Risks and uncertainties

MAIN RISKS AND UNCERTAINTIES TO WHICH EXOR S.p.A. AND ITS CONSOLIDATED SUBSIDIARIES ARE EXPOSED

RISKS ASSOCIATED WITH GENERAL ECONOMIC CONDITIONS

The earnings and financial position of EXOR and its principal investment holdings are particularly influenced by the general state of the economy in the countries in which they operates and by the variables which affect performance, including increases or decreases in gross national product, access to credit, the level of consumer and business confidence, the cost of raw materials and the rate of unemployment.

The principal sectors of business are also subject to highly cyclical demand and tend to reflect the overall performance of the economy, in certain cases even amplifying the effects of economic trends.

In terms of severity, duration and scope, the recent financial crisis has caused the most severe economic recession of these last decades, both in the Eurozone and in a large part of the advanced economies. At present, economic growth and international trade are occurring at a moderate pace and irregularly across geographical areas.

Moreover, the evolution of world monetary and financial market conditions and the associated uncertainties, especially in emerging markets, could adversely affect present economic conditions.

The principal risks associated with a slowdown in the markets in which the subsidiaries and associates currently operate comprise increases in energy prices and fluctuations in raw materials or possible contractions in infrastructure spending; in addition, in the euro area, unemployment, although tending to stabilize, remains at high levels, and a slow or in inefficient implementation of structural reforms and budget adjustments in the public and private sector will continue to hamper the pace of the recovery.

Therefore, it is not possible to provide any indication about the future trends of the above factors and variables which could nevertheless adversely affect the demand for products and services, earnings, business prospects or the financial situations of EXOR and its subsidiaries and associates.

RISKS ASSOCIATED WITH EXOR’S ACTIVITIES

EXOR carries out investment activities which involve typical risks such as high exposure to certain sectors or investments, difficulties in identifying new investment opportunities that meet the characteristics of the Group’s objectives or difficulties in disposing of investments owing to changes in general economic conditions. The potential difficulties connected with making new investments such as unexpected costs or liabilities could have an adverse effect on the Group’s earnings and financial position.

The ability to access capital markets or other forms of financing and the related costs are dependent, among other things, on the Group’s credit rating.

Any downgrade by the rating agencies could limit the Group's ability to access capital markets and increase the cost of capital, with a consequent adverse effect on its earnings and financial position.

Standard & Poor's has confirmed EXOR's long-term and short-term debt ratings, respectively, at ‘BBB+’ and ‘A-2’, with a stable outlook.

EXOR's policy and that of the companies in the so-called Holdings System is to keep liquidity available in demand or short-term deposits and readily negotiable money market instruments, bonds and equity securities, allocating such investments over an appropriate number of counterparties, with the principal purpose of having investments which can readily be converted into cash. The counterparties are chosen according to their creditworthiness and reliability.

However, in consideration of the current international financial market situation, market conditions which might negatively affect the normal operations of financial transactions cannot be excluded.

EXOR's earnings not only depend on the market value of its principal investment holdings but also on the dividends they pay and, in the end, reflect their earnings and financial performance and investment and dividend payment policies. A worsening of the financial market conditions and the earnings of the principal investment holdings could affect EXOR's earnings and cash flows.

EXOR operates through its investments in subsidiaries and associates in Agricultural and Construction Equipment (CNH Industrial Group), in the automobile market (Fiat Group), in real estate services (C&W Group), in real estate (Almacantar Group) and in professional football (Juventus Football Club). As a result, EXOR is exposed to risks typical of the markets and industries in which such subsidiaries and associates operate.

At December 31, 2013, the investments in CNH Industrial (40.22% of share capital) and in Fiat (30.05% of share capital) represented, respectively, 29.4% and 21.6% of the current value of EXOR's investment portfolio, calculated on the basis of the NAV (Net Asset Value) method described on page 5. Therefore, the performance of the CNH Industrial Group and the Fiat Group has a very significant impact on EXOR's earnings and financial position. 

EXOR and its subsidiaries and associates are exposed to fluctuations in currency and interest rates and use financial hedging instruments, compatible with the risk management policies adopted by each of them. Despite these hedging transactions, sudden fluctuations in currency or interest rates could have an adverse effect on earnings and financial position.

The subsidiaries and associates are generally exposed to credit risk which is managed by specific operating procedures. Given its activities, EXOR is not significantly exposed to such risk.

EXOR and its subsidiaries and associates are exposed to risks connected with the outcome of pending litigation for which they set aside, if appropriate, specific risk provisions. However, negative effects on the earnings and financial position of EXOR and/or its subsidiaries and associates connected with such risks cannot be excluded.

EXOR and its subsidiaries and associates are taxed on income in Italy and outside Italy; during the course of ordinary activities they may be subject to controls by Italian and foreign tax authorities. Even though the companies consider that the tax estimates are reasonable, any disputes correlated thereto may have a material adverse effect on earnings.

The following paragraphs indicate the main specific risks and uncertainties of the companies in consolidation (CNH Industrial Group, Fiat Group, C&W Group and Juventus Football Club).

CNH INDUSTRIAL GROUP

Risks related to the business, strategy and operations

Gruppo CNH Industrial - Le condizioni generali dell’economia influenzano l’attività di CNH Industrial e delle sue controllate

CNH Industrial Group - Global economic conditions impact the business of CNH Industrial and its subsidiaries

The Group’s earnings and financial position are, and will continue to be, influenced by various macroeconomic factors – including increases or decreases in gross domestic product, the level of consumer and business confidence, changes in interest rates on consumer and business credit, energy prices, and the cost of commodities or other raw materials – which exist in the various countries in which the Group operates, it being understood that such macroeconomic factors vary from time to time and their effect on the Group’s earnings and financial position cannot be specifically and singularly assessed and/or isolated.

Financial conditions in several regions continue to place significant economic pressures on existing and potential customers, including the Group’s dealer networks. As a result, some dealers and customers may delay or cancel plans to purchase the Group’s products and services and may not be able to fulfill their obligations to the Group in a timely fashion. Further, the Group’s suppliers may be impacted by economic pressures, which may adversely affect their ability to fulfill their obligations to the Group. These factors could result in product delays, increased accounts receivable, defaults and inventory challenges. There is particular concern about economic conditions in Europe (and potentially the long-term viability of the euro currency at least in its current geography and overall structure), which is at risk of being impacted by sovereign debt levels (and government taxing and spending actions to address such issues) and other severe pressures on the banking system in certain European Union countries. It is uncertain whether central bank or governmental measures will reduce or eliminate this risk. In addition, other governments may continue to implement measures designed to slow the economic growth rate in those countries (e.g., higher interest rates, reduced bank lending and other anti-inflation measures). If there is significant deterioration in the global economy or the economies of key regions, the demand for the Group’s products and services would likely decrease and the Group’s results of operations, financial position and cash flows could be materially and adversely affected.

In addition, the continuation of adverse market conditions in certain businesses in which the Group participates could cause many companies, including the Group, to carefully evaluate whether certain intangible assets have become impaired. The factors that the Group would evaluate to determine whether an impairment charge is necessary require management judgment and estimates. The estimates are impacted by a number of factors, including, but not limited to, worldwide economic factors and technological changes. Any of these factors, or other unexpected factors, may require the Group to consider whether it needs to record an impairment charge. In the event the Group is required to record an impairment charge with respect to certain intangible assets, it would have an adverse impact on the Group’s financial position and results of operations.

CNH Industrial Group - The Group is exposed to political, economic and other risks as a result of operating a global business

The Group manufactures and sells its products and offers its services on several continents and in numerous countries around the world. Given the global nature of the Group’s activities, the Group is exposed to risks affecting any worldwide markets operator, including those related to:

  • changes in (and possibly conflicting) laws, regulations and policies that affect, among other things:
  • import and export duties and quotas;
    • currency restrictions;
    • the design, manufacture and sale of the Group’s products, including, for example, engine emissions regulations;
    • interest rates and the availability of credit to the Group’s dealers and customers;
    • property and contractual rights;
    • where and to whom products may be sold;
    • taxes;
  • regulations from changing world organization initiatives and agreements;
  • changes in the dynamics of the industries and markets in which the Group operates;
  • varying and unpredictable needs and desires of customers;
  • varying and unexpected actions of the Group’s competitors;
  • labor disruptions;
  • disruption in the supply of raw materials and components;
  • changes in governmental debt relief and subsidy program policies in certain significant markets such as Brazil;
  • war, civil unrest and terrorism.

Unfavorable developments in any one of these areas (which may vary from country to country) could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

CNH Industrial Group - CNH Industrial is subject to extensive anti-corruption and antitrust laws and regulations

CNH Industrial’s worldwide operations must comply with all applicable laws, which may include the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act or other anti-corruption laws, as well as antitrust regulations. These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Antitrust regulations prohibit or limit various types of conduct, agreements or other arrangements entered into by the company and its subsidiaries. Recently, there has been a substantial increase in the global enforcement of anti-corruption and antitrust laws. CNH Industrial is committed to ongoing compliance with the applicable regulations, and has a compliance program in place designed to reduce the likelihood of potential violations of such laws. However, violations of these laws could result in criminal or civil sanctions and an adverse effect on CNH Industrial’s reputation, business, results of operations and financial position.

CNH Industrial Group - Difficulty in obtaining financing or refinancing existing debt could impact the Group’s financial performance

The Group’s future performance will depend on, among other things, its ability to repay or finance debt repayment obligations and planned investments from operating cash flow, available liquidity, the renewal or refinancing of existing bank loans and/or facilities and possible recourse to capital markets or other sources of financing. A further decline in revenues could have a negative impact on the cash-generating capacity of its operating activities. The Group could, therefore, find itself in the position of having to seek additional financing and/or having to refinance existing debt, including in unfavorable market conditions with limited availability of funding and a general increase in funding costs. Any difficulty in obtaining financing could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

The Group’s ability to access the capital markets or other forms of financing and related costs are highly dependent, among other things, on the credit ratings of the Group. CNH Industrial is currently rated below investment grade, with ratings on its long-term debt of “BB+” (with a stable outlook) and a short-term rating of “B” from Standard & Poor’s Rating Services (“S&P”), and a “Ba1” corporate family rating with a stable outlook from Moody’s Investors Service, Inc. (“Moody’s”). Rating agencies may review their ratings, and any downgrade would increase the Group’s cost of capital, could potentially limit its access to sources of financing and could have a material adverse effect on its business prospects, earnings and/or financial position.

CNH Industrial Group - The Group is subject to risks associated with exchange rate fluctuations, interest rate changes and other market risks

The Group operates in numerous markets worldwide and is accordingly exposed to market risks stemming from fluctuations in currency and interest rates. The exposure to currency risk is mainly linked to the differences in the geographic distribution between the Group’s manufacturing and commercial activities, resulting in cash flows from exports denominated in currencies different from those associated with production activities.

The Group uses various forms of financing to cover the funding requirements of its industrial activities and for financing offered to customers and dealers. The Group’s financial services companies implement a matching policy to offset the impact of differences in rates of interest on the financed portfolio and related liabilities. Nevertheless, future potential changes in interest rates can result in increases or decreases in revenues, finance costs and margins, which cannot be currently foreseen and quantified.

Consistent with its risk management policies, the Group seeks to manage currency and interest rate risk through the use of financial hedging instruments. Despite such hedges being in place, sudden fluctuations in currency or interest rates could have an adverse effect on the Group’s business prospects, earnings and/or financial position.

The Group’s financial services activities are also subject to the risk of insolvency of dealers and customers, as well as unfavorable economic conditions in markets where these activities are carried out, which the Group seeks to mitigate through credit policies applied to dealers and customers. In addition, the Group’s financial services activities are subject to laws and government actions that may, among other things, prevent the Group’s financial services subsidiaries from enforcing legal rights and remedies.

CNH Industrial Group - The Group faces risks associated with its relationships with employees

In many countries where the Group operates, Group employees are protected by various laws and/or collective labor agreements that guarantee them, through local and national representatives, the right of consultation on specific matters, including downsizing or closure of production activities and reductions in personnel. Laws and/or collective labor agreements applicable to the Group could impair its flexibility in reshaping and/or strategically repositioning its business activities. Therefore, the Group’s ability to reduce personnel or implement other permanent or temporary redundancy measures is subject to government approvals and/or the agreement of labor unions where such laws and agreements are applicable. Industrial action by employees could also have an adverse impact on the Group’s business activities.

CNH Industrial Group - Reduced demand for equipment would reduce the Group’s sales and profitability

The performance of the agricultural equipment market is influenced, in particular, by factors such as:

  • the price of agricultural commodities and the relative level of inventories;
  • the profitability of agricultural enterprises;
  • the demand for food products;
  • agricultural policies, including aid and subsidies to agricultural enterprises provided by governments and/or supranational organizations as well as alternative fuel mandates.

In addition, unfavorable climatic conditions, especially during the spring, a particularly important period for generating sales orders, could have a negative impact on decisions to buy agricultural equipment and, consequently, on the Group’s revenues.

The performance of the construction equipment market is influenced, in particular, by factors such as:

  • public infrastructure spending;
  • new residential and non-residential construction.

The performance of the trucks and commercial vehicles market is influenced, in particular, by factors such as:

  • changes in global market conditions, including changes in levels of business investment and sales of commodities;
  • public infrastructure spending.

The above factors can significantly influence the demand for agricultural and construction equipment, as well as for trucks and commercial vehicles, and consequently, the Group’s financial results.

Although the Group’s business has not been influenced predominantly by any of the above factors individually, certain of the above factors have occurred in the past or may occur in the future (taking into account the global nature of the Group’s activities).

CNH Industrial Group - The Group depends on key suppliers for certain raw materials, parts and components

The Group relies upon key suppliers for certain raw materials, parts and components. The Group cannot guarantee that it will be able to maintain appropriate supply arrangements with these suppliers or otherwise ensure access to raw materials, parts and components. In some cases this access may be affected by factors outside of the Group’s control and the control of its suppliers. Adverse financial conditions and natural disasters, such as the March 2011 earthquake and tsunami in Japan, have in the past, and could in the future, cause some of the Group’s suppliers to face severe financial hardship and disrupt the Group’s access to critical raw materials, parts and components. Any disruption or shortage in the supply of raw materials, parts and components could negatively impact the Group’s costs of production, its ability to fulfill orders, its ability to achieve growth in product sales and the profitability of the Group’s business.

Certain companies within the Group use a variety of raw materials in their businesses, including steel, aluminum, lead, resin and copper, and precious metals such as platinum, palladium and rhodium. The prices of these raw materials fluctuate and, at times in recent periods, prices have increased significantly in response to changing market conditions. The Group seeks to manage this exposure, but it may not be successful in hedging these risks. Substantial increases in the prices for raw materials would increase the Group’s operating costs and could reduce profitability if the increased costs were not offset by changes in product prices.

CNH Industrial Group - Competitive activity, or failure by the Group to respond to actions by competitors, could adversely affect results of operations

Substantially all of the Group’s revenues are generated in highly competitive sectors that include the production and distribution of agricultural and construction equipment, trucks and commercial vehicles, and related powertrain systems. The Group faces competition from other international manufacturers and distributors of trucks and commercial vehicles in Europe, Asia and Latin America and from global, regional and local agricultural and construction equipment manufacturers, distributors and component suppliers in Europe, Asia, North America and Latin America. Certain of the Group’s global competitors have substantial resources and may be able to provide products and services at little or no profit or even at a loss to compete with certain Company’s product offerings. Aggressive pricing or other strategies pursued by competitors, unanticipated product or manufacturing delays or the Group’s failure to price its products competitively could adversely affect our business, results of operations and financial position. Additionally, there has been a trend towards consolidation in the trucks and construction equipment industry that has resulted in larger and potentially stronger competitors in the Company’s markets. These markets are highly competitive in terms of product quality, innovation, pricing, fuel economy, reliability, safety, customer service and financial services offered. Competition, particularly on pricing, has increased significantly in the Group’s areas of activity in recent years. Should the Group be unable to adapt effectively to external market conditions, this could have an adverse effect on the Group’s business prospects, earnings and/or financial position.

CNH Industrial Group - Costs of ongoing compliance with, and failure to comply with, environmental laws and regulations could have an adverse effect on the Group’s results of operations

The Group’s products and activities are subject to numerous local, national and international environmental laws and regulations, which are becoming increasingly stringent in many countries in which it operates. Such regulations govern, among other things, products – with requirements on emissions of polluting gases, increased fuel efficiency and safety becoming increasingly strict – and industrial plants – with requirements for reduced emissions, treatment of waste and water and prohibitions on soil contamination also becoming increasingly strict. To comply with such laws and regulations, the Group invests considerable research and development resources and expects it will continue to incur substantial costs in the future. Failure to comply with such laws and regulations would impact the products the Group sells and/or the markets in which such products are sold, which could adversely affect the Group’s financial position, results of operations and cash flows.

CNH Industrial Group - A decrease in government incentives may adversely affect the Group’s results

Government initiatives to stimulate consumer demand for products sold by the Group, such as changes in tax treatment or purchase incentives for new equipment, can substantially influence the timing and level of the Group’s revenues. The terms, size and duration of such government actions are unpredictable and outside of the Group’s control. Any adverse change in government policy relating to these initiatives could have a material adverse effect on the Group’s business prospects, operating results and/or financial position. For example, on December 31, 2013, the additional first-year “50% bonus” depreciation and increased expensing of property under Internal Revenue Code section 179 expired in the U.S. tax law. This could have an adverse effect on the Group’s business prospects in the U.S.

CNH Industrial Group - The Group’s future performance depends on its ability to innovate and on market acceptance of new or existing products

The success of the Group’s businesses depends on their ability to maintain or increase their market share in existing markets and to expand into new markets through the development of innovative, high-quality products that provide adequate profitability. In particular, the failure to develop and offer innovative products that compare favorably to those of the Group’s principal competitors in terms of price, quality, functionality and features, or delays in bringing strategic new products to market, or the inability to adequately protect the Group’s intellectual property rights, could result in reduced market share, which could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.

CNH Industrial Group - The Group’s existing operations and expansion plans in emerging markets could entail significant risks

The Group’s ability to grow its businesses depends to an increasing degree on its ability to increase market share, and operate profitably worldwide and in particular in emerging market countries, such as Brazil, Russia, India, China, Argentina, Turkey, Venezuela and South Africa. In addition, the Group could increase its use of suppliers located in such countries. The Group’s implementation of these strategies will involve a significant investment of capital and other resources and entail various risks. For example, the Group may encounter difficulties in obtaining the necessary governmental approvals in a timely manner. In addition, the Group may experience delays and incur significant costs in constructing facilities, establishing supply channels, and commencing manufacturing operations. Further, customers in these markets may not readily accept the Group’s products as opposed to products manufactured and commercialized by international and domestic competitors. The emerging markets countries may also be subject to a greater degree of economic and political volatility that could adversely affect the Group’s financial position, results of operations and cash flow. The emerging markets economies may also be subject to a further slow-down in gross domestic product expansion and/or be impacted by domestic currency volatility, potential hyperinflationary conditions and/or increase of public debt.

CNH Industrial Group - Risks associated with the defined benefit pension plans and other post-employment obligations

At December 31, 2013, CNH Industrial’s defined benefit pension plans and other post-employment benefits had an underfunded status of €1,656 million which is included in the consolidated statement of financial position. The funded status is the balance between the present value of the defined benefit obligation and the fair value of related assets, in case of funded plans (plans managed by a separate fund, “trust”). Consequently, the funded status is subject to many factors.

To the extent that the Group’s obligations under a plan are unfunded or underfunded, the Group will have to use cash flows from operations and other sources to pay its obligations as they become due. In addition, since the assets that currently fund these obligations are primarily invested in debt instruments and equity securities, the value of these assets is subject to changes due to market fluctuations. In recent years these fluctuations have been significant and adverse and there is no assurance that they will not be significant and adverse in the future.

CNH Industrial Group - Dealer equipment sourcing and inventory management decisions could adversely affect the Group’s sales

The Group’s dealers carry inventories of finished products as part of ongoing operations and adjust those inventories based on their assessment of future sales opportunities. Dealers who carry other products that compete with the Group’s products may focus their inventory purchases and sales efforts on goods provided by other suppliers due to industry demand or profitability. Such inventory adjustments and sourcing decisions can adversely impact the Group’s sales, financial position and results of operations.

CNH Industrial Group - Adverse economic conditions could place a financial strain on the Group’s dealers and adversely affect the Group’s operating results

Global economic conditions continue to place financial stress on many of the Group’s dealers. Dealer financial difficulties may impact their equipment sourcing and inventory management decisions, as well as their ability to provide services to their customers purchasing the Group’s equipment. Accordingly, additional financial strains on members of the Group’s dealer network resulting from current or future economic conditions could adversely impact the Group’s sales, financial position and results of operations.

CNH Industrial Group - The Group may not be able to realize anticipated benefits from any acquisitions and, further, challenges associated with strategic alliances may have an adverse impact on the Groups’ results of operations

A principal purpose of the Merger is to create a single class of liquid stock which, among other things, provides CNH Industrial with additional alternatives for funding future acquisitions and strategic alliances. The Group has engaged in the past, and may engage in the future, in mergers, acquisitions or enter into, expand or exit from strategic alliances which could involve risks that could prevent the Group from realizing the expected benefits of the transactions or the achievement of strategic objectives. Such risks include:

  • technological and product synergies, economies of scale and cost reductions not occurring as expected;
  • unexpected liabilities;
  • incompatibility in processes or systems;
  • unexpected changes in laws or regulations;
  • inability to retain key employees;
  • inability to source certain products;
  • increased financing costs and inability to fund such costs;
  • significant costs associated with terminating or modifying alliances;
  • problems in retaining customers and integrating operations, services, personnel and customer bases.

If problems or issues were to arise among the parties to one or more strategic alliances for managerial, financial, or other reasons, or if such strategic alliances or other relationships were terminated, the Group’s product lines, businesses, financial position, and results of operations could be adversely affected.

CNH Industrial Group - Risks associated with the termination of CNH Global’s strategic alliance with Kobelco Construction Machinery Co., Ltd.

Effective December 31, 2012, CNH Global and Kobelco Construction Machinery Co., Ltd. (“Kobelco”) terminated by mutual consent their global alliance (consisting of industrial arrangements and a number of jointly-owned companies) in the construction equipment business. The agreements regulating the dissolution of the alliance provide that, starting from January 1, 2013 until December 31, 2017, the Group will be entitled to purchase components and parts from the Kobelco group on a non-exclusive basis in order to continue to manufacture excavators based upon Kobelco’s technology in the Group’s plants. Moreover, starting from December 31, 2012, the territorial sales and marketing restrictions limiting the right of the Kobelco group to distribute its excavators in certain significant markets (such as the Americas and Europe) expired. Similar restrictions which applied to the Group’s construction equipment activities expired in the Asia/Pacific region on July 31, 2013. While the Group expects a smooth transition with respect to implemented changes, commercial issues (such as, by way of example, the weakening of the distributorship network and the subsequent loss of market share) or industrial issues (such as, by way of example, difficulties in maintaining quality standards or inability to source certain components currently provided by the Kobelco group) could have a material adverse effect upon the Group’s construction equipment product lines, construction equipment distribution network, financial position and results of operations.

CNH Industrial Group - The Group’s business operations may be impacted by various types of claims, lawsuits and other contingent obligations

The companies within the Group are involved in various product liability, warranty, product performance, asbestos, personal injury, environmental claims and lawsuits, governmental investigations and other legal proceedings that arise in the ordinary course of its business. The Group estimates such potential claims and contingent liabilities and, where appropriate, records provisions to address these contingent liabilities. The ultimate outcome of these legal matters pending against the Group is uncertain, and although such legal matters are not expected individually to have a material adverse effect on the Group’s financial position or profitability, such legal matters could, in the aggregate, in the event of unfavorable resolutions thereof, have a material adverse effect on the Group’s consolidated financial position, cash flows, results of operations or profitability. Furthermore, the Group could in the future be subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on its results of operations in any particular period. In addition, while the Group maintains insurance coverage with respect to certain claims, it may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against any such claims. 

CNH Industrial Group - The agricultural equipment industry is highly seasonal, which causes the Group’s results of operations and levels of working capital to fluctuate significantly

Farmers traditionally purchase agricultural equipment in the spring and fall, the main planting and harvesting seasons. The Group’s agricultural equipment business net sales and results of operations have historically been highest in the second quarter, reflecting the spring selling season in the Northern hemisphere, and lowest in the third quarter, when many of the Group’s production facilities experience summer shut-down periods, especially in Europe. Seasonal conditions also affect the Group’s construction equipment business, but to a lesser extent than its agricultural equipment business. The Group’s agricultural equipment business production levels are based upon estimated retail demand. These estimates take into account the timing of dealer shipments, which occur in advance of retail demand, dealer inventory levels, the need to retool manufacturing facilities to produce new or different models and the efficient use of manpower and facilities. However, because the Group spreads its production and wholesale shipments throughout the year, wholesale sales of agricultural equipment products in any given period may not necessarily reflect the timing of dealer orders and retail demand in that period.

Estimated retail demand may exceed or be exceeded by actual production capacity in any given calendar quarter because the Group spreads production throughout the year. If retail demand is expected to exceed production capacity for a quarter, then the Group may schedule higher production in anticipation of the expected retail demand. Often, the Group anticipates that spring-selling season demand may exceed production capacity in that period and schedules higher production, and anticipates higher inventories and wholesale shipments to dealers in the first quarter of the year. Thus, the Group’s working capital and dealer inventories are generally at their highest levels during the February to May period and decline towards the end of the year, as both the Group’s and its dealers’ inventories are typically reduced.

To the extent the Group’s production levels (and timing) do not correspond to retail demand, it may have too much or too little inventory, which could have an adverse effect on the Group’s financial position and results of operations.

CNH Industrial Group - Restrictive covenants in the Group’s debt agreements could limit its financial and operating flexibility

The indentures governing the majority of the Group’s outstanding public indebtedness, and other credit agreements to which companies within the Group are a party, contain typical covenants that restrict the ability of companies within the Group to, among other things:

  • incur additional indebtedness;
  • make certain investments;
  • enter into certain types of transactions with affiliates;
  • sell certain assets or merge with or into other companies;
  • use assets as security in other transactions;
  • enter into sale and leaseback transactions.

Although CNH Industrial does not believe any of these covenants presently materially restrict its operations, a breach of one or more of the covenants could result in adverse consequences that could negatively impact the Group’s businesses, results of operations and financial condition. These consequences may include the acceleration of amounts outstanding under certain of the Group’s credit facilities, triggering an obligation to redeem certain debt securities, termination of existing unused commitments by the Group’s lenders, refusal by the Group’s lenders to extend further credit under one or more of the facilities or to enter into new facilities or the lowering or modification of CNH Industrial’s credit ratings or those of one or more of its subsidiaries.

CNH Industrial Group - The Group has significant outstanding indebtedness, which may limit its ability to obtain additional funding and limit its financial and operating flexibility

As of December 31, 2013, the Group had an aggregate of €21,714 million (including €17,087 million relating to financial services companies) of consolidated gross indebtedness, and its equity was €5,556 million, including non-controlling interests. The extent of the Group’s indebtedness could have important consequences for its operations and financial results, including:

  • the Group may not be able to secure additional funds for working capital, capital expenditures, debt service requirements or general corporate purposes;
  • the Group may need to use a portion of its projected future cash flow from operations to pay principal and interest on its indebtedness, which may reduce the amount of funds available to the Group for other purposes;
  • the Group may be more financially leveraged than some of its competitors, which could put it at a competitive disadvantage;
  • the Group may not be able to adjust rapidly to changing market conditions, which may make it more vulnerable to a downturn in general economic conditions or its businesses;
  • the Group may not be able to access the capital markets on favorable terms, which may adversely affect its ability to provide competitive retail and wholesale financing programs.

These risks are exacerbated by the ongoing volatility in the financial markets resulting from perceived strains on the finances and creditworthiness of several governments and financial institutions, particularly in the Eurozone.

Among the anticipated benefits of the Merger is the expected reduction in funding costs over time due to improved debt capital markets positioning of CNH Industrial. However, certain of the circumstances and risks described above may delay or reduce the expected cost savings from the future funding structures and the expected cost savings may not be achieved.

CNH Industrial Group - Risks related to increased information technology security threats

The Group relies upon information technology systems and networks in connection with a variety of business activities, and the Group collects and stores sensitive data. Increased information technology security threats and more sophisticated computer crime, including advanced persistent threats, pose a risk to the security of its systems and networks and the confidentiality, availability and integrity of its data.

In order to manage such risks, the Group implemented its Information Security System, an integrated set of policies, processes, methodologies, teams and technologies aimed at ensuring appropriate protection of the Group’s data. The Information Security System has to be constantly aligned with evolving cyber threat scenarios in order for it to be effective. Recent security initiatives included in the group’s Information Security Roadmap concern Product Development Data Loss Prevention, Data Classification (both structured and unstructured data) and Laptop Encryption. Actions are also in progress to increase the Group’s capability to prevent, detect, and react to malicious data leakage attempts.

Despite the Group’s efforts, a failure or breach in security could expose the Group and its customers, dealers and suppliers to risks of misuse of information or systems, the compromising of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions, which in turn could adversely affect its reputation, competitive position, businesses and results of operations. In addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.

CNH Industrial Group - The loss of members of senior management could have an adverse effect on the business of the Group

The Group’s success is largely dependent on the ability of its senior executives and other members of management to effectively manage the Group and individual areas of business. The loss of any senior executive, manager or other key employee without an adequate replacement or the inability to attract and retain new, qualified personnel could therefore have an adverse effect on the Group’s business prospects, earnings and/or financial position.

Risks related to financial services activities

The Group offers a wide range of financial services and products to dealers and customers. In particular, and by way of example, the principal financial services offered by the Agricultural and Construction Equipment Segment are represented by the retail financing for the purchase or lease of new and used Segment equipment and wholesale financing to dealers, while the principal financial services offered by the Trucks and Commercial Vehicles Segment to customers are represented by lease and retail financing for the purchase of new and used Segment vehicles.

In light of the above, the following risks associated with the Group’s financial services activities should be considered.

CNH Industrial Group - Credit risk

Fundamental to any organization that extends credit is the credit risk associated with its customers/borrowers. The creditworthiness of each customer, rates of delinquency and default, repossessions and net losses on loans to customers are impacted by many factors, including:

  • relevant industry and general economic conditions;
  • the availability of capital;
  • interest rates (and changes in the applicable rates);
  • the experience and skills of the customer’s management team;
  • commodity prices;
  • political events;
  • the weather;
  • the value of the collateral securing the extension of credit.

Deterioration in the quality of the Group’s financial assets, an increase in delinquencies or defaults, or a reduction in collateral recovery rates could have an adverse impact on the performance of the Group’s financial services businesses. These risks become more acute in an economic slowdown or recession due to decreased demand for (or availability of) credit, declining asset values, changes in government subsidies, reductions in collateral to loan balance ratios, and an increase in delinquencies, defaults, insolvencies, foreclosures and losses. In such circumstances, the Group’s loan servicing and litigation costs may also increase. In addition, governments may pass laws, or implement regulations, that modify rights and obligations under existing agreements, or which prohibit or limit the exercise of contractual rights.

When loans default and the Group’s financial services businesses repossess collateral securing the repayment of a loan, its ability to recover or mitigate losses by selling the collateral is subject to the current market value of such collateral. Those values are affected by levels of new and used inventory of agricultural and construction equipment, as well as trucks and commercial vehicles, on the market. They are also dependent upon the strength or weakness of market demand for new and used agricultural and construction equipment, as well as for trucks and commercial vehicles, which is affected by the strength of the general economy. In addition, repossessed collateral may be in poor condition, which would reduce its value. Finally, relative pricing of used equipment, compared with new equipment, can affect levels of market demand and the resale of repossessed equipment. An industry-wide decrease in demand for agricultural or construction equipment, as well as for trucks and commercial vehicles, could result in lower resale values for repossessed equipment, which could increase losses on loans and leases, adversely affecting the Group’s financial position and results of operations.

CNH Industrial Group - Funding risk

The Group’s financial services businesses have traditionally relied upon the asset-backed securitization (“ABS”) market and committed asset-backed facilities as a primary source of funding and liquidity. Access to funding at competitive rates is essential to the Group’s financial services businesses. From mid-2007 through 2009, events occurred in the global financial market, including the weakened financial condition of several major financial institutions, problems related to subprime mortgages and other financial assets, the devaluation of various assets in secondary markets, the forced sale of asset-backed and other securities by certain investors, and the lowering of ratings on certain ABS transactions, which caused a significant reduction in liquidity in the secondary market for ABS transactions outstanding at such time and a significant increase in funding costs. During these periods, conditions in the ABS market adversely affected the Group’s ability to sell receivables on a favorable or timely basis. Similar conditions in the future would have an adverse impact on the Group’s financial position and results of operations.

As the Group’s financial services businesses finance a significant portion of the Group’s sales of equipment, to the extent such financial services businesses are unable to access funding on acceptable terms, the Group’s sales of equipment would be negatively impacted.

To maintain competitiveness in the capital markets and to promote the efficient use of various funding sources, additional reserve support was added to certain previously-issued ABS transactions. Such optional support may, in the future, be required to maintain credit ratings assigned to transactions if loss experiences are higher than anticipated. The need to provide additional reserve support could have an adverse effect on the Group’s financial position, results of operations and cash flows.

CNH Industrial Group - Repurchase risk

In connection with the Group’s ABS transactions, the Group makes customary representations and warranties regarding the assets being securitized, as disclosed in the relevant offering documents. While no recourse provisions exist that allow holders of asset-backed securities issued by the Group’s trusts to require the Group to repurchase those securities, a breach of these representations and warranties could give rise to an obligation to repurchase non-conforming receivables from the trusts. Any future repurchases could have an adverse effect on the Group’s financial position, results of operations and cash flows.

CNH Industrial Group - Regulatory risk

The operations of the Group’s financial services businesses are subject, in certain instances, to supervision and regulation by various governmental authorities. These operations are also subject to various laws, as well as to judicial and administrative decisions and interpretations, imposing requirements and restrictions, which among other things:

  • regulate credit granting activities, including establishing licensing requirements;
  • establish maximum interest rates, finance and other charges;
  • regulate customers’ insurance coverage;
  • require disclosures to customers;
  • govern secured and unsecured transactions;
  • set collection, foreclosure, repossession and claims handling procedures and other trade practices;
  • prohibit discrimination in the extension of credit and administration of loans;
  • regulate the use and reporting of information related to a borrower.

To the extent that applicable laws are amended or construed differently, new laws are adopted to expand the scope of regulation imposed upon such financial services businesses, or applicable laws prohibit interest rates the Group charges from rising to a level commensurate with risk and market conditions, such events could adversely affect the Group’s financial services businesses and the Group’s financial position and results of operations.

CNH Industrial Group - Potential Impact of the Dodd-Frank Act

The various requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), including the many implementing regulations yet to be released, may substantially affect the origination, servicing and securitization programs of the Groups’ financial services businesses. For example, the Dodd-Frank Act strengthens the regulatory oversight of these securities and capital market activities by the SEC and increases the regulation of the ABS markets through, among other things, a mandated risk retention requirement for securitizers and a direction to the SEC to regulate credit rating agencies and adopt regulations governing these organizations. While the Group will continue to monitor these developments and their impact upon its access to the ABS market, these and future SEC regulations may impact the Group’s ability to engage in these activities or increase the effective cost of ABS transactions in the future, which could adversely affect its financial position, results of operations and cash flows.

Other risks

CNH Industrial Group - CNH Industrial intends to operate in a manner to be treated as resident in the UK for tax purposes, but other tax authorities may treat it as being tax resident elsewhere

CNH Industrial is not incorporated in the UK; therefore, in order to be resident in the UK for tax purposes its central management and control must be located (in whole or in part) in the UK. The test of central management and control is largely a question of fact based on all the circumstances. Even if CNH Industrial’s “central management and control” is in the UK, it would not be treated as UK-resident if (a) it were concurrently resident in another jurisdiction (applying the tax residence rules of that jurisdiction) which has a double tax treaty with the UK; and (b) that tax treaty allocates exclusive residence to that other jurisdiction.

Even if CNH Industrial’s central management and control are in the UK, CNH Industrial would normally be resident in the Netherlands for Dutch corporate income tax and Dutch dividend withholding tax purposes because it is incorporated in the Netherlands. Nevertheless, the UK and Dutch competent authorities have agreed, following a mutual agreement procedure (as contemplated by the Netherlands-UK tax treaty), that CNH Industrial will be regarded as solely resident in the UK provided that it operates as planned and provides evidence of its operations to the UK and Dutch competent tax authorities. If the facts upon which the competent authorities issued this ruling change over time, this ruling may be withdrawn and in that case the Netherlands may levy corporate income tax on CNH Industrial and impose withholding taxes on dividends distributed by CNH Industrial.

Residence of CNH Industrial for Italian tax purposes is also largely a question of fact and based on all circumstances. For Italian tax purposes, a rebuttable presumption of residence in Italy may apply under Italian tax legislation. However, CNH Industrial has a management and organizational structure such that it should be deemed resident in the UK from its initial incorporation for the purposes of the Italy-UK tax treaty. Because this analysis is highly factual and may depend on future changes in CNH Industrial’s management and organizational structure, there can be no assurance that CNH Industrial’s determination of its tax residence will be respected by all relevant tax authorities. Should CNH Industrial be treated as an Italian tax resident, it would be subject to corporate income tax in Italy and may be required to comply with withholding tax and/or reporting obligations under Italian law, which could result in additional costs and expenses.

CNH Industrial Group - The Group’s businesses may be affected by unfavorable weather conditions, climate change or natural disasters

Poor, severe or unusual weather conditions caused by climate change or other factors, particularly during the planting and early growing season, can significantly affect the purchasing decisions of the Group’s agricultural equipment customers. The timing and quantity of rainfall are two of the most important factors in agricultural production. Insufficient levels of rain prevent farmers from planting crops or may cause growing crops to die, resulting in lower yields. Excessive rain or flooding can also prevent planting or harvesting from occurring at optimal times and may cause crop loss through increased disease or mold growth. Temperature affects the rate of growth, crop maturity, crop quality and yield. Temperatures outside normal ranges can cause crop failure or decreased yields, and may also affect disease incidence. Natural disasters such as regional floods, hurricanes, storms and droughts can have a negative impact on agricultural production. The resulting negative impact on farm income can strongly affect demand for the Group’s agricultural equipment in any given period.

In addition, natural disasters, pandemic illness, equipment failures, power outages or other unexpected events could result in physical damage to and complete or partial closure of one or more of the Group’smanufacturing facilities or distribution centers, temporary or long-term disruption in the supply of component products from some local and international suppliers, disruption in the transport of the Group’s products to dealers and customers and delay in delivery of the products to distribution centers. Existing insurance arrangements may not provide protection for all of the costs that may arise from such events.

CNH Industrial Group - Changes in demand for food and alternate energy sources could impact the Group’s revenues

Changing worldwide demand for farm outputs to meet the world’s growing food and alternative energy demands, driven in part by government policies and a growing world population, are likely to result in fluctuating agricultural commodity prices, which directly affect sales of agricultural equipment. While higher commodity prices will benefit the Group’s crop producing agricultural equipment customers, higher commodity prices also result in greater feed costs for livestock and poultry producers, which in turn may result in lower levels of equipment purchased by these customers. Moreover, changing alternative energy demands may cause farmers to change the types or quantities of the crops they raise, with corresponding changes in equipment demands.

Finally, changes in governmental policies regulating bio-fuel utilization could affect demand for the Group’s equipment and result in higher research and development costs related to equipment fuel standards.

CNH Industrial Group - The Group is subject to negative conditions in the financial markets and the cyclicality of the capital goods sector

More than other sectors, producers in the capital goods sector are subject to:

  • the condition of financial markets, in particular, the ability to access the ABS market and prevailing interest rates in that market. In North America, in particular, the Group makes considerable use of ABS transactions to fund financing offered to dealers and customers. Adverse conditions in the financial markets, and the ABS market in particular, could have a significant impact on the Group’s business prospects, earnings and/or financial position;
  • cyclicality, which can cause sudden (and sometimes material) declines in demand, with negative effects on inventory levels and product pricing, both new and used. In general, demand in the capital goods sector is highly correlated to the economic cycle and can be subject to even greater levels of volatility.

CNH Industrial Group - CNH Industrial, as successor to Fiat Industrial S.p.A. (“Fiat Industrial”), is jointly liable with Fiat S.p.A. (“Fiat”), for certain obligations

Fiat Industrial was formed as a result of the demerger of Fiat S.p.A. in favor of Fiat Industrial S.p.A. (the “Demerger”). CNH Industrial, as successor to Fiat Industrial, continues to be liable jointly with Fiat for any liabilities of Fiat that arose prior to effectiveness of the Demerger and that remained unsatisfied at the effective date of the Demerger in the event that Fiat fails to satisfy such liabilities. The statutory liability assumed by CNH Industrial is limited to the value of the net assets transferred to Fiat Industrial in the Demerger and survives until all the liabilities of Fiat existing as of the Demerger are satisfied in full. Furthermore, CNH Industrial may be responsible jointly with Fiat in relation to tax liabilities, even if such liabilities exceed the value of the net assets transferred to Fiat Industrial in the Demerger. CNH Industrial estimates that the liabilities of Fiat that were outstanding as of December 31, 2013 for which CNH Industrial may be held jointly liable as described above in the event that Fiat fails to satisfy such obligations amount to approximately €4.2 billion.

FIAT GROUP

Fiat Group - The Group’s profitability depends on reaching certain minimum vehicle sales volumes. If vehicle sales deteriorate, the Group’s results of operations and financial condition will suffer

The Group’s success requires it to achieve certain minimum vehicle sales volumes. As is typical for an automobile manufacturer, the Group has significant fixed costs and, therefore, changes in vehicle sales volume can have a disproportionately large effect on profitability. Moreover, the Group tends to operate with negative working capital and the Group generally receives payments from vehicle sales to dealers within a few days of shipment from the assembly plants, whereas there is a lag between the time when parts and materials are received from suppliers and when the Group pays for such parts and materials; therefore, if vehicle sales decline the Group will suffer a significant negative impact on cash flow and liquidity as the Group continues to pay suppliers during a period in which it receives reduced proceeds from vehicle sales. If vehicle sales do not increase, or if they were to fall short of assumptions, due to financial crisis, renewed recessionary conditions, changes in consumer confidence, geopolitical events, inability to produce sufficient quantities of certain vehicles, limited access to financing or other factors, the Group’s financial condition and results of operations would be materially adversely affected.

Fiat Group – The businesses of the Group are affected by global financial markets and general economic and other conditions over which it has no control

The Group’s earnings and financial position may be influenced by various macroeconomic factors — including changes in gross domestic product, the level of consumer and business confidence, changes in interest rates for or availability of consumer and business credit, energy prices, the cost of commodities or other raw materials and the rate of unemployment — within the various countries in which it operates.

Beginning in 2008, global financial markets have experienced severe disruptions, resulting in a material deterioration of the global economy. The global economic recession in 2008 and 2009, which affected most regions and business sectors, resulted in a sharp decline in demand for automobiles. Although more recently the Group has seen signs of recovery in certain regions, the overall global economic outlook remains uncertain.

In Europe, in particular, despite measures taken by several governments and monetary authorities to provide financial assistance to certain Eurozone countries and to avoid default on sovereign debt obligations, concerns persist regarding the debt burden of several countries. These concerns, along with the significant fiscal adjustments carried out in several countries, intended to manage actual or perceived sovereign credit risk, have led to further pressure on economic growth and to new periods of recession. These ongoing concerns could have a detrimental impact on the global economic recovery, as well as on the financial condition of European institutions, which could result in greater volatility, reduced liquidity, widening of credit spreads and lack of price transparency in credit markets. In addition, widespread austerity measures in many countries in which the Group operates could continue to adversely affect consumer confidence, purchasing power and spending, which could adversely affect the Group’s financial condition and results of operations.

Following the Group’s acquisition of control of Chrysler and subsequent acquisition of 100 percent of Chrysler, a majority of the Group’s revenues are generated in the NAFTA region. Although economic recovery in North America has been slower and less robust than many economic experts predicted, vehicle sales in North America have experienced significant growth from their 2009-2010 trough. However, this recovery may not be sustained or may be limited to certain classes of vehicles. In addition, the recovery may be partially attributable to the pent-up demand and average age of vehicles in North America following the extended economic downturn so there can be no assurances that improvements in general economic conditions or employment levels will lead to corresponding increases in vehicle sales. As a result, North America may experience limited growth or declines in vehicle sales in the future.

In addition, slower expansion is also being experienced in major emerging countries, such as China, Brazil and India. In addition to weaker export business, lower domestic demand also led to a slowing economy in these countries. All these potential developments could adversely affect the financial condition and results of operations of the Group.

In general, the automotive sector has historically been subject to highly cyclical demand and tends to reflect the overall performance of the economy, often amplifying the effects of economic trends. Given the difficulty in predicting the magnitude and duration of economic cycles, there can be no assurances as to future trends in the demand for products sold by the Group in any of the markets in which it operates.

In addition to slow economic growth or recession, other economic circumstances — such as increases in energy prices and fluctuations in prices of raw materials or contractions in infrastructure spending — could have negative consequences for the industry in which the Group operates and, together with the other factors referred to previously, could have a material adverse effect on the Group’s financial condition and results of operations.

Fiat Group - The Group’s future performance depends on its ability to enrich the Group’s product portfolio and offer innovative products

The success of the Group’s businesses depends, among other things, on their ability to maintain or increase their share in existing markets and/or to expand into new markets through the development of innovative, high-quality products that are attractive to customers and provide adequate profitability. It generally takes two years or more to design and develop a new product, and a number of factors may lengthen that schedule. Because of this product development cycle and the various elements that may contribute to consumers’ acceptance of new vehicle designs, including competitors’ product introductions, fuel prices, general economic conditions and changes in styling preferences, an initial product concept or design that the Group believes will be attractive may not result in a production model that will generate sales in sufficient quantities and at high enough prices to be profitable. A failure to develop and offer innovative products that compare favorably to those of the Group’s principal competitors, in terms of price, quality, functionality and features, with particular regard to the upper-end of the product range, or delays in bringing strategic new models to the market, could impair the Group’s strategy, which would have a material adverse effect on the Group’s financial condition and results of operations. Additionally, the Group’s high proportion of fixed costs, both due to its significant investment in property, plant and equipment as well as the requirements of its collective bargaining agreements, which limit its flexibility to adjust personnel costs to changes in demand for its products, may further exacerbate the risks associated with incorrectly assessing demand for its vehicles.

Fiat Group - The automotive industry is highly competitive and cyclical and the Group may suffer from those factors more than some of its competitors

Substantially all of the Group’s revenues are generated in the automobile industry, which is highly competitive, encompassing the production and distribution of passenger cars, light commercial vehicles and the related components and production systems. The Group faces competition from other international passenger car and light commercial vehicle manufacturers and distributors and components suppliers in Europe, North America, Latin America and the Asia Pacific region. These markets are all highly competitive in terms of product quality, innovation, pricing, fuel economy, reliability, safety, customer service and financial services offered, and many of the Group’s competitors are better capitalized with larger market shares.

Competition, particularly in pricing, has increased significantly in the Group’s industry in recent years. In addition, partly as a result of lower growth in demand for automobiles, global automobile production capacity significantly exceeds current demand. This overcapacity, combined with high levels of competition and weakness of major economies, has intensified and may further intensify pricing pressures.

The Group’s competitors may respond to these conditions by attempting to make their vehicles more attractive or less expensive to customers by adding vehicle enhancements, providing subsidized financing or leasing programs, or by reducing vehicle prices whether directly or by offering option package discounts, price rebates or other sales incentives in certain markets. In addition, manufacturers in countries which have lower production costs have announced that they intend to export lower-cost automobiles to established markets. These actions have had, and could continue to have, a negative impact on the Group’s vehicle pricing, market share, and operating results.

In the automotive business, sales to end-customers are cyclical and subject to changes in the general condition of the economy, the readiness of end-customers to buy and their ability to obtain financing, as well as the possible introduction of measures by governments to stimulate demand. The automotive industry is also subject to the constant renewal of product offerings through frequent launches of new models. A negative trend in the automobiles business or the Group’s inability to adapt effectively to external market conditions could have a material adverse impact on the financial condition and results of operations of the Group.

Fiat Group - The Group may be unsuccessful in efforts to expand the international reach of some of its brands that the Group believes have global appeal and reach

The Group’s growth strategies include significant investments designed to expand several brands believed to have global appeal into new markets. That includes pursuing extension of the Jeep brand into Asia and Latin America and reintroduction of the Alfa Romeo brand into North America. This will require significant investments in production facilities and in distribution networks in these markets. If the Group is unable to introduce vehicles that appeal to consumers in these markets and achieve its brand expansion strategies, the Group may be unable to earn a sufficient return on these investments and this could have a material adverse impact on the financial condition and results of operations of the Group.

Fiat Group - Fiat’s current credit rating is below investment grade and any further deterioration may significantly affect the Group’s funding and prospects

The Group’s ability to access the capital markets or other forms of financing and the related costs depend, among other things, on the Group’s credit ratings. Following downgrades by the major rating agencies, Fiat is currently rated below investment grade.

The rating agencies review these ratings regularly and, accordingly, new ratings may be assigned to Fiat during 2014. It is not currently possible to predict the timing or outcome of any ratings review. Any downgrade may increase the Group’s cost of capital and potentially limit its access to sources of financing, with a consequent material adverse effect on the Group’s business prospects, earnings and financial position.

In addition, the ratings agencies separately review and rate Chrysler on a stand-alone basis and it is possible that Fiat’s credit ratings may not benefit from any improvements in Chrysler’s credit ratings or that a deterioration in Chrysler’s credit ratings could result in a negative rating review of Fiat.

Fiat Group - The Group may not be able to realize anticipated benefits from any acquisitions and challenges associated with strategic alliances may have an adverse impact on the Group’s results of operations

The Group may engage in acquisitions or enter into, expand or exit from strategic alliances which could involve risks that may prevent the Group from realizing the expected benefits of the transactions or the achievement of strategic objectives. Such risks could include:

  • technological and product synergies, economies of scale and cost reductions not occurring as expected;
  • unexpected liabilities;
  • incompatibility in processes or systems;
  • unexpected changes in laws or regulations;
  • inability to retain key employees;
  • inability to source certain products;
  • increased financing costs and inability to fund such costs;
  • significant costs associated with terminating or modifying alliances;
  • problems in retaining customers and integrating operations, services, personnel, and customer bases.

If problems or issues were to arise among the parties to one or more strategic alliances for managerial, financial, or other reasons, or if such strategic alliances or other relationships were terminated, the Group’s product lines, businesses, financial position, and results of operations could be adversely affected.

Fiat Group - The Group may not achieve the expected benefits from the integration with Chrysler

The acquisition of 100% of the equity in Chrysler and the related integration of the two businesses is intended to provide  the Group with a number of long-term benefits, including allowing new vehicle platforms and powertrain technologies to be shared across a larger volume, as well as procurement benefits, management services and global distribution opportunities, particularly the extension of brands into new markets. The integration is also intended to facilitate penetration of key brands in several international markets where the Group believes products would be attractive to consumers, but where they currently do not have significant market penetration.

The ability to realize the benefits of the integration is critical for the Group to compete with other automakers. If the Group is unable to convert the opportunities presented by the integration into long-term commercial benefits, either by improving sales of vehicles and service parts, reducing costs or both, the Group’s financial condition and results of operations may be materially adversely affected.

As a result, any adverse development for Chrysler or Fiat, or the failure of the Group to achieve the intended benefits of the related integration could have a material adverse effect on the Group’s business prospects, financial condition and results of operations.

Fiat Group - The Group’s business operations may be impacted by various types of claims, lawsuits, and other contingent obligations

The Group is involved in various product liability, warranty, product performance, asbestos, personal injury, environmental claims and lawsuits, governmental investigations and other legal proceedings including those that arise in the ordinary course of its business.

The Group estimates such potential claims and contingent liabilities and, where appropriate, records provisions to address these contingent liabilities. The ultimate outcome of the legal matters pending against the Group is uncertain, and although such lawsuits are not expected individually to have a material adverse effect on the Group’s financial position or its results of operations, such lawsuits could have, in the aggregate, a material adverse effect on the Group’s financial condition or results of operations. Furthermore, the Group could in the future be subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on its results of operations in any particular period. In addition, while the Group maintains insurance coverage with respect to certain claims, it may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against any such claims.

Fiat Group - The Group may be exposed to shortfalls in Chrysler’s pension plans

Chrysler’s defined benefit plans are currently underfunded and its pension funding obligations may increase significantly if the investment performance of plan assets does not keep pace with benefit payment obligations. Mandatory funding obligations may increase because of lower than anticipated returns on plan assets, whether as a result of overall weak market performance or particular investment decisions, changes in the level of interest rates used to determine required funding levels, changes in the level of benefits provided for by the plans, or any changes in applicable law related to funding requirements. Chrysler’s defined benefit plans currently hold significant investments in equity and fixed income securities, as well as investments in less liquid instruments such as private equity, real estate and certain hedge funds. Due to the complexity and magnitude of certain investments, additional risks may exist, including significant changes in investment policy, insufficient market capacity to complete a particular investment strategy and an inherent divergence in objectives between the ability to manage risk in the short term and the ability to quickly rebalance illiquid and long-term investments.

To determine the appropriate level of funding and contributions to its defined benefit plans, as well as the investment strategy for the plans, Chrysler is required to make various assumptions, including an expected rate of return on plan assets and a discount rate used to measure the obligations under defined benefit pension plans. Interest rate increases generally will result in a decline in the value of investments in fixed income securities and the present value of the obligations. Conversely, interest rate decreases will increase the value of investments in fixed income securities and the present value of the obligations.

Any reduction in investment returns or the value of plan assets, or any increase in the present value of obligations, may increase pension expenses and required contributions and, as a result, could constrain liquidity and materially adversely affect Chrysler’s financial condition and results of operations. If Chrysler fails to make required minimum funding contributions, it could be subjected to reportable event disclosure to the Pension Benefit Guaranty Corporation (1) as well as interest and excise taxes calculated based upon the amount of any funding deficiency.

With Fiat’s ownership in Chrysler now exceeding 80%, Fiat may become subject to certain US legal requirements making it secondarily responsible for a funding shortfall in certain of Chrysler’s pension plans in the event these pension plans were terminated and Chrysler were to be insolvent.

The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private-sector defined benefit pension plans.

Fiat Group - The Group may not be able to provide adequate access to financing for its dealers and retail customers

The Group’s dealers enter into wholesale financing arrangements to purchase vehicles to hold in inventory and retail customers use a variety of finance and lease programs to acquire vehicles.

Unlike many of its competitors, the Group does not own and operate its own finance company dedicated solely to its operations.  Instead it has elected to partner with specialized financing services providers through joint ventures and commercial agreements. The Group’s lack of a captive finance company may increase the risk that dealers and retail customers will not have access to sufficient financing on acceptable terms which may adversely affect the Group’s vehicle sales in the future. Furthermore, many of the Group’s competitors are better able to implement financing programs designed to maximize vehicle sales in a manner that optimizes profitability for them and their captive finance companies on an aggregate basis. Since the Group’s ability to compete depends on access to appropriate sources of financing for dealers and retail customers, its lack of a captive finance company could adversely affect its results of operations.

Any independent financing services provider will face other demands on its capital, including the need or desire to satisfy funding requirements for dealers or customers of the Group’s competitors as well as liquidity issues relating to other investments. Furthermore, they may also subject to regulatory changes that may increase their costs, which may impair their ability to provide competitive financing products to the Group’s dealers and retail customers.

Additionally, if consumer interest rates increase substantially or if financing service providers tighten lending standards or restrict their lending to certain classes of credit, consumers may not be able to obtain financing to purchase or lease the Group’s vehicles.

To the extent that a financing services provider is unable or unwilling to provide sufficient financing at competitive rates to the Group’s dealers and consumers, such dealers and consumers may not have sufficient access to financing to purchase or lease the Group’s vehicles. As a result, the Group’s vehicle sales and market share may suffer, which would adversely affect the Group’s financial condition and results of operations.

Fiat Group - Vehicle sales depend heavily on affordable interest rates for vehicle financing

In certain regions, financing for new vehicle sales has been available at relatively low interest rates for several years due to, among other things, expansive government monetary policies. To the extent that interest rates rise, generally market rates for new vehicle financing are expected to rise as well which may make the Group’s vehicles less affordable to consumers or steer consumers to less expensive vehicles, adversely affecting the Group’s financial condition and results of operations. Furthermore, because Group’s customers may be relatively more sensitive to changes in the availability and adequacy of financing and macroeconomic conditions, the Group’s vehicle sales may be disproportionately affected by changes in financing conditions relative to the vehicle sales of Group’s competitors.

Fiat Group - Limitations on the Group’s liquidity and access to funding may limit its ability to execute its business plan and improve its business, financial condition and results of operations

The Group’s future performance will depend on, among other things, its ability to finance debt repayment obligations and planned investments from operating cash flow, available liquidity, the renewal or refinancing of existing bank loans and/or facilities and possible recourse to capital markets or other sources of financing. Although the Group has measures in place that are designed to ensure that adequate levels of working capital and liquidity are maintained, declines in sales volumes could have a negative impact on the cash-generating capacity of its operating activities. The Group could, therefore, find itself in the position of having to seek additional financing and/or having to refinance existing debt, including in unfavorable market conditions, with limited availability of funding and a general increase in funding costs. Any limitations on the Group’s liquidity, due to decreases in vehicle sales, the amount of or restrictions in the Group’s existing indebtedness, conditions in the credit markets, general economic conditions or otherwise, may adversely impact the Group’s ability to execute its business plan and impair its financial condition and results of operations. In addition, any actual or perceived limitations of the Group’s liquidity may limit the ability or willingness of counterparties, including dealers, customers, suppliers and financial service providers, to do business with the Group, which may adversely affect the Group’s financial condition and results of operations.

Fiat Group - The Group’s ability to achieve cost reductions and to realize production efficiencies is critical to maintaining its competitiveness and long-term profitability

The Group is continuing to implement a number of cost reduction and productivity improvement initiatives in automotive operations, for example, by increasing the number of vehicles that are based on common platforms, reducing dependence on sales incentives offered to dealers and consumers, leveraging purchasing capacity and volumes between Fiat and Chrysler and implementing World Class Manufacturing, or WCM, principles. The Group’s future success depends upon its ability to implement these initiatives successfully throughout its operations. In addition, while some of the productivity improvements are within its control, others depend on external factors, such as commodity prices, supply capacity limitations, or trade regulation. These external factors may make it more difficult to reduce costs as planned, and the Group may sustain larger than expected production expenses, materially affecting its business and results of operations. Furthermore, reducing costs may prove difficult due to the need to introduce new and improved products in order to meet consumer expectations.

Fiat Group - Product recalls may result in direct costs and loss of vehicle sales that could have material adverse effects on Group’s business

From time to time, the Group has been required to recall vehicles to address performance, compliance or safety-related issues. The costs the Group incurs to recall vehicles typically include the cost of replacement parts and labor to remove and replace the problem parts, and may substantially depend on the nature of the remedy and the number of vehicles affected. Product recalls may also harm the Group’s reputation and may cause consumers to question the safety or reliability of its products. Any costs incurred, or lost vehicle sales, resulting from product recalls could materially adversely affect the Group’s financial condition or results of operations. Moreover, if the Group faces consumer complaints, or receives information from vehicle rating services that calls into question the safety or reliability of one of its vehicles and the Group does not issue a recall, or if the Group does not do so on a timely basis, its reputation may also be harmed and the Group may lose future vehicle sales.

Fiat Group – Failure to maintain adequate financial and management processes and controls could lead to errors in the financial reporting, which could harm the Group’s business reputation

The Group continuously monitors and evaluates changes in its internal controls over financial reporting. In support of a drive toward common global systems, the Group is extending the current finance, procurement, and capital project and investment management systems to new areas of operations. As appropriate, the Group continues to modify the design and documentation of internal control processes and procedures relating to the new systems to simplify and automate many of its previous processes. The Group’s management believes that the implementation of this system will continue to improve and enhance internal controls over financial reporting. Failure to maintain adequate financial and management processes and controls could lead to errors in the Group’s financial reporting.

Fiat Group - The Group is subject to risks relating to international markets and exposure to changes in local conditions

The Group is subject to risks inherent to operating globally, including those related to:

  • exposure to local economic and political conditions;
  • import and/or export restrictions;
  • multiple tax regimes, including regulations relating to transfer pricing and withholding and other taxes on remittances and other payments to or from subsidiaries;
  • foreign investment and/or trade restrictions or requirements, foreign exchange controls and restrictions on the repatriation of funds. In particular, current regulations limit the Group ability to access and transfer liquidity out of Venezuela to meet demands in other countries and also subject the Group to increased risk of devaluation or other foreign exchange losses. In December 2010 and February 2013, the Venezuelan government announced devaluations of the official Venezuelan Bolivar (VEF)-USD exchange rate, which resulted in devaluation of the Group VEF denominated balances;
  • the introduction of more stringent laws and regulations.

Unfavorable developments in any one of these areas (which may vary from country to country) could have a material adverse effect on the Group’s financial condition and results of operations.

Fiat Group - Developments in emerging market countries may adversely affect the Group’s business

The Group operates in a number of emerging markets, both directly (e.g., Brazil and Argentina) and through joint ventures and other cooperation agreements (e.g., Turkey, India, China and Russia). In Brazil, in recent years the Group has been the market leader, which has provided a key contribution to the Group’s performance in terms of revenues and profitability. The Group’s exposure to other emerging countries has increased in recent years, as have the number and importance of such joint ventures and cooperation agreements. Economic and political developments in Brazil and other emerging markets, including economic crises or political instability, have had and could in the future have material adverse effects on the Group’s financial condition and results of operations.

The Group continues to increase its presence in emerging markets such as China and India through a series of partnerships. In 2013, the Group entered into a joint venture with Guangzhou Automobile Group Co., Ltd (GAC Group) for the production of engines and passenger cars for the Chinese market, as well as securing exclusive distribution of Fiat branded cars in China. The Group has also entered into a joint venture with TATA Motors for the production of C-segment cars, engines and transmissions in India. Maintaining and strengthening its position in these emerging markets is a key component of the Group’s global growth strategy. However, with competition from many of the largest global manufacturers as well as numerous smaller domestic manufacturers, the automotive market, both in China and India, is highly competitive. As these markets continue to grow, the Group anticipates that additional competitors, both international and domestic, will seek to enter these markets and that existing market participants will act aggressively to protect or increase their market share. Increased competition may result in price reductions, reduced margins and the Group’s inability to gain or hold market share.

Fiat Group - Laws, regulations and governmental policies, including those regarding increased fuel economy requirements and reduced GHG emissions, may have a significant effect on how the Group does business and may adversely affect the Group’s results of operations

In order to comply with government regulations related to fuel economy and emissions standards, the Group must devote significant financial and management resources, as well as vehicle engineering and design attention to these legal requirements. The Group expects the number and scope of these regulatory requirements, along with the costs associated with compliance, to increase significantly in the future and these costs could be difficult to pass through to customers, which could result in limitations on the types of vehicles the Group sells and where it can sell them, which could have a material adverse impact on the financial condition and results of operations of the Group.

Government initiatives to stimulate consumer demand for products sold by the Group, such as changes in tax treatment or purchase incentives for new vehicles, can substantially influence the timing and level of revenues. The size and duration of such government measures are unpredictable and outside of the Group’s control. Any adverse change in government policy relating to those measures could have material adverse effects on the Group’s business prospects, earnings and financial position.

Fiat Group - Labor laws and labor unions could impact the ability of the Group to increase the efficiency of its operations

Substantially all of the Group’s production employees are represented by trade unions, are covered by collective bargaining agreements and/or protected by applicable labor relations regulations that may restrict the Group’s ability to modify operations and reduce costs quickly in response to changes in market conditions. These and other provisions may impede the Group’s ability to restructure its business successfully to compete more effectively, especially with those automakers whose employees are not represented by unions or are subject to less stringent regulations.

Fiat Group - Amounts required to develop and commercialize vehicles incorporating sustainable technologies for the future are significant, as are the barriers that still limit the mass-market potential of such vehicles

The Group’s product strategy is driven by the objective of achieving sustainable mobility by reducing the environmental impact of vehicles over their entire life cycle. The Group therefore intends to continue investing capital resources to develop new sustainable technology. It aims to increase the use of alternative fuels, such as natural gas, by continuing to offer a complete range of dual-fuel passenger cars and commercial vehicles. Additionally, it plans to continue developing alternative propulsion systems, particularly for vehicles driven in urban areas (such as the zero-emission Fiat 500e).

In many cases, technological and cost barriers limit the mass-market potential of sustainable natural gas and in particular electric vehicles. In some other cases the technologies that the Group plans to employ are not yet commercially practical and depend on significant future technological advances by the Group and by suppliers. There can be no assurance that these advances will occur in a timely or feasible way, that the funds that the Group has budgeted for these purposes will be adequate, or that it will be able to establish its right to these technologies. Further, the Group’s competitors and others are pursuing similar technologies and other competing technologies and there can be no assurance that they will not acquire similar or superior technologies sooner than it does or on an exclusive basis or at a significant price advantage.

Fiat Group - The Group depends on its relationships with suppliers

The Group purchases raw materials and components from a large number of suppliers and depends on services and products provided by companies outside the Group. Close collaboration between a manufacturer and its suppliers is common in the automotive industry and although this offers economic benefits in terms of cost reduction, it also means that the Group depends on its suppliers and is exposed to the possibility that difficulties, including those of a financial nature, experienced by those suppliers (whether caused by internal or external factors) could have a material adverse effect on the Group’s financial condition and results of operations.

Fiat Group - Risks associated with increases in costs, disruptions of supply or shortages of raw materials

The Group uses a variety of raw materials in its business including steel, aluminum, lead, resin and copper, and precious metals such as platinum, palladium and rhodium, as well as energy. The prices for these raw materials fluctuate and at times in recent periods, these commodity prices have increased significantly in response to changing market conditions. The Group seeks to manage this exposure, but it may not be successful in hedging its exposure to these risks. Substantial increases in the prices for raw materials would increase the Group’s operating costs and could reduce profitability if the increased costs cannot be offset by changes in vehicle prices. In addition, certain raw materials are sourced only from a limited number of suppliers and from a limited number of countries. The Group cannot guarantee that it will be able to maintain arrangements with these suppliers that assure access to these raw materials, and in some cases this access may be affected by factors outside of the Group’s control and the control of its suppliers. For instance, natural disasters or civil unrest may have severe and unpredictable effects on the price of certain raw materials in the future.

As with raw materials, the Group is also at risk for supply disruption and shortages in parts and components for use in its vehicles for many reasons including, but not limited to tight credit markets or other financial distress, natural or man-made disasters, or production difficulties. The Group will continue to work with suppliers to monitor potential shortages and to mitigate the effects of any emerging shortages on its production volumes and revenues; however, there can be no assurances that these events will not have an adverse effect on its production in the future, and any such effect may be material.

Any interruption in the supply or any increase in the cost of raw materials, parts, components and systems could negatively impact the Group’s ability to achieve its vehicle sales objectives and profitability. Long-term interruptions in supply of raw materials, parts, components and systems may result in a material impact on vehicle production, vehicle sales objectives, and profitability. Cost increases which cannot be recouped through increases in vehicle prices, or countered by productivity gains, may result in a material impact on the Group’s financial condition and results of operations.

Fiat Group - The Group is subject to risks associated with exchange rate fluctuations, interest rate changes, credit risk and other market risks

The Group operates in numerous markets worldwide and is exposed to market risks stemming from fluctuations in currency and interest rates. The exposure to currency risk is mainly linked to the differences in geographic distribution of the Group’s manufacturing activities and commercial activities, resulting in cash flows from sales being denominated in currencies different from those connected to purchases or production activities.

The Group uses various forms of financing to cover funding requirements for its industrial activities and for financing customers and dealers. Moreover, liquidity for industrial activities is also principally invested in variable-rate or short-term financial instruments. The Group’s financial services businesses normally operate a matching policy to offset the impact of differences in rates of interest on the financed portfolio and related liabilities. Nevertheless, changes in interest rates can affect revenues, finance costs and margins.

The Group seeks to manage risks associated with fluctuations in currency and interest rates through financial hedging instruments. Despite such hedges being in place, fluctuations in currency or interest rates could have a material adverse effect on the Group’s financial condition and results of operations.

The Group’s financial services activities are also subject to the risk of insolvency of dealers and end-customers, as well as unfavorable economic conditions in markets where these activities are carried out. Despite the Group’s efforts to mitigate such risks through the credit approval policies applied to dealers and end-customers, there can be no assurances that the Group will be able to successfully mitigate such risks, particularly with respect to a general change in economic conditions.

Fiat Group - The Group’s success largely depends on the ability of its current management team to operate and manage effectively

The Group’s success largely depends on the ability of its senior executives and other members of management to effectively manage the Group and individual areas of the business. The loss of any senior executive, manager or other key employees without an adequate replacement or the inability to attract, retain and incentivize senior executive managers, other key employees or new qualified personnel could therefore have a material adverse effect on the Group’s business prospects, earnings and financial position.

Fiat Group - The Group has significant outstanding indebtedness, which may limit its ability to obtain additional funding and limit its financial and operating flexibility

The extent of the Group’s indebtedness could have important consequences on its operations and financial results, including:

  • the Group may not be able to secure additional funds for working capital, capital expenditures, debt service requirements or general corporate purposes;
  • the Group may need to use a portion of its projected future cash flow from operations to pay principal and interest on its indebtedness, which may reduce the amount of funds available to the Group for other purposes;
  • the Group may be more financially leveraged than some of its competitors, which could put it at a competitive disadvantage;
  • the Group may not be able to adjust rapidly to changing market conditions, which may make it more vulnerable to a downturn in general economic conditions or its business.

These risks may be exacerbated by volatility in the financial markets, particularly those resulting from perceived strains on the finances and creditworthiness of several governments and financial institutions, particularly in the Eurozone.

Among the anticipated benefits of the corporate reorganization announced in January 2014 is the expected reduction in funding costs over time due to improved debt capital markets positioning of the combined entity. However, certain of the circumstances and risks described may delay or reduce the expected cost savings from the future funding structures and the expected cost savings may not be achieved in full or at all.

Even after the acquisition by Fiat, Chrysler continues to manage financial matters, including funding and cash management, separately. Additionally, Fiat has not provided guarantees or security or undertaken any other similar commitment in relation to any financial obligation of Chrysler, nor does it have any commitment to provide funding to Chrysler in the future.

Furthermore, certain bonds issued by Fiat include covenants that may be affected by circumstances related to Chrysler. In particular, these bonds include cross-default clauses which may accelerate the relevant issuer’s obligation to repay its bonds in the event that a “material subsidiary” of Fiat fails to pay certain debt obligations on maturity or is otherwise subject to an acceleration in the maturity of any of those obligations. Chrysler Group LLC is a “material subsidiary” and certain of its subsidiaries may become material subsidiaries of Fiat within the meaning of those bonds. Therefore, the cross-default provision could require early repayment of the Notes or those bonds in the event Chrysler’s debt obligations are accelerated or are not repaid at maturity. There can be no assurance that the obligation to accelerate the repayment by Chrysler of its debts will not arise or that it will be able to pay its debt obligations when due at maturity.

In addition, one of Fiat’s existing revolving credit facilities, expiring in July 2016, provides for some limits on Fiat’s ability to provide financial support to Chrysler.

Fiat Group - Restrictive covenants in the Group’s debt agreements could limit its financial and operating flexibility

The indentures governing certain of the Group’s outstanding public indebtedness, and other credit agreements to which companies in the Group are a party, contain covenants that restrict the ability of companies in the Group to, among other things:

  • incur additional debt;
  • make certain investments;
  • enter into certain types of transactions with affiliates;
  • sell certain assets or merge with or into other companies;
  • use assets as security in other transactions;
  • enter into sale and leaseback transactions.

Fiat Group - Risk associated with restrictions arising out of Chrysler’s debt instruments

Chrysler is party to a credit agreement for certain senior secured credit facilities and an indenture for two series of secured senior notes. These debt instruments include covenants that restrict Chrysler’s ability to make certain distributions or purchase or redeem capital stock, prepay other debt, encumber assets, incur or guarantee additional indebtedness, incur liens, transfer and sell assets or engage in certain business combinations, enter into certain transactions with affiliates or undertake various other business activities.

In particular, in January 2014, Chrysler paid a distribution of $1.9 billion to its members. With certain exceptions, further distributions will be limited to 50 percent of Chrysler’s consolidated net income (as defined in the agreements) from the period from January 2012 until the end of the most recent fiscal quarter, less the amount of the January 2014 distribution.

These restrictive covenants could have an adverse effect on the Group’s business by limiting its ability to take advantage of financing, mergers and acquisitions, joint ventures or other corporate opportunities. In addition, the senior credit facilities contain, and future indebtedness may contain, other and more restrictive covenants and also prohibit Chrysler from prepaying certain of its indebtedness. The senior credit facilities require Chrysler to maintain borrowing base collateral coverage and a liquidity threshold. A breach of any of these covenants or restrictions could result in an event of default on the indebtedness and any of the other indebtedness of Chrysler or result in cross-default under certain of its indebtedness.

If Chrysler is unable to comply with these covenants, its outstanding indebtedness may become due and payable and creditors may foreclose on pledged properties. In this case, Chrysler may not be able to repay its debt and it is unlikely that it would be able to borrow sufficient additional funds. Even if new financing is made available to Chrysler in such circumstances, it may not be available on acceptable terms.

In addition, compliance with certain of these covenants could restrict Chrysler’s ability to take certain actions that its management believes are in Chrysler’s and the Group’s best long-term interests.

Should Chrysler be unable to undertake strategic initiatives due to the covenants provided for by the above instruments, the Group’s business prospects, financial condition and results of operations could be adversely impacted.

C&W Group

The following is a summary of the risks and uncertainties that could potentially have a significant impact on the activities of C&W Group, Inc. (C&W).

Additional risks and uncertainties not presently known to C&W or that C&W currently believes to be immaterial may also adversely affect C&W’s business.

C&W – Risks associated with general economic conditions

C&W’s success depends, in part, on the basic strength of the real estate markets in which C&W operates.  Periods of economic weakness or recession, significantly rising interest rates, declining employment levels, declining demand for commercial real estate, falling real estate values, or the public perception that any of these events may occur, may negatively affect the performance of some or all of C&W’s business lines.

These economic conditions can result in a general decline in acquisition, disposition and leasing activity, increase in credit cost and lack of credit availability, as well as a general decline in the value of commercial real estate and rents, which in turn can reduce revenue from property management and valuation fees and commissions derived from property sales, leasing and financing activities and increase volatility of certain business lines, such as capital markets, that generate fees based on the timing, size and pricing of transactions. The performance of the real estate markets depends upon many factors, almost all of which are beyond C&W’s control. Any prolonged downturn in the real estate markets could have a significant adverse effect on C&W’s ability to generate revenue and profits and on C&W’s business as a whole.

C&W – Risks associated with C&W’s credit facility

C&W's credit agreement imposes operating and other restrictions on C&W and many of its subsidiaries which may limit or prohibit various  activities including: financing ongoing operations, strategic acquisitions, investments, paying dividends or making distributions on or repurchases of capital stock. The credit facility is guarantee by the main assets of C&W Group. Failure to meet payments or other obligations under C&W’s credit agreement (financial covenants) could lead to increased interest rates.

C&W – Risks associated with seasonality

A significant portion of C&W's revenue is seasonal which can affect C&W's ability to compare financial condition and consolidated results of operations on a quarter-by-quarter basis. Historically, this seasonality has caused revenue, operating income, net income and cash flows from operating activities to be lower in the first two quarters and higher in the third and fourth quarters of each year.  The seasonality of C&W's business makes it more difficult to determine during the course of the year whether C&W’s business expectations will be achieved, and to adjust timely to changes in conditions.

C&W – Risks associated with the impairment of C&W’s goodwill and other intangible assets

In connection with EXOR's acquisition of Cushman & Wakefield, Inc. in 2007 and as a result of subsequent acquisitions, C&W has significant goodwill and other intangible assets on its books. A significant and sustained decline in future cash flows, a significant adverse change in the economic environment or slower revenue and EBITDA growth rates could result in the recognition of goodwill or other intangible asset impairment charges.

C&W – Risks associated with currency fluctuation

C&W's revenue from non-U.S. operations is denominated primarily in the local currency where the associated revenue was earned while the reporting currency of C&W is the U.S. dollar.  Over time, fluctuations in the value of the U.S. dollar relative to the other currencies in which earnings are generated could adversely affect C&W's business, financial condition and operating results. In addition, constantly changing currency exposures and the volatility of currency exchange rates may make it more difficult to perform period-to-period comparisons of reported results of operations.

C&W – Risks associated with litigation

C&W’s licensed employees and the licensed employees of C&W’s global subsidiaries are subject to statutory due diligence, disclosure and standard-of-care obligations. Failure to fulfill these obligations could result in litigation from parties who purchased, sold or leased properties C&W brokered or managed, as well as any party who may have relied on a valuation by C&W. In addition, C&W hires and supervises third-party contractors to provide certain services for C&W’s managed properties.  Depending on the terms of the contracts with C&W’s clients, C&W may be subject to claims resulting from actions of such third-party contractors that it does not control.  Any material claim or litigation could divert senior management’s attention and delay implementation of C&W’s business strategy, which could ultimately harm C&W’s financial condition and results of operations.  Some of these litigation risks may be mitigated by insurance maintained by C&W in amounts it believes are appropriate.

C&W – Risks associated with competition

C&W competes across a variety of business disciplines within the commercial real estate services industry. Although many of its competitors are local or regional firms and are substantially smaller than C&W, some of these competitors are larger on a local or regional basis. C&W is also subject to competition from other large national and multi-national firms that have similar service competencies to C&W. In general, there can be no assurance that C&W will be able to compete effectively, to maintain current fee levels or margins, or maintain or increase C&W’s market share.

C&W - Risks associated with ability to attract and retain qualified and experienced employees

C&W’s continued success is highly dependent upon the efforts of its executive officers and other key employees. If any of C&W’s key employees leave and C&W is unable to quickly hire and integrate a qualified replacement, C&W’s business, financial condition and results of operations may suffer.  In addition, the growth of C&W’s business is largely dependent upon C&W’s ability to attract and retain qualified personnel in all areas of C&W’s business, including brokerage and property management personnel, and competition for key employees among C&W and its competitors is intense.  If C&W is unable to attract and retain qualified personnel, C&W’s growth may be limited and its business and operating results could suffer.

C&W – Risks associated with operations in multiple jurisdictions with complex and varied tax regimes

C&W operates in many jurisdictions with complex and varied tax regimes and is subject to different forms of taxation resulting in a variable effective tax rate. Adverse tax filings, failure to adequately support tax positions, non-compliance with tax regulations, errors in tax preparation and disagreements with the tax authorities on the application of tax law and tax claims arising from tax audits may result in the disqualification of tax positions taken, tax penalties and could have an adverse effect on C&W’s results of operations.

C&W – Risks associated with the protection of C&W’s intellectual property

C&W’s business depends, in part, on C&W’s ability to identify and protect proprietary information and other intellectual property such as C&W’s trade and service marks, domain names, client lists and information, business methods and research. C&W’s inability to detect unauthorized use or take appropriate or timely steps to enforce C&W’s intellectual property rights may have an adverse effect on business and lead to claims against C&W.

C&W - Risks associated with non-compliance with policies and Global Code of Business Conduct

The global nature of C&W’s business makes it challenging to communicate the importance of adherence to C&W’s policies and Global Code of Business Conduct, to monitor and enforce compliance with its provisions on a worldwide basis and to ensure local compliance with US and UK laws that apply globally in some circumstances (e.g. the Foreign Corrupt Practices Act, the Patriot Act and the UK Bribery Act).  Breaches of C&W’s Global Code of Conduct could have a material adverse effect.

C&W – Risks associated with the security of C&W’s information and technology networks, including personally identifiable and client information

C&W collects and stores sensitive data such as personally identifiable information of C&W’s employees, clients and other third parties. The secure processing, maintenance and transmission of this information is critical to C&W’s operations.  Despite C&W’s security measures, C&W’s information technology systems may be vulnerable to attacks by hackers or breaches due to employee error, malfeasance or other disruptions. Such events could expose C&W to liability, damage C&W’s reputation and adversely affect revenues and competitive position.  Additionally, C&W increasingly relies on third-party data storage providers, including cloud storage solution providers, resulting in less direct control over C&W’s data. Such third parties may also be vulnerable to security breaches and compromised security systems, which could adversely affect C&W’s reputation.

In order to manage such risks, C&W has recently deployed a third-party Managed Security Service to monitor activity and provide alerts of risky events, a third-party application vulnerability assessment service to monitor client-facing, public-facing, and internal web application vulnerabilities, and a risk assessment program for information technology related service providers. C&W is currently taking steps to increase its ability to prevent, detect, and react to malicious activity intended to misappropriate C&W’s data or computing resources.

Juventus Football Club

Juventus Football Club - Risks associated with general economic conditions

Overall, Juventus’ financial position, income statement and cash flows are affected by general economic conditions. However, despite the fact that most of the company's income items are tied to long-term contracts, if the situation of weakness and uncertainty which characterizes the Italian and European economy lengthens significantly, the activities, strategies and prospects of the company may be negatively affected, particularly in terms of the radio and television rights market, sponsorships, revenues from the stadium and all sales activities targeting supporters.

Juventus Football Club - Risks associated with the sponsorship market

From a general viewpoint, the crisis which has hit financial markets in recent years and the consequent ongoing recession are affecting the market of sports sponsorships which currently has a narrower timeframe of promotional and advertising investments made by partner companies. The effect of this shift in the market in the short term has been to lower the proportion of long-term sponsorship revenues compared with the past. If the economic crisis should continue, growth in sponsorship revenues may fall below expectations, with the result that Juventus’ financial position, income statement and cash flows may be impacted.

Juventus Football Club - Risks associated with the ability to attract “human capital”

Achieving sports and economic results depends on the ability to attract and keep top quality managers, players and technical staff and, therefore, requires payment of salaries in line with those of the main competitors in Italy and Europe. The inability to keep “key people” may have a negative impact on the actual ability to manage and on the Club's growth prospects.

Juventus Football Club - Risks associated with funding requirements

Numerous factors affect Juventus’ financial position. In particular, these include the fulfillment of sports and business objectives, as well as trends in general economic conditions and in the markets in which the company operates. In accordance with the company’s risk management policy, Juventus has credit facilities in place with a number of premier banking institutions to prevent cash flow shortages from arising. In addition to this, the company holds its cash and cash equivalents as demand deposits or short-term deposits with a suitable number of different banks, to ensure the prompt availability of the funds. Nevertheless, given the adverse situation of financial markets, the emergence of bank and money market situations that may interrupt normal financial transactions cannot be excluded, which would give rise to cash flow shortages in the event that credit facilities were also restricted.

Juventus Football Club - Risks associated with business sector

Players’ registration rights represent the company’s main factor of production. Sports activities are subject to risks connected to players’ physical health and fitness. Injuries and accidents, therefore, can potentially have a significant impact at any time on the company’s financial position and income statement.

In addition, given that the business also focuses on the commercial exploitation of the trademark, trademark infringement by third parties is another risk the company faces. The arrival on the market of a large number of imitation goods bearing the Juventus trademark or the occurrence of events that may impair the market value of the trademark would potentially have an adverse impact on the company’s financial position, income statement and cash flows. Finally, the company is exposed to risks connected with supporter behavior, which may result in fines, sanctions or other punishments being levied on Juventus, and indirect damages to the Club’s image, which may lead to lower stadium turnout and lower merchandising sales.

Juventus Football Club - Risks associated with the Transfer Campaign

The company’s business and financial performance are affected significantly by the acquisitions and disposals made as part of Transfer Campaigns. The difficulties in correlating the single transactions compared with the Development Plan and guidelines related to sports management defined annually could result in negative impacts on the company's financial situation. Moreover, having a squad of players that do not meet the technical and tactical requirements of the trainer and the strategic needs of the sporting director raises the risk of not being able to optimize the playing side, bringing unexpected or excessive costs, amortization charges and players’ wages.

Juventus Football Club - Risks related to relations with footballers

Like all its main competitors, the company has been faced with a significant increase in salaries and bonuses for footballers in recent years as well as in the cost of players' registration rights. If the value of footballers were to continue increasing at a significant rate, purchasing the registration rights for new players could become more problematic, especially if the value of the Club’s footballers to sell did not increase proportionately.

It cannot be excluded that these trends may continue in future years, affecting the company's strategy and the dynamic management of its playing assets, and may have negative effects on the company's financial position, income statement and cash flows, as well as on its activities, strategies and prospects.

For the relations in question, it is important to underline the risk connected with a failure of footballers who are no longer part of the company's technical program to accept transfers with the consequent incurring of costs for unexpected or excessive amortization charges and players wages, a risk that all football clubs have in common.

Juventus Football Club – Risks associated with any unlawful behavior of registered players

As current sports regulations hold football clubs liable for certain behavior of its players, the possibility that the company may be fined by sports bodies in the future, for facts beyond its control, with negative effects that may also be significant on the financial position and performance, cannot be ruled out.

Juventus Football Club - Risks associated with radio and television rights

The company’s revenues are closely tied to proceeds from the sale of radio and television rights, the terms and conditions of those rights, and how such rights are sold. New rules governing the ownership of broadcasting rights to sports events and the distribution of proceeds, have reduced Juventus’ revenues on a national level, bearing a significant impact on the financial position, income statement and cash flows of Juventus. A possible decrease in the rights market as well as a different application of the new criteria adopted by the Lega for the distribution of proceeds from centralized and collective sale of radio and television rights may lead to an additional significant reduction of revenues in the future with negative impact on Juventus' financial position, income statement and cash flows.

Moreover, in recent years live streaming and piracy on Internet have caused and continue to cause the loss of income for TV broadcasters which could lead them to change the investments in the sector with a negative impact on Juventus' financial position, income statement and cash flows.

Juventus Football Club – Risks associated with digital media

The company has adopted appropriate procedures and rules of conduct to manage media relations. However, as digital media have become more commonplace, the possibility of an improper use of these procedures and rules by some registered players and/or their relatives, relatives by marriage and attorneys-in-fact, as well as the publication of contents by third parties in general, having a negative impact on the image of the company, its directors, executives and/or registered players, with consequent negative effects on the financial position and performance, cannot be ruled out.

Juventus Football Club - Risks associated with management of the company-owned stadium

Starting with the 2011/2012 season, Juventus became the first Serie A team to own its own stadium. This means that the company is now responsible for it with the consequent risks related to the structure of the stadium and management of the surrounding public areas used for parking. Activities at the Juventus Stadium could be suspended following natural disasters and other events beyond the company's control with consequent negative impacts on Juventus' financial position, income statement and cash flows.

Management of the new stadium and public parking areas during events may also lead to unexpected costs, including due to damage or vandalism which is beyond Juventus' control. Lastly, a reduction of supporters and played matches would have a negative effect on Juventus' financial position, income statement and cash flows.

Juventus Football Club – Risks associated with the no-fault liability of football clubs

Under current regulations, football clubs have a no-fault liability in relation to certain acts of their registered players and fans that may result in sports sanctions and/or monetary fines for the clubs and players. In this regard, despite adopting procedures considered necessary to avoid the infringement of these regulations, the company cannot rule out the possibility that facts may occur beyond its control that result in sanctions (including suspension from the field, fines and bans from competitions), and that cause concern among fans at the stadium, reducing their number with a possible reduction in ticket sales and extraordinary costs, nor can it evaluate the sports, economic and financial-related consequences that may arise. Following these events, the need to consolidate security measures during home matches could arise, with additional costs and expense for the safety of fans and company insurance, and with consequent negative effects on the financial position and performance of the company, as well as its operations, strategies and prospects.

Juventus Football Club - Risks associated with fluctuations in interest rates and exchange rates

Juventus uses various forms of funding to assure the cash flow needed for its business. These include credit lines for cash advances and credit commitments, financial leases, and special purpose loans for mid/long-term investments. Changes in interest rates can raise or lower the cost of servicing these loans. The company has decided to make use of financial instruments to hedge the risk of fluctuations in interest rates to finance medium-long term investments. Despite this, sudden changes in interest rates could potentially have an adverse impact on the company's financial position and income due to higher financial expenses on short-term borrowing.

Juventus conducts almost all its purchase and sale transactions in euro. As a result, the company is not exposed in any significant way to the risk of exchange rate fluctuations.

Juventus Football Club - Risks associated with the missed qualification for sports tournaments

The company’s financial performance is significantly affected, both directly and indirectly, by the results achieved by the team in the various tournaments it takes part in, especially the UEFA Champions League. Direct entry to the tournament is currently assured to the top two ranking teams in the Serie A Championship, while the third-placed team has the opportunity of qualifying through a preliminary qualifying round. Failure to qualify for the tournament, even where due to a reduction in the number of participating sides, as well as failure to obtain the UEFA license, including in light of the new so-called "Financial Fair Play" rules, could potentially have an adverse impact on the company’s financial position and income statement.

Juventus Football Club - Risks associated with Financial Fair Play

The UEFA Executive Committee recently approved the European-wide introduction of a licensing system for the admission of football clubs to the club competitions that it organizes (UEFA Champions League, UEFA Europe League and UEFA Supercup). Based on this system, only football clubs which prove they satisfy the sporting, infrastructure, personnel and administrative, legal and financial criteria, along with the required title are allowed to participate in European competitions and thus obtain the so-called "UEFA License". The UEFA Club Licensing manual also incorporates Financial Fair Play Regulations.

Financial Fair Play is based on the break-even principle, according to which the clubs can participate in European competitions only if they can demonstrate a balance between generated revenues and incurred costs. A short description is given below of the man financial-economic and equity parameters applied by UEFA for admission to its competitions. As of the 2013/2014 Football Season, each club will be required to show it has:

  • financial statements certified by an independent auditor demonstrating that the club is a going concern;
  • non-negative equity;
  • no overdue payables towards football clubs, employees, and/or social/tax authorities;
  • a positive break-even result, demonstrating compliance with the break-even rule, for the two years preceding the entry into force of the new UEFA regulations (i.e., for the 2011/2012 and 2012/2013 football seasons) or, for future applicants, for the three consecutive years preceding the club's application for a UEFA License.

The company has obtained the UEFA license to play in European championships for the 2013/2014 football season, however it is not possible to predict if in the future these requirements (or new requirements approved in the meantime) will be complied with, nor can it be excluded that clubs may be required to have additional funding to meet the requirements needed for the UEFA License. If the company is not able to meet the above requirements, it may be excluded from participation in European competitions, bearing an adverse impact on its financial position and income statement.

Juventus Football Club - Risks associated with the outcome of pending litigation

With the assistance of its legal advisers, the company manages and constantly monitors all current disputes and, on the basis of the outcome that can be predicted for them, proceeds, when necessary, with the allocation of specific risk provisions.

Future negative effects, both minor and major, on Juventus’ financial position, income statement and cash flows cannot be excluded on the basis of the current disputes.

Juventus Football Club – Risks associated with tax litigation

Considering the specific nature of the football industry and in particular of the transactions regulating the Transfer Campaign, which are interpreted in different ways by football clubs and the Financial Administration, claims could be made by the Financial Administration in the future, even concerning a significant amount, with adverse effects on the company’s financial position and performance.

Commercial Register No.64236277 Legal notes | Credits