Chrysler 2014 Annual Report Download - page 167

2014 | ANNUAL REPORT 165
Components (Magneti Marelli, Teksid and Comau) earns its revenues from the production and sale of lighting
components, engine control units, suspensions, shock absorbers, electronic systems, exhaust systems and plastic
molding components and in the spare parts distribution activities carried out under the Magneti Marelli brand name,
cast iron components for engines, gearboxes, transmissions and suspension systems and aluminum cylinder heads
(Teksid), in addition to the design and production of industrial automation systems and related products for the
automotive industry (Comau).
USE OF ESTIMATES
The Consolidated financial statements are prepared in accordance with IFRS which require the use of estimates,
judgments and assumptions that affect the carrying amount of assets and liabilities, the disclosure of contingent
assets and liabilities and the amounts of income and expenses recognized. The estimates and associated
assumptions are based on elements that are known when the financial statements are prepared, on historical
experience and on any other factors that are considered to be relevant.
The estimates and underlying assumptions are reviewed periodically and continuously by the Group. If the items
subject to estimates do not perform as assumed, then the actual results could differ from the estimates, which would
require adjustment accordingly. The effects of any changes in estimate are recognized in the Consolidated income
statement in the period in which the adjustment is made, or in future periods.
The items requiring estimates for which there is a risk that a material difference may arise in respect of the carrying
amounts of assets and liabilities in the future are discussed below.
Pension plans
The Group sponsors both non-contributory and contributory defined benefit pension plans primarily in the U.S. and
Canada. The majority of the plans are funded plans. The non-contributory pension plans cover certain hourly and
salaried employees. Benefits are based on a fixed rate for each year of service. Additionally, contributory benefits are
provided to certain salaried employees under the salaried employees’ retirement plans. These plans provide benefits
based on the employee’s cumulative contributions, years of service during which the employee contributions were
made and the employee’s average salary during the five consecutive years in which the employee’s salary was highest
in the 15 years preceding retirement or the freeze of such plans, as applicable.
The Group’s defined benefit pension plans are accounted for on an actuarial basis, which requires the use of estimates
and assumptions to determine the net liability or net asset. The Group estimates the present value of the projected
future payments to all participants taking into consideration parameters of a financial nature such as discount rates,
the rates of salary increases and the likelihood of potential future events estimated by using demographic assumptions
such as mortality, dismissal and retirement rates. These assumptions may have an effect on the amount and timing of
future contributions.
In 2013, the Group amended the U.S. and Canadian salaried defined benefit pension plans. The U.S. plans were
amended in order to comply with Internal Revenue Service regulations, to cease the accrual of future benefits
effective December 31, 2013, and to enhance the retirement factors. The Canada amendment ceased the accrual
of future benefits effective December 31, 2014, enhanced the retirement factors and continued to consider future
salary increases for the affected employees. The plan amendments resulted in the remeasurement of the plans and
a corresponding curtailment gain. As a result, the Group recognized a €509 million net reduction to its pension
obligation, a €7 million reduction to defined benefit plan assets, and a corresponding €502 million increase in Other
comprehensive income/(loss) for the year ended December 31, 2013. There were no significant plan amendments or
curtailments to the Group’s pension plans for the year ended December 31, 2014.