Equity

At 31 December 2013, equity totaled €8,693,456 thousand. The €207,588 thousand decrease from year-end 2012 reflected the reported loss of €226,698 thousand, which was partially compensated for by the positive effect of items recognized directly in equity (€5,590 thousand for remeasurement of defined benefit plans and fair value adjustments on investments in other companies) and the positive net difference of other changes.

Share capital

Share capital totaled €4,477,462 thousand (fully paid) at 31 December 2013 (€4,476,442 thousand at 31 December 2012) and consisted of 1,250,687,733 ordinary shares (1,250,402,773 ordinary shares at 31 December 2012) with a par value of €3.58 per share.

Compared with year-end 2012, there was a €1,020 thousand increase resulting from the issuance of 285,000 new shares following the exercise of 285,000 options under the November 2006 stock option plan for managers.

Following is a summary reconciliation between shares outstanding at 31 December 2011 and at 31 December 2013:

(shares in thousands)31 December 2011Conversion of preference and savings shares into ordinary sharesShare based compensation31 December 2012Exercise of stock options31 December 2013
Ordinary shares issued 1,092,681 157,722 - 1,250,403 285 1,250,688
Less: Own shares (38,568) (10) 4,000 (34,578) - (34,578)
Ordinary shares outstanding 1,054,113 157,712 - 1,215,825 285 1,216,110
Preference shares issued 103,292 (103,292) - - - -
Less: Own shares - - - - - -
Preference shares outstanding 103,292 (103,292) - - - -
Savings shares issued 79,913 (79,913) - - - -
Less: Own shares - - - - - -
Savings shares outstanding 79,913 (79,913) - - - -
Total shares issued by Fiat S.p.A. 1,275,886 (25,483) - 1,250,403 285 1,250,688
Less: Own shares (38,568) (10) 4,000 (34,578) - (34,578)
Total Fiat S.p.A. shares outstanding 1,237,318 (25,493) 4,000 1,215,825 285 1,216,110

As described in Note 18 to the 2012 financial statements, following approval of a mandatory conversion by shareholders on 4 April 2012, all of the Company’s outstanding preference shares (103,292,310) and savings shares (79,912,800) were converted into 157,722,163 ordinary shares. The conversion ratio was 0.850 ordinary shares per preference share and 0.875 ordinary shares per savings share. As a result, from 21 May 2012, only Fiat S.p.A. ordinary shares are traded on the Mercato Telematico Azionario in Milan.

Following the conversion, the Company’s annual results are allocated as follows:

  • to the legal reserve, 5% of net profit until the amount of the reserve is equal to one-fifth of share capital
  • further allocations to the legal reserve, allocations to the extraordinary reserve, retained profit reserve and/or other allocations that shareholders may approve
  • to each share, distribution of any remaining profit that shareholders may approve

In the event of a winding up, the Company’s assets are to be distributed in an equal pro rata amount to all shares.

Pursuant to resolutions adopted by the Board of Directors on 3 November 2006, the demerger of activities to Fiat Industrial S.p.A. (now CNH Industrial N.V.), and resolutions adopted by shareholders at the Extraordinary General Meeting on 4 April 2012, share capital may be increased, through paid capital contributions, by a maximum of €33,229,112.50 through the issue of up to 9,281,875 new ordinary shares exclusively to managers employed by the Company and/or its subsidiaries in accordance with the relevant incentive plan.

Capital management

Italian regulations regarding share capital and reserves for a joint stock corporation establish the following:

  • Share capital must be a minimum of €120,000
  • All changes in share capital must be approved by shareholders, who can give the Board of Directors the authority, for a maximum period of 5 years, to increase share capital up to a pre-determined amount. Shareholders are also required to adopt appropriate measures when share capital is reduced by more than one‑third as a result of recognized losses and to reduce share capital if, by the end of the following financial year, such losses have not been reduced to less than one-third of share capital. If, as a result of a loss of more than one-third, share capital falls below the legal minimum, shareholders must approve both a reduction and simultaneous increase of share capital to a level at least equivalent to the legal minimum or change the company’s legal form
  • A share premium reserve is established if a company issues shares at a price above their par value. This reserve is not distributable until the legal reserve has reached one-fifth of share capital
  • A company may not purchase own shares for an amount exceeding distributable profits and available reserves reported in its latest approved financial statements. Purchases must be approved by shareholders and in no case may the par value of the shares acquired exceed one-fifth of share capital

In consideration of the Company’s goal to maintain an appropriate level of liquidity following acquisition of the remaining minority interest in Chrysler Group LLC, the Board of Directors has recommended that no dividend be paid for 2013.

Fiat’s stated objectives for capital management are to create value for shareholders, to guarantee continuity of the business and to support the development of the Group. Accordingly, the Company intends to maintain an adequate level of capital that, at the same, will enable it to achieve a satisfactory financial return for shareholders, as well as ensuring access to affordable sources of external financing (including achievement of an adequate credit rating).

Fiat constantly monitors its debt-equity mix, particularly in relation to the level of net debt and cash generated from the Group’s operating activities. The Company’s objective is to continuously improve the profitability of its operating activities. In addition, it has the ability to sell assets to reduce the level of debt or, alternatively, the Board of Directors could propose a capital increase or reduction to shareholders or, where permitted by law, a distribution of reserves. The Company may also repurchase its own shares, within the limits approved by shareholders, compatible with the objectives of a balanced capital structure and an improvement in credit rating.

The term capital is used to refer both to the contribution from shareholders (share capital and share premium less own shares held, for a total value of €5,292,270 thousand at 31 December 2013 and €5,288,888 thousand at 31 December 2012), and the value generated by Fiat S.p.A. in terms of results achieved (retained profit and other reserves, before allocation of profit for the year, equal in total to €3,418,122 thousand at 31 December 2013 and €3,634,682 thousand at 31 December 2012, excluding gains and losses recognized directly in equity).

Share premium reserve

At 31 December 2013, the share premium reserve totaled €1,073,766 thousand. The €2,363 thousand increase over 31 December 2012, reflected the premium on the new 285,000 ordinary shares issued following exercise of 285,000 options under the November 2006 stock option plan for managers.

Legal reserve

At 31 December 2013, the legal reserve totaled €528,577 thousand and was unchanged from 31 December 2012.

Reserve available for the purchase of own shares

This reserve was created through a transfer from the retained profit reserve, following shareholder approval for share repurchases.

At 31 December 2013, the reserve available for the purchase of own shares totaled €941,042 thousand, a decrease of approximately €1 thousand over 31 December 2012 resulting from a transfer to the reserve for own shares.

On 9 April 2013, shareholders renewed the authorization for the purchase and disposal of own shares, including through subsidiaries, while at the same time revoking the authorization of 4 April 2012. The renewed authorization was for the purchase of a maximum number of shares, not to exceed the legally established percentage of share capital or, in any event, a total of €1.2 billion, including the €259 million in own shares already held. As announced, the buy-back program is currently on hold and buy-backs are not obligatory under the authorization. The shareholder authorization is valid for a period of 18 months and any buy-backs must be executed in the manner established by law and at a price which is within 10% of the reference price published by Borsa Italiana on the date prior to the purchase.

On 27 February 2014, the Board of Directors voted to submit a proposal to shareholders to revoke the shareholder authorization for the purchase and disposal of own shares given on 9 April 2013, to the extent not already utilized, and renew the authorization, for a period of 18 months, to purchase a maximum number of shares not to exceed the legally-established percentage of share capital or an aggregate amount of €1.2 billion, including existing reserves of €259 million for own shares already held. Should the renewal be approved, the Company would be under no obligation to buy back shares. The authorization is being requested to ensure the Company the flexibility to pursue any strategic opportunities that may arise for all purposes permitted by law.

Reserve for own shares

At 31 December 2013, the reserve for own shares totaled €258,958 thousand, an increase of approximately €1 thousand over 31 December 2012. The reserve is subject to certain restrictions imposed by Article 2357-ter of the Civil Code and the change for the period, reflecting changes in the book value of own shares held, was attributable to the transfer from the reserve available for the purchase of own shares in relation to the purchase of residual fractions of shares following the conversion of Fiat S.p.A. preference and savings shares into ordinary shares in 2012.

Retained profit

At 31 December 2013, retained profit totaled €1,763,783 thousand, a decrease of €151,233 thousand over 31 December 2012 resulting from:

  • allocation of the reported loss of €152,302 thousand for the prior year (net of the effects of the amendment to IAS 19), following shareholder approval on 9 April 2013, and
  • the transfer of €1,069 thousand from the stock option reserve, which represented the fair value of options exercised or expiring during the year in relation to the portion of the November 2006 stock option plan for managers serviced by Fiat S.p.A. shares

Gains/(losses) recognized directly in equity

At 31 December 2013, the reserve had a negative balance of €16,936 thousand, representing a positive difference of €5,590 thousand over 31 December 2012.

The reserve includes actuarial gains and losses from remeasurement of defined benefit plans that will not be reclassified to the income statement, as well as gains and losses arising from fair value adjustments on investments in other companies that were recognized directly in equity, as described previously (see Note 11).

The reserve consists of the following:

(€ thousand)31 December 201331 December 2012Change
Items that will not be reclassified to Income Statement:      
  • Gains/(losses) on remeasurement of defined benefit plans 
(3,967) (5,151) 1,184
Items that will be reclassified to Income Statement:      
  • Gains/(losses) recognized directly in fair value reserve (investments in other companies)
(12,969) (17,375) 4,406
Total Other comprehensive income before tax adjustments (16,936) (22,526) 5,590
  • Tax effects relating to components of other comprehensive income
- - -
Total gains/(losses) recognized directly in equity (16,936) (22,526) 5,590

Stock option reserve

At 31 December 2013, the stock option reserve totaled €62,631 thousand, a net increase of €9,069 thousand over 31 December 2012. The change primarily related to existing stock option and stock grant plans serviced by Fiat S.p.A. shares.

Other reserves

At 31 December 2013, other reserves totaled €89,829 thousand, unchanged versus 31 December 2012, and consisted of the following:

  • Reserves pursuant to Law 413/1991: a total of €22,591 thousand corresponding to the compulsory revaluation of property (net of related taxes) allocated to a specific reserve, pursuant to Law 413 of 30 December 1991
  • Extraordinary reserve: a total of €28,044 thousand corresponding to the amount approved by shareholders on 11 May 2004
  • Reserve for spin-off difference: a total of €39,194 thousand representing the positive difference arising from the spin-off of activities by Fiat Partecipazioni S.p.A. on 29 December 2008

Own shares

At 31 December 2013, the book value of own shares held was €258,958 thousand, consisting of 34,577,867 ordinary shares with an aggregate par value of €123,789 thousand.

Changes during the year were as follows:

 Number of ordinary sharesTotal carrying value  (€ thousands)Average unitary value  (€)% share capital
31 December 2012 34,577,766 258,957 7.489 2.77%
Purchases  101 1 - -
31 December 2013 34,577,867 258,958 7.489 2.76%

During the year, a total of 101 own shares were purchased from shareholders, which represented the fractions of ordinary shares resulting from the mandatory conversion of preference and savings shares into Fiat S.p.A. ordinary shares in 2012. A description of shareholder authorizations for the purchase of own shares is provided above.

Changes during 2012 were as follows:

 Number of ordinary sharesTotal carrying value (€ thousands)Average unitary value  (€)% share capital
31 December 2011 38,568,458 288,883 7 0
Assignment to Chief Executive Officer of shares vested under the 2009 stock grant plan (4,000,000) (29,960) 7 (0)
Purchases following conversion of preference and savings shares into ordinary shares 9,308 34 4 -
31 December 2012 34,577,766 258,957 7 0

Share-based compensation

The following share-based compensation plans for the Chief Executive Officer of Fiat S.p.A. and Group managers were in place at 31 December 2013 and 2012.

Stock option plans linked to Fiat S.p.A. and CNH Industrial N.V. ordinary shares

On 26 July 2004, the Board of Directors granted the Chief Executive Officer options to purchase 10,670,000 Fiat S.p.A. ordinary shares, at a price of €6.583 per share, as a part of his variable compensation. Those options are fully-vested and exercisable at any time until 1 January 2016. Following the demerger of Fiat Industrial (now CNH Industrial), each option entitles him to receive one Fiat S.p.A. ordinary share and one CNH Industrial N.V. common share, with the original strike price remaining unchanged.

At 31 December 2013, the features of the stock option plan were as follows:

PlanBeneficiaryDate of amendmentExpiry dateStrike price (€)N° of options grantedVesting dateVested portion
Stock Options  July 2004 (modified) Chief Executive Officer 27 March 2009 1 January 2016 6.583 10,670,000 31 December 2010 100%

On 3 November 2006, the Board of Directors of Fiat S.p.A. approved (subject to ratification by shareholders on 5 April 2007) an eight-year stock option plan, which granted the Chief Executive Officer of Fiat S.p.A. and certain Group managers the right to purchase a specified number of Fiat S.p.A. ordinary shares at a fixed price of €13.37 per share. The options granted to managers (10,000,000) and the Chief Executive Officer (5,000,000) vested in equal annual portions over a period of four years, subject to the achievement of certain pre-established profitability targets (Non-Market Conditions or “NMC”), and became exercisable from the date of approval of the 2010 financial statements. An additional 5,000,000 options were granted to the Chief Executive Officer, which also vested in equal annual portions over a period of four years and became exercisable from November 2010. All options under the plan are subject to specific conditions relating to length of employment or continuation in office.

Finally, in consideration of the proposed demerger and in accordance with the rules of the respective plans, on 21 July 2010 the Board approved amendments to realign the allocation of underlying shares to the share allotment ratio applicable to the demerger, resulting in beneficiaries having the right to receive one Fiat S.p.A. ordinary share and one Fiat Industrial S.p.A. (now CNH Industrial N.V.) ordinary share for each original option, with the option exercise price remaining unchanged.

The contractual terms of the plan are as follows:

Plan BeneficiaryExpiry dateStrike price (€)N° of options grantedVesting dateVested portion
Stock Option  November 2006 Chief Executive Officer 3 November 2014 13.37 5,000,000 November 2007 25%
November 2008 25%
November 2009 25%
November 2010 25%
Stock Option November 2006 Chief Executive Officer 3 November 2014 13.37 5,000,000 1st Quarter 2008 (*) 25% x NMC
1st Quarter 2009 (*) 25% x NMC
1st Quarter 2010 (*) 25% x NMC
1st Quarter 2011 (*) 25% x NMC
Stock Option November 2006 Managers 3 November 2014 13.37 10,000,000 1st Quarter 2008 (*) 25% x NMC 
1st Quarter 2009 (*) 25% x NMC
1st Quarter 2010 (*) 25% x NMC 
1st Quarter 2011 (*) 25% x NMC

(*) Upon approval of the prior year’s consolidated financial statements and subject to continuation of the professional relationship.

With specific reference to the options granted under the November 2006 Stock Option Plan, for which vesting was subject to the achievement of pre-established profitability targets, only the first tranche vested as the original profitability targets for the 3-year period 2008-2010 were not met.

The stock option plans outstanding at 31 December 2013 were as follows: 

 ManagersChief Executive Officer
Exercise price (€)Options outstanding at 31 December 2013Options outstanding at 31 December 2012Average remaining contractual life (years) Options outstanding at 31 December 2013Options outstanding at 31 December 2012Average remaining contractual life (years)
6.583 - - - 10,670,000 10,670,000 2
13.37 1,240,000 1,576,875 0.8 6,250,000 6,250,000 0.8
Total 1,240,000 1,576,875   16,920,000 16,920,000  

Changes during the year were as follows:

 ManagersChief Executive Officer
 Number of optionsAverage exercise price (€)Number of optionsAverage exercise price (€)
Outstanding at beginning of year  1,576,875 13.37 16,920,000 9.09
Granted  - - - -
Forfeited - - - -
Exercised -285,000 13.37 - -
Expired -51,875 13.37 - -
Outstanding at 31 December 2013 1,240,000 13.37 16,920,000 9.09
Exercisable at 31 December 2013 1,240,000 13.37 16,920,000 9.09
Exercisable at 31 December 2012 1,576,875 13.37 16,920,000 9.09

As the above plans were already fully vested at 31 December 2010, no costs were incurred in relation to those plans in 2013 or 2012.

Grants of Fiat S.p.A. ordinary shares

On 4 April 2012, shareholders approved the adoption of a long-term incentive plan (the “Retention LTI”) in the form of stock grants.

Under the plan, the Chief Executive Officer was attributed 7 million rights, representing an equivalent number of Fiat S.p.A. ordinary shares. The rights vest in equal portions over a three-year period (one-third each on 22 February 2013, 22 February 2014 and 22 February 2015) subject to the Chief Executive Officer remaining in office.

The Company intends to service the plan through treasury shares, with no new shares being issued. The Company has the right to substitute shares vested under the Plan, in whole or in part, with a cash payment based on the official price published by Borsa Italiana on the vesting date.

At 31 December 2013, the principal contractual elements of the Plan were as follows:

PlanBeneficiaryNumber of shares Vesting dateVesting portion
Retention LTI  Chief Executive Officer 7,000,000 Fiat S.p.A. shares  22 February 2013  2,333,333
22 February 2014  2,333,333
22 February 2015 2,333,333

Changes in the Retention LTI were as follows:

 20132012
 No. of Fiat S.p.A. shares Average fair value at grant date (€)No. of Fiat S.p.A. sharesAverage fair value at grant date (€)
Outstanding shares unvested at beginning of year 7,000,000 4.205 - -
Granted - - 7,000,000 4.205
Forfeited - - - -
Vested 2,333,333 4.205 - -
Outstanding shares unvested at end of year 4,666,667 4.205 7,000,000 4.205

In 2013, a nominal cost of €6 million was recognized in relation to this plan.

Availability for use of main components of equity 

(€ thousand)31 December 2013 Possible useAmount available
Share capital 4,477,462 - -
Reserves:      
  • Share premium reserve
1,073,766 A, B, C (*) 1,073,766
  • Legal reserve
528,577 B -
  • Reserve available for the purchase of own shares
941,042 A, B, C 941,042
  • Reserve for own shares
258,958 - -
  • Retained profit
1,763,783 A, B, C 1,763,783
  • Reserve under law 413/1991
22,591 A, B, C 22,591
  • Extraordinary reserve
28,044 A, B, C 28,044
  • Reserve for Spin-off difference
39,194 A, B, C 39,194

Key:
A: capital increase
B: coverage of losses
C: dividend
(*)  Fully available to increase capital and cover losses. Any other use requires increase of the legal reserve to 20% of share capital (including through transfer from the share premium reserve). At 31 December 2013, the required increase would have been €366,915 thousand.