F-1 1 newbusinessnetherlands.htm F-1 Project Owl Document
As filed with the Securities and Exchange Commission on July 23, 2015
Registration No. 333-
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
New Business Netherlands N.V.
(Exact Name of Registrant as Specified in Its Charter)
 
The Netherlands
3711
Not Applicable
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(IRS Employer
Identification Number)
 
Via Abetone Inferiore n. 4
I-41053 Maranello (MO)
Italy
Tel. No.: +39 0536 949111
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
Ferrari North America Inc
120 Demarest Avenue
Englewood Cliffs, NJ 07632-0002
Tel. No.: (201) 816-2600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
 
Copies to:
Scott D. Miller, Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Tel No.: (212) 558-4000
Giorgio Fossati
Fiat Chrysler Automobiles N.V.
25 St. James’s Street
London SW1A 1HG
United Kingdom
Carlo Daneo
Ferrari S.p.A.
Via Abetone Inferiore n. 4
I-41053 Maranello (MO)
Italy
William V. Fogg
Johnny G. Skumpija
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Tel No.: (212) 474-1000
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨  
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ 
 
CALCULATION OF REGISTRATION FEE
 
 
 
Title of each class of securities
to be registered
Proposed maximum
aggregate offering
price(1)
Amount of
registration fee
Common shares, nominal value €0.01
$100,000,000

$11,620

Special voting shares, nominal value €0.01
 
(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act.

 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO AMENDMENT AND COMPLETION, DATED JULY 23, 2015.
Common Shares
This is an initial public offering of common shares of New Business Netherlands N.V., to be renamed Ferrari N.V. (“Ferrari”) shortly prior to completion of the offering. Fiat Chrysler Automobiles N.V. (“FCA”) is selling______common shares of Ferrari, equal to        percent of the Ferrari share capital. We are not selling common shares and we will not receive any of the proceeds from the sale of common shares by FCA. Prior to this offering, there has been no public market for our common shares. The estimated offering price is between $          and $______per common share.
This offering is intended to be part of a series of transactions to separate Ferrari from FCA. Following completion of this offering, FCA expects to transfer its remaining approximately 80 percent interest in us to FCA shareholders. For a description of the separation, see “The Restructuring and Separation Transactions.” Although we currently expect the separation to be completed in early 2016, we cannot assure you that the separation will be carried out as described in this prospectus, completed within the expected timeline or completed at all.
We will apply for listing of our common shares on the New York Stock Exchange under the symbol                  .
We have a loyalty voting program. Investors who purchase common shares in the offering may elect to participate in our loyalty voting program by registering their common shares in our loyalty share register and holding them for three years. The loyalty voting program effectively awards two votes for each qualifying common share by means of the issue of special voting shares. See “The Ferrari Shares, the Ferrari Articles of Association and Terms and Conditions of our Special Voting Shares” for additional information including terms and conditions relating to our loyalty voting program. We expect that FCA and Piero Ferrari, our minority shareholder, will participate in our loyalty voting program and, upon completion of this offering, will effectively hold two votes for each of their common shares. FCA shareholders that participate in FCA’s loyalty voting program will be entitled to participate on the same basis in our loyalty voting program effective upon the separation.
Investing in our common shares involves risk. See Risk Factors beginning on page 9.
 
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
Per Share
Total(1)
Initial public offering price
$
$
Underwriting discount and commissions
$
$
Proceeds, before expenses, to the selling shareholder
$
$
(1)    Assuming the underwriters do not exercise their option to purchase additional shares.
The selling shareholder has granted the underwriters the option to purchase up to an additional______common shares at the initial public offering price less an underwriting discount of $______per share.
UBS Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Santander Investment Securities Inc. are acting as Joint Bookrunners and UBS Securities LLC is acting as Global Coordinator for the offering. The underwriters expect to deliver the common shares against payment in New York, New York on______, 2015.
Joint Bookrunners
UBS Investment Bank                                      BofA Merrill Lynch
Santander
 
Prospectus dated                  , 2015.








WHERE YOU CAN FIND MORE INFORMATION
Ferrari has filed a registration statement on Form F-1 to register with the Securities and Exchange Commission (“SEC”) the Ferrari common shares to be sold in the offering. This prospectus is a part of that registration statement on Form F-1. As permitted by the rules and regulations of the SEC, this prospectus does not contain all the information included in the registration statement. You should refer to the registration statement on Form F-1 (File No. 333-          ), for information omitted from this prospectus.
You may read and copy any document we file with or furnish to the SEC free of charge at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain documents we file with or furnish to the SEC on the SEC website at www.sec.gov. The address of the SEC’s website is provided solely for the information of prospective investors and is not intended to be an active link. Please visit the website or call the SEC at 1 (800) 732-0330 for further information about its public reference room.
 
You should rely only on the information in this prospectus to decide whether to purchase Ferrari common shares in the offering. No one has been authorized to provide you with information that is different from that contained in this prospectus. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus.
This prospectus is made available by Ferrari in connection with the offering pursuant to the U.S. Securities Act of 1933. This prospectus does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.
This prospectus does not constitute an offer of securities to the public in the Netherlands within the meaning of article 5:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). This prospectus is not a prospectus or an offer document within the meaning of the Prospectus Directive (2003/71/EC), as amended.
Until______, 2015 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 

i


TABLE OF CONTENTS
 
 
Page
 

ii


CERTAIN DEFINED TERMS
In this prospectus, unless otherwise specified, the terms “we,” “our,” “us,” the “Group,” the “Company” and “Ferrari” refer to Ferrari N.V., together with its subsidiaries, or to Ferrari N.V., individually or together with its subsidiaries, as the context may require. References to “Ferrari N.V,” refer solely to New Business Netherlands N.V., which, shortly prior to completion of the offering, will be renamed “Ferrari N.V,” References to “FCA” or “FCA Group” refer to Fiat Chrysler Automobiles N.V., together with its subsidiaries, following completion of the merger of Fiat S.p.A. with and into the FCA on October 12, 2014, or to Fiat S.p.A. together with its subsidiaries, prior to the merger of Fiat S.p.A. with and into the FCA, as the context may require. References to “Fiat” refer solely to Fiat S.p.A., the predecessor of FCA.
See “Note on Presentation” below for additional information regarding the financial presentation.

iii


NOTE ON PRESENTATION
This prospectus includes the consolidated financial statements of New Business Netherlands N.V., to be renamed Ferrari N.V., for the years ended December 31, 2014, 2013 and 2012 prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). We refer to these consolidated financial statements collectively as the “Annual Consolidated Financial Statements”.
This prospectus also includes the unaudited interim condensed consolidated financial statements of New Business Netherlands N.V. for the three months ended March 31, 2015 prepared in accordance with IAS 34 Interim Financial Reporting. We refer to these interim condensed consolidated financial statements as the “Interim Condensed Consolidated Financial Statements”.
Basis of Preparation of the Annual Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements
As explained in Note 1 to the Annual Consolidated Financial Statements, Note 1 to the Interim Condensed Consolidated Financial Statements and in “The Restructuring and Separation Transactions” in this prospectus, on October 29, 2014, FCA announced its intention to separate Ferrari S.p.A. from FCA. The separation is expected to occur through a series of transactions including (i) an intra-group restructuring which will result in our acquisition of the assets and business of Ferrari North Europe Limited and the transfer by FCA of its 90 percent shareholding in Ferrari S.p.A. to us, (ii) the transfer of Piero Ferrari’s 10 percent shareholding in Ferrari S.p.A. to us, (iii) this initial public offering of our common shares described in this prospectus, and (iv) the distribution, following this initial public offering, of FCA’s remaining interest in us to its shareholders. The transactions referred to in (i) and (ii) are defined in the Annual Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements as the “Restructuring” and were completed on______.
As the Company was formed by FCA solely to effect the Separation (as defined herein) and will be controlled by FCA until completion of the Separation, in preparing the Annual Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements, the Company has applied FCA’s basis of accounting for financial reporting purposes. With the exception of the FCA Note (as defined under “Unaudited Pro Forma Condensed Consolidated Financial Information” herein) and subsequent refinancing, the Restructuring has been retrospectively reflected in the Annual Consolidated Financial Statements as though it had occurred effective January 1, 2012, and reflected in the Interim Condensed Consolidated Financial Statements as though it had occurred effective January 1, 2014.
The historical number of ordinary shares, nominal value per share, basic and diluted earnings per ordinary share amounts and other per share disclosures retrospectively reflect the capital structure of the Company post-Restructuring for all periods presented, with the required disclosures presented in Notes 12 and 20 to the Annual Consolidated Financial Statements and Notes 12 and 19 to the Interim Condensed Consolidated Financial Statements.
The Group’s financial information is presented in Euro. In some instances, information is presented in U.S. Dollars. All references in the prospectus to “Euro” and “€” refer to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended, and all references to “U.S. Dollars,” “U.S.$” and “$” refer to the currency of the United States of America (the “United States”).
The language of the prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.
Certain totals in the tables included in this prospectus may not add due to rounding.

iv


TRADEMARKS AND TRADE NAMES
This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
MARKET AND INDUSTRY INFORMATION
In this prospectus, we include and refer to industry and market data, including market share, ranking and other data, derived from or based upon a variety of official, non-official and internal sources, such as internal surveys and management estimates, market research, publicly available information and industry publications, such as, among others, FOM-Formula One Management (Formula 1); U.S. Maker Data Club (United States); ANFAVEA-Associação Nacional dos Fabricantes de Veículos Automotores (Brazil); OSZ-Österreichisches-Sprachen-Kompetenz-Zentrum (Austria); FEBIAC-Fédération Belge de l’industrie de l’automobile et du cycle (Belgium); AAA Data (France); KBA-Kraftfahrt-Bundesamt (Germany); SMMT-Society of Motor Manufacturers and Traders (United Kingdom); UNRAE-Unione Nazionale Rappresentanti Autoveicoli Esteri (Italy); RDC Datacentrum B.V. (Netherlands); TRAFICO-Revista Tráfico y Seguridad Vial (Spain); BranschData (Sweden); ASTRA (Switzerland); China Automobile Industry Association (China); Hong Kong Motor Trader Association (Hong Kong); Ministry of Transportation and Communications (Taiwan); VFACTS Series produced by the Federal Chamber of Automotive Industries (Australia and New Zealand); JAIA-Japan Automobile Importers Association (Japan); GAIKINDO-Association of Indonesia Automotive Industries (Indonesia); Singapore Land Transport Authority and Singapore Motor Trader Associations (Singapore); KAIDA-Korea Automobile Importers & Distributors Association (South Korea); Thailand Department of Land Transportation (Thailand).
Market share, ranking and other data contained in this prospectus may also be based on our good faith estimates, our own knowledge and experience and such other sources as may be available. Market share data may change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process, different methods used by different sources to collect, assemble, analyze or compute market data, including different definitions of car segments and descriptions and other limitations and uncertainties inherent in any statistical survey of market shares or size. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. Although we believe that this information is reliable, we have not independently verified the data from third-party sources. In addition we normally estimate our market share for luxury performance cars based on registration data. In a limited number of markets where registration data are not available, we calculate our market share based on estimates relating to sales to final clients. Such data may differ from data relating to shipments to our dealers and distributors. While we believe our internal estimates with respect to our industry are reliable, our internal company surveys and management estimates have not been verified by an independent expert, and we cannot guarantee that a third party using different methods to assemble, analyze or compute market data would obtain or generate the same result. The market share data presented in this prospectus represents the best estimates available from the sources indicated as of the date hereof but, in particular as they relate to market share and our future expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the caption “Risk Factors.”

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CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
Statements contained in this prospectus, particularly those regarding our possible or assumed future performance, competitive strengths, costs, dividends, reserves and growth, industry growth and other trends and projections and estimated company earnings are “forward-looking statements” that contain risks and uncertainties. In some cases, words such as “may,” “will,” “expect,” “could,” “should,” “intend,” “estimate,” “anticipate,” “believe,” “outlook,” “continue,” “remain,” “on track,” “design,” “target,” “objective,” “goal,” “plan” and similar expressions are used to identify forward-looking statements. These forward-looking statements reflect the respective current views of Ferrari with respect to future events and involve significant risks and uncertainties that could cause actual results to differ materially. These factors include, without limitation:
•
our ability to preserve and enhance the value of the Ferrari brand;
•
the success of our Formula 1 racing team and the expenses we incur for our Formula 1 activities;
•
our ability to keep up with advances in high performance car technology and to make appealing designs for our new models;
•
our ability to preserve our relationship with the automobile collector and enthusiast community;
•
our low volume strategy;
•
the ability of Maserati, our engine customer, to sell its planned volume of cars;
•
changes in client preferences and automotive trends;
•
changes in the general economic environment and changes in demand for luxury goods, including high performance luxury cars, which is highly volatile;
•
the impact of increasingly stringent fuel economy, emission and safety standards, including the cost of compliance, and any required changes to our products;
•
our ability to successfully carry out our growth strategy and, particularly, our ability to grow our presence in emerging market countries;
•
competition in the luxury performance automobile industry;
•
reliance upon a number of key members of executive management and employees, and the ability of our current management team to operate and manage effectively;
•
the performance of our dealer network on which we depend for sales and services;
•
increases in costs, disruptions of supply or shortages of components and raw materials;
•
disruptions at our manufacturing facilities in Maranello and Modena;
•
our ability to provide or arrange for adequate access to financing for our dealers and clients, and associated risks;
•
the performance of our licensees for Ferrari-branded products;
•
our ability to protect our intellectual property rights and to avoid infringing on the intellectual property rights of others;
•
product recalls, liability claims and product warranties;
•
our continued compliance with customs regulations of various jurisdictions;
•
labor relations and collective bargaining agreements;

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•
exchange rate fluctuations, interest rate changes, credit risk and other market risks;
•
changes in tax, tariff or fiscal policies and regulatory, political and labor conditions in the jurisdictions in which we operate;
•
our ability to ensure that our employees, agents and representatives comply with applicable law and regulations;
•
the adequacy of our insurance coverage to protect us against potential losses;
•
our ability to maintain the functional and efficient operation of our information technology systems; and
•
other factors discussed elsewhere in this prospectus.
Furthermore, in light of ongoing difficult macroeconomic conditions, both globally and in the industries in which we operate, it is particularly difficult to forecast results, and any estimates or forecasts of particular periods that are provided in this prospectus are uncertain. We expressly disclaim and do not assume any liability in connection with any inaccuracies in any of the forward-looking statements in this prospectus or in connection with any use by any third party of such forward-looking statements. Actual results could differ materially from those anticipated in such forward-looking statements. We do not undertake an obligation to update or revise publicly any forward-looking statements.
Additional factors which could cause actual results and developments to differ from those expressed or implied by the forward-looking statements are included in the section “Risk Factors” of this prospectus.

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SUMMARY
This summary highlights selected information from this prospectus and might not contain all of the information that is important to you. You should read carefully the entire prospectus to fully understand the transactions, and before deciding to invest in our common shares.
Ferrari
Ferrari is among the world’s leading luxury brands focused on the design, engineering, production and sale of the world’s most recognizable luxury performance sports cars. Our brand symbolizes luxury, exclusivity, innovation, state-of-the-art sporting performance and Italian design and engineering heritage. Our name and history and the image enjoyed by our cars are closely associated with our Formula 1 racing team, Scuderia Ferrari, the most successful team in Formula 1 history, having won 222 Grand Prix races, 16 Constructor World titles and 15 Drivers’ World titles. We believe our history of excellence, technological innovation and defining style transcends the automotive industry, and is the foundation of the Ferrari brand and image. We design, engineer and produce our cars in Maranello, Italy, and sell them in over 60 markets worldwide through a network of 182 authorized dealers.
We believe our cars are the epitome of performance, luxury and styling. We currently sell eight models, including six sports cars (458 Italia, 488 GTB, 458 Spider, F12berlinetta and our special series 458 Speciale and 458 Speciale A) and two GT cars (California T and FF). In March 2015, we launched our latest sports car, the 488 GTB, which is replacing the 458 Italia. We expect to gradually replace our 458 models with successor 488 models during 2015 and the next several years. We also produce a limited edition supercar, LaFerrari, and very limited editions series (Fuoriserie) and one-off cars.
In 2014, we shipped 7,255 cars, and recorded net revenues of €2,762 million, net profit of €265 million, adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) of €693 million and earnings before interest and taxes (EBIT) of €389 million. For additional information regarding Adjusted EBITDA, which is a non-GAAP measure, including a reconciliation of Adjusted EBITDA to net profit, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—EBITDA and Adjusted EBITDA”.
We pursue a low volume production strategy in order to maintain a reputation of exclusivity and scarcity among purchasers of our cars and deliberately monitor and maintain our production volumes and delivery wait-times to promote this reputation. We divide our regional markets into EMEA, Americas, Greater China and Rest of APAC, representing respectively 45 percent, 34 percent, nine percent and 12 percent of units shipped in 2014. In recent years we have allocated a higher proportion of shipments to the Middle East and Greater China and, to a lesser extent, the Americas and a lower proportion to Europe, reflecting changes in relative demand as part of our strategy to manage waiting lists and maintain product exclusivity.
We license the Ferrari brand to a select number of producers and retailers of luxury and lifestyle goods, and we sell Ferrari-branded merchandise through a network of 23 franchised and nine owned Ferrari stores and on our website. As one of the world’s most recognized premium luxury brands, we believe we are well positioned to selectively expand the presence of the Ferrari brand in attractive and growing lifestyle categories consistent with our image, including sportswear, watches, accessories, consumer electronics and theme parks which we believe enhance the brand experience of our loyal following of clients and Ferrari enthusiasts.
We focus our marketing and promotion efforts in the investments we make in our racing activities, in particular Scuderia Ferrari’s participation in the Formula 1 World Championship, which is one of the most watched annual sports series in the world, with approximately 425 million television viewers annually. We believe that these activities support the strength and awareness of our brand among motor enthusiasts, clients and the general public.
We will continue focusing our efforts on protecting and enhancing the value of our brand to preserve our strong financial profile and participate in the premium luxury market growth. We intend to selectively pursue controlled and profitable growth in existing and emerging markets while expanding the Ferrari brand to carefully selected lifestyle categories.
Our Competitive Strengths
We believe that the following key competitive strengths have been the primary drivers of our success in the past and will be the pillars of our growth strategy going forward.

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An iconic brand with superior, enduring power, benefiting from a loyal customer base. Our brand is one of the most iconic and recognizable in the world. We believe the Ferrari brand and our prancing horse logo symbolize luxury, exclusivity, innovation, state-of-the-art sporting performance and Italian design and engineering heritage and has regularly been ranked as one of the world’s most powerful brands by independent surveyors. Our name and image have been burnished over decades of unparalleled success in automotive racing and the performance and styling of our luxury performance cars. We believe the power of our brand and the passion we inspire in clients and the broader community of enthusiasts is preserved and enhanced by our rigorous production and distribution model, which promotes hard-to-satisfy demand and thus scarcity value in our cars. We promote this passion for our brand by fostering a community of enthusiasts and we reward loyal clients through various initiatives, such as driving events and client activities in Maranello and at motor shows and, more particularly, through providing our most loyal and active clients with preferential access to our newest and highest value cars. As a result, in 2014 approximately 60 percent of our new cars were sold to Ferrari owners and 34 percent of our clients own more than one Ferrari car. As a testament to the enduring power of our brand, vintage Ferraris are among the most sought after cars in the collector market, with nine Ferraris ranking in the top 10 most valuable cars ever sold in public auctions. Our brand is supported through our Formula 1 automotive racing team, Scuderia Ferrari, the most successful team in Formula 1 history. We also generate revenues from our brand through licensing partnerships, Ferrari retail stores and a theme park, Ferrari World. We believe our success in these activities demonstrates the value of Ferrari as a true global absolute luxury brand.
Global access to growing wealth creation. We target our products to the upper end of the luxury performance car segment and buyers of our cars tend to belong to the wealthiest segment of the population. The size and spending capacity of our target client base has grown significantly in recent years and we expect macroeconomic trends that promote an expanding market for our products to continue, particularly in emerging markets, which have seen significant growth in personal wealth and disposable incomes. In many of our key markets, such as the United States, where we sell over 30 percent of our cars, spending by our target clients has proven to be relatively insulated from short term economic downturns. This provides a resilient source of demand at the upper end of the luxury industry, particularly for our cars, which we have captured through the frequent renewal of our product offering. Our low volume strategy and our tight control over the allocation of our cars allow us to adjust the geographical distribution of our unit sales over time to respond to economic developments in our markets and to benefit from patterns of wealth creation and demand for luxury products in different regions.
Exceptional pricing power and value resilience. The allure of our brand and our controlled production and distribution model promote premium prices for the new cars we sell as well as Ferraris sold in the resale market, which reinforces stability in our new car pricing. We have focused relentlessly on extending the quality, performance and craftsmanship of our cars further into the upper end of the market, through special limited editions selling at prices exceeding €1 million per car, as well as bespoke, one-off cars and extensive personalization of our cars, which on average add 15 percent to selling prices. These limited edition and bespoke vehicles enhance our reputation for exclusivity which in turn supports premium pricing on our standard sports and GT models. We are confident that this approach, rather than seeking to increase volumes by competing with lower priced luxury or premium cars, will lead to stronger long term financial performance. We believe our strategy, coupled with the spending power of our clients and our ability to offer highly personalized “tailor-made” products, has provided us with enduring premium pricing for our cars. We believe our cars benefit from strong value resilience over time, with high residual value in the resale markets which in turn lowers the total cost of ownership for our clients and promotes repeat purchases.
Racing heritage. We benefit from our racing heritage and foundation and success in Formula 1 World Championships. Our research and development initiatives and the know-how developed through designing, engineering and producing circuit racing cars has allowed us to streamline our new car design and development schedule, to implement a range of cutting-edge innovations to deliver best-in-market performance in our sports and GT cars and to design, engineer and sell our special series, limited edition and one-off cars, all of which attract significant price premiums. In addition to the research and development support from our racing activities, our prominent role in Formula 1 racing provides us with an incomparable platform from which to promote our brand and technological prowess. In light of this, we do not need to use mainstream product advertising, which we believe would conflict with the image of exclusivity that our clients and enthusiasts expect and, as a result, would be detrimental to our brand. In 2014, Formula 1 races attracted approximately 425 million television viewers around the world, making it one of the world’s most watched sport series in the year. We believe the success and prominence of Scuderia Ferrari, the most successful team in Formula 1 history, gives us a strong marketing advantage in the luxury performance car market.
Leading edge engineering capabilities. We believe that our cars are the epitome of performance, luxury and styling. Our cars integrate industry-leading technological and engineering capabilities which benefit from the know-how gained through our racing activities. Our constant engineering improvements, for example, have resulted in significantly more powerful engines over time. The V8 engine mounted in the 430 model in 2005 had 490hp, while the V8 turbo engine mounted in the 488 GTB model in 2015 has 670 hp. Innovations transferred from our racing team to our street cars include innovative electronic control

2


systems, carbon fiber parts and KERS (Kinetic Energy Recovery System) technology. While we continue to focus intently on the higher end of the luxury performance car market, we have rounded out our range of products in recent years to cater to different client preferences, ranging from pure performance to cars characterized by more refined and luxurious interiors to improve comfort and drivability. Our cars’ distinctive designs, when taken together with their performance and luxury status, provide Ferrari with a unique character, which, in turn, contributes to increased brand strength.
Flexible and efficient development and production process. Our focus on the upper end of the luxury performance car market, the dedication and skill of our engineers and developers and the clarity and focus of our product marketing objectives, allow us to design and develop new models exceptionally quickly. Our racing heritage, which is characterized by an annual design, develop and build schedule, as well as our engineering and design focus has enabled us typically to bring to market new models in approximately 40 months, depending on the modifications (approximately 33 months for modified or “M” models), measured from the beginning of the development project to the start of production. The flexibility of our development process is such that we are able to continue to modify and adjust a new model’s specifications throughout the development phase and near to the scheduled launch of the model. The speed and flexibility of our development process reduces development costs for new models and allows our newest models to be fully responsive to changes in technology and market demand. This also allows us to renew our model line-up on a more frequent and regular schedule; we typically seek to launch at least one new model every year. Our models have an average lifecycle of four or five years (depending on market dynamics) followed by a significantly modified and enhanced version after the fourth or fifth year of production. This predictable lifecycle supports both new car sales and the value of models both in the primary and resale markets. We believe this lifecycle also ensures that our products remain more responsive to the expectations of our clients than those of other luxury performance car manufacturers. Furthermore, we recently renovated our production facilities, which positions us to accommodate meaningful increases in production with limited additional investments. This gives us the flexibility to prudently increase sales of our cars to meet growing demand while retaining the exclusivity and scarcity of our cars.
Strong and resilient financial performance and profile. Our brand, clients and product positioning provide us with an exceptional track record of financial performance that has withstood market challenges throughout economic cycles. In the year ended December 31, 2014, we recorded net revenues of €2,762 million, net profit of €265 million, Adjusted EBITDA of €693 million and Adjusted EBITDA margin of 25.1 percent, EBIT of €389 million and EBIT margin of 14.1 percent and we shipped 7,255 cars. We have recorded shipment growth of 34 percent in the last 10 years and, during the financial crisis, suffered only a single year of modest (less than 5 percent) decline in shipments in spite of the luxury status of our cars and the discretionary nature of their purchase. From 2005 to 2014 we achieved a compound annual growth rate in net revenues of seven percent and our 2014 Adjusted EBITDA margin of 25.1 percent represented an increase of 6.9 percentage points over 2005. We believe this exceptional financial performance positions us as not just a leading luxury automaker, but as one of the world’s leading absolute luxury brands. For additional information regarding Adjusted EBITDA, which is a non-GAAP measure, including a reconciliation of Adjusted EBITDA to net profit, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—EBITDA and Adjusted EBITDA”.
Superior Talent. We benefit from the experience and expertise of a strong team of managers, technical employees and racing talent, combining industry knowledge, technological expertise, sporting success and financial savvy. We believe our brand and technological heritage has enabled us to attract the best technical talent from a wide range of fields. We recently hired a leading Formula 1 manager and a new driver to allow us to capitalize on our strong technical position and return to a higher level of racing success, while our employees, particularly at our facilities in and around Maranello, Italy, include a large number of highly skilled engineers, designers, technicians and artisans. Our management team also benefits from the leadership of our CEO, Amedeo Felisa, who brings over 40 years of automotive technical experience and skill to his leadership role, and our chairman, Sergio Marchionne, who engineered the operating and financial turnaround of Fiat and Chrysler and the global expansion of our parent company, FCA, into the seventh largest automaker in the world (based on 2014 vehicle sales). We believe our small but skilled team gives our brand the leading talent in the industry and the ability to carry out our business plan objectives.
Our Strategies
We intend to maintain and extend our leading position in the luxury performance sports car market and to continue to protect and enhance the value and exclusivity of the Ferrari brand and its association with the lifestyle we believe it represents. Within these parameters, we aim to achieve profitable growth by pursuing the following strategies.
Controlled growth in developed and emerging markets. While we will continue to pursue a low volume production strategy and maintain our reputation for exclusivity, we intend to respond to growing demand, both in emerging markets as well as in response to demographic changes and the growth in the size and spending capacity of our target clients. We believe we

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can grow in a controlled manner while preserving the exclusivity of our brand by continuing to focus on distinct market segments and maintaining a strong pipeline of new car launches. We will also continue to explore controlled growth in emerging markets to capitalize on the substantial wealth creation and the growing affluent populations in those markets, while maintaining our historic control over the relative allocation of cars among regions in order to maintain proper balance of our supply to support both demand for our cars and our brand reputation over the long term.
Regular new model introductions and enhancements. We intend to continue our effective strategy of regularly launching new cars with enhanced technological innovations and design improvements, capitalizing on the speed and flexibility of our design, engineering and production processes. We also intend to alternate our new model launches among our distinct product segments in order to preserve the exclusivity and enduring value of each new car launch, while ensuring that our clients have continuing access to the latest technology and design. We will also continue periodically to design and launch limited edition supercars and very limited series and one-off cars, which command significantly higher prices, in order to satisfy the demands of our most affluent and loyal clients and to inspire our clients who purchase our Sports and GT cars to purchase our newer and enhanced models. Notwithstanding the regular introduction of new products, we intend to continue the practice of managing waiting lists in our various geographic markets to respond appropriately to relative levels of demand by balancing the need to enhance exclusivity while minimizing any concerns for client satisfaction. We expect that increasing technological content of our cars combined with clients’ appetite for our distinctive designs will continue to support pricing at the upper end of the luxury performance market in each of our car segments.
Pursue Excellence in Formula 1 Racing. We intend to continue to pursue success in Formula 1 racing through Scuderia Ferrari, the most successful team in Formula 1 history. We believe that competitive success in Formula 1 racing both promotes our brand and excites passion in our employees, clients and other Ferrari enthusiasts and we will devote the resources we believe are required to maintain that success. In addition to the know-how we develop in designing, engineering and producing Formula 1 racing cars that we apply to our Sports and GT cars, we continue to believe that the success of our business, the image of our brand and the allegiance of our clients is enhanced by our racing success, which will, among other things, position us to extend the Ferrari brand into other luxury and lifestyle segments. More generally, we believe that our Formula 1 racing team allows us to promote and market our brand and technology to a global audience more effectively than traditional advertising activities, which enhances the aura of exclusivity around our brand.
Controlled growth in adjacent luxury and lifestyle categories. We intend to maintain the Ferrari brand’s reputation for exclusivity and selectively extend the brand through initiatives that are compatible with our brand image and the loyal following we enjoy among our clients and other Ferrari enthusiasts. We expect over time to expand the Ferrari brand into a range of other luxury goods and in adjacent lifestyle categories through third party licensing and partnerships, but intend to do so only in a manner that preserves the strength and exclusivity of our brand. We also intend to expand our retail activities with balanced growth through new openings of direct point of sales in order to increase our presence in the United States and in Europe as well as improving our franchising activities in selected locations. We will also promote the Ferrari brand through carefully selected theme park locations that we believe will attract consumers including current clients as well as those who aspire to become our clients. We believe these strategies will allow us to extend the reach of our brand to additional consumers, which we believe will further enhance our position as a premier luxury lifestyle brand.
Corporate Structure and Proposed Separation
This offering is intended to be part of a series of transactions (the “Separation”) to separate Ferrari from FCA, after which FCA would no longer hold any ownership interest in Ferrari. Shortly prior to the pricing of this offering, we carried out an intra-group restructuring of Ferrari, after which FCA owns 90 percent of our common shares and voting power and Piero Ferrari holds the remaining 10 percent.
Immediately following the offering, it is expected that FCA will own approximately 80 percent of our common shares (if the underwriters’ option to purchase additional shares is exercised in full), Piero Ferrari will own 10 percent of our common shares and public shareholders will own 10 percent of our common shares (if the underwriters’ option to purchase additional shares is exercised in full).
Following completion of the offering, FCA intends to transfer its remaining approximately 80 percent interest in Ferrari to FCA shareholders by way of demergers under Dutch law.

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The Separation is currently expected to be completed in early 2016. However, completion of the Separation is subject to various conditions, risks and uncertainties and we cannot assure you that it will be completed in the manner described in this prospectus or at all.
Upon completion of the Separation, Ferrari N.V. would be the holding company of the Ferrari group through its 100 percent shareholding in Ferrari S.p.A. and FCA would no longer have an ownership interest in Ferrari N.V. Following the Separation, the common shares of Ferrari N.V. are expected to be held as follows (assuming that the underwriters’ option to purchase additional common shares in this offering is exercised in full):
•
Exor S.p.A. (FCA’s largest shareholder): approximately 24 percent;
•
Piero Ferrari: 10 percent; and
•
Public shareholders: approximately 66 percent.
However, voting power in Ferrari will also depend on the number of special voting shares outstanding after the Separation. See “The Ferrari Shares, the Ferrari Articles of Association and Terms and Conditions of our Special Voting Shares.”
We believe that the Separation will enable us to pursue our business strategies with greater operational and financial independence while preserving the unique character of our business and organization. ‎ We believe that as a standalone company with an iconic brand name, we will be better positioned to promote and extend the value of our brand, maintain our heritage, attract and reward technical and management talent and further enhance Ferrari’s position among the world’s premier luxury lifestyle companies. We also expect that the Separation and our capital and organizational structure will offer a flexible and beneficial environment that will enable us to access directly sources of equity and debt capital to finance our business on favorable terms, as well as the opportunity to reward our most loyal shareholders with our loyalty voting program. Our listing on the New York Stock Exchange is also expected to increase our investment appeal, particularly in the United States which has historically been one of our largest ‎and most important markets. 
In connection with the Separation, we may apply for admission to listing and trading of our common shares on the Mercato Telematico Azionario, or MTA, organized and managed by Borsa Italiana S.p.A. Any listing on the MTA would occur at or after the completion of the Separation.
For more information regarding the Separation, see “The Restructuring and Separation Transactions.”
Corporate Information
Ferrari was incorporated as a public limited liability company (naamloze vennootschap) under the laws of the Netherlands on May 24, 2013 under the name New Business Netherlands N.V. Shortly prior to the completion of the offering, this name will be changed to Ferrari N.V.
Ferrari’s place of effective management is in Italy and, therefore, its fiscal residency is in Italy (see “Tax Consequences—Material Italian Income Tax Consequences”).
Risk Factors
Investing in our common shares involves risks. See “Risk Factors” beginning on page 9.

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The Offering
Common shares offered by the selling shareholder
         common shares
Common shares subject to underwriters’
option to purchase additional common shares
         common shares
Common shares outstanding
         common shares
Selling Shareholder
Fiat Chrysler Automobiles N.V. Following this offering, the selling shareholder will hold approximately percent of our common shares (approximately 80 percent if the underwriters’ option to purchase additional common shares is exercised in full).
Use of proceeds
We will not receive any proceeds from the sale of common shares in this offering.
Risk Factors
See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common shares.
Lock-up
We, FCA, Piero Ferrari and certain of our directors and officers have agreed that, subject to certain exceptions, we and they will not, without the prior written consent of UBS Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, offer, pledge, sell, contract to sell or otherwise transfer or dispose of, all or a portion of the economic consequences of ownership of, any of our common shares or any securities convertible into or exercisable or exchangeable for our common shares for a period of 90 days after the date of this prospectus, subject to certain extensions. For more information, see “Underwriting.” However, this lock-up does not restrict the consummation of, or any activities by us or FCA in furtherance of, any of the transactions relating to the separation of Ferrari from FCA described under “The Restructuring and Separation Transactions.”
Dividend policy
Our dividend policy will be determined by our Board of Directors as constituted following completion of this offering and the Separation. Payment of dividends on our common shares in the future will depend on general business conditions, our financial condition, earnings and liquidity, and other factors. Under our articles of association and Dutch law, dividends may be declared on our common shares only if the amount of equity exceeds the paid up and called up capital plus the reserves that have to be maintained pursuant to the law or our articles of association. Further, even if we are permitted under our articles of association and Dutch law to pay cash dividends on our common shares, we may not have sufficient cash to pay dividends in cash on our common shares.
New York Stock Exchange (“NYSE”) symbol
 

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Summary Historical and Pro Forma Financial Data
The following tables set forth selected historical consolidated financial data and pro forma consolidated financial data of Ferrari. The historical consolidated financial data has been derived from the unaudited Interim Condensed Consolidated Financial Statements and the audited Annual Consolidated Financial Statements, both of which are included elsewhere in this prospectus. The pro forma consolidated financial data has been derived from the Unaudited Pro Forma Condensed Consolidated Financial Information included elsewhere in this prospectus.
The accompanying Annual Consolidated Financial Statements have been prepared in accordance with IFRS. The accompanying Interim Condensed Consolidated Financial Statements have been prepared in accordance with the requirements of IFRS and in particular in accordance with IAS 34 – Interim Financial Reporting. The accounting principles applied in the Interim Condensed Consolidated Financial Statements are consistent with those used for the preparation of the Annual Consolidated Financial Statements, except as otherwise stated in “New standards and amendments effective from January 1, 2015” in the Notes to the Interim Condensed Consolidated Financial Statements.
As explained in “Note on Presentation”, with exception of the FCA Note and subsequent refinancing (as defined herein), the Restructuring has been retrospectively reflected in the Annual Consolidated Financial Statements as though it had occurred effective January 1, 2012, and reflected in the Interim Condensed Consolidated Financial Statements as though it had occurred effective January 1, 2014. See “Note on Presentation”.
The pro forma consolidated financial data has been prepared by applying unaudited pro forma adjustments to (i) our historical interim consolidated statement of financial position and our historical interim consolidated income statement at and for the three months ended March 31, 2015 included in the Interim Condensed Consolidated Financial Statements and (ii) our historical consolidated income statement for the year ended December 31, 2014 included in the Annual Consolidated Financial Statements, adjusted to give effect to the transactions described under “Unaudited Pro Forma Condensed Consolidated Financial Information” included in this prospectus. The pro forma consolidated financial data does not purport to represent what our actual results of operations would have been if such transactions had actually occurred on the dates assumed, nor is it necessarily indicative of future consolidated results of operations or financial condition. The pro forma consolidated financial data is presented for information purposes only.

The following information should be read in conjunction with “Note on Presentation,” “Selected Historical Consolidated Financial And Other Data,” “Risk Factors,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Interim Condensed Consolidated Financial Statements and the Annual Consolidated Financial Statements included elsewhere in this prospectus. Historical results for any period are not necessarily indicative of results for any future period.

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Consolidated Income Statement Data
 
For the three months ended March 31,
 
For the years ended December 31,
 
2015
 
2015
 
2014
 
2014
 
2014
 
2013
 
2012
 
Pro Forma
 
 
 
 
 
Pro Forma
 
 
 
 
 
 
 
(€ million, except per share data)
Net revenues
 
 
621

 
620

 
 
 
2,762

 
2,335

 
2,225

Adjusted EBITDA (1)
 
 
160

 
148

 
 
 
693

 
634

 
573

EBIT
 
 
96

 
80

 
 
 
389

 
364

 
335

Profit before taxes
 
 
98

 
80

 
 
 
398

 
366

 
334

Net profit
 
 
65

 
54

 
 
 
265

 
246

 
233

Attributable to:
 
 
 
 
 
 
 
 
 
 
 
 
 
Owners of the parent
 
 
64

 
53

 
 
 
261

 
241

 
225

Non-controlling interest
 
 
1

 
1

 
 
 
4

 
5

 
8

Basic and diluted earnings per ordinary share (in Euro) (2)
 
 


 


 
 
 


 


 



_____________________________
(1)    For additional information regarding Adjusted EBITDA, which is a non-GAAP measure, including a reconciliation of Adjusted EBITDA to net profit, the most directly comparable measure presented in accordance with IFRS, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—EBITDA and Adjusted EBITDA”.
(2)    See Note 12 to the Interim Condensed Consolidated Financial Statements and Annual Consolidated Financial Statements for the calculation of Basic and Diluted earnings per ordinary share.
Consolidated Statement of Financial Position Data
 
At March 31,
 
At December 31,
 
2015
2015
 
2014
 
2013
 
Pro Forma
 
 
 
 
 
 
(€ million)
Cash and cash equivalents
 
164

 
134

 
114

Deposits in FCA Group cash management pools (1)
 
977

 
942

 
684

Total assets
 
5,004

 
4,641

 
3,895

Debt
 
623

 
510

 
317

Total equity
 
2,475

 
2,478

 
2,316

Equity attributable to owners of the parent
 
2,462

 
2,470

 
2,290

Non-controlling interests
 
13

 
8

 
26

_________________________
(1)Deposits in FCA Group cash management pools relate to our participation in a group-wide cash management system at FCA, where the operating cash management, main funding operations and liquidity investment of the Group are centrally coordinated by dedicated treasury companies with the objective of ensuring effective and efficient management of our funds. Following the Separation, these arrangements will be terminated and we will manage our liquidity and treasury function on a standalone basis.


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RISK FACTORS
Investing in our common shares involves risks. You should carefully consider the following risks, as well as all other information included in this prospectus including our consolidated financial statements and the related notes, before investing in our common shares. Our business as well as our results of operations or financial condition could be materially adversely affected by any of these risks, as well as other risks and uncertainties not currently known to us or not currently deemed to be material. In this case, the price of our common stock could decline, and you may lose some or all of your investment.
Risks Related to Our Business, Strategy and Operations
We may not succeed in preserving and enhancing the value of the Ferrari brand, which we depend upon to drive demand and revenues.
Our financial performance is influenced by the perception and recognition of the Ferrari brand, which, in turn, depends on many factors such as the design, performance, quality and image of our cars, the appeal of our dealerships and stores, the success of our promotional activities including public relations and marketing, as well as our general profile, including our brand’s image of exclusivity. The value of our brand and our ability to achieve premium pricing for Ferrari-branded products may decline if we are unable to maintain the value and image of the Ferrari brand, including, in particular, its aura of exclusivity. Maintaining the value of our brand will depend significantly on our ability to continue to produce luxury performance cars of the highest quality. The market for luxury goods generally and for luxury automobiles in particular is intensely competitive, and we may not be successful in maintaining and strengthening the appeal of our brand. Client preferences, particularly among luxury goods, can vary over time, sometimes rapidly. We are therefore exposed to changing perceptions of our brand image, particularly as we seek to attract new generations of clients. Any failure to preserve and enhance the value of our brand may materially and adversely affect our ability to sell our cars, to maintain premium pricing, and to extend the value of our brand into other activities profitably or at all.
We selectively license the Ferrari brand to third parties that produce and sell Ferrari-branded luxury goods and therefore we rely on our licensing partners to preserve and enhance the value of our brand. If our licensees or the manufacturers of these products do not maintain the standards of quality and exclusivity that we believe are consistent with the Ferrari brand, or if such licensees or manufacturers otherwise misuse the Ferrari brand, our reputation and the integrity and value of our brand may be damaged and our business, operating results and financial condition may be materially and adversely affected.
Our brand image depends in part on the success of our Formula 1 racing team.
The prestige, identity, and appeal of the Ferrari brand depend on the continued success of the Scuderia Ferrari racing team in the Formula 1 World Championship. The racing team is a key component of our marketing strategy and may be perceived by our clients as a demonstration of the technological capabilities of our sports and GT cars which also supports the appeal of other Ferrari-branded luxury goods. If we are unable to attract and retain the necessary talent to succeed in international competitions or devote the capital necessary to fund successful racing activities, the value of the Ferrari brand and the appeal of our cars and other luxury goods may suffer. Even if we are able to attract such talent and adequately fund our racing activities, there is no assurance that this will lead to competitive success for our racing team.
The success of our racing team depends in particular on our ability to attract and retain top drivers and racing management and engineering talent. Our primary Formula 1 drivers, team managers and other key employees of Scuderia Ferrari are critical to the success of our racing team and if we were to lose their services, this could have a material adverse effect on the success of our racing team and correspondingly the Ferrari brand. If we are unable to find adequate replacements or to attract, retain and incentivize drivers and team managers, other key employees or new qualified personnel, the success of our racing team may suffer. As the success of our racing team forms a large part of our brand identity, a sustained period without racing success could detract from the Ferrari brand and, as a result, potential clients’ enthusiasm for the Ferrari brand and their perception of our cars, which could have an adverse effect on our business, results of operations and financial condition.
If we are unable to keep up with advances in high performance car technology, our competitive position may suffer.
Performance cars are characterized by leading-edge technology which is constantly evolving. In particular, advances in racing technology often lead to improved technology in road cars. Although we invest heavily in research and development, we may be unable to maintain our leading position in high performance car technology and, as a result, our competitive position may suffer. As technologies change, we plan to upgrade or adapt our cars and introduce new models in order to continue to

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provide cars with the latest technology. However, our cars may not compete effectively with our competitors’ cars if we are not able to develop, source and integrate the latest technology into our cars.
Developing and applying new automotive technologies is costly, and may become even more costly in the future as available technology advances and competition in the industry increases. If our research and development efforts do not lead to improvements in car performance relative to the competition, or if we are required to spend more to achieve comparable results, sales of our cars or our profitability may suffer.
If our car designs do not appeal to clients, our brand and competitive position may suffer.
Design and styling are an integral component of our models and our brand. Our cars have historically been characterized by distinctive designs combining the aerodynamics of a sports car with powerful, elegant lines. We believe our clients purchase our cars for their appearance as well as their performance. However, we will need to renew over time the style of our cars to differentiate the new models we produce from older models, and to reflect the broader evolution of aesthetics in our markets. We devote great efforts to the design of our cars and most of our current models are designed by Ferrari Design Centre, our in-house design team. If the design of our future models fails to meet the evolving tastes and preferences of our clients and prospective clients, or the appreciation of the wider public, our brand may suffer and our sales may be adversely affected.
The value of our brand depends in part on the automobile collector and enthusiast community.
An important factor in the connection of clients to the Ferrari brand is our strong relationship with the active global community of automotive collectors and enthusiasts, particularly collectors and enthusiasts of Ferrari automobiles. This is influenced by our close ties to the automotive collectors’ community and our support of related events (such as car shows and driving events), at our headquarters in Maranello and through our dealers, the Ferrari museum and affiliations with regional Ferrari clubs. The support of this community also depends upon the perception of our cars as collectibles, which we also support through our Ferrari Classiche services, and the active resale market for our automobiles which encourages interest over the long term.
If there is a change in collector appetite or damage to the Ferrari brand, our ties to and the support we receive from this community may be diminished. Such a loss of enthusiasm for our cars from the automotive collectors’ community could harm the perception of the Ferrari brand and adversely impact our sales and profitability.
Demand for luxury goods, including luxury performance cars, is volatile, which may adversely affect our operating results.
Volatility of demand for luxury goods, in particular luxury performance cars, may adversely affect our business, operating results and financial condition. The markets in which we sell our cars have been subject to volatility in demand in recent periods. Demand for luxury automobiles depends to a large extent on general, economic, political and social conditions in a given market as well as the introduction of new vehicles and technologies. As a luxury performance car manufacturer and low volume producer, we compete with larger automobile manufacturers many of which have greater financial resources in order to withstand changes in the market and disruptions in demand. Demand for our cars may also be affected by factors directly impacting automobile prices or the cost of purchasing and operating automobiles, such as the availability and cost of financing, prices of raw materials and parts and components, fuel costs and governmental regulations, including tariffs, import regulation and other taxes, including taxes on luxury goods, resulting in limitations to the use of high performance sports cars or luxury goods more generally. Volatility in demand may lead to lower car unit sales, which may result in further downward price pressure and adversely affect our business, operating results and financial condition. These effects may have a more pronounced impact on us given our low volume strategy and relatively smaller scale as compared to large global mass-market automobile manufacturers.
Our low volume strategy may limit potential profits.
A key to the appeal of the Ferrari brand and our marketing strategy is the aura of exclusivity and the sense of luxury which our brand conveys. A central facet to this exclusivity is the limited number of models and cars we produce and our strategy of maintaining our car waiting lists to reach the optimal combination of exclusivity and client service. Our low volume strategy is also an important factor in the prices that our clients are willing to pay for our cars. While important to our current marketing strategy, our focus on maintaining low volumes and exclusivity limits our potential sales growth and profitability.

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Conversely, if we were to increase production of our cars, we may not be able to maintain the exclusivity of the Ferrari brand. If we are unable to balance brand exclusivity with increased production, we may erode the desirability and ultimately the consumer demand for our cars. As a result, if we are unable to increase car production meaningfully or introduce new car models without eroding the image of exclusivity in our brand we may be unable to significantly increase our revenues.
Our revenues from Formula 1 activities may decline and our related expenses may grow.
Revenues from our Formula 1 activities depend principally on the income from our sponsorship agreements and on our share of Formula 1 revenues from broadcasting and other sources. See “Business—Formula 1 Activities”. If we are unable to renew our existing sponsorship agreements or if we enter into new or renewed sponsorship agreements with less favorable terms, our revenues would decline. In addition, our share of Formula 1 results may decline if either our team’s performance worsens compared to other competing teams, or if the overall Formula 1 business suffers. Furthermore, in order to compete effectively on track we have been investing significant resources in research and development and to competitively compensate the best available drivers and other racing team members. These expenses also vary based on changes in Formula 1 regulations that require modification to our racing engines and cars. These expenses are expected to continue, and may grow further, including as a result of any changes in Formula 1 regulations, which would negatively affect our results of operations.
The small number of car models we produce and sell may result in greater volatility in our financial results.
We currently depend on the sales of five range models, two special series and one limited edition supercar to generate our revenues. While we anticipate expanding our car offerings, we expect that a limited number of models will continue to account for a large portion of our revenues at any given time in the foreseeable future. Therefore, our future operating results depend upon the continued market acceptance of each model in our line-up. There can be no assurance that our cars will continue to be successful in the market. On average it takes about 40 months (approximately 33 months for M models) from the beginning of the development phase to start of production for a new model and the car development process is capital intensive. As a result, we would likely be unable to replace the revenue lost from one of our main car models if it does not achieve market acceptance. Furthermore, volatility in our revenues and profits is also affected by our “special series” and limited edition cars that we launch from time to time and are typically priced higher than our range models. There can be no assurance that we will be successful in developing, producing and marketing additional new cars that will sustain sales growth in the future.
Engine production revenues are dependent on Maserati’s ability to sell its cars.
We produce V8 and V6 engines for Maserati. In particular, we have a multi-year arrangement with Maserati to provide V6 engines in an initial production run of up to 160,000 engines in aggregate through 2020, which is expected to increase to up to 275,000 engines in aggregate through 2023 to cater to Maserati’s planned expanded model range and sales volumes. While Maserati is required to compensate us for certain costs we may incur, such as penalties from our suppliers, in the event that the sales of Maserati cars decline, or do not increase at the expected rate, such an event would adversely affect our revenues from the sale of engines.
Our business is subject to changes in client preferences and automotive trends.
Our continued success depends in part on our ability to originate and define product and automotive trends, as well as to anticipate and respond promptly to changing consumer demands and automotive trends in the design, styling, technology, production, merchandising and pricing of our products. Our products must appeal to a client base whose preferences cannot be predicted with certainty and are subject to rapid change. Evaluating and responding to client preferences has become even more complex in recent years, due to our expansion in new geographical markets. If we misjudge the market for our products, we and our dealers may be faced with excess inventories for some cars and missed opportunities with others. In addition, there can be no assurance that we will be able to produce, distribute and market new products efficiently or that any product category that we may expand or introduce will achieve sales levels sufficient to generate profits. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition.
Global economic conditions may adversely affect us.
Our sales volumes and revenues may be affected by overall general economic conditions. Deteriorating general economic conditions may affect disposable incomes and reduce consumer wealth impacting client demand, particularly for luxury goods which may negatively impact our profitability and put downward pressure on our prices and volumes. Furthermore, during recessionary periods, social acceptability of luxury purchases may decrease and higher taxes may be more likely to be

11


imposed on certain luxury goods including our cars, which may affect our sales. Adverse economic conditions may also affect the financial health and performance of our dealers in a manner that will affect sales of our cars or their ability to meet their commitments to us.
Many factors affect the level of consumer spending in the luxury performance car industry, including the state of the economy as a whole, stock market performance, interest and exchange rates, inflation, political uncertainty, the availability of consumer credit, tax rates, unemployment levels and other matters that influence consumer confidence. In general, although our sales have historically been comparatively resilient in periods of economic turmoil, sales of luxury goods tend to decline during recessionary periods when the level of disposable income tends to be lower or when consumer confidence is low.
We distribute our products internationally and we may be affected by downturns in general economic conditions or uncertainties regarding future economic prospects that may impact the countries in which we sell a significant portion of our products. In particular, the majority of our current sales are in the EU and in the United States; if we are unable to expand in emerging markets, a downturn in mature economies such as the EU and the United States may negatively affect our financial performance. In the EU, 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 may lead to new periods of recession.
A significant decline in the EU or the global economy or in the specific economies of our markets, or in consumers’ confidence could have a material adverse effect on our business.
New laws, regulations, or policies of governmental organizations regarding increased fuel economy requirements, reduced greenhouse gas or pollutant emissions, or vehicle safety, or changes in existing laws, may have a significant effect on our costs of operation and/or how we do business.
We are subject throughout the world to comprehensive and constantly evolving laws, regulations and policies. We expect the extent of the legal and regulatory requirements affecting our business and our costs of compliance to continue to increase significantly in the future. In Europe and the United States, for example, significant governmental regulation is driven by environmental, fuel economy, vehicle safety and noise emission concerns. Evolving regulatory requirements could significantly affect our product development plans and may limit the number and types of cars we sell and where we sell them, which may affect our revenue. Governmental regulations may increase the costs we incur to design, develop and produce our cars and may affect our product portfolio. Regulation may also result in a change in the character or performance characteristics of our cars which may render them less appealing to our clients. We anticipate that the number and extent of these regulations, and their effect on our cost structure and product line-up, will increase significantly in the future.
Current European legislation limits fleet average greenhouse gas emissions for new passenger cars, and new targets have been set in 2014 with more stringent emission targets applicable to the 2017-2021 period. Due to our small volume manufacturer (“SVM”) status we benefit from a derogation from the existing emissions requirement and we are instead required to meet by 2016 alternative targets for our fleet of EU-registered vehicles. By the end of 2015, we will submit our proposed CO2 emissions target for the 2017-2021 period to the EU Commission for approval.
In the United States, the U.S. Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”) have set the federal standards for passenger cars and light trucks to meet certain combined average fuel economy (“CAFE”) levels and more stringent standards have been prescribed for model years 2017 through 2025. As a SVM that is able to demonstrate our operational independence from FCA, we expect to benefit from a derogation from currently applicable standards. We have also petitioned the EPA for alternative standards for the 2017-2019 period, which are aligned to our technical and economic capabilities, and we expect to receive feedback on this proposal by the end of 2015. Following the Separation, we intend to petition NHTSA for recognition as an independent manufacturer of less than 10,000 vehicles globally, in order to be eligible for alternate CAFE standards, as permitted under the CAFE program. If our petition qualifying for alternate CAFE standards is successful, NHTSA will determine the appropriate level of CAFE applicable to us for future model years.
In addition, we are subject to legislation relating to the emission of other air pollutants such as, among others, the “Tier 3” Motor Vehicle Emission and Fuel Standards issued by the EPA, and the Zero Emission Vehicle regulation in California, which are subject to similar derogations for SVMs, as well as vehicle safety legislation. NHTSA also recently published guidelines for driver distraction, and the associated compliance costs may be substantial.

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Other governments around the world, such as those in Canada, South Korea, China and certain Middle Eastern countries are also creating new policies to address these issues which could be even more stringent than the U.S. or European requirements. As in the United States and Europe, these government policies if applied to us could significantly affect our product development plans. In China, for example, Stage III fuel consumption regulations target a national average fuel consumption of 6.9L/100km by 2015 and Stage IV targets a national average fuel consumption of 5.0L/100km by 2021. In response to severe air quality issues in Beijing and other major Chinese cities, the Chinese government also intends to adopt more stringent emissions standards for Mainland China beginning in 2016. It is unclear whether the new standards, if adopted, will include exceptions for SVMs similar to those currently in place in the United States and in the EU.
We could lose our status as a SVM in the EU and/or the United States if we do not continue to meet all of the necessary eligibility criteria under applicable regulations as they evolve. In order to meet these criteria we may need to modify our growth plans or other operations. Furthermore, even if we continue to benefit from derogations as a SVM, we will be subject to alternative standards that the regulators deem appropriate for our technical and economic capabilities and such alternative standards may be significantly more stringent than those currently applicable to us.
Under these existing regulations, as well as new or stricter rules or policies, we could be subject to sizable civil penalties or have to restrict or modify product offerings drastically to remain in compliance. We may have to incur substantial capital expenditures and research and development expenditures to upgrade products and manufacturing facilities, which would have an impact on our cost of production and results of operation.
Our growth strategy exposes us to risks.
Our growth strategy includes a controlled expansion of our sales and operations, including the launching of new car models and expanding sales and dealer operations in targeted growth regions internationally. In particular, our growth strategy requires us to expand operations in regions that we have identified as having relatively high growth potential. We may encounter difficulties, including more significant competition in entering and establishing ourselves in these markets.
Our growth depends on the continued success of our existing cars, as well as the successful design and introduction of new cars. Our ability to create new cars and to sustain existing car models is affected by whether we can successfully anticipate and respond to consumer preferences and car trends. The failure to develop and launch successful new cars could hinder the growth of our business. Also, any delay in the development or launch of a new product could result in others bringing new products and technology to market first, which could compromise our competitive position.
Our growth strategy may expose us to new business risks that we may not have the expertise, capability or the systems to manage. This strategy will also place significant demands on us by requiring us to continuously evolve and improve our operational, financial and internal controls. Continued expansion also increases the challenges involved in maintaining high levels of quality, management and client satisfaction, recruiting, training and retaining sufficient skilled management, technical and marketing personnel. See “Business—Our Strategies.” If we are unable to manage these risks or meet these demands, our growth prospects and our business, results of operation and financial condition could be adversely affected.
We currently plan to open additional dealerships and Ferrari stores in various international markets. We do not yet have significant experience directly operating in many of these markets, and in many of them we face established competitors. Many of these countries have different operational characteristics, including but not limited to employment and labor, transportation, logistics, real estate, environmental regulations and local reporting or legal requirements.
Consumer demand and behavior, as well as tastes and purchasing trends may differ in these markets, and as a result, sales of our products may not be successful, or the margins on those sales may not be in line with those we currently anticipate. Furthermore, such markets will have upfront short-term investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance and therefore may be dilutive to us in the short-term. In many of these countries, there is significant competition to attract and retain experienced and talented employees.
Consequently, if our international expansion plans are unsuccessful, our business, results of operation and financial condition could be materially adversely affected.

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We face competition in the luxury performance car industry.
We face competition in all product categories and markets in which we operate. We compete with other international luxury performance car manufacturers which own and operate well-known brands of high-quality cars, some of which form part of larger automotive groups and may have greater financial resources and bargaining power with suppliers than we do, particularly in light of our policy to maintain low volumes in order to preserve and enhance the exclusivity of our cars. We believe that we compete primarily on the basis of our brand image, the performance and design of our cars and our reputation for quality. If we are unable to compete successfully, our business, results of operations and financial condition could be adversely affected.
Developments in emerging markets may adversely affect our business.
We operate in a number of emerging markets, both directly and through our dealers and we have experienced increasing demand in China and the Middle East.
Our strategy contemplates expanding our sales in the Middle East and Asia regions, recognizing the increasing personal wealth in these markets. While demand in these markets has increased in recent years due to sustained economic growth and growth in personal income and wealth, we are unable to foresee the extent to which economic growth in these emerging markets will be sustained.
Our exposure to emerging countries is likely to increase, as we pursue expanded sales in such countries. Economic and political developments in emerging markets, including economic crises or political instability, have had and could have in the future material adverse effects on our results of operations and financial condition. Further, in certain markets in which we or our dealers operate, required government approvals may limit our ability to act quickly in making decisions on our operations in those markets. Other government actions may also impact the market for luxury goods in these markets, such as tax changes or the active discouragement of luxury purchases.
Maintaining and strengthening our position in these emerging markets is a key component of our global growth strategy. However, initiatives from several global luxury automotive manufacturers have increased competitive pressures for luxury cars in several emerging markets. As these markets continue to grow, we anticipate that additional competitors, both international and domestic, will seek to enter these markets and that existing market participants will try to aggressively protect or increase their market share. Increased competition may result in pricing pressures, reduced margins and our inability to gain or hold market share, which could have a material adverse effect on our results of operations and financial condition.
Our success depends largely on the ability of our current management team to operate and manage effectively.
Our success depends on the ability of our senior executives and other members of management to effectively manage our business as a whole and individual areas of the business. Our management team particularly benefits from the leadership of our CEO, Amedeo Felisa, who brings over 40 years of automotive technical experience and skill to his leadership role and our chairman, Sergio Marchionne, who engineered the operating and financial turnaround of Fiat and Chrysler and the global expansion of our parent company, FCA, into the seventh largest automaker in the world (based on 2014 vehicle sales worldwide). Our employees, particularly in our production facilities in and around Maranello, Italy include several highly skilled engineers, technicians and artisans. If we were to lose the services of any of these senior executives or key employees, this could have a material adverse effect on our business, operating results and financial condition. We have developed succession plans that we believe are appropriate in the circumstances, although it is difficult to predict with any certainty that we will replace these individuals with persons of equivalent experience and capabilities. If we are unable to find adequate replacements or to attract, retain and incentivize senior executives, other key employees or new qualified personnel, our business, results of operations and financial condition may suffer.
We rely on our dealer network to provide sales and services.
We do not own our Ferrari dealers and virtually all of our sales are made through our network of dealerships located throughout the world. If our dealers are unable to provide sales or service quality that our clients expect or do not otherwise adequately project the Ferrari image and its aura of luxury and exclusivity, the Ferrari brand may be negatively affected. We depend on the quality of our dealership network and our business, operating results and financial condition could be adversely affected if our dealers suffer financial difficulties or otherwise are unable to perform to our expectations.

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Our growth strategy also depends on our ability to attract a sufficient number of quality new dealers to sell our products in new areas. We may face competition from other luxury performance car manufacturers in attracting quality new dealers, based on, among other things, dealer margin, incentives and the performance of other dealers in the region. If we are unable to attract a sufficient number of new Ferrari dealers in targeted growth areas, our prospects could be materially adversely affected.
We depend on our suppliers, many of which are single source suppliers; and if these suppliers fail to deliver necessary raw materials, systems, components and parts of appropriate quality in a timely manner our operations may be disrupted.
Our business depends on a significant number of suppliers, which provide the raw materials, components, parts and systems we require to manufacture cars and parts and to operate our business. We use a variety of raw materials in our business including aluminum, and precious metals such as palladium and rhodium. We source materials from a limited number of suppliers. We cannot guarantee that we will be able to maintain access to these raw materials, and in some cases this access may be affected by factors outside of our control and the control of our suppliers. In addition, prices for these raw materials fluctuate and while we seek to manage this exposure, we may not be successful in mitigating these risks.
As with raw materials, we are also at risk for supply disruption and shortages in parts and components we purchase for use in our cars. We source a variety of key components from third parties, including transmissions, brakes, driving-safety systems, navigation systems, mechanical, electrical and electronic parts, plastic components as well as castings and tires, which makes us dependent upon the suppliers of such components. While we obtain components from multiple sources whenever possible, similar to other small volume car manufacturers, most of the key components we use in our cars are purchased by us from single source suppliers. We generally do not qualify alternative sources for most of the single-sourced components we use in our cars and we do not maintain long-term agreements with a number of our suppliers. Furthermore, we have limited ability to monitor the financial stability of our suppliers.
While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for our single-sourced components, we may be unable to do so in the short term, or at all, at prices or costs that we believe are reasonable. Qualifying alternate suppliers or developing our own replacements for certain highly customized components of our cars may be time consuming, costly and may force us to make costly modifications to the designs of our cars.
In the past, we have replaced certain suppliers because they have failed to provide components that met our quality control standards. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to delays in car deliveries to our clients, which could adversely affect our relationships with our clients and also materially and adversely affect our operating results and financial condition. Supply of raw materials, parts and components may also be disrupted or interrupted by natural disasters, as was the case in 2012 following the earthquake in the Emilia Romagna region of Italy.
Changes in our supply chain have in the past resulted and may in the future result in increased costs and delays in car production. We have also experienced cost increases from certain suppliers in order to meet our quality targets and development timelines and because of design changes that we have made. We may experience similar cost increases in the future. Additionally, we are negotiating with existing suppliers for cost reductions, seeking new and less expensive suppliers for certain parts, and attempting to redesign certain parts to make them less expensive to produce. If we are unsuccessful in our efforts to control and reduce supplier costs while maintaining a stable source of high quality supplies, our operating results will suffer. Additionally, cost reduction efforts may disrupt our normal production processes, thereby harming the quality or volume of our production.
Furthermore, if our suppliers fail to provide components in a timely manner or at the level of quality necessary to manufacture our cars, our clients may face longer waiting periods which could result in negative publicity, harm our reputation and relationship with clients and have a material adverse effect on our business, operating results and financial condition.
We depend on our manufacturing facilities in Maranello and Modena.
We assemble all of the cars that we sell and manufacture all of the engines we use in our cars and sell to Maserati at our production facility in Maranello, Italy, where we also have our corporate headquarters. We manufacture all of our car chassis in a nearby facility in Modena, Italy. Our Maranello or Modena plants could become unavailable either permanently or temporarily for a number of reasons, including contamination, power shortage or labor unrest. Alternatively, changes in law and regulation, including export, tax and employment laws and regulations, or economic conditions, including wage inflation, could make it uneconomic for us to continue manufacturing our cars in Italy. In the event that we were unable to continue production at either

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of these facilities or it became uneconomic for us to continue to do so, we would need to seek alternative manufacturing arrangements which would take time and reduce our ability to produce sufficient cars to meet demand. Moving manufacturing to other locations may also affect the perception of our brand and car quality among our clients. Such a transfer would materially reduce our revenues and could require significant investment, which as a result could have a material adverse effect on our business, results of operations and financial condition.
Maranello and Modena are located in the Emilia-Romagna region of Italy which has the potential for seismic activity. For instance, in 2012 a major earthquake struck the region, causing production at our facilities to be temporarily suspended for a day. If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, pandemics or other events occur, our headquarters and production facilities may be seriously damaged, or we may have to stop or delay production and shipment of our cars. As such damages from disasters or unpredictable events could have a material adverse impact on our business, results from operations and financial condition.
Car sales depend in part on the availability of affordable financing.
In certain regions, financing for new car 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 car financing are expected to rise as well, which may make our cars less affordable to clients or cause consumers to purchase less expensive cars, adversely affecting our results of operations and financial condition. Additionally, if consumer interest rates increase substantially or if financial service providers tighten lending standards or restrict their lending to certain classes of credit, our clients may not desire to or be able to obtain financing to purchase our cars.
We may not be able to provide adequate access to financing for our dealers and clients.
Our dealers enter into wholesale financing arrangements to purchase cars from us to hold in inventory or to use in showrooms and facilitate retail sales, and retail clients use a variety of finance and lease programs to acquire cars.
In most markets, we rely on controlled finance companies and commercial relationships with third parties, including third party financial institutions, to provide financing to our dealers and retail clients. Finance companies are subject to various risks that could negatively affect their ability to provide financing services at competitive rates, including:
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the performance of loans and leases in their portfolio, which could be materially affected by delinquencies or defaults;
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higher than expected car return rates and the residual value performance of cars they lease; and
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fluctuations in interest rates and currency exchange rates.
Any financial services provider, including our controlled finance companies, will face other demands on its capital, as well as liquidity issues relating to other investments or to developments in the credit markets. Furthermore, they may be subject to regulatory changes that may increase their costs, which may impair their ability to provide competitive financing products to our dealers and retail clients. To the extent that a financial services provider is unable or unwilling to provide sufficient financing at competitive rates to our dealers and retail clients, such dealers and retail clients may not have sufficient access to financing to purchase or lease our cars. As a result, our car sales and market share may suffer, which would adversely affect our results of operations and financial condition.
We rely on our licensing and franchising partners to preserve the value of our licenses and the failure to maintain such partners could harm our business.
We currently have multi-year agreements with licensing partners for various Ferrari-branded products in the sports, lifestyle and luxury retail segments. We also have multi-year agreements with franchising partners for our Ferrari stores and theme park. In the future, we may enter into additional licensing or franchising arrangements. Many of the risks associated with our own products also apply to our licensed products and franchised stores. In addition, there are unique problems that our licensing or franchising partners may experience, including risks associated with each licensing partner’s ability to obtain capital, manage its labor relations, maintain relationships with its suppliers, manage its credit and bankruptcy risks, and maintain client relationships. While we maintain significant control over the products produced for us by our licensing partners and the franchisees running our Ferrari stores and theme park, any of the foregoing risks, or the inability of any of our licensing or franchising

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partners to execute on the expected design and quality of the licensed products, Ferrari stores and theme park, or otherwise exercise operational and financial control over its business, may result in loss of revenue and competitive harm to our operations in the product categories where we have entered into such licensing or franchising arrangements. While we select our licensing and franchising partners with care, any negative publicity surrounding such partners could have a negative effect on licensed products, the Ferrari stores and theme parks or the Ferrari brand. Further, while we believe that we could replace our existing licensing or franchising partners if required, our inability to do so for any period of time could materially adversely affect our revenues and harm our business.
We depend on the strength of our trademarks and other intellectual property rights
We believe that our trademarks and other intellectual property rights are fundamental to our success and market position. Therefore, our business depends on our ability to protect and promote our trademarks and other intellectual property rights. Accordingly, we devote substantial efforts to the establishment and protection of our trademarks and other intellectual property rights such as registered designs and patents on a worldwide basis. We believe that our trademarks and other intellectual property rights are adequately supported by applications for registrations, existing registrations and other legal protections in our principal markets. However, we cannot exclude the possibility that our intellectual property rights may be challenged by others, or that we may be unable to register our trademarks or otherwise adequately protect them in some jurisdictions. If a third party were to register our trademarks, or similar trademarks, in a country where we have not successfully registered such trademarks, it could create a barrier to our commencing trade under those marks in that country.
Third parties may claim that we infringe their intellectual property rights.
We believe that we hold all the rights required for our business operations (including intellectual property rights and third-party licenses). However, we are exposed to potential claims from third parties alleging that we infringe their intellectual property rights, since many competitors and suppliers also submit patent applications for their inventions and secure patent protection or other intellectual property rights. If we are unsuccessful defending against any such claim, we may be required to pay damages or comply with injunctions which may disrupt our operations. We may also as a result be forced to enter into royalty or licensing agreements on unfavorable terms or to redesign products to comply with third parties’ intellectual property rights.
If our cars do not perform as expected our ability to develop, market and sell our cars could be harmed.
Our cars may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair. There can be no assurance that we will be able to detect and fix any defects in the cars prior to their sale to consumers. Our cars may not perform in line with our clients’ evolving expectations or in a manner that equals or exceeds the performance characteristics of other cars currently available. For example, our newer cars may not have the durability or longevity of current cars, and may not be as easy to repair as other cars currently on the market. Any product defects or any other failure of our performance cars to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims, harm to our brand and reputation, and significant warranty and other expenses, and could have a material adverse impact on our business, operating results and financial condition.
Car recalls may be costly and may harm our reputation.
We have in the past and we may from time to time in the future be required to recall our products to address performance, compliance or safety-related issues. We incur costs for these recalls including replacement parts and labor to remove and replace the defective part. In addition product recalls can harm our reputation with clients, particularly if consumers question the safety, reliability or performance of our cars. Any such recalls could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product liability claims and other expenses, and could have a material adverse impact on our business, operating results and financial condition.
We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may become subject to product liability claims, which could harm our business, operating results and financial condition. The automobile industry experiences significant product liability claims and we have inherent risk of exposure to claims in the event our cars do not perform as expected or malfunction resulting in personal injury or death. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our cars and business, adversely affecting our reputation and inhibiting or preventing

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commercialization of future cars which could have a material adverse effect on our brand, business, operating results and financial condition. While we seek to insure against product liability risks, insurance may be insufficient to protect against any monetary claims we may face and will not mitigate any reputational harm. Any lawsuit seeking significant monetary damages may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we face liability for our products and are forced to make a claim under such a policy.
We are exposed to risks in connection with product warranties as well as the provision of services.
A number of our contractual and legal requirements oblige us to provide extensive warranties to our clients, dealers and national distributors. There is a risk that, relative to the guarantees and warranties granted, the calculated product prices and the provisions for our guarantee and warranty risks have been set or will in the future be set too low. There is also a risk that we will be required to extend the guarantee or warranty originally granted in certain markets for legal reasons, or provide services as a courtesy or for reasons of reputation where we are not legally obliged to do so, and for which we will generally not be able to recover from suppliers or insurers.
If we were to lose our Authorized Economic Operator certificate, we may be required to modify our current business practices and to incur increased costs, as well as experience shipment delays.
Because we ship and sell our cars in numerous countries, the customs regulations of various jurisdictions are important to our business and operations. To expedite customs procedure, we applied for, and currently hold, the European Union’s Authorized Economic Operator (AEO) certificate. The AEO certificate is granted to operators that meet certain requirements regarding supply chain security and the safety and compliance with law of the operator’s customs controls and procedures. Operators are audited periodically for continued compliance with the requirements. The AEO certificate allows us to benefit from special expedited customs treatment, which significantly facilitates the shipment of our cars in the various markets where we operate. However, if we were to lose the AEO status, including for failure to meet one of the certification’s requirements, we would be required to change our business practices and to adopt standard customs procedures for the shipment of our cars. This could result in increased costs and shipment delays, which, in turn, could negatively affect our results of operations.
Labor laws and collective bargaining agreements with our labor unions could impact our ability to operate efficiently.
All of our production employees are represented by trade unions, are covered by collective bargaining agreements and/or are protected by applicable labor relations regulations that may restrict our ability to modify operations and reduce costs quickly in response to changes in market conditions. These regulations and the provisions in our collective bargaining agreements may impede our ability to restructure our business successfully to compete more efficiently and effectively, especially with those automakers whose employees are not represented by trade unions or are subject to less stringent regulations, which could have a material adverse effect on our results of operations and financial condition.
We are subject to risks associated with exchange rate fluctuations, interest rate changes, credit risk and other market risks.
We operate in numerous markets worldwide and are exposed to market risks stemming from fluctuations in currency and interest rates. The exposure to currency risk is mainly linked to the differences in geographic distribution of our sourcing and manufacturing activities from those in our commercial activities, as a result of which our cash flows from sales are denominated in currencies different from those connected to purchases or production activities. For example, we incur a large portion of our capital and operating expenses in Euros while we receive the majority of our revenues in currencies other than Euro. In addition, foreign exchange movements might also negatively affect the relative purchasing power of our clients which could also have an adverse effect on our results of operations.
We seek to manage risks associated with fluctuations in currency through financial hedging instruments. Although we seek to manage our foreign currency risk in order to minimize any negative effects caused by rate fluctuations, including through hedging activities, there can be no assurance that we will be able to do so successfully, and our business, results of operations and financial condition could nevertheless be adversely affected by fluctuations in market rates, particularly if these conditions persist.
Our financial services activities are also subject to the risk of insolvency of dealers and retail clients, as well as unfavorable economic conditions in markets where these activities are carried out. Despite our efforts to mitigate such risks

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through the credit approval policies applied to dealers and retail clients, there can be no assurances that we will be able to successfully mitigate such risks, particularly with respect to a general change in economic conditions.
Changes in tax, tariff or fiscal policies could adversely affect demand for our products.

Imposition of any additional taxes and levies designed to limit the use of automobiles could adversely affect the demand for our vehicles and our results of operations. Changes in corporate and other taxation policies as well as changes in export and other incentives given by various governments or import or tariff policies could also adversely affect our results of operations. While we are managing our product development and production operations on a global basis to reduce costs and lead times, unique national or regional standards can result in additional costs for product development, testing, and manufacturing. Governments often require the implementation of new requirements during the middle of a product cycle, which can be substantially more expensive than accommodating these requirements during the design of a new product. The imposition of any additional taxes and levies or change in government policy designed to limit the use of high performance sports cars or automobiles more generally could also adversely affect the demand for our cars. The occurrence of the above may have a material adverse effect on our business, results of operations and financial condition.
We face risks associated with our international operations, including unfavorable regulatory, political, tax and labor conditions and establishing ourselves in new markets, all of which could harm our business.
We currently have international operations and subsidiaries in various countries and jurisdictions in Europe, North America and Asia that are subject to the legal, political, regulatory, tax and social requirements and economic conditions in these jurisdictions. Additionally, as part of our growth strategy, we will continue to expand our sales, maintenance, and repair services internationally. However, such expansion requires us to make significant expenditures, including the establishment of local operating entities, hiring of local employees and establishing facilities in advance of generating any revenue. We are subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our cars and require significant management attention. These risks include:
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conforming our cars to various international regulatory and safety requirements where our cars are sold, or homologation;
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difficulty in establishing, staffing and managing foreign operations;
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difficulties attracting clients in new jurisdictions;
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foreign government taxes, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in Italy;
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fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging activities we undertake;
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our ability to enforce our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as do the United States, Japan and European countries, which increases the risk of unauthorized, and uncompensated, use of our technology;
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European Union and foreign government trade restrictions, customs regulations, tariffs and price or exchange controls;
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foreign labor laws, regulations and restrictions;
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preferences of foreign nations for domestically produced cars;
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changes in diplomatic and trade relationships;
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political instability, natural disasters, war or events of terrorism; and
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the strength of international economies.

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If we fail to successfully address these risks, many of which we cannot control, our business, operating results and financial condition could be materially harmed.
Improper conduct of employees, agents, or other representatives could adversely affect our reputation and our business, operating results, and financial condition.

Our compliance controls, policies, and procedures may not in every instance protect us from acts committed by our employees, agents, contractors, or collaborators that would violate the laws or regulations of the jurisdictions in which we operate, including employment, foreign corrupt practices, environmental, competition, and other laws and regulations. Such improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties. In particular, our business activities may be subject to anti-corruption laws, regulations or rules of other countries in which we operate. If we fail to comply with any of these regulations, it could adversely impact our operating results and our financial condition. In addition, actual or alleged violations could damage our reputation and our ability to conduct business. Furthermore, detecting, investigating, and resolving any actual or alleged violation is expensive and can consume significant time and attention of our executive management.

Our insurance coverage may not be adequate to protect us against all potential losses to which we may be subject, which could have a material adverse effect on our business.
We maintain insurance coverage that we believe is adequate to cover normal risks associated with the operation of our business. However, there can be no assurance that any claim under our insurance policies will be honored fully or timely, our insurance coverage will be sufficient in any respect or our insurance premiums will not increase substantially. Accordingly, to the extent that we suffer loss or damage that is not covered by insurance or which exceeds our insurance coverage, or have to pay higher insurance premiums, our financial condition may be affected.
The requirements of being a U.S. public company may strain our resources and divert management’s attention.
As a public company, we will be required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations adopted by the SEC and the Public Corporation Accounting Oversight Board. Further, compliance with various regulatory reporting requires significant commitments of time from our management and our directors, which reduces the time available for the performance of their other responsibilities. If we are unable to comply with the rules and regulations or are otherwise unable to obtain necessary certifications to financial statements or other disclosures, this may materially adversely affect our reputation, lead to additional regulatory enforcement actions, and could adversely affect the value of our common shares.
Failure to establish and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business and common share price.
As a public company, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of Sarbanes-Oxley (“Section 404”), which will require management assessments and certifications of the effectiveness of our internal control over financial reporting, beginning with our annual report for the year ending December 31, 2016. During the course of our testing, we may identify deficiencies that we may not be able to remedy in time to meet our deadline for compliance with Section 404. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. In addition, under Section 404(b) of Sarbanes-Oxley, our independent registered public accounting firm will be required to report on the effectiveness of our internal control over financial reporting but may not be able or willing to issue an unqualified report. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of remediation actions and testing or their effect on our operations.
If we are unable to conclude that we have effective internal control over financial reporting, our independent auditors are unable to provide us with an unqualified report as required by Section 404, or we are required to restate our financial statements, we may fail to meet our public reporting obligations and investors could lose confidence in our reported financial information, or the listing of our common shares on the NYSE could be suspended or terminated, any of which could have a negative effect on the trading price of our common shares.
A disruption in our information technology could compromise confidential and sensitive information.

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We depend on our information technology and data processing systems to operate our business, and a significant malfunction or disruption in the operation of our systems, or a security breach that compromises the confidential and sensitive information stored in those systems, could disrupt our business and adversely impact our ability to compete. Our ability to keep our business operating effectively depends on the functional and efficient operation of our information, data processing and telecommunications systems, including our car design, manufacturing, inventory tracking and billing and payment systems. We rely on these systems to enable a number of business processes and help us make a variety of day-to-day business decisions as well as to track transactions, billings, payments and inventory. Such systems are susceptible to malfunctions and interruptions due to equipment damage, power outages, and a range of other hardware, software and network problems. Those systems are also susceptible to cybercrime, or threats of intentional disruption, which are increasing in terms of sophistication and frequency. For any of these reasons, we may experience systems malfunctions or interruptions. Although our systems are diversified, including multiple server locations and a range of software applications for different regions and functions, and we are currently undergoing an effort to assess and ameliorate risks to our systems, a significant or large scale malfunction or interruption of any one of our computer or data processing systems could adversely affect our ability to manage and keep our operations running efficiently, and damage our reputation if we are unable to track transactions and deliver products to our dealers and clients. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, results of operations and financial condition. In addition to supporting our operations, we use our systems to collect and store confidential and sensitive data, including information about our business, our clients and our employees. As our technology continues to evolve, we anticipate that we will collect and store even more data in the future, and that our systems will increasingly use remote communication features that are sensitive to both willful and unintentional security breaches. Much of our value is derived from our confidential business information, including car design, proprietary technology and trade secrets, and to the extent the confidentiality of such information is compromised, we may lose our competitive advantage and our car sales may suffer. We also collect, retain and use certain personal information, including data we gather from clients for product development and marketing purposes, and data we obtain from employees. In the event of a breach in security that allows third parties access to this personal information, we are subject to a variety of ever-changing laws on a global basis that require us to provide notification to the data owners, and that subject us to lawsuits, fines and other means of regulatory enforcement. Our reputation could suffer in the event of such a data breach, which could cause consumers to purchase their cars from our competitors. Ultimately, any significant compromise in the integrity of our data security could have a material adverse effect on our business.
Risks Related to this Offering, the Separation and the Investment in our Common Shares
There is no existing trading market for our common shares, and there can be no assurance that a liquid trading market will develop or be sustained which may cause our common stock to trade at a discount from its initial offering price and make it difficult to sell the shares you purchase.
Prior to this offering, there has been no market for our common shares and we cannot predict the extent to which investor interest in us will lead to the development of an active trading market on the NYSE, or otherwise, or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling your common shares at an attractive price, or at all. The initial public offering price for our common shares will be determined by negotiations between the selling stockholder and the representatives of the underwriters, following consultation and discussion with us, and may not be indicative of prices that will prevail in the open market following this offering. See “Underwriting.” Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price you paid in this offering and you may suffer a loss on your investment.
Following the completion of this offering, there will be a limited public float of our common stock, which may cause the price of our common shares to be volatile.
The limited number of common shares being sold by the selling shareholder will be the only shares in the public market following the completion of this offering. As such, there will be a limited “public float” of our common shares in the hands of a relatively small number of holders. Due to our relatively small public float and the limited trading volume of our common shares, purchases and sales of relatively small amounts of our common shares may have a disproportionate effect on the market price of our common shares. This volatility could prevent a shareholder seeking to sell our common shares from being able to sell the shares at or above the price at which the shares were purchased.

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The market price and trading volume of our common shares may be volatile, which could result in rapid and substantial losses for our shareholders.
Even if an active trading market develops, the market price of our common shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume of our common shares may fluctuate and cause significant price variations to occur. If the market price of our common shares declines significantly, you may be unable to sell your common shares at or above your purchase price, if at all. The market price of our common shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our common shares, or result in fluctuations in the price or trading volume of our common shares, include:
•
variations in our operating results, or failure to meet the market’s earnings expectations;
•
publication of research reports about us or the automotive industry, or the failure of securities analysts to cover our common shares after this offering;
•
departures of any members of our management team or additions or departures of other key personnel;
•
adverse market reaction to any indebtedness we may incur or securities we may issue in the future;
•
actions by shareholders;
•
changes in market valuations of similar companies;
•
changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of these laws and regulations, or announcements relating to these matters;
•
adverse publicity about the automotive industry generally, or particularly scandals relating to the industry, specifically;
•
litigation and governmental investigations; and
•
general market and economic conditions.
The loyalty voting program may affect the liquidity of our common shares and reduce our common share price.
The implementation of our loyalty voting program could reduce the trading liquidity and adversely affect the trading prices of our common shares. The loyalty voting program was intended to reward our shareholders for maintaining long-term share ownership by granting initial shareholders and persons holding our common shares continuously for at least three years the option to elect to receive special voting shares. Special voting shares cannot be traded and, if common shares participating in the loyalty voting program are sold they must be deregistered from the loyalty register and any corresponding special voting shares transferred to us for no consideration (om niet). This loyalty voting program is designed to encourage a stable shareholder base and, conversely, it may deter trading by shareholders that may be interested in participating in our loyalty voting program. Therefore, the loyalty voting program may reduce liquidity in our common shares and adversely affect their trading price.
Our separation from FCA may be delayed or may not take place in the manner currently anticipated or at all.
This offering is intended to be part of a series of transactions designed to fully separate Ferrari from FCA, following which FCA would no longer hold any ownership interest in us. Several steps of the Separation will occur following this offering and may be subject to conditions, including necessary corporate and regulatory approvals and they are also subject to market conditions and other uncertainties, including creditor opposition periods. Therefore, the Separation may not be completed in the manner and within the time expected, or at all. If our Separation from FCA is not completed, the benefits we currently expect from the Separation, such as our strategic independence from FCA, would not arise. In that event, FCA will continue to exercise control over all matters requiring shareholder approval, such as adoption of the annual financial statements, declarations of annual dividends, the election and removal of the members of our the Board, capital increases and amendments to our articles of association. See “The Restructuring and Separation Transactions.”

22


The Separation or future sales of our common shares in the public market or the perception that future sales may occur, could lower our share price.
The market price of our common shares could decline as a result of the distribution of a significant number of common shares in the Separation or because of sales of a large number of common shares available for sale after completion of this offering, or the perception that such sales could occur. We may, in the future, issue stock options or other stock grants to retain and motivate our directors and employees. These issuances of our securities could dilute the voting and economic interests of our existing stockholders. These sales, or the possibility that these sales may occur, also may make it more difficult for us to raise additional capital by selling equity securities in the future, at a time and price that we deem appropriate. We will agree with the underwriters not to issue, sell, or otherwise dispose of or hedge any shares of our common stock, subject to certain exceptions, for the 90-day period following the date of this prospectus, without the prior consent of UBS Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Our officers, directors, FCA and Piero Ferrari, will enter into similar lock-up agreements with the underwriters. UBS Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, may, at any time, release us and/or any of our officers, directors and/or stockholders from this lock-up agreement and allow us and them to sell shares of our common stock within this 90-day period. See “Underwriting”.
We cannot predict the timing or size of any future issuances of our common shares or the effect, if any, that future issuances and sales of our common shares may have on the market price of our common shares. Sales or distributions of substantial amounts of our common shares, or the perception that such sales could occur, may cause the market price of our common shares to decline. See “Shares Eligible for Future Sale.”
The interests of FCA, our controlling shareholder, or its shareholders, may differ from the interests of other shareholders.
Upon completion of the offering, FCA, which is partially held by Exor S.p.A., will continue to own approximately 80 percent of our common shares and a higher voting power given that FCA will participate in the loyalty voting program. As a result, prior to the completion of the Separation, FCA will have a controlling influence in matters submitted to a vote of our shareholders, including matters such as adoption of the annual financial statements, declarations of annual dividends, the election and removal of the members of our Board, capital increases and amendments to our articles of association. Following the Separation, we expect that Exor will hold approximately 24 percent of our common shares and over 30 percent of our voting power due to its holding of FCA common shares and mandatory convertible securities and its intention to participate in our loyalty voting program. Both prior to completion of the Separation (by virtue of its ownership and voting interest in FCA) and following the completion of the Separation (by virtue of its ownership and voting interest in us), Exor will have a significant influence over these matters. The interests of these large shareholders may in certain cases differ from those of other shareholders.
Our loyalty voting program may make it more difficult for shareholders to acquire a controlling interest in Ferrari, change our management or strategy or otherwise exercise influence over us, which may affect the market price of our common shares.
The provisions of our articles of association which establish the loyalty voting program may make it more difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change of control were considered favorably by shareholders holding a majority of our common shares. As a result of the loyalty voting program, a relatively large proportion of the voting power of Ferrari could be concentrated in a relatively small number of shareholders who would have significant influence over us. Prior to completion of the Separation, FCA will have approximately 80 percent of the common shares and a higher voting power in us due to its participation in the loyalty voting program. After giving effect to the Separation, Exor is expected to have a voting interest in Ferrari of over 30 percent due to its holding of FCA common shares and mandatory convertible securities and its intention to participate in the loyalty voting program. Both before and after the Separation, Piero Ferrari is expected to hold 10 percent of our common shares and, after the Separation, to have approximately 14.9 percent of the voting power in our shares. As a result, Exor and Piero Ferrari may exercise significant influence on matters involving our shareholders. Exor and Piero Ferrari and other shareholders participating in the loyalty voting program may have the power effectively to prevent or delay change of control or other transactions that may otherwise benefit our shareholders. The loyalty voting program may also prevent or discourage shareholder initiatives aimed at changing Ferrari’s management or strategy or otherwise exerting influence over Ferrari. The loyalty voting program may also prevent or discourage shareholders’ initiatives aimed at changes in our management. See “The Ferrari Shares, Articles of Association and Conditions of the Special Voting Shares.”

23


The interests of Piero Ferrari, our minority shareholder, may differ from the interests of other shareholders.
Upon completion of the offering, Piero Ferrari, the Vice Chairman of Ferrari S.p.A., will continue to own 10 percent of our common shares and will hold a higher voting power given that Piero Ferrari will participate in our loyalty voting program. As a result, he will have influence in matters submitted to a vote of our shareholders, including matters such as adoption of the annual financial statements, declarations of annual dividends, the election and removal of the members of our the Board, capital increases and amendments to our articles of association. The interests of Piero Ferrari may in certain cases differ from those of other minority shareholders. In addition, the sale of substantial amounts of our common shares in the public market (following the expiration of the lock-up period) by Piero Ferrari or the perception that such a sale could occur could adversely affect the prevailing market price of the common shares.
Concentration of ownership among FCA and Piero Ferrari may prevent new investors from influencing significant corporate decisions until completion of the Separation, at which time Exor will have significant influence over us.
Prior to this offering, our majority shareholder, FCA, and Piero Ferrari, together own 100 percent of our outstanding common shares. In particular, Piero Ferrari owns and is expected to continue to own 10 percent of our outstanding common shares. Following this offering, FCA will retain approximately 80 percent of our common shares and, as a result, these shareholders will be able to control all matters requiring shareholder approval, including matters such as adoption of the annual financial statements, declarations of annual dividends, the election and removal of the members of our the Board, capital increases and amendments to our articles of association. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these shareholders until completion of the Separation. In addition, Exor holds approximately 30 percent of the common shares in FCA and due to its participation in FCA’s loyalty voting program holds over 40 percent of the voting power in FCA and is therefore able indirectly to influence our corporate decisions. Following completion of the Separation, Exor is expected to hold approximately 24 percent of our common shares, and over 30 percent of our voting power and Exor will continue to be able to influence our corporate decisions.
We are a Dutch public company with limited liability, and our shareholders may have rights different to those of shareholders of companies organized in the United States.
The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions. We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and the responsibilities of members of our board of directors in companies governed by the laws of other jurisdictions including the United States. In the performance of its duties, our board of directors is required by Dutch law to consider our interests and the interests of our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.
We expect to maintain our status as a “foreign private issuer” under the rules and regulations of the SEC and, thus, are exempt from a number of rules under the Exchange Act of 1934 and are permitted to file less information with the SEC than a company incorporated in the United States.
As a “foreign private issuer,” we are exempt from rules under the Exchange Act of 1934, as amended (“the Exchange Act”) that impose certain disclosure and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor are we required to comply with Regulation FD, which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning us than there is for U.S. public companies.

24


Our dividend policy will be established in the future by our Board of Directors, and our ability to pay dividends on our common shares may be limited.
Our dividend policy will be determined by our Board of Directors as constituted following completion of this offering and the Separation. Our payment of dividends on our common shares in the future will depend on business conditions, our financial condition, earnings and liquidity, and other factors.
In addition, under our articles of association and Dutch law, dividends may be declared on our common shares only if the amount of equity exceeds the paid up and called up capital plus the reserves that have to be maintained pursuant to Dutch law or the articles of association. Further, even if we are permitted under our articles of association and Dutch law to pay cash dividends on our common shares, we may not have sufficient cash to pay dividends in cash on our common shares.
It may be difficult to enforce U.S. judgments against us.
We are organized under the laws of the Netherlands, and a substantial portion of our assets are outside of the United States. Most of our directors and senior management and our independent auditors are resident outside the United States, and all or a substantial portion of their respective assets may be located outside the United States. As a result, it may be difficult for U.S. investors to effect service of process within the United States upon these persons. It may also be difficult for U.S. investors to enforce within the United States judgments against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts outside the United States would recognize or enforce judgments of U.S. courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Therefore, it may be difficult to enforce U.S. judgments against us, our directors and officers and our independent auditors.
Because we are a recently formed company with a limited separate operating history we need to create separate administrative and governance functions.
Because we are a recently formed company we have not been required to maintain many of the administrative functions attendant to a listed company of our size. These include public company financial reporting, internal control and audit, compliance, legal and governance functions. It may take some time for us to employ the persons necessary to staff these administrative functions internally, requiring us to engage external consultants or staff, which may be more expensive. Further, this is a significant increase in the amount of employees we have historically employed for administrative matters, constituting a significant new expense. As a result of this increase in administrative requirements, there may be an adverse effect on our business, operating results and financial condition.
Following the Separation, FCA creditors may seek to hold us liable for certain FCA obligations.
One step of our expected Separation from FCA will include a demerger from FCA of our common shares held by it. In connection with a demerger under Dutch law, the demerged company may continue to be liable for certain obligations of the demerging company that exist at the time of the demerger, but only to the extent that the demerging company fails to satisfy such liabilities. Based on other actions taken as part of the Separation, we do not believe we will retain any liability for obligations of FCA existing at the time of the Separation. Nevertheless, in the event that FCA fails to satisfy obligations to its creditors existing at the time of the demerger, it is possible that those creditors may seek to recover from us, claiming that we remain liable to satisfy such obligations. While we believe we would prevail against any such claim, litigation is inherently costly and uncertain and could have an adverse effect. See “The Restructuring and Separation Transactions.”
Risks Related to Taxation
Any reorganization, merger or demerger in connection with the Separation is generally intended to qualify as a tax-free transaction for our shareholders from a U.S. federal income tax perspective, but no assurance can be given that a reorganization or merger will receive such tax-free treatment.
It is our intention to structure any reorganization, merger or demerger in connection with the Separation in a tax efficient manner from a U.S. federal income tax perspective, taking appropriate account of the potential impact on our and FCA’s shareholders, but no assurance can be given that the intended tax treatment will be achieved, or that shareholders (and/or persons that receive the benefit of our common shares) will not incur substantial tax liabilities in connection with the reorganization, merger or demerger. In particular, the requirements for favorable treatment differ (and may conflict) from jurisdiction to

25


jurisdiction and the relevant requirements are often complex, and no assurance can be given that any ruling (or similar guidance) from any taxing authority would be sought (or, if sought, granted). We currently intend for any such reorganization, merger or demerger in connection with the Separation to qualify as a generally tax-free transaction for U.S. federal income tax purposes for holders of our common shares sold pursuant to this offering. However, the structure and terms of the Separation and related transactions have not been finally determined and there can be no assurance that a reorganization, merger or demerger would so qualify or that holders of our common shares would not recognize gain for U.S. federal income tax purposes in connection with the Separation.
Any reorganization, merger or demerger in connection with the Separation is generally intended to qualify as a tax-free, neutral transaction from an Italian income tax perspective, but no assurance can be given that any demerger or merger will receive such tax-free treatment.
It is our intention to structure the steps in connection with the Separation in a tax efficient manner from an Italian income tax perspective, taking appropriate account of the potential impact on our and FCA’s shareholders, but no assurance can be given that the desired tax treatment will be achieved. In particular, the requirements for favorable treatment differ (and may conflict) from jurisdiction to jurisdiction and the relevant requirements are often complex.
We currently intend for any demerger or merger in connection with the Separation to qualify as a tax-free, neutral transaction from an Italian income tax perspective. FCA has applied for an advance tax ruling with the Italian tax authorities (“Tax Ruling”) to seek confirmation that the two Dutch law demergers described in the section “The Restructuring and Separation Transactions” will qualify as tax-free to FCA and its shareholders for Italian income tax purposes. The Tax Ruling has not been issued yet, and no assurance can therefore be given that the intended tax treatment will be achieved.
As a result of the demergers and the merger in connection with the Separation, we might be jointly and severally liable with FCA for certain tax liabilities arisen in the hands of FCA.
Even if the demergers and the merger to be carried out in connection with the Separation were respected as tax-free, neutral transactions from an Italian income tax perspective, under Italian tax law we may still be held jointly and severally liable, as a result of the combined application of the rules governing the allocation of tax liabilities in case of demergers and mergers, with FCA for taxes, penalties, interest and any other tax liability arising in the actions of FCA because of violations of its tax obligations related to tax years prior to the two demergers described in the section “The Restructuring and Separation Transactions”.
There may be potential “Passive Foreign Investment Company” tax considerations for U.S. holders.
Our common shares would be stock of a “passive foreign investment company”, or a PFIC, for U.S. federal income tax purposes with respect to a U.S. holder (as defined in “Tax Consequences—Material U.S. Federal Income Tax Consequences” below) if for any taxable year in which such U.S. holder held our common shares, after the application of applicable “look-through rules” (i) 75 percent or more of our gross income for the taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations), or (ii) at least 50 percent of our assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of “passive income.” U.S. persons who own shares of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the dividends they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
While we believe that our common shares are not stock of a PFIC for U.S. federal income tax purposes, this conclusion is based on a factual determination made annually and thus is subject to change. Moreover, our common shares may become stock of a PFIC in future taxable years if there were to be changes in our assets, income or operations. See “Tax Consequences—Material U.S. Federal Income Tax Consequences—U.S. Holders—PFIC Considerations—Consequences of Holding Ferrari Stock” for a further discussion.
Tax consequences of the loyalty voting program are uncertain.
No statutory, judicial or administrative authority directly discusses how the receipt, ownership, or disposition of special voting shares should be treated for Italian or U.S. tax purposes and as a result, the tax consequences in those jurisdictions are uncertain.

26


The fair market value of the special voting shares, which may be relevant to the tax consequences, is a factual determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, our special voting shares are not transferable (other than, in very limited circumstances, together with the associated common shares) and a shareholder will receive amounts in respect of the special voting shares only if we are liquidated, we believe and intend to take the position that the fair market value of each special voting share is minimal. However, the relevant tax authorities could assert that the value of the special voting shares as determined by us is incorrect.
The tax treatment of the loyalty voting program is unclear and shareholders are urged to consult their tax advisors in respect of the consequences of acquiring, owning and disposing of special voting shares. See “Tax Consequences” for a further discussion.

27


USE OF PROCEEDS
We will not receive any proceeds from the sale of common shares in this offering. The selling shareholder will receive all of the net proceeds from the sale of our common shares offered under this prospectus as well as all proceeds from any sale of common shares if the underwriters exercise their option to purchase additional common shares.
We and the selling shareholder will share in the offering expenses incurred in connection with this offering and any exercise by the underwriters of their option to purchase additional common shares, except that the underwriting discounts and commissions will be borne by the selling shareholder.

28


CAPITALIZATION
The following table sets forth (1) our historical capitalization at March 31, 2015 and (2) our pro forma capitalization at March 31, 2015, which gives effect to (a) the FCA Note of €     , which was recognized as a result of the Restructuring, (b) the settlement of the FCA Note, which is assumed to be repaid using proceeds from the issuance of new third party financing and (c) the settlement of non-trade intercompany receivables and payables with FCA on completion of the Separation. For an explanation of the effects of the pro forma adjustments and defined terms, see “Unaudited Pro Forma Condensed Consolidated Financial Information”. We will not receive any proceeds from the sale of common shares in the offering.
You should read this table together with our Interim Condensed Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 
At March 31, 2015
 
Historical
Pro Forma
 
(€ million)
Deposits in FCA Group cash management pools
977,521

 
Cash and cash equivalents
163,717

 
 
 
 
Debt with FCA
461,380

 
Debt with third parties
162,047

 
Total Debt
623,427

 
Equity attributable to owners of the parent
2,461,908

 
Equity attributable to non-controlling interest
12,602

 
Total Equity
2,474,510

 
Total Capitalization(1)
3,097,937

 
______________________________
(1)    Total capitalization is defined as total debt and total equity.


29


SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected historical consolidated financial and other data of Ferrari and have been derived from the unaudited Interim Condensed Consolidated Financial Statements, the audited Annual Consolidated Financial Statements, both of which are included elsewhere in this prospectus, and unaudited financial information for 2010 and 2011. This financial information has been prepared in accordance with IFRS.
As explained in “Note on Presentation,” with the exception of the FCA Note and subsequent refinancing (as defined herein), the Restructuring has been retrospectively reflected in the Annual Consolidated Financial Statements as though it had occurred effective January 1, 2012, and reflected in the Interim Condensed Consolidated Financial Statements as though it had occurred effective January 1, 2014. See “Note on Presentation.”
The following information should be read in conjunction with “Note on Presentation,” “Risk Factors,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Interim Condensed Consolidated Financial Statements and the Annual Consolidated Financial Statements included elsewhere in this prospectus. Historical results for any period are not necessarily indicative of results for any future period.
Consolidated Income Statement Data
 
For the three months ended March 31,
 
2015
 
2014
 
(€ million, except per share data)
Net revenues
621

 
620

EBIT
96

 
80

Profit before taxes
98

 
80

Net profit
65

 
54

Attributable to:
 
 
 
Owners of the parent
64

 
53

Non-controlling interest
1

 
1

Basic and diluted earnings per ordinary share (in Euro)(1)


 


Dividends paid per share (in Euro)
—

 
—

_____________________________
(1)See Note 12 to the Interim Condensed Consolidated Financial Statements for the calculation of Basic and Diluted earnings per ordinary share.
Other Statistical Information
 
For the three months ended March 31,
 
2015
 
2014
Shipments (in units)
1,635

 
1,732

Average number of employees for the period
2,902

 
2,817






30


Consolidated Statement of Financial Position Data
 
At March 31,
 
At December 31,
 
2015
 
2014
 
(€ million, except shares issued)
Cash and cash equivalents
164

 
134

Deposits in FCA Group cash management pools (1)
977

 
942

Total assets
5,004

 
4,641

Debt
623

 
510

Total equity
2,475

 
2,478

Equity attributable to owners of the parent
2,462

 
2,470

Non-controlling interests
13

 
8

Share capital (2)


 


Ordinary shares issued (in thousands of shares) (2)


 


_____________________________
(1)    Deposits in FCA Group cash management pools relate to our participation in a group-wide cash management system at FCA, where the operating cash management, main funding operations and liquidity investment of the Group are centrally coordinated by dedicated treasury companies with the objective of ensuring effective and efficient management of our funds. Following the Separation, these arrangements will be terminated and we will manage our liquidity and treasury function on a standalone basis.
(2)    See Note 19 to the Interim Condensed Consolidated Financial Statements for the calculation of Share capital and Ordinary shares issued.
Consolidated Income Statement Data
 
For the years ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(€ million, except per share data)
Net revenues
2,762

 
2,335

 
2,225

 
2,067

 
1,831

EBIT
389

 
364

 
335

 
298

 
295

Profit before taxes
398

 
366

 
334

 
301

 
294

Net profit
265

 
246

 
233

 
196

 
202

Attributable to:
 
 
 
 
 
 
 
 
 
Owners of the parent
261

 
241

 
225

 
188

 
195

Non-controlling interest
4

 
5

 
8

 
8

 
7

Basic and diluted earnings per ordinary share (in Euro)(1)


 


 


 
n.a.

 
n.a.

Dividends paid per share (in Euro)
-

 
-

 
-

 
n.a.

 
n.a.

_____________________________
(1)    See Note 12 to the Annual Consolidated Financial Statements for the calculation of Basic and Diluted earnings per ordinary share.
Other Statistical Information
 
For the years ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Shipments (in units)
7,255

 
7,000

 
7,405

 
7,195

 
6,573

Average number of employees for the period
2,843

 
2,774

 
2,708

 
2,709

 
2,779


31


Consolidated Statement of Financial Position Data
 
At December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(€ million, except shares issued)
Cash and cash equivalents
134

 
114

 
100

 
94

 
61

Deposits in FCA Group cash management pools (1)
942

 
684

 
457

 
529

 
513

Total assets
4,641

 
3,895

 
3,465

 
3,369

 
3,051

Debt
510

 
317

 
261

 
522

 
354

Total equity
2,478

 
2,316

 
2,041

 
1,769

 
1,792

Equity attributable to owners of the parent
2,470

 
2,290

 
2,019

 
1,748

 
1,777

Non-controlling interests
8

 
26

 
22

 
21

 
15

Share capital (2)


 


 


 
n.a.

 
n.a.

Ordinary shares issued (in thousands of shares) (2)


 


 


 
n.a.

 
n.a.

_____________________________
(1)    Deposits in FCA Group cash management pools relate to our participation in a group-wide cash management system at FCA, where the operating cash management, main funding operations and liquidity investment of the Group are centrally coordinated by dedicated treasury companies with the objective of ensuring effective and efficient management of our funds. Following the Separation, these arrangements will be terminated and we will manage our liquidity and treasury function on a standalone basis.
(2)     See Note 20 to the Annual Consolidated Financial Statements for the calculation of Share capital and Ordinary shares issued.

32


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information (the “Unaudited Pro Forma Condensed Consolidated Financial Information”) at and for the three months ended March 31, 2015 and for the year ended December 31, 2014 has been prepared by applying unaudited pro forma adjustments to (i) the historical interim consolidated statement of financial position and the historical interim consolidated income statement of the Company at and for the three months ended March 31, 2015 included in the Interim Condensed Consolidated Financial Statements and (ii) the historical consolidated income statement of the Company for the year ended December 31, 2014 included in the Annual Consolidated Financial Statements. The Interim Condensed Consolidated Financial Statements and the Annual Consolidated Financial Statements are included elsewhere in this prospectus.
On October 29, 2014, FCA announced its intention to separate Ferrari S.p.A. from FCA through the Separation. The Separation is expected to occur through a series of transactions including (i) an intra-group restructuring which will result in our acquisition of the assets and business of Ferrari North Europe Limited and the transfer by FCA of its 90 percent shareholding in Ferrari S.p.A. to us, (ii) the transfer of Piero Ferrari’s 10 percent shareholding in Ferrari S.p.A. to us, in exchange for Piero Ferrari receiving an equivalent amount of our common shares, (iii) this initial public offering of our common shares, and (iv) the distribution, following the initial public offering, of FCA’s remaining interest in us to its shareholders.
The transactions described above in (i) and (ii) (which are referred to collectively as the “Restructuring”) were completed on through the following steps:
•
We acquired from Ferrari North Europe Limited (a 100 percent owned subsidiary of Ferrari S.p.A.) its assets and business of providing sales, after-sales and support services for the Ferrari brand and in exchange we issued to Ferrari North Europe Limited a note in the principal amount of €      (the “FNE Note”)

•
FCA transferred to us all of the issued and outstanding share capital that it previously held in Ferrari S.p.A. (representing 90 percent of the share capital in Ferrari S.p.A.), and in exchange we issued to FCA a note in the principal amount of €      (the “FCA Note”).

•
FCA contributed cash of €____to us in consideration of the issue to FCA of____of our common shares. These common shares were issued at nominal value of €____with a share premium of €____. €____of the cash proceeds received from FCA were used to settle a portion of the FCA Note, following which the principal outstanding on the FCA Note is €____, which is expected to be refinanced through third party debt, as further discussed below. We also used €____of the cash proceeds received as a result of issuing shares to FCA to fully repay the FNE Note.

•
Piero Ferrari transferred his 10 percent interest in Ferrari S.p.A. to us and in exchange we issued to Piero Ferrari____of our common shares. Following a subsequent transaction with FCA, Piero Ferrari will own 10.0 percent of our share capital. We did not receive any cash consideration as part of this transaction.

With the exception of the FCA Note and the subsequent refinancing, the Restructuring has been retrospectively reflected in the Interim Condensed Consolidated Financial Statements and the Annual Consolidated Financial Statements.
The Unaudited Pro Forma Condensed Consolidated Financial Information give effect to the following transactions (together the “Transactions”):
•
The FCA Note of €____, which was recognized as a result of the Restructuring;
•
The settlement of the FCA Note, which is assumed to be repaid using the proceeds from the issuance of new third party financing. Solely for the purposes of the preparation of the Unaudited Pro Forma Condensed Consolidated Financial Information, we have estimated the principal amount of the new third party financing to be € , the interest rate on the financing to be approximately____and the associated transaction costs to be____;
•
The settlement of non-trade intercompany receivables and payables with FCA on completion of the Separation.
The acquisition of the Ferrari North Europe Limited assets and business and the FNE Note have no impact on the Unaudited Pro Forma Condensed Consolidated Financial Information as Ferrari North Europe Limited was one of our existing

33


subsidiaries, therefore these intercompany transactions were eliminated in the Interim Condensed Consolidated Financial Statements and the Annual Consolidated Financial Statements.
The unaudited pro forma condensed consolidated income statements include pro forma adjustments which are factually supportable and recurring in nature. The unaudited pro forma condensed consolidated statement of financial position includes pro forma adjustments for items that have a continuing impact and for non-recurring items that are factually supportable and directly attributable to the Transactions. The unaudited pro forma condensed consolidated income statements have been prepared as though the Transactions occurred on January 1, 2014. The unaudited pro forma condensed consolidated statement of financial position has been prepared as though the Transactions occurred on March 31, 2015. The Unaudited Pro Forma Condensed Consolidated Financial Information does not purport to represent what our actual results of operations would have been if the Transactions had actually occurred on the dates assumed, nor is it necessarily indicative of future consolidated results of operations or financial condition. The Unaudited Pro Forma Condensed Consolidated Financial Information is presented for informational purposes only.
We expect to experience changes in our ongoing cost structure when we become an independent, publicly-traded company. In particular, FCA currently provides many corporate functions on our behalf, including but not limited to, finance, legal, treasury, internal audit, investor relations, information technology and human resource activities. Our historical consolidated financial statements include expenses directly incurred by the FCA Group for the procurement of services on our behalf of €612 thousand for the three months ended March 31, 2015 (€10,486 thousand, for the year ended December 31, 2014) and corporate costs re-charged to the Group by FCA of €350 thousand for the three months ended March 31, 2015 (€2,952 thousand for the year ended December 31, 2014). These costs may not be representative of the future costs we will incur as an independent public company.
We currently estimate that the incremental costs we will incur during our transition to being a stand-alone public company will not be material. We have not adjusted the Unaudited Pro Forma Condensed Consolidated Financial Information for these costs because either (i) they are not expected to have an ongoing impact on our operating results or (ii) they would need to be estimated based on subjective judgments and assumptions, and therefore would not be factually supportable. The transition-related costs include, but are not limited to:
•
incremental finance, legal, treasury, internal audit, investor relations, information technology, human resource and Board of Directors costs relating to operating as a stand-alone public company;
•
recruiting and relocation costs associated with recruiting key corporate senior management personnel new to our company; and
•
costs to separate corporate information systems.
During the three months ended March 31, 2015, we earned interest income of €398 thousand (€2,333 thousand for the year ended December 31, 2014) on the deposits in FCA’s cash management pools and incurred financial expense of €1,209 thousand (€6,141 thousand for the year ended December 31, 2014) on financial liabilities with FCA. These financial assets and liabilities, together with the other intercompany balances with the FCA Group will be settled in cash on completion of the separation. As a result of the settlement of the intercompany balances we expect to receive cash of approximately from FCA. We have not made any adjustment to the pro forma income statement for such interest income and finance expense.
The Unaudited Pro Forma Condensed Consolidated Financial Information are subject to the assumptions and adjustments described in the accompanying notes. Management believes that these assumptions and adjustments are reasonable under these circumstances and given the information available at this time. However, these adjustments are subject to change as we and FCA finalize the terms of the Separation and the related agreements and the costs of operating as a stand-alone company are determined. The Unaudited Pro Forma Condensed Consolidated Financial Information does not reflect all of the costs of operating as a stand-alone company, including incremental finance, legal, treasury, internal audit, investor relations, information technology, human resource and other similar expenses associated with operating as a stand-alone company.
The Unaudited Pro Forma Condensed Consolidated Financial Information should be read in conjunction with the information contained in “Selected Historical Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Interim Condensed Consolidated Financial Statements and the Annual Consolidated Financial Statements appearing elsewhere in this prospectus. All unaudited pro forma adjustments and their underlying assumptions are described more fully in the footnotes to our Unaudited Pro Forma Condensed Consolidated Financial Information.

34



Unaudited Pro Forma Condensed Consolidated Statement of Financial Position
at March 31, 2015

 
 
 
 
Unaudited Pro Forma Adjustments
 
 
 
 
Historical
 
FCA Note
 
Settlement of FCA Note
 
Intercompany Settlement
 
Pro Forma at March 31, 2015
 
 
(€ thousand)
 
 
 
 
(A)
 
(B)
 
(C)
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Goodwill
 
787,178

 

 

 

 

Intangible assets
 
277,505

 

 

 

 

Property, plant and equipment
 
591,460

 

 

 

 

Investments and other financial assets
 
47,134

 

 

 

 

Deferred tax assets
 
169,186

 

 

 

 

Total non-current assets
 
1,872,463

 

 

 

 

Inventories
 
376,735

 

 

 

 

Trade receivables
 
207,973

 

 

 

 

Receivables from financing activities
 
1,321,046

 

 

 

 

Current tax receivables
 
865

 

 

 

 

Other current assets
 
80,380

 

 

 

 

Current financial assets
 
3,317

 

 

 

 

Deposits in FCA’s cash management pools
 
977,521

 

 

 

 

Cash and cash equivalents
 
163,717

 

 

 

 

Total current assets
 
3,131,554

 

 

 

 

Total assets
 
5,004,017

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
Equity and liabilities
 
 
 
 
 
 
 
 
 
 
Equity attributable to owners of the parent
 
2,461,908

 

 

 

 

Non-controlling interest
 
12,602

 

 

 

 

Total equity
 
2,474,510

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
Employee benefits
 
79,359

 

 

 

 

Provisions
 
130,570

 

 

 

 

Deferred tax liabilities
 
23,018

 

 

 

 

Debt with FCA
 
461,380

 

 

 

 

Debt with third parties
 
162,047

 

 

 

 

Other liabilities
 
692,562

 

 

 

 

Other financial liabilities
 
262,604

 

 

 

 

Trade payables
 
573,203

 

 

 

 

Current tax liabilities
 
144,764

 

 

 

 

Total equity and liabilities
 
5,004,017

 

 

 

 

______________________________
(A)
This adjustment reflects the FCA Note obligation of €______billion incurred in connection with the Restructuring.
(B)
This adjustment reflects the anticipated settlement of the €______billion FCA Note which is assumed to be repaid using the proceeds from the issuance of new third party financing. Solely for the purposes of the preparation of the Unaudited Condensed Consolidated Pro Forma Financial Information, we have estimated the principal amount of the new third party financing to be €  ____billion and the associated transaction costs to be €____thousand.
(C)
This adjustment reflects the settlement of the non-trade intercompany receivables and payables with the FCA Group which will be settled in cash on completion of the Separation. Trade intercompany receivables and payables will be settled in the normal course of business.

35


Unaudited Pro Forma Condensed Consolidated Income Statement
for the three months ended March 31, 2015

 
 
 
 
Unaudited Pro Forma Adjustments
 
 
 
 
Historical
 
Settlement of FCA Note
 
Unaudited Pro Forma
 
 
(€ thousand)
 
 
 
 
(D)
 
 
Net revenues
 
620,948

 

 

Cost of sales
 
306,265

 

 

Selling, general and administrative costs
 
65,012

 

 

Research and development costs
 
153,644

 

 

Other expenses, net
 
64

 

 

EBIT
 
95,963

 

 

Net financial income/(expenses)
 
1,942

 


 

Profit before taxes
 
97,905

 


 

Income tax expense
 
32,835

 


 

Net profit
 
65,070

 


 

Net profit attributable to:
 

 


 

Owners of the parent
 
64,374

 


 

Non-controlling interests
 
696

 
—

 

Basic and diluted earnings per share (in €) (E)
 


 


 

______________________________
(D)
This adjustment reflects:
•
the additional finance expense which we expect to incur on the issuance of approximately €______billion of new third party financing in connection with the settlement of the FCA Note. As previously explained, solely for the purposes of the preparation of the Unaudited Condensed Consolidated Pro Forma Financial Information, we have estimated the interest rate on the borrowings to be approximately______percent and the associated transaction costs to be €______thousand. Interest expense may be higher or lower depending on the actual interest rate of the borrowings that we enter into. A 100 basis points change to the annual interest rate would change interest expense by approximately €______thousand on an annual basis.
•
the tax effect on such adjustment has been calculated using the statutory tax rate of______that would be applicable to the entity incurring the debt.
(E)
Our historical and pro forma earnings per share and pro forma weighted average shares outstanding are based on our post transaction capital structure, as a result of which we will have______common shares outstanding.


36


Unaudited Pro Forma Condensed Consolidated Income Statement
for the year ended December 31, 2014

 
 
 
 
Unaudited Pro Forma Adjustments
 
 
 
 
Historical
 
Settlement of FCA Note
 
Unaudited Pro Forma
 
 
(€ thousand)
 
 
 
 
(D)
 
 
Net revenues
 
2,762,360

 

 

Cost of sales
 
1,505,889

 

 

Selling, general and administrative costs
 
300,090

 

 

Research and development costs
 
540,833

 

 

Other expenses, net
 
26,080

 

 

EBIT
 
389,468

 

 

Net financial income/(expenses)
 
8,765

 

 

Profit before taxes
 
398,233

 

 

Income tax expense
 
133,218

 

 

Net profit
 
265,015

 

 

Net profit attributable to:
 

 

 

Owners of the parent
 
261,371

 

 

Non-controlling interests
 
3,644

 

 

Basic and diluted earnings per share (in €) (E)
 


 

 


______________________________
(D)
This adjustment reflects:
•
the additional finance expense which we expect to incur on the issuance of approximately €______billion of new third party financing in connection with the settlement of the FCA Note. As previously explained, solely for the purposes of the preparation of the Unaudited Condensed Consolidated Pro Forma Financial Information, we have estimated the interest rate on the borrowings to be approximately______percent and the associated transaction costs to be €______thousand. Interest expense may be higher or lower depending on the actual interest rate of the borrowings that we enter into. A 100 basis points change to the annual interest rate would change interest expense by approximately €______thousand on an annual basis.
•
the tax effect on such adjustment has been calculated using the statutory tax rate of______that would be applicable to the entity incurring the debt.
(E)
Our historical and pro forma earnings per share and pro forma weighted average shares outstanding are based on our post transaction capital structure, as a result of which we will have______common shares outstanding.
    

37


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with the information included under “Business,” “Selected Historical Consolidated Financial and Other Data,” the Annual Consolidated Financial Statements, the Interim Condensed Consolidated Financial Statements and the Unaudited Pro Forma Condensed Consolidated Financial Information included elsewhere in this prospectus. This discussion includes forward-looking statements, and involves numerous risks and uncertainties, including, but not limited to, those described under “Cautionary Statements Concerning Forward—Looking Statements” and “Risk Factors.” Actual results may differ materially from those contained in any forward looking statements. Unless otherwise indicated or the context otherwise requires, references to “we,” “our,” “us,” “the Group” and the “Company” in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” refer to Ferrari.
Overview
Ferrari is among the world’s leading luxury brands focused on the design, engineering, production and sale of the world’s most recognizable luxury performance sports cars. Our brand symbolizes luxury, exclusivity, innovation, state-of-the-art sporting performance and Italian design and engineering heritage. Our name and history and the image enjoyed by our cars are closely associated with our Formula 1 racing team, Scuderia Ferrari, the most successful team in Formula 1 history, having won 222 Grand Prix races, 16 Constructor World titles and 15 Drivers’ World titles. We believe our history of excellence, technological innovation and defining style transcends the automotive industry, and is the foundation of the Ferrari brand and image. We design, engineer and produce our cars in Maranello, Italy, and sell them in over 60 markets worldwide through a network of 182 authorized dealers.
We believe our cars are the epitome of performance, luxury and styling. We currently sell eight models, including six sports cars (458 Italia, 488 GTB, 458 Spider, F12berlinetta and our special series 458 Speciale and 458 Speciale A) and two GT cars (California T and FF). In March 2015, we launched our latest sports car, the 488 GTB, which is replacing the 458 Italia. We expect to gradually replace our 458 models with successor 488 models during 2015 and the next several years. We also produce a limited edition supercar, LaFerrari, and very limited editions series (Fuoriserie) and one-off cars.
In 2014, we shipped 7,255 cars, and recorded net revenues of €2,762 million, net profit of €265 million, adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) of €693 million and earnings before interest and taxes (EBIT) of €389 million. For additional information regarding Adjusted EBITDA, which is a non-GAAP measure, including a reconciliation of Adjusted EBITDA to net profit.
We pursue a low volume production strategy in order to maintain a reputation of exclusivity and scarcity among purchasers of our cars and deliberately monitor and maintain our production volumes and delivery wait-times to promote this reputation. We divide our regional markets into EMEA, Americas, Greater China and Rest of APAC, representing respectively 45 percent, 34 percent, nine percent and 12 percent of units shipped in 2014. In recent years we have allocated a higher proportion of shipments to the Middle East and Greater China and, to a lesser extent, the Americas and a lower proportion to Europe, reflecting changes in relative demand as part of our strategy to manage waiting lists and maintain product exclusivity.
We license the Ferrari brand to a select number of producers and retailers of luxury and lifestyle goods, and we sell Ferrari-branded merchandise through a network of 23 franchised and nine owned Ferrari stores and on our website. As one of the world’s most recognized premium luxury brands, we believe we are well positioned to selectively expand the presence of the Ferrari brand in attractive and growing lifestyle categories consistent with our image, including sportswear, watches, accessories, consumer electronics and theme parks which we believe enhance the brand experience of our loyal following of clients and Ferrari enthusiasts.
We focus our marketing and promotion efforts in the investments we make in our racing activities, in particular Scuderia Ferrari’s participation in the Formula 1 World Championship, which is one of the most watched annual sports series in the world, with approximately 425 million television viewers annually. We believe that these activities support the strength and awareness of our brand among motor enthusiasts, clients and the general public.
We will continue focusing our efforts on protecting and enhancing the value of our brand to preserve our strong financial profile and participate in the premium luxury market growth. We intend to selectively pursue controlled and profitable growth in existing and emerging markets while expanding the Ferrari brand to carefully selected lifestyle categories.

38


Key Factors Affecting Results
Shipments. Our results of operations depend on the achievement of shipment targets established in our budgets and business plans. One of the performance indicators we monitor is shipment volumes, which represent the number of cars we ship to third parties in a given period and which drive net revenues. We recognize revenues from car shipments once it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue can be reliably measured. Revenue is recognized when the risks and rewards of ownership are transferred to our dealers, the sales price is agreed or determinable and collectability is reasonably assured; this generally corresponds to the date on which the cars are released to the carrier responsible for transporting them to dealers.
In general, our shipments do not vary based on changes in demand. Rather, we tend to ship based on volume targets established under our low volume strategy. As part of this strategy, we seek to manage waiting lists in the various markets in which we operate to respond appropriately to relative levels of demand while being sensitive to local client expectations in those markets. In certain markets, we believe that waiting lists have promoted our products’ sense of exclusivity; accordingly we monitor and manage such waiting lists to maintain such exclusivity while ensuring that we do not jeopardize client satisfaction.
Prior to 2013, our production volumes were determined by plant capacity and as a result of increases in productivity, shipments increased each year from 2010 to 2012. In the year ended December 31, 2012, we shipped 7,405 units, representing a record year. In May 2013, we announced our decision to limit the number of cars sold, to approximately 7,000 per year in order to maintain a reputation of exclusivity among purchasers of our cars. Our strategic business plan reflects a continuation of the low volume strategy, while gradually increasing shipments to approximately 9,000 units per year by 2019.
The following table sets forth our shipments by geographic location:
(Number of cars and % of total cars)
 
For the three months ended March 31,
 
For the years ended December 31,
 
 
2015
 
%
 
2014
 
%
 
2014
 
%
 
2013
 
%
 
2012
 
%
EMEA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UK
 
210

 
12.8
%
 
168

 
9.7
%
 
705

 
9.7
%
 
686

 
9.8
%
 
686

 
9.3
%
Germany
 
92

 
5.6
%
 
163

 
9.4
%
 
616

 
8.5
%
 
659

 
9.4
%
 
755

 
10.2
%
Switzerland
 
72

 
4.4
%
 
88

 
5.1
%
 
332

 
4.6
%
 
350

 
5.0
%
 
366

 
4.9
%
France
 
58

 
3.5
%
 
68

 
3.9
%
 
253

 
3.5
%
 
273

 
3.9
%
 
330

 
4.5
%
Italy
 
51

 
3.1
%
 
64

 
3.7
%
 
243

 
3.3
%
 
206

 
2.9
%
 
318

 
4.3
%
Middle East(1)
 
138

 
8.4
%
 
150

 
8.7
%
 
521

 
7.2
%
 
472

 
6.7
%
 
423

 
5.7
%
Rest of EMEA(2)
 
144

 
8.9
%
 
162

 
9.3
%
 
604

 
8.3
%
 
663

 
9.5
%
 
825

 
11.1
%
Total EMEA
 
765

 
46.7
%
 
863

 
49.8
%
 
3,274

 
45.1
%
 
3,309

 
47.3
%
 
3,703

 
50.0
%
Americas(3)
 
515

 
31.6
%
 
552

 
31.9
%
 
2,462

 
33.9
%
 
2,382

 
34.0
%
 
2,208

 
29.8
%
Greater China(4)
 
134

 
8.2
%
 
111

 
6.4
%
 
675

 
9.3
%
 
572

 
8.2
%
 
789

 
10.7
%
Rest of APAC(5)
 
221

 
13.5
%
 
206

 
11.9
%
 
844

 
11.7
%
 
737

 
10.5
%
 
705

 
9.5
%
Total
 
1,635

 
100.0
%
 
1,732

 
100.0
%
 
7,255

 
100.0
%
 
7,000

 
100.0
%
 
7,405

 
100.0
%
______________________________
(1)Middle East includes the United Arab Emirates, Saudi Arabia, Bahrain, Lebanon, Qatar, Oman and Kuwait.
(2)Rest of EMEA includes Africa and the other European markets not separately identified.
(3)Americas includes the Unites States of America, Canada, Mexico, the Caribbean and Central and South America.
(4)Greater China includes China, Hong Kong and Taiwan.
(5)Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia and South Korea.
We target our products to the upper end of the luxury car segment and buyers of our cars tend to belong to the wealthiest segment of the population. As the size and spending capacity of our target client base has grown significantly in recent years, our addressable market and the sense of exclusivity fostered by our low volume strategy have been further enhanced. In response, we have expanded our distribution capabilities and sought to rebalance the geographic distribution of shipments from several traditional markets, particularly in Europe, to growing markets in Asia, particularly China and the Middle East. For example, in 1993, 90 percent of our cars were sold in Italy, Germany and the United States; those markets now represent less than half of

39


our unit shipments. Furthermore, the profitability of our cars may vary from market to market. Given that our shipment strategy is flexible, we are able to adjust shipment allocations across markets to respond to changes in our key markets.
Research, Development and Product Lifecycle. The design and development process for a new model currently takes approximately 40 months (approximately 33 months for modified, or “M” versions of existing models, depending on the modifications), measured from the beginning of the development project to the start of production. The first stage of the product development phase is the research phase. In this phase, we research the specifications of new models that we believe will appeal to our clients and will be commercially viable. Costs we incur for developments for car project production and related components, engines and systems are recognized as an asset if, and only if, both of the following conditions under IAS 38 - Intangible Assets are met: that development costs can be measured reliably and that the technical feasibility of the product, volumes and pricing support the view that the development expenditure will generate future economic benefits. Capitalized development costs include all direct and indirect costs that may be directly attributed to the development process. Capitalized development costs are amortized on a straight-line basis from the start of production over the estimated lifecycle of the model and the useful life of the components (generally between four and eight years). All other research and development costs are expensed as incurred.
We also incur research and development expenses in connection with Formula 1 racing activities, including initiatives to maximize the performance, efficiency and safety of our racing cars. While we develop these technologies for initial use in our Formula 1 racing car, we seek to transfer these components and technologies, where appropriate, for use in our new models. Technological developments and changes in the regulations of the Formula 1 World Championship lead us to design, develop and construct a new racing car each year. Such costs are expensed in the income statement as incurred and classified as research and development costs. Research and development costs for Formula 1 activities can vary from year to year, often significantly, and may be difficult to predict because they are subject, among other things, to changes in race regulations and the need to respond to our car’s performance relative to other racing teams.
For the three months ended March 31, 2015, we capitalized development costs of €38 million and recognized amortization of capitalized development costs of €25 million (compared to €25 million and €30 million for the three months ended March 31, 2014). For the year ended December 31, 2014, we capitalized development costs of €145 million, and recognized amortization of capitalized development costs of €125 million (compared to €93 million and €120 million, respectively, for the year ended December 31, 2013, and €84 million and €98 million, respectively, for the year ended December 31, 2012).
For the three months ended March 31, 2015, we expensed research and development costs of €129 million (€114 million for the three months ended March 31, 2014). For the year ended December 31, 2014, we expensed research and development costs of €415 million (€359 million for 2013 and €333 million for 2012).
Our results of operations are dependent on the comparative success of our product offering from period to period. Our models typically have a lifecycle of four to five years. After the fourth or fifth year, a significantly modified version is released. While the modified version may be based on the same platform as its predecessor, the increased technological content of the car, new design and other novel features lead us to consider the model as a new car. A portion of our research and development efforts are related to the development of the various components used in our models, and in particular, electronic and mechanical components. Of the 2014 total research and development costs, which were not eligible for capitalization, and as such were expensed, €20 million related to the research on components (€20 million for 2013 and €16 million for 2012). In 2014, we capitalized development costs relating to components of €15 million (nil for 2013 and 2012). Our new and modified models generally include new technology content, part of which is related to the output from the component research and development efforts. Our continued focus on component development has the objective of reducing the costs to develop new and modified models.
Demand for our cars tends to be highest in the first year or two from a car’s launch, while in the latter two years demand is generally lower as our clients tend to focus on more recently introduced cars. We believe that our relatively short and predictable lifecycle supports both new car sales and the value of existing models both in the primary and resale markets. We also believe that this lifecycle ensures that our products remain responsive to the expectations of our clients. With the exception of the years in which we renew our product range, our research and development expenditure (excluding Formula 1 research and development) does not normally fluctuate significantly from period to period. As a result of our strategy to update our product range, we expect research and development expenditure to peak in 2015 and in any future years in which we have significant renewals of the product range.
Car Profitability. The relative profitability of the cars we sell tends to vary depending on a number of factors including engine size, exclusivity of the offering, content of the car and the geographic market in which it is sold. Our products equipped

40


with V12 engines have historically commanded a higher price, and have therefore been more profitable than those equipped with the V8 engine. At March 31, 2015 our V12 product offering included the LaFerrari, the F12berlinetta and the FF, our current V8 product offering includes the 458 Italia, the 458 Spider, the 458 Speciale and the 458 Speciale Aperta (also referred to as 458 Speciale A) (both of which we refer to as the 458 VS) and the California T. Our total shipments (excluding LaFerrari shipments) represented by V12 models increased from 20.6 percent in 2012 to 26.0 percent in 2013, driven by an increase in shipments of the F12berlinetta, then decreased to 24.3 percent in 2014, primarily driven by an increase in V8 model shipments. Our total shipments (excluding LaFerrari shipments) represented by V12 models decreased from 32.3 percent for the three months ended March 31, 2014 to 19.0 percent in for the three months ended March 31, 2015, mainly driven by a decrease in shipments of the F12berlinetta.
The exclusivity of a particular product offering is also a relevant factor in its profitability. For example, in November 2013, we launched the LaFerrari, our latest limited edition supercar, which was planned for a total production run of only 499 units. In light of the exclusivity of the offering, along with the “supercar” advanced technological and design content, LaFerrari has a sales price in excess of €1 million, which is much higher than other models in the Ferrari product range. Therefore, our 2014 and 2015 net revenues have benefited significantly from shipments of LaFerrari. We expect to complete the production run of the LaFerrari in early 2016. In general, more exclusive offerings generate higher net revenues and provide better margins than those generated on shipments of range models (which include Sports and GT models, V8 and V12 models and represent the core of our product offering) and special series cars. Similarly, our limited edition cars which we launch from time to time are typically sold at a significantly higher price point than our range models and therefore they benefit our results in the periods in which they are sold.
We seek to increase over time the average price point of our range models and special series by continually improving performance, technology and other features, and by leveraging the scarcity value resulting from our low volume strategy. Furthermore, the content of the cars we sell can be customized through our interior and exterior personalization program, which can be further enhanced through bespoke specifications. Incremental revenues from personalization are a particularly favorable factor of our pricing and product mix, due to the fact that we generate a margin on each additional option selected by the client.
Maserati Engine Volumes. In 2011, we began producing a new family of V6 engines for Maserati for use in their cars. The net revenues associated with sales of these engines correspond directly to Maserati production volumes. In order to meet our obligations under our agreement with Maserati, we constructed a new production line dedicated to the Maserati V6 engine, which was funded by Maserati.
Net revenues generated from the Maserati engine shipments decreased from €62 million for the three months ended March 31, 2014, to €54 million for the three months ended March 31, 2015, primarily driven by a 15.0 percent decrease in the number of engines shipped. Net revenues generated from the Maserati engine shipments increased from €50 million for 2012, to €163 million for 2013 and €251 million for 2014, primarily driven by a 242.4 percent and 70.4 percent increase in the number of engines shipped from 2012 to 2013 and from 2013 to 2014, respectively. The Separation has no impact on our contract with Maserati.
Cost of Sales. Cost of sales comprises expenses incurred in the manufacturing and distribution of cars and parts, including engines rented to other Formula 1 racing teams. Costs of materials, components costs and labor costs are the most significant elements of our cost of sales. The remaining costs principally include depreciation, amortization, insurance and transportation costs. Cost of sales also includes warranty, maintenance and product-related costs, which are estimated and recorded at the time of shipment of the car. Expenses that are directly attributable to our financial services companies, including the interest expenses related to their financing as a whole and provisions for risks and write-downs of assets, are also reported in cost of sales.
We purchase a variety of components (including mechanical, steel, aluminum, electrical and electronic, plastic components as well as casting and tires), raw materials (the most significant of which is aluminum), and supplies, and we incur costs of utilities, logistics and other services from numerous suppliers, in the manufacture of our cars. Fluctuations in cost of sales are primarily related to the number of cars we produce and sell along with shifts in car mix, as newer models generally have more technologically advanced components and enhancements and therefore higher costs per unit. Supercars and limited edition cars (fuoriserie) also tend to have higher costs per unit but these higher costs tend to be more than offset by higher sales prices. Cost of sales are also affected, to a lesser extent, by fluctuations of certain raw material prices, although, we typically seek to manage these costs and minimize their volatility through the use of fixed price long-term purchase contracts.

41


In recent years, management has made efforts to achieve technical and commercial efficiencies. In particular, commercial efficiencies have been achieved through negotiating discounts where appropriate and entering into long-term contracts with suppliers, who commit upfront to passing on to us a portion of the efficiencies they achieve in performing our supply contract. Furthermore, efforts are made to award new business to existing suppliers, in order to negotiate favorable pricing. Technical efficiencies include efforts made to produce components using innovative, less expensive materials without comprising the components’ performance. In order to achieve these technical efficiencies, we perform in-house research and development activities and we invite our suppliers to present us with solutions that they have developed.
As cost of sales also includes the depreciation of plant and equipment, cost of sales are affected by product launches, which trigger the commencement of depreciation of plant and equipment acquired specifically for the production of a certain model.
Effects of Foreign Currency Exchange Rates. We are affected by fluctuations in foreign currency exchange rates (i) through translation of foreign currency financial statements into Euro in consolidation, which we refer to as the translation impact, and (ii) through transactions by entities in the Group in currencies other than their own functional currencies, which we refer to as the transaction impact.
Translation impacts arise in preparation of the consolidated financial statements; in particular, we present our consolidated financial statements in Euro, while the functional currency of each of our subsidiaries depends on the primary economic environment of that entity. In preparing the consolidated financial statements, we translate assets and liabilities measured in the functional currency of the subsidiaries into Euro using the foreign currency exchange rate prevailing at the balance sheet date, while we translate income and expenses using the average foreign currency exchange rates for the period covered. Accordingly, fluctuations in the foreign currency exchange rate of the functional currencies of our entities against the Euro impacts our results of operations.
Transaction impacts arise when our entities conduct transactions in currencies other than their own functional currency. We are therefore exposed to foreign currency risks in connection with scheduled payments and receipts in multiple currencies.
Our costs are primarily denominated in Euro, while our net revenues may be denominated in Euro, U.S. Dollars, Japanese Yen, Chinese Yuan or other currencies. In general, for the unhedged portion of our net revenues, an appreciation of the U.S. Dollar against the Euro would positively impact our net revenues and results of operations.
As part of the FCA Group, we have applied the FCA Group policy, which contemplates the use of derivative financial instruments to hedge foreign currency exchange rate risk. In particular, we have used derivative financial instruments as cash flow hedges for the purpose of fixing the foreign currency exchange rate at which a predetermined proportion of forecasted transactions denominated in foreign currencies will be accounted for. Accordingly, our results of operations have not been fully exposed to fluctuations in foreign currency exchange rates.
Regulation. We ship our cars throughout the world and are therefore subject to a variety of laws and regulations. These laws regulate our cars, including their emissions, fuel consumption and safety, and our manufacturing facilities. As we are currently a small volume manufacturer, in certain jurisdictions we benefit from certain regulatory exemptions, including less stringent emissions caps. Developing, engineering and producing cars which meet the regulatory requirements, and can therefore be sold in the relevant markets, requires a significant expenditure of resources.
Critical Accounting Estimates
The Annual Consolidated Financial Statements and the Interim Condensed 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 prospectively in future periods.

42


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.
Allowance for doubtful accounts
The allowances for doubtful accounts reflect management’s estimate of losses inherent in the dealer and end-client credit portfolio. The allowances for doubtful accounts are based on management’s estimation of the losses to be incurred, which derives from past experience with similar receivables, current and historical past due amounts, write-offs and collections, and careful monitoring of portfolio credit quality.
At December 31, 2014, the Group had gross receivables from financing activities of €1,238 million (€873 million at December 31, 2013), and allowances for doubtful accounts of €14 million at December 31, 2014 or 1.1 percent of the gross balance (€10 million at December 31, 2013, or 1.2 percent of the gross balance). Provisions for doubtful accounts charged to the consolidated income statement as cost of sales were €7 million for the year ended December 31, 2014 (€4 million for the year ended December 31, 2013 and €8 million for year ended December 31, 2012).
At December 31, 2014, the Group had gross trade receivables of €198 million (€236 million at December 31, 2013), and allowances for doubtful accounts of €15 million, or 7.4 percent of the gross trade receivable balance (€30 million at December 31, 2013, or 12.8 percent of the gross trade receivable balance). Provisions for doubtful accounts charged to the consolidated income statement as selling, general and administrative costs were €6 million for the year ended December 31, 2014 (€11 million for the year ended December 31, 2013 and €10 million for year ended December 31, 2012).
Should economic conditions worsen resulting in an increase in default risk, or if other circumstances arise, the estimates of the recoverability of amounts due to the Group could be overstated, and additional allowances could be required, which could have an adverse impact on the Group’s results.
Recoverability of non-current assets with definite useful lives
Non-current assets with definite useful lives include property, plant and equipment and intangible assets. Intangible assets with definite useful lives mainly consist of capitalized development costs.
The Group periodically reviews the carrying amount of non-current assets with definite useful lives when events and circumstances indicate that an asset may be impaired. Impairment tests are performed by comparing the carrying amount and the recoverable amount of the cash-generating unit (“CGU”). The recoverable amount is the higher of the CGU’s fair value less costs of disposal and its value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU.
For the period covered by the Annual Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements, the Group has not recognized any impairment charges for non-current assets with definite useful lives.
Recoverability of goodwill
In accordance with IAS 36 - Impairment of Assets, goodwill is not amortized and is tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired.
As the Group is composed of one operating segment, goodwill is tested at the Group level which represents the lowest level within the Group at which goodwill is monitored for internal management purposes in accordance with IAS 36. The impairment test is performed by comparing the carrying amount (which mainly comprises property, plant and equipment, goodwill and capitalized development costs) and the recoverable amount of the CGU. The recoverable amount of the CGU is the higher of its fair value less costs of disposal and its value in use.
Development costs
Development costs are capitalized if the conditions under IAS 38 - Intangible Assets have been met. The starting point for capitalization is based upon the technological and commercial feasibility of the project, which is usually when a product development project has reached a defined milestone according to the Group’s established product development model. Feasibility is based on management’s judgment which is formed on the basis of estimated future cash flows. Capitalization ceases and amortization of capitalized development costs begins on start of production of the relevant project.

43


The amortization of development costs requires management to estimate the lifecycle of the related model. Any changes in such assumptions would impact the amortization charge recorded and the carrying amount of capitalized development costs. The periodic amortization charge is derived after determining the expected lifecycle of the related model and, if applicable, any expected residual value at the end of its life. Increasing an asset’s expected lifecycle or its residual value would result in a reduced amortization charge in the consolidated income statement.

The useful lives and residual values of the Group’s models are determined by management at the time of capitalization and reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life, such as changes in technology. Historically, changes in useful lives and residual values have not resulted in material changes to the Group’s depreciation charge.

For the year ended December 31, 2014, the Group capitalized development costs of €145 million (€93 million for the year ended December 31, 2013).
Product warranties and liabilities
The Group establishes reserves for product warranties at the time the sale is recognized. The Group issues various types of product warranties under which the performance of products delivered is generally guaranteed for a certain period or term, which is generally defined by the legislation in the country where the car is sold. The reserve for product warranties includes the expected costs of warranty obligations imposed by law or contract, as well as the expected costs for policy coverage. The estimated future costs of these actions are principally based on assumptions regarding the lifetime warranty costs of each car line and each model year of that car line, as well as historical claims experience for the Group’s cars. In addition, the number and magnitude of additional service actions expected to be approved, and policies related to additional service actions, are taken into consideration. Due to the uncertainty and potential volatility of these estimated factors, changes in the assumptions used could materially affect the results of operations.
The Group periodically initiates voluntary service actions to address various client satisfaction, safety and emissions issues related to cars sold. Included in the reserve is the estimated cost of these services and recall actions. The estimated future costs of these actions are based primarily on historical claims experience for the Group’s cars. Estimates of the future costs of these actions are inevitably imprecise due to several uncertainties, including the number of cars affected by a service or recall action. It is reasonably possible that the ultimate cost of these service and recall actions may require the Group to make expenditures in excess of (or less than) established reserves over an extended period of time. The estimate of warranty and additional service obligations is periodically reviewed during the year.
In addition, the Group makes provisions for estimated product liability costs arising from property damage and personal injuries including wrongful death, and potential exemplary or punitive damages alleged to be the result of product defects. By nature, these costs can be infrequent, difficult to predict and have the potential to vary significantly in amount. Costs associated with these provisions are recorded in the consolidated income statement and any subsequent adjustments are recorded in the period in which the adjustment is determined.
Other contingent liabilities
The Group makes provisions in connection with pending or threatened disputes or legal proceedings when it is considered probable that there will be an outflow of funds and when the amount can be reasonably estimated. If an outflow of funds becomes possible but the amount cannot be estimated, the matter is disclosed in the notes to the Annual Consolidated Financial Statements and the Interim Condensed Consolidated Financial Statements. The Group is the subject of legal and tax proceedings covering a wide range of matters in various jurisdictions. Due to the uncertainty inherent in such matters, it is difficult to predict the outflow of funds that could result from such disputes with any certainty. Moreover, the cases and claims against the Group often derive from complex legal issues which are subject to a differing degree of uncertainty, including the facts and circumstances of each particular case and the manner in which applicable law is likely to be interpreted and applied to such fact and circumstances, and the jurisdiction and the different laws involved. The Group monitors the status of pending legal proceedings and consults with experts on legal and tax matters on a regular basis. It is therefore possible that the provisions for the Group’s legal proceedings and litigation may vary as the result of future developments in pending matters.
Litigation
Various legal proceedings, claims and governmental investigations are pending against the Group on a wide range of topics, including car safety; emissions and fuel economy, early warning reporting; dealer, supplier and other contractual relationships; intellectual property rights and product warranty matters. Some of these proceedings allege defects in specific

44


component parts or systems (including airbags, seat belts, brakes, transmissions, engines and fuel systems) in various car models or allege general design defects relating to car handling and stability, sudden unintended movement or crashworthiness. These proceedings seek recovery for damage to property, personal injuries or wrongful death and in some cases could include a claim for exemplary or punitive damages. Adverse decisions in one or more of these proceedings could require the Group to pay substantial damages, or undertake service actions, recall campaigns or other costly actions.
Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. An accrual is established in connection with pending or threatened litigation if a loss is probable and a reliable estimate can be made. Since these accruals represent estimates, it is reasonably possible that the resolution of some of these matters could require the Group to make payments in excess of the amounts accrued. It is also reasonably possible that the resolution of some of the matters for which accruals could not be made may require the Group to make payments in an amount or range of amounts that could not be reasonably estimated.
The term “reasonably possible” is used herein to mean that the chance of a future transaction or event occurring is more than remote but less than probable. Although the final resolution of any such matters could have a material effect on the Group’s operating results for the particular reporting period in which an adjustment of the estimated reserve is recorded, it is believed that any resulting adjustment would not materially affect the consolidated financial position.
Non-GAAP Financial Measures
We monitor and evaluate our operating and financial performance using several non-GAAP financial measures including: EBITDA, Adjusted EBITDA, Adjusted EBIT, Net Cash and Free Cash Flow, as well as a number of financial metrics measured on a constant currency basis. We believe that these non-GAAP financial measures provide useful and relevant information regarding our performance and our ability to assess our financial performance and financial position. They also provide us with comparable measures that facilitate management’s ability to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions. While similar measures are widely used in the industry in which we operate, the financial measures we use may not be comparable to other similarly titled measures used by other companies nor are they intended to be substitutes for measures of financial performance or financial position as prepared in accordance with IFRS.
EBITDA and Adjusted EBITDA
EBITDA is defined as net profit before income tax expense, net financial (income)/expenses and depreciation and amortization. Adjusted EBITDA is defined as EBITDA as adjusted for income and costs, which are significant in nature, but expected to occur infrequently. The following table sets forth the calculation of EBITDA and Adjusted EBITDA for the three months ended March 31, 2015 and 2014 and for the years ended December 31, 2014, 2013 and 2012, and provides a reconciliation of this non-GAAP measure to net profit. EBITDA is presented by management to aid investors in their analysis of the performance of the Group and to assist investors in the comparison of the Group’s performance with that of other companies. Adjusted EBITDA is presented to demonstrate how the underlying business has performed prior to the impact of the adjusted items which may obscure underlying performance and impair comparability of results between periods.
 
 
For the three months ended March 31,
 
For the years ended December 31,
 
 
2015
 
2014
 
2014
 
2013
 
2012
 
 
(€ million)
Net profit
 
65

 
54

 
265

 
246

 
233

Income tax expense
 
33

 
26

 
133

 
120

 
101

Net financial (income)/expenses
 
(2
)
 
—

 
(9
)
 
(2
)
 
1

Amortization and depreciation
 
60

 
68

 
289

 
270

 
238

EBITDA
 
156

 
148

 
678

 
634

 
573

Expense related to the resignation of the former Chairman
 
—

 
—

 
15

 
—

 
—

Expenses incurred in relation to the IPO
 
4

 
—

 
—

 
—

 
—

Adjusted EBITDA
 
160

 
148

 
693

 
634

 
573


45


Adjusted EBIT
Adjusted EBIT represents EBIT as adjusted for income and costs, which are significant in nature, but expected to occur infrequently. We present such information in order to present how the underlying business has performed prior to the impact of such items, which may obscure underlying performance and impair comparability of results between the periods. The following table sets forth the calculation of Adjusted EBIT for the three months ended March 31, 2015 and 2014 and for the years ended December 31, 2014, 2013 and 2012.
 
 
For the three months ended March 31,
 
For the years ended December 31,
 
 
2015
 
2014
 
2014
 
2013
 
2012
 
 
(€ million)
EBIT
 
96

 
80

 
389

 
364

 
335

Expense related to the resignation of the former Chairman
 
—

 
—

 
15

 
—

 
—

Expenses incurred in relation to the IPO
 
4

 
—

 
—

 
—

 
—

Adjusted EBIT
 
100

 
80

 
404

 
364

 
335

Net Cash
Net Cash is the primary measure used by management to analyze our financial leverage and capital structure, and is one of the key indicators used to measure our financial position. The following table sets forth a reconciliation of Net Cash at March 31, 2015, December 31, 2014 and 2013, using information derived from the consolidated statement of financial position.
 
 
At March 31,
 
At December 31,
 
 
2015
 
2014
 
2013
 
 
(€ million)
Cash and cash equivalents
 
164

 
134

 
114

Deposits in FCA Group cash management pools
 
977

 
942

 
684

Financial liabilities with FCA Group
 
(461
)
 
(379
)
 
(242
)
Financial liabilities with third parties
 
(162
)
 
(131
)
 
(76
)
Total Net Cash
 
518

 
566

 
480

Free Cash Flow
Free Cash Flow is one of management’s primary key performance indicators to measure the Group’s performance and is defined as net cash generated from operations less cash flows used in investing activities. The following table sets forth our Free Cash Flow for the three months ended March 31, 2015 and 2014 and for the years ended December 31, 2014, 2013 and 2012 using information derived from our consolidated statement of cash flows:
 
 
For the three months ended March 31,
 
For the years ended December 31,
 
 
2015
 
2014
 
2014
 
2013
 
2012
 
 
(€ million)
Cash flows from operating activities
 
63

 
94

 
426

 
454

 
463

Cash flows used in investing activities
 
(77
)
 
(52
)
 
(290
)
 
(267
)
 
(258
)
Free Cash Flow
 
(14
)
 
42

 
136

 
187

 
205

Constant Currency Information
The “Results of Operations” discussion below includes information about our net revenues on a constant currency basis. We use this information to assess how the underlying business has performed independent of fluctuations in foreign currency exchange rates. We calculate constant currency by applying the prior-period average foreign currency exchange rates

46


to current period financial data expressed in local currency in which the relevant financial statements are denominated, in order to eliminate the impact of foreign currency exchange rate fluctuations (see Note 2 “Significant Accounting Policies” to the Annual Consolidated Financial Statements and Note 5 “Other Information” to the Interim Condensed Consolidated Financial Statements, both included in this prospectus, for information on the foreign currency exchange rates applied). Although we do not believe that these measures are a substitute for GAAP measures, we do believe that such results excluding the impact of currency fluctuations year-on-year provide additional useful information to investors regarding the operating performance on a local currency basis. For example, if a U.S. entity with U.S. Dollar functional currency recorded net revenues of U.S. $100 million for 2013 and 2012, we would have reported €75 million in net revenues for 2013 (using the 2013 average exchange rate of 1.3279) or a €3 million decrease over the €78 million reported for 2012 (using the 2012 average exchange rate of 1.2848). The constant currency presentation would translate the 2013 net revenues using the 2012 foreign currency exchange rates, and therefore indicate that the underlying net revenues on a constant currency basis were unchanged year-on-year. Similarly, if a U.S. entity with a U.S. Dollar functional currency recorded net revenues of $100 million for the three months ended March 31, 2015 and 2014, we would have reported €89 million in net revenues (using the three months ended March 31, 2015 average exchange rate) or a €16 million increase over the €73 million reported for the three months ended March 31, 2014 (using the three months ended March 31, 2014 average exchange rate). The constant currency presentation would translate the three months ended March 31, 2015 net revenues using the three months ended March 31, 2014 foreign currency exchange rates, and therefore indicate that the underlying net revenues on a constant currency basis were unchanged period-on-period.

Results of Operations
Three months ended March 31, 2015 compared to three months ended March 31, 2014
The following is a discussion of the results of operations for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The discussion of certain line items (cost of sales, selling, general and administrative costs and research and development costs) includes a presentation of such line items as a percentage of net revenues for the respective periods presented, to facilitate period-to-period comparisons.
 
 
For the three months ended March 31,
 
 
2015
 
Percentage of net revenues
 
2014
 
Percentage of net revenues
 
 
(€ million, except percentages)
Net revenues
 
621

 
100.0
%
 
620

 
100.0
%
Cost of sales
 
306

 
49.3
%
 
330

 
53.2
%
Selling, general and administrative costs
 
65

 
10.5
%
 
66

 
10.6
%
Research and development costs
 
154

 
24.8
%
 
144

 
23.2
%
EBIT
 
96

 
15.5
%
 
80

 
12.9
%
Net financial income
 
2

 
0.3
%
 
—

 
—
%
Profit before taxes
 
98

 
15.8
%
 
80

 
12.9
%
Income tax expense
 
33

 
5.3
%
 
26

 
4.2
%
Profit from continuing operations
 
65

 
10.5
%
 
54

 
8.7
%
Net profit
 
65

 
10.5
%
 
54

 
8.7
%

47


Net revenues
 
 
For the three months ended March 31,
 
Increase/(decrease)
 
 
2015
 
Percentage of net revenues
 
2014
 
Percentage of net revenues
 
2015 vs. 2014
 
 
(€ million, except percentages)
Cars and spare parts(1)
 
429

 
69.1
%
 
424

 
68.4
%
 
5

 
1.2
 %
Engines(2)
 
64

 
10.3
%
 
77

 
12.4
%
 
(13
)
 
(16.9
)%
Sponsorship, commercial and brand(3)
 
109

 
17.6
%
 
101

 
16.3
%
 
8

 
7.9
 %
Other(4)
 
19

 
3.1
%
 
18

 
2.9
%
 
1

 
5.6
 %
Total net revenues
 
621

 
100.0
%
 
620

 
100.0
%
 
1

 
0.2
 %
______________________________
(1)
Includes the net revenues generated from shipments of our cars, including any personalization revenue generated on these cars and sales of spare parts.
(2)
Includes the net revenues generated from the sale of engines to Maserati for use in their cars, and the revenues generated from the rental of engines to other Formula 1 racing teams.
(3)
Includes the net revenues earned by our Formula 1 racing team through sponsorship agreements and our share of the Formula 1 World Championship commercial revenues and net revenues generated through the Ferrari brand, including merchandising, licensing and royalty income.
(4)
Primarily includes interest income generated by the Ferrari Financial Services group and net revenues from the management of the Mugello racetrack.
Net revenues for the three months ended March 31, 2015 were €621 million, an increase of €1 million, or 0.2 percent (a decrease of 5.7 percent on a constant currency basis), from €620 million for the three months ended March 31, 2014.
Cars and spare parts
Net revenues generated from cars and spare parts were €429 million for the three months ended March 31, 2015, an increase of €5 million, or 1.2 percent, from €424 million for the three months ended March 31, 2014. The increase was attributable to a €47 million increase in net revenues from supercars and limited edition cars, driven by higher shipments of LaFerrari in the three months ended March 31, 2015 as compared to the three months ended March 31, 2014, which was partially offset by a €42 million decrease in net revenues from range and special series cars and spare parts, due to an 8.0 percent decrease in shipments.
Of the €47 million increase in net revenues from supercars and limited edition cars, €36 million was attributable to Americas and €11 million was attributable to Rest of APAC, both due to increases in shipments of the LaFerrari.
The €42 million decrease in net revenues from range and special series cars was driven by the combination of lower shipments, and an unfavorable shift in mix. In particular, the proportion of V12 models shipped fell from 32.3 percent for the three months ended March 31, 2014, to 19.0 percent for the three months ended March 31, 2015, and was primarily driven by a 50.8 percent decrease in shipments of the F12berlinetta, in part attributable to the fact that the model has been on the market since 2012, and clients tend to focus on more recently introduced cars. Shipments of V8 models increased as a result of achieving full production of the California T partially offset by decreases in shipments of the 458 Italia and 458 Spider, which are being phased out during 2015.
The €42 million decrease in net revenues from range and special series cars was composed of (i) a €45 million decrease in EMEA net revenues, and (ii) a €3 million decrease in Rest of APAC net revenues, which were partially offset by (iii) a €5 million increase in Americas net revenues and (iv) a €1 million increase in Greater China net revenues.
The €45 million decrease in EMEA net revenues was primarily due to a €33 million decrease in Italy net revenues and a €13 million decrease in Germany net revenues. In particular, the decrease in Italy net revenues was driven by a decrease in volume. The decrease in Germany net revenues was driven by €11 million volume impact, due to a 42.6 percent decrease in shipments, €1 million due to unfavorable mix, driven by an increase in the proportion of Germany shipments represented by V8 models, and a €1 million decrease in personalization net revenues.

48


The €3 million decrease in Rest of APAC net revenues was primarily driven by a decrease of €5 million in Japan net revenues, a decrease of €2 million in Singapore net revenues and decreases of €1 million in Indonesia and Malaysia net revenues, respectively, all of which were primarily driven by a decrease in shipments. Such decreases were partially offset by a €5 million increase in Australia net revenues, primarily due to a 138.1 percent increase in shipments that were mainly driven by the California T, which impacted net revenues favorably by €8 million, and a €1 million increase in net revenues generated by our personalization program. These increases were partially offset by unfavorable mix impact of €4 million, due to an increase in the proportion of total shipments represented by V8 models.
The €5 million increase in Americas net revenues was attributable to a favorable foreign exchange impact of €23 million, which was driven by the weakening of the Euro against the U.S. Dollar. This increase was partially offset by (i) an unfavorable volume impact of €11 million, (ii) a decrease of €3 million in net revenues from our personalization program and the sale of spare parts, and (iii) unfavorable mix impact of €4 million. In particular, the 12.3 percent decrease in Americas shipments, was primarily driven by decreases in F12berlinetta, 458 Spider and 458 Italia shipments, which were only partially offset by an increase in shipments of the California T and the 458 VS.
Engines
Net revenues generated from engines were €64 million for the three months ended March 31, 2015, a decrease of €13 million, or 16.9 percent, from €77 million for the three months ended March 31, 2014. The €13 million decrease was attributable to an €8 million decrease in net revenues generated from the sale of engines to Maserati, primarily driven by a 15.0 percent decrease in the volume of engines sold to Maserati, due to a decrease in Maserati shipments, and a €5 million decrease in net revenues generated from the rental of power units to other Formula 1 teams.
Sponsorship, commercial and brand
Net revenues generated from sponsorship, commercial agreements and brand management activities were €109 million for the three months ended March 31, 2015, an increase of €8 million, or 7.9 percent, from €101 million for the three months ended March 31, 2014. The €8 million increase in sponsorship, commercial and brand net revenues was primarily driven by an increase in the commercial revenues derived from our participation in the Formula 1 World Championship, largely attributable to the impact of the weakening of the Euro against the U.S. Dollar.
Other
Other net revenues were substantially unchanged, amounting to €19 million for the three months ended March 31, 2015, compared to €18 million for the three months ended March 31, 2014.
Cost of sales
 
 
For the three months ended March 31,
 
Increase/(decrease)
 
 
2015
 
Percentage of net revenues
 
2014
 
Percentage of net revenues
 
2015 vs. 2014
 
 
(€ million, except percentages)
Cost of sales
 
306

 
49.3
%
 
330

 
53.2
%
 
(24
)
 
(7.3
)%
Cost of sales for the three months ended March 31, 2015, was €306 million, a decrease of €24 million, or 7.3 percent, from €330 million for the three months ended March 31, 2014. As a percentage of net revenues, cost of sales was 49.3 percent in the three months ended March 31, 2015, compared to 53.2 percent for the three months ended March 31, 2014.
The decrease in cost of sales was attributable to the combination of (i) decreased costs of €16 million due to lower volumes, (ii) decreased costs of €8 million related to lower Maserati engine sales volumes, (iii) decreased costs of €4 million, mainly attributable to decreases in cost of sales relates to supporting activities, brand activities and Formula 1 activities, (iv) a decrease in depreciation and amortization of €3 million and (v) technical and commercial savings achieved of €3 million, partially offset by (vi) increased costs of €10 million due to mix.

49


The €16 million decrease in cost of sales due to volumes was attributable to a 5.6 percent decrease in shipments. In particular, the decrease in shipments was driven by the 458 Italia, which is being phased out during 2015, which were only partially offset by increases in California T, 458 VS and LaFerrari shipments.
The €8 million decrease in cost of sales related to the sale of engines to Maserati was driven by the 15.0 percent decrease in Maserati engine volumes in the three months ended March 31, 2015 as compared to the three months ended March 31, 2014. The €10 million increase in costs related to mix was primarily driven by an increase in LaFerrari shipments for the three months ended March 31, 2015, as compared to the three months ended March 31, 2014, which was only partially offset by an increase in the proportion of V8 models shipped, which in general have a lower cost of sale per unit. In particular, V8 models represented 77.7 percent of total shipments for the three months ended March 31, 2015 as compared to 66.6 percent for the three months ended March 31, 2014, primarily due to a decrease in shipments of the F12berlinetta and increased shipments of the California T.
The decrease in cost of sales as a percentage of net revenues was in part driven by a decrease in Maserati shipments as these generate lower margins than the sale of cars. Furthermore, our cost of sales as a percentage of net revenues, was impacted by foreign currency fluctuations, which had a greater impact on net revenues, than on cost of sales, as a higher proportion of our cost of sales is denominated in Euro.
Selling, general and administrative costs
 
 
For the three months ended March 31,
 
Increase/(decrease)
 
 
2015
 
Percentage of net revenues
 
2014
 
Percentage of net revenues
 
2015 vs. 2014
 
 
(€ million, except percentages)
Selling, general and administrative costs
 
65

 
10.5
%
 
66

 
10.6
%
 
(1
)
 
(1.5
)%
Selling, general and administrative costs for the three months ended March 31, 2015 were €65 million, a decrease of €1 million, or 1.5 percent, from €66 million for the three months ended March 31, 2014. As a percentage of net revenues, selling, general and administrative costs were 10.5 percent in the three months ended March 31, 2015, compared to 10.6 percent for the three months ended March 31, 2014.
The decrease in selling, general and administrative costs was largely attributable to (i) consultancy costs incurred in relation to the planned initial public offering amounting to €4 million, more than offset by (ii) a decrease in legal provisions recognized. In particular, during the three months ended March 31, 2014, we recognized a legal provision in relation to ongoing litigation with a former commercial partner charged with operating certain Ferrari stores in Italy.
Research and development costs