | |
| At December 31, 2019 | 12,419 | | | 2,855 | | | 377 | | | 15,651 | |
| Amortization | 1,250 | | | 408 | | | 32 | | | 1,690 | |
| Impairment losses and asset write-offs | 503 | | | 0 | | | 1 | | | 504 | |
| Divestitures | (53) | | | 0 | | | (15) | | | (68) | |
| Transfer to Assets held for sale | 0 | | | 0 | | | 0 | | | 0 | |
| Translation differences and other changes | (519) | | | (194) | | | (21) | | | (734) | |
| At December 31, 2020 | 13,600 | | | 3,069 | | | 374 | | | 17,043 | |
| Carrying amount at December 31, 2019 | € | 10,507 | | | € | 1,717 | | | € | 223 | | | € | 12,447 | |
| Carrying amount at December 31, 2020 | € | 10,558 | | | € | 1,781 | | | € | 180 | | | € | 12,519 | |
Capitalized development expenditures of €2,586 million (€2,558 million in 2016),included both internal and external costs that were directly attributable to the internal product development process, primarily consisting 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 2017, €1102020, €504 million of impairment losses and asset write-offs were recognized, as described inrefer to Note 5, Research and development costs.
In 2016,2, Use of estimates - Recoverability of non-current assets with definite useful lives for further information on the total €122 million impairment losses and asset write-offs €90recognized.
In 2019, €953 million related toof impairment losses and asset write-offs were recognized, including a total of €813 million of impairment losses and asset write-offs resulting from rationalization of product portfolio plans, primarily for Europe in the locally produced Fiat Viaggio and Ottimo vehiclesA-segment as well as for Alfa Romeo resulted in China, as described in Note 5, Research and development costs.the recognition of asset impairment charges for certain platforms.
Translation differences primarily related to foreign currency translation of the U.S. Dollar to the Euro and of the Brazilian Real to the Euro.
Amortization of internally and externally generated intangible assets iscapitalized development expenditures was recognized within Research and development costs within the Consolidated Income Statement, as described in Note 5,Research and development costs. Amortization of Patents, concessions, licenses and credits and Other intangibles are recognized within Cost of revenues and Selling, general and other costs.
At December 31, 20172020 and 2016,2019, the FCA Group had contractual commitments for the purchase of intangible assets amounting to €601€624 million (refer to Note 25, Guarantees granted, commitments and €417contingent liabilities for further information on the FCA Group's contractual commitments for the purchase of regulatory emission credits) and €1,419 million, respectively.
11. | | | | | |
| 11. | Property, plant and equipment |
Property, plant and equipment comprises owned and leased assets that do not meet the definition of investment property under IAS 40 - Investment Property. The FCA Group historically leased assets including land, industrial buildings, plant machinery and equipment, and other assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Land | | Industrial
buildings | | Plant, machinery and equipment | | Other
assets | | Advances and
tangible assets in progress | | Total |
| (€ million) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Gross carrying amount at January 1, 2019 | € | 877 | | | € | 9,227 | | | € | 50,094 | | | € | 2,944 | | | € | 1,528 | | | € | 64,670 | |
| Additions | 33 | | | 274 | | | 1,587 | | | 222 | | | 3,287 | | | 5,403 | |
| Divestitures | (40) | | | (46) | | | (1,135) | | | (124) | | | (3) | | | (1,348) | |
| Change in the scope of consolidation | 0 | | | 0 | | | 63 | | | 0 | | | 1 | | | 64 | |
| | | | | | | | | | | |
| Translation differences | 8 | | | 96 | | | 507 | | | 45 | | | 19 | | | 675 | |
| Transfer to Assets held for sale | (15) | | | (149) | | | (502) | | | (17) | | | (23) | | | (706) | |
| Other changes | 36 | | | 25 | | | 857 | | | (4) | | | (886) | | | 28 | |
| At December 31, 2019 | 899 | | | 9,427 | | | 51,471 | | | 3,066 | | | 3,923 | | | 68,786 | |
| Additions | 16 | | | 928 | | | 2,793 | | | 258 | | | 1,605 | | | 5,600 | |
| Divestitures | (2) | | | (54) | | | (884) | | | (245) | | | (4) | | | (1,189) | |
| Change in the scope of consolidation | 0 | | | (8) | | | 0 | | | 0 | | | 0 | | | (8) | |
| | | | | | | | | | | |
| Translation differences | (87) | | | (849) | | | (3,682) | | | (246) | | | (376) | | | (5,240) | |
| Transfer to Assets held for sale | 0 | | | (14) | | | (2) | | | 0 | | | 0 | | | (16) | |
| Other changes | 45 | | | (86) | | | 523 | | | (7) | | | (546) | | | (71) | |
| At December 31, 2020 | 871 | | | 9,344 | | | 50,219 | | | 2,826 | | | 4,602 | | | 67,862 | |
| Accumulated depreciation and impairment losses at January 1, 2019 | 32 | | | 3,365 | | | 32,032 | | | 1,855 | | | 10 | | | 37,294 | |
| Depreciation | 3 | | | 411 | | | 2,876 | | | 323 | | | 0 | | | 3,613 | |
| Divestitures | (2) | | | (32) | | | (1,098) | | | (115) | | | 0 | | | (1,247) | |
| Impairment losses and asset write-offs | 0 | | | 2 | | | 618 | | | 16 | | | 0 | | | 636 | |
| Change in the scope of consolidation | 0 | | | 0 | | | 11 | | | 0 | | | 0 | | | 11 | |
| Translation differences | 0 | | | 29 | | | 305 | | | 25 | | | 0 | | | 359 | |
| Transfer to Assets held for sale | (3) | | | (107) | | | (384) | | | (17) | | | (1) | | | (512) | |
| Other changes | 0 | | | 9 | | | 19 | | | (4) | | | 0 | | | 24 | |
| At December 31, 2019 | 30 | | | 3,677 | | | 34,379 | | | 2,083 | | | 9 | | | 40,178 | |
| Depreciation | 1 | | | 427 | | | 2,695 | | | 330 | | | 0 | | | 3,453 | |
| Divestitures | 0 | | | (8) | | | (845) | | | (234) | | | (2) | | | (1,089) | |
| Impairment losses and asset write-offs | 0 | | | 3 | | | 402 | | | 5 | | | 0 | | | 410 | |
| Change in the scope of consolidation | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Translation differences | 0 | | | (253) | | | (2,160) | | | (170) | | | 0 | | | (2,583) | |
| Transfer to Assets held for sale | 0 | | | (9) | | | (2) | | | 0 | | | 0 | | | (11) | |
| Other changes | (1) | | | (53) | | | (17) | | | (8) | | | 1 | | | (78) | |
| At December 31, 2020 | 30 | | | 3,784 | | | 34,452 | | | 2,006 | | | 8 | | | 40,280 | |
| Carrying amount at December 31, 2019 | € | 869 | | | € | 5,750 | | | € | 17,092 | | | € | 983 | | | € | 3,914 | | | € | 28,608 | |
| Carrying amount at December 31, 2020 | € | 841 | | | € | 5,560 | | | € | 15,767 | | | € | 820 | | | € | 4,594 | | | € | 27,582 | |
Included within the total €27,582 million Property, plant and equipment amounts presented above was owned property, plant and equipment of €25,958 million and right-of-use assets of €1,624 million at December 31, 2020.
Included within the total €28,608 million Property, plant and equipment amounts presented above was owned property, plant and equipment of €26,987 million and right-of-use assets of €1,621 million at December 31, 2019.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Land | | Industrial
buildings | | Plant, machinery and equipment | | Other
assets | | Advances and
tangible assets in progress | | Total |
| | (€ million) |
| Gross carrying amount at January 1, 2016 | € | 900 |
| | € | 8,108 |
| | € | 43,908 |
| | € | 2,734 |
| | € | 4,086 |
| | € | 59,736 |
|
| Additions | 6 |
| | 303 |
| | 3,330 |
| | 453 |
| | 1,617 |
| | 5,709 |
|
| Divestitures | (11 | ) | | (22 | ) | | (729 | ) | | (70 | ) | | (11 | ) | | (843 | ) |
| Translation differences | 57 |
| | 431 |
| | 1,749 |
| | 120 |
| | 225 |
| | 2,582 |
|
| Transfer to Assets held for sale | — |
| | — |
| | (92 | ) | | (10 | ) | | — |
| | (102 | ) |
| Other changes | (4 | ) | | 110 |
| | 2,223 |
| | (4 | ) | | (2,269 | ) | | 56 |
|
| At December 31, 2016 | 948 |
| | 8,930 |
| | 50,389 |
| | 3,223 |
| | 3,648 |
| | 67,138 |
|
| Additions | 20 |
| | 256 |
| | 3,768 |
| | 187 |
| | 1,428 |
| | 5,659 |
|
| Divestitures | (11 | ) | | (17 | ) | | (1,163 | ) | | (88 | ) | | (4 | ) | | (1,283 | ) |
| Change in the scope of consolidation | (2 | ) | | (104 | ) | | (618 | ) | | (21 | ) | | (5 | ) | | (750 | ) |
| Translation differences | (71 | ) | | (639 | ) | | (3,167 | ) | | (301 | ) | | (325 | ) | | (4,503 | ) |
| Other changes | 1 |
| | 68 |
| | 1,844 |
| | 3 |
| | (1,930 | ) | | (14 | ) |
| At December 31, 2017 | 885 |
| | 8,494 |
| | 51,053 |
| | 3,003 |
| | 2,812 |
| | 66,247 |
|
| Accumulated depreciation and impairment losses at January 1, 2016 | 44 |
| | 2,782 |
| | 28,000 |
| | 1,443 |
| | 13 |
| | 32,282 |
|
| Depreciation | — |
| | 309 |
| | 3,582 |
| | 307 |
| | — |
| | 4,198 |
|
| Divestitures | (5 | ) | | (12 | ) | | (697 | ) | | (63 | ) | | (1 | ) | | (778 | ) |
| Impairment losses and asset write-offs | — |
| | 44 |
| | 25 |
| | 1 |
| | 3 |
| | 73 |
|
| Translation differences | 2 |
| | 93 |
| | 875 |
| | 64 |
| | 1 |
| | 1,035 |
|
| Transfer to Assets held for sale | — |
| | — |
| | (77 | ) | | (8 | ) | | — |
| | (85 | ) |
| Other changes | — |
| | (3 | ) | | (14 | ) | | — |
| | (1 | ) | | (18 | ) |
| At December 31, 2016 | 41 |
| | 3,213 |
| | 31,694 |
| | 1,744 |
| | 15 |
| | 36,707 |
|
| Depreciation | — |
| | 313 |
| | 3,440 |
| | 279 |
| | — |
| | 4,032 |
|
| Divestitures | (2 | ) | | (11 | ) | | (1,126 | ) | | (78 | ) | | — |
| | (1,217 | ) |
| Impairment losses and asset write-offs | 1 |
| | 22 |
| | 83 |
| | 6 |
| | 7 |
| | 119 |
|
| Change in the scope of consolidation | (1 | ) | | (76 | ) | | (287 | ) | | (18 | ) | | — |
| | (382 | ) |
| Translation differences | (1 | ) | | (163 | ) | | (1,693 | ) | | (152 | ) | | (1 | ) | | (2,010 | ) |
| Other changes | (1 | ) | | — |
| | (29 | ) | | 19 |
| | (5 | ) | | (16 | ) |
| At December 31, 2017 | 37 |
| | 3,298 |
| | 32,082 |
| | 1,800 |
| | 16 |
| | 37,233 |
|
| Carrying amount at December 31, 2016 | € | 907 |
| | € | 5,717 |
| | € | 18,695 |
| | € | 1,479 |
| | € | 3,633 |
| | € | 30,431 |
|
| Carrying amount at December 31, 2017 | € | 848 |
| | € | 5,196 |
| | € | 18,971 |
| | € | 1,203 |
| | € | 2,796 |
| | € | 29,014 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Land | | Industrial buildings | | Plant, machinery and equipment | | Other assets | | Total |
| | (€ million) |
| Balance at January 1, 2019 | | 26 | | | 1,085 | | | 206 | | | 78 | | | 1,395 | |
| Depreciation | | (3) | | | (150) | | | (100) | | | (93) | | | (346) | |
| Additions | | 11 | | | 167 | | | 236 | | | 163 | | | 577 | |
| Change in the scope of consolidation | | 0 | | | 18 | | | 26 | | | 0 | | | 44 | |
| Translation differences | | 1 | | | 24 | | | 2 | | | 1 | | | 28 | |
| Other | | (28) | | | (24) | | | (21) | | | (4) | | | (77) | |
| Balance at December 31, 2019 | | 7 | | | 1,120 | | | 349 | | | 145 | | | 1,621 | |
| Depreciation | | (1) | | | (159) | | | (102) | | | (141) | | | (403) | |
| Additions | | 11 | | | 284 | | | 80 | | | 199 | | | 574 | |
| | | | | | | | | | |
| Translation differences | | (1) | | | (90) | | | (27) | | | (14) | | | (132) | |
| Other | | 0 | | | (25) | | | (7) | | | (4) | | | (36) | |
| Balance at December 31, 2020 | | € | 16 | | | € | 1,130 | | | € | 293 | | | € | 185 | | | € | 1,624 | |
For the year ended December 31, 2017,2020, the FCA Group recognized a total of €119€410 million of impairment losses and asset write-offs. Refer to Note 2, Basis of Preparation - Use of estimates - Recoverability of non-current assets with definite useful lives, for further information on the impairment losses and asset write-offs recognized.
For the year ended December 31, 2019, the FCA Group recognized a total of €636 million of impairment losses and asset write-offs, of which €21 million related to certain of FCA Venezuela's assets due to the continued deterioration of the economic conditions in Venezuela prior to deconsolidation. The remaining impairment losses relates to changes in global product portfolio in EMEA and product portfolio changes in LATAM.
For the year ended December 31, 2016, the Group recognizedincluding a total of €73€563 million resulting from rationalization of product portfolio plans, primarily for Europe in the A-segment as well as for Alfa Romeo resulted in the recognition of asset impairment lossescharges for certain platforms. Refer to Note 2, Basis of Preparation - Use of estimates - Recoverability of non-current assets with definite useful lives for additional detail regarding the assumptions and asset write-offs, of which €43 million related to certain of FCA Venezuela'sjudgments used when testing these assets due to the continued deterioration of the economic conditions in Venezuela. Thisfor impairment.
These impairment charge wascharges were recognized within Selling, administrative and other expensesCost of revenues in the Consolidated Income Statement for the yearyears ended December 31, 2016.2020, and 2019.
In 2017,2020, translation differences of €2,493€2,657 million primarily reflected the weakeningforeign currency transaction impacts of U.S. Dollar to the U.S Dollar, Mexican PesoEuro and the Brazilian Real against the Euro. In 2016, translation differences of €1,547 million mainly reflected the strengthening of the Brazilian Real andto the Euro. In 2019, translation differences of €316 million primarily reflected the foreign currency transaction impacts of U.S. Dollar againstto the Euro.
The net carrying amount of assets leased under finance lease agreements includes assets that are legally ownedEuro, partially offset by suppliers but which are recognized in the Consolidated Financial Statements in accordance with IFRIC 4 - Determining Whether an Arrangement Contains a Lease, with the recognition of a corresponding financial lease payable, as the arrangement conveys a right to control the use of a specific asset even if that asset is not explicitly referred to in the arrangement. The total net carrying amount of assets leased under finance lease agreements included in Property, plant and equipment were as follows:
|
| | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | (€ million) |
| Industrial buildings | € | 209 |
| | € | 251 |
|
| Plant, machinery and equipment | 193 |
| | 602 |
|
| Total Property, plant and equipment under finance lease | € | 402 |
| | € | 853 |
|
The carrying amounts of Property, plant and equipment of the FCA Group (excluding FCA US)the Right-of-Use assets described above) reported as pledged as security for debt and other commitments, primarily relating to FCA operations in Brazil, are summarized as follows:
|
| | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | (€ million) |
| Land and industrial buildings pledged as security for debt | € | 1,031 |
| | € | 1,239 |
|
| Plant and machinery pledged as security for debt and other commitments | 1,324 |
| | 698 |
|
| Other assets pledged as security for debt and other commitments | 17 |
| | 3 |
|
| Total Property, plant and equipment pledged as security for debt | € | 2,372 |
| | € | 1,940 |
|
Information on the assets of FCA US subject to lien is set out in Note 21, Debt. | | | | | | | | | | | |
| At December 31, |
| 2020 | | 2019 |
| (€ million) |
| Land and industrial buildings pledged as security for debt | € | 535 | | | € | 777 | |
| Plant and machinery pledged as security for debt and other commitments | 571 | | | 855 | |
| Other assets pledged as security for debt and other commitments | 2 | | | 5 | |
| Total Property, plant and equipment pledged as security for debt and other commitments | € | 1,108 | | | € | 1,637 | |
At December 31, 20172020 and 2016,2019, the GroupFCA had contractual commitments for the purchase of Property, plant and equipment amounting to €540€1,009 million and €950€1,255 million, respectively.
12. Investments accounted for using the equity method
| | | | | |
| 12. | Investments accounted for using the equity method |
The following table summarizes Investments accounted for using the equity method:
|
| | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | (€ million) |
| Joint ventures | € | 1,866 |
| | € | 1,680 |
|
| Associates | 94 |
| | 62 |
|
| Other | 48 |
| | 51 |
|
| Total Investments accounted for using the equity method | € | 2,008 |
|
| € | 1,793 |
|
| | | | | | | | | | | |
| At December 31, |
| 2020 | | 2019 |
| (€ million) |
| Joint ventures | € | 1,965 | | | € | 1,871 | |
| Associates | 75 | | | 94 | |
| Other | 46 | | | 44 | |
| Total Investments accounted for using the equity method | € | 2,086 | | | € | 2,009 | |
FCA's ownership percentages and the carrying value of investments in joint ventures accounted for under the equity method were as follows:
| |
| Ownership percentage |
| Investment balance | | Ownership percentage | | Investment balance |
| At December 31 |
| At December 31 | | At December 31, | | At December 31, |
| 2017 |
| 2016 |
| 2017 |
| 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
| Joint ventures | Ownership percentage |
| (€ million) | Joint ventures | Ownership percentage | | (€ million) |
| FCA Bank S.p.A. | 50% |
| 50% |
| € | 1,178 |
|
| € | 1,044 |
| FCA Bank S.p.A. | 50.0% | | 50.0% | | € | 1,738 | | | € | 1,501 | |
| Tofas-Turk Otomobil Fabrikasi A.S. | 37.9% |
| 37.9% |
| 298 |
|
| 302 |
| Tofas-Turk Otomobil Fabrikasi A.S. | 37.9% | | 37.9% | | 181 | | | 240 | |
| GAC Fiat Chrysler Automobiles Co. | 50% |
| 50% |
| 287 |
|
| 237 |
| GAC Fiat Chrysler Automobiles Co. | 50.0% | | 50.0% | | 18 | | | 107 | |
| Others |
| |
| 103 |
|
| 97 |
| Others | | 28 | | | 23 | |
| Total |
| |
| € | 1,866 |
|
| € | 1,680 |
| Total | | € | 1,965 | | | € | 1,871 | |
FCA Bank, is a joint venture with Crédit Agricole Consumer Finance S.A. (“CACF”) which operates, historically operated in Europe, primarily in Italy, France, Germany, UK and Spain. In July 2013, the Group reached an agreement with Crédit Agricole to extend the term of the joint venture through to December 31, 2021. FCA Bank providesprovided retail and dealer financing and long-term rental services in the automotive sector, directly or through its subsidiaries as a partner of the FCA Group's mass-market vehicle brands and for Maserati vehicles. On July 19, 2019, FCA and Crédit Agricole Consumer Finance agreed to extend the term until December 31, 2024, with automatic renewal unless notice of non-renewal is provided no later than three years before end of the term. A notice of non-renewal would trigger certain put and call rights.
The financial statements of FCA Bank as at and for the year ended December 31, 20172020 have not been authorized for issuance as of the date of issuance of the FCA Consolidated Financial Statements. As such, the most recent publicly available financial information is included in the tables below.
The most recently available information was used to estimate FCA's share of FCA Bank net income and net equity. Any difference between this data and actual results will be adjusted in the 2018 FCA Consolidated Financial Statements when available.
The following tables include summarized financial information relating to FCA Bank:
|
| | | | | | | | |
| | | At June 30, 2017 | | At December 31, 2016 |
| |
| | | (€ million) |
| | Financial assets | € | 21,867 |
| | € | 20,201 |
|
| | Of which: Cash and cash equivalents | — |
| | — |
|
| | Other assets | 3,378 |
| | 3,083 |
|
| | Financial liabilities | 21,557 |
| | 19,887 |
|
| | Other liabilities | 1,265 |
| | 1,159 |
|
| | Equity (100%) | 2,423 |
| | 2,238 |
|
| | Net assets attributable to owners of the parent | 2,382 |
| | 2,199 |
|
| | Group's share of net assets | 1,191 |
| | 1,100 |
|
| | Elimination of unrealized profits and other adjustments | (13 | ) | | (56 | ) |
| | Carrying amount of interest in FCA Bank(1) | € | 1,178 |
| | € | 1,044 |
|
| | | | | | | | | | | |
| At June 30, 2020 | | At December 31, 2019 |
|
| (€ million) |
| Financial assets | € | 24,721 | | | € | 26,583 | |
| Of which: Cash and cash equivalents | 620 | | | 585 | |
| Other assets | 5,253 | | | 5,123 | |
| Financial liabilities | 25,145 | | | 27,029 | |
| Other liabilities | 1,454 | | | 1,506 | |
| Equity (100%) | 3,375 | | | 3,171 | |
| Net assets attributable to owners of the parent | 3,317 | | | 3,116 | |
| | | |
| Carrying amount of interest in FCA Bank | | | |
| Group's share of net assets | 1,659 | | | 1,558 | |
| Elimination of unrealized profits and other adjustments | 79 | | | (57) | |
Carrying amount of interest in FCA Bank(1) | € | 1,738 | | | € | 1,501 | |
________________________(1) Amounts as at December 31, 20172020 and 20162019 respectively.
| | | | Six months ended June 30 | | Years ended December 31 | | Six months ended June 30 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | (€ million) | | (€ million) |
| Interest and similar income | € | 437 |
| | € | 764 |
| | € | 729 |
| Interest and similar income | € | 441 | | | € | 930 | | | € | 903 | |
| Interest and similar expenses | (147 | ) | | (263 | ) | | (285 | ) | Interest and similar expenses | 116 | | | 237 | | | (242) | |
| Income tax expense | (70 | ) | | (105 | ) | | (110 | ) | Income tax expense | 75 | | | 171 | | | (159) | |
| Profit from continuing operations | 190 |
| | 312 |
| | 249 |
| Profit from continuing operations | 225 | | | 467 | | | 388 | |
| Net profit | 190 |
| | 312 |
| | 249 |
| Net profit | 225 | | | 467 | | | 388 | |
| | Net profit attributable to owners of the parent (A) | 188 |
| | 309 |
| | 248 |
| Net profit attributable to owners of the parent (A) | 222 | | | 460 | | | 383 | |
| Other comprehensive income/(loss) attributable to owners of the parent (B) | (7 | ) | | (64 | ) | | 29 |
| Other comprehensive income/(loss) attributable to owners of the parent (B) | (21) | | | 7 | | | (5) | |
| Total Comprehensive income attributable to owners of the parent (A+B) | € | 181 |
| | € | 245 |
| | € | 277 |
| Total Comprehensive income attributable to owners of the parent (A+B) | € | 201 | | | € | 467 | | | € | 378 | |
Group’s share of net profit(1) | € | 190 |
| | € | 154 |
| | € | 124 |
| Group’s share of net profit(1) | € | 247 | | | € | 229 | | | € | 192 | |
(1) Amounts for the years ended December 31, 2017, 20162020, 2019 and 20152018 respectively
Tofas-Turk Otomobil Fabrikasi A.S. (“Tofas”), is aFCA’s joint venture with Koç Holding, which is registered with the Turkish Capital Market Board and listed on the İstanbul Stock Exchange. At December 31, 2017,2020, the fair value of the FCA Group’s interest in Tofas was €1,375€713 million (€1,258764 million at December 31, 2016)2019).
GAC Fiat Chrysler Automobiles Co. (“GAC FCA JV”) is a, FCA’s joint venture with Guangzhou Automobile Group Co., Ltd., whichhistorically locally producesproduced Jeep vehicles for the Chinese market.
The FCA Group's proportionate share of the earnings of ourits joint ventures, associates and interests in unconsolidated subsidiaries accounted for using the equity method is reflectedincluded within Result from investments in the Consolidated Income Statement. The following table summarizes the share of profits of equity method investees included within Result from investments:investments:
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ million) |
| Joint Ventures | € | 390 |
| | € | 291 |
| | € | 155 |
|
| Associates | 9 |
| | 7 |
| | (27 | ) |
| Other | 10 |
| | 15 |
| | 2 |
|
| Total Share of the profit of equity method investees | € | 409 |
| | € | 313 |
| | € | 130 |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| (€ million) |
| Joint Ventures | € | 185 | | | € | 200 | | | € | 221 | |
| Associates | (8) | | | (2) | | | 6 | |
| Other | 7 | | | 10 | | | 13 | |
| Total Share of the profit of equity method investees | € | 184 | | | € | 208 | | | € | 240 | |
Immaterial Joint Ventures and Associates
The aggregate amounts recognized for the FCA Group’s share in all individually immaterial joint ventures and associates accounted for using the equity method were as follows:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| (€ million) |
| Joint ventures: | | | | | |
| (Loss)/profit from continuing operations | € | (62) | | | € | (28) | | | € | 27 | |
| Net (loss)/profit | (62) | | | (28) | | | 27 | |
| Other comprehensive loss | (80) | | | (19) | | | (91) | |
| Total Other comprehensive (loss)/income | € | (142) | | | € | (47) | | | € | (64) | |
| | | | | |
| Associates: | | | | | |
| (Loss)/income from continuing operations | € | (8) | | | € | (2) | | | € | 6 | |
| Net (loss)/income | (8) | | | (2) | | | 6 | |
| Other comprehensive loss | (9) | | | 0 | | | (3) | |
| Total Other comprehensive (loss)/income | € | (17) | | | € | (2) | | | € | 3 | |
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ million) |
| Joint ventures: | | | | | |
| Profit from continuing operations | € | 201 |
| | € | 137 |
| | € | 31 |
|
| Net profit | 201 |
| | 137 |
| | 31 |
|
| Other comprehensive income/(loss) | (105 | ) | | (90 | ) | | (30 | ) |
| Total Other comprehensive income | € | 96 |
| | € | 47 |
| | € | 1 |
|
| | | | | | |
| Associates: | | | | | |
| Income/(loss) from continuing operations | € | 9 |
| | € | 7 |
| | € | (27 | ) |
| Net income/(loss) | 9 |
| | 7 |
| | (27 | ) |
| Other comprehensive income/(loss) | (3 | ) | | (1 | ) | | 3 |
|
| Total Other comprehensive income/(loss) | € | 6 |
| | € | 6 |
| | € | (24 | ) |
13. | | | | | |
| 13. | Other Financial assets |
Other financial assets consisted of the following:
| | | | | At December 31 | | At December 31, |
| | | 2017 | | 2016 | | 2020 | | 2019 |
| | Note | | Current | | Non-current | | Total | | Current | | Non-current | | Total | | Note | | Current | | Non-current | | Total | | Current | | Non-current | | Total |
| | | (€ million) | | | | (€ million) |
| Derivative financial assets | 16 | | € | 265 |
| | € | 19 |
| | € | 284 |
| | € | 448 |
| | € | 31 |
| | € | 479 |
| Derivative financial assets | 16 | | € | 501 | | | € | 128 | | | € | 629 | | | € | 93 | | | € | 5 | | | € | 98 | |
| Debt securities measured at fair value through other comprehensive income | 23 | | 4 |
| | — |
| | 4 |
| | 38 |
| | — |
| | 38 |
| Debt securities measured at fair value through other comprehensive income | 23 | | 64 | | | 0 | | | 64 | | | 0 | | | 0 | | | 0 | |
| Debt securities measured at fair value through profit or loss | 23 | | 172 |
| | 59 |
| | 231 |
| | 203 |
| | 60 |
| | 263 |
| Debt securities measured at fair value through profit or loss | 23 | | 226 | | | 0 | | | 226 | | | 233 | | | 0 | | | 233 | |
| Debt securities held-to-maturity | | — |
| | 2 |
| | 2 |
| | — |
| | 2 |
| | 2 |
| |
| Equity instruments measured at cost | | — |
| | 43 |
| | 43 |
| | — |
| | 41 |
| | 41 |
| |
| Debt securities measured at amortized cost | | Debt securities measured at amortized cost | | 8 | | | 0 | | | 8 | | | 297 | | | 2 | | | 299 | |
| | Equity instruments measured at fair value through other comprehensive income | 23 | | — |
| | 23 |
| | 23 |
| | — |
| | 151 |
| | 151 |
| Equity instruments measured at fair value through other comprehensive income | 23 | | 0 | | | 31 | | | 31 | | | 0 | | | 37 | | | 37 | |
| Held-for-trading investments | 23 | | 46 |
| | — |
| | 46 |
| | 49 |
| | — |
| | 49 |
| |
| Equity instruments mandatorily designated at fair value through profit and loss | | Equity instruments mandatorily designated at fair value through profit and loss | 23 | | 52 | | | 12 | | | 64 | | | 47 | | | 12 | | | 59 | |
| | Financial receivables | | — |
| | 275 |
| | 275 |
| | — |
| | 320 |
| | 320 |
| Financial receivables | | 0 | | | 128 | | | 128 | | | 0 | | | 242 | | | 242 | |
Collateral deposits(1) | 23 | | — |
| | 61 |
| | 61 |
| | 24 |
| | 44 |
| | 68 |
| Collateral deposits(1) | 23 | | 0 | | | 32 | | | 32 | | | 0 | | | 42 | | | 42 | |
| Total Other financial assets | | € | 487 |
| | € | 482 |
| | € | 969 |
| | € | 762 |
| | € | 649 |
| | € | 1,411 |
| Total Other financial assets | | € | 851 | | | € | 331 | | | € | 1,182 | | | € | 670 | | | € | 340 | | | € | 1,010 | |
(1) Collateral deposits are held in connection with derivative transactions and debt obligationsobligations.
On March 21, 2017, the Group completed the sale of its available-for-sale investment in CNH Industrial N.V. (“CNHI”), which consisted of 15,948,275 common shares representing 1.17 percent of CNHI’s common shares for an amount of €144 million. The sale did not result in a material gain. The additional 15,948,275 special voting shares owned by the Group and which had not been attributed any value, expired upon the sale of the CNHI common shares. At December 31, 2016, the available-for-sale investment in CNHI had a carrying value of €132 million.
14. Inventories
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (€ million) | | (€ million) |
| Finished goods and goods for resale | € | 8,261 |
| | € | 7,888 |
| Finished goods and goods for resale | € | 3,962 | | | € | 5,600 | |
| Work-in-progress, raw materials and manufacturing supplies | 4,476 |
| | 4,168 |
| Work-in-progress, raw materials and manufacturing supplies | 3,912 | | | 3,928 | |
| Amount due from customers for contract work | 185 |
| | 65 |
| Amount due from customers for contract work | 220 | | | 194 | |
| Total Inventories | € | 12,922 |
| | € | 12,121 |
| Total Inventories | € | 8,094 | | | € | 9,722 | |
The amount of inventory write-downs recognized primarily within Cost of revenues during the years ended December 31, 2017, 20162020, 2019 and 20152018 was €659€639 million, €637€647 million and €653€669 million, respectively.
The amount due from customers for contract work relatesConstruction contracts, net asset/(liability) related to the design and production of industrial automation systems and related products and is summarized as follows:
| | | | | | | | | | | |
| At December 31, |
| 2020 | | 2019 |
| (€ million) |
| Aggregate amount of costs incurred and recognized profits (less recognized losses) to date | € | 543 | | | € | 826 | |
| Less: Progress billings | 358 | | | 715 | |
| Construction contracts, net asset/(liability) | 185 | | | 111 | |
| Construction contract assets | 220 | | | 194 | |
| Less: Construction contract liabilities (Note 22) | 35 | | | 83 | |
| Construction contracts, net asset/(liability) | € | 185 | | | € | 111 | |
Changes in the FCA Group's construction contracts, net asset/(liability) for the year ended December 31, 2020, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At January 1, 2020 | | Advances received from customers | | Amounts recognized within revenue | | | | | | At December 31, 2020 |
| (€ million) |
| Construction contracts, net asset/(liability) | € | 111 | | | € | (473) | | | € | 547 | | | | | | | € | 185 | |
At December 31, 2020, the entire amount of Construction contracts, net asset/(liability) was expected to be recognized as revenue in the following 12 months.
|
| | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | (€ million) |
| Aggregate amount of costs incurred and recognized profits (less recognized losses) to date | € | 881 |
| | € | 959 |
|
| Less: Progress billings | (886 | ) | | (1,130 | ) |
| Construction contracts, net of advances on contract work | (5 | ) | | (171 | ) |
| Amount due from customers for contract work | 185 |
| | 65 |
|
Less: Amount due to customers for contract work included in Other
liabilities (current) (Note 22) | (190 | ) | | (236 | ) |
| Construction contracts, net of advances on contract work | € | (5 | ) | | € | (171 | ) |
15. Trade, other receivables and tax receivables | | | | | |
| 15. | Trade, other receivables and Tax receivables |
The following table summarizes Trade, other receivables and taxTax receivables by due date:
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | Total due within one year (current) | | Due between one and five years | | Due beyond five years | | Total due after one year (non-current) | | Total | | Total due within one year (current) | | Due between one and five years | | Due beyond five years | | Total due after one year (non-current) | | Total | | Total due within one year (current) | | Due between one and five years | | Due beyond five years | | Total due after one year (non-current) | | Total | | Total due within one year (current) | | Due between one and five years | | Due beyond five years | | Total due after one year (non-current) | | Total |
| | (€ million) | | (€ million) |
| Trade receivables | € | 2,460 |
| | € | — |
| | € | — |
| | € | — |
| | € | 2,460 |
| | € | 2,479 |
| | € | — |
| | € | — |
| | € | — |
| | € | 2,479 |
| Trade receivables | € | 1,581 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 1,581 | | | € | 2,064 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 2,064 | |
| Receivables from financing activities | 2,946 |
| | 194 |
| | — |
| | 194 |
| | 3,140 |
| | 2,407 |
| | 171 |
| | — |
| | 171 |
| | 2,578 |
| Receivables from financing activities | 2,159 | | | 249 | | | 8 | | | 257 | | | 2,416 | | | 2,855 | | | 294 | | | 6 | | | 300 | | | 3,155 | |
| Other receivables | 2,481 |
| | 414 |
| | 58 |
| | 472 |
| | 2,953 |
| | 2,387 |
| | 308 |
| | 102 |
| | 410 |
| | 2,797 |
| Other receivables | 1,805 | | | 1,378 | | | 86 | | | 1,464 | | | 3,269 | | | 1,709 | | | 695 | | | 1,381 | | | 2,076 | | | 3,785 | |
| Total Trade and other receivables | € | 7,887 |
| | € | 608 |
| | € | 58 |
| | € | 666 |
| | € | 8,553 |
| | € | 7,273 |
| | € | 479 |
| | € | 102 |
| | € | 581 |
| | € | 7,854 |
| Total Trade and other receivables | € | 5,545 | | | € | 1,627 | | | € | 94 | | | € | 1,721 | | | € | 7,266 | | | € | 6,628 | | | € | 989 | | | € | 1,387 | | | € | 2,376 | | | € | 9,004 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tax receivables | € | 215 |
| | € | 62 |
| | € | 21 |
| | € | 83 |
| | € | 298 |
| | € | 206 |
| | € | 71 |
| | € | 22 |
| | € | 93 |
| | € | 299 |
| Tax receivables | € | 89 | | | € | 78 | | | € | 17 | | | € | 95 | | | € | 184 | | | € | 372 | | | € | 51 | | | € | 43 | | | € | 94 | | | € | 466 | |
Trade receivables
Trade receivables are shown net of an ECL allowance, calculated using the allowance for doubtful accounts, which is calculated on the basis of historical losses on receivables.simplified approach. Changes in the allowance for trade receivables were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At January 1, 2020 | | Provision | | Use and
other changes | | Transferred to Assets held for sale | | At December 31, 2020 |
| (€ million) |
| ECL allowance - Trade receivables | € | 237 | | | € | 31 | | | € | (43) | | | € | 0 | | | € | 225 | |
|
| | | | | | | | | | | | | | | |
| | At January 1, 2017 | | Provision | | Use and
other changes | | At December 31, 2017 |
| | (€ million) |
| Allowance for doubtful accounts | € | 275 |
| | € | 76 |
| | € | (82 | ) | | € | 269 |
|
The following table provides information about the exposure to credit risk and ECLs for trade receivables:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | Current and less than 90 days past due | | 90 days or more past due | | Total | | Current and less than 90 days past due | | 90 days or more past due | | Total |
| | (€ million) |
| Gross amount | | € | 1,551 | | | € | 243 | | | € | 1,794 | | | € | 1,989 | | | € | 293 | | | € | 2,282 | |
| ECL allowance | | (42) | | | (183) | | | (225) | | | (53) | | | (184) | | | (237) | |
| Carrying amount | | € | 1,509 | | | € | 60 | | | € | 1,569 | | | € | 1,936 | | | € | 109 | | | € | 2,045 | |
In addition to the amounts above, a further €12 million at December 31, 2020 (€19 million at December 31, 2019) of trade receivables were measured at FVPL. Refer to Note 23, Fair value measurement.
Receivables from financing activities
Receivables from financing activities mainly relate to the business of financial services companies fully consolidated by the FCA Group and are summarized as follows.follows:
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (€ million) | | (€ million) |
| Dealer financing | € | 2,295 |
| | € | 2,115 |
| Dealer financing | € | 1,538 | | | € | 2,317 | |
| Retail financing | 420 |
| | 286 |
| Retail financing | 512 | | | 613 | |
| Finance leases | 4 |
| | 6 |
| Finance leases | 6 | | | 3 | |
| Other | 421 |
| | 171 |
| Other | 360 | | | 222 | |
| Total Receivables from financing activities | € | 3,140 |
|
| € | 2,578 |
| Total Receivables from financing activities | € | 2,416 | | | € | 3,155 | |
Receivables from financing activities are shown net of an allowance for doubtful accounts determined on the basis of specific insolvency risks.ECL allowance. Changes in the allowance for receivables from financing activities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At January 1, 2020 | | Provision | | Use and
other changes | | Transferred to Assets held for sale | | At December 31, 2020 |
| (€ million) |
| ECL allowance - Receivables from financing activities | € | 23 | | | € | 40 | | | € | (46) | | | € | — | | | € | 17 | |
|
| | | | | | | | | | | | | | | |
| | At January 1, 2017 | | Provision | | Use and
other changes | | At December 31, 2017 |
| | (€ million) |
| Allowance for Receivables from financing activities | € | 45 |
| | € | 66 |
| | € | (66 | ) | | € | 45 |
|
Receivables for dealerfrom financing are typically generated by salesactivities of vehiclesan immaterial amount were written off during the year ended December 31, 2020, and are generally managed under dealer networkstill subject to enforcement activities.
The following table provides information about the exposure to credit risk and ECLs for receivables from financing programs asactivities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | | Stage 1 | | Stage 2 | | Stage 3 | | Total |
| | (€ million) |
| Gross amount | | € | 1,878 | | | € | 53 | | | € | 29 | | | € | 1,960 | | | € | 2,369 | | | € | 194 | | | € | 35 | | | € | 2,598 | |
| ECL allowance | | (8) | | | (1) | | | (8) | | | (17) | | | (10) | | | (2) | | | (11) | | | (23) | |
| Carrying amount | | € | 1,870 | | | € | 52 | | | € | 21 | | | € | 1,943 | | | € | 2,359 | | | € | 192 | | | € | 24 | | | € | 2,575 | |
In addition to the amounts above, a componentfurther €473 million at December 31, 2020 (€580 million at December 31, 2019) 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 countryfinancing activities were measured at FVPL. Refer to country, although payment terms range from two to six months.Note 23, Fair value measurement.
Other receivables
At December 31, 2017,2020, Other receivables primarily consisted of tax receivables for VAT and other indirect taxes of €2,153€2,296 million (€1,9332,866 million at December 31, 2016)2019).
As disclosed in Note 22, Other liabilities and Tax liabilities, during 2017, the Brazilian Supreme Court ruled that state value added tax should be excluded from the basis for calculating a federal tax on revenue, a decision which was subsequently appealed. In March 2019, a final and definitive favorable decision was made in respect of the COFINS over ICMS element of the litigation, relating to amounts previously paid but not recovered for the period between May 2004 to December 2014. During 2019, total credits and the related receivable of €164 million were recognized, which were excluded from Adjusted EBIT (refer to Note 28, Segment reporting). On December 17, 2019, the Brazilian courts indicated that it would render a decision on the Brazilian government’s appeal regarding the 2017 Supreme Court’s decision with respect to the calculation of the state value added tax in the basis for federal tax on revenue on April 1, 2020, which has been subsequently postponed.
Transfer of financial assets
At December 31, 2017,2020, the FCA Group had receivables due after that date amounting to €6,233 million (€7,301 million at December 31, 2019) which had been transferred without recourse and which were derecognized in accordance with IAS 39IFRS 9 – Financial Instruments: Recognition and Measurement, amounting to €7,866 million (€6,573 million at December 31, 2016)Instruments. The transfers related to trade receivables and other receivables for €6,752€5,399 million (€5,4675,777 million at December 31, 2016)2019) and receivables from financing activities for €1,114€834 million (€1,1061,524 million at December 31, 2016)2019). These amounts included receivables of €4,933€3,812 million (€4,0774,686 million at December 31, 2016)2019), mainly due from the sales network, transferred to FCA Bank, FCA’s jointly controlled financial services companies (FCA Bank).
company.
At December 31, 20172020 and 2016,2019, the carrying amount of transferred financial assets not derecognized and the related liabilities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2020 | | 2019 |
| Trade receivables | | Receivables
from
financing
activities | | Total | | Trade
receivables | | Receivables
from
financing
activities | | Total |
| (€ million) |
| Carrying amount of assets transferred and not derecognized | € | 6 | | | € | 35 | | | € | 41 | | | € | 11 | | | € | 140 | | | € | 151 | |
| Carrying amount of the related liabilities (Note 21) | € | 6 | | | € | 35 | | | € | 41 | | | € | 11 | | | € | 140 | | | € | 151 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Trade receivables | | Receivables
from financing
activities | | Total | | Trade receivables | | Receivables
from financing
activities | | Total |
| | (€ million) |
| Carrying amount of assets transferred and not derecognized | € | 22 |
| | € | 335 |
| | € | 357 |
| | € | 34 |
| | € | 376 |
| | € | 410 |
|
| Carrying amount of the related liabilities (Note 21) | € | 22 |
| | € | 335 |
| | € | 357 |
| | € | 34 |
| | € | 376 |
| | € | 410 |
|
16. Derivative financial assets and liabilities | | | | | |
| 16. | Derivative financial assets and liabilities |
The following table summarizes the fair value of the FCA Group's derivative financial assets and liabilities:
|
| | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Positive fair
value | | Negative fair
value | | Positive fair
value | | Negative fair
value |
| | (€ million) |
| Fair value hedges: | | | | | | | |
| Interest rate risk - interest rate swaps | € | 2 |
| | € | — |
| | € | 31 |
| | € | (1 | ) |
Interest rate and exchange rate risk - combined interest rate
and currency swaps | — |
| | — |
| | — |
| | (115 | ) |
| Total Fair value hedges | 2 |
| | — |
| | 31 |
| | (116 | ) |
| Cash flow hedges: | | | | | | | |
Currency risks - forward contracts, currency swaps and
currency options | 100 |
| | (95 | ) | | 213 |
| | (304 | ) |
| Interest rate risk - interest rate swaps | 4 |
| | (7 | ) | | — |
| | — |
|
Interest rate and currency risk - combined interest rate and
currency swaps | 9 |
| | — |
| | 87 |
| | — |
|
| Commodity price risk – commodity swaps and commodity options | 30 |
| | (1 | ) | | 21 |
| | (2 | ) |
| Total Cash flow hedges | 143 |
| | (103 | ) | | 321 |
| | (306 | ) |
| Net investment hedges: | | | | | | | |
Currency risks - forward contracts, currency swaps and currency options | 5 |
| | — |
| | — |
| | (47 | ) |
| Total Net investment hedges | 5 |
| | — |
| | — |
| | (47 | ) |
| Derivatives for trading | 134 |
| | (36 | ) | | 127 |
| | (228 | ) |
| Total Fair value of derivative financial assets/(liabilities) | € | 284 |
| | € | (139 | ) | | € | 479 |
| | € | (697 | ) |
| Financial derivative assets/(liabilities) - current | € | 265 |
| | € | (138 | ) | | € | 448 |
| | € | (681 | ) |
| Financial derivative assets/(liabilities) - non-current | € | 19 |
| | € | (1 | ) | | € | 31 |
| | € | (16 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2020 | | 2019 |
| Positive fair
value | | Negative fair
value | | Positive fair
value | | Negative fair
value |
| (€ million) |
| Fair value hedges: | | | | | | | |
| Interest rate risk - interest rate swaps | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | |
| | | | | | | |
| Total Fair value hedges | 0 | | | 0 | | | 0 | | | 0 | |
| Cash flow hedges: | | | | | | | |
| Currency risks - forward contracts, currency swaps and currency options | 149 | | | (139) | | | 34 | | | (81) | |
| Interest rate risk - interest rate swaps | 0 | | | (228) | | | 0 | | | (180) | |
| Interest rate and currency risk - combined interest rate and currency swaps | 138 | | | (26) | | | 0 | | | — | |
| Commodity price risk – commodity swaps and commodity options | 97 | | | (9) | | | 21 | | | (6) | |
| Total Cash flow hedges | 384 | | | (402) | | | 55 | | | (267) | |
| Net investment hedges: | | | | | | | |
| Currency risks - forward contracts, currency swaps and currency options | 0 | | | 0 | | | 0 | | | 0 | |
| Total Net investment hedges | 0 | | | 0 | | | 0 | | | 0 | |
| Derivatives for trading | 245 | | | (231) | | | 43 | | | (51) | |
| Total Fair value of derivative financial assets/(liabilities) | € | 629 | | | € | (633) | | | € | 98 | | | € | (318) | |
| Financial derivative assets/(liabilities) - current | € | 501 | | | € | (353) | | | € | 93 | | | € | (194) | |
| Financial derivative assets/(liabilities) - non-current | € | 128 | | | € | (280) | | | € | 5 | | | € | (124) | |
The following table summarizes the outstanding notional amounts of the FCA Group's derivative financial instruments by due date:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, |
| 2020 | | 2019 |
| Due within one year | | Due between one and
five
years | | Due beyond
five
years | | Total | | Due within one year | | Due between
one and
five
years | | Due
beyond
five
years | | Total |
| (€ million) |
| Currency risk management | € | 15,151 | | | € | 317 | | | € | 0 | | | € | 15,468 | | | € | 11,259 | | | € | 30 | | | € | 0 | | | € | 11,289 | |
| Interest rate risk management | 701 | | | 889 | | | 1,956 | | | 3,546 | | | 1,105 | | | 1,700 | | | 0 | | | 2,805 | |
| Interest rate and currency risk management | 6 | | | 16 | | | 978 | | | 1,000 | | | 9 | | | 22 | | | 0 | | | 31 | |
| Commodity price risk management | 1,133 | | | 86 | | | 0 | | | 1,219 | | | 523 | | | 27 | | | 0 | | | 550 | |
| Other derivative financial instruments | 14 | | | 0 | | | 0 | | | 14 | | | 0 | | | 14 | | | 0 | | | 14 | |
| Total Notional amount | € | 17,005 | | | € | 1,308 | | | € | 2,934 | | | € | 21,247 | | | € | 12,896 | | | € | 1,793 | | | € | 0 | | | € | 14,689 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Due within one year | | Due between one and
five
years | | Due beyond
five
years | | Total | | Due within one year | | Due between
one and
five
years | | Due
beyond
five
years | | Total |
| | (€ million) |
| Currency risk management | € | 14,142 |
| | € | 154 |
| | € | — |
| | € | 14,296 |
| | € | 18,668 |
| | € | 311 |
| | € | — |
| | € | 18,979 |
|
| Interest rate risk management | 1,581 |
| | 1,753 |
| | 101 |
| | 3,435 |
| | 855 |
| | 795 |
| | — |
| | 1,650 |
|
| Interest rate and currency risk management | — |
| | 291 |
| | 71 |
| | 362 |
| | 928 |
| | 305 |
| | 82 |
| | 1,315 |
|
| Commodity price risk management | 455 |
| | 6 |
| | — |
| | 461 |
| | 450 |
| | 44 |
| | — |
| | 494 |
|
| Other derivative financial instruments | — |
| | 14 |
| | — |
| | 14 |
| | — |
| | 14 |
| | — |
| | 14 |
|
| Total Notional amount | € | 16,178 |
| | € | 2,218 |
| | € | 172 |
| | € | 18,568 |
| | € | 20,901 |
| | € | 1,469 |
| | € | 82 |
| | € | 22,452 |
|
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) arewere recognized in accordance with fair value hedge accounting.
The following table summarizesaccounting and the gains and losses arising from the respective hedged items:items are summarized as follows:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| (€ million) |
| Currency risk | | | | | |
| Net gains/(losses) on qualifying hedges | € | 0 | | | € | 0 | | | € | 0 | |
| Fair value changes in hedged items | 0 | | | 0 | | | 0 | |
| Interest rate risk | | | | | |
| Net (losses) on qualifying hedges | 0 | | | 0 | | | (2) | |
| Fair value changes in hedged items | 0 | | | 0 | | | 2 | |
| Net gains/(losses) | € | 0 | | | € | 0 | | | € | 0 | |
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ million) |
| Currency risk | | | | | |
| Net gains/(losses) on qualifying hedges | € | 104 |
| | € | (13 | ) | | € | (49 | ) |
| Fair value changes in hedged items | (104 | ) | | 13 |
| | 49 |
|
| Interest rate risk | | | | | |
| Net (losses) on qualifying hedges | (9 | ) | | (26 | ) | | (34 | ) |
| Fair value changes in hedged items | 10 |
| | 26 |
| | 34 |
|
| Net gains/(losses) | € | 1 |
| | € | — |
| | € | — |
|
Cash flow hedges
Amounts recognized in the Consolidated Income Statement mainly relaterelated to currency risk management and, to a lesser extent, to hedges regarding commodity price risk management and cash flows that arewere exposed to interest rate risk.
The FCA Group's policy for managing currency risk normally requiresrequired hedging of projected future 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 iswas recorded in Other comprehensive income withinthe Cash flow hedge reserve within Other comprehensive (loss)/income and willwould be subsequently recognized in the Consolidated Income Statement, primarily during the following year.
Derivatives relating to interest rate and currency risk management arewere treated as cash flow hedges and arewere entered into for the purpose of hedging notes issued in foreign currencies. The amount recorded in Other comprehensive income and within the Cash flow hedge reserve iswas recognized in the Consolidated Income Statement according to the timing of the cash flows of the underlying notes.
TheIn 2017, the FCA Group entered in interest rate swaps in order to hedge against the increase in interest rates in relation to future Debt. Thedebt issuances. In 2019 and in 2018, the maturity dates for a portion of these interest rate swaps arewere extended. In 2020, the FCA Group issued bonds denominated in Euro, with part of the funding swapped to U.S. dollar with combined interest rate and currency swaps. Both interest rate swaps and combined interest rate and currency swaps were designated as a cash flow hedge. For the year ended December 31, 2017,2020 losses of €3€178 million related(for the year ended December 31, 2019 losses of €167 million and for the year ended December 31, 2018 gains of €31 million) relating to such derivatives were recognized in the Cash flow hedge reserve within Other comprehensive (loss)/income withinincome. For the year ended December 31, 2020 net losses of €20 million related to ineffectiveness were recognized in the Consolidated Income Statement (net losses of €17 million for the year ended December 31, 2019, net gains of €5 million for the year ended December 31, 2018).
The FCA Group reclassified gains/(losses) arising on Cash flow hedge Reserve.
The following table summarizes the amounts,hedges, net of the tax that were reclassifiedeffect, from Other comprehensive (loss)/income and Inventories to the Consolidated Income Statement in respect of cash flow hedges:as follows:
| | | | Years ended December 31 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | (€ million) | | (€ million) |
| Currency risk | | | | | | Currency risk | |
| Increase in Net revenues | € | 16 |
| | € | 236 |
| | € | 33 |
| |
| (Increase)/Decrease in Cost of revenues | (103 | ) | | (44 | ) | | 101 |
| |
| Increase/(decrease) in Net revenues | | Increase/(decrease) in Net revenues | € | 28 | | | € | (27) | | | € | 100 | |
| Decrease/(increase) in Cost of revenues | | Decrease/(increase) in Cost of revenues | 135 | | | (29) | | | (17) | |
| Net financial income/(expenses) | (22 | ) | | 34 |
| | (148 | ) | Net financial income/(expenses) | 98 | | | 4 | | | 2 | |
| Result from investments | 28 |
| | 26 |
| | 1 |
| Result from investments | 21 | | | 1 | | | 24 | |
| Interest rate risk | | | | | | Interest rate risk | |
| Increase in Cost of revenues | — |
| | — |
| | (10 | ) | |
| | Result from investments | (1 | ) | | (1 | ) | | (2 | ) | Result from investments | 2 | | | (2) | | | 1 | |
| Net financial expenses | (3 | ) | | (4 | ) | | (77 | ) | Net financial expenses | (11) | | | 0 | | | 0 | |
| Commodity price risk | | | | | | Commodity price risk | |
| Decrease/(Increase) in Cost of revenues | 28 |
| | (39 | ) | | (23 | ) | |
| (Increase)/decrease in Cost of revenues | | (Increase)/decrease in Cost of revenues | (86) | | | 7 | | | 29 | |
| Ineffectiveness and discontinued hedges | 4 |
| | 12 |
| | 1 |
| Ineffectiveness and discontinued hedges | (21) | | | (33) | | | (5) | |
| Tax expense/(benefit) | 27 |
| | (49 | ) | | (97 | ) | Tax expense/(benefit) | 1 | | | (3) | | | (36) | |
| Total recognized in Net profit from continuing operations | (26 | ) | | 171 |
| | (221 | ) | |
| Recognized in Profit from discontinued operations, net of tax | — |
| | — |
| | (116 | ) | |
| Total recognized in Net profit | € | (26 | ) | | € | 171 |
| | € | (337 | ) | |
| Items relating to discontinued operations, net of tax | | Items relating to discontinued operations, net of tax | 0 | | | 2 | | | 9 | |
| Total recognized in the Consolidated Income Statement | | Total recognized in the Consolidated Income Statement | € | 167 | | | € | (80) | | | € | 107 | |
Net investment hedges
In order to manage the FCA Group's foreign currency risk related to its investments in foreign operations, the Group entersit historically entered into net investment hedges, in particular foreign currency swaps and forward contracts.
For the year ended December 31, 2017, gains2020, there were 0 net investment hedges.
For the year ended December 31, 2019, net loss of €15€50 million related to net investment hedges were recognized in Currency translation differences within Other comprehensive (loss)/income within Currency translation differences. There was no ineffectiveness for the year endedincome. At December 31, 2017.2019, there were 0 outstanding net investment hedges.
For the year ended December 31, 2016, losses2018, net gains of €75€17 million related to net investment hedges were recognized in Currency translation differences within Other comprehensive (loss)/income within Currency translation differences. income.
There was no0 ineffectiveness for the yearyears ended December 31, 2016.2019 and 2018.
Derivatives for trading
At December 31, 20172020, 2019 and 2016,2018, Derivatives for trading primarily consisted of derivative contracts entered into for hedging purposes which dodid not qualify for hedge accounting and one embedded derivative in a bond issuance in which the yield iswas determined as a function of trends in the inflation rate and related hedging derivative, which convertsconverted the exposure to a floating rate (the total value of the embedded derivative is offset by the value of the hedging derivative).
Information on the FCA Group's risk management strategy and additional information on the its hedging activities is provided in Note 30, Qualitative and quantitative information on financial risks.
17. Cash and cash equivalents | | | | | |
| 17. | Cash and cash equivalents |
Cash and cash equivalents consisted of the following:
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (€ million) | | (€ million) |
| Cash at banks | € | 6,396 |
| | € | 8,118 |
| Cash at banks | € | 8,749 | | | € | 5,166 | |
| Money market securities | 6,242 |
| | 9,200 |
| Money market securities | 7,802 | | | 2,293 | |
| Other cash equivalents | | Other cash equivalents | 7,295 | | | 7,555 | |
| Total Cash and cash equivalents | € | 12,638 |
|
| € | 17,318 |
| Total Cash and cash equivalents | € | 23,846 | | | € | 15,014 | |
Cash and cash equivalents held in certain foreign countries (primarily in China and Argentina) arewere subject to local exchange control regulations providing for restrictions on the amount of cash, other than dividends, that can leave the country.
18. | | | | | |
| 18. | Share-based compensation |
FCA - Performance Share Units2020-2022 Long Term Incentive Plan
In March 2017,December 2019, FCA’s Board of Directors approved the 2020-2022 Long-Term Incentive Plan (“2020-2022 LTIP”), under the framework equity incentive plan. Refer to Note 26, Equity for further information on the framework equity incentive plan. During May 2020, FCA awarded a total of 2,264,0007.0 million Performance Share Units (“PSU”) and 4.5 million Restricted Share Units (“RSU”) to certain keyeligible employees under the framework equity incentive plan (Note 26, Equity). 2020-2022 LTIP.
The PSU awards, which representrepresented the right to receive FCA common shares, have financial performance goals that include a net incomehad an Adjusted EBIT target as well as a total shareholder return (“TSR”) target, with each weighted at 50 percent and settled independently of the other. Half of the award willawards were expected to vest based on ourachievement of the FCA targets for Adjusted EBIT (“2020 PSU Adjusted EBIT awards”), covering a three year period from January 1, 2020 to December 31, 2022, with a payout ranging from 0 percent to 100 percent. The remaining half of the PSU awards (“2020 PSU TSR awards”) were expected to vest based on market conditions over a three year performance period from January 1, 2020 through December 31, 2022, with a payout scale ranging from 0 percent to 225 percent. Accordingly, the total number of shares that were expected to eventually be issued could vary from the original award of 7.0 million units. If the performance goals for the respective periods are met, the PSU awards were expected to vest in one tranche in the second quarter of 2023.
The RSU awards (“2020 RSU awards”), which represented the right to receive FCA common shares, were expected to vest in the second quarter of year 2023.
Additional Grants
In addition to the grants above, during June and July 2020 FCA also awarded 0.1 million PSU awards to certain key employees of FCA. The PSU awards, which represented the right to receive FCA common shares, had the same financial performance goals as the 2020 PSU Adjusted EBIT awards and 2020 PSU TSR awards, as described above. These awards were expected to vest in one tranche in the second quarter of 2023 if the respective performance goals for the period January 1, 2020 to December 31, 2022 are achieved.
During June and July 2020, FCA also awarded an additional 0.1 million RSU awards to certain key employees of the Company. These additional awards were expected to vest in one tranche in the second quarter of 2023.
2019-2021 Long Term Incentive Plan
In December 2018, FCA’s Board of Directors approved the 2019-2021 Long-Term Incentive Plan (“2019-2021 LTIP”), under the framework equity incentive plan. During May 2019, FCA awarded a total of 9.5 million PSU and 5.9 million RSU to eligible employees under the 2019-2021 LTIP.
The PSU awards, which represented the right to receive FCA common shares, had an Adjusted EBIT target as well as a TSR target, with each weighted at 50 percent and settled independently of the other. Half of the awards were expected to vest based on achievement of the targets for Adjusted EBIT (“2019 PSU Adjusted EBIT awards”), covering a three year period from January 1, 2019 to December 31, 2021, with a payout ranging from 0 percent to 100 percent. The remaining half of the PSU awards (“2019 PSU TSR awards”) were expected to vest based on market conditions over a three year performance period from January 1, 2019 through December 31, 2021, with a payout scale ranging from 0 percent to 225 percent. Accordingly, the total number of shares that were expected to eventually be issued could vary from the original award of 9.5 million units. One third of the PSU awards vested in the second quarter of 2020, with achievement of performance goals for the period January 1, 2019 to December 31, 2019, and if the performance goals for the respective periods are met, a cumulative two-thirds in the second quarter of 2021 and a cumulative 100 percent in the second quarter of 2022.
The RSU awards (“2019 RSU awards”), which represented the right to receive FCA common shares. One third of the awards vested in the second quarter of 2020, with the remaining awards were expected to vest in two equal tranches in the second quarter of each year 2021 and 2022.
Additional Grants
In addition to the grants above, during May and July 2019 FCA also awarded 0.9 million PSU awards to certain key employees of the Company. The PSU awards, which represented the right to receive FCA common shares, had the same financial performance goals as the 2019 PSU Adjusted EBIT awards and 2019 PSU TSR awards, as described above. These awards were expected vest in one tranche in the second quarter of 2022 if the respective performance goals for the period January 1, 2019 to December 31, 2021 are achieved.
During May and July 2019, FCA also awarded an additional 0.4 million RSU awards to certain key employees of the Company. These additional awards were expected to vest in one tranche in the second quarter of 2022.
2017-2021 Long Term Incentive Plan
During the year ended December 31, 2018, FCA awarded a total of 2.40 million PSU awards and 0.58 million RSU awards to certain key employees under the 2017-2021 Long-Term Incentive Plan, and under the framework equity incentive plan.
The PSU awards, which represented the right to receive FCA common shares, included a TSR target (“2018 PSU TSR awards”). These awards were expected to vest based upon market conditions covering a five year performance period from January 1, 2017 through December 31, 2021. Accordingly, the total number of shares that will eventually be issued may vary from the original award of 2.40 million units. The original vesting schedule allowed for one third of the total PSU TSR awards to vest in the first quarter of 2020, a cumulative two-thirds in the first quarter of 2021 and a cumulative 100 percent in the first quarter of 2022 if the respective performance goals for the years 2017 to 2019, 2017 to 2020 and 2017 to 2021 were achieved.
Part of the 2019 PSU TSR awards granted in May 2019 (“Replacement awards”) were considered to be a replacement of certain of the 2018 PSU TSR awards. Under the modified terms of the 2018 PSU TSR awards, 60 percent of the 2018 PSU TSR awards were replaced with the Replacement awards and the remaining 40 percent of 2018 PSU TSR awards have vested at target during the second quarter of 2020.
The RSU awards, which represented the right to receive FCA common shares, one third of the award has vested in 2019, one third of the award has vested in 2020, with the remaining one third vesting in 2021.
2016-2018 Long Term Incentive Plan
During the year ended December 31, 2017, FCA awarded a total of 2.26 million PSU awards and 2.29 million RSU awards to certain key employees under the 2016-2018 Long-Term Incentive Plan, and under the framework equity incentive plan.
The PSU awards, which represented the right to receive FCA common shares, had financial performance goals that included a net income target as well as total shareholder return target, with each weighted at 50 percent and settled independently of the other. Half of the award vested based on achievement of the targets for net income (“2017 PSU NI awards”) covering a three-yearthree year period from 2016 to 2018 and will havehad a payout scale ranging from 0 percent to 100 percent. The remaining half of the PSU awards (“2017 PSU TSR awards”) arewere based on market conditions and havehad a payout scale ranging from 0 percent to 150 percent. The PSU TSR awards performance period coverscovered a two-yeartwo year period starting in December 2016 through 2018. Accordingly, the total number of shares that will eventually bewere issued maydid vary from the original award of 2.26 million units. The PSU awards will vesthave vested in 2019 with the first quarterachievement of 2019 if the respective performance goals for the years 2016 to 2018.
The RSU awards, which represented the right to receive FCA common shares, have vested in two equal tranches in 2018 are achieved. The PSU awards granted in June 2017 follow the same vesting conditions.and 2019.
2014-2018 Long Term Incentive Plan
During the year ended December 31, 2015, FCA awarded a total of 14,713,10014.71 million PSU awards and 5.20 million RSU awards to certain key employees under the 2014-2018 Long Term Incentive Plan (“2014-2018 LTIP”), and under the framework equity incentive plan.
The PSU awards, which representrepresented the right to receive FCA common shares, havehad financial performance goals covering a five-yearfive year period from 2014 to 2018. The performance goals includeincluded a net income target as well as a TSR target, with each weighted at 50 percent and settled independently of the other. The PSU NI awards, which represent halfHalf of the award, will vestawards vested based on our achievement of the targets for net income and will havehad a payout scale ranging from 0 percent to 100 percent.percent (“2015 PSU NI awards”). The PSU TSR awards, which represent the other 50 percentremaining half of the PSU awards are based on market conditions and havehad a payout scale ranging from 0 percent to 150 percent.percent (“2015 PSU TSR awards”). Accordingly, the total number of shares that will eventually bewere issued maydid vary from the original award of 14.714.71 million shares. One third of the total PSU awards vested in 2017, and a cumulative two-thirds of the total PSU awards will vestvested in the first quarter of 2018 with the achievement of the performance goal for the years 2014 to 2017. A2017 and a cumulative 100 percent will vestvested in 2019 with the first quarterachievement of 2019 if the respective performance goals for the years 2014 to 2018.
The RSUs, which represented the right to receive FCA common shares, vested in three equal tranches. One third of the awards vested in the first quarter of 2017, and a cumulative two-thirds of the awards vested in the first quarter 2018 are achieved.with the remaining tranche vested in the first quarter of 2019.
Additional Grants
In addition to the above, during the year ended December 31, 2016, FCA awarded 0.09 million RSU awards to certain key employees of the Company under the 2014-2018 LTIP, which represented the right to receive FCA common shares. Half of the awards vested in the first quarter of 2018 and the remaining half of these awards vested in the first quarter of 2019.
In addition to the above, during the year ended December 31, 2018, FCA awarded an additional 0.1 million PSU awards and 0.05 million RSU awards to certain key employees, under the 2014-2018 LTIP. The PSU awards, which represented the right to receive FCA common shares, had the same financial performance goals as the 2015 PSU NI awards and the 2015 PSU TSR awards, as described above. A cumulative 100 percent has vested in the first quarter of 2019 with the achievement of the performance goals for the years 2014 to 2018. The RSU awards, which represented the right to receive FCA common shares, have vested in the first quarter of 2019.
Other Restricted Share Unit Grants
During the year ended December 31, 2020, FCA awarded 1.0 million RSU awards to certain key employees of the Company, which represented the right to receive FCA common shares. A portion of these awards vested in 2020, with the remaining portion expected to vest in 2021 and 2022 in accordance with the award agreements.
During the year ended December 31, 2019, FCA awarded 0.8 million RSU awards to certain key employees of the Company, which represented the right to receive FCA common shares. A portion of these awards vested in 2019 and 2020 with the remaining portion expected to vested in 2021 and 2022 in accordance with the award agreements.
PSU NI Awards
Changes during 2020, 2019 and 2018 for the PSU NI awards under the framework equity incentive plan were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| PSU NI | | Weighted
average fair
value at the
grant date
(€) | | PSU NI | | Weighted
average fair
value at the
grant date
(€) | | PSU NI | | Weighted
average fair
value at the
grant date
(€) |
| Outstanding shares unvested at January 1 | 262,384 | | | € | 4.91 | | | 4,568,830 | | | € | 6.14 | | | 8,803,826 | | | € | 5.89 | |
| Anti-dilution adjustment | 0 | | | 0 | | | 25,516 | | | 4.91 | | | 32,855 | | | 5.87 | |
| Granted | 0 | | | 0 | | | 0 | | | 0 | | | 71,136 | | | 9.73 | |
| Vested | (236,868) | | | 4.90 | | | (4,295,593) | | | 6.24 | | | (3,857,502) | | | 5.58 | |
| Canceled | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Forfeited | (25,516) | | | 4.90 | | | (36,369) | | | 6.62 | | | (481,485) | | | 6.27 | |
| Outstanding shares unvested at December 31 | 0 | | | € | 0 | | | 262,384 | | | € | 4.91 | | | 4,568,830 | | | € | 6.14 | |
The vesting of the 2017 PSU NI awards and the 2015 PSU NI awards will behas been determined by comparing the FCA Group's net profit excluding unusual items to the net income targets derived from the FCA Group's business plan for the corresponding period. The performance period commenced on January 1, 2016 for the 2017 PSU NI awards commenced on January 1, 2016, and on January 1, 2014 for the 2015 PSU NI awards. As the performance period commenced substantially prior to the commencement of the service period, which coincidescoincided with the grant date, the Company determined that the net income target did not meet the definition of a performance condition under IFRS 2 - Share-based Payment, and therefore is required to be accounted for as a non-vesting condition. As such, the fair values of the PSU NI awards were calculated using a Monte Carlo simulation model.
Changes during 2017, 2016 and 2015 for the PSU NI awards under the framework equity incentive plan were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | PSU NI | | Weighted
average fair
value at the
grant date (€) | | PSU NI | | Weighted
average fair
value at the
grant date (€) | | PSU NI | | Weighted
average fair
value at the
grant date (€) |
| Outstanding shares unvested at January 1 | 11,379,445 |
| | € | 5.65 |
| | 7,356,550 |
| | € | 8.78 |
| | — |
| | € | — |
|
| Anti-dilution adjustment | 65,751 |
| | 5.62 |
| | 4,001,962 |
| | 5.68 |
| | — |
| | — |
|
| Granted | 1,136,250 |
| | 7.91 |
| | 168,593 |
| | 3.61 |
| | 7,356,550 |
| | 8.78 |
|
| Vested | (3,758,870 | ) | | 5.65 |
| | — |
| | — |
| | — |
| | — |
|
| Canceled | — |
| | — |
| | (147,660 | ) | | 5.83 |
| | — |
| | — |
|
| Forfeited | (18,750 | ) | | 7.91 |
| | — |
| | — |
| | — |
| | — |
|
| Outstanding shares unvested at December 31 | 8,803,826 |
| | € | 5.89 |
| | 11,379,445 |
| | € | 5.65 |
| | 7,356,550 |
| | € | 8.78 |
|
The key assumptions utilized to calculate the grant-date fair values for the PSU NI awards are summarized below:
| | | Key assumptions | 2017 PSU NI Awards Range | 2015 PSU NI Awards Range | Key assumptions | | 2017 PSU NI Awards Range | | 2015 PSU NI Awards Range |
| Grant date stock price | €9.74 - €10.39 |
| €13.44 - €15.21 |
| Grant date stock price | | €9.74 - €10.39 | | €13.44 - €15.21 |
| Expected volatility | 40 | % | 40 | % | Expected volatility | | 40 | % | | 40 | % |
| Risk-free rate | (0.8 | )% | 0.7 | % | Risk-free rate | | (0.8) | % | | 0.7 | % |
The expected volatility was based on the observed historical volatility for common shares of FCA. The risk-free rate was based on the yields of government and treasury bonds with similar terms to the vesting date of each PSU NI award.
PSU Adjusted EBIT Awards
Changes during 2017, 20162020 and 20152019 for the PSU Adjusted EBIT awards under the framework equity incentive plan were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | 2019 | | | | |
| PSU Adjusted EBIT | | Weighted
average fair
value at the
grant date
(€) | PSU Adjusted EBIT | | Weighted
average fair
value at the
grant date
(€) | | | | | | | | |
| Outstanding shares unvested at January 1 | 5,560,639 | | | € | 10.19 | | € | 0 | | | € | 0 | | | | | | | | | |
| Anti-dilution adjustment | 0 | | | 0 | | 524,308 | | | 10.18 | | | | | | | | | |
| Granted | 3,629,656 | | | 6.40 | | 5,182,071 | | | 11.26 | | | | | | | | | |
| Vested | (1,189,222) | | | 10.18 | | 0 | | | 0 | | | | | | | | | |
| Canceled | 0 | | | 0 | | 0 | | | 0 | | | | | | | | | |
| Forfeited | (827,001) | | | 9.86 | | (145,740) | | | 11.28 | | | | | | | | | |
| Outstanding shares unvested at December 31 | 7,174,072 | | | € | 8.32 | | 5,560,639 | | | € | 10.19 | | | | | | | | | |
The fair values of the PSU Adjusted EBIT awards that were granted during the years ended December 31, 2020 and 2019 were measured using the FCA stock price on the grant date, adjusted for expected dividends at a constant yield as PSU awards do not have the right to receive ordinary dividends prior to vesting.
PSU TSR Awards
Changes during 2020, 2019 and 2018 for the PSU TSR awards under the framework equity incentive plan were as follows:
| | | | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | PSU TSR | | Weighted
average fair
value at the
grant date (€) | | PSU TSR | | Weighted
average fair
value at the
grant date (€) | | PSU TSR | | Weighted
average fair
value at the
grant date (€) | | PSU TSR | | Weighted
average fair
value at the
grant date
(€) | | PSU TSR | | Weighted
average fair
value at the
grant date
(€) | | PSU TSR | | Weighted
average fair
value at the
grant date
(€) |
| Outstanding shares unvested at January 1 | 11,379,446 |
| | € | 10.64 |
| | 7,356,550 |
| | € | 16.52 |
| | — |
| | € | — |
| Outstanding shares unvested at January 1 | 6,797,491 | | | € | 10.61 | | | 6,926,413 | | | € | 11.42 | | | 8,803,827 | | | € | 10.58 | |
| Anti-dilution adjustment | 65,750 |
| | 10.58 |
| | 4,001,962 |
| | 10.70 |
| | — |
| | — |
| Anti-dilution adjustment | 0 | | | 0 | | | 644,588 | | | 10.60 | | | 32,855 | | | 10.54 | |
| Granted | 1,136,250 |
| | 10.84 |
| | 168,593 |
| | 6.71 |
| | 7,356,550 |
| | 16.52 |
| Granted | 3,629,656 | | | 3.92 | | | 5,189,237 | | | 11.58 | | | 2,473,637 | | | 13.15 | |
| Vested | (3,758,869 | ) | | 10.63 |
| | — |
| | — |
| | — |
| | — |
| Vested | (2,421,734) | | | 10.83 | | | (4,295,594) | | | 10.67 | | | (3,857,502) | | | 10.51 | |
| Canceled | — |
| | — |
| | (147,659 | ) | | 10.84 |
| | — |
| | — |
| Canceled | 0 | | | 0 | | | (1,385,046) | | | 12.99 | | | 0 | | | 0 | |
| Forfeited | (18,750 | ) | | 10.84 |
| | — |
| | — |
| | — |
| | — |
| Forfeited | (831,326) | | | 9.91 | | | (282,107) | | | 11.94 | | | (526,404) | | | 11.50 | |
| Outstanding shares unvested at December 31 | 8,803,827 |
| | € | 10.58 |
| | 11,379,446 |
| | € | 10.64 |
| | 7,356,550 |
| | € | 16.52 |
| Outstanding shares unvested at December 31 | 7,174,087 | | | € | 7.23 | | | 6,797,491 | | | € | 10.61 | | | 6,926,413 | | | € | 11.42 | |
The weighted average fair value of the PSU TSR awards granted during the yearyears ended December 31, 2018, 2017 wasand 2015 were calculated using a Monte Carlo simulation model. The weighted average fair value of the PSU TSR awards granted during the years ended December 31, 2020 and 2019 were calculated using a Monte Carlo Simulation, adjusted for expected dividends at a constant yield as PSU awards do not have the right to receive ordinary dividends prior to vesting.
In accordance with IFRS 2 - Share-based Payment, the 2018 PSU TSR awards were modified and remeasured at the grant date of the Replacement awards, using a Monte Carlo Simulation. Only the incremental amount, which is the difference between the fair value of the 2018 PSU TSR and the fair value of the Replacement awards, will be recognized as an expense over the term of the Replacement awards.
The key assumptions utilized to calculate the grant date fair values for the PSU TSR awards issued are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Key assumptions | | 2020 PSU TSR Awards Range | | 2019 PSU TSR Awards Range | | 2018 PSU TSR Awards Range | | 2017 PSU TSR Awards Range | | 2015 PSU TSR Awards Range |
| Grant date stock price | | € | 7.38 | | | € | 13.10 | | | € | 18.79 | | | €9.74 - €10.39 | | €13.44 - €15.21 |
| Expected volatility | | 40 | % | | 39 | % | | 41 | % | | 44 | % | | 37% - 39% |
| Dividend yield | | 5 | % | | 5 | % | | 0 | % | | 0 | % | | 0 | % |
| Risk-free rate | | (0.7) | % | | (0.7) | % | | (0.3) | % | | (0.8) | % | | 0.7% - 0.8% |
|
| | | | |
Key assumptions | 2017 PSU TSR Awards Range | 2015 PSU TSR Awards Range |
Grant date stock price | €9.74 - €10.39 |
| €13.44 - €15.21 |
|
Expected volatility | 44 | % | 37% - 39% |
|
Dividend yield | — | % | — | % |
Risk-free rate | 0.8 | % | 0.7% - 0.8% |
|
The expected volatility was based on the observed historical volatility for common shares of FCA. The risk-free rate was based on the yields of government and treasury bonds with similar terms to the vesting date of each PSU TSR award. In addition, since the volatility of each member of the defined peer group are not wholly independent of one another, a correlation coefficient was developed based on historical share price changes for FCA and the defined peer group over a three-yearthree-year period leading up to the grant date of the awards.
FCA - Restricted Share Units
In March 2017, FCA awarded 2,264,000 Restricted Share Units (“RSUs”) to certain key employees of the Company which represent the right to receive FCA common shares. These shares will vest in two equal tranches in the first quarter of 2018 and 2019. The fair values of the awards were measured using the FCA stock price on the grant date. The RSU awards granted in June and September 2017 follow the same vesting conditions.
During the year ended December 31, 2015, FCA awarded 5,196,550 RSUs to certain key employees of the Company, which represent the right to receive FCA common shares. One third of the awards vested in February of 2017 with the remaining two tranches to vest equally in February of 2018 and 2019.
Changes during 2017, 20162020, 2019 and 20152018 for the RSU awards under the framework equity incentive plan were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| RSUs | | Weighted
average fair
value at the
grant date
(€) | | RSUs | | Weighted
average fair
value at the
grant date
(€) | | RSUs | | Weighted
average fair
value at the
grant date
(€) |
| Outstanding shares unvested at January 1 | 8,153,039 | | | € | 10.51 | | | 4,290,986 | | | € | 10.47 | | | 7,600,313 | | | € | 9.17 | |
| Anti-dilution adjustment | 0 | | | 0 | | | 761,529 | | | 10.49 | | | 28,299 | | | 9.12 | |
| Granted | 5,654,588 | | | 6.59 | | | 7,160,764 | | | 11.35 | | | 627,081 | | | 18.54 | |
| Vested | (3,228,967) | | | 10.24 | | | (3,347,345) | | | 9.93 | | | (3,690,050) | | | 9.09 | |
| Canceled | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Forfeited | (715,489) | | | 9.12 | | | (712,895) | | | 10.05 | | | (274,657) | | | 10.28 | |
| Outstanding shares unvested at December 31 | 9,863,171 | | | € | 8.46 | | | 8,153,039 | | | € | 10.51 | | | 4,290,986 | | | € | 10.47 | |
The weighted average fair value of the RSU awards that were granted in December 31, 2018, 2017, 2016 and 2015, were measured using the FCA stock price on the grant date. The weighted average fair value of the RSU awards that were granted during the years ended December 31, 2020 and 2019 were measured using the FCA stock price on the grant date, adjusted for expected dividends at a constant yield as RSU awards do not have the right to receive ordinary dividends prior to vesting.
Modification to PSU awards and RSU awards to certain key employees
During the year ended December 31, 2020, in connection with the planned merger with Groupe PSA, FCA’s board of directors approved a modification to the PSU and RSU awards that were granted to certain key employees, under the framework equity incentive plan. All outstanding PSU and RSU awards granted to these employees and outstanding at the merger date have been replaced with cash-settled awards, which vest upon the merger and are payable on specified dates after the closing of the merger. In accordance with the requirements of IFRS 2 - Share-based payment, a liability of €51 million was accrued within Employee benefits liabilities, representing the fair value of these cash-settled awards as measured at December 31, 2020.
|
| | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | RSUs | | Weighted
average fair
value at the
grant date (€) | | RSUs | | Weighted
average fair
value at the
grant date (€) | | RSUs | | Weighted
average fair
value at the
grant date (€) |
| Outstanding shares unvested at January 1 | 7,969,623 |
| | € | 8.69 |
| | 5,196,550 |
| | € | 13.49 |
| | — |
| | € | — |
|
| Anti-dilution adjustment | 46,189 |
| | 8.64 |
| | 2,826,922 |
| | 8.74 |
| | — |
| | — |
|
| Granted | 2,293,940 |
| | 10.43 |
| | 94,222 |
| | 5.73 |
| | 6,816,550 |
| | 13.90 |
|
| Vested | (2,671,939 | ) | | 8.64 |
| | — |
| | — |
| | (1,620,000 | ) | | 15.21 |
|
| Canceled | — |
| | — |
| | (148,071 | ) | | 9.25 |
| | — |
| | — |
|
| Forfeited | (37,500 | ) | | 10.39 |
| | — |
| | — |
| | — |
| | — |
|
| Outstanding shares unvested at December 31 | 7,600,313 |
| | € | 9.17 |
| | 7,969,623 |
| | € | 8.69 |
| | 5,196,550 |
| | € | 13.49 |
|
Anti-dilution adjustments - PSU awards and RSU awards
The documents governing FCA's long-term incentive plans containcontained anti-dilution provisions which provideprovided for an adjustment to the number of awards granted under the plans in order to preserve, or alternatively prevent the enlargement of, the benefits intended to be made available to the recipients of the awards should an event occur that impacts ourimpacted FCA’s capital structure.
In December 2019, the Compensation Committee approved a conversion factor of 1.107723 that was applied to outstanding awards under the Long Term Incentive Plan to make equity award holders whole for the resulting diminution in the value of an FCA common share as a result of the payment of an extraordinary cash distribution to holders of FCA common shares on May 30, 2019. There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments.
In January 2018, as a result of the distribution of the Company's entire interest in GEDI Gruppo Editoriale S.p.A. to holders of FCA common shares on July 2, 2017, the Compensation Committee approved a conversion factor of 1.003733 that was applied to outstanding awards under the Long Term Incentive Plan to make equity award holders whole for the resulting diminution in the value of an FCA common share. There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments.
Similarly, in January 2017, as a result of the distribution of the Company's 16.7 percent ownership interest in RCS Media Group S.p.A. to holders of its common shares on May 1, 2016, the Compensation Committee of FCA approved a conversion factor of 1.005865 that was applied to outstanding PSU awards and RSU awards issued prior to December 31, 2016 to make equity award holders whole for the resulting diminution in the value of an FCA common share. There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments.
Similarly, in January 2016, as a result of the spin-off of Ferrari N.V., a conversion factor of 1.5440 was approved by FCA'sthe Compensation Committee and applied to outstanding PSU awards and RSU awards as an equitable adjustment to make equity award holders whole for the resulting diminution in the value of an FCA share. For the PSU NI awards, FCA'sthe Compensation Committee also approved an adjustment to the net income targets for the years 2016-2018 to account for the net income of Ferrari in order to preserve the economic benefit intended to be provided to each participant. There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments.
The following table reflects the changes resulting from the anti-dilution adjustments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 Anti-dilution adjustment | | 2018 Anti-dilution adjustment | | 2017 Anti-dilution adjustment | | 2016 Anti-dilution adjustment |
| PSU Awards: | | | | | | | | |
| Number of awards - as adjusted | | 12,620,514 | | | 17,673,363 | | | 22,890,392 | | | 22,717,024 | |
Key assumptions - as adjusted:
Grant date stock price - for PSU NI, PSU TSR and PSU Adjusted EBIT | | €8.79 - €16.96 | | €5.71 - €10.35 | | €8.66 - €9.79 | | €8.71 - €9.85 |
| RSU Awards: | | | | | | | | |
| Number of awards - as adjusted | | 8,153,039 | | | 7,628,612 | | | 8,015,812 | | | 8,023,472 | |
|
| | | | |
| | 2017 Anti-dilution adjustment | 2016 Anti-dilution adjustment |
| PSU Awards: | | |
| Number of awards - as adjusted | 22,890,392 |
| 22,717,024 |
|
Key assumptions - as adjusted: Grant date stock price - for PSU NI and PSU TSR | €8.66 - €9.79 |
| €8.71 - €9.85 |
|
| RSU Awards: | | |
| Number of awards - as adjusted | 8,015,812 |
| 8,023,472 |
|
Total expense for the PSU awards and RSU awards of approximately €85€98 million, €96€92 million and €54 million was recorded for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. At December 31, 2017,2020, the FCA Group had unrecognized compensation expense related to the non-vested PSU awards and RSU awards of approximately €47€58 million based on current forfeiture assumptions, which will be recognized over a weighted-average period of 1.01.66 years.
Chief Executive Officer - Special Recognition AwardOn April 16, 2015, shareholders of FCA approved a grant of 1,620,000 common shares to the Chief Executive Officer, which vested immediately. This grant was for recognition of the Chief Executive Officer's vision and guidance in the formation of Fiat Chrysler Automobiles N.V., which created significant value for the Company, its shareholders, stakeholders and employees. The weighted-average fair value of the shares at the grant date was €15.21 (U.S.$16.29), measured using FCA's share price on the grant date. A one-time charge of €24.6 million was recorded within Selling, general and other costs during the year ended December 31, 2015 related to this grant.
Stock grant plans linked to Fiat shares
On April 4, 2012, the shareholders resolved to approve the adoption of a Long Term Incentive Plan (the “Retention LTI Plan”), in the form of stock grants. As a result, the Group granted the Chief Executive Officer 7,000,000 rights, which represented an equal number of common shares. One third of the rights vested on February 22, 2013, one third vested on February 22, 2014 and one third vested on February 22, 2015, which had been subject to the requirement that the Chief Executive Officer remain in office. The Plan was serviced in 2015 through the issuance of new common shares. Compensation expense for the Retention LTI Plan for the year ended December 31, 2015 was not material.
Share-based compensation plans issued by FCA US
On May 7, 2015, the FCA US Board of Directors approved an amendment to the FCA US Directors’ Restricted Stock Unit Plan (“FCA US Directors’ RSU Plan”), freezing the restricted stock unit value as of December 31, 2015. At December 31, 2017 and 2016, FCA US had no outstanding unvested units under the FCA US Directors’ RSU Plan.
In February 2012, the Compensation Committee of FCA US approved the Long-Term Incentive Plan (“2012 LTIP Plan”) that covered senior executives of FCA US (other than the Chief Executive Officer). At December 31, 2017 and 2016, FCA US had no outstanding unvested units under the 2012 LTIP Plan.
No compensation expense was recognized for either plan for the year ended December 31, 2017. Compensation expense for the years ended December 31, 2016 and 2015 was not material.
19. Employee benefits liabilities | | | | | |
| 19. | Employee benefits liabilities |
Employee benefits liabilities consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | Current | | Non-current | | Total | | Current | | Non-current | | Total |
| | (€ million) |
| Pension benefits | | € | 35 | | | € | 4,838 | | | € | 4,873 | | | € | 38 | | | € | 5,024 | | | € | 5,062 | |
| Health care and life insurance plans | | 119 | | | 2,114 | | | 2,233 | | | 132 | | | 2,157 | | | 2,289 | |
| Other post-employment benefits | | 61 | | | 702 | | | 763 | | | 63 | | | 730 | | | 793 | |
| Other provisions for employees | | 377 | | | 674 | | | 1,051 | | | 311 | | | 596 | | | 907 | |
| Total Employee benefits liabilities | | € | 592 | | | € | 8,328 | | | € | 8,920 | | | € | 544 | | | € | 8,507 | | | € | 9,051 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31 |
| 2017 | | 2016 |
| Current | | Non-current | | Total | | Current | | Non-current | | Total |
| (€ million) |
| Pension benefits | € | 34 |
| | € | 4,789 |
| | € | 4,823 |
| | € | 38 |
| | € | 4,980 |
| | € | 5,018 |
|
| Health care and life insurance plans | 126 |
| | 2,153 |
| | 2,279 |
| | 145 |
| | 2,321 |
| | 2,466 |
|
| Other post-employment benefits | 109 |
| | 878 |
| | 987 |
| | 110 |
| | 877 |
| | 987 |
|
| Other provisions for employees | 425 |
| | 764 |
| | 1,189 |
| | 518 |
| | 874 |
| | 1,392 |
|
| Total Employee benefits liabilities | € | 694 |
| | € | 8,584 |
| | € | 9,278 |
| | € | 811 |
| | € | 9,052 |
| | € | 9,863 |
|
The GroupFCA’s continuing operations recognized a total expense of €1,643€1,308 million for the cost for defined contribution and state plans for the year ended December 31, 20172020 (€1,5401,508 million in 20162019 and €1,541€1,518 million in 2015)2018).
The following table summarizes the fair value of defined benefit obligations and the fair value of the related plan assets:
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (€ million) | | (€ million) |
| Present value of defined benefit obligations: | | | | Present value of defined benefit obligations: | |
| Pension benefits | € | 25,528 |
| | € | 28,065 |
| Pension benefits | | € | 24,361 | | | € | 25,024 | |
| Health care and life insurance plans | 2,279 |
| | 2,466 |
| Health care and life insurance plans | | 2,233 | | | 2,289 | |
| Other post-employment benefits | 987 |
| | 987 |
| Other post-employment benefits | | 763 | | | 793 | |
| Total present value of defined benefit obligations (a) | 28,794 |
| | 31,518 |
| Total present value of defined benefit obligations (a) | | 27,357 | | | 28,106 | |
| | | | | |
| Fair value of plan assets (b) | 21,218 |
| | 23,409 |
| Fair value of plan assets (b) | | 20,258 | | | 20,729 | |
| Asset ceiling (c) | 14 |
| | 12 |
| Asset ceiling (c) | | 17 | | | 18 | |
| Total net defined benefit plans (a - b + c) | 7,590 |
| | 8,121 |
| Total net defined benefit plans (a - b + c) | | 7,116 | | | 7,395 | |
| of which: | | | | of which: | |
| Net defined benefit liability (d) | 8,089 |
| | 8,471 |
| Net defined benefit liability (d) | | 7,869 | | | 8,144 | |
| Defined benefit plan asset | (499 | ) | | (350 | ) | Defined benefit plan asset | | (753) | | | (749) | |
| | | | | |
| Other provisions for employees (e) | 1,189 |
| | 1,392 |
| Other provisions for employees (e) | | 1,051 | | | 907 | |
| Total Employee benefits liabilities (d + e) | € | 9,278 |
| | € | 9,863 |
| Total Employee benefits liabilities (d + e) | | € | 8,920 | | | € | 9,051 | |
Pension benefits
Liabilities arising from the Group'sFCA’s defined benefit plans are usuallywere historically funded by contributions made by FCA Group subsidiaries, and at times by their employees, into legally separate trusts from which the employee benefits are paid. TheFCA Group’s funding policy for defined benefit pension plans iswas to contribute the minimum amounts required by applicable laws and regulations. Occasionally, additional discretionary contributions were made in excess of those legally required are made to achieve certain desired funding levels. In the U.S., these excess amounts arewere tracked and the resulting credit balance can be used to satisfy minimum funding requirements in future years. At December 31, 2017,2020, the combined credit balances for the U.S. and Canada qualified pension plans were approximately €2.0€1.5 billion, andwith the usage of the credit balances to satisfy minimum funding requirements is subject to the plans maintaining certain funding levels. During the yearsyear ended December 31, 2017, 20162020, 2019 and 2015,2018, the FCA Group made pension contributions in the U.S. and Canada totaling €124€113 million, €445€48 million and €202€724 million, respectively. The Group contributionsrespectively, including an accelerated discretionary contribution in September 2018 of €670 million ($800 million) to certain of FCA’s U.S. pension plans, which resulted in tax benefits (refer to Note 7, Tax expensefor 2018further information). Contributions to the pension plans of the former FCA Group for 2021 are expected to be €92€1,087 million, of which €56€1,060 million relate to the U.S. and Canada, with €2€606 million being discretionary contributions and €54€454 million which will be made to satisfy minimum funding requirements.
The expected benefit payments for pension plans are as follows:
| | | | | | | | |
| | Expected benefit
payments |
| | (€ million) |
| 2021 | | € | 1,383 | |
| 2022 | | € | 1,364 | |
| 2023 | | € | 1,351 | |
| 2024 | | € | 1,353 | |
| 2025 | | € | 1,345 | |
| 2026-2030 | | € | 6,665 | |
|
| | | |
| | Expected benefit
payments |
| | (€ million) |
| 2018 | € | 1,592 |
|
| 2019 | € | 1,562 |
|
| 2020 | € | 1,550 |
|
| 2021 | € | 1,535 |
|
| 2022 | € | 1,524 |
|
| 2023-2027 | € | 7,556 |
|
The following table summarizes the changes in the pension plans:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Obligation | | Fair value of plan assets | | Asset ceiling | | Liability (asset) | | Obligation | | Fair value of plan assets | | Asset ceiling | | Liability
(asset) |
| | (€ million) |
| At January 1 | € | 28,065 |
| | € | (23,409 | ) | | € | 12 |
| | € | 4,668 |
| | € | 27,547 |
| | € | (22,415 | ) | | € | 11 |
| | € | 5,143 |
|
| Included in the Consolidated Income Statement | 1,259 |
| | (817 | ) | | — |
| | 442 |
| | 1,322 |
| | (849 | ) | | — |
| | 473 |
|
| Included in Other comprehensive income: | | | | | | | | | | | | | | | |
| Actuarial (gains)/losses from: | | | | | | | | | | | | | | | |
| Demographic and other assumptions | (42 | ) | | — |
| | — |
| | (42 | ) | | (49 | ) | | (6 | ) | | — |
| | (55 | ) |
| Financial assumptions | 1,567 |
| | — |
| | — |
| | 1,567 |
| | 346 |
| | — |
| | — |
| | 346 |
|
| Return on assets | — |
| | (1,589 | ) | | — |
| | (1,589 | ) | | — |
| | (861 | ) | | — |
| | (861 | ) |
| Changes in the effect of limiting net assets | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
|
| Changes in exchange rates | (3,006 | ) | | 2,445 |
| | (1 | ) | | (562 | ) | | 907 |
| | (817 | ) | | 1 |
| | 91 |
|
| Other: | | | | | | | | | | | | | | | |
| Employer contributions | — |
| | (141 | ) | | — |
| | (141 | ) | | — |
| | (454 | ) | | — |
| | (454 | ) |
| Plan participant contributions | — |
| | (3 | ) | | — |
| | (3 | ) | | 3 |
| | (4 | ) | | — |
| | (1 | ) |
| Benefits paid | (1,751 | ) | | 1,735 |
| | — |
| | (16 | ) | | (2,015 | ) | | 1,999 |
| | — |
| | (16 | ) |
| Settlements paid | (563 | ) | | 563 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other changes | (1 | ) | | (2 | ) | | — |
| | (3 | ) | | 4 |
| | (2 | ) | | — |
| | 2 |
|
| At December 31 | € | 25,528 |
| | € | (21,218 | ) | | € | 14 |
| | € | 4,324 |
| | € | 28,065 |
| | € | (23,409 | ) | | € | 12 |
| | € | 4,668 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | Obligation | | Fair value of plan assets | | Asset ceiling | | Liability/ (Asset) | | Obligation | | Fair value of plan assets | | Asset ceiling | | Liability/
(Asset) |
| | (€ million) |
| At January 1 | | € | 25,024 | | | € | (20,729) | | | € | 18 | | | € | 4,313 | | | € | 22,767 | | | € | (18,819) | | | € | 13 | | | € | 3,961 | |
| Included in the Consolidated Income Statement | | 954 | | | (566) | | | 0 | | | 388 | | | 1,111 | | | (713) | | | 0 | | | 398 | |
| Included in Other comprehensive income: | | | | | | | | | | | | | | | | |
| Actuarial (gains)/losses from: | | | | | | | | | | | | | | | | |
| Demographic and other assumptions | | (10) | | | 0 | | | 0 | | | (10) | | | (359) | | | 0 | | | 0 | | | (359) | |
| Financial assumptions | | 1,868 | | | 0 | | | 0 | | | 1,868 | | | 2,773 | | | 0 | | | 0 | | | 2,773 | |
| Return on assets | | 0 | | | (1,923) | | | 0 | | | (1,923) | | | 0 | | | (2,454) | | | 0 | | | (2,454) | |
| Changes in the effect of limiting net assets | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | | 3 | |
| Changes in exchange rates | | (1,992) | | | 1,603 | | | (1) | | | (390) | | | 618 | | | (564) | | | 2 | | | 56 | |
| Other: | | | | | | | | | | | | | | | | |
| Employer contributions | | 0 | | | (113) | | | 0 | | | (113) | | | 0 | | | (48) | | | 0 | | | (48) | |
| Plan participant contributions | | 2 | | | (2) | | | 0 | | | 0 | | | 2 | | | (2) | | | 0 | | | 0 | |
| Benefits paid | | (1,485) | | | 1,472 | | | 0 | | | (13) | | | (1,520) | | | 1,506 | | | 0 | | | (14) | |
| Settlements paid | | 0 | | | 0 | | | 0 | | | 0 | | | (394) | | | 394 | | | 0 | | | 0 | |
| Transfer to Liabilities held for sale | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Other changes | | 0 | | | 0 | | | 0 | | | 0 | | | 26 | | | (29) | | | 0 | | | (3) | |
| At December 31 | | € | 24,361 | | | € | (20,258) | | | € | 17 | | | € | 4,120 | | | € | 25,024 | | | € | (20,729) | | | € | 18 | | | € | 4,313 | |
Amounts recognized in the Consolidated Income Statement were as follows:
| | | | Years ended December 31 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | (€ million) | | (€ million) |
| Current service cost | € | 172 |
| | € | 175 |
| | € | 196 |
| Current service cost | | € | 175 | | | € | 156 | | | € | 172 | |
| Interest expense | 1,090 |
| | 1,157 |
| | 1,143 |
| Interest expense | | 771 | | | 969 | | | 925 | |
| Interest income | (911 | ) | | (944 | ) | | (912 | ) | Interest income | | (646) | | | (795) | | | (759) | |
| Other administration costs | 94 |
| | 95 |
| | 92 |
| Other administration costs | | 80 | | | 82 | | | 79 | |
| Past service costs/(credits) and gains/(losses) arising from settlements/curtailments | (3 | ) | | (10 | ) | | (8 | ) | |
| Past service costs/(credits) and (gains)/losses arising from settlements/curtailments | | Past service costs/(credits) and (gains)/losses arising from settlements/curtailments | | 8 | | | (14) | | | 92 | |
| Items relating to discontinued operations | | Items relating to discontinued operations | | 0 | | | 0 | | | 0 | |
| Total recognized in the Consolidated Income Statement | € | 442 |
| | € | 473 |
| | € | 511 |
| Total recognized in the Consolidated Income Statement | | € | 388 | | | € | 398 | | | € | 509 | |
During the year ended December 31, 2017,2020, there were no settlements or curtailments.
During the year ended December 31, 2019, the FCA Group entered into an annuitya buyout relating to two of its U.S.Canadian salaried defined benefit plans.plan. A total of €563€325 million was paid to a third-party insurance company in settlement of FCA's obligations, resulting in a settlement loss of €1€6 million that was recognized within Cost of revenues and Selling, general and other in the Consolidated Income Statement for the year ended December 31, 2017.2019.
During the year ended December 31, 2016,2019, the FCA Group also amended its U.S. defined benefit plan for salaried employees to allow certain terminated vested participants to accept a lump-sum amount. A total of €214€69 million was paid in December 2019 to those participants whothat accepted the offer in December 2016.offer. The plan amendment resulted in a settlement gain of €29€20 million that was recognized within Selling, general and other costs in the Consolidated Income Statement for the year ended December 31, 2016. There were no significant2019.
During the year ended December 31, 2018, the FCA Group settled a portion of the supplemental retirement plan amendments or curtailments toin North America, resulting in a refund of excess assets of €22 million. The corresponding settlement charge of €78 million was recognized within Selling, general and other in the Group's pension plansConsolidated Income Statement for the year ended December 31, 2015.2018.
During the year ended December 31, 2018, the FCA Group also entered into an annuity buyout relating to two of its U.S. defined benefit plans. A total of €841 million was paid to a third-party insurance company in settlement of FCA's obligations, resulting in a settlement loss of €12 million that was recognized within Selling, general and other in the Consolidated Income Statement for the year ended December 31, 2018.
The fair value of plan assets by class was as follows:
|
| | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Amount | | of which have a
quoted market price in an active
market | | Amount | | of which have a
quoted market price in an active market |
| | (€ million) |
| Cash and cash equivalents | € | 628 |
| | € | 611 |
| | € | 862 |
| | € | 816 |
|
| U.S. equity securities | 1,426 |
| | 1,426 |
| | 1,641 |
| | 1,633 |
|
| Non-U.S. equity securities | 1,098 |
| | 1,098 |
| | 1,170 |
| | 1,170 |
|
| Commingled funds | 2,684 |
| | 1,138 |
| | 3,149 |
| | 216 |
|
| Equity instruments | 5,208 |
| | 3,662 |
| | 5,960 |
| | 3,019 |
|
| Government securities | 2,601 |
| | 803 |
| | 2,611 |
| | 858 |
|
| Corporate bonds (including convertible and high yield bonds) | 5,864 |
| | — |
| | 6,353 |
| | 58 |
|
| Other fixed income | 1,071 |
| | 114 |
| | 907 |
| | 9 |
|
| Fixed income securities | 9,536 |
| | 917 |
| | 9,871 |
| | 925 |
|
| Private equity funds | 1,962 |
| | — |
| | 1,979 |
| | — |
|
| Commingled funds | 165 |
| | 162 |
| | 147 |
| | 118 |
|
| Mutual funds | — |
| | — |
| | 3 |
| | 3 |
|
| Real estate funds | 1,374 |
| | 13 |
| | 1,460 |
| | — |
|
| Hedge funds | 1,893 |
| | 49 |
| | 2,466 |
| | — |
|
| Investment funds | 5,394 |
| | 224 |
| | 6,055 |
| | 121 |
|
| Insurance contracts and other | 452 |
| | 50 |
| | 661 |
| | 156 |
|
| Total fair value of plan assets | € | 21,218 |
| | € | 5,464 |
| | € | 23,409 |
| | € | 5,037 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | Amount | | of which have a
quoted market price in an active
market | | Amount | | of which have a
quoted market price in an active market |
| | (€ million) |
| Cash and cash equivalents | | € | 846 | | | € | 799 | | | € | 699 | | | € | 681 | |
| U.S. equity securities | | 1,220 | | | 1,219 | | | 1,407 | | | 1,405 | |
| Non-U.S. equity securities | | 670 | | | 670 | | | 781 | | | 781 | |
| Commingled funds | | 1,480 | | | 506 | | | 1,596 | | | 422 | |
| Equity instruments | | 3,370 | | | 2,395 | | | 3,784 | | | 2,608 | |
| Government securities | | 2,823 | | | 833 | | | 3,179 | | | 1,191 | |
| Corporate bonds (including convertible and high yield bonds) | | 5,797 | | | 0 | | | 5,553 | | | 0 | |
| Other fixed income | | 1,487 | | | 185 | | | 1,536 | | | 174 | |
| Fixed income securities | | 10,107 | | | 1,018 | | | 10,268 | | | 1,365 | |
| Private equity funds | | 2,332 | | | 0 | | | 2,297 | | | 0 | |
| Commingled funds | | 70 | | | 66 | | | 65 | | | 62 | |
| | | | | | | | |
| Real estate funds | | 1,173 | | | 3 | | | 1,349 | | | 3 | |
| Hedge funds | | 2,199 | | | 62 | | | 2,072 | | | 38 | |
| Investment funds | | 5,774 | | | 131 | | | 5,783 | | | 103 | |
| Insurance contracts and other | | 161 | | | 66 | | | 195 | | | 66 | |
| Total fair value of plan assets | | € | 20,258 | | | € | 4,409 | | | € | 20,729 | | | € | 4,823 | |
Non-U.S. Equityequity securities arewere invested broadly in developed international and emerging markets. Fixed income securities arewere debt instruments which are primarily comprised 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.capitalizations. Private equity funds includeincluded those in limited partnerships that invest primarily in operatingthe equity of companies that are not publicly traded on a stock exchange. Private debt funds included those in limited partnerships that invest primarily in the debt of companies and real estate developers. Commingled funds include common collective trust funds, mutual funds and other investment entities. Real estate fund investments includeincluded those in limited partnerships that invest in various commercial and residential real estate projects both domestically and internationally. Hedge fund investments includeincluded 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 reflectreflected a balance of liability-hedging and return-seeking investment considerations. The investment objectives arewere to minimize the volatility of the value of the pension assets relative to the pension liabilities and to ensure that assets arewere sufficient to pay plan obligations. The objective of minimizing the volatility of assets relative to liabilities iswas addressed primarily through asset diversification, partial asset–liabilityasset-liability matching and hedging. Assets arewere broadly diversified across many asset classes to achieve risk–adjustedrisk-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 arewere allocated to fixed income securities. The FCA Group policy for these plans ensuresensured actual allocations arewere in line with target allocations as appropriate.
Assets arewere actively monitored and managed primarily by external investment managers. Investment managers arewere not permitted to invest outside of the asset class or strategy for which they havehad been appointed. The FCA Group usesused investment guidelines to ensure investment managers investinvested solely within the mandated investment strategy. Certain investment managers useused 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 maycould also be used in place of physical securities when it iswas more cost-effective and/or efficient to do so. Plan assets dodid not include FCA shares of FCA or properties occupied by Group companies, with the possible exception of commingled investment vehicles where FCA doesdid not control the investment guidelines.
Sources of potential risk in pension plan assets measurements relaterelated to market risk, interest rate risk and operating risk. Market risk iswas mitigated by diversification strategies and as a result, there arewere no significant concentrations of risk in terms of sector, industry, geography, market capitalization, manager or counterparty. Interest rate risk iswas mitigated by partial asset–liabilityasset-liability matching. The fixed income target asset allocation partially matchesmatched the bond–likebond-like and long–datedlong-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 will generally increase the fair value of the investments in fixed income securities and the present value of the obligations. Operating risks were mitigated through ongoing oversight of external investment managers’ style adherence, team strength, firm health and internal controls.
The weighted average assumptions used to determine the defined benefit obligations were as follows:
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | U.S. | | Canada | | UK | | U.S. | | Canada | | UK | | U.S. | | Canada | | UK | | U.S. | | Canada | | UK |
| Discount rate | 3.8 | % | | 3.5 | % | | 2.7 | % | | 4.4 | % | | 3.9 | % | | 2.7 | % | Discount rate | | 2.6% | | 2.5% | | 1.6% | | 3.3% | | 3.1% | | 2.0% |
| Future salary increase rate | — | % | | 3.5 | % | | 3.2 | % | | — | % | | 3.5 | % | | 3.1 | % | Future salary increase rate | | 0% | | 3.5% | | 2.7% | | 0% | | 3.5% | | 2.7% |
The average duration of the U.S. and Canadian liabilities was approximately 1112 years and 1314 years, respectively. The average duration of the UK pension liabilities was approximately 2017 years.
Health care and life insurance plans
Liabilities arising from these unfunded plans comprisecomprised obligations for retiree health care and life insurance granted to employees and to retirees in the U.S. and Canada. 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) |
| 2021 | | € | 119 | |
| 2022 | | € | 118 | |
| 2023 | | € | 117 | |
| 2024 | | € | 117 | |
| 2025 | | € | 117 | |
| 2026-2030 | | € | 572 | |
|
| | | |
| | Expected benefit payments |
| | (€ million) |
| 2018 | € | 125 |
|
| 2019 | € | 125 |
|
| 2020 | € | 124 |
|
| 2021 | € | 124 |
|
| 2022 | € | 125 |
|
| 2023-2027 | € | 634 |
|
Changes in the net defined benefit obligations for healthcare and life insurance plans were as follows:
| | | | 2017 | | 2016 | | 2020 | | 2019 |
| | (€ million) | | (€ million) |
| Present value of obligations at January 1 | € | 2,466 |
| | € | 2,459 |
| Present value of obligations at January 1 | | € | 2,289 | | | € | 2,216 | |
| Included in the Consolidated Income Statement | 120 |
| | 130 |
| Included in the Consolidated Income Statement | | 94 | | | 115 | |
| Included in Other comprehensive income: | | | | Included in Other comprehensive income: | |
| Actuarial (gains)/losses from: | | | | Actuarial (gains)/losses from: | |
| - Demographic and other assumptions | (52 | ) | | (77 | ) | - Demographic and other assumptions | | (24) | | | (215) | |
| - Financial assumptions | 160 |
| | 10 |
| - Financial assumptions | | 179 | | | 251 | |
| Effect of movements in exchange rates | (278 | ) | | 83 |
| Effect of movements in exchange rates | | (186) | | | 57 | |
| Other: | | | | Other: | |
| Benefits paid | (137 | ) | | (139 | ) | Benefits paid | | (119) | | | (135) | |
| Other changes | — |
| | — |
| |
| Present value of obligations at December 31 | € | 2,279 |
| | € | 2,466 |
| |
| Transfer to Liabilities held for sale | | Transfer to Liabilities held for sale | | 0 | | | 0 | |
| | December 31 | | December 31 | | € | 2,233 | | | € | 2,289 | |
Amounts recognized in the Consolidated Income Statement were as follows:
| | | | Years ended December 31 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | (€ million) | | (€ million) |
| Current service cost | € | 22 |
| | € | 26 |
| | € | 32 |
| Current service cost | | € | 21 | | | € | 20 | | | € | 22 | |
| Interest expense | 98 |
| | 107 |
| | 102 |
| Interest expense | | 73 | | | 96 | | | 88 | |
| Past service costs/(credits) and losses/(gains) arising from settlements | — |
| | (3 | ) | | — |
| Past service costs/(credits) and losses/(gains) arising from settlements | | 0 | | | (1) | | | 0 | |
| | Total recognized in the Consolidated Income Statement | € | 120 |
| | € | 130 |
| | € | 134 |
| Total recognized in the Consolidated Income Statement | | € | 94 | | | € | 115 | | | € | 110 | |
Health care and life insurance plans arewere accounted for on an actuarial basis, which requiresrequired the selection of various assumptions. In particular, it requiresrequired 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:
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | U.S. | | Canada | | U.S. | | Canada | | U.S. | | Canada | | U.S. | | Canada |
| Discount rate | 3.9 | % | | 3.6 | % | | 4.5 | % | | 4.0 | % | Discount rate | 2.7% | | 2.7% | | 3.4% | | 3.1% |
| Salary growth | 1.5 | % | | 1.0 | % | | 1.5 | % | | 1.0 | % | Salary growth | 1.5% | | 1.3% | | 1.5 | % | | 1.0% |
| Weighted average ultimate healthcare cost trend rate | 4.5 | % | | 4.5 | % | | 4.5 | % | | 4.4 | % | Weighted average ultimate healthcare cost trend rate | 4.0% | | 4.0% | | 4.4% | | 4.0% |
The average duration of the U.S. and Canadian liabilities was approximately 13 years and 1617 years, respectively.
The annual rate of increase in the per capita cost of covered U.S. health care benefits assumed for the next year and used in the 20172020 plan valuation was 6.85.5 percent (7.0(5.3 percent in 2016)2019). The annual rate was assumed to decrease gradually to 4.54.0 percent after 2029through 2042 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 20172020 plan valuation was 4.84.4 percent (4.7(4.4 percent in 2016)2019). The annual rate was assumed to decrease gradually to 4.54.0 percent in 2029through 2040 and remain at that level thereafter.
Other post-employment benefits
Other post-employment benefits includecomprised other employee benefits granted to Group employees in Europe and comprises, amongst others,includes the Italian employee severance indemnity (trattamento(trattamento di fine rapporto, or “TFR”) obligation required under Italian Law, amounting to €752€543 million at December 31, 20172020 and €775€584 million at December 31, 2016.2019.
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 regardinggoverning this scheme was amended by Law 296 of December 27, 2006 and subsequent decrees and regulations issued in 2007. Under these amendments, companies with at least 50 employees were obliged to transfer the TFR obligation 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 of defined contribution plans under IAS 19 - Employee Benefits, 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 consisted of the residual TFR obligation for TFR through 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 FCA Group recognizesrecognized the associated cost over the period in which the employee rendersrendered service.
Changes in defined benefit obligations for other post-employment benefits were as follows:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| | (€ million) |
| Present value of obligations at January 1 | | € | 793 | | | € | 819 | |
| Included in the Consolidated Income Statement | | 14 | | | 20 | |
| Included in Other comprehensive income: | | | | |
| Actuarial (gains)/losses from: | | | | |
| - Demographic and other assumptions | | (18) | | | 11 | |
| - Financial assumptions | | 13 | | | 41 | |
| Effect of movements in exchange rates | | (7) | | | 3 | |
| Other: | | | | |
| Benefits paid | | (32) | | | (90) | |
| Transfer to Liabilities held for sale | | 0 | | | (20) | |
| Other changes | | 0 | | | 9 | |
| Present value of obligations at December 31 | | € | 763 | | | € | 793 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| | (€ million) |
| Present value of obligations at January 1 | € | 987 |
| | € | 969 |
|
| Included in the Consolidated Income Statement | 23 |
| | 26 |
|
| Included in Other comprehensive income: | | | |
| Actuarial (gains)/losses from: | | | |
| - Demographic and other assumptions | 18 |
| | 36 |
|
| - Financial assumptions | (3 | ) | | 29 |
|
| Effect of movements in exchange rates | (5 | ) | | 1 |
|
| Other: | | | |
| Benefits paid | (48 | ) | | (58 | ) |
| Transfer to Liabilities held for sale | — |
| | (14 | ) |
| Other changes | 15 |
| | (2 | ) |
| Present value of obligations at December 31 | € | 987 |
| | € | 987 |
|
Amounts recognized in the Consolidated Income Statement were as follows:
| | | | Years ended December 31 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | (€ million) | | (€ million) |
| Current service cost | € | 11 |
| | € | 8 |
| | € | 10 |
| Current service cost | | € | 7 | | | € | 6 | | | € | 9 | |
| Interest expense | 13 |
| | 17 |
| | 6 |
| Interest expense | | 7 | | | 12 | | | 14 | |
| Past service costs (credits) and (gains)/losses arising from settlements | (1 | ) | | 1 |
| | — |
| |
| Past service costs/(credits) and losses/(gains) arising from settlements | | Past service costs/(credits) and losses/(gains) arising from settlements | | 0 | | | 1 | | | 0 | |
| Items relating to discontinued operations | | Items relating to discontinued operations | | 0 | | | 1 | | | 0 | |
| Total recognized in the Consolidated Income Statement | € | 23 |
| | € | 26 |
| | € | 16 |
| Total recognized in the Consolidated Income Statement | | € | 14 | | | € | 20 | | | € | 23 | |
The discount rates used for the measurement of the Italian TFR obligation arewere based on yields of high-quality (AA rated) fixed income securities for which the timing and amounts of maturities matchmatched the timing and amounts of the projected benefit payments. For this plan, the single weighted average discount rate that reflectsreflected the estimated timing and amount of the scheme future benefit payments for 20172020 was 1.20.5 percent (1.0(0.6 percent in 2016)2019). The average duration of the Italian TFR iswas approximately 7 years. Retirement or employee leaving rates arewere developed to reflect actual and projected Group experience and lawlegal requirements for retirement in Italy.
Other provisions for employees
Other provisions for employees primarily includeincluded long-term disability benefits, supplemental unemployment benefits, variable and other deferred compensation, as well as bonuses granted for tenure at the Company.
Provisions consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019(1) |
| | Current | | Non-current | | Total | | Current | | Non-current | | Total |
| | (€ million) |
| Product warranty and recall campaigns | | € | 2,045 | | | € | 3,671 | | | € | 5,716 | | | € | 2,406 | | | € | 3,900 | | | € | 6,306 | |
| Sales incentives | | 4,078 | | | 0 | | | 4,078 | | | 5,479 | | | 0 | | | 5,479 | |
| Legal proceedings and disputes | | 397 | | | 183 | | | 580 | | | 303 | | | 222 | | | 525 | |
| Commercial risks | | 410 | | | 301 | | | 711 | | | 441 | | | 120 | | | 561 | |
| Restructuring | | 64 | | | 24 | | | 88 | | | 72 | | | 34 | | | 106 | |
| Other risks | | 261 | | | 787 | | | 1,048 | | | 277 | | | 751 | | | 1,028 | |
| Total Provisions | | € | 7,255 | | | € | 4,966 | | | € | 12,221 | | | € | 8,978 | | | € | 5,027 | | | € | 14,005 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Current | | Non-current | | Total | | Current | | Non-current | | Total |
| | (€ million) |
| Product warranty and recall campaigns | € | 2,676 |
| | € | 4,049 |
| | € | 6,725 |
| | € | 2,905 |
| | € | 4,637 |
| | € | 7,542 |
|
| Sales incentives | 5,377 |
| | — |
| | 5,377 |
| | 5,749 |
| | — |
| | 5,749 |
|
| Legal proceedings and disputes | 125 |
| | 551 |
| | 676 |
| | 54 |
| | 530 |
| | 584 |
|
| Commercial risks | 481 |
| | 334 |
| | 815 |
| | 250 |
| | 412 |
| | 662 |
|
| Restructuring | 26 |
| | 44 |
| | 70 |
| | 26 |
| | 46 |
| | 72 |
|
| Other risks | 324 |
| | 792 |
| | 1,116 |
| | 333 |
| | 895 |
| | 1,228 |
|
| Total Provisions | € | 9,009 |
| | € | 5,770 |
| | € | 14,779 |
| | € | 9,317 |
| | € | 6,520 |
| | € | 15,837 |
|
Changes in Provisions were as follows:
| | | | At
January 1,
2017 | | Additional
provisions | | Settlements | | Unused
amounts | | Translation differences | | Changes in
the scope of
consolidation
and other
changes | | At
December 31,
2017 | | At January 1, 2020 | | Additional
provisions | | Settlements | | Unused
amounts | | Translation differences | | Transfer to Liabilities held for sale | | Other
changes | | At December 31, 2020 |
| | (€ million) | | (€ million) |
| Product warranty and recall campaigns | € | 7,542 |
| | € | 3,196 |
| | € | (3,262 | ) | | € | — |
| | € | (746 | ) | | € | (5 | ) | | € | 6,725 |
| Product warranty and recall campaigns | | € | 6,306 | | | € | 2,777 | | | € | (2,897) | | | € | 0 | | | € | (488) | | | € | 0 | | | € | 18 | | | € | 5,716 | |
| Sales incentives | 5,749 |
| | 13,850 |
| | (13,675 | ) | | (3 | ) | | (567 | ) | | 23 |
| | 5,377 |
| Sales incentives | | 5,479 | | | 10,524 | | | (11,636) | | | (11) | | | (324) | | | 0 | | | 46 | | | 4,078 | |
| Legal proceedings and disputes | 584 |
| | 200 |
| | (69 | ) | | (38 | ) | | (49 | ) | | 48 |
| | 676 |
| Legal proceedings and disputes | | 525 | | | 286 | | | (165) | | | (11) | | | (56) | | | 0 | | | 1 | | | 580 | |
| Commercial risks | 662 |
| | 432 |
| | (181 | ) | | (34 | ) | | (64 | ) | | — |
| | 815 |
| Commercial risks | | 561 | | | 338 | | | (125) | | | (4) | | | (55) | | | 0 | | | (4) | | | 711 | |
| Restructuring costs | 72 |
| | 91 |
| | (55 | ) | | (3 | ) | | (3 | ) | | (32 | ) | | 70 |
| Restructuring costs | | 106 | | | 66 | | | (64) | | | (12) | | | (6) | | | 0 | | | (2) | | | 88 | |
| Other risks | 1,228 |
| | 229 |
| | (187 | ) | | (97 | ) | | (62 | ) | | 5 |
| | 1,116 |
| Other risks | | 1,028 | | | 317 | | | (198) | | | (29) | | | (38) | | | 0 | | | (32) | | | 1,048 | |
| Total Provisions | € | 15,837 |
| | € | 17,998 |
| | € | (17,429 | ) | | € | (175 | ) | | € | (1,491 | ) | | € | 39 |
| | € | 14,779 |
| Total Provisions | | € | 14,005 | | | € | 14,308 | | | € | (15,085) | | | € | (67) | | | € | (967) | | | € | 0 | | | € | 27 | | | € | 12,221 | |
Product warranty and recall campaigns
At December 31, 2017,2020, the Product warranty and recall campaigns provision included €102 million of charges recognized within Cost of revenuesdecreased primarily due to lower volumes in the Consolidated Income Statement for the year ended December 31, 2017 for the estimated costs associated with an extension of theNorth America, reflecting COVID-19 related disruptions, partially offset by higher recall campaigns related to an industry-wide recall of airbag inflators resulting from parts manufactured by Takata, of which €29 million related to the previously announced recall in NAFTA and €73 million related to the preventative safety campaigns in LATAM. Refer to Note 25, Guarantees granted, commitments and contingent liabilities, for additional information.campaign costs.
At December 31, 2016,2019, the Product warranty and recall campaigns provision included €414 million of charges recognized within Cost of revenuesdecreased slightly primarily due to lower volumes in the Consolidated Income Statement for the year ended December 31, 2016 for the additional estimated costs associated with the recall campaigns related to an industry wide recall of airbag inflators resulting from parts manufactured by Takata. Refer to Note 25,Guarantees granted, commitments and contingent liabilities, for additional information. In addition, the Product warranty and recall campaigns provision included €132 million of estimated net costs recognized within Cost of revenues in the Consolidated Income Statement for the year ended December 31, 2016 associated with a recall for which costs are being contested with a supplier. Although FCA believes the supplier has responsibility for the recall, only a partial recovery of the estimated costs has been recognized pursuant to a cost sharing agreement. North America.
The cash outflow for the non-current portion of the Product warranty and recall campaigns provision is primarily expected within a period through 2022.
2023.
Sales incentives Legal proceedings and disputes, Commercial risks and Other risks
As described within Note 2, Basis of preparation ( - Use of Estimates section)estimates, the FCA Group recordsrecorded the estimated cost of sales incentive programs offered to dealers and consumers as a reduction to revenue at the time of sale of the vehicle to the dealer. At December 2020, the Sales incentive provision decreased primarily due to lower dealer stock levels.
None of the provisions within the total Legal proceedings and disputes provision are individually significant.
As described within Note 2, Basis of preparation ( - Use of Estimates section)estimates, a provision for legal proceedings iswas recognized when it iswas deemed probable that the proceedings willwould result in an outflow of resources. As the ultimate outcome of pending litigation iswas uncertain, the timing of cash outflowoutflows for the Legal proceedings and disputes provision iswas also uncertain.
During the year ended December 31, 2020, a provision of €222 million was recognized for estimated probable loss to settle matters under investigation by the U.S. Department of Justice primarily related to criminal investigations associated with U.S. diesel emissions matters (refer to Note 25 - Guarantees granted, commitments and contingent liabilities for further information).
During the year ended December 31, 2020, approximately €0.1 billion of payments were made for civil, environmental and consumer claims related to U.S. diesel emissions matters accrued in 2018 (refer to Note 25, Guarantees granted, commitments and contingent liabilities).
Commercial risks
Commercial risks arisearose in connection with the sale of products and services, such as onerous maintenance contracts, and as a result of certain regulatory emission requirements. For items such as onerous maintenance contracts, a provision iswas recognized when the expected costs to complete the services under these contracts exceedexceeded the revenues expected to be realized. A provision for fines related to certain regulatory emission requirements that cancould be settled with cash fines iswas recognized at the time vehicles arewere sold based on the estimated cost to settle the obligation, measured as the sum of the cost of regulatory credits previously purchased plus the amount, if any, of the fine expected to be paid in cash. The cash outflow for the non-current portion of the Commercial risks provision iswas primarily expected within a period through 2020.2023.
On August 31, 2020, the U.S. Court of Appeals for the Second Circuit vacated a final rule published by the National Highway Traffic Safety Administration (“NHTSA”) in July 2019 that had reversed NHTSA’s 2016 increase to the base rate of the CAFE penalty from $5.50 to $14.00. The base rate applies to each tenth of a mile per gallon (“MPG”) that a manufacturer’s fleet-wide average MPG is below the CAFE standard, and is multiplied by the number of vehicles in the manufacturer’s fleet to arrive at an aggregate penalty. On January 14, 2021, NHTSA published an interim final rule intended to avoid retroactive applicability of the increased fine rate that resulted from the Second Circuit’s ruling. In particular, NHTSA’s new rule imposes a CAFE penalty base rate of $5.50 through 2021 Model Year. The rule increases the CAFE penalty base rate to $14.00 in 2022 Model Year. Refer to Note 2, Basis of preparation, for additional detail on related impairments and Note 25, Guarantees granted, commitments and contingent liabilities for additional detail.
On July 12, 2019, the U.S. Department of Transportation’s National Highway Traffic Safety Administration (“NHTSA”) announced a final rule that retained the current fine rate applicable to automobile manufacturers that fail to meet Corporate Average Fuel Economy (“CAFE”) standards through achievement of the targeted fleet fuel efficiency or remittance of CAFE credits. Prior to this final rule, FCA recorded a provision for estimated CAFE civil fines relating to 2019 model year vehicles for which CAFE credits were not expected to be available at the previously announced civil fine rate. As a result of the announced final rule, under IAS 37, the reduction of the civil fine rate resulted in a change in the estimated provision of €158 million relating to 2019 model year vehicles sold prior to March 31, 2019, which was recognized as a reduction to Cost of revenues within the Consolidated Income Statement for the year ended December 31, 2019.
Restructuring costs
During the year ended December 31, 2020, a total provision for €66 million was recognized primarily for workforce restructuring costs, of which €18 million was recognized within LATAM, €6 million within EMEA and €32 million within North America (refer to Note 28, Segment reporting).
Other risks
Other risks include,included, among other items: provisions for disputes with suppliers related to supply contracts or other matters that arewere 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, disputes with other parties relating to contracts or other matters not subject to legal proceedings and management's best estimate of the FCA Group’s probable environmental obligations, which also includesincluded costs related to claims on environmental matters. The cash outflow for the non-current portion of the Other risks provision iswas primarily expected within a period through 2024.2023.
Debt classified within current liabilities includesincluded short-term borrowings from banks and other financing with an original maturity date falling within twelve months, as well as the current portion of long-term debt. Debt classified within non-current liabilities includesincluded borrowings from banks and other financing with maturity dates greater than twelve months (long-term debt), net of the current portion.
The following table summarizes the
FCA Group's current and non-current Debt by maturity date (amounts include accrued interest):
| | | | At December 31 | | At December 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | Due
within
one year (current) | | Due
between
one and
five years | | Due
beyond
five years | | Total (non-current) | | Total Debt | | Due within
one year (current) | | Due
between
one and
five years | | Due
beyond
five
years | | Total (non-current) | | Total Debt | | Due
within
one year (current) | | Due
between
one and
five years | | Due
beyond
five years | | Total (non-current) | | Total Debt | | Due within
one year (current) | | Due
between
one and
five years | | Due
beyond
five
years | | Total (non-current) | | Total Debt |
| | (€ million) | | (€ million) |
| Notes | € | 2,054 |
| | € | 5,071 |
| | € | 2,501 |
| | € | 7,572 |
| | € | 9,626 |
| | € | 2,565 |
| | € | 5,763 |
| | € | 4,023 |
| | € | 9,786 |
| | € | 12,351 |
| Notes | | € | 1,131 | | | € | 5,073 | | | € | 2,250 | | | € | 7,323 | | | € | 8,454 | | | € | 1,450 | | | € | 4,942 | | | 0 | | | € | 4,942 | | | € | 6,392 | |
| Borrowings from banks | 4,132 |
| | 2,278 |
| | 502 |
| | 2,780 |
| | 6,912 |
| | 4,025 |
| | 4,592 |
| | 786 |
| | 5,378 |
| | 9,403 |
| Borrowings from banks | | 1,842 | | | 8,288 | | | 40 | | | 8,328 | | | 10,170 | | | 2,097 | | | 1,511 | | | 88 | | | 1,599 | | | 3,696 | |
| Asset-backed financing (Note 15) | 357 |
| | — |
| | — |
| | — |
| | 357 |
| | 410 |
| | — |
| | — |
| | — |
| | 410 |
| Asset-backed financing (Note 15) | | 41 | | | 0 | | | 0 | | | 0 | | | 41 | | | 151 | | | 0 | | | 0 | | | 0 | | | 151 | |
| Lease liabilities | | Lease liabilities | | 355 | | | 664 | | | 674 | | | 1,338 | | | 1,693 | | | 360 | | | 705 | | | 575 | | | 1,280 | | | 1,640 | |
Other debt | 702 |
| | 347 |
| | 27 |
| | 374 |
| | 1,076 |
| | 937 |
| | 688 |
| | 259 |
| | 947 |
| | 1,884 |
| | 712 | | | 46 | | | 1 | | | 47 | | | 759 | | | 818 | | | 204 | | | 0 | | | 204 | | | 1,022 | |
| Total Debt | € | 7,245 |
| | € | 7,696 |
| | € | 3,030 |
| | € | 10,726 |
| | € | 17,971 |
| | € | 7,937 |
| | € | 11,043 |
| | € | 5,068 |
| | € | 16,111 |
| | € | 24,048 |
| Total Debt | | € | 4,081 | | | € | 14,071 | | | € | 2,965 | | | € | 17,036 | | | € | 21,117 | | | € | 4,876 | | | € | 7,362 | | | € | 663 | | | € | 8,025 | | | € | 12,901 | |
(1) Debt at December 31, 2020, excludes €74 million of debt included within Liabilities held for sale. Refer to Note 3, Scope of consolidation.
Notes
The following table summarizes the notes outstanding notes at December 31, 20172020 and 2016:2019: |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | At December 31 |
| | Currency | | Face value of
outstanding
notes
(million) | | Coupon % | | Maturity | | 2017 | | 2016 |
| Medium Term Note Programme: | | | | | | | | | (€ million) |
Fiat Chrysler Finance Europe S.A.(1) | EUR | | 850 |
| | 7.000 | | March 23, 2017 | | € | — |
| | € | 850 |
|
Fiat Chrysler Finance North America, Inc.(1) | EUR | | 1,000 |
| | 5.625 | | June 12, 2017 | | — |
| | 1,000 |
|
Fiat Chrysler Finance Europe S.A.(2) | CHF | | 450 |
| | 4.000 | | November 22, 2017 | | — |
| | 419 |
|
Fiat Chrysler Finance Europe S.A.(1) | EUR | | 1,250 |
| | 6.625 | | March 15, 2018 | | 1,250 |
| | 1,250 |
|
Fiat Chrysler Finance Europe S.A.(1) | EUR | | 600 |
| | 7.375 | | July 9, 2018 | | 600 |
| | 600 |
|
Fiat Chrysler Finance Europe S.A.(2) | CHF | | 250 |
| | 3.125 | | September 30, 2019 | | 213 |
| | 233 |
|
Fiat Chrysler Finance Europe S.A.(1) | EUR | | 1,250 |
| | 6.750 | | October 14, 2019 | | 1,250 |
| | 1,250 |
|
Fiat Chrysler Finance Europe S.A.(1) | EUR | | 1,000 |
| | 4.750 | | March 22, 2021 | | 1,000 |
| | 1,000 |
|
Fiat Chrysler Finance Europe S.A.(1) | EUR | | 1,350 |
| | 4.750 | | July 15, 2022 | | 1,350 |
| | 1,350 |
|
FCA NV(1) | EUR | | 1,250 |
| | 3.750 | | March 29, 2024 | | 1,250 |
| | 1,250 |
|
Other(3) | EUR | | 7 |
| | | | | | 7 |
| | 7 |
|
| Total Medium Term Note Programme | | | | | | | | | 6,920 |
|
| 9,209 |
|
| | | | | | | | | |
|
|
|
|
|
| Other Notes: | | | | | | | | | | | |
FCA NV(1) | U.S.$ |
| 1,500 |
|
| 4.500 |
| April 15, 2020 |
| 1,251 |
| | 1,423 |
|
FCA NV(1) | U.S.$ |
| 1,500 |
|
| 5.250 |
| April 15, 2023 |
| 1,251 |
| | 1,423 |
|
| Total Other Notes | | | | | | | | | 2,502 |
|
| 2,846 |
|
| Hedging effect, accrued interest and amortized cost valuation | | | | | | | | | 204 |
|
| 296 |
|
| Total Notes | | | | | | | | | € | 9,626 |
|
| € | 12,351 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | At December 31, |
| | Currency | | Face value of
outstanding
notes
(million) | | Coupon % | | Maturity | | 2020 | | 2019 |
| Medium Term Note Programme: | | | | | | | | | | (€ million) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Fiat Chrysler Finance Europe SENC(1) | | EUR | | 1,000 | | | 4.750 | | | March 22, 2021 | | 1,000 | | | 1,000 | |
Fiat Chrysler Finance Europe SENC(1) | | EUR | | 1,350 | | | 4.750 | | | July 15, 2022 | | 1,350 | | | 1,350 | |
FCA NV(1) | | EUR | | 1,250 | | | 3.375 | | | July 7, 2023 | | 1,250 | | | 0 | |
FCA NV(1) | | EUR | | 1,250 | | | 3.750 | | | March 29, 2024 | | 1,250 | | | 1,250 | |
FCA NV(1) | | EUR | | 1,250 | | | 3.875 | | | January 5, 2026 | | 1,250 | | | 0 | |
FCA NV(1) | | EUR | | 1,000 | | | 4.500 | | | July 7, 2028 | | 1,000 | | | 0 | |
Other(2) | | EUR | | 7 | | | | | | | 7 | | | 7 | |
| Total Medium Term Note Programme | | | | | | | | | | 7,107 | | | 3,607 | |
| | | | | | | | | | | | |
| Other Notes: | | | | | | | | | | | | |
FCA NV(1) | | U.S.$ | | 1,500 | | | 4.500 | | | April 15, 2020 | | 0 | | | 1,335 | |
FCA NV(1) | | U.S.$ | | 1,500 | | | 5.250 | | | April 15, 2023 | | 1,223 | | | 1,335 | |
| Total Other Notes | | | | | | | | | | 1,223 | | | 2,670 | |
| Hedging effect, accrued interest and amortized cost valuation | | | | | | | | | | 124 | | | 115 | |
| Total Notes | | | | | | | | | | € | 8,454 | | | € | 6,392 | |
_________________________
(1) Listing on the Irish Stock Exchange was obtained.
(2) Listing on the SIX Swiss Exchange was obtained.
(3) Medium Term Notes with amounts outstanding equal to or less than the equivalent of €50 million.
Notes Issued Through the Medium Term Note Programme
Certain notes issued by the FCA Group arewere governed by the terms and conditions of the Medium Term Note (“MTN”) Programme (previously known as the Global Medium Term Note Programme, or “GMTN” Programme). A maximum of €20 billion may be used under this programme, of which notes of €6.9 billion€7,107 million were outstanding at December 31, 20172020 (€9.2 billion3,607 million at December 31, 2016)2019). TheNotes under the MTN Programme isare issued, or otherwise guaranteed, by FCA NV. We may fromFrom time to time, FCA may buy back notes in the market that have been issued. Such buybacks, if made, depend upon market conditions, the Group's financial situation and other factors which could affect such decisions.
Changes in notes issued under the MTN Programme during the year ended December 31, 20172020 were due to the:the issuance in July 2020 of Notes with principal amount totaling €3,500 million.
repayment at maturityOn July 1, 2020, FCA confirmed pricing of a notean offering of €3.5 billion of notes under the Medium Term Note Programme, with settlement on July 7, 2020. The offering comprised (i) €1.25 billion in March 2017 with a principal amount of €850 million;
repayment at maturity of a note3.375% notes due July 2023, (ii) €1.25 billion in June 2017 with a principal amount of €1,000 million;3.875% notes due January 2026, and
repayment at maturity of a note (iii) €1.0 billion in November 2017 with a principal amount of CHF 450 million (€385 million).4.500% notes due July 2028, each at an issue price of 100% of the applicable principal amount. The issuance replaced in full the €3.5 billion Bridge Credit Facility, which was previously fully undrawn and was fully cancelled on July 7, 2020, in connection with the settlement of the notes offering.
Changes in notes issued under the MTN Programme during the year ended December 31, 20162019 were due to the:the repayment at maturity:
issuance•in September 2019 of a 3.75 percent note at par with a principal amount of CHF 250 million; and
•in March 2016October 2019 of a note with a principal amount of €1,250 million, due in March 2024;million.
repayment at maturity of a note in April 2016 with a principal amount of €1,000 million;
repayment at maturity of a note in October 2016 with a principal amount of €1,000 million; and
repayment at maturity of a note in November 2016 with a principal amount of CHF 400 million (€373 million).
The notesNotes issued under the MTN Programme imposeimposed covenants on the issuer and, in certain cases, on FCA NV as guarantor, which include: (i) negative pledge clauses which require that in the case that any security interest upon assets of the issuer and/or FCA NV is granted in connection with other notes or debt securities having the same ranking, such a security should be equally and ratably extended to the outstanding notes; (ii) pari passu clauses, under which the notes rank and will rank pari passu with all other present and future unsubordinated and unsecured obligations of the issuer and/or FCA NV; (iii) periodic disclosure obligations; (iv) cross-default clauses which require immediate repayment of the notes 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 notes. As of December 31, 2017,2020, FCA was in compliance with the covenants under the MTN Programme.
Other Notes
In 2015, FCA NV issued U.S.$1.5 billion (€1.4 billion) principal amount of 4.5 percent unsecured senior debt securities due April 15, 2020 (the “2020 Notes”) and U.S.$1.5 billion (€1.4 billion) principal amount of 5.25 percent unsecured senior debt securities due April 15, 2023 (the “2023 Notes”) at an issue price of 100 percent of their principal amount. The 2020 Notes and the 2023 Notes, collectively referred to as the “Notes”, rank pari passu in right of payment with respect to all of FCA NV's existing and future senior unsecured indebtedness and senior in right of payment to any of FCA NV's future subordinated indebtedness and existing indebtedness, which is by its terms subordinated in right of payment to the Notes. Interest on the 2020 Notes and the 2023 Notes is payable semi-annually in April and October.
On April 15, 2020, the FCA NV repaid in full at maturity U.S.$1.5 billion of the 4.5 percent unsecured notes issued in April 2015.
The Notes imposeimposed covenants on FCA NV including: (i) negative pledge clauses which require that in the case that any security interest upon assets of FCA NV is granted in connection with other notes or debt securities having the same ranking, such a security should be equally and ratably extended to the outstanding Notes; (ii) pari passu clauses, under which the Notes rank and will rank pari passu with all other present and future unsubordinated and unsecured obligations of FCA NV; (iii) periodic disclosure obligations; (iv) cross-default clauses which require immediate repayment of the Notes 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 Notes. As of December 31, 2017,2020, FCA was in compliance with the covenants of the Notes.
Fiat Chrysler Finance US Inc.
On March 6, 2017, Fiat Chrysler Finance US Inc. (“FCF US”) was incorporated under the laws of Delaware and became an indirect, 100 percent owned subsidiary of the Company. If FCF US issues debt securities, they will be fully and unconditionally guaranteed by the Company. No other subsidiary of the Company will guarantee such indebtedness.
Borrowings from banks
FCA US Tranche B Term Loans
On February 24, 2017, FCA US prepaid the U.S.$1,826 million (€1,721 million) outstanding principal and accrued interest for its tranche B term loan maturing May 24, 2017 (the “Tranche B Term Loan due 2017”). The prepayment was made with cash on hand and did not result in a material loss on extinguishment.
At December 31, 2017, €836 million (€948 million at December 31, 2016), which included accrued interest, was outstanding under FCA US's Tranche B Term Loan maturing December 31, 2018 (the “Tranche B Term Loan due 2018”). On April 12, 2017, FCA US amended the credit agreement that governs the Tranche B Term Loan due 2018. The amendment reduced the applicable interest rate spreads by 0.50 percent per annum and reduced the LIBOR floor by 0.75 percent per annum, to 0.00 percent. In addition, the base rate floor was eliminated. As a result, the Tranche B Term Loan due 2018 bears interest, at FCA US's option, either at a base rate plus 1.0 percent per annum or at LIBOR plus 2.0 percent per annum. FCA US may prepay, refinance or re-price the Tranche B Term Loan due 2018 without premium or penalty. For the years ended December 31, 2017 and 2016, interest was accrued based on LIBOR.
On March 15, 2016, FCA US entered into amendments to the credit agreements that govern the Tranche B Term Loans to, among other items, eliminate covenants restricting the provision of guarantees and payment of dividends by FCA US for the benefit of the rest of the Group, to enable a unified financing platform and to provide free flow of capital within the Group. In conjunction with these amendments, FCA US made a U.S.$2.0 billion (€1.8 billion) voluntary prepayment of principal at par with cash on hand, of which U.S.$1,288 million (€1,159 million) was applied to the Tranche B Term Loan due 2017 and U.S.$712 million (€641 million) was applied to the Tranche B Term Loan due 2018. Accrued interest related to the portion of principal prepaid of the Tranche B Term Loans and related transaction fees were also paid.
The prepayments of principal were accounted for as debt extinguishments and, as a result, a non-cash charge of €10 million was recorded within Net financial expenses in the Consolidated Income Statement for the year ended December 31, 2016 which consisted of the write-off of the remaining unamortized debt issuance costs. The amendments to the remaining principal balance were analyzed on a lender-by-lender basis and accounted for as debt modifications in accordance with IAS 39 - Financial Instruments: Recognition and Measurement. As such, the debt issuance costs for each of the amendments were capitalized and are amortized over the respective remaining terms of the Tranche B Term Loans. For each of the Tranche B Term Loans, FCA US prepaid the scheduled quarterly principal payments, with the remaining balance applied to the principal balance due at maturity. Periodic interest payments, however, continue to be required.
The Tranche B Term Loan due 2018 is 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 percent of the equity interests in FCA US's U.S. subsidiaries and 65 percent of the equity interests in certain of its non-U.S. subsidiaries held directly by FCA US and its U.S. subsidiary guarantors.
The credit agreement that governs the Tranche B Term Loan due 2018 includes 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 credit agreement also includes 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 swap agreements and sale and leaseback transactions, (iv) limitations on fundamental changes, including certain asset sales and (v) restrictions on certain subsidiary distributions. In addition, the credit agreement requires FCA US to maintain a minimum ratio of “borrowing base” to “covered debt” (as defined), as well as a minimum liquidity of U.S.$3.0 billion (€2.5 billion). Furthermore, the credit agreement also contains 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, 2017, FCA US was in compliance with the covenants of the credit agreement that governs the Tranche B Term Loan due 2018.
European Investment Bank Borrowings
FCA hashad financing agreements with the European Investment Bank (“EIB”) for a total of €1.1€1.2 billion outstanding at December 31, 20172020 (€1.30.4 billion outstanding at December 31, 2016)2019), which included the residual debt due under the following facilities:
| |
• | the facility for €250 million (maturing in December 2019) entered into in December 2016 to support the Group's investment plan (2017-2019) in research and development centers in Italy, which includes a number of key objectives such as greater fuel efficiency, a reduction in CO2 emissions by petrol and alternative fuel engines and the study of new hybrid architectures, as well as certain capital expenditures for facilities located in southern Italy;
|
the facility for €600•€500 million (maturing(amortizing in July 2018), entered into ininstallments up to June 2015 (50 percent guaranteed by SACE) to support the Group's investment plan (2015-2017) for production and research and development sites in both northern and southern Italy, to develop efficient vehicle technologies for vehicle safety and new vehicle architectures;
the facility for €400 million (maturing in November 2018), entered into in November 2013 (50 percent guaranteed by SACE) to support certain investments and research and development programs in Italy; and
the facility for €500 million (maturing in June 2021)2021), entered into in May 2011 (guaranteed by SACE and the Serbian Authorities) for an investment program relating to the modernization and expansion of production capacity of an automotive plant in Serbia.Serbia; and
•€420 million(maturing in June 2022), entered into in June 2018 to support research and development projects to be implemented by FCA during the period 2018-2020.
F - 66On March 18, 2020, FCA announced that it entered into an agreement for a €300 million five-year loan with the European Investment Bank (“EIB”) to support specific investments to be implemented by FCA through 2021. The investments are primarily to support the manufacturing deployment of the advanced vehicle powertrain electrification technologies and, in particular, the setup of production lines for the manufacturing of PHEV vehicles at FCA’s production plant in Melfi (Italy) and the manufacturing of battery electric vehicles (“BEV”) at the production plant in Mirafiori (Italy). The loan was fully drawn on March 26, 2020.
On September 18, 2020, FCA announced that it entered into an agreement for a €485 million five-year loan with the EIB to support production of PHEVs at the Pomigliano plant in Campania (Italy). The additional borrowings also support research, development and innovation for electrification, connectivity and self-driving technologies mainly conducted at FCA's laboratories in Turin (Italy). The loan was fully drawn on September 30, 2020.
Brazil
OurFCA’s Brazilian subsidiaries have access to various local bank facilities in order to fund investments and operations. Total debt outstanding under those facilities amounted to a principal amount of €3.2€1.3 billion at December 31, 20172020 (€4.01.8 billion at December 31, 2016)2019). The loans primarily include subsidized loans granted by public financing institutions, such as Banco Nacional do Desenvolvimento (“BNDES”), with the aim to support industrial projects in certain areas. This provided the FCA Group with the opportunity to fund large investments in Brazil with loans of sizeable amounts at attractive rates. At December 31, 2017,2020, outstanding subsidized loans amounted to €2.1€0.6 billion (€2.61.1 billion at December 31, 2016)2019), of which €1.3approximately €0.4 billion (€1.60.8 billion at December 31, 2016)2019) related to the construction of the plant in Pernambuco (Brazil), which has beenwas supported by subsidized credit lines totaling Brazilian Real (“BRL”) 6.5 billion (€1.61.5 billion). Approximately €0.1 billion (€0.30.1 billion at December 31, 2016)2019) of committed credit lines contracted to fund scheduled investments in the area were undrawn at December 31, 2017.2020.
Incremental Bridge Credit Facility
On March 26, 2020, FCA announced that it had entered into a new €3.5 billion credit facility (the “Bridge Credit Facility”). The Bridge Credit Facility, initially entered into with two banks and then successfully syndicated to thirteen banks, including the two original underwriting banks, was available for general corporate purposes and for working capital needs of the group and was structured as a bridge facility to capital markets. On July 7, 2020, the Bridge Credit Facility was cancelled. Refer to Notes Issued Through the Medium Term Note Programme above for further information.
Intesa Sanpaolo Credit Facility
On June 24, 2020, FCA Italy S.p.A., a wholly-owned subsidiary of Fiat Chrysler Automobiles N.V., and other Italian companies in the FCA Group entered into a facility agreement with Intesa Sanpaolo for borrowings of up to €6.3 billion to finance FCA’s activities in Italy. The facility is unsecured and guaranteed by FCA N.V., subsequently Stellantis N.V., and will mature in March 2023, amortizing in five equal quarterly installments with the first such installment due on March 31, 2022. SACE (Italy’s export credit agency) will guarantee 80 percent of the borrowings under that facility pursuant to the recently enacted Italian Liquidity Decree. The facility and borrowings under the facility are at interest rates within a range that could be obtained in the market.
The covenants of the credit facility include financial covenants which apply under certain conditions, as well as negative pledge, pari passu, cross-default and change of control clauses. Failure to comply with these covenants, and in certain cases if not suitably remedied, can lead to the requirement of early repayment of any outstanding amounts.
In connection with SACE’s guarantee, the FCA Group provided the following industrial commitments applicable while any loans are outstanding under the facility: (i) to continue to carry out certain Italian investment projects currently underway and previously announced; (ii) not to delocalize outside Italy production of vehicles under such investment projects; and (iii) to pursue the goal of reducing temporary layoffs for employees engaged under such investment projects in Italy to nil by the end of 2023, each with agreed milestones for implementation. If the industrial commitments previously described are not implemented by the agreed milestones, the FCA Group, subsequently the Stellantis Group, may at its option: (i) implement those industrial commitments within an additional six-month period following the milestones; (ii) negotiate and agree alternative milestones and/or commitments with the Italian government; or (iii) repay the loan at any time within 18 months (including a 6 months negotiation period) from the point of non-compliance.
In addition, while loans under the facility are outstanding, FCA N.V. has committed not to approve or pay dividends or other shareholder distributions in the 2020 calendar year (except dividends related to the merger with Peugeot S.A.), and the Italian subsidiaries of the FCA Group have committed not to distribute dividends or to make other shareholder distributions until May 26, 2021.
During the year ended December 31, 2020, €6.3 billion of the facility was drawn down.
Revolving Credit Facilities
On March 26, 2020, the tenor of the three-year Tranche A of FCA’s €6.25 billion revolving credit facility (as amended, the “RCF”), for €3.125 billion, was extended by one year to April 27, 2023, with the Tranche B maturity unchanged at March 2024. On April 21, 2020, FCA announced that, in light of the continuing uncertainty relating to the impacts of COVID-19, it had drawn down its €6.25 billion revolving credit facility originally signed in June 2015 and last amended in March 2019. The €6.25 billion draw down was subsequently repaid by December 31, 2020, with the RCF being fully available as of December 31, 2020.
In March 2017,2019, the FCA Group amended its syndicated revolving credit facility originally signed in June 2015 (asand previously amended the “RCF”).in March 2017 and March 2018. The amendment increased the RCF from €5.0 billion to €6.25 billion and extended the RCF’s final maturity to March 2022.2024. The RCF which is available for general corporate purposes and for the working capital needs of the FCA Group and is structured in two tranches: €3.125 billion, with a 37-month tenor and two extension options of 1-year and of 11-months exercisable on the first and second anniversary of the amendment signing date, respectively, and €3.125 billion, with a 60-month tenor. TheThis amendment was accounted for as a debt modification and, as a result, the new costs associated with the March 2019 amendment as well as the remaining unamortized debt issuance costs related to the original €5.0 billion RCF and the new costs associated with the amendment will beprevious March 2017 and March 2018 amendments are amortized over the life of the amended RCF. At December 31, 2017, the €6.25 billion RCF was undrawn.
The covenants of the RCF include financial covenants as well as negative pledge, pari passu, cross-default and change of control clauses. The failureFailure to comply with these covenants, and in certain cases if not suitably remedied, can lead to the requirement of early repayment of any outstanding amounts. As of December 31, 2017,2020, FCA was in compliance with the covenants of the RCF.
At December 31, 2017,2020, undrawn committed credit lines totaling €7.3 billion, including the €6.25 billion RCF and approximately €1.1 billion of other revolving lines of credit. At December 31, 2019, undrawn committed credit lines totaling €7.6 billion included the €6.25 billion RCF and approximately €1.3 billion of other revolving credit facilities. At December 31, 2016, undrawn committed credit lines totaling €6.2 billion included the original €5.0 billion RCF and approximately €1.2 billion of other revolving credit facilities.
Mexico Bank Loan
FCA Mexico, S.A. de C.V. (“FCA Mexico”), ourFCA’s principal operating subsidiary in Mexico, hashad a non-revolving loan agreement (“Mexico Bank Loan”) maturing on March 20, 2022 and bears interest at one-month LIBOR plus 3.35 percent per annum. At December 31, 2017,2020, the Mexico Bank Loan had an outstanding balance of €0.4€0.2 billion (€0.50.2 billion at December 31, 2016)2019). As of December 31, 2017, we may2020, FCA could prepay all or any portion of the loan without premium or penalty. The Mexico Bank Loan requires FCA Mexico to maintain certain fixed and other assets as collateral and comply with certain covenants, including, but not limited to, financial maintenance covenants, limitations on liens, incurrence of debt and asset sales. As of December 31, 2017,2020, FCA Mexico was in compliance with the covenants under the Mexico Bank Loan.
Asset-backed financing
Asset-backed financing representsrepresented the amount of financing received through factoring transactions which do not meet
IAS 39 the IFRS 9 derecognition requirements and are recognized aswith assets of the same amount of €357€41 million (€410 million at
December 31, 2016)2020 (€151 million at December 31, 2019) within Trade and other receivables in the Consolidated Statement of Financial Position (Note 15, Trade,
other receivables and tax receivables).
Other debt
During the year ended December 31, 2017, FCA US's Canadian subsidiary made payments on the Canada Health Care Trust (“HCT”) Tranche B Note totaling €272 million, which included a scheduled payment of principal and accrued interest and the prepayment of the remaining scheduled payments due on the Canada HCT Tranche B Note. The prepayment, of €226 million, was accounted for as a debt extinguishment, and as a result, a gain on extinguishment of €9 million was recorded within Net financial expenses in the Consolidated Income Statement for the year ended December 31, 2017. This Canada HCT Note represented FCA US’s principal Canadian subsidiary’s remaining 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
At December 31, 2016, Other debt included the unsecured Canada HCT Tranche B Note totaling €278 million, including accrued interest. During the year ended December 31, 2016, FCA US's Canadian subsidiary made payments on the Canada HCT Notes totaling €148 million, which included accrued interest and the prepayment of all scheduled payments due on the Canada HCT Tranche C Note. The prepayment on the Canada HCT Tranche C Note made on July 15, 2016 resulted in a loss on extinguishment of debt of €8 million that was recorded within Net financial expenses in the Consolidated Income Statement for the year ended December 31, 2016.
As described in more detail in Note 26,Equity, FCA issued Mandatory Convertible Securities in December 2014 with an aggregate notional amount of U.S.$2,875 million (€2,293 million), whereby the obligation to pay coupons as required by the Mandatory Convertible Securities met the definition of a financial liability. The Mandatory Convertible Securities were converted into FCA common shares on December 15, 2016 and the financial liability of U.S.$226 million (€213 million) was paid in cash.
Other debt also includedincludes funds raised from financial services companies, primarily in Latin America, and deposits from dealers in Brazil and China.
Lease liabilities
The following table summarizes the FCA Group's payables for financecurrent and non-current lease liabilities:
Lease liabilities included in the Statement of Financial Position
| | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | (€ million) |
| Long-term debt (non-current) | | € | 1,338 | | | € | 1,280 | |
| Short-term debt and current portion of long-term debt (current) | | € | 355 | | | € | 360 | |
Maturity analysis - contractual undiscounted cash flows
| | | | | | | | |
| | At December 31, 2020 |
| | (€ million) |
| Due within one year | | € | 419 | |
| Due between one and five years | | 868 | |
| Due beyond five years | | 993 | |
| Total undiscounted lease liabilities | | € | 2,280 | |
In addition, FCA entered into commitments relating to leases not yet commenced of €171 million, of which the most significant related to the investments in manufacturing facilities in Michigan, USA. In addition to the above, FCA entered into non-cancellable short term leases, which are summarized inhave not been classified as lease liabilities, of €18 million which is expected to be settled within the table below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Due
within
one year | | Due
between
one and
three years | | Due
between
three
and
five years | | Due
beyond
five years | | Total | | Due
within one year | | Due
between
one and
three years | | Due
between
three
and
five years | | Due
beyond
five years | | Total |
| | (€ million) |
Minimum future lease
payments | € | 90 |
| | € | 134 |
| | € | 19 |
| | € | 74 |
| | € | 317 |
| | € | 138 |
| | € | 246 |
| | € | 131 |
| | € | 188 |
| | € | 703 |
|
| Interest expense | (15 | ) | | (15 | ) | | (3 | ) | | (3 | ) | | (36 | ) | | (22 | ) | | (29 | ) | | (7 | ) | | (5 | ) | | (63 | ) |
Present value of minimum
lease payments | € | 75 |
| | € | 119 |
| | € | 16 |
| | € | 71 |
| | € | 281 |
| | € | 116 |
| | € | 217 |
| | € | 124 |
| | € | 183 |
| | € | 640 |
|
Debt secured by assets
At December 31, 2017,2020, debt secured by assets of the Group (excluding FCA US)Group amounted to €743€464 million (€914674 million at December 31, 2016)2019), of which €140 million (€433 million at December 31, 2016) was due to creditors for assets acquired under finance leases andexcluding the remaining amountLease liabilities as described above, mainly related to subsidized financing in Latin America. America, Mexico and India.
The total carrying amount of assets acting as security for loans for the Group (excluding FCA US)Group amounted to €2,372€1,108 million, excluding the Right-of-use assets as described in Note 11, Property, plant and equipment, at December 31, 2020 (€1,637 million at December 31, 2017 (€1,940 million at December 31, 2016) (Note 11, Property, plant and equipment)2019).
At December 31, 2017, debt secured by assets of FCA US amounted to €1,441 million and included €836 million relating to the Tranche B Term Loan due 2018, €141 million due to creditors for assets acquired under finance leases and €464 million for other debt and financial commitments. At December 31, 2016, debt secured by assets of FCA US amounted to €3,446 million and included €2,678 million relating to the Tranche B Term Loans, €207 million due to creditors for assets acquired under finance leases and €561 million for other debt and financial commitments.
22. Other liabilities and Tax payables | | | | | |
| 22. | Other liabilities and Tax liabilities |
Other liabilities consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | Current | | Non-current | | Total | | Current | | Non-current | | Total |
| | (€ million) |
| Payables for GDP and buy-back agreements | | € | 1,181 | | | € | 0 | | | € | 1,181 | | | € | 2,210 | | | € | 0 | | | € | 2,210 | |
| Accrued expenses and deferred income | | 569 | | | 535 | | | 1,104 | | | 769 | | | 674 | | | 1,443 | |
| Indirect tax payables | | 701 | | | 92 | | | 793 | | | 501 | | | 14 | | | 515 | |
| Payables to personnel | | 898 | | | 1 | | | 899 | | | 1,008 | | | 15 | | | 1,023 | |
| Social security payables | | 279 | | | 6 | | | 285 | | | 258 | | | 4 | | | 262 | |
Construction contract liabilities
(Note 14) | | 35 | | | 0 | | | 35 | | | 83 | | | 0 | | | 83 | |
| Service contract liability | | 603 | | | 1,400 | | | 2,003 | | | 621 | | | 1,530 | | | 2,151 | |
| Other | | 1,483 | | | 95 | | | 1,578 | | | 1,338 | | | 189 | | | 1,527 | |
| Total Other liabilities | | € | 5,749 | | | € | 2,129 | | | € | 7,878 | | | € | 6,788 | | | € | 2,426 | | | € | 9,214 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Current | | Non-current | | Total | | Current | | Non-current | | Total |
| | (€ million) |
| Payables for buy-back agreements | € | 2,234 |
| | € | — |
| | € | 2,234 |
| | € | 2,081 |
| | € | — |
| | € | 2,081 |
|
| Indirect tax payables | 799 |
| | 19 |
| | 818 |
| | 667 |
| | 968 |
| | 1,635 |
|
| Accrued expenses and deferred income | 1,573 |
| | 2,260 |
| | 3,833 |
| | 1,320 |
| | 2,428 |
| | 3,748 |
|
| Payables to personnel | 988 |
| | 16 |
| | 1,004 |
| | 1,006 |
| | 34 |
| | 1,040 |
|
| Social security payables | 313 |
| | 6 |
| | 319 |
| | 312 |
| | 7 |
| | 319 |
|
Amounts due to customers for contract work (Note 14) | 190 |
| | — |
| | 190 |
| | 236 |
| | — |
| | 236 |
|
| Other | 1,838 |
| | 199 |
| | 2,037 |
| | 2,187 |
| | 166 |
| | 2,353 |
|
| Total Other liabilities | € | 7,935 |
| | € | 2,500 |
| | € | 10,435 |
| | € | 7,809 |
| | € | 3,603 |
| | € | 11,412 |
|
An analysis of Other liabilities (excluding Accrued expenses, Deferred income and deferred income)Service contract liability) by due date waswere as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Total due within one year (Current) | | Due between one and five years | | Due beyond five years | | Total due after one year (Non-Current) | | Total | | Total due within one year (Current) | | Due between one and five years | | Due beyond five years | | Total due after one year (Non-Current) | | Total |
| | (€ million) |
| Other liabilities (excluding Accrued expenses and deferred income) | € | 6,362 |
| | € | 227 |
| | € | 13 |
| | € | 240 |
| | € | 6,602 |
| | € | 6,489 |
| | € | 1,159 |
| | € | 16 |
| | € | 1,175 |
| | € | 7,664 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | Total due within one year (Current) | | Due between one and five years | | Due beyond five years | | Total due after one year (Non-Current) | | Total | | Total due within one year (Current) | | Due between one and five years | | Due beyond five years | | Total due after one year (Non-Current) | | Total |
| | (€ million) |
| Other liabilities (excluding Accrued expenses, deferred income and service contract liability) | | € | 4,577 | | | € | 179 | | | € | 15 | | | € | 194 | | | € | 4,771 | | | € | 5,398 | | | € | 201 | | | € | 21 | | | € | 222 | | | € | 5,620 | |
Payables for GDP and buy-back agreements refersrelate to buy-back agreements entered into by the FCA 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 include federal taxes on commercial transactions accrued by The decrease in the Group's Brazilian subsidiariesPayables for which, atGDP and buy-back agreements during the year ended December 31, 2016,2020 as compared to the Group (as wellyear ended December 31, 2019 relates primarily to the decrease in vehicle sales.
Accrued expenses and deferred income includes the remaining portion of government grants that will be recognized as a number of important industrial groups that operateincome in Brazil) was awaiting a decision by the Brazilian Supreme Court regarding its claim alleging double taxation.Consolidated Income Statement over the same periods as the related costs which they are intended to offset.
On March 15, 2017, the Brazilian Supreme Court ruled that state value added tax should be excluded from the basebasis for calculating a federal tax on revenue. At June 30, 2017, the FCA Group determined that the likelihood of economic outflow related to such indirect taxes was no longer probable and the total liability of €895 million that FCA had accrued but not paid for such taxes for the period from 2007 to 2014 was reversed. Due to the materiality of this item and its effect on ourFCA’s results, the amount iswas presented separately in the line Reversal of a Brazilian indirect tax liability in the Consolidated Income Statement for the year ended December 31, 2017, and iswas composed of €547 million, originally recognized as a reduction to Net revenues, and €348 million, originally recognized within Net financial expenses. The Brazilian Supreme Court issued summary written minutes of its ruling on September 29, 2017 and Trial Minutes on October 2, 2017. On October 19, 2017, the Brazilian government filed its appeal against the PIS/COFINS over ICMS decision. DueAt December 31, 2017, due to the uncertainty of scope of the application of the Supreme Court ruling taking into account the government’s appeal and request for modulation, and due to Brazil’s current heightened political and economic uncertainty, management believesbelieved a risk of economic outflow iswas still greater than remote. On August 18, 2018, the litigation concerning PIS over ICMS had its final and definitive favorable decision. At September 30, 2018, the FCA Group determined that the likelihood of economic outflow related to such indirect taxes was no longer probable and the total liability of €54 million accrued and paid would be recovered.
Deferred income includes revenuesIn March 2019, a final and definitive favorable decision was made in respect of the COFINS over ICMS element of the litigation, relating to amounts previously paid but not yetrecovered for the period between May 2004 to December 2014. During the year ended December 31, 2019, total credits and the related receivable of €164 million were recognized, in relationwhich were excluded from Adjusted EBIT (refer to separately-priced extended warranties and service contracts. These revenues will be recognizedNote 28, Segment reporting). On December 17, 2019, the Brazilian courts indicated that it would render a decision on the Brazilian government’s appeal regarding the 2017 Supreme Court’s decision with respect to the calculation of the state value added tax in the Consolidated Income Statement overbasis for federal tax on revenue on April 1, 2020, which has been subsequently postponed to an undetermined date. We continue to believe our position is supported by both the contract period in proportionfacts and the receipt of final and definitive rulings from the courts. However, due to the costs expecteduncertainty of the Supreme Court’s application of the government’s appeal and request for modulation, and due to be incurred based on historical information. Deferred income also includesBrazil’s current heightened political and economic uncertainty, we continue to believe that the remaining portionrisk of government grants that will be recognized as incomeeconomic outflow is greater than remote.
Service contract liability
The service contract liability was mainly comprised of maintenance plans and extended warranties. Changes in the Consolidated Income Statement overFCA Group's service contract liability for the periods necessary to match them withyear ended December 31, 2020, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At January 1, 2020 | | Advances received from customers | | Amounts recognized within revenue | | Transfers to Assets/(Liabilities) held for sale | | Other Changes | | At December 31, 2020 |
| | (€ million) |
| Service contract liability | | € | 2,151 | | | € | 723 | | | € | (640) | | | € | 0 | | | € | (231) | | | € | 2,003 | |
Of the related costs which they are intended to offset.
On January 20, 2017, the last installment of U.S.$175 million (€166 million) was paid on the obligation arising from the 2014 memorandum of understanding between FCA US and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, which was included within Other current liabilitiestotal Service contract liability at December 31, 2016.2020, the FCA Group expected to recognize approximately €545 million in 2021, €492 million in 2022, €382 million in 2023 and €584 million thereafter.
Tax payablesliabilities
An analysisTax liabilities by due date for Tax payables waswere as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | Total due within one year (Current) | | Due between one and five years | | Due beyond five years | | Total due after one year (Non-Current) | | Total | | Total due within one year (Current) | | Due between one and five years | | Due beyond five years | | Total due after one year (Non-Current) | | Total |
| | (€ million) |
| Tax liabilities | | € | 228 | | | € | 246 | | | € | 2 | | | € | 248 | | | € | 476 | | | € | 122 | | | € | 276 | | | € | 2 | | | € | 278 | | | € | 400 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Total due within one year (Current) | | Due between one and five years | | Due beyond five years | | Total due after one year (Non-Current) | | Total | | Total due within one year (Current) | | Due between one and five years | | Due beyond five years | | Total due after one year (Non-Current) | | Total |
| | (€ million) |
| Tax payables | € | 309 |
| | € | 32 |
| | € | 42 |
| | € | 74 |
| | € | 383 |
| | € | 162 |
| | € | 25 |
| | € | — |
| | € | 25 |
| | € | 187 |
|
23. Fair value measurement | | | | | |
| 23. | Fair value measurement |
Assets and liabilities that are measured at fair value on a recurring basis
The following table shows the fair value hierarchy, based on observable and unobservable inputs, for financial assets
and liabilities that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | At December 31, |
| | | 2020 | | 2019 |
| Note | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (€ million) |
| Debt securities and equity instruments measured at FVOCI | 13 | | € | 66 | | | € | 16 | | | € | 13 | | | € | 95 | | | € | 3 | | | € | 21 | | | € | 13 | | | € | 37 | |
| Debt securities and equity instruments measured at FVPL | 13 | | 275 | | | 0 | | | 15 | | | 290 | | | 277 | | | 0 | | | 15 | | | 292 | |
| Derivative financial assets | 16 | | 0 | | | 629 | | | 0 | | | 629 | | | 0 | | | 98 | | | 0 | | | 98 | |
| Collateral deposits | 13 | | 32 | | | 0 | | | 0 | | | 32 | | | 42 | | | 0 | | | 0 | | | 42 | |
| Receivables from financing activities | 15 | | 0 | | | 0 | | | 473 | | | 473 | | | 0 | | | 0 | | | 580 | | | 580 | |
| Trade receivables | 15 | | 0 | | | 12 | | | 0 | | | 12 | | | 0 | | | 19 | | | 0 | | | 19 | |
| Other receivables | 15 | | 0 | | | 0 | | | 63 | | | 63 | | | 0 | | | 0 | | | 69 | | | 69 | |
| | | | | | | | | | | | | | | | | |
| Money market securities | 17 | | 7,802 | | | 0 | | | 0 | | | 7,802 | | | 2,293 | | | 0 | | | 0 | | | 2,293 | |
| Total Assets | | | € | 8,175 | | | € | 657 | | | € | 564 | | | € | 9,396 | | | € | 2,615 | | | € | 138 | | | € | 677 | | | € | 3,430 | |
| Derivative financial liabilities | 16 | | 0 | | | 633 | | | 0 | | | 633 | | | 0 | | | 318 | | | 0 | | | 318 | |
| Total Liabilities | | | € | 0 | | | € | 633 | | | € | 0 | | | € | 633 | | | € | 0 | | | € | 318 | | | € | 0 | | | € | 318 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | At December 31 |
| | | | 2017 | | 2016 |
| | Note | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | (€ million) |
| Debt securities and equity instruments measured at fair value through other comprehensive income | 13 | | € | 3 |
| | € | 24 |
| | € | — |
| | € | 27 |
| | € | 159 |
| | € | 18 |
| | € | 12 |
| | € | 189 |
|
| Debt securities and equity instruments measured at fair value through profit or loss | 13 | | 275 |
| | — |
| | 2 |
| | 277 |
| | 312 |
| | — |
| | — |
| | 312 |
|
| Collateral deposits | 13 | | 61 |
| | — |
| | — |
| | 61 |
| | 68 |
| | — |
| | — |
| | 68 |
|
| Derivative financial assets | 16 | | — |
| | 254 |
| | 30 |
| | 284 |
| | — |
| | 458 |
| | 21 |
| | 479 |
|
| Cash and cash equivalents | 17 | | 10,800 |
| | 1,838 |
| | — |
| | 12,638 |
| | 15,790 |
| | 1,528 |
| | — |
| | 17,318 |
|
| Total Assets | | | € | 11,139 |
| | € | 2,116 |
| | € | 32 |
| | € | 13,287 |
| | € | 16,329 |
| | € | 2,004 |
| | € | 33 |
| | € | 18,366 |
|
| Derivative financial liabilities | 16 | | — |
| | 138 |
| | 1 |
| | 139 |
| | — |
| | 695 |
| | 2 |
| | 697 |
|
| Total Liabilities | | | € | — |
| | € | 138 |
| | € | 1 |
| | € | 139 |
| | € | — |
| | € | 695 |
| | € | 2 |
| | € | 697 |
|
In 2017, there were no transfers between LevelsDuring the year ended December 31, 2020, derivative financial assets increased €531 million primarily due to the decrease in U.S. dollar against Euro and to decrease in the Brazilian Real against the U.S dollar. During the year ended December 31, 2020, derivative financial liabilities increased €315 million primarily due to fair value hierarchy. For assetslosses for interest-rate swaps entered into to hedge interest rates on future bond issuances.
During the year ended December 31, 2020, money market securities increased €5,509 million, reflecting higher overall cash and liabilities recognized incash equivalents resulting from cash flows from operations during the financial statements at fair value on a recurring basis,second half of the Group determines whether transfers have occurred between levels in2020 and the hierarchy by re-assessing categorization at the enddraw down of each reporting period. borrowings.
The fair value of derivative financial assets and liabilities iswas measured by taking into consideration market parameters at the balance sheet date and using valuation techniques widely accepted in the financial business environment. In particular:environment, as described below:
•the fair value of forward contracts, swaps and options hedging currency swaps isrisk was determined by using valuation techniques common in the financial markets and taking the prevailing exchange rates and interest ratesmarket parameters at the balance sheet date;date (in particular, exchange rates, interest rates and volatility rates);
•the fair value of interest rate swaps and forward rate agreements iswas determined by taking the prevailing interest rates at the balance sheet date and using the discounted expected cash flow method;
•the fair value of combined interest rate and currency swaps iswas determined using the exchange and interest rates prevailing at the balance sheet date and the discounted expected cash flow method; and
•the fair value of swaps and options hedging commodity price risk iswas determined by using suitable valuation techniques common in the financial markets and taking market parameters at the balance sheet date (in particular, underlying prices, interest rates and volatility rates).
The carrying value of Cash and cash equivalents (Note 17, Cash and cash equivalents) usually approximates fair value due to the short maturity of these instruments.
The fair value of money market funds issecurities was also based on available market quotations. Where appropriate, the fair value of cash equivalents iswas determined with discounted expected cash flow techniques using observable market yields (categorized as Level 2).
The fair value of Receivables from financing activities, which are classified in Level 3 of the fair value hierarchy, was estimated using discounted cash flow models. The most significant inputs used in this measurement were market discount rates that reflected conditions applied in various reference markets on receivables with similar characteristics, adjusted in order to take into account the credit risk of the counterparties.
The fair value of Other receivables, which relates to the contingent consideration receivable from the sale of Magneti Marelli (refer to Note 3, Scope of consolidation), is classified in Level 3 of the fair value hierarchy and was estimated using discounted cash flow models. The most significant inputs used in this measurement were market discount rates.
For assets and liabilities recognized in the financial statements at fair value on a recurring basis, the FCA Group determined whether transfers occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period. In 2020, there were no transfers between levels in the fair value hierarchy.
The following table provides a reconciliation of the changes in items measured at fair value and categorized within Level 3:
|
| | | | | | | |
| | Securities | | Derivative financial
assets/(liabilities) |
| | (€ million) |
| At January 1, 2016 | € | 12 |
| | € | (35 | ) |
| Gains/(Losses) recognized in Consolidated Income Statement | — |
| | (31 | ) |
| Gains/(Losses) recognized in Other comprehensive income | — |
| | 62 |
|
| Issues/Settlements | — |
| | 23 |
|
| At December 31, 2016 | 12 |
| | 19 |
|
| Gains/(Losses) recognized in Consolidated Income Statement | (10 | ) | | 27 |
|
| Gains/(Losses) recognized in Other comprehensive income | — |
| | 18 |
|
| Issues/Settlements | — |
| | (35 | ) |
| At December 31, 2017 | € | 2 |
| | € | 29 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Receivables from financing activities | | Debt securities and equity instruments | | Derivative
financial
assets/(liabilities) | | Other receivables |
| | (€ million) |
| At January 1, 2020 | | € | 580 | | | € | 28 | | | € | 0 | | | € | 69 | |
| Gains/(Losses) recognized in Consolidated Income Statement | | 0 | | | 0 | | | 0 | | | (6) | |
| Losses recognized in Other comprehensive income/(loss) | | 0 | | | 0 | | | 0 | | | 0 | |
| Issues/Settlements | | (107) | | | 0 | | | 0 | | | 0 | |
| Purchases/Sales | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | |
| Transfers from Level 3 | | 0 | | | 0 | | | 0 | | | 0 | |
| At December 31, 2020 | | € | 473 | | | € | 28 | | | € | 0 | | | € | 63 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Receivables from financing activities | | Debt securities and equity instruments | | Derivative
financial
assets/(liabilities) | | Other receivables |
| | (€ million) |
| At January 1, 2019 | | € | 973 | | | € | 16 | | | € | 39 | | | € | 0 | |
| Gains/(Losses) recognized in Consolidated Income Statement | | 0 | | | 1 | | | 56 | | | (1) | |
| Gains recognized in Other comprehensive income/(loss) | | 0 | | | 0 | | | (15) | | | 0 | |
| Issues/Settlements | | (393) | | | 0 | | | (66) | | | 70 | |
| Purchases/Sales | | 0 | | | 11 | | | 0 | | | 0 | |
| | | | | | | | |
| Transfers from Level 3 | | 0 | | | 0 | | | (14) | | | 0 | |
| At December 31, 2019 | | € | 580 | | | € | 28 | | | € | 0 | | | € | 69 | |
The gains/(losses) included in the Consolidated Income Statements were recognized within Cost of revenues. Of the total gains/(losses) recognized in Other comprehensive income, €20 million wasno amounts were recognized within Cash flow reserves and €2 million wasno amounts were recognized within Currency translation differences.
Assets and liabilities not measured at fair value on recurring basis
The carrying value forof debt securities measured at amortized cost, financial receivables, current receivables and payables iswas a reasonable approximation of the fair value as the present value of future cash flows doesdid not differ significantly from the carrying amount.
The carrying value of Cash at banks and Other cash equivalents usually approximated fair value due to the short maturity of these instruments (refer to Note 17, Cash and cash equivalents).
The following table provides the carrying amount and fair value forof financial assets and liabilities not measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | At December 31, |
| | | 2020 | | 2019 |
| Note | | Carrying
amount | | Fair
Value | | Carrying
amount | | Fair
Value |
| | | (€ million) |
| Dealer financing | | | € | 1,065 | | | € | 1,065 | | | € | 1,737 | | | € | 1,736 | |
| Retail financing | | | 512 | | | 504 | | | 613 | | | 608 | |
| Finance lease | | | 6 | | | 6 | | | 3 | | | 3 | |
| Other receivables from financing activities | | | 360 | | | 360 | | | 222 | | | 222 | |
Total Receivables from financing activities(1) | 15 | | € | 1,943 | | | € | 1,935 | | | € | 2,575 | | | € | 2,569 | |
| | | | | | | | | |
| Asset backed financing | | | € | 41 | | | € | 41 | | | € | 151 | | | € | 151 | |
| Notes | | | 8,454 | | | 9,314 | | | 6,392 | | | 6,900 | |
| Borrowings from banks & Other debt | | | 10,929 | | | 11,194 | | | 4,718 | | | 4,724 | |
| | | | | | | | | |
Total Debt, excluding Lease liabilities(2) | 21 | | € | 19,424 | | | € | 20,549 | | | € | 11,261 | | | € | 11,775 | |
|
| | | | | | | | | | | | | | | | | |
| | | | At December 31 |
| | | | 2017 | | 2016 |
| | Note | | Carrying
amount | | Fair
Value | | Carrying
amount | | Fair
Value |
| | | | (€ million) |
| Dealer financing | | | € | 2,295 |
| | € | 2,295 |
| | € | 2,115 |
| | € | 2,115 |
|
| Retail financing | | | 420 |
| | 405 |
| | 286 |
| | 285 |
|
| Finance lease | | | 4 |
| | 4 |
| | 6 |
| | 6 |
|
| Other receivables from financing activities | | | 421 |
| | 421 |
| | 171 |
| | 171 |
|
| Total Receivables from financing activities | 15 | | € | 3,140 |
| | € | 3,125 |
| | € | 2,578 |
| | € | 2,577 |
|
| | | | | | | | | | |
| Asset backed financing | | | € | 357 |
| | € | 357 |
| | € | 410 |
| | € | 410 |
|
| Notes | | | 9,626 |
| | 10,365 |
| | 12,351 |
| | 13,164 |
|
| Other debt | | | 7,988 |
| | 8,001 |
| | 11,287 |
| | 11,311 |
|
| Total Debt | 21 | | € | 17,971 |
| | € | 18,723 |
| | € | 24,048 |
| | € | 24,885 |
|
The fair value of Receivables from financing activities, which are categorized within Level 3 of the fair value hierarchy, has beenwas estimated with discounted cash flows models. The most significant inputs used forin this measurement arewere market discount rates that reflectreflected conditions applied in various reference markets on receivables with similar characteristics, adjusted in order to take into account the credit risk of the counterparties.
Notes that arewere traded in active markets for which close or last trade pricing iswas available are classified within Level 1 of the fair value hierarchy. Notes for which such prices arewere not available arewere valued at the last available price or based on quotes received from independent pricing services or from dealers who trade in such securities and are categorized as Level 2. At December 31, 2017, €10,3582020, €9,307 million and €7 million of notes were classified within Level 1 and Level 2, respectively. At December 31, 2016, €13,1572019, €6,893 million and €7 million of notes were classified within Level 1 and Level 2, respectively.
The fair value of Other debt included in Level 2 of the fair value hierarchy has beenwas estimated using discounted cash flow models. The main inputs used arewere year-end market interest rates, adjusted for market expectations of the FCA Group’s non-performance risk implied in quoted prices of traded securities issued by the FCA Group and existing credit derivatives on FCA Group liabilities. The fair value of Other debt that requires significant adjustmentsadjustment using unobservable inputs is categorized within Level 3 of the fair value hierarchy.3. At December 31, 2017, €6,7962020, €10,597 million and €1,205€597 million of Other Debt was classified within Level 2 and Level 3, respectively. At December 31, 2016, €9,4242019, €3,865 million and €1,887€859 million of Other Debt was classified within Level 2 and Level 3, respectively.
24. Related party transactions
| | | | | |
| 24. | Related party transactions |
In accordance with IAS 24 - Related Party Disclosures, the related parties of the FCA Group arewere determined as those entities and individuals capable of exercising control, joint control or significant influence over the FCA Group and its subsidiaries. Related parties includeincluded companies belonging to Exor N.V. (the(“Exor”, the largest shareholder of FCA through its 29.1828.54 percent common shares shareholding interest and 42.3444.40 percent voting power at December 31, 2017)2020), which includeincluded Ferrari N.V. and CNHI. ExorCNH Industrial N.V. received 73,606,222 of FCA common shares in connection with the conversion of the Mandatory Convertible Securities into FCA common shares on December 16, 2016 (Note 26, Equity(“CNHI”). Related parties also includeincluded associates, joint ventures and unconsolidated subsidiaries of the Group. In addition,FCA Group, members of the FCA Board of Directors, and executives with strategic responsibilities and certain members of their families are also considered related parties.families.
Transactions carried out by the FCA Group with its related parties are on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved, and primarily relate to:
•the purchase of engines and engine components for Maserati vehicles from Ferrari N.V.;
•the purchase of powertrain systems for light commercial vehicles from CNHI;
•the sale of automotive lightingpowertrain and automotiveother components to Ferrari N.V.;the companies of CNHI;
transactions related•the provision of services (accounting, payroll, tax administration, information technology and security) to the displaycompanies of FCA brand names on Ferrari N.V. Formula 1 cars;CNHI;
•the sale of vehicles to the joint ventures Tofas and FCA Bank leasing and renting subsidiaries;
the salesubsidiaries of engines, other components and production systems and the purchase of light commercial vehicles with the joint operation Sevel S.p.A.;ventures FCA Bank and Koç Fiat Kredi;
•the sale of engines, other components and production systems to companies of CNHI;
and the purchase of light commercial vehicles from Sevel S.p.A., a 50 percent owned joint operation with Groupe PSA, based in Atessa, Italy;
•the provisionpurchase of serviceslight commercial vehicles and the sale of goods withpassenger cars from the joint operation Fiat India Automobiles Private Limited;venture Tofas;
•the provision of services and the sale of goods to the GAC FCA JV;
•the purchase of vehicles from, the provision of services (accounting, payroll, tax administration, information technology, purchasing and security)the sale of goods to companies of CNHI; and
the purchase of light commercial vehicles and passenger cars from the joint venture Tofas.operation Fiat India Automobiles Private Limited;
•the Jeep brand sponsorship of Juventus Football Club (a subsidiary of Exor); and
•the sale of automotive lighting and automotive components, which was included within discontinued operations, to Ferrari N.V.
The most significant financial transactions with related parties generated Receivables from financing activities of the FCA Group’s financial services companies from joint ventures and Asset-backed financing relating to amounts due to FCA Bank for the sale of receivables, which dodid not qualify for derecognition under IAS 39IFRS 9 – Financial Instruments: Recognition and MeasurementInstruments.
The amounts for significant transactions with related parties recognized in the Consolidated Income Statements were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | Net
Revenues | | Cost of
revenues | | Selling,
general and
other costs, net | | Net Financial
expenses/(income) | | Net
Revenues | | Cost of
revenues | | Selling,
general and
other costs, net | | Net Financial
expenses/(income) | | Net
Revenues | | Cost of
revenues | | Selling,
general and
other costs, net | | Net Financial
expenses |
| | (€ million) |
| Tofas | € | 1,287 |
| | € | 2,779 |
| | € | 9 |
| | € | — |
| | € | 1,536 |
| | € | 2,811 |
| | € | 3 |
| | € | — |
| | € | 1,533 |
| | € | 1,611 |
| | € | — |
| | € | — |
|
| Sevel S.p.A. | 392 |
| | — |
| | 5 |
| | — |
| | 381 |
| | — |
| | 5 |
| | — |
| | 311 |
| | — |
| | 4 |
| | — |
|
| FCA Bank | 1,715 |
| | 26 |
| | (20 | ) | | 36 |
| | 1,571 |
| | 18 |
| | (21 | ) | | 39 |
| | 1,447 |
| | 14 |
| | 9 |
| | 30 |
|
| GAC FCA JV | 569 |
| | — |
| | (105 | ) | | — |
| | 683 |
| | — |
| | (82 | ) | | — |
| | 252 |
| | — |
| | — |
| | — |
|
Fiat India Automobiles
Limited | 25 |
| | 1 |
| | — |
| | — |
| | 23 |
| | 1 |
| | (1 | ) | | (1 | ) | | 15 |
| | 4 |
| | — |
| | — |
|
| Other | 35 |
| | 2 |
| | (4 | ) | | 2 |
| | 36 |
| | 5 |
| | (3 | ) | | — |
| | 29 |
| | 22 |
| | — |
| | — |
|
| Total joint arrangements | 4,023 |
| | 2,808 |
| | (115 | ) | | 38 |
| | 4,230 |
| | 2,835 |
| | (99 | ) | | 38 |
| | 3,587 |
| | 1,651 |
| | 13 |
| | 30 |
|
| Total associates | 73 |
| | 52 |
| | (3 | ) | | (1 | ) | | 91 |
| | 47 |
| | — |
| | — |
| | 143 |
| | 14 |
| | 6 |
| | — |
|
| CNHI | 526 |
| | 329 |
| | 2 |
| | — |
| | 543 |
| | 422 |
| | 3 |
| | — |
| | 564 |
| | 431 |
| | — |
| | — |
|
| Ferrari N.V. | 82 |
| | 320 |
| | 1 |
| | — |
| | 81 |
| | 246 |
| | — |
| | — |
| | n/a |
| | n/a |
| | n/a |
| | n/a |
|
| Directors and Key Management | — |
| | — |
| | 114 |
| | — |
| | — |
| | — |
| | 143 |
| | — |
| | — |
| | — |
| | 132 |
| | — |
|
| Other | 1 |
| | — |
| | 26 |
| | — |
| | — |
| | — |
| | 26 |
| | — |
| | — |
| | 1 |
| | 17 |
| | — |
|
| Total CNHI, Ferrari, Directors and other | 609 |
| | 649 |
| | 143 |
| | — |
| | 624 |
| | 668 |
| | 172 |
| | — |
| | 564 |
| | 432 |
| | 149 |
| | — |
|
Total unconsolidated
subsidiaries | 61 |
| | 8 |
| | 3 |
| | 1 |
| | 57 |
| | 7 |
| | 8 |
| | 1 |
| | 79 |
| | 13 |
| | 8 |
| | (1 | ) |
| Total transactions with related parties | € | 4,766 |
| | € | 3,517 |
| | € | 28 |
| | € | 38 |
| | € | 5,002 |
| | € | 3,557 |
| | € | 81 |
| | € | 39 |
| | € | 4,373 |
| | € | 2,110 |
| | € | 176 |
| | € | 29 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total for the Group | € | 110,934 |
| | € | 93,975 |
| | € | 7,385 |
| | € | 1,469 |
| | € | 111,018 |
| | € | 95,295 |
| | € | 7,568 |
| | € | 2,016 |
| | € | 110,595 |
| | € | 97,620 |
| | € | 7,576 |
| | € | 2,366 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | Net
Revenues | | Cost of
revenues | | Selling,
general
and
other
costs, net | | Net Financial
expenses/(income) | | Net
Revenues | | Cost of
revenues | | Selling,
general
and
other
costs, net | | Net Financial
expenses/(income) | | Net
Revenues | | Cost of
revenues | | Selling,
general
and
other
costs, net | | Net Financial
expenses |
| | (€ million) |
| Tofas | | € | 938 | | | € | 1,326 | | | € | 6 | | | € | 0 | | | € | 728 | | | € | 2,086 | | | € | 9 | | | € | 0 | | | € | 926 | | | € | 2,572 | | | € | 7 | | | € | 0 | |
| Sevel S.p.A. | | 196 | | | 1 | | | 5 | | | 0 | | | 205 | | | 1 | | | 5 | | | 0 | | | 402 | | | 1 | | | 4 | | | 0 | |
| FCA Bank | | 1,375 | | | 22 | | | (8) | | | 32 | | | 1,686 | | | 23 | | | (19) | | | 52 | | | 1,611 | | | 28 | | | (21) | | | 56 | |
| GAC FCA JV | | 97 | | | 0 | | | (17) | | | (1) | | | 151 | | | 0 | | | (36) | | | 0 | | | 419 | | | 11 | | | (49) | | | 0 | |
Fiat India Automobiles
Limited | | 2 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | | | 0 | | | 0 | |
| Other | | 1 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | | | 0 | | | (1) | | | 27 | | | 6 | | | (4) | | | 1 | |
| Total joint arrangements | | 2,609 | | | 1,349 | | | (14) | | | 31 | | | 2,774 | | | 2,110 | | | (41) | | | 51 | | | 3,387 | | | 2,618 | | | (63) | | | 57 | |
| Total associates | | 2 | | | 123 | | | 1 | | | (1) | | | 17 | | | 186 | | | (1) | | | 0 | | | 30 | | | 229 | | | (2) | | | (1) | |
| CNHI | | 284 | | | 269 | | | 0 | | | 0 | | | 357 | | | 332 | | | 11 | | | 0 | | | 501 | | | 326 | | | 6 | | | 0 | |
| Ferrari N.V. | | 22 | | | 98 | | | 0 | | | 0 | | | 30 | | | 144 | | | 1 | | | 0 | | | 64 | | | 218 | | | 4 | | | 0 | |
| Directors and Key Management | | 0 | | | 0 | | | 100 | | | 0 | | | 0 | | | 0 | | | 82 | | | 0 | | | 0 | | | 0 | | | 77 | | | 0 | |
| Other | | 0 | | | 0 | | | 48 | | | 0 | | | 5 | | | 0 | | | 37 | | | 0 | | | 2 | | | 0 | | | 26 | | | 0 | |
| Total CNHI, Ferrari, Directors and other | | 306 | | | 367 | | | 148 | | | 0 | | | 392 | | | 476 | | | 131 | | | 0 | | | 567 | | | 544 | | | 113 | | | 0 | |
Total unconsolidated
subsidiaries | | 7 | | | 3 | | | 2 | | | (1) | | | 6 | | | 7 | | | 4 | | | 0 | | | 7 | | | 8 | | | 4 | | | 1 | |
| Total transactions with related parties | | € | 2,924 | | | € | 1,842 | | | € | 137 | | | € | 29 | | | € | 3,189 | | | € | 2,779 | | | € | 93 | | | € | 51 | | | € | 3,991 | | | € | 3,399 | | | € | 52 | | | € | 57 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total for the FCA Group | | € | 86,676 | | | € | 75,962 | | | € | 5,501 | | | € | 988 | | | € | 108,187 | | | € | 93,164 | | | € | 6,455 | | | € | 1,005 | | | € | 110,412 | | | € | 95,011 | | | € | 7,318 | | | € | 1,056 | |
Assets and liabilities from significant transactions with related parties were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | Trade and other
receivables | | Trade
payables | | Other
liabilities | | Asset-
backed
financing | | Debt(1) | | Trade
and other receivables | | Trade
payables | | Other
liabilities | | Asset-
backed
financing | | Debt (1) |
| | (€ million) |
| Tofas | | € | 73 | | | € | 347 | | | € | 35 | | | € | 0 | | | € | 0 | | | € | 18 | | | € | 171 | | | € | 39 | | | € | 0 | | | € | 0 | |
| Sevel S.p.A. | | 15 | | | 0 | | | 1 | | | 0 | | | 7 | | | 28 | | | 0 | | | 1 | | | 0 | | | 13 | |
| FCA Bank | | 264 | | | 88 | | | 37 | | | 29 | | | 61 | | | 278 | | | 139 | | | 151 | | | 141 | | | 181 | |
| GAC FCA JV | | 123 | | | 2 | | | 0 | | | 0 | | | 0 | | | 62 | | | 11 | | | 0 | | | 0 | | | 0 | |
| Fiat India Automobiles Limited | | 1 | | | 0 | | | 6 | | | 0 | | | 0 | | | 1 | | | 0 | | | 8 | | | 0 | | | 0 | |
| Other | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total joint arrangements | | 476 | | | 437 | | | 79 | | | 29 | | | 68 | | | 387 | | | 321 | | | 199 | | | 141 | | | 194 | |
| Total associates | | 43 | | | 32 | | | 6 | | | 0 | | | 0 | | | 45 | | | 41 | | | 8 | | | 0 | | | 0 | |
| CNHI | | 44 | | | 75 | | | 2 | | | 0 | | | 0 | | | 49 | | | 87 | | | 11 | | | 0 | | | 0 | |
| Ferrari N.V. | | 8 | | | 38 | | | 0 | | | 0 | | | 0 | | | 12 | | | 49 | | | 0 | | | 0 | | | 0 | |
| Other | | 1 | | | 2 | | | 1 | | | 0 | | | 0 | | | 4 | | | 13 | | | 0 | | | 0 | | | 0 | |
| Total CNHI, Ferrari N.V. and other | | 53 | | | 115 | | | 3 | | | 0 | | | 0 | | | 65 | | | 149 | | | 11 | | | 0 | | | 0 | |
| Total unconsolidated subsidiaries | | 25 | | | 15 | | | 1 | | | — | | | 26 | | | 16 | | | 9 | | | 1 | | | 0 | | | 22 | |
| Total originating from related parties | | € | 597 | | | € | 599 | | | € | 89 | | | € | 29 | | | € | 94 | | | € | 513 | | | € | 520 | | | € | 219 | | | € | 141 | | | € | 216 | |
| | | | | | | | | | | | | | | | | | | | |
| Total for the FCA Group | | € | 7,266 | | | € | 20,576 | | | € | 7,878 | | | € | 41 | | | € | 21,076 | | | € | 9,004 | | | € | 21,616 | | | € | 9,214 | | | € | 151 | | | € | 12,750 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31 |
| | 2017 | | 2016 |
| | Trade and other
receivables | | Trade
payables | | Other
liabilities | | Asset-
backed
financing | | Debt(1) | | Trade
and other receivables | | Trade
payables | | Other
liabilities | | Asset-
backed
financing | | Debt (1) |
| | (€ million) |
| Tofas | € | 34 |
| | € | 240 |
| | € | 50 |
| | € | — |
| | € | — |
| | € | 28 |
| | € | 298 |
| | € | 52 |
| | € | — |
| | € | — |
|
| Sevel S.p.A. | 23 |
| | — |
| | 6 |
| | — |
| | 1 |
| | 33 |
| | — |
| | 4 |
| | — |
| | 8 |
|
| FCA Bank | 466 |
| | 206 |
| | 199 |
| | 319 |
| | 32 |
| | 201 |
| | 248 |
| | 108 |
| | 169 |
| | 18 |
|
| GAC FCA JV | 58 |
| | 15 |
| | 1 |
| | — |
| | — |
| | 121 |
| | 2 |
| | 4 |
| | — |
| | — |
|
| Fiat India Automobiles Limited | 7 |
| | 13 |
| | 5 |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | — |
|
| Other | 20 |
| | 1 |
| | — |
| | — |
| | — |
| | 25 |
| | 4 |
| | — |
| | — |
| | — |
|
| Total joint arrangements | 608 |
| | 475 |
| | 261 |
| | 319 |
| | 33 |
| | 410 |
| | 552 |
| | 168 |
| | 169 |
| | 26 |
|
| Total associates | 36 |
| | 32 |
| | 13 |
| | — |
| | — |
| | 30 |
| | 18 |
| | 18 |
| | — |
| | — |
|
| CNHI | 47 |
| | 86 |
| | 11 |
| | — |
| | — |
| | 80 |
| | 82 |
| | 15 |
| | — |
| | 4 |
|
| Ferrari N.V. | 23 |
| | 75 |
| | — |
| | — |
| | — |
| | 25 |
| | 75 |
| | — |
| | — |
| | — |
|
| Other | 1 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
| Total CNHI, Ferrari N.V. and other | 71 |
| | 163 |
| | 11 |
| | — |
| | — |
| | 105 |
| | 159 |
| | 15 |
| | — |
| | 4 |
|
| Total unconsolidated subsidiaries | 83 |
| | 8 |
| | 1 |
| | — |
| | 28 |
| | 84 |
| | 9 |
| | 1 |
| | — |
| | 25 |
|
| Total originating from related parties | € | 798 |
| | € | 678 |
| | € | 286 |
| | € | 319 |
| | € | 61 |
| | € | 629 |
| | € | 738 |
| | € | 202 |
| | € | 169 |
| | € | 55 |
|
| | | | | | | | | | | | | | | | | | | | |
| Total for the Group | € | 8,553 |
| | € | 21,939 |
| | € | 10,435 |
| | € | 357 |
| | € | 17,614 |
| | € | 7,854 |
| | € | 22,655 |
| | € | 11,412 |
| | € | 410 |
| | € | 23,638 |
|
_________________________
1) This relates(1) Relating to Debt excluding Asset-backed financing, refer to Note, 21 Debt.
Commitments and Guarantees pledged in favor of related parties
As of December 31, 2017,2020, the FCA Group had a take or paytake-or-pay commitment with Tofas with future minimum expected obligations as follows:
| | | | | | | | |
| | (€ million) |
| 2021 | | € | 217 | |
| 2022 | | € | 177 | |
| 2023 | | € | 94 | |
| 2024 | | € | 94 | |
|
| | | |
| | (€ million) |
| 2018 | € | 340 |
|
| 2019 | € | 276 |
|
| 2020 | € | 269 |
|
| 2021 | € | 250 |
|
| 2022 | € | 159 |
|
| 2023 and thereafter | € | — |
|
Compensation to Directors and Key Management
The fees of the Directors of the FCA Group for carrying out their respective functions, including those in other consolidated companies, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | (€ thousand) |
Directors(1) | | € | 19,097 | | | € | 23,050 | | | € | 18,830 | |
| Total Compensation | | € | 19,097 | | | € | 23,050 | | | € | 18,830 | |
|
| | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | (€ thousand) |
Directors(1) | € | 29,861 |
| | € | 39,329 |
| | € | 38,488 |
|
| Total Compensation | € | 29,861 |
| | € | 39,329 |
| | € | 38,488 |
|
___________________
(1)This amount includes Including the notional compensation cost arising from long-term share-based compensation granted to the Chairman, the Chief Executive Officer and share-based compensation to non-executive Directors.the Chief Financial Officer.
Refer to Note 18, Share-based compensation, for information related to the special recognition award granted to the Chief Executive Officer on April 16, 2015 and the PSU and RSU awards granted to certain key employees.
The aggregate compensation expense for remaining executives with strategic responsibilities was approximately €81 million for 20172020 (€10359 million in 20162019 and €65€58 million in 2015)2018), which, in addition to base compensation, includes:included:
an amount of approximately €49•€62 million in 2017 (approximately €732020 (€30 million in 20162019 and approximately €38€28 million in 2015)2018) for share-based compensation expense;
an amount of approximately €8•€6 million in 2017 (approximately €82020 (€6 million in 20162019 and approximately €8€7 million in 2015)2018) for short-term employee benefits; and
an amount of €9•€4 million in 20172020 (€67 million in 20162019 and €3€10 million in 2015)2018) for pension and similar benefits.
25. Guarantees granted, commitments and contingent liabilities | | | | | |
| 25. | Guarantees granted, commitments and contingent liabilities |
Guarantees granted
At December 31, 2017,2020, the FCA Group had pledged guarantees on the debt or commitments of third parties totaling €5€12 million (€8 million at December 31, 2016)2019), as well as guarantees of €4€1 million on related party debt (€23 million at
December 31, 2016)2019).
SCUSA Private-label financing agreement
In February 2013, FCA US entered into a private-label financing agreement (the “SCUSA Agreement”) with Santander Consumer USA Inc. (“SCUSA”), an affiliate of Banco Santander, which launched on May 1, 2013. Under the SCUSA Agreement, SCUSA provides a wide range of wholesale and retail financing services to FCA US's dealers and consumers in accordance with its usual and customary lending standards, under the Chrysler Capital brand name.
The SCUSA Agreement has a ten-yearten-year term from February 2013,expiring in April 2023, subject to early termination in certain circumstances, including the failure by a party to comply with certain of its ongoing obligations under the SCUSA Agreement. In accordance with the terms of the agreement, SCUSA provided an upfront, nonrefundablenon-refundable payment of €109 million (U.S.$150 million) in May 2013, which was recognized as deferred revenue and is amortized over ten years. At December 31, 2017, €672020, €29 million (U.S.$8035 million) remained in deferred revenue.
On June 28, 2019, FCA US entered into an amendment (the “Amendment”) to the SCUSA Agreement. The Amendment modified certain terms of the agreement, with the remaining term unchanged through to April 2023, and in connection with its execution, SCUSA made a one-time, nonrefundable, non-contingent, cash payment of U.S.$60 million (€53 million) to FCA US as part of a negotiated resolution of open matters. The amount was recognized within Selling, general and other costs in the Consolidated Income Statement for the year ended December 31, 2019. The duration of the agreement remained unchanged.
From time to time, FCA US worksworked with certain lenders to subsidize interest rates or cash payments at the inception of a financing arrangement to incentivize customers to purchase its vehicles, a practice known as “subvention.”“subvention”. FCA US has provided SCUSA with limited exclusivity rights to participate in specified minimum percentages of certain of its retail financing rate subvention programs. SCUSA has committed to certain revenue sharing arrangements, as well as to consider future revenue sharing opportunities. SCUSA bears the risk of loss on loans contemplated by the SCUSA Agreement. The parties share in any residual gains and losses in respect of consumer leases, subject to specific provisions in the SCUSA Agreement, including limitations on FCA US participation in gains and losses.
Other repurchase obligations
In accordance with the terms of other wholesale financing arrangements in Mexico, FCA Mexico iswas required to repurchase dealer inventory financed under these arrangements, upon certain triggering events and with certain exceptions, including in the event of an actual or constructive termination of a dealer’s franchise agreement. These obligations exclude certain vehicles including, but not limited to, vehicles that have been damaged or altered, that are missing equipment or that have excessive mileage or an original invoice date that is more than one year prior to the repurchase date. In December 2015, FCA Mexico entered into a ten-yearten-year private label financing agreement with FC Financial, S.A De C.V., Sofom, E.R., Grupo Financiaro Inbursa (“FC Financial”), a wholly owned subsidiary of Banco Inbursa, under which FC Financial provides a wide range of financial wholesale and retail financial services to FCA Mexico's dealers and retail customers under the FCA Financial Mexico brand name. The wholesale repurchase obligation under the new agreement will be limited to wholesale purchases in case of actual or constructive termination of a dealer's franchise agreement.
At December 31, 2017,2020, the maximum potential amount of future payments required to be made in accordance with these wholesale financing arrangements was approximately €285€121 million (US$319(U.S.$149 million) and was based on the aggregate repurchase value of eligible vehicles financed through such arrangements in the respective dealer’sdealer's stock. If vehicles are required to be repurchased through such arrangements, the total exposure would be reduced to the extent the vehicles can be resold to another dealer. The fair value of the guarantee was less than €0.1 millionnil at December 31, 2017, which considers both the likelihood that the triggering events will occur and the estimated payment that would be made net of the estimated value of inventory that would be reacquired upon the occurrence of such events. These estimates are based on historical experience.2020.
Arrangements with key suppliers
From time to time and in the ordinary course of our business, the FCA Group entersentered into various arrangements with key third party suppliers in order to establish strategic and technological advantages. A limited number of these arrangements containcontained unconditional purchase obligations to purchase a fixed or minimum quantity of goods and/or services with fixed and determinable price provisions. Future minimum purchase obligations under these arrangements at December 31, 20172020 were as follows:
|
| | | | |
| | | (€ million) |
| 2018 | | € | 817 |
|
| 2019 | | € | 583 |
|
| 2020 | | € | 515 |
|
| 2021 | | € | 325 |
|
| 2022 | | € | 198 |
|
| 2023 and thereafter | | € | 53 |
|
Operating lease contracts
The Group has operating lease contractsfollows for the right to use industrial buildings and equipment with an average term of 10-20 years and 3-5 years, respectively. The following table summarizes the total future minimum lease payments under non-cancellable lease contracts:FCA Group's continuing operations:
| | | | | | | | |
| | (€ million) |
| 2021 | | € | 562 | |
| 2022 | | € | 243 | |
| 2023 | | € | 135 | |
| 2024 | | € | 152 | |
| 2025 | | € | 16 | |
| 2026 and thereafter | | € | 27 | |
|
| | | | | | | | | | | | | | | | | | | |
| | At December 31, 2017 |
| | Due within one year | | Due between
one and
three years | | Due between
three and
five years | | Due
beyond
five years | | Total |
| | (€ million) |
| Future minimum lease payments under operating lease agreements | € | 352 |
|
| € | 457 |
|
| € | 298 |
|
| € | 396 |
|
| € | 1,503 |
|
During 2017, the Group recognized lease payments expense of €341 million (€339 million in 2016 and €246 million in 2015).
Other commitments, arrangements and contractual rights
Regulatory emission credits
During the year ended December 31, 2019, FCA entered into multi-year non-cancellable agreements for purchases of regulatory emissions credits in various jurisdictions. At December 31, 2020, these agreements represent total commitments of €0.4 billion after fulfillment of commitments during the years ended December 31, 2020 and 2019, as well as the reduction in the commitments due to the CAFE civil fine rate recorded during the year ended December 31, 2019 (refer to Note 20, Provisions). The purchased credits are expected to be used for compliance years through 2023.
FCA Bank joint venture agreement
On July 19, 2019, FCA and Crédit Agricole Consumer Finance agreed to extend their 50:50 joint venture, FCA Bank, until December 31, 2024. The agreement will be automatically renewed unless notice of non-renewal is provided no later than three years before end of the term. A notice of non-renewal would trigger certain put and call rights.
UAW Labor Agreement
In October 2015, FCA US andDecember 2019, the UAW agreed toUAW-represented workforce ratified a new four-year nationalfour-year collective bargaining agreement which will expire in September 2019.that builds on the company’s commitment to grow its U.S. manufacturing operations by providing for total investments of U.S.$9 billion and the creation of 7,900 new or secured jobs. The provisions of the new agreement continuecontinued certain opportunities for success-based compensation upon meeting certain quality and financial performance metrics. The agreement, closes the pay gap betweenwhich covers about 49,200 employees, included a ratification bonus of U.S.$9,000 for “Traditional” and “In-progression” employees over an eight-year period and will continue to provide UAW-representedU.S.$3,500 for temporary employees, with a simplified adjusted profit sharing plan. The adjusted profit sharing plan was effective for the 2016 plan year and is directly aligned with NAFTA profitability. The agreement includedas well as lump-sum payments, both of which are in lieu of further wage increases, of primarilytotaling U.S.$4,000 for “Traditional” employees and U.S.$3,000 for “In-progression” employees totaling approximately U.S.$141499 million (€127446 million) that waswere paid to UAW members on November 6, 2015. TheseDecember 27, 2019. Lump sum payments made in lieu of future wage increases are being amortized ratably over the four-year labor agreementcontract period.
Italian labor agreement
In March 2019, the FCA Group renewed its labor agreement with Italian trade unions for Italian employees, which had previously expired on December 31, 2018. The agreement is valid for the period 2019-2022 and applies to the FCA Group's 66,000 employees in Italy, primarily providing for a 2 percent annual increase in contractual compensation and an enhancement of the annual performance-based bonus linked to the achievement of productivity and efficiency targets forming part of the World Class Manufacturing (“WCM”) program.
In April 2015, a new four-yearthe previous four-year compensation agreement was signed by FCA companies in Italy within the automobiles business.business in Italy. The new compensation agreement was subsequently included into the new labor agreement and was extended to all FCA companies in Italy on July 7, 2015.
The compensation arrangement was effective retrospectively from January 1, 2015 through December 31, 2018 and incentivizesincentivized all employees toward achievement of the productivity, quality and profitability targets established in the 2015-2018 period of the 2014-2018 business plan developed in May 2014 by adding two variable additional elements to base pay:
•an annual bonus, calculated on the basis of production efficiencies achieved and the plant’s World Class Manufacturing audit status; and
•a component linked to achievement of the financial targets established in the 2015-2018 period of the 2014-2018 business plan (“Business Plan Bonus”) for the EMEA region, including the activities of the premium brands Alfa Romeo and Maserati. A portion of the Business Plan Bonus is a guaranteed amount based on employees' base salaries and is paid over four years in quarterly installments, while the remaining portion is to be paid in March 2019 to active employees as of December 31, 2018, with at least two years of service during 2015 through 2018.
A total of €124€93 million, €117€75 million and €115€72 million related to the additional variable elements above was recorded as an expense for the compensation agreementincluded within Net profit from continuing operations for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Canada labor agreement
In September 2020, the four-year collective bargaining agreement that was entered into in September 2016 with Unifor in Canada expired. FCA entered into a new four-yearthree-year labor agreement with Unifor in Canada that was ratified on October 16, 2016.19, 2020. The terms of this agreement provideprovides a two percent wage increase in the first and fourth years of the agreement for employees hired prior to September 24, 2012 and will continue to close the pay gap for employees hired on or after September 24, 2012 by revising a ten-year progressive pay scale plan. The agreement includes a lump sum payment in lieu of further wage increases of 6,000$7,250 Canadian dollars (“CAD$”) per employee totalinglump sum payment for all active employees, CAD$500 for all eligible temporary part-time employees, up-front lump sum payments of CAD$7,250 to all employees on indefinite layoff and lump sum retirement allowance of CAD$3,625 for employees who retired during 2020. The total ratification bonus of approximately CAD$5559 million (approximately €38(€38 million) that was paid to Unifor members on November 4, 2016. These20, 2020. The agreement covers more than 9,200 employees and expires October 2023. The lump sum payments, will bewhich were made in lieu of future wage increases, are being amortized ratably over the four-year labor agreement period. The new agreement expires September 2020.
Sevel S.p.A.
As part of the Sevel cooperation agreement with Peugeot-Citroen SA (“PSA”), the Group was party to a call agreement with PSA whereby, from July 1, 2017 to September 30, 2017, the Group would have the right to acquire the residual interest in the joint operation Sevel with effect from December 31, 2017. During thethree-year contract period specified in the agreement the Group did not exercise its right to acquire the residual interest in the joint operation Sevel and such right expired.
Contingent liabilities
In connection with significant asset divestitures carried out in prior years, the FCA Group provided indemnities to purchasers with the maximum amount of potential liability under these contracts generally capped at a percentage of the purchase price. These liabilities refer principally to potential liabilities arising from possible breaches of representations and warranties provided in the contracts and, in certain instances, environmental or tax matters, generally for a limited period of time. Potential obligations with respect to these indemnities were approximately €170€5 million and a total of €50€5 million has been recognized within Provisions related to these obligations as of December 31, 20172020 (€5 million and 2016.€3 million as of December 31, 2019, respectively). The FCA Group has provided certain other indemnifications that do not limit potential payment and as such, it was not possible to estimate the maximum amount of potential future payments that could result from claims made under these indemnities.
Takata airbag inflators
On November 3, 2015, NHTSA issuedPutative class action lawsuits were filed in March 2018 against FCA US in the Takata Consent Order regardingU.S. District Courts for the Southern District of Florida and the Eastern District of Michigan, asserting claims under federal and state laws alleging economic loss due to Takata airbag inflators manufactured using non-desiccated Phase Stabilized Ammonium Nitrate (“PSAN”) that were installed in original equipment manufacturers'certain of our vehicles. On May 4, 2016, NHTSA published an amendment to the original Takata Consent Order which expanded the scopeWe are vigorously defending against this action and at this stage of the original consent orderproceedings, we are unable to include 7.6 million additional unitsreliably evaluate the likelihood that a loss will be incurred or estimate a range of non-desiccated PSAN airbag inflators, of which approximately 2 million inflator units were deferredpossible loss.
Emissions Matters
On January 10, 2019, we announced that FCA US had reached final settlements on civil environmental and not yet subject to recall. In complianceconsumer claims with the amendment toU.S. Environmental Protection Agency (“EPA”), the Takata Consent Order, on May 16, 2016, Takata submitted a Defect and Noncompliance Information Report (“DIR”) to NHTSA declaring the non-desiccated PSAN airbag inflators defective. As a result, FCA US announced a recall of vehicles, assembled in NAFTA, related to the May 16, 2016 DIR, which represented approximately 5.6 million inflator units. Considering the estimated costCivil Division of the recallU.S. Department of Justice (“DoJ”), the California Air Resources Board, the State of California, 49 other States and the estimated participation rate of the recalls taking into account the age of the vehicles involved,U.S. Customs and Border Protection, for which we recognized €414accrued €748 million within Cost of revenues forduring the year ended December 31, 2016. The charges reflected our assumptions2018. Approximately €350 million of the accrual was related to civil penalties to resolve differences over diesel emissions requirements. A portion of the accrual was attributable to settlement of a putative class action on participation rate based on the Group's historical experience and industry data.
On January 2, 2018, Takata submitted a DIR to NHTSA declaring certain non-desiccated PSAN inflators containedbehalf of consumers in certain vehicles to be defective. As a result of Takata’s DIR, on January 9, 2018,connection with which FCA US submitted a DIRagreed to NHTSA indicatingpay an average of $2,800 per vehicle to eligible customers affected by the recall. That settlement received final court approval on May 3, 2019. Nevertheless, we continue to defend individual claims from approximately 3,200 consumers that approximately 0.4 million unitshave exercised their right to opt out of the approximately 2 million inflator units that were deferred are nowclass action settlement and pursue their own individual claims against us (the “Opt-Out Litigation”). We have engaged in further discovery in the Opt-Out Litigation and participated in court-sponsored settlement conferences, but have reached settlement agreements with less than 100 of these remaining plaintiffs. As of December 31, 2020, our best estimate of a probable loss is reflected in the amount previously accrued.
In the U.S., we remain subject to recall.a diesel emissions-related investigation by the DoJ, Criminal Division. In accordanceSeptember 2019, the DoJ filed criminal charges against an employee of FCA US for, among other things, fraud, conspiracy, false statements and violations of the Clean Air Act primarily in connection with IAS 10, Subsequent Events, and using the same assumptions based on our historical experience and industry data for the estimated participation rates taking into account the ageefforts to obtain regulatory approval of the vehicles involved,that were the subject of the civil settlements described above. We have continued discussions with the DoJ, Criminal Division to determine whether we recognizedcan reach an additional provisionappropriate resolution of their investigation as it relates to FCA US, which may involve the payment of penalties and other non-financial sanctions. At this time, we estimate a range of probable loss. While the outcome of these discussions is uncertain and we cannot predict whether or when any settlement may be reached with the DoJ, Criminal Division, or the ultimate outcome of its investigation, we accrued approximately €29€200 million within Costduring the three months ended September 30, 2020 as our best estimate of revenues for the year ended December 31, 2017. The remaining 1.6 million inflator unitsprobable loss with regard to matters under discussion. We also remain deferred and not yet subject to recall. As such, no costs have been accrued. We doa number of related private lawsuits (the “Non Opt-Out Litigation”). In September 2020, we settled the diesel emissions-related investigation with the U.S. Securities and Exchange Commission (the “SEC”) for an amount that is not anticipate the cost associated with any potential recall would be material to the Group.
In December 2017, FCA started to informGroup and which had been accrued during the authorities in LATAM that preventative safety campaigns will be launched for certain non-desiccated PSAN inflators manufactured by Takata. Considering the estimated cost of the preventative safety campaign and the estimated participation rates, which take into account the age of the vehicles involved, a provision of €73 million has been recognized at December 31, 2017.
If our actual experience differs from our historical experience or industry data, this could result in an adjustment to the Takata warranty provision in the future. We continue to assess the condition and performance of airbag inflators supplied by Takata. While there have not been any known issues relating to the unrecalled units, as additional information, data and analysis become available and we continue discussions with our regulators, the number of inflator units that may become subject to recalls could be expanded. Any liability for the estimated cost for future recalls would be recognized in the period in which a recall becomes probable.
Emissions Mattersthree months ended June 30, 2020.
We have also received inquiries from severalother regulatory authorities in a number of jurisdictions as they examine the on-road tailpipe emissions of several automakers’ vehicles. We are,vehicles and, when jurisdictionally appropriate, cooperatingwe continue to cooperate with a number ofthese governmental agencies and authorities.
authorities
In particular, in Europe, we have beenare working with the Italian Ministry of Transport (“MIT”) and the Dutch Vehicle Regulator (“RDW”), the authorities that certified FCA diesel vehicles for sale in the European Union, and the UK Driver and Vehicle Standards Agency (“DVSA”). in connection with their review of several of our vehicles.
We also initially responded to inquiries from the German authority, the Kraftfahrt-Bundesamt (“KBA”), regarding emissions test results for our vehicles, reported by KBA, and we discussed the KBA reported test results, our emission control calibrations and the features of the vehicles in question. After these initial discussions, the MIT, which has sole authority for regulatory compliance of the vehicles it has certified, asserted its exclusive jurisdiction over the matters raised by the KBA, tested the vehicles, determined that the vehicles complied with applicable European regulations and informed the KBA of its determination. Thereafter, mediations have been held under European Commission (“EC”) rules, between the MIT and the German Ministry of Transport and Digital Infrastructure, (“BMVI”), which oversees the KBA, in an effort to resolve their differences. The mediation was concluded with no action being taken with respect to FCA. In May 2017, the EC announced its intention to open an infringement procedure against Italy regarding Italy's alleged failure to respond to EC's concerns regarding certain FCA emission control calibrations. The MIT has responded to the EC's allegations by confirming that the vehicles' approval process was correctly performed, which was borne outproperly performed.
In December 2019, the MIT notified us that the Dutch Ministry of Infrastructure and Water Management (“I&W”) had been communicating with the MIT regarding certain irregularities allegedly found by the RDW and the Dutch Center of Research TNO in material Italy provided during the mediation process.
emission levels of certain Jeep Grand Cherokee Euro 5 models and a vehicle model of another OEM that contains a Euro 6 diesel engine supplied by us. In January 2020, the Dutch Parliament published a letter from the I&W summarizing the conclusions of the RDW regarding those vehicles and engines and indicating an intention to order a recall and report their findings to the Public Prosecutor, the EC and other Member States. We have engaged with the RDW to present our positions and cooperate to reach an appropriate resolution of this matter. We have proposed certain updates to the relevant vehicles that have been tested and approved by the RDW and are now being implemented. Nevertheless, this matter is still pending. In addition, at the request of the French Consumer Protection Agency, the French public prosecutor has beenJuge d’Instruction du Tribunal de Grande Instance of Paris is investigating diesel vehicles of a number of automakers including FCA, regarding whether the sale of those vehicles violated French consumer protection laws.
In July 2020, unannounced inspections took place at several of our sites in Germany, Italy and the UK at the initiative of the Public Prosecutors of Frankfurt am Main and of Turin, as part of their investigations of potential violations of diesel emissions regulations and consumer protection laws. We are cooperating with the investigations. Several FCA companies and our Dutch dealers were recently served with a purported class action filed in the Netherlands by a Dutch foundation seeking monetary damages and vehicle buybacks in connection with alleged emissions non-compliance of certain FCA E5 and E6 diesel vehicles. A similar claim has been announced in the UK but not yet served on the Company. We are also defending a number of individual consumer claims alleging emissions non-compliance of certain of our vehicles in Germany.
In December 2018, the Korean Ministry of Environment (“MOE”) announced its determination that approximately 2,400 FCA vehicles imported into Korea during 2015, 2016 and 2017 were not emissions compliant and that the vehicles with a subsequent update of the emission control calibrations voluntarily performed by FCA, although compliant, would have required re-homologation of the vehicles concerned. In May 2019, the MOE revoked certification of the above-referenced vehicles and announced an administrative fine for an amount not material to the Group. We have appealed the MOE’s decision. Our subsidiary in Seoul, Korea is also cooperating with local criminal authorities in connection with their review of this matter, with the Korean Fair Trade Commission regarding a purported breach of the Act on Fair Labeling and Advertisement in connection with the subject vehicles and with the MOE in connection with their review of other FCA vehicles.
The results of thesethe unresolved governmental inquiries and private litigation cannot be predicted at this time; however, the intervention by a number of governmental agenciestime and authorities has required significant management time, which may divert attention from other key aspects of our business plan, orthese inquiries and litigation may lead to further enforcement actions, as well as penalties or obligations to modify or recall vehicles,damage awards, any of which may have a material adverse effect on our business, financial condition and results of operations and reputation.
On January 12, 2017, the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board issued Notices of Violation related to certain software-based features in the emissions control systems in approximately 100,000 2014-2016 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles. On May 23, 2017, the Environmental and Natural Resources Division of the U.S. Department of Justice (“DOJ-ENRD”) filed a civil lawsuit against us in connection with the concerns raised by the EPA. The complaint alleges that software-based features were not disclosed to the EPA as required during the vehicle emissions certification process, resulting in violations of the Clean Air Act. The complaint also alleges that certain of the software features bypass, defeat or render inoperative the vehicles’ emission control systems, causing the vehicles to emit higher levels of oxides of nitrogen (NOx) during certain normal real world driving conditions than during federal emissions tests. A number of private lawsuits relating to the vehicles have been filed in U.S. state and federal courts principally on behalf of consumers asserting fraud, violation of consumer protection laws, and other civil claims, including a putative class action that is proceeding in U.S. federal court in the Northern District of California. A number of other governmental agencies and authorities, including the U.S. Department of Justice, the U.S. Securities and Exchange Commission and various states Attorneys General have commenced related investigations.
We have been working with the EPA and the CARB to clarify issues related to the Company’s emissions control systems technology and announced in May that we had developed updated emissions software calibrations for our model year 2017 light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles that we believe address the agencies’ concerns.
Following this, we continued to work with the agencies on vehicle testing and refinements to these calibrations. The 2017 model year updates include modified emissions software calibrations, with no required hardware changes, and we believe that the modifications do not negatively impact the fuel efficiency or performance of the vehicles. In July 2017, we received vehicle emissions certifications from CARB and the EPA permitting the production and sale of our 2017 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles in all 50 states. We continue to work with the EPA and CARB to seek their permission to use these modified emissions software calibrations to update the emissions control systems in our 2014-2016 model year light-duty Ram 1500 and Jeep Grand Cherokee diesel vehicles.
We are unable to predict the outcome of these investigations and litigation at this stage and due to the range of possible outcomes, we are unable to reliably estimate a range of probable losses.operations. It is also possible that the resolution of these matters and their ultimate resolution may adversely affect our reputation with consumers, which may negatively impact demand for our vehicles and consequently could have a material adverse effect on our business, financial condition and results of operations. At this stage, we are unable to evaluate the likelihood that a loss will be incurred with regard to the unresolved inquiries and Non Opt-Out Litigation or estimate a range of possible loss.
U.S. Sales Reporting Investigations
National Training Center
In connection with an on-going governmentOn September 27, 2019, the SEC announced the resolution of its investigation into matters at the UAW-Chrysler National Training Center,our reporting of vehicle sales to end customers in the U.S. Departmentwhich included our agreement to pay an amount that is not material to the Group. We have also cooperated with a DoJ investigation into the same issues, the outcome of Justice has brought charges against a numberwhich remains uncertain. Any resolution of individuals including former FCA US employeesthat matter may involve the payment of penalties and individuals associated with the UAW for, among other things, tax fraud and conspiring to provide money or other things of value to a UAW officer and UAW employees while acting in the interests of FCA US, in violation of the Labor Management Relations (Taft-Hartley) Act. We continue to cooperate with this investigation. Several putative class action lawsuits have been filed against FCA US in U.S. federal court alleging harm to UAW workers as a result of these acts.sanctions. At this early stage,time, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.loss in connection with that investigation.
Sales Reporting
On July 18, 2016, we confirmed that the U.S. Securities and Exchange Commission had commenced an investigation into our reporting of vehicle unit sales to end customers in the U.S. and that inquiries into similar issues have been received from the U.S. Department of Justice. These vehicle unit sales reports relate to unit sales volumes primarily by dealers to consumers while we generally recognize revenues based on shipments to dealers and other customers and not on vehicle unit sales to consumers. We continue to cooperate with these investigations; however their outcome is uncertain and cannot be predicted at this time. At this stage, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.
We are also aware ofAs previously reported, two putative securities class action lawsuits pendingwere filed against us in the U.S. District Court for the Eastern District of Michigan making allegations with regard to our reporting of vehicle unit sales to end consumers in the U.S. These lawsuits were consolidated into a single action and on October 4, 2018, we entered into an agreement in principle to settle the consolidated litigation, subject to court approval, for an amount that is not material to the Group. On June 5, 2019, the Court granted final approval to this settlement.
National Training Center
On January 27, 2021, FCA US announced that it reached an agreement with the U.S. Attorney’s Office for the Eastern District of Michigan to resolve its investigation into past misconduct of certain former FCA US employees involving the UAW-Chrysler National Training Center (“NTC”). Pursuant to the agreement, which remains subject to court approval, FCA US agreed to plead guilty to a single count of conspiracy to violate the Labor Management Relations Act and the payment of a fine in an amount that is not material to the financial statements and which had previously been accrued during the quarter ended September 30, 2020. FCA US also agreed to implement an independent compliance monitor for three years with respect to the dissolution of the NTC and internal controls as they relate to the trusts being implemented to replace the NTC.
Several putative class action lawsuits have been filed against FCA US in U.S. federal court alleging harm to UAW workers as a result of these acts. Those actions have been dismissed both at the trial court stage and on appeal. Three plaintiffs in these lawsuits also filed charges alleging unfair labor practices with the U.S. National Labor Relations Board (the “Board”). The Board issued a complaint regarding these allegations and is seeking a cease and desist order as well as the posting of a notification with respect to the alleged practices.
On July 20, 2020, a group of employees in our Toledo, Ohio Jeep plant filed a lawsuit in U.S. District Court for the Northern District of Ohio against FCA US, the UAW and certain individuals claiming violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act and civil conspiracy. On October 20, 2020, FCA US filed a motion to dismiss and the plaintiffs filed a motion for leave to file a second amended complaint on December 13, 2020. At this stage, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.
On October 16, 2020, a group of current and former employees in our Trenton Engine Complex filed a lawsuit in U.S. District Court for the Eastern District of Michigan, making similar claims. At this stage, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.
General Motors Litigation
On November 20, 2019, General Motors LLC and General Motors Company (collectively, “GM”) filed a lawsuit in the U.S. District Court for the Eastern District of Michigan against FCA US, FCA NV and certain individuals, claiming violations of the RICO Act, unfair competition and civil conspiracy in connection with allegations that FCA US paid bribes to UAW officials that corrupted the bargaining process with the UAW and as a result FCA US enjoyed unfair labor costs and operational advantages that caused harm to GM. GM also claimed that FCA US had made concessions to the UAW in collective bargaining that the UAW was then able to extract from GM through pattern bargaining which increased costs to GM and that this was done by FCA US in an effort to force a merger between GM and FCA NV.
On July 8, 2020, the court dismissed GM’s lawsuit with prejudice. On August 3, 2020, GM filed a motion requesting that the court amend or alter its judgement, which the court denied. GM has appealed the dismissal to the U.S. Court of Appeals for the Sixth Circuit and oral argument on that appeal is scheduled for March 4, 2021. Following dismissal of its Federal court case, GM also filed an action against FCA US and FCA NV in Michigan state court, making substantially the same claims as it made in the federal litigation. On November 24, 2020, FCA US and FCA NV filed a motion for summary disposition in the state court case and GM filed a motion to compel discovery on December 16, 2020. Oral arguments on FCA’s motion for summary disposition and GM’s motion for expedited discovery were held on February 26, 2021 and were adjourned to be continued on March 5, 2021. At this stage, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.
Tigershark Engine - EPA Matter
In connection with internal testing, we determined that approximately 935,000 vehicles equipped with the 2.4L Tigershark engine may have excess tailpipe emissions. We have discussed this issue and reviewed our proposed solution with the EPA. We intend to initiate a recall campaign to implement this solution, and as a result we have increased our warranty campaign provision by approximately €200 million.
Tigershark Engine - Litigation
In addition, putative class action lawsuits have been filed against FCA US and consolidated into a single action in U.S. District court in Michigan asserting claims under federal and state laws claiming manufacturing and design defects in certain vehicles equipped with the 2.4L Tigershark engine, which has been installed in approximately 1.6 million vehicles sold in the U.S. The claims allege excessive oil consumption and related excess emissions. We are evaluating and defending against these actions while we work to assess the claims and, if appropriate, any mitigating action we could take. At this early stage, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.
Other matters
Corporate Average Fuel Economy (“CAFE”) standards
On September 11, 2015,August 31, 2020, the U.S. Court of Appeals for the Second Circuit vacated a putative securities class action complaint was filedfinal rule published by the National Highway Traffic Safety Administration (“NHTSA”) in July 2019 that had reversed NHTSA’s 2016 increase to the base rate of the CAFE penalty from $5.50 to $14.00. The base rate applies to each tenth of a mile per gallon (“MPG”) that a manufacturer’s fleet-wide average MPG is below the CAFE standard, and is multiplied by the number of vehicles in the U.S. District Courtmanufacturer’s fleet to arrive at an aggregate penalty. On January 14, 2021, NHTSA published an interim final rule with immediate effect, the result of which would be to apply the increased fine rate that resulted from the Second Circuit’s ruling to future model years. In particular, NHTSA’s new rule imposes a CAFE penalty base rate of $5.50 through 2021 Model Year and increases the CAFE penalty base rate to $14.00 prospectively from the 2022 Model Year. We have accrued estimated amounts for any probable CAFE penalty based on the $5.50 rate for Model Years 2021 and earlier. Several non-governmental organizations and state attorneys general have initiated litigation to overturn NHTSA’s interim final rule. If the litigation is successful in overturning the interim final rule, we may need to accrue additional amounts due to increased CAFE penalties and additional amounts we may owe under certain agreements for the Southern Districtpurchase of New York against us alleging material misstatements regarding our compliance with regulatory requirements andemissions credits. The amounts that we failedmay accrue could be up to timely disclose certain expenses relating€550 million depending on, among other things, our ability to our vehicle recall campaigns. On October 5, 2016,implement future product actions or other actions to modify the district court dismissedutilization of credits.
U.S. Import Duties
Historically, we have paid a 2.5 percent duty on Ram ProMaster City vehicles imported into the claims relatingU.S. as passenger vehicles rather than the 25 percent duty applicable to vehicles that are imported into the U.S. as cargo vans. The vast majority of these vehicles are converted into cargo vans after importation. In litigation between a competitor and U.S. Customs and Border Protection (“CBP”) involving similar vehicles, the U.S. Court of Appeals for the Federal Circuit ruled in June 2019 that vehicles previously imported by the competitor are subject to the disclosure25 percent duty. The competitor sought to appeal the matter to the U.S. Supreme Court, but in June 2020, the U.S. Supreme Court declined to hear the competitor’s case.
We believe there are facts that distinguish our case from that of vehicle recall campaign expenses but ruled that claims regarding the alleged misstatements regarding regulatory requirements would be allowedcompetitor. However, CBP may seek to proceed. On February 17, 2017, the plaintiffs amended their complaint to allege material misstatements regarding emissions compliance. On November 13, 2017, the Court deniedrecover increased duties for our motion to dismiss the emissions-related claims.prior imports, plus interest, and may assert a claim for penalties. At this stage, of the proceedings, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss.
Rear Impact Litigation
On July 9, 2012, a lawsuit was filed against FCA US in the Superior Court of Decatur County, Georgia, U.S. (the “Court”), with respect to a March 2012 fatality in a rear-impact collision involving a 1999 Jeep Grand Cherokee. Plaintiffs alleged that the manufacturer had acted in a reckless and wanton fashion when it designed and sold the vehicle due to the placement of the fuel tank behind the rear axle and had breached a duty to warn of the alleged danger. On April 2, 2015, a jury found in favor of the plaintiffs and the trial court entered a judgment against FCA US in the amount of U.S.$148.5 million (€141 million). On July 24, 2015, the Court issued a remittitur reducing the judgment against FCA US to U.S.$40 million (€38 million).
FCA US believes the jury verdict was not supported by the evidence or the law and appealed the Court’s verdict. FCA US maintains that the 1999 Jeep Grand Cherokee is not defective, and its fuel system does not pose an unreasonable risk to motor vehicle safety. The vehicle met or exceeded all applicable Federal Motor Vehicle Safety Standards, including the standard governing fuel system integrity. Furthermore, FCA US submitted extensive data to NHTSA validating that the vehicle performs as well as, or better than, peer vehicles in impact studies, and nothing revealed in the trial altered this data. During the trial, however, FCA US was not allowed to introduce all the data previously provided to NHTSA, which demonstrated that the vehicle’s fuel system is not defective.
On November 15, 2016, the Georgia Court of Appeals affirmed the Court’s verdict and judgment of U.S.$40 million (€38 million). On December 23, 2016, FCA US filed a petition with the Georgia Supreme Court. Oral arguments were held on October 24, 2017. While a decision by the Georgia Supreme Court could affirm the judgment, FCA US is seeking an order from the Georgia Supreme Court to instead overturn the verdict, order a new trial, or further modify the amount of the judgment. We do not believe a loss, if any, will exceed the amount of the current judgment and believe it is more likely that a loss, if any, will be less than the current judgment and will be covered by our existing provisions.
Share capital
At December 31, 2017,2020, the authorized share capital of FCA iswas forty million Euro (€40,000,000), divided into two billion (2,000,000,000) FCA common shares, nominal value of one Euro cent (€0.01) per share and two billion (2,000,000,000) special voting shares, nominal value of one Euro cent (€0.01) per share.
At December 31, 2017,2020, fully paid-up share capital of FCA amounted to €19€20 million (€1920 million at December 31, 2016)2019) and consisted of 1,540,089,6901,574,714,499 common shares and of 408,941,767 special449,618,514 special voting shares, all with a par value of €0.01 each (1,527,965,719(1,567,519,274 common shares and 408,941,767special voting shares, all with a par value of €0.01 each at December 31, 2016)2019).
On March 2, 2020 a total of 73,606,222 FCA Special Voting Shares were delivered to Exor N.V. as a result of an equivalent number of Common Shares being registered in the Loyalty Register for an uninterrupted period of three years in accordance with clause 5.1 of the Special Voting Shares Terms and Conditions. The related Common Shares became Qualifying Common Shares. Of the shares delivered, 32,937,489 were Special Voting Shares held by the Company and 40,668,733 were additional Special Voting Shares issued. On November 13, 2020, an additional 8,014 special voting shares were issued as a result of an equivalent number of Common Shares being registered in the Loyalty Register for an uninterrupted period of three years in accordance with clause 5.1 of the Special Voting Shares Terms and Conditions.
The following table summarizes the changes in the number of outstanding common shares and special voting shares of FCA during the year ended December 31,
2017:2020: |
| | | | | | | | |
| | Common Shares | | Special Voting Shares | | Total |
| Balance at January 1, 2017 | 1,527,965,719 |
| | 408,941,767 |
| | 1,936,907,486 |
|
| Shares issued to Executive Directors (Directors' Compensation) | 2,795,500 |
| | — |
| | 2,795,500 |
|
| Shares issued to Non-Executive Directors (Directors' Compensation) | 54,855 |
| | — |
| | 54,855 |
|
| Shares issued to Key management | 9,273,616 |
| | — |
| | 9,273,616 |
|
| Balance at December 31, 2017 | 1,540,089,690 |
| | 408,941,767 |
| | 1,949,031,457 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Common Shares | | Special Voting Shares | | Total |
| Balance at January 1, 2020 | | 1,567,519,274 | | | 408,941,767 | | | 1,976,461,041 | |
| Shares issued to Key management | | 7,195,225 | | | — | | | 7,195,225 | |
| Shares registered in the Loyalty Register | | — | | | 40,676,747 | | | 40,676,747 | |
| Balance at December 31, 2020 | | 1,574,714,499 | | | 449,618,514 | | | 2,024,333,013 | |
Long Term Incentive Plans
On October 29, 2014, the Board of Directors of FCA (“Board of Directors”) resolved to authorize the issuance of up to a maximum of 90,000,00090 million common shares under the equity incentive plan and the long termlong-term incentive program which had been adopted before the closing of the 2014 Merger and under which equity awards can be granted to eligible individuals. Any issuance of shares during the period from 2014 to 2018 are subject to the satisfaction of certain performance/retention requirements and any issuances to directors are subject to FCA shareholders' approval (refer to Note 18,Share-based compensation).
Mandatory Convertible SecuritiesOn December 19, 2018, the Board of Directors resolved to allocate up to a maximum of 50 million common shares under the 2019 - 2021 LTIP (refer to Note 18, Share-based compensation), under which equity awards can be granted to eligible individuals. Any issuance of shares during the period from 2019 to 2021 is subject to the satisfaction of certain performance and retention requirements and any issuances to directors are subject to FCA shareholders' approval (refer to Note 18, Share-based compensation).
Pursuant to the Articles of Association, the Board of Directors is irrevocably authorized to issue shares (common and special voting shares) and to grant rights to subscribe for shares in the capital of the Company. This authorization is up to a maximum aggregate amount of shares as set out in the Articles of Association, as amended from time to time, and limits or excludes the right of pre-emption with respect to common shares. The Board of Directors' authorization was for a period of five years from October 12, 2014 and expired on October 11, 2019.
On December 15, 2016, each U.S.$100 notional amountApril 12, 2019, the FCA Annual General Meeting of Shareholders (“AGM”) resolved to authorize, under certain conditions, the Board of Directors to issue common and special voting shares, to grant rights to subscribe for common and special voting shares, and to limit or exclude pre-emptive rights for common shares. This authorization is for a period of eighteen months up to and including October 11, 2020, starting from the date on which the current authorization expired, October 12, 2019.
Furthermore, the AGM renewed the existing authorization of the Mandatory Convertible Securities that had been issued in December 2014 was convertedBoard of Directors, for a period of eighteen months from the date of the AGM, to 8.3077repurchase up to a maximum of FCA's10 percent of the Company’s common shares based uponissued as of the average volume weighted average pricesdate of FCAthe AGM. Pursuant to the authorization, which does not entail any obligation for the Company but is designed to provide additional flexibility, the Board of Directors may repurchase common shares on the New York Stock Exchange during the 20 consecutive trading day period beginning November 14, 2016in compliance with applicable regulations, subject to certain maximum and ending on December 12, 2016 (inclusive), which resulted in the issuance of total of 238,846,375 FCA common shares.minimum price thresholds.
Other reserves:
Other reserves comprised the following:
a •legal reservereserves of €11,594€13,598 million at December 31, 20172020 (€10,86614,206 million at December 31, 2016) that was2019) determined in accordance to thewith Dutch law and mainly relatesprimarily relating to development expenditures capitalized by subsidiaries and their earnings, subject to certain restrictions on distributions to FCA;
•capital reserves of €5,817€6,094 million at December 31, 20172020 (€5,7666,034 million at December 31, 2016)2019);
•retained earnings, that after the separation of the legal reserve, was negative €333of positive €8,051 million (negative €1,356(positive €2,286 million at December 31, 2016)2019); and
•profit attributable to owners of the parent of €3,491€29 million for the year ended December 31, 20172020 (€1,8036,622 million for the year ended December 31, 2016)2019).
Other comprehensive income
Other comprehensive income was as follows: | | | | Years ended December 31 | | Years ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | (€ million) | | (€ million) |
| Items that will not be reclassified to the Consolidated Income Statement in subsequent periods: | | | | | | Items that will not be reclassified to the Consolidated Income Statement in subsequent periods: | |
| (Losses)/gains on re-measurement of defined benefit plans | € | (64 | ) | | € | 584 |
| | € | 679 |
| |
| Share of gains/(losses) on re-measurement of defined benefit plans for equity method investees | 2 |
| | (5 | ) | | (2 | ) | |
| (Losses)/gains on remeasurement of defined benefit plans | | (Losses)/gains on remeasurement of defined benefit plans | | € | (110) | | | € | (63) | | | € | 317 | |
| Losses on debt instruments measured at FVOCI | | Losses on debt instruments measured at FVOCI | | (1) | | | 0 | | | 0 | |
| Share of gains/(losses) on remeasurement of defined benefit plans for equity method investees | | Share of gains/(losses) on remeasurement of defined benefit plans for equity method investees | | 0 | | | (5) | | | 0 | |
| Gains/(losses) on equity instruments measured at fair value through other comprehensive income | | Gains/(losses) on equity instruments measured at fair value through other comprehensive income | | (5) | | | 6 | | | (4) | |
| Items relating to discontinued operations | — |
| | — |
| | 4 |
| Items relating to discontinued operations | | 0 | | | (9) | | | 1 | |
| Total Items that will not be reclassified to the Consolidated Income Statement (B1) | (62 | ) | | 579 |
| | 681 |
| Total Items that will not be reclassified to the Consolidated Income Statement (B1) | | (116) | | | (71) | | | 314 | |
| | | | | | | | | | | | |
| Items that may be reclassified to the Consolidated Income Statement in subsequent periods: | | | | | | Items that may be reclassified to the Consolidated Income Statement in subsequent periods: | |
| Gains/(Losses) on net investment hedging instruments | | Gains/(Losses) on net investment hedging instruments | | 0 | | | 0 | | | 0 | |
| Gains/(losses) on cash flow hedging instruments arising during the period | 66 |
| | (54 | ) | | 63 |
| Gains/(losses) on cash flow hedging instruments arising during the period | | 121 | | | (269) | | | 99 | |
| Gains/(losses) on cash flow hedging instruments reclassified to the Consolidated Income Statement | 81 |
| | (195 | ) | | 123 |
| Gains/(losses) on cash flow hedging instruments reclassified to the Consolidated Income Statement | | (143) | | | 78 | | | (108) | |
| Total Gains/(losses) on cash flow hedging instruments | 147 |
| | (249 | ) | | 186 |
| Total Gains/(losses) on cash flow hedging instruments | | (22) | | | (191) | | | (9) | |
| Gains on available-for-sale financial assets | 14 |
| | 15 |
| | 11 |
| |
| Exchange (losses)/gains on translating foreign operations | (1,942 | ) | | 458 |
| | 1,002 |
| |
| Foreign exchange gains/(losses) | | Foreign exchange gains/(losses) | | (2,696) | | | 268 | | | 126 | |
| Share of Other comprehensive income/(loss) for equity method investees arising during the period | (94 | ) | | (97 | ) | | (18 | ) | Share of Other comprehensive income/(loss) for equity method investees arising during the period | | (81) | | | (16) | | | (77) | |
| Share of Other comprehensive income/(loss) for equity method investees reclassified to the Consolidated Income Statement | (27 | ) | | (25 | ) | | 1 |
| Share of Other comprehensive income/(loss) for equity method investees reclassified to the Consolidated Income Statement | | (23) | | | 1 | | | (26) | |
| Total Share of Other comprehensive (loss)/income for equity method investees | (121 | ) | | (122 | ) | | (17 | ) | Total Share of Other comprehensive (loss)/income for equity method investees | | (104) | | | (15) | | | (103) | |
| Items relating to discontinued operations | — |
| | — |
| | 21 |
| Items relating to discontinued operations | | 0 | | | 9 | | | (91) | |
| | | | | | | |
| Total Items that may be reclassified to the Consolidated Income Statement (B2) | (1,902 | ) | | 102 |
| | 1,203 |
| Total Items that may be reclassified to the Consolidated Income Statement (B2) | | (2,822) | | | 71 | | | (77) | |
| | | | | | | | | | | | |
| Total Other comprehensive income (B1)+(B2)=(B) | (1,964 | ) | | 681 |
| | 1,884 |
| Total Other comprehensive income (B1)+(B2)=(B) | | (2,938) | | | 0 | | | 237 | |
| Tax effect | (31 | ) | | (192 | ) | | (249 | ) | Tax effect | | 28 | | | 57 | | | (82) | |
| Tax effect - discontinued operations | — |
| | — |
| | (4 | ) | Tax effect - discontinued operations | | 0 | | | 0 | | | 1 | |
| Total Other comprehensive income, net of tax | € | (1,995 | ) | | € | 489 |
| | € | 1,631 |
| Total Other comprehensive income, net of tax | | € | (2,910) | | | € | 57 | | | € | 156 | |
Gains and losses arising from the re-measurementremeasurement of defined benefit plans mainlyprimarily 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 defined benefit plan's net liabilities or assets (Note 19, Employee benefits liabilities).
The following table summarizes the tax effect relating to Other comprehensive income:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31 |
| | 2017 | | 2016 | | 2015 |
| | Pre-tax
balance | | Tax
income/
(expense) | | Net
balance | | Pre-tax
balance | | Tax
income/
(expense) | | Net
balance | | Pre-tax
balance | | Tax
income/
(expense) | | Net
balance |
| | (€ million) |
(Losses)/gains on
re-measurement of defined
benefit plans | € | (64 | ) | | € | (21 | ) | | € | (85 | ) | | € | 584 |
| | € | (261 | ) | | € | 323 |
| | € | 679 |
| | € | (201 | ) | | € | 478 |
|
Gains/(Losses) on cash flow
hedging instruments | 147 |
| | (10 | ) | | 137 |
| | (249 | ) | | 69 |
| | (180 | ) | | 186 |
| | (48 | ) | | 138 |
|
Gains on available-
for-sale financial assets | 14 |
| | — |
| | 14 |
| | 15 |
| | — |
| | 15 |
| | 11 |
| | — |
| | 11 |
|
Exchange (losses)/gains on
translating foreign
operations | (1,942 | ) | | — |
| | (1,942 | ) | | 458 |
| | — |
| | 458 |
| | 1,002 |
| | — |
| | 1,002 |
|
| Share of Other comprehensive income/(loss) for equity method investees | (119 | ) | | — |
| | (119 | ) | | (127 | ) | | — |
| | (127 | ) | | (19 | ) | | — |
| | (19 | ) |
| Items relating to discontinued operations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 25 |
| | (4 | ) | | 21 |
|
Total Other comprehensive
income | € | (1,964 | ) | | € | (31 | ) | | € | (1,995 | ) | | € | 681 |
| | € | (192 | ) | | € | 489 |
| | € | 1,884 |
| | € | (253 | ) | | € | 1,631 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | Pre-tax
balance | | Tax
income/
(expense) | | Net
balance | | Pre-tax
balance | | Tax
income/
(expense) | | Net
balance | | Pre-tax
balance | | Tax
income/
(expense) | | Net
balance |
| | (€ million) |
| (Losses)/gains on remeasurement of defined benefit plans | | € | (110) | | | € | 21 | | | € | (89) | | | € | (63) | | | € | 7 | | | € | (56) | | | € | 317 | | | € | (76) | | | € | 241 | |
| | | | | | | | | | | | | | | | | | |
| Losses on debt instruments measured at FVOCI | | (1) | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Gains/(Losses) on cash flow hedging instruments | | (22) | | | 7 | | | (15) | | | (191) | | | 50 | | | (141) | | | (9) | | | (6) | | | (15) | |
| Gains/(losses) on equity instruments measured at fair value through other comprehensive income | | (5) | | | 0 | | | (5) | | | 6 | | | 0 | | | 6 | | | (4) | | | 0 | | | (4) | |
| Foreign exchange (losses)/gains | | (2,696) | | | 0 | | | (2,696) | | | 268 | | | 0 | | | 268 | | | 126 | | | 0 | | | 126 | |
| Share of Other comprehensive income/(loss) for equity method investees | | (104) | | | 0 | | | (104) | | | (20) | | | 0 | | | (20) | | | (103) | | | 0 | | | (103) | |
| Items relating to discontinued operations | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (90) | | | 1 | | | (89) | |
| Total Other comprehensive income | | € | (2,938) | | | € | 28 | | | € | (2,910) | | | € | 0 | | | € | 57 | | | € | 57 | | | € | 237 | | | € | (81) | | | € | 156 | |
Policies and processes for managing capital
The objectives identified by the FCA Group for managing capital arewere to create value for shareholders as a whole, safeguard business continuity and support the growth of the FCA Group. As a result, the FCA Group endeavorsendeavored 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 FCA Group constantly monitorsmonitored 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 FCA Group continuescontinued to aim for improvement in the profitability of its operations. Furthermore, the FCA Group maycould sell part of its assets to reduce the level of its debt, while the Board of Directors may make proposals to FCA shareholders at a general meeting of FCA shareholders to reduce or increase share capital or, where permitted by law, to distribute reserves. The FCA Group may also make purchases of treasury shares, without exceeding the limits authorized at a general meeting of FCA shareholders, under the same logic of creating value, compatible with the objectives of achieving financial equilibrium and an improvement in the FCA Group's rating.
For 2017,Dividends proposed, declared and paid
In accordance with the combination agreement, on January 4, 2021, FCA declared a conditional special cash distribution of €1.84 per common share corresponding to a total distribution of approximately €2.9 billion, payable to holders of FCA common shares of record as of the close of business on Friday, January 15, 2021. The cash distribution was paid on January 29, 2021.
In addition, the combination agreement contemplated that the Board of Directors has not recommendedwould review a potential cash distribution of €1 billion following completion of the merger. On March 2, 2021, the Board of Directors resolved to propose to the AGM the approval of a special cash distribution of €0.32 per common share corresponding to a total distribution of approximately €1 billion. The distribution will be subject to approval by the AGM, which is scheduled to be held on April 15, 2021.
The FCA Board of Directors intended to recommend to the Annual General Meeting of Shareholders an annual ordinary dividend payment ondistribution to holders of FCA common shares of €0.70 per common share. On May 13, 2020, the board of directors of Fiat Chrysler Automobiles N.V. announced the decision to not distribute an ordinary dividend in order2020 related to further fund capital requirementsfinancial year 2019, in light of the Group’s business plan.impact from the COVID-19 crisis.
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 in addition to the one granted by each FCA common share that they hold. In connection with the 2014 Merger, FCA issued 408,941,767449,618,514 special voting shares with a nominal value of €0.01 each to those eligible shareholders of Fiat S.p.A. who had elected to participate in the loyalty voting structure upon completion of the 2014 Merger in addition to FCA common shares. In addition, 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 an FCA shareholder in the Loyalty Register. Only a minimal dividend accrues to the special voting shares, which is allocated to a separate special dividend reserve, and they shall not carry any entitlement to any other reserve of FCA. Having only immaterial economic entitlements, the special voting shares do not impact earnings per share.
Basic earnings per share
The basicBasic earnings per share for the years ended December 31, 2017, 20162020, 2019 and 20152018 was determined by dividing the Net profit attributable to the equity holders of the parent by the weighted average number of shares outstanding during each period. For the years ended December 31, 2017 and 2016, the weighted average number of shares outstanding included 238,846,375 shares from the conversion of the Mandatory Convertible Securities into FCA common shares in December 2016 (Note 26,Equity). For the year ended December 31, 2015, the weighted average number of shares outstanding was increased to include the minimum number of ordinary shares that would arise on conversion of the Mandatory Convertible Securities.
The following tables provide the amounts used in the calculation of basic earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net profit attributable to owners of the parent | | million | € | 29 | | | € | 6,622 | | | € | 3,608 | |
| Weighted average number of shares outstanding | | thousand | 1,572,020 | | | 1,564,114 | | | 1,548,439 | |
| Basic earnings per share | | € | € | 0.02 | | | € | 4.23 | | | € | 2.33 | |
|
| | | | | | | | | | | | | |
| | | | Years ended December 31 |
| | | | 2017 | | 2016 | | 2015 |
| Net profit attributable to owners of the parent | | million | € | 3,491 |
| | € | 1,803 |
| | € | 334 |
|
| Weighted average number of shares outstanding | | thousand | 1,535,988 |
| | 1,513,019 |
| | 1,510,555 |
|
| Basic earnings per share | | € | € | 2.27 |
| | € | 1.19 |
| | € | 0.22 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net profit from continuing operations attributable to owners of the parent | | million | € | 29 | | | € | 2,694 | | | € | 3,323 | |
| Weighted average number of shares outstanding | | thousand | 1,572,020 | | | 1,564,114 | | | 1,548,439 | |
| Basic earnings per share from continuing operations | | € | € | 0.02 | | | € | 1.72 | | | € | 2.15 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net profit from discontinued operations attributable to owners of the parent | | million | € | 0 | | | € | 3,928 | | | € | 285 | |
| Weighted average number of shares outstanding | | thousand | 1,572,020 | | | 1,564,114 | | | 1,548,439 | |
| Basic earnings per share from discontinued operations | | € | € | 0 | | | € | 2.51 | | | € | 0.18 | |
|
| | | | | | | | | | | | | |
| | | | Years ended December 31 |
| | | | 2017 | | 2016 | | 2015 |
| Net profit from continuing operations attributable to owners of the parent | | million | € | 3,491 |
| | € | 1,803 |
| | € | 83 |
|
| Weighted average number of shares outstanding | | thousand | 1,535,988 |
| | 1,513,019 |
| | 1,510,555 |
|
| Basic earnings per share from continuing operations | | € | € | 2.27 |
| | € | 1.19 |
| | € | 0.05 |
|
|
| | | | | | | | | | | | | |
| | | | Years ended December 31 |
| | | | 2017 | | 2016 | | 2015 |
| Net profit from discontinued operations attributable to owners of the parent | | million | € | — |
| | € | — |
| | € | 251 |
|
| Weighted average number of shares outstanding | | thousand | 1,535,988 |
| | 1,513,019 |
| | 1,510,555 |
|
| Basic earnings per share from discontinued operations | | € | € | — |
| | € | — |
| | € | 0.17 |
|
Diluted earnings per share
In order to calculate the diluted earnings per share, the weighted average number of shares outstanding was increased to take into consideration the theoretical effect of potential common shares that would be issued for the restricted and performance share units outstanding and unvested at December 31, 2017, 20162020, 2019 and 20152018 (Note 18,Share-based compensation), as determined using the treasury stock method.
For the year ended December 31, 2015, the weighted average number of shares outstanding was also increased to take into consideration the theoretical effect that would arise if the shares related to the Mandatory Convertible Securities (Note 26, Equity) were issued. Based on FCA's share price at December 31, 2015, the minimum number of shares would have been issued had the Mandatory Convertible Securities been converted and, as such, there was no difference between the basic and diluted earnings per share for the year ended December 31, 2015 in respect of the Mandatory Convertible Securities.
For the year ended December 31, 2017,2020, the theoretical effect that would arise if some of the PSU NITSR awards granted in 2015 and 20162018 and some of the RSUPSU Adjusted EBIT awards granted in 20172019 (refer to Note 18, - Share-based compensation) were exercised was not taken into consideration in the calculation of diluted earnings per share as this would have had an anti-dilutive effect.
For the year ended December 31, 2019, the theoretical effect that would arise if some of the RSU awards granted in 2018 and some of the PSU TSR awards granted in 2019 (refer to Note 18,Share-based compensation) were exercised was not taken into consideration in the calculation of diluted earnings per share as this would have had an anti-dilutive effect.
There were no instruments excluded from the calculation of diluted earnings per share because of an anti-dilutive impact for the yearsyear ended December 31, 2016 and 2015.2018.
The following tables provide the amounts used in the calculation of diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net profit attributable to owners of the parent | | million | € | 29 | | | € | 6,622 | | | € | 3,608 | |
| Weighted average number of shares outstanding | | thousand | 1,572,020 | | | 1,564,114 | | 1,548,439 |
| Number of shares deployable for share-based compensation | | thousand | 5,293 | | | 6,736 | | 19,400 |
| Weighted average number of shares outstanding for diluted earnings per share | | thousand | 1,577,313 | | | 1,570,850 | | | 1,567,839 | |
| Diluted earnings per share | | € | € | 0.02 | | | € | 4.22 | | | € | 2.30 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net profit from continuing operations attributable to owners of the parent | | million | € | 29 | | | € | 2,694 | | | € | 3,323 | |
| Weighted average number of shares outstanding for diluted earnings per share | | thousand | 1,577,313 | | | 1,570,850 | | | 1,567,839 | |
| Diluted earnings per share from continuing operations | | € | € | 0.02 | | | € | 1.71 | | | € | 2.12 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net profit from discontinued operations attributable to owners of the parent | | million | € | 0 | | | € | 3,928 | | | € | 285 | |
| Weighted average number of shares outstanding for diluted earnings per share | | thousand | 1,577,313 | | | 1,570,850 | | | 1,567,839 | |
| Diluted earnings per share from discontinued operations | | € | € | 0 | | | € | 2.50 | | | € | 0.18 | |
|
| | | | | | | | | | | | | |
| | | | Years ended December 31 |
| | | | 2017 |
| 2016 |
| 2015 |
| Net profit attributable to owners of the parent | | million | € | 3,491 |
| | € | 1,803 |
| | € | 334 |
|
| Weighted average number of shares outstanding | | thousand | 1,535,988 |
| | 1,513,019 |
| | 1,510,555 |
|
| Number of shares deployable for share-based compensation | | thousand | 20,318 |
| | 13,357 |
| | 3,452 |
|
Weighted average number of shares outstanding for diluted earnings per share | | thousand | 1,556,306 |
| | 1,526,376 |
| | 1,514,007 |
|
| Diluted earnings per share | | € | € | 2.24 |
| | € | 1.18 |
| | € | 0.22 |
|
|
| | | | | | | | | | | | | |
| | | | Years ended December 31 |
| | | | 2017 | | 2016 | | 2015 |
| Net profit from continuing operations attributable to owners of the parent | | million | € | 3,491 |
| | € | 1,803 |
| | € | 83 |
|
Weighted average number of shares outstanding for diluted earnings per share | | thousand | 1,556,306 |
| | 1,526,376 |
| | 1,514,007 |
|
| Diluted earnings per share from continuing operations | | € | € | 2.24 |
| | € | 1.18 |
| | € | 0.05 |
|
|
| | | | | | | | | | | | | |
| | | | Years ended December 31 |
| | | | 2017 | | 2016 | | 2015 |
| Net profit from discontinued operations attributable to owners of the parent | | million | € | — |
| | € | — |
| | € | 251 |
|
Weighted average number of shares outstanding for diluted earnings per share | | thousand | 1,556,306 |
| | 1,526,376 |
| | 1,514,007 |
|
| Diluted earnings per share from discontinued operations | | € | € | — |
| | € | — |
| | € | 0.17 |
|
28. Segment reporting
Reportable segments reflect the operating segments of the FCA Group that are regularly reviewed by the Chief Executive Officer (the “chief operating decision maker” as defined under IFRS 8 – Operating Segments) for making strategic decisions, allocating resources and assessing performance and that exceed the quantitative thresholds provided in IFRS 8 – Operating Segments,, or whose information is considered useful for the users of the financial statements. The FCA Group's reportable segments include fourthe 4 regional mass-market vehicle operating segments (NAFTA,(North America, LATAM, APAC and EMEA), and the Maserati global luxury brand operating segment, and a global Components operating segment, which are described as follows:
NAFTA designs, engineers, develops, manufactures•North America designed, engineered, developed, manufactured and distributes vehicles. NAFTANorth America mainly earnsearned its revenues from the sale of vehicles under the Chrysler, Jeep, Dodge, Ram, Fiat and Alfa Romeo brand names and from sales of the related parts and accessories in the United States, Canada, Mexico and Caribbean islands.
•LATAM designs, engineers, develops, manufacturesdesigned, engineered, developed, manufactured and distributesdistributed vehicles. LATAM mainly earnsearned its revenues from the sale of passenger cars and light commercial vehicles and related spare parts under the Fiat and Jeep brand names in South and Central America as well as from the distribution of the Chrysler, Dodge and Ram brand cars in the same region. In addition, the segment provides financial services to the dealer network in Brazil and to the dealer network and retail customers in Argentina.
•APAC mainly earnsearned its revenues from the distribution and sale of cars and related spare parts under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat and Jeep brands mostly in China, Japan, Australia, South Korea and India. These activities arewere carried out through both subsidiaries and joint ventures. In addition, the segment providesprovided financial services to the dealer network and retail customers in China.
•EMEA designs, engineers, develops, manufacturesdesigned, engineered, developed, manufactured and distributesdistributed vehicles. EMEA mainly earnsearned its revenues from the sale of passenger cars and light commercial vehicles under the Fiat, Alfa Romeo, Lancia, Abarth, Jeep and Fiat Professional brand names, the sale of the related spare parts in Europe, Middle East and Africa, and from the distribution of the Chrysler, Dodge and Ram brand vehicles in these areas. In addition, the segment providesprovided financial services related to the sale of cars and light commercial vehicles in Europe, primarily through the FCA Bank joint venture and Fidis S.p.A., a fully owned captive finance company that iswas mainly involved in the factoring business.
•Maserati designs, engineers, develops, manufacturesdesigned, engineered, developed, manufactured and distributesdistributed vehicles. Maserati earnsearned its revenues from the sale of luxury vehicles under the Maserati brand.
Components earns its revenues from the production and sale of lighting components, body control units, suspensions, shock absorbers, electronic systems, exhaust systems and plastic molding components. In addition, the segment earns revenues with its spare parts distribution activities carried out under the Magneti Marelli brand name, cast iron components for engines, gearboxes, transmissions and suspension systems and aluminum cylinder heads (Teksid), in addition to the design and production of industrial automation systems and related products for the automotive industry (Comau).
Transactions among the mass-market vehicle segments generally arewere presented on a “where-sold” basis, which reflectsreflected the profit/(loss) on the ultimate sale to third party customer within the segment. This presentation generally eliminateseliminated the effect of the legal entity transfer price within the segments. Revenues of the other segments, aside from the mass-market vehicle segments, arewere those directly generated by or attributable to the segment as the result of its usual business activities and includeincluded revenues from transactions with third parties as well as those arising from transactions with segments, recognized at normal market prices.
The results of the Magneti Marelli business were previously reported within the Components segment along with FCA’s industrial automation systems design and production business and its cast iron and aluminum components business. Following the classification of Magneti Marelli as a discontinued operation (refer to Note 3, Scope of consolidation), during 2018 the remaining activities within Components segment were no longer considered a separate reportable segment as defined by IFRS 8 and were reported within “Other activities” below.
Other activities includeincluded the results of FCA’s industrial automation systems design and production business and cast iron and aluminum components business, as well as the activities and businesses that arewere not operating segments under IFRS 8 – Operating Segments. Refer to Note 3, Scope of consolidation for detail on the announced sale of Teksid's cast iron automotive components business). In addition, Unallocated items and eliminations includeincluded consolidation adjustments, eliminations, as well as costs related to the launch of the Alfa Romeo Giulia platform which were not allocated to the mass-market vehicle segments due to the limited number of shipments. Financial income and expenses and income taxes arewere not attributable to the performance of the segments as they dodid not fall under the scope of their operational responsibilities.
Adjusted Earnings Before Interest and Taxes (“Adjusted EBIT”) iswas the measure used by the chief operating decision maker to assess performance, allocate resources to the FCA Group's operating segments and to view operating trends, perform analytical comparisons and benchmark performance between periods and among the segments. Adjusted EBIT excludesexcluded certain adjustments from Net profit from continuing operations including gains/(losses) on the disposal of investments, restructuring, impairments, asset write-offs and unusual income/(expenses) that are considered rare or discrete events that are infrequent in nature, and also excludes Net financial expenses and Tax expense/(benefit). See below for a reconciliation of Net profit from continuing operations, which iswas the most directly comparable measure included in ourthe Consolidated Income Statement, to Adjusted EBIT. Operating assets arewere not included in the data reviewed by the chief operating decision maker, and as a result and as permitted by IFRS 8 – Operating Segments, the related information is not provided.
The following tables summarize selected financial information by segment for the years ended December 31, 2017, 20162020, 2019 and 2015:2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mass-Market Vehicles | | | | | | | | |
| 2020 | | North America | | LATAM | | APAC | | EMEA | | Maserati | | Other activities | | Unallocated items & eliminations | | FCA |
| | (€ million) |
| Revenues | | € | 60,322 | | | € | 5,305 | | | € | 2,381 | | | € | 16,284 | | | € | 1,384 | | | € | 2,188 | | | € | (1,188) | | | € | 86,676 | |
| Revenues from transactions with other segments | | (15) | | | (8) | | | (64) | | | (93) | | | (2) | | | (1,006) | | | 1,188 | | | — | |
| Revenues from third party customers | | € | 60,307 | | | € | 5,297 | | | € | 2,317 | | | € | 16,191 | | | € | 1,382 | | | € | 1,182 | | | € | — | | | € | 86,676 | |
| | | | | | | | | | | | | | | | |
| Net profit from continuing operations | | | | | | | | | | | | | | | | € | 24 | |
| Tax expense | | | | | | | | | | | | | | | | € | 1,332 | |
| Net financial expenses | | | | | | | | | | | | | | | | € | 988 | |
| Adjustments: | | | | | | | | | | | | | | | | |
Impairment expense and supplier obligations(1) | | € | 154 | | | € | 161 | | | € | 0 | | | € | 266 | | | € | 297 | | | € | 5 | | | € | 44 | | | € | 927 | |
Provision for U.S. investigation matters(2) | | € | — | | | € | — | | | € | — | | | € | — | | | € | — | | | € | — | | | € | 222 | | | € | 222 | |
| Restructuring costs, net of reversals | | € | 32 | | | € | 18 | | | € | 0 | | | € | 6 | | | € | 3 | | | € | 14 | | | € | 0 | | | € | 73 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Gains on disposal of investments | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | (4) | | | € | 0 | | | € | (4) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other(3) | | € | 10 | | | € | 0 | | | € | 0 | | | € | (28) | | | € | 4 | | | € | 130 | | | € | 64 | | | € | 180 | |
| Adjusted EBIT | | € | 5,351 | | | € | 6 | | | € | (116) | | | € | (918) | | | € | (232) | | | € | (283) | | | € | (66) | | | € | 3,742 | |
| | | | | | | | | | | | | | | | |
| Share of profit of equity method investees | | € | 0 | | | € | 0 | | | € | (160) | | | € | 333 | | | € | 0 | | | € | 10 | | | € | 1 | | | € | 184 | |
(1) Impairment expense and supplier obligations in Maserati, EMEA, LATAM and North America (refer to Note 2, Use of estimates - Recoverability of non-current assets with definite useful lives).
(2) Provision recognized for estimated probable loss to settle matters under investigation by the U.S. Department of Justice, primarily related to criminal investigations associated with U.S. diesel emissions matters (refer to Note 25 - Guarantees granted, commitments and contingent liabilities).
(3) Other costs, primarily including costs incurred for the FCA-PSA merger and for litigation proceedings (refer to Note 25, Guarantees granted,commitments and contingent liabilities, for further details).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Mass-Market Vehicles | | | | | | | | | | |
| 2017 | | NAFTA | | LATAM | | APAC | | EMEA | | Maserati | | Components | | Other activities | | Unallocated items & eliminations | | FCA |
| | | (€ million) |
| Revenues | | € | 66,094 |
| | € | 8,004 |
| | € | 3,250 |
| | € | 22,700 |
| | € | 4,058 |
| | € | 10,115 |
| | € | 727 |
| | € | (4,014 | ) | | € | 110,934 |
|
| Revenues from transactions with other segments | | (47 | ) | | (15 | ) | | (32 | ) | | (140 | ) | | (21 | ) | | (3,323 | ) | | (436 | ) | | 4,014 |
| | — |
|
| Revenues from third party customers | | € | 66,047 |
| | € | 7,989 |
| | € | 3,218 |
| | € | 22,560 |
| | € | 4,037 |
| | € | 6,792 |
| | € | 291 |
| | € | — |
| | € | 110,934 |
|
| | | | | | | | | | | | | | | | | | | |
| Net profit from continuing operations | | | | | | | | | | | | | | | | | | € | 3,510 |
|
| Tax expense | | | | | | | | | | | | | | | | | | € | 2,651 |
|
| Net financial expenses | | | | | | | | | | | | | | | | | | € | 1,469 |
|
| Adjustments: | | | | | | | | | | | | | | | | | | |
Reversal of a Brazilian indirect tax liability(1) | | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | (895 | ) |
Impairment expense(2) | | € |
|
| | € | 77 |
| | € |
|
| | € | 142 |
| | € |
|
| | € | 10 |
| | € |
|
| | € |
|
| | € | 229 |
|
Recall campaigns - airbag inflators(3) | | € | 29 |
| | € | 73 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 102 |
|
Restructuring costs/(reversal)(4) | | € | (1 | ) | | € | 75 |
| | € |
|
| | € |
|
| | € |
|
| | € | 20 |
| | € |
|
| | € | 1 |
| | € | 95 |
|
| Resolution of certain Components legal matters | | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 43 |
| | € |
|
| | € |
|
| | € | 43 |
|
Deconsolidation of Venezuela(5) | | € |
|
| | € | 42 |
| | € | — |
| | € | — |
| | € | — |
| | € | — |
| | € | — |
| | € | — |
| | € | 42 |
|
NAFTA capacity realignment(6) | | € | (38 | ) | | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | (38 | ) |
Tianjin (China) port explosions insurance recoveries(7) | | € |
|
| | € |
|
| | € | (68 | ) | | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | (68 | ) |
Gains on disposal of investments(8) | | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | (27 | ) | | € |
|
| | € | (49 | ) | | € | (76 | ) |
| Other | | € | (1 | ) | | € | — |
| | € | 1 |
| | € | — |
| | € | — |
| | € | (11 | ) | | € | — |
| | € | 1 |
| | € | (10 | ) |
| Adjusted EBIT | | € | 5,227 |
| | € | 151 |
| | € | 172 |
| | € | 735 |
| | € | 560 |
| | € | 536 |
| | € | (189 | ) | | € | (138 | ) | | € | 7,054 |
|
| | | | | | | | | | | | | | | | | | | |
| Share of profit of equity method investees | | € |
|
| | € |
|
| | € | 75 |
| | € | 306 |
| | € |
|
| | € | 14 |
| | € | 13 |
| | € | 1 |
| | € | 409 |
|
279
_________________________
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mass-Market Vehicles | | | | | | | | |
| 2019 | | North America | | LATAM | | APAC | | EMEA | | Maserati | | Other activities | | Unallocated items & eliminations | | FCA |
| | (€ million) |
| Revenues | | € | 73,357 | | | € | 8,461 | | | € | 2,814 | | | € | 20,571 | | | € | 1,603 | | | € | 3,009 | | | € | (1,628) | | | € | 108,187 | |
| Revenues from transactions with other segments | | (20) | | | (12) | | | (52) | | | (105) | | | (11) | | | (1,428) | | | 1,628 | | | — | |
| Revenues from third party customers | | € | 73,337 | | | € | 8,449 | | | € | 2,762 | | | € | 20,466 | | | € | 1,592 | | | € | 1,581 | | | € | — | | | € | 108,187 | |
| | | | | | | | | | | | | | | | |
| Net profit from continuing operations | | | | | | | | | | | | | | | | € | 2,700 | |
| Tax expense | | | | | | | | | | | | | | | | € | 1,321 | |
| Net financial expenses | | | | | | | | | | | | | | | | € | 1,005 | |
| Adjustments: | | | | | | | | | | | | | | | | |
Impairment expense and supplier obligations(1)(5) | | € | 98 | | | € | 0 | | | € | 0 | | | € | 441 | | | € | 210 | | | € | 0 | | | € | 793 | | | € | 1,542 | |
Restructuring costs, net of reversal(2)(5) | | € | 23 | | | € | 127 | | | € | 0 | | | € | (9) | | | € | 3 | | | € | 0 | | | € | 10 | | | € | 154 | |
| Gains on disposal of investments | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | (15) | | | € | 0 | | | € | (15) | |
Brazilian indirect tax – reversal of liability/recognition of credits(3) | | € | 0 | | | € | (164) | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | (164) | |
Other(4)(5) | | € | 45 | | | € | 4 | | | € | (4) | | | € | (7) | | | € | 8 | | | € | 7 | | | € | 72 | | | € | 125 | |
| Adjusted EBIT | | € | 6,690 | | | € | 501 | | | € | (36) | | | € | (6) | | | € | (199) | | | € | (173) | | | € | (109) | | | € | 6,668 | |
| | | | | | | | | | | | | | | | |
| Share of profit of equity method investees | | € | 0 | | | € | 0 | | | € | (126) | | | € | 318 | | | € | 0 | | | € | 15 | | | € | 1 | | | € | 208 | |
(1) Impairment expense recognized in the year ended December 31, 2019 for EMEA, Maserati and also not allocated to a specific region. Additionally, impairment expense recognized in previous quarters in North America and Maserati, as well as supplier obligations of €6 million in EMEA.
(2) Restructuring costs, mainly related to LATAM, EMEA and North America, primarily includes €76 million of write-down of Property, plant and equipment and €118 million related to the Group’s Brazilian operationsrecognition of provisions for restructuring, partially offset by the reversal of previously recorded provisions, primarily €46 million in multiple segments, it was not attributedEMEA.
(3) Gains in relation to the resultsrecognition of the related segments;
2) Impairment expensecredits for amounts paid in EMEA relatesprior years in relation to changesindirect taxes in global product portfolio. Impairment expense in LATAM relatesBrazil (refer to product portfolio changesNote 15, Trade and the impairment of certain real estate assets in Venezuela,other receivables in the second quarter of 2017 dueConsolidated Financial Statements).
(4) Other costs, primarily relating to the continued deterioration of the economic conditions;
(3) Referlitigation proceedings (refer to Note 20, Provisions and Note 25, Guarantees granted, commitments and contingent liabilities in the Consolidated Financial Statements).
(4) Primarily related(5) During the year ended December 31, 2019 impairment charges of €1,589 million were recorded, classified within Impairment expense and supplier obligations, Restructuring costs, net of reversals and Other above. These comprised €636 million of Property, plant and equipment (refer to workforce restructuringNote 11, Property, plant and equipment in the Consolidated Financial Statements included elsewhere in this report) and €953 million of Other intangible assets (refer to Note 10, Other intangible assets in the Consolidated Financial Statements included elsewhere in this report).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mass-Market Vehicles | | | | | | | | |
| 2018 | | North America | | LATAM | | APAC | | EMEA | | Maserati | | Other activities | | Unallocated items & eliminations | | FCA |
| | (€ million) |
| Revenues | | € | 72,384 | | | € | 8,152 | | | € | 2,703 | | | € | 22,815 | | | € | 2,663 | | | € | 2,888 | | | € | (1,193) | | | € | 110,412 | |
| Revenues from transactions with other segments | | (31) | | | (10) | | | (57) | | | (101) | | | (18) | | | (976) | | | 1,193 | | | — | |
| Revenues from third party customers | | € | 72,353 | | | € | 8,142 | | | € | 2,646 | | | € | 22,714 | | | € | 2,645 | | | € | 1,912 | | | € | — | | | € | 110,412 | |
| | | | | | | | | | | | | | | | |
| Net profit from continuing operations | | | | | | | | | | | | | | | | € | 3,330 | |
| Tax expense | | | | | | | | | | | | | | | | € | 778 | |
| Net financial expenses | | | | | | | | | | | | | | | | € | 1,056 | |
| Adjustments: | | | | | | | | | | | | | | | | |
Charge recognized for U.S. diesel emission matters(1) | | € | — | | | € | — | | | € | — | | | € | — | | | € | — | | | € | — | | | € | 748 | | | € | 748 | |
Impairment expense(2) | | € | 16 | | | € | 8 | | | € | 11 | | | € | 307 | | | € | 0 | | | € | 0 | | | € | 11 | | | € | 353 | |
China inventory impairment(3) | | € | 0 | | | € | 0 | | | € | 129 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 129 | |
Costs for recall, net of recovery - airbag inflators(4) | | € | 114 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 114 | |
U.S. special bonus payment(5) | | € | 109 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 2 | | | € | 0 | | | € | 111 | |
Restructuring costs, net of reversal(6) | | € | 0 | | | € | (28) | | | € | 0 | | | € | 123 | | | € | 0 | | | € | 8 | | | € | 0 | | | € | 103 | |
Employee benefits settlement losses(7) | | € | 92 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 92 | |
Port of Savona (Italy) fire and flood(8) | | € | 0 | | | € | 0 | | | € | 0 | | | € | 2 | | | € | 11 | | | € | 30 | | | € | 0 | | | € | 43 | |
(Recovery of)/costs for recall - contested with supplier(9) | | € | (50) | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | (50) | |
North America Capacity realignment(10) | | € | (60) | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | 0 | | | € | (60) | |
Brazilian indirect tax – reversal of liability/recognition of credits(11) | | € | 0 | | | € | (54) | | | € | 0 | | | € | 0 | | | € | 0 | | | € | (18) | | | € | 0 | | | € | (72) | |
| Other | | € | 1 | | | € | 0 | | | € | 0 | | | € | 30 | | | € | 0 | | | € | 12 | | | € | 20 | | | € | 63 | |
| Adjusted EBIT | | € | 6,230 | | | € | 359 | | | € | (296) | | | € | 406 | | | € | 151 | | | € | (40) | | | € | (72) | | | € | 6,738 | |
| | | | | | | | | | | | | | | | |
| Share of profit of equity method investees | | € | 0 | | | € | 0 | | | € | (67) | | | € | 284 | | | € | 0 | | | € | 22 | | | € | 1 | | | € | 240 | |
(1) A provision of €748 million was recognized for costs related to LATAM;final settlements reached on civil, environmental and consumer claims related to U.S. diesel emissions matters.
(5) Refer to Note 3, Scope of consolidation;
(6) Income related to adjustments to reserves for the NAFTA capacity realignment plan;
(7) Insurance recoveries related to losses incurred in connection with the explosions at the Port of Tianjin (China) in August 2015 are excluded from Adjusted EBIT to the extent the insured loss to which the recovery relates was excluded from Adjusted EBIT. Insurance recoveries are included in Adjusted EBIT to the extent they relate to costs, increased incentives or business interruption losses that were included in Adjusted EBIT;
(8) Refer to Note 3, Scope of consolidation.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Mass-Market Vehicles | | | | | | | | | | |
| 2016 | | NAFTA | | LATAM | | APAC | | EMEA | | Maserati | | Components | | Other activities | | Unallocated items & eliminations | | FCA |
| | | (€ million) |
| Revenues | | € | 69,094 |
| | € | 6,197 |
| | € | 3,662 |
| | € | 21,860 |
| | € | 3,479 |
| | € | 9,659 |
| | € | 779 |
| | € | (3,712 | ) | | € | 111,018 |
|
| Revenues from transactions with other segments | | (40 | ) | | (42 | ) | | (24 | ) | | (148 | ) | | (10 | ) | | (3,030 | ) | | (418 | ) | | 3,712 |
| | — |
|
| Revenues from third party customers | | € | 69,054 |
| | € | 6,155 |
| | € | 3,638 |
| | € | 21,712 |
| | € | 3,469 |
| | € | 6,629 |
| | € | 361 |
| | € | — |
| | € | 111,018 |
|
| | | | | | | | | | | | | | | | | | | |
| Net profit from continuing operations | | | | | | | | | | | | | | | | | | € | 1,814 |
|
| Tax expense | | | | | | | | | | | | | | | | | | € | 1,292 |
|
| Net financial expenses | | | | | | | | | | | | | | | | | | € | 2,016 |
|
| Adjustments: | | | | | | | | | | | | | | | | | | |
Recall campaigns - airbag inflators(1) | | € | 414 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 414 |
|
Costs for recall, net of supplier recoveries - contested with supplier(2) | | € | 132 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 132 |
|
NAFTA capacity realignment(3) | | € | 156 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 156 |
|
Tianjin (China) port explosions, net of insurance recoveries(4) | | € |
|
| | € |
|
| | € | (55 | ) | | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | (55 | ) |
| Currency devaluation | | € |
|
| | € | 19 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 19 |
|
Restructuring costs/(reversal)(5) | | € | (10 | ) | | € | 68 |
| | € |
|
| | € | 5 |
| | € |
|
| | € | 25 |
| | € |
|
| | € |
|
| | € | 88 |
|
Impairment expense(6) | | € |
|
| | € | 52 |
| | € | 109 |
| | € | 7 |
| | € |
|
| | € | 49 |
| | € | 8 |
| | € |
|
| | € | 225 |
|
| Gains on disposal of investments | | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | (8 | ) | | € | (5 | ) | | € |
|
| | € | (13 | ) |
| Other | | € | (25 | ) | | € | 3 |
| | € | (10 | ) | | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | (32 | ) |
| Adjusted EBIT | | € | 5,133 |
| | € | 5 |
| | € | 105 |
| | € | 540 |
| | € | 339 |
| | € | 445 |
| | € | (244 | ) | | € | (267 | ) | | € | 6,056 |
|
| | | | | | | | | | | | | | | | | | | |
| Share of profit of equity method investees | | € | 2 |
| | € | — |
| | € | 30 |
| | € | 272 |
| | € | — |
| | € | 6 |
| | € | 2 |
| | € | 1 |
| | € | 313 |
|
________________________(1) Refer to Note 20, Provisions and Note 25, Guarantees granted, commitments and contingent liabilities;liabilities.
(2) Refer to Note 20, Provisions;
(3) Refer to Note 5, ResearchImpairment expense of €297 million and development costs and Note 11, Property plant and equipment;
(4) Insurance recoveries related to losses incurredsupplier obligations of €56 million, primarily in EMEA, resulting from changes in product plans in connection with the explosions at2018-2022
business plan.
(3) Impairment of inventory in connection with acceleration of new emissions standards in China and slower than expected sales.
(4) Accrual in relation to costs for recall campaigns related to Takata airbag inflators, net of recovery.
(5) Special bonus payment of $2,000 to approximately 60,000 employees in North America as a result of the U.S. Tax Cuts and Jobs Act.
(6) Restructuring costs primarily consisting of €123 million in EMEA, partially offset by the reversal of €28 million of previously recorded restructuring costs in LATAM.
(7) Charges arising on settlement of a portion of a supplemental retirement plan and an annuity buyout in North America. Refer to Note 19, Employee benefits liabilities.
(8) Costs in relation to the Port of Tianjin (China)Savona (Italy) flood and fire.
(9) Recovery of amounts accrued in August 2015 are excluded from Adjusted EBIT2016 in relation to costs for recall contested with a supplier.
(10) Reduction of costs in relation to the extent the insured loss toNorth America capacity realignment which the recovery relates was excluded from Adjusted EBIT. Insurance recoveries are includedwere accrued in Adjusted EBIT to the extent they relate to costs, increased incentives or business interruption losses that were included in Adjusted EBIT. Through December 31, 2016, no significant insurance recoveries2015.
(11) Credits recognized related to Tianjin have been recognizedindirect taxes in Adjusted EBIT;
(5) Restructuring costs within LATAM and Components primarily relate to cost reduction initiatives to right-size to market volume in Brazil;
(6) Refer to Note 5, Research and development costs. and Note 11, Property plant and equipment.
Brazil.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Mass-Market Vehicles | | | | | | | | | | |
| 2015 | | NAFTA | | LATAM | | APAC | | EMEA | | Maserati | | Components | | Other activities | | Unallocated items & eliminations | | FCA |
| | | (€ million) |
| Revenues | | € | 69,992 |
| | € | 6,431 |
| | € | 4,885 |
| | € | 20,350 |
| | € | 2,411 |
| | € | 9,770 |
| | € | 844 |
| | € | (4,088 | ) | | € | 110,595 |
|
| Revenues from transactions with other segments | | (1 | ) | | (194 | ) | | (25 | ) | | (304 | ) | | (13 | ) | | (3,095 | ) | | (456 | ) | | 4,088 |
| | — |
|
| Revenues from third party customers | | € | 69,991 |
| | € | 6,237 |
| | € | 4,860 |
| | € | 20,046 |
| | € | 2,398 |
| | € | 6,675 |
| | € | 388 |
| | € | — |
| | € | 110,595 |
|
| | | | | | | | | | | | | | | | | | | |
| Net profit from continuing operations | | | | | | | | | | | | | | | | | | € | 93 |
|
| Tax expense | | | | | | | | | | | | | | | | | | € | 166 |
|
| Net financial expenses | | | | | | | | | | | | | | | | | | € | 2,366 |
|
| Adjustments: | | | | | | | | | | | | | | | | | | |
Change in estimate for future recall campaign costs(1) | | € | 761 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 761 |
|
Tianjin (China) port explosions(2) | | € |
|
| | € |
|
| | € | 142 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 142 |
|
NAFTA capacity realignment(3) | | € | 834 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 834 |
|
Currency devaluations(4) | | € |
|
| | € | 163 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 163 |
|
NHTSA Consent Order and amendment(5) | | € | 144 |
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € |
|
| | € | 144 |
|
| Impairment expense | | € |
|
| | € | 16 |
| | € | 22 |
| | € | 46 |
| | € | 3 |
| | € | 20 |
| | € |
|
| | € | 11 |
| | € | 118 |
|
| Restructuring costs/(reversal) | | € | (11 | ) | | € | 40 |
| | € |
|
| | € |
|
| | € |
|
| | € | 23 |
| | € | 2 |
| | € | (1 | ) | | € | 53 |
|
| Other | | € | (97 | ) | | € |
|
| | € | 41 |
| | € | 1 |
| | € |
|
| | € | 8 |
| | € | (1 | ) | | € | 2 |
| | € | (46 | ) |
| Adjusted EBIT | | € | 4,450 |
| | € | (87 | ) | | € | 52 |
| | € | 213 |
| | € | 105 |
| | € | 395 |
| | € | (150 | ) | | € | (184 | ) | | € | 4,794 |
|
| | | | | | | | | | | | | | | | | | | |
| Share of profit of equity method investees | | € | 3 |
| | € | — |
| | € | (78 | ) | | € | 219 |
| | € | — |
| | € | (2 | ) | | € | (12 | ) | | € | — |
| | € | 130 |
|
_________________________
(1) Amount represents the change in estimate for estimated future recall campaign costs for the U.S. and Canada recognized within Cost of revenues - refer to Note 20, Provisions; (2) Amount relates to the write-down of inventory (€53 million) and incremental incentives (€89 million) for vehicles affected by the explosions at the Port of Tianjin in August 2015;
(3) Amount represents costs from implementation of plan to realign existing NAFTA capacity - comprised of €422 million for asset impairments, €236 million for payment of supplemental unemployment benefits due to extended downtime at certain plants and €176 million for write off of capitalized development expenditures with no future benefit;
(4) €80 million was due to adoption of SIMADI exchange rate at June 30, 2015 (refer to Note 3, Scope of consolidation, and €83 million was due to the devaluation of the Argentinian Peso resulting from changes in monetary policy;
(5) Refer to Note 20, Provisions.
Information about geographical area
The following table summarizes the non-current assets (other than financial instruments, deferred tax assets and post-employment benefits assets) attributed to certain geographic areas:
| | | | | | | | | | | | | | |
| | At December 31, |
| | 2020 | | 2019 |
| | (€ million) |
North America(1) | | € | 39,240 | | | € | 40,097 |
| Italy | | 11,287 | | 10,711 |
| Brazil | | 2,811 | | 4,064 |
| Poland | | 531 | | 684 |
| Serbia | | 409 | | 495 |
| Other countries | | 1,007 | | 1,320 |
| Total Non-current assets (other than financial instruments, deferred tax assets and post-employment benefits assets) | | € | 55,285 | | | € | 57,371 | |
(1) Refers to the geographical area and not FCA’s North America reporting segment.
|
| | | | | | | | |
| | | At December 31 |
| | | 2017 | | 2016 |
| | | (€ million) |
| North America | | € | 34,099 |
| | € | 35,833 |
|
| Italy | | 12,458 |
| | 12,558 |
|
| Brazil | | 5,137 |
| | 6,310 |
|
| Poland | | 1,151 |
| | 1,117 |
|
| Serbia | | 639 |
| | 660 |
|
| Other countries | | 2,536 |
| | 2,582 |
|
| Total Non-current assets (other than financial instruments, deferred tax assets and post-employment benefits assets) | | € | 56,020 |
| | € | 59,060 |
|
29. | | | | | |
| 29. | Explanatory notes to the Consolidated Statement of Cash Flows |
Non-cash items
For the year ended December 31, 2017,2020, Other non-cash items of €(199)€1,192 million primarily €406included €914 million impairment expense (refer to Note 2, Basis of preparation - Use of estimates) and €293 million costs recognized upon the utilization of regulatory credits, partially offset by €179 million related to the revaluation of investments accounted for by using the equity method and other amounts that were not individually material.
For the year ended December 31, 2019, Other non-cash items of €1,541 million primarily included €1,589 million impairment expense (refer to Note 2, Basis of preparation - Use of estimates).
For the year ended December 31, 2018, Other non-cash items of €129 million primarily included €297 million of impairments, partially offset by €229€240 million related to the revaluation of impairmentsinvestments accounted for by using the equity method and other amounts that were not individually material.
Operating activities
For the year ended December 31, 2016, Other non-cash items2020, net cash from operating activities of €111€9,183 million was primarily included €225the result of: (i) net profit from continuing operations of €24 million adjusted to: (1) add back €5,143 million for depreciation and amortization expense, (2) €914 million of impairments (refer to Note 2, Basis of preparation - Use of estimates), (3) a €894 million change in deferred taxes (refer to Note 7, Tax Expense), (4) a €434 million net decrease in provisions, primarily as a result of lower sales incentive due to the decrease in dealers stock in North America, (5) the positive effect of the change in working capital of €2,559 million, which were partially offsetwas primarily driven by (i) a decrease of €983 million in inventories primarily in EMEA, North America and Maserati, (ii) an increase of €565 million in trade payables, primarily due to increased payables for production in LATAM and capital expenditures in North America, (iii) a decrease of €366 million in trade receivables, primarily in EMEA and (iv) an increase of €645 million in other amounts that were not individually material.payables net of other receivables, reflecting primarily higher indirect and payroll taxes in North America and EMEA as well as higher advances from customers in LATAM.
For the year ended December 31, 2015, Other non-cash items2019, net cash from operating activities of €812€10,462 million was primarily the result of: (i) net profit from continuing operations of €2,700 million adjusted to: (1) to add back €5,445 million for depreciation and amortization expense, (2) €1,589 million of impairments (refer to Note 2, Basis of preparation - Use of estimates), (3) a €864 million change in deferred taxes, (4) a €1,744 million net decrease in provisions, including €0.5 billion of payments for civil, environmental and consumer claims related to U.S. diesel emissions matters accrued in 2018, and warranty and incentive payments which exceeded the related accruals in North America, (5) €308 million of cash used by operating activities of discontinued operations and (6) for the positive effect of the change in working capital of €1,869 million, which was primarily driven by (i) an increase of €2,020 million in trade payables primarily in North America, largely due to capital expenditures, (ii) a decrease of €1,017 million in inventories primarily in EMEA and LATAM, which were partially offset by (iii) an increase of €1,268 million in other receivables net of other liabilities and payables, reflecting primarily higher indirect tax receivables in LATAM and lump sum payments of €446 million (U.S.$499 million) made in relation to the ratification of the UAW four-year collective bargaining agreement (refer to Note 25, Guarantees granted, commitments and contingent liabilities).
For the year ended December 31, 2018, net cash from operating activities of €9,948 million was primarily the result of: (i) net profit from continuing operations of €3,330 million adjusted to add back €5,507 million for depreciation and amortization expense; in addition to (ii) a net increase of €842 million in provisions primarily due to a provision of €748 million recognized for costs related to final settlements reached on civil, environmental and consumer claims related to U.S. diesel emissions matters; (iii) an increase of €457 million in net deferred tax assets, mainly due to increased deferred tax liabilities in North America; and (iv) cash flow from operating activities of discontinued operations for €484 million. These positive impacts were partially offset by negative effect of the change in working capital of €1,035 million primarily included (i) €713driven by (a) decrease in trade payables of €1,240 million non-cash charges for impairments which primarily related to asset impairmentslower production volumes in connection withEMEA in December 2018 compared to the realignmentsame month in 2017 in addition to lower capital expenditure, (b) decrease in other liabilities and payables net of the Group's manufacturing capacity in NAFTA to better meet market demand and (ii) €80receivables of €1,213 million charge recognizedmainly as a result of higher indirect tax receivable in LATAM, decreased income tax payable in North America and lower advances from customers in LATAM and EMEA, and (c) decrease in inventories of €1,399 million due to inventory management actions across all the adoption of the SIMADI exchange rate to re-measure the net monetary assets of the Group’s Venezuelan subsidiary in U.S. Dollar (as described in Note 3. Scope of consolidation) (reported, for the effect on cash and cash equivalents, within Translation exchange differences).regions.
OperatingInvesting activities
For the year ended December 31, 2017,2020, net cash used in investing activities of €7,915 million was primarily the €1,666result of (i) €8,600 million increaseof capital expenditures, including €2,640 million of capitalized development expenditures, partially offset by (ii) a decrease in inventories related to ramp-upreceivables from financing activities of new models at year end, including the all-new Alfa Romeo Stelvio and the new Jeep Wrangler, as well as volume increases€396 million reflecting lower volumes in LATAM and Maserati. The increaseEMEA and (iii) a decrease of €207 million in trade payables of €1,086 millionsecurities primarily related to increased production volumesheld by FCA’s captive insurance company in NAFTA and LATAM in the fourth quarter of 2017 as compared to the same period in 2016.North America.
For the year ended December 31, 2016,2019, net cash used in investing activities of €2,985 million was primarily the result of (i) €8,385 million of capital expenditures, including €2,889 million of capitalized development expenditures, and (ii) €155 million of cash flows used by discontinued operations. These were partially offset by (iii) €5,774 million proceeds from the disposal of Magneti Marelli, net increase of ��1,519€426 million in provisions wascash and cash equivalents held by Magneti Marelli at the time of the disposal, and (iv) a decrease in receivables from financing activities of €336 million, mainly dueattributable to the increaselower volumes of financing in the warranty provision of €414 million in NAFTA for recall campaigns related to an industry wide recall for airbag inflators resulting from parts manufacturedEMEA partially offset by Takata, an increase in accrued sales incentives primarily related to NAFTA and EMEA, as well as estimated net costs of €132 million associated with a recall for which costs are being contested with a supplier. In addition, the €471 million increase in inventories primarily related to the increased production of new vehicle models in EMEA and the €776 million increase in trade payables mainly related to increased production levels in EMEA, which was partially offset by reduced activity in LATAM and the effect of localized Jeep production in China. Furthermore, the change in other payables and receivables of €295 million primarily reflected the net payment of taxes and deferred expenses.LATAM.
For the year ended December 31, 2015,2018, net cash used in investing activities of €6,738 million was primarily the result of (i) €5,392 million of capital expenditures, including ��2,079 million of capitalized development expenditures primarily related to North America and EMEA, that supported investments in existing and future products, including investments in electrification and autonomous driving, and (ii) a €676 million net increase of €3,206 million in provisions mainlyreceivables from financing activities primarily related to anthe increase in the warranty provision, which includedlending portfolio of the changefinancial services activities in estimate for future recall campaign costsLATAM, EMEA and in NAFTA, and higher accrued sales incentives primarily related to increased sales volumes in NAFTA. In addition, the €958 million increase in inventories reflected the increased consumer demand for our vehicles and inventory buildup in NAFTA due to production changeovers and the €1,571 million increase in trade payables mainly related to increased production levels in EMEA. Furthermore, the change in other payables and receivables of €580 million primarily reflected the net payment of taxes and deferred expenses.APAC.
Financing activities
For the year ended December 31, 2017,2020, net cash from financing activities of €9,087 million resulted primarily from the draw down of the €6.3 billion Intesa Sanpaolo Credit Facility, the issuance of €3.5 billion notes under Medium Term Note programme and the €0.8 billion of loans with the European Investment Bank announced on March 18, 2020 and September 18, 2020. These were partially offset by the repayment of notes at maturity as well as other long-term and short-term debt. During the first half of 2020 the Revolving Credit Facilities of €6.25 billion and bilateral credit facilities of €1.2 billion were fully drawn dawn and then repaid by December 31, 2020, the related amounts are reflected within Proceeds and Repayments of other long-term debt in the Cash Flows Statement. Refer to Note 21, Debt for further information.
For the year ended December 31, 2019, net cash used in financing activities of €5,827 million resulted primarily from dividends paid of €3,056 million, including the extraordinary dividend of €2,038 million related to the disposal of Magneti Marelli, the repayment of debt in Brazil of €684 million, and the repayment of notes at maturity with a principal amount of €1,480 million that were issued through the MTN Programme.
For the year ended December 31, 2018, net cash used in financing activities of €2,785 million was primarily the result of theof; (i) repayment of other long-term debt, net of proceeds, of €889 million, which included (a) the U.S.$1,826 million (€1,721 million) of cash used for the voluntary prepayment in November 2018 of the outstanding principal and accrued interest of U.S.$1,009 million (€893 million) of FCA US's Tranchetranche B term loan maturing December 31, 2018 (the “Tranche B Term Loan due 20172018”); and (b)(ii) the repayment of a note at maturity of two notes under the MTNMedium Term Note Programme, one with a principal amount of €850 million, one with a principal amount of €1,000€1,250 million and one with a principal amount of CHF450 million (€385 million), as described in Note 21, Debt.
For the year ended December 31, 2016, net cash used in financing activities was primarily the result of the (i) repayment of other long-term debt for a total of €4,618 million, which included (a) the voluntary prepayments of principal of the FCA US Tranche B Term Loans of U.S.$2.0 billion (€1.8 billion) as described in Note 21, Debt, (b) the payment of the financial liability related to the Mandatory Convertible Securities of €213 million upon their conversion to FCA shares and (c) repayments at maturity of other long-term debt of €2,605 million primarily in Brazil, as well as (ii) the repayment at maturity of three notes issued under the MTN Programme, two of which were for an aggregate principal amount of €2,000 million and one for a principal amount of CHF 400 million (€373 million) as described in Note 21, Debt, which were partially offset by (iii) the issuance of a new note under the MTN Programme for a principal amount of €1,250 million and (iv) proceeds from other long-term debt for a total of €1,342 million, which included the proceeds from the €250 million loan entered into with the EIB in December 2016 as described in Note 21, Debt.
For the year ended December 31, 2015, net cash from financing activities was primarily the result of (i) the prepayment of the FCA US Secured Senior Notes and the repayment at maturity of two notes issued under the MTN Programme for a total of €7,241 million and (ii) the repayment of other long-term debt for a total of €4,412 million, which were partially offset by (iii) net proceeds of €866 million from the Ferrari IPO as described in Note 3, Scope of consolidation, (iv) proceeds from the issuance of the Notes by FCA for a total of €2,840 million as described in Note 21, Debt, (v) €3,061 million provided by other long-term borrowings and (vi) net proceeds from the €2.0 billion Ferrari Bridge Loan and Ferrari Term Loan, which are reflected within cash flows used in financing activities - discontinued operations in the Consolidated Statement of Cash Flows.€600 million.
The following is a reconciliation of liabilities arising from financing activities for the year ended December 31, 2017:2020 and 2019:
| | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2020 | | 2019 |
| | (€ million) |
Total Debt at January 1(1) | | € | 12,901 | | | € | 15,597 | |
| Add: Derivative (assets)/liabilities and collateral at January 1 | | 178 | | | (151) | |
| Total Liabilities from financing activities at January 1 | | € | 13,079 | | | € | 15,446 | |
| | | | |
| Cash flows | | 9,087 | | | (3,096) | |
| Foreign exchange effects | | (962) | | | 9 | |
| Fair value changes | | (48) | | | 327 | |
| Changes in scope of consolidation | | 0 | | | 43 | |
| Transfer to (Assets)/Liabilities held for sale | | 0 | | | (82) | |
Other changes(2) | | (67) | | | 432 | |
| | | | |
| Total Liabilities from financing activities at December 31 | | € | 21,089 | | | € | 13,079 | |
| Less: Derivative (assets)/liabilities and collateral at December 31 | | (28) | | | 178 | |
| Total Debt at December 31 | | € | 21,117 | | | € | 12,901 | |
|
| | | | |
| | (€ million) |
Total Debt at January 1, 2017 | | € | 24,048 |
|
Derivative (assets)/liabilities and collateral at January 1, 2017 | | 150 |
|
Total Liabilities from financing activities at January 1, 2017 | | € | 24,198 |
|
| | |
Cash flows | | € | (4,470 | ) |
Foreign exchange effects | | € | (1,311 | ) |
Fair value changes | | € | (286 | ) |
Changes in scope of consolidation | | € | (83 | ) |
Other changes | | € | (283 | ) |
| | |
Total Liabilities from financing activities at December 31, 2017 | | € | 17,765 |
|
Derivative (assets)/liabilities and collateral at December 31, 2017 | | (206 | ) |
Total Debt at December 31, 2017 | | € | 17,971 |
|
(2) Other changes above includes €622 million of non-cash movements relating to the recognition of additional lease liabilities in accordance with IFRS during the year ended December 31, 2019.Interest expense and taxes paid
During the yearyears ended December 31, 2017,2020, 2019 and 2018, the FCA Group paid interest of €1,190€722 million and received interest of €299 million. During the year ended December 31, 2016, the Group paid interest of €1,676€178 million, €860 million and received interest of €370 million. During the year ended December 31, 2015, the Group, including Ferrari, paid interest of €2,087€325 million, and received interest of €469 million.€1,024 million and €308 million, respectively. Amounts indicated are also inclusive of interest rate differentials paid or received on interest rate derivatives.
During the yearyears ended December 31, 2017,2020, 2019 and 2018, the FCA Group made income tax payments, net of refunds, totaling €533 million. €120 million, €341 million and €750 million, respectively.
Amounts relating to IFRS 16 recognized in Consolidated Statement of Cash Flows
During the year ended December 31, 2016,2020 and 2019, the Group made income taxtotal cash outflow for leases recognized in accordance with IFRS 16 was €496 million and €381 million, respectively, of which €389 million and €299 million, respectively, related to cash payments netfor the principal portion of refunds, totaling €622 million. Duringlease liabilities (recognized within Cash flows from financing activities in the year ended December 31, 2015,Consolidated Statement of cash flows) and €107 million and €82 million, respectively, related to cash payments for interest expense related to lease liabilities (recognized within Cash flows from operating activities in the Group, including Ferrari, made income tax payments, netConsolidated Statement of refunds, totaling €664 million.cash flows).
30. | | | | | |
| 30. | Qualitative and quantitative information on financial risks |
The FCA Group iswas historically exposed to the following financial risks connected with its operations:
•credit risk, principally arising from its normal commercial relations with final customers and dealers, and its financing activities;
•liquidity risk, with particular reference to the availability of funds and access to the credit market and to financial instruments in general;
•financial market risk (principally relating to exchange rates, interest rates and commodity prices), since the FCA Group operatesoperated at an international level in different currencies and usesused financial instruments which generategenerated interest. The Group isFCA was also exposed to the risk of changes in the price of certain commodities and of certain listed shares.
These risks could significantly affect the FCA Group’s financial position and results and for this reason, the FCA Group systematically identifiesidentified and monitorsmonitored these risks in order to detect potential negative effects in advance and take the necessary action to mitigate them, primarily through its operating and financing activities and if required, through the use of derivative financial instruments in accordance with established risk management policies.
Financial instruments held by the funds that managemanaged FCA’s pension plan assets are not included in this analysis (refer to Note 19, Employee benefits liabilities).
The following section provides qualitative and quantitative disclosures on the effect that these risks maycould have upon the FCA Group. The quantitative data reported in the following does not have any predictive value, in particular the sensitivity analysis on finance market risks does not reflect the complexity of the market or the reaction which may result from any changes that arewere assumed to take place.
Credit risk
Credit risk is the risk of economic loss arising from the failure to collect a receivable. Credit risk encompasses the direct risk of default and the risk of a deterioration of the creditworthiness of the counterparty.
The Group’s credit risk differs in relation to the activities carried out. In particular, dealer financing and operating and financial lease activities that are carried out through the Group’s financial services companies are exposed both to the direct risk of default and the deterioration of the creditworthiness of the counterparty, while the sale of vehicles and spare parts is mostly exposed to the direct risk of default of the counterparty. These risks are however mitigated by the fact that collection exposure is spread across a large number of counterparties and customers.
Overall, the credit risk regarding the FCA Group’s trade receivables and receivables from financing activities iswas concentrated mainly in the European Union, LatinNorth America, EMEA and North American markets.LATAM.
In order to test for impairment, significant receivables from corporate customers and receivables for which collectability is at risk are assessed individually, while receivables from end customers or small business customers are grouped into homogeneous risk categories. A receivable is considered impaired when there is objective evidence that the Group will be unable to collect all amounts due specified in the contractual terms. Objective evidence may be provided by the following factors: significant financial difficulties of the counterparty, the probability that the counterparty will be involved in an insolvency procedure or will default on its installment payments, the restructuring or renegotiation of open items with the counterparty, changes in the payment status of one or more debtors included in a specific risk category and other contractual breaches. The calculation of the amount of the impairment loss is based on the risk of default by the counterparty, which is determined by taking into account all the information available as to the customer’s solvency, the fair value of any guarantees received for the receivable and the Group’s historical experience.
The maximum credit risk to which the FCA Group iswas potentially exposed at December 31, 20172020 is represented by the carrying amounts of financial assets in the financial statements discussed in Note 15, Trade, other receivables and Tax receivablesand the nominal value of the guarantees provided on liabilities and commitments to third parties as discussed in Note 25, Guarantees granted, commitments and contingent liabilities.
The FCA Group’s exposure to credit risk was influenced mainly by the individual characteristics of each counterparty. FCA monitored these exposures and established credit lines with single or homogeneous categories of counterparties.
Dealers and final customers for which the FCA Group providesprovided financing arewere subject to specific assessments of their creditworthiness under a detailed scoring system; in addition to carrying outsystem. To mitigate this screening process,risk, the FCA Group also obtainscould obtain financial and non-financial guarantees for risks arising from credit granted.guarantees. These guarantees arewere further strengthened where possible by reserve of title clauses on financed vehicle sales to the sales network made by FCA Group financial service companies and on vehicles assigned under finance and operating lease agreements.
Receivables from financing activities amounting
For further information regarding the exposure to €3,140 millioncredit risk and ECLs of Trade receivables, other receivables and financial receivables at December 31, 2017 (€2,578 million at December 31, 2016) contained balances totaling €5 million (€4 million at December 31, 2016), which have been written down on an individual basis. Of the remainder, balances totaling €46 million are past due by up2020 and 2019, refer to one month (€34 million at December 31, 2016), while balances totaling €21 million are past due by more than one month (€19 million at December 31, 2016). In the event of installment payments, even if only one installment is overdue, the entire receivable balance is classified as overdue.
Note 15, Trade, other receivables and othertax receivables amounting to €5,413 million at December 31, 2017 (€5,276 million at December 31, 2016) contain balances totaling €15 million (€9 million at December 31, 2016) which have been written down on an individual basis. Of the remainder, balances totaling €271 million are past due by up to one month (€228 million at December 31, 2016), while balances totaling €233 million are past due by more than one month (€228 million at December 31, 2016).
Even though ourFCA’s current securities and Cash and cash equivalents consistconsisted of balances spread across various primary national and international banking institutions and money market instrumentsfunds that arewere measured at fair value, there was no exposure to sovereign debt securities at December 31, 20172020 and 2019 which mightcould lead to significant risk of repayment.
Liquidity risk
Liquidity risk isrepresented the risk if the FCA Group iswas unable to obtain the funds needed to carry out its operations and meet its obligations. Any actual or perceived limitations on the Group’sFCA’s liquidity maycould affect the ability of counterparties to do business with the FCA Group or may require additional amounts of cash and cash equivalents to be allocated as collateral for outstanding obligations.
The continuation of challenging economic conditions in the markets in which the FCA Group operatesoperated and the uncertainties that characterize the financial markets, necessitatenecessitated special attention to the management of liquidity risk. In that sense, measures taken to generate funds through operations and to maintain a conservative level of available liquidity arewere important factors for ensuring operational flexibility and addressing strategic challenges over the next few years.
The main factors that determinedetermined the FCA Group’s liquidity situation arewere the funds generated by or used in operating and investing activities, the debt lending period and its renewal features or the liquidity of the funds employed and market terms and conditions.
The FCA Group has adopted a series of policies and procedures whose purpose iswas to optimize the management of funds and to reduce liquidity risk as follows:
•centralizing the management of receipts and payments where it may be economical in the context of the local civil, currency and fiscal regulations of the countries in which the FCA Group iswas present;
•maintaining a conservative level of available liquidity;
•diversifying the means by which funds arewere obtained and maintaining a continuous and active presence in the capital markets;
•obtaining adequate credit lines; and
•monitoring future liquidity on the basis of business planning.
The FCA Group managesmanaged liquidity risk by monitoring cash flows and keeping an adequate level of funds at its disposal. The operating cash management and liquidity investment of the Group aregroup were centrally coordinated in the Group'sFCA’s treasury companies, with the objective of ensuring effective and efficient management of the FCA Group’s funds. These companies obtainobtained funds in the financial markets from various funding sources.
In 2016, in conjunction with the amendments to the credit agreements that govern the Tranche B Term Loans of FCA US entered into in March 2016, the covenants restricting the provision of guarantees and payment of dividends by FCA US for the benefit of the rest of the Group were eliminated and FCA US's cash management activities are no longer managed separately from the rest of the Group.
FCA has not provided any guarantee, commitment or similar obligation in relation to any of FCA US’s financial indebtedness, nor has it assumed any kind of obligation or commitment to fund FCA US. Certain notes issued by FCA and its treasury subsidiaries (other than FCA US and its subsidiaries) includeincluded covenants which maycould be affected by circumstances related to FCA US as well as certain other relevant subsidiaries, includingsubsidiaries; in particular, there were cross-default clauses which maycould accelerate repayments in the event that FCA US failssuch subsidiaries failed to pay certain of itstheir debt obligations.
Details of the repayment structure of the FCA Group’s financial assets and liabilities are provided in Note 15, Trade, other receivables and taxTax receivables, Note 22, Other liabilities and Tax payablesliabilities and in Note 21,Debt. Details of the repayment structure of derivative financial instruments are provided in Note 16, Derivative financial assets and liabilities.liabilities.
The Group believesWe believe that the Group'sFCA’s total available liquidity, in addition to the funds that will be generated from operating and financing activities, will enable the Groupus to satisfy the requirements of its investing activities and working capital needs, fulfill its obligations to repay its debt at the natural due dates and ensure an appropriate level of operating and strategic flexibility.
Financial market risks
Due to the nature of ourFCA’s business, the Group isgroup was exposed to a variety of market risks, including foreign currency exchange rate risk, interest rate risk and commodity price risk and interest rate risk.
The FCA Group’s exposure to foreign currency exchange rate risk arisesarose both in connection with the geographical distribution of the Group’sFCA’s industrial activities compared to the markets in which it sells its products, and in relation to the use of external borrowing denominated in foreign currencies.
The FCA Group’s exposure to interest rate risk arisesarose from the need to fund industrial and financial operating activities and the necessity to deploy surplus funds. Changes in market interest rates maycould have the effect of either increasing or decreasing the FCA Group’s Net profit, thereby indirectly affecting the costs and returns of financing and investing transactions.
The Group’sFCA’s exposure to commodity price risk arisesarose from the risk of changes in the price of certain raw materials and energy used in production. Changes in the price of raw materials could have a significant effect on the FCA Group’s results by indirectly affecting costs and product margins.
These risks could significantly affect the FCA Group’s financial position and results and for this reason, these risks arewere systematically identified and monitored, in order to detect potential negative effects in advance and take the necessary actions to mitigate them, primarily through its operating and financing activities and if required, through the use of derivative financial instruments in accordance with its established risk management policies.
The FCA Group’s policy permitspermitted derivatives to be used only for managing the exposure to fluctuations in foreign currency exchange rates and interest rates as well as commodities prices connected with future cash flows and assets and liabilities, and not for speculative purposes.
The FCA Group utilizesutilized derivative financial instruments designated as fair value hedges mainly to hedge:
•the foreign currency exchange rate risk on financial instruments denominated in foreign currency; and
•the interest rate risk on fixed rate loans and borrowings.
The instruments used for these hedges are mainly foreign currency forward contracts, interest rate swaps and combined interest rate and foreign currency financial instruments.
The FCA Group usesused derivative financial instruments as cash flow hedges for the purpose of pre-determining:
•the exchange rate at which forecasted transactions denominated in foreign currencies willwould be accounted for;
•the interest paid on borrowings, both to match the fixed interest received on loans (customer financing activity), and to achieve a targeted mix of floating versus fixed rate funding structured loans; and
•the price of certain commodities.
The foreign currency exchange rate exposure on forecasted commercial flows iswas hedged by foreign currency swaps and forward contracts. Interest rate exposures arewere usually hedged by interest rate swaps and, in limited cases, by forward rate agreements. Exposure to changes in the price of commodities iswas generally hedged by using commodity swaps and commodity options. In addition, in order to manage the FCA Group’s foreign currency risk related to its investments in foreign operation, the Group entersFCA entered into net investment hedges, in particular foreign currency swaps and forward contracts. Counterparties to these agreements arewere major financial institutions.
Information on the fair value of derivative financial instruments held at the balance sheet date is provided in Note 16, Derivative financial assets and liabilities.liabilities.
Quantitative information on foreign currency exchange rate risk
The FCA Group iswas exposed to risk resulting from changes in foreign currency exchange rates, which cancould affect its earnings and equity. In particular:
•where aan FCA Group company incursincurred costs in a currency different from that of its revenues, any change in exchange rates cancould affect the operating results of that company.
•the principal exchange rates to which the FCA Group iswas exposed are:
| |
◦ | EUR/U.S.$, relating to sales and purchases in U.S.$ made by Italian companies (primarily for Maserati and Alfa Romeo vehicles) and to sales and purchases in Euro made by FCA US; |
| |
◦ | U.S.$/CAD, primarily relating to FCA Canada's sales of U.S. produced vehicles, net of FCA US sales of Canadian produced vehicles; |
| |
◦ | CNY, in relation to sales in China originating from FCA US and from Italian companies (primarily for Maserati and Alfa Romeo vehicles); |
| |
◦ | GBP, AUD, MXN, CHF, and ARS in relation to sales in the UK, Australian, Mexican, Swiss and Argentinian markets; |
| |
◦ | PLN and TRY, relating to manufacturing costs incurred in Poland and Turkey; |
| |
◦ | JPY mainly in relation to purchase of parts from Japanese suppliers and sales of vehicles in Japan; and |
| |
◦ | U.S.$/BRL, EUR/BRL, relating to Brazilian manufacturing operations and the related import and export flows. |
◦EUR/U.S.$, relating to sales and purchases in U.S.$ made by Italian companies (primarily for Maserati and Alfa Romeo vehicles) and to sales and purchases in Euro made by FCA US;
◦U.S.$/CAD, primarily relating to FCA Canada's sales of U.S. produced vehicles, net of FCA US sales of Canadian produced vehicles;
◦CNY, in relation to sales in China originating from FCA US and from Italian companies (primarily for Maserati and Alfa Romeo vehicles);
◦GBP, AUD, MXN, CHF, and ARS in relation to sales in the UK, Australian, Mexican, Swiss and Argentinian markets;
◦PLN and TRY, relating to manufacturing costs incurred in Poland and Turkey;
◦JPY mainly in relation to purchase of parts from Japanese suppliers and sales of vehicles in Japan; and
◦U.S.$/BRL, EUR/BRL, relating to Brazilian manufacturing operations and the related import and export flows.
The FCA Group’s policy iswas to use derivative financial instruments to hedge a percentage of certain exposures subject to foreign currency exchange rate risk for the upcoming 12 months (including such risk before or beyond that date where it is deemed appropriate in relation to the characteristics of the business) and to hedge the exposure resulting from firm commitments unless not deemed appropriate.
FCA Group companies maycould have trade receivables or payables denominated in a currency different from their respective functional currency. In addition, in a limited number of cases, it maycould be convenient from an economic point of view, or it maycould be required under local market conditions, for FCA Group companies to obtain financing or use funds in a currency different from their respective functional currency. Changes in exchange rates maycould result in exchange gains or losses arising from these situations. The FCA Group’s policy iswas to hedge, whenever deemed appropriate, the exposure resulting from receivables, payables and securities denominated in foreign currencies different from the respective FCA Group companies' functional currency.
Certain of the FCA Group’s companies arewere located in countries which are outside of the Eurozone, in particular the U.S., Brazil, Canada, Poland, Serbia, Turkey, Mexico, Argentina, the Czech Republic, India, China, Australia and South Africa. As the FCA Group's reporting currency iswas the Euro, the income statements of those entities that havehad a reporting currency other than the Euro arewere translated into Euro using the average exchange rate for the period. In addition, the monetary assets and liabilities of thesethose consolidated companies arewere translated into Euro at the period-end foreign exchange rate. The effects of these changes in foreign exchange rates arewere recognized directly in the Cumulative translation adjustments reserve included in Other comprehensive income. Changes in exchange rates maycould lead to effects on the translated balances of revenues, costs and monetary assets and liabilities reported in Euro, even when corresponding items arewere unchanged in the respective local currency of these companies.
The FCA Group monitorsmonitored its principal exposure to conversion exchange risk and, in certain circumstances, entersentered into derivatives for the purpose of hedging the specific risk.
There have beenwere no substantial changes in 20172020 in the nature or structure of exposure to foreign currency exchange rate risk or in the FCA Group’s hedging policies.
The potential loss in fair value of derivative financial instruments held for foreign currency exchange rate risk management (currency swaps/forwards, cross-currency interest rate and currency swaps)forwards) at December 31, 20172020 resulting from a 10 percent change in the exchange rates would have been approximately €1,010€1,557 million (€1,453991 million at December 31, 2016)2019).
This analysis assumes that a hypothetical, unfavorable 10 percent change in exchange rates as at year-end is applied in the measurement of the fair value of derivative financial instruments. Receivables, payables and future trade flows whose hedging transactions have been analyzed were not included in this analysis. It is reasonable to assume that changes in market exchange rates willwould produce the opposite effect, of an equal or greater amount, on the underlying transactions that have been hedged.
Quantitative information on interest rate risk
The manufacturing companies and treasuries of the FCA Group makemade use of external borrowings and investinvested in monetary and financial market instruments. In addition, FCA Group companies sellsold receivables resulting from their trading activities on a continuing basis. Changes in market interest rates cancould affect the cost of the various forms of financing, including the sale of receivables, or the return on investments and the employment of funds, thus negatively impacting the net financial expenses incurred by the FCA Group.
In addition, the financial services companies provideprovided loans (mainly to customers and dealers), financing themselves using various forms of direct debt or asset-backed financing (e.g. factoring of receivables). Where the characteristics of the variability of the interest rate applied to loans granted differdiffered from those of the variability of the cost of the financing obtained, changes in the current level of interest rates cancould affect the operating result of those companies and the FCA Group as a whole.
In order to manage these risks, the FCA Group usesused interest rate derivative financial instruments, mainly interest rate swaps and forward rate agreements, when available in the market, with the objective of mitigating, under economically acceptable conditions, the potential variability of interest rates on the FCA Group's Net profit.
In assessing the potential impact of changes in interest rates, the FCA Group segregatessegregated fixed rate financial instruments (for which the impact iswas assessed in terms of fair value) from floating rate financial instruments (for which the impact iswas assessed in terms of cash flows).
The fixed rate financial instruments used by the FCA Group consistconsisted principally of part of the portfolio of the financial services companies (principally customer financing and financial leases) and part of debt (including subsidized loans and notes).
The potential loss in fair value of fixed rate financial instruments (including the effect of interest rate derivative financial instruments) held at December 31, 2017,2020, resulting from a hypothetical 10 percent change in market interest rates, would have been approximately €71€29 million (approximately €56€68 million at December 31, 2016)2019).
Floating rate financial instruments consistconsisted principally of cash and cash equivalents, loans provided by the financial services companies to the sales network and part of debt. The effect of the sale of receivables iswas also considered in the sensitivity analysis as well as the effect of hedging derivative instruments.
A hypothetical 10 percent change in short-term interest rates at December 31, 2017,2020, applied to floating rate financial assets and liabilities, operations for the sale of receivables and derivative financial instruments, would have resulted in increased net financial expenses before taxes, on an annual basis, of approximately €27€12 million (€3023 million at December 31, 2016)2019).
This analysis is based on the assumption that there is an unfavorable change of 10 percent proportionate to interest rate levels across homogeneous categories. A homogeneous category is defined on the basis of the currency in which the financial assets and liabilities are denominated. In addition, the sensitivity analysis applied to floating rate financial instruments assumes that cash and cash equivalents and other short-term financial assets and liabilities which expire during the projected 12-month period will be renewed or reinvested in similar instruments, bearing the hypothetical short-term interest rates.
Quantitative information on commodity price risk
The FCA Group has entered into derivative contracts for certain commodities to hedge its exposure to commodity price risk associated with buying raw materials and energy used in its normal operations.
In connection with the commodity price derivative contracts outstanding at December 31, 2017,2020, a hypothetical 10 percent change in the price of the commodities at that date would have caused a fair value loss of €51€122 million (€3555 million at December 31, 2016)2019). Future trade flows whose hedging transactions have been analyzed were not considered in this analysis. It is reasonable to assume that changes in commodity prices willwould produce the opposite effect, of an equal or greater amount, on the underlying transactions that have been hedged.
The Group has evaluated subsequent events through February 20, 2018,March 4, 2021, which is the date the financial statements were authorized for issuance.
In January 2018, as a resultMerger of Groupe PSA and FCA
Timeline of the distributionmerger and business combination date
On December 17, 2019, FCA and PSA entered into a combination agreement providing for the combination of FCA and PSA through a cross-border merger, with FCA as the surviving legal entity in the merger (“Stellantis”).
On September 14, 2020, FCA and PSA agreed to amend the combination agreement. According to the combination agreement amendment, the FCA Extraordinary Dividend, to be paid to former FCA shareholders was reduced to €2.9 billion, with PSA’s 46 percent stake in Faurecia planned to be distributed to all Stellantis shareholders promptly after closing following approval of the Company's entire interestStellantis board and shareholders.
On January 4, 2021, PSA and FCA held their respective extraordinary general shareholder meetings in GEDIorder to, among other matters, approve the merger transaction. The respective shareholder meetings approved the merger. Following the respective shareholder approvals and receipt of the final regulatory clearances, FCA and PSA completed the legal merger. The conditions agreed to as part of the regulatory clearance do not have a material impact on the cash flows or financial positions for PSA.
On January 17, 2021, the combined company was renamed Stellantis, the board of directors was appointed and the Stellantis articles of association became effective. On this date, the Stellantis management and board of directors collectively obtained the power and the ability to control the assets, liabilities and operations of both FCA and PSA. As such, under IFRS 3, January 17, 2021 is the acquisition date for the business combination.
On January 29, 2021, the approximately €2.9 billion extraordinary dividend was paid to holders of FCA common shares of record as of the close of business on JulyFriday, January 15, 2021.
Identification of the accounting acquirer
In 2021, the merger will be accounted for by Stellantis using the acquisition method of accounting in accordance with IFRS 3, which requires the identification of the acquirer and the acquiree for accounting purposes. Based on the assessment of the indicators under IFRS 3 and consideration of all pertinent facts and circumstances, FCA and PSA’s management determined that PSA is the acquirer for accounting purposes and as such, the merger will be accounted for as a reverse acquisition. In identifying PSA as the acquiring entity, notwithstanding that the merger was effected through an issuance of FCA shares, the most significant indicators were (i) the composition of the combined group’s board, which is composed of eleven directors, six of whom are to be nominated by PSA, PSA shareholders or PSA employees, or are current PSA executives, (ii) the combined group’s first CEO, who is vested with the full authority to individually represent the combined group, and was the president of the PSA Managing Board prior to the merger, and (iii) the payment of a premium by pre-merger shareholders of PSA.
Computation of the consideration transferred
PSA shareholders received 1.742 FCA common shares for each PSA ordinary share held immediately prior to the merger as consideration in connection with the merger, which represented 1,545,220,196 shares. However, as required by IFRS 3, the consideration transferred is calculated as if PSA, as the accounting acquirer, issued shares to the shareholders of the accounting acquiree, FCA. The value of the consideration transferred has been measured based on the closing price of PSA’s shares of €21.85 per share on January 15, 2021, which was the final share price of PSA prior to the acquisition date. The number of PSA shares that PSA is deemed to issue to FCA shareholders under reverse acquisition accounting provides the former FCA shareholders with the same ownership in the combined group as obtained in the merger. Based on the number of shares of FCA and PSA that are issued and outstanding as of January 16, 2021, the respective percentages of ownership of PSA and the former FCA shareholders are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of shares issued and outstanding as of January 16, 2021 | | Exchange ratio | | Adjusted number of shares on completion (i.e. Stellantis shares) | | Exchange ratio | | Deemed number of shares for consideration transferred calculation |
| | (a) | | (b) | | (c) = (a)*(b) | | | | (d) | | (e) = (c)/(d) | | |
| PSA | | 887,038,000 | | (1) | 1.742 | | 1,545,220,196 | | | 49.53 | % | | 1.742 | | 887,038,000 | | | 49.53 | % |
| FCA | | 1,574,714,499 | | (2) | 1 | | 1,574,714,499 | | | 50.47 | % | | 1.742 | | 903,969,288 | | | 50.47 | % |
| Total | | | | | | 3,119,934,695 | | | | | | | 1,791,007,288 | | | |
(1) Number of shares as of January 16, 2021, net of 7,790,213 treasury shares.
(2) The number of shares as of January 16, 2021 includes 7,195,225 shares that vested during 2020 in connection with FCA’s Equity Incentive Plan
In addition to the above, in line with the guidance in IFRS 2 2017,- Share-based payment and IFRS 3 - Business combinations, included within consideration transferred is a portion of the fair value of the share-based awards to former FCA employees. As a result of the merger, each outstanding FCA PSU award and each outstanding FCA RSU award has been replaced by Stellantis RSU awards, which will continue to be governed by the same terms and conditions, including service-based vesting terms. Both the FCA PSU Adjusted EBIT and PSU TSR awards were deemed to be satisfied at target upon conversion to Stellantis RSU awards. The portion of the fair value of the share-based payment awards that is included in the consideration transferred has been determined by multiplying the fair value of the original FCA awards as of January 16, 2021 by the portion of the requisite service period that elapsed prior to the merger divided by the total service period.
The computation of the consideration transferred under reverse acquisition accounting is summarized as follows:
| | | | | | | | | | | | | | |
| Number of shares of PSA deemed to be issued to FCA shareholders under reverse acquisition accounting | | Number of shares | | 903,969,288 | |
| Market price of PSA shares as of January 15, 2021 | | € | | € | 21.85 | |
| Fair value of common shares deemed to be issued to FCA shareholders as of January 15, 2021 | | € million | | 19,752 | |
| Additional consideration for share-based compensation | | € million | | 85 | |
| Consideration transferred | | € million | | € | 19,837 | |
Purchase Accounting
The IFRS 3 acquisition method of accounting applies the fair value concepts defined in IFRS 13 - Fair Value Measurement (“IFRS 13”) and requires, among other things, most of the assets acquired and the liabilities assumed in a business combination to be recognized by the acquirer at their fair values as of the acquisition date. As a result, the acquisition method of accounting will be applied and the assets and liabilities of FCA will be recorded at their respective fair values, with limited exceptions as permitted by IFRS 3. Any excess of the consideration transferred over the fair value of FCA’s assets acquired and liabilities assumed will be recorded as goodwill. PSA’s assets and liabilities together with PSA’s operations will continue to be recorded at their pre-merger historical carrying values for all periods presented in the consolidated financial statements of Stellantis. Following the completion of the merger, the earnings of the combined group will reflect the impacts of purchase accounting adjustments, including any changes in amortization and depreciation expense for acquired assets.
The purchase price allocation process is still at a preliminary stage due to the proximity of the acquisition date to the date of the issuance of the financial statements, and as such, certain valuations and other studies have yet to commence or progress to a stage where there is sufficient information for these measurements to be made. The fair values, with limited exceptions as provided under IFRS 3, assigned to the assets acquired and liabilities assumed will be finalized during the one-year measurement period provided for by IFRS 3.
Faurecia distribution
Following agreement between FCA and PSA, PSA announced on October 29, 2020 the sale of approximately 9.7 million ordinary shares of Faurecia, representing approximately 7 percent of Faurecia’s outstanding share capital, with proceeds of approximately €308 million. This sale was recorded as an equity transaction. According to the combination agreement amendment, PSA’s 39.34 percent stake in Faurecia as well as the proceeds from the 7 percent sale are intended to be distributed to all Stellantis shareholders promptly after the closing of the merger. At December 31, 2020, Faurecia continues to be consolidated within continuing operations of PSA’s consolidated financial statements, as PSA concluded that Faurecia was not readily available for distribution until the merger was approved by PSA and FCA shareholders.
On January 12, 2021, PSA (i) converted the manner in which it holds its remaining Faurecia ordinary shares resulting in the loss of the double voting rights attached to such Faurecia ordinary shares and (ii) caused its representatives on the board of directors of Faurecia to resign effective January 11, 2021. As a result of its loss of control over Faurecia on January 12, 2021, PSA will discontinue the consolidation of Faurecia, will recognize a gain of approximately €0.5 billion before tax and Faurecia will be reported retrospectively as a discontinued operation in 2021 until Faurecia is distributed by Stellantis. The remaining 39.34 percent investment in Faurecia will be accounted for as an investment in a non-consolidated entity measured at fair value under IFRS 9.
On January 25, 2021, the extraordinary general meeting of shareholders (“EGM”) was convened, in order to approve the distribution by Stellantis to the holders of its common shares of up to 54,297,006 ordinary shares of Faurecia and up to €308 million which are the proceeds received by PSA from the sale of ordinary shares of Faurecia in November 2020. The EGM will be held on March 8, 2021.
Anti-dilution adjustments - PSU awards and RSU awards
In December 2020, the FCA Compensation Committee of FCA approved athe methodology to calculate the conversion factor of 1.0037331.144605 that was applied to outstanding awards under the LTILong Term Incentive Plan to make equity award holders whole for the resulting diminution in the value of an FCA common share.share as a result of the payment of an extraordinary cash distribution to holders of FCA common shares on January 29, 2021 (January 14, 2021 ex-dividend date). There was no change to the total cost of these awards to be amortized over the remaining vesting period as a result of these adjustments.
OTHER INFORMATION
ADDITIONAL INFORMATION FOR NETHERLANDS CORPORATE GOVERNANCE
Independent Auditor’s Report
The report of the Company’s independent auditor, Ernst & Young Accountants LLP, the Netherlands, is set forth following this Annual Report.
Dividends
Dividends will be determined in accordance with the article 29 of the Articles of Association of Stellantis N.V. The relevant provisions of the Articles of Association read as follows:
Reserves and profits
1.The company shall maintain a special capital reserve to be credited against the share premium reserve exclusively for the purpose of facilitating any issuance or cancellation of special voting shares (the "special capital reserve"). Without prejudice to the next sentence, no distribution shall be made from the special capital reserve. The Board of Directors shall be authorized to resolve upon (i) any distribution out of the special capital reserve to pay up special voting shares or (ii) re-allocation of amounts to credit or debit the special capital reserve against or in favor of the share premium reserve.
2.The company shall maintain a separate dividend reserve for the special voting shares (the "special voting shares dividend reserve"). The special voting shares shall not carry any entitlement to any other reserve of the company. Distributions from the special voting shares dividend reserve shall be made exclusively to the holders of special voting shares in proportion to the aggregate nominal value of their special voting shares. Any distribution out of the special voting shares dividend reserve or the partial or full release of such reserve will require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares.
3.From the profits, shown in the annual accounts, as adopted, such amounts shall be reserved as the Board of Directors may determine.
4.The profits remaining thereafter shall first be applied to allocate and add to the special voting shares dividend reserve an amount equal to one percent (1%) of the aggregate nominal value of all special voting shares outstanding at the end of the financial year to which the annual accounts pertain. The calculation of the amount to be allocated and added to the special voting shares dividend reserve shall occur on a time-proportionate basis. If special voting shares are issued during the financial year to which the allocation and addition pertains, then the amount to be allocated and added to the special voting shares dividend reserve in respect of these newly issued special voting shares shall be calculated as from the date on which such special voting shares were issued until the last day of the financial year concerned. The special voting shares shall not carry any other entitlement to the profits.
5.Any profits remaining thereafter shall be at the disposal of the general meeting of shareholders for distribution of profits on the common shares only, subject to the provision of Article 29.6.
6.The distribution of profits shall be made after the adoption of the annual accounts, from which it appears that the same is permitted.
7.The company shall only have power to make distributions to shareholders and other Persons entitled to distributions to the extent the company's equity exceeds the sum of the paid in and called up part of the share capital and the reserves that must be maintained pursuant to Dutch law and these Articles of Association. No distribution of profits or other distributions may be made to the company itself for shares that the company holds in its own share capital.
8.The Board of Directors, or the general meeting of shareholders upon a proposal of the Board of Directors, may resolve to make distributions from the company's share premium reserve or from any other reserve (other than the special capital reserve, to which Article 29.1 applies), provided that payments from the reserves other than the special voting shares dividend reserve may only be made to the holders of common shares.
9.The Board of Directors may resolve to make one or more interim distributions, provided that the requirements of Article 29.7 are duly observed as evidenced by an interim statement of assets and liabilities as referred to in Section 2:105 paragraph 4 DCC, taking into account Article 29.4. The provisions of Articles 29.2 and 29.3 shall apply mutatis mutandis.
10.The Board of Directors, or the general meeting of shareholders upon a proposal of the Board of Directors, may resolve that distributions shall be made other than in cash, including, without limitation, in the form of common shares or shares in another listed company, provided that, in case of a distribution of common shares, the Board of Directors is designated as the body competent to pass a resolution for the issuance of common shares in accordance with Article 7. The Board of Directors may also resolve that distributions will be made payable either in euro or in another currency.
11.Distributions of profits and other distributions shall be made payable in the manner and at such date(s) and notice thereof shall be given as the Board of Directors, or the general meeting of shareholders upon a proposal of the Board of Directors shall determine.
12.Distributions of profits and other distributions, which have not been collected within five (5) years and one (1) day after the same have become payable, shall become the property of the company.
Disclosures pursuant to Decree Article 10 EU-Directive on Takeovers
In accordance with the Dutch Besluit artikel 10 overnamerichtlijn (the “Decree”), the Company makes the following disclosures:
a.For information on the capital structure of the Company, the composition of the issued share capital and the existence of the two classes of shares, please refer to Note 14, Equity to the Company Financial Statements in this Annual Report. For information on the rights attached to the common shares, please refer to the Articles of Association which can be found on the Company’s website. To summarize, the rights attached to common shares comprise pre-emptive rights upon issue of common shares, the entitlement to attend the general meeting of shareholders and to speak and vote at that meeting and the entitlement to distributions of such amount of the Company’s profit as remains after allocation to reserves. For information on the rights attached to the special voting shares, please refer to the Articles of Association and the Terms and Conditions for the Special Voting Shares which can both be found on the Company’s website and more in particular to the paragraph “Loyalty Voting Structure” of this Annual Report in the chapter “Corporate Governance”. As at December 31, 2020, the issued share capital of the Company consisted of 1,574,714,499 common shares, representing approximately 75.9 percent of the aggregate issued share capital, and 449,618,514 special voting shares, representing approximately 24.1 percent of the aggregate issued share capital.
b.The Articles of Association do not provide for transfer restrictions for common shares but do provide for transfer restrictions for special voting shares (Article 14). On December 17, 2019, the Company entered into shareholder undertaking agreements with each of Exor, Bpifrance, Lion Participations, EPF and FFP. In these agreements, each of these shareholders agreed to not transfer any of their Stellantis common shares during a period of three years following the Effective Time, subject to certain exceptions.
c.For information on participations in the Company’s capital in respect of which pursuant to Sections 5:34, 5:35 and 5:43 of the Dutch Financial Supervision Acts (Wet op het financieel toezicht) notification requirements apply, please refer to the section “Major Shareholders” of this Annual Report. There you will find a list of Shareholders who are known to the Company to have holdings of 3 percent or more at the stated date.
d.No special control rights or other rights accrue to shares in the capital of the Company.
e.The Company does not operate an employee share participation scheme as mentioned in article 1 sub 1(e) of the Decree.
f.No restrictions apply to voting rights attached to shares in the capital of the Company, nor are there any deadlines for exercising voting rights. The Articles of Association allow the Company to cooperate in the issuance of registered depositary receipts for common shares, but only pursuant to a resolution to that effect of the Board of Directors. The Company is not aware of any depository receipts having been issued for shares in its capital.
g.The Company is not aware of the existence of any agreements with Shareholders which may result in restrictions on the transfer of shares or limitation of voting rights.
h.The rules governing the appointment and dismissal of members of the Board of Directors are stated in the Articles of Association of the Company. All members of the Board of Directors are appointed by the general meeting of shareholders. The term of office of all members of the Board of Directors is for a period of two years after appointment, with such a period expiring immediately after the close of the first annual general meeting of shareholders held two years following the appointment. The initial term of John Elkann, Carlos Tavares, Robert Peugeot and Henri de Castries is five years, started at January 17, 2021 and ending immediately after the close of the first annual general meeting of shareholders held after five years have lapsed since the appointment of the relevant director. The other Directors of the current Board of Directors, are appointed for a term of four years, started at January 17, 2021 and ending immediately after the close of the first annual general meeting of shareholders held after four years have lapsed since the appointment of the relevant director. The general meeting of shareholders has the power to suspend or dismiss any member of the Board of Directors at any time. The rules governing an amendment of the Articles of Association are stated in the Articles of Association and require a resolution of the general meeting of shareholders which can only be passed pursuant to a prior proposal of the Board of Directors.
i.At the general meeting of shareholders held on January 4, 2021, it was resolved to amend the Articles of Association to irrevocable authorize the Board of Directors, for a period of 3 years as of the Effective Time: (a) to issue Stellantis common shares or grant rights to subscribe for such shares (i) up to 10 percent of Stellantis’s issued common share capital as at the Effective Time for general purposes, and (ii) up to an additional 10 percent of Stellantis’s issued common share capital as at the Effective Time in connection with the acquisition of an enterprise or a corporation, or as otherwise deemed necessary by the Board of Directors and (b) to limit or exclude the pre-emptive rights in respect of any issue of Stellantis common shares or grant of rights to subscribe for such shares referred to under (a). The authorizations of the Board of Directors to issue Stellantis common shares and to grant rights to subscribe for Stellantis common shares, and to limit or exclude pre-emptive rights in that regard, granted at the general meeting of shareholders held on June 26, 2020, have lapsed as of the Governance Effective Time. In the event of an issuance of special voting shares, shareholders have no right of pre-emptions. In addition, the Company has the authority to acquire fully paid-up shares in its own share capital, provided that such acquisition is made for no consideration. Further rules governing the acquisition of shares by the Company in its own share capital are set out in article 9 of the Articles of Association. In addition, the Board of Directors has been authorized to acquire common shares in the capital of the Company, either through purchase on a stock exchange, through a public tender offer, offer for exchange or otherwise, up to a maximum number of shares equal to 10 percent of the Company’s issued common shares as per the date of the 2020 annual general meeting of shareholders (June 26, 2020) at a purchase price per share between, on the one hand, an amount equal to the par value of the shares and, on the other hand, an amount equal to 110 percent of the market price of the shares on the New York Stock Exchange and/or the Mercato Telematico Azionario (as the case may be); the market price being the average of the highest price on each of the five days of trading prior to the date on which the acquisition is made, as shown in the Official Price List of the New York Stock Exchange and/or the Mercato Telematico Azionario (as the case may be), for a period of 18 months from the date of the 2020 annual general meeting of shareholders (June 26, 2020) and therefore up to and including December 25, 2021.
j.The Company is not a party to any significant agreements which will take effect, be altered or terminated upon a change of control of the Company as a result of a public offer within the meaning of Section 5:70 of the Dutch Financial Supervision Acts (Wet op het financieel toezicht), provided that some of the loan agreements guaranteed by the Company and certain bonds guaranteed by the Company contain clauses that, as it is customary for such financial transactions, may require early repayment or termination in the event of a change of control of the guarantor or the borrower. In certain cases, that requirement may only be triggered if the change of control event coincides with other conditions, such as a rating downgrade.
k.Under the terms of the Company’s Equity Incentive Plan (“EIP”) and employment agreements entered into with certain executive officers, executives may be entitled to receive severance payments of up to two times annual cash compensation and accelerated vesting of awards under the EIP if, within twenty-four (24) months of a Change of Control (as defined therein), the executive’s employment is involuntarily terminated by the Company (other than for Cause -as defined therein-) or is terminated by the participant for Good Reason (as defined therein).
ADDITIONAL INFORMATION FOR U.S. LISTING PURPOSES
Contractual Obligations
The following table summarizes payments due under FCA’s significant contractual commitments as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period |
| (€ million) | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than
5 years |
Long-term debt(1) | | € | 17,414 | | | € | 1,713 | | | € | 11,232 | | | € | 2,180 | | | € | 2,289 | |
Interest on Long-term debt(2) | | 1,738 | | | 591 | | | 711 | | | 253 | | | 183 | |
Lease liabilities(3) | | 2,280 | | | 419 | | | 504 | | | 364 | | | 993 | |
Short-term leases and Low-value assets obligations(4) | | 60 | | | 39 | | | 18 | | | 3 | | | — | |
Unconditional minimum purchase obligations(5) | | 1,135 | | | 562 | | | 378 | | | 168 | | | 27 | |
Purchase obligations(6) | | 2,371 | | | 2,041 | | | 330 | | | — | | | — | |
Pension contribution requirements(7) | | 481 | | | 481 | | | — | | | — | | | — | |
| Total | | € | 25,479 | | | € | 5,846 | | | € | 13,173 | | | € | 2,968 | | | € | 3,492 | |
(1) Amounts presented related to the principal amounts of long-term debt and exclude the related interest expense that would be paid when due, fair value adjustments, discounts, premiums and loan origination fees. For additional information see Note 21, Debt, within the Consolidated Financial Statements included elsewhere in this report.
(2) Amounts included interest payments based on contractual terms and current interest rates on FCA’s debt. Interest rates based on variable rates included above were determined using the current interest rates in effect at December 31, 2020.
(3) Lease liabilities consisted mainly of industrial buildings and plant, machinery and equipment used in FCA’s business. The amounts reported include all future cash outflows included in the undiscounted lease liabilities. See Note 21, Debt, within the Consolidated Financial Statements included elsewhere in this report.
(4) Short-term leases and Low-value assets mainly related to leases for commercial and industrial properties, machinery and equipment used in FCA’s business. The amounts reported above included the minimum rental and payment commitments due under such leases.
(5) Unconditional minimum purchase obligations related to FCA’s unconditional purchase obligations to purchase a fixed or minimum quantity of goods and/or services from suppliers with fixed and determinable price provisions. From time to time, in the ordinary course of FCA’s business, FCA entered into various arrangements with key suppliers in order to establish strategic and technological advantages.
(6) Purchase obligations were comprised of (i) the repurchase price guaranteed to certain customers on sales with a buy-back commitment in an aggregate amount of €935 million, (ii) commitments to purchase tangible fixed assets, mainly in connection with planned capital expenditure of various FCA Group companies, in an aggregate amount of approximately €1,009 million, and (iii) commitments to purchase intangible assets relating to regulatory emissions credits for an aggregate amount of approximately €427 million.
(7) Pension contribution requirements were based on the estimate of FCA’s minimum funding requirements under FCA’s funded pension plans. FCA could elect to make contributions in excess of the minimum funding requirements. The FCA Group contributions to pension plans for 2021 are expected to be €1,087 million, of which €1,060 million relate to the U.S. and Canada, with €606 million being discretionary contributions and €454 million will be made to satisfy minimum funding requirements. FCA’s minimum funding requirements after 2021 would depend on several factors, including investment performance and interest rates. Therefore, the above excluded payments beyond 2021, since FCA could not predict with reasonable reliability the timing and amounts of future minimum funding requirements. Refer to Note 19, Employee benefits liabilities, within the Consolidated Financial Statements included elsewhere in this report for expected benefit payments for the FCA Group's pension plans and for the FCA Group's unfunded health care and life insurance plans.
Product warranties, recall campaigns and product liabilities
The contractual obligations set forth above did not include payments for product warranty and recall campaign costs. FCA issued various types of product warranties under which FCA generally guaranteed the performance of products delivered for a certain period of time. The estimated future costs of product warranties were principally based on assumptions regarding the lifetime warranty costs of each vehicle line and each model year of that vehicle line, as well as historical claims experience for the FCA Group’s vehicles. FCA also periodically initiated voluntary service and recall actions to address various customer satisfaction, safety and emissions issues related to the vehicles that we sell. In North America, FCA accrued estimated costs for recalls at the time of sale, which were based on historical claims experience as well as an additional actuarial analysis that gives greater weight to the more recent calendar year trends in recall campaign activity. In other regions and sectors, however, there generally was not sufficient historical data to support the application of an actuarial-based estimation technique. As a result, estimated recall costs for the other regions and sectors were accrued at the time when they were probable and reasonably estimable, which typically occurred once it is determined a specific recall campaign is approved and is announced. Estimates of the future costs of all these actions were inevitably imprecise due to numerous uncertainties, including the enactment of new laws and regulations, the number of vehicles affected by a service or recall action and the nature of the corrective action. It was reasonably possible that the ultimate costs of these services and recall actions could require FCA to make expenditures in excess of established reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated. At December 31, 2020, FCA’s product warranty and recall campaigns provision was €5,716 million.
Significant Vehicle Assembly Plants
The following table provides information about FCA’s significant vehicle assembly plants as of December 31, 2020, excluding joint ventures, of which the largest by region are Warren Truck (U.S.), Betim (Brazil) and Mirafiori (Italy).
Each of the assembly plants listed below have a covered area of more than 100,000 square meters:
| | | | | | | | |
| Country | | Location |
| North America | | |
| U.S. | | Warren Truck, Michigan |
| U.S. | | Sterling Heights, Michigan |
| U.S. | | Belvidere, Illinois |
| U.S. | | Toledo North, Ohio |
| U.S. | | Detroit Assembly Complex - Jefferson, Michigan |
| U.S. | | Detroit Assembly Complex - Mack, Michigan |
| U.S. | | Toledo South, Ohio |
| Mexico | | Toluca, Estado de México |
| Mexico | | Saltillo Truck, Coahuila |
| Mexico | | Saltillo Van, Coahuila |
| Canada | | Windsor, Ontario |
| Canada | | Brampton, Ontario |
| LATAM | | |
| Brazil | | Betim, Minas Gerais |
| Brazil | | Goiana, Pernambuco |
| Argentina | | Cordoba |
| EMEA | | |
| Italy | | Turin (Mirafiori) |
| Italy | | Cassino |
| Italy | | Pomigliano |
| Italy | | Melfi |
| Italy | | Grugliasco (AGAP) |
| Poland | | Tychy |
| Serbia | | Kragujevac |
FCA had three vehicle assembly plants for Maserati in Italy (including two plants owned by FCA Italy), thirteen plants for Comau and six for Teksid, (including four classified as held for sale, refer to Note 3, Scope of consolidation included within the Consolidated financial statements included elsewhere in this report).
Refer to "About this Report" included elsewhere in this report for further detail on the PSA information presented below:
The following were PSA’s assembly plants as at December 31, 2020:
| | | | | | | | |
| Country | | Location |
| Argentina | | Buenos Aires |
| Brazil | | Porto Real |
| France | | Hordain |
| France | | Mulhouse |
| France | | Poissy |
| France | | Rennes |
| France | | Sochaux |
| Germany | | Eisenach |
| Germany | | Rüsselsheim |
| Morocco | | Kenitra |
| Poland | | Gliwice |
| Portugal | | Mangualde |
| Slovakia | | Trnava |
| Spain | | Madrid |
| Spain | | Vigo |
| Spain | | Zaragoza |
| UK | | Ellesmere Port |
| UK | | Luton |
Our Share Information
On January 11, 2018,18, 2021, Stellantis common shares began trading on the MTA and Euronext Paris under the symbol “STLA” and on January 19, 2021 on the NYSE under the symbol “STLA”. Until then, and since October 13, 2014, the common shares of FCA were traded on the NYSE under the symbol “FCAU” and on the MTA under the symbol “FCA”.
Dividend Policy
Refer to Note 26, Equity within the Consolidated Financial Statements included elsewhere in this report for additional detail on the proposed special cash distribution to holders of Stellantis common shares.
For additional information on distribution of profits, refer to ADDITIONAL INFORMATION FOR NETHERLANDS CORPORATE GOVERNANCE - Dividends above.
Related Party Transactions
In addition to the FCA Group related party transactions described in Note 24, Related party transactions, from January 16, 2021 (i.e. the date of the merger), the following is a description of the additional related party transactions for the Stellantis Group that were in place in former Groupe PSA:
•Sales and purchase transactions carried out between PSA and PSA’s historic equity method companies;
•Fleet sales to the French public administration and companies under its control;
•Sales and assignments to companies in partnership with Santander, including vehicle buy-back sales; and
•Purchases, under the logistics and transportation service agreements with Gefco.
Principal Accountant Fees and Services
EY S.p.A., the member firms of Ernst & Young and their respective affiliates (collectively, the “Ernst & Young Entities”) were appointed to serve as FCA’s independent registered public accounting firm for the years ended December 31, 2020 and 2019. FCA incurred the following fees from the Ernst & Young Entities for professional services for the years ended December 31, 2020 and 2019, respectively:
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (€ thousands) | | 2020 | | 2019 |
| Audit fees | | € | 18,849 | | | € | 16,670 | |
| Audit-related fees | | 169 | | | 138 | |
| Tax fees | | 479 | | | 54 | |
| | | | |
| Total | | € | 19,497 | | | € | 16,862 | |
“Audit fees” were the aggregate fees billed by the Ernst & Young Entities for the audit of FCA’s consolidated annual financial statements, reviews of interim financial statements and attestation services that were provided in connection with statutory and regulatory filings or engagements. “Audit-related fees” were fees charged by the Ernst & Young Entities for assurance and related services that were reasonably related to the performance of the audit or review of FCA’s financial statements and were not reported under “Audit fees”. This category comprised fees for agreed-upon procedure engagements and other attestation services subject to regulatory requirements. “Tax fees” were fees charged by the Ernst & Young Entities primarily for activities related to tax refunds claims and tax compliance in different jurisdictions.
Audit Committee’s pre-approval policies and procedures
Our Audit Committee nominates and engages our independent registered public accounting firm to audit our consolidated financial statements. Our Audit Committee has a policy requiring management to obtain the Audit Committee’s approval before engaging our independent registered public accounting firm to provide any other audit or permitted non-audit services to us or our subsidiaries. Pursuant to this policy, which is designed to ensure that such engagements do not impair the independence of our independent registered public accounting firm, the Audit Committee reviews and pre-approves (if appropriate) specific audit and non-audit services in the categories Audit Services, Audit-Related Services, Tax Services, and any other services that may be performed by our independent registered public accounting firm.
Taxation
Material U.S. Federal Income Tax Consequences
This section describes the material U.S. federal income tax consequences to U.S. Shareholders (as defined below) of owning Stellantis stock. When we refer to Stellantis, we refer to Stellantis or to former FCA, as applicable. It applies solely to persons that hold shares as capital assets for U.S. federal income tax purposes. This discussion addresses only U.S. federal income taxation and does not discuss all of the tax consequences that may be relevant to holders in light of their individual circumstances, including foreign, state or local tax consequences, estate and gift tax consequences, and tax consequences arising under the Medicare contribution tax on net investment income.This section does not apply to members of a special bonus payment was announcedclass of $2,000 (approximately €1,670)holders subject to approximately 60,000 FCA hourlyspecial rules, including:
•a dealer in securities or foreign currencies;
•a regulated investment company;
•a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
•a tax-exempt organization;
•a bank, financial institution, or insurance company;
•a person liable for alternative minimum tax;
•a person that actually or constructively owns 10 percent or more of the combined voting power of the voting stock of Stellantis or of the total value of the stock of Stellantis;
•a person that holds shares as part of a straddle or a hedging, conversion, or other risk reduction transaction for U.S. federal income tax purposes;
•a person that acquired shares pursuant to the exercise of employee stock options or otherwise as compensation; or
•a person whose functional currency is not the U.S. Dollar.
This section is based on the Internal Revenue Code of 1986, as amended, the Code, its legislative history, existing and salaried employeesproposed regulations, published rulings and court decisions, as well as on applicable tax treaties, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in an entity treated as a partnership for U.S. federal income tax purposes holding shares should consult its tax advisors with regard to the U.S. federal income tax treatment of the ownership of Stellantis stock.
No statutory, judicial or administrative authority directly discusses how the ownership of Stellantis stock should be treated for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences of the ownership of Stellantis stock are uncertain. Shareholders should consult their own tax advisors regarding the U.S. federal, state and local and foreign and other tax consequences of owning and disposing of Stellantis stock in their particular circumstances.
For the purposes of this discussion, a “U.S. Shareholder” is a beneficial owner of shares that is:
•an individual that is a citizen or resident of the United States;
•a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States;
•an estate whose income is subject to U.S. federal income tax regardless of its source; or
•a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust.
Tax Consequences of Owning Stellantis Stock
Taxation of Dividends
Under the U.S. federal income tax laws, and subject to the discussion of PFIC taxation below, a U.S. Shareholder must include in its gross income the gross amount of any dividend paid by Stellantis to the extent of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Dividends will be taxed as ordinary income to the extent that they are paid out of Stellantis’s current or accumulatedearnings and profits. Dividends paid to a non-corporate U.S. Shareholder by certain “qualified foreign corporations” that constitute qualified dividend income are taxable to the shareholder at the preferential ratesapplicable to long-term capital gains provided that the shareholder holds the shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. For this purpose, stock of Stellantis is treated as stock of a qualified foreign corporation if such stock is listed on an established securities market in the United States, excluding senior leadership,States. The common shares of Stellantis are listed on the NYSE. Accordingly, subject to the discussion of PFIC taxation below, dividends Stellantis pays with respect to the shares will constitute qualified dividend income, assuming the holding period requirements are met.
A U.S. Shareholder must include any foreign tax withheld from the dividend payment in this gross amount even though the shareholder does not in fact receive the amount withheld. The dividend is taxable to a U.S. Shareholder when the U.S. Shareholder receives the dividend, actually or constructively.
The dividend will not be eligible for the dividends-received deduction allowed to U.S. corporations in respect of dividends received from other U.S. corporations.
Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the U.S. Shareholder’s basis in the shares of Stellantis stock, causing a reduction in the U.S. Shareholder’s adjusted basis in Stellantis stock, and thereafter as capital gain.
Subject to certain limitations, any non-U.S. tax withheld and paid over to a non-U.S. taxing authority is eligible for credit against a U.S. Shareholder’s U.S. federal income tax liability except to the extent a refund of the tax withheld is available to the U.S. Shareholder under non-U.S. tax law or under an applicable tax treaty. The amount allowed to a U.S. Shareholder as a credit is limited to the amount of the U.S. Shareholder’s U.S. federal income tax liability that is attributable to income from sources outside the U.S. and is computed separately with respect to different types of income that the U.S. Shareholder receives from non-U.S. sources. Subject to the discussion below regarding Section 904(h) of the Code, dividends paid by Stellantis will be foreign source income and depending on the circumstances of the U.S. Shareholder, will be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to a U.S. Shareholder.
Under Section 904(h) of the Code, dividends paid by a foreign corporation that is treated as 50 percent or more owned, by vote or value, by U.S. persons may be treated as U.S. source income (rather than foreign source income) for foreign tax credit purposes, to the extent the foreign corporation earns U.S. source income. In certain circumstances, U.S. Shareholders may be able to choose the benefits of Section 904(h)(10) of the Code and elect to treat dividends that would otherwise be U.S. source dividends as foreign source dividends, but in such a case the foreign tax credit limitations would be separately determined with respect to such “resourced” income. In general, therefore, the application of Section 904(h) of the Code may adversely affect a U.S. Shareholder’s ability to use foreign tax credits. Stellantis does not believe that it is 50 percent or more owned by U.S. persons, but this conclusion is a factual determination and is subject to change; no assurance can therefore be given that Stellantis may not be treated as 50 percent or more owned by U.S. persons for purposes of Section 904(h) of the Code. U.S. Shareholders are strongly urged to consult their own tax advisors regarding the possible impact if Section 904(h) of the Code should apply.
Taxation of Capital Gains
Subject to the discussion of PFIC taxation below, a U.S. Shareholder that sells or otherwise disposes of its Stellantis common shares will recognize capital gain or loss for U.S. federal incometax purposes equal to the difference between the U.S. Dollar value of the amount that the U.S. Shareholder realizes and the U.S. Shareholder’s tax basis in those shares. Capital gain of a non-corporate U.S. Shareholder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will be U.S. source income or loss for foreign tax credit limitation purposes. The deduction of capital losses is subject to limitations.
Loyalty Voting Structure
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT, OWNERSHIP OR DISPOSITION OF SPECIAL VOTING SHARES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES AND AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES ARE UNCERTAIN. ACCORDINGLY, WE URGE U.S. SHAREHOLDERS TO CONSULT THEIR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND DISPOSITION OF SPECIAL VOTING SHARES.
If a U.S. Shareholder receives special voting shares after requesting all or some of the number of its Stellantis common shares be registered on the Loyalty Register, the tax consequences of the receipt of special voting shares is unclear. While distributions of stock are tax-free in certain circumstances, the distribution of special voting shares would be taxable if it were considered to result in a “disproportionate distribution.” A disproportionate distribution is a distribution or series of distributions, including deemed distributions, that have the effect of the receipt of cash or other property by some shareholders of Stellantis and an increase in the proportionate interest of other shareholders of Stellantis in Stellantis’s assets or earnings and profits. It is possible that the distribution of special voting shares to a U.S. Shareholder that has requested all or some of the number of its Stellantis common shares be registered on the Loyalty Register and a distribution of cash in respect of Stellantis common shares could be considered together to constitute a “disproportionate distribution.” Unless Stellantis has not paid cash dividends in the 36 months prior to a U.S. Shareholder’s receipt of special voting shares and Stellantis does not intend to pay cash dividends in the 36 months following a U.S. Shareholder’s receipt of special voting shares, Stellantis intends to treat the receipt of special voting shares as a distribution that is subject to tax as described above in “Consequences of Owning Stellantis Stock—Taxation of Dividends.” The amount of the dividend should equal the fair market value of the special voting shares received. For the reasons stated above, Stellantis believes and intends to take the position that the value of each special voting share is minimal. However, because the fair market value of the special voting shares is factual and is not governed by any guidance that directly addresses such a situation, the IRS could assert that the value of the special voting shares (and thus the amount of the dividend) as determined by Stellantis is incorrect.
Ownership of Special Voting Shares
Stellantis believes that U.S. Shareholders holding special voting shares should not have to recognize income in respect of amounts transferred to the special voting shares dividend reserve that are not paid out as dividends. Section 305 of the Code may, in certain circumstances, require a holder of preferred shares to recognize income even if no dividends are actually received on such shares if the preferred shares are redeemable at a premium and the redemption premium results in a “constructive distribution.” Preferred shares for this purpose refer to shares that do not participate in corporate growth to any significant extent. Stellantis believes that Section 305 of the Code should not apply to any amounts transferred to the special voting shares dividend reserve that are not paid out as dividends so as to require current income inclusion by U.S. Shareholders because, among other things, (i) the special voting shares are not redeemable on a specific date and a U.S. Shareholder is only entitled to receive amounts in respect of the special voting shares upon liquidation, (ii) Section 305 of the Code does not require the recognition of income in respect of a redemption premium if the redemption premium does not exceed a de minimis amount and, even if the amounts transferred to the special voting shares dividend reserve that are not paid out as dividends are considered redemption premium, the amount of the redemption premium is likely to be “de minimis” as such term is used in the applicable Treasury Regulations. Stellantis therefore intends to take the position that the transfer of amounts to the special voting shares dividend reserve that are not paid out as dividends does not result in a “constructive distribution,” and this determination is binding on all U.S. Shareholders of special voting shares other than a U.S. Shareholder that explicitly discloses its contrary determination in the manner prescribed by the applicable regulations. However, because the tax treatment of the loyalty voting structure is unclear and because Stellantis’s determination is not binding on the IRS, it is possible that the IRS could disagree with Stellantis’s determination and require current income inclusion in respect of such amounts transferred to the special voting shares dividend reserve that are not paid out as dividends.
Disposition of Special Voting Shares
The tax treatment of a U.S. Shareholder that has its special voting shares redeemed for zero consideration after removing its common shares from the Loyalty Register is unclear. It is possible that a U.S. Shareholder would recognize a loss to the extent of the U.S. Shareholder’s basis in itsspecial voting shares, which should equal (i) if the special voting shares were received in connection with the2014Merger, the basis allocated to the special voting shares, and (ii) if the special voting shares were received after the requisite holding period on the Loyalty Register, the amount that was included in income upon receipt. Such loss would be a capital loss and would be a long-term capital loss if a U.S. Shareholder has held its special voting shares for more than one year. It is also possible that a U.S. Shareholder would not be allowed to recognize a loss upon the redemption of its special voting shares and instead a U.S. Shareholder should increase the basis in its Stellantis common shares by an amount equal to the basis in its special voting shares. Such basis increase in a U.S. Shareholder’s Stellantis common shares would decrease the gain, or increase the loss, that a U.S. Shareholder would recognize upon the sale or other taxable disposition of its Stellantis common shares.
THE U.S. FEDERAL INCOME TAX TREATMENT OF THE LOYALTY VOTING STRUCTURE IS UNCLEAR AND U.S. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS IN RESPECT OF THE CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF SPECIAL VOTING SHARES.
PFIC Considerations—Consequences of Holding Stellantis Stock
Stellantis believes that shares of its stock are not stock of a PFIC for U.S. federal income tax purposes, but this conclusion is based on a factual determination made annually and thus is subject to uncertainty and change as a result of the recent Merger. As discussed in greater detail below, if shares of Stellantis stock were to be treated as stock of a PFIC, gain realized (subject to the discussion below regarding a mark-to-market election) on the sale or other disposition of shares of Stellantis stock would not be treated as capital gain, and a U.S. Shareholder would be treated as if such U.S. Shareholder had realized such gain and certain “excess distributions” ratably over the U.S. Shareholder’s holding period for its shares of Stellantis stock and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, a U.S. Shareholder’s shares of Stellantis stock would be treated as stock in a PFIC if Stellantis were a PFIC at any time during such U.S. Shareholder’s holding period in the second quartershares. Dividends received from Stellantis would not be eligible for the special tax rates applicable to qualified dividend income if Stellantis were treated as a PFIC in the taxable years in which the dividends are paid or in the preceding taxable year (regardless of 2018 for an estimated total cost includingwhether the U.S. holder held shares of Stellantis stock in such year) but instead would be taxable at rates applicable social taxes, of approximately $130 million (€109 million).
to ordinary income.
Stellantis would be a PFIC with respect to a U.S. Shareholder if for any taxable year in which the U.S. Shareholder held shares of Stellantis stock, after the application of applicable “look-through rules”:
•75 percent or more of Stellantis’s gross income for the taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations); or
•at least 50 percent of its assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of passive income.
Because the determination whether a foreign corporation is a PFIC is primarily factual and there is little administrative or judicial authority on which to rely to make a determination, the IRS might not agree that Stellantis is not a PFIC. Moreover, no assurance can be given that Stellantis would not become a PFIC for any future taxable year if there were to be changes in Stellantis’s assets, income or operations.
If Stellantis were to be treated as a PFIC for any taxable year (and regardless of whether Stellantis remains a PFIC for subsequent taxable years), each U.S. Shareholder that is treated as owning Stellantis stock for purposes of the PFIC rules (i) would be liable to pay U.S. federal income tax at the highest applicable income tax rates on (a) ordinary income upon the receipt of excess distributions (the portion of any distributions received by the U.S. Shareholder on Stellantis stock in a taxable year in excess of 125 percent of the average annual distributions received by the U.S. Shareholder in the three preceding taxable years or, if shorter, the portion of the U.S. Shareholder’s holding period for the Stellantis stock that preceded the taxable year of the distribution) and (b) on any gain from the disposition of Stellantis stock, plus interest on such amounts, as if such excess distributions or gain had been recognized ratably over the U.S. Shareholder’s holding period of the Stellantis stock, and (ii) may be required to annually file Form 8621 with the IRS reporting information concerning Stellantis.
If Stellantis were to be treated as a PFIC for any taxable year and provided that Stellantis common shares are treated as “marketable stock” within the meaning of applicable Treasury Regulations, which Stellantis believes will be the case, a U.S. Shareholder may make a mark-to-market election. Under a mark-to-market election, any excess of the fair market value of the Stellantis common shares at the close of any taxable year over the U.S. Shareholder’s adjusted tax basis in the Stellantis common shares is included in the U.S. Shareholder’s income as ordinary income. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. In addition, the excess, if any, of the U.S. Shareholder’s adjusted tax basis at the close of any taxable year over the fair market value of the Stellantis common shares is deductible in an amount equal to the lesser of the amount of the excess or the amount of the net mark-to-market gains that the U.S. Shareholder included in income in prior years. A U.S. Shareholder’s tax basis in Stellantis common shares would be adjusted to reflect any such income or loss. Gain realized on the sale, exchange or other disposition of Stellantis common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of Stellantis common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Shareholder. It is not expected that the special voting shares would be treated as “marketable stock” and eligible for the mark-to-market election.
The adverse consequences of owning stock in a PFIC could also be mitigated if a U.S. Shareholder makes a valid “qualified electing fund” election, or QEF election, which, among other things, would require a U.S. Shareholder to include currently in income its pro rata share of the PFIC’s net capital gain and ordinary earnings, based on earnings and profits as determined for U.S. federal income tax purposes. Because of the administrative burdens involved, Stellantis does not intend to provide information to its shareholders that would be required to make such election effective.
A U.S. Shareholder which holds Stellantis stock during a period when Stellantis is a PFIC will be subject to the foregoing rules for that taxable year and all subsequent taxable years with respect to that U.S. Shareholder’s holding of Stellantis stock, even if Stellantis ceases to be a PFIC, subject to certain exceptions for U.S. Shareholders which made a mark-to-market or QEF election. U.S. Shareholders are strongly urged to consult their tax advisors regarding the PFIC rules, and the potential tax consequences to them if Stellantis were determined to be a PFIC.
Information with Respect to Foreign Financial Assets
Owners of “specified foreign financial assets” with an aggregate value in excess of U.S.$50,000, (and in some cases, a higher threshold) may be required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons; (ii) financial instruments and contracts that have non-U.S. issuers or counterparties; and (iii) interests in foreign entities. U.S. Shareholders are urged to consult their tax advisors regarding the application of this legislation to their ownership of Stellantis stock.
Backup Withholding and Information Reporting
Information reporting requirements for a non-corporate U.S. Shareholder, on IRS Form 1099, will apply to:
•dividend payments or other taxable distributions made to such U.S. Shareholder within the U.S.; and
•the payment of proceeds to such U.S. Shareholder from the sale of Stellantis stock effected at a U.S. office of a broker.
Additionally, backup withholding (currently at a 24 percent rate) may apply to such payments to a non-corporate U.S. Shareholder that:
•fails to provide an accurate taxpayer identification number;
•(in the case of dividends) is notified by the IRS that such U.S. Shareholder has failed to report all interest and dividends required to be shown on such U.S. Shareholder’s federal income tax returns; or
•in certain circumstances, fails to comply with applicable certification requirements.
A person may obtain a refund of any amounts withheld under the backup withholding rules that exceed the person’s income tax liability by properly filing a refund claim with the IRS.
Material Netherlands Tax Consequences
This section solely addresses the principal Dutch tax consequences of the acquisition, ownership and disposal of Stellantis common shares and, if applicable, Stellantis special voting shares by non-resident holders of such shares (as described below). It does not purport to describe every aspect of Dutch taxation that may be relevant to a particular holder of Stellantis common shares and, if applicable, Stellantis special voting shares. Tax matters are complex and the tax consequences to a particular holder of Stellantis common shares and, if applicable, Stellantis special voting shares will depend in part on such holder’s circumstances. Accordingly, a holder is urged to consult his own tax advisor for a full understanding of the Dutch tax consequences of acquiring, owning and disposing of Stellantis common shares and, if applicable, Stellantis special voting shares in their particular circumstances, including the applicability and effect of Dutch tax laws.
Where in this section English terms and expressions are used to refer to Dutch concepts, the meaning to be attributed to such terms and expressions shall be the meaning to be attributed to the equivalent Dutch concepts under Dutch tax law. Where in this section the terms “the Netherlands” and “Dutch” are used, these refer solely to the European part of the Kingdom of the Netherlands.
This section assumes that Stellantis is organized and that its business will be conducted such that Stellantis is considered to be a resident of the Netherlands for purposes of the tax treaty between the Netherlands and any other jurisdiction. A change to the organizational structure or to the manner in which Stellantis conducts its business may invalidate the contents of this section, which will not be updated to reflect any such change.
This section is based on the tax law of the Netherlands (unpublished case law not included) as it stands at the date of this Form. The law upon which this description is based is subject to changes, possibly with retroactive effect. Any such change may invalidate the contents of this description, which will not be updated to reflect such change.
The summary in this Dutch taxation section does not address the Dutch tax consequences for a non-resident holder of Stellantis common shares and, if applicable, Stellantis special voting shares who:
i.is a person who may be deemed an owner of Stellantis common shares and, if applicable, Stellantis special voting shares for Dutch tax purposes pursuant to specific statutory attribution rules in Dutch tax law;
ii.is, although in principle subject to Dutch corporation tax, in whole or in part, specifically exempt from that tax in connection with income from Stellantis common shares, and, if applicable, Stellantis special voting shares;
iii.is an investment institution as defined in the Dutch Corporation Tax Act 1969;
iv.is an entity that, although in principle subject to Dutch corporation tax, is fully or partly exempt from Dutch corporation tax;
v.owns Stellantis common shares, and, if applicable, Stellantis special voting shares in connection with a membership of a management board or a supervisory board, an employment relationship, a deemed employment relationship or management role;
vi.has a substantial interest in Stellantis or a deemed substantial interest in Stellantis for Dutch tax purposes. Generally, a person holds a substantial interest if (a) such person, either alone or, in the case of an individual, together with his partner or any of his relatives by blood or by marriage in the direct line (including foster-children) or of those of his partner for Dutch tax purposes, owns or is deemed to own, directly or indirectly, 5% or more of the shares or of any class of shares of Stellantis, or rights to acquire, directly or indirectly, such an interest in the shares of Stellantis or profit participating certificates relating to 5% or more of the annual profits or to 5% or more of the liquidation proceeds of Stellantis, or (b) such person’s shares, rights to acquire shares or profit participating certificates in Stellantis are held by him following the application of a non-recognition provision. The Stellantis common shares and the Stellantis special voting shares are considered to be separate classes of shares; or
vii.is for Dutch tax purposes taxable as a corporate entity and resident of Aruba, Curaçao or Sint Maarten.
Scope of the summary
The summary of Dutch taxes set out in this section “Material Dutch tax consequences” only applies to a holder of Stellantis common shares and, if applicable, Stellantis special voting shares who is a non-resident holder of such shares (as described below).
For the purpose of this summary a holder of Stellantis common shares and, if applicable, Stellantis special voting shares is a non-resident holder of such shares if such holder is neither a resident nor deemed to be resident in the Netherlands for purposes of Dutch income tax or corporation tax as the case may be.
Taxes on income and capital gains
Non-resident holders of Stellantis common shares and, if applicable, Stellantis special voting shares
Individuals
A non-resident holder of Stellantis common shares and, if applicable, Stellantis special voting shares will not be subject to Dutch income tax in respect of any benefits derived or deemed to be derived from or in connection with Stellantis common shares and, if applicable, Stellantis special voting shares, except if:
i.he derives profits from an enterprise, whether as an entrepreneur or pursuant to a co-entitlement to the net value of such enterprise, other than as a shareholder, and such enterprise is carried on, in whole or in part, through a permanent establishment or a permanent representative in the Netherlands, and his Stellantis common shares and, if applicable, Stellantis special voting shares are attributable to such permanent establishment or permanent representative; or
ii.he derives benefits or is deemed to derive benefits from or in connection with Stellantis common shares and, if applicable, Stellantis special voting shares that are taxable as benefits from miscellaneous activities performed in the Netherlands.
iii.he derives profits pursuant to the entitlement to a share in the profits of an enterprise, other than as a holder of securities, which is effectively managed in the Netherlands and to which enterprise his Stellantis common shares and, if applicable, Stellantis special voting shares are attributable.
Corporate entities
A non-resident holder of Stellantis common shares and, if applicable, Stellantis special voting shares is a corporate entity, or an entity including an association, a partnership and a mutual fund, taxable as a corporate entity. A non-resident holder of Stellantis common shares and, if applicable, Stellantis special voting shares will not be subject to Dutch corporation tax in respect of any benefits derived or deemed to be derived from or in connection with Stellantis common shares and, if applicable, Stellantis special voting shares, except if:
i.it derives profits from an enterprise directly which is carried on, in whole or in part, through a permanent establishment or a permanent representative in the Netherlands, and to which permanent establishment or permanent representative its Stellantis common shares and, if applicable, Stellantis special voting shares are attributable; or
ii.it derives profits pursuant to a co-entitlement to the net value of an enterprise which is managed in the Netherlands, other than as a holder of securities, and to which enterprise its Stellantis common shares and, if applicable, Stellantis special voting shares are attributable.
General
A non-resident holder of Stellantis common shares and, if applicable, Stellantis special voting shares will for Dutch tax purposes not carry on or be deemed to carry on an enterprise, in whole or in part, through a permanent establishment or a permanent representative in the Netherlands by reason only of the execution and/or enforcement of the documents relating to the issue of Stellantis common shares and, if applicable, Stellantis special voting shares or the performance by Stellantis of its obligations under such documents or under the Stellantis common shares and, if applicable, Stellantis special voting shares.
Dividend withholding tax
Stellantis is generally required to withhold Dutch dividend withholding tax at a rate of 15% from dividends distributed by it, subject to possible relief under Dutch domestic law, the Treaty on the Functioning of the European Union or an applicable Dutch income tax treaty depending on a particular holder of Stellantis common shares and, if applicable, Stellantis special voting shares individual circumstances.
The concept "dividends distributed by Stellantis" as used in this Dutch section paragraph includes, but is not limited to, the following:
•distributions in cash or in kind, deemed and constructive distributions and repayments of capital not recognised as paid-in for Dutch dividend withholding tax purposes;
•liquidation proceeds and proceeds of repurchase or redemption of Stellantis common shares and, if applicable, Stellantis special voting shares in excess of the average capital recognised as paid-in for Dutch dividend withholding tax purposes;
•the par value of Stellantis common shares and, if applicable, Stellantis special voting shares issued by Stellantis to a holder of Stellantis common shares and, if applicable, Stellantis special voting shares or an increase of the par value of Stellantis common shares or Stellantis special voting shares, as the case may be, to the extent that it does not appear that a contribution, recognised for Dutch dividend withholding tax purposes, has been made or will be made; and
•partial repayment of capital, recognised as paid-in for Dutch dividend withholding tax purposes, if and to the extent that there are net profits, unless (a) the general meeting of Stellantis' shareholders has resolved in advance to make such repayment and (b) the par value of the Stellantis common shares or Stellantis special voting shares concerned, as the case may be, has been reduced by an equal amount by way of an amendment to Stellantis' articles of association.
Gift and inheritance taxes
No Dutch gift tax or Dutch inheritance tax will arise with respect to an acquisition or deemed acquisition of Stellantis common shares and, if applicable, Stellantis special voting shares by way of gift by, or upon the death of, a holder of Stellantis common shares and, if applicable, Stellantis special voting shares who is neither resident nor deemed to be resident in the Netherlands for purposes of Dutch gift tax or Dutch inheritance tax except if, in the event of a gift whilst not being a resident nor being a deemed resident in the Netherlands for purposes of Dutch gift tax or Dutch inheritance tax, the holder of Stellantis common shares and, if applicable, Stellantis special voting shares becomes a resident or a deemed resident in the Netherlands and dies within 180 days after the date of the gift.
For purposes of Dutch gift tax and Dutch inheritance tax, a gift of Stellantis common shares and, if applicable, Stellantis special voting shares made under a condition precedent is deemed to be made at the time the condition precedent is satisfied.
Value Added Tax
No Dutch value added tax will arise in respect of any payment in consideration for the issue of Stellantis common shares and, if applicable, Stellantis special voting shares.
Registration taxes and duties
No Dutch registration tax, transfer tax, stamp duty or any other similar documentary tax or duty, other than court fees, is payable in the Netherlands in respect of or in connection with a transfer of Stellantis common shares and, if applicable, Stellantis special voting shares.
Exhibits
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Exhibit
Number | Description of Documents |
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| Certain long-term debt instruments, none of which relates to indebtedness that exceeds 10% of the consolidated assets of Stellantis N.V., have not been filed as exhibits to this Form 20-F. Stellantis N.V. agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of Stellantis N.V. and its consolidated subsidiaries. |
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| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
FORM 20-F CROSS REFERENCE
The table below sets out the location within the document of the information required by the SEC for annual reports on Form 20-F. The exact location is included in the column “Cross Reference”. The column “Page” refers to the starting page of the section (or sub-section) for reference only.
| | | | | | | | | | | |
| Item | Section | Cross Reference | Page |
| Part I |
| Item 1. | Identity of Directors, Senior Management and Advisers | Not applicable | |
| Item 2. | Offer Statistics and Expected Timetable | Not applicable | |
| Item 3. | Key Information | | |
| A. Selected Financial Data | | |
| B. Capitalization and Indebtedness | Not applicable | |
| C. Reasons for the Offer and Use of Proceeds | Not applicable | |
| D. Risk Factors | | |
| Item 4. | Information on the Company | | |
| A. History and Development of the Company | | |
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| B. Business Overview | | |
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| C. Organization Structure | | |
| D. Property, Plant and Equipment | | |
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| Item 4A. | Unresolved Staff Comments | None | |
| Item 5. | Operating and Financial Review | | |
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| A. Operating Results | | |
| B. Liquidity and Capital Resources | | |
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| C. Research and Development, Patents and Licenses, etc. | | |
| D. Trend Information | | |
| E. Off-Balance Sheet Arrangements | | |
| F. Tabular Disclosure of Contractual Obligations | | |
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| Item | Section | Cross Reference | Page |
| | | |
| G. Safe Harbor | | |
| Item 6. | Directors, Senior Management and Employees | | |
| A. Directors and Senior Management | | |
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| B. Compensation | | |
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| C. Board Practices | | |
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| D. Employees | | |
| E. Share Ownership | | |
| Item 7. | Major Shareholders and Related Party Transactions | | |
| A. Major Shareholders | | |
| B. Related Party Transactions | | |
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| C. Interests of Experts and Counsel | Not applicable | |
| Item 8. | Financial Information | | |
| A. Consolidated Statements and Other Financial Information | | |
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| B. Significant Changes | | |
| Item 9. | The Offer and Listing | | |
| A. Offer and Listing Details | | |
| B. Plan of Distribution | Not applicable | |
| C. Markets | | |
| D. Selling Shareholders | Not applicable | |
| E. Dilution | Not applicable | |
| F. Expenses of the Issue | Not applicable | |
| Item 10. | Additional Information | | |
| A. Share Capital | Not applicable | |
| B. Memorandum and Articles of Association | | |
| C. Material Contracts | | |
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| D. Exchange Controls | | |
| E. Taxation | | |
| F. Dividends and Paying Agents | Not applicable | |
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| Item | Section | Cross Reference | Page |
| G. Statements of Experts | Not applicable | |
| H. Documents on Display | | |
| I. Subsidiary Information | Not applicable | |
| Item 11. | Quantitative and Qualitative Disclosures | | |
| Item 12. | Description of Securities Other than Equity Securities | | |
| A. Debt Securities | Not applicable | |
| B. Warrants and Rights | Not applicable | |
| C. Other Securities | Not applicable | |
| D. American Depositary Shares | None | |
| Part II |
| Item 13. | Defaults, Dividend Arrearages and Delinquencies | None | |
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | None | |
| Item 15. | Controls and Procedures | | |
| Item 16A. | Audit Committee Financial Expert | | |
| Item 16B. | Code of Ethics | | |
| Item 16C. | Principal Accountant Fees and Services | | |
| Item 16D. | Exemptions from the Listing Standards for Audit Committees | None | |
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | None | |
| Item 16F. | Change in the Registrant's Certifying Accountant | None | |
| Item 16G. | Corporate Governance | | |
| Item 16H. | Mine Safety Disclosure | None | |
| Part III |
| Item 17. | Financial Statements | | |
| Item 18. | Financial Statements | | |
| Item 19. | Exhibits | | |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
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| | STELLANTIS N.V. |
| | (Registrant) |
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| | By: | /s/ Richard K. Palmer |
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| | Name: Richard K. Palmer |
| | Title: Chief Financial Officer |
| Date: | March 4, 2021 | | |
