UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, | |
or | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number: 000-55510
CNH INDUSTRIAL CAPITAL LLC
(Exact name of registrant as specified in its charter)
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Delaware | | 39-1937630 |
5729 Washington Avenue | (262) 636-6011 | 53406 |
(262) 636-6011
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Liability Company Interests
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. ⌧ Yes ◻No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ◻Yes ⌧No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧Yes ◻No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Accelerated filer ◻ |
Non-accelerated filer ⌧ Emerging growth company ◻ | Smaller reporting company ◻ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ◻
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ◻
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ◻ Yes ⌧ No
As of March 3, 2021,15, 2024, all of the limited liability company interests of the registrant were held by CNH Industrial America LLC, a wholly-owned subsidiary of CNH Industrial N.V.
The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with certain reduced disclosures as permitted by those instructions.
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PART I
Overview
CNH Industrial Capital LLC (together with its consolidated subsidiaries, “CNH Industrial Capital,” the “Company” or “we”) is an indirect wholly-owned subsidiary of CNH Industrial N.V. (“CNHI” and together with its consolidated subsidiaries, “CNH Industrial”“CNH”) and is headquartered in Racine, Wisconsin. As a captive finance company, our primary business is to underwrite and manage financing products for end-use customers and dealers of CNH Industrial America LLC (“CNH Industrial America”) and CNH Industrial Canada Ltd. (“CNH Canada”) (collectively, “CNH Industrial North America”) and provide other related financial products and services to support the sale of agricultural and construction equipment sold by CNH Industrial North America. We also provide wholesale and retail financing products related to new and used equipment manufactured by entities other than CNH IndustrialNorth America, as well as financing for the purchase of parts, service, rentals, implements and attachments from CNH North America dealers which may or may not be manufactured or provided by CNH North America. We are often able to offer financing to customers at advantageous interest rates or other terms (such as longer contract terms, longer warranty terms or parts and service incentives), due to our participation in subsidized financing programs sponsored by CNH Industrial North America, which reimburses us for some or all of the cost of such terms. The primary operating subsidiaries of CNH Industrial Capital LLC include CNH Industrial Capital America LLC (“CNH Industrial Capital America”), New Holland Credit Company, LLC (“New Holland Credit”) and CNH Industrial Capital Canada Ltd. (“CNH Industrial Capital Canada”). CNH Industrial Capital America is the primary financing and business entity of CNH Industrial Capital for the United States that enters into retail and wholesale financing arrangements with end-use customers and equipment dealers, and CNH Industrial Capital Canada performs the same functions in Canada, while New Holland Credit acts as the servicer for retail and wholesale receivablesfinancing products originated by CNH Industrial Capital America.
CNH Industrial is the company initially formed by the merger,a business combination transaction, completed September 29, 2013, between Fiat Industrial S.p.A. (“Fiat Industrial”) and CNH Global N.V. (“CNH Global”), the former indirect parents of CNH Industrial Capital. As a result of the merger,this transaction, CNH Industrial Capital LLC and its primary operating subsidiaries, including CNH Industrial Capital America, New Holland Credit and CNH Industrial Capital Canada, are indirect wholly-owned subsidiaries of CNHI (with all of the equity interests in CNH Industrial Capital LLC owned by CNHI through intermediate companies, through which CNHI exercises indirect control over CNH Industrial Capital LLC). CNHI is incorporated in and under the laws of The Netherlands. CNHI has its corporate seat in Amsterdam, The Netherlands, and its principal office in London,Basildon, Essex, England.
CNH Industrial has confirmed its intention to enhance its customer focus through the separation of its "On-Highway" (commercialCapital provides and specialty vehicles and powertrain) and "Off-Highway" (agriculture and construction) businesses as soon as practicable. Execution of the transaction requires further work on structure, management, governance and other significant matters as well as appropriate corporate approvals (including approval at an extraordinary general meeting of shareholders) and satisfaction of other conditions. CNH Industrial makes no assurance that any spin-off transaction will ultimately occur, or, if one does occur, its terms or timing.
CNH Industrial Capital offers retail loan and leaseadministers financing to end-use customers for the purchase or lease of new and used equipment and components sold through CNH North America’s dealer network, as well as revolving charge account financing and other financial services. CNH Industrial Capital also provides wholesale financing to CNH Industrial North America equipment dealers and distributors, (allall of which are independently owned and operated). Wholesale financing consists primarily of dealer floorplan financing and gives dealers the ability to maintain a representative inventory of new products. In addition, CNH Industrial Capital provides financing to dealers for used equipment taken in trade, equipment utilized in dealer-owned rental yards, parts inventory, working capital and other financing needs. CNH Industrial Capital Canada purchases short-term wholesale receivables at a discount (“wholesale factoring”) from Iveco Argentina S.A. (“Iveco Argentina”), an indirect wholly-owned subsidiary of CNHI, from time to time. The purchase is consistent with factoring arrangements between CNHI’s industrial and financial services companies.operated. As a holding company, CNH Industrial Capital LLC generally does not conduct operations of its own but relies on its subsidiaries for the generation and distribution of profits.
CNH Industrial Capital’s revenue is primarily generated through the income of its portfolio and the income generated through marketing programs with CNH Industrial North America. The size of the portfolio is in part related to the level of equipment sales by CNH Industrial North America. The portfolio profitability is linked to the difference
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between lending and borrowing rates, the credit quality of the borrowerscustomers and the value of collateral. For each of the years ended December 31, 20202023 and 2019, the percentage2022, we derived 40% and 34%, respectively, of our revenue derived by us from CNH Industrial North America and other CNH Industrial subsidiaries was 38%.subsidiaries.
Our retail borrowers are generallycustomers obtain our financing products for commercial entitiespurposes and, in many cases, have had a previous borrowing relationship with CNH Industrial Capital. Retail receivablesnotes and finance leases are secured by the purchased equipment, which generally has a longer useful life than the term of the receivable. Wholesale financings are likewise secured by the equipment purchased by the dealer.
CNH Industrial Capital funds its operations and lending activity through a combination of term receivables securitizations, secured and unsecured facilities, a repurchase agreement, commercial paper, unsecured bonds, affiliate borrowings and retained earnings. CNH Industrial Capital’s current funding strategy is to maintain sufficient liquidity and flexible access to a wide variety of financial instruments and funding options.
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As part of its retail and wholesale financing business,overall funding strategy, CNH Industrial Capital participates in the asset backedasset-backed securitization (“ABS”) markets. CNH Industrial Capital periodically transfers retail notes and wholesale receivables originated from end-use customers and dealers to special purpose entities, in exchange for cash proceeds from asset backedasset-backed securities issued by these special purpose entities. Investors in these asset backedasset-backed securities in turn receive payments on their securities based on the cash flows from the transferred receivables. CNH Industrial Capital continues to service the transferred receivables and maintains a cash reserve account, which provides security to investors in the event that cash collections from the receivables are not sufficient to permit principal and interest payments to the holders of the securities. These special purpose entities and the investors in the asset backedasset-backed securities have no recourse, beyond the applicable cash reserve account, for failure of any end-use customers or dealers to make payments on the transferred receivables when due.
In addition to portfolio quality and funding costs, CNH Industrial Capital’s long-term profitability is also dependent on service levels and operational effectiveness. CNH Industrial Capital performs billing and collection services, customer support, repossession and remarketing functions, reporting and data management operations and marketing activities.
As of December 31, 2020,2023, CNH Industrial Capital had total assets of $12.5$16.0 billion and total stockholder’s equity of $1.3$1.6 billion. For the year ended December 31, 2020,2023, CNH Industrial Capital had total revenues of $844.4 million$1.1 billion and net income of $143.3$215.1 million. As of December 31, 2020,2023, CNH Industrial Capital had outstandingthird-party debt (excluding debt owed to affiliates) of $10.1$13.4 billion, approximately 68%64% of which represented secured debt as of such date.
Relationship with CNH Industrial
CNH Industrial organizes its operations into fivethree operating segments: Agriculture, Construction Commercial and Specialty Vehicles, Powertrain and Financial Services. CNH Industrial’s fiveCollectively, these three segments design, produce, market, sell and finance agricultural and construction equipment, trucks, commercial vehicles, buses and specialty vehicles for firefighting, defense and other uses, as well as engines, transmissions and axles for those vehicles and engines for marine and power generation applications.equipment. CNH Industrial has industrial and financial services companies located in 4432 countries and a commercial presence in approximately 180164 countries around the world.
CNH Industrial’sCNH’s Agricultural segment designs, manufactures and distributes a full line of farm machinery and implements, including two-wheel and four-wheel drive tractors, crawler tractors, (Quadtrac®), combines, cotton pickers, grape and sugar cane harvesters, hay and forage equipment, planting and seeding equipment, soil preparation and cultivation implements, and material handling equipment. CNH is also a leading provider of technology dedicated to Precision Agriculture. Agricultural equipment is sold in North America under the New Holland Agriculture and Case IH brands. Regionally-focused brands as well as the Steyr, Kongskildeinclude: STEYR for tractors; Flexi-Coil specializing in tillage and Överum brands in Europeseeding systems; and Miller manufacturing application equipment. The Raven brand supports Precision Agriculture, digital technology and the Miller brand, primarilydevelopment of autonomous systems. Hemisphere, acquired in North America2023, provides high-performance satellite positioning technology for the agriculture and Australia.construction industries.
CNH Industrial’sCNH’s Construction segment designs, manufactures and distributes a full line of construction equipment including excavators, crawler dozers, graders, wheel loaders, backhoe loaders, skid steer loaders and compact track loaders.loaders along with a wide variety of attachments. Construction equipment is sold in North America under the CASE Construction Equipment and New Holland Construction brands.
As of December 31, 20202023 and 2019,2022, CNH Industrial had total assets of $48.7$46.4 billion and $47.4$39.4 billion, respectively, and total equity of $5.0$8.2 billion and $6.1$6.9 billion, respectively.
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For the years ended December 31, 20202023 and 2019,2022, CNH Industrial had total revenues of $26.0$24.7 billion and $28.1$23.6 billion, respectively, and net income (loss) attributable to CNH Industrial N.V. of ($0.5)$2.4 billion and $1.4$2.0 billion, respectively. For the year ended December 31, 2020, CNH Industrial’s2023, CNH’s net sales of agricultural equipment and net sales of construction equipment generated in North America (United States, Canada and Mexico) were $3.8$7.2 billion and $1.0$2.3 billion, respectively, representing decreasesincreases of 4%6% and 31% from the same period in 2019,2022, respectively.
CNH Industrial Capital is a key financing source for CNH Industrial North America’s end-use customers and dealers. The Company offers financing to customers with advantageous terms that are subsidized by CNH Industrial North America, including low-rate, interest-free or interest-only periods and other sales incentive programs.
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Although our primary focus is to finance CNH Industrial North America equipment, we also provide retail and wholesale financing products related to new and used agricultural and construction equipment manufactured by entities other than CNH IndustrialNorth America, as well as financing for the purchase of parts, service, rentals, implements and attachments from CNH North America dealers which may or may not be manufactured or provided by CNH North America. We are still, however, dependent on CNH Industrial North America for substantially all of our business, with revenues related to financing provided to CNH Industrial North America dealers and retail customers purchasing and/or leasing from CNH Industrial North America and its dealers accounting for over 90% of our total revenues for the year ended December 31, 2020,2023, and with loan portfolios attributable to such financing accounting for over 90% of our total managed receivables as of December 31, 2020.2023.
The size of our lending portfolio is related in part to the level of equipment sales by CNH Industrial North America, which is driven by the strength of the agricultural and construction markets. The credit quality of our portfolio reflects the underwriting standards of CNH Industrial Capital, which are developed internally and independent of the sales volume goals of CNH Industrial North America.
We borrow from our affiliates as one of the funding sources for our operations and lending activity. As of December 31, 20202023 and 2019,2022, we had outstanding affiliate borrowings of $187.3$132.5 million and $213.9$341.5 million, respectively, representing 1.8%1.0% and 2.0%3.2% of our total indebtedness.indebtedness, respectively.
CNH Industrial North America also provides us with other types of operational and administrative support, such as payroll and other human resource services. For the years ended December 31, 20202023 and 2019,2022, we incurred fees charged by our affiliates of $45.9$53.8 million and $46.6$50.9 million, respectively, representing 12%21% and 13%20%, respectively, of our total administrative and operating expenses.
Effective as of September 29, 2013, in connection with the mergerbusiness combination transaction of CNH Global with and into CNHI, CNHI assumed all of CNH Global’s obligations under a support agreement, pursuant to which CNHI has agreed to, among other things, (a) make cash capital contributions to us, to the extent necessary to cause our ratio of net earnings available for fixed charges to fixed charges to be not less than 1.05 for each fiscal quarter (with such ratio determined, on a consolidated basis and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), for such fiscal quarter and the immediately preceding three fiscal quarters taken as a whole), (b) generally maintain an ownership of at least 51% of the voting equity interests in us and (c) cause us to have, as of the end of any fiscal quarter, a consolidated tangible net worth of at least $50 million. The support agreement is not intended to be and is not a guarantee by CNHI of our indebtedness or other obligations. The obligations of CNHI to us pursuant to this support agreement are to us only and do not run to, and are not enforceable directly by, any creditor of ours, including holders of our notes or the trustee under the indenture governing our notes. The support agreement may be modified, amended or terminated, at CNHI’s election, upon thirty days’ prior written notice to us and the rating agencies, if (a) the modification, amendment or termination would not result in a downgrade of our rated indebtedness; (b) the modification, amendment or notice of termination provides that the support agreement will continue in effect with respect to our rated indebtedness then outstanding; or (c) we have no long-term rated indebtedness outstanding.
Products and Services
CNH Industrial Capital’s financing products and services fall into the following main categories:
Retail ((65.474.6%% of managed portfoliogross receivables as of December 31, 20202023): CNH Industrial Capital provides and administers retail financing to end-use customers for the purchase or lease of new and used CNH Industrial North America equipment or other agricultural and construction equipment sold primarily through CNH Industrial North America dealers and distributors. Retail financing products primarily include retail installment sales contracts,notes, finance leases
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and operating leases to end-use customers.customers and revolving charge account financing for customers to purchase parts, service, rentals, implements and attachments from CNH North America dealers. The terms of retail contracts,notes, finance leases and operating leases generally range from two to sixseven years, and interest rates vary depending on prevailing market interest rates and certain incentive programs offered by CNH Industrial North America. Revolving charge accounts are generally accompanied by higher interest rates than our other retail financing products, generally require minimum monthly payments and do not have pre-determined maturity dates.
CNH Industrial Capital utilizes a proprietary credit scoring model as part of the retail credit approval and review process. CNH Industrial Capital also provides servicing and collection operations generally performed through its subsidiary, New Holland Credit, for the retail financing products.
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Wholesale (25.4%34.6% of managed portfoliogross receivables as of December 31, 20202023): Wholesale financing consists primarily of dealer floorplan financing, which gives dealers the ability to maintain a representative inventory of products. In addition, CNH Industrial Capital provides wholesale financing to dealers to finance purchases of new andfor used agricultural and construction equipment and parts. In addition, CNH Industrial Capital extends credit to dealers fortaken in trade, equipment utilized in dealer owned rental yards, parts inventory, working capital and other financing needs. Currently, credit is extended to approximately 900770 CNH Industrial North America dealers (with each being a separate legal entity) with approximately 1,6001,750 locations in North America.
The dealer financing agreements provide CNH Industrial Capital with a first priority security interest in the equipment and parts financed and possibly other collateral. A majority of dealers also provide a personal or corporate guarantee (from an affiliate of the dealer). The amount of credit extended is primarily based upon the dealer’s expected annual sales, effective net worth, utilization of existing credit lines and inventory turnover. CNH Industrial Capital evaluates and assesses dealers on an ongoing basis as to their credit worthiness and conducts audits of dealer equipment inventories on a regular basis. The amounts of credit made available to dealers are reviewed on a regular basis, which is usually annually, and such amounts are adjusted when deemed appropriate by CNH Industrial Capital.
Wholesale Factoring (0.0% of managed portfolio as of December 31, 2020): CNH Industrial Capital Canada purchases short-term receivables from Iveco Argentina from time to time.
CNH Industrial Capital finances other products, including insurance and equipment protection products underwritten through a third-party insurer.
Competition
CNH Industrial Capital’s financing products and services are intended to be competitive with those available from third parties. CNH Industrial North America sponsors certain marketing programs that allow us to offer financing to customers at competitive or advantageous interest rates or other terms (such as longer contract terms, longer warranty terms or parts and service incentives). Under these programs, including our low-rate financing programs or interest waiver programs, we are compensated by CNH Industrial North America for some or all of the cost of such terms. This support from CNH Industrial North America provides a material competitive advantage in offering financing to customers of CNH Industrial North America’s products.
We compete primarily with banks, equipment finance and leasing companies, and other financial institutions. Typically, this competition is based upon financial products and services offered, customer service, financial terms and interest rates charged. In addition, some of our competitors may be eligible to participate in government programs providing access to capital at more favorable rates, which may create a competitive disadvantage for CNH Industrial Capital. CNH Industrial Capital believes that its strong, long-term relationship with theits dealers and end-use customers and the ease-of-use of our products provides a competitive edge over other third-party financing options. In addition, the marketing programs offered by CNH Industrial North America have a positive influence on the proportion of CNH Industrial North America’s equipment sales financed by CNH Industrial Capital.
Employees
The ability to attract, retain, and further develop qualified employees is crucial to the success of CNH Capital’s business and its ability to create value over the long-term. As of December 31, 2020, CNH Industrial Capital2023, the Company had approximately 350369 employees, none of which were represented by unions.
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CNH Industrial Capital LLC is an indirect wholly-owned subsidiary of CNHI. The results of operations of the Company are primarily affected by its relationships with CNH Industrial North America.
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The following risks are considered the most significant to the Company’s business based upon current knowledge, information and assumptions. This discussion of risk factors should be considered in conjunction with Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 1618, including the risks and the other risksuncertainties described in the Cautionary Note Regardingon Forward-Looking Statements beginning on page 25.and notes to the consolidated financial statements. The following is a cautionary discussion of risks, uncertainties and assumptions that we believe are material to our business. These risks may affect our operating results and, individually or in the aggregate, could cause our actual results to differ materially from past and projected future results. Except as may be required by law, weWe undertake no obligation to publicly update these risks or any forward-looking statements, whether as a result of new information, future events, or otherwise. It is impossible to predict or identify all risk factors and, consequently, youYou should, not consider the following factors to be a complete discussion of risks and uncertainties that may affect us. We invite you tohowever, consult further relatedany subsequent disclosures we make from time to time in materials filed with or furnished to the United States Securities and Exchange Commission (“SEC”).
COVID-19 Risk
The COVID-19 pandemic could materially adversely affect our business, financial condition, results of operations and/or liquidity.
COVID-19 was first identified in late 2019, spread globally and was declared a global pandemic by the World Health Organization in March 2020. The rapid spread of the virus has had a material, dramatic, and almost immediate impact on public health and has led governments around the world to implement numerous measures to contain the virus, such as travel bans, mandated shutdowns, border closures and other restrictions on the free movement of people and goods. Travel bans, border closures, restrictions or disruption of transportation, port closures, quarantines, shelter in place orders and other restrictions on the free movement of people and goods, and the introduction of social distancing measures in our facilities have impacted and may further impact our future ability to operate as well as the ability of our suppliers and distributors to operate. Any future closing of manufacturing facilities due to government mandates, insufficient staffing, weaker demand, or supply constraints, or similar limitations or restrictions for suppliers, or the impact of the COVID-19 pandemic on our ability to execute business continuity plans, could have a material adverse effect on our business, financial position, results of operations, and/or liquidity. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.
Disruption caused by business responses to the COVID-19 pandemic, including remote working arrangements, may create increased vulnerability to cybersecurity or data privacy incidents, including breaches of information technology and systems. Risks related to information technology and systems are described in our risk factor “A cybersecurity breach could interfere with our operations, compromise confidential information, negatively impact our corporate reputation and expose us to liability”.
From an economic perspective, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption in CNH Industrial North America’s supply chain and volatility in demand for CNH Industrial North America products and in global capital markets. The COVID-19 pandemic may materially adversely impact many of our customers and other third parties, and may affect their ability to fulfill their obligations to us in a timely manner.
The extent to which the COVID-19 pandemic will impact our business, financial condition, results of operations and/or liquidity will depend on the scale, duration, severity and geographic reach of future developments, which are highly uncertain and cannot be predicted, including notably the possibility of a recurrence or “multiple waves” of COVID-19. There have been instances of re-imposed local lockdowns where infection rates have started to increase again and there is a risk that widespread measures such as strict social distancing and curtailing or ceasing normal business activities may be reintroduced in the future until effective treatments or vaccines have been fully deployed. Uncertainties also include: the impact of the pandemic on our customers and dealers, and delays in their plans to purchase equipment; requests by our customers or dealers for, or government mandated, payment deferrals and contract modifications; difficulties in collecting financial receivables resulting in increased allowances for credit losses; a deterioration in the market value of used equipment resulting in further reserve requirements; the impact of disruptions in the global capital markets and/or declines in our financial performance, outlook or credit ratings, which could increase the cost of capital and could adversely impact our ability to obtain funding in the future; and the impact of the pandemic on demand for CNH Industrial North America products and our services as discussed above. In
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addition, the ultimate impact of the COVID-19 pandemic will also depend on any new information which may emerge concerning the severity of the COVID-19 pandemic, how quickly normal economic conditions and operations can resume, and any additional actions to contain the spread or mitigate the impact of the virus, whether government-mandated or elected by us. In addition, the COVID-19 pandemic may exacerbate many of the other risks described in this Annual Report on Form 10-K.
Risks Related to Our Indebtedness and Liquidity
Credit rating changes could affect our access to funding and our cost of funds, which could in turn adversely affect our financial positioncondition and results of operations.
Our ability to access the capital markets or other forms of financing and our funding costs are highly dependent on, among other things, our credit ratings and those of CNHI and our ABS transactions. Rating agencies may review and revise their ratings from time to time, and any downgrade or other negative action with respect to our credit ratings by one or more rating agencies may increase our funding costs, potentially limit our access to sources of financing and/or adversely affectand have a material adverse effect on our financial positioncondition and results of operations. A lack of funding could result in our inability to meet customer demand for equipment financing, while increased funding costs could lead to deteriorating margins, decreased profits and could result in our inability to meethigher customer demand at attractive interest rates and lower customer demand, which in turn may adversely affect our financial positioncondition and results of operations.
We have significant outstanding indebtedness, which may limit our ability to obtain additional funding and may limit our financial and operating flexibility.
As of December 31, 2020,2023, we had an aggregate of $10.3$13.5 billion of consolidated indebtedness and our equity was $1.3$1.6 billion. The extent of our indebtedness could have important consequences on our operations and financial results, including:
● | we may not be able to secure additional funds for working capital, capital expenditures, debt service requirements or general corporate purposes; |
● | we may need to use a portion of our projected future cash flow from operations to pay principal and interest on our indebtedness, which may reduce the amount of funds available to us for other purposes; |
● | we may be more financially leveraged than some of our competitors, which could put us at a competitive disadvantage; |
● | we may not be able to invest in the development or introduction of new products or new business opportunities; |
● | our future cash may be exposed to the risk of rate volatility; |
● | we may not be able to adjust rapidly to changing market conditions, which may make us more vulnerable to a downturn in general economic conditions; and |
● | we may not be able to access the capital markets on favorable terms, which may adversely affect our ability to provide competitive retail and wholesale financing programs. |
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Further, our indebtedness under somedue to the cessation of our instruments, including our revolving credit facilities and derivative transactions, may bear interest at variable interest rates based on the London Interbank Offered Rate (“LIBOR”). The, the Company has entered into financial transactions such as credit agreements and certain derivative transactions that use the relevant new benchmark rates. These new benchmark rates are calculated differently from LIBOR benchmark has been subjectand have inherent differences, which could give rise to national, international,uncertainties, including the limited historical data and other regulatory guidance and proposals for reform. In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit rates for calculation of LIBOR after 2021. Subsequently,volatility in the benchmark administrator for the U.S. dollar LIBOR announced a proposal to extend the publicationrates. The full effects of the most commonly used U.S. dollar LIBOR settings until June 2023. These reforms may cause LIBORtransition to perform differently than in the past and LIBOR may ultimately cease to exist or be unsuitable to use as a benchmark. The consequences of any potential cessation, modification or other reform of LIBOR cannot be predicted at this time. Anythese new benchmark rate will likely not replicate LIBOR exactly, which could impact new credit facilities and derivative transactions. Any changes to benchmark rates could have an impact on our cost of funds and our access to the capital markets, which could impact our financial position.remain uncertain.
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Restrictive covenants in our debt agreements could limit our financial and operating flexibility.
The agreements governing our outstanding debt securities and other credit agreements to which we are a party from time to time contain, or may contain, covenants that restrict our ability and/or that of our subsidiaries to, among other things:
● | incur additional indebtedness; |
● | make certain investments; |
● | enter into certain types of transactions with affiliates; |
● | sell or acquire certain assets or merge with or into other companies; |
● | use assets as security in other transactions; and/or |
● | enter into sale and leaseback transactions. |
These restrictive covenants could limit our financial and operating flexibility. For example:
● | limits on incurring additional debt and using assets as security in other transactions could materially limit our future business prospects by restricting us from financing as many customers as we otherwise would, particularly if our traditional funding sources (including principally the ABS markets) were not available; |
● | limits on investments could result in a return on assets lower than that of our competitors; and |
● | limits on the sale of assets or merger with or into other companies could deny us a future business opportunity despite the benefits that could be realized from such a transaction. |
In addition, we are required to maintain a certain coverage level for leverage; our leverage ratio, defined as the ratio of total net debt to equity, is required not to exceed 9.00:1.
Although we do not believe any of these covenants materially restrict our operations currently, a breach of one or more of the covenants could result in adverse consequences that could negatively impact our businesses, results of operations and financial position.condition. These consequences may include the acceleration of amounts outstanding under certain of our credit facilities, triggering an obligation to redeem certain debt securities, termination of existing unused commitments by our lenders, refusal by our lenders to extend further credit under one or more of the facilities or to enter into new facilities or the lowering or modification of CNHI’s or our credit ratings. We cannot assure you that we will continue to comply with each restrictive covenant at all times, particularly if we were to encounter challenging and volatile market conditions. For further information, see Note 8: Credit Facilities and Debt to the consolidated financial statements for the year ended December 31, 2020.
2023.
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Risks Related to Our Business, Strategy and Operations
Reduced demand for agricultural and construction equipment would reduce the opportunities for us to finance equipment.
Our business is largely dependent upon the demand for CNH Industrial North America’s products and its customers’ willingness to enter into financing or leasing arrangements with respect thereto.to acquire or use those products. A significant and prolonged decrease in demand for CNH Industrial North America’s products could have a material adverse effect on our business, financial position,condition, results of operations and cash flows. Our primary business is to provide retail and wholesale financing alternatives for the purchase or lease of CNH Industrial North America’s products to CNH Industrial North America’s customers and dealers.America products. The demand for CNH Industrial North America’s products and our financing products and services is influenced by a number of factors such as:
● | the general economic conditions and outlook, such as market volatility and changing interest rates; |
● | the price of agricultural commodities and the ability to competitively export agricultural commodities; |
● | the cost of farm inputs, including the value of land, fertilizers, fuel, labor and other inputs; |
● | the profitability of agricultural enterprises, farmers’ income and their capitalization; |
● | the demand for food products; |
● | the availability of stocks and yields from previous harvests; |
● | agricultural policies, including aid and subsidies to agricultural enterprises provided by governments and/or supranational organizations, policies impacting commodity prices or limiting the export or import of commodities, and alternative fuel mandates; |
● | change in trade agreements or trade terms, negotiation of new trade agreements and the imposition of new tariffs against certain countries or covering certain products or raw materials; |
● | change in or uncertainty surrounding global trade policies; |
● | droughts, floods and other unfavorable climatic conditions, especially during the spring, a particularly important period for generating CNH |
● | public infrastructure spending; |
● | new residential and non-residential construction; |
● | capital spending in oil and gas and, to a lesser extent, in mining; |
● |
changes in global market conditions, including interest rates. |
In the equipment industry, changes in demand can occur suddenly, resulting in imbalances in inventories, product capacity, and prices for new and used equipment. If fewer pieces of equipment are sold, CNH Industrial Capital will be presented with fewer opportunities to finance equipment.
We are subject to interest rate risks, and changes in interest rates could reduce demand for CNH North America equipment, adversely affect our interest margins, and limit access to capital markets while increasing borrowing costs.
Changing interest rates could have a dampening effect on overall economic activity as well as on the financial health of our customers, either of which could negatively affect customer demand for CNH North America’s products and our services as well as customers’ ability to repay their financing obligations to us. In addition, credit market dislocations could have an impact on funding costs, making it more difficult for us to offer customers competitive financing. While we aim to limit the exposure of our net financial assets to changes in prevailing interest rates, interest rate volatility could have an adverse effect on our net interest rate margin, i.e., the difference between the yield we earn on assets and the interest rates we pay. Actions by credit rating agencies, such as downgrades or negative changes to ratings outlooks, can affect the availability and cost of funding for the Company and can increase the Company’s cost of capital and hurt its competitive position.
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Change in support from CNH Industrial North America could limitreduce our ability to offer competitively priced financing, which may have a material adverse effect on our business, financial position,condition, results of operations and cash flows.
CNH Industrial North America sponsorssubsidizes certain marketingof our promotional financing programs that allow us to offer lower rate financing to customers atand other advantageous interest rates or otherfinancing terms (such as longer contract terms, longerrepayment and warranty terms orperiods, and special parts and service incentives). This support from CNH Industrial North America provides us with a material competitive advantage in offering financing to customersfor the purchase or lease of CNH Industrial North America’s products. Any elimination or reduction of these marketing programs, which affectssubsidies could negatively impact our ability to offer competitively pricedcompetitive financing options to customers, could in turn reduce the percentage of CNH Industrial North America’scustomer demand for our financing products financed by us and couldservices, and have a material adverse effect on our business, financial condition, results of operations and cash flows. For the years ended December 31, 2020, 20192023, 2022 and 2018, the2021, we recognized revenues recognized by us from CNH Industrial North America for marketing programs were $323.8of $427.2 million, $343.2$266.5 million and $333.8$296.5 million, respectively, each representing 40%, 34% and 38% of our total revenues for that
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year.the years ended December 31, 2023, 2022 and 2021, respectively.
CNH Industrial North America also provides us with other types of operational and administrative support, such as payroll and other human resource services. For the years ended December 31, 2020, 20192023, 2022 and 2018,2021, we incurred fees charged by our affiliates of $45.9$53.8 million, $46.6$50.9 million and $47.5$47.4 million, respectively, representing 12%21%, 13%20% and 13%16%, respectively, of our total administrative and operating expenses.
An increase in customer credit risk may result in higher delinquencies and defaults, and deterioration in collateral valuation may reduce our collateral recoveries, which could increase losses on our receivables and operating leases and adversely affect our financial positioncondition and results of operations.
Fundamental to any organization that extends credit is the credit risk associated with its customers/borrowers.customers. The creditworthiness of each customer, the rates of delinquency and default, repossessions and net losses on customer receivables are impacted by many factors, including:
● | relevant industry and general economic conditions (in particular, those conditions most directly affecting the agricultural and construction industries); |
● | the availability of capital; |
● | the terms and conditions applicable to extensions of credit; |
● | interest rates; |
● | the experience and skills of the customer’s management team; |
● | commodity prices; |
● | political events, including government mandated moratoria on payments; |
● | the weather; and |
● | the value of the collateral securing the extension of credit. |
Deterioration in the quality of our financial assets, an increase in delinquencies or defaults, or a reduction in collateral recovery rates could have an adverse impact on our financial performance. These risks become more acute in an economic slowdown or recession due to decreased demand for (or availability of) credit, declining asset values, changes in government subsidies, reductions in collateral to receivable balance ratios, and an increase in delinquencies, defaults, insolvencies, foreclosures and losses. In such circumstances, our receivable servicing and litigation costs may also increase. In addition, governments may pass laws, or implement regulations, that modify rights and obligations under existing agreements, or which prohibit or limit the exercise of contractual rights; which events occurred in response to the COVID-19 pandemic in certain jurisdictions.rights.
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When a borrowercustomer defaults on a receivable and we repossess collateral securing the repayment of the receivable, our ability to recover or mitigate losses by selling the collateral is subject to the current market value of such collateral. Those values are affected by levels of new and used inventory of agricultural and construction equipment on the market. They are also dependent upon the strength or weakness of market demand for new and used agricultural and construction equipment, which is affected by the strength of the general economy. In addition, repossessed collateral may be in poor condition, which would reducereducing its value. Finally, relative pricing of used equipment, compared with new equipment, can affect levels of market demand and the resale of repossessed equipment. All of the foregoing could increase losses on receivables and operating leases, adversely affecting our financial positioncondition and results of operations.
Changes in interest rates, exchange rates and market liquidity could have a material adverse effect on our earnings and cash flows.
Because a significant number of our receivables are generated at fixed interest rates, our business is subject tofinancial performance may be impacted by fluctuations in interest rates. Although we seek to match fund the majority of our assets, with approximately 69%61% of our receivables and approximately 64%68% of our funding at a fixed rate, respectively, as of December 31, 2020,2023, changes in market
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interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and/or cash flow.
We are subject to currency exchange risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, the reporting currency for the consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses and revenues are denominated in other currencies. Those assets, liabilities, expenses and revenues are translated into the U.S. dollardollars at the applicable exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in exchange rates between the U.S. dollar and those other currencies affect the value of those items reflected in the consolidated financial statements, even if their value remains unchanged in the original currency. Changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our financial positioncondition and results of operations.
We also rely on the capital markets and a variety of funding programs to provide liquidity for our operations, including committed asset backedasset-backed and unsecured facilities and the issuance of secured and unsecured debt. Significant changes in market liquidity conditions could affect our access to funding and the associated funding costs and reduce our earnings and cash flow.
Although we seek to manage interest rate, exchange rate and market liquidity risks with a variety of techniques, including a match funding program, the selective use of derivatives and a diversified funding program, there can be no assurance that we will be able to do so successfully, and our financial condition and results of operations could be adversely affected. In addition, by utilizing these techniques, we potentially forego the benefits that may result from favorable fluctuations in interest rates and exchange ratesrates.
Our models could fail to properly anticipate and market liquidity conditions will not havemanage risk.
We use models to forecast future losses, revenues and expenses, for capital planning purposes, and to manage a material adverse effect on our earnings and cash flow. If any of the variety of instrumentsfinancial and strategiesoperational risks. These models are subject to inherent limitations due to imperfect assumptions, uncertainty regarding outcomes, and unaccounted for and emerging risks. The models we useemploy may not be sufficiently predictive of future results due to hedgelimited historical patterns, unanticipated market changes and customer behavior. They may be negatively impacted by human error and may not be effective if we fail to review them for flaws, test them for predictive accuracy and recalibrate them from time to time as appropriate. Notwithstanding the steps we take to develop and maintain predictive models, our exposuremodels could fail to these various typesproperly anticipate and help us manage risk and could result in operational and financial harm to us.
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Changes in government monetary or fiscal policies may negatively impact our results.
Governments may implementhave implemented measures designed to slow economic growthinflationary pressure (e.g., higher interest rates, reduced bank lending and other anti-inflation measures)financial asset purchases). RisingChanging interest rates could have a dampening effect on the overall economic activity and/or the financial condition of our customers, either or both of which could negatively affect demand for our products and our customers’ ability to repay obligations to us. Central banks and other policy arms of many countries may take actions to vary the amount of liquidity and credit available in an economy. The impact from a change in liquidity and credit policies could negatively affect the customers and markets we serve, which could adversely impact our business, financial condition and results of operations and financial condition.operations. Government initiatives that are intended to stimulate or reduce demand for products sold by CNH Industrial North America, such as changes in tax treatment or purchase incentives for new equipment, can significantly influence the timing and level of our revenues. The terms, size and duration of such government actions are unpredictable and outside of our control. Any adverse change in government policy relating to those initiatives could have a material adverse effect on our business, financial condition and results of operations and financial condition. Additionally, it is unclear what the macroeconomic effects will be of the economic stimulus actions taken by various countries in order to mitigate the adverse economic impact of the COVID-19 pandemic and of the resulting increase in government debt.operations.
If we are unable to obtain funding, in particular through the ABS market and committed asset-backed facilities, at competitive rates, our ability to conduct our financing business may be severely impaired and our financial position,condition, results of operations and cash flows may be materially and adversely affected.
We have traditionally relied upon the ABS market and committed asset-backed facilities as a primary source of funding and liquidity. Access to funding at competitive rates is essential to our business. An inability to access the ABS market or a significant reduction in liquidity in the secondary market for ABS transactions could adversely affect our ability to sell receivables on a favorable or timely basis. Such conditions could have an adverse impact on our access to funding, financial positioncondition and results of operations.
If we breach our representations and warranties in connection with our ABS transactions, we may be required to repurchase non-conforming receivables from the securitization vehicles, which could have an adverse effect on our financial position,condition, results of operations and cash flows.
In connection with our ABS transactions, we make customary representations and warranties regarding the assets being securitized, as disclosed in the relevant offering documents. While no recourse provisions exist that allow holders of asset-backed securities issued by our ABS trusts to require us to repurchase those securities, a breach of
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these representations and warranties could give rise to an obligation to repurchase non-conforming receivables from the trusts. Any obligation to make future repurchases could have an adverse effect on our financial position,condition, results of operations and cash flows.
Certain of our operations are subject to supervision and regulation by governmental authorities and changes in applicable laws or regulations may adversely impact our ability to engage in related business activities or increase the cost of our operations, thus adversely affecting our business, financial positioncondition and results of operations.
Our operations are subject to extensive, complex and frequently changing rules, regulations and legal interpretations from various governmental authorities, which among other things:
● | regulate credit granting and servicing activities, including establishing licensing requirements; |
● | require periodic reporting of financing and servicing activity to regulators; |
● | establish maximum interest rates, finance and other charges; |
● | regulate customers’ insurance coverage; |
● | require disclosures to, and the collection of certain information from, customers; |
● |
set collection, foreclosure, repossession and claims handling procedures and other trade practices; |
● | prohibit discrimination in the extension of credit and administration of |
● | regulate the use, handling and reporting of information related to applicants and |
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As applicable laws are amended or construed differently, new laws are adopted to expand the scope of regulation imposed upon us, or existing laws prohibit interest rates we charge from rising to a level commensurate with risk and market conditions, such events could adversely affect our business and our financial positioncondition and results of operations.
New regulations or changes in financial services regulations could adversely impact us.
Our operations are highly regulated by governmental authorities which can impose significant additional costs and/or restrictions on our business. For example, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), including its implementing regulations, as well as other efforts at regulatory reform in financial services, may substantially affect our origination, servicing and securitization programs.programs as well as limit the ability of our customers to enter into hedging transactions or finance purchases of CNH North America equipment. The Dodd-Frank Act also strengthened the regulatory oversight ofincludes extensive provisions regulating these securities and related capital market activities by the SEC and increased the regulation of the ABS markets through, among other things, a mandated risk retention requirement for securitizers and a direction to regulate credit rating agencies. Future regulations may affect our ability to engage in these capital market activities or increase the effective cost of such transactions, which could adversely affect our financial position,condition, results of operations and cash flows.
Our operations are subject to risks associated with our use of third-party service providers.
We rely on third-party service providers for a variety of services and systems that we use in connection with our core origination and servicing operations. Our reliance exposes us to risks, as those third parties could fail to perform financially, contractually or otherwise in accordance with our expectations. Such failure could result in events that have a material adverse impact on our business, such as disruption or interruption of operational activities and poor performance negatively affecting our customer and dealer relationships, as well as potential liability to our customers and dealers for legal and regulatory violations committed by those third parties while providing services to us or on our behalf.
Our business may be affected by climate change, unfavorable weather conditions climate change or other calamities.
Poor, severe or unusual weather conditions caused by climate change or other factors, particularly during the planting and early growing season, can significantly affect the purchasing decisions of CNH Industrial North America’s agricultural equipment customers. The timing and quantity of rainfall are two of the most important factors in agricultural production. Insufficient levels of rain prevent farmers from planting crops or may cause growing crops to die, resulting in lower yields. Excessive rain or flooding can also prevent planting or harvesting from occurring at optimal times and may cause crop loss through increased disease or mold growth. Temperature affects the rate of growth, crop maturity, crop quality and yield.
Temperatures outside normal ranges can cause crop failure or decreased yields and may also affect disease incidence. Natural disasters such as floods, hurricanes, storms, droughts, diseases and pests can have a negative impact on agricultural production. The resulting negative impact on farm income can strongly affect demand for CNH Industrial North America’s agricultural equipment in any given period.
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In addition, natural disasters, epidemics and pandemics,pandemic illness, acts of terrorism or violence, acts of war, equipment failures, power outages, disruptions to our information technology systems and networks or other unexpected events could result in physical damage to and complete or partial closure of one or more of CNH Industrial’sCNH’s manufacturing facilities or distribution centers, temporary or long-term disruption in the supply of parts or component products, and disruption and delay in the transport of CNH Industrial North America’s products to dealers and customers. In the eventIf such events occur, our financial results might be negatively impacted. Our existing insurance and risk management arrangements may not protect against all costs that may arise from such events.
Furthermore, the potentialpotentially long-term physical impacts of climate change on CNH Industrial North America’s facilities, suppliers and customers, and therefore on its operations, are highly uncertain and will be driven by the circumstances developing in various geographical regions. These may include long-term changes in temperature and water availability. These potential physical effects may adversely impact the demand for CNH Industrial North America’s products and the cost, production, sales and financial performance of its operations and as a result could adversely affect our financial position,condition, results of operations and cash flows.
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Regulators in the U.S. have also focused efforts on requiring and promoting enhanced disclosure related to sustainability. We may face liabilities in connection with our efforts to comply with these disclosure requirements as well as expectations by our stakeholders of enhanced disclosures regarding our climate change initiatives.
Global economic conditions impact our business.
Our results of operations and financial position are and will continue to be influenced by macroeconomic factors, including changes in the level of consumer and business confidence, changes in interest rates, the availability of credit, inflation and deflation, energy prices, and the cost of commodities or other raw materials. Such macroeconomic factors vary from time to time and their effect on our results of operations and financial position cannot be specifically and singularly assessed and/or isolated.
Changes in demand for food and alternatealternative energy sources could impact our revenues.
Changing worldwide demand for farm outputs to meet the world’s growing food and alternative energy demands, driven in part by government policies and a growing world population and government policies, including those related to climate change, are likely to result in fluctuating agricultural commodity prices, which affect sales of agricultural equipment. While higher commodity prices will benefit our crop producing agricultural equipment customers, higher commodity prices also result in greater feed costs for livestock and poultry producers, which in turn may result in lower levels of equipment purchased by these customers. Lower commodity prices directly affect farm income, which could negatively affect sales of agricultural equipment. Moreover, changing alternative energy demands may cause farmers to change the types or quantities of the crops they grow, with corresponding changes in equipment demands. Finally, changes in governmental policies regulating bio-fuel utilization could affect demand for CNH Industrial North America’sAmerica equipment and result in higher research and development costs related to equipment fuel standards.
Competitive activity or failure by us to respond to actions by our competitors could adversely affect our results of operations, in particular due to a cost of funds disparity between us and some of our competitors.
We operate in a highly competitive environment, with financing for owners or operators of CNH Industrial North America equipment available through a variety of sources, such as banks, finance companies and other financial institutions, including government sponsored entities. Some of our competitors enjoy certain regulatory, government support or credit rating advantages over CNH Industrial Capital today, which oftenmay, among other things, enable them to access capital on more favorable terms, among other things.terms. Such cost of funds disparities between us and some of our competitors, or any additional regulatory, government support or credit rating changes that enhance the competitive position of our competitors, could result in our inability to effectively compete.
The success of our business also depends on our ability to identify emerging industry changes and develop and market new products and services that meet the evolving needs of existing and potential customers. Increasing competition may adversely affect our business if we are unable to match the products and services of our competitors. If we are unable to effectively compete, our business, financial positioncondition and results of operations will suffer.
Our ability to execute our strategy depends upon our ability to attract, develop and retain qualified personnel.
Our ability to compete successfully, to manage our business effectively, to expand our business and to execute our strategic direction depends, in part, on our ability to attract, motivate and retain qualified personnel in key functions and markets, with the requisite education, skills, background, talents and industry experience. Failure to attract and retain qualified personnel, whether as a result of an insufficient number of qualified applicants, or the inability to integrate and retain qualified personnel, could impair our ability to execute our business strategy and meet our business objectives. These may be affected by the loss of employees, particularly when departures involve larger numbers of employees. Higher rates of employee separations may adversely affect us through decreased employee morale, the loss of knowledge of departing employees, and the devotion of resources to recruiting and onboarding new employees.
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A decrease in the value of the equipment that we lease or higher than expected return volumes of our leased equipment could adversely affect our results.
We estimate the expected residual values of leased equipment at the inception of the lease, which is the estimated future value of leased equipment at the time of the expiration of the lease term. The residual values are reviewed quarterly. Changes in residual value assumptions would affect the amount of depreciation expense and the net amount of equipment on operating leases. If estimated future values significantly decline due to economic factors, obsolescence, the overall industry volume of lease returns, or other adverse circumstances, we may not realize such residual values, which could reduce our earnings.
Actual proceeds realized by us upon the sale of returned leased equipment at lease termination may be lower than the amount projected. Among the factors that can affect the value of returned lease equipment are the volume of equipment returned (primarily affected by contractual lease-end values relative to prevailing market values and
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marketing programs for new equipment), any significant trends in the used equipment market and any new product trends. Each of these factors, alone or in combination, has the potential to adversely affect our profitability if actual results were to differ significantly from our estimates.
As of December 31, 2020,2023, our total operating lease residual values were $1.5$1.0 billion.
Our results of operations may be adversely impacted by various types of claims, lawsuits, and other contingent obligations.
We are involved in various lawsuits and other legal proceedings that arise in the ordinary course of our business. The industries in which we and CNH North America operate are also periodically reviewed or investigated by regulators, which could lead to enforcement actions, fines and penalties or the assertion of private litigation claims. The ultimate outcome of thethese legal matters pending against us is uncertain, and although such legal matters are not expected individually to have a material adverse effect on our financial position or profitability, such legal matters could, in the aggregate, in the event of unfavorable resolutions thereof, have a material adverse effect on our subsidiaries is uncertain.results of operations and financial condition. Furthermore, we could in the future become subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our results of operations in any particular period. In addition, while we maintain insurance coverage with respect to certain risks, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against claims under such policies.
Our affiliates may cease to provide us with financing support.
During previous capital markets crises, which had a material adverse effect on the ABS markets, we relied more heavily upon financing provided by CNH Industrial and its predecessors. In the event of a severe downturn in the ABS markets, we would need to look to alternative funding sources, including CNH, Industrial, though CNH Industrial would have no obligation to provide such financing (other than the obligations assumed by CNHI under the support agreement, dated November 4, 2011). To the extent CNH Industrial does not provide such financing to us when needed, we could suffer from a lack of funding and/or incur increased funding costs if funding is obtained through less favorable sources.
Our participation in cash management pools exposes us to CNH Industrial credit risk, which, in the event of a bankruptcy or insolvency of certain CNH Industrial entities, could render us unable to recover our deposits, and in turn materially and adversely affectaffecting our financial positioncondition and results of operations.
We participate in a group-wide cash management system with other companies within CNH, Industrial, including CNH Industrial America and CNH Industrial Canada Ltd.Canada. Our positive cash deposits with CNH, Industrial, if any, are either invested by CNH Industrial treasury subsidiaries in highly rated, highly liquid money market instruments or bank deposits, or may be applied by CNH Industrial treasury subsidiaries to meet the financial needs of other CNH Industrial entities and vice versa. While we believe participation in such CNH Industrial treasury subsidiaries’ cash management pools provides us with financial benefits, it exposes us to CNH Industrial credit risk.
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In the event of a bankruptcy or insolvency of CNHI (or any other CNH Industrial entity, including CNH Industrial America and CNH Industrial Canada, Ltd., in the jurisdictions with set off agreements) or in the event of a bankruptcy or insolvency of the CNH Industrial entity in whose name the deposit is pooled, we may be unable to secure the return of such funds to the extent they belong to us, and we may be viewed as a creditor of such CNH Industrial entity with respect to such deposits. It is possible that our claims as a creditor could be subordinated to the rights of third-party creditors in certain situations. If we are not able to recover our deposits, our financial positioncondition and results of operations may be materially and adversely impacted.
A cybersecurity breach could interfere with our operations, compromise confidential information, negatively impact our corporate reputation and expose us to liability.
We rely upon information technology systems and networks, some of which are managed by third parties, in connection with a variety of our business activities. These systems include invoicing and collection of payments from CNH Industrial North America’s dealers and from our customers. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information and the proprietary information of our customers and CNH Industrial North America’s dealers, as well as personally identifiable information of ourthose dealers, customers and our employees, in data centers and on information technology networks. Operating these information technology systems and networks in a secure manner, and processing and maintaining this data in a secure manner, are critical to our business
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operations and strategy. Increased information technology security threats (e.g. worms, viruses, malware, phishing attacks, ransomware, and other malicious threats) and more sophisticated computer crime, including through the use of artificial intelligence and machine learning, pose a significant risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Cybersecurity attacks could also include attacks targeting customer data. The foregoing risks are heightened in the current environment where a material percentage of our employees have been and continue to work from home due to the COVID-19 pandemic.
While we actively manage information technology security risks within our control through security measures, business continuity plans and employee training around phishing and other cyber risks, there canour information technology networks and infrastructure have been and may be no assurance that such actions will be sufficientvulnerable to mitigate all potential risksintrusion, attacks or disruptions or shutdowns due to our systems, networks, data and products. Furthermore, third parties on which we rely, including internet, mobile communications technology and cloud service providers, could be sources of information security risk to us.attacks by cyber criminals, employee, supplier or dealer error or malfeasance.
A failure or breach in security, whether of our systems and networks or those of third parties on which we rely, could expose us and our customers and dealers to risks of misuse of information or systems, the compromising of confidential information, loss of financial resources, manipulation and destruction of data and operations disruptions, which in turn could adversely affect our reputation, competitive position, businesses and results of operations. Security breaches could also result in litigation, regulatory action, unauthorized release of confidential or otherwise protected information and corruption of data, as well as remediation costs and higher operational and other costs of implementing further data protection measures. In addition, as security threats continue to evolve, we may need to invest additional resources to protect the security of our systems and data. The amount or scope of insurance coverage we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity attack.
Changes in privacy laws could disrupt our business.
The regulatory framework for privacy and data security issues is rapidly evolving and is likely to remain uncertain for the foreseeable future. We collect personal information and other data as part of our business operations. This data is subject to a variety of U.S. and foreign laws and regulations. New privacy laws will continue to come into effect around the world. We may be required to incur significant costs to comply with thisthese and other privacy and data security laws, rules and regulations. Any inability to adequately address privacy and security concerns or comply with applicable privacy and data security laws, rules and regulations could have an adverse effect on our business prospects, results of operations and/or financial position.
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We have identified material weaknesses in our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations and investors may lose confidence in the accuracy and completeness of our financial reports.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As of September 30, 2023, as previously reported, we identified a material weakness in our internal control over financial reporting, which persisted as of December 31, 2023. The material weakness relates to the design and implementation of information technology (“IT”), general controls in the areas of user access limits and segregation of duties related to our enterprise resource planning (“ERP”) application.
In addition, as of December 31, 2023, we determined that we have an additional material weakness in our internal control over financial reporting. This material weakness relates to the design and implementation of general controls over classification in our Statement of Cash Flows of changes in certain intercompany and operating lease receivables from our investing activities, and of bond discounts and debt issuance costs from our debt financing activities.
These material weaknesses have not resulted in the need to revise any of our previously published financial results. We are in the process of taking steps intended to remediate the material weaknesses.
With respect to the IT-related material weakness, our efforts have included enhancing our IT general controls framework that addresses risks associated with user access and security, application change management and IT operations. We are implementing enhanced compensating controls and providing focused training for control owners to help sustain effective control operations and comprehensive remediation efforts relating to segregation of duties to strengthen user access controls and security.
With respect to the material weakness relating to the classification of items within our Statement of Cash Flows, our management plans to enhance the Company’s controls and review activity to assess and validate the classification of items in the operating, investing or financing sections within our Statement of Cash Flows. The Company’s remediation plan is expected to include the following actions: (i) reviewing and enhancing the Company’s organizational structure including technical training and supervision of individuals responsible for the preparation and review of the Statement of Cash Flows; and (ii) engaging with third-party resources to assist with the enhancement and formalization of roles and review responsibilities related to the technical review process for the Statement of Cash Flows.
While we believe these efforts have improved, and will continue to improve, our internal controls and address the underlying causes of the material weaknesses, the material weaknesses will not be remediated until our remediation plans have been fully implemented and we have concluded that the improvements added to our current control environment are operating effectively for a sufficient period of time. We cannot be certain that the steps we are taking will be sufficient to remediate the control deficiencies that led to the material weaknesses in our internal control over financial reporting or prevent future material weaknesses or control deficiencies from occurring. In addition, we cannot be certain that we have identified all material weaknesses in our internal control over financial reporting, or that in the future we will not have additional material weaknesses in our internal control over financial reporting.
If we fail to effectively remediate the material weaknesses in our internal control over financial reporting, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may be unable to accurately or timely report our financial condition or results of operations. We also could become subject to sanctions or investigations by the SEC or other regulatory authorities. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and completeness of our financial reports and we may face restricted access to the capital markets.
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Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
We assess, identify and manage risks from cybersecurity threats through CNH’s Information Technology Security and Compliance organization (“Cybersecurity Program”), which is part of CNH’s larger enterprise risk management framework. The Cybersecurity Program is currently overseen by the Audit Committee of the Board of Directors for CNH (the “CNH Audit Committee”) and is managed by CNH’s Chief Information and Digital Officer (the “CNH CIO”) and a dedicated CNH Chief Information Security Officer (the “CNH CISO”). The CNH CISO has over 10 years of experience in cybersecurity and has held numerous positions in the cybersecurity sector, including serving as a Global Director of Information Security at another global high-tech manufacturing company. The CNH CISO's organization has oversight of cybersecurity strategy, policy, standards, architecture and processes for the security of our enterprise network and, information assets. The CNH CISO’s organization monitors and manages, and works to identify and assess, cybersecurity risk through various technologies, resources, processes and policies that are updated to align with the changing threat landscape, our evolving business needs and global regulatory requirements. Our strategy includes risk assessments, risk and threat analysis, utilization of security tools, cybersecurity-related tabletop and phishing exercises designed to simulate cybersecurity incidents, and security awareness and technical security trainings.
We use a range of defenses to help protect against cybersecurity threats and to work to secure our assets, reduce detection time and improve recoverability. These include the ongoing monitoring of our systems, including with the assistance of third-party vendors, conducting exercises with employees and senior management, including our executive officers, to promote awareness and improve internal processes. In addition, to promote security awareness throughout the Company, employees with an email address received training and access to security awareness materials in 2023. Further, we are implementing a program for the assessment and monitoring of security standards and control procedures for external suppliers and vendors.
Under the Cybersecurity Program, cybersecurity matters are generally managed by a combination of functional groups that report to CNHI’s global leadership team, as appropriate, on matters such as enterprise level cybersecurity initiatives, threat intelligence and product cybersecurity risks and remediations.
CNH’s Board of Directors (the “CNH Board”) addresses our cybersecurity risk management as part of its general oversight function. The CNH Audit Committee is responsible for overseeing our key risks and controls relating to information systems, including our assessment and mitigation of material risks from cybersecurity threats. The CNH Audit Committee receives periodic reports, summaries or presentations related to cybersecurity threats, risk, mitigation and related processes from the CNH CIO and the CNH CISO. In addition, on at least an annual basis, the CNH Board receives reports, summaries or presentations from the CNH CIO and the CNH CISO related to cybersecurity threats, risk, mitigation and related processes.
The CNH CISO maintains and periodically updates a Cybersecurity Incident Response Plan which is a guide for how to respond effectively and efficiently to cybersecurity incidents in a coordinated manner in the interest of minimizing the risk of harm to our customers, operations, partners, employees and third parties, consistent with our legal obligations. As of the date of this report, we do not believe that risks from cybersecurity threats have materially affected or are reasonably likely to materially affect our business strategy, results of operations or financial condition. However, we recognize the ever-evolving cyber risk landscape and cannot provide any assurances that we will not be subject to a material cybersecurity incident in the future. For a description of risks related to our information technology systems, including cybersecurity threats, see Item 1A, “Risk Factors.”
17
Our principal executive offices are located at 5729 Washington Avenue, Racine, WI 53406. We maintain the following offices:
| | | | | | |
|
|
| Primary |
| |
| | |
Location | | Function | | Tenant | | Ownership Status | |
Burlington, ON |
| Office |
| CNH |
| Leased |
|
New Holland, PA |
| Office |
| New Holland Credit Company |
| Leased from New Holland North America, Inc. |
|
Racine, WI |
| Office |
| CNH |
| Leased from CNH |
|
CNH Industrial Capital is party to various litigation matters and claims arising from its operations. Management believes that the outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on CNH Industrial Capital’s financial positioncondition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
15
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
All of CNH Industrial Capital LLC’s limited liability company interests are owned by CNH Industrial America, which is indirectly wholly-owned by CNHI. There is currently no established trading market for CNH Industrial Capital LLC’s limited liability company interests. CNH Industrial Capital LLC received capital contributions of $75 million from CNH America in 2023. CNH Industrial Capital LLC paid cash dividends of $130 million, $265$135 million and $130$250 million to CNH Industrial America in 2020, 20192022 and 2018,2021, respectively.
Item 6. Selected Financial Data[Reserved]
Omitted pursuant to General Instruction I of Form 10-K.
Item 7. Managements’Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to promote understanding of the Company’s financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying Notes to Consolidated Financial Statements.
Overview
Organization
We offer a range of financial products and services to the dealerscustomers and customersdealers of CNH Industrial North America. The principalRetail financing products offered areprimarily include retail financing for the purchase or lease of newnotes, finance leases, operating leases and used CNH Industrial North America equipment and wholesalerevolving charge account financing to CNH Industrial North America dealers.end-use customers. Wholesale financing consists primarily of floor plandealer floorplan financing as well as financing to dealers for used equipment usedtaken in trade, equipment utilized in dealer-owned rental yards, parts inventory, and working capital and other financing needs. In addition, we purchase equipment from dealers that is leased to retail customers under operating lease agreements.
18
Trends and Economic Conditions
During 2020,In combination with the economic recovery factors and repercussions from geopolitical events, the global economy continues to experience volatile disruptions including to the commodity, labor and transportation markets. These disruptions have contributed to an inflationary environment which has affected, and may continue to affect, the price and availability of certain products and services necessary for CNH North America’s operations. For example, CNH North America experienced supply chain disruptions and inflationary pressures in 2022 and, while these trends improved in 2023, CNH North America continues to experience some disruptions. The reduction in supply chain disruptions contributed to improved efficiencies in its manufacturing operations, but purchasing costs remain elevated.
In addition, CNH North America continues to monitor global economic conditions and the impact of economic uncertainty caused by COVID-19 led to an increase in our allowance for credit losses. COVID-19 has caused disruptionmacroeconomic pressures, including repercussions from rising interest rates, fluctuating currency exchange rates, inflation and volatility in the capital markets and an economic slowdown. In response to COVID-19, national and local governments have instituted certain measures, including travel bans, prohibitionsrecession fears, on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The duration of these measures is unknown and may be extended, reimposed and/or additional measures may be imposed.
With respect to liquidity, we took several actions during 2020 to bolster our financial condition and to reduce costs while supportingits business, operations through the COVID-19 pandemic. Some of these actions included limiting discretionary spending, temporarily furloughing employees, eliminating non-essential travel and delaying or reducing hiring activities.
The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the resurgence of COVID-19, its impact on our customers and suppliers and governmental and community vaccination efforts to the pandemic, which are uncertain. We will continue to proactively respond to the situation and may take further actions that alter our business operations as may be required by governmental authorities, or that we determine are in the best interests of our employees and customers.
The COVID-19 pandemic has necessitated a careful balancing of the needs of those customers hardest hit by the economic slowdown with our objective to minimize losses on existing retail receivables. Similar to PSCs previously granted to victims of wildfires or hurricanes, whereby we offered customers the ability to defer one or more payments, we have granted a payment schedule change (“PSC”) to customers impacted by COVID-19, particularly in the construction industry. We continue to review each request for a PSC on an individual basis with customers that were generally current in their payment obligations. PSC approvals are based on our internal business rules, along with a risk-based analysis for each customer, and which will in our judgment minimize losses to our portfolio over time. Though there was increased PSC activity in the second quarter of 2020, PSC activity normalized in the second half
16
of 2020. PSCs continue to represent a small portion of our portfolio.suppliers.
Our business is closely relatedtied to the agricultural and construction equipment industries because we offer financing products for such equipment. During 2020, the COVID-19 pandemic negatively impacted certain of CNH Industrial’s end-markets and operations. For the year ended December 31, 2020, CNH Industrial’s2023, CNH’s net sales of agricultural equipment and net sales of construction equipment generated in North America were $3.8$7.2 billion and $1.0$2.3 billion, respectively, representing decreasesincreases of 4%6% and 31% from the same period in 2019,2022, respectively.
In general, our receivable mix between agricultural and construction equipment financing directionally reflects the mix of equipment sales by CNH Industrial North America. As such, changes in the agricultural industry or with respect to our agricultural equipment borrowerscustomers may affect the majority of our portfolio.
As a finance company, we are subject to interest rate risks. Changing interest rates can reduce demand for CNH North America equipment, adversely affect our interest margins while increasing our borrowing costs. Most of our retail customer receivables (which, as used herein, “retail customer receivables” refers primarily to retail notes and finance leases) are fixed rate, while our revolving charge accounts and wholesale receivables are a combination of fixed and floating rate. We manage interest rate risks via a match funding program and the selective use of derivatives.
Net income was $143.3$215.1 million for the year ended December 31, 2020,2023, compared to $149.0$219.1 million for the year ended December 31, 2019.2022. The decrease in net income was primarily due to increased borrowing costs, higher provisions for credit losses, lower gains on used equipment sales due to decreased operating lease maturities and a lower average managed portfolio,increased labor costs, partially offset by an increased net interest margin and lower losses on used equipment sales.a higher average portfolio. The receivables balance greater than 30 days past due as a percentage of managedgross receivables was 0.7%0.8%, 0.7%1.0% and 0.6%0.5% at December 31, 2020, 20192023, 2022 and 2018,2021, respectively.
In addition to the impacts from COVID-19 previously discussed, macroeconomicMacroeconomic issues for us include the uncertainty of governmental actions with respect to monetary, fiscal and legislative policies, the global economic recovery, changes in demand and pricing for used equipment, capital market disruptions, trade agreements, and financial regulatory reform. Significant volatility in the price of certain commodities could also impact CNH Industrial North America’s and our results.
19
Results of Operations
Year Ended December 31, 20202023 Compared to Year Ended December 31, 20192022
Revenues
Revenues for the years ended December 31, 20202023 and 20192022 were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2020 |
| 2019 |
| $ Change |
| % Change | |
| 2023 |
| 2022 |
| $ Change |
| % Change | | ||||||
Interest income on retail notes and finance leases |
| $ | 183,229 | | $ | 218,454 | | $ | (35,225) | | (16.1) | % |
| $ | 288,067 | | $ | 216,528 | | $ | 71,539 | | 33.0 | % |
Rental income on operating leases | |
| 237,178 | |
| 248,335 | |
| (11,157) | | (4.5) | | ||||||||||||
Interest income on revolving charge accounts | |
| 39,568 | |
| — | |
| 39,568 | | — | | ||||||||||||
Interest income on wholesale notes | |
| 53,109 | |
| 67,773 | |
| (14,664) | | (21.6) | | | | 66,015 | | | 28,659 | | | 37,356 | | 130.3 | |
Interest and other income from affiliates | |
| 324,424 | |
| 345,789 | |
| (21,365) | | (6.2) | | |
| 434,257 | |
| 268,267 | |
| 165,990 | | 61.9 | |
Rental income on operating leases | |
| 255,878 | |
| 243,044 | |
| 12,834 | | 5.3 | | ||||||||||||
Other income | |
| 27,767 | |
| 25,829 | |
| 1,938 | | 7.5 | | |
| 7,568 | |
| 30,046 | |
| (22,478) | | (74.8) | |
Total revenues |
| $ | 844,407 | | $ | 900,889 | | $ | (56,482) | | (6.3) | % |
| $ | 1,072,653 | | $ | 791,835 | | $ | 280,818 | | 35.5 | % |
Revenues totaled $844.4Total revenues were $1,072.7 million for the year ended December 31, 20202023 compared to $900.9$791.8 million for the year ended December 31, 2019.2022. A lowerhigher average portfolio andcoupled with a lowerhigher average yield for the total portfolio drove the year-over-year decreaseincrease in total revenues. The average yield for the managed portfolio was 7.3%7.9% for the year ended December 31, 2020,2023, compared to 7.5%6.7% for the year ended December 31, 2019.2022.
Interest income on retail notes and finance leases for the year ended December 31, 20202023 was $183.2$288.1 million, representing a decreasean increase of $35.2$71.5 million from the year ended December 31, 2019.2022. The increase was due to the favorable impacts of $57.2 million from higher interest rates and $14.3 million from higher average earning assets.
Rental income on operating leases for the year ended December 31, 2023 was $237.2 million, representing a decrease of $11.2 million from the year ended December 31, 2022. The decrease was primarily due to a $28.1 millionthe unfavorable impact from lower interest rates and a $7.1of $25.5 million unfavorable impact from lower average earning assets.assets, offset by a $14.3 million favorable impact from higher interest rates.
Revolving charge accounts income was $39.6 million for the year ended December 31, 2023.
Interest income on wholesale notes for the year ended December 31, 20202023 was $53.1$66.0 million, representing a decreasean increase of $14.7$37.4 million from the year ended December 31, 2019.2022. The decreaseincrease was primarily due to a $10.4the favorable impacts of $23.6 million unfavorable impact from lowerhigher interest rates and a $4.3$13.8 million unfavorable impact from lowerhigher average earning assets.
Interest and other income from affiliates for the year ended December 31, 20202023 was $324.4$434.3 million, representing a decreasean increase of $21.4$166.0 million from the year ended December 31, 2019.2022. Compensation from CNH Industrial North
17
America for retail low-rate financing programs and interest waiver programs offered to customers was $154.0$140.2 million and $160.4$123.9 million for the years ended December 31, 20202023 and 2019,2022, respectively. The decreaseincrease was primarily due to the mix in pricing and mix of programs. For the year ended December 31, 2020, compensation from CNH Industrial North America for wholesale marketing programs was $108.5 million compared to $122.6 million for the prior year. The decrease was primarily due to dealer destocking efforts. For select operating leases, compensation from CNH Industrial North America for the difference between market rental rates and the amounts paid by customers was $61.3$40.8 million and $60.2$47.2 million for the years ended December 31, 20202023 and 2019,2022, respectively. Also included inThe decrease was primarily due to lower average earning assets. For revolving charge accounts, compensation from CNH North America for low-rate financing programs and interest and other income from affiliateswaiver programs offered to customers was $2.2$4.1 million of wholesale factoring income for the year ended December 31, 2019.
Rental income on operating leases for2023. For the year ended December 31, 20202023, compensation from CNH North America for wholesale marketing programs was $255.9$242.1 million representing an increase of $12.8compared to $95.1 million fromfor the year ended December 31, 2019.prior year. The increase was primarily due to a $7.1 million favorable impact from higher average earning assets and a $5.7 million favorable impact fromoriginations combined with higher interestbase rates.
Other income for the year ended December 31, 20202023 was $27.8$7.6 million, representing an increasea decrease of $1.9$22.5 million from the year ended December 31, 2019.2022, which is largely attributable to the Company no longer receiving third-party commission income related to a private-label revolving charge account product.
20
Expenses
Expenses for the years ended December 31, 20202023 and 20192022 were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2020 |
| 2019 |
| $ Change |
| % Change |
|
| 2023 |
| 2022 |
| $ Change |
| % Change |
| ||||||
Total interest expense |
| $ | 279,958 |
| $ | 347,273 |
| $ | (67,315) |
| (19.4) | % |
| $ | 534,239 |
| $ | 241,807 |
| $ | 292,432 |
| 120.9 | % |
Fees charged by affiliates | |
| 45,905 | |
| 46,601 | |
| (696) | | (1.5) | | |
| 53,804 | |
| 50,858 | |
| 2,946 | | 5.8 | |
Provision for credit losses | |
| 59,044 | |
| 35,703 | |
| 23,341 | | 65.4 | | |
| 11,579 | |
| 11,241 | |
| 338 | | 3.0 | |
Depreciation of equipment on operating leases | |
| 237,405 | |
| 229,652 | |
| 7,753 | | 3.4 | | |
| 178,969 | |
| 201,582 | |
| (22,613) | | (11.2) | |
Other expenses | |
| 35,303 | |
| 48,446 | |
| (13,143) | | (27.1) | | ||||||||||||
Other expenses, net | |
| 17,034 | |
| (3,655) | |
| 20,689 | | (566.0) | | ||||||||||||
Total expenses |
| $ | 657,615 | | $ | 707,675 | | $ | (50,060) | | (7.1) | % |
| $ | 795,625 | | $ | 501,833 | | $ | 293,792 | | 58.5 | % |
InterestTotal interest expense totaled $280.0was $534.2 million for the year ended December 31, 20202023 compared to $347.3$241.8 million for the year ended December 31, 2019.2022. The decreaseincrease was primarily due to a $54.3the unfavorable impacts of $245.1 million favorable impact from lowerhigher average interest rates and a $13.0$47.3 million favorable impact from lowerhigher average total debt. The average debt cost was 2.7%4.5% for the year ended December 31, 20202023 compared to 3.3%2.4% for the year ended December 31, 2019.2022.
The provision for credit losses was $59.0$11.6 million for the year ended December 31, 20202023 was relatively flat compared to a provision of $35.7$11.2 million for the year ended December 31, 2019. The increase in 2020 was primarily due to the expectation of deteriorating credit conditions related to the COVID-19 pandemic and the adoption of the new allowance for credit losses accounting standard on January 1, 2020. In the current year, we measured our allowance based on management’s estimate of the lifetime expected credit losses inherent in the receivables while in the prior period, we measured our allowance based on management’s estimate of incurred credit losses.2022.
Depreciation of equipment on operating leases increaseddecreased by $7.8$22.6 million for the year ended December 31, 20202023 compared to the year ended December 31, 2019,2022, primarily due to mix of products in thea lower average operating lease portfolio.
Other expenses, decreasednet increased by $13.1$20.7 million for the year ended December 31, 20202023 compared to the prior year, primarily due to lower lossesgains on used equipment sales.sales as a result of decreased operating lease maturities.
The effective tax rate for the year ended December 31, 20202023 was a provision of 23.3%22.4%, compared to a provision of 22.9%24.4% for the year ended December 31, 2019.2022.
18
Receivables and Equipment on Operating Leases Originated and Held
Receivables and equipment on operating lease originations for the years ended December 31, 20202023 and 20192022 were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 |
| 2019 |
| $ Change |
| % Change | | | 2023 |
| 2022 |
| $ Change |
| % Change | | ||||||
Retail |
| $ | 3,030,219 | | $ | 2,817,879 | | $ | 212,340 | | 7.5 | % | ||||||||||||
Retail customer |
| $ | 4,330,215 | | $ | 3,733,700 | | $ | 596,515 | | 16.0 | % | ||||||||||||
Revolving charge accounts | | | 1,010,687 | | | 219,644 | | | 791,043 |
| 360.1 | | ||||||||||||
Wholesale | |
| 7,441,811 | |
| 8,418,508 | |
| (976,697) |
| (11.6) | | |
| 13,885,020 | |
| 11,086,435 | |
| 2,798,585 |
| 25.2 | |
Wholesale factoring | | | — | | | 144,040 | | | (144,040) |
| (100.0) | | ||||||||||||
Equipment on operating leases | |
| 598,387 | |
| 715,686 | |
| (117,299) |
| (16.4) | | |
| 521,144 | |
| 517,623 | |
| 3,521 |
| 0.7 | |
Total originations |
| $ | 11,070,417 | | $ | 12,096,113 | | $ | (1,025,696) | | (8.5) | % |
| $ | 19,747,066 | | $ | 15,557,402 | | $ | 4,189,664 | | 26.9 | % |
The year-over-year increaseincreases in originations for retail originations wascustomer receivables and equipment on operating leases were primarily due to increased penetration. The year-over-year decrease in wholesalebetter penetration rates. Wholesale originations was primarilyincreased due to decreased unit saleshigher shipment volumes of CNH Industrial North America agricultural equipment, whileequipment. During the year-over-year decrease in operating lease originations was primarily due to programming.fourth quarter of 2022, we began offering revolving charge account financing.
Total receivables
21
Receivables and equipment on operating leases held as of December 31, 20202023 and 20192022 were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2020 |
| 2019 |
| $ Change |
| % Change | |
| 2023 |
| 2022 |
| $ Change |
| % Change | | ||||||
Retail |
| $ | 6,270,448 | | $ | 6,268,251 | | $ | 2,197 | | 0.0 | % | ||||||||||||
Retail customer |
| $ | 8,204,470 | | $ | 7,275,284 | | $ | 929,186 | | 12.8 | % | ||||||||||||
Revolving charge accounts | | | 205,872 | | | 207,744 | | | (1,872) |
| (0.9) | | ||||||||||||
Wholesale | |
| 2,762,499 | |
| 3,639,774 | |
| (877,275) |
| (24.1) | | |
| 5,160,120 | |
| 3,383,804 | |
| 1,776,316 |
| 52.5 | |
Equipment on operating leases | |
| 1,859,184 | |
| 1,783,283 | |
| 75,901 |
| 4.3 | | |
| 1,378,384 | |
| 1,472,973 | |
| (94,589) |
| (6.4) | |
Total receivables and equipment on operating leases |
| $ | 10,892,131 | | $ | 11,691,308 | | $ | (799,177) | | (6.8) | % |
| $ | 14,948,846 | | $ | 12,339,805 | | $ | 2,609,041 | | 21.1 | % |
The total balance of retail customer receivables balance greater than 30 days past due as a percentage of the retail customer receivables was 1.1% and 1.0%1.2% at both December 31, 20202023 and 2019, respectively.2022. The total wholesale receivables balance greater than 30 days past due as a percentage of the wholesale receivables was not significant at December 31, 20202023 or 2019. Total retail2022. The total revolving charge account receivables on nonaccrual status, which representbalance greater than 30 days past due as a percentage of the revolving charge account receivables for which we have ceased accruing finance income, were $37.5 millionwas 5.0% and $37.2 million12.0% at December 31, 20202023 and 2019,2022, respectively.
Total wholesaleretail customer receivables on nonaccrual status were $35.4$60.9 million and $29.2$53.5 million at December 31, 20202023 and 2019,2022, respectively. As of December 31, 2023, total revolving charge account receivables on nonaccrual status were immaterial and there were no revolving charge account receivables on nonaccrual status as of December 31, 2022. As of December 31, 2023 and 2022, there were no wholesale receivables on nonaccrual status.
Total receivable charge-offs and recoveries, by product, for the years ended December 31, 20202023 and 20192022 were as follows (dollars in thousands):
| | | | | | | ||||||
| | | | | | | ||||||
| | 2020 |
| 2019 | | 2023 |
| 2022 | ||||
Charge-offs: |
| | | | | |
| | | | | |
Retail | | $ | 23,147 | | $ | 35,535 | ||||||
Retail customer | | $ | 17,624 | | $ | 8,202 | ||||||
Revolving charge accounts | | | 6,512 | | | 49 | ||||||
Wholesale | |
| 1,530 | |
| 5,102 | |
| — | |
| 4,631 |
Total charge-offs |
|
| 24,677 | |
| 40,637 |
|
| 24,136 | |
| 12,882 |
Recoveries: |
| | | | | |
| | | | | |
Retail | |
| (2,481) | |
| (3,046) | ||||||
Retail customer | |
| (1,785) | |
| (2,262) | ||||||
Revolving charge accounts | | | (221) | | | — | ||||||
Wholesale | |
| (10) | |
| (16) | |
| (26) | |
| (526) |
Total recoveries |
|
| (2,491) | |
| (3,062) |
|
| (2,032) | |
| (2,788) |
Charge-offs, net of recoveries: |
| | | | | |
| | | | | |
Retail | |
| 20,666 | |
| 32,489 | ||||||
Retail customer | |
| 15,839 | |
| 5,940 | ||||||
Revolving charge accounts | | | 6,291 | | | 49 | ||||||
Wholesale | |
| 1,520 | |
| 5,086 | |
| (26) | |
| 4,105 |
Total charge-offs, net of recoveries |
| $ | 22,186 | | $ | 37,575 |
| $ | 22,104 | | $ | 10,094 |
Our allowance for credit losses on all receivables financed totaled $136.1$114.7 million at December 31, 20202023 and $72.8$125.0 million at December 31, 2019. The allowance for credit losses includes $26 million recorded on January 1, 2020 upon the adoption of ASC 326.2022.
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The allowance is subject to a quarterly evaluation based on many quantitative and qualitative factors, including historical loss experience by product category, portfolio duration, delinquency trends, forward lookingforward-looking macroeconomic factors (in particular, those conditions directly affecting the profitability and financial strength of our customers), and collateral value. No single factor determines the adequacy of the allowance. Different assumptions or changes in forward lookingforward-looking economic assumptions would result in changes to the allowance for credit losses and the provision for credit losses. These qualitative factors are subjective and require a degree of management judgment.
We believe our allowance is sufficient to provide for losses in our receivable portfolio as of December 31, 2020.2023.
22
Year Ended December 31, 20192022 Compared to Year Ended December 31, 20182021
Comparisons for the year ended December 31, 20192022 to the year ended December 31, 20182021 are discussed in Item 7 of the Company’s 20192022 annual report filed with the SEC on March 3, 2020.February 28, 2023.
Liquidity and Capital Resources
The following discussion of liquidity and capital resources principally focuses on our statements of cash flows, balance sheets and capitalization. CNH Industrial Capital’s current funding strategy is to maintain sufficient liquidity and flexible access to a wide variety of financial instruments.instruments and funding options.
In the past, securitization has been one of our most economical sources of funding and, therefore, the majority of our originated receivables are securitized, with the cash generated from such receivables utilized to repay the related debt or purchase new receivables.
In addition, we have secured and unsecured facilities, a repurchase agreement, commercial paper, unsecured notes,bonds, affiliate borrowings and cash to fund our liquidity needs.
Cash Flows
For the years ended December 31, 20202023 and 2019,2022, our cash flows were as follows (dollars in thousands):
| | | | | | | | | | | | |
| | 2020 |
| 2019 | | 2023 |
| 2022 | ||||
Cash flows from (used in): |
| | | | | |
| | | | | |
Operating activities | | $ | 117,118 | | $ | 482,684 | | $ | 193,035 | | $ | 695,366 |
Investing activities | |
| 757,935 | |
| (46,952) | |
| (2,761,004) | |
| (1,926,919) |
Financing activities | |
| (660,746) | |
| (431,359) | |
| 2,657,317 | |
| 911,473 |
Net cash increase (decrease) |
| $ | 214,307 | | $ | 4,373 | ||||||
Net cash decrease |
| $ | 89,348 | | $ | (320,080) |
OperatingThe decrease in net cash from operating activities infor the year ended December 31, 2020 generated cash of $117 million, resulting primarily from net income of $143 million, adjusted by depreciation and amortization of $239 million and provision for credit losses of $59 million, partially offset by $12 million of deferred tax benefits and changes in working capital of $312 million. The decrease in cash provided by operating activities in 20202023 compared to 2019the same period in 2022 was primarily due to $340 million related to changes in components of working capital, a $51 million change in deferred income tax adjustment and a $6 million decreasecapital. The increase in net income, partially offset by a $23 million increase in provisioncash used for credit losses and a $8 million increase in depreciation and amortization expense. Operatinginvesting activities in 2019 generated cash of $483 million, resulting primarily from net income of $149 million, adjusted by depreciation and amortization of $231 million, provision for credit losses of $36 million, deferred tax expenses of $38 million and changes in working capital of $28 million.
Investing activities in the year ended December 31, 2020 generated cash of $758 million, resulting2023 was primarily from a net reductiondue to increases in receivables of $915 million, partially offset by net expenditures of $154$735.4 million for receivables and $92.8 million for equipment on operating leases and $3 millionleases. Net cash used for property, equipment and software. The increase in cash provided by investing activities in 2020 compared to 2019 was primarily due to a $744funded through increased external borrowings of $2,101.0 million, decrease in net expenditures for receivables, a $60capital contributions from CNH America of $75.0 million decrease in net expenditures for equipment on operating leases and a $1lower dividends paid of $135.0 million, decrease in expenditures for property, equipment and software. Investing activities in 2019 used cash of $47 million, resulting
20
primarily from net expenditures of $214 million for equipment on operating leases and $4 million for property, equipment and software, partially offset by a net reduction in receivables of $171 million.
Financing activities in the year ended December 31, 2020 used cash of $661 million, resulting primarily from net cash paid on short-term borrowings and affiliated debt of $640 million and $30 million, respectively, and $130 million in dividends paid to CNH Industrial America, partially offset by net cash received on long-term debt of $139 million. The increase in cash used in financing activities in 2020 compared to 2019 was primarily due to an increase in net cash paid on short-term borrowings of $754 million, partially offset by a decrease in net cash paid on long-term debt and affiliated debt of $358 million and $32 million, respectively, and lower dividends of $135 million paid to CNH Industrial America. Financing activities in 2019 used cash of $431 million, resulting primarily from $265 million in dividends paid to CNH Industrial America and net cash paid on long-term debt and affiliated debt of $218 million and $62 million, respectively, partially offset by net cash received on short-term borrowings of $114$565.2 million.
CNH Industrial Capital and its predecessor entities have been securitizing receivables since 1992. This market is a cost-effective financing source and allows access to a wide investor base. CNH Industrial Capital had approximately $4.0$5.0 billion of public and private asset-backed securities outstanding in both the U.S. and Canada as of December 31, 2020.2023. Our securitizations are treated as financing arrangements for accounting purposes.
Committed Asset-Backed Facilities
CNH Industrial Capital has committed asset-backed facilities with several banks or through their commercial paper conduit programs. Committed asset-backed facilities for the U.S. and Canada totaled $3.1$3.3 billion at December 31, 2020,2023, with original borrowing maturities of up to two years. The unused availability under the facilities varies during the year, depending on origination volume and the refinancing of receivables with term securitization transactions and/or other financing. At December 31, 2020,2023, approximately $176$0.4 million of funding was available for use under these facilities.
23
Repurchase Agreement
On September 26, 2023, the Company entered into a Global Master Repurchase Agreement which expires in September 2024. At December 31, 2023, the Company had C$299.9 million ($226.3 million) outstanding under the repurchase agreement, with an obligation to repurchase the underlying receivables in 30 days. Our repurchase agreements are treated as financing arrangements for accounting purposes.
Unsecured Facilities and Debt
Committed and uncommitted unsecured facilities with banks as of December 31, 20202023, totaled $777$815.8 million. These credit facilities, which are eligible for renewal at various future dates, are used primarily for working capital and other general corporate purposes. As of December 31, 2020,2023, we had $181$415.8 million outstanding under these credit facilities. The remaining available credit commitments are maintained primarily to provide backup liquidity for our commercial paper borrowings, as needed. There was noborrowings. Our outstanding commercial paper totaled $347.9 million as of December 31, 2020.2023.
As of December 31, 2020,2023, our unsecured senior notes were as follows (dollars in thousands):
| | | |
Issued by CNH Industrial Capital LLC (the ‘‘U.S. Senior Notes’’): (1) | | | |
4.200% notes, due 2024 |
| $ | 500,000 |
3.950% notes, due 2025 | |
| 500,000 |
5.450% notes, due 2025 | | | 400,000 |
1.875% notes, due 2026 | | | 500,000 |
1.450% notes, due 2026 | | | 600,000 |
4.550% notes, due 2028 | | | 600,000 |
5.500% notes, due 2029 | | | 500,000 |
Hedging, discounts and unamortized issuance costs | | | (35,937) |
|
| | 3,564,063 |
Issued by CNH Industrial Capital Canada Ltd. (the ‘‘Canadian Senior Notes’’): (2) | | | |
1.500% notes, due 2024 |
| | 226,404 |
5.500% notes, due 2026 | | | 301,871 |
Discounts and unamortized issuance costs | | | (2,338) |
|
| | 525,937 |
Total |
| $ | 4,090,000 |
| | | |
4.875% notes, due 2021 | | $ | 500,000 |
3.875% notes, due 2021 | |
| 400,000 |
4.375% notes, due 2022 | |
| 500,000 |
1.950% notes, due 2023 | | | 600,000 |
4.200% notes, due 2024 | | | 500,000 |
1.875% notes, due 2026 | | | 500,000 |
Hedging, discounts and unamortized issuance costs | | | 41,689 |
Total |
| $ | 3,041,689 |
(1) | These notes, which are senior unsecured obligations of CNH Industrial Capital LLC, are guaranteed by CNH Capital America and New Holland Credit. |
(2) | These notes, which are senior unsecured obligations of CNH Capital Canada, are guaranteed by CNH Industrial Capital LLC, CNH Capital America and New Holland Credit. |
On April 10, 2023, CNH Industrial Capital LLC are guaranteed bycompleted an offering of $600 million in aggregate principal amount of 4.550% unsecured notes due 2028, with an issue price of 98.857%.
On August 11, 2023, CNH Industrial Capital America and New Holland Credit.
On November 6, 2020, we repaid $600Canada Ltd. completed a private placement offering of C$400 million ($298 million) in aggregate principal amount of our 4.375%its 5.500% unsecured notes due 2020.
21
Table2026, with an issue price of Contents99.883%.
On September 13, 2023, CNH Industrial Capital LLC completed an offering of $500 million in aggregate principal amount of 5.500% unsecured notes due 2029, with an issue price of 99.399%.
Credit Ratings
Our ability to obtain funding is affected by credit ratings of our debt, which are closely related to the outlook for and the financial condition of CNHI, and the nature and availability of our support agreement with CNHI.
24
To access public debt capital markets, we rely on credit rating agencies to assign short-term and long-term credit ratings to our securities as an indicator of credit quality for fixed income investors. A credit rating agency may change or withdraw our ratings based on its assessment of our current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets.
TheOn November 30, 2023, Standard & Poor's ("S&P") Global Ratings raised its long-term issuer credit rating on CNH Industrial Capital LLC and CNH Capital Canada to ‘BBB+’ from ‘BBB’. S&P Global Ratings also affirmed the 'A-2' short-term issuer credit rating. Additionally, S&P Global Ratings raised the issue-level ratings on CNH Industrial Capital LLC's senior long-term and short-term debt ratings and outlook currently assigned to our unsecured debt, securities by the rating agencies engaged by usto 'BBB+' from 'BBB'. The outlook is stable. Our credit ratings from both Fitch Ratings and Moody’s Investor Services remained unchanged with stable outlooks.
Our current credit ratings are the same as those for CNHI. Those ratings as of December 31, 2020 were as follows:
| | | | | | |
| | Senior Long-Term |
| Short-Term |
| Outlook |
S&P Global Ratings |
| | A-2 | | Stable | |
Fitch Ratings | |
| |
| | Stable |
Moody's Investors Service |
|
| | - | | Stable |
Affiliate Sources
CNH Industrial Capital borrows, as needed, from CNH Industrial.CNH. This source of funding is primarily used to finance various assets and provides additional flexibility when evaluating market conditions and potential third-party financing options. We had affiliated debt of $187$132.5 million and $214$341.5 million as of December 31, 20202023 and 2019,2022, respectively.
Equity Position
Our equity position also supports our ability to access various funding sources. Our stockholder’s equity at both December 31, 20202023 and 20192022 was $1.6 billion and $1.3 billion.billion, respectively. During 2020,2023, CNH Industrial Capital LLC paidreceived cash dividendscapital contributions of $130$75.0 million tofrom CNH Industrial America.
Liquidity
While we expect securitization to continue to represent a material portion of our capital structure and affiliated borrowings to remain a marginal source of funding, we will continue to diversify our funding sources and expand our investor base to support our investment grade credit ratings. These diversified funding sources include committed asset-backed facilities, a repurchase agreement, unsecured notes, bank facilities and a commercial paper program.
The liquidity available for use varies due to: (a) changes in origination volumes, reflecting the financing needs of our customers, and is influenced by the timing of any refinancing of underlying receivables; and (b) the execution of our funding strategy of maintaining a sufficient level of liquidity and flexible access to a wide variety of financial instruments.
22
Debt
Our consolidated debt as of December 31, 20202023 and 20192022 is set forth in the table below (dollars in thousands):
| | | | | | |
|
| 2023 |
| 2022 | ||
Short-term debt (including current maturities of long-term debt) |
| $ | 5,519,792 | | $ | 4,096,426 |
Long-term debt | |
| 7,859,629 | |
| 6,387,135 |
Total third-party debt |
|
| 13,379,421 | |
| 10,483,561 |
Affiliated debt | |
| 132,492 | |
| 341,531 |
Total debt |
| $ | 13,511,913 | | $ | 10,825,092 |
| | | | | | |
|
| 2020 |
| 2019 | ||
Short-term debt (including current maturities of long-term debt) |
| $ | 4,229,428 | | $ | 4,790,172 |
Long-term debt | |
| 5,869,860 | |
| 5,779,581 |
Total third-party debt |
|
| 10,099,288 | |
| 10,569753 |
Affiliated debt | |
| 187,310 | |
| 213,856 |
Total debt |
| $ | 10,286,598 | | $ | 10,783,609 |
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Cash Cash Equivalents and Restricted Cash and Cash Equivalents
The following table shows cash and restricted cash and cash equivalents and restricted cash as of December 31, 20202023 and 20192022 (dollars in thousands):
| | | | | | | ||||||
| | | | | | | ||||||
|
| 2020 |
| 2019 |
| 2023 |
| 2022 | ||||
Cash and cash equivalents |
| $ | 392,929 | | $ | 174,966 |
| $ | 390,110 | | $ | 262,244 |
Restricted cash | |
| 625,622 | |
| 629,278 | |
| 407,817 | |
| 446,335 |
Total cash |
| $ | 1,018,551 | | $ | 804,244 |
| $ | 797,927 | | $ | 708,579 |
CashRestricted cash and cash equivalents and restricted cash are comprised of highly liquid investments with short-term original maturities. See “Liquidity and Capital Resources - Cash Flows” for a further discussion of the change in our cash position.
Restricted cash is principally held by depository banks in order to comply with securitization contractual agreements, such as providing cash reserve accounts for the benefit of securitization investors.
Off-Balance Sheet Arrangements
For additional information, see “Note 13: Commitments and Contingencies” to our consolidated financial statements for the year ended December 31, 2020.2023.
23
Contractual Obligations
The following table sets forth the aggregate amounts of our contractual obligations and commitments as of December 31, 20202023 with definitive payment terms that will require significant cash outlays in the future (dollars in thousands).
| | | | | | | | | | | | | | | |
| | Payments Due by Period | |||||||||||||
|
| | |
| Less than |
| | |
| | |
| After | ||
| | Total | | 1 year | | 1 - 3 years | | 4 - 5 years | | 5 years | |||||
Short-term and long-term debt (1) |
| $ | 13,379,421 | | $ | 5,519,792 | | $ | 5,403,251 | | $ | 1,888,677 | | $ | 567,701 |
Affiliated debt | |
| 132,492 | |
| 132,492 | |
| — | |
| — | |
| — |
Interest on fixed rate debt | |
| 1,416,576 | |
| 370,644 | |
| 646,654 | |
| 371,778 | |
| 27,500 |
Interest on floating rate debt (2) | |
| 1,155,458 | |
| 254,359 | |
| 486,239 | |
| 408,899 | |
| 5,961 |
Operating leases (3) | |
| 9,290 | |
| 1,858 | |
| 5,574 | |
| 1,858 | |
| — |
Total contractual obligations |
| $ | 16,093,237 | | $ | 6,279,145 | | $ | 6,541,718 | | $ | 2,671,212 | | $ | 601,162 |
| | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| |||||||||||||
|
| | |
| Less than |
| | |
| | |
| After |
| ||
| | Total | | 1 year | | 1 - 3 years | | 4 - 5 years | | 5 years |
| |||||
Short-term and long-term debt (1) |
| $ | 10,099,288 | | $ | 4,229,428 | | $ | 3,840,801 | | $ | 1,448,926 | | $ | 580,133 | |
Affiliated debt | |
| 187,310 | |
| 187,310 | |
| — | |
| — | |
| — | |
Interest on fixed rate debt | |
| 749,893 | |
| 197,656 | |
| 340,337 | |
| 202,525 | |
| 9,375 | |
Interest on floating rate debt (2) | |
| 152,286 | |
| 35,413 | |
| 65,742 | |
| 49,921 | |
| 1,210 | |
Operating leases (3) | |
| 9,500 | |
| 1,900 | |
| 5,700 | |
| 1,900 | |
| — | |
Total contractual obligations |
| $ | 11,198,277 | | $ | 4,651,707 | | $ | 4,252,580 | | $ | 1,703,272 | | $ | 590,718 | |
See “Liquidity and Capital Resources - Debt” for information relating to our consolidated debt as of December 31, 2020.2023.
Guarantor Statements
CNH Capital America and New Holland Credit, which are 100%-owned subsidiaries of CNH Industrial Capital LLC, guarantee the U.S. Senior Notes (the “U.S. Notes Guarantees”). CNH Industrial Capital LLC, CNH Capital America and New Holland Credit (the “Guarantor Entities”) guarantee the Canadian Senior Notes (the “Canadian Notes Guarantees” and, together with the U.S. Notes Guarantees, the “Guarantees”). The Guarantees are full, unconditional, and joint and several.
26
The Guarantees are general unsecured obligations of the applicable Guarantor Entities and rank senior in right of payment to all future obligations of such Guarantor Entities that are, by their terms, expressly subordinated in right of payment to such Guarantees and pari passu in right of payment with all existing and future unsecured indebtedness of such Guarantor Entities that are not so subordinated.
The Guarantor Entities’ obligations under their applicable Guarantees are limited as necessary to prevent the Guarantees from constituting a fraudulent conveyance under applicable law. If the Guarantees were rendered voidable, they could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Guarantor Entities and, depending on the amount of the indebtedness, such Guarantor Entities’ liability on the Guarantees to which they are parties could be reduced to zero.
The Guarantees of the Guarantor Entities will be automatically released:
(1) | in connection with any sale or other disposition of all of the capital stock of the applicable Guarantor Entities to a person other than, for purposes of the U.S. Notes Guarantees, CNH Industrial Capital LLC or any subsidiary of CNH Industrial Capital LLC, or, for purposes of the Canadian Notes Guarantees, CNH Industrial N.V. or any subsidiary of CNH Industrial N.V.; |
(2) | in connection with the sale or other disposition of all or substantially all of the assets or properties of the applicable Guarantor Entities, including by way of merger, consolidation or otherwise, to a person other than, for purposes of the U.S. Notes Guarantees, CNH Industrial Capital LLC or any subsidiary of CNH Industrial Capital LLC or, for purposes of the Canadian Notes Guarantees, CNH Industrial N.V. or any subsidiary of CNH Industrial N.V.; or |
(3) | in certain other circumstances. |
The following tables present summarized financial information for the obligor groups of the U.S. Senior Notes and the Canadian Senior Notes. The obligor group consists of the issuer and guarantors for the applicable senior notes. Intercompany balances and transactions between the issuer and guarantors have been eliminated. The investments in, and equity in income from, non-guarantor subsidiaries has been excluded.
For the years ended December 31, 2023 and 2022, the summarized statement of income information for the obligor group of the U.S. Senior Notes was as follows (dollars in thousands):
| | | | | | |
| | 2023 | | 2022 | ||
Revenues |
| $ | 638,908 | | $ | 462,893 |
Interest expense | | | 418,980 | | | 170,955 |
Administrative and operating expenses | | | 197,393 | | | 202,652 |
Income tax provision (benefit) | | | 6,042 | | | 22,424 |
Net income |
| $ | 16,493 | | $ | 66,862 |
For the U.S. Senior Notes, affiliated interest amounts recorded from and to the non-guarantor subsidiaries of CNH Industrial Capital LLC for the years ended December 31, 2023 and 2022 were as follows (dollars in thousands):
| | | | | | |
| | 2023 | | 2022 | ||
Interest and other income from affiliates | | $ | 63,762 | | $ | 37,355 |
Interest expense to affiliates | | | 199,923 | | | 82,993 |
27
As of December 31, 2023 and 2022, the summarized balance sheet information for the obligor group of the U.S. Senior Notes was as follows (dollars in thousands):
| | | | | | |
| | 2023 | | 2022 | ||
Cash |
| $ | 268,448 | | $ | 235,428 |
Restricted cash and cash equivalents | | | — | | | — |
Receivables, less allowance for credit losses of $33,308 and $36,093 | | | 3,247,283 | | | 2,198,816 |
Equipment on operating leases, net | | | 924,835 | | | 1,055,313 |
Short-term debt, including current maturities of long-term debt | | | 1,091,813 | | | 975,566 |
Accounts payable and other accrued liabilities | | | 660,587 | | | 784,491 |
Long-term debt | | | 3,398,119 | | | 2,456,038 |
For the U.S. Senior Notes, the obligors’ amounts due from and due to the non-guarantor subsidiaries of CNH Industrial Capital LLC as of December 31, 2023 and 2022 were as follows (dollars in thousands):
| | | | | | |
| | 2023 | | 2022 | ||
Affiliated accounts and notes receivable |
| $ | 3,223,627 | | $ | 2,689,403 |
Accounts payable and other accrued liabilities | | | 3,706,424 | | | 3,254,572 |
For the years ended December 31, 2023 and 2022, the summarized statement of income information for the obligor group of the Canadian Senior Notes was as follows (dollars in thousands):
| | | | | | |
| | 2023 | | 2022 | ||
Revenues |
| $ | 851,475 | | $ | 629,474 |
Interest expense | | | 509,590 | | | 218,534 |
Administrative and operating expenses | | | 263,048 | | | 266,809 |
Income tax provision | | | 17,286 | | | 36,183 |
Net income |
| $ | 61,551 | | $ | 107,948 |
For the Canadian Senior Notes, affiliated interest amounts recorded from and to the non-guarantor subsidiaries of CNH Industrial Capital LLC for the years ended December 31, 2023 and 2022 were as follows (dollars in thousands):
| | | | | | |
| | 2023 | | 2022 | ||
Interest and other income from affiliates | | $ | 62,162 | | $ | 35,028 |
Interest expense to affiliates | | | 199,923 | | | 84,494 |
As of December 31, 2023 and 2022, the summarized balance sheet information for the obligor group of the Canadian Senior Notes was as follows (dollars in thousands):
| | | | | | |
| | 2023 | | 2022 | ||
Cash |
| $ | 319,921 | | $ | 260,907 |
Restricted cash and cash equivalents | | | 70,949 | | | 88,589 |
Receivables, less allowance for credit losses of $44,954 and $51,237 | | | 5,671,733 | | | 4,291,809 |
Equipment on operating leases, net | | | 1,378,384 | | | 1,472,973 |
Short-term debt, including current maturities of long-term debt | | | 2,393,553 | | | 1,561,788 |
Accounts payable and other accrued liabilities | | | 800,693 | | | 877,678 |
Long-term debt | | | 4,473,453 | | | 3,477,671 |
For the Canadian Senior Notes, the obligors’ amounts due from and due to the non-guarantor subsidiaries of CNH Industrial Capital LLC as of December 31, 2023 and 2022 were as follows (dollars in thousands):
| | | | | | |
| | 2023 | | 2022 | ||
Affiliated accounts and notes receivable |
| $ | 3,183,986 | | $ | 2,576,713 |
Accounts payable and other accrued liabilities | | | 3,729,866 | | | 3,276,544 |
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Other Data
| | | | | | | | | | |
| | As of or for the |
| |||||||
| | Year Ended December 31, |
| |||||||
| | 2023 | | 2022 | | 2021 |
| |||
| | (Dollars in thousands) | | |||||||
Gross receivables |
| $ | 13,570,462 | | $ | 10,866,832 | | $ | 9,067,252 | |
Equipment on operating leases, net | |
| 1,378,384 | | | 1,472,973 | |
| 1,707,531 | |
Total portfolio |
| $ | 14,948,846 | | $ | 12,339,805 | | $ | 10,774,783 | |
Delinquency (1) |
|
| 0.81 | % | | 1.02 | % |
| 0.48 | % |
Average gross receivables balance |
| $ | 11,953,923 | | $ | 9,728,967 | | $ | 8,970,948 | |
Net credit loss (2) |
|
| 0.18 | % | | 0.10 | % |
| 0.14 | % |
Profitability: |
|
|
| | | | |
|
| |
Average receivable yields (3) | | | 6.54 | % | | 4.79 | % | | 4.72 | % |
Average debt cost | | | 4.48 | % | | 2.43 | % | | 2.00 | % |
Return on average portfolio (4) | |
| 1.61 | % | | 1.94 | % |
| 2.14 | % |
Asset Quality: |
|
|
| | | | |
|
| |
Allowance for credit losses / gross receivables | |
| 0.85 | % | | 1.15 | % |
| 1.28 | % |
| | | | | | | | | | |
| | As of or for the |
| |||||||
| | Year Ended December 31, |
| |||||||
| | 2020 | | 2019 | | 2018 |
| |||
| | (Dollars in thousands) | | |||||||
Total managed receivables |
| $ | 9,032,947 | | $ | 9,908,025 | | $ | 10,025,338 | |
Operating lease equipment | |
| 1,859,184 | | | 1,783,283 | |
| 1,724,217 | |
Total managed portfolio |
| $ | 10,892,131 | | $ | 11,691,308 | | $ | 11,749,555 | |
Delinquency (1) |
|
| 0.74 | % | | 0.69 | % |
| 0.57 | % |
Average managed receivables |
| $ | 9,356,087 | | $ | 9,987,527 | | $ | 10,051,880 | |
Net credit loss (2) |
|
| 0.24 | % | | 0.38 | % |
| 0.36 | % |
Profitability: |
|
|
| | | | |
|
| |
Average receivable yields (3) | | | 5.33 | % | | 5.72 | % | | 5.49 | % |
Average debt cost | | | 2.73 | % | | 3.26 | % | | 3.03 | % |
Return on average managed portfolio (4) | |
| 1.29 | % | | 1.27 | % |
| 1.33 | % |
Asset Quality: |
|
|
| | | | |
|
| |
Allowance for credit losses/total receivables (5) | |
| 1.51 | % | | 0.73 | % |
| 0.74 | % |
(1) | Delinquency |
(2) | Net credit losses on the |
(3) | Yield on retail notes, finance leases, revolving charge accounts and wholesale receivables. |
(4) | Net income for the period expressed as a percentage of the average |
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Cautionary Note Regarding Forward-Looking Statements
The annual report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact contained in this filing, including statements regarding our future responses to COVID-19 pandemic; competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, capital expenditures, dividends, capital structure or other financial items; costs; and plans and objectives of management regarding operations, products and services, are forward-looking statements. These statements may include terminology such as “may,” “will,” “expect,” “could,” “should,” “intend,” “estimate,” “anticipate,” “believe,” “outlook,” “continue,” “remain,” “on track,” “design,” “target,” “objective,” “goal,” “forecast,” “projection,” “prospects,” “plan,” or similar terminology. Forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside our control and are difficult to predict. If any of these risks and uncertainties materialize or other assumptions underlying any of the forward-looking statements prove to be incorrect, the actual results or developments may differ materially from any future results or developments expressed or implied by the forward-looking statements.
Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: the many interrelated factors that affect customer confidence and demand for our financing products and services; the unknown duration and economic, operational and financial impacts of the COVID-19 pandemic; general economic conditions; changes in government policies regarding banking, monetary and fiscal policies; legislation, particularly relating to capital goods-related issues such as agriculture, the environment, debt relief and subsidy program policies, trade and commerce and infrastructure development; government policies on international trade and investment, including protectionist trade policies such as higher tariffs, sanctions, import quotas, capital controls and new barriers to entry or consequent reactions by other governments against such policies; costs related to litigation or regulatory actions; actions of competitors in the various industries in which CNH Industrial North America competes; interest rates and currency exchange rates; inflation and deflation; energy prices; prices for agricultural commodities; housing starts and other construction activity; our ability to obtain financing or to refinance existing debt; restrictive covenants in our debt agreements; actions by rating agencies concerning the ratings on our debt and asset-backed securities and the credit rating of CNHI; a decline in the price of used equipment; political and civil unrest; volatility and deterioration of capital and financial markets, the duration and scope of the COVID-19 pandemic and governmental, business and individuals’ response thereto; other similar risks and uncertainties and our success, and CNH Industrial North America’s success, in managing the risks involved in the foregoing.
Forward-looking statements are based upon assumptions relating to the factors described in this annual report, which are sometimes based upon estimates and data received from third parties. Such estimates and data are often revised. Our actual results could differ materially from those anticipated in such forward-looking statements. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update or revise publicly our 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 “Item 1A. Risk Factors” of this annual report.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses during the reported periods. Actual results may differ from these estimates under different assumptions and conditions. Our critical accounting policies and estimates, which require management assumptions and complex judgments, are summarized below.
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Allowance for Credit Losses
The allowance for credit losses is our estimate of the lifetime expected credit losses inherent in the receivables owned by us. Retail customer receivables primarily include retail and other notes and finance lease products offeredleases to end-use customers. Revolving charge accounts represent financing for retail purchases of newcustomers to purchase parts, service, rentals, implements and used equipment sold through our dealer network.attachments from CNH North America dealers. Wholesale receivables include dealer floorplan financing, of the sale of goods to dealers and distributors by us, and to a lesser extent, the financing of dealer operations. Wholesale factoring receivables represent the short-term receivables purchased from Iveco Argentina S.A. Typically, our receivables within a geographic area have similar risk profiles and methods for assessing and monitoring risk.
Retail customer receivables that share the same risk characteristics such as, collateralization levels, geography, product type and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for retail credit losses on retail customer receivables is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward lookingforward-looking macroeconomic factors, such as GDP and Net Farm Income. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors such as the potential impact of COVID-19, that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
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Wholesale receivables that share the same risk characteristics such as, collateralization levels, term, geography and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for wholesale credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward lookingforward-looking macroeconomic factors, such as industry sales volumes. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
WholesaleRetail customer receivables and retailwholesale receivables that do not have similar risk characteristics are individually reviewed based on, among other items, amounts outstanding, days past due and prior collection history. Expected credit losses are measured by considering: the probability-weightedprobability weighted estimates of cash flows and collateral value; the time value of money; current conditions and forecasts of future economic conditions. Expected credit losses are measured as the probability-weightedprobability weighted present value of all cash shortfalls (including the value of the collateral, if appropriate) over the expected life of each financial asset. Charge offs
Charge-offs of principal amounts of retail customer receivables and wholesale receivables outstanding are deducted from the allowance at the point when it is estimated that amounts due are deemed uncollectible. When delinquency reaches 120 days, revolving charge accounts are generally deemed to be uncollectible and charged off to the allowance for credit losses.
The total allowance for credit losses at December 31, 20202023 and 20192022 was $136.1$114.7 million and $72.8$125.0 million, respectively. For further information, see the adoption of ASC 326 in Note 2: Summary of Significant Accounting Policies to the consolidated financial statements for the year ended December 31, 2020. Management’s ongoing evaluation of the adequacy of the allowance for credit losses takes into consideration historical loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’scustomer’s ability to repay, estimated value of underlying collateral and current and future economic conditions.
While management believes it has exercised prudent judgment and applied reasonable assumptions, there can be no assurance that, in the future, changes in economic conditions or other factors will not cause changes in the financial condition of our customers. If the financial condition of some of our customers deteriorates, the timing and level of payments received could be impacted and, therefore, could result in an increase in losses on the current portfolio.
Equipment on Operating Lease Residual Values
We purchase equipment from our dealers and other independent third parties and lease such equipment to retail customers under operating leases. Income from these operating leases is recognized over the term of the lease. Our decision on whether or not to offer lease financing to customers is based, in part, upon estimated residual values of the leased equipment, which are estimated at the lease inception date and periodically updated. Realization of the residual values, a component in the profitability of a lease transaction, is dependent on our ability to market the
26
equipment at lease termination under the then prevailing market conditions. Equipment model changes and updates, as well as market strength and product acceptance, are monitored and adjustments are made to residual values in accordance with the significance of any such changes. Although realization is not assured, management believes that the estimated residual values are realizable.
Total operating lease residual values at December 31, 20202023 and 20192022 were $1.5$1.0 billion and $1.4$1.1 billion, respectively.
Estimates used in determining end-of-lease market values for equipment on operating leases significantly impact the amount and timing of depreciation expense. If future values for this equipment were to decrease 10% from our present estimates, the total impact would be to increase our depreciation expense on equipment on operating leases by approximately $146.7$104.1 million. This amount would be charged to depreciation expense during the remaining lease terms such that the net amount of equipment on operating leases at the end of the lease terms would be equal to the revised residual values. Initial lease terms generally range from two to five years.
New Accounting Pronouncements Not Yet Adopted30
Cautionary Note on Forward-Looking Statements
In December 2019,This Annual Report includes “forward-looking statements” within the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifyingmeaning of the AccountingPrivate Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934.All statements other than statements of historical fact contained in this filing, including competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, capital expenditures, dividends, liquidity, capital structure or other financial items; costs; and plans and objectives of management regarding operations, products and services, are forward-looking statements. Forward-looking statements also include statements regarding the future performance of CNH and its subsidiaries on a stand-alone basis. These statements may include terminology such as “may,” “will,” “expect,” “could,” “should,” “intend,” “estimate,” “anticipate,” “believe,” “outlook,” “continue,” “remain,” “on track,” “design,” “target,” “objective,” “goal,” “forecast,” “projection,” “prospects,” “plan,” or similar terminology. Forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside our control and are difficult to predict. If any of these risks and uncertainties materialize (or they occur with a degree of severity that the Company is unable to predict) or other assumptions underlying any of the forward-looking statements prove to be incorrect, including any assumptions regarding strategic plans, the actual results or developments may differ materially from any future results or developments expressed or implied by the forward-looking statements.
Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: economic conditions in each of CNH’s markets, including the significant uncertainty caused by geopolitical events; production and supply chain disruptions, including industry capacity constraints, material availability, and global logistics delays and constraints; the many interrelated factors that affect consumer confidence and worldwide demand for Income Taxes (“ASU 2019-12”). This ASU eliminates certain exceptionscapital goods and capital goods-related products; changes in government policies regarding banking, monetary and fiscal policy; legislation, particularly pertaining to capital goods-related issues such as agriculture, the environment, debt relief and subsidy program policies, trade and commerce and infrastructure development; government policies on international trade and investment, including sanctions, import quotas, capital controls and tariffs; volatility in international trade caused by the imposition of tariffs, sanctions, embargoes, and trade wars; actions of competitors in the various industries in which CNH North America competes; development and use of new technologies and technological difficulties; the interpretation of, or adoption of new, compliance requirements with respect to engine emissions, safety or other aspects of CNH’s products; labor relations; interest rates and currency exchange rates; inflation and deflation; energy prices; prices for agricultural commodities and material price increases; housing starts and other construction activity; our ability to obtain financing or to refinance existing debt; restrictive covenants in our debt agreements; actions by rating agencies concerning the ratings on our debt and asset-backed securities and the credit rating of CNHI; price pressure on new and used equipment; security breaches, cybersecurity attacks, technology failures, and other disruptions to the general principles in ASC 740, Income Taxes. Specifically, it eliminatesinformation technology infrastructure of the exceptionCompany and its CNH North America dealers; security breaches with respect to (1)CNH’s products; political and civil unrest; volatility and deterioration of capital and financial markets, including pandemics (such as the incremental approach for intraperiod tax allocation where there is a lossCOVID-19 pandemic) and terrorist attacks; the remediation of the material weaknesses; our ability to realize the anticipated benefits from continuing operations,our business initiatives as part of CNHI’s strategic plan including targeted restructuring actions to optimize CNHI’s cost structure and incomeimprove the efficiency of its operations; CNHI’s failure to realize, or a gain from other items; (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) the general methodology for calculating income taxesdelay in an interim period when a year-to-date loss exceedsrealizing, all of the anticipated loss forbenefits of its acquisitions, joint ventures, strategic alliances or divestitures and other similar risks and uncertainties, and our and CNHI’s success in managing the year. ASU 2019-12 will be effective forrisks involved in the annual periods beginning after December 15, 2020,foregoing.
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Forward-looking statements are based upon assumptions relating to the factors described in this filing, which are sometimes based upon estimates and data received from third parties. Such estimates and data are often revised. Actual results may differ materially from the forward-looking statements as a result of a number of risks and uncertainties, many of which are outside of our control. CNH Capital expressly disclaims any intention or obligation to provide, update or revise any forward-looking statements to reflect any change in expectations or any change in events, conditions or circumstances on which these forward-looking statements are based.
Further information concerning CNH Capital, including interim periods within those fiscal years. Early adoptionfactors that potentially could materially affect CNH Capital’s financial results, is permitted. We do not expectincluded in CNH Capital’s reports and filings with the adoptionSEC.
All future written and oral forward-looking statements by CNH Capital or persons acting on behalf of this standardCNH Capital are expressly qualified in their entirety by the cautionary statements contained herein or referred to have a material impact on our consolidated financial statements.above.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, primarily changes in interest rates. We monitor our exposure to these risks, and manage the underlying economic exposures on transactions using financial instruments such as forward contracts, interest rate swaps, interest rate caps and forward starting swaps. We do not hold or issue derivatives or other financial instruments for speculative purposes or to hedge translation risks. See “Note 10: Financial Instruments” in the notes to our consolidated financial statements for the year ended December 31, 2020,2023, for a description of our risk management strategy and the methods and assumptions used to determine the fair values of financial instruments.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. We monitor our exposure to this risk and manage the underlying exposure both through the matching of financial assets and liabilities and through the use of financial instruments, including swaps, caps, and forward starting swaps for the net exposure. The instruments aim to stabilize funding costs by managing the exposure created by the differing maturities and interest rate structures of our financial assets and liabilities. We do not hold or issue derivative or other financial instruments for speculative purposes.
We monitor interest rate risk to achieve a predetermined level of matching between the interest rate structure of our financial assets and liabilities. Fixed-rate financial instruments, including receivables, debt and other investments, are segregated from floating-rate instruments in evaluating the potential impact of changes in applicable interest rates. A sensitivity analysis was performed to compute the impact on fair value which would be caused by a hypothetical 10% change in the interest rates used to discount each category of financial assets and liabilities. The net impact on the fair value of the financial instruments and derivative instruments held as of December 31, 20202023 and 2019,2022, resulting from a hypothetical 10% change in interest rates, would be approximately $10.7$6.3 million and $9.5 million,approximately zero, respectively. For the sensitivity analysis the financial instruments are grouped according to the currency in which financial assets and liabilities are denominated and the applicable interest rate index. As a result, our interest
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rate risk sensitivity model may overstate the impact of interest rate fluctuations for such financial instruments, as consistently unfavorable movements of all interest rates are unlikely.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements are included in this annual report beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
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Item 9A. Controls and Procedures
Disclosure Controls and Procedures
UnderAs of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2020.1934. Based on thatthis evaluation, our Presidentprincipal executive officer and Chief Financial Officerprincipal financial officer concluded that the disclosure controls and procedures are effectivedue to provide reasonable assurance that information required to be disclosed in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no changetwo material weaknesses in our internal control over financial reporting during(better described below and respectively relating to the three months endeddesign and implementation of information technology (“IT”) general controls in certain areas related to our enterprise resource planning (“ERP”) application and the classification of certain items within our Statement of Cash Flows), our disclosure controls and procedures were not effective as of December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.2023.
Management’s Annual Report on Internal Control over Financial Reporting
Our management isWe are responsible for establishing and maintaining adequate internal control over financial reporting. InternalOur internal control over financial reportingsystem is a process designed to provide reasonable assurance to our management regarding the reliabilitypreparation and fair presentation of published financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations,statements. All internal control oversystems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.statement preparation and presentation.
ManagementOur management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, based on2023. In making this assessment, it used the frameworkcriteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in Internal Control - Integrated Framework (2013). Based on thisour assessment, management believesand the material weaknesses noted below, we believe that, as of December 31, 2020,2023 our internal control over financial reporting was not effective.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As of September 30, 2023, as previously reported, we identified a material weakness in our internal control over financial reporting, which persisted as of December 31, 2023. The material weakness relates to the design and implementation of IT general controls in the areas of user access limits and segregation of duties related to our ERP application.
In addition, as of December 31, 2023, we determined that we have an additional material weakness in our internal control over financial reporting. This material weakness relates to the design and implementation of general controls over classification in our Statement of Cash Flows of changes in certain intercompany and operating lease receivables from our investing activities, and of bond discounts and debt issuance costs from our debt financing activities.
These control deficiencies have not resulted in the need to revise any previously published financial results. However, the IT deficiency if not timely remediated, could impact maintaining effective segregation of duties and the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatements to one or more assertions, and IT controls and underlying data that support the effectiveness of IT system-generated data and reports). The classification deficiency in the Statement of Cash Flows, if not timely remediated, could impact the proper classification of certain amounts deriving from operating, investing or financing activities.
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These control deficiencies could have resulted in a misstatement of one or more account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected, and accordingly, we determined that these control deficiencies constitute material weaknesses.
Management’s Plan to Remediate the Material Weaknesses
Subsequent to the identification of the material weaknesses, we have been implementing measures and taking steps to address the underlying causes of the material weaknesses.
With respect to the IT-related material weakness, our efforts have included enhancing our IT general controls framework that addresses risks associated with user access and security, application change management and IT operations. We are implementing enhanced compensating controls and providing focused training for control owners to help sustain effective control operations and comprehensive remediation efforts relating to segregation of duties to strengthen user access controls and security.
With respect to the material weakness relating to the classification of items within our Statement of Cash Flows, our management plans to enhance the Company’s controls and review activity to assess and validate the classification of items in the operating, investing or financing sections within our Statement of Cash Flows. The Company’s remediation plan is expected to include the following actions: (i) reviewing and enhancing the Company’s organizational structure including technical training and supervision of individuals responsible for the preparation and review of the Statement of Cash Flows; and (ii) engaging with third-party resources to assist with the enhancement and formalization of roles and review responsibilities related to the technical review process for the Statement of Cash Flows.
While we believe these efforts have improved, and will continue to improve, our internal controls and address the underlying causes of the material weaknesses, the material weaknesses will not be remediated until our remediation plans have been fully implemented and tested and we have concluded that following the improvements to our internal controls, our current control environment is operating effectively for a sufficient period of time. In particular, the enhanced compensating controls and training will require time to test and assess. We cannot be certain that the steps we are taking will be sufficient to remediate the control deficiencies that led to the material weaknesses in our internal control over financial reporting or prevent future material weaknesses or control deficiencies from occurring. In addition, we cannot be certain that we have identified all material weaknesses in our internal control over financial reporting, or that in the future we will not have additional material weaknesses in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
As described above, the Company is taking steps to remediate the material weaknesses noted above. Other than in connection with these remediation steps, there have been no changes in our internal control over financial reporting during the three months ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Disclosure Controls and Procedures and Internal Control over Financial Reporting
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to the costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
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Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Omitted pursuant to General Instruction I of Form 10-K.
Item 11. Executive Compensation
Omitted pursuant to General Instruction I of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Omitted pursuant to General Instruction I of Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Omitted pursuant to General Instruction I of Form 10-K.
Item 14. Principal Accounting Fees and Services
ForDeloitte & Touche LLP, the yearsmember firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, the “Deloitte Entities”) were appointed to serve as our independent registered public accounting firm for the year ended December 31, 2020 and 2019,2023. Ernst & Young LLP, the member firms of Ernst & Young and their respective affiliates (collectively, the “Ernst & Young Entities”) were appointed to serve as our independent registered public accounting firm.firm for the year ended December 31, 2022.
We incurred the following fees for professional services performed by the Deloitte Entities and the Ernst & Young Entities for the years ended December 31, 20202023 and 2019,2022, respectively:
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| 2020 |
| 2019 |
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| 2023 |
| 2022 | ||||
Audit fees |
| $ | 914,600 | | $ | 780,500 | |
| $ | 1,099,400 | | $ | 913,075 |
Audit-related fees | |
| 419,700 | |
| 575,100 | | |
| 314,300 | |
| 595,100 |
Total |
| $ | 1,334,300 | | $ | 1,355,600 | |
| $ | 1,413,700 | | $ | 1,508,175 |
“Audit Fees” are the aggregate fees billed by the Deloitte Entities in 2023 and the Ernst & Young Entities in 2023 and 2022 for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. “Audit-related fees” are fees charged by the Deloitte Entities in 2023 and the Ernst & Young Entities in 2023 and 2022 for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category is comprised of fees for agreed-upon procedure engagements and other attestation services subject to regulatory and funding requirements. There were no fees billed for professional services in connection with tax compliance, tax advice, tax planning or other fees not included above for the years ended December 31, 20202023 and 2019.2022.
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Audit Committee’s Pre-Approval Policies and Procedures
As a wholly-owned subsidiary of CNHI, audit and non-audit services provided by our independent registered public accounting firm are subject to CNHI’s Audit Committee pre-approval policies and procedures. During the year ended December 31, 2020,2023, all audit and non-audit services provided by our independent registered public accounting firm were pre-approved in accordance with such policies and procedures.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
1. | Financial Statements |
2. | Financial Statement Schedules |
See table of contents to financial statements and schedules immediately preceding the financial statements and schedules to the consolidated financial statements.
3. | Exhibits. |
Exhibit |
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3.1 | | |||
3.2 | | |||
4.1 | | |||
4.2 | | |||
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Exhibit | Description | |||
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4.8 | | |||
10.1 | |
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10.2 | | |||
10.3 | | |||
10.4 | | |||
22 | | |||
23.1 | | |||
23.2 | | |||
31.1 | | |||
31.2 | | |||
32.1 | | |||
101.INS | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are imbedded within the Inline XBRL document) | ||
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | ||
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
104 | | Cover page Interactive Data File is formatted in Inline XBRL and included in Exhibits 101 |
† These certifications are deemed not filed for purposes of sectionSection 18 of the Exchange Act, or otherwise subject to the liability of that section; nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.
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Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of holders of certain long-term debt have not been filed. The registrant will furnish copies thereof to the SEC upon request.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Date: March |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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/s/ | | Chairman | | March |
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/s/ DANIEL WILLEMS VAN DIJK | | Chief Financial Officer and Assistant Treasurer | | March |
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/s/ Leandro Lecheta | | Director | | March |
Leandro Lecheta | | |
3238
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
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Report of Independent Registered Public Accounting Firm (PCAOB ID 34) | | F-2 |
Report of Independent Registered Public Accounting Firm (PCAOB ID 42) | | F-4 |
Consolidated Statements of Income for the Years Ended December 31, | |
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Schedules Omitted | | |
The following schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the Notes to the Consolidated Financial Statements: | | |
I, II, III, IV and V | | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the ShareholderStockholder and the Board of Directors of CNH Industrial Capital LLC
Opinion on the Financial Statements
We have audited the consolidated balance sheet of CNH Industrial Capital LLC (the "Company") as of December 31, 2023, the related consolidated statements of income, comprehensive income, stockholder’s equity, and cash flows, for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit Committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Allowance for Credit Losses — Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
As discussed in Notes 2 and 4 to the consolidated financial statements, the Company estimates lifetime expected credit losses on receivables to determine the allowance for credit losses (ACL). Receivables that share the same risk characteristics are reviewed on a collective basis, and management calculates the ACL based on loss forecast models that consider a variety of factors such as historical loss experience, collateral value, portfolio balance and delinquency. Management then applies forward-looking macroeconomic forecasts and qualitative factors that are not fully captured in the ACL model calculation. For loans that do not share similar risk characteristics, management measures the ACL on an individual receivable basis by considering the probability-weighted present value of all cash shortfalls (including the value of the collateral, if appropriate) over the expected life of each financial asset. The Company has identified two separate portfolios, retail and wholesale, in the determination of the ACL.
We identified the ACL estimated for the Company’s retail receivables portfolio, reviewed on a collective basis, as a critical audit matter due to the degree of management judgment involved in applying macroeconomic forecasts and qualitative factors to the loss forecast models. Given the subjective nature and judgment applied by management to determine the macroeconomic forecasts and qualitative factors, auditing the macroeconomic forecasts and qualitative factors requires a high degree of auditor judgment and an increased extent of effort, including the need to involve credit specialists.
How the Critical Audit Matter Was Addressed In the Audit
Our audit procedures related to testing the macroeconomic forecasts and qualitative factors used in determining the ACL for retail receivables reviewed on a collective basis included the following, among others:
● | We tested the effectiveness of management’s controls over the assessment, selection, and review of macroeconomic forecasts and qualitative factors. |
● | We tested the accuracy, completeness and relevance of the inputs used in the estimate. Specifically, we compared the inputs and assumptions to internal and external sources including, among others, the economic forecasts used by the Company and other available economic forecasts for contrary or corroborative evidence. |
● | We evaluated management’s basis for the factors in relation to changes in economic conditions and forecasts. |
● | We evaluated management’s ability to accurately forecast credit losses by performing a retrospective analysis of the retail collective ACL estimates as compared to actual credit loss performance. |
● | We involved internal credit specialists in evaluating the conceptual soundness of the model methodology, including the use of macroeconomic forecasts and qualitative factors. |
/s/ DELOITTE & TOUCHE LLP
Chicago, IL
March 15, 2024
We served as the Company’s auditor since 2023.
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of CNH Industrial Capital LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of CNH Industrial Capital LLC and subsidiaries (the Company) as of December 31, 2020 and 2019,2022, the related consolidated statements of income, comprehensive income, changes in stockholder’s equity and cash flows for each of the threetwo years in the period ended December 31, 2020,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019,2022, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2020,2022, in conformity with U.S. generally accepted accounting principles.
Adoption of New Accounting Standard
As discussed in Notes 2 and 4 to the consolidated financial statements, the Company changed its method of accounting for credit losses as of January 1, 2020. See below for discussion of our related critical audit matter.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
| |
|
|
|
|
|
|
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 2011.from 2011 to 2023.
Milwaukee, WI
March 3, 2021February 28, 2023
F-3F-4
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192023, 2022 AND 20182021
(Dollars in thousands)
| | | | | | | | | |
| | 2020 |
| 2019 |
| 2018 | |||
REVENUES |
| | | | | | | | |
Interest income on retail notes and finance leases | | $ | 183,229 | | $ | 218,454 | | $ | 201,269 |
Interest income on wholesale notes | |
| 53,109 | |
| 67,773 | |
| 66,899 |
Interest and other income from affiliates | |
| 324,424 | |
| 345,789 | |
| 345,933 |
Rental income on operating leases | |
| 255,878 | |
| 243,044 | |
| 241,582 |
Other income | |
| 27,767 | |
| 25,829 | |
| 22,671 |
Total revenues |
|
| 844,407 | |
| 900,889 | |
| 878,354 |
EXPENSES |
| | | | | | | | |
Interest expense: | | | | | | | | | |
Interest expense to third parties | |
| 276,390 | |
| 333,147 | |
| 317,747 |
Interest expense to affiliates | |
| 3,568 | |
| 14,126 | |
| 7,533 |
Total interest expense |
|
| 279,958 | |
| 347,273 | |
| 325,280 |
Administrative and operating expenses: |
| | | | | | | | |
Fees charged by affiliates | |
| 45,905 | |
| 46,601 | |
| 47,475 |
Provision for credit losses | |
| 59,044 | |
| 35,703 | |
| 31,699 |
Depreciation of equipment on operating leases | |
| 237,405 | |
| 229,652 | |
| 231,805 |
Other expenses | |
| 35,303 | |
| 48,446 | |
| 43,778 |
Total administrative and operating expenses |
|
| 377,657 | |
| 360,402 | |
| 354,757 |
Total expenses |
|
| 657,615 | |
| 707,675 | |
| 680,037 |
INCOME BEFORE TAXES |
|
| 186,792 | |
| 193,214 | |
| 198,317 |
Income tax provision | |
| 43,512 | |
| 44,211 | |
| 41,472 |
NET INCOME |
| $ | 143,280 | | $ | 149,003 | | $ | 156,845 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
F-4
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(Dollars in thousands)
| | | | | | | | | |
| | 2020 |
| 2019 |
| 2018 | |||
NET INCOME |
| $ | 143,280 | | $ | 149,003 | | $ | 156,845 |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustment | |
| 11,849 | |
| 21,593 | |
| (48,009) |
Pension liability adjustment | |
| 306 | |
| 2,850 | |
| 665 |
Change in derivative financial instruments | |
| (7,994) | |
| (1,243) | |
| 508 |
Total other comprehensive income (loss) |
|
| 4,161 | |
| 23,200 | |
| (46,836) |
COMPREHENSIVE INCOME |
| $ | 147,441 | | $ | 172,203 | | $ | 110,009 |
| | | | | | | | | |
| | 2023 |
| 2022 |
| 2021 | |||
REVENUES |
| | | | | | | | |
Interest income on retail notes and finance leases | | $ | 288,067 | | $ | 216,528 | | $ | 154,994 |
Rental income on operating leases | |
| 237,178 | |
| 248,335 | |
| 267,606 |
Revolving charge account income | |
| 39,568 | |
| — | |
| — |
Interest income on wholesale notes | | | 66,015 | | | 28,659 | | | 31,011 |
Interest and other income from affiliates | |
| 434,257 | |
| 268,267 | |
| 297,579 |
Other income | |
| 7,568 | |
| 30,046 | |
| 37,994 |
Total revenues |
|
| 1,072,653 | |
| 791,835 | |
| 789,184 |
EXPENSES |
| | | | | | | | |
Interest expense: | | | | | | | | | |
Interest expense to third parties | |
| 500,493 | |
| 232,446 | |
| 192,092 |
Interest expense to affiliates | |
| 33,746 | |
| 9,361 | |
| 3,686 |
Total interest expense |
|
| 534,239 | |
| 241,807 | |
| 195,778 |
Administrative and operating expenses: |
| | | | | | | | |
Fees charged by affiliates | |
| 53,804 | |
| 50,858 | |
| 47,369 |
Provision (benefit) for credit losses | |
| 11,579 | |
| 11,241 | |
| (7,460) |
Depreciation of equipment on operating leases | |
| 178,969 | |
| 201,582 | |
| 239,331 |
Other expenses, net | |
| 17,034 | |
| (3,655) | |
| 14,016 |
Total administrative and operating expenses |
|
| 261,386 | |
| 260,026 | |
| 293,256 |
Total expenses |
|
| 795,625 | |
| 501,833 | |
| 489,034 |
INCOME BEFORE TAXES |
|
| 277,028 | |
| 290,002 | |
| 300,150 |
Income tax provision | |
| 61,956 | |
| 70,880 | |
| 69,935 |
NET INCOME |
| $ | 215,072 | | $ | 219,122 | | $ | 230,215 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
F-5
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF COMPREHENSIVE INCOME
AS OFFOR THE YEARS ENDED DECEMBER 31, 20202023, 2022 AND 20192021
(Dollars in thousands)
| | | | | | |
| | 2020 |
| 2019 | ||
ASSETS |
| | | | | |
Cash and cash equivalents | | $ | 392,929 | | $ | 174,966 |
Restricted cash and cash equivalents | |
| 625,622 | |
| 629,278 |
Receivables, less allowance for credit losses of $136,136 and $72,751, respectively | |
| 8,896,811 | |
| 9,835,274 |
Affiliated accounts and notes receivable | |
| 414,810 | |
| 64,307 |
Equipment on operating leases, net | |
| 1,859,184 | |
| 1,783,283 |
Equipment held for sale | |
| 36,515 | |
| 170,218 |
Goodwill | |
| 110,158 | |
| 109,629 |
Other intangible assets, net | |
| 13,333 | |
| 12,195 |
Other assets | |
| 101,807 | |
| 74,937 |
TOTAL |
| $ | 12,451,169 | | $ | 12,854,087 |
LIABILITIES AND STOCKHOLDER’S EQUITY |
| | | | | |
Liabilities: | | | | | | |
Short-term debt (including current maturities of long-term debt) | | $ | 4,229,428 | | $ | 4,790,172 |
Accounts payable and other accrued liabilities | |
| 904,399 | |
| 807,437 |
Affiliated debt | |
| 187,310 | |
| 213,856 |
Long-term debt | |
| 5,869,860 | |
| 5,779,581 |
Total liabilities |
|
| 11,190,997 | |
| 11,591,046 |
Commitments and contingent liabilities (Note 13) |
| | | | | |
Stockholder’s equity: |
| | | | | |
Member’s capital | |
| — | |
| — |
Paid-in capital | |
| 843,234 | |
| 843,749 |
Accumulated other comprehensive loss | |
| (120,235) | |
| (124,396) |
Retained earnings | |
| 537,173 | |
| 543,688 |
Total stockholder’s equity |
|
| 1,260,172 | |
| 1,263,041 |
TOTAL |
| $ | 12,451,169 | | $ | 12,854,087 |
| | | | | | | | | |
| | 2023 |
| 2022 |
| 2021 | |||
NET INCOME |
| $ | 215,072 | | $ | 219,122 | | $ | 230,215 |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustment | |
| 8,456 | |
| (38,636) | |
| 666 |
Pension liability adjustment | |
| (757) | |
| 79 | |
| 1,802 |
Change in derivative financial instruments | |
| (7,174) | |
| 12,181 | |
| 6,310 |
Total other comprehensive income (loss) |
|
| 525 | |
| (26,376) | |
| 8,778 |
COMPREHENSIVE INCOME |
| $ | 215,597 | | $ | 192,746 | | $ | 238,993 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
F-6
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2023 AND 2022
(Dollars in thousands)
| | | | | | |
| | 2023 |
| 2022 | ||
ASSETS |
| | | | | |
Cash | | $ | 390,110 | | $ | 262,244 |
Restricted cash and cash equivalents | |
| 407,817 | |
| 446,335 |
Receivables, less allowance for credit losses of $114,745 and $125,012, respectively | |
| 13,455,717 | |
| 10,741,820 |
Affiliated accounts and notes receivable | |
| 74,667 | |
| 53,509 |
Equipment on operating leases, net | |
| 1,378,384 | |
| 1,472,973 |
Equipment held for sale | |
| 20,215 | |
| 11,685 |
Goodwill | |
| 109,118 | |
| 108,567 |
Other intangible assets, net | |
| 19,352 | |
| 18,388 |
Other assets | |
| 108,147 | |
| 63,958 |
TOTAL |
| $ | 15,963,527 | | $ | 13,179,479 |
LIABILITIES AND STOCKHOLDER’S EQUITY |
| | | | | |
Liabilities: | | | | | | |
Short-term debt (including current maturities of long-term debt) | | $ | 5,519,792 | | $ | 4,096,426 |
Accounts payable and other accrued liabilities | |
| 852,638 | |
| 1,046,688 |
Affiliated debt | |
| 132,492 | |
| 341,531 |
Long-term debt | |
| 7,859,629 | |
| 6,387,135 |
Total liabilities |
|
| 14,364,551 | |
| 11,871,780 |
Commitments and contingent liabilities (Note 13) |
| | | | | |
Stockholder’s equity: |
| | | | | |
Member’s capital | |
| — | |
| — |
Paid-in capital | |
| 919,702 | |
| 844,022 |
Accumulated other comprehensive loss | |
| (137,308) | |
| (137,833) |
Retained earnings | |
| 816,582 | |
| 601,510 |
Total stockholder’s equity |
|
| 1,598,976 | |
| 1,307,699 |
TOTAL |
| $ | 15,963,527 | | $ | 13,179,479 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
F-7
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF DECEMBER 31, 20202023 AND 20192022
(Dollars in thousands)
The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”), which are included in the consolidated balance sheets. The assets in the table include those assets that can only be used to settle obligations of consolidated VIEs. The liabilities in the table include third-party liabilities of the consolidated VIEs, for which creditors do not have recourse to the general credit of CNH Industrial Capital LLC. See Note 4: Receivables for additional information on the Company’s VIEs.
| | | | | | |
| | 2020 |
| 2019 | ||
Restricted cash and cash equivalents |
| $ | 625,622 | | $ | 629,278 |
Receivables, less allowance for credit losses of $78,960 and $48,413, respectively | |
| 6,364,343 | |
| 6,748,621 |
TOTAL |
| $ | 6,989,965 | | $ | 7,377,899 |
| | | | | | |
Short-term debt (including current maturities of long-term debt) |
| $ | 3,017,432 | | $ | 3,274,216 |
Long-term debt | |
| 3,262,842 | |
| 3,495,022 |
TOTAL |
| $ | 6,280,274 | | $ | 6,769,238 |
| | | | | | |
| | 2023 |
| 2022 | ||
Restricted cash and cash equivalents |
| $ | 407,817 | | $ | 446,335 |
Receivables, less allowance for credit losses of $54,889 and $55,645, respectively | |
| 8,103,838 | |
| 6,927,032 |
TOTAL |
| $ | 8,511,655 | | $ | 7,373,367 |
| | | | | | |
Short-term debt (including current maturities of long-term debt) |
| $ | 3,824,385 | | $ | 3,120,860 |
Long-term debt | |
| 4,086,419 | |
| 3,599,575 |
TOTAL |
| $ | 7,910,804 | | $ | 6,720,435 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
F-7F-8
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192023, 2022 AND 20182021
(Dollars in thousands)
| | | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 | | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
| | | | | | | | | |
Net income | | $ | 143,280 | | $ | 149,003 | | $ | 156,845 | |
Adjustments to reconcile net income to net cash from (used in) operating activities: | | | | | | | | | | |
Depreciation on property and equipment and equipment on operating leases | |
| 237,412 | |
| 229,653 | |
| 231,812 | |
Amortization of intangibles | |
| 1,562 | |
| 1,790 | |
| 2,114 | |
Provision for credit losses | |
| 59,044 | |
| 35,703 | |
| 31,699 | |
Deferred income tax expense (benefit) | |
| (12,377) | |
| 38,421 | |
| 28,254 | |
Changes in components of working capital: | | | | | | | | | | |
Change in affiliated accounts and notes receivables | |
| (350,289) | |
| (19,665) | |
| 29,203 | |
Change in other assets and equipment held for sale | |
| (40,160) | |
| (5,456) | |
| (50,798) | |
Change in accounts payable and other accrued liabilities | |
| 78,646 | |
| 53,235 | |
| (66,248) | |
Net cash from (used in) operating activities |
|
| 117,118 | |
| 482,684 | |
| 362,881 | |
CASH FLOWS FROM INVESTING ACTIVITIES |
| | | | | | | | | |
Cost of receivables acquired | |
| (10,472,030) | |
| (11,380,427) | |
| (11,802,561) | |
Collections of receivables | |
| 11,387,140 | |
| 11,551,430 | |
| 12,072,940 | |
Purchase of equipment on operating leases | |
| (598,387) | |
| (715,686) | |
| (680,266) | |
Proceeds from disposal of equipment on operating leases | |
| 443,912 | |
| 501,550 | |
| 468,257 | |
Change in property, equipment and software, net | | | (2,700) | | | (3,819) | | | (5,427) | |
Net cash from (used in) investing activities |
|
| 757,935 | |
| (46,952) | |
| 52,943 | |
CASH FLOWS FROM FINANCING ACTIVITIES |
| | | | | | | | | |
Proceeds from issuance of affiliated debt | |
| 1,078,351 | |
| 1,509,528 | |
| 1,138,573 | |
Payment of affiliated debt | |
| (1,108,568) | |
| (1,571,943) | |
| (1,292,749) | |
Proceeds from issuance of long-term debt | |
| 3,056,026 | |
| 3,191,270 | |
| 3,240,771 | |
Payment of long-term debt | |
| (2,916,765) | |
| (3,409,576) | |
| (3,630,702) | |
Change in short-term borrowings, net | |
| (639,790) | |
| 114,362 | |
| 182,596 | |
Dividends paid to CNH Industrial America LLC | |
| (130,000) | |
| (265,000) | |
| (130,000) | |
Net cash from (used in) financing activities |
|
| (660,746) | |
| (431,359) | |
| (491,511) | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 214,307 | |
| 4,373 | |
| (75,687) | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
| | | | | | | | | |
Beginning of year | |
| 804,244 | |
| 799,871 | |
| 875,558 | |
End of year |
| $ | 1,018,551 | | $ | 804,244 | | $ | 799,871 | |
CASH PAID DURING THE YEAR FOR INTEREST |
| $ | 268,080 | | $ | 337,199 | | $ | 316,675 | |
CASH PAID (RECEIVED) DURING THE YEAR FOR TAXES |
| $ | 56,201 | | $ | (41,129) | | $ | 47,577 | |
| | | | | | | | | |
|
| 2023 |
| 2022 |
| 2021 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
| | | | | | | | |
Net income | | $ | 215,072 | | $ | 219,122 | | $ | 230,215 |
Adjustments to reconcile net income to net cash from (used in) operating activities: | | | | | | | | | |
Depreciation on property and equipment and equipment on operating leases | |
| 178,977 | |
| 201,590 | |
| 239,339 |
Amortization of intangibles | |
| 2,939 | |
| 2,159 | |
| 1,910 |
Provision (benefit) for credit losses | |
| 11,579 | |
| 11,241 | |
| (7,460) |
Deferred income tax benefit | |
| (65,432) | |
| (54,452) | |
| (10,041) |
Other non-cash items | | | 53,012 | | | — | | | — |
Changes in components of working capital: | | | | | | | | | |
Change in affiliated accounts and notes receivables | |
| (15,143) | |
| 206,190 | |
| 155,119 |
Change in other assets and equipment held for sale | |
| (47,971) | |
| 39,577 | |
| 14,475 |
Change in accounts payable and other accrued liabilities | |
| (139,998) | |
| 69,939 | |
| 154,200 |
Net cash from (used in) operating activities |
|
| 193,035 | |
| 695,366 | |
| 777,757 |
CASH FLOWS FROM INVESTING ACTIVITIES |
| | | | | | | | |
Cost of receivables acquired (retail customer, revolving charge accounts and wholesale) | |
| (19,225,922) | |
| (15,039,779) | |
| (12,527,444) |
Collections of receivables (retail customer, revolving charge accounts and wholesale) | |
| 16,551,962 | |
| 13,101,247 | |
| 12,485,249 |
Cost of affiliated notes receivables acquired | |
| (14,000) | |
| — | |
| — |
Collections of affiliated notes receivables | | | 8,000 | | | — | | | — |
Purchase of equipment on operating leases | |
| (521,144) | |
| (517,623) | |
| (536,401) |
Proceeds from disposal of equipment on operating leases | |
| 444,004 | |
| 533,330 | |
| 457,421 |
Purchase of property, equipment and software | | | (3,904) | | | (4,094) | | | (5,029) |
Net cash from (used in) investing activities |
|
| (2,761,004) | |
| (1,926,919) | |
| (126,204) |
CASH FLOWS FROM FINANCING ACTIVITIES |
| | | | | | | | |
Proceeds from issuance of affiliated debt | |
| 1,763,393 | |
| 855,799 | |
| 259,793 |
Payment of affiliated debt | |
| (1,973,415) | |
| (500,617) | |
| (445,003) |
Proceeds from issuance of long-term debt | |
| 4,597,046 | |
| 3,749,914 | |
| 4,393,756 |
Payment of long-term debt | |
| (3,401,638) | |
| (3,361,007) | |
| (3,652,327) |
Change in committed asset-backed facilities, net | | | 1,382,643 | | | 1,127 | | | (947,775) |
Change in short-term borrowings, net | |
| 214,288 | |
| 301,257 | |
| 111 |
Dividends paid to CNH Industrial America LLC | |
| — | |
| (135,000) | |
| (250,000) |
Proceeds from capital contribution | | | 75,000 | | | — | | | — |
Net cash from (used in) financing activities |
|
| 2,657,317 | |
| 911,473 | |
| (641,445) |
INCREASE (DECREASE) IN CASH AND RESTRICTED CASH AND CASH EQUIVALENTS |
|
| 89,348 | |
| (320,080) | |
| 10,108 |
CASH AND RESTRICTED CASH AND CASH EQUIVALENTS |
| | | | | | | | |
Beginning of year | |
| 708,579 | |
| 1,028,659 | |
| 1,018,551 |
End of year |
| $ | 797,927 | | $ | 708,579 | | $ | 1,028,659 |
COMPONENTS OF CASH AND RESTRICTED CASH AND CASH EQUIVALENTS |
| | | | | | | | |
Cash |
| $ | 390,110 | | $ | 262,244 | | $ | 426,917 |
Restricted cash and cash equivalents | | | 407,817 | | | 446,335 | | | 601,742 |
TOTAL CASH AND RESTRICTED CASH AND CASH EQUIVALENTS | | $ | 797,927 | | $ | 708,579 | | $ | 1,028,659 |
CASH PAID DURING THE YEAR FOR INTEREST | | $ | 513,170 | | $ | 227,868 | | $ | 198,527 |
CASH PAID DURING THE YEAR FOR TAXES | | $ | 100,687 | | $ | 126,120 | | $ | 56,801 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
F-8F-9
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192023, 2022 AND 20182021
(Dollars in thousands)
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| Accumulated |
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| | | | | | | | Other | | | | | | | |
| | Member’s | | Paid-in | | Comprehensive | | Retained | | | | ||||
| | Capital | | Capital | | Income (Loss) | | Earnings | | Total | |||||
BALANCE - January 1, 2018 |
| $ | — | | $ | 843,559 | | $ | (100,163) | | $ | 632,243 | | $ | 1,375,639 |
Net income | | | — | | | — | | | — | | | 156,845 | | | 156,845 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (130,000) | | | (130,000) |
Foreign currency translation adjustment | | | — | | | — | | | (48,009) | | | — | | | (48,009) |
Stock compensation | | | — | | | 84 | | | — | | | — | | | 84 |
Pension liability adjustment, net of tax | | | — | | | — | | | 665 | | | — | | | 665 |
Change in derivative financial instruments, net of tax | | | — | | | — | | | 508 | | | — | | | 508 |
BALANCE - December 31, 2018 |
| $ | — | | $ | 843,643 | | $ | (146,999) | | $ | 659,088 | | $ | 1,355,732 |
Net income | | | — | | | — | | | — | | | 149,003 | | | 149,003 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (265,000) | | | (265,000) |
Foreign currency translation adjustment | | | — | | | — | | | 21,593 | | | — | | | 21,593 |
Stock compensation | | | — | | | 106 | | | — | | | — | | | 106 |
Reclassification of certain tax effects | | | — | | | — | | | (597) | | | 597 | | | — |
Pension liability adjustment, net of tax | | | — | | | — | | | 2,850 | | | — | | | 2,850 |
Change in derivative financial instruments, net of tax | | | — | | | — | | | (1,243) | | | — | | | (1,243) |
BALANCE - December 31, 2019 as previously reported |
| $ | — | | $ | 843,749 | | $ | (124,396) | | $ | 543,688 | | $ | 1,263,041 |
Adoption of ASC 326 | | | — | | | — | | | — | | | (19,790) | | | (19,790) |
BALANCE - January 1, 2020 as recast |
| $ | — | | $ | 843,749 | | $ | (124,396) | | $ | 523,898 | | $ | 1,243,251 |
Net income | |
| — | |
| — | |
| — | |
| 143,280 | |
| 143,280 |
Dividends paid to CNH Industrial America LLC | |
| — | |
| — | |
| — | |
| (130,000) | |
| (130,000) |
Foreign currency translation adjustment | |
| — | |
| — | |
| 11,849 | |
| (5) | |
| 11,844 |
Stock compensation | |
| — | |
| (515) | |
| — | |
| — | |
| (515) |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| 306 | |
| — | |
| 306 |
Change in derivative financial instruments, net of tax | |
| — | |
| — | |
| (7,994) | |
| — | |
| (7,994) |
BALANCE - December 31, 2020 |
| $ | — | | $ | 843,234 | | $ | (120,235) | | $ | 537,173 | | $ | 1,260,172 |
| | | | | | | | | | | | | | | |
|
| | |
| | |
| Accumulated |
| | |
| | | |
| | | | | | | | Other | | | | | | | |
| | Member’s | | Paid-in | | Comprehensive | | Retained | | | | ||||
| | Capital | | Capital | | Income (Loss) | | Earnings | | Total | |||||
BALANCE - January 1, 2021 |
| $ | — | | $ | 843,234 | | $ | (120,235) | | $ | 537,173 | | $ | 1,260,172 |
Net income | | | — | | | — | | | — | | | 230,215 | | | 230,215 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (250,000) | | | (250,000) |
Foreign currency translation adjustment | | | — | | | — | | | 666 | | | — | | | 666 |
Stock compensation | | | — | | | 235 | | | — | | | — | | | 235 |
Pension liability adjustment, net of tax | | | — | | | — | | | 1,802 | | | — | | | 1,802 |
Change in derivative financial instruments, net of tax | | | — | | | — | | | 6,310 | | | — | | | 6,310 |
BALANCE - December 31, 2021 |
| $ | — | | $ | 843,469 | | $ | (111,457) | | $ | 517,388 | | $ | 1,249,400 |
Net income | | | — | | | — | | | — | | | 219,122 | | | 219,122 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (135,000) | | | (135,000) |
Foreign currency translation adjustment | | | — | | | — | | | (38,636) | | | — | | | (38,636) |
Stock compensation | | | — | | | 553 | | | — | | | — | | | 553 |
Pension liability adjustment, net of tax | | | — | | | — | | | 79 | | | — | | | 79 |
Change in derivative financial instruments, net of tax | | | — | | | — | | | 12,181 | | | — | | | 12,181 |
BALANCE - December 31, 2022 |
| $ | — | | $ | 844,022 | | $ | (137,833) | | $ | 601,510 | | $ | 1,307,699 |
Net income | |
| — | |
| — | |
| — | |
| 215,072 | |
| 215,072 |
Foreign currency translation adjustment | |
| — | |
| — | |
| 8,456 | |
| — | |
| 8,456 |
Stock compensation | |
| — | |
| 680 | |
| — | |
| — | |
| 680 |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| (757) | |
| — | |
| (757) |
Change in derivative financial instruments, net of tax | |
| — | |
| — | |
| (7,174) | |
| — | |
| (7,174) |
Capital contribution | | | — | | | 75,000 | | | — | | | — | | | 75,000 |
BALANCE - December 31, 2023 |
| $ | — | | $ | 919,702 | | $ | (137,308) | | $ | 816,582 | | $ | 1,598,976 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
F-9F-10
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
CNH Industrial Capital LLC and its primary operating subsidiaries, including New Holland Credit Company, LLC (“New Holland Credit”), CNH Industrial Capital America LLC (“CNH Industrial Capital America”) and CNH Industrial Capital Canada Ltd. (“CNH Industrial Capital Canada”) (collectively, “CNH Industrial Capital” or the “Company”), are each a subsidiary of CNH Industrial America LLC (“CNH Industrial America”), which is an indirect wholly-owned subsidiary of CNH Industrial N.V. (“CNHI” and, together with its consolidated subsidiaries, “CNH Industrial”“CNH”). CNH Industrial America and CNH Industrial Canada Ltd. (“CNH Canada”) (collectively, “CNH Industrial North America”) design, manufacture, and sell agricultural and construction equipment. CNH Industrial Capital provides financial services for CNH Industrial North America dealers and end-use customers primarily located in the United States and Canada.
CNHI is incorporated in and under the laws of The Netherlands. CNHI has its corporate seat in Amsterdam, The Netherlands, and its principal office in London,Basildon, Essex, England. The common shares of CNHI are listed on the New York Stock Exchange under the symbol “CNHI,“CNHI.” as well as on the Mercato Telematico Azionario managed by Borsa Italiana S.p.A.
To support CNH Industrial North America’s sales of agricultural and construction equipment products, the Company offers retail note and lease financing to end-use customers for the purchase of new and used equipment and components sold through CNH North America’s dealer network, as well as revolving charge account financing and other financial services. CNH Capital also provides wholesale financing to CNH Industrial North America equipment dealers and distributors, all of which are independently owned. The Company providesowned and administersoperated. Retail financing products primarily include retail financing, primarily retail installment sales contracts,notes, finance leases and operating leases to end-use customers and revolving charge account financing for thecustomers to purchase or lease of newparts, service, rentals, implements and usedattachments from CNH Industrial North America equipment and other agricultural and construction equipment sold primarily through CNH Industrial North America dealers and distributors. In addition, the Company purchases equipment from dealers that is leased to retail customers under operating lease agreements.dealers. Wholesale financing consists primarily of dealer floorplan financing, which allowsgives dealers the ability to maintain a representative inventory of products. In addition, the Company provides financing to dealers for equipment used in dealer-owned rental yards, parts inventory, working capital, and other financing needs. CNH Industrial Capital Canada purchases short-term wholesale receivables at a discount (“wholesale factoring”) from Iveco Argentina S.A. (“Iveco Argentina”), an indirect wholly-owned subsidiary of CNHI, from time to time. The purchase is consistent with factoring arrangements between CNHI’s industrial and financial services companies. The Company also finances other products, including insurance and equipment protection products underwritten through a third-party insurer. As a captive finance company, the Company is reliant on the operations of CNH Industrial North America, its dealers and end-use customers.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the Company and its consolidated subsidiaries. The consolidated financial statements are expressed in U.S. dollars. The consolidated financial statements include the accounts of the Company’s subsidiaries in which the Company has a controlling financial interest and reflect the noncontrolling interests of the minority owners of the subsidiaries that are not fully owned for the periods presented, as applicable. A controlling financial interest may exist based on ownership of a majority of the voting interest of a subsidiary, or based on the Company’s determination that it is the primary beneficiary of a variable interest entity (“VIE”). The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the economic performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. The Company assesses whether it is the primary beneficiary on an ongoing basis, as prescribed by the accounting guidance
F-10
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
on the consolidation of VIEs. The consolidated status of the VIEs with which the Company is involved may change as a result of such reassessments.
Certain prior period balances have been reclassified to conform to the current year presentation. These reclassifications did not have an impact on the Company’s results of operations or financial position as of December 31, 2023, 2022 and 2021.
F-11
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and reported amounts of revenues and expenses. Significant estimates in these consolidated financial statements include the allowance for credit losses and residual values of equipment on operating leases. Actual results could differ from these estimates.
The COVID-19 pandemic has resulted in uncertainties in the Company's business, which may cause actual results to differ materially from the estimates and assumptions used in preparation of the financial statements including, but not limited to, future cash flows associated with the allowance for credit losses, the determination of end-of-lease market values for equipment on operating leases, goodwill and income taxes. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.
Revenue Recognition
Finance and interest income on retail notes and finance leases and on wholesale notesreceivables is recorded using the effective yield method. Deferred costs on the origination of financing receivables are recognized as a reduction in finance revenue over the expected lives of the receivables using the effective yield method. Recognition of income on receivables is suspended when management determines that collection of future income is not probable or when an account becomes 90 days delinquent,past due, whichever occurs earlier. Income accrual is resumed if the receivable becomes contractually current and collection doubts are removed. Previously suspended income is recognized at that time. The Company applies cash received on nonaccrual financing receivables to first reduce any unrecognized interest and then the recorded investment and any other fees. Receivables are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Delinquency is reported on receivables greater than 30 days past due. Charge-offs of principal amounts of receivables outstanding are deducted from the allowance at the point when it is estimated that amounts due are deemed uncollectible.
A substantial portion of the Company’s interest income arises from retail sales programs offered by CNH Industrial North America on which finance charges are waived or below-market rate financing programs are offered. When the Company acquires retail installment sales contractsnotes and finance leases subject to below-market interest rates, including waived interest rate financing, the Company receives compensation from CNH Industrial North America based on the Company’s estimated costs and a targeted return on equity. This amount is initially recognized as an unearned finance charge and is recognized as interest income over the term of the retail customer receivables (which, as used herein, “retail customer receivables” refers primarily to retail notes and finance leases,leases), and is included in “Interest and other income from affiliates” in the accompanying consolidated statements of income.
For selected wholesale receivables, CNH Industrial North America compensates the Company based on the Company’s estimated costs and a targeted return on equity. These amounts are included in “Interest and other income from affiliates” in the accompanying consolidated statements of income.
The Company is also compensated for lending funds to CNH Industrial North America. The amounts earned are included in “Interest and other income from affiliates” in the accompanying consolidated statements of income.
Income from operating leases is recognized over the term of the lease on a straight-line basis. For selected operating leases, CNH Industrial North America compensates the Company based on the Company’s estimated costs and a targeted return on equity. The amounts from CNH Industrial North America recognized as rental income on operating leases are included in “Interest and other income from affiliates.”
F-11
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Foreign Currency Translation
The Company’s non-U.S. subsidiaries maintain their books and accounting records using local currency as the functional currency. Assets and liabilities of these non-U.S. subsidiaries are translated into U.S. dollars at period-end exchange rates, and net exchange gains or losses resulting from such translation are included in “Accumulated other comprehensive income” in the accompanying consolidated balance sheets. Income and expense accounts of these non-U.S. subsidiaries are translated at the average exchange rates for the period, and gainsperiod. Gains and losses from foreign currency transactions are included in net income in the period that they arise. Net foreign currency transaction gains and losses are reflected in “Other expenses, net” in the accompanying consolidated statements of income.
F-12
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Restricted Cash and Cash Equivalents
Cash equivalents are highly liquid investments with an original maturity of three months or less. The carrying value of cash equivalents approximates fair value because of the short maturity of these investments.
Restricted Cash
Restricted cash includes principal and interest payments from retail notes and wholesale receivables owned by the consolidated VIEs that are payable to the VIEs’ investors, and cash pledged as a credit enhancement to the same investors. These amounts are held by depository banks in order to comply with contractual agreements. Restricted cash equivalents are highly liquid investments with an original maturity of one month or less.
Receivables
Receivables are recorded at amortized cost, net of allowances for credit losses and deferred fees and costs. Periodically, the Company sells or transfers retail notes and wholesale receivables to funding facilities or in securitization transactions. In accordance with the accounting guidance regarding transfers of financial assets and the consolidation of VIEs, the majority of the retail notes and wholesale receivables sold in securitizations do not qualify as sales and are recorded as secured borrowings with no gains or losses recognized at the time of securitization. Receivables associated with these securitization transactions and receivables that the Company has the ability and intent to hold for the foreseeable future are classified as held for investment. The substantial majority of the Company’s receivables, which include unrestricted receivables and restricted receivables for securitization investors, are classified as held for investment.
Allowance for Credit Losses
Post-Adoption of ASC 326, Financial Instruments – Credit Losses (“ASC 326”) on January 1, 2020
The allowance for credit losses is the Company’s estimate of the lifetime expected credit losses inherent in the receivables owned by the Company. Retail customer receivables primarily include retail and other notes and finance lease products offeredleases to end-use customers. Revolving charge accounts represent financing for retail purchases of newcustomers to purchase parts, service, rentals, implements and used equipment sold throughattachments from CNH Industrial North America’s dealer network.America dealers. Wholesale receivables include dealer floorplan financing, of the sale of goods to dealers and distributors by CNH Industrial North America, and to a lesser extent, the financing of dealer operations. Wholesale factoring receivables represent the short-term receivables purchased from Iveco Argentina S.A. Typically, the Company’s receivables within a geographic area have similar risk profiles and methods for assessing and monitoring risk.
Retail customer receivables that share the same risk characteristics such as, collateralization levels, geography, product type and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for retail credit losses on retail customer receivables is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward lookingforward-looking macroeconomic factors, such as GDP and Net Farm Income. The forward-looking macroeconomic factors are
F-12
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
updated quarterly. In addition, qualitative factors such as the potential impact of COVID-19, that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
Wholesale receivables that share the same risk characteristics such as, collateralization levels, term, geography and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for wholesale credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward lookingforward-looking macroeconomic factors, such as industry sales volumes. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
Wholesale
F-13
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Retail customer receivables and retailwholesale receivables that do not have similar risk characteristics are individually reviewed based on, among other items, amounts outstanding, days past due and prior collection history. Expected credit losses are measured by considering: the probability-weighted estimates of cash flows and collateral value; the time value of money; current conditions and forecasts of future economic conditions. Expected credit losses are measured as the probability-weighted present value of all cash shortfalls (including the value of the collateral, if appropriate) over the expected life of each financial asset. Charge offs
Charge-offs of principal amounts of retail customer receivables and wholesale receivables outstanding are deducted from the allowance at the point when it is estimated that amounts due are deemed uncollectible.
Prior Revolving charge accounts are generally deemed to Adoption of ASC 326 on January 1, 2020
The allowance for credit losses was the Company’s estimate of losses on receivables owned by the Companybe uncollectible and consisted of two components, and depended on whether the receivable had been individually identified as being impaired. The first component ofcharged off to the allowance for credit losses covered the receivables specifically reviewed by management for which the Company had determined it was probable that it would not collect all the principal and interest payments as per the terms of the contract. Receivables were individually reviewed for impairment based on, among other items, amounts outstanding, days past due and prior collection history. These receivables were subject to impairment measurement at the loan level based either on the fair value of the collateral for collateral dependent receivables or on the present value of expected future cash flows discounted at the receivables’ effective interest rate.when delinquency reaches 120 days.
The second component of the allowance for credit losses covered all receivables that had not been individually reviewed for impairment. The allowance for these receivables was based on aggregated portfolio evaluations, generally by financial product. The allowance for retail and wholesale credit losses was based on loss forecast models that considered a variety of factors that included, but were not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models were updated on a quarterly basis. In addition, qualitative factors that were not fully captured in the loss forecast models, including industry trends, and macroeconomic factors, were considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors were subjective and required a degree of management judgment.
Equipment on Operating Leases
The Company purchases leases and equipment from CNH Industrial North AmericaAmerica’s dealers and other independent third parties that have leased equipment to retail customers under operating leases. The Company’s investment in operating leases is based on the purchase price paid for the equipment. Income from these operating leases is recognized over the term of the lease. The equipment is depreciated on a straight-line basis over the term of the lease to the estimated residual value at lease termination. Residual values are estimated at the inception of the lease and are reviewed quarterly. Realization of the residual values is dependent on the Company’s future ability to re-market the equipment under then prevailing market conditions. Equipment model changes and updates, as well as
F-13
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
market strength and product acceptance, are monitored and adjustments are made to residual values in accordance with the significance of any such changes. Management believes that the estimated residual values are realizable. Expenditures for maintenance and repairs are the responsibility of the lessee.
The Company evaluates the carrying amount of equipment on operating leases for potential impairment when it determines a triggering event has occurred. When a triggering event occurs, a test for recoverability is performed comparing projected undiscounted future cash flows to the carrying amount of the asset. If the test for recoverability identifies a possible impairment, the asset’s fair value is measured in accordance with the fair value measurement framework. An impairment charge would be recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value.
Equipment returned to the Company upon termination of leases and held for subsequent sale or lease is recorded at the lower of net book value or estimated fair value of the equipment, less cost to sell, and is not depreciated. Matured operating lease inventory is reported in “Equipment held for sale.”
Goodwill and Intangible Assets
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired. Goodwill is deemed to have an indefinite useful life and is reviewed for impairment at least annually. During 20202023 and 2019,2022, the Company performed its annual impairment review as of December 31, and concluded that there was no impairment in either year. Other intangible assets consist of software and are being amortized on a straight-line basis over fiveten years.
F-14
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Income Taxes
The provision for income taxes is determined using the asset and liability method. The Company recognizes a current tax liability or asset for the estimated taxes payable or refundable on tax returns for the current year and tax contingencies estimated to be settled with taxing authorities within one year. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and tax loss carryforwards. The measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax law. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized based on available evidence.
Derivatives
The Company’s policy is to enter into derivative transactions to manage exposures that arise in the normal course of business and not for trading or speculative purposes. The Company records derivative financial instruments in the consolidated balance sheets as either an asset or liability measured at fair value. The fair value of the Company’s interest rate derivatives is based on discounting expected cash flows, using market interest rates, over the remaining term of the instrument. The fair value of the Company’s foreign exchange derivatives is based on quoted market exchange rates, adjusted for the respective interest rate differentials (premiums or discounts). Changes in the fair value of derivative financial instruments are recognized in current income unless specific hedge accounting criteria are met. For derivative financial instruments designated to hedge exposure to changes in the fair value of a recognized asset or liability, the gain or loss is recognized in income in the period of change together with the offsetting loss or gain on the related hedged item. For derivative financial instruments designated to hedge exposure to variable cash flows of a forecasted transaction, the gain or loss is initially reported in accumulated other comprehensive income and is subsequently reclassified into income when the forecasted transaction affects income. For derivative financial instruments that are not designated as hedges but held as economic hedges, the gain or loss is recognized immediately in income.
F-14
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The Company formally documents the hedging relationship to the hedged item and its risk management strategy for all derivative financial instruments designated as hedges. This includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities contained in the consolidated balance sheets and linking cash flow hedges to specific forecasted transactions or variability of cash flow. The Company assesses the effectiveness of its hedging instruments both at inception and on an ongoing basis. If a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer probable of occurring, or the derivative is terminated, the hedge accounting described above is discontinued and the derivative is marked to fair value and recorded in income through the remainder of its term.
New Accounting Pronouncements Adopted in 2020
In June 2016,March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13,2022-02, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which established ASC 326. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2018-19”2022-02”), which superseded existing. ASU 2016-13.2022-02 eliminates the accounting guidance for troubled debt restructurings (“TDRs”) for creditors in ASC 310-40 and amends the guidance on vintage disclosures to require disclosure of current-period gross charge-offs by year of origination. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. Entities can elect to adopt the guidance on TDRs using either a prospective or modified retrospective transition. The ASU introduced a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Additionalamendments related to disclosures about significant estimates and credit quality were also required.should be adopted prospectively. The Company adopted ASU 2018-19 on2022-02 and applied the guidance within ASU 2022-02 to its consolidated financial statements prospectively beginning January 1, 2020, using the modified retrospective approach.2023. The impact to the consolidated balance sheet on January 1, 2020 was an increase to the allowance for credit losses of $26 million and an increase to deferred tax assets of $6 million, with the offset to retained earnings, net of tax, of $20 million.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amended ASC 820, Fair Value Measurement. This ASU modified the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures were adopted on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement (“ASU 2018-15”), which expanded the guidance set forth in ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2018-15 aligned the requirements for capitalization of implementation costs in a cloud computing service contract with those requirements for capitalization of implementation costs incurred for an internal-use software license. The Company adopted ASU 2018-15 on January 1, 2020. The adoption of this standard did not have a material impact on its consolidated financial statements.
In October 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”), which expanded the application of a specific private company alternative related to VIEsstatements and changed the guidance for determining whether a decision-making fee is a variable interest. Under the new guidance, to determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety. The Company adopted ASU 2018-17 on January 1, 2020. The adoption of this standard did not have a material impact on its consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic326, Financial Instruments – Credit Losses, Topic815, Derivatives and Hedging, and Topic825, Financial Instruments (“ASU 2019-04”), which made targeted changes to standards on credit losses, hedging, and recognizing and measuring financial instruments, to clarify them and address implementation issues. The amendments clarified the scope of the credit losses standard and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. On recognizing and measuring financial instruments, the amendments addressed the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchangenote disclosures.
F-15
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
rates.In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”). ASU 2022-06 extended the sunset date of ASC Topic 848 from December 31, 2022 to December 31, 2024. The Company adoptedelected to adopt ASU 2019-042020-04 and ASU 2022-06 in the second quarter of 2023. The Company renegotiated its contract terms on January 1, 2020.its interest rate derivatives by changing the floating interest rate swap from LIBOR to overnight SOFR. The adoption of this standardCompany elected to make that change using the optional expedients under ASC 848, which allows the change in critical terms without dedesignation and results in no change to the cumulative basis adjustment reflected in earnings. The elections did not have a material impact on itsthe Company’s consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In December 2019,November 2023, the FASB issued ASU No. 2019-12,2023-07, SimplifyingImprovements to Reportable Segment Disclosures, to improve the Accountingdisclosures about a public entity’s reportable segments and address requests from investors for Income Taxes (“ASU 2019-12”). This ASU eliminates certain exceptions to the general principlesadditional, more detailed information about a reportable segment’s expenses. The amendments in ASC 740, Income Taxes. Specifically, it eliminates the exception to (1) the incremental approachthis update are effective date for intraperiod tax allocation where there is a loss from continuing operations, and income or a gain from other items; (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 will be effective for the annual periodsfiscal years beginning after December 15, 2020, including2023, and interim periods within those fiscal years.years beginning after December 15, 2024. Early adoption is permitted. The Company does not expectis currently evaluating the impact of adoption to its disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this standardupdate are effective date for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adoption to have a material impact on its consolidated financial statements.income tax disclosures.
NOTE 3: ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income (“AOCI”) includes net income plus other comprehensive income, which includes foreign currency translation gains and losses, certain changes in pension plans and changes in fair value of certain derivatives designated as cash flow hedges.
The following table summarizes the change in the components of the Company’s AOCI balance and related tax effects for the year ended December 31, 2020:2023:
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Currency | | | | | Unrealized | | | | | Currency | | | | | Unrealized | | | | ||||
| | Translation | | Pension | | (Losses) Gains | | ��� | | | Translation | | Pension | | (Losses) Gains | | | | ||||||
|
| Adjustment |
| Liability |
| on Derivatives |
| Total |
| Adjustment |
| Liability |
| on Derivatives |
| Total | ||||||||
Beginning balance, gross |
| $ | (125,133) | | $ | (302) | | $ | 1,335 | | $ | (124,100) |
| $ | (151,254) | | $ | 2,563 | | $ | 15,288 | | $ | (133,403) |
Tax asset | |
| — | |
| 58 | |
| (354) | |
| (296) | ||||||||||||
Tax liability | |
| — | |
| (620) | |
| (3,810) | |
| (4,430) | ||||||||||||
Beginning balance, net of tax |
|
| (125,133) | |
| (244) | |
| 981 | |
| (124,396) |
|
| (151,254) | |
| 1,943 | |
| 11,478 | |
| (137,833) |
Other comprehensive income (loss) before reclassifications | |
| 11,849 | |
| 577 | |
| (11,047) | |
| 1,379 | |
| 8,456 | |
| (43) | |
| (6,987) | |
| 1,426 |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| (208) | |
| 171 | |
| (37) | |
| — | |
| (961) | |
| (2,624) | |
| (3,585) |
Tax effects | |
| — | |
| (63) | |
| 2,882 | |
| 2,819 | |
| — | |
| 247 | |
| 2,437 | |
| 2,684 |
Net current-period other comprehensive income (loss) |
|
| 11,849 | |
| 306 | |
| (7,994) | |
| 4,161 |
|
| 8,456 | |
| (757) | |
| (7,174) | |
| 525 |
Total |
| $ | (113,284) | | $ | 62 | | $ | (7,013) | | $ | (120,235) |
| $ | (142,798) | | $ | 1,186 | | $ | 4,304 | | $ | (137,308) |
F-16
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The following table summarizes the change in the components of the Company’s AOCI balance and related tax effects for the year ended December 31, 2019:2022:
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Currency | | | | | Unrealized | | | | | Currency | | | | | Unrealized | | | | ||||
| | Translation | | Pension | | (Losses) Gains | | | | | Translation | | Pension | | (Losses) Gains | | | | ||||||
|
| Adjustment |
| Liability |
| on Derivatives |
| Total |
| Adjustment |
| Liability |
| on Derivatives |
| Total | ||||||||
Beginning balance, gross |
| $ | (146,726) | | $ | (4,070) | | $ | 3,025 | | $ | (147,771) |
| $ | (112,618) | | $ | 2,451 | | $ | (956) | | $ | (111,123) |
Tax asset | |
| — | |
| 1,573 | |
| (801) | |
| 772 | ||||||||||||
Tax liability | |
| — | |
| (587) | |
| 253 | |
| (334) | ||||||||||||
Beginning balance, net of tax |
|
| (146,726) | |
| (2,497) | |
| 2,224 | |
| (146,999) |
|
| (112,618) | |
| 1,864 | |
| (703) | |
| (111,457) |
Other comprehensive income (loss) before reclassifications | |
| 21,593 | |
| 3,408 | |
| (1,002) | |
| 23,999 | |
| (38,636) | |
| 1,067 | |
| 17,334 | |
| (20,235) |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| 360 | |
| (689) | |
| (329) | |
| — | |
| (955) | |
| (1,090) | |
| (2,045) |
Tax effects | |
| — | |
| (918) | |
| 448 | |
| (470) | |
| — | |
| (33) | |
| (4,063) | |
| (4,096) |
Net current-period other comprehensive income (loss) |
|
| 21,593 | |
| 2,850 | |
| (1,243) | |
| 23,200 |
|
| (38,636) | |
| 79 | |
| 12,181 | |
| (26,376) |
Reclassification of stranded tax effects | | | — | | | (597) | | | — | | | (597) | ||||||||||||
Total |
| $ | (125,133) | | $ | (244) | | $ | 981 | | $ | (124,396) |
| $ | (151,254) | | $ | 1,943 | | $ | 11,478 | | $ | (137,833) |
The reclassifications out of AOCI and the location on the consolidated statements of income for the years ended December 31, 20202023 and 2019 are as follows:2022 were immaterial.
| | | | | | | | | |
|
| | 2020 |
| | 2019 |
| Affected Line Item | |
Amortization of defined benefit pension items: | | | | | | | | | |
|
| $ | 208 |
| $ | (360) |
| Various line items individually insignificant | |
|
| | 208 | | | (360) |
| Income before taxes | |
| | | (36) | | | 88 |
| Income tax effects | |
|
| $ | 172 |
| $ | (272) |
| Net of tax | |
Unrealized losses on derivatives: |
| | | | | | | | |
|
| $ | (171) |
| $ | 689 |
| Interest expense to third parties | |
|
| | (171) | | | 689 |
| Income before taxes | |
| | | 46 | | | (182) |
| Income tax effects | |
|
| $ | (125) |
| $ | 507 |
| Net of tax | |
NOTE 4: RECEIVABLES
A summary of receivables included in the consolidated balance sheets as of December 31, 20202023 and 20192022 is as follows:
| | | | | | |
| | 2020 | | 2019 | ||
Retail |
| $ | 833,864 |
| $ | 656,518 |
Wholesale | |
| 639,934 | |
| 813,454 |
Finance lease | |
| 156,161 | |
| 79,848 |
Restricted receivables | |
| 7,402,988 | |
| 8,358,205 |
Gross receivables |
|
| 9,032,947 |
|
| 9,908,025 |
Less: Allowance for credit losses | |
| (136,136) | |
| (72,751) |
Total receivables, net |
| $ | 8,896,811 |
| $ | 9,835,274 |
| | | | | | |
| | 2023 | | 2022 | ||
Retail notes |
| $ | 1,291,559 |
| $ | 1,241,775 |
Revolving charge accounts | |
| 205,872 | |
| 207,744 |
Finance leases | |
| 219,386 | |
| 198,064 |
Wholesale | |
| 1,575,142 | |
| 875,628 |
Restricted receivables | | | 10,278,503 | | | 8,343,621 |
Gross receivables |
|
| 13,570,462 |
|
| 10,866,832 |
Less: Allowance for credit losses | |
| (114,745) | |
| (125,012) |
Total receivables, net |
| $ | 13,455,717 |
| $ | 10,741,820 |
The Company provides and administers retail note and lease financing to end-use customers for the purchase of new and used equipment and components sold through CNH North America’s dealer network, as well as revolving charge account financing. The terms of retail customer receivables generally range from two to seven years, and interest rates vary depending on prevailing market interest rates and certain incentive programs offered by CNH North America. Revolving charge accounts are generally accompanied by higher interest rates than the Company’s other retail financing products, require minimum monthly payments and do not have pre-determined maturity dates.
F-17
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The Company provides and administers financing for retail purchases of new and used equipment sold through CNH Industrial North America’s dealer network. The terms of retail and other notes and finance leases generally range from two to six years, and interest rates vary depending on prevailing market interest rates and certain incentive programs offered by CNH Industrial North America.
Wholesale receivables arise primarily from thedealer floorplan financing, of the sale of goods to dealers and distributors by CNH Industrial North America, and to a lesser extent, the financing of dealer operations. Under the standard terms of the wholesale receivable agreements, these receivables typically have interest-free periods of up to twelve months and stated original maturities of up to twenty-four months, with repayment accelerated upon the sale of the underlying equipment by the dealer. During the interest-free period, the Company is compensated by CNH Industrial North America based on market interest rates. After the expiration of any interest-free period, interest is charged to dealers on outstanding balances until the Company receives payment in full. The interest-free periods are determined based on the type of equipment sold and the time of year of the sale. Interest rates are set based on market factors and the prime rate or LIBOR.the Secured Overnight Financing Rate (“SOFR”). The Company evaluates and assesses dealers on an ongoing basis as to their creditworthiness. CNH Industrial North America may be obligated to repurchase the dealer’s equipment upon cancellation or termination of the dealer’s contract for such causes as change in ownership, closeout of the business, or default. There were no significant losses in 2020, 20192023, 2022 or 20182021 relating to the termination of dealer contracts.
Wholesale factoring receivables represent short-term receivables purchased from Iveco Argentina.
Maturities of receivables as of December 31, 2020,2023, are as follows:
| | | |
2021 |
| $ | 4,598,478 |
2022 | |
| 1,481,983 |
2023 | |
| 1,220,178 |
2024 | |
| 890,717 |
2025 and thereafter | |
| 705,455 |
Total receivables |
| $ | 8,896,811 |
| | | |
2024 |
| $ | 7,640,811 |
2025 | |
| 1,912,007 |
2026 | |
| 1,638,278 |
2027 | |
| 1,221,391 |
2028 and thereafter | |
| 1,043,230 |
Total receivables |
| $ | 13,455,717 |
It has been the Company’s experience that substantial portions of retail customer receivables are repaid before their contractual maturity dates. As a result, the above table should not be regarded as a forecast of future cash collections. Retail finance leasecustomer receivables, revolving charge accounts and wholesale receivables have significant concentrations of credit risk in the agricultural and construction business sectors. Short-term receivables purchased from Iveco Argentina have significant concentrations of credit risk in the agricultural and commercial vehicles business sectors in Argentina. On a geographic basis, there is not a disproportionate concentration of credit risk in any area of the United States Canada or Argentina.Canada. The Company typically retains, as collateral, a security interest in the equipment associated with retail notescustomer receivables and wholesale receivables.receivables, while revolving charge accounts are generally unsecured.
Restricted Receivables and Securitization
As part of its overall funding strategy, the Company periodically transfers certain receivables into VIEs that are special purpose entities (“SPEs”) as part of its asset-backed securitization (“ABS”) programs.
SPEs utilized in the securitization programs differ from other entities included in the Company’s consolidated financial statements because the assets they hold are legally isolated from the Company’s assets. For bankruptcy analysis purposes, the Company has sold the receivables to the SPEs in a true sale and the SPEs are separate legal entities. Upon transfer of the receivables to the SPEs, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the SPEs’ creditors. The SPEs have ownership of cash balances that also have restrictions for the benefit of the SPEs’ investors. The Company’s interests in the SPEs’ receivables are subordinate to the interests of third-party investors. None of the receivables that are directly or indirectly sold or
F-18
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
transferred in any of these transactions are available to pay the Company’s creditors until all obligations of the SPE have been fulfilled or the receivables are removed from the SPE.
F-18
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The secured borrowings related to the restricted receivables are obligations that are payable as the receivables are collected. The following table summarizes the restricted receivables as of December 31, 20202023 and 2019:2022:
| | | | | | | |
| | 2020 |
| 2019 | | ||
Retail |
| $ | 5,280,423 | | $ | 5,531,885 | |
Wholesale | |
| 2,122,565 | |
| 2,826,320 | |
Total restricted receivables |
| $ | 7,402,988 | | $ | 8,358,205 | |
| | | | | | |
| | 2023 |
| 2022 | ||
Retail notes |
| $ | 6,693,525 | | $ | 5,835,445 |
Wholesale | |
| 3,584,978 | |
| 2,508,176 |
Total restricted receivables |
| $ | 10,278,503 | | $ | 8,343,621 |
Retail ReceivablesNotes Securitizations
Within the U.S. retail receivablesnotes securitization programs, qualifying retail receivablesnotes are sold to bankruptcy-remote SPEs. In turn, these SPEs either establish separate trusts, which are VIEs, to which theeither transfer receivables are transferred in exchange for proceeds from asset-backed securities issued by the trusts, or pledge the receivables as collateral in exchange for proceeds from a committed asset-backed facility. In Canada, the receivablesqualifying retail notes are transferred directly to the trusts. These trusts, were determined to bewhich are also VIEs. In its role as servicer,The VIEs are consolidated since the Company has both the power to direct the trusts’ activities. Through its retained interests,activities that most significantly impact the Company has anVIEs’ economic performance and the obligation to absorb certain losses or the right to receive certain benefits that could potentially be significant to the trusts. Consequently, the Company has consolidated these retail trusts.VIEs.
During the years ended December 31, 20202023 and 2019,2022, the Company executed $1,120,065$2,198,864 and $2,800,356,$2,798,457, respectively, in term retail asset-backed transactions in the U.S. and Canada. The securities in these transactions are backed by agricultural and construction equipment retail receivable contractsnotes originated through CNH Industrial North America’s dealer network. As of December 31, 20202023 and 2019, $4,012,3982022, $4,620,565 and $5,173,413,$4,927,653, respectively, of asset-backed securities issued to investors were outstanding with weighted average remaining maturities of 3039 months and 33 months, respectively.for both periods. The Company believes that it is probable that it will continue to regularly utilize the term ABS markets.
The Company may retain all or a portion of the subordinated interests in the SPEs. No recourse provisions exist that allow holders of the asset-backed securities issued by the trusts to put those securities back to the Company although the Company provides customary representations and warranties that could give rise to an obligation to repurchase from the trusts any receivables for which there is a breach of the representations and warranties. Moreover, the Company does not guarantee any securities issued by the trusts. The trusts have a limited life and generally terminate upon final distribution of amounts owed to investors or upon exercise of a cleanup-call option by the Company, in its role as servicer.
TheAs of December 31, 2023, the Company also has $1,592,471$1,377,339 in committed asset-backed facilities through which it may sell on a monthly basis retail receivablesnotes generated in the United States and Canada. The Company has utilized these facilities in the past to fund the origination of receivables and has later repurchased and resold the receivables in the term ABS markets or found alternative financing for the receivables. The U.S. and Canadian facilities had an original funding term of two years and are renewable in September 20222025 and December 2022,2025, respectively. To the extent these facilities are not renewed, they will be repaid according to the amortization of the underlying receivables.
Wholesale Receivables Securitizations
With regard to the wholesale receivable securitization programs, the Company sells eligible receivables on a revolving basis to structured master trust facilities, which are bankruptcy-remote SPEs. As of December 31, 2020,2023, debt is issued through thea U.S. master trust facility, consistsconsisting of twothree short-term series: $700,000series of $850,000, $400,000 and $300,000.
F-19
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The$300,000 and through a C$500,000 ($377,339) Canadian master trust facility consists of a C$585,750 ($459,780) facility renewable December 2022 at the discretion of the investor.facility.
These trusts were determined to be VIEs. In its role as servicer, CNH Industrial Capital has the power to direct the trusts’ activities. Through its retained interests, the Company provides security to investors in the event that cash collections from the receivables are not sufficient to make principal and interest payments on the securities. Consequently, CNH Industrial Capital has consolidated these wholesale trusts.
F-19
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Each of the facilities contains minimum payment rate thresholds that, if breached, could preclude the Company from selling additional receivables originated on a prospective basis and could force an early amortization of the debt.
The Company’s allowance for credit losses is segregated into three portfolio segments:products: retail wholesalecustomer receivables, revolving charge accounts and wholesale factoring.receivables. A portfolio segmentproduct is the level at which the Company develops a systematic methodology for determining its allowance for credit losses. The retail segment includes retail notes and finance lease receivables. The wholesale segment includes wholesale financing to CNH Industrial North America dealers and
Further, the wholesale factoring segment represents the short-termclass of receivables purchased from Iveco Argentina.
Further,by which the Company evaluates its retail and wholesale portfolio segmentsportfolio’s products is by class of receivable: United States and Canada.geographic region. Typically, the Company’s receivables within a geographic area have similar risk profiles and methods for assessing and monitoring risk. TheseThe classes align with management reporting.
Allowance for credit losses activity for the year ended December 31, 20202023 is as follows:
| | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | |||||||||
| | | | Revolving | | | | | | ||||||||||||
| | Retail | | Charge | | | | | | | |||||||||||
| | Retail | | Wholesale | | Total | | Customer | | Accounts | | Wholesale | | Total | |||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance, as previously reported |
| $ | 64,750 |
| $ | 8,001 | | $ | 72,751 | ||||||||||||
Adoption of ASC 326 | | | 25,877 | | | — | | | 25,877 | ||||||||||||
Beginning balance, as recast |
| $ | 90,627 | | $ | 8,001 | | $ | 98,628 | ||||||||||||
Beginning balance |
| $ | 110,341 |
| $ | 8,519 |
| $ | 6,152 | | $ | 125,012 | |||||||||
Charge-offs | |
| (23,147) | |
| (1,530) | | | (24,677) | |
| (17,624) | | | (6,512) | |
| — | | | (24,136) |
Recoveries | |
| 2,481 | |
| 10 | | | 2,491 | |
| 1,785 | | | 221 | |
| 26 | | | 2,032 |
Provision | |
| 56,252 | |
| 2,792 | | | 59,044 | ||||||||||||
Provision (benefit) | |
| 6,920 | | | 5,354 | |
| (695) | | | 11,579 | |||||||||
Foreign currency translation and other | |
| 638 | |
| 12 | | | 650 | |
| 227 | | | 12 | |
| 19 | | | 258 |
Ending balance |
| $ | 126,851 |
| $ | 9,285 | | $ | 136,136 |
| $ | 101,649 |
| $ | 7,594 |
| $ | 5,502 | | $ | 114,745 |
Receivables: |
| | |
| | | | | |
| | |
| | |
| | | | | |
Ending balance |
| $ | 6,270,448 |
| $ | 2,762,499 | | $ | 9,032,947 |
| $ | 8,204,470 |
| $ | 205,872 |
| $ | 5,160,120 | | $ | 13,570,462 |
At December 31, 2020,2023, the allowance for credit losses includes a build of reserves primarilydecreased due to the expectation of deteriorating credit conditions related to the COVID-19 pandemiclower specific reserve needs for retail customers and the adoption of ASC 326.continued strong outlook for the agricultural industry. The Company continues to monitor the situation and will update the macroeconomic factors and qualitative factors in future periods, as warranted.
Allowance for credit losses activity for the year ended December 31, 2022 is as follows:
| | | | | | | | | | | | |
| | | | | Revolving | | | | | | | |
| | Retail | | Charge | | | | | | | ||
| | Customer | | Accounts | | Wholesale | | Total | ||||
Allowance for credit losses: | | | | | | | | | | | | |
Beginning balance |
| $ | 109,742 |
| $ | — |
| $ | 6,211 | | $ | 115,953 |
Charge-offs | |
| (8,202) | |
| (49) | |
| (4,631) | | | (12,882) |
Recoveries | |
| 2,262 | |
| — | |
| 526 | | | 2,788 |
Provision (benefit) | |
| 7,311 | |
| (169) | |
| 4,099 | | | 11,241 |
Foreign currency translation and other | |
| (772) | |
| 8,737 | |
| (53) | | | 7,912 |
Ending balance |
| $ | 110,341 |
| $ | 8,519 |
| $ | 6,152 | | $ | 125,012 |
Receivables: |
| | |
| | |
| | | | | |
Ending balance |
| $ | 7,275,284 |
| $ | 207,744 |
| $ | 3,383,804 | | $ | 10,866,832 |
At December 31, 2022, the allowance for credit losses included increases in reserves primarily due to the addition of revolving charge accounts.
F-20
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Allowance for credit losses activity for the year ended December 31, 20192021 is as follows:
| | | | | | | | | | |||||||||
| | | | | | | | | | |||||||||
| | Retail | | | | | | | ||||||||||
| | Retail | | Wholesale | | Total | | Customer | | Wholesale | | Total | ||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
Beginning balance |
| $ | 66,944 |
| $ | 7,468 | | $ | 74,412 | | $ | 126,851 | | $ | 9,285 | | $ | 136,136 |
Charge-offs | |
| (35,535) | |
| (5,102) | | | (40,637) | |
| (14,929) | |
| (179) | |
| (15,108) |
Recoveries | |
| 3,046 | |
| 16 | | | 3,062 | |
| 2,177 | |
| 126 | |
| 2,303 |
Provision | |
| 30,115 | |
| 5,588 | | | 35,703 | |||||||||
Benefit | |
| (4,437) | |
| (3,023) | |
| (7,460) | |||||||||
Foreign currency translation and other | |
| 180 | |
| 31 | | | 211 | |
| 80 | |
| 2 | |
| 82 |
Ending balance |
| $ | 64,750 |
| $ | 8,001 | | $ | 72,751 |
| $ | 109,742 |
| $ | 6,211 | | $ | 115,953 |
Receivables: |
| | |
| | | | | |
| | |
| | | | | |
Ending balance |
| $ | 6,268,251 |
| $ | 3,639,774 | | $ | 9,908,025 |
| $ | 6,722,247 |
| $ | 2,345,005 | | $ | 9,067,252 |
Allowance
At December 31, 2021, the allowance for credit losses activityincluded a release of reserves primarily due to the improved outlook for the year ended December 31, 2018 is as follows:agricultural industry and a reduced expected impact on credit conditions from the COVID-19 pandemic.
| | | | | | | | | |
| | Retail | | Wholesale | | Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance |
| $ | 73,610 |
| $ | 5,586 | | $ | 79,196 |
Charge-offs | |
| (39,375) | |
| (1,567) | |
| (40,942) |
Recoveries | |
| 4,702 | |
| 71 | |
| 4,773 |
Provision | |
| 28,277 | |
| 3,422 | |
| 31,699 |
Foreign currency translation and other | |
| (270) | |
| (44) | |
| (314) |
Ending balance |
| $ | 66,944 |
| $ | 7,468 | | $ | 74,412 |
Receivables: |
| | |
| | | | | |
Ending balance |
| $ | 6,441,054 |
| $ | 3,584,284 | | $ | 10,025,338 |
The Company assesses and monitors the credit quality of its receivables based on past due information.delinquency status. Receivables are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Delinquency is reported on receivables greater than 30 days past due. As the terms for the retail customer receivables are greater than one year, the past due information is presented by year of origination.
F-21
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The aging of receivables by vintage as of December 31, 20202023 is as follows:
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | Greater | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 31 – 60 Days | | 61 – 90 Days | | Than | | Total | | | | | Total | | | | | | | | Greater | | | | | | | | | | | | |||||||
| | Past Due | | Past Due | | 90 Days | | Past Due | | Current | | Receivables | | 31 – 60 Days | | 61 – 90 Days | | Than | | Total | | | | | Total | | Gross | ||||||||||||
Retail |
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||
|
| Past Due |
| Past Due |
| 90 Days |
| Past Due |
| Current |
| Receivables |
| Charge-offs | |||||||||||||||||||||||||
Retail customer |
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
United States | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2023 | | $ | 9,662 | | $ | 1,415 | | $ | 1,288 | | $ | 12,365 | | $ | 3,111,476 | | $ | 3,123,841 | | $ | 552 | ||||||||||||||||||
2022 | | | 10,008 | | | 2,583 | | | 5,821 | | | 18,412 | | | 1,755,538 | | | 1,773,950 | | | 3,221 | ||||||||||||||||||
2021 | | | 6,808 | | | 2,118 | | | 3,554 | | | 12,480 | | | 1,041,185 | | | 1,053,665 | | | 2,716 | ||||||||||||||||||
2020 | | $ | 3,334 | | $ | 569 | | $ | 3,317 | | $ | 7,220 | | $ | 2,076,477 | | $ | 2,083,697 | | | 3,270 | | | 1,106 | | | 32,831 | | | 37,207 | | | 451,292 | | | 488,499 | | | 2,987 |
2019 | | | 7,912 | | | 1,201 | | | 4,243 | | | 13,356 | | | 1,264,842 | | | 1,278,198 | | | 1,829 | | | 529 | | | 2,001 | | | 4,359 | | | 164,634 | | | 168,993 | | | 3,203 |
2018 | | | 5,742 | | | 1,261 | | | 5,385 | | | 12,388 | | | 849,397 | | | 861,785 | |||||||||||||||||||||
2017 | | | 3,841 | | | 461 | | | 2,655 | | | 6,957 | | | 454,256 | | | 461,213 | |||||||||||||||||||||
2016 | | | 1,699 | | | 220 | | | 2,894 | | | 4,813 | | | 223,024 | | | 227,837 | |||||||||||||||||||||
2015 | | | 781 | | | 173 | | | 2,091 | | | 3,045 | | | 53,981 | | | 57,026 | |||||||||||||||||||||
Prior to 2015 | | | 256 | | | 47 | | | 2,874 | | | 3,177 | | | 15,459 | | | 18,636 | |||||||||||||||||||||
Prior to 2019 | | | 631 | | | 318 | | | 3,831 | | | 4,780 | | | 56,779 | | | 61,559 | | | 2,849 | ||||||||||||||||||
Total |
| $ | 23,565 | | $ | 3,932 | | $ | 23,459 | | $ | 50,956 | | $ | 4,937,436 | | $ | 4,988,392 |
| $ | 32,208 | | $ | 8,069 | | $ | 49,326 | | $ | 89,603 | | $ | 6,580,904 | | $ | 6,670,507 | | $ | 15,528 |
Canada | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2023 | | $ | 647 | | $ | 149 | | $ | 420 | | $ | 1,216 | | $ | 667,887 | | $ | 669,103 | | $ | 78 | ||||||||||||||||||
2022 | | | 2,395 | | | 60 | | | 1,236 | | | 3,691 | | | 395,757 | | | 399,448 | | | 941 | ||||||||||||||||||
2021 | | | 1,090 | | | 159 | | | 2,361 | | | 3,610 | | | 291,974 | | | 295,584 | | | 964 | ||||||||||||||||||
2020 | | $ | 1,613 | | $ | 30 | | $ | 707 | | $ | 2,350 | | $ | 588,691 | | $ | 591,041 | | | 755 | | | — | | | 320 | | | 1,075 | | | 113,630 | | | 114,705 | | | (227) |
2019 | | | 1,772 | | | 249 | | | 3,292 | | | 5,313 | | | 327,716 | | | 333,029 | | | 158 | | | 14 | | | 201 | | | 373 | | | 44,042 | | | 44,415 | | | 253 |
2018 | | | 1,254 | | | 218 | | | 1,508 | | | 2,980 | | | 197,895 | | | 200,875 | |||||||||||||||||||||
2017 | | | 535 | | | 474 | | | 970 | | | 1,979 | | | 96,215 | | | 98,194 | |||||||||||||||||||||
2016 | | | 265 | | | 127 | | | 1,209 | | | 1,601 | | | 43,480 | | | 45,081 | |||||||||||||||||||||
2015 | | | 91 | | | 6 | | | 560 | | | 657 | | | 11,512 | | | 12,169 | |||||||||||||||||||||
Prior to 2015 | | | 126 | | | 11 | | | 48 | | | 185 | | | 1,482 | | | 1,667 | |||||||||||||||||||||
Prior to 2019 | | | 126 | | | 152 | | | 366 | | | 644 | | | 10,064 | | | 10,708 | | | 87 | ||||||||||||||||||
Total |
| $ | 5,656 | | $ | 1,115 | | $ | 8,294 | | $ | 15,065 | | $ | 1,266,991 | | $ | 1,282,056 |
| $ | 5,171 | | $ | 534 | | $ | 4,904 | | $ | 10,609 | | $ | 1,523,354 | | $ | 1,533,963 | | $ | 2,096 |
Revolving charge accounts |
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
United States | | $ | 6,036 | | $ | 2,422 | | $ | 1,089 | | $ | 9,547 | | $ | 182,728 | | $ | 192,275 | | $ | 5,993 | ||||||||||||||||||
Canada | | $ | 374 | | $ | 169 | | $ | 122 | | $ | 665 | | $ | 12,932 | | $ | 13,597 | | $ | 519 | ||||||||||||||||||
Wholesale |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
United States | | $ | 18 | | $ | — | | $ | 458 | | $ | 476 | | $ | 2,206,690 | | $ | 2,207,166 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 4,271,583 | | $ | 4,271,583 | | $ | — |
Canada | | $ | 6 | | $ | — | | $ | — | | $ | 6 | | $ | 555,327 | | $ | 555,333 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 888,537 | | $ | 888,537 | | $ | — |
Total |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Retail | | $ | 29,221 | | $ | 5,047 | | $ | 31,753 | | $ | 66,021 | | $ | 6,204,427 | | $ | 6,270,448 | |||||||||||||||||||||
Retail customer | | $ | 37,379 | | $ | 8,603 | | $ | 54,230 | | $ | 100,212 | | $ | 8,104,258 | | $ | 8,204,470 | | $ | 17,624 | ||||||||||||||||||
Revolving charge accounts | | $ | 6,410 | | $ | 2,591 | | $ | 1,211 | | $ | 10,212 | | $ | 195,660 | | $ | 205,872 | | $ | 6,512 | ||||||||||||||||||
Wholesale | | $ | 24 | | $ | — | | $ | 458 | | $ | 482 | | $ | 2,762,017 | | $ | 2,762,499 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 5,160,120 | | $ | 5,160,120 | | $ | — |
The above aging table is not necessarily reflective of the potential credit risk in the portfolio due to payment schedules changes granted by the Company and government stimulus policies benefiting CNH Industrial North America dealers or the Company’s end-use customers.
The aging of receivables as of December 31, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Recorded | |
| | | | | | | | | | | | | | | | | | | | Investment | |
| | | | | | | | Greater | | | | | | | | | | | > 90 Days | ||
| | 31 – 60 Days | | 61 – 90 Days | | Than | | Total | | | | | Total | | and | ||||||
| | Past Due | | Past Due | | 90 Days | | Past Due | | Current | | Receivables | | Accruing | |||||||
Retail |
| | | | | | | | | | | | | | | | | | | | |
United States | | $ | 19,781 | | $ | 5,896 | | $ | 29,192 | | $ | 54,869 | | $ | 5,001,400 | | $ | 5,056,269 | | $ | 7,356 |
Canada | | $ | 4,470 | | $ | 1,063 | | $ | 4,703 | | $ | 10,236 | | $ | 1,201,746 | | $ | 1,211,982 | | $ | 1,167 |
Wholesale |
| | | | | | | | | | | | | | | | | | | | |
United States | | $ | 2,081 | | $ | 42 | | $ | 551 | | $ | 2,674 | | $ | 2,887,599 | | $ | 2,890,273 | | $ | 189 |
Canada | | $ | 57 | | $ | 370 | | $ | 571 | | $ | 998 | | $ | 748,503 | | $ | 749,501 | | $ | 4 |
Total |
| | | | | | | | | | | | | | | | | | | | |
Retail | | $ | 24,251 | | $ | 6,959 | | $ | 33,895 | | $ | 65,105 | | $ | 6,203,146 | | $ | 6,268,251 | | $ | 8,523 |
Wholesale | | $ | 2,138 | | $ | 412 | | $ | 1,122 | | $ | 3,672 | | $ | 3,636,102 | | $ | 3,639,774 | | $ | 193 |
F-22
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The aging of receivables by vintage as of December 31, 2022 is as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Greater | | | | | | | | | | |
| | 31 – 60 Days | | 61 – 90 Days | | Than | | Total | | | | | Total | |||||
|
| Past Due |
| Past Due |
| 90 Days |
| Past Due |
| Current |
| Receivables | ||||||
Retail customer |
| | | | | | | | | | | | | | | | | |
United States | | | | | | | | | | | | | | | | | | |
2022 | | $ | 6,258 | | $ | 976 | | $ | 350 | | $ | 7,584 | | $ | 2,728,247 | | $ | 2,735,831 |
2021 | | | 6,610 | | | 1,269 | | | 3,701 | | | 11,580 | | | 1,610,175 | | | 1,621,755 |
2020 | | | 4,490 | | | 1,503 | | | 32,505 | | | 38,498 | | | 807,990 | | | 846,488 |
2019 | | | 2,365 | | | 1,034 | | | 4,114 | | | 7,513 | | | 382,168 | | | 389,681 |
2018 | | | 1,579 | | | 465 | | | 1,493 | | | 3,537 | | | 186,897 | | | 190,434 |
Prior to 2018 | | | 765 | | | 131 | | | 4,955 | | | 5,851 | | | 54,566 | | | 60,417 |
Total |
| $ | 22,067 | | $ | 5,378 | | $ | 47,118 | | $ | 74,563 | | $ | 5,770,043 | | $ | 5,844,606 |
Canada | | | | | | | | | | | | | | | | | | |
2022 | | $ | 1,544 | | $ | 22 | | $ | 387 | | $ | 1,953 | | $ | 652,576 | | $ | 654,529 |
2021 | | | 2,420 | | | 502 | | | 2,371 | | | 5,293 | | | 436,138 | | | 441,431 |
2020 | | | 810 | | | 128 | | | 960 | | | 1,898 | | | 190,905 | | | 192,803 |
2019 | | | 197 | | | 114 | | | 615 | | | 926 | | | 90,968 | | | 91,894 |
2018 | | | 388 | | | 178 | | | 262 | | | 828 | | | 38,477 | | | 39,305 |
Prior to 2018 | | | 123 | | | 25 | | | 257 | | | 405 | | | 10,311 | | | 10,716 |
Total |
| $ | 5,482 | | $ | 969 | | $ | 4,852 | | $ | 11,303 | | $ | 1,419,375 | | $ | 1,430,678 |
Revolving charge accounts | | | | | | | | | | | | | | | | | | |
United States | | $ | 12,979 | | $ | 9,965 | | $ | — | | $ | 22,944 | | $ | 169,851 | | $ | 192,795 |
Canada | | $ | 1,237 | | $ | 759 | | $ | — | | $ | 1,996 | | $ | 12,953 | | $ | 14,949 |
Wholesale |
| | | | | | | | | | | | | | | | | |
United States | | $ | 7 | | $ | — | | $ | 4 | | $ | 11 | | $ | 2,721,282 | | $ | 2,721,293 |
Canada | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 662,511 | | $ | 662,511 |
Total |
| | |
| | |
| | |
| | |
| | |
| | |
Retail customer | | $ | 27,549 | | $ | 6,347 | | $ | 51,970 | | $ | 85,866 | | $ | 7,189,418 | | $ | 7,275,284 |
Revolving charge accounts | | $ | 14,216 | | $ | 10,724 | | $ | — | | $ | 24,940 | | $ | 182,804 | | $ | 207,744 |
Wholesale | | $ | 7 | | $ | — | | $ | 4 | | $ | 11 | | $ | 3,383,793 | | $ | 3,383,804 |
Included in the receivables balance at December 31, 20202023 and 2022 is accrued interest of $52,595.$83,879 and $57,831, respectively. The Company does not include accrued interest in its allowance for credit losses.
Recognition of income is generally suspended when management determines that collection of future finance income is not probable or when an account becomes 90 days delinquent,past due, whichever occurs first. Accrued interest is charged-off to interest income. Interest income charged-off was not material for the yearyears ended December 31, 2020.2023 and 2022. Interest accrual is resumed if the receivable becomes contractually current and collection becomes probable. Previously suspended income is recognized at that time.
The retail customer receivables on nonaccrual status as of December 31, 20202023 and 20192022 are as follows:
| | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | ||||||||||||||
|
| Retail |
| Wholesale |
| Total |
| Retail |
| Wholesale |
| Total | ||||||
United States |
| $ | 28,882 |
| $ | 35,402 |
| $ | 64,284 |
| $ | 33,463 |
| $ | 29,211 |
| $ | 62,674 |
Canada | | $ | 8,597 | | $ | — | | $ | 8,597 | | $ | 3,749 | | $ | — | | $ | 3,749 |
| | | | | | |
| | 2023 | | 2022 | ||
United States |
| $ | 55,564 |
| $ | 48,690 |
Canada | | $ | 5,321 | | $ | 4,852 |
As of December 31, 20202023, total revolving charge account receivables on nonaccrual status were immaterial and 2019,there were no revolving charge account receivables on nonaccrual status as of December 31, 2022. As of December 31, 2023 and 2022, there were no wholesale receivables on nonaccrual status.
F-23
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
As of December 31, 2023 and 2022, the Company’s receivables on non-accrual status without an allowance were immaterial. Interest income recognized for receivables on non-accrual status for the years ended December 31, 20202023 and 20192022 was immaterial.
Troubled Debt Restructurings
A restructuring of a receivable constitutes a troubled debt restructuring (“TDR”)TDR when the lender grants a concession it would not otherwise consider to a borrowercustomer that is experiencing financial difficulties. As a collateral-based lender, the Company typically will repossess collateral in lieu of restructuring receivables. As such, for retail customer receivables, concessions are typically provided based on bankruptcy court proceedings. For wholesale receivables, concessions granted may include extended contract maturities, inclusion of interest-only periods, modification of a contractual interest rate to a below market interest rate and waiving of interest and principal.
TDRs are reviewed along with other receivables as part of management’s ongoing evaluation of the adequacy of the allowance for credit losses. The allowance for credit losses attributable to TDRs is based on the most probable source of repayment, which is normally the liquidation of the collateral. In determining collateral value, the Company estimates the current fair market value of the equipment collateral and considers credit enhancements such as additional collateral and third-party guarantees.
Before removing a receivable from TDR classification, a review of the borrower is conducted. If concerns exist about the future ability of the borrower to meet its obligations based on a credit review, the TDR classification is not removed from the receivable.
As of December 31, 2020,2023 and 2022, the Company had 253 retail and finance lease contracts classified as TDRs where a court has determined the concession. The pre-modification value of these contracts was $8,690 and the post-modification value was $7,841. Additionally, the Company had 362 accounts with a balance of $25,635 undergoing bankruptcy proceedings where a concession has not yet been determined. As of December 31, 2019, the Company had 279 retail and finance lease contracts classified as TDRs where a court has determined the concession. The pre-modification value of these contracts was $10,049 and the post-modification value was $9,110. Additionally, the Company had 323 accounts with a balance of $14,850 undergoing bankruptcy proceedings where a concession has not yet been determined. As the outcome of the bankruptcy cases is determined by the court based on available assets, subsequent re-defaults are unusual and were not material for retail and finance lease contracts that were modified in a TDR during the previous 12 months ended December 31, 2020 and 2019.
As of December 31, 2020 and 2019, the Company’s wholesale TDRs were immaterial.
F-23
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
NOTE 5: EQUIPMENT ON OPERATING LEASES
A summary of equipment on operating leases as of December 31, 20202023 and 20192022 is as follows:
| | | | | | |
|
| 2020 |
| 2019 | ||
Equipment on operating leases |
| $ | 2,261,703 | | $ | 2,109,682 |
Accumulated depreciation | | �� | (402,519) | |
| (326,399) |
Total equipment on operating leases, net |
| $ | 1,859,184 | | $ | 1,783,283 |
| | | | | | |
|
| 2023 |
| 2022 | ||
Equipment on operating leases |
| $ | 1,735,626 | | $ | 1,858,912 |
Accumulated depreciation | |
| (357,242) | |
| (385,939) |
Total equipment on operating leases, net |
| $ | 1,378,384 | | $ | 1,472,973 |
Depreciation expense totaled $237,405, $229,652$178,969, $201,582 and $231,805$239,331 for the years ended December 31, 2020, 20192023, 2022 and 2018,2021, respectively.
Lease payments owed to the Company for equipment under non-cancelable operating leases (excluding deferred operating lease subsidy of $116,815)$74,775) as of December 31, 20202023 are as follows:
| | | |
2021 |
| $ | 235,958 |
2022 | |
| 152,480 |
2023 | |
| 74,203 |
2024 | |
| 25,161 |
2025 and thereafter | |
| 7,412 |
Total lease payments |
| $ | 495,214 |
| | | |
2024 |
| $ | 203,767 |
2025 | |
| 142,247 |
2026 | |
| 78,339 |
2027 | |
| 30,916 |
2028 and thereafter | |
| 9,830 |
Total lease payments |
| $ | 465,099 |
NOTE 6: GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the years ended December 31, 20202023 and 20192022 are as follows:
| | | | | | |
|
| 2020 |
| 2019 | ||
Balance, beginning of year |
| $ | 109,629 | | $ | 108,399 |
Foreign currency translation adjustment | |
| 529 | |
| 1,230 |
Balance, end of year |
| $ | 110,158 | | $ | 109,629 |
| | | | | | |
|
| 2023 |
| 2022 | ||
Balance, beginning of year |
| $ | 108,567 | | $ | 110,226 |
Foreign currency translation adjustment | |
| 551 | |
| (1,659) |
Balance, end of year |
| $ | 109,118 | | $ | 108,567 |
Goodwill is tested for impairment at least annually. During 2020, 20192023 and 2018,2022, the Company performed its annual impairment review as of December 31 and concluded that there were no impairments in any year.
F-24
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
As of December 31, 20202023 and 2019,2022, the Company’s intangible asset and related accumulated amortization for its software is as follows:
| | | | | | |
|
| 2020 |
| 2019 | ||
Software |
| $ | 37,127 | | $ | 34,427 |
Accumulated amortization | |
| (23,794) | |
| (22,232) |
Total software, net |
| $ | 13,333 | | $ | 12,195 |
| | | | | | |
|
| 2023 |
| 2022 | ||
Software |
| $ | 50,155 | | $ | 46,251 |
Accumulated amortization | |
| (30,803) | |
| (27,863) |
Total software, net |
| $ | 19,352 | | $ | 18,388 |
The Company recorded amortization expense of $1,562, $1,790$2,939, $2,159 and $2,114$1,910 during 2020, 20192023, 2022 and 2018,2021, respectively.
Based on the current amount of software subject to amortization, the estimated annual amortization expense for each of the succeeding five years is as follows: $1,684 in 2021; $1,409 in 2022; $1,223 in 2023; $1,100$3,035 in 2024; $2,904 in 2025; $2,638 in 2026; $2,274 in 2027; $1,307 in 2028; and $969$1,855 in 2025.2029 and thereafter.
NOTE 7: OTHER ASSETS
The components of other assets as of December 31, 2023 and 2022 are as follows:
| | | | | | |
|
| 2023 |
| 2022 | ||
Derivative assets |
| $ | 55,654 | | $ | 35,575 |
Deferred tax assets | | | 17,772 | | | 9,463 |
Tax receivables | | | 10,260 | | | 3,162 |
Other current assets | |
| 24,461 | |
| 15,758 |
Total other assets |
| $ | 108,147 | | $ | 63,958 |
F-24F-25
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
NOTE 7: OTHER ASSETS
The components of other assets as of December 31, 2020 and 2019 are as follows:
| | | | | | |
|
| 2020 |
| 2019 | ||
Derivative assets |
| $ | 59,063 | | $ | 39,172 |
Deferred tax assets | | | 15,239 | | | 12,820 |
Other current assets | |
| 27,505 | |
| 22,945 |
Total other assets |
| $ | 101,807 | | $ | 74,937 |
NOTE 8: CREDIT FACILITIES AND DEBT
The following table summarizes the Company’s debt and credit facilities, borrowings thereunder and availability at December 31, 2020:2023:
| | | | | | | | | | | | | | | | |
| |
| | |
| | |
| Current |
| | |
| | | |
| | | | | | | | | Maturities of | | | | | | | |
| | | Total | | Short-Term | | Long-Term | | Long-Term | | | | ||||
| Maturity (1) | | Facility/Debt | | Outstanding | | Outstanding | | Outstanding | | Available | |||||
Committed Asset-Backed Facilities | |
| | | | | | | | | | | | | | |
Retail - U.S. | Sep 2025 |
| $ | 1,000,000 | | $ | — | | $ | 227,598 | | $ | 772,052 | | $ | 350 |
Retail - Canada | Dec 2025 |
|
| 377,339 | |
| — | |
| 74,265 | |
| 303,074 | |
| — |
Wholesale VFN - U.S. | Various |
|
| 1,550,000 | |
| 1,550,000 | |
| — | |
| — | |
| — |
Wholesale VFN - Canada | Dec 2025 |
|
| 377,339 | |
| 377,339 | |
| — | |
| — | |
| — |
| |
|
| 3,304,678 | |
| 1,927,339 | |
| 301,863 | |
| 1,075,126 | |
| 350 |
Secured Debt | |
| | | | | | | | | | | | | | |
Amortizing retail term ABS - N.A. | Various |
|
| 4,620,565 | |
| — | |
| 1,595,183 | |
| 3,025,382 | |
| — |
Other ABS financing - N.A. | Various |
|
| 388,589 | |
| — | |
| 136,355 | |
| 252,234 | |
| — |
Repurchase agreement | Sep 2024 | | | 226,290 | | | 226,290 | | | — | | | — | | | — |
Unamortized issuance costs | |
|
| (14,089) | |
| — | |
| — | |
| (14,089) | |
| — |
| |
|
| 5,221,355 | |
| 226,290 | |
| 1,731,538 | |
| 3,263,527 | |
| — |
Unsecured Facilities | | | | | | | | | | | | | | | | |
Credit lines | Various |
|
| 100,000 | |
| 100,000 | |
| — | |
| — | |
| — |
Revolving credit facilities | Various | | | 716,404 | | | — | | | 150,936 | | | 165,468 | | | 400,000 |
Unamortized issuance costs | | | | (556) | | | — | | | — | | | (556) | | | — |
| |
| | 815,848 | | | 100,000 | | | 150,936 | | | 164,912 | | | 400,000 |
Unsecured Debt | | | | | | | | | | | | | | | | |
Commercial paper | Various | | | 351,000 | | | 351,000 | | | — | | | — | | | — |
Notes | Various |
|
| 4,128,275 | |
| — | |
| 726,404 | |
| 3,401,871 | |
| — |
Hedging effects, discounts and unamortized issuance costs | | | | (41,385) | | | (3,110) | | | 7,532 | | | (45,807) | | | — |
| |
|
| 4,437,890 | |
| 347,890 | |
| 733,936 | |
| 3,356,064 | |
| — |
Total credit facilities and debt | |
| $ | 13,779,771 | | $ | 2,601,519 | | $ | 2,918,273 | | $ | 7,859,629 | | $ | 400,350 |
| | | | | | | | | | | | | | | | | | |
| | 2020 |
| |||||||||||||||
|
| |
| | |
| | |
| Current |
| | |
| | |
| |
| | | | | | | | | | Maturities of | | | | | | |
| |
| | | | Total | | Short-Term | | Long-Term | | Long-Term | | | |
| ||||
| | Maturity (1) | | Facility/Debt | | Outstanding | | Outstanding | | Outstanding | | Available |
| |||||
Committed Asset-Backed Facilities | | | | | | | | | | | | | | | | | | |
Retail - U.S. |
| Sep 2022 | | $ | 1,200,000 | | $ | — | | $ | 254,974 | | $ | 944,654 | | $ | 372 | |
Retail - Canada |
| Dec 2022 | |
| 392,471 | |
| — | |
| 61,353 | |
| 300,499 | |
| 30,619 | |
Wholesale VFN - U.S. |
| Various | |
| 1,000,000 | |
| 1,000,000 | |
| — | |
| — | |
| — | |
Wholesale VFN - Canada |
| Dec 2022 | |
| 459,780 | |
| 314,322 | |
| — | |
| — | |
| 145,458 | |
|
| | |
| 3,052,251 | |
| 1,314,322 | |
| 316,327 | |
| 1,245,153 | |
| 176,449 | |
Secured Debt | | | | | | | | | | | | | | | | | | |
Amortizing retail term ABS - N.A. |
| Various | |
| 3,414,546 | |
| — | |
| 1,386,783 | |
| 2,027,763 | |
| — | |
Other ABS financing - N.A. |
| Various | |
| 597,852 | |
| — | |
| 209,376 | |
| 388,476 | |
| — | |
Unamortized issuance costs |
| | |
| (9,920) | |
| — | |
| — | |
| (9,920) | |
| — | |
|
| | |
| 4,002,478 | |
| — | |
| 1,596,159 | |
| 2,406,319 | |
| — | |
Unsecured Credit Lines and Facilities | | | | | | | | | | | | | | | | | | |
Credit lines |
| Various | |
| — | |
| — | |
| — | |
| — | |
| — | |
Revolving credit facilities | | Various | | | 776,771 | | | — | | | 102,042 | | | 78,494 | | | 596,235 | |
Unamortized issuance costs | | | | | (1,217) | | | — | | | — | | | (1,217) | | | — | |
|
| | | | 775,554 | | | — | | | 102,042 | | | 77,277 | | | 596,235 | |
Unsecured Debt |
| | | | | | | | | | | | | | | | | |
Commercial paper | | Various | | | — | | | — | | | — | | | — | | | — | |
Notes | �� | Various | |
| 3,000,000 | |
| — | |
| 900,000 | |
| 2,100,000 | |
| — | |
Hedging effects, discounts and unamortized issuance costs | | | | | 41,689 | | | — | | | 578 | | | 41,111 | | | — | |
|
| | |
| 3,041,689 | |
| — | |
| 900,578 | |
| 2,141,111 | |
| — | |
Total credit facilities and debt |
| | | $ | 10,871,972 | | $ | 1,314,322 | | $ | 2,915,106 | | $ | 5,869,860 | | $ | 772,684 | |
(1) | Maturity dates reflect maturities of the credit facility, which may be different than the maturities of the advances under the facility. |
F-25F-26
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
A summary of the minimum annual repayments of long-term debt as of December 31, 2020,2023, for 20222025 and thereafter is as follows:
| | | | |
2022 |
| $ | 2,228,412 | |
2023 | |
| 1,612,390 | |
2024 | |
| 1,195,641 | |
2025 | |
| 253,284 | |
2026 and thereafter | |
| 580,133 | |
Total |
| $ | 5,869,860 | |
| | | |
2025 |
| $ | 2,693,669 |
2026 | |
| 2,709,582 |
2027 | |
| 827,117 |
2028 | |
| 1,061,560 |
2029 and thereafter | |
| 567,701 |
Total |
| $ | 7,859,629 |
The following table summarizes the Company’s credit facilities, borrowings thereunder and availability at December 31, 2019:2022:
| | | | | | | | | | | | | | | | |
| |
| | |
| | |
| Current |
| | |
| | | |
| | | | | | | | | Maturities of | | | | | | | |
| | | Total | | Short-Term | | Long-Term | | Long-Term | | | | ||||
| Maturity (1) | | Facility/Debt | | Outstanding | | Outstanding | | Outstanding | | Available | |||||
Committed Asset-Backed Facilities | |
| | | | | | | | | | | | | | |
Retail - U.S. | Sep 2024 |
| $ | 1,000,000 | | $ | — | | $ | 83,667 | | $ | 227,799 | | $ | 688,534 |
Retail - Canada | Dec 2024 |
|
| 443,186 | |
| — | |
| 53,130 | |
| 245,930 | |
| 144,126 |
Wholesale VFN - U.S. | Various |
|
| 1,000,000 | |
| 1,000,000 | |
| — | |
| — | |
| — |
Wholesale VFN - Canada | Dec 2024 |
|
| 295,457 | |
| 295,457 | |
| — | |
| — | |
| — |
| |
|
| 2,738,643 | |
| 1,295,457 | |
| 136,797 | |
| 473,729 | |
| 832,660 |
Secured Debt | |
| | | | | | | | | | | | | | |
Amortizing retail term ABS - N.A. | Various |
|
| 4,829,202 | |
| — | |
| 1,688,606 | |
| 3,140,596 | |
| — |
Other ABS financing - N.A. | Various |
|
| 98,451 | |
| — | |
| 77,644 | |
| 20,807 | |
| — |
Unamortized issuance costs | |
| | (14,750) | | | — | | | — | | | (14,750) | | | — |
| |
|
| 4,912,903 | |
| — | |
| 1,766,250 | |
| 3,146,653 | |
| — |
Unsecured Facilities | | | | | | | | | | | | | | | | |
Revolving credit facilities | Various | |
| 606,820 | |
| — | |
| — | |
| 110,796 | |
| 496,024 |
Unamortized issuance costs | | | | (1,284) | | | — | | | — | | | (1,284) | | | — |
| |
| | 605,536 | | | — | | | — | | | 109,512 | | | 496,024 |
Unsecured Debt | | | | | | | | | | | | | | | | |
Commercial paper | Various | |
| 300,000 | |
| 300,000 | |
| — | |
| — | |
| — |
Notes | Various |
|
| 3,321,593 | |
| — | |
| 600,000 | |
| 2,721,593 | |
| — |
Hedging effects, discounts and unamortized issuance costs | | | | (66,430) | | | (1,445) | | | (633) | | | (64,352) | | | — |
| |
|
| 3,555,163 | |
| 298,555 | |
| 599,367 | |
| 2,657,241 | |
| — |
Total credit facilities and debt | |
| $ | 11,812,245 | | $ | 1,594,012 | | $ | 2,502,414 | | $ | 6,387,135 | | $ | 1,328,684 |
| | | | | | | | | | | | | | | | | |
| | 2019 | |||||||||||||||
|
| |
| | |
| | |
| Current |
| | |
| | | |
| | | | | | | | | | Maturities of | | | | | | | |
| | | | Total | | Short-Term | | Long-Term | | Long-Term | | | | ||||
| | Maturity (1) | | Facility/Debt | | Outstanding | | Outstanding | | Outstanding | | Available | |||||
Committed Asset-Backed Facilities | | | | | | | | | | | | | | | | | |
Retail - U.S. |
| Sep 2021 | | $ | 1,200,000 | | $ | — | | $ | 47,658 | | $ | 210,928 | | $ | 941,414 |
Retail - Canada |
| Dec 2021 | |
| 384,779 | |
| — | |
| 39,212 | |
| 196,262 | |
| 149,305 |
Wholesale VFN - U.S. |
| Various | |
| 970,000 | |
| 970,000 | |
| — | |
| — | |
| — |
Wholesale VFN - Canada |
| Dec 2021 | |
| 450,768 | |
| 440,933 | |
| — | |
| — | |
| 9,835 |
|
| | |
| 3,005,547 | |
| 1,410,933 | |
| 86,870 | |
| 407,190 | |
| 1,100,554 |
Secured Debt | | | | | | | | | | | | | | | | | |
Amortizing retail term ABS - N.A. |
| Various | |
| 4,879,718 | |
| — | |
| 1,776,413 | |
| 3,103,305 | |
| — |
Other ABS financing - N.A. |
| Various | |
| 293,695 | |
| — | |
| 33,200 | |
| 260,495 | |
| — |
Unamortized issuance costs | | | | | (15,504) | | | — | | | — | | | (15,504) | | | — |
|
| | |
| 5,157,909 | |
| — | |
| 1,809,613 | |
| 3,348,296 | |
| — |
Unsecured Credit Lines and Facilities | | | | | | | | | | | | | | | | | |
Credit lines | | Various | | | 150,000 | | | 150,000 | | | — | | | — | | | — |
Revolving credit facilities |
| Various | |
| 846,344 | |
| — | |
| 346,301 | |
| 100,043 | |
| 400,000 |
Unamortized issuance costs | | | | | (1,591) | | | — | | | — | | | (1,591) | | | — |
|
| | | | 994,753 | | | 150,000 | | | 346,301 | | | 98,452 | | | 400,000 |
Unsecured Debt |
| | | | | | | | | | | | | | | | |
Commercial paper |
| Various | |
| 389,300 | |
| 389,300 | |
| — | |
| — | |
| — |
Notes |
| Various | |
| 2,500,000 | |
| — | |
| 600,000 | |
| 1,900,000 | |
| — |
Hedging effects, discounts and unamortized issuance costs | | | | | 22,798 | | | (2,282) | | | (563) | | | 25,643 | | | — |
|
| | |
| 2,912,098 | |
| 387,018 | |
| 599,437 | |
| 1,925,643 | |
| — |
Total credit facilities and debt |
| | | $ | 12,070,307 | | $ | 1,947,951 | | $ | 2,842,221 | | $ | 5,779,581 | | $ | 1,500,554 |
(1) | Maturity dates reflect maturities of the credit facility, which may be different than the maturities of the advances under the facility. |
F-26F-27
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Committed Asset-Backed Facilities
The Company has access to committed asset-backed facilities with several banks through which it may sell its receivables. The Company utilizes retail facilities to fund the origination of retail receivablesnotes and has exercised the option to periodically repurchase receivables and resell them in the term ABS markets (shown as “Amortizing retail term ABS - N.A.”) or found alternative financing for the receivables. Under these facilities, the maximum amount of proceeds that can be accessed at one time is $1,592,471.$1,377,339. In addition, if the receivables sold are not repurchased by the Company, the related debt is paid only as the underlying receivables are collected. Such receivables have maturities not exceeding seven years. The Company believes it is probable that a majority of these receivables will be repurchased and resold in the ABS markets. Borrowings against these facilities accrue interest based on prevailing money market rates, plus an applicable margin.
The Company finances a portion of its wholesale receivable portfolio with the issue of Variable Funding Notes (“VFNs”) which are privately subscribed by certain banks and asset-backed commercial paper conduits. These notes accrue interest based on prevailing money market rates, plus an applicable margin.
Secured Debt
Secured borrowings bear interest at either floating rates of LIBORSOFR plus an applicable margin or fixed rates.
Repurchase Agreement
On September 26, 2023, the Company entered into a Global Master Repurchase Agreement which expires in September 2024. At December 31, 2023, the Company had C$299,850 ($226,290) outstanding under the repurchase agreement, with an obligation to repurchase the underlying receivables in 30 days. The repurchase agreement is treated as financing arrangements for accounting purposes.
Unsecured Credit Line, Facilities and Debt
Committed and uncommitted unsecured facilities with banks as of December 31, 20202023, totaled $776,771.$815,848. These credit facilities, which are eligible for renewal at various future dates, are used primarily for working capital and other general corporate purposes. As of December 31, 2020,2023, the Company had $180,536$415,848 outstanding under these credit facilities. The remaining available credit commitments are maintained primarily to provide backup liquidity for commercial paper borrowings, as needed. There was noborrowings. The Company's outstanding commercial paper totaled $347,890 as of December 31, 2020.2023.
As of December 31, 2020, the Company’s outstanding unsecured senior notes were as follows:
| | | |
4.875% notes, due 2021 | | $ | 500,000 |
3.875% notes, due 2021 | |
| 400,000 |
4.375% notes, due 2022 | |
| 500,000 |
1.950% notes, due 2023 | | | 600,000 |
4.200% notes, due 2024 | | | 500,000 |
1.875% notes, due 2026 | | | 500,000 |
Hedging, discounts and unamortized issuance costs | | | 41,689 |
Total |
| $ | 3,041,689 |
These notes, which are senior unsecured obligations of CNH Industrial Capital LLC, are guaranteed by CNH Industrial Capital America and New Holland Credit.
On November 6, 2020, the Company repaid $600,000 of its 4.375% unsecured notes due 2020.
F-27F-28
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
As of December 31, 2023, the Company’s outstanding unsecured senior notes were as follows:
| | | |
Issued by CNH Industrial Capital LLC (the ‘‘U.S. Senior Notes’’): (1) | | | |
4.200% notes, due 2024 |
| $ | 500,000 |
3.950% notes, due 2025 | |
| 500,000 |
5.450% notes, due 2025 | | | 400,000 |
1.875% notes, due 2026 | | | 500,000 |
1.450% notes, due 2026 | | | 600,000 |
4.550% notes, due 2028 | | | 600,000 |
5.500% notes, due 2029 | | | 500,000 |
Hedging, discounts and unamortized issuance costs | | | (35,937) |
|
| | 3,564,063 |
Issued by CNH Industrial Capital Canada Ltd. (the ‘‘Canadian Senior Notes’’): (2) | | | |
1.500% notes, due 2024 |
| | 226,404 |
5.500% notes, due 2026 | | | 301,871 |
Discounts and unamortized issuance costs | | | (2,338) |
|
| | 525,937 |
Total |
| $ | 4,090,000 |
(1) | These notes, which are senior unsecured obligations of CNH Industrial Capital LLC, are guaranteed by CNH Capital America and New Holland Credit. |
(2) | These notes, which are senior unsecured obligations of CNH Capital Canada, are guaranteed by CNH Industrial Capital LLC, CNH Capital America and New Holland Credit. |
On April 10, 2023, CNH Industrial Capital LLC completed an offering of $600,000 in aggregate principal amount of 4.550% unsecured notes due 2028, with an issue price of 98.857%.
On August 11, 2023, CNH Industrial Capital Canada Ltd. completed a private placement offering of C$400,000 ($297,640) in aggregate principal amount of 5.500% unsecured notes due 2026, with an issue price of 99.883%.
On September 13, 2023, CNH Industrial Capital LLC completed an offering of $500,000 in aggregate principal amount of 5.500% unsecured notes due 2029, with an issue price of 99.399%.
Covenants
The indentures and credit agreements governing the Company’s unsecured funding transactions contain covenants that restrict the Company’s ability and/or that of its subsidiaries to, among other things, incur additional debt, make certain investments, enter into certain types of transactions with affiliates, use assets as security in other transactions, enter into sale or leaseback transactions and/or sell certain assets or merge with or into other companies. In addition, the Company is requiredsubject to maintain a certain coverage level for leverage.financial covenants, with which it is in compliance.
Interest Rates
The weighted-average interest rate on total short-term debt outstanding at December 31, 20202023 and 20192022 was 1.1%6.1% and 2.4%4.8%, respectively. The weighted-average interest rate on total long-term debt (including current maturities of long-term debt) at December 31, 20202023 and 20192022 was 2.5%4.3% and 3.1%2.9%, respectively. The average rate is calculated using the actual rates at December 31, 20202023 and 2019,2022, weighted by the amount of outstanding borrowings of each debt instrument.
F-29
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Support Agreement
Effective as of September 29, 2013, in connection with the mergerbusiness combination transaction of CNH Global N.V., the former indirect parent of CNH Industrial Capital (“CNH Global”), with and into CNHI, CNHI assumed all of CNH Global’s obligations under the support agreement, pursuant to which CNHI has agreed to, among other things, (a) make cash capital contributions to the Company, to the extent necessary to cause the ratio of net earnings available for fixed charges to fixed charges to be not less than 1.05 for each fiscal quarter (with such ratio determined, on a consolidated basis and in accordance with U.S. GAAP, for such fiscal quarter and the immediately preceding three fiscal quarters taken as a whole), (b) generally maintain an ownership of at least 51% of the voting equity interests in the Company and (c) cause the Company to have, as of the end of any fiscal quarter, a consolidated tangible net worth of at least $50,000. The support agreement is not intended to be and is not a guarantee by CNHI of any indebtedness or other obligation of the Company. The obligations of CNHI to the Company pursuant to this support agreement are to the Company only and do not run to, and are not enforceable directly by, any creditor of the Company. The support agreement may be modified, amended or terminated, at CNHI’s election, upon thirty days’ prior written notice to the Company and the rating agencies, if (a) the modification, amendment or termination would not result in a downgrade of the Company’s rated indebtedness; (b) the modification, amendment or notice of termination provides that the support agreement will continue in effect with respect to the Company’s rated indebtedness then outstanding; or (c) the Company has no long-term rated indebtedness outstanding.
NOTE 9: INCOME TAXES
The income and expenses of the Company and certain of its domestic subsidiaries are included in the consolidated income tax return of CNH Industrial U.S. Holdings, Inc., a wholly-owned subsidiary of CNHI. CNH Industrial U.S. Holdings, Inc. is the new parent of Case New Holland Inc., who remains the parent of CNH Industrial America. The Company’s Canadian subsidiaries file separate income tax returns, as do certain domestic subsidiaries. The Company and certain of its domestic subsidiaries are LLCs and, as a result, incur no federal income tax liabilities on a stand-alone basis. However, for financial reporting, all tax accounts have been disclosed and the income tax expense is reflective for all of the companies includedaccounts in the consolidated financial statements.statements have been reported as if the Company and relevant subsidiaries were taxpaying entities.
The sources of income before taxes for the years ended December 31, 2023, 2022, and 2021 are as follows, with foreign defined as any income earned outside the United States:
| | | | | | | | | |
|
| 2023 |
| 2022 |
| 2021 | |||
Domestic |
| $ | 218,113 | | $ | 232,873 | | $ | 235,309 |
Foreign | |
| 58,915 | |
| 57,129 | |
| 64,841 |
Income before taxes |
| $ | 277,028 | | $ | 290,002 | | $ | 300,150 |
F-28F-30
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The sources of income before taxes for the years ended December 31, 2020, 2019, and 2018 are as follows, with foreign defined as any income earned outside the United States:
| | | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 |
| |||
Domestic |
| $ | 141,167 | | $ | 134,971 | | $ | 120,375 | |
Foreign | |
| 45,625 | |
| 58,243 | |
| 77,942 | |
Income before taxes |
| $ | 186,792 | | $ | 193,214 | | $ | 198,317 | |
The provision for income taxes for the years ended December 31, 2020, 20192023, 2022 and 20182021 is as follows:
| | | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 |
| |||
Current income tax expense (benefit): | | | | | | | | | | |
Domestic | | $ | 45,371 | | $ | (4,445) | | $ | (11,719) | |
Foreign | |
| 10,518 | |
| 10,235 | |
| 24,937 | |
Total current income tax expense |
|
| 55,889 | |
| 5,790 | |
| 13,218 | |
Deferred income tax expense (benefit): |
| | | | | | | | | |
Domestic | |
| (12,992) | |
| 35,125 | |
| 34,304 | |
Foreign | |
| 615 | |
| 3,296 | |
| (6,050) | |
Total deferred income tax expense |
|
| (12,377) | |
| 38,421 | |
| 28,254 | |
Total tax provision |
| $ | 43,512 | | $ | 44,211 | | $ | 41,472 | |
| | | | | | | | | |
|
| 2023 |
| 2022 |
| 2021 | |||
Current income tax expense (benefit): |
| | | | | | | | |
Domestic | | $ | 109,762 | | $ | 112,615 | | $ | 63,346 |
Foreign | |
| 17,626 | |
| 12,717 | |
| 16,630 |
Total current income tax expense |
| | 127,388 | | | 125,332 | | | 79,976 |
Deferred income tax expense (benefit): |
| | | | | | | | |
Domestic | |
| (59,051) | |
| (55,494) | |
| (9,296) |
Foreign | |
| (6,381) | |
| 1,042 | |
| (745) |
Total deferred income tax expense |
| | (65,432) | | | (54,452) | | | (10,041) |
Total tax provision |
| $ | 61,956 | | $ | 70,880 | | $ | 69,935 |
A reconciliation of CNH’s statutory and effective income tax rate for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 is as follows:
| | | | | | | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 |
|
| 2023 |
| 2022 |
| 2021 |
|
Tax provision at statutory rate |
| 21.0 | % | 21.0 | % | 21.0 | % |
| 21.0 | % | 21.0 | % | 21.0 | % |
State taxes |
| 4.6 | | 4.4 | | 1.8 | | | 3.7 | | 4.8 | | 4.1 | |
Foreign taxes |
| (1.4) | | (1.8) | | (3.4) | | | (1.3) | | (0.6) | | (1.1) | |
Tax contingencies |
| 0.1 | | 0.1 | | 2.5 | | | — | | — | | — | |
Withholding taxes and credits | | — | | — | | 1.5 | | |||||||
Tax credits and incentives |
| (0.5) | | (0.7) | | (0.9) | | | (0.8) | | (0.6) | | (0.4) | |
Tax rate and legislative changes | | — | | — | | (1.4) | | |||||||
Other |
| (0.5) | | (0.1) | | (0.2) | | | (0.2) | | (0.2) | | (0.3) | |
Total tax provision effective rate |
| 23.3 | % | 22.9 | % | 20.9 | % |
| 22.4 | % | 24.4 | % | 23.3 | % |
F-29
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
The components of the Company’s net deferred tax liability as of December 31, 20202023 and 20192022 are as follows:
| | | | | | | ||||||
| | | | | | | ||||||
|
| 2020 |
| 2019 |
| 2023 |
| 2022 | ||||
Deferred tax assets: | | | | | | |
| | | | | |
Pension, postretirement and post-employment benefits | | $ | 2,129 | | $ | 1,964 | | $ | 1,173 | | $ | 1,180 |
Marketing and sales incentive programs | |
| 50,590 | |
| 56,569 | |
| 75,631 | |
| 46,587 |
Allowance for credit losses | |
| 32,492 | |
| 17,242 | |
| 23,122 | |
| 25,627 |
Other accrued liabilities | |
| 26,070 | |
| 14,501 | |
| 38,576 | |
| 36,805 |
Tax loss and tax credit carry forwards | |
| 1,077 | |
| 10,693 | |
| 1,812 | |
| 1,076 |
Total deferred tax assets |
| $ | 112,358 | | $ | 100,969 |
| $ | 140,314 | | $ | 111,275 |
Deferred tax liability: |
| | | | | |
| | | | | |
Equipment on operating lease | | $ | 355,020 | | $ | 374,386 | | | 257,705 | | | 297,152 |
Deferred tax liability, net (1) |
| $ | (242,662) | | $ | (273,417) | ||||||
Net deferred tax liabilities |
| $ | (117,391) | | $ | (185,877) |
Deferred taxes are provided to reflect timing differences between the financial and tax basis of assets and liabilities and tax carryforwards using currently enacted tax rates and laws. Management believes it is more likely than not the benefit of the deferred tax assets will be realized.
F-31
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Net deferred tax liabilities are reflected in the accompanying consolidated balance sheets as of December 31, 2023 and 2022 as follows:
| | | | | | |
| | 2023 |
| 2022 | ||
Deferred tax assets |
| $ | 17,772 | | $ | 9,463 |
Deferred tax liabilities |
| | (135,163) | | | (195,340) |
Net deferred tax liabilities |
| $ | (117,391) | | $ | (185,877) |
A reconciliation of the gross amounts of unrecognized tax contingenciesbenefits at the beginning and end of the year is as follows:
| | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 | |||
Balance, beginning of year |
| $ | 4,274 | | $ | 4,274 | | $ | — |
Additions based on tax positions related to the current year | |
| — | |
| — | |
| 4,274 |
Reductions for tax positions of prior years | |
| — | |
| — | |
| — |
Settlements | |
| — | |
| — | |
| — |
Balance, end of year |
| $ | 4,274 | | $ | 4,274 | | $ | 4,274 |
The total
| | | | | | | | | |
|
| 2023 |
| 2022 |
| 2021 | |||
Balance, beginning of year |
| $ | — | | $ | — | | $ | 4,274 |
Additions based on tax positions related to the current year | |
| — | |
| — | |
| — |
Reductions for tax positions of prior years | |
| — | |
| — | |
| — |
Settlements | |
| — | |
| — | |
| (4,274) |
Balance, end of year |
| $ | — | | $ | — | | $ | — |
In 2021, the Company settled its position with the IRS for the tax year 2014 and 2015 audits. There is no amount of unrecognized tax benefits that, if recognized, would affect the annual effective income tax rate is $4,274.
The Company recognizes interest and penalties accrued related to tax contingencies in income tax expense. During the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $214, $280 and $686, respectively, in interest and penalties. The Company had approximately $1,180, $966 and $686 for the expected future payment of interest and penalties accrued at December 31, 2020, 2019 and 2018, respectively.rate.
The Company has open tax years from 2012 to 2019.2021. The Company does not believe the resolution of any outstanding tax examinations will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
At December 31, 2020,2023, there are no material deferred tax liabilities on undistributed earnings of subsidiaries outside of the U.S.
NOTE 10: FINANCIAL INSTRUMENTS
The Company may elect to measure financial instruments and certain other items at fair value. This fair value option would be applied on an instrument-by-instrument basis with changes in fair value reported in earnings. The election can be made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when
F-30
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
certain specified reconsideration events occur. The fair value election may not be revoked once made. The Company has not elected the fair value measurement option for eligible items.
Fair-Value Hierarchy
The hierarchy of valuation techniques for financial instruments is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
F-32
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
This hierarchy requires the use of observable market data when available.
Determination of Fair Value
When available, the Company uses quoted market prices to determine fair value and classifies such items in Level 1. In some cases where a market price is not available, the Company will use observable market-based inputs to calculate fair value, in which case the items are classified in Level 2.
If quoted or observable market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters such as interest rates, currency rates, or yield curves. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models and the key inputs to those models, as well as any significant assumptions.
Derivatives
The Company utilizes derivative instruments to mitigate its exposure to interest rate and foreign currency exposures. Derivatives used as hedges are effective at reducing the risk associated with the exposure being hedged and are designated as a hedge at the inception of the derivative contract. The Company does not hold or enter into derivative or other financial instruments for speculative purposes. The credit and market risk related to derivatives is reduced through diversification among various counterparties, utilizing mandatory termination clauses and/or collateral support agreements. Derivative instruments are generally classified as Level 2 in the fair value hierarchy. The cash flows underlying all derivative contracts were recorded in operating activities in the consolidated statements of cash flows.
F-31
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Interest Rate Derivatives
The Company has entered into interest rate derivatives in order to manage interest rate exposures arising in the normal course of business. Interest rate derivatives that have been designated as cash flow hedges are being used by the Company to mitigate the risk of rising interest rates related to existing debt and anticipated issuance of fixed-rate debt in future periods. Gains and losses on these instruments are deferred in accumulated other comprehensive income (loss) and recognized in interest expense over the period in which the Company recognizes interest expense on the related debt. As of December 31, 2020,2023, the maximum length of time over which the Company is hedging its interest rate exposure through the use of derivative instruments designated in cash flow hedge relationships is 4857 months. As of December 31, 2020,2023, the after-tax lossesgains deferred in accumulated other comprehensive income (loss) that will be recognized in interest expense over the next 12 months are approximately $549.($2,378).
The Company also enters into offsetting interest rate derivatives with substantially similar economic terms that are not designated as hedging instruments to mitigate interest rate risk related to the Company’s committed asset-backed facilities. Unrealized and realized gains and losses resulting from fair value changes in these instruments are recognized directly in income and were insignificant for the years ended December 31, 2020, 20192023, 2022 and 2018.2021.
F-33
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
All of the Company’s interest rate derivatives are considered Level 2. The fair market value of these derivatives is calculated using market data input and can be compared to actively traded derivatives. The total notional amount of the Company’s interest rate derivatives was $4,369,574$4,428,285 and $3,004,709$3,628,725 at December 31, 20202023 and 2019,2022, respectively. The thirteen-month average notional amounts as of December 31, 20202023 and 20192022 were $3,305,539$3,803,373 and $2,967,321,$3,715,399, respectively.
Foreign Exchange Contracts
The Company uses forward contracts to hedge certain assets and liabilities denominated in foreign currencies. Such derivatives are considered economic hedges and are not designated as hedging instruments. The changes in the fair value of these instruments are recognized directly as income in “Other expenses”expenses, net” and are expected to offset the foreign exchange gains or losses on the exposures being managed.
All of the Company’s foreign exchange derivatives are considered Level 2 as the fair value is calculated using market data input and can be compared to actively traded derivatives.
Financial Statement Impact of the Company’s Derivatives
The fair values of the Company’s derivatives as of December 31, 2023 and 2022 in the consolidated balance sheets are recorded as follows:
| | | | | | |
| | 2023 | | 2022 | ||
Derivatives Designated as Hedging Instruments | | | | | | |
Other assets: |
| | | | | |
Interest rate derivatives | | $ | 22,633 | | $ | 3,597 |
Accounts payable and other accrued liabilities: |
| | | | | |
Interest rate derivatives | | $ | 32,579 | | $ | 42,936 |
Derivatives Not Designated as Hedging Instruments |
| | | | | |
Other assets: |
| | | | | |
Interest rate derivatives | | $ | 30,420 | | $ | 27,862 |
Foreign exchange contracts | |
| 2,601 | |
| 4,116 |
Total |
| $ | 33,021 | | $ | 31,978 |
Accounts payable and other accrued liabilities: |
| | | | | |
Interest rate derivatives | | $ | 30,420 | | $ | 27,862 |
Foreign exchange contracts | | | — | | | 435 |
Total |
| $ | 30,420 | | $ | 28,297 |
F-32F-34
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Financial Statement Impact of the Company’s Derivatives
The fair values of the Company’s derivatives as of December 31, 2020 and 2019 in the consolidated balance sheets are recorded as follows:
| | | | | | |
| | 2020 | | 2019 | ||
Derivatives Designated as Hedging Instruments | | | | | | |
Other assets: |
| | | | | |
Interest rate derivatives | | $ | 58,008 | | $ | 38,732 |
Accounts payable and other accrued liabilities: |
| | | | | |
Interest rate derivatives | | $ | 4,882 | | $ | 1,243 |
Derivatives Not Designated as Hedging Instruments |
| | | | | |
Other assets: |
| | | | | |
Interest rate derivatives | | $ | 1,053 | | $ | 440 |
Foreign exchange contracts | |
| 2 | |
| — |
Total |
| $ | 1,055 | | $ | 440 |
Accounts payable and other accrued liabilities: |
| | | | | |
Interest rate derivatives | | $ | 1,053 | | $ | 440 |
Foreign exchange contracts | | | 3,815 | | | 800 |
Total |
| $ | 4,868 | | $ | 1,240 |
Pre-tax gains (losses) on the consolidated statements of income and comprehensive income related to the Company’s derivatives for the years ended December 31, 2020, 20192023, 2022 and 20182021 are recorded in the following accounts:
| | | | | | | | | |
| | 2020 |
| 2019 |
| 2018 | |||
Cash Flow Hedges | | | | | | | | | |
Recognized in accumulated other comprehensive income (loss): |
| | | | | | | | |
Interest rate derivatives | | $ | (11,047) | | $ | (1,002) | | $ | 726 |
Reclassified from accumulated other comprehensive income (loss): |
| | | | | | | | |
Interest rate derivatives—Interest expense to third parties | |
| (171) | |
| 689 | |
| 34 |
Not Designated as Hedges |
| | | | | | | | |
Foreign exchange contracts—Other expenses |
| $ | 1,946 | | $ | 3,098 | | $ | (12,355) |
| | | | | | | | | |
| | 2023 |
| 2022 |
| 2021 | |||
Cash Flow Hedges | | | | | | | | | |
Recognized in accumulated other comprehensive income (loss): |
| | | | | | | | |
Interest rate derivatives | | $ | (6,987) | | $ | 17,334 | | $ | 7,932 |
Reclassified from accumulated other comprehensive income (loss): |
| | | | | | | | |
Interest rate derivatives—Interest expense to third parties | |
| 2,624 | |
| 1,090 | |
| (653) |
Not Designated as Hedges |
| | | | | | | | |
Foreign exchange contracts—Other expenses, net |
| $ | 1,828 | | $ | (5,784) | | $ | (1,709) |
F-33
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Items Measured at Fair Value on a Recurring Basis
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 20202023 and 2019,2022, all of which are measured as Level 2:
| | | | | | |
|
| 2020 |
| 2019 | ||
Assets | | | | | | |
Interest rate derivatives |
| $ | 59,061 | | $ | 39,172 |
Foreign exchange contracts | |
| 2 | |
| — |
Total assets |
| $ | 59,063 | | $ | 39,172 |
Liabilities |
| | | | | |
Interest rate derivatives |
| $ | 5,935 | | $ | 1,683 |
Foreign exchange contracts | | | 3,815 | | | 800 |
Total liabilities |
| $ | 9,750 | | $ | 2,483 |
| | | | | | |
|
| 2023 |
| 2022 | ||
Assets |
| | | | | |
Interest rate derivatives | | $ | 53,053 | | $ | 31,459 |
Foreign exchange contracts | |
| 2,601 | |
| 4,116 |
Total assets |
| $ | 55,654 | | $ | 35,575 |
Liabilities |
| | | | | |
Interest rate derivatives | | $ | 62,999 | | $ | 70,798 |
Foreign exchange contracts | | | — | | | 435 |
Total liabilities |
| $ | 62,999 | | $ | 71,233 |
There were no transfers between Level 1, Level 2 and Level 3 hierarchy levels during the periods presented.
Items Measured at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or impairment charges of individual assets.
Certain equipment held for sale measured at fair value on a nonrecurring basis was $109,088 as of December 31, 2019. The fair market value of these assets was based on an internal valuation methodology, which used industry guide book values adjusted for recent remarketing history and was classified as Level 3 under the fair value hierarchy. For the years ended December 31, 2019 and 2018, the Company recorded impairment losses on equipment held for sale of $2,010 and $2,894, respectively. In addition, theThe Company recorded net lossesgains on the sale of the equipment held of $10,169, $14,504$16,896, $27,525 and $11,018$12,140 for the years ended December 31, 2020, 20192023, 2022 and 2018, respectively. Both the impairment losses2021, respectively, and the losses on the sale of equipment held were included in “Other expenses”expenses, net” in the accompanying consolidated statements of income.
Fair Value of Other Financial Instruments
The carrying amount of cash, and cash equivalents, restricted cash and cash equivalents, floating-rate affiliated accounts and notes receivable, floating-rate short-term debt, interest payable and short-term affiliated debt was assumed to approximate its fair value. Under the fair value hierarchy, cash and cash equivalents and restricted cash and cash equivalents are classified as Level 1 and the remainder of the financial instruments listed is classified as Level 2.
F-34F-35
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
Financial Instruments Not Carried at Fair Value
The carrying amount and estimated fair value of assets and liabilities considered financial instruments as of December 31, 20202023 and 20192022 are as follows:
| | | | | | | | | | | | |
| | 2023 | | 2022 | ||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated | ||||
| | Amount | | Fair Value * | | Amount | | Fair Value * | ||||
Receivables |
| $ | 13,455,717 | | $ | 13,224,506 | | $ | 10,741,820 | | $ | 10,433,949 |
Long-term debt | | $ | 7,859,629 | | $ | 7,739,874 | | $ | 6,387,135 | | $ | 6,032,997 |
| | | | | | | | | | | | | |
| | 2020 | | 2019 | | ||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| ||||
| | Amount | | Fair Value * | | Amount | | Fair Value * |
| ||||
Receivables |
| $ | 8,896,811 | | $ | 8,987,830 | | $ | 9,835,274 | | $ | 9,870,076 | |
Long-term debt | | $ | 5,869,860 | | $ | 5,992,745 | | $ | 5,779,581 | | $ | 5,830,157 | |
*Under the fair value hierarchy, receivables measurements are classified as Level 3 and long-term debt measurements are classified as Level 2.
Receivables
The fair value of receivables was determined by discounting the estimated future payments using a discount rate which includes an estimate for credit risk.
Long-term debt
The fair values of long-term debt were based on current market quotes for identical or similar borrowings and credit risk.
F-35F-36
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
NOTE 11: GEOGRAPHICAL INFORMATION
A summary of the Company’s geographical information is as follows:
| | | | | | | | | | ||||||
| | 2020 |
| 2019 |
| 2018 | |||||||||
Revenues |
| | | | | | | | | ||||||
United States | | $ | 682,413 | | $ | 725,529 | | $ | 693,191 | ||||||
Canada | |
| 166,802 | |
| 184,279 | |
| 192,645 | ||||||
Eliminations | |
| (4,808) | |
| (8,919) | |
| (7,482) | ||||||
Total |
| $ | 844,407 | | $ | 900,889 | | $ | 878,354 | ||||||
Interest expense |
| | | | | | | | | ||||||
United States | | $ | 234,723 | | $ | 290,861 | | $ | 276,956 | ||||||
Canada | |
| 50,043 | |
| 65,331 | |
| 55,806 | ||||||
Eliminations | |
| (4,808) | |
| (8,919) | |
| (7,482) | ||||||
Total |
| $ | 279,958 | | $ | 347,273 | | $ | 325,280 | ||||||
Net income |
| | | | | | | | | ||||||
United States | | $ | 108,788 | | $ | 104,291 | | $ | 97,790 | ||||||
Canada | |
| 34,492 | |
| 44,712 | |
| 59,055 | ||||||
Total |
| $ | 143,280 | | $ | 149,003 | | $ | 156,845 | ||||||
Depreciation and amortization |
| | | | | | | | | ||||||
United States | | $ | 193,932 | | $ | 187,964 | | $ | 191,347 | ||||||
Canada | |
| 45,042 | |
| 43,479 | |
| 42,579 | ||||||
Total |
| $ | 238,974 | | $ | 231,443 | | $ | 233,926 | ||||||
Expenditures for equipment on operating leases |
| | | | | | | | | ||||||
United States | | $ | 466,288 | | $ | 575,269 | | $ | 533,706 | ||||||
Canada | |
| 132,099 | |
| 140,417 | |
| 146,560 | ||||||
Total |
| $ | 598,387 | | $ | 715,686 | | $ | 680,266 | ||||||
Provision for credit losses |
| | | | | | | | | ||||||
United States | | $ | 45,080 | | $ | 32,201 | | $ | 28,932 | ||||||
Canada | |
| 13,964 | |
| 3,502 | |
| 2,767 | ||||||
Total |
| $ | 59,044 | | $ | 35,703 | | $ | 31,699 | ||||||
Total assets |
| | | | | | | | | ||||||
United States | | $ | 10,186,808 | | $ | 10,439,737 | | $ | 10,482,805 | ||||||
Canada | |
| 2,442,180 | |
| 2,566,635 | |
| 2,511,839 | ||||||
Eliminations | |
| (177,819) | |
| (152,285) | |
| (62,732) | ||||||
Total |
| $ | 12,451,169 | | $ | 12,854,087 | | $ | 12,931,912 | ||||||
Managed receivables |
| | | | | | | | | ||||||
United States | | $ | 7,195,558 | | $ | 7,946,542 | | $ | 8,080,756 | ||||||
Canada | |
| 1,837,389 | |
| 1,961,483 | |
| 1,944,582 | ||||||
Total |
| $ | 9,032,947 | | $ | 9,908,025 | | $ | 10,025,338 |
| | | | | | | | | |
| | 2023 |
| 2022 |
| 2021 | |||
Revenues |
| | | | | | | | |
United States | | $ | 860,081 | | $ | 626,754 | | $ | 630,848 |
Canada | |
| 214,173 | |
| 168,909 | |
| 163,891 |
Eliminations | |
| (1,601) | |
| (3,828) | |
| (5,555) |
Total |
| $ | 1,072,653 | | $ | 791,835 | | $ | 789,184 |
Interest expense |
| | | | | | | | |
United States | | $ | 443,629 | | $ | 195,728 | | $ | 161,681 |
Canada | |
| 92,211 | |
| 49,907 | |
| 39,652 |
Eliminations | |
| (1,601) | |
| (3,828) | |
| (5,555) |
Total |
| $ | 534,239 | | $ | 241,807 | | $ | 195,778 |
Net income |
| | | | | | | | |
United States | | $ | 167,403 | | $ | 175,752 | | $ | 181,259 |
Canada | |
| 47,669 | |
| 43,370 | |
| 48,956 |
Total |
| $ | 215,072 | | $ | 219,122 | | $ | 230,215 |
Depreciation and amortization |
| | | | | | | | |
United States | | $ | 129,247 | | $ | 152,871 | | $ | 190,255 |
Canada | |
| 52,669 | |
| 50,878 | |
| 50,994 |
Total |
| $ | 181,916 | | $ | 203,749 | | $ | 241,249 |
Expenditures for equipment on operating leases |
| | | | | | | | |
United States | | $ | 354,015 | | $ | 354,817 | | $ | 388,665 |
Canada | |
| 167,129 | |
| 162,806 | |
| 147,736 |
Total |
| $ | 521,144 | | $ | 517,623 | | $ | 536,401 |
Provision (benefit) for credit losses |
| | | | | | | | |
United States | | $ | 12,897 | | $ | 9,978 | | $ | (6,431) |
Canada | |
| (1,318) | |
| 1,263 | |
| (1,029) |
Total |
| $ | 11,579 | | $ | 11,241 | | $ | (7,460) |
| | | | | | | | | |
| | 2023 |
| 2022 |
| 2021 | |||
Total assets |
| | | | | | | | |
United States | | $ | 13,034,959 | | $ | 10,712,413 | | $ | 9,870,766 |
Canada | |
| 3,077,089 | |
| 2,683,722 | |
| 2,538,581 |
Eliminations | |
| (148,521) | |
| (216,656) | |
| (221,579) |
Total |
| $ | 15,963,527 | | $ | 13,179,479 | | $ | 12,187,768 |
Receivables |
| | | | | | | | |
United States | | $ | 11,134,365 | | $ | 8,758,694 | | $ | 7,121,138 |
Canada | |
| 2,436,097 | |
| 2,108,138 | |
| 1,946,114 |
Total |
| $ | 13,570,462 | | $ | 10,866,832 | | $ | 9,067,252 |
F-36F-37
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
NOTE 12: RELATED-PARTY TRANSACTIONS
The Company receives compensation from CNH Industrial North America for retail customer, wholesale and operating lease sales programs offered by CNH Industrial North America on which finance charges are waived or below market rate financing programs are offered. The Company receives compensation from CNH Industrial North America based on the Company’s estimated costs and a targeted return on equity. The Company is also compensated for lending funds to CNH Industrial North America.
In addition, the Company receives income from Iveco Argentina for wholesale factoring receivables purchased at a discount.
The summary of sources included in “Interest and other income from affiliates” in the accompanying consolidated statements of income at December 31, 2020, 2019,2023, 2022, and 20182021 is as follows:
| | | | | | | | | |
| | 2020 |
| 2019 |
| 2018 | |||
Subsidy from CNH Industrial North America | | | | | | | | | |
Retail | | $ | 153,990 | | $ | 160,361 | | $ | 149,363 |
Wholesale | | | 108,479 | | | 122,582 | | | 123,615 |
Operating lease | |
| 61,328 | |
| 60,221 | |
| 60,841 |
Income from Iveco Argentina |
| | | | | | | | |
Wholesale factoring | | | — | | | 2,187 | | | 10,881 |
Income from affiliated receivables |
| | | | | | | | |
CNH Industrial North America | |
| 474 | |
| — | |
| 1,096 |
Other affiliates | | | 153 | | | 438 | | | 137 |
Total interest and other income from affiliates |
| $ | 324,424 | | $ | 345,789 | | $ | 345,933 |
| | | | | | | | | |
| | 2023 |
| 2022 |
| 2021 | |||
Subsidy from CNH North America | | | | | | | | | |
Retail customer | | $ | 140,195 | | $ | 123,874 | | $ | 142,867 |
Operating lease | |
| 40,852 | |
| 47,194 | |
| 58,965 |
Revolving charge accounts | | | 4,106 | | | — | | | — |
Wholesale | | | 242,062 | | | 95,138 | | | 94,678 |
Income from affiliated receivables |
| | | | | | | | |
CNH North America | |
| 3,430 | |
| 713 | |
| 878 |
Banco CNH Industrial Capital Brazil | | | 2,864 | | | 983 | | | — |
Other affiliates | | | 748 | | | 365 | | | 191 |
Total interest and other income from affiliates |
| $ | 434,257 | | $ | 268,267 | | $ | 297,579 |
Interest expense to affiliates was $3,568, $14,126$33,746, $9,361 and $7,533,$3,686, respectively, for the years ended December 31, 2020, 20192023, 2022 and 2018.2021. Fees charged by affiliates were $45,905$53,804, $50,858 and $46,601 and $47,475$47,369 for the years ended December 31, 2020, 20192023, 2022 and 2018,2021, respectively, and representswhich amounts consist of payroll and other human resource services CNH Industrial America performs on behalf of the Company.
As of December 31, 20202023 and 2019,2022, the Company had various accounts and notes receivable and debt with the following affiliates:
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 2020 | | 2019 | ||||||||||
Affiliated receivables |
| | | | | | | | | | | | | |
CNH Industrial America |
| 0% | | — | | $ | 391,445 |
| 0% | | — | | $ | 24,832 |
CNH Industrial Canada Ltd. |
| 0% | | — | | | 10,906 |
| 0% | | — | | | 26,931 |
Other affiliates |
| 0% | | — | | | 12,459 |
| 0% | | — | | | 12,544 |
Total affiliated receivables |
| | | | | $ | 414,810 | | | | | | $ | 64,307 |
Affiliated debt |
| | | | | | | | | | | | | |
CNH Industrial America | | — | | — | | $ | — | | 1.76% | | 2020 | | $ | 213,856 |
CNH Industrial Canada Ltd. | | 1.41% | | 2021 | | | 187,310 | | — | | — | | | — |
Total affiliated debt |
| | | | | $ | 187,310 |
| | | | | $ | 213,856 |
| | | | | | | | | | | | | | |
| | 2023 | | 2022 | ||||||||||
|
| Rate |
| Maturity |
| Amount |
| Rate |
| Maturity |
| Amount | ||
Affiliated receivables |
| | | | | | | | | | | | | |
CNH America |
| 0% | | — | | $ | 13,377 |
| 0% | | — | | $ | 10 |
CNH Canada |
| 0% | | — | | | 704 |
| 0% | | — | | | — |
Banco CNH Industrial Capital Brazil | | Various | | Various | | | 47,997 | | 0% | | — | | | 40,983 |
Other affiliates |
| 0% | | — | | | 12,589 |
| 0% | | — | | | 12,516 |
Total affiliated receivables |
| | | | | $ | 74,667 | | | | | | $ | 53,509 |
Affiliated debt |
| | | | | | | | | | | | | |
CNH America | | 5.68% | | 2024 | | $ | 86,234 | | 5.39% | | 2023 | | $ | 100,195 |
CNH Canada | | 5.76% | | 2024 | | | 46,258 | | 5.74% | | 2023 | | | 241,036 |
Other affiliates | | 0% | | — | | | — | | 5.05% | | 2023 | | | 300 |
Total affiliated debt |
| | | | | $ | 132,492 |
| | | | | $ | 341,531 |
Accounts payable and other accrued liabilities, including tax payables, of $31,795$82,621 and $20,527, respectively,$212,167 were payable to related parties as of December 31, 20202023 and 2019, were payable to related parties.2022, respectively.
F-37F-38
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
NOTE 13: COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is party to various litigation matters and claims arising from its operations. Management believes that the outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or results of operations.
Guarantees
The Company provides payment guarantees on the financial debt of various foreign financial services subsidiaries of CNHI for approximately $45,000.$50,400. The guarantees are in effect for the term of the underlying funding facilities.
Commitments
TheAs of December 31, 2023, the Company hashad various agreements, on an uncommitted basis, to extend credit for the wholesale and dealer financing managed portfolio. At December 31, 2020, the total credit limit available was $6,137,680, of which $2,650,654 was utilized.following portfolios:
| | | | | | | | | |
| | Total | | | | | |||
| | Credit Limit | | Utilized | | Not Utilized | |||
Wholesale and dealer financing | | $ | 7,746,096 | | $ | 5,039,432 | | $ | 2,706,664 |
Revolving charge accounts | | $ | 2,557,662 | | $ | 210,324 | | $ | 2,347,338 |
NOTE 14: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATIONSUBSEQUENT EVENTS
CNH Industrial Capital America and New Holland Credit (the “Guarantor Entities”), which are 100%-owned subsidiaries of CNH Industrial Capital LLC, guarantee certain indebtedness of CNH Industrial Capital LLC. As the guarantees are full, unconditional, and joint and several and because the Guarantor Entities are 100%-owned by CNH Industrial Capital LLC,On January 16, 2024, the Company has includedrepaid the following condensed consolidating financial information asprincipal amount of December 31, 2020 and 2019 and for$500,000 of its 4.200% unsecured notes due 2024.
On January 24, 2024, the three years ended December 31, 2020. The condensed consolidating financial information reflects investments in consolidated subsidiaries underCompany, through a bankruptcy-remote trust, issued $862,730 of amortizing asset-backed notes secured by U.S. retail receivables.
On February 21, 2024, the equity methodCompany, through a trust, issued C$398,380 ($294,834) of accounting.amortizing asset-backed notes secured by Canadian retail receivables.
F-38
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
|
| Condensed Statements of Comprehensive Income for the |
| |||||||||||||
|
| Year Ended December 31, 2020 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
|
| Industrial | | Guarantor | | All Other | | | | | | |
| |||
|
| Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
REVENUES | | | | | | | | | | | | | | | | |
Interest income on retail notes and finance leases | | $ | — | | $ | 4,335 | | $ | 178,894 | | $ | — | | $ | 183,229 | |
Interest income on wholesale notes | | | — | | | (382) | | | 53,491 | | | — | | | 53,109 | |
Interest and other income from affiliates | |
| 19,081 | | | 181,309 | | | 270,239 | | | (146,205) | | | 324,424 | |
Rental income on operating leases | |
| — | | | 199,877 | | | 56,001 | | | — | | | 255,878 | |
Other income | |
| — | | | 86,234 | | | 1,945 | | | (60,412) | | | 27,767 | |
Total revenues |
|
| 19,081 | | | 471,373 | | | 560,570 | | | (206,617) | | | 844,407 | |
EXPENSES |
| | | | | | | | | | | | | | | |
Interest expense: | | | | | | | | | | | | | | | | |
Interest expense to third parties | |
| 148,547 | |
| (24,813) | | | 152,656 | |
| — | |
| 276,390 | |
Interest expense to affiliates | |
| — | |
| 125,372 | | | 24,401 | |
| (146,205) | |
| 3,568 | |
Total interest expense |
|
| 148,547 | |
| 100,559 | | | 177,057 | |
| (146,205) | |
| 279,958 | |
Administrative and operating expenses: |
| | | | | | | | | | | | | | | |
Fees charged by affiliates | |
| — | |
| 37,685 | | | 68,632 | |
| (60,412) | |
| 45,905 | |
Provision for credit losses | |
| — | |
| 12,164 | | | 46,880 | |
| — | |
| 59,044 | |
Depreciation of equipment on operating leases | |
| — | |
| 192,364 | | | 45,041 | |
| — | |
| 237,405 | |
Other expenses | |
| 24 | |
| 31,760 | | | 3,519 | |
| — | |
| 35,303 | |
Total administrative and operating expenses |
|
| 24 | |
| 273,973 | | | 164,072 | |
| (60,412) | |
| 377,657 | |
Total expenses |
|
| 148,571 | |
| 374,532 | | | 341,129 | |
| (206,617) | |
| 657,615 | |
Income (loss) before income taxes and equity in income of consolidated subsidiaries accounted for under the equity method |
|
| (129,490) | |
| 96,841 | | | 219,441 | |
| — | |
| 186,792 | |
Income tax provision (benefit) | |
| (31,617) | |
| 24,920 | | | 50,209 | |
| — | |
| 43,512 | |
Equity in income of consolidated subsidiaries accounted for under the equity method | |
| 241,153 | |
| 169,232 | | | — | |
| (410,385) | |
| — | |
NET INCOME |
| $ | 143,280 | | $ | 241,153 | | $ | 169,232 | | $ | (410,385) | | $ | 143,280 | |
COMPREHENSIVE INCOME |
| $ | 147,441 | | $ | 245,314 | | $ | 171,360 | | $ | (416,674) | | $ | 147,441 | |
F-39
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
| | Condensed Balance Sheets as of December 31, 2020 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
ASSETS |
| | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | 158,334 | | $ | 234,595 | | $ | — | | $ | 392,929 | |
Restricted cash and cash equivalents | |
| — | |
| — | |
| 625,622 | |
| — | |
| 625,622 | |
Receivables, less allowance for credit losses | |
| — | |
| 1,479,161 | |
| 7,417,650 | |
| — | |
| 8,896,811 | |
Affiliated accounts and notes receivable | |
| 1,303,046 | |
| 2,538,254 | |
| 2,819,819 | |
| (6,246,309) | |
| 414,810 | |
Equipment on operating leases, net | |
| — | |
| 1,434,253 | |
| 424,931 | |
| — | |
| 1,859,184 | |
Equipment held for sale | |
| — | |
| 30,183 | |
| 6,332 | |
| — | |
| 36,515 | |
Investments in consolidated subsidiaries accounted for under the equity method | |
| 3,278,397 | |
| 2,722,781 | |
| — | |
| (6,001,178) | |
| — | |
Goodwill and intangible assets, net | |
| — | |
| 94,905 | |
| 28,586 | |
| — | |
| 123,491 | |
Other assets | |
| 5,621 | |
| 72,600 | |
| 26,028 | |
| (2,442) | |
| 101,807 | |
TOTAL |
| $ | 4,587,064 | | $ | 8,530,471 | | $ | 11,583,563 | | $ | (12,249,929) | | $ | 12,451,169 | |
LIABILITIES AND STOCKHOLDER’S EQUITY |
| | | | | | | | | | | | | | | |
Liabilities: |
| | | | | | | | | | | | | | | |
Short-term debt, including current maturities of long-term debt | | $ | 900,578 | | $ | 209,376 | | $ | 3,119,474 | | $ | — | | $ | 4,229,428 | |
Accounts payable and other accrued liabilities | |
| 286,215 | |
| 3,776,490 | |
| 1,201,653 | |
| (4,359,959) | |
| 904,399 | |
Affiliated debt | |
| — | |
| 877,732 | |
| 1,198,370 | |
| (1,888,792) | |
| 187,310 | |
Long-term debt | |
| 2,140,099 | |
| 388,476 | |
| 3,341,285 | |
| — | |
| 5,869,860 | |
Total liabilities |
|
| 3,326,892 | |
| 5,252,074 | |
| 8,860,782 | |
| (6,248,751) | |
| 11,190,997 | |
Stockholder’s equity |
|
| 1,260,172 | |
| 3,278,397 | |
| 2,722,781 | |
| (6,001,178) | |
| 1,260,172 | |
TOTAL |
| $ | 4,587,064 | | $ | 8,530,471 | | $ | 11,583,563 | | $ | (12,249,929) | | $ | 12,451,169 | |
F-40
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
| | Condensed Statements of Cash Flows for the |
| |||||||||||||
| | Year Ended December 31, 2020 | | |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | |
Net cash from (used in) operating activities | | $ | 149,830 | | $ | 278,271 | | $ | (87,793) | | $ | (223,190) | | $ | 117,118 | |
CASH FLOWS FROM INVESTING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Cost of receivables acquired | |
| — | |
| (8,598,229) | |
| (8,439,636) | |
| 6,565,835 | |
| (10,472,030) | |
Collections of receivables | |
| — | |
| 8,620,803 | |
| 9,333,285 | |
| (6,566,948) | |
| 11,387,140 | |
Purchase of equipment on operating leases, net | |
| — | |
| (81,410) | |
| (73,065) | |
| — | |
| (154,475) | |
Change in property and equipment and software, net | |
| — | |
| (2,700) | |
| — | |
| — | |
| (2,700) | |
Net cash from (used in) investing activities |
|
| — | |
| (61,536) | |
| 820,584 | |
| (1,113) | |
| 757,935 | |
CASH FLOWS FROM FINANCING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Intercompany activity | |
| — | |
| (483,757) | |
| 229,237 | |
| 224,303 | |
| (30,217) | |
Net change in indebtedness | |
| (19,830) | |
| 304,156 | |
| (784,855) | |
| — | |
| (500,529) | |
Dividends paid to CNH Industrial America LLC | |
| (130,000) | |
| — | |
| — | |
| — | |
| (130,000) | |
Net cash from (used in) financing activities |
|
| (149,830) | |
| (179,601) | |
| (555,618) | |
| 224,303 | |
| (660,746) | |
INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| — | |
| 37,134 | |
| 177,173 | |
| — | |
| 214,307 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: |
| | | | | | | | | | | | | | | |
Beginning of year | |
| — | |
| 121,200 | |
| 683,044 | |
| — | |
| 804,244 | |
End of year |
| $ | — | | $ | 158,334 | | $ | 860,217 | | $ | — | | $ | 1,018,551 | |
F-41
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
|
| Condensed Statements of Comprehensive Income for the |
| |||||||||||||
| | Year Ended December 31, 2019 | | |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
|
| Industrial | | Guarantor | | All Other | | | | | | |
| |||
|
| Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
REVENUES |
| | | | | | | | | | | | | | |
|
Interest income on retail notes and finance leases | | $ | — | | $ | 15,630 | | $ | 202,824 | | $ | — | | $ | 218,454 | |
Interest income on wholesale notes | |
| — | | | (1,051) | | | 68,824 | | | — | | | 67,773 | |
Interest and other income from affiliates | |
| 50,877 | | | 204,027 | | | 202,931 | | | (112,046) | | | 345,789 | |
Rental income on operating leases | |
| — | | | 189,019 | | | 54,025 | | | — | | | 243,044 | |
Other income | |
| — | | | 89,768 | | | 2,331 | | | (66,270) | | | 25,829 | |
Total revenues |
|
| 50,877 | | | 497,393 | | | 530,935 | | | (178,316) | | | 900,889 | |
EXPENSES |
| | | | | | | | | | | | | | | |
Interest expense: | | | | | | | | | | | | | | | | |
Interest expense to third parties | |
| 163,358 | |
| (28,393) | |
| 198,182 | |
| — | |
| 333,147 | |
Interest expense to affiliates | |
| — | |
| 82,408 | |
| 43,764 | |
| (112,046) | |
| 14,126 | |
Total interest expense |
|
| 163,358 | |
| 54,015 | |
| 241,946 | |
| (112,046) | |
| 347,273 | |
Administrative and operating expenses: |
| | | | | | | | | | | | | | | |
Fees charged by affiliates | |
| — | |
| 44,700 | |
| 68,171 | |
| (66,270) | |
| 46,601 | |
Provision for credit losses | |
| — | |
| 14,492 | |
| 21,211 | |
| — | |
| 35,703 | |
Depreciation of equipment on operating leases | |
| — | |
| 186,174 | |
| 43,478 | |
| — | |
| 229,652 | |
Other expenses | |
| 24 | |
| 35,678 | |
| 12,744 | |
| — | |
| 48,446 | |
Total administrative and operating expenses |
|
| 24 | |
| 281,044 | |
| 145,604 | |
| (66,270) | |
| 360,402 | |
Total expenses |
|
| 163,382 | |
| 335,059 | |
| 387,550 | |
| (178,316) | |
| 707,675 | |
Income (loss) before income taxes and equity in income of consolidated subsidiaries accounted for under the equity method |
|
| (112,505) | |
| 162,334 | |
| 143,385 | |
| — | |
| 193,214 | |
Income tax provision (benefit) | |
| (27,470) | |
| 38,305 | |
| 33,376 | |
| — | |
| 44,211 | |
Equity in income of consolidated subsidiaries accounted for under the equity method | |
| 234,038 | |
| 110,009 | |
| — | |
| (344,047) | |
| — | |
NET INCOME |
| $ | 149,003 | | $ | 234,038 | | $ | 110,009 | | $ | (344,047) | | $ | 149,003 | |
COMPREHENSIVE INCOME |
| $ | 172,203 | | $ | 257,238 | | $ | 126,963 | | $ | (384,201) | | $ | 172,203 | |
F-42
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
| | Condensed Balance Sheets as of December 31, 2019 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
ASSETS | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | 121,200 | | $ | 53,766 | | $ | — | | $ | 174,966 | |
Restricted cash and cash equivalents | |
| — | |
| — | |
| 629,278 | |
| — | |
| 629,278 | |
Receivables, less allowance for credit losses | |
| — | |
| 1,512,786 | |
| 8,322,488 | |
| — | |
| 9,835,274 | |
Affiliated accounts and notes receivable | |
| 1,549,666 | |
| 2,257,928 | |
| 2,553,665 | |
| (6,296,952) | |
| 64,307 | |
Equipment on operating leases, net | |
| — | |
| 1,394,706 | |
| 388,577 | |
| — | |
| 1,783,283 | |
Equipment held for sale | |
| — | |
| 154,050 | |
| 16,168 | |
| — | |
| 170,218 | |
Investments in consolidated subsidiaries accounted for under the equity method | |
| 3,053,394 | |
| 2,565,785 | |
| — | |
| (5,619,179) | |
| — | |
Goodwill and intangible assets, net | |
| — | |
| 93,767 | |
| 28,057 | |
| — | |
| 121,824 | |
Other assets | |
| 4,236 | |
| 58,048 | |
| 16,209 | |
| (3,556) | |
| 74,937 | |
TOTAL |
| $ | 4,607,296 | | $ | 8,158,270 | | $ | 12,008,208 | | $ | (11,919,687) | | $ | 12,854,087 | |
LIABILITIES AND STOCKHOLDER’S EQUITY |
| | | | | | | | | | | | | | | |
Liabilities: |
| | | | | | | | | | | | | | | |
Short-term debt, including current maturities of long-term debt | | $ | 1,136,455 | | $ | 33,200 | | $ | 3,620,517 | | $ | — | | $ | 4,790,172 | |
Accounts payable and other accrued liabilities | |
| 283,748 | |
| 3,449,690 | |
| 1,261,411 | |
| (4,187,412) | |
| 807,437 | |
Affiliated debt | |
| — | |
| 1,361,490 | |
| 965,462 | |
| (2,113,096) | |
| 213,856 | |
Long-term debt | |
| 1,924,052 | |
| 260,496 | |
| 3,595,033 | |
| — | |
| 5,779,581 | |
Total liabilities |
|
| 3,344,255 | |
| 5,104,876 | |
| 9,442,423 | |
| (6,300,508) | |
| 11,591,046 | |
Stockholder’s equity |
|
| 1,263,041 | |
| 3,053,394 | |
| 2,565,785 | |
| (5,619,179) | |
| 1,263,041 | |
TOTAL |
| $ | 4,607,296 | | $ | 8,158,270 | | $ | 12,008,208 | | $ | (11,919,687) | | $ | 12,854,087 | |
F-43
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
| | Condensed Statements of Cash Flows for the |
| |||||||||||||
| | Year Ended December 31, 2019 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | |
Net cash from (used in) operating activities | | $ | 679,561 | | $ | 614,888 | | $ | (112,906) | | $ | (698,859) | | $ | 482,684 | |
CASH FLOWS FROM INVESTING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Cost of receivables acquired | |
| — | |
| (9,177,042) | |
| (9,593,836) | |
| 7,390,451 | |
| (11,380,427) | |
Collections of receivables | |
| — | |
| 9,122,287 | |
| 9,819,438 | |
| (7,390,295) | |
| 11,551,430 | |
Purchase of equipment on operating leases, net | |
| — | |
| (166,891) | |
| (47,245) | |
| — | |
| (214,136) | |
Change in property and equipment and software, net | |
| — | |
| (3,819) | |
| — | |
| — | |
| (3,819) | |
Net cash from (used in) investing activities |
|
| — | |
| (225,465) | |
| 178,357 | |
| 156 | |
| (46,952) | |
CASH FLOWS FROM FINANCING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Intercompany activity | |
| — | |
| (680,436) | |
| (80,682) | |
| 698,703 | |
| (62,415) | |
Net change in indebtedness | |
| (414,561) | |
| 293,705 | |
| 16,912 | |
| — | |
| (103,944) | |
Dividends paid to CNH Industrial America LLC | | | (265,000) | |
| — | |
| — | |
| — | |
| (265,000) | |
Net cash from (used in) financing activities |
|
| (679,561) | |
| (386,731) | |
| (63,770) | |
| 698,703 | |
| (431,359) | |
INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| — | |
| 2,692 | |
| 1,681 | |
| — | |
| 4,373 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: |
| | | | | | | | | | | | | | | |
Beginning of year | | | — | |
| 118,508 | |
| 681,363 | |
| — | |
| 799,871 | |
End of year |
| $ | — | | $ | 121,200 | | $ | 683,044 | | $ | — | | $ | 804,244 | |
F-44
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
|
| Condensed Statements of Comprehensive Income for the |
| |||||||||||||
|
| Year Ended December 31, 2018 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
|
| Industrial | | Guarantor | | All Other | | | | | | |
| |||
|
| Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
REVENUES | | | | | | | | | | | | | | | | |
Interest income on retail notes and finance leases | | $ | — | | $ | 9,170 | | $ | 192,099 | | $ | — | | $ | 201,269 | |
Interest income on wholesale notes | |
| — | |
| (1,030) | |
| 67,929 | |
| — | |
| 66,899 | |
Interest and other income from affiliates | |
| 70,880 | |
| 200,821 | |
| 297,443 | |
| (223,211) | |
| 345,933 | |
Rental income on operating leases | |
| — | |
| 187,089 | |
| 54,493 | |
| — | |
| 241,582 | |
Other income | |
| — | |
| 87,710 | |
| 2,842 | |
| (67,881) | |
| 22,671 | |
Total revenues |
|
| 70,880 | |
| 483,760 | |
| 614,806 | |
| (291,092) | |
| 878,354 | |
EXPENSES |
| | | | | | | | | | | | | | | |
Interest expense: | | | | | | | | | | | | | | | | |
Interest expense to third parties | |
| 156,839 | |
| (8,767) | |
| 169,675 | |
| — | |
| 317,747 | |
Interest expense to affiliates | |
| — | |
| 199,890 | |
| 30,854 | |
| (223,211) | |
| 7,533 | |
Total interest expense |
|
| 156,839 | |
| 191,123 | |
| 200,529 | |
| (223,211) | |
| 325,280 | |
Administrative and operating expenses: |
| | | | | | | | | | | | | | | |
Fees charged by affiliates | |
| — | |
| 45,545 | |
| 69,811 | |
| (67,881) | |
| 47,475 | |
Provision for credit losses | |
| — | |
| 8,445 | |
| 23,254 | |
| — | |
| 31,699 | |
Depreciation of equipment on operating leases | |
| — | |
| 189,228 | |
| 42,577 | |
| — | |
| 231,805 | |
Other expenses | |
| 22 | |
| 18,249 | |
| 25,507 | |
| — | |
| 43,778 | |
Total administrative and operating expenses |
|
| 22 | |
| 261,467 | |
| 161,149 | |
| (67,881) | |
| 354,757 | |
Total expenses |
|
| 156,861 | |
| 452,590 | |
| 361,678 | |
| (291,092) | |
| 680,037 | |
Income (loss) before income taxes and equity in income of consolidated subsidiaries accounted for under the equity method |
|
| (85,981) | |
| 31,170 | |
| 253,128 | |
| — | |
| 198,317 | |
Income tax provision (benefit) | |
| (20,995) | |
| 11,010 | |
| 51,457 | |
| — | |
| 41,472 | |
Equity in income of consolidated subsidiaries accounted for under the equity method | |
| 221,831 | |
| 201,671 | |
| — | |
| (423,502) | |
| — | |
NET INCOME |
| $ | 156,845 | | $ | 221,831 | | $ | 201,671 | | $ | (423,502) | | $ | 156,845 | |
COMPREHENSIVE INCOME |
| $ | 110,009 | | $ | 174,995 | | $ | 161,250 | | $ | (336,245) | | $ | 110,009 | |
F-45
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
| Condensed Statements of Cash Flows for the Year Ended December 31, 2018 |
| ||||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Net cash from (used in) operating activities | | $ | 142,488 | | $ | 488,329 | | $ | 143,064 | | $ | (411,000) | | $ | 362,881 | |
CASH FLOWS FROM INVESTING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Cost of receivables acquired | |
| — | |
| (9,080,473) | |
| (9,991,699) | |
| 7,269,611 | |
| (11,802,561) | |
Collections of receivables | | | — | |
| 8,967,965 | |
| 10,375,251 | |
| (7,270,276) | |
| 12,072,940 | |
Purchase of equipment on operating leases, net | |
| — | |
| (146,618) | |
| (65,391) | |
| — | |
| (212,009) | |
Change in property and equipment and software, net | |
| — | |
| (5,427) | |
| — | |
| — | |
| (5,427) | |
Net cash from (used in) investing activities |
|
| — | |
| (264,553) | |
| 318,161 | |
| (665) | |
| 52,943 | |
CASH FLOWS FROM FINANCING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Intercompany activity | |
| — | |
| (211,322) | |
| (128,802) | |
| 185,948 | |
| (154,176) | |
Net change in indebtedness | |
| (12,488) | |
| (54,285) | |
| (140,562) | |
| — | |
| (207,335) | |
Dividends paid to CNH Industrial America LLC | | | (130,000) | |
| — | |
| (225,717) | |
| 225,717 | |
| (130,000) | |
Net cash from (used in) financing activities |
|
| (142,488) | |
| (265,607) | |
| (495,081) | |
| 411,665 | |
| (491,511) | |
DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| — | |
| (41,831) | |
| (33,856) | |
| — | |
| (75,687) | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: |
| | | | | | | | | | | | | | | |
Beginning of year | |
| — | |
| 160,339 | |
| 715,219 | |
| — | |
| 875,558 | |
End of year |
| $ | — | | $ | 118,508 | | $ | 681,363 | | $ | — | | $ | 799,871 | |
NOTE 15: SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)
| | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2020 |
| |||||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| Fiscal |
| |||||
| | Quarter | | Quarter | | Quarter | | Quarter | | Year |
| |||||
Revenues |
| $ | 215,817 | | $ | 213,704 | | $ | 209,674 | | $ | 205,212 | | $ | 844,407 | |
Interest expense | |
| 78,688 | |
| 67,974 | |
| 68,840 | |
| 64,456 | |
| 279,958 | |
Administrative and operating expenses | |
| 91,624 | |
| 99,183 | |
| 90,904 | |
| 95,946 | |
| 377,657 | |
Income tax provision | |
| 10,428 | |
| 10,556 | |
| 11,775 | |
| 10,753 | |
| 43,512 | |
Net income |
| $ | 35,077 | | $ | 35,991 | | $ | 38,155 | | $ | 34,057 | | $ | 143,280 | |
F-46
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
| | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2019 |
| |||||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| Fiscal |
| |||||
| | Quarter | | Quarter | | Quarter | | Quarter | | Year |
| |||||
Revenues |
| $ | 222,069 | | $ | 229,112 | | $ | 224,356 | | $ | 225,352 | | $ | 900,889 | |
Interest expense | |
| 88,381 | |
| 85,247 | |
| 88,779 | |
| 84,866 | |
| 347,273 | |
Administrative and operating expenses | |
| 82,697 | |
| 94,183 | |
| 86,091 | |
| 97,431 | |
| 360,402 | |
Income tax provision | |
| 11,780 | |
| 11,898 | |
| 12,965 | |
| 7,568 | |
| 44,211 | |
Net income |
| $ | 39,211 | | $ | 37,784 | | $ | 36,521 | | $ | 35,487 | | $ | 149,003 | |
F-47