24. Equity

Consolidated shareholder’s equity at December 31, 2014 decreased for an amount of $85 million compared to December 31, 2013. The profit for the year of $916 million has been more than offset by dividend distributed of $382 million and by negative changes in Other comprehensive income arising from losses on the remeasurement of defined benefit plans ($315 million), from a decrease in cash flow hedge reserve ($152 million) and the effect of currency translation differences negative for $186 million.

Share capital

Share capital, fully paid-in, amounts to €18,297,939.16 (equivalent to $25 million) at December 31, 2014 and consists of 1,355,319,640 common shares and 474,474,276 special voting shares, of which 59,074,773 acquired by CNH Industrial N.V. (“the Company”) following the de- registration of the corresponding amount of qualifying common shares from the Loyalty Register, all with a par value of €0.01 each.

Upon the completion of the merger of Fiat Industrial S.p.A. and CNH Global N.V. with and into CNH Industrial N.V., CNH Industrial N.V. issued 1,348,867,772 common shares - which were allotted to Fiat Industrial S.p.A. and CNH Global N.V. shareholders on the basis of established exchange ratios - and 474,474,276 special voting shares (non-tradable) - which were allotted to eligible Fiat Industrial S.p.A. and CNH Global N.V. shareholders who had elected to receive special voting shares – both with a par value of €0.01 each. See the following paragraph “Special voting shares” for more detailed information about Special voting shares and the special-voting structure.

During 2014, the Company issued a total of 5,246,110 new common shares in relation to certain share-based incentive plans (1,205,758 common shares issued during 2013 relating to certain share-based incentive plans granted by the predecessor companies CNH Global N.V. and Fiat Industrial S.p.A. before the completion of the Merger).

The following table shows a reconciliation between the composition of the share capital of CNH Industrial N.V. at September 30, 2013 on the basis of the shares issued according to the exchange ratios with Fiat Industrial S.p.A. and CNH Global N.V. shares upon the completion of the Merger, and the composition of the share capital of CNH Industrial N.V. at December 31, 2014:

(number of shares)At September 29, 2013Effects of the MergerAt September 30, 2013Capital increase(Purchases)/
Sales of treasury
shares
At December 31, 2013Capital increase(Purchases)/
Sales of treasury
shares
At December 31, 2014
Fiat Industrial S.p.A. common shares pre- merger issued 1,222,568,882 (1,222,568,882) - - - - - - -
Less:Treasury  shares pre-merger (8,635) 8,635 - - - - - - -
Total Fiat Industrial S.p.A. common shares
pre- merger outstanding
1,222,560,247 (1,222,560,247) - - - - - - -
CNH Global N.V.                  
Common Shares pre-merger                  
(non-controlling interests) 32,995,696 (32,995,696) - - - - - - -
CNH Industrial N.V. common shares issued   1,348,867,772 (*) 1,348,867,772 1,205,758 - 1,350,073,530 5,246,110 - 1,355,319,640
Less:Treasury  shares   - - - - - - - -
CNH Industrial N.V. common shares outstanding   1,348,867,772 1,348,867,772 1,205,758 - 1,350,073,530 5,246,110 - 1,355,319,640
CNH Industrial N.V. special voting shares issued   474,474,276 (**) 474,474,276 - - 474,474,276 - - 474,474,276
Less:Treasury shares (a)   - - - (5,479,890) (5,479,890) - (53,594,883) (59,074,773)
CNH Industrial N.V. special voting shares outstanding   474,474,276 474,474,276 - (5,479,890) 468,994,386 - (53,594,883) 415,399,503
Total Shares issued by CNH Industrial N.V.     1,823,342,048 1,205,758 - 1,824,547,806 5,246,110 - 1,829,793,916
Less:Treasury shares     - - (5,479,890) (5,479,890) - (53,594,883) (59,074,773)
Total CNH Industrial
N.V. outstanding shares
    1,823,342,048 1,205,758 (5,479,890) 1,819,067,916 5,246,110 (53,594,883) 1,770,719,143

(a) Special voting shares acquired by the Company following the de-registration of the corresponding amount of qualifying common shares from the Loyalty Register.

(*) Allotted on the basis of the established exchange ratios of one common share of CNH Industrial N.V. for each share of Fiat Industrial S.p.A. and 3.828 common shares of CNH Industrial N.V for each share of CNH Global N.V.

(**) Allotted to eligible Fiat Industrial S.p.A. and CNH Global N.V. shareholders who had elected to receive special voting shares.

The Company shall maintain a special capital reserve to be credited against the share premium exclusively for the purpose of facilitating any issuance or cancellation of special voting shares. The special voting shares shall not carry any entitlement to the balance of the special capital reserve. The Board of Directors shall be authorized to resolve upon (i) any distribution out of the special capital reserve to pay up special voting shares or (ii) re-allocation of amounts to credit or debit the special capital reserve against or in favor of the share premium reserve.

The Company shall maintain a separate dividend reserve for the special voting shares. The special voting shares shall not carry any entitlement to any other reserve of the Company. Any distribution out of the special voting shares dividend reserve or the partial or full release of such reserve will require a prior proposal from the Board of Directors and a subsequent resolution of the general meeting of holders of special voting shares.

From the profi ts, shown in the annual accounts, as adopted, such amounts shall be reserved as the Board of Directors may determine.

The profi ts remaining thereafter shall fi rst be applied to allocate and add to the special voting shares dividend reserve an amount equal to one percent (1%) of the aggregate nominal amount of all outstanding special voting shares. The calculation of the amount to be allocated and added to the special voting shares dividend reserve shall occur on a time-proportionate basis. If special voting shares are issued during the fi nancial year to which the allocation and addition pertains, then the amount to be allocated and added to the special voting shares dividend reserve in respect of these newly issued special voting shares shall be calculated as from the date on which such special voting shares were issued until the last day of the fi nancial year concerned. The special voting shares shall not carry any other entitlement to the profi ts.

Any profi ts remaining thereafter shall be at the disposal of the general meeting of shareholders for distribution of dividend on the common shares only subject to the provision that the distribution of profi ts shall be made after the adoption of the annual accounts, from which it appears that the same is permitted. 

Subject to a prior proposal of the Board of Directors, the general meeting of shareholders may declare and pay dividends in U.S. dollars.

Furthermore, subject to the approval of the general meeting of shareholders and the Board of Directors having been designated as the body competent to pass a resolution for the issuance of shares in accordance with Article 5 of the Articles of Association, the Board of Directors may decide that a distribution shall be made in the form of shares or that shareholders shall be given the option to receive a distribution either in cash or in the form of shares.

At the Annual General Meeting (the “AGM”) held by CNH Industrial on April 16, 2014 shareholders approved a dividend of €0.20 per common share. The cash dividend was declared in euro and paid on April 30, 2014 for a total amount of $375 million (€271 million). Shareholders who held common shares on the record date traded on the New York Stock Exchange received the dividend in U.S. dollars at the USD/EUR exchange rate reported by the European Central Bank on April 17, 2014 ($0.2771 per common share).

On March 2, 2015, the Board of Directors of CNH Industrial N.V. recommended to the Company’s shareholders a dividend of €0.20 per common share, totaling approximately $305 million at the exchange rate of 1.124 U.S. dollars per euro (€271 million). The proposal will be submitted for approval to the AGM to be held on April 15, 2015.

The Company shall only have power to make distributions to shareholders and other persons entitled to distributable profi ts to the extent the Company’s equity exceeds the sum of the paid-up portion of the share capital and the reserves that must be maintained in accordance with provision of law. No distribution of profi ts may be made to the Company itself for shares that the Company holds in its own share capital.

The Board of Directors shall have power to declare one or more interim dividends, provided that the requirements of the Article 22 paragraph 5 of the Articles of Association are duly observed as evidenced by an interim statement of assets and liabilities as referred to in Article 2:105 paragraph 4 of the Dutch Civil Code and provided further that the policy of the Company on additions to reserves and dividends is duly observed. The provisions of the Article 22 paragraphs 2 and 3 of the Articles of Association shall apply mutatis mutandis.

The Board of Directors may determine that dividends or interim dividends, as the case may be, shall be paid, in whole or in part, from the Company’s share premium reserve or from any other reserve, provided that payments from reserves may only be made to the shareholders that are entitled to the relevant reserve upon the dissolution of the Company.

Dividends and other distributions of profi t shall be made payable in the manner and at such date(s) - within four weeks after declaration thereof - and notice thereof shall be given, as the general meeting of shareholders, or in the case of interim dividends, the Board of Directors shall determine, provided, however, that the Board of Directors shall have the right to determine that each payment of annual dividends in respect of shares be deferred for a period not exceeding fi ve consecutive annual periods.

Dividends and other distributions of profi t, which have not been collected within fi ve years and one day after the same have become payable, shall become the property of the Company.

In the event of a winding-up, a resolution to dissolve the Company can only be passed by a general meeting of shareholders pursuant to a prior proposal of the Board of Directors. In the event a resolution is passed to dissolve the Company, the Company shall be wound-up by the Board of Directors, unless the general meeting of shareholders would resolve otherwise.

The general meeting of shareholders shall appoint and decide on the remuneration of the liquidators.

Until the winding-up of the Company has been completed, the Articles of Association of the Company shall to the extent possible, remain in full force and effect.

Policies and processes for managing capital

The objectives identifi ed by the Group for managing capital are to create value for shareholders as a whole, safeguard business continuity and support the growth of the Group. As a result, the Group endeavors to maintain an adequate level of capital that at the same time enables it to obtain a satisfactory economic return for its shareholders and guarantee economic access to external sources of funds, including by means of achieving an adequate rating.

The Group constantly monitors the evolution of its debt/equity ratio and in particular the level of net debt and the generation of cash from its Industrial Activities.

To reach these objectives the Group aims at a continuous improvement in the profi tability of the business in which it operates. Further, in general, it may sell part of its assets to reduce the level of its debt, while the Board of Directors may make proposals to shareholders in general meeting to reduce or increase share capital or, where permitted by law, to distribute reserves.

The Company shall at all times have the authority to acquire fully paid-up shares in its own share capital, provided that such acquisition is made for no consideration (om niet).

The Company shall also have authority to acquire fully paid-up shares in its own share capital for consideration, if:

  • the general meeting of shareholders has authorized the Board of Directors to make such acquisition – which authorization shall be valid for no more than eighteen months – and has specifi ed the number of shares which may be acquired, the manner in which they may be acquired and the limits within which the price must be set;
  • the Company’s equity, after deduction of the acquisition price of the relevant shares, is not less than the sum of the paid-up portion of the share capital and the reserves that have to be maintained by provision of law; and 
  • the aggregate par value of the shares to be acquired and the shares in its share capital the Company already holds, holds as pledgee or are held by a subsidiary company, does not amount to more than one half of the aggregate par value of the issued share capital.

If no annual accounts have been confi rmed and adopted when more than six months have expired after the end of any fi nancial year, then it shall not be allowed any acquisition.

No authorization shall be required, if the Company acquires its own shares for the purpose of transferring the same to directors or employees of the Company or a Group company as defi ned in Article 2:24b of the Dutch Civil Code, under a scheme applicable to such employees. Such own shares must be offi cially listed on a price list of an exchange.

The preceding provisions shall not apply to shares which the Company acquires under universal title of succession (algemene titel).

No voting rights may be exercised in the general meeting of shareholders for any share held by the Company or any of its subsidiaries.

Benefi ciaries of a life interest on shares that are held by the Company and its subsidiaries are not excluded from exercising the voting rights provided that the life interest was created before the shares were held by the Company or any of its subsidiaries. The Company or any of its subsidiaries may not exercise voting rights for shares in respect of which it holds a usufruct.

Any acquisition by the Company of shares that have not been fully paid up shall be void.

Any disposal of shares held by the Company will require a resolution of the Board of Directors. Such resolution shall also stipulate the conditions of the disposal.

Special voting shares

In order to foster the development and continued involvement of a core base of long-term shareholders in a manner that reinforces the Group’s stability, as well as providing the Group enhanced fl exibility in pursuing strategic opportunities in the future, CNH Industrial’s Articles of association provide for a special-voting structure that rewards shareholder loyalty by granting long-term Group shareholders with the equivalent of two votes for each CNH Industrial N.V. common share that they hold through the issuance of special voting shares.

After closing of the above Merger, a shareholder may at any time elect to participate in the loyalty voting structure by requesting the registration of all or some of the common shares held by such shareholder in a separate register (the “Loyalty Register”) of the Company.

If such common shares have been registered in the Loyalty Register for an uninterrupted period of three years in the name of the same shareholder, such shares will become “Qualifying Common Shares” and the relevant shareholder will be entitled to receive one special voting share for each such Qualifying Common Share.

As mentioned above, CNH Industrial N.V. issued special voting shares with a nominal value of €0.01 each to those eligible shareholders for and elect to receive such special voting shares upon completion of the merger of Fiat Industrial S.p.A. and of CNH Global N.V. respectively with and into CNH Industrial N.V.; the Company could issue further special voting shares, following the completion of such merger, pursuant to the “Terms and Conditions” of the special voting shares.

The electing shareholders are not required to pay any amount to the Company in connection with the allocation of the special voting shares.

Common shares are freely transferable, while, as described below, special voting shares are transferable exclusively in limited circumstances, as described below, and they are not admitted to listing. In particular, at any time, a holder of common shares that are Qualifying Common Shares wishing to transfer such common shares other than in limited specifi ed circumstances (e.g., transfers to affi liates or relatives through succession, donation or other transfers) must fi rst request a de-registration of such Qualifying Common Shares from the Loyalty Register and to move back into the Regular Trading System. After de-registration from the Loyalty Register, such common shares no longer qualify as Qualifying Common Shares and, as a result, the holder of such common shares is required to offer and transfer the special voting shares associated with the transferred common shares to the Company for no consideration.

The special voting shares have minimal economic entitlements as per the purpose of the special voting shares is to grant long-term shareholders with an extra voting right by means of granting an additional special voting share, without granting such shareholders with any economic rights additional to the ones pertaining to the common shares. However, as a matter of Dutch law, such special voting shares cannot be fully excluded from economic entitlements. Therefore, the Articles of Association provide that only a minimal dividend accrues to the special voting shares, which is not distributed, but allocated to a separate special dividend reserve. 

Treasury shares

At the AGM held on April 16, 2014 shareholders granted the Board of Directors (the “Board”) the authority to acquire up to a maximum of 10% of the Company’s issued common shares at the same date. The authorization is an instrument available to the Board, but places no obligation on the Company to repurchase its own shares. Under the authorization, which is valid for a period of 18 months from the date of the AGM and therefore up to and including October 15, 2015, the Board may acquire the Company’s common shares in accordance with applicable regulations at a price not exceeding 10% of the market price of such common shares on the New York Stock Exchange (NYSE) and/ or the Mercato Telematico Azionario (MTA), the market price being the average of the highest price on each of the fi ve days of trading prior to the date of acquisition, as shown in the Offi cial Price List of the selected stock exchange.

At December 31, 2014, CNH Industrial N.V. does not own directly or indirectly treasury common shares since that instrument was not exercised by the Board. As above discussed with reference to Share capital, at December 31, 2014 the Company only owns 59,074,773 special voting shares acquired following the de-registration of the corresponding amount of qualifying common shares from the Loyalty Register. At the AGM on April 15, 2015 the Board will present a proposal to replace the existing authority for a period of 18 months and therefore up to and including October 14, 2016.

Capital reserves

At December 31, 2014 capital reserves amounting to $3,170 million ($3,114 million at December 31, 2013) mainly include the effects of the Merger.

Earnings reserves

Earnings reserves, amounting to $5,540 million at December 31, 2014 ($5,005 million at December 31, 2013) consist mainly of retained earnings and profi ts attributable to the owners of the parent.

Other comprehensive income

The amount of Other comprehensive income can be analyzed as follows:

($ million)20142013
Other comprehensive income that will not be reclassifi ed subsequently to profi t or loss:    
Gains/(losses) on the remeasurement of defi ned benefi t plans (417) 155
Total Other comprehensive income that will not be reclassifi ed subsequently to profi t or loss (A) (417) 155
Other comprehensive income that may be reclassifi ed subsequently to profi t or loss:    
Gains/(losses) on cash flow hedging instruments arising during the period (249) 210
Gains/(losses) on cash flow hedging instruments reclassifi ed to profi t or loss 34 (66)
Gains/(losses) on cash flow hedging instruments (215) 144
Gains/(losses) on the remeasurement of available-for-sale financial assets arising during the period - -
Gains/(losses) on the remeasurement of available-for-sale financial assets reclassifi ed to profi t or loss - -
Gains/(losses) on the remeasurement of available-for-sale financial assets - -
Exchange gains/(losses) on translating foreign operations arising during the period (141) (520)
Exchange gains/(losses) on translating foreign operations reclassifi ed to profi t or loss - -
Exchange gains/(losses) on translating foreign operations (141) (520)
Share of Other comprehensive income of entities accounted for using the equity method arising during the period (45) (23)
Reclassification adjustment for the share of Other comprehensive income of entities accounted for using the equity method - -
Share of Other comprehensive income of entities accounted for using the equity method (45) (23)
Total Other comprehensive income that may be reclassifi ed subsequently to profi t or loss (B) (401) (399)
Tax effect of the other components of Other comprehensive income (C) 165 (130)
Total Other comprehensive income, net of tax (A) + (B) + (C) (653) (374)

The income tax effect relating to Other comprehensive income can be analyzed as follows:

($ million)2014    2013
 Before tax amountTax (expense)/
benefit
Net-of-tax amountBefore tax amountTax (expense)/
benefit
Net-of-tax amount
Other comprehensive income that will not be reclassified subsequently to profit or loss:            
Gains/(losses) on the remeasurement of defined benefit plans (417) 102 (315) 155 (88) 67
Total Other comprehensive income that will not be reclassified subsequently to profit or loss (417) 102 (315) 155 (88) 67
Other comprehensive income that may be reclassified subsequently to profit or loss:            
Gains/(losses) on cash flow hedging instruments (215) 63 (152) 144 (42) 102
Gains/(Losses) on the remeasurement of available-for-sale financial assets - - - - - -
Exchange gains/(losses) on translating foreign operations (141) - (141) (520) - (520)
Share of Other comprehensive income of entities accounted for using the equity method (45) - (45) (23) - (23)
Total Other comprehensive income that may be reclassified subsequently to profit or loss (401) 63 (338) (399) (42) (441)
Total Other comprehensive income (818) 165 (653) (244) (130) (374)

Share-based compensation 

In connection with the Merger, CNH Industrial N.V. assumed the sponsorship of the Fiat Industrial Long-Term Incentive Plan (the “Fiat Industrial Plan”), the CNH Global N.V. Equity Incentive Plan (the “CNH EIP”) and the CNH Global N.V. Directors’ Compensation Plan (“CNH DCP”), effective as of September 29, 2013.

For the year ended December 31, 2014 and 2013 CNH Industrial recognized total share-based compensation expense of $49 million and $39 million, respectively. For the years ended December 31, 2014 and 2013, CNH Industrial recognized a total tax benefi t relating to share-based compensation expense of $10 million and $9 million, respectively. As of December 31, 2014, CNH Industrial had unrecognized share-based compensation expense related to non-vested awards of approximately $110 million based on current assumptions related to achievement of specifi ed performance objectives, when applicable. Unrecognized share-based compensation costs will be recognized over a weighted-average period of 2.8 years.

CNH Industrial’s equity awards are governed by several plans: (i) CNH Industrial N.V. Directors’ Compensation Plan (“CNH Industrial DCP”); (ii) CNH Industrial N.V. Equity Incentive Plan (“CNH Industrial EIP”); (iii) CNH Global N.V. Directors’ Compensation Plan (“CNH DCP”); (iv) CNH Global N.V. Equity Incentive Plan (“CNH EIP”); and, (v) Fiat Industrial Long-Term Incentive Plan (“Fiat Industrial Plan”).

CNH Industrial N.V. Directors’ Compensation Plan (“CNH Industrial DCP”) 

On September 9, 2013 the CNH Industrial DCP was approved by the shareholders and adopted by the Board of Directors of CNH Industrial N.V. This plan provides for the payment of the following to eligible members of the CNH Industrial N.V. Board in the form of cash, and/or common shares of CNH Industrial N.V., and/or options to purchase common shares of CNH Industrial N.V., provided that such members do not receive salary or other employment compensation from CNH Industrial N.V. or Fiat S.p.A. (which, effective October 12, 2014, was merged into Fiat Chrysler Automobiles N.V., “FCA”), and their subsidiaries and affi liates:

  • $125,000 annual retainer fee for each Non-Executive Director; 
  • an additional $25,000 for each member of the Audit Committee and $35,000 for the Audit Committee Chairman; 
  • an additional $20,000 for each member of every other Board committee and $25,000 for the committee chairman (collectively, the “fees”); 

Each quarter of the CNH Industrial DCP year, the eligible directors elect the form of payment of their fees. If the elected form is common shares, the eligible director will receive as many common shares as equal to the amount of fees the director elects to be paid in common shares, divided by the fair market value of a CNH Industrial N.V. common share on the date that the quarterly payment is made. Common shares issued to the eligible director vest immediately upon grant. If an eligible director elects to receive all or a portion of fees in the form of a stock option, the number of common shares underlying the stock option is determined by dividing (i) by (ii) where (i) equals the dollar amount of the quarterly payment that the eligible director elects to receive in the form of stock options multiplied by four and (ii) the fair market value of the common shares on the date that the quarterly payment is made. The CNH Industrial DCP defi nes fair market value, as applied to each ordinary share, to be equal to the average of the highest and lowest sale price of a CNH Industrial N.V. common share during normal trading hours on the last trading day of each plan quarter in which sales of common shares on the New York Stock Exchange are recorded. Stock options granted as a result of such an election vest immediately, but shares purchased under options cannot be sold for six months following the date of exercise. Stock options terminate upon the earlier of: (1) ten years after the grant date; or (2) six months after the date an individual ceases to be a director.

There were 200,000 common shares authorized for issuance under the CNH Industrial DCP. In 2014, 31,563 stock options were issued under the CNH Industrial DCP at a weighted average exercise price of $9.19 per share and weighted average fair value of $2.72 per share.

CNH Industrial N.V. Equity Incentive Plan (“CNH Industrial EIP”) 

At the AGM held on April 16, 2014, shareholders approved the adoption of the CNH Industrial Equity Incentive Plan (“EIP”), an umbrella program defi ning the terms and conditions for any subsequent long-term incentive program, whose main features are as follows:

  • The EIP allows grants of the following specifi c types of equity awards to any current or prospective executive director, offi cer or employee of, or service provider to, CNH Industrial: stock options, stock appreciation rights, restricted share units, restricted stock, performance shares or performance share units and other stock-based awards that are payable in cash, common shares or any combination thereof subject to the terms and conditions established by the Compensation Committee.
  • The EIP authorizes 25 million common shares over a fi ve-year period, of which a maximum of 7 million would be authorized for awards to executive directors. These shares may be newly issued shares or treasury shares.
  • The EIP will terminate at, and no more awards will be permitted to be granted thereunder ten years after its adoption by the Board of Directors of CNH Industrial N.V. The termination of the EIP will not affect previously granted awards.

The following paragraphs describe the new grants occurred during 2014.

Performance Share Units 

In 2014, CNH Industrial issued to its Chief Executive Offi cer and selected key employees approximately 12 million Performance Share Units (PSUs) with fi nancial performance goals covering a fi ve-year period from January 1, 2014 to December 31, 2018. The performance goals include a performance condition as well as a market condition, with each weighted at 50% and paying out independently of the other. Half of the award will vest if the performance condition is met; whereas the other half, which is based on the market condition, has a payout scale ranging from 0% to 150%. Accordingly, the total number of shares that will eventually be granted may vary from the original estimate of 12 million shares. One third of total grant will vest in February 2017, a cumulative two-thirds in February 2018, and a cumulative 100% in February 2019 if the respective fi nancial goals for 2014 to 2016, 2014 to 2017 and 2014 to 2018 are achieved.

The fair values of the awards that are contingent upon the achievement of the performance condition were measured using stock prices on respective grant dates adjusted for the present value of future dividends that employees will not receive during the vesting period. The weighted average fair value for the PSUs that were issued in 2014 and based on the performance condition is $9.48 per share.

The fair values of the awards that are based on the market condition were calculated using the Monte Carlo Simulation model. The weighted average fair value for the awards that were issued in 2014 is $8.19 per share. As a signifi cant majority of the awards were issued on June 9 and 25, 2014, the key assumptions utilized to calculate the grant-date fair values for awards issued on these two grant dates are listed below:

 Key Assumptions for awards issued on:
 June 25, 2014 June 25, 2014
Grant date stock price (in $) 10.88 10.19
Expected Volatility (%) 44.5 44.1
Dividend yield (%) 2.6 2.7
Risk-free rate (%) 1.69 1.68

The expected volatility is based on a weighted average of historical volatility experienced by the common shares of CNH Global N.V., Fiat Industrial S.p.A. and CNH Industrial N.V. over a fi ve-year period ending on the grant date. The expected dividend yield was based on CNH Industrial’s historical dividend payout as management expected the dividend payout for future years to be consistent. The risk-free interest rate was based on the yields of fi ve-year U.S. Treasury bonds.

The following table refl ects the activity of performance-based share units under the CNH Industrial EIP for the year ended December 31, 2014:

  2014
 Performance sharesWeighted average grant
date fair value
(in $)
Non-vested at the beginning of the year - -
Granted 12,237,960 8.84
Forfeited -136,200 8.72
Vested - -
Non-vested at the end of the year 12,101,760 8.84

Restricted Share Units

In 2014, CNH Industrial issued to selected employees approximately one million shares of Restricted Share Units (RSUs) with a weighted average fair value of $9.21 per share. These shares will vest in three equal tranches over a three-year period. The fair value of the award is measured using the stock price on the grant date adjusted for the present value of future dividends that employees will not receive during the vesting period.

Additionally, CNH Industrial issued 3 million restricted share units to the Chairman of CNH Industrial N.V., in June 2014. These shares are service based and will vest in fi ve tranches at the end of each year. The weighted average fair value of these shares is $10.41 per share, measured using the stock price on the grant date adjusted for the present value of future dividends that the Chairman will not receive during the vesting period. The fi rst tranche of 750 thousand shares were vested on December 31, 2014 and were exercised on February 23, 2015.

The following table reflects restricted share activity under the CNH Industrial EIP for the year ended December 31, 2014:

  2014
 Restricted sharesWeighted average grant
date fair value
(in $)
Non-vested at the beginning of the year - -
Granted 4,283,859 10.05
Forfeited (21,720) 9.40
Vested (750,000) 10.88
Non-vested at the end of the year 3,512,139 9.88

CNH Global Directors’ Compensation Plan (“CNH DCP”)

CNH Global Director’s Compensation Plan stipulates the right for directors of former CNH Global to be compensated in the form of cash, and/or common shares of CNH Global N.V., and/or options to purchase common shares of CNH Global N.V. On September 29, 2013, CNH Industrial N.V. assumed the sponsorship of the CNH DCP in connection with the Merger. Stock options issued under the CNH DCP were converted using the CNH Global exchange ratio of 3.828 CNH Industrial N.V. shares for each CNH Global N.V. common share and exercisable for common shares of CNH Industrial N.V. upon September 29, 2013. As of December 31, 2014, approximately 143 thousand stock options from the CNH DCP were still outstanding. The CNH DCP was terminated effective as of the Merger and no new equity awards will be issued under the CNH DCP.

CNH Global Equity Incentive Plan (the “CNH EIP”)

This plan provides for grants of stock options, restricted share units and performance share units to former offi cers and employees of CNH Global. On September 29, 2013, CNH Industrial N.V. assumed the sponsorship of the CNH EIP in connection with the Merger. CNH Industrial can not issue any new equity awards under the CNH EIP; however, CNH Industrial is required to issue shares under the CNH EIP to settle the exercise or vesting of the existing equity awards.

On September 29, 2013, outstanding stock options, unvested restricted share units and performance share units under the CNH EIP became exercisable or convertible for common shares of CNH Industrial N.V. The number of shares of outstanding equity awards was increased and exercise price of stock options reduced to take into account the CNH Global exchange ratio of 3.828 CNH Industrial N.V. shares for each CNH Global N.V. common share. The conversion did not change the aggregate fair value of the outstanding equity awards and, therefore, resulted in no additional share-based compensation expense in 2013.

Stock option plan

In September 2012, approximately 2,680 thousand performance-based stock options (at target award levels) were issued under the CNH EIP (the “2012 Grant”). Upon the achievement of CNH Global’s 2012 target performance objective, approximately four million of options were granted. These options vested in three equal tranches in February 2012, 2013 and 2014. Options granted under the CNH EIP have a contractual life of fi ve years from the initial vesting date.

No stock options were issued in 2014 and 2013 under the CNH EIP.

The following table summarizes outstanding stock options under the CNH EIP:

 At December 31, 2014At December 31, 2013
Exercise Price (in US$)Number of options
outstanding
Weighted average
remaining
contractual
life (in years)
Weighted
average
exercise price (in $) 
Number of options
outstanding
Weighted average
exercise price (in $)
2.92 - 5.00 13,688 0.1 2.92 495,631 2.92
5.01 - 10.00 5,873,839 2.4 8.09 6,522,657 8.03
10.01 - 15.00 4,974,025 2.2 10.15 5,603,457 10.16
Total 10,861,552     12,621,745  

Changes during the period in stock option plans are as follows:

 20142013
 Number of optionsWeighted
average
exercise price
(in $)
Number of
options
Weighted
average
exercise price
(in $)
Outstanding at the beginning of the year 12,621,745 8.77 17,666,452 10.57
Anti-dilution adjustment for special dividend - - 3,796,997 8.70
Granted - - 171,575 8.77
Forfeited (222,861) 9.64 (390,612) 9.36
Exercised (1,398,229) 6.51 (8,277,318) 8.45
Expired (139,103) 10.35 (345,349) 11.04
Outstanding at the end of the year 10,861,552 9.03 12,621,745 8.77
Exercisable at the end of the year 9,320,898 9.07 6,731,719 8.23

The Black-Scholes pricing model was used to calculate the fair value of stock options for the 2012 Grant. As part of the 2012 Grant, options issued in 2013 had the same per share fair value. The assumptions used under the Black-Scholes pricing model were as follows:

 2012
 Equity
Incentive Plan
Option life (years) 3.39
Price volatility of CNH Global N.V. shares (%) 51.7
Expected dividend yield (%) 0.0
Risk-free interest rate (%) 0.4

The risk-free interest rate was based on the U.S. Treasury rate for a bond of approximately the expected life of the options. The expected volatility was based on the historical activity of common shares of CNH Global N.V. over a period at least equal to the expected life of the options. The expected life for the CNH EIP grant was based on the average of the vesting period of each tranche and the original contract term of 65 to 70 months. The expected dividend yield was determined to be zero as management did not expect CNH Global N.V. to pay ordinary dividends.

Based on this model, the weighted-average fair value of stock options awarded for the 2012 Grant, before the Merger, under CNH EIP was $3.60 each.

Performance Share Units 

In 2012, CNH Global issued several grants of performance-based share units. These shares were originally designed to cliff vest in February 2015 based on the achievement of their respective performance targets of CNH Global. In the context of the Merger, the performance targets for these awards had been deemed to be met and the outstanding shares continued to vest in February 2015 when employees have provided the required service. Awards that were modifi ed in the same manner included the third tranche of several performance-based share units issued prior to 2012 which were scheduled to vest in February 2015 upon the achievement of certain performance targets of CNH Global.

Overall approximately 3 million of performance-based share units were converted to service based restricted shares. This modifi cation did not result in any additional compensation cost in 2014.

The total number of shares granted in 2012 was 520,371 with a weighted average fair value of $10.62 per share. No performance-based shares were granted in 2014 and 2013 under the CNH EIP.

The following table refl ects performance-based share activity under the CNH EIP:

 20142013
 Number of sharesWeighted average
grant date fair value
(in $)
Number of sharesWeighted average
grant date fair value
(in $)
Non-vested at the beginning of the year 5,615,524 7.61 7,367,897 9.21
Anti-dilution adjustment for special dividend - - 1,584,060 7.58
Converted to Restricted Share Units (RSU) (3,103,937) 7.67 - -
Granted - - - -
Forfeited - - (415,239) 7.54
Vested (2,511,587) 7.53 (2,921,194) 7.54
Non-vested at the end of the year - - 5,615,524 7.61

Restricted Share Units

In 2012, 723,236 restricted share units were granted under the CNH EIP with a weighted average fair value of $11.40 per share. Restricted share units are service based and vest in three equal installments over three years starting from the grant date. Compensation cost for the restricted share units is recognized on a straight-line basis over the requisite service period for each separate vesting portion of the award as of the award was, in substance, multiple award.

No restricted shares units were granted in 2014 and 2013 under the CNH EIP.

The following table refl ects restricted share activity under the CNH EIP:

 20142013
 Number of sharesWeighted average
grant date fair value
(in $)
Number of sharesWeighted average
grant date fair value
(in $)
Non-vested at the beginning of the year 930,525 7.95 1,696,715 9.28
Anti-dilution adjustment for special dividend - - 363,988 7.64
Converted from Performance Share Units (PSU) 3,103,937 7.67 - -
Granted - - - -
Forfeited (240,415) 7.65 (102,703) 7.66
Vested (602,603) 7.32 (1,027,475) 7.36
Non-vested at the end of the year 3,191,444 7.82 930,525 7.95

The fair value of performance-based shares and restricted shares under the CNH EIP was based on the market value of CNH Global’s common shares on the date of the grant.

Special Dividend

On December 28, 2012, CNH Global had paid a special dividend of $10 per common share to its minority shareholders of record as of December 20, 2012, as part of the merger agreement with Fiat Industrial S.p.A. In accordance with the anti-dilutive provisions of both the CNH EIP and CNH DCP, on January 28, 2013, the CNH Global Corporate Governance and Compensation Committee approved required equitable adjustments to outstanding equity awards. The adjustments were retrospectively made to outstanding options under the CNH EIP and CNH DCP, unvested performance share units and unvested restricted share units under the CNH EIP, as of the ex-dividend date on December 18, 2012. The exercise price was reduced and the number of outstanding options increased for stock options, and the number of unvested share units was increased for performance share units and restricted share units, to maintain the pre-dividend fair value. The weighted average exercise price of outstanding options decreased from $40.45 to $33.34, the number of outstanding options increased from 4.6 million to 5.6 million, the number of unvested performance share units increased from 1.9 million to 2.3 million and the number of unvested restricted share units increased from 451,000 to 548,000. These additional shares were issued in January 2013. The aggregate fair value, the aggregate intrinsic value and the ratio of the exercise price to the market price are approximately equal immediately before and after the adjustment. Therefore, no additional compensation expense was recognized in 2013.

Fiat Industrial Plan

In the Annual General Meeting of shareholders held on April 5, 2012, Fiat Industrial S.p.A. shareholders approved the adoption of a Long Term Incentive Plan (the “Fiat Industrial Plan”) consisting of two components (Company Performance LTI and Retention LTI) taking the form of stock grants. According to the Fiat Industrial Plan, Fiat Industrial granted the Chairman of Fiat Industrial S.p.A. 1 million rights as part of the Company Performance LTI and 1.1 million rights as part of the Retention LTI.

On September 29, 2013, CNH Industrial N.V. assumed the sponsorship of the Fiat Industrial Plan. On the effective date, the unvested equity awards under the former Fiat Industrial Plan became convertible for common shares of CNH Industrial N.V. on a one-for-one basis.

The conversion did not change the aggregate fair value of the outstanding equity awards and, therefore, resulted in no additional share-based compensation expense in 2013.

1.1 million rights from the Retention LTI have vested ratably over three years on February 22, 2013, 2014 and 2015.

Under the terms of the Long Term Incentive Plan, the rights to the Company Performance LTI will vest on condition that predetermined fi nancial performance targets for the period from January 1, 2012 to December 31, 2014 are met and on condition that the benefi ciary remains in offi ce up to the date of approval of the Consolidated Financial Statements at December 31, 2014 by the Board of Directors; the rights will become exercisable and may be exercised in a single installment subsequent to the date of approval of the Consolidated Financial Statements at December 31, 2014 by the Board of Directors.

In the context of the Merger, upon recommendation of the Compensation Committee, the Board of Directors of CNH Industrial resolved to consider the performance conditions met for the Chairman’s Company performance share units. This modifi cation did not result in any additional compensation expenses. The units vested on February 1, 2015.

The two awards were settled by issuing new shares.

At December 31, 2014, the contractual terms of the Long Term Incentive Plan were therefore as follows:

PlanBeneficiaryNumber of sharesVesting dateVesting portion
Company Performance LTI Chairman 1,000,000 (*) February 1, 2015 1,000,000
Retention LTI Chairman 366,666 (*) February 22, 2015 366,666

(*) These share units were exercised on February 23, 2015.

The following table reflects share activity under the Company Performance LTI:

 20142013
 Number of sharesWeighted average
grant date fair value
(in €)
Number of sharesWeighted average
grant date fair value
(in €)
Non-vested at the beginning of the year 1,000,000 7.795 1,000,000 7.795
Granted - - - -
Forfeited - - - -
Vested - - - -
Non-vested at the end of the year 1,000,000 7.795 1,000,000 7.795

The following table refl ects share activity under the Retention LTI:

 20142013
 Number of sharesWeighted average
grant date fair value
(in €)
Number of sharesWeighted average
grant date fair value
(in €)
Non-vested at the beginning of the year 733,333 7.795 1,100,000 7.795
Granted - - - -
Forfeited - - - -
Vested (366,667) 7.795 (366,667) 7.795
Non-vested at the end of the year 366,666 7.795 733,333 7.795

The fair value of these awards was based on the market value of Fiat Industrial S.p.A.’s common shares on the date of the grant.