FCA US LLC - FORM 10-Q - November 5, 2015

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 Form 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended September 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to               
Commission file number 000-54282
 
FCA US LLC
(Exact name of Registrant as Specified in its Charter)
DELAWARE
 
27-0187394
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
1000 Chrysler Drive
Auburn Hills, Michigan
 
48326
(Address of Principal Executive Offices)
 
(Zip Code)
(248) 512-2950
(Registrant’s Telephone Number, Including Area Code)


 
 
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  ¨
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  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
þ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
There is no public market for our equity securities. As of November 5, 2015, there were 1,632,654 Membership Interests issued and outstanding.
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced disclosures as permitted by those instructions.
 
 
 
 
 


FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Form 10-Q for the Quarterly Period Ended September 30, 2015
INDEX
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 1.
Item 6.
 
 
 
 
 



Unless otherwise specified, the terms "we," "us," "our," "FCA US" and the "Company" refer to FCA US LLC, formerly known as Chrysler Group LLC, and its consolidated subsidiaries, or any one or more of them, as the context may require. "Old Carco" refers to Old Carco LLC, formerly known as Chrysler LLC, and its consolidated subsidiaries, or any one or more of them, as the context may require. "FCA" refers to Fiat Chrysler Automobiles N.V., a public limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands, its consolidated subsidiaries (excluding FCA US) and entities it jointly controls, or any one or more of them, as the context may require. References to "Fiat" refer solely to Fiat S.p.A., the predecessor of FCA.
Forward-Looking Statements
This report contains forward-looking statements that reflect our current views about future events. We use the words "anticipate," "assume," "believe," "estimate," "expect," "will," "intend," "may," "plan," "project," "should," "could," "seek," "designed," "potential," "forecast," "target," "objective," "goal," or the negatives of such terms or other similar expressions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. For additional discussion of these risks, refer to Item 1A. Risk Factors in our 2014 Annual Report on Form 10-K, or 2014 Form 10-K, and Part II, Item 1A. Risk Factors in our Form 10-Q for the quarterly period ended June 30, 2015, or Q2 Form 10-Q. These factors include, but are not limited to:
•
our continued ability to reach certain minimum vehicle sales volumes to maintain profitability and appropriate levels of cash flow;
•
our ability to regularly introduce new or significantly refreshed vehicles that appeal to a wide base of consumers and to respond to changing consumer preferences, quality demands, economic conditions and government regulations;
•
an increase in unemployment levels, erosion in current economic conditions or decrease in consumer confidence, especially in North America, where we sell most of our vehicles;
•
the impact of product recalls and/or vehicle defects (including product liability claims);
•
our dependence on FCA;
•
our ability to control costs and implement cost reduction and productivity improvement initiatives;
•
lengthy product development cycles and our inability to adequately forecast demand for our vehicles which may lead to inefficient use of our production capacity;
•
our ability to increase vehicle sales outside of North America;
•
changes in foreign currency exchange rates;
•
competitive pressures that may limit our ability to reduce sales incentives, achieve better pricing and grow our profitability;
•
the potential inability of consumers and our dealers to obtain affordably priced financing on a timely basis due to our lack of a captive finance company;
•
disruption of production or delivery of new vehicles due to shortages of materials, including supply disruptions resulting from natural disasters, labor strikes or supplier insolvencies;
•
changes and fluctuations in the prices of raw materials, parts and components;
•
our substantial indebtedness and limitations on our liquidity that may limit our ability to execute our business plan;
•
changes in laws, regulations and government policies, particularly those relating to vehicle emissions, fuel economy and safety; and

1

•
interruptions to our business operations caused by information technology systems failures arising from our transition to new, enterprise-wide software systems or from potential cyber security incidents.
If any of these risks and uncertainties materialize, or if the assumptions underlying any of our forward-looking statements prove incorrect, then our actual results, level of activity, performance or achievements may be materially different from those we express or imply by such statements. The risks described in Item 1A. Risk Factors of our 2014 Form 10-K and Part II, Item 1A. Risk Factors in our Q2 Form 10-Q are not exhaustive. Other sections of our 2014 Form 10-K describe additional factors that could adversely affect our business, financial condition or results of operations. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and we cannot predict all such risk factors, nor can we assess the impact of all such risks on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those implied by any forward-looking statements. We do not intend, or assume any obligation, to update these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above and included elsewhere in this report.

2

PART I – Financial Information
Item 1. Condensed Consolidated Financial Statements
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Member of FCA US LLC
We have reviewed the condensed consolidated balance sheet of FCA US LLC and subsidiaries as of September 30, 2015, and the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2015 and 2014, and members’ deficit and cash flows for the nine-month periods ended September 30, 2015 and 2014. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.    

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of FCA US LLC and subsidiaries as of December 31, 2014, and the related consolidated statements of income, comprehensive income (loss), members’ deficit and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated March 4, 2015. In our opinion, the accompanying condensed consolidated balance sheet of FCA US LLC and subsidiaries as of December 31, 2014, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



/s/ Ernst & Young LLP
Detroit, Michigan
November 5, 2015


3

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited —in millions of dollars)
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
Notes  
 
2015
 
2014
 
2015
 
2014
Revenues, net
 
 
 
$
21,755

 
$
20,660

 
$
65,271

 
$
60,104

Cost of sales
 
 
 
19,589

 
17,803

 
57,261

 
51,883

GROSS MARGIN
 
 
 
2,166

 
2,857

 
8,010

 
8,221

Selling, administrative and other expenses
 
15
 
1,308

 
1,326

 
4,033

 
4,636

Research and development expenses, net
 
 
 
579

 
565

 
1,694

 
1,726

Restructuring (income) expense, net
 
16
 
(1
)
 
1

 
(8
)
 
5

Interest expense
 
4
 
132

 
209

 
485

 
643

Interest income
 
 
 
(10
)
 
(17
)
 
(38
)
 
(46
)
(Gain) loss on extinguishment of debt, net
 
9
 
(18
)
 
—

 
63

 
504

INCOME BEFORE INCOME TAXES
 
 
 
176

 
773

 
1,781

 
753

Income tax expense (benefit)
 
10
 
106

 
162

 
(1,468
)
 
213

NET INCOME
 
 
 
70

 
611

 
3,249

 
540

Less: Income attributable to noncontrolling interest
 
 
 
2

 
—

 
3

 
—

NET INCOME ATTRIBUTABLE TO FCA US LLC
 
 
 
$
68

 
$
611

 
$
3,246

 
$
540































See accompanying notes to unaudited condensed consolidated financial statements.

4

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited —in millions of dollars)
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
Note
 
2015
 
2014
 
2015
 
2014
NET INCOME
 
 
 
$
70

 
$
611

 
$
3,249

 
$
540

Other comprehensive income (loss)
 
3
 
35

 
68

 
28

 
(91
)
TOTAL COMPREHENSIVE INCOME
 
 
 
105

 
679

 
3,277

 
449

Less: Comprehensive income attributable to noncontrolling interest
 
 
 
3

 
—

 
4

 
—

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO FCA US LLC
 
 
 
$
102

 
$
679

 
$
3,273

 
$
449





















See accompanying notes to unaudited condensed consolidated financial statements.

5

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited —in millions of dollars)
 
 
Notes  
 
September 30, 2015
 
December 31, 2014
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
$
12,950

 
$
14,538

Restricted cash
 
11
 
27

 
5

Accounts receivable, net of allowance for doubtful accounts of $27 and $34, respectively
 
 
 
1,470

 
1,185

Inventories
 
5
 
6,595

 
6,110

Prepaid expenses and other assets
 
7
 
2,123

 
2,402

Deferred taxes
 
10
 
3,153

 
548

TOTAL CURRENT ASSETS
 
 
 
26,318

 
24,788

PROPERTY AND EQUIPMENT:
 
 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $14,057 and $12,558, respectively
 
 
 
15,298

 
15,603

Equipment and other assets on operating leases, net of accumulated depreciation and amortization of $242 and $211, respectively
 
 
 
2,115

 
2,242

TOTAL PROPERTY AND EQUIPMENT
 
 
 
17,413

 
17,845

OTHER ASSETS:
 
 
 
 
 
 
Advances to related parties and other financial assets
 
 
 
88

 
78

Restricted cash
 
11
 
282

 
305

Goodwill
 
 
 
1,361

 
1,361

Other intangible assets, net
 
6
 
3,501

 
3,548

Prepaid expenses and other assets
 
7
 
663

 
693

Deferred taxes
 
10
 
812

 
406

TOTAL OTHER ASSETS
 
 
 
6,707

 
6,391

TOTAL ASSETS
 
 
 
$
50,438

 
$
49,024

CURRENT LIABILITIES:
 
 
 
 
 
 
Trade liabilities
 
 
 
$
12,168

 
$
11,325

Accrued expenses and other liabilities
 
8
 
13,151

 
10,906

Current maturities of financial liabilities
 
9
 
183

 
308

Deferred revenue
 
 
 
1,777

 
2,279

Deferred taxes
 
10
 
2

 
—

TOTAL CURRENT LIABILITIES
 
 
 
27,281

 
24,818

LONG-TERM LIABILITIES:
 
 
 
 
 
 
Accrued expenses and other liabilities
 
8
 
13,589

 
13,145

Financial liabilities
 
9
 
9,163

 
12,471

Deferred revenue
 
 
 
1,329

 
1,254

Deferred taxes
 
10
 
43

 
149

TOTAL LONG-TERM LIABILITIES
 
 
 
24,124

 
27,019

Commitments and contingencies
 
11
 
—

 
—

MEMBERS' DEFICIT:
 
 
 
 
 
 
Membership Interests
 
 
 
 
 
 
Membership Interests —1,632,654 units authorized, issued and outstanding at September 30, 2015 and December 31, 2014
 
15
 
—

 
—

Contributed capital
 
1
 
654

 
644

Retained earnings
 
 
 
3,164

 
1,359

Accumulated other comprehensive loss
 
3
 
(4,822
)
 
(4,849
)
TOTAL MEMBERS' DEFICIT ATTRIBUTABLE TO FCA US LLC
 
 
 
(1,004
)
 
(2,846
)
Members' deficit attributable to noncontrolling interest
 
 
 
37

 
33

TOTAL MEMBERS' DEFICIT
 
 
 
(967
)
 
(2,813
)
TOTAL LIABILITIES AND MEMBERS' DEFICIT
 
 
 
$
50,438

 
$
49,024



See accompanying notes to unaudited condensed consolidated financial statements.

6

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited —in millions of dollars)
 
 
 
 
 
Nine Months Ended September 30,
 
 
Notes
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
 
 
$
5,592

 
$
4,842

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
Purchases of property, plant and equipment and intangible assets
 
 
 
(2,078
)
 
(2,576
)
Proceeds from disposals of property, plant and equipment
 
 
 
4

 
18

Purchases of equipment and other assets on operating leases
 
 
 
(5
)
 
(5
)
Proceeds from disposals of equipment and other assets on operating leases
 
 
 
2

 
3

Change in restricted cash
 
 
 
(12
)
 
19

Capital contributions to unconsolidated subsidiaries
 
15
 
(80
)
 
—

Other
 
 
 
9

 
(1
)
NET CASH USED IN INVESTING ACTIVITIES
 
 
 
(2,160
)
 
(2,542
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 

 

Proceeds from secured senior notes
 
9
 
—

 
2,985

Prepayment of Secured Senior Notes due 2019
 
9
 
(2,875
)
 
—

Proceeds from Tranche B Term Loan due 2018
 
9
 
—

 
1,723

Proceeds from Tranche B Term Loan due 2017
 
9
 
—

 
247

Prepayment of VEBA Trust Note
 
9
 
—

 
(4,587
)
Payments of Canadian Health Care Trust Notes
 
9
 
(254
)
 
(77
)
Repayments of Tranche B Term Loan due 2017
 
9
 
(24
)
 
(24
)
Repayments of Tranche B Term Loan due 2018
 
9
 
(13
)
 
(9
)
Payments of Mexican development banks credit facilities
 
9
 
(466
)
 
(22
)
Proceeds from Mexico Bank Loan due 2022
 
9
 
500

 
—

Debt issuance costs
 
 
 
(5
)
 
(14
)
Repayment of debt issuance premium on secured senior notes
 
9
 
(93
)
 
(12
)
Net repayments of financial obligations - related party
 
15
 
(12
)
 
(21
)
Net repayments of other financial obligations - third party
 
 
 
(86
)
 
(33
)
Dividend to FCA in exchange for equity investment
 
15
 
(94
)
 
—

Special distributions paid to members
 
15
 
(1,338
)
 
(1,900
)
Distribution for state tax withholding obligations and other taxes on behalf of members
 
 
 
(1
)
 
(70
)
NET CASH USED IN FINANCING ACTIVITIES
 
 
 
(4,761
)
 
(1,814
)
Effect of exchange rate changes on cash and cash equivalents
 
 
 
(259
)
 
(212
)
Net change in cash and cash equivalents
 
 
 
(1,588
)
 
274

Cash and cash equivalents at beginning of period
 
 
 
14,538

 
13,344

Cash and cash equivalents of held for sale operations at beginning of period
 
 
 
—

 
—

Net change in cash and cash equivalents
 
 
 
(1,588
)
 
274

Less: Cash and cash equivalents of held for sale operations at end of period
 
15
 
—

 
41

Cash and cash equivalents at end of period
 
 
 
$
12,950

 
$
13,577





See accompanying notes to unaudited condensed consolidated financial statements.

7

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS’ DEFICIT
(Unaudited - in millions of dollars)
 
 
 
 
 
Equity/(Deficit) Attributable to FCA US LLC
 
 
 
 
 
 
Notes
 
Contributed
Capital
 
Retained Earnings/ (Accumulated Losses)
 
Accumulated
Other
Comprehensive
Loss
 
Equity/(Deficit)Attributable to Parent
 
Equity/(Deficit) Attributable to Non-controlling Interest
 
Total Equity/(Deficit)
Balance at December 31, 2014
 
 
 
$
644

 
$
1,359

 
$
(4,849
)
 
$
(2,846
)
 
$
33

 
$
(2,813
)
Special distribution paid to FCA NA
 
15
 
—

 
(1,338
)
 
—

 
(1,338
)
 
—

 
(1,338
)
Distribution for state tax withholding obligations and other taxes on behalf of FCA NA
 
 
 
(1
)
 
—

 
—

 
(1
)
 
—

 
(1
)
Dividend to FCA in exchange for equity investment
 
15
 
—

 
(103
)
 
—

 
(103
)
 
—

 
(103
)
Capital contribution from FCA
 
18
 
11

 
—

 
—

 
11

 
—

 
11

Net income
 
 
 
—

 
3,246

 
—

 
3,246

 
3

 
3,249

Other comprehensive income
 
3
 
—

 
—

 
27

 
27

 
1

 
28

Balance at September 30, 2015
 
 
 
$
654

 
$
3,164

 
$
(4,822
)
 
$
(1,004
)
 
$
37

 
$
(967
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
 
 
$
2,633

 
$
171

 
$
(4,046
)
 
$
(1,242
)
 
$
—

 
$
(1,242
)
Special distribution paid to members
 
15
 
(1,900
)
 
—

 
—

 
(1,900
)
 
—

 
(1,900
)
Distribution for state tax withholding obligations and other taxes on behalf of members
 
 
 
(70
)
 
—

 
—

 
(70
)
 
—

 
(70
)
Net income
 
 
 
—

 
540

 
—

 
540

 
—

 
540

Other comprehensive loss
 
3
 
—

 
—

 
(91
)
 
(91
)
 
—

 
(91
)
Balance at September 30, 2014
 
 
 
$
663

 
$
711

 
$
(4,137
)
 
$
(2,763
)
 
$
—

 
$
(2,763
)

















See accompanying notes to unaudited condensed consolidated financial statements.

8

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements


Note 1. Background and Nature of Operations
Unless otherwise specified, the terms "we," "us," "our," "FCA US" and the "Company" refer to FCA US LLC, formerly known as Chrysler Group LLC, and its consolidated subsidiaries, or any one or more of them, as the context may require. "Old Carco" refers to Old Carco LLC, formerly known as Chrysler LLC, and its consolidated subsidiaries, or any one or more of them, as the context may require. "FCA" refers to Fiat Chrysler Automobiles N.V., a public limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands, its consolidated subsidiaries (excluding FCA US) and entities it jointly controls, or any one or more of them, as the context may require. References to "Fiat" refer solely to Fiat S.p.A., the predecessor of FCA.
Background
The Company was formed on April 28, 2009 as a Delaware limited liability company. Our sole beneficial owner is FCA, which holds a 100 percent ownership interest in us, effective as of the October 12, 2014 merger of Fiat with and into FCA (the "Merger"). Prior to the Merger, Fiat held a 100 percent ownership interest in us, effective as of its January 21, 2014 acquisition of the approximately 41.5 percent of our membership interests held by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") Retiree Medical Benefits Trust (the "VEBA Trust"). On January 21, 2014, Fiat completed a transaction (the "Equity Purchase Agreement") in which its 100 percent owned subsidiary, FCA North America Holdings LLC, formerly known as Fiat North America LLC ("FCA NA"), indirectly acquired from the VEBA Trust all of the membership interests in the Company not previously held by FCA NA. Refer to Note 15, Other Transactions with Related Parties, for additional information regarding this transaction.
Effective January 1, 2015, FCA NA became the 100 percent direct owner of our membership interests resulting in our change in tax status. Refer to Note 15, Other Transactions with Related Parties, for additional information.
Nature of Operations
We design, engineer, manufacture, distribute and sell vehicles under the brand names Chrysler, Jeep, Dodge, Ram and the SRT performance vehicle designation. We also manufacture certain vehicles in Mexico, which are distributed by us throughout North America and select markets and sold to FCA for distribution in other select markets. In addition, FCA manufactures certain vehicles for us, which we sell in the U.S. and internationally. Our product lineup includes passenger cars, utility vehicles (which include sport utility vehicles ("SUVs") and crossover vehicles ("CUVs")), minivans, trucks and commercial vans. We also sell automotive service parts and accessories under the Mopar brand name.
Our products are available in more than 150 countries around the world. We sell our products to dealers and distributors for sale to retail customers and fleet customers, which include rental car companies, commercial fleet customers, leasing companies and government entities. The majority of our operations, employees, independent dealers and sales are in North America, primarily in the U.S. Approximately 10 percent of our vehicle sales during both 2014 and the nine months ended September 30, 2015 were outside North America, principally in Asia Pacific, South America and Europe. Vehicle, service parts and accessories sales outside North America are primarily through our 100 percent owned, affiliated or independent distributors and dealers. FCA is the distributor of our vehicles and service parts in Europe and Brazil. FCA also distributes certain of our vehicles through its networks in other select markets. We are the distributor for Alfa Romeo brand vehicles in North America and for FCA vehicles in select markets outside of Europe. Refer to Note 15, Other Transactions with Related Parties, for additional information regarding other transactions with FCA.

9

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 2. Basis of Presentation and Recent Accounting Pronouncements
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by U.S. GAAP for complete financial statements. In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of the information presented. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the fiscal year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2014 Annual Report on Form 10-K ("2014 Form 10-K") as filed with the U.S. Securities and Exchange Commission ("SEC").
Recent Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board (“FASB”) issued updated guidance to simplify the accounting for adjustments made to provisional amounts recognized in a business combination. This update eliminates the requirement to retrospectively account for these provisional adjustments. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2015 with early adoption permitted. We will comply with this guidance as of January 1, 2016 and it will not have a material impact on our consolidated financial statements.

In August 2015, the FASB issued updated guidance which amends various SEC paragraphs to allow presentation of debt issue costs related to line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. These amendments are effective upon issuance and will not have a material impact on our consolidated financial statements.

In July 2015, the FASB issued updated guidance to simplify the subsequent measurement of inventory. The new standard applies to all valuations of inventory excluding the last-in, first-out (LIFO) or the retail inventory method. Under the new standard, inventory should be valued at the lower of cost or net realizable value. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted. We will comply with this guidance as of January 1, 2017, and we are evaluating the potential impact on our consolidated financial statements.
In May 2015, the FASB issued updated guidance on the presentation of investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient approach. Investments that calculate net asset value per share (or its equivalent) where the practical expedient is applied will not be included in the fair value hierarchy and investments where the practical expedient is not applied will continue to be reported in the fair value hierarchy. This amendment removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value (or its equivalent) where the practical expedient is applied. The guidance requires that a company continues to disclose the nature and risks of investments and whether if the investments were sold, the probability of those investments being sold at amounts different from the net asset value. This guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We will comply with this guidance no later than January 1, 2016. The adoption of this standard will significantly reduce the amounts presented in our fair value hierarchy disclosure but it will not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued updated guidance on a customer’s accounting for fees paid in cloud computing agreements. The update provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We will comply with this guidance no later than January 1, 2016, and we are evaluating the potential impact on our consolidated financial statements.
In April 2015, the FASB issued updated guidance on the presentation of debt issuance costs. The guidance requires debt issuance costs to be presented as a direct deduction from debt balances on the statement of financial position, similar to the

10

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

presentation of debt discounts. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We will comply with this guidance no later than January 1, 2016, and it will not have a material impact on our consolidated financial statements.
In February 2015, the FASB issued updated guidance on the consolidation assessment over certain legal entities. The guidance modifies the evaluation of whether limited partnerships and similar legal entities are Variable Interest Entities ("VIEs") or voting interest entities and eliminates the presumption that a general partner should consolidate a limited partnership. The guidance also affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships by placing more emphasis on risk of loss when determining a controlling financial interest. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We will comply with this guidance as of January 1, 2016, and we are evaluating the potential impact on our consolidated financial statements.
In January 2015, the FASB issued guidance that eliminates the concept of extraordinary items from generally accepted accounting principles. As a result, this standard eliminates the requirement to present transactions or events that are both unusual in nature and infrequent in occurrence separately in the income statement, net of tax, after income from continuing operations. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. The guidance is effective for periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance as of January 1, 2015, and it did not have a material impact on our consolidated financial statements.
In August 2014, the FASB issued guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We will comply with this guidance as of December 31, 2016.
In May 2014, the FASB issued updated guidance that 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. This new revenue recognition model defines a five-step process to achieve this objective. The updated guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In April 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard, with early adoption of guidance permitted. On July 9, 2015 the FASB approved the one-year deferral and the new standard will become effective for periods beginning after December 15, 2017. We are currently evaluating the method of implementation and impact of adoption on our consolidated financial statements and will comply with this guidance no later than January 1, 2018.
In April 2014, the FASB issued updated guidance that changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The guidance also requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.  This guidance is effective for fiscal periods beginning after December 15, 2014, and is to be applied prospectively. We adopted this guidance as of January 1, 2015, and it did not have a material impact on our consolidated financial statements.

11

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 3. Accumulated Other Comprehensive (Loss) Income
The changes in Accumulated Other Comprehensive (Loss) Income ("AOCI") by component, including the amounts reclassified to income, were as follows (in millions of dollars):
 
 
Three Months Ended September 30, 2015
 
 
Defined Benefit
Plan Adjustments
 
 
Derivatives
 
 
 
 
 
 
 
Net
Actuarial
Loss
 
 
Net
Prior Service
Credit (Cost)
 
 
Currency
Forwards
and
Swaps
 
 
Commodity
Swaps
 
 
Foreign
Currency
Translation
Adjustments
 
Total
Balance at beginning of period
 
$
(4,778
)
 
 
$
(102
)
 
 
$
148

 
 
$
(25
)
 
 
$
(99
)
 
$
(4,856
)
Gain (loss) recorded in other comprehensive income
 
—


 
—

 
 
247

 
 
(13
)
 
 
(24
)
 
210

Less: Gain (loss) reclassified from AOCI to income
 
(23
)
(1) 
 
(4
)
(1) 
 
157

(2) 
 
(4
)
(3) 
 
—

 
126

Tax effect (expense)/benefit
 
(9
)
 
 
—

 
 
(34
)
 
 
4

 
 
(10
)
 
(49
)
Other comprehensive income (loss)
 
14

 
 
4

 
 
56

 
 
(5
)
 
 
(34
)
 
35

Less: Other comprehensive income (loss) attributable to controlling interest
 
—

 
 
—

 
 
—

 
 
—

 
 
1

 
1

Balance at end of period
 
$
(4,764
)
 
 
$
(98
)
 
 
$
204

 
 
$
(30
)
 
 
$
(134
)
 
$
(4,822
)
 
 
Three Months Ended September 30, 2014
 
 
Defined Benefit
Plan Adjustments
 
 
Derivatives
 
 
 
 
 
 
 
Net
Actuarial
Loss
 
 
Net
Prior Service
Credit (Cost)
 
 
Currency
Forwards
and
Swaps
 
 
Commodity
Swaps
 
 
Foreign
Currency
Translation
Adjustments
 
Total
Balance at beginning of period
 
$
(4,021
)
 
 
$
(121
)
 
 
$
(80
)
 
 
$
26

 
 
$
(9
)
 
$
(4,205
)
Gain (loss) recorded in other comprehensive income
 
—

 
 
—

 
 
142

 
 
(19
)
 
 
(42
)
 
81

Less: Gain (loss) reclassified from AOCI to income
 
(21
)
(1) 
 
(2
)
(1) 
 
30

(2) 
 
6

(3) 
 
—

 
13

Other comprehensive income (loss)
 
21

 
 
2

 
 
112

 
 
(25
)
 
 
(42
)
 
68

Balance at end of period
 
$
(4,000
)
 
 
$
(119
)
 
 
$
32

 
 
$
1

 
 
$
(51
)
 
$
(4,137
)


12

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
Defined Benefit
Plan Adjustments
 
 
Derivatives
 
 
 
 
 
 
 
Net
Actuarial
Loss
 
 
Net
Prior Service
Credit (Cost)
 
 
Currency
Forwards
and
Swaps
 
 
Commodity
Swaps
 
 
Foreign
Currency
Translation
Adjustments
 
Total
Balance at beginning of period
 
$
(4,752
)
 
 
$
(113
)
 
 
$
114

 
 
$
(14
)
 
 
$
(84
)
 
$
(4,849
)
Gain (loss) recorded in other comprehensive income
 
(68
)
(4) 
 
—

 
 
403

 
 
(44
)
 
 
(55
)
 
236

Less: Gain (loss) reclassified from AOCI to income
 
(100
)
(1), (4) 
 
(15
)
(1) 
 
253

(2) 
 
(9
)
(3) 
 
—

 
129

Tax effect benefit/(expense)
 
(44
)
 
 
—

 
 
(60
)
 
 
19

 
 
6

 
(79
)
Other comprehensive income (loss)
 
(12
)
 
 
15

 
 
90

 
 
(16
)
 
 
(49
)
 
28

Less: Other comprehensive income (loss) attributable to noncontrolling interest
 
—

 
 
—

 
 
—

 
 
—

 
 
1

 
1

Balance at end of period
 
$
(4,764
)
 
 
$
(98
)
 
 
$
204

 
 
$
(30
)
 
 
$
(134
)
 
$
(4,822
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
 
 
Defined Benefit
Plan Adjustments
 
 
Derivatives
 
 
 
 
 
 
 
Net
Actuarial
Loss
 
 
Net
Prior Service
Credit (Cost)
 
 
Currency
Forwards
and
Swaps
 
 
Commodity
Swaps
 
 
Foreign
Currency
Translation
Adjustments
 
Total
Balance at beginning of period
 
$
(4,056
)
 
 
$
(93
)
 
 
$
105

 
 
$
8

 
 
$
(10
)
 
$
(4,046
)
Gain (loss) recorded in other comprehensive income
 
(19
)
 
 
(36
)
 
 
47

 
 
11

 
 
(41
)
 
(38
)
Less: Gain (loss) reclassified from AOCI to income
 
(75
)
(1) 
 
(10
)
(1) 
 
119

(2) 
 
18

(3) 
 
—

 
52

Tax effect benefit/(expense)
 
—

 
 
—

 
 
(1
)
 
 
—

 
 
—

 
(1
)
Other comprehensive income (loss)
 
56

 
 
(26
)
 
 
(73
)
 
 
(7
)
 
 
(41
)
 
(91
)
Balance at end of period
 
$
(4,000
)
 
 
$
(119
)
 
 
$
32

 
 
$
1

 
 
$
(51
)
 
$
(4,137
)
 
(1)
These AOCI components are included within the computation of net periodic benefit costs. Refer to Note 14, Employee Retirement and Other Benefits, for additional information.
(2)
Amount reclassified to Revenues, net in the accompanying Condensed Consolidated Statements of Income. Refer to Note 13, Derivative Financial Instruments and Risk Management, for additional information.
(3)
Amount reclassified to Cost of sales in the accompanying Condensed Consolidated Statements of Income. Refer to Note 13, Derivative Financial Instruments and Risk Management, for additional information.
(4)
An out-of-period adjustment was recorded during the three months ended March 31, 2015. Refer to Note 14, Employee Retirement and Other Benefits, for additional information.


13

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 4. Interest Expense
Interest expense included the following (in millions of dollars):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Financial interest expense:
 
 
 
 
 
 
 
 
Related parties (1) (see Note 15)
 
$
1

 
$
5

 
$
4

 
$
33

Third-party (see Note 9)
 
131

 
207

 
489

 
609

Interest accretion (2)
 
12

 
10

 
33

 
39

Capitalized interest related to capital expenditures
 
(12
)
 
(13
)
 
(41
)
 
(38
)
Total
 
$
132

 
$
209

 
$
485

 
$
643

 
(1)
For the nine months ended September 30, 2014, financial interest expense with related parties includes interest expense related to the senior unsecured note issued June 10, 2009 to the VEBA Trust, with an original face value of $4,587 million, through January 20, 2014. Refer to Note 15, Other Transactions with Related Parties, for additional information.
(2)
Interest accretion is primarily related to debt discounts/premiums, debt issuance costs and fair value adjustments.
Note 5. Inventories
The components of Inventories were as follows (in millions of dollars):
 
 
September 30, 2015
 
December 31, 2014
Finished products, including service parts
 
$
3,874

 
$
3,805

Work in process
 
2,467

 
2,056

Raw materials and manufacturing supplies
 
254

 
249

Total
 
$
6,595

 
$
6,110

Note 6. Other Intangible Assets
The components of Other intangible assets were as follows (in millions of dollars):
 
 
 
 
September 30, 2015
Range of
Useful Lives
(years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Intangible
Assets
Brand names
 
Indefinite
 
$
2,210

 
$
—

 
$
2,210

Dealer networks
 
20
 
375

 
119

 
256

FCA contributed intellectual property rights
 
10
 
320

 
203

 
117

Other intellectual property rights
 
3 - 12
 
263

 
117

 
146

Patented and unpatented technology
 
4 - 10
 
208

 
176

 
32

Software
 
3 - 5
 
551

 
276

 
275

Regulatory credits
 
1 - 7
 
545

 
82

 
463

Other
 
1 - 16
 
19

 
17

 
2

Total
 
$
4,491

 
$
990

 
$
3,501


14

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

 
 
 
 
December 31, 2014
Range of
Useful Lives
(years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Intangible
Assets
Brand names
 
Indefinite
 
$
2,210

 
$
—

 
$
2,210

Dealer networks
 
20
 
383

 
107

 
276

FCA contributed intellectual property rights
 
10
 
320

 
179

 
141

Other intellectual property rights
 
3 - 12
 
263

 
95

 
168

Patented and unpatented technology
 
4 - 10
 
208

 
164

 
44

Software
 
3 - 5
 
511

 
222

 
289

Regulatory credits
 
1 - 7
 
462

 
45

 
417

Other
 
1 - 16
 
20

 
17

 
3

Total
 
$
4,377

 
$
829

 
$
3,548

The following summarizes the amount of intangible asset amortization expense included in the respective financial statement captions of the accompanying Condensed Consolidated Statements of Income (in millions of dollars):
 
 
Financial
Statement Caption
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Patented and unpatented technology, intellectual property, software, regulatory credits and other
 
Cost of sales
 
$
44

 
$
40

 
$
152

 
$
122

Dealer networks and other
 
Selling, administrative
and other expenses
 
5

 
5

 
18

 
15

Total
 
$
49

 
$
45

 
$
170

 
$
137

Based on the gross carrying amount of other intangible assets as of September 30, 2015, the estimated future amortization expense for the next five years was as follows (in millions of dollars):
Remainder of 2015
$
50

2016
236

2017
441

2018
140

2019
67

Intangible assets that have a finite useful life are generally amortized over their respective estimated useful lives, on a straight-line basis. However, certain other finite-lived intangible assets are amortized in a manner that reflects the pattern in which the economic benefits of the intangible asset are consumed.

15

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 7. Prepaid Expenses and Other Assets
The components of Prepaid expenses and other assets were as follows (in millions of dollars):
 
 
September 30, 2015
 
December 31, 2014
 
 
Current
 
Non-
Current
 
Total
 
Current
 
Non-
Current
 
Total
Amounts due from related parties (see Note 15)
 
$
803

 
$
—

 
$
803

 
$
1,199

 
$
—

 
$
1,199

Prepayment of expenses with related parties (see Note 15)
 
50

 
270

 
320

 
45

 
234

 
279

Prepaid pension expense
 
—

 
143

 
143

 
—

 
134

 
134

Other
 
1,270

 
250

 
1,520

 
1,158

 
325

 
1,483

Total
 
$
2,123

 
$
663

 
$
2,786

 
$
2,402

 
$
693

 
$
3,095

Note 8. Accrued Expenses and Other Liabilities
The components of Accrued expenses and other liabilities were as follows (in millions of dollars):
 
 
September 30, 2015
 
December 31, 2014
 
 
Current
 
Non-
Current
 
Total
 
Current
 
Non-
Current
 
Total
Pension and postretirement benefits
 
$
187

 
$
8,222

 
$
8,409

 
$
193

 
$
8,579

 
$
8,772

Product warranty costs
 
1,939

 
4,107

 
6,046

 
1,601

 
3,084

 
4,685

Sales incentives
 
4,549

 
—

 
4,549

 
3,932

 
—

 
3,932

Personnel costs
 
772

 
331

 
1,103

 
905

 
343

 
1,248

Amounts due to related parties (see Note 15) (1)
 
2,752

 
83

 
2,835

 
1,069

 
100

 
1,169

Vehicle residual value guarantees
 
898

 
—

 
898

 
540

 
—

 
540

Income and other taxes
 
211

 
86

 
297

 
434

 
123

 
557

Workers’ compensation
 
45

 
226

 
271

 
40

 
235

 
275

Accrued interest
 
120

 
—

 
120

 
96

 
—

 
96

Restructuring actions (See Note 16)
 
13

 
17

 
30

 
19

 
25

 
44

Other (2)
 
1,665

 
517

 
2,182

 
2,077

 
656

 
2,733

Total
 
$
13,151

 
$
13,589

 
$
26,740

 
$
10,906

 
$
13,145

 
$
24,051

 
(1)
As of September 30, 2015, amounts due to related parties includes certain tax attributes of $1,509 million that FCA NA has agreed to allow us to utilize to determine our future obligation in accordance with the provisions of the Fourth Amended and Restated Limited Liability Company Operating Agreement of FCA US LLC (“FCA US operating agreement”). Refer to Note 10, Income Taxes, for additional information.
(2)
As of September 30, 2015, the balance includes a $338 million obligation, $175 million current and $163 million non-current, associated with the Memorandum of Understanding entered into with the UAW for continued support of our World Class Manufacturing programs. Included within the obligation is $7 million of interest accretion. Refer to Note 15, Other Transactions with Related Parties, for additional information.



16

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

We issue various types of product warranties under which we generally guarantee the performance of products delivered 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 mandatory or voluntary actions to recall and repair vehicles and for buyback commitments. We accrue for estimated product warranty obligations when the related sale is recognized, which is reflected in the summary of the changes in accrued warranty costs below as "Provision for current period warranties." Estimates 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 our vehicles. 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 that may result in adjustments to the established accrual, which are reflected in the summary below as "Net adjustments to pre-existing warranties."
Given recent 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 gives greater weight to the more recent calendar year trends in recall campaign activity, has been added to the adequacy assessment to estimate future recall costs. This reassessment resulted in a change in estimate for the campaign accrual of $848 million for the U.S. and Canada for estimated future recall campaign costs for vehicles sold in prior periods, which has been excluded from our non-GAAP financial measures for the three and nine months ended September 30, 2015. In addition, and in connection with this reassessment, we recorded a $73 million charge related to the increase in the accrual rate per vehicle sold during the three months ended September 30, 2015.

The changes in accrued product warranty costs (excluding deferred revenue from service contracts described below, as well as supplier recoveries) were as follows (in millions of dollars): 
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
Balance at beginning of period
 
$
4,685

 
$
3,800

Provision for current period warranties
 
2,305

 
1,706

Net adjustments to pre-existing warranties
 
1,351

 
407

Net warranty settlements
 
(2,235
)
 
(1,494
)
Translation and other adjustments
 
(60
)
 
(51
)
Balance at end of period
 
$
6,046

 
$
4,368

We recognized recoveries from suppliers related to warranty claims of $65 million and $35 million during the three months ended September 30, 2015 and 2014, respectively, and $162 million and $67 million during the nine months ended September 30, 2015 and 2014, respectively, which are excluded from the change in warranty costs above.
We also offer customers the opportunity to purchase separately-priced service contracts. In addition, from time to time, we sell certain vehicles with a service contract included in the sales price of the vehicle. The service contract and vehicle qualify as separate units of accounting in accordance with the accounting guidance for multiple-element arrangements. The revenue from these contracts, as well as our separately-priced service contracts, is recorded as a component of Deferred revenue in the accompanying Condensed Consolidated Balance Sheets at the inception of the contract and is recognized as revenue over the contract period in proportion to the costs expected to be incurred based on historical information.

17

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

The following summarizes the changes in deferred revenue from these contracts (in millions of dollars):
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
Balance at beginning of period
 
$
1,446

 
$
1,239

Deferred revenues for current period service contracts
 
603

 
569

Earned revenues in current period
 
(398
)
 
(368
)
Refunds of canceled contracts
 
(58
)
 
(33
)
Translation and other adjustments
 
(26
)
 
(1
)
Balance at end of period
 
$
1,567

 
$
1,406


18

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 9. Financial Liabilities
The components of Financial liabilities were as follows (in millions of dollars):
 
 
 
September 30, 2015
 
 
 
Interest
Rate
 
 
Face
Value
 
Carrying
Value
Financial Liabilities Payable Within One Year:
 
 
 
 
 
 
 
 
 
 
 
Effective
 
 
 
 
 
Tranche B Term Loan due 2017
 
 
4.06
%
(1) 
 
$
33

 
$
33

Tranche B Term Loan due 2018
 
 
3.60
%
(2) 
 
18

 
18

Canadian Health Care Trust Note - Tranche B
 
 
9.21
%
(3) 
 
22

 
22

 
 
 
 
 
 
 
 
 
 
 
 
Weighted
Average
 
 
 
 
 
Other:
 
 
 
 
 
 
 
 
Capital lease obligations
 
 
10.07
%
 
 
74

 
67

Other financial obligations
 
 
14.36
%
 
 
45

 
43

Total other financial liabilities
 
 
 
119

 
110

Total financial liabilities payable within one year
 
 
 
$
192

 
$
183

 
 
Maturity
 
Interest
Rate
 
 
Face
Value
 
Carrying
Value
Financial Liabilities Payable After One Year:
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective
 
 
 
 
 
Tranche B Term Loan due 2017
 
5/24/2017
 
4.06
%
(1) 
 
$
3,085

 
$
3,057

Tranche B Term Loan due 2018
 
12/31/2018
 
3.60
%
(2) 
 
1,706

 
1,688

Secured Senior Notes due 2021
 
6/15/2021
 
7.57
%
(4) 
 
3,080

 
3,173

Canadian Health Care Trust Notes:
 
 
 
 
 
 
 
 
 
Tranche B
 
6/30/2024
 
9.21
%
(3) 
 
276

 
281

Tranche C
 
6/30/2024
 
9.68
%
(5) 
 
101

 
90

Total Canadian Health Care Trust Notes
 
 
 
377

 
371

 
 
 
 
 
 
 
 
 
 
Mexico Bank Loan due 2022
 
3/20/2022
 
3.57
%
(6) 
 
500

 
500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted
Average
 
 
 
 
 
Other:
 
 
 
 
 
 
 
 
 
Capital lease obligations
 
2017-2021
 
10.73
%
 
 
290

 
273

Other financial obligations
 
2018-2024
 
13.74
%
 
 
110

 
101

Total other financial liabilities
 
 
 
400

 
374

Total financial liabilities payable after one year
 
 
 
9,148

 
9,163

Total
 
 
 
$
9,340

 
$
9,346


19

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

 
 
December 31, 2014
 
 
Interest
Rate
 
 
Face
Value
 
Carrying
Value
Financial Liabilities Payable Within One Year:
 
 
 
 
 
 
 
 
 
Effective
 
 
 
 
 
Tranche B Term Loan due 2017
 
4.06
%
(1) 
 
$
33

 
$
33

Tranche B Term Loan due 2018
 
3.60
%
(2) 
 
18

 
18

Canadian Health Care Trust Notes:
 
 
 
 
 
 
 
Tranche A
 
6.48
%
(3) 
 
81

 
82

Tranche B
 
9.21
%
(3) 
 
23

 
23

Total Canadian Health Care Trust Notes
 
 
 
104

 
105

Mexican development banks credit facility due 2025
 
8.09
%
(7) 
 
26

 
26

 
 
 
 
 
 
 
 
 
 
Weighted
Average
 
 
 
 
 
Other:
 
 
 
 
 
 
 
Capital lease obligations
 
9.81
%
 
 
75

 
67

Other financial obligations
 
18.03
%
 
 
61

 
59

Total other financial liabilities
 
 
 
136

 
126

Total financial liabilities payable within one year
 
 
 
$
317

 
$
308

 
 
Maturity
 
Interest
Rate
 
 
Face
Value
 
Carrying
Value
Financial Liabilities Payable After One Year:
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective
 
 
 
 
 
Tranche B Term Loan due 2017
 
5/24/2017
 
4.06
%
(1) 
 
$
3,109

 
$
3,069

Tranche B Term Loan due 2018
 
12/31/2018
 
3.60
%
(2) 
 
1,719

 
1,697

Secured Senior Notes due 2019
 
6/15/2019
 
7.30
%
(8) 
 
2,875

 
2,948

Secured Senior Notes due 2021
 
6/15/2021
 
7.57
%
(4) 
 
3,080

 
3,183

Canadian Health Care Trust Notes:
 
 
 
 
 
 
 
 
 
Tranche A
 
6/30/2017
 
6.48
%
(3) 
 
196

 
204

Tranche B
 
6/30/2024
 
9.21
%
(3) 
 
345

 
352

Tranche C
 
6/30/2024
 
9.68
%
(5) 
 
108

 
94

Total Canadian Health Care Trust Notes
 
 
 
649

 
650

Mexican development banks credit facilities:
 
 
 
 
 
 
 
 
 
Credit facility due 2021
 
12/23/2021
 
7.00
%
(9) 
 
204

 
204

Credit facility due 2025
 
7/19/2025
 
8.09
%
(7) 
 
257

 
257

Total Mexican development banks credit facilities
 
 
 
461

 
461

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted
Average
 
 
 
 
 
Other:
 
 
 
 
 
 
 
 
 
Capital lease obligations
 
2016-2021
 
10.59
%
 
 
350

 
328

Other financial obligations
 
2018-2024
 
13.66
%
 
 
146

 
135

Total other financial liabilities
 
 
 
496

 
463

Total financial liabilities payable after one year
 
 
 
12,389

 
12,471

Total
 
 
 
$
12,706

 
$
12,779


20

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

 
 
(1)
Loan bears interest at LIBOR (subject to a 0.75 percent floor) + 2.75 percent. Stated interest rate as of both September 30, 2015 and December 31, 2014 was 3.50 percent.
(2)
Loan bears interest at LIBOR (subject to a 0.75 percent floor) + 2.50 percent. Stated interest rate as of both September 30, 2015 and December 31, 2014 was 3.25 percent.
(3)
Note bears interest at a stated rate of 9.00 percent.
(4)
Notes bear interest at a stated rate of 8.25 percent.
(5)
Note bears interest at a stated rate of 7.50 percent.
(6)
Represents the stated interest rate. Loan bears interest at one-month LIBOR + 3.35 percent.
(7)
Represents the stated interest rate. Loan bore interest at the 28 day Interbank Equilibrium Interest Rate ("TIIE") + 4.80 percent subject to a quarterly reset of TIIE.
(8)
Notes bore interest at a stated rate of 8.00 percent.
(9)
Represents the stated interest rate. Loan bore interest at the 28 day TIIE + 3.70 percent subject to a monthly reset of TIIE.
As of September 30, 2015, the carrying amounts of our financial obligations include fair value adjustments, premiums, discounts and loan origination fees totaling $6 million in excess of their face value related to the following obligations (in millions of dollars):
Tranche B Term Loan due 2017
 
$
(28
)
Tranche B Term Loan due 2018
 
(18
)
Secured Senior Notes due 2021
 
93

Canadian Health Care Trust Notes
 
(6
)
Liabilities for capital lease and other financial obligations
 
(35
)
Total
 
$
6

As of September 30, 2015, the aggregate annual contractual maturities of our financial liabilities at face value were as follows (in millions of dollars):
Remainder of 2015
 
$
47

2016
 
187

2017
 
3,231

2018
 
1,931

2019
 
219

2020 and thereafter
 
3,725

Total
 
$
9,340

Secured Senior Notes
On April 14, 2015, we provided a notice of redemption to the holders of our 8 percent secured senior notes due June 15, 2019 with an aggregate principal amount outstanding of $2,875 million ("2019 Notes"). The redemption occurred on May 14, 2015 at a price equal to the principal amount of the notes redeemed, plus accrued and unpaid interest to the date of redemption and a “make-whole” premium calculated in accordance with the terms of the indenture. The redemption amount including both the principal and "make-whole" premium was approximately $3.1 billion, including accrued and unpaid interest expense up to May 14, 2015, which was paid from cash on hand. In connection with the redemption, we recorded a charge of $71 million in the second quarter of 2015, which consisted of the payment of the "make-whole" premium and the write-off of the unamortized debt issuance costs partially offset by the write-off of the remaining unamortized debt premium. The charge is included in (Gain) loss on extinguishment of debt, net in the accompanying Condensed Consolidated Statements of Income.

21

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

During the nine months ended September 30, 2015, a "make-whole" premium of $133 million upon redemption of the 2019 Notes and interest payments of $222 million were made on the secured senior notes. The $355 million of payments were composed of $262 million that was included as a component of Net Cash Provided by Operating Activities in the accompanying Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2015, and $93 million related to the repayment of the debt issuance premium on the secured senior notes, which is included in Net Cash Used in Financing Activities in the accompanying Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2015.
During the nine months ended September 30, 2014, net interest payments of $210 million were made on the outstanding secured senior notes. The $210 million of net interest payments were composed of $198 million that was included as a component of Net Cash Provided by Operating Activities in the accompanying Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2014, and $12 million related to the repayment of the debt issuance premium on the secured senior notes, which is included in Net Cash Used in Financing Activities in the accompanying Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2014.
FCA Mexico Credit Agreements
On March 20, 2015, FCA Mexico, S.A. de C.V., formerly known as Chrysler de Mexico, S.A. de C.V., (“FCA Mexico”) our principal operating subsidiary in Mexico, entered into a $900 million non-revolving loan agreement (“Mexico Bank Loan”), maturing on March 20, 2022. On March 20, 2015, FCA Mexico received an initial disbursement of $500 million, which bears interest at one-month LIBOR plus 3.35 percent per annum. Effective July 20, 2015, we extended the disbursement term of the Mexico Bank Loan through September 20, 2016, during which time the remaining $400 million is available for disbursement, subject to meeting certain preconditions and a commitment fee of 0.50 percent per annum on the undisbursed balance.
Principal payments are due on the loan in seventeen equal quarterly installments based on the total amount of all disbursements made under the loan agreement, beginning March 20, 2018, and interest is paid monthly throughout the term of the loan. The loan agreement 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. We may not prepay all or any portion of the loan prior to the 18-month anniversary of the effective date of the loan agreement.
The proceeds of this transaction were used, in part, to prepay the following Mexican development banks credit facilities:
•
Credit Facility due 2021 - 3.0 billion Mexican peso term loan facility issued on December 23, 2011, which had an outstanding balance of 3.1 billion pesos ($198 million), including accrued interest at time of prepayment.
•
Credit Facility due 2025 - Mexican peso equivalent of $400 million term loan facility issued in July 2010, which had an outstanding balance of 4.1 billion pesos ($268 million), including accrued interest at time of prepayment.
In connection with the prepayment of the Mexican development bank credit facilities, we recorded a non-cash charge of $10 million in the first quarter of 2015, which consisted of the write-off of the remaining unamortized debt issuance costs. The charge is included in (Gain) loss on extinguishment of debt, net in the accompanying Condensed Consolidated Statements of Income.
Canadian Health Care Trust Notes
On July 31, 2015, we made a prepayment on the Canadian Health Care Trust Tranche A Note ("Canadian HCT Tranche A Note") of the remaining scheduled payments due on June 30, 2016 and June 30, 2017. The amount of the prepayment, determined in accordance with the terms of the Canadian HCT Tranche A Note, was $164 million and was composed of a $163 million principal payment and interest accrued through July 31, 2015 of $1 million. The $163 million Canadian HCT Tranche A Note principal payment consisted of $6 million of interest that was previously capitalized as additional debt with the remaining $157 million representing a prepayment of the original principal balance. In connection with this prepayment, we recorded a non-cash gain of $18 million in the third quarter of 2015. The gain is included in (Gain) loss on extinguishment of debt, net in the accompanying Condensed Consolidated Statements of Income.


22

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

On January 2, 2015, we made a prepayment on the Canadian HCT Tranche A Note of the scheduled payment due on June 30, 2015. The amount of the prepayment, determined in accordance with the terms of the Canadian HCT Tranche A Note, was $99 million and was composed of an $87 million principal payment and interest accrued through January 2, 2015 of $12 million. The $87 million Canadian HCT Tranche A Note principal payment consisted of $12 million of interest that was previously capitalized as additional debt with the remaining $75 million representing a prepayment of the original principal balance.
On January 2, 2014, we made a prepayment on the Canadian HCT Tranche A Note of the scheduled payment due on June 30, 2014. The amount of the prepayment, determined in accordance with the terms of the Canadian HCT Tranche A Note, was $109 million and was composed of a $91 million principal payment and interest accrued through January 2, 2014 of $18 million. The $91 million Canadian HCT Tranche A Note principal payment consisted of $17 million of interest that was previously capitalized as additional debt with the remaining $74 million representing a prepayment of the original principal balance.
On June 30, 2015 and 2014, we made scheduled payments on the Canadian Health Care Trust Tranche B note ("Canadian HCT Tranche B Note") of $55 million and $64 million, respectively. In June 2015, the payment was composed of a $22 million principal payment and interest accrued through the payment date of $33 million. In June 2014, the payment was composed of a $23 million principal payment and interest accrued through the payment date of $41 million. The $23 million Canadian HCT Tranche B Note principal payment consisted of $20 million of interest that was previously capitalized as additional debt with the remaining $3 million representing a repayment of the original principal balance.
The payments of capitalized interest are included as a component of Net Cash Provided by Operating Activities in the accompanying Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014.
Refer to our 2014 Form 10-K for additional information regarding the Canadian Health Care Trust Notes.
Debt Issuances and Prepayment of the VEBA Trust Note
On February 7, 2014, we and certain of our U.S. subsidiaries as guarantors entered into the following transactions to facilitate the prepayment of the senior unsecured note issued June 10, 2009 to the VEBA Trust, with an original face amount of $4,587 million ("VEBA Trust Note"):
•
Senior Credit Facilities - a $250 million additional term loan under the existing tranche B term loan facility, which matures on May 24, 2017 (we collectively refer to the $250 million additional tranche B term loan and the $3.0 billion tranche B term loan, which was fully drawn on May 24, 2011, as the "Tranche B Term Loan due 2017"), and a new $1,750 million tranche B term loan ("Tranche B Term Loan due 2018") issued under the term loan credit facility that matures on December 31, 2018;
•
Secured Senior Notes due 2019 - issuance of an additional $1,375 million aggregate principal amount of 8 percent secured senior notes due June 15, 2019, at an issue price of 108.25 percent of the aggregate principal amount; and
•
Secured Senior Notes due 2021 - issuance of an additional $1,380 million aggregate principal amount of 8 ¼ percent secured senior notes due June 15, 2021, at an issue price of 110.50 percent of the aggregate principal amount.
The proceeds of these transactions were used to prepay all amounts outstanding of approximately $5.0 billion under the VEBA Trust Note, which included a principal payment of $4,715 million and interest accrued through February 7, 2014. The $4,715 million principal payment consisted of $128 million of interest that was previously capitalized as additional debt with the remaining $4,587 million representing the original face value of the note. The payment of capitalized interest is included as a component of Net Cash Provided by Operating Activities in the accompanying Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014.
In connection with the prepayment of the VEBA Trust Note, we recorded a non-cash charge of $504 million in the first quarter of 2014, consisting primarily of the remaining unamortized debt discount. The charge is included in (Gain) loss on extinguishment of debt, net in the accompanying Condensed Consolidated Statements of Income.

23

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Amounts Available for Borrowing under Credit Facilities
As of September 30, 2015, our $1.3 billion revolving credit facility remains undrawn and $400 million remains undisbursed under the Mexico Bank Loan discussed above. The Tranche B Term Loan due 2017 and the Tranche B Term Loan due 2018 remain fully drawn.
Refer to our 2014 Form 10-K for additional information regarding the terms of our financing arrangements.
Note 10. Income Taxes
Effective January 1, 2015, FCA NA became our single member and, as a result, we are no longer treated as a partnership for U.S. federal, state and local income tax purposes. Instead, we and certain of our U.S. subsidiaries are now treated as disregarded entities of our parent, FCA NA, for U.S. federal, state and local income tax purposes. This change in our tax status required the recognition of a net deferred tax asset for the initial temporary differences at the time of the change. Accordingly, on January 1, 2015 we recorded a net deferred tax asset of $3,692 million. This net deferred tax asset consists of $2,183 million related to temporary differences on our assets and liabilities resulting from our change in tax status, which is recognized as a deferred tax benefit. In addition, a net deferred tax asset was also recognized for certain tax attributes of $1,509 million that FCA NA has agreed to allow us to utilize to determine our future obligation in accordance with the provisions of the FCA US operating agreement. These attributes have been recognized with a payable to FCA NA, which is included in accrued expenses and other liabilities in the accompanying Condensed Consolidated Balance Sheets. As the attributes are realized, they will be recognized in equity.
Significant components of the net deferred tax assets recognized upon termination of the partnership consist of deferred tax assets of approximately $2,707 million related to pension and other postretirement employees benefits ("OPEB"), $741 million related to incentives, $1,046 million related to warranty, $1,397 million related to other accrued expenses and $1,509 million related to tax attributes consisting of $555 million related to tax credits and $954 million related to net operating losses, and deferred tax liabilities of approximately $930 million related to intangible assets and $2,778 million related to property, plant and equipment.
Although we and certain of our U.S. subsidiaries are included in the FCA NA consolidated U.S. federal income tax return and for certain states’ income tax returns, for financial reporting purposes, we are treated as if we were separately subject to U.S. federal, state and local income taxes. Accordingly, our financial statements recognize the current and deferred income tax consequences that result from our activities as if we were a separate taxpayer rather than a member of the parent company’s consolidated income tax group. Differences between our separate income tax provision and cash flows attributable to income taxes pursuant to the provisions of our operating agreement with our parent company have been recognized as capital contributions from, or dividends to, FCA NA. Current taxes payable are included in accrued expenses and other liabilities in the accompanying Condensed Consolidated Balance Sheets.
For interim income tax reporting, we estimate our annual effective tax rate and apply it to our year to date ordinary income (loss). Tax jurisdictions with a projected loss or year to date loss for which a tax benefit cannot be realized are excluded. The tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and are recognized in the interim period in which they occur.
We recognized income tax expense of $106 million and income tax benefit of $(1,468) million for the three and nine months ended September 30, 2015, respectively. We recognized income tax expense of $162 million and $213 million for the three and nine months ended September 30, 2014, respectively. Decreased tax expense during the three months ended September 30, 2015 is primarily due to a decrease in current quarter earnings, offset by an increased annual effective tax rate caused by the change in our tax status. The increase in tax benefit for the nine months ended September 30, 2015 is attributable to the $2,183 million deferred tax benefit partially offset by an increase in our annual effective tax rate due to our change in tax status.

24

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 11. Commitments, Contingencies and Concentrations
Litigation
Various legal proceedings, claims and governmental investigations are pending against us on a wide range of topics, including vehicle safety; emissions and fuel economy; 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 us 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. We establish an accrual in connection with pending or threatened litigation if a loss is probable and can be reasonably estimated. Since these accruals represent estimates, it is reasonably possible that the resolution of some of these matters could require us to make payments in excess of the amounts accrued. It is also reasonably possible that the resolution of some of the matters for which accruals could not be made may require us to make payments in an amount or range of amounts that could not be reasonably estimated at September 30, 2015.
The term "reasonably possible" is used herein to mean that the chance of a future transaction or event occurring is more than remote but less than likely. Although the final resolution of any such matters could have a material effect on our operating results for the particular reporting period in which an adjustment of the estimated accrual is recorded, we believe that any resulting adjustment would not materially affect our consolidated financial position or cash flows. 
On July 9, 2012, a lawsuit was filed against us in the Superior Court of Decatur County, Georgia (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 us in the amount of $148.5 million. On July 24, 2015, the Court issued a remittitur reducing the judgment against us to $40 million.
We believe the jury verdict was not supported by the evidence or the law. We maintain 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, we submitted extensive data to the National Highway Traffic Safety Administration ("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, we were not allowed to introduce all the data previously provided to NHTSA, which demonstrated that the vehicle’s fuel system is not defective.
On August 10, 2015 we filed a notice of appeal with the Georgia Court of Appeals. While a decision by an appellate court could affirm the judgment, we believe it is more likely that the verdict will be overturned, that a new trial will be ordered or that the amount of the judgment will be further modified. We do not, therefore, believe a loss is probable at the present time. The amount of the possible loss cannot reasonably be estimated at this time given that we are in the early stages of what could be a lengthy appellate process, and the range of possible outcomes is between zero (as the verdict could be overturned or the award could be reduced to an immaterial amount) and the current judgment of $40 million.

25

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Environmental Matters
We are subject to potential liability under government regulations and various claims and legal actions that are pending or may be asserted against us concerning environmental matters. Estimates of future costs of such environmental matters are inevitably imprecise due to numerous uncertainties, including the enactment of new laws and regulations, the development and application of new technologies, the identification of new sites for which we may have remediation responsibility and the apportionment and collectability of remediation costs among responsible parties. We establish an accrual for these environmental matters when a loss is probable and reasonably estimable. It is reasonably possible that the final resolution of some of these matters may require us to make expenditures in excess of established accruals, over an extended period of time and in a range of amounts that cannot be reasonably estimated. Although the final resolution of any such matters could have a material effect on our operating results for the particular reporting period in which an adjustment to the estimated accrual is recorded, we believe that any resulting adjustment would not materially affect our consolidated financial position or cash flows.
Voluntary Service Actions and Recall Actions
On July 24, 2015, we entered into a consent order (the "Consent Order") with NHTSA, resolving the issues raised by NHTSA with respect to our execution of 23 recall campaigns in NHTSA’s Special Order issued to us on May 22, 2015 and further addressed at a NHTSA public hearing held on July 2, 2015.
Pursuant to the Consent Order, we agreed to make a $70 million cash payment to NHTSA and spend $20 million on industry and consumer outreach activities and incentives to enhance certain recall and service campaign completion rates. An additional $15 million payment will be payable by us if we fail to comply with certain terms of the Consent Order. On September 18, 2015, we made a payment of $70 million to NHTSA.
We also agreed under the Consent Order to additional remedies for three recall campaigns covering approximately 585,000 vehicles. In each of those campaigns, we will offer to owners whose vehicles have not yet been remedied, as an alternative remedy, to repurchase those vehicles at a price equal to the original purchase price less a reasonable allowance for depreciation plus ten percent. As of the date of the Consent Order, repairs had been completed on well over 60 percent of the subject vehicles, leaving less than 200,000 vehicles eligible under the repurchase provisions of the Consent Order. We intend that any vehicles repurchased will be remedied and resold.
All premiums paid to repurchase vehicles in the three recall campaigns and customer incentives will be applied as credits to the $20 million that we have agreed to spend on industry outreach amounts under the Consent Order.  In considering the likelihood that vehicle owners will choose the repurchase alternative over the original repair remedy, the age, average wear and tear and mileage of the covered vehicles, the manner in which each covered vehicle class is typically used by owners, and the incremental costs owners will likely incur in acquiring a replacement vehicle were all factors that were evaluated in order to assess likely costs and financial exposure. As a result, although such amounts may exceed $20 million, we do not expect the net cost of providing these additional alternatives will be material to our financial position, liquidity or results of operations. We began our buyback program on October 1, 2015.
The Consent Order will remain in place for three years subject to NHTSA’s right to extend for an additional year in the event of FCA US's noncompliance with the Consent Order.
As a result of our heightened scrutiny of our regulatory reporting obligations growing out of the Consent Order, we identified deficiencies in our Transportation Recall Enhancement, Accountability and Documentation ("TREAD") reporting. We promptly notified NHTSA of these issues, and committed to a thorough investigation, to be followed by complete remediation. We are in regular communication with NHTSA about our progress in the investigation. We take this issue extremely seriously, and will continue to cooperate with NHTSA to resolve this matter and ensure these issues do not re-occur. We do not believe resolution of this issue will have a material impact on our financial performance.
We periodically initiate voluntary service and recall actions to address various customer satisfaction, safety and emissions issues related to vehicles we sell. We accrue for estimated product warranty obligations, including the estimated cost of these service and recall actions, when the related sale is recognized. The estimated future costs of these actions are based primarily on historical claims experience for our vehicles. Refer to Note 8, Accrued Expenses and Other Liabilities, for additional information.

26

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

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 that may result in adjustments to the established accruals. It is possible that the ultimate cost of these service and recall actions may require us to make expenditures in excess of established accruals, over an extended period of time and in a range of amounts that cannot be reasonably estimated. Although the ultimate cost of these service and recall actions could have a material effect on our operating results for the particular reporting period in which an adjustment to the estimated accrual is recorded, we believe that any such adjustment would not materially affect our consolidated financial position or cash flows.
Restricted Cash
Restricted cash, which includes cash equivalents, was $309 million as of September 30, 2015. Restricted cash included $207 million held on deposit or otherwise pledged to secure our obligations under various commercial agreements guaranteed by a subsidiary of Daimler AG and $102 million of collateral for other contractual agreements.
Concentrations
Suppliers
Although we have not experienced any deterioration in our annual production volumes as a result of materials or parts shortages, we have from time to time experienced short term interruptions and variability in quarterly production schedules as a result of temporary supply constraints or disruptions in the availability of raw materials, parts and components as a result of natural disasters and other unexpected events. Additionally, we regularly source systems, components, parts, equipment and tooling from a sole provider or limited number of providers. Therefore, we are at risk for production delays and losses should any supplier fail to deliver goods and services on time. We continuously work with our suppliers to monitor potential supply constraints and to mitigate the effects of any emerging shortages on our production volumes and revenues. We also maintain insurance coverage for certain losses we might incur due to shortages or other supplier disruptions.
Employees
In the U.S. and Canada combined, substantially all of our hourly employees and approximately 19 percent of our salaried employees were represented by unions under collective bargaining agreements. These represented employees are approximately 64 percent of our worldwide workforce as of September 30, 2015. The UAW and Unifor represent substantially all of these represented employees in the U.S. and Canada, respectively.
On October 22, 2015, FCA US and the UAW signed a new four-year national collective bargaining agreement, which will expire in September 2019. For discussion on the four-year agreement with the UAW refer to Note 20, Subsequent Events. The collective bargaining labor agreement between FCA Canada and Unifor will expire September 2016.
On January 21, 2014, we entered into the memorandum of understanding ("MOU") with the UAW to supplement our existing collective bargaining agreement. For the discussion on the MOU agreement with the UAW refer to Note 15, Other Transactions with Related Parties.
Other Matters
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, China, impacted several storage areas containing approximately 25,000 FCA branded vehicles of which approximately 13,300 are owned by us and approximately 11,400 vehicles previously sold to our distributor. As of result of the explosions, nearly all of the vehicles in the Port were impacted and some were destroyed. We are working with our insurance companies to assess the extent of our losses.
Our insurance policies provide coverage for the damage to our property and for business interruption losses related to lost sales or profits as a result of the explosions. Insurance recoveries can be recognized in the financial statements if recovery of losses is probable up to the amount of the losses recognized excluding business interruption losses related to lost sales or lost profits.

27

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

During the three months ended September 30, 2015, based on management's current assessment, we recorded $99 million of incentives as a reduction to Revenues, net related to vehicles affected by the explosions. In addition, we recorded a charge of $60 million to reduce the value of our inventory held in China to the estimated net realizable value for our vehicles that were impacted by the explosions in Tianjin, China.
SCUSA Private-Label Financing Agreement
In February 2013, we entered into a private-label financing agreement (the "SCUSA Agreement") with Santander Consumer USA Inc. ("SCUSA"), an affiliate of Banco Santander. The financing arrangement launched on May 1, 2013. Under the SCUSA Agreement, SCUSA provides a wide range of wholesale and retail financing services to our dealers and consumers in accordance with its usual and customary lending standards, under the Chrysler Capital brand name. The financing services include credit lines to finance our dealers’ acquisition of vehicles and other products that we sell or distribute, retail loans and leases to finance consumer acquisitions of new and used vehicles at our dealerships, financing for commercial and fleet customers, and ancillary services. In addition, SCUSA works with dealers to offer them construction loans, real estate loans, working capital loans and revolving lines of credit.
The SCUSA Agreement has a ten year term commencing February 2013, 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 us an upfront, nonrefundable payment of $150 million in May 2013, which was recognized as Deferred revenue and is being amortized over ten years. As of September 30, 2015, $114 million remained in Deferred revenue in the accompanying Condensed Consolidated Balance Sheets.
We have provided SCUSA with limited exclusivity rights to participate in specified minimum percentages of certain of our 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 with respect to consumer leases, subject to specific provisions in the SCUSA Agreement, including limitations on our participation in gains and losses. Our dealers and retail customers also obtain funding from other financing sources.
Other Repurchase Obligations
In accordance with the terms of other wholesale financing arrangements in Mexico, we are 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. 
As of September 30, 2015, the maximum potential amount of future payments required to be made in accordance with these other wholesale financing arrangements was approximately $314 million and was based on the aggregate repurchase value of eligible vehicles financed through such arrangements in the respective dealer’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 million at September 30, 2015, 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. The estimates are based on historical experience.

28

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 12. Fair Value Measurements
The following summarizes our financial assets and liabilities measured at fair value on a recurring basis (in millions of dollars):
 
 
September 30, 2015
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
10,099

 
$
2,851

 
$
—

 
$
12,950

Restricted cash
 
309

 
—

 
—

 
309

Derivatives:
 
 
 
 
 
 
 
 
Currency forwards and swaps
 
—

 
349

 
—

 
349

Commodity swaps and options
 
—

 
4

 
1

 
5

Total
 
$
10,408

 
$
3,204

 
$
1

 
$
13,613

Liabilities:
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
Currency forwards and swaps
 
$
—

 
$
27

 
$
—

 
$
27

Commodity swaps and options
 
—

 
34

 
28

 
62

Total
 
$
—

 
$
61

 
$
28

 
$
89

 
 
December 31, 2014
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
12,081

 
$
2,457

 
$
—

 
$
14,538

Restricted cash
 
310

 
—

 
—

 
310

Derivatives:
 
 
 
 
 
 
 
 
Currency forwards and swaps
 
—

 
238

 
—

 
238

Commodity swaps and options
 
—

 
1

 
4

 
5

Total
 
$
12,391

 
$
2,696

 
$
4

 
$
15,091

Liabilities:
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
Currency forwards and swaps
 
$
—

 
$
169

 
$
—

 
$
169

Commodity swaps and options
 
—

 
38

 
9

 
47

Total
 
$
—

 
$
207

 
$
9

 
$
216

During the nine months ended September 30, 2015 and 2014, there were no transfers between Level 1 and Level 2 or into or out of Level 3.
We enter into over-the-counter currency forward and swap contracts to manage our exposure to risk relating to changes in foreign currency exchange rates. We estimate the fair value of currency forward and swap contracts by discounting future net cash flows derived from market-based expectations for exchange rates to a single present value.
We enter into over-the-counter commodity swaps and options to manage our exposure to risk relating to changes in market prices of various commodities. Swap contracts are fair valued by discounting future net cash flows derived from market-based expectations for commodity prices to a single present value. Options contracts are fair valued using variations of the Black Scholes option pricing model. For certain commodities within our portfolio, market-based expectations of these prices are less observable, and alternative sources are used to develop these inputs. We have classified these commodity swaps as Level 3 within the fair value hierarchy.

29

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

We take into consideration credit valuation adjustments on both assets and liabilities taking into account credit risk of our counterparties and non-performance risk as described in Note 13, Derivative Financial Instruments and Risk Management.
The following summarizes the changes in Level 3 items measured at fair value on a recurring basis (in millions of dollars):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Derivatives Assets (Liabilities):
 
 
 
 
 
 
 
 
Fair Value at beginning of the period
 
$
(31
)
 
$
18

 
$
(5
)
 
$
3

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
Included in Net income (1)
 
(2
)
 
6

 
(2
)
 
14

Included in Other comprehensive income (loss) (2)
 
(7
)
 
(22
)
 
(36
)
 
(4
)
Settlements (3)
 
13

 
(7
)
 
16

 
(18
)
Fair value at end of the period
 
$
(27
)
 
$
(5
)
 
$
(27
)
 
$
(5
)
Changes in unrealized gains (losses) relating to instruments held at end of period (1)
 
$
—

 
$
—

 
$
—

 
$
—

 
(1)
The related realized and unrealized gains (losses) are recognized in Cost of sales in the accompanying Condensed Consolidated Statements of Income.
(2)
The related realized and unrealized gains (losses) are recognized in Other comprehensive income (loss) in the accompanying Condensed Consolidated Statements of Comprehensive Income.
(3)
There were no purchases, issuances or sales during the three and nine months ended September 30, 2015 and 2014.
The following summarizes the unobservable inputs related to Level 3 items measured at fair value on a recurring basis as of September 30, 2015:
 
 
Net Liability
(in millions of
dollars)
 
Valuation
Technique
 
Unobservable Input
 
Range
 
Unit of Measure
Commodity swaps
 
$
(27
)
 
Discounted
 
Platinum forward points
 
$ 0.16 — $ 8.00
 
Per troy ounce
 
 
 
 
cash flow
 
Palladium forward points
 
$ 0.00 — $ 4.49
 
Per troy ounce
 
 
 
 
 
 
Natural gas forward points
 
$ (0.09) — $ 0.26
 
Per giga-joule
The forward points that were used in the valuation of platinum, palladium and certain natural gas contracts were deemed unobservable. Significant increases or decreases in any of the unobservable inputs in isolation would not significantly impact our fair value measurements.

30

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

The carrying amounts and estimated fair values of our financial instruments were as follows (in millions of dollars):
 
 
September 30, 2015
 
December 31, 2014
 
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Cash and cash equivalents
 
$
12,950

 
$
12,950

 
$
14,538

 
$
14,538

Restricted cash
 
309

 
309

 
310

 
310

Financial liabilities (1)
 
9,346

 
9,514

 
12,779

 
13,213

Derivatives:
 
 
 
 
 
 
 
 
Included in Prepaid expenses and other assets and Advances to related parties and other financial assets
 
354

 
354

 
243

 
243

Included in Accrued expenses and other liabilities
 
89

 
89

 
216

 
216

 
(1)
As of September 30, 2015, the fair value of Financial liabilities includes $8.1 billion and $1.4 billion measured utilizing Level 2 and Level 3 inputs, respectively. As of December 31, 2014, the fair value of Financial liabilities includes $11.3 billion and $1.9 billion measured utilizing Level 2 and Level 3 inputs, respectively.
The estimated fair values have been determined by using available market information and valuation methodologies as described below. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair values.
The methods and assumptions used to estimate the fair value of financial instruments are consistent with the definition presented in the accounting guidance for fair value measurements and are as follows:
Cash and Cash Equivalents, including Restricted Cash
The carrying value of Cash and cash equivalents approximates fair value due to the short maturity of these instruments and consists primarily of money market funds, certificates of deposit, commercial paper, time deposits and bankers’ acceptances.
Financial Liabilities
We estimate the fair values of our financial liabilities using quoted market prices where available. Where market prices are not available, we estimate fair value by discounting future cash flows using market interest rates, adjusted for non-performance risk over the remaining term of the financial liability.
Derivative Instruments
The fair values of derivative instruments are based on pricing models or formulas using current estimated cash flow and discount rate assumptions. 

31

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 13. Derivative Financial Instruments and Risk Management
Derivative Instruments
All derivative instruments are recognized in the accompanying Condensed Consolidated Balance Sheets at fair value. We do not net our derivative position by counterparty for purposes of balance sheet presentation and disclosure. The fair values of our derivative financial instruments are based on pricing models or formulas using current estimated cash flow and discount rate assumptions. We include an adjustment for non-performance risk in the recognized measure of fair value of derivative instruments. The adjustment is estimated based on the net exposure by counterparty. We use an estimate of the counterparty’s non-performance risk when we are in a net asset position and an estimate of our own non-performance risk when we are in a net liability position. As of September 30, 2015 and December 31, 2014, the adjustment for non-performance risk did not materially impact the fair value of derivative instruments.
The use of derivatives exposes us to the risk that a counterparty may default on a derivative contract. We establish exposure limits for each counterparty to minimize this risk and provide counterparty diversification. Substantially all of our derivative exposures are with counterparties that have long-term credit ratings of single–A or better. The aggregate fair value of derivative instruments in asset positions as of September 30, 2015 and December 31, 2014 was approximately $354 million and $243 million, respectively, representing the maximum loss that we would recognize at that date if all counterparties failed to perform as contracted. We enter into master agreements with counterparties that generally allow for netting of certain exposures; therefore, the actual loss that we would recognize if all counterparties failed to perform as contracted could be significantly lower.
The terms of the agreements with our counterparties for foreign currency exchange and commodity hedge contracts require us to post collateral when derivative instruments are in a liability position, subject to posting thresholds. In addition, these agreements contain cross-default provisions that, if triggered, would permit the counterparty to declare a default and require settlement of the outstanding net asset or liability positions. These cross-default provisions could be triggered if there was a non-performance event under certain debt obligations. The fair values of the related gross liability positions as of September 30, 2015 and December 31, 2014, which represent our maximum potential exposure, were $89 million and $216 million, respectively. As of September 30, 2015, we posted $9 million as collateral for hedging contracts. The cash collateral is included in Restricted cash in the accompanying Condensed Consolidated Balance Sheets. Pursuant to the terms of our agreements, no collateral was required to be posted as of December 31, 2014.
The following presents the gross and net amounts of our derivative assets and liabilities after giving consideration to the terms of the master netting arrangements with our counterparties (in millions of dollars):
 
 
September 30, 2015
 
December 31, 2014
 
 
Derivative
Assets
 
Derivative
Liabilities
 
Derivative
Assets
 
Derivative
Liabilities
Gross amounts recognized in the Consolidated Balance Sheets
 
$
354

 
$
89

 
$
243

 
$
216

Gross amounts not offset in the Consolidated Balance Sheets that are eligible for offsetting:
 
 
 
 
 
 
 
 
Derivatives
 
(76
)
 
(76
)
 
(192
)
 
(192
)
Cash collateral pledged
 
4

 
(5
)
 
—

 
—

Net Amount
 
$
282

 
$
8

 
$
51

 
$
24

The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivative instruments, such as foreign currency exchange rates or commodity volumes and prices.

32

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Cash Flow Hedges
We use financial instruments designated as cash flow hedges to hedge exposure to foreign currency exchange risk associated with transactions in currencies other than the functional currency in which we operate. We also use financial instruments designated as cash flow hedges to hedge our exposure to commodity price risk associated with buying certain commodities used in the ordinary course of our operations. Changes in the fair value of designated derivatives that are highly effective as cash flow hedges are recorded in AOCI, net of estimated income taxes. These changes in the fair value are then released into earnings contemporaneously with the earnings effects of the hedged items. Cash flows associated with cash flow hedges are reported in Net Cash Provided by Operating Activities in the accompanying Condensed Consolidated Statements of Cash Flows. The ineffective portions of the fair value changes are recognized in the results of operations immediately. The amount of ineffectiveness recorded for the three months ended September 30, 2015 and 2014 was immaterial. Our cash flow hedges mature within 25 months.
We discontinue hedge accounting prospectively and hold amounts in AOCI with future changes in fair value recorded directly in earnings when (i) it is determined that a derivative is no longer highly effective in offsetting changes in cash flows of a hedged item; (ii) the derivative is discontinued as a hedge instrument because it is not probable that a forecasted transaction will occur or (iii) the derivative expires or is sold, terminated or exercised. Those amounts held in AOCI are subsequently reclassified into income over the same period or periods during which the forecasted transaction affects income. When hedge accounting is discontinued because it is determined that the forecasted transactions will not occur, the derivative continues to be carried on the balance sheet at fair value, and gains and losses that were recorded in AOCI are recognized immediately in earnings. The hedged item may be designated prospectively into a new hedging relationship with another derivative instrument.
The following summarizes the fair values of derivative instruments designated as cash flow hedges which were outstanding (in millions of dollars):
 
 
September 30, 2015
 
 
Notional
Amounts
 
Derivative
Assets (1)
 
Derivative
Liabilities (2)
Currency forwards and swaps
 
$
5,351

 
$
255

 
$
(11
)
Commodity swaps
 
213

 
1

 
(37
)
Total
 
$
5,564

 
$
256

 
$
(48
)
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
Notional
Amounts
 
Derivative
Assets (1)
 
Derivative
Liabilities (2)
Currency forwards and swaps
 
$
5,621

 
$
206

 
$
(94
)
Commodity swaps
 
258

 
4

 
(19
)
Total
 
$
5,879

 
$
210

 
$
(113
)
 
 
(1)
The related derivative instruments are recognized in Prepaid expenses and other assets and Advances to related parties and other financial assets in the accompanying Condensed Consolidated Balance Sheets.
(2)
The related derivative instruments are recognized in Accrued expenses and other liabilities in the accompanying Condensed Consolidated Balance Sheets.

33

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

The following summarizes the pre-tax effect of gains (losses) recorded in Other comprehensive income (loss) and reclassified from AOCI to income (in millions of dollars):
 
 
Three Months Ended September 30, 2015
 
 
AOCI as of
July 1, 2015
 
Gain (Loss)
Recorded in OCI
 
Gain (Loss)
reclassified from
AOCI to Income
 
AOCI as of
September 30, 2015
Currency forwards and swaps
 
$
176

 
$
247

 
$
157

 
$
266

Commodity swaps
 
(40
)
 
(13
)
 
(4
)
 
(49
)
Total
 
$
136

 
$
234

 
$
153

 
$
217

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2014
 
 
AOCI as of
July 1, 2014
 
Gain (Loss)
Recorded in OCI
 
Gain (Loss)
reclassified from
AOCI to Income
 
AOCI as of
September 30, 2014
Currency forwards and swaps
 
$
(78
)
 
$
142

 
$
30

 
$
34

Commodity swaps
 
26

 
(19
)
 
6

 
1

Total
 
$
(52
)
 
$
123

 
$
36

 
$
35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
AOCI as of
January 1, 2015
 
Gain (Loss)
Recorded in OCI
 
Gain (Loss)
reclassified from
AOCI to Income
 
AOCI as of
September 30, 2015
Currency forwards and swaps
 
$
116

 
$
403

 
$
253

 
$
266

Commodity swaps
 
(14
)
 
(44
)
 
(9
)
 
(49
)
Total
 
$
102

 
$
359

 
$
244

 
$
217

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
 
 
AOCI as of
January 1, 2014
 
Gain (Loss)
Recorded in OCI
 
Gain (Loss)
reclassified from
AOCI to Income
 
AOCI as of
September 30, 2014
Currency forwards and swaps
 
$
106

 
$
47

 
$
119

 
$
34

Commodity swaps
 
8

 
11

 
18

 
1

Total
 
$
114

 
$
58

 
$
137

 
$
35

We expect to reclassify existing pre-tax net gains of $217 million from AOCI to income within the next 12 months.

34

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Derivatives Not Designated as Hedges
Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting. We use derivatives to economically hedge our financial and operational exposures. Unrealized and realized gains and losses related to derivatives that are not designated as accounting hedges are included in Revenues, net or Cost of sales in the accompanying Condensed Consolidated Statements of Income as appropriate depending on the nature of the risk being hedged. Cash flows associated with derivatives that are not designated as hedges are reported in Net Cash Provided by Operating Activities in the accompanying Condensed Consolidated Statements of Cash Flows.
The following summarizes the fair values of derivative instruments not designated as hedges (in millions of dollars):
 
 
September 30, 2015
 
 
Notional
Amounts
 
Derivative
Assets (1)
 
Derivative
Liabilities (2)
Currency forwards and swaps
 
$
1,140

 
$
94

 
$
(16
)
Commodity swaps and options
 
396

 
4

 
(25
)
Total
 
$
1,536

 
$
98

 
$
(41
)
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
Notional
Amounts
 
Derivative
Assets (1)
 
Derivative
Liabilities (2)
Currency forwards and swaps
 
$
1,651

 
$
32

 
$
(75
)
Commodity swaps and options
 
399

 
1

 
(28
)
Total
 
$
2,050

 
$
33

 
$
(103
)
 
(1)
The related derivative instruments are recognized in Prepaid expenses and other assets and Advances to related parties and other financial assets in the accompanying Condensed Consolidated Balance Sheets.
(2)
The related derivative instruments are recognized in Accrued expenses and other liabilities in the accompanying Condensed Consolidated Balance Sheets.
The following summarizes the effect of derivative instruments not designated as hedges in the respective financial statement captions of the accompanying Condensed Consolidated Statements of Income (in millions of dollars):
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
Financial
Statement Caption
 
2015
Gain (Loss)
 
2014
Gain (Loss)
 
2015
Gain (Loss)
 
2014
Gain (Loss)
Currency forwards and swaps
 
Revenues, net
 
$
28

 
$
9

 
$
58

 
$
(7
)
Commodity swaps and options
 
Cost of sales
 
(28
)
 
(3
)
 
(54
)
 
(4
)
 
 
Total
 
$
—

 
$
6

 
$
4

 
$
(11
)

35

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 14. Employee Retirement and Other Benefits
We sponsor several defined benefit pension plans covering certain of our hourly and salaried employees. The majority of the plans are funded plans. Benefits are based on a fixed rate for each year of service. Additional benefits are provided to certain of our salaried employees based on the employee’s cumulative contributions, years of service during which the employee contributions were made and the employee’s average salary during the years preceding retirement. All U.S. and Canadian salaried plan benefits are frozen and our salaried employees no longer earn ongoing benefits under the plans.
We provide health care, legal and life insurance benefits to certain of our hourly and salaried employees. Upon retirement from the Company, employees may become eligible for continuation of certain benefits. Benefits and eligibility rules may be modified periodically.
Benefits Expense
The components of pension and OPEB cost (income) were as follows (in millions of dollars):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
Pension
Benefits
 
OPEB
 
Pension
Benefits
 
OPEB
 
Pension
Benefits
 
OPEB
 
Pension
Benefits
 
OPEB
Service cost
 
$
53

 
$
6

 
$
57

 
$
6

 
$
158

 
$
19

 
$
168

 
$
21

Interest cost
 
302

 
27

 
349

 
32

 
945

 
82

 
1,064

 
100

Expected return on plan assets
 
(421
)
 
—

 
(425
)
 
—

 
(1,280
)
 
—

 
(1,265
)
 
—

Recognition of net actuarial losses
 
18

 
5

 
15

 
6

 
80

 
20

 
58

 
17

Amortization of prior service cost
 
4

 
—

 
2

 
—

 
14

 
1

 
10

 
—

Net periodic benefit cost (income)
 
$
(44
)
 
$
38

 
$
(2
)
 
$
44

 
$
(83
)
 
$
122

 
$
35

 
$
138

Contributions and Payments
During the nine months ended September 30, 2015, employer contributions of $3 million and $47 million were made to our U.S. and Canadian funded pension plans, respectively. For the remainder of 2015, employer contributions to our U.S. funded pension plans are expected to be $229 million, of which $2 million will be made to satisfy minimum funding requirements and $227 million will be discretionary; employer contributions to our Canadian funded pension plans are expected to be $26 million, of which $25 million will be made to satisfy minimum funding requirements and $1 million will be discretionary.
Employer contributions to our unfunded pension and OPEB plans amounted to $13 million and $128 million, respectively, for the nine months ended September 30, 2015. Employer contributions to our unfunded pension and OPEB plans for the remainder of 2015 are expected to be $3 million and $42 million, respectively, which represent the expected benefit payments to participants.
Out-of-Period Adjustment
We identified an out-of-period adjustment related to the calculation of pension benefits. We determined this adjustment to be immaterial to our current and previously filed financial statements. During the three months ended March 31, 2015, we recorded this adjustment as an increase to our Cost of sales in the amount of $22 million, an increase to our Selling administrative and other expenses in the amount of $4 million, an increase to our Research and development expenses, net in the amount of $4 million, a net increase to AOCI losses of $56 million and an increase to our Accrued expenses and other liabilities of $86 million.

36

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 15. Other Transactions with Related Parties
We engage in arm's length transactions with unconsolidated subsidiaries, associated companies and other related parties on commercial terms that are normal in their respective markets, considering the characteristics of the goods or services involved.
FCA Ownership Interest
Our sole beneficial owner is FCA, which holds a 100 percent ownership interest in us effective as of the Merger. Prior to the Merger, Fiat held a 100 percent ownership interest in us effective as of its January 21, 2014 acquisition of the approximately 41.5 percent of our membership interests held by the VEBA Trust.
On January 21, 2014, Fiat completed the transaction in which its 100 percent owned subsidiary, FCA NA, indirectly acquired from the VEBA Trust all of the membership interests in the Company not previously held by FCA NA. In consideration for the sale of its membership interests in the Company, the VEBA Trust received $3,650 million consisting of:
•
a special distribution paid from available cash on hand by the Company to its members, in an aggregate amount of $1,900 million (FCA NA directed its portion of the special distribution to the VEBA Trust as part of the purchase consideration), which served to fund a portion of the transaction; and
•
$1,750 million paid by FCA NA.
As part of the Equity Purchase Agreement, FCA NA and the VEBA Trust dismissed with prejudice all proceedings before the Delaware Court of Chancery with respect to the interpretation of a call option agreement which granted FCA NA the right to acquire certain of the membership interests in the Company held by the VEBA Trust. Options for approximately 10 percent of our membership interests that had been previously exercised by FCA NA were fulfilled and the underlying equity was acquired by FCA NA in connection with the Equity Purchase Agreement.
Concurrent with the closing of the Equity Purchase Agreement, we entered into a contractually binding and legally enforceable MOU with the UAW to supplement our existing collective bargaining agreement. In exchange for the UAW's legally binding specific commitment to continue to support the implementation of World Class Manufacturing programs throughout our manufacturing facilities, to facilitate benchmarking across all of our manufacturing plants and to actively assist in the achievement of our long-term business plan, we agreed to make payments totaling $700 million to be paid in four equal annual installments. As of the transaction date, this payment obligation had a fair value of $672 million, which was determined by discounting the payments under the MOU to their present value considering our non-performance risk over the payment period associated with those payments and the unsecured nature of the obligation. At the direction of the UAW, the payments are to be made to the VEBA Trust. The first and second installments of $175 million were paid on January 21, 2014 and January 21, 2015, respectively. These installments are reflected in the operating section of the accompanying Condensed Consolidated Statements of Cash Flows.

37

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

As the MOU was negotiated and executed concurrently with the Equity Purchase Agreement and as Fiat was a related party to us and the UAW and the VEBA Trust were related parties, the two agreements were accounted for by Fiat as a single commercial transaction with multiple elements. As a result, the fair value of the total consideration paid under the Equity Purchase Agreement and the MOU was allocated to the various elements acquired by Fiat. Due to the unique nature and inherent judgment involved in determining the fair value of the UAW’s commitments under the MOU, a residual value methodology was used to determine the portion of the consideration paid attributable to the UAW’s commitments as follows:
Consideration paid:
 
 
Special distribution from the Company
 
$
1,900

Cash payment from FCA NA
 
1,750

Fair value of financial commitments under the MOU
 
672

Total consideration paid
 
$
4,322

Less value attributed to the acquired elements:
 
 
Estimated price paid for the fulfillment of previously exercised options on approximately 10 percent of our membership interest
 
650

Fair value of approximately 31.5 percent of our membership interest
 
3,002

Residual value allocated to the UAW's commitments under the MOU
 
670

Total value attributed to the acquired elements
 
$
4,322

The following paragraphs describe the application of the residual value methodology that would have been applied by FCA if it were to account for these transactions under U.S. GAAP. We have included these disclosures to describe how this methodology was applied under U.S. GAAP for the purposes of our reporting. We have reflected in the accompanying condensed consolidated financial statements only the impacts of these transactions that are related to us.
While FCA NA’s previously exercised options for approximately 10 percent of our membership interests were fulfilled as part of the Equity Purchase Agreement and while these options were determined to have a fair value of $302 million at the transaction date, the fair value of the previously exercised options is not included as a component of the consideration paid by FCA NA under the Equity Purchase Agreement as these options would have been classified in equity as a component of Fiat’s non-controlling ownership interest in us under U.S. GAAP and would not have been remeasured at fair value by Fiat. As a result, the estimated amount of the consideration paid in the Equity Purchase Agreement to acquire the shares underlying these previously exercised options only includes the estimated exercise price for the disputed options encompassed within the Equity Purchase Agreement.
The exercise price for the disputed options was originally calculated by FCA NA pursuant to the formula set out in the option agreement between FCA NA and the VEBA Trust. The VEBA Trust disputed the calculation of the exercise price, which ultimately led to the litigation between the two parties regarding the interpretation of the call option agreement. The dispute primarily related to four elements of the calculation of the exercise price. During the ensuing litigation, the court ruled in FCA NA’s favor on two of the four disputed elements of the calculation. The court requested an additional factual record be developed on the other two elements, a process that was ongoing at the time the Equity Purchase Agreement was executed and consummated.
As noted above, the dispute between FCA NA and the VEBA Trust over the previously exercised options was settled pursuant to the Equity Purchase Agreement, effectively resulting in the fulfillment of the previously exercised options. Given that there was no amount explicitly agreed to by FCA NA and the VEBA Trust in the Equity Purchase Agreement for the settlement of the previously exercised options, Fiat estimated the exercise price encompassed in the Equity Purchase Agreement taking into account the judgments rendered by the court to date on the litigation and a settlement of the two unresolved elements. Based on the nature of the two unresolved elements, Fiat estimated the exercise price to be between $600 million and $700 million. Given the uncertainty inherent in court decisions, it was not possible to pick a point within that range that represented the most likely outcome. As such, Fiat believed the mid-point of this range, $650 million, represented the appropriate point estimate of the exercise price encompassed in the Equity Purchase Agreement.

38

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Since there was no publicly observable market price for our membership interests, the fair value as of the transaction date of the approximately 31.5 percent of our membership interests acquired by Fiat from the VEBA Trust was determined by Fiat based on the range of potential values determined in connection with the initial public offering (“IPO”) that we were pursuing at the direction of our members at the time the Equity Purchase Agreement was negotiated and executed, which was corroborated by a discounted cash flow valuation that estimated a value near the mid-point of the range of potential IPO values. Fiat concluded that the IPO value provided the best evidence of the fair value of our membership interests at the transaction date as it represented the most advantageous market available for a non-controlling interest in our membership interests and as it reflects market input obtained during the IPO process, thus providing better evidence of the price at which a market participant would transact consistent with the objectives of the accounting guidance on fair value measurements.
The potential IPO values for 100 percent of our equity on a fully distributed basis ranged from $10.5 billion to $12.0 billion. Fiat concluded the mid-point of this range, $11.25 billion, was the best point estimate of fair value. The IPO value range was determined using earnings multiples observed in the market for publicly traded U.S.-based automotive companies using the key assumptions discussed below. This fully distributed value was then reduced by approximately 15 percent for the expected discount that would have been realized in order to complete a successful IPO for the minority interest being sold by the VEBA Trust. This discount was estimated based on the following factors that a market participant would have considered and, therefore, would have affected the price of our equity in an IPO transaction:
•
Fiat held a significant controlling interest and had expressed the intention to remain and act as our majority owner. The fully diluted equity value, which is the starting point for the valuation discussed above, does not contemplate the perpetual nature of the non-controlling interest that would have been offered in the IPO or the significant level of control that Fiat would exert over us. This level of control creates risk to a non-controlling shareholder that Fiat would make decisions to maximize its value in a manner that would not necessarily maximize value to non-controlling shareholders, which Fiat indicated was its intention.
•
The fully distributed equity value contemplates an active market for our equity, which did not exist for our membership interests. The IPO price represents the creation of the public market, which would have taken time to develop into an active market. The estimated price that would be received in an IPO transaction reflects the fact that our equity was not yet traded in an active market.
As the expected discount that would have been realized in order to complete a successful IPO represented a market-based discount that would have been reflected in an IPO price, Fiat concluded it should be included in the measurement at the transaction date between a willing buyer and willing seller under the principles in Accounting Standards Codification ("ASC") 820, "Fair Value Measurements and Disclosures".
The other significant assumptions Fiat used in connection with the development of the fair value of our membership interests discussed above as of the transaction date included the following:
•
Inputs derived from our long-term business plans in place at the time the Equity Purchase Agreement was negotiated and executed, including:
•
An estimated 2014 Earnings Before Interest, Tax, Depreciation, Amortization, Pension and OPEB payments ("EBITDAPO"); and
•
An estimate of Net debt, which is composed of our debt, pension obligations, and OPEB obligations, offset by any expected tax benefit arising from payment of obligations and cash on hand; and
•
An EBITDAPO valuation multiple based on observed multiples for other US-based automotive manufacturers, adjusted for differences between those manufacturers and us.
Based on the values noted above, $670 million was allocated to the UAW’s contractually binding and legally enforceable commitments under the MOU.
We have recorded the expense for the UAW’s contractually binding and legally enforceable commitments under the MOU in Selling, administrative and other expenses in the accompanying Condensed Consolidated Statements of Income which represents the amount of consideration paid that was allocated to the UAW’s commitments under the MOU.

39

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Concurrent with the closing of the transaction, we paid a distribution of $60 million to our members in connection with such members' tax obligations. As this payment was made pursuant to a specific requirement in our LLC Agreement, it was excluded from the residual value allocation of consideration paid under the Equity Purchase agreement and the MOU.
On February 3, 2015, we made a $1,338 million special distribution payment to our member, FCA NA.
Other Transactions
We collaborate with FCA on a number of fronts, including product, powertrain and platform sharing and development, global distribution, procurement, information technology infrastructure and process improvement. We are party to a master industrial agreement with FCA and certain of its other affiliates which governs these commercial arrangements as more fully described below.
We manufacture certain vehicles in Mexico, which are distributed by us throughout North America and select markets and sold to FCA for distribution in other select markets. In addition, FCA manufactures certain vehicles for us, which we sell in the U.S. and internationally. We are the distributor of Fiat and Alfa Romeo brand vehicles and service parts throughout North America. We have also taken on the distribution of FCA vehicles outside North America in those regions where our dealer networks are better established. FCA is the distributor of our vehicles and service parts in Europe and Brazil, selling our products through a network of independent dealers.
We have agreed to share access to certain platforms, vehicles, products and technology. We have also agreed to share costs with FCA related to joint engineering and development activities and will reimburse each other based upon costs agreed to under the respective cost sharing arrangements. We have also entered into other transactions with FCA for the purchase and supply of goods and services, including transactions in the ordinary course of business. We are obligated to make royalty payments to FCA related to certain of the intellectual property that Fiat contributed to us. These royalty payments are calculated based on a percentage of the material cost of the vehicle, or portion of the vehicle or component, in which we utilize such intellectual property.
In May 2012, and pursuant to a 2011 definitive technology license agreement with FCA, we recorded a $37 million license fee for FCA’s use of intellectual property in the production of two vehicles. We began amortizing the applicable portion of the seven year license fee when production launched for each of the vehicles in 2013. As of September 30, 2015, $24 million remained in Deferred revenue in the accompanying Condensed Consolidated Balance Sheets.
In May 2013, we entered into a $120 million six-year capital lease with FCA related to equipment and tooling used in the production of a vehicle.
In December 2013, we entered into an agreement with FCA related to the production of a vehicle for which FCA will incur, on our behalf, costs and expenses for the development, manufacture and procurement of tooling, machinery and equipment. During the three months ended September 30, 2015 and 2014, $5 million and $61 million, respectively, of such costs and expenses associated with unique tooling, machinery and equipment were recognized in Property, plant and equipment, net in the accompanying Condensed Consolidated Balance Sheets. For the nine months ended September 30, 2015 and 2014, we recognized costs and expenses associated with unique tooling, machinery and equipment in our Property, plant and equipment, net amounting to $40 million and $170 million, respectively in the accompanying Condensed Consolidated Balance Sheets. As of September 30, 2015 and December 31, 2014, $214 million and $234 million, respectively, remained in Property, plant and equipment, net in the accompanying Condensed Consolidated Balance Sheets.
In March 2014, we entered into an additional agreement with FCA which sets out the terms under which we will fund our share of certain common capital investments, determined proportionally based on our share of committed contract volumes of supplied vehicles. During the three months ended September 30, 2015 and 2014 and in accordance with the agreement, we recorded $32 million and $64 million related to common capital investments. For the nine months ended September 30, 2015 and 2014, we recorded $96 million and $289 million, respectively related to common capital investments. In addition, after production of the vehicle began and vehicles were sold, we began amortizing the prepaid asset during the third quarter 2014. As a result, $320 million and $279 million remained in Prepaid expenses and other assets in the accompanying Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014, respectively.

40

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

In October 2014, the Company completed the sale of Chrysler Group do Brasil Comercio de Veiculos Ltda. ("Chrysler do Brazil") to FCA consisting of Cash and cash equivalents of $41 million, Inventories of $31 million and Other assets of $14 million, net of Accrued expenses and other liabilities of $63 million for proceeds of $22 million which resulted in no gain or loss on this transaction.
In October 2014, Chrysler Japan Co., Ltd, ("Chrysler Japan") acquired substantially all of the assets and liabilities of Fiat Group Automobiles Japan Ltd. (“FGAJ”) in exchange for newly issued shares in Chrysler Japan representing a 40 percent stake in the entity. The carrying value of the assets acquired and liabilities assumed at the date of the acquisition include: Trade receivables of $9 million, Inventories of $49 million, Property, plant and equipment, net and other assets of $2 million, Trade liabilities of $8 million and Accrued expenses and other liabilities of $52 million. The Company retained a 60 percent ownership stake upon completion of the transaction and will continue to consolidate Chrysler Japan within the Condensed Consolidated Statements of Income and the Condensed Consolidated Balance Sheets, with noncontrolling interest recognized for FGAJ's ownership percentage. Effective January 1, 2015, Chrysler Japan is now known as FCA Japan Ltd.
In January 2015, our agreement to join in a joint venture partnership with FCA and Guangzhou Automobile Group Co., Ltd. was approved by the People's Republic of China. According to the agreement, our joint venture will begin localized production of three new Jeep vehicles for the Chinese market, expanding the portfolio of Jeep SUVs currently available to Chinese consumers as imports. Production of the first vehicle began in October 2015.
In January 2015, FCA Asia Pacific Investment Co., Ltd., formerly known as Chrysler Asia Pacific Investment Company, Ltd., ("CAPIC") our 100 percent owned subsidiary, purchased a 25 percent equity interest in the joint venture from FCA for $94 million in cash.
We accounted for CAPIC’s initial equity transfer from FCA as a transfer of assets between entities under common control and measured the transferred assets and liabilities at FCA’s carrying amounts as adjusted to U.S. GAAP, which resulted in a negative carrying amount. As we have committed to make future capital contributions to the joint venture we recorded our investment at $(9) million. The difference between the negative carrying value of $(9) million and $94 million of cash consideration transferred was accounted for as a dividend from CAPIC to FCA in the amount of $103 million.
Also in January 2015, CAPIC contributed 500 million renminbi ($80 million U.S. dollars ("USD")) in cash to the joint venture increasing our recorded equity interest in the joint venture to 32 percent, which increased our recorded investment. The joint venture is accounted for as an equity method investment.
In March 2015, we entered into a five-year license agreement with FCA for the use of certain of our intellectual property related to the manufacturing and sale of a vehicle in Brazil.

41

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

The following summarizes our transactions with FCA (in millions of dollars):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Sales of vehicles, parts and services provided to FCA
 
$
810

 
$
556

 
$
3,017

 
$
1,867

Purchases of vehicles, parts, services, tooling, machinery and equipment from FCA
 
1,553

 
723

 
4,523

 
1,982

Amounts capitalized in Property, plant and equipment, net and Other intangible assets, net
 
56

 
102

 
170

 
305

Reimbursements to FCA recognized (1)
 
3

 
31

 
7

 
51

Reimbursements from FCA recognized (1)
 
4

 
10

 
11

 
24

Royalty income from FCA
 
3

 
3

 
9

 
9

Royalty fees incurred for intellectual property contributed by FCA
 
—

 
—

 
2

 
1

Interest income on financial resources provided to FCA
 
—

 
—

 
1

 
1

Interest expense on financial resources provided by FCA
 
1

 
5

 
4

 
10

 
(1)
Includes reimbursements recognized for costs related to shared engineering and development activities performed under the product and platform sharing arrangements.
VEBA Trust
Effective January 21, 2014, the VEBA Trust is no longer deemed to be a related party as a result of Fiat's acquisition of the VEBA Trust's approximately 41.5 percent ownership interest in us. Interest expense on the VEBA Trust Note totaled $23 million for the period from January 1, 2014 to January 20, 2014. Refer to Note 9, Financial Liabilities, for additional information regarding our prepayment of the VEBA Trust Note in February 2014.
Related Party Summary
Amounts due from and to related parties were as follows (in millions of dollars):
 
 
September 30, 2015
 
 
FCA
 
Other
 
Total
Amounts due from related parties (included in Prepaid expenses and other assets and Advances to related parties and other financial assets)
 
$
783

 
$
22

 
$
805

Amounts due to related parties (included in Accrued expenses and other liabilities)
 
$
2,820

 
$
15

 
$
2,835

Financial liabilities to related parties (included in Financial liabilities)
 
64

 
—

 
64

Total due to related parties
 
$
2,884

 
$
15

 
$
2,899

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
FCA
 
Other
 
Total
Amounts due from related parties (included in Prepaid expenses and other assets and Advances to related parties and other financial assets)
 
$
1,195

 
$
20

 
$
1,215

Amounts due to related parties (included in Accrued expenses and other liabilities)
 
$
1,158

 
$
11

 
$
1,169

Financial liabilities to related parties (included in Financial liabilities)
 
83

 
—

 
83

Total due to related parties
 
$
1,241

 
$
11

 
$
1,252

Amounts included in "Other" above relate to balances with related unconsolidated companies as a result of transactions in the ordinary course of business.

42

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 16. Restructuring Actions
In connection with the master transaction agreement approved under section 363 of the U.S Bankruptcy Code, we assumed certain liabilities related to specific restructuring actions commenced by Old Carco. These liabilities represented costs for workforce reduction actions related to our represented and non-represented hourly and salaried workforce, as well as specific contractual liabilities assumed for other costs, including supplier cancellation claims.
Key initiatives for Old Carco’s restructuring actions included workforce reductions, elimination of excess production capacity, refinements to its product portfolio and restructuring of international distribution operations. To eliminate excess production capacity, Old Carco eliminated manufacturing work shifts, reduced line speeds at certain manufacturing facilities, adjusted volumes at stamping and powertrain facilities and idled certain manufacturing plants. Old Carco’s restructuring actions also included the cancellation of five existing products from its portfolio, discontinued development on certain previously planned product offerings and the closure of certain parts distribution centers in the U.S. and Canada. We will continue to execute the remaining actions under Old Carco’s restructuring initiatives. The remaining actions principally include the completion of the activities associated with the idling of two manufacturing facilities and the restructuring of our international distribution operations, the plans for which have been refined, including the integration of the operations of our European distribution and dealer network into FCA’s distribution organization. Costs associated with these remaining actions include, but are not limited to, employee severance, legal claims and other international dealer network related costs. The remaining workforce reductions will affect represented and non-represented hourly and salaried employees and will be achieved through a combination of retirements, special programs, attrition and involuntary separations.
There were no restructuring charges during the three months ended September 30, 2015 and less than $1 million in charges recorded for the nine months ended September 30, 2015. For the three and nine months ended September 30, 2014, we recorded charges of $1 million and $11 million, respectively. During the nine months ended September 30, 2015, the charges related to associated costs for previously announced restructuring initiatives. During the three and nine months ended September 30, 2014 the charges primarily related to employee severance costs.
We made refinements to existing reserve estimates resulting in net reductions of $1 million and $9 million for the three and nine months ended September 30, 2015. No refinements were made to existing reserve estimates during the three months ended September 30, 2014. We made refinements of $6 million for the nine months ended September 30, 2014. During the three months ended September 30, 2015, the adjustments related to decreases in the expected work force reduction costs. During the nine months ended September 30, 2015 and 2014 the adjustments related to decreases in the expected work force reduction cost and legal claim reserves. In both periods, the adjustments were made as a result of management’s adequacy reviews, which took into consideration the status of the restructuring actions and the estimated costs to complete the actions.
The restructuring charges and reserve adjustments are included in Restructuring expense (income), net in the accompanying Condensed Consolidated Statements of Income and would have otherwise been reflected in Cost of sales and Selling, administrative and other expenses.
We anticipate that the total costs we will incur related to these restructuring activities, including the initial assumption of the $554 million obligation from Old Carco, as well as additional charges and refinements made to the estimates, will be $526 million, including $366 million related to employee workforce reduction costs and $160 million of other costs. We expect to make further payments of approximately $30 million.

43

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Restructuring reserves are included in Accrued expenses and other liabilities in the accompanying Condensed Consolidated Balance Sheets. The following summarizes the restructuring reserves activity (in millions of dollars):
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
 
Workforce
Reductions
 
Other
 
Total
 
Workforce
Reductions
 
Other
 
Total
Balance at beginning of period
 
$
9

 
$
35

 
$
44

 
$
11

 
$
45

 
$
56

Charges
 
—

 
1

 
1

 
10

 
1

 
11

Adjustments to reserve estimates
 
(1
)
 
(8
)
 
(9
)
 
(1
)
 
(5
)
 
(6
)
Payments
 
(3
)
 
—

 
(3
)
 
(10
)
 
(2
)
 
(12
)
Other, including currency translation
 
—

 
(3
)
 
(3
)
 
—

 
(3
)
 
(3
)
Balance at end of period
 
$
5

 
$
25

 
$
30

 
$
10

 
$
36

 
$
46

Note 17. Venezuelan Currency Regulations and Devaluation
On February 10, 2015, the Venezuelan government introduced a new market-based exchange system, referred to as Marginal Currency System (the "SIMADI" exchange rate) with certain specified limitations on its usage by individuals and legal entities. On February 12, 2015, the SIMADI exchange rate began trading at 170.0 Venezuelan Bolivar ("VEF") to U.S. dollar ("USD") for individuals and entities in the private sector. In February 2015, the Venezuelan government announced that the SICAD I and SICAD II exchange systems would be merged into a single exchange system (the "SICAD") with a rate starting at 12.0 VEF to USD. As of March 31, 2015 the SICAD exchange rate was expected to be used to complete the majority of FCA Venezuela LLC's ("FCA Venezuela") transactions to exchange VEF for USD, as such, it was deemed the appropriate rate to use to convert our monetary assets and liabilities to USD for the first quarter 2015. Refer to our 2014 Form 10-K for additional details regarding the SICAD I and SICAD II exchange rates.
Due to the continuing deterioration of the economic conditions in Venezuela, as of June 30, 2015 we came to believe it is unlikely that the majority of our future transactions to exchange VEF for USD will be at the SICAD rate. Rather, we have determined that the SIMADI exchange rate is the most appropriate rate to use based on the volume of VEF to USD exchange transactions that have occurred in Venezuela utilizing the SIMADI exchange rate as compared to the SICAD. As a result of adopting the SIMADI exchange rate at June 30, 2015, we recorded remeasurement charges on our VEF denominated net monetary assets, including cash and cash equivalents in Venezuela, of $59 million as a reduction to Revenues, net using an exchange rate of 197.3 VEF per USD. We also recorded a charge of $30 million to reduce inventory held in Venezuela to the lower of cost or market as, due to pricing controls, we are unable to increase the VEF sales price in Venezuela to compensate for the devaluation. The September 30, 2015 exchange rate of 199 VEF to USD did not result in the recording of material charges during the three months ended September 30, 2015.
As of September 30, 2015 and December 31, 2014, the net monetary liabilities and the net monetary assets of FCA Venezuela denominated in VEF were 278 million ($1 million at 199 VEF per USD) and 783 million ($65 million at 12.0 VEF per USD), respectively, which included cash and cash equivalents denominated in VEF of 991 million ($5 million at 199 VEF per USD) and 1,785 million ($149 million at 12.0 VEF per USD), respectively.
During the nine months ended September 30, 2015, in addition to the charges disclosed above, we recorded an approximately $4 million charge as a reduction to Revenues, net related to the exchange of VEF to USD utilizing the SIMADI exchange rate of 189.0 VEF to USD for a purchase of parts.
In accordance with our use of the SICAD I rate, we recorded a first quarter 2014 remeasurement charge of $129 million as a reduction to Revenues, net. In June 2014, we received $35 million in USD through the SICAD I auction process at a more favorable rate of 10.0 VEF per USD versus the 10.6 VEF per USD rate used to remeasure the net monetary assets during the second quarter of 2014. As a result, we recognized a $3 million foreign currency transaction gain as an increase to Revenues, net in the second quarter of 2014.
During the three months ended September 30, 2014, we recorded a remeasurement charge of $4 million as a reduction to Revenues, net, as the SICAD I rate increased from 10.6 to 12.0 VEF per USD. During the nine months ended September 30,

44

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

2014, we recorded total remeasurement charges of $133 million as a result of using the SICAD I rate to remeasure our net monetary assets at September 30, 2014.
During the three months ended September 30, 2014, we recorded a net transaction gain of $1 million as an increase to Revenues, net. During the nine months ended September 30, 2014, we recorded total net transaction gains of $4 million to Revenues, net.
Note 18. Share-Based Compensation
Performance Share Units
During the second quarter of 2015, FCA awarded a total of 4,558,400 million Performance Share Units (“PSU”) to certain key employees of FCA US under the framework of the FCA equity incentive plan. The PSU awards, which represent the right to receive FCA shares, have financial performance goals covering a five-year period from 2014 to 2018. The performance goals include a net income target as well as total shareholder return (“TSR”), with each weighted at 50 percent and settled independently of the other. Half of the award will vest if the performance targets for the net income award (“PSU NI Award”) are met; whereas the remaining 50 percent of the PSUs, (“PSU TSR Awards”), which are based on market conditions, have a payout scale ranging from 0 percent to 150 percent. Accordingly, the total number of shares that will eventually be issued may vary from the original award of 4.6 million shares. One third of the total PSU award will vest in February 2017, a cumulative two-thirds in February 2018, and a cumulative 100 percent in February 2019 if the respective financial performance goals for the years 2014 to 2016, 2014 to 2017 and 2014 to 2018 are achieved. None of the PSU awards were forfeited and none of the outstanding PSU awards had vested as of September 30, 2015.
We recognize compensation cost for the awards in our financial statements over the requisite service period in accordance with ASC 718. Also, as we will not provide any consideration to FCA for the awards, we consider this transaction to be a capital contribution from FCA. Share-based compensation expense is recorded in Selling, administrative and other expenses in the accompanying Condensed Consolidated Statements of Income.
The vesting of the PSU NI Awards will be determined by comparing the FCA’s net profit, excluding unusual items, compared to the net income targets established in FCA's business plan that was published in May 2014. The performance period for the PSU NI Awards commenced on January 1, 2014. Achieving these income targets is a performance condition which under US GAAP is considered a vesting condition.

Restricted Share Units
During the second quarter of 2015, FCA awarded 2,279,200 Restricted Share Units (“RSUs”) to certain key employees of the FCA US, which represent the right to receive FCA shares. These shares will vest in three equal tranches in February of 2017, 2018 and 2019. None of the outstanding RSU awards were forfeited and none of the outstanding RSU awards had vested as of September 30, 2015.

The total expense recognized for the FCA share-based compensation awards for the three and nine months ended September 30, 2015 was $11 million with a corresponding adjustment to contributed capital from FCA in our Condensed Consolidated Statements of Members' Deficit.

As of September 30, 2015, we had unrecognized share based compensation expense related to non-vested awards of approximately $84 million based on current assumptions related to achievement of specified performance objectives, when applicable. Unrecognized share-based compensation costs will be recognized over a weighted-average period of 2.4 years.




45

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 19. Supplemental Parent and Guarantor Condensed Consolidating Financial Statements
FCA US LLC ("Parent"), FCA Co-Issuer, our 100 percent owned special purpose finance subsidiary, and Guarantors, certain of our 100 percent owned U.S. subsidiaries, fully and unconditionally guarantee the secured senior notes on a joint and several basis. FCA Co-Issuer does not have any operations, assets, liabilities (other than the Notes) or revenues. FCA Co-Issuer and each of the Guarantors also guarantee the senior credit facilities. Refer to Note 9, Financial Liabilities, and our 2014 Form 10-K for additional information related to the secured senior notes and senior credit facilities.
The following condensed consolidating financial statements present financial data for (i) the Parent; (ii) the combined Guarantors; (iii) the combined Non-Guarantors (all subsidiaries that are not Guarantors ("Non-Guarantors")); (iv) consolidating adjustments to arrive at the information for the Parent, Guarantors and Non-Guarantors on a consolidated basis and (v) the consolidated financial results for FCA US.
Investments in subsidiaries are accounted for by the Parent and Guarantors using the equity method for this presentation. Results of operations of subsidiaries are therefore classified in the Parent’s and Guarantors’ investments in subsidiaries accounts. The consolidating adjustments set forth in the following condensed consolidating financial statements eliminate investments in subsidiaries, as well as intercompany balances, transactions, income and expense between the Parent, Guarantors and Non-Guarantors. 

46

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Condensed Consolidating Statements of Comprehensive Income (Loss) (in millions of dollars):
 
 
Three Months Ended September 30, 2015
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Consolidating
Adjustments
 
FCA US LLC
Consolidated
Revenues, net
 
$
22,764

 
$
2,143

 
$
10,055

 
$
(13,207
)
 
$
21,755

Cost of sales
 
20,762

 
2,078

 
9,964

 
(13,215
)
 
19,589

GROSS MARGIN
 
2,002

 
65

 
91

 
8

 
2,166

Selling, administrative and other expenses
 
1,122

 
44

 
130

 
12

 
1,308

Research and development expenses, net
 
554

 
—

 
25

 
—

 
579

Restructuring (income) expenses, net
 
—

 
(1
)
 
—

 
—

 
(1
)
Interest expense
 
125

 
5

 
20

 
(18
)
 
132

Interest income
 
(12
)
 
(3
)
 
(6
)
 
11

 
(10
)
(Gain) Loss on extinguishment of debt, net
 
—

 
—

 
(18
)
 
—

 
(18
)
INCOME (LOSS) BEFORE INCOME TAXES
 
213

 
20

 
(60
)
 
3

 
176

Income tax (benefit) expense
 
131

 
5

 
(20
)
 
(10
)
 
106

Equity in net income (loss) of subsidiaries
 
16

 
(12
)
 
—

 
(4
)
 
—

NET INCOME (LOSS)
 
66

 
27

 
(40
)
 
17

 
70

Less: Income (loss) attributable to noncontrolling interest
 
—

 
—

 
2

 
—

 
2

NET INCOME (LOSS)
ATTRIBUTABLE TO FCA US LLC
 
66

 
27

 
(42
)
 
17

 
68

Other comprehensive income (loss)
 
35

 
—

 
(105
)
 
105

 
35

TOTAL COMPREHENSIVE INCOME (LOSS)
 
101

 
27

 
(145
)
 
122

 
105

Less: Comprehensive income (loss) attributable to noncontrolling interest
 
—

 
—

 
3

 
—

 
3

TOTAL COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO FCA US LLC
 
$
101

 
$
27

 
$
(148
)
 
$
122

 
$
102


 
 
Three Months Ended September 30, 2014
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Consolidating
Adjustments
 
FCA US LLC
Consolidated
Revenues, net
 
$
21,414

 
$
2,527

 
$
10,913

 
$
(14,194
)
 
$
20,660

Cost of sales
 
19,083

 
2,519

 
10,405

 
(14,204
)
 
17,803

GROSS MARGIN
 
2,331

 
8

 
508

 
10

 
2,857

Selling, administrative and other expenses
 
993

 
18

 
258

 
57

 
1,326

Research and development expenses, net
 
533

 
—

 
32

 
—

 
565

Restructuring expenses (income), net
 
—

 
—

 
1

 
—

 
1

Interest expense
 
183

 
7

 
37

 
(18
)
 
209

Interest income
 
(12
)
 
(1
)
 
(13
)
 
9

 
(17
)
INCOME (LOSS) BEFORE INCOME TAXES
 
634

 
(16
)
 
193

 
(38
)
 
773

Income tax (benefit) expense
 
27

 
3

 
131

 
1

 
162

Equity in net (income) loss of subsidiaries
 
(4
)
 
(13
)
 
—

 
17

 
—

NET INCOME (LOSS)
 
611

 
(6
)
 
62

 
(56
)
 
611

Other comprehensive (loss) income
 
68

 
—

 
(83
)
 
83

 
68

TOTAL COMPREHENSIVE (LOSS) INCOME
 
$
679

 
$
(6
)
 
$
(21
)
 
$
27

 
$
679


47

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Consolidating
Adjustments
 
FCA US LLC
Consolidated
Revenues, net
 
$
66,964

 
$
6,977

 
$
31,067

 
$
(39,737
)
 
$
65,271

Cost of sales
 
60,126

 
6,848

 
30,044

 
(39,757
)
 
57,261

GROSS MARGIN
 
6,838

 
129

 
1,023

 
20

 
8,010

Selling, administrative and other expenses
 
3,281

 
81

 
589

 
82

 
4,033

Research and development expenses, net
 
1,620

 
—

 
74

 
—

 
1,694

Restructuring expenses (income), net
 
—

 
(8
)
 
—

 
—

 
(8
)
Interest expense
 
454

 
14

 
68

 
(51
)
 
485

Interest income
 
(35
)
 
(2
)
 
(26
)
 
25

 
(38
)
(Gain) Loss on extinguishment of debt, net
 
71

 
—

 
(8
)
 
—

 
63

INCOME (LOSS) BEFORE INCOME TAXES
 
1,447

 
44

 
326

 
(36
)
 
1,781

Income tax expense (benefit)
 
(1,547
)
 
15

 
159

 
(95
)
 
(1,468
)
Equity in net income (loss) of subsidiaries
 
(252
)
 
(25
)
 
—

 
277

 
—

NET INCOME (LOSS)
 
3,246

 
54

 
167

 
(218
)
 
3,249

Less: Income (loss) attributable to noncontrolling interest
 
—

 
—

 
3

 
—

 
3

NET INCOME (LOSS)
ATTRIBUTABLE TO FCA US LLC
 
3,246

 
54

 
164

 
(218
)
 
3,246

Other comprehensive (loss) income
 
28

 
—

 
(170
)
 
170

 
28

TOTAL COMPREHENSIVE INCOME (LOSS)
 
3,274

 
54

 
(3
)
 
(48
)
 
3,277

Less: Comprehensive income (loss) attributable to noncontrolling interest
 
—

 
—

 
4

 
—

 
4

TOTAL COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO FCA US LLC
 
$
3,274

 
$
54

 
$
(7
)
 
$
(48
)
 
$
3,273


 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Consolidating
Adjustments
 
FCA US LLC
Consolidated
Revenues, net
 
$
62,194

 
$
7,769

 
$
33,078

 
$
(42,937
)
 
$
60,104

Cost of sales
 
55,529

 
7,661

 
31,572

 
(42,879
)
 
51,883

GROSS MARGIN
 
6,665

 
108

 
1,506

 
(58
)
 
8,221

Selling, administrative and other expenses
 
3,747

 
43

 
769

 
77

 
4,636

Research and development expenses, net
 
1,661

 
—

 
65

 
—

 
1,726

Restructuring expenses (income), net
 
—

 
(5
)
 
10

 
—

 
5

Interest expense
 
576

 
14

 
101

 
(48
)
 
643

Interest income
 
(32
)
 
(2
)
 
(33
)
 
21

 
(46
)
Loss on extinguishment of debt
 
504

 
—

 
—

 
—

 
504

INCOME (LOSS) BEFORE INCOME TAXES
 
209

 
58

 
594

 
(108
)
 
753

Income tax expense (benefit)
 
7

 
30

 
178

 
(2
)
 
213

Equity in net income (loss) of subsidiaries
 
(338
)
 
(23
)
 
—

 
361

 
—

NET INCOME (LOSS)
 
540

 
51

 
416

 
(467
)
 
540

Other comprehensive (loss) income
 
(91
)
 
—

 
(139
)
 
139

 
(91
)
TOTAL COMPREHENSIVE INCOME (LOSS)
 
$
449

 
$
51

 
$
277

 
$
(328
)
 
$
449


48

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Condensed Consolidating Balance Sheets (in millions of dollars):
 
 
September 30, 2015
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Consolidating
Adjustments
 
FCA US LLC
Consolidated
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
10,403

 
$
103

 
$
2,444

 
$
—

 
$
12,950

Restricted cash
 
17

 
—

 
10

 
—

 
27

Accounts receivable, net
 
849

 
284

 
337

 
—

 
1,470

Inventories
 
3,920

 
269

 
2,654

 
(248
)
 
6,595

Prepaid expenses and other assets
 
 
 
 
 
 
 
 
 
 
Due from subsidiaries
 
—

 
—

 
144

 
(144
)
 
—

Other
 
682

 
563

 
779

 
99

 
2,123

Deferred taxes
 
2,675

 
—

 
478

 
—

 
3,153

TOTAL CURRENT ASSETS
 
18,546

 
1,219

 
6,846

 
(293
)
 
26,318

PROPERTY AND EQUIPMENT:
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
 
10,578

 
481

 
4,352

 
(113
)
 
15,298

Equipment and other assets on operating leases, net
 
1,479

 
278

 
399

 
(41
)
 
2,115

TOTAL PROPERTY AND EQUIPMENT
 
12,057

 
759

 
4,751

 
(154
)
 
17,413

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
 
Advances to related parties and other financial assets
 
 
 
 
 
 
 
 
 
 
Due from subsidiaries
 
2,087

 
546

 
11

 
(2,644
)
 
—

Other
 
57

 
—

 
68

 
(37
)
 
88

Investment in subsidiaries
 
5,046

 
223

 
—

 
(5,269
)
 
—

Restricted cash
 
272

 
—

 
10

 
—

 
282

Goodwill
 
1,361

 
—

 
—

 
—

 
1,361

Other intangible assets, net
 
3,376

 
21

 
831

 
(727
)
 
3,501

Prepaid expenses and other assets
 
300

 
19

 
344

 
—

 
663

Deferred taxes
 
483

 
—

 
329

 
—

 
812

TOTAL OTHER ASSETS
 
12,982

 
809

 
1,593

 
(8,677
)
 
6,707

TOTAL ASSETS
 
$
43,585

 
$
2,787

 
$
13,190

 
$
(9,124
)
 
$
50,438

CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Trade liabilities
 
$
9,010

 
$
182

 
$
2,976

 
$
—

 
$
12,168

Accrued expenses and other liabilities
 
 
 
 
 
 
 
 
 
 
Due to subsidiaries
 
1,973

 
784

 
—

 
(2,757
)
 
—

Other
 
10,439

 
138

 
2,579

 
(5
)
 
13,151

Current maturities of financial liabilities
 
 
 
 
 
 
 
 
 
 
Due to subsidiaries
 
3

 
—

 
339

 
(342
)
 
—

Other
 
146

 
—

 
37

 
—

 
183

Deferred revenue
 
1,470

 
201

 
117

 
(11
)
 
1,777

Deferred taxes
 
—

 
2

 
—

 
—

 
2

TOTAL CURRENT LIABILITIES
 
23,041

 
1,307

 
6,048

 
(3,115
)
 
27,281

LONG-TERM LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accrued expenses and other liabilities
 
12,231

 
63

 
1,295

 
—

 
13,589

Financial liabilities
 
 
 
 
 
 
 
 
 
 
Other
 
8,274

 
—

 
889

 
—

 
9,163

Deferred revenue
 
907

 
212

 
210

 
—

 
1,329

Deferred taxes
 
—

 
43

 
—

 
—

 
43

TOTAL LONG-TERM LIABILITIES
 
21,412

 
318

 
2,394

 
—

 
24,124

MEMBER’S INTEREST (DEFICIT):
 
 
 
 
 
 
 
 
 
 
Membership interests
 
—

 
—

 
301

 
(301
)
 
—

Contributed capital
 
673

 
1,660

 
2,066

 
(3,745
)
 
654

Accumulated (losses) retained earnings
 
3,281

 
(498
)
 
3,460

 
(3,079
)
 
3,164

Accumulated other comprehensive loss
 
(4,822
)
 
—

 
(1,116
)
 
1,116

 
(4,822
)
TOTAL MEMBER'S INTEREST (DEFICIT) ATTRIBUTABLE TO FCA US LLC
 
(868
)
 
1,162

 
4,711

 
(6,009
)
 
(1,004
)
Member's interest (deficit) attributable to noncontrolling interest
 
—

 
—

 
37

 
—

 
37

TOTAL MEMBER'S INTEREST (DEFICIT)
 
(868
)
 
1,162

 
4,748

 
(6,009
)
 
(967
)
TOTAL LIABILITIES AND MEMBER’S INTEREST (DEFICIT)
 
$
43,585

 
$
2,787

 
$
13,190

 
$
(9,124
)
 
$
50,438



49

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

 
 
December 31, 2014
 
 
Parent
 
Guarantors
 
Non-Guarantors
 
Consolidating
Adjustments
 
FCA US LLC
Consolidated
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
11,125

 
$
112

 
$
3,301

 
$
—

 
$
14,538

Restricted cash
 
1

 
—

 
4

 
—

 
5

Trade receivables, net
 
489

 
315

 
381

 
—

 
1,185

Inventories
 
3,276

 
207

 
2,890

 
(263
)
 
6,110

Prepaid expenses and other assets
 
 
 
 
 
 
 
 
 
 
Due from subsidiaries
 
—

 
—

 
227

 
(227
)
 
—

Other
 
747

 
801

 
853

 
1

 
2,402

Deferred taxes
 
51

 
—

 
497

 
—

 
548

TOTAL CURRENT ASSETS
 
15,689

 
1,435

 
8,153

 
(489
)
 
24,788

PROPERTY AND EQUIPMENT:
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
 
11,078

 
524

 
4,120

 
(119
)
 
15,603

Equipment and other assets on operating leases, net
 
1,671

 
282

 
330

 
(41
)
 
2,242

TOTAL PROPERTY AND EQUIPMENT
 
12,749

 
806

 
4,450

 
(160
)
 
17,845

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
 
Advances to related parties and other financial assets
 
 
 
 
 
 
 
 
 
 
Due from subsidiaries
 
2,050

 
459

 
12

 
(2,521
)
 
—

Other
 
61

 
—

 
34

 
(17
)
 
78

Investment in subsidiaries
 
4,866

 
198

 
—

 
(5,064
)
 
—

Restricted cash
 
293

 
—

 
12

 
—

 
305

Goodwill
 
1,361

 
—

 
—

 
—

 
1,361

Other intangible assets, net
 
3,461

 
22

 
905

 
(840
)
 
3,548

Prepaid expenses and other assets
 
329

 
17

 
347

 
—

 
693

Deferred taxes
 
—

 
—

 
406

 
—

 
406

TOTAL OTHER ASSETS
 
12,421

 
696

 
1,716

 
(8,442
)
 
6,391

TOTAL ASSETS
 
$
40,859

 
$
2,937

 
$
14,319

 
$
(9,091
)
 
$
49,024

CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Trade liabilities
 
$
8,565

 
$
154

 
$
2,606

 
$
—

 
$
11,325

Accrued expenses and other liabilities
 
 
 
 
 
 
 
 
 
 
Due to subsidiaries
 
1,657

 
1,082

 
—

 
(2,739
)
 
—

Other
 
7,473

 
37

 
3,396

 
—

 
10,906

Current maturities of financial liabilities
 
 
 
 
 
 
 
 
 
 
Due to subsidiaries
 
2

 
—

 
301

 
(303
)
 
—

Other
 
144

 
—

 
164

 
—

 
308

Deferred revenue
 
2,018

 
157

 
123

 
(19
)
 
2,279

TOTAL CURRENT LIABILITIES
 
19,859

 
1,430

 
6,590

 
(3,061
)
 
24,818

LONG-TERM LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accrued expenses and other liabilities
 
11,536

 
156

 
1,453

 
—

 
13,145

Financial liabilities
 
 
 
 
 
 
 
 
 
 
Other
 
11,338

 
—

 
1,133

 
—

 
12,471

Deferred revenue
 
853

 
181

 
220

 
—

 
1,254

Deferred taxes
 
90

 
35

 
24

 
—

 
149

TOTAL LONG-TERM LIABILITIES
 
23,817

 
372

 
2,830

 
—

 
27,019

MEMBERS' INTEREST (DEFICIT):
 
 
 
 
 
 
 
 
 
 
Membership interests
 
—

 
—

 
324

 
(324
)
 
—

Contributed capital
 
663

 
1,660

 
2,066

 
(3,745
)
 
644

Accumulated (losses) retained earnings
 
1,373

 
(525
)
 
3,422

 
(2,911
)
 
1,359

Accumulated other comprehensive loss
 
(4,853
)
 
—

 
(946
)
 
950

 
(4,849
)
TOTAL MEMBERS' INTEREST (DEFICIT) ATTRIBUTABLE TO CHRYSER GROUP LLC
 
(2,817
)
 
1,135

 
4,866

 
(6,030
)
 
(2,846
)
Members' interest (deficit) attributable to noncontrolling interests
 
—

 
—

 
33

 
—

 
33

TOTAL MEMBERS' INTEREST (DEFICIT)
 
(2,817
)
 
1,135

 
4,899

 
(6,030
)
 
(2,813
)
TOTAL LIABILITIES AND MEMBERS' INTEREST (DEFICIT)
 
$
40,859

 
$
2,937

 
$
14,319

 
$
(9,091
)
 
$
49,024


50

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements


Condensed Consolidating Statements of Cash Flows (in millions of dollars):
 
 
Nine Months Ended September 30, 2015
 
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Consolidating
Adjustments
 
FCA US LLC
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
$
4,868

 
$
122

 
$
740

 
$
(138
)
 
$
5,592

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment and intangible assets
 
(1,162
)
 
(15
)
 
(901
)
 
—

 
(2,078
)
Proceeds from disposals of property, plant and equipment
 
2

 
—

 
2

 
—

 
4

Purchases of equipment and other assets on operating leases
 
—

 
(5
)
 
—

 
—

 
(5
)
Proceeds from disposals of equipment and other assets on operating leases
 
—

 
2

 
—

 
—

 
2

Change in restricted cash
 
5

 
—

 
(17
)
 
—

 
(12
)
Capital contributions to unconsolidated subsidiaries
 
—

 
—

 
(80
)
 
—

 
(80
)
Other
 
21

 
—

 
9

 
(21
)
 
9

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(1,134
)
 
(18
)
 
(987
)
 
(21
)
 
(2,160
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Prepayment of Secured Senior Notes due 2019
 
(2,875
)
 
—

 
—

 
—

 
(2,875
)
Payments of Canadian Health Care Trust Notes
 
—

 
—

 
(254
)
 
—

 
(254
)
Repayments of Tranche B Term Loan due 2017
 
(24
)
 
—

 
—

 
—

 
(24
)
Repayment of Tranche B Term Loan due 2018
 
(13
)
 
—

 
—

 
—

 
(13
)
Payments of Mexican development banks credit facilities
 
—

 
—

 
(466
)
 
—

 
(466
)
Proceeds from Mexico Bank Loan due 2022
 
—

 
—

 
500

 
—

 
500

Debt issuance costs
 
—

 
—

 
(5
)
 
—

 
(5
)
Repayment of debt issuance premium on secured senior notes
 
(93
)
 
—

 
—

 
—

 
(93
)
Net repayments of financial obligations - related party
 
(12
)
 
—

 
—

 
—

 
(12
)
Net repayments of other financial obligations- third party
 
(64
)
 
—

 
(22
)
 
—

 
(86
)
Dividend to FCA in exchange for equity investment
 
—

 
—

 
(94
)
 
—

 
(94
)
Special distribution paid to member
 
(1,338
)
 
—

 
—

 
—

 
(1,338
)
Distribution for state tax withholding obligations and other taxes on behalf of member
 
(1
)
 
—

 
—

 
—

 
(1
)
Dividends issued by subsidiaries
 
—

 
(26
)
 
(26
)
 
52

 
—

Return of capital to parent
 
—

 
—

 
(23
)
 
23

 
—

Net increase (decrease) in loans to subsidiaries
 
(36
)
 
(87
)
 
39

 
84

 
—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
(4,456
)
 
(113
)
 
(351
)
 
159

 
(4,761
)
Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
(259
)
 
—

 
(259
)
Net change in cash and cash equivalents
 
(722
)
 
(9
)
 
(857
)
 
—

 
(1,588
)
Cash and cash equivalents at beginning of period
 
11,125

 
112

 
3,301

 
—

 
14,538

Cash and cash equivalents at end of period
 
$
10,403

 
$
103

 
$
2,444

 
$
—

 
$
12,950


51

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

 
 
Nine Months Ended September 30, 2014
 
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Consolidating
Adjustments
 
FCA US LLC Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
$
3,941

 
$
431

 
$
1,093

 
$
(623
)
 
$
4,842

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment and intangible assets
 
(1,762
)
 
(29
)
 
(785
)
 
—

 
(2,576
)
Proceeds from disposals of property, plant and equipment
 
18

 
—

 
—

 
—

 
18

Purchases of equipment and other assets on operating leases
 
—

 
(5
)
 
—

 
—

 
(5
)
Proceeds from disposals of equipment and other assets on operating leases
 
—

 
3

 
—

 
—

 
3

Change in restricted cash
 
14

 
—

 
5

 
—

 
19

Other
 
(2
)
 
—

 
1

 
—

 
(1
)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(1,732
)
 
(31
)
 
(779
)
 
—

 
(2,542
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Proceeds from Senior Secured Notes
 
2,985

 
—

 
—

 
—

 
2,985

Proceeds from Tranche B Term Loan due 2018
 
1,723

 
—

 
—

 
—

 
1,723

Proceeds from Tranche B Term Loan due 2017
 
247

 
—

 
—

 
—

 
247

Prepayment of VEBA Trust Note
 
(4,587
)
 
—

 
—

 
—

 
(4,587
)
Payments of Canadian Health Care Trust Notes
 
—

 
—

 
(77
)
 
—

 
(77
)
Repayments of Tranche B Term Loan due 2017
 
(24
)
 
—

 
—

 
—

 
(24
)
Repayment of Tranche B Term Loan due 2018
 
(9
)
 
—

 
—

 
—

 
(9
)
Payments of Mexican development banks credit facility
 
—

 
—

 
(22
)
 
—

 
(22
)
Debt issuance costs
 
(14
)
 
—

 
—

 
—

 
(14
)
Repayment of debt issuance premium on secured senior notes
 
(12
)
 
—

 
—

 
—

 
(12
)
Net repayments of financial obligations - related party
 
(17
)
 
—

 
(4
)
 
—

 
(21
)
Net repayments of other financial obligations - third party
 
(60
)
 
—

 
27

 
—

 
(33
)
Special distribution paid to our members
 
(1,900
)
 
—

 
—

 
—

 
(1,900
)
Distribution for state tax withholding obligations and other taxes on behalf of members
 
(70
)
 
—

 
—

 
—

 
(70
)
Dividends issued by subsidiaries
 
—

 
(24
)
 
(26
)
 
50

 
—

Net increase (decrease) in loans to subsidiaries
 
(666
)
 
(266
)
 
359

 
573

 
—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
(2,404
)
 
(290
)
 
257

 
623

 
(1,814
)
Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
(212
)
 
—

 
(212
)
Net change in cash and cash equivalents
 
(195
)
 
110

 
359

 
—

 
274

Cash and cash equivalents at beginning of period
 
10,256

 
171

 
2,917

 
—

 
13,344

Cash and cash equivalents of held for sale operations at beginning of period
 
—

 
—

 
—

 
—

 
—

Net change in cash and cash equivalents
 
(195
)
 
110

 
359

 
—

 
274

Less: Cash and cash equivalents of held for sale operations at end of period
 
—

 
—

 
41

 
—

 
41

Cash and cash equivalents at end of period
 
$
10,061

 
$
281

 
$
3,235

 
$
—

 
$
13,577


52

FCA US LLC AND CONSOLIDATED SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

Note 20. Subsequent Events
On October 22, 2015, FCA US and the UAW signed a new four-year national collective bargaining agreement, which will expire in September 2019. The provisions of the new 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 will be effective for the 2016 plan year and is directly aligned with FCA North American segment ("NAFTA") profitability. The agreement includes lump-sum payments in lieu of further wage increases of primarily $4,000 for "Traditional" employees and $3,000 for "In-progression" employees totaling approximately $141 million that will be paid to UAW members on November 6, 2015. These payments will be amortized ratably over the four-year labor agreement period.




53

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read together with our accompanying condensed consolidated financial statements and related notes thereto, as well as our 2014 Annual Report on Form 10-K, or 2014 Form 10-K, filed with the U.S. Securities and Exchange Commission, or SEC.
Overview of our Operations
Unless otherwise specified, the terms "we," "us," "our," "FCA US" and the "Company" refer to FCA US LLC, formerly known as Chrysler Group LLC, and its consolidated subsidiaries, or any one or more of them, as the context may require. "Old Carco" refers to Old Carco LLC, formerly known as Chrysler LLC, and its consolidated subsidiaries, or any one or more of them, as the context may require. "FCA" refers to Fiat Chrysler Automobiles N.V., a public limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands, its consolidated subsidiaries (excluding FCA US) and entities it jointly controls, or any one or more of them, as the context may require. References to "Fiat" refer solely to Fiat S.p.A., the predecessor of FCA.
The Company was formed on April 28, 2009 as a Delaware limited liability company. Our sole beneficial owner is FCA, which holds a 100 percent ownership interest in us, effective as of the October 12, 2014 merger of Fiat with and into FCA, or the Merger. Prior to the Merger, Fiat held a 100 percent ownership interest in us, effective as of its January 21, 2014 acquisition of the 41.5 percent of our membership interests held by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, or UAW, Retiree Medical Benefits Trust, or the VEBA Trust. On January 21, 2014, Fiat completed a transaction, or the Equity Purchase Agreement, in which its 100 percent owned subsidiary, FCA North America Holdings LLC, formerly known as Fiat North America LLC, or FCA NA, indirectly acquired from the VEBA Trust all of the membership interests in the Company not previously held by FCA NA. Refer to Note 15, Other Transactions with Related Parties for additional information regarding this transaction.
Effective January 1, 2015, FCA NA became the 100 percent direct owner of our membership interests resulting in our change in tax status. Refer to Note 15, Other Transactions with Related Parties, for additional information.
We design, engineer, manufacture, distribute and sell vehicles under the brand names Chrysler, Jeep, Dodge, Ram and the SRT performance vehicle designation, as well as Mopar service parts and accessories, to dealers and distributors for sale to retail customers and fleet customers. Our product lineup includes passenger cars, utility vehicles (including sport utility vehicles, or SUVs, and crossover vehicles, or CUVs), minivans, trucks and commercial vans. We also manufacture certain vehicles in Mexico, which are distributed by us throughout North America and select markets and sold to FCA for distribution in other select markets. The majority of our operations, employees, independent dealers and vehicle sales are in North America, principally in the U.S. Approximately 10 percent of our vehicle sales during both 2014 and the nine months ended September 30, 2015 were outside North America, principally in Asia Pacific, South America and Europe. Vehicle, service parts and accessories sales outside North America are primarily through our 100 percent owned, affiliated or independent distributors and dealers. FCA is the distributor of our vehicles and service parts in Europe and Brazil, selling our products through a network of independent dealers. We are the distributor for Fiat and Alfa Romeo brand vehicles and service parts throughout North America. We are also the distributor for FCA vehicles in select markets outside of Europe. In addition, FCA manufactures certain vehicles for us, which we sell in the U.S. and internationally.
Refer to Note 15, Other Transactions with Related Parties, for additional information regarding other transactions with FCA.
We also generate revenues and cash from the sale of separately-priced service contracts to consumers and from providing contract manufacturing services to FCA. Our dealers enter into wholesale financing arrangements to purchase vehicles to be held in inventory for sale to retail customers. In turn, our dealers' retail customers use a variety of finance and lease programs to acquire our vehicles.

54

Vehicle Sales
Our new vehicle sales represent sales of our vehicles from dealers and distributors to retail customers and fleet customers. Our vehicle sales also include vehicles that FCA contract manufactures for us for sale in the U.S. and internationally. Vehicles manufactured by us for FCA are excluded from our new vehicle sales. The following summarizes our new vehicle sales by geographic market for the periods presented.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015 (1)(2)
 
2014 (1)(2)
 
2015 (1)(2)
 
2014 (1)(2)
 
FCA US
 
Industry
 
Percentage
of
Industry (3)
 
FCA US
 
Industry
 
Percentage
of
Industry (3)
 
FCA US
 
Industry
 
Percentage
of
Industry (3)
 
FCA US
 
Industry
 
Percentage
of
Industry (3)
 
 (vehicles in thousands)
U. S.
573

 
4,620

 
12.4
%
 
536

 
4,350

 
12.3
%
 
1,655

 
13,310

 
12.4
%
 
1,556

 
12,655

 
12.3
%
Canada
79

 
534

 
14.9
%
 
78

 
526

 
14.9
%
 
227

 
1,485

 
15.3
%
 
225

 
1,451

 
15.5
%
Mexico
22

 
344

 
6.3
%
 
18

 
298

 
5.8
%
 
61

 
970

 
6.3
%
 
54

 
813

 
6.6
%
Total North America
674

 
5,498

 
12.3
%
 
632

 
5,174

 
12.2
%
 
1,943

 
15,765

 
12.3
%
 
1,835

 
14,919

 
12.3
%
Rest of World
63

 
 
 
 
 
79

 
 
 
 
 
217

 
 
 
 
 
220

 
 
 
 
Total Worldwide
737

 
 
 
 
 
711

 
 
 
 
 
2,160

 
 
 
 
 
2,055

 
 
 
 
 
(1)
Certain fleet sales that are accounted for as operating leases are included in vehicle sales.
(2)
The Company’s estimated industry and market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Global Insight and Ward’s Automotive.
(3)
Percentages are calculated based on the unrounded vehicle sales volumes for the Company and the industry.
The following summarizes the total U.S. industry sales of new vehicles of domestic and foreign models and our relative competitive position for the periods presented. Vehicles manufactured by us for FCA are excluded from our new vehicle sales.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015 (1)(2)
 
2014 (1)(2)
 
2015 (1)(2)
 
2014 (1)(2)
 
FCA US
 
Industry
 
Percentage
of
Industry (3)
 
FCA US
 
Industry
 
Percentage
of
Industry (3)
 
FCA US
 
Industry
 
Percentage
of
Industry (3)
 
FCA US
 
Industry
 
Percentage
of
Industry (3)
 
 (vehicles in thousands)
Cars
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Small
26

 
752

 
3.4
%
 
31

 
796

 
3.9
%
 
90

 
2,331

 
3.8
%
 
87

 
2,352

 
3.7
%
Mid-size
40

 
761

 
5.3
%
 
39

 
754

 
5.1
%
 
148

 
2,190

 
6.8
%
 
122

 
2,212

 
5.5
%
Full-size
35

 
180

 
19.4
%
 
36

 
205

 
17.5
%
 
110

 
545

 
20.3
%
 
112

 
644

 
17.3
%
Sport
15

 
160

 
9.5
%
 
13

 
159

 
8.2
%
 
53

 
506

 
10.5
%
 
42

 
476

 
8.8
%
Total Cars
116

 
1,853

 
6.3
%
 
119

 
1,914

 
6.2
%
 
401

 
5,572

 
7.2
%
 
363

 
5,684

 
6.4
%
Minivans
50

 
131

 
38.4
%
 
70

 
139

 
50.6
%
 
126

 
367

 
34.4
%
 
212

 
418

 
50.8
%
Utility Vehicles
279

 
1,769

 
15.8
%
 
225

 
1,520

 
14.8
%
 
769

 
4,929

 
15.6
%
 
644

 
4,358

 
14.8
%
Pick-up Trucks
112

 
651

 
17.2
%
 
110

 
581

 
19.0
%
 
314

 
1,810

 
17.3
%
 
306

 
1,634

 
18.7
%
Van & Medium Duty Trucks
16

 
216

 
7.2
%
 
12

 
196

 
6.3
%
 
45

 
632

 
7.1
%
 
31

 
561

 
5.6
%
Total Vehicles
573

 
4,620

 
12.4
%
 
536

 
4,350

 
12.3
%
 
1,655

 
13,310

 
12.4
%
 
1,556

 
12,655

 
12.3
%
(1)
Certain fleet sales that are accounted for as operating leases are included in vehicle sales.
(2)
The Company’s estimated industry and market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Global Insight and Ward’s Automotive.
(3)
Percentages are calculated based on the unrounded vehicle sales volumes for the Company and the industry.

55

Cyclical Nature of Business
As is typical in the automotive industry, our vehicle sales are highly sensitive to general economic conditions, availability of low interest rate new vehicle financing for dealers and retail customers and other external factors, including fuel prices, and as a result, may vary substantially from quarter to quarter and year to year. Retail consumers tend to delay the purchase of a new vehicle when disposable income and consumer confidence are low. In addition, our vehicle production volumes and related revenues may vary from month to month, sometimes due to plant shutdowns, which may occur for several reasons, including production changes from one model year to the next. Model year changeovers can occur throughout the year. Plant shutdowns, whether associated with model year changeovers or other factors, such as temporary supplier interruptions, can have a negative impact on our revenues and a negative impact on our working capital as we continue to pay suppliers under standard contract terms while we do not receive proceeds from vehicle sales. Refer to —Liquidity and Capital Resources —Working Capital Cycle, for additional information.

Results of Operations
Worldwide Factory Shipments
The following summarizes our gross and net worldwide factory shipments, which include vehicle sales to our dealers, distributors and contract manufacturing customers. Management believes that this data provides meaningful information regarding our operating results. Shipments of vehicles manufactured by our assembly facilities are generally aligned with current period production, which is driven by consumer demand. Revenue is generally recognized when the risks and rewards of ownership of a vehicle have been transferred to our customer, which usually occurs upon release of the vehicle to the carrier responsible for transporting the vehicle to our customer.
Dealers and distributors sell our vehicles to retail customers and fleet customers. Our fleet customers include rental car companies, commercial fleet customers, leasing companies and government entities. Our fleet shipments include vehicle sales through our Guaranteed Depreciation Program, or GDP, under which we guarantee the residual value or otherwise assume responsibility for the minimum resale value of the vehicle. We account for such sales similar to an operating lease and recognize rental income over the contractual term of the lease on a straight-line basis. At the end of the lease term, we recognize revenue for the portion of the vehicle sales price which had not been previously recognized as rental income. The remainder of the cost of the vehicle which had not been previously recognized as depreciation expense over the lease term is recognized in cost of sales. We include GDP vehicle sales in our net worldwide factory shipments at the time of auction, rather than at the time of sale to the fleet customer, consistent with the timing of revenue recognition. We consider these net worldwide factory shipments to approximate the timing of revenue recognition.
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
2015
 
2014
 
 
 
(vehicles in thousands)
Retail
 
636

 
582

 
54

 
1,816

 
1,667

 
149

Fleet
 
109

 
107

 
2

 
400

 
390

 
10

Contract manufacturing
 
5

 
11

 
(6
)
 
32

 
38

 
(6
)
Worldwide Factory Shipments
 
750

 
700

 
50

 
2,248

 
2,095

 
153

Adjust for GDP activity during the period:
 
 
 
 
 
 
 
 
 
 
 
 
Less: Vehicles shipped
 
(5
)
 
(15
)
 
10

 
(64
)
 
(89
)
 
25

Plus: Vehicles auctioned
 
17

 
13

 
4

 
73

 
47

 
26

Net Worldwide Factory Shipments
 
762

 
698

 
64

 
2,257

 
2,053

 
204



56

Consolidated Results
The following is a discussion of the results of operations for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 and the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. The discussion of certain line items (Cost of sales, Gross margin, Selling, administrative and other expenses, and Research and development expenses) includes a presentation of such line items as a percentage of revenues, for the respective periods presented, to facilitate the discussion of the three months ended September 30, 2015 compared to the same period in 2014 and the nine months ended September 30, 2015 compared to the same period in 2014.
Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014
Revenues, Net
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
Revenues, net
 
$
21,755

 
$
20,660

 
$
1,095

 
5.3
%
Revenues for the three months ended September 30, 2015 increased $1,095 million as compared to the three months ended September 30, 2014. Approximately $1,800 million of the increase was attributable to an increase in volume, which was due to an increase in our net worldwide factory shipments from 698 thousand vehicles for the three months ended September 30, 2014 to 762 thousand vehicles for the three months ended September 30, 2015. The 9 percent period over period increase in our net worldwide factory shipments was driven primarily by increased demand for our vehicles, including the all-new 2015 Jeep Renegade, which began arriving in dealerships March 2015. These increases were partially offset by a reduction in Chrysler 200 shipments.
Overall, demand for our vehicles has increased, as evidenced by a 7 percent period over period increase in our U.S. vehicle sales, which was primarily driven by a 6 percent increase in our U.S. retail sales for the three months ended September 30, 2015 as compared to the same period in 2014. Our U.S. market share increased 10 basis points to 12.4 percent for the three months ended September 30, 2015.
Partially offsetting the higher revenues, was approximately $300 million of unfavorable net pricing composed of higher incentive spending on certain vehicles in our portfolio and unfavorable foreign currency exchange impacts primarily related to the Canadian Dollar, partially offset by favorable pricing, including dealer discount reductions, and pricing for enhanced content. We also had lower revenues of approximately $300 million due to a shift in market and vehicle mix.
During the three months ended September 30, 2015, based on management's current assessment, we recorded $99 million of incentives as a reduction to Revenues, net related to vehicles affected by the explosions in Tianjin, China. Refer to Note 11, Commitments, Contingencies and Concentrations, for additional information. Our non-GAAP financial measures for the three months ended September 30, 2015 exclude this charge.
During the third quarter 2014, we recorded a $4 million remeasurement charge as a reduction to Revenues, net, as a result of foreign currency devaluation due to changes in the exchange rate determined by an auction process conducted by Venezuela's Supplementary Foreign Currency Administration System, or SICAD, referred to as the SICAD I rate, which was partially offset by a net foreign currency transaction gain of $1 million due to the impact of changes in Venezuelan Bolivar, or VEF, per U.S. Dollar, or USD on certain other transactions. Refer to Note 17, Venezuelan Currency Regulations and Devaluation, for further detail.
Cost of Sales
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
Percentage
of Revenues
 
2014
 
Percentage
of Revenues
 
 
 
 
 
(in millions of dollars)
 
 
 
 
 
 
Cost of sales
 
$
19,589

 
90.0
%
 
$
17,803

 
86.2
%
 
$
1,786

 
10.0
 %
Gross margin
 
2,166

 
10.0
%
 
2,857

 
13.8
%
 
(691
)
 
(24.2
)%

57

We procure a variety of raw materials, parts, supplies, utilities, transportation and other services from numerous suppliers to manufacture our vehicles, parts and accessories, primarily on a purchase order basis. The raw materials we use typically consist of steel, aluminum, resin, copper, lead and precious metals including platinum, palladium and rhodium. The cost of materials and components makes up the majority of our cost of sales, which was approximately 73 percent and 76 percent for the three months ended September 30, 2015 and 2014, respectively. The remaining costs primarily include labor costs, consisting of direct and indirect wages and fringe benefits, as well as depreciation and amortization costs. Cost of sales also includes warranty and product-related costs, as well as depreciation expense related to our GDP vehicles. Fluctuations in costs of sales are primarily driven by the number of vehicles that we produce and sell.
Cost of sales for the three months ended September 30, 2015 increased $1,786 million compared to the same period in 2014, approximately $1,400 million of which was attributable to an increase in our net worldwide factory shipments.
Given recent 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 gives greater weight to the more recent calendar year trends in recall campaign activity, has been added to the adequacy assessment to estimate future recall costs. This reassessment resulted in a change in estimate for the campaign accrual of $848 million for the U.S. and Canada for estimated future recall campaign costs for vehicles sold in prior periods, which has been excluded from our non-GAAP financial measures for the three months ended September 30, 2015. In addition, and in connection with this reassessment, we recorded a $73 million charge related to the increase in the accrual rate per vehicle sold during the three months ended September 30, 2015. Refer to Note 8, Accrued Expenses and Other Liabilities, for additional information.
In addition, we incurred higher product costs of approximately $200 million associated with vehicle components and content enhancements on our new models.
During the three months ended September 30, 2015, we recorded a charge of $60 million to reduce the value of our inventory held in China to the estimated net realizable value for our vehicles that were impacted by the explosions in Tianjin, China discussed above. Refer to Note 11, Commitments, Contingencies and Concentrations, for additional information. Our non-GAAP financial measures for the three months ended September 30, 2015 exclude this charge.
The increase in Cost of Sales was partially offset by favorable purchase price variances associated with foreign currency fluctuations of approximately $500 million primarily related to the Canadian Dollar. In addition, Cost of Sales was reduced by approximately $300 million of favorable market and vehicle mix.
Gross margin for the three months ended September 30, 2015 decreased $691 million, or 24.2 percent on an absolute basis, as compared to the same period in 2014. Gross margin increased by approximately $400 million related to increases in our net worldwide factory shipments. In addition, gross margin increased approximately $200 million related to net pricing increases due to positive pricing actions and dealer discount reductions partially offset by higher incentives. Effects of foreign currency fluctuations in Revenues, net and Cost of Sales primarily related to the Canadian dollar were not material to Gross Margin. Offsetting the increases to gross margin was a decrease of $848 million due to a change in estimate for the campaign accrual for the U.S. and Canada for estimated future recall campaign costs for vehicles sold in prior periods and a $73 million charge related to an increase in the accrual rate per vehicle sold during the three months ended September 30, 2015. Furthermore, gross margin decreased by $159 million due to charges related to the explosions in Tianjin, China. In addition, gross margin decreased by approximately $200 million associated with vehicle components and content enhancements on our new models.
Selling, Administrative and Other Expenses
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
Percentage
of Revenues
 
2014
 
Percentage
of Revenues
 
 
 
 
 
(in millions of dollars)
 
 
 
 
 
 
Selling, administrative and other expenses
 
$
1,308

 
6.0
%
 
$
1,326

 
6.4
%
 
$
(18
)
 
(1.4
)%
Selling, administrative and other expenses include advertising, personnel, warehousing and other costs. Advertising expenses accounted for approximately 56 percent of these costs during the three months ended September 30, 2015 and 54 percent of the costs during the three months ended September 30, 2014.
Advertising expenses consist primarily of national and regional media campaigns, as well as marketing support in the form of trade and auto shows, events, and sponsorships. Typically, we incur greater advertising costs in the initial months that new or

58

refreshed vehicles are available to customers in the dealerships. Advertising expenses remained relatively consistent period over period. During the three months ended September 30, 2015, advertising expenses supported our recent vehicle launches, including the all-new 2015 Jeep Renegade and all-new 2015 Fiat 500X. During the three months ended September 30, 2014, advertising expenses supported vehicle launches, including the Jeep Cherokee and the all-new 2015 Chrysler 200.
Research and Development Expenses, Net
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
Percentage
of Revenues
 
2014
 
Percentage
of Revenues
 
 
 
 
 
(in millions of dollars)
 
 
 
 
 
 
Research and development expenses, net
 
$
579

 
2.7
%
 
$
565

 
2.7
%
 
$
14

 
2.5
%
We conduct research and development for new and existing vehicles and technologies to improve performance, safety, fuel efficiency, reliability, comfort and convenience and consumer perception of our vehicles. Research and development expenses consist primarily of material costs and personnel related expenses that support development of new and existing vehicles and powertrain technologies, including the building of three-dimensional models, virtual simulations, prototype building and testing (including with respect to the integration of safety and powertrain technologies) and assembly of pre-production pilot models. Additionally, research and development activities focus on improved fuel efficiency and reduced emissions. We share access to certain platforms, vehicles, products and technologies with FCA. Likewise, costs are shared with FCA related to joint engineering and development activities and we reimburse each other based upon costs agreed to under our cost sharing arrangements. Our research and development expenses for the three months ended September 30, 2015 and 2014 are net of reimbursements of $4 million and $10 million, respectively. Research and development expenses remained relatively consistent period over period.
Restructuring Expense (Income), Net
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
Restructuring expense (income), net
 
$
(1
)
 
$
1

 
$
2

 
NM
In connection with our transaction with Old Carco in June 2009, we assumed certain liabilities related to specific restructuring actions commenced by Old Carco. During the three months ended September 30, 2015, we made favorable refinements to restructuring reserve estimates resulting in restructuring income of approximately $1 million. Refer to Note 16, Restructuring Actions, for additional information.
In February 2014, we undertook a voluntary severance program in Venezuela to facilitate workforce reductions. During the three months ended September 30, 2014, we incurred approximately $1 million of restructuring expense associated with this program.








59

Interest Expense
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
Interest expense
 
$
132

 
$
209

 
$
(77
)
 
(36.8
)%
Interest expense included the following:
 
 
Three Months Ended September 30,
 
 
2015
 
2014
 
 
(in millions of dollars)
Financial interest expense:
 
 
 
 
2019 Notes
 
$
—

 
$
58

2021 Notes
 
63

 
63

Tranche B Term Loan due 2017
 
28

 
28

Tranche B Term Loan due 2018
 
14

 
14

Canadian Health Care Trust Notes
 
11

 
19

Mexico bank debt
 
5

 
11

Other
 
11

 
19

Interest accretion (1)
 
12

 
10

Capitalized interest related to capital expenditures
 
(12
)
 
(13
)
Total
 
$
132

 
$
209

(1) Interest accretion is primarily related to debt discounts/premiums, debt issuance costs and fair value adjustments.
The decrease in interest expense resulted primarily from the May 2015 redemption of our Secured Senior Notes due 2019, or 2019 Notes, the January 2015 and July 2015 prepayments of the Canadian Health Care Trust Tranche A Note, or Canadian HCT Tranche A Note, and the March 2015 refinancing of the Mexican development banks credit facilities. Refer to Note 9, Financial Liabilities, for additional information.
(Gain) loss on Extinguishment of Debt, Net
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
(Gain) loss on extinguishment of debt, net
 
$
(18
)
 
$
—

 
$
(18
)
 
NM
On July 31, 2015 we made a prepayment on the Canadian HCT Tranche A Note of the remaining scheduled payments due on June 30, 2016 and June 30, 2017. In connection with this prepayment, we recorded a non-cash gain of $18 million during the three months ended September 30, 2015. No gains or losses were recorded for the extinguishment of debt in the three months ended September 30, 2014. Refer to Note 9, Financial Liabilities, for additional information.
Income Tax Expense
 
 
Three Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
Income tax expense
 
$
106

 
$
162

 
$
(56
)
 
NM
Effective January 1, 2015, FCA NA became our single member and, as a result, we are no longer treated as a partnership for U.S. federal, state and local income tax purposes. Instead, we and certain of our U.S. subsidiaries are now treated for financial reporting purposes as if we were separately subject to U.S. federal, state and local income taxes. The $56 million decrease in

60

our income tax expense is primarily due to a decrease in current quarter earnings, offset by the increased annual effective tax rate caused by the change in our tax status. Refer to Note 10, Income Taxes, for additional information.
Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014
Revenues, Net
 
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
Revenues, net
 
$
65,271

 
$
60,104

 
$
5,167

 
8.6
%
Revenues for the nine months ended September 30, 2015 increased $5,167 million as compared to the nine months ended September 30, 2014. Approximately $5,600 million of the increase was attributable to an increase in volume, which was due to an increase in our net worldwide factory shipments from 2,053 thousand vehicles for the nine months ended September 30, 2014 to 2,257 thousand vehicles for the nine months ended September 30, 2015. The 9.9 percent period over period increase in our net worldwide factory shipments was driven primarily by increased demand for our vehicles, including the all-new 2015 Jeep Renegade, which began arriving in dealerships March 2015, Jeep Cherokee, and our Ram 1500. In addition, we had reduced shipments of minivans due to the temporary shutdown of the Windsor assembly plant for re-tooling from February 2015 to May 2015 in preparation for the launch of an all-new 2017 Chrysler Town and Country expected next year.
Overall, demand for our vehicles has increased, as evidenced by a 6 percent period over period increase in our U.S. vehicle sales, which was primarily driven by a 6 percent increase in our U.S. retail sales for the nine months ended September 30, 2015 as compared to the same period in 2014. Our U.S. market share increased 10 basis points to 12.4 percent for the nine months ended September 30, 2015.
Partially offsetting the higher revenues was approximately $100 million of unfavorable net pricing composed of higher incentive spending on certain vehicles in our portfolio and unfavorable foreign currency exchange impacts primarily related to the Canadian Dollar partially offset by favorable pricing, including dealer discount reductions, and pricing for enhanced content. In addition, we had a decrease of approximately $200 million due to a shift in market and vehicle mix. During the nine months ended September 30, 2015, based on management's current assessment, we recorded $99 million of incentives as a reduction to Revenues, net related to vehicles affected by the explosions in Tianjin, China. Refer to Note 11, Commitments, Contingencies and Concentrations, for additional information. Our non-GAAP financial measures for the nine months ended September 30, 2015 exclude this charge.
During the nine months ended September 30, 2015, as a result of adopting the SIMADI exchange rate at June 30, 2015 we recorded remeasurement charges on our VEF denominated net monetary assets, including cash and cash equivalents in Venezuela, of $59 million as a reduction to Revenues, net using an exchange rate of 197.3 VEF per USD. During the nine months ended September 30, 2015, we recorded an approximately $4 million charge as a reduction to Revenues, net, related to our Venezuelan subsidiary that exchanged VEF for USD utilizing the SIMADI exchange rate of 189.0 VEF to USD for a purchase of parts. Refer to Note 17, Venezuelan Currency Regulations and Devaluation, for further detail.
During the nine months ended September 30, 2014, we recorded remeasurement charges of $133 million as a reduction to Revenues, net as a result of foreign currency devaluation due to changes in the SICAD I rate. Additionally, during the nine months ended September 30, 2014, we received a total of $65 million in USD through the SICAD I auction process resulting in a net foreign currency transaction gain of $2 million in Revenues, net. Furthermore, in September 2014, certain monetary liabilities, which had been submitted to the Commission for the Administration of Foreign Exchange, or CADIVI, for payment approval, were approved and paid at a favorable exchange rate resulting in a foreign currency transaction gain in Revenues, net of $2 million.

61

Cost of Sales
 
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
Percentage
of Revenues
 
2014
 
Percentage
of Revenues
 
 
 
 
 
(in millions of dollars)
 
 
 
 
 
 
Cost of sales
 
$
57,261

 
87.7
%
 
$
51,883

 
86.3
%
 
$
5,378

 
10.4
 %
Gross margin
 
8,010

 
12.3
%
 
8,221

 
13.7
%
 
(211
)
 
(2.6
)%
We procure a variety of raw materials, parts, supplies, utilities, transportation and other services from numerous suppliers to manufacture our vehicles, parts and accessories, primarily on a purchase order basis. The raw materials we use typically consist of steel, aluminum, resin, copper, lead and precious metals including platinum, palladium and rhodium. The cost of materials and components makes up the majority of our cost of sales, which was approximately 77 percent for the nine months ended September 30, 2015 and 76 percent for the nine months ended September 30, 2014. The remaining costs primarily include labor costs, consisting of direct and indirect wages and fringe benefits, as well as depreciation and amortization costs. Cost of sales also includes warranty and product-related costs, as well as depreciation expense related to our GDP vehicles. Fluctuations in costs of sales are primarily driven by the number of vehicles that we produce and sell.
Cost of sales for the nine months ended September 30, 2015 increased $5,378 million compared to the same period in 2014, approximately $4,500 million of which was attributable to an increase in our net worldwide shipments. During the nine months ended September 30, 2015, we incurred higher product costs of approximately $600 million associated with vehicle components and content enhancements on our new models. Our warranty costs increased approximately $300 million over the same period last year, which included the effects of recently approved recall campaigns.
Given recent 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 gives greater weight to the more recent calendar year trends in recall campaign activity, has been added to the adequacy assessment to estimate future recall costs. This reassessment resulted in a change in estimate for the campaign accrual of $848 million for the U.S. and Canada for estimated future recall campaign costs for vehicles sold in prior periods, which has been excluded from our non-GAAP financial measures for the nine months ended September 30, 2015. In addition, and in connection with this reassessment, we recorded a $73 million charge related to the increase in the accrual rate per vehicle sold during the three months ended September 30, 2015.
In addition to the remeasurement charges discussed above, we also recorded a charge of $30 million to reduce inventory held in Venezuela to the lower of cost or market as, due to pricing controls, we are unable to increase the VEF sales price in Venezuela to compensate for the devaluation.
During the nine months ended September 30, 2015, we recorded a charge of $60 million to reduce the value of our inventory held in China to the estimated net realizable value for our vehicles that were impacted by the explosions in Tianjin, China discussed above. Refer to Note 11, Commitments, Contingencies and Concentrations, for additional information. Our non-GAAP financial measures for the nine months ended September 30, 2015 exclude this charge. These increases were partially offset by favorable purchase price variances associated with foreign currency fluctuations primarily due to the Canadian Dollar of approximately $900 million. In addition, Cost of sales was reduced by approximately $100 million of other lower costs, none of which were independently material.
Gross margin for the nine months ended September 30, 2015 decreased $211 million, or 2.6 percent, on an absolute basis as compared to the same period in 2014. Gross margin increased by approximately $1,100 million related to increases in our net worldwide factory shipments and increased $800 million due to net pricing increases due to positive pricing actions and dealer discount reductions partially offset by higher incentives. Offsetting the increases to gross margin was a decrease of $848 million due to a change in estimate for the campaign accrual for the U.S. and Canada for estimated future recall campaign costs for vehicles sold in prior periods and a $73 million charge related to an increase in the accrual rate per vehicle sold during the three months ended September 30, 2015. Gross margin decreased approximately $300 million for higher warranty costs over the same period last year, which included the effects of recently approved recall campaigns. In addition, gross margin also decreased $600 million due to higher product costs, $200 million related to unfavorable mix, $159 million for charges related to the explosions in Tianjin, China and $100 million of other lower costs, none of which were independently material. Gross margin decreased due to charge of $30 million to reduce inventory held in Venezuela to the lower of cost or market as described above. Effects of foreign currency fluctuations in Revenues, net and Cost of Sales primarily related to the Canadian dollar were not material to Gross Margin.

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Selling, Administrative and Other Expenses
 
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
Percentage
of Revenues
 
2014
 
Percentage
of Revenues
 
 
 
 
 
(in millions of dollars)
 
 
 
 
 
 
Selling, administrative and other expenses
 
$
4,033

 
6.2
%
 
$
4,636

 
7.7
%
 
$
(603
)
 
(13.0
)%
Selling, administrative and other expenses include advertising, personnel, warehousing and other costs. During the nine months ended September 30, 2015, Selling, administrative and other expenses included a charge of $90 million, which reflected the costs of compliance with the recent National Highway Traffic Safety Administration, or NHTSA, consent order, or Consent Order. During the nine months ended September 30, 2014, Selling, administrative and other expenses included an infrequent charge of $672 million, which reflected the costs associated with the January 2014 memorandum of understanding, or MOU, to supplement the existing collective bargaining agreement with the UAW, in exchange for the UAW’s specific commitment to our continued roll-out of our World Class Manufacturing, or WCM, programs and long-term business plan. During the nine months ended September 30, 2014, the increases in advertising expense were partially offset by a $21 million reduction of expense related to share-based compensation.
Excluding the NHTSA and MOU charges, advertising expenses accounted for approximately 57 percent and 56 percent of selling, administrative and other expenses for the nine months ended September 30, 2015 and 2014, respectively. Advertising expenses consist primarily of national and regional media campaigns, as well as marketing support in the form of trade and auto shows, events and sponsorships. Typically, we incur greater advertising costs in the initial months that new or refreshed vehicles are available to customers in the dealerships. During the nine months ended September 30, 2015, advertising expenses supported our vehicle launch of the all-new 2015 Jeep Renegade. Advertising expenses remained relatively consistent period over period.
Research and Development Expenses, Net
 
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
Percentage
of Revenues
 
2014
 
Percentage
of Revenues
 
 
 
 
 
(in millions of dollars)
 
 
 
 
 
 
Research and development expenses, net
 
$
1,694

 
2.6
%
 
$
1,726

 
2.9
%
 
$
(32
)
 
(1.9
)%
We conduct research and development for new and existing vehicles and technologies to improve performance, safety, fuel efficiency, reliability, comfort and convenience and consumer perception of our vehicles. Research and development expenses consist primarily of material costs and personnel related expenses that support development of new and existing vehicles and powertrain technologies, including the building of three-dimensional models, virtual simulations, prototype building and testing (including with respect to the integration of safety and powertrain technologies) and assembly of pre-production pilot models. Additionally, research and development activities focus on improved fuel efficiency and reduced emissions. We share access to certain platforms, vehicles, products and technologies with FCA. Likewise, costs are shared with FCA related to joint engineering and development activities and we reimburse each other based upon costs agreed to under our cost sharing arrangements. Our research and development expenses for the nine months ended September 30, 2015 and 2014 are net of reimbursements of $11 million and $24 million, respectively. Research and development expenses remained relatively consistent period over period.
Restructuring Expense (Income), Net
 
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
Restructuring expense (income), net
 
$
(8
)
 
$
5

 
$
(13
)
 
NM
In connection with our transaction with Old Carco in June 2009, we assumed certain liabilities related to specific restructuring actions commenced by Old Carco. During the nine months ended September 30, 2015 and 2014, we made favorable

63

refinements to restructuring reserve estimates resulting in restructuring income of approximately $9 million and $6 million, respectively. Refer to Note 16, Restructuring Actions, for additional information.
During the nine months ended September 30, 2015 and 2014, we incurred approximately $1 million and $11 million, respectively, of restructuring expense associated with the program in Venezuela described above.
Interest Expense
 
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
Interest expense
 
$
485

 
$
643

 
$
(158
)
 
(24.6
)%
Interest expense included the following:
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
 
(in millions of dollars)
Financial interest expense:
 
 
 
 
VEBA Trust Note
 
$
—

 
$
44

2019 Notes
 
85

 
162

2021 Notes
 
190

 
179

Tranche B Term Loan due 2017
 
83

 
83

Tranche B Term Loan due 2018
 
42

 
37

Canadian Health Care Trust Notes
 
38

 
55

Mexico Bank Debt
 
18

 
34

Other
 
37

 
48

Interest accretion (1)
 
33

 
39

Capitalized interest related to capital expenditures
 
(41
)
 
(38
)
Total
 
$
485

 
$
643

(1) Interest accretion is primarily related to debt discounts/premiums, debt issuance costs and fair value adjustments.
The decrease in interest expense resulted primarily from the May 2015 redemption of our 2019 Notes, the January 2015 and July 2015 prepayments of the Canadian HCT Tranche A Note and the March 2015 refinancing of the Mexican development banks credit facilities. In addition, interest expense was reduced due to the February 2014 prepayment of the senior unsecured note issued June 10, 2009 to the VEBA Trust, or VEBA Trust Note, that was funded with new debt issuances which have lower effective interest rates than the VEBA Trust Note. Refer to Note 9, Financial Liabilities, for additional information.
(Gain) loss on Extinguishment of Debt, Net
 
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
(Gain) loss on extinguishment of debt, net
 
$
63

 
$
504

 
$
(441
)
 
NM
On July 31, 2015 we made a prepayment on the Canadian HCT Tranche A Note of the remaining scheduled payments due on June 30, 2016 and June 30, 2017. In connection with this prepayment, we recorded a non-cash gain of $18 million during the nine months ended September 30, 2015. Additionally, a $71 million loss on extinguishment of debt was recognized in connection with the redemption of the 2019 Notes, which consisted of the payment of a "make-whole" premium in accordance with the terms of the indenture and the write-off of the unamortized debt issuance costs partially offset by the write-off of the remaining unamortized debt premium. Lastly, a $10 million loss on extinguishment of debt was recognized in the same period

64

for the prepayment of the Mexican development banks credit facilities, which consisted of the write-off of the remaining unamortized debt issuance costs. During the nine months ended September 30, 2014, in connection with the prepayment of the VEBA Trust Note in February 2014, we recorded a non-cash charge of $504 million, consisting primarily of the remaining unamortized debt discount. Refer to Note 9, Financial Liabilities, for additional information.
Income Tax (Benefit) / Expense
 
 
Nine Months Ended September 30,
 
Increase
(Decrease)
 
 
2015
 
2014
 
 
 
(in millions of dollars)
 
 
 
 
Income tax (benefit) expense
 
$
(1,468
)
 
$
213

 
$
(1,681
)
 
NM
Effective January 1, 2015, FCA NA became our single member and, as a result, we are no longer treated as a partnership for U.S. federal, state and local income tax purposes. Instead, we and certain of our U.S. subsidiaries are now treated for financial reporting purposes as if we were separately subject to U.S. federal, state and local income taxes. This change in our tax status required the recognition of a net deferred tax asset, including $2,183 million related to temporary differences on our assets and liabilities, which is recognized as a deferred tax benefit. The $1,681 million increase in our income tax benefit is primarily due to the $2,183 million tax benefit discussed above, reduced by tax expense computed at the increased annual effective tax rate. Refer to Note 10, Income Taxes, for additional information.
Liquidity and Capital Resources
Liquidity Overview
We require significant liquidity in order to meet our obligations and fund our business. Short-term liquidity is required to purchase raw materials, parts and components required for vehicle production, and to fund selling, administrative, research and development and other expenses. In addition to our general working capital needs, we expect to use significant amounts of cash for the following purposes: (i) capital expenditures to support our existing and future products; (ii) principal and interest payments under our financial obligations and (iii) pension and other postretirement benefits, or OPEB, payments.
Liquidity needs are met primarily through cash generated from operations, including the sale of vehicles and service parts to dealers, distributors and other consumers worldwide. We also have access to an undrawn revolving credit facility detailed under the caption —Total Available Liquidity, below. In addition, long-term liquidity needs may involve some level of debt refinancing as outstanding debt becomes due or we are required to make amortization or other 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, we regularly evaluate opportunities to improve our liquidity position and increase our Net Industrial Cash over time in order to enhance our financial flexibility. Our calculation of Net Industrial Cash, as well as a detailed discussion of this measure, is included below in —Non-GAAP Financial Measures —Net Industrial Cash.
Any actual or perceived limitations of our liquidity, or the liquidity of FCA, may limit the ability or willingness of counterparties, including dealers, consumers, suppliers, lenders and financial service providers, to do business with us, or require us to restrict additional amounts of cash to provide collateral security for our obligations. Our liquidity levels are subject to a number of risks and uncertainties, including those described in Forward-Looking Statements, above, Item 1A. Risk Factors in our 2014 Form 10-K and Part II, Item 1A. Risk Factors in our Q2 Form 10-Q.
Total Available Liquidity
At September 30, 2015, our total available liquidity was $14.3 billion, including $1.3 billion available under our revolving credit facility that matures in May 2016, or the Revolving Facility. We may access the funds under our Revolving Facility, subject to the conditions of our Senior Credit Facilities, which include the tranche B term loan maturing May 24, 2017, or Tranche B Term Loan due 2017, and the Revolving Facility. The proceeds from the Revolving Facility may be used for general corporate and/or working capital purposes. The terms of our Senior Credit Facilities and term loan credit facility that matures on December 31, 2018, or Tranche B Term Loan due 2018, require us to maintain a minimum liquidity of $3.0 billion inclusive of any amounts undrawn on our Revolving Facility. Total available liquidity includes cash and cash equivalents, which are subject to intra-month, foreign currency exchange and seasonal fluctuations. Restricted cash is not included in our presentation of total available liquidity.

65

The following summarizes our total available liquidity (in millions of dollars):
 
 
September 30, 2015
 
December 31, 2014
Cash and cash equivalents (1)
 
$
12,950

 
$
14,538

Revolving Facility availability
 
1,300

 
1,300

Total Available Liquidity (2)
 
$
14,250

 
$
15,838

(1)
The foreign subsidiaries for which we have elected to indefinitely reinvest earnings outside of the U.S. held $1.0 billion and $1.5 billion of Cash and cash equivalents as of September 30, 2015 and December 31, 2014, respectively. Our current plans do not demonstrate a need to, nor do we have plans to, repatriate the retained earnings from these subsidiaries, as the earnings are indefinitely reinvested. However, if we determine in the future that it is necessary to repatriate these funds or we sell or liquidate any of these subsidiaries, we may be required either to pay taxes or make distributions to our members to pay taxes associated with the repatriation or the sale or liquidation of these subsidiaries. We may also be required to accrue and pay withholding taxes, depending on the foreign jurisdiction from which the funds are repatriated.
(2)
Excludes the undisbursed $400 million under the FCA Mexico bank loan, which can be drawn subject to meeting certain preconditions.
Refer to —Cash Flows, Nine Months Ended September 30, 2015 compared to Nine Months Ended September 30, 2014, for additional information regarding the decrease of $1.6 billion in cash and cash equivalents from December 31, 2014 to September 30, 2015.
Amounts Available for Borrowing under Credit Facilities
As of September 30, 2015, our $1.3 billion Revolving Facility remains undrawn and $0.4 billion remains undisbursed under the $900 million FCA Mexico bank loan, or Mexico Bank Loan. The Tranche B Term Loan due 2017 and the Tranche B Term Loan due 2018 remain fully drawn.
Refer to Note 9, Financial Liabilities, for additional information regarding our FCA Mexico, S.A. de C.V., formerly known as Chrysler de Mexico, S.A. de C.V., or FCA Mexico, credit agreements and to our 2014 Form 10-K for additional information regarding the terms of our financing arrangements.
FCA Revolving Credit Facility
In June 2015, FCA entered into a €5.0 billion syndicated revolving credit facility, or RCF. The RCF, which is available for general corporate purposes and working capital needs of FCA, replaces and expands the €2.1 billion three-year revolving credit facility entered into by FCA on June 21, 2013, and will replace our Revolving Facility.
The RCF is available in two tranches. As of June 30, 2015, the first tranche of €2.5 billion was available and remained undrawn at September 30, 2015. The first tranche matures in July 2018 and has two extension options (one-year and 11-month, respectively) exercisable on the first and second anniversary of signing. The second tranche, which consists of an additional €2.5 billion, matures in June 2020 and will be available upon termination of the Revolving Facility and the elimination of the restrictions under FCA US’s financing documentation on the provision of guarantees and payment of dividends by FCA US for the benefit of the rest of FCA.
FCA US is subject to the covenants in the RCF that has certain provisions that are more restrictive than FCA US’s financing agreements including, but not limited to, limitations on incurrence of indebtedness and any liens on such indebtedness.
Restricted Cash
Restricted cash, which includes cash equivalents, was $309 million as of September 30, 2015. Restricted cash included $207 million held on deposit or otherwise pledged to secure our obligations under various commercial agreements guaranteed by a subsidiary of Daimler AG and $102 million of collateral for other contractual agreements.


66

Working Capital Cycle
Our business and results of operations depend upon our ability to achieve certain minimum vehicle sales volumes. As is typical for an automotive manufacturer, we have significant fixed costs, and therefore, changes in our vehicle sales volume can have a significant effect on profitability and liquidity. We generally receive payment on sales of vehicles in North America within a few days of shipment from our assembly plants, whereas there is a lag between the time we receive parts and materials from our suppliers and the time we are required to pay for them. Therefore, during periods of increasing vehicle sales, there is generally a corresponding positive impact on our cash flow and liquidity. Conversely, during periods in which vehicle sales decline, there is generally a corresponding negative impact on our cash flow and liquidity. Similarly, delays in shipments of vehicles, including delays in orders to address quality issues, may negatively affect our cash flow and liquidity. In addition, the timing of our collections of receivables for sales of vehicles outside of North America tends to be longer due to extended payment terms, and may cause fluctuations in our working capital. The timing of our vehicle sales under our GDP can cause seasonal fluctuations in our working capital. Typically, the number of vehicles sold under the program peak during the second quarter and then taper off during the third quarter.
Cash Flows
Nine Months Ended September 30, 2015 compared to Nine Months Ended September 30, 2014
Operating Activities —Nine Months Ended September 30, 2015
For the nine months ended September 30, 2015, our net cash provided by operating activities was $5,592 million and was primarily the result of:
(i)
net income of $3,249 million, adjusted to exclude a non-cash tax benefit of $2,279 million related to our change in tax status and to add back $2,361 million of depreciation and amortization expense (including amortization and accretion of debt discounts, debt issuance costs, fair market value adjustments and favorable and unfavorable lease contracts) and the non-cash $63 million net loss on extinguishment debt in connection with the prepayments of the Mexican development bank credit facilities, redemption of the 2019 notes, and the prepayment of the Canadian Tranche A note;
(ii)
$1,361 million increase in accrued warranty costs primarily a result of the $848 million charge for the change in estimate for future campaign recall cost for vehicles sold in prior periods and $73 million related to an increase in the accrual rate per vehicle sold during the three months ended September 30, 2015;
(iii) $1,107 million increase in trade liabilities, primarily due to higher production volumes in September 2015 versus December 2014, the month that our seasonal plant shutdowns occur;
(iv) An estimate of $99 million for incentives related to vehicles affected by the explosions in Tianjin, China. Refer to Note 11, Commitments, Contingencies and Concentrations for further detail on this item; and
(v) a $60 million charge to reduce the value of our inventory held in China to the estimated net realizable value for vehicles that were impacted by the explosions in Tianjin, China. Refer to Note 11, Commitments, Contingencies and Concentrations for further detail on this item.
These increases in our net cash provided by operating activities were partially offset by:
(i)
$328 million increase in trade receivables, primarily due to higher shipment volumes at the end of September 2015 versus December 2014 as a result of our seasonal plant shutdowns. We generally receive payments on sales of vehicles in North America within a few days of shipment from our assembly plants;
(ii)
$758 million increase in inventories, primarily due to seasonal impacts. In comparison, our inventory levels were lower in December 2014 due to our annual plant shutdowns in that month;
(iii)
$191 million in Pension and OPEB contributions; and
(ii)
$70 million cash payment relating to the NHTSA Consent Order paid on September 18, 2015.

67

Operating Activities —Nine Months Ended September 30, 2014
For the nine months ended September 30, 2014, our net cash provided by operating activities was $4,842 million and was primarily the result of:
(i)
net income of $540 million, adjusted to add back $2,375 million of depreciation and amortization expense(including amortization and accretion of debt discounts, debt issuance costs, fair market value adjustments and favorable and unfavorable lease contracts) and the non-cash $504 million loss on extinguishment of debt associated with the prepayment of the VEBA Trust Note;
(ii)
a $1,933 million increase in trade liabilities, primarily due to our production in September 2014 exceeding that of December 2013, the month that our annual plant shutdowns occur;
(iii)
a $568 million increase in accrued warranty costs, primarily due to a $407 million increase in our net adjustments to pre-existing warranties, which included the effects of recently approved recall campaigns;
(iv)
a $504 million obligation (including $7 million of interest accretion) associated with the MOU which we entered into with the UAW for its continued support of our WCM programs;
(v)
a $366 million increase in payables due to FCA as a result of increased purchases of vehicles, parts, services, tooling, machinery and equipment relative to cash disbursements during the third quarter of 2014;
(vi)
a $231 million increase in accrued vehicle residual value guarantees, primarily due to an increase in the number of GDP in-service vehicles;
(vii)
a $178 million increase in accrued sales incentives, primarily due to an increase in retail incentives owed to our U.S. dealers; and
(viii)
$133 million in foreign currency translation losses were recognized as a result of the March and September 2014 remeasurements related to the devaluation of the Venezuelan currency, partially offset by $4 million of net transaction gains to Revenues, net. Refer to Note 17, Venezuelan Currency Regulations and Devaluation, for further detail on both of these items.
These increases in our net cash provided by operating activities were partially offset by:
(i)
a $642 million increase in inventories, primarily due to seasonal impacts. In comparison, our inventory levels were lower in December 2013 due to our annual plant shutdowns in that month;
(ii)
$400 million of pension and OPEB contributions;
(iii)
a $353 million increase in trade receivables, primarily due to our shipments at the end of September 2014 exceeding those at the end of December 2013 as a result of our annual plant shutdowns in December. We generally receive payments on sales of vehicles in North America within a few days of shipment from our assembly plants;
(iv)
a $271 million increase in prepaid expense related to common capital investment with FCA; and
(v)
a $128 million repayment of capitalized interest on the VEBA Trust Note.
Investing Activities —Nine Months Ended September 30, 2015
For the nine months ended September 30, 2015, our net cash used in investing activities was $2,160 million and was primarily the result of:
(i)
$2,078 million of capital expenditures to support our investments in existing and future products; and
(ii)
$80 million of capital contributions to our joint venture partnership with FCA and Guangzhou Automobile Group Co., Ltd., or GAC.

68

Investing Activities —Nine Months Ended September 30, 2014
For the nine months ended September 30, 2014, our net cash used in investing activities was $2,542 million and was primarily the result of:
(i)
$2,576 million of capital expenditures to support our investments in existing and future products.
These cash outflows were partially offset by:
(i)
a $19 million decrease in Restricted cash, consistent with the terms of certain commercial agreements; and
(ii)
$18 million of proceeds from disposals of property, plant and equipment, primarily related to the sale of properties within the U.S.
Financing Activities —Nine Months Ended September 30, 2015
For the nine months ended September 30, 2015, our net cash used in financing activities was $4,761 million and was primarily the result of:
(i)
$3,718 million of debt payments, including $2,875 million related to the principal of the 2019 Notes, $466 million related to the Mexican development bank credit facilities, $254 million related to the Canadian Health Care Trust Notes; $24 million payment on Tranche B Term Loan due 2017; $13 million for Tranche B Term Loan due 2018 and $86 million related to capital leases and other financial obligations;
(ii)
a $1,338 million special distribution to our member, FCA NA;
(iii)
a $94 million dividend was deemed to be paid in exchange for an equity investment in our joint venture partnership with FCA and GAC; and
(iv)
$93 million of repayments of debt issuance premiums on secured senior notes.
These cash outflows were partially offset by:
(i)
proceeds of $500 million received from the Mexico Bank Loan which was used to prepay the Mexican development bank credit facilities.
Financing Activities —Nine Months Ended September 30, 2014
For the nine months ended September 30, 2014, our net cash used in financing activities was $1,814 million and was primarily the result of:
(i)
$1,970 million of distributions to members, comprised of a $1,900 million special distribution to members and $70 million for state tax withholding obligations and other taxes; and
(ii)
$165 million of debt repayments, including $77 million related to the Canadian Health Care Trust Notes, $24 million related to the Tranche B Term Loan due 2017, $22 million related to the Mexican development banks credit facility, $9 million related to the Tranche B Term Loan due 2018 and $33 million related to capital leases and other financial obligations.
These cash outflows were partially offset by:
(i) net proceeds of $368 million received from our refinancing transaction in February 2014, which consisted of:
(a)
$2,985 million of net proceeds from the secured senior notes;
(b)
$1,723 million of net proceeds from the Tranche B Term Loan due 2018;
(c)
$247 million of net proceeds from the Tranche B Term Loan due 2017; partially offset by

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(d)
$4,587 million prepayment of the VEBA Trust Note.

Net Industrial Cash
Our calculation of Net Industrial Cash, as well as a detailed discussion of this measure, is included below in —Non-GAAP Financial Measures —Net Industrial Cash.
Our Net Industrial Cash increased by $1,845 million from $1,759 million at December 31, 2014 to $3,604 million at September 30, 2015, primarily due to Free Cash Flow of $3,432 million for the nine months ended September 30, 2015 partially offset by a $1,338 million special distribution to our member, FCA NA. Refer to —Free Cash Flow, below and —Cash Flows, above for additional information.
Free Cash Flow
Our calculation of Free Cash Flow, as well as a detailed discussion of this measure, are included below in —Non-GAAP Financial Measures —Free Cash Flow.
Free Cash Flow for the nine months ended September 30, 2015 and 2014 totaled $3,432 million and $2,300 million, respectively.
The increase in Free Cash Flow from 2014 to 2015 was due to:
(i)
a $750 million increase in our cash generated from operations. Refer to —Cash Flows, Nine Months Ended September 30, 2015 compared to Nine Months Ended September 30, 2014, for additional information regarding the change in our cash generated from operations; and
(ii)
a $382 million decrease in our cash used in investing activities. Refer to —Cash Flows, Nine Months Ended September 30, 2015 compared to Nine Months Ended September 30, 2014, for additional information regarding the change in our cash used in investing activities.
Defined Benefit Pension Plans and OPEB Plans —Contributions
During the nine months ended September 30, 2015, employer contributions of $3 million and $47 million were made to both our U.S. and Canadian funded pension plans. For the remainder of 2015, employer contributions to our U.S. funded pension plans are expected to be $229 million, of which $2 million will be made to satisfy minimum funding requirements and $227 million will be discretionary; employer contributions to our Canadian funded pension plans are expected to be $26 million, of which $25 million will be made to satisfy minimum funding requirements and $1 million will be discretionary.
Employer contributions to our unfunded pension and OPEB plans amounted to $13 million and $128 million, respectively, for the nine months ended September 30, 2015. Employer contributions to our unfunded pension and OPEB plans for the remainder of 2015 are expected to be $3 million and $42 million, respectively, which represent the expected benefit payments to participants.
Our funding policy for defined benefit pension plans is to contribute at least the minimum amounts required by applicable laws and regulations. Occasionally, additional discretionary contributions in excess of those legally required are made to achieve certain desired funding levels. In the U.S. and Canada, these excess amounts are tracked, and the resulting credit balance can be used to satisfy minimum funding requirements in future years. While the usage of credit balances to satisfy minimum funding requirements is subject to our benefit plans maintaining certain funding levels, we expect to be able to utilize a combination of credit balances and voluntary contributions in 2015 in order to avoid significant increases in future cash contribution levels.
Out-of-Period Adjustment
During the three months ended March 31, 2015, we recorded an out-of-period adjustment related to our U.S. pension plans. We determined the adjustment was immaterial to our current and previously filed financial statements. Refer to Note 14, Employee Retirement and Other Benefits, for additional information.

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Non-GAAP Financial Measures
We monitor our operations through the use of several non-GAAP financial measures: Adjusted Net Income (Loss), Modified Operating Profit (Loss); Modified Earnings Before Interest, Taxes, Depreciation and Amortization, which we refer to as Modified EBITDA; Net Industrial Cash (Debt) and Free Cash Flow. We believe that these non-GAAP financial measures provide useful information about our operating results and enhance the overall ability to assess our financial performance. They provide us with comparable measures of our financial performance based on normalized operational factors which then facilitate 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.
These financial measures may not be comparable to other similarly titled measures of other companies and are not an alternative to net income (loss) or income (loss) from operations as calculated and presented in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. These measures should not be used as a substitute for any U.S. GAAP financial measures.
Adjusted Net Income (Loss)
Adjusted Net Income (Loss) is defined as net income (loss), including income (loss) attributable to non-controlling interests, excluding the impact of items that we consider infrequent. We use Adjusted Net Income (Loss) as a key indicator of the trends in our overall financial performance, excluding the impact of such infrequent items.
Modified Operating Profit (Loss)
We measure Modified Operating Profit (Loss) to assess the performance of our core operations, establish operational goals and forecasts that are used to allocate resources, and evaluate our performance period over period. Modified Operating Profit (Loss) is computed starting with adjusted net income (loss), including income (loss) attributable to non-controlling interests, and then adjusting the amount to (i) add back income tax expense and exclude income tax benefits, (ii) add back net interest expense, (iii) add back (exclude) all pension, OPEB and other employee benefit costs (gains) other than service costs, (iv) add back restructuring expense and exclude restructuring income, (v) add back other financial expense, (vi) add back losses and exclude gains due to cumulative change in accounting principles, (vii) exclude non-controlling interests and (viii) add back certain other costs, charges and expenses, which include the impact of infrequent items factored into the calculation of Adjusted Net Income (Loss). We also use performance targets based on Modified Operating Profit (Loss) as a factor in our incentive compensation calculations for our represented and non-represented employees.
Modified EBITDA
We measure the performance of our business using Modified EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We compute Modified EBITDA starting with net income (loss) adjusted to Modified Operating Profit (Loss) as described above, and then adding back depreciation and amortization expense (excluding depreciation and amortization expense for vehicles held for lease). We believe that Modified EBITDA is useful to determine the operational profitability of our business, which we use as a basis for making decisions regarding future spending, budgeting, resource allocations and other operational decisions.

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The reconciliation of net income (loss) to Adjusted Net Income, Modified Operating Profit and Modified EBITDA is set forth below (in millions of dollars):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
70

 
$
611

 
$
3,249

 
$
540

Plus:
 
 
 
 
 
 
 
 
Charge for MOU with the UAW (1)
 
—

 
—

 
—

 
672

Tax status change (2)
 
—

 
—

 
(2,279
)
 
—

NHTSA Consent Order (3)
 
—

 
—

 
90

 
—

Change in estimate for future recall campaign costs (9)
 
848

 
—

 
848

 
—

Tianjin (China) port explosions (8)
 
159

 
—

 
159

 
—

(Gain) Loss on extinguishment of debt, net (4) (5) (6) (7)
 
(18
)
 
—

 
63

 
504

Other
 
33

 
—

 
33

 
—

Tax effect of adjustments
 
(349
)
 
—

 
(382
)
 
—

Adjusted Net Income
 
$
743

 
$
611

 
$
1,781

 
$
1,716

Plus:
 
 
 
 
 
 
 
 
Income tax expense
 
455

 
162

 
1,193

 
213

Net interest expense 
 
122

 
192

 
447

 
597

Net pension, OPEB and other employee benefit costs (gains) other than service costs
 
(67
)
 
(20
)
 
(145
)
 
(18
)
Restructuring (income) expense, net
 
(1
)
 
1

 
(8
)
 
5

Other financial expense, net
 
19

 
—

 
37

 
4

Modified Operating Profit
 
$
1,271

 
$
946

 
$
3,305

 
$
2,517

Plus:
 
 
 
 
 
 
 
 
Depreciation and amortization expense
 
784

 
819

 
2,337

 
2,347

Less:
 
 
 
 
 
 
 
 
Depreciation and amortization expense for vehicles held for lease
 
(76
)
 
(99
)
 
(207
)
 
(219
)
Modified EBITDA
 
$
1,979

 
$
1,666

 
$
5,435

 
$
4,645

(1)
In the first nine months of 2014, we recorded an infrequent charge of $672 million, which reflected the costs associated with the January 2014 MOU to supplement the existing collective bargaining agreement with the UAW in exchange for the UAW's specific commitment to our continued roll-out of our WCM programs and long-term business plan. Refer to Note 15, Other Transactions with Related Parties, for additional information.
(2)
The FCA US LLC U.S. partnership was terminated as of January 1, 2015. The Company is no longer treated as a partnership for U.S. federal, state and local tax purposes. As such, on January 1, 2015, we recorded a net deferred tax asset of approximately $3,692 million of which $2,183 million primarily related to changes in statutory rates utilized to calculate net deferred tax assets was recognized as a deferred tax benefit. Additionally, we recorded $96 million related to changes in statutory rates utilized to calculate prepaid tax assets which was recognized as a current tax benefit. Refer to Note 10, Income Taxes, for additional information.
(3)
Pursuant to the NHTSA Consent Order, the Company made a $70 million cash payment to NHTSA on September 18, 2015 and will spend approximately $20 million on industry and consumer outreach activities and incentives to enhance certain recall and service campaign completion rates. Refer to Note 11, Commitments, Contingencies and Concentrations, for additional information.
(4)
In connection with the May 14, 2015 redemption of our 2019 Notes, we recognized a $71 million loss on extinguishment of debt, which consisted of the payment of a "make-whole" premium in accordance with the terms of the indenture and the write-off of the unamortized debt issuance costs partially offset by the write-off of the remaining unamortized debt premium. Refer to Note 9, Financial Liabilities, for additional information.

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(5)
In connection with the March 20, 2015 prepayment of the Mexico development bank credit facilities of 7.2 billion Pesos ($466 million), including accrued and unpaid interest, we recognized a $10 million loss on extinguishment of debt, consisting of the write-off of the remaining unamortized debt issuance costs. Refer to Note 9, Financial Liabilities, for additional information.
(6)
In connection with the July 31, 2015 prepayment of the Canadian HCT Tranche A Note of the remaining scheduled payments due on June 30, 2016 and June 30, 2017, we recognized an $18 million gain on extinguishment of debt. Refer to Note 9, Financial Liabilities, for additional information.
(7)
In connection with the February 2014 prepayment of the VEBA Trust Note, with an original face amount of $4,587 million, we recognized a $504 million loss on extinguishment of debt, consisting primarily of the remaining unamortized debt discount. Refer to Note 9, Financial Liabilities, for additional information.
(8)
During the three months ended September 30, 2015, based on management's current assessment, we recorded $99 million of incentives as a reduction to Revenues, net related to vehicles affected by the explosions. In addition, we recorded a charge of $60 million to reduce the value of our inventory held in China to the estimated net realizable value for our vehicles that were impacted by the explosions in Tianjin, China. Refer to Note 11, Commitments, Contingencies and Concentrations, for additional information. Our non-GAAP financial measures for the three months ended September 30, 2015 exclude these charges.
(9)
Given recent 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 gives greater weight to the more recent calendar year trends in recall campaign activity, has been added to the adequacy assessment to estimate future recall costs. This reassessment resulted in a change in estimate for the campaign accrual of $848 million for the U.S. and Canada for estimated future recall campaign costs for vehicles sold in prior periods, which has been excluded from our non-GAAP financial measures for the three and nine months ended September 30, 2015. Refer to Note 8, Accrued Expenses and Other Liabilities, for additional information.
Net Industrial Cash
We compute Net Industrial Cash as cash and cash equivalents less total financial liabilities. We use Net Industrial Cash as a measure of our financial leverage and believe it is useful in evaluating our financial leverage.
The following is a reconciliation of cash and cash equivalents to Net Industrial Cash (in millions of dollars):
 
 
September 30, 2015
 
December 31, 2014
Cash and cash equivalents
 
$
12,950

 
$
14,538

Less: Financial liabilities (1)
 
(9,346
)
 
(12,779
)
Net Industrial Cash
 
$
3,604

 
$
1,759

(1)
Refer to Note 9, Financial Liabilities, of our accompanying condensed consolidated financial statements for additional information regarding our financial liabilities.
Free Cash Flow
Free Cash Flow is defined as cash flows from operating and investing activities, excluding any debt related investing activities. Free Cash Flow is presented because we believe that it is used by analysts and other parties in evaluating the Company. However, Free Cash Flow does not necessarily represent cash available for discretionary activities, as certain debt obligations and capital lease payments must be funded out of Free Cash Flow. We also use performance targets based on Free Cash Flow as a factor in our incentive compensation calculations for our non-represented employees.
Free Cash Flow should not be considered as an alternative to, or substitute for, net change in cash and cash equivalents. We believe it is important to view Free Cash Flow as a complement to our consolidated statements of cash flows.

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The following is a reconciliation of Net Cash Provided by Operating and Investing Activities to Free Cash Flow (in millions of dollars):
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
Net Cash Provided by Operating Activities
 
$
5,592

 
$
4,842

Net Cash Used in Investing Activities
 
(2,160
)
 
(2,542
)
Free Cash Flow
 
$
3,432

 
$
2,300

SCUSA Private-Label Financing Agreement
In February 2013, we entered into a private-label financing agreement, which we refer to as the SCUSA Agreement, with Santander Consumer USA Inc., or SCUSA, an affiliate of Banco Santander. The financing arrangement launched on May 1, 2013. Under the SCUSA Agreement, SCUSA provides a wide range of wholesale and retail financing services to our dealers and consumers in accordance with its usual and customary lending standards, under the Chrysler Capital brand name. The financing services include credit lines to finance our dealers’ acquisition of vehicles and other products that we sell or distribute, retail loans and leases to finance consumer acquisitions of new and used vehicles at our dealerships, financing for commercial and fleet customers, and ancillary services. In addition, SCUSA works with dealers to offer them construction loans, real estate loans, working capital loans and revolving lines of credit.
The SCUSA Agreement has a ten year term commencing February 2013, 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 us an upfront, nonrefundable payment of $150 million in May 2013, which was recognized as Deferred revenue and is being amortized over ten years. As of September 30, 2015, $114 million remained in Deferred revenue in the accompanying Condensed Consolidated Balance Sheets.
We have provided SCUSA with limited exclusivity rights to participate in specified minimum percentages of certain of our 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 with respect to consumer leases, subject to specific provisions in the SCUSA Agreement, including limitations on our participation in gains and losses. Our dealers and retail customers also obtain funding from other financing sources.
Other Repurchase Obligations
In accordance with the terms of other wholesale financing arrangements in Mexico, we are 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. 
As of September 30, 2015, the maximum potential amount of future payments required to be made in accordance with these other wholesale financing arrangements was approximately $314 million and was based on the aggregate repurchase value of eligible vehicles financed through such arrangements in the respective dealer’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 million at September 30, 2015, 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. The estimates are based on historical experience.
Other Matters
On July 9, 2012, a lawsuit was filed against us in the Superior Court of Decatur County, Georgia with respect to a March 2012 fatality in a rear-impact collision involving a 1999 Jeep Grand Cherokee. For further discussion of this lawsuit refer to Note 11, Commitments, Contingencies and Concentrations.
On July 24, 2015, we entered into a Consent Order with NHTSA, resolving the issues raised by NHTSA with respect to our execution of 23 recall campaigns in NHTSA’s Special Order issued to the Company on May 22, 2015 and further addressed at a

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NHTSA public hearing held on July 2, 2015. For further discussion of the Consent Order with NHTSA refer to Note 11, Commitments, Contingencies and Concentrations.
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, China, impacted several storage areas containing approximately 25,000 FCA branded vehicles of which approximately 13,300 are owned by us and approximately 11,400 vehicles previously sold to our distributor. As of result of the explosions, nearly all of the vehicles in the Port were impacted and some were destroyed. For further discussion of the explosions at the Port of Tianjin refer to Note 11, Commitments, Contingencies and Concentrations.
Employees
The following summarizes the number of our salaried and hourly employees as of the dates noted below:
 
 
September 30, 2015
 
December 31, 2014
Salaried
 
22,192

 
21,628

Hourly
 
58,506

 
56,189

Total
 
80,698

 
77,817

In the U.S. and Canada combined, substantially all of our hourly employees and approximately 19 percent of our salaried employees were represented by unions under collective bargaining agreements. These represented employees are approximately 64 percent of our worldwide workforce as of September 30, 2015. The UAW and Unifor represent substantially all of these represented employees in the U.S. and Canada, respectively.
On October 22, 2015, FCA US and the UAW signed a new four-year national collective bargaining agreement, which will expire in September 2019. For further discussion of the UAW contract negotiations refer to Note 20, Subsequent Events. The collective bargaining labor agreement between FCA Canada and Unifor will expire September 2016.
On January 21, 2014, we entered into the MOU with the UAW to supplement our existing collective bargaining agreement. For the discussion on the MOU agreement with the UAW refer to Note 15, Other Transactions with Related Parties.



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Recent Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board, or FASB, issued updated guidance to simplify the accounting for adjustments made to provisional amounts recognized in a business combination. This update eliminates the requirement to retrospectively account for these provisional adjustments. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2015 with early adoption permitted. We will comply with this guidance as of January 1, 2016 and it will not have a material impact on our consolidated financial statements.

In August 2015, the FASB issued updated guidance which amends various SEC paragraphs to allow presentation of debt issue costs related to line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. These amendments are effective upon issuance and will not have a material impact on our consolidated financial statements.

In July 2015, the FASB issued updated guidance to simplify the subsequent measurement of inventory. The new standard applies to all valuations of inventory excluding the last-in, first-out (LIFO) or the retail inventory method. Under the new standard, inventory should be valued at the lower of cost or net realizable value. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted. We will comply with this guidance as of January 1, 2017, and we are evaluating the potential impact on our consolidated financial statements.
In May 2015, the FASB issued updated guidance on the presentation of investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient approach. Investments that calculate net asset value per share (or its equivalent) where the practical expedient is applied will not be included in the fair value hierarchy and investments where the practical expedient is not applied will continue to be reported in the fair value hierarchy. This amendment removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value (or its equivalent) where the practical expedient is applied. The guidance requires that a company continues to disclose the nature and risks of investments and whether if the investments were sold, the probability of those investments being sold at amounts different from the net asset value. This guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We will comply with this guidance no later than January 1, 2016. The adoption of this standard will significantly reduce the amounts presented in our fair value hierarchy disclosure but it will not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued updated guidance on a customer’s accounting for fees paid in cloud computing agreements. The update provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We will comply with this guidance no later than January 1, 2016, and we are evaluating the potential impact on our consolidated financial statements.
In April 2015, the FASB issued updated guidance on the presentation of debt issuance costs. The guidance requires debt issuance costs to be presented as a direct deduction from debt balances on the statement of financial position, similar to the presentation of debt discounts. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We will comply with this guidance no later than January 1, 2016, and it will not have a material impact on our consolidated financial statements.
In February 2015, the FASB issued updated guidance on the consolidation assessment over certain legal entities. The guidance modifies the evaluation of whether limited partnerships and similar legal entities are Variable Interest Entities ("VIEs") or voting interest entities and eliminates the presumption that a general partner should consolidate a limited partnership. The guidance also affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships by placing more emphasis on risk of loss when determining a controlling financial interest. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. We will comply with this guidance as of January 1, 2016. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In January 2015, the FASB issued guidance that eliminates the concept of extraordinary items from generally accepted accounting principles. As a result, this standard eliminates the requirement to present transactions or events that are both unusual in nature and infrequent in occurrence separately in the income statement, net of tax, after income from continuing operations. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained

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and will be expanded to include items that are both unusual in nature and infrequently occurring. The guidance is effective for periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance as of January 1, 2015, and it did not have a material impact on our consolidated financial statements.
In August 2014, the FASB issued guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We will comply with this guidance as of December 31, 2016.
In May 2014, the FASB issued updated guidance that 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. This new revenue recognition model defines a five-step process to achieve this objective. The updated guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In April 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard, with early adoption of guidance permitted. On July 9, 2015 the FASB approved the one-year deferral and the new standard will become effective for periods beginning after December 15, 2017. We are currently evaluating the method of implementation and impact of adoption on our consolidated financial statements and will comply with this guidance no later than January 1, 2018.
In April 2014, the FASB issued updated guidance that changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The guidance also requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.  This guidance is effective for fiscal periods beginning after December 15, 2014, and is to be applied prospectively. We adopted this guidance as of January 1, 2015, and it did not have a material impact on our consolidated financial statements.
Critical Accounting Estimates
The accompanying condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. For a discussion of our critical accounting estimates, refer to Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Estimates and Item 8 —Financial Statements and Supplementary Data —Note 2, Basis of Presentation and Significant Accounting Policies, included in our 2014 Form 10-K, as supplemented by the subsequent discussion of Warranty and Product Recalls.
Warranty and Product Recalls

We establish accruals for product warranties at the time the sale is recognized. We issue various types of product warranties under which we generally guarantee the performance of products delivered 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 our 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 our assumptions could materially affect our results of operations.

We periodically initiate voluntary service and recall actions to address various customer satisfaction, safety and emissions issues related to vehicles we sell. Included in the accrual is the estimated cost of these service and recall actions. The estimated future costs of these actions are based primarily on historical claims experience for our vehicles. Given recent 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 gives greater weight to the more recent calendar year trends in recall campaign activity was added to our adequacy assessment during the three months ended September 30, 2015. This resulted in an increase in the accrual rate per vehicle. Refer to Note 8, Accrued Expenses and Other Liabilities, for additional information.


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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 us to make expenditures in excess of established accruals over an extended period of time and in a range of amounts that cannot be reasonably estimated. Our estimate of warranty and additional service and recall action obligations is re-evaluated on a quarterly basis. 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 actual 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.

Venezuela Devaluation
Due to the continuing deterioration of the economic conditions in Venezuela, as of June 30, 2015 we came to believe it is unlikely that the majority of our future transactions to exchange VEF for USD will be at the SICAD rate. Rather, we determined that the SIMADI exchange rate is the most appropriate rate to use based on the volume of VEF to USD exchange transactions that have occurred in Venezuela utilizing the SIMADI exchange rate as compared to the SICAD.
As a result of adopting the SIMADI exchange rate at June 30, 2015, we recorded remeasurement charges on our VEF denominated net monetary assets, including cash and cash equivalents in Venezuela, of $59 million as a reduction to Revenues, net using an exchange rate of 197.3 VEF per USD. We also recorded a charge of $30 million to reduce inventory held in Venezuela to the lower of cost or market as, due to pricing controls, we are unable to increase the VEF sales price in Venezuela to compensate for the devaluation. The September 30, 2015 exchange rate of 199 VEF to USD did not result in the recording of material charges during the three months ended September 30, 2015.
As of September 30, 2015, we continue to control and therefore consolidate our Venezuelan operations. We will continue to assess conditions in Venezuela and if in the future, we conclude that we no longer maintain control over our operations in Venezuela, we may incur a pre-tax charge of approximately $300 million using the current exchange rate of 199 VEF to USD. Refer to Note 17, Venezuelan Currency Regulations and Devaluation, for additional information.
Share-Based Compensation
During the second quarter of 2015, certain employees of ours received awards which vest in shares of FCA, under a new FCA Equity Incentive Plan. Therefore, we recognize compensation cost for the awards in our financial statements over the requisite service period in accordance with Accounting Standards Codification 718. Also, as we will not provide any consideration to FCA for the awards, we consider this transaction to be a capital contribution from FCA. Share based compensation expense is recorded in Selling, administrative and other expenses in the accompanying Condensed Consolidated Statements of Income. Refer to Note 18, Share-Based Compensation, for additional information.

78

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Omitted under the reduced disclosure format permitted by General Instruction H(2)(c) of Form 10-Q.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out by our management, under the supervision and with the participation of our Chief Executive Officer, Chief Operating Officer and President, or CEO, and our Chief Financial Officer and Senior Vice President, or CFO, of the effectiveness of the design and operation of our disclosure controls and procedures.
Based upon that evaluation, our management, including our CEO and CFO, have concluded that as of the end of the period covered by this report these disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms, and that such information is communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the three months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

79

PART II —Other Information
Item 1. Legal Proceedings
Refer to Note 11, Commitments, Contingencies and Concentrations, for information regarding legal proceedings.
Item 6. Exhibits
 
 
 
Exhibit
Number
 
Description of Documents 
 
 
 
31.1*
 
Section 302 Certification of the Chief Executive Officer
 
 
 
31.2*
 
Section 302 Certification of the Chief Financial Officer
 
 
 
32.1†
 
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
32.2†
 
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101.INSø
 
XBRL Instance Document
 
 
 
101.SCHø
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CALø
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEFø
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LABø
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PREø
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed electronically herewith
†
Furnished herewith
ø
Submitted electronically herewith

80

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
 
 
 
FCA US LLC
 
 
 
 
Dated: November 5, 2015
 
 
By:
/s/ RICHARD K. PALMER
 
 
 
 
Richard K. Palmer
 
 
 
 
Senior Vice President and Chief Financial Officer

81

FCA US LLC
Exhibit Index
 
 
 
Exhibit
Number
 
Description of Documents 
 
 
 
31.1*
 
Section 302 Certification of the Chief Executive Officer
 
 
 
31.2*
 
Section 302 Certification of the Chief Financial Officer
 
 
 
32.1†
 
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
32.2†
 
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101.INSø
 
XBRL Instance Document
 
 
 
101.SCHø
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CALø
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEFø
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LABø
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PREø
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed electronically herewith
†
Furnished herewith
ø
Submitted electronically herewith

82

FCA US LLC Reports