2006 Annual Report - Fiat SpA

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At December 31, 2006 and 2005, there were 772,296 and 1 million common shares, respectively reserved for issuance under the CNH Directors’ Plan. Outside directors do not receive benefits upon termination of their service as directors. A summary of outstanding stock options under the CNH Director Plan at December 31, 2006 is as follows: Options Weighted Average Options Weighted Average outstanding at remaining contractual outstanding at remaining contractual Exercise price (in USD) December 31, 2006 life (in years) December 31, 2005 life (in years) 9.15 – 15.70 23,271 6.2 64,348 8.3 15.71 – 26.20 50,150 8.6 71,055 8.4 26.21 – 40.00 48,104 8.2 18,654 5.5 40.01 – 56.00 1,622 3.8 4,460 4.9 56.01 – 77.05 3,623 3.3 10,525 4.3 Total at December 31, 2006 126,770 7.8 169,042 7.7 ■ The CNH Equity Incentive Plan, as amended (the “CNH EIP”) provides for grants of various types of awards to officers and employees of CNH and its subsidiaries. In 2006, the CNH EIP was amended to reserve an additional 10,300,000 shares, raising total reserved shares to 15,900,000. The amended CNH EIP now requires that CNH shareholders, at the CNH Global N.V.: Annual General meeting or any Extraordinary General Meeting, ratify and approve the maximum number of shares available under the EIP. In connection with this new requirement, CNH received written confirmation from Fiat, which at the time owned approximately 90% of CNH’s issued and outstanding common stock, that would vote at the next Annual General meeting to approve the increase in available shares under the CNH EIP. Prior to 2006, certain stock option grants were issued which vest ratably over four years from the grant date and expire after ten years. Certain performance-based options, which had an opportunity for accelerated vesting tied to the attainment of specified performance criteria were issued; however, the performance criteria was not achieved. In any event, vesting of these options occurs seven years from the grant date. All options granted prior to 2006 have a contract life of ten years. Except as noted below, the exercise prices of all options granted under the CNH EIP are equal to or greater than the fair market value of CNH common shares on the respective grant dates. During 2001, CNH granted stock options with an exercise price less than the quoted market price of our common shares at the date of grant. The exercise price of this grant was based upon the average closing price of CNH common shares on the New York Stock Exchange for the thirty-day period preceding the date of grant. In 2006, the CNH Long-Term Incentive (“LTI”) award discussed below was replaced by plans providing performance based stock options, cash, and stock options. As a part of this change, CNH, in September 2006, granted approximately 2.0 million performance based stock options which will result in an estimated expense over the vesting period of approximately 10 USD million (at targeted performance levels) under its EIP. Target performance levels were not achieved, resulting in only 387,510 shares vesting. All of the other performance based stock options were forfeited. One-third of the options vested with the approval of 2006 results by the Board of Directors. The remaining options will vest equally on the first and second anniversary of the initial vesting date. The actual number of shares vesting may exceed 2 million if CNH’s performance exceeds targets; however, if minimum target levels are not achieved, the options will not vest. Options granted under the EIP in 2006 have a five years contractual life. 152 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes The following table summarises outstanding stock options under the CNH EIP at December 31, 2006: Options Outstanding Options Exercisable Weighted Average Weighted Average Weighted Average Number of Shares remaining Exercise Price Number of Shares Exercise Price Range of Exercise Price (in USD) Outstanding Contractual Life (in USD) Exercisable (in USD) 10.00 – 19.99 364,316 5.6 16.20 364,316 16.21 20.00 – 29.99 387,510 5.2 21.20 – – 30.00 – 39.99 523,600 4.4 31.70 523,600 31.70 40.00 – 69.99 485,040 3.1 68.85 474,084 68.85 Total at December 31, 2006 1,760,466 1,362,000 The Black-Scholes pricing model was used to calculate the fair value of stock options by CNH. The weighted-average assumptions used under the Black-Scholes pricing model were as follows: 2006 2005 Directors’ plan Equity incentive plan Directors’ plan Equity incentive plan Option life (years) 5 3.25 5 5 Expected volatility of CNH Global N.V. shares (%) 71.0 34.7 72.0 71.5 Expected dividend yield (%) 1.3 1.3 1.3 1.3 Risk-free interest rate (%) 4.8 4.5 3.9 3.7 Based on this model, the weighted-average fair values of stock options awarded for the years ended December 31, 2006, and 2005 were as follows: (in USD) 2006 2005 CNH Directors’ Plan 14.61 10.13 CNH EIP 5.78 10.18 Changes during the period in all CNH stock option plans are as follows: Directors’ plan Equity incentive plan Number of Average exercise Number of Average exercise shares price (in USD) shares price (in USD) Outstanding at the beginning of the year 169,042 21.60 2,041,070 34.62 Granted during the year 54,589 25.75 2,010,046 21.20 Forfeited during the year (33,874) 34.74 (1,814,131) 22.84 Exercised during the year (62,987) 14.10 (476,519) 16.20 Expired during the year – – – – Outstanding at December 31, 2006 126,770 23.19 1,760,466 36.42 Exercisable at December 31, 2006 82,770 22.43 1,362,000 40.48 Exercisable at December 31, 2005 141,872 22.50 1,747,634 36.76 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes 153
Under the CNH EIP, performance-based restricted shares may also be granted. CNH establishes the period and conditions of performance for each award and holds the shares during the performance period. Performance-based restricted shares vest upon the attainment of specified performance objectives. Certain performance-based restricted shares vest no later than seven years from the award date. In 2004, a LTI award for which payout is tied to achievement of specified performance objectives was approved under the CNH EIP for selected key employees and executive officers. The LTI awards are subject to the achievement of certain performance criteria over a 3-year performance cycle. At the end of the 3-year performance cycle, any earned awards will be satisfied equally with cash and CNH common shares as determined at the beginning of the performance cycle, for minimum, target, and maximum award levels. As a transition to the LTI, the first award for the 2004-2006 performance cycle provided an opportunity to receive an accelerated payment of 50% of the targeted award after the first two years of the performance cycle. Objectives for the first two years of the performance cycle were met and an accelerated payment of cash and 66,252 shares were issued in 2006. Ultimately, the cumulative results for the 2004-2006 performance cycle were achieved and the remaining award will be issued in early 2007. A second 3 year LTI award for the 2005-2007 performance cycle was granted in 2005. Vesting will occur after 2007 results are approved by the CNH Global N.V. Board of Directors. In connection with changes to the LTI, CNH granted approximately 2.2 million performance based, non-vested share awards under its EIP to approximately 200 of the Company’s top executives. These shares were to cliff vest when 2008 audited results are approved by the CNH Global N.V. Board of Directors (estimated to be February 2009) if specified fiscal year 2008 targets were achieved. In December 2006, CNH extended this grant by providing participants an additional opportunity for potential partial payouts should these targets not be achieved until 2009 or 2010. All other terms remained unchanged. The grant date fair value on the date of the modification ranges from 27.35 USD per share to 26.27 USD depending on the service period over which the grant ultimately vests. The fair value is based on the market value of CNH’s common shares on the date of the grant modification and is adjusted for the estimated value of dividends which are not available to participants during the vesting period. Depending on the period during which targets are achieved, the estimated expense over the service period can range from approximately 28 USD million to 52 USD million (current estimate is 38 USD million). If specified targets are not achieved by 2010, the shares granted will not vest. As of December 31, 2006, outstanding performance shares under the 2006, 2005, and 2004 awards under the CNH EIP were as follows: 2006 2005 2004 (number of shares) award award award Granted 4,475,000 195,946 235,134 Exercised – – (66,252) Cancelled (2,237,500) – – Forfeited – (45,834) (119,442) Outstanding at December 31. 2006 2,237,500 150,112 49,440 As of December 31, 2006 and 2005, there were 10,642,793 common shares available for issuance under the CNH EIP. The total cost recognised in the 2006 income statement for all share-based compensation linked to CNH Global N.V. ordinary shares amounted to 4 million euros (1 million euros in 2005). 154 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes Stock Option linked to Ferrari S.p.A. ordinary shares Under this scheme, certain employees of Ferrari S.p.A., and the Chairman and the Chief Executive Officer of the company at the time, have the option to acquire respectively 207,200 and 184,000 Ferrari S.p.A. ordinary shares at a strike price of 175 euros per share. Under the scheme the options may be exercised until December 31, 2010, wholly or partially, and are subject to a limited extent to the company’s listing process. A total of 104,000 options granted to the Chairman of Ferrari S.p.A. were exercised in 2006 and settled by carrying out an increase in capital stock, while a further 140,800 options were forfeited. At December 31, 2006 the employees and the Chairman held respective totals of 66,400 and 80,000 stock option rights under this scheme, all of whose exercise rights are subordinated to the listing of the company. Cash-settled share-based payments Certain entities of the Fiat Powertrain Technologies Sector have agreed in 2001, 2002, 2003 and 2004 with a number of employees a total of four cash-settled share-based payment defined Stock Appreciation Rights (SAR) plans. Under these plans, certain employees involved have the right to receive a payment corresponding to the increase in share price between the grant date and the exercise date of General Motors $1 2/3 shares listed in New York and Fiat S.p.A. ordinary shares listed in Milan. The right is exercisable from the vesting date to the expiry date of the plans and is subordinated to certain conditions (Non-Market Conditions “NMC”). The contractual terms of these rights are as follows: Outstanding Outstanding rights on GM $1 rights on 2/3 shares Fiat S.p.A. shares Grant price Grant price at December at December GM $1 2/3 Fiat S.p.A. Vesting Plan Grant date From Until 31, 2006 31, 2006 (in USD) (in euros) portion 2001 February 12, 2002 March 1, 2002 February 12, 2009 45,053 220,176 49.57 15.50 100%*NMC 2002 February 12, 2002 February 12, 2003 February 12, 2010 44,580 207,490 49.57 15.50 1/3*NMC February 12, 2004 February 12, 2010 1/3*NMC February 12, 2005 February 12, 2010 1/3*NMC 2003 February 11, 2003 February 11, 2004 February 11, 2011 46,644 96,694 36.26 7.95 1/3*NMC February 11, 2005 February 11, 2011 1/3*NMC February 11, 2006 February 11, 2011 1/3*NMC 2004 February 10, 2004 February 10, 2005 February 11, 2012 40,470 181,042 49.26 6.03 1/3*NMC February 10, 2006 February 11, 2012 1/3*NMC February 10, 2007 February 11, 2012 1/3*NMC Changes during the period are as follows: rights on GM $1 2/3 shares rights on Fiat S.p.A. shares Outstanding at the beginning of the year 176,747 847,135 Granted during the year – – Forfeited during the year – – Exercised during the year – (141,733) Expired during the year – – Outstanding at December 31, 2006 176,747 705,402 Exercisable at December 31, 2006 176,747 705,402 Exercisable at December 31, 2005 176,747 847,135 Fiat Group Consolidated Financial Statements at December 31, 2006 - Notes 155
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Annual Report Consolidated and Stat
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But it does move. Galileo Galilei
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Letter from the Chairman and the Ch
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The Fiat Group The Fiat Group perfo
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Stockholders Financial communicatio
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in 2003, and now the Panda Hydrogen
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The meeting with the EWC Selected C
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Revenues by Business Area (in milli
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The breakdown of trading profit by
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Investment income was 156 million e
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If working capital is restated to i
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Financial Services Revenues (in mil
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Statement of Changes in Net Industr
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Page 33 and 34: Fiat Auto - Fiat, Alfa Romeo, Lanci
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Page 37 and 38: Trucks and Commercial Vehicles Ivec
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Page 43 and 44: Motion for Approval of the Financia
Page 45 and 46: Consolidated Income Statement (*) (
Page 47 and 48: Statement of Changes in Stockholder
Page 49 and 50: partially from the market: the rema
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Page 57 and 58: Composition and principal changes I
Page 59 and 60: Net financial expenses in 2006 (exc
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Page 67 and 68: In 2005 Changes in accumulated depr
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Page 77: A summary of outstanding stock opti
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Page 89 and 90: Fidis Retail Italia (FRI) All the r
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4. Other operating income Other ope
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Net income from derivative financia
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12. Property, plant and equipment T
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15. Other non-current assets At Dec
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Regarding changes in 2005, the Mand
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A summary of outstanding stock opti
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The amounts recognised in the Incom
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The item Payables to Group companie
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These relate to: ■ guarantees of
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Counterparty Other Current Other No
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32. Significant non-recurring trans
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Fees paid to Members of the Board o
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Financial statement format Fiat S.p
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Deferred tax assets Reclassificatio
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Reconciliation of net profit (loss)
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B. Employee benefits The employees
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Auditors’ Reports Auditors’ Rep
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Reports of the Board of Statutory A
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that numerous transactions involvin
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Motion for Approval of the Financia
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Motion to amend Articles 9, 11, 12,
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Stockholders Meeting and will be ef
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Graphic design Atelier Roger Pfund,
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2006 Annual Report - Fiat SpA

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