Chrysler 2014 Annual Report Download - page 180

178 2014 | ANNUAL REPORT
Consolidated
Financial Statements
Notes to the Consolidated
Financial Statements
The other significant assumptions management used in connection with the development of the fair value of FCA US’s
membership interests discussed above included the following:
Inputs derived from FCA US’s long-term business plans in place at the time the Equity Purchase Agreement was
negotiated and executed, including:
An estimated 2014 Earnings before interest, tax, depreciation, amortization, pension and OPEB payments
(EBITDAPO); and
An estimate of net debt, which is composed of debt, pension obligations and OPEB obligations of FCA US, offset
by any expected tax benefit arising from payment of obligations and cash on hand; and
An EBITDAPO valuation multiple based on observed multiples for other US-based automotive manufacturers,
adjusted for differences between those manufacturers and FCA US.
The transaction under the Equity Purchase Agreement closed on January 21, 2014 and as a result, the Group now
holds a 100.0 percent equity interest in FCA US.
Concurrent with the closing of the acquisition under the Equity Purchase Agreement, FCA US and UAW executed
and delivered a contractually binding and legally enforceable Memorandum of Understanding (“MOU”) to supplement
FCA US’s existing collective bargaining agreement. Under the MOU, the UAW committed to (i) use the best efforts
to cooperate in the continued roll-out of FCA US’s World Class Manufacturing (“WCM”) programs, (ii) to actively
participate in benchmarking efforts associated with implementation of WCM programs across all FCA’s manufacturing
sites to ensure objective competitive assessments of operational performance and provide a framework for the proper
application of WCM principles, and (iii) to actively assist in the achievement of FCA US’s long-term business plan. In
consideration for these legally enforceable commitments, FCA US agreed to make payments to a UAW-organized
independent VEBA Trust totaling U.S.$700 million (€518 million at the transaction date) to be paid in four equal annual
installments. Considering FCA US’s non-performance risk over the payment period as of the transaction date and its
unsecured nature, this payment obligation had a fair value of U.S.$672 million (€497 million) as of the transaction date.
The Group considered the terms and conditions set forth in the above mentioned agreements and accounted for
the Equity Purchase Agreement and the MOU as a single commercial transaction with multiple elements. As such,
the fair value of the consideration paid discussed above, which amounts to U.S.$4,624 million (€3,411 million at the
transaction date), including the fair value of the previously exercised disputed options, was allocated to the elements
obtained by the Group. Due to the unique nature and inherent judgment involved in determining the fair value of
the UAW’s commitments under the MOU, a residual value methodology was used to determine the portion of the
consideration paid attributable to the UAW’s commitments as follows:
(€ million)
Special distribution from FCA US 1,404
Cash payment from FCA NA 1,287
Fair value of the previously exercised options 223
Fair value of financial commitments under the MOU 497
Fair value of total consideration paid 3,411
Less the fair value of an approximately 41.5 percent non-controlling ownership interest in FCA US (2,916)
Consideration allocated to the UAW’s commitments 495
The fair value of the 41.5 percent non-controlling ownership interest in FCA US acquired by FCA from the VEBA Trust
(which includes the approximately 10 percent pursuant to the settlement of the previously exercised options discussed
above) was determined using the valuation methodology discussed above.
The residual of the fair value of the consideration paid of U.S.$670 million (€495 million) was allocated to the UAW’s
contractually binding and legally enforceable commitments to FCA US under the MOU.