CNH Industrial N.V 6-K, filed May 11, 2021
CNH Industrial N.V. (CNH)
6-K
2021-05-11
For: 2021-03-31
View Original
Added on
July 04, 2026
About this 6-K
CNH Industrial N.V filed this 6-K on May 11, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of May 2021
Commission File No. 001-36085
CNH INDUSTRIAL N.V.
(Translation of registrant’s name into English)
25 St James’s Street
London, SW1A 1HA
United Kingdom
Tel. No.: +44 1268 533000
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ý Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
CNH INDUSTRIAL N.V.
Form 6-K for the month of May 2021.
This report on Form 6-K contains the following exhibits:
| Exhibit 99.1 | ||||||||
| 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 | |||||||
Exhibit 99.1 to this Report on Form 6-K is hereby incorporated by reference into CNH Industrial N.V.’s registration statement on Form F-3ASR (File No. 333-230334) and CNH Industrial N.V.’s registration statements on Form S-8 (File Nos. 333-191477, 333-196574 and 333-238912).
SIGNATURES
Pursuant to the requirements 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.
| CNH Industrial N.V. | |||||
| By: | /s/ Michael P. Going | ||||
| Name: | Michael P. Going | ||||
| Title: | Corporate Secretary | ||||
May 11, 2021
Index of Exhibits
Exhibit Number | Description of Exhibit | |||||||
| Exhibit 99.1 | CNH Industrial N.V. Quarterly Report for the three months ended March 31, 2021 (prepared in accordance with U.S. GAAP) | |||||||
| 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 | |||||||
Exhibit 99.1
CNH INDUSTRIAL N.V.
QUARTERLY REPORT FOR THE THREE MONTHS
ENDED March 31, 2021
TABLE OF CONTENTS
INDEX
| Page | |||||
PART I – FINANCIAL INFORMATION
CNH INDUSTRIAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2021 and December 31, 2020
(Unaudited)
| March 31, 2021 | December 31, 2020 | ||||||||||
| (in millions) | |||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Trade receivables, net | |||||||||||
| Financing receivables, net | |||||||||||
| Inventories, net | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Investments in unconsolidated subsidiaries and affiliates | |||||||||||
| Investments at fair value through profit and loss | |||||||||||
| Equipment under operating leases | |||||||||||
| Goodwill, net | |||||||||||
| Other intangible assets, net | |||||||||||
| Deferred tax assets | |||||||||||
| Derivative assets | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Debt | |||||||||||
| Trade payables | |||||||||||
| Deferred tax liabilities | |||||||||||
| Pension, postretirement and other postemployment benefits | |||||||||||
| Derivative liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total Liabilities | $ | $ | |||||||||
| Redeemable noncontrolling interest | |||||||||||
Common shares, € | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Additional paid in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Noncontrolling interests | |||||||||||
| Total Equity | $ | $ | |||||||||
| Total Liabilities and Equity | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements
1
CNH INDUSTRIAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Revenues | |||||||||||
| Net sales | $ | $ | |||||||||
| Finance, interest and other income | |||||||||||
| Total Revenues | $ | $ | |||||||||
| Costs and Expenses | |||||||||||
| Cost of goods sold | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Research and development expenses | |||||||||||
| Restructuring expenses | |||||||||||
| Interest expense | |||||||||||
| Other, net | |||||||||||
| Total Costs and Expenses | $ | $ | |||||||||
| Income (loss) before income taxes and equity in income of unconsolidated subsidiaries and affiliates | ( | ||||||||||
| Income tax (expense) benefit | ( | ||||||||||
| Equity in income of unconsolidated subsidiaries and affiliates | ( | ||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Net income attributable to noncontrolling interests | |||||||||||
| Net income (loss) attributable to CNH Industrial N.V. | $ | $ | ( | ||||||||
| Earnings (loss) per share attributable to common shareholders | |||||||||||
| Basic | $ | $ | ( | ||||||||
| Diluted | $ | $ | ( | ||||||||
| Cash dividends declared per common share | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements
2
CNH INDUSTRIAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Other comprehensive income (loss), net of tax | |||||||||||
| Unrealized gain (loss) on cash flow hedges | ( | ||||||||||
| Changes in retirement plans’ funded status | ( | ( | |||||||||
| Foreign currency translation | ( | ||||||||||
| Share of other comprehensive income (loss) of entities using the equity method | ( | ( | |||||||||
| Other comprehensive income (loss), net of tax | ( | ||||||||||
| Comprehensive income (loss) | ( | ||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | |||||||||||
| Comprehensive income (loss) attributable to CNH Industrial N.V. | $ | $ | ( | ||||||||
See accompanying notes to condensed consolidated financial statements
3
CNH INDUSTRIAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Operating activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization expense, net of assets under operating leases and assets sold under buy-back commitments | |||||||||||
| Depreciation and amortization expense of assets under operating leases and assets sold under buy-back commitments | |||||||||||
| Loss on repurchase of notes | |||||||||||
| Undistributed income of unconsolidated subsidiaries | |||||||||||
Other non-cash items(1) | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Provisions | ( | ||||||||||
| Deferred income taxes | ( | ||||||||||
| Trade and financing receivables related to sales, net | |||||||||||
| Inventories, net | ( | ( | |||||||||
| Trade payables | ( | ||||||||||
| Other assets and liabilities | ( | ( | |||||||||
| Net cash provided by (used in) operating activities | $ | $ | ( | ||||||||
| Investing activities: | |||||||||||
| Additions to retail receivables | ( | ( | |||||||||
| Collections of retail receivables | |||||||||||
| Proceeds from the sale of assets, net of assets under operating leases and assets sold under buy-back commitments | |||||||||||
| Expenditures for property, plant and equipment and intangible assets, net of assets under operating leases and assets sold under buy-back commitments | ( | ( | |||||||||
| Expenditures for assets under operating leases and assets sold under buy-back commitments | ( | ( | |||||||||
| Other | |||||||||||
| Net cash used in investing activities | $ | ( | $ | ( | |||||||
| Financing activities: | |||||||||||
| Proceeds from long-term debt | |||||||||||
| Payments of long-term debt | ( | ( | |||||||||
| Net increase (decrease) in other financial liabilities | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Net cash used in financing activities | $ | ( | $ | ( | |||||||
| Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash | ( | ( | |||||||||
| Increase (decrease) in cash and cash equivalents and restricted cash | ( | ( | |||||||||
| Cash and cash equivalents and restricted cash, beginning of year | |||||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | $ | |||||||||
(1) In the three months ended March 31, 2021, this item includes the pre-tax loss of $35 million from the remeasurement at fair value of the investment in Nikola Corporation.
See accompanying notes to the condensed consolidated financial statements
4
CNH INDUSTRIAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
| Common Shares | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total | Redeemable Noncontrolling Interest | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Common shares issued from treasury stock and capital increase for share-based compensation | — | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other changes | — | — | ( | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Common Shares | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total | Redeemable Noncontrolling Interest | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2020, as previously reported | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Adoption of ASC 326 | — | — | — | ( | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2020 as recast | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | ( | ( | ( | — | |||||||||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Decrease in noncontrolling interest due to the change of ownership | — | — | ( | — | — | ( | ( | — | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other changes | — | — | ( | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
5
CNH INDUSTRIAL N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
CNH Industrial N.V. (“CNH Industrial” or the “Company”) is incorporated in, and under the laws of, the Netherlands. CNH Industrial has its corporate seat in Amsterdam, the Netherlands, and its principal office in London, England, United Kingdom. The Company was formed on September 29, 2013 as a result of the business combination transaction between Fiat Industrial S.p.A. (“Fiat Industrial”) and its majority owned subsidiary CNH Global N.V. (“CNH Global”). Unless otherwise indicated or the context otherwise requires, the terms “CNH Industrial” and the “Company” refer to CNH Industrial and its subsidiaries.
The condensed consolidated financial statements of CNH Industrial N.V. and its consolidated subsidiaries have been voluntarily prepared by the Company without audit. Although prepared on a voluntary basis, the condensed consolidated financial statements included in the report comply in all material respects with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) governing interim financial statements. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting only of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations, and cash flows at the dates and for the periods presented. These interim financial statements should be read in conjunction with the financial statements and the notes thereto appearing in the Company’s annual report on Form 20-F for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and related accompanying notes and disclosures. 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 goodwill, indefinite life intangibles, definite life intangibles, long-lived impairment tests, determination of discount rates and other assumptions for pension and other post-retirement benefit expense and income taxes. Changes in estimates are recorded in results of operations in the period during which the events or circumstances giving rise to such changes occur.
Certain financial information in this report has been presented by geographic area. Our geographical regions are: (1) North America; (2) Europe; (3) South America and (4) Rest of World. The geographic designations have the following meanings:
•North America: United States, Canada and Mexico;
•Europe: member countries of the European Union, European Free Trade Association, the United Kingdom, Ukraine, and Balkans;
•South America: Central and South America, and the Caribbean Islands; and
2. NEW ACCOUNTING PRONOUNCEMENTS
Adopted in 2021
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This ASU eliminates certain exceptions to the general principles in ASC 740, Income Taxes. Specifically, it eliminates the exception to (1) the incremental approach for intraperiod tax allocation when 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. The Company adopted ASU 2019-12 on January 1, 2021. The adoption did not have a material impact on our consolidated financial statements.
Not Yet Adopted
Reference Rate Reform
In March 2020, the FASB issued ASU 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
6
3. REVENUE
The following table summarizes revenues for the three months ended March 31, 2021 and 2020:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Agriculture | $ | $ | |||||||||
| Construction | |||||||||||
| Commercial and Specialty Vehicles | |||||||||||
| Powertrain | |||||||||||
| Eliminations and Other | ( | ( | |||||||||
| Total Industrial Activities | $ | $ | |||||||||
| Financial Services | |||||||||||
| Eliminations and Other | ( | ( | |||||||||
| Total Revenues | $ | $ | |||||||||
The following table disaggregates revenues by major source for the three months ended March 31, 2021 and 2020:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Revenues from: | |||||||||||
| Sales of goods | $ | $ | |||||||||
| Rendering of services and other revenues | |||||||||||
| Rents on assets sold with a buy-back commitment | |||||||||||
| Revenues from sales of goods and services | |||||||||||
| Finance and interest income | |||||||||||
| Rents and other income on operating lease | |||||||||||
| Finance, interest and other income | |||||||||||
| Total Revenues | $ | $ | |||||||||
Contract liabilities recorded in Other liabilities were $1,332 million and $1,381 million at March 31, 2021 and December 31, 2020, respectively. Contract liabilities primarily relate to extended warranties/maintenance and repair contracts, and transactions for the sale of vehicles with a buy-back commitment. During the three months ended March 31, 2021 and 2020, revenues included $151 million and $145 million, respectively, relating to contract liabilities outstanding at the beginning of each period.
At March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $2.3 billion ($2.2 billion as of December 31, 2020). The Company expects to recognize revenue on approximately 32 % and 78 % of the remaining performance obligations over the next 12 36 32 % and 77 % as of December 31, 2020), with the remaining recognized thereafter.
4. VARIABLE INTEREST ENTITIES
7
The following table presents certain assets and liabilities of consolidated VIEs, which are included in the condensed consolidated balance sheets included in this report. The assets in the table below include only those assets that can be used to settle obligations of the consolidated VIEs. The liabilities in the table below include third party liabilities of the consolidated VIEs for which creditors do not have recourse to the general credit of the Company.
| March 31, 2021 | December 31, 2020 | ||||||||||
| (in millions) | |||||||||||
| Restricted cash | $ | $ | |||||||||
| Financing receivables | |||||||||||
| Total Assets | $ | $ | |||||||||
| Debt | $ | $ | |||||||||
| Total Liabilities | $ | $ | |||||||||
5. EARNINGS PER SHARE
The Company’s basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if dilutive securities were exercised into common stock. Stock options, restricted stock units and performance stock units are considered dilutive securities.
A reconciliation of basic and diluted earnings per share is as follows (in millions, except per share amounts):
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Basic: | |||||||||||
| Net income (loss) attributable to CNH Industrial | $ | $ | ( | ||||||||
| Weighted average common shares outstanding—basic | |||||||||||
| Basic earnings (loss) per share | $ | $ | ( | ||||||||
| Diluted: | |||||||||||
| Net income (loss) attributable to CNH Industrial | $ | $ | ( | ||||||||
| Weighted average common shares outstanding—basic | |||||||||||
| Effect of dilutive securities (when dilutive): | |||||||||||
Stock compensation plans (1) | |||||||||||
| Weighted average common shares outstanding—diluted | |||||||||||
| Diluted earnings (loss) per share | $ | $ | ( | ||||||||
6. EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT BENEFITS
The following table summarizes the components of net periodic benefit cost of CNH Industrial’s defined benefit pension plans and postretirement health and life insurance plans for the three months ended March 31, 2021 and 2020:
| Pension | Healthcare | Other | |||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||||||||||||||
| Prior service credit | ( | ( | |||||||||||||||||||||||||||||||||
| Actuarial loss | |||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||
8
7. INCOME TAXES
The effective tax rates for the three months ended March 31, 2021 and 2020 were 28.2 % and 30.3 %, respectively. The lower 2021 effective tax rate was primarily due to the reduced impact, on a percentage basis, of discrete tax items, which increased the effective tax rates by approximately 3 % and 5 % in 2021 and 2020, respectively.
As in all financial reporting periods, the Company assessed the realizability of its deferred tax assets, which relate to multiple tax jurisdictions in all regions of the world. While no assessment changes occurred during the current period, it is possible that, within the next twelve months, assessment changes could occur and may have a material impact on the Company’s results of operations. The jurisdictions where assessment changes are most likely to occur, which include the Company’s Brazilian industrial operations, are described in the Company’s annual report on Form 20-F for the year ended December 31, 2020.
The Company operates in many jurisdictions around the world and is routinely subject to income tax audits. As various ongoing audits are concluded, or as the applicable statutes of limitations expire, it is possible the Company’s amount of unrecognized tax benefits could change during the next twelve months. Those changes, however, are not expected to have a material impact on the Company’s results of operations, balance sheet, or cash flows.
8. SEGMENT INFORMATION
The operating segments through which the Company manages its operations are based on the internal reporting used by the Company’s Chief Operating Decision Maker (“CODM”) to assess performance and make decisions about resource allocation. The segments are organized based on products and services provided by the Company.
CNH Industrial has the following five operating segments:
Agriculture 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. Agricultural equipment is sold under the New Holland Agriculture and Case IH brands, as well as the STEYR, Kongskilde and Överum brands in Europe and the Miller brand, primarily in North America and Australia.
Construction 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. Construction equipment is sold under the CASE Construction Equipment and New Holland Construction brands.
Commercial and Specialty Vehicles designs, manufactures and distributes a full range of light, medium, and heavy vehicles for the transportation and distribution of goods under the IVECO brand, city-buses, commuter buses under the IVECO BUS (previously Iveco Irisbus) and HEULIEZ BUS brands, quarry and mining equipment under the IVECO ASTRA brand, firefighting vehicles under the Magirus brand, and vehicles for civil defense and peace-keeping missions under the Iveco Defence Vehicles brand.
Powertrain designs, manufactures and distributes, under the FPT Industrial brand, a range of engines, transmission systems and axles for on- and off-road applications, as well as for marine and power generation.
Financial Services offers a range of financial products and services to dealers and customers. Financial Services provides and administers retail financing to customers for the purchase or lease of new and used industrial equipment or vehicles and other equipment sold by CNH Industrial brand dealers. In addition, Financial Services provides wholesale financing to CNH Industrial brand dealers. Wholesale financing consists primarily of floor plan financing and allows the dealers to purchase and maintain a representative inventory of products. Financial Services also provides trade receivables factoring services to CNH Industrial companies.
The activities carried out by the four industrial segments Agriculture, Construction, Commercial and Specialty Vehicles, and Powertrain, as well as corporate functions, are collectively referred to as "Industrial Activities".
9
Revenues for each reported segment are those directly generated by or attributable to the segment as a result of its business activities and include revenues from transactions with third parties as well as those deriving from transactions with other segments, recognized at normal market prices. Segment expenses represent expenses deriving from each segment’s business activities both with third parties and other operating segments or which may otherwise be directly attributable to it. Expenses deriving from business activities with other segments are recognized at normal market prices.
With reference to Industrial Activities' segments, the CODM assesses segment performance and makes decisions about resource allocation based upon Adjusted EBIT. The Company believes Adjusted EBIT more fully reflects Industrial Activities segments' inherent profitability. Adjusted EBIT of Industrial Activities is defined as net income (loss) before: Income taxes, Financial Services' results, Industrial Activities’ interest expenses (net), foreign exchange gains/losses, finance and non-service component of pension and other post-employment benefit costs, restructuring expenses, and certain non-recurring items. In particular, non-recurring items are specifically disclosed items that management considers to be rare or discrete events that are infrequent in nature and not reflective of on-going operational activities.
With reference to Financial Services, the CODM assesses the performance of the segment and makes decisions about resource allocation on the basis of net income prepared in accordance with U.S. GAAP.
The following table includes the reconciliation of Adjusted EBIT for Industrial Activities to net income, the most comparable U.S. GAAP financial measure, for the three months ended March 31, 2021 and 2020.
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (in millions) | ||||||||||||||
| Agriculture | $ | $ | ||||||||||||
Construction | ( | |||||||||||||
| Commercial and Specialty Vehicles | ( | |||||||||||||
| Powertrain | ||||||||||||||
| Unallocated items, eliminations and other | ( | ( | ||||||||||||
| Total Adjusted EBIT of Industrial Activities | $ | $ | ( | |||||||||||
| Financial Services Net Income | ||||||||||||||
| Financial Services Income Taxes | ||||||||||||||
| Interest expense of Industrial Activities, net of interest income and eliminations | ( | ( | ||||||||||||
| Foreign exchange gains (losses), net of Industrial Activities | ( | |||||||||||||
Finance and non-service component of Pension and other post-employment benefit cost of Industrial Activities(1) | ||||||||||||||
| Restructuring expense of Industrial Activities | ( | ( | ||||||||||||
| Other discrete items of Industrial Activities | ( | |||||||||||||
| Nikola investment fair value adjustment | ( | |||||||||||||
| Income (loss) before taxes | $ | $ | ( | |||||||||||
| Income tax (expense) benefit | ( | |||||||||||||
| Net income (loss) | $ | $ | ( | |||||||||||
10
9. RECEIVABLES
Financing Receivables, net
A summary of financing receivables as of March 31, 2021 and December 31, 2020 is as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||
| (in millions) | |||||||||||
| Retail | $ | $ | |||||||||
| Wholesale | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
The Company assesses and monitors the credit quality of its portfolio based on whether a receivable is classified as Performing or Non-Performing. Financing receivables are considered past due if the required principal and interest payments have not yet been received as of the contractual payment due date. Delinquency is reported in financing receivables greater than 30 days past due. Non-performing financing receivables represent loans for which the Company has ceased accruing finance income. These receivables are generally 90 days delinquent. Finance income for non-performing receivables is recognized on a cash basis. Accrued interest is charged-off to Interest income. Interest income charged-off was not material for the three months ended March 31, 2021. Accrual of finance income is resumed when the receivable becomes contractually current and collections are reasonably assured. As the terms for retail financing receivables are greater than one year, the performing/non-performing information is presented by year of origination for North America, South America and Rest of World.
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The aging of financing receivables as of March 31, 2021 and December 31, 2020 is as follows (in millions):
| March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||
| 31-60 Days Past Due | 61-90 Days Past Due | Total Past Due | Current | Total Performing | Non- Performing | Total | |||||||||||||||||||||||||||||||||||
| Retail | |||||||||||||||||||||||||||||||||||||||||
| North America | |||||||||||||||||||||||||||||||||||||||||
| 2021 | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||||||||||||
| Prior to 2017 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| South America | |||||||||||||||||||||||||||||||||||||||||
| 2021 | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||||||||||||
| Prior to 2017 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||||||||||||||
| 2021 | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||||||||||||
| Prior to 2017 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Europe | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Total Retail | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Wholesale | |||||||||||||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| South America | |||||||||||||||||||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||||||||||||||
| Total Wholesale | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
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| December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| 31-60 Days Past Due | 61-90 Days Past Due | Total Past Due | Current | Total Performing | Non- Performing | Total | |||||||||||||||||||||||||||||||||||
| Retail | |||||||||||||||||||||||||||||||||||||||||
| North America | |||||||||||||||||||||||||||||||||||||||||
| 2020 | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||||||||||||
| 2016 | |||||||||||||||||||||||||||||||||||||||||
| Prior to 2016 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| South America | |||||||||||||||||||||||||||||||||||||||||
| 2020 | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||||||||||||
| 2016 | |||||||||||||||||||||||||||||||||||||||||
| Prior to 2016 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||||||||||||||
| 2020 | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||||||||||||
| 2016 | |||||||||||||||||||||||||||||||||||||||||
| Prior to 2016 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Europe | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Total Retail | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Wholesale | |||||||||||||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| South America | |||||||||||||||||||||||||||||||||||||||||
| Rest of World | |||||||||||||||||||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||||||||||||||
| Total Wholesale | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
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Allowance for credit losses activity for the three months ended March 31, 2021 is as follows (in millions):
| Three Months Ended March 31, 2021 | |||||||||||
| Retail | Wholesale | ||||||||||
| Opening Balance | |||||||||||
| Provision | |||||||||||
| Charge-offs, net of recoveries | ( | ( | |||||||||
| Foreign currency translation and other | ( | ( | |||||||||
| Ending Balance | $ | $ | |||||||||
At March 31, 2021, the allowance for credit losses includes a continued reassessment of the outlook by region regarding the impact of the COVID-19 pandemic on credit conditions. The Company continues to monitor the situation and will update the macroeconomic factors and qualitative factors in future periods, as warranted. The provision for credit losses is included in selling, general, and administrative expenses.
At both March 31, 2020 and December 31, 2020, the allowance for credit losses included a build of reserves primarily due to the expectation of deteriorating credit conditions related to the COVID-19 pandemic and the adoption of ASC 326.
Allowance for credit losses activity for the three months ended March 31, 2020 and for the year ended December 31, 2020 is as follows (in millions):
| Three Months Ended March 31, 2020 | |||||||||||
| Retail | Wholesale | ||||||||||
| Opening Balance | $ | $ | |||||||||
| Adoption of ASC 326 | ( | ||||||||||
| Opening Balance, as recast | |||||||||||
| Provision | |||||||||||
| Charge-offs, net of recoveries | ( | ||||||||||
| Foreign currency translation and other | ( | ( | |||||||||
| Ending Balance | $ | $ | |||||||||
| Twelve Months Ended December 31, 2020 | |||||||||||
| Retail | Wholesale | ||||||||||
| Opening Balance, as previously reported | $ | $ | |||||||||
| Adoption of ASC 326 | ( | ||||||||||
| Opening Balance, as recast | |||||||||||
| Provision | |||||||||||
| Charge-offs, net of recoveries | ( | ( | |||||||||
| Foreign currency translation and other | ( | ||||||||||
| Ending Balance | $ | $ | |||||||||
Troubled Debt Restructurings
A restructuring of a receivable constitutes a troubled debt restructuring (“TDR”) when a lender grants a concession it would not otherwise consider to a borrower 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 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.
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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 persist 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 March 31, 2021, the Company had 218 retail and finance lease contracts classified as TDRs in North America where a court has determined the concession. The pre-modification value of these contracts was $6 million and the post-modification value was $6 million. Additionally, the Company had 356 accounts with a balance of $24 million in North America undergoing bankruptcy proceedings where a concession has not yet been determined. As of March 31, 2020, the Company had 289 retail and finance lease contracts classified as TDRs in North America where a court has determined the concession. The pre-modification value was $9 million and the post-modification value was $8 million. Additionally, the Company had 334 accounts with a balance of $17 million in North America 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 twelve months ended March 31, 2021 and 2020.
As of March 31, 2021 and 2020, the Company had retail and finance lease receivable contracts classified as TDRs in Europe. The pre-modification value was $88 million and $79 million, respectively, and the post-modification value was $81 million and $72 million, respectively. Subsequent re-defaults were not material for retail and finance lease receivable contracts that were modified in a TDR during the previous twelve months ended March 31, 2021 and 2020.
As of March 31, 2021 and 2020, the Company’s wholesale TDR were immaterial.
Transfers of Financial Assets
The Company transfers a number of its financial receivables to securitization programs or factoring transactions.
A securitization transaction entails the sale of a portfolio of receivables to a securitization vehicle. This special purpose entity (“SPE”) finances the purchase of the receivables by issuing asset-backed securities (i.e. securities whose repayment and interest flow depend upon the cash flow generated by the portfolio). SPEs utilized in securitizations differ from other entities included in the Company’s condensed consolidated financial statements because the assets they hold are legally isolated. 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 transferred in any of these transactions are available to pay the Company’s creditors until all obligations of the SPE have been fulfilled.
These securitization trusts were determined to be VIEs, and consequently, the Company has consolidated these trusts. In its role as servicer, the Company has the power to direct the trusts’ activities. Through its retained interests, the Company has an obligation to absorb certain losses or the right to receive certain benefits that could potentially be significant to the trusts.
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.
Furthermore, factoring transactions may be either with recourse or without recourse; certain without recourse transfers include deferred payment clauses (for example, when the payment by the factor of a minor part of the purchase price is dependent on the total amount collected from the receivables), requiring first loss cover, meaning that the transferor takes priority participation in the losses, or requires a significant exposure to the cash flows arising from the transferred receivables to be retained. These types of transactions do not qualify for the derecognition of the assets since the risks and rewards connected with collection are not substantially transferred, and, accordingly, the Company continues to recognize the receivables transferred by this means in its balance sheet and a financial liability of the same amount under asset-backed financing.
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At March 31, 2021 and December 31, 2020, the carrying amount of such restricted assets included in financing receivables above are the following (in millions):
| Restricted Receivables | |||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| Retail note and finance lease receivables | $ | $ | |||||||||
| Wholesale receivables | |||||||||||
| Total | $ | $ | |||||||||
10. INVENTORIES
Inventories as of March 31, 2021 and December 31, 2020 consist of the following:
| March 31, 2021 | December 31, 2020 | ||||||||||
| (in millions) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
11. LEASES
Lessee
The Company has mainly operating lease contracts for buildings, plant and machinery, vehicles, IT equipment and machinery.
Leases with a term of 12 months or less are not recorded in the balance sheet. For these leases the Company recognized, on a straight-line basis over the lease term, lease expense of $2 million and $3 million in the three months ended March 31, 2021 and 2020, respectively.
For the three months ended March 31, 2021 and 2020 the Company incurred operating lease expenses of $38 million and $35 million, respectively.
At March 31, 2021, the Company has recorded approximately $429 million of right-of-use assets and $428 million of related lease liability included in Other Assets and Other Liabilities, respectively. At March 31, 2021, the weighted average remaining lease term (calculated on the basis of the remaining lease term and the lease liability balance for each lease) and the weighted average discount rate for operating leases were 6.4 years and 3.1 %, respectively.
During the three months ended March 31, 2021 and 2020, leased assets obtained in exchange for operating lease obligations were $26 million and $16 million, respectively. The operating cash outflow for amounts included in the measurement of operating lease obligations was $40 million and $36 million as of March 31, 2021 and 2020, respectively.
Future minimum lease payments under non-cancellable leases as of March 31, 2021 were as follows:
| Operating Leases | ($ million) | |||||||
| 2021 (excluding the three months ended March 31, 2021) | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 and thereafter | ||||||||
| Total future minimum lease payments | $ | |||||||
| Less: Interest | ||||||||
| Total | $ | |||||||
16
Lessor
The Company, primarily through its Financial Services segment, leases equipment and vehicles to retail customers under operating leases. Our leases typically have terms of 3 to 5 years with options available for the lessee to purchase the equipment at the lease term date. Revenue for non-lease components are accounted for separately.
The following table sets out a maturity analysis of operating lease payments, showing the undiscounted lease payments to be received after the reporting date:
| Amount | ||||||||
| (in millions) | ||||||||
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2024 | ||||||||
| 2026 and thereafter | ||||||||
| Total undiscounted lease payments | $ | |||||||
12. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
A summary of investments in unconsolidated subsidiaries and affiliates as of March 31, 2021 and December 31, 2020 is as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||
| (in millions) | |||||||||||
| Equity method | $ | $ | |||||||||
| Cost method | |||||||||||
| Total | $ | $ | |||||||||
13. GOODWILL AND OTHER INTANGIBLES
Changes in the carrying amount of goodwill for the three months ended March 31, 2021 are as follows:
| Agriculture | Commercial and Specialty Vehicles | Powertrain | Financial Services | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Foreign currency translation and other | ( | ( | ( | ||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Goodwill and other indefinite-lived intangible assets are tested for impairment annually or more frequently if a triggering event occurs that would indicate it is more likely than not that the fair value of a reporting unit is less than book value. CNH Industrial performed its most recent annual impairment review as of December 31, 2020. At that date, the estimated fair values of the Agriculture and Financial Services reporting units exceeded the carrying value by approximately 270 % and 51 %, respectively.
17
As of March 31, 2021 and December 31, 2020, the Company’s other intangible assets and related accumulated amortization consisted of the following:
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
| Weighted Avg. Life | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Other intangible assets subject to amortization: | |||||||||||||||||||||||||||||||||||||||||
| Dealer networks | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Patents, concessions, licenses and other | |||||||||||||||||||||||||||||||||||||||||
| Other intangible assets not subject to amortization: | |||||||||||||||||||||||||||||||||||||||||
| Trademarks | — | — | |||||||||||||||||||||||||||||||||||||||
| Total Other intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
CNH Industrial recorded amortization expense of $26 million and $24 million for the three months ended March 31, 2021 and 2020, respectively.
14. OTHER LIABILITIES
A summary of Other liabilities as of March 31, 2021 and December 31, 2020 is as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||
| (in millions) | |||||||||||
| Advances on buy-back agreements | $ | $ | |||||||||
| Warranty and campaign programs | |||||||||||
| Marketing and sales incentive programs | |||||||||||
| Tax payables | |||||||||||
| Accrued expenses and deferred income | |||||||||||
| Accrued employee benefits | |||||||||||
| Lease liabilities | |||||||||||
| Legal reserves and other provisions | |||||||||||
| Contract reserve | |||||||||||
Contract liabilities(1) | |||||||||||
| Restructuring reserve | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
(1)Contract liabilities include $709 million and $740 million at March 31, 2021 and December 31, 2020, respectively, for future rents related to buy-back agreements.
Warranty and Campaign Programs
CNH Industrial pays for basic warranty and other service action costs. A summary of recorded activity for the three months ended March 31, 2021 and 2020 for the basic warranty and accruals for campaign programs are as follows:
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| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Current year additions | |||||||||||
| Claims paid | ( | ( | |||||||||
| Currency translation adjustment and other | ( | ( | |||||||||
| Balance at end of period | $ | $ | |||||||||
Restructuring Expense
The Company incurred restructuring expenses of $2 million and $5 million during the three months ended March 31, 2021 and 2020, respectively.
15. COMMITMENTS AND CONTINGENCIES
As a global company with a diverse business portfolio, CNH Industrial in the ordinary course of business is exposed to numerous legal risks, including, without limitation, dealer and supplier litigation, intellectual property right disputes, product warranty and defective product claims, product performance, asbestos, personal injury, emissions and/or fuel economy regulatory and contractual issues, competition law and other investigations and environmental claims. The most significant of these matters are described below.
The outcome of any current or future proceedings, claims, or investigations cannot be predicted with certainty. Adverse decisions in one or more of these proceedings, claims or investigations could require the Company to pay substantial damages or fines or undertake service actions, recall campaigns or other costly actions. It is therefore possible that legal judgments could give rise to expenses that are not covered, or not fully covered, by insurers’ compensation payments and could affect CNH Industrial’s financial position and results. When it is probable that such a loss has been incurred and the amount can be reasonably estimated, an accrual has been made against the Company’s earnings and included in “Other liabilities” on the condensed consolidated balance sheets.
Although the ultimate outcome of legal matters pending against CNH Industrial and its subsidiaries cannot be predicted, the Company believes the reasonable possible range of losses for these unresolved legal matters in addition to the amounts accrued would not have a material effect on its condensed consolidated financial statements.
Environmental
Pursuant to the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), which imposes strict and, under certain circumstances, joint and several liability for remediation and liability for natural resource damages, and other federal and state laws that impose similar liabilities, CNH Industrial has received inquiries for information or notices of its potential liability regarding 66 non-owned U.S. sites at which regulated materials allegedly generated by CNH Industrial were released or disposed (“Waste Sites”). Of the Waste Sites, 16 are on the National Priority List (“NPL”) promulgated pursuant to CERCLA. For 60 of the Waste Sites, the monetary amount or extent of the Company’s liability has either been resolved, it has not been named as a potentially responsible party (“PRP”), or its liability is likely de minimis.
Because estimates of remediation costs are subject to revision as more information becomes available about the extent and cost of remediation and settlement agreements can be reopened under certain circumstances, the Company’s potential liability for remediation costs associated with the 66 Waste Sites could change. Moreover, because liability under CERCLA and similar laws can be joint and several, CNH Industrial could be required to pay amounts in excess of its pro rata share of remediation costs. However, when appropriate, the financial strength of other PRPs has been considered in the determination of the Company’s potential liability. CNH Industrial believes that the costs associated with the Waste Sites will not have a material effect on the Company’s business, financial position, or results of operations.
The Company is conducting environmental investigatory or remedial activities at certain properties that are currently or were formerly owned and/or operated or that are being decommissioned. The Company believes that the outcome of these activities will not have a material adverse effect on its business, financial position, or results of operations.
The actual costs for environmental matters could differ materially from those costs currently anticipated due to the nature of historical handling and disposal of hazardous substances typical of manufacturing and related operations, the discovery of currently unknown conditions and as a result of more aggressive enforcement by regulatory authorities and changes in existing laws and regulations. As in the past, CNH Industrial plans to continue funding its costs of environmental compliance from operating cash flows.
Investigation, analysis and remediation of environmental sites is a time consuming activity. The Company expects such costs to be incurred and claims to be resolved over an extended period of time that could exceed 30 years for some sites. As of March 31, 2021 and December 31, 2020, environmental reserves of approximately $31 million and $32 million, respectively, were established to
19
address these specific estimated potential liabilities. Such reserves are undiscounted and do not include anticipated recoveries, if any, from insurance companies. After considering these reserves, management is of the opinion that the outcome of these matters will not have a material adverse effect on the Company’s financial position or results of operations.
Other Litigation and Investigation
Follow-up on Damages Claims: in 2011 Iveco S.p.A., the Company’s wholly owned subsidiary, active in the commercial vehicle business, and its competitors in the European Union were subject to an investigation by the European Commission (the “Commission”) into certain business practices in the European Union (in the period 1997-2011) in relation to M&H trucks. On July 19, 2016, the Commission announced a settlement with Iveco. Following the settlement, the Company has been named as defendant in private litigation commenced in various European jurisdictions and Israel by customers and other third parties, either acting individually or as part of a wider group or class of claimants. Most of these claims remain at an early stage. Further, on the basis of the letters issued by a significant number of customers indicating that they may commence proceedings in the future, CNH Industrial expects to face further claims based on the same legal grounds in the same and other jurisdictions. The extent and outcome of these claims cannot be predicted at this time.
FPT Emissions Investigation: on July 22, 2020, a number of CNH Industrial's offices in Europe were visited by investigators in the context of a request for assistance by the public prosecutors of Frankfurt am Main, Germany and Turin, Italy in relation to alleged noncompliance of two engine models produced by FPT Industrial S.p.A., a wholly owned subsidiary of CNH Industrial, installed in certain Ducato (a vehicle distributed by the Stellantis group) and Iveco Daily vehicles. CNH Industrial immediately made itself available to these investigators and is providing its full cooperation to properly address the requests received. Although at the date hereof CNH Industrial has no evidence of any wrongdoing, CNH Industrial cannot predict at this time the extent and outcome of these requests and directly or indirectly related legal proceedings.
Guarantees
CNH Industrial provided guarantees on the debt or commitments of third parties and performance guarantees on non-consolidated affiliates as of March 31, 2021 and December 31, 2020 totaling of $531 million and $615 million, respectively.
16. 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 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.
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.
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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
CNH Industrial 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. CNH Industrial 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 condensed consolidated statements of cash flows.
Foreign Exchange Derivatives
CNH Industrial has entered into foreign exchange forward contracts and swaps in order to manage and preserve the economic value of cash flows in a currency different from the functional currency of the relevant legal entity. CNH Industrial conducts its business on a global basis in a wide variety of foreign currencies and hedges foreign currency exposures arising from various receivables, liabilities, and expected inventory purchases and sales. Derivative instruments utilized to hedge the foreign currency risk associated with anticipated inventory purchases and sales in foreign currencies are designated as cash flow hedges. Gains and losses on these instruments are deferred in accumulated other comprehensive income (loss) and recognized in earnings when the related transaction occurs. If a derivative instrument is terminated because the hedge relationship is no longer effective or because the hedged item is a forecasted transaction that is no longer determined to be probable, the cumulative amount recorded in accumulated other comprehensive income (loss) is recognized immediately in earnings. Such amounts were insignificant in all periods presented.
CNH Industrial also uses forwards and swaps to hedge certain assets and liabilities denominated in foreign currencies. Such derivatives are considered economic hedges and not designated as hedging instruments. The changes in the fair values of these instruments are recognized directly in income in “Other, net” and are expected to offset the foreign exchange gains or losses on the exposures being managed.
All of CNH Industrial’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. The total notional amount of CNH Industrial’s foreign exchange derivatives was $7.0 billion and $6.3 billion at March 31, 2021 and December 31, 2020, respectively.
Interest Rate Derivatives
CNH Industrial has entered into interest rate derivatives (swaps and caps) 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 CNH Industrial recognizes interest expense on the related debt.
Interest rate derivatives that have been designated as fair value hedge relationships have been used by CNH Industrial to mitigate the volatility in the fair value of existing fixed rate bonds and medium-term notes due to changes in floating interest rate benchmarks. Gains and losses on these instruments are recorded in “Interest expense” in the period in which they occur and an offsetting gain or loss is also reflected in “Interest expense” based on changes in the fair value of the debt instrument being hedged due to changes in floating interest rate benchmarks.
CNH Industrial also enters into offsetting interest rate derivatives with substantially similar terms that are not designated as hedging instruments to mitigate interest rate risk related to CNH Industrial’s committed asset-backed facilities. Unrealized and realized gains and losses resulting from fair value changes in these instruments are recognized directly in income. Net gains and losses on these instruments were insignificant for the three months ended March 31, 2021 and 2020.
All of CNH Industrial’s interest rate derivatives outstanding as of March 31, 2021 and December 31, 2020 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 CNH Industrial’s interest rate derivatives was approximately $7.4 billion and $7.5 billion at March 31, 2021 and December 31, 2020, respectively.
As a result of the reform and replacement of specific benchmark interest rates, uncertainty remains regarding the timing and exact nature of those changes. At March 31, 2021, the notional amount of hedging instruments that could be affected by the reform of benchmark interest rates is $830 million.
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With regard to hedge accounting, the Company continues to monitor significant developments in order to assess the potential future impacts of the COVID-19 pandemic on the hedging relationships in place and to update its estimates concerning whether forecasted transactions can still be considered probable of occurring.
Financial Statement Impact of CNH Industrial Derivatives
The following table summarizes the gross impact of changes in the fair value of derivatives designated as cash flow hedges recognized in accumulated other comprehensive income (loss) and net income (loss) during the three months ended March 31, 2021 and 2020 (in millions):
| Recognized in Net Income | ||||||||||||||||||||
| For the Three Months Ended March 31, | Gain (Loss) Recognized in Accumulated Other Comprehensive Income | Classification of Gain (Loss) | Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | |||||||||||||||||
| 2021 | ||||||||||||||||||||
| Foreign exchange contracts | $ | ( | ||||||||||||||||||
| Net sales | ( | |||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||
| Other, Net | ( | |||||||||||||||||||
| Interest rate contracts | Interest expense | ( | ||||||||||||||||||
| Total | $ | ( | $ | |||||||||||||||||
| 2020 | ||||||||||||||||||||
| Foreign exchange contracts | $ | |||||||||||||||||||
| Net sales | ( | |||||||||||||||||||
| Cost of goods sold | ( | |||||||||||||||||||
| Other, Net | ||||||||||||||||||||
| Interest rate contracts | ( | Interest expense | ( | |||||||||||||||||
| Total | $ | $ | ( | |||||||||||||||||
The following table summarizes the activity in accumulated other comprehensive income related to the derivatives held by the Company during the three months ended March 31, 2021 and 2020:
| In Millions | Before-Tax Amount | Income Tax | After-Tax Amount | |||||||||||||||||
| Accumulated derivative net losses as of December 31, 2020 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Net changes in fair value of derivatives | ( | ( | ( | |||||||||||||||||
| Net losses reclassified from accumulated other comprehensive income into income | ( | ( | ||||||||||||||||||
| Accumulated derivative net losses as of March 31, 2021 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| In Millions | Before-Tax Amount | Income Tax | After-Tax Amount | |||||||||||||||||
| Accumulated derivative net losses as of December 31, 2019 | $ | ( | $ | $ | ( | |||||||||||||||
| Net changes in fair value of derivatives | ( | |||||||||||||||||||
| Net losses reclassified from accumulated other comprehensive income into income | ( | |||||||||||||||||||
| Accumulated derivative net losses as of March 31, 2020 | $ | $ | $ | |||||||||||||||||
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The following tables summarize the impact that changes in the fair value of fair value hedges and derivatives not designated as hedging instruments had on earnings (in millions):
| For the Three Months Ended March 31, | ||||||||||||||||||||
| Classification of Gain | 2021 | 2020 | ||||||||||||||||||
| Fair Value Hedges | ||||||||||||||||||||
| Interest rate derivatives | Interest expense | $ | ( | $ | ||||||||||||||||
| Not Designated as Hedges | ||||||||||||||||||||
| Foreign exchange contracts | Other, Net | $ | ( | $ | ||||||||||||||||
The fair values of CNH Industrial’s derivatives as of March 31, 2021 and December 31, 2020 in the condensed consolidated balance sheets are recorded as follows:
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| in millions of dollars | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||||||||||||
| Derivatives designated as hedging instruments under Subtopic 815-20 | ||||||||||||||||||||||||||
| Interest rate contracts | Derivative assets | Derivative assets | ||||||||||||||||||||||||
| Foreign currency contracts | Derivative assets | Derivative assets | ||||||||||||||||||||||||
| Total derivative assets designated as hedging instruments | ||||||||||||||||||||||||||
| Interest rate contracts | Derivative liabilities | Derivative liabilities | ||||||||||||||||||||||||
| Foreign currency contracts | Derivative liabilities | Derivative liabilities | ||||||||||||||||||||||||
| Total derivative liabilities designated as hedging instruments | ||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments under Subtopic 815-20 | ||||||||||||||||||||||||||
| Interest rate contracts | Derivative assets | Derivative assets | ||||||||||||||||||||||||
| Foreign currency contracts | Derivative assets | Derivative assets | ||||||||||||||||||||||||
| Total derivative assets not designated as hedging instruments | ||||||||||||||||||||||||||
| Interest rate contracts | Derivative liabilities | Derivative liabilities | ||||||||||||||||||||||||
| Foreign currency contracts | Derivative liabilities | Derivative liabilities | ||||||||||||||||||||||||
| Total derivative liabilities not designated as hedging instruments | ||||||||||||||||||||||||||
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Items Measured at Fair Value on a Recurring Basis
The following tables present for each of the fair-value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020:
| Level 1 | Level 2 | Total | |||||||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Foreign exchange derivatives | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest rate derivatives | |||||||||||||||||||||||||||||||||||
| Investments at fair value through profit & loss | |||||||||||||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Foreign exchange derivatives | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest rate derivatives | |||||||||||||||||||||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The line item “Investments at fair value through profit & loss” includes the fair value of the approximately 6.5 % investment held by CNH Industrial in Nikola Corporation ("Nikola"), made in the context of the strategic partnership with Nikola to industrialize fuel-cell and battery electric Heavy-Duty trucks. The market price of Nikola shares on the NASDAQ (ticker "NKLA") as of March 31, 2021 was $13.89 , determining a value of $357 million for the 25,661,448 shares held by CNH Industrial through its fully-owned subsidiary Iveco S.p.A. As a consequence, for the three months ended March 31, 2021, the Company recorded a pre-tax loss of $35 million ($35 million after tax), from the remeasurement at fair value of the investment in Nikola, recorded in the line item “Other, net”.
Fair Value of Other Financial Instruments
The carrying value of cash and cash equivalents, restricted cash, trade accounts receivable and accounts payable included in the condensed consolidated balance sheets approximates its fair value.
Financial Instruments Not Carried at Fair Value
The estimated fair market values of financial instruments not carried at fair value in the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 are as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Financing receivables | $ | $ | $ | $ | |||||||||||||||||||
| Debt | $ | $ | $ | $ | |||||||||||||||||||
Financing Receivables
The fair value of financing receivables is based on the discounted values of their related cash flows at current market interest rates and they are classified as a Level 3 fair value measurement.
Debt
All debt is classified as a Level 2 fair value measurement with the exception of bonds issued by CNH Industrial Finance Europe S.A. and bonds issued by CNH Industrial N.V. that are classified as a Level 1 fair value measurement.
17. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
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other comprehensive income (loss) of entities accounted for using the equity method, and reclassifications for amounts included in net income (loss) less net income (loss) and other comprehensive income (loss) attributable to the noncontrolling interest. For more information on derivative instruments, see “Note 16: Financial Instruments”. For more information on pensions and retirement benefit obligations, see “Note 6: Employee Benefit Plans and Postretirement Benefits”. The Company’s other comprehensive income (loss) amounts are aggregated within accumulated other comprehensive income (loss). The tax effect for each component of other comprehensive income (loss) consisted of the following (in millions):
| Three Months Ended March 31, 2021 | |||||||||||||||||
| Gross Amount | Income Taxes | Net Amount | |||||||||||||||
| Unrealized gain (loss) on cash flow hedges | $ | ( | $ | $ | ( | ||||||||||||
| Changes in retirement plans’ funded status | ( | ( | |||||||||||||||
| Foreign currency translation | |||||||||||||||||
| Share of other comprehensive income (loss) of entities using the equity method | ( | ( | |||||||||||||||
| Other comprehensive income | $ | $ | $ | ||||||||||||||
| Three Months Ended March 31, 2020 | |||||||||||||||||
| Gross Amount | Income Taxes | Net Amount | |||||||||||||||
| Unrealized gain (loss) on cash flow hedges | $ | $ | ( | $ | |||||||||||||
| Changes in retirement plans’ funded status | ( | ( | |||||||||||||||
| Foreign currency translation | ( | ( | |||||||||||||||
| Share of other comprehensive income (loss) of entities using the equity method | ( | ( | |||||||||||||||
| Other comprehensive income (loss) | $ | ( | $ | $ | ( | ||||||||||||
The changes, net of tax, in each component of accumulated other comprehensive income (loss) consisted of the following (in millions):
| Unrealized Gain (Loss) on Cash Flow Hedges | Change in Retirement Plans’ Funded Status | Foreign Currency Translation | Share of Other Comprehensive Income (Loss) of Entities Using the Equity Method | Total | |||||||||||||||||||||||||
| Balance, January 1, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Other comprehensive income (loss), before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||
| Amounts reclassified from other comprehensive income | ( | ( | |||||||||||||||||||||||||||
| Other comprehensive income (loss)* | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
| Balance, January 1, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Other comprehensive income (loss), before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from other comprehensive income | ( | ( | ( | ||||||||||||||||||||||||||
| Other comprehensive income (loss)* | ( | ( | ( | ||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
(*)Excluded from the table above is other comprehensive income (loss) allocated to noncontrolling interests of $2 million and $(2 ) million for the three months ended March 31, 2021 and 2020, respectively.
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Significant amounts reclassified out of each component of accumulated other comprehensive income (loss) in the three months ended March 31, 2021 and 2020 consisted of the following:
| Amounts Reclassified from Other Comprehensive Income (Loss) | Consolidated Statement of Operations Line | ||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| (in millions) | |||||||||||||||||
| Cash flow hedges | $ | $ | Net sales | ||||||||||||||
| ( | Cost of goods sold | ||||||||||||||||
| ( | Other, net | ||||||||||||||||
| Interest expense | |||||||||||||||||
| ( | Income taxes | ||||||||||||||||
| $ | ( | $ | |||||||||||||||
| Change in retirement plans’ funded status: | |||||||||||||||||
| Amortization of actuarial losses | $ | $ | * | ||||||||||||||
| Amortization of prior service cost | ( | ( | * | ||||||||||||||
| ( | ( | Income taxes | |||||||||||||||
| $ | ( | $ | ( | ||||||||||||||
| Total reclassifications, net of tax | $ | ( | $ | ( | |||||||||||||
(*) These amounts are included in net periodic pension and other postretirement benefit cost. See “Note 6: Employee Benefit Plans and Postretirement Benefits” for additional information.
18. RELATED PARTY INFORMATION
As of March 31, 2021 CNH Industrial’s related parties were primarily EXOR N.V. and the companies that EXOR N.V. controlled or had a significant influence over including Stellantis N.V. (formerly Fiat Chrysler Automobiles N.V. which, effective January 16, 2021, merged with Peugeot S.A. by means of a cross-border legal merger) and its subsidiaries and affiliates ("Stellantis"). As of March 31, 2021, EXOR N.V. held 42.5 % of CNH Industrial’s voting power and had the ability to significantly influence the decisions submitted to a vote of CNH Industrial’s shareholders, including approval of annual dividends, the election and removal of directors, mergers or other business combinations, the acquisition or disposition of assets and issuances of equity and the incurrence of indebtedness. The percentage above has been calculated as the ratio of (i) the aggregate number of common shares and special voting shares owned by EXOR N.V. to (ii) the aggregate number of outstanding common shares and special voting shares of CNH Industrial as of March 31, 2021. In addition, CNH Industrial engages in transactions with its unconsolidated subsidiaries and affiliates over which CNH Industrial has a significant influence or jointly controls.
The Company’s Audit Committee reviews and evaluates all significant related party transactions.
Transactions with EXOR N.V. and its Subsidiaries and Affiliates
EXOR N.V. is an investment holding company. As of March 31, 2021, and December 31, 2020, among other things, EXOR N.V. managed a portfolio that includes the investment in Stellantis. CNH Industrial did not enter into any significant transactions with EXOR N.V. during the three months ended March 31, 2021 and 2020.
In connection with the establishment of Fiat Industrial (now CNH Industrial) through the demerger from Fiat (which was subsequently merged into Fiat Chrysler Automobiles N.V. which is now Stellantis), the two companies entered into a Master Services Agreement (“MSA”) which sets forth the primary terms and conditions pursuant to which the service provider subsidiaries of CNH Industrial and Stellantis provide services to the service receiving subsidiaries. As structured, the applicable service provider and service receiver subsidiaries become parties to the MSA through the execution of an Opt-in letter that may contain additional terms and conditions. Pursuant to the MSA, service receivers are required to pay to service providers the actual cost of the services plus a negotiated margin. During the three months ended March 31, 2021 and 2020, Stellantis subsidiaries provided CNH Industrial with administrative services such as accounting, maintenance of plant and equipment, security, information systems and training under the terms and conditions of the MSA and the applicable Opt-in letters.
Additionally, CNH Industrial sold engines and light commercial vehicles to and purchased engine blocks and other components from Stellantis subsidiaries. Furthermore, CNH Industrial and Stellantis engage in other minor transactions in the ordinary course of business.
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These transactions with Stellantis are reflected in the Company’s condensed consolidated financial statements as follows:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Net sales | $ | $ | |||||||||
| Cost of goods sold | $ | $ | |||||||||
| Selling, general and administrative expenses | $ | $ | |||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| (in millions) | |||||||||||
| Trade receivables | $ | $ | |||||||||
| Trade payables | $ | $ | |||||||||
Transactions with Unconsolidated Subsidiaries and Affiliates
CNH Industrial sells commercial vehicles, agricultural and construction equipment, and provides technical services to unconsolidated subsidiaries and affiliates such as IVECO-OTO MELARA Società Consortile a responsabilità limitata, CNH de Mexico SA de CV, Turk Traktor ve Ziraat Makineleri A.S. and New Holland HFT Japan Inc. CNH Industrial also purchases equipment from unconsolidated subsidiaries and affiliates, such as Turk Traktor ve Ziraat Makineleri A.S. These transactions primarily affected revenues, finance and interest income, cost of goods sold, trade receivables and payables and are presented as follows:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Net sales | $ | $ | |||||||||
| Cost of goods sold | $ | $ | |||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| (in millions) | |||||||||||
| Trade receivables | $ | $ | |||||||||
| Trade payables | $ | $ | |||||||||
At March 31, 2021 and December 31, 2020, CNH Industrial had provided guarantees on commitments of its joint ventures for an amount of $186 million and $259 million, respectively, mainly related to IVECO-OTO MELARA Società Consortile a responsabilità limitata. At March 31, 2021 and December 31, 2020, CNH Industrial had provided guarantees on commitments of its associated company for an amount of $314 million and $323 million, respectively, related to CNH Industrial Capital Europe S.a.S.
19. SUBSEQUENT EVENTS
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
CNH Industrial N.V. (“CNH Industrial” or the “Company”) is incorporated in, and under the laws of, the Netherlands. CNH Industrial has its corporate seat in Amsterdam, the Netherlands, and its principal office in London, England, United Kingdom. Unless otherwise indicated or the context otherwise requires, the terms “CNH Industrial” and the “Company” refer to CNH Industrial and its subsidiaries.
The Company has five reportable segments reflecting the five businesses directly managed by CNH Industrial N.V., consisting of: (i) Agriculture, which designs, produces and sells agricultural equipment (ii) Construction, which designs, produces and sells construction equipment (iii) Commercial and Specialty Vehicles, which designs, produces and sell trucks, commercial and specialty vehicles, and buses, (iv) Powertrain, which designs, produces and sells engines, transmissions and axles for those vehicles and engines for marine and power generation applications; and (v) Financial Services, which provides financial services to customers acquiring our products. The Company’s worldwide agricultural equipment, construction equipment, commercial and specialty vehicles, powertrain operations as well as corporate functions are collectively referred to as “Industrial Activities.”
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to our unaudited condensed consolidated financial statements in this report, as well as our annual report on Form 20-F for the year ended December 31, 2020 filed with the U.S. Securities and Exchange Commission (“SEC”). Results for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year due to seasonal and other factors.
Certain financial information in this report has been presented by geographic area. Our geographical regions are: (1) North America; (2) Europe; (3) South America and (4) Rest of World. The geographic designations have the following meanings:
•North America: United States, Canada and Mexico;
•Europe: member countries of the European Union, European Free Trade Association, the United Kingdom, Ukraine, and Balkans;
•South America: Central and South America, and the Caribbean Islands; and
•Rest of World: Continental Asia (including Turkey and Russia), Oceania and member countries of the Commonwealth of Independent States, the African continent, and Middle East.
Non-GAAP Financial Measures
CNH Industrial monitors its operations through the use of several non-GAAP financial measures. CNH Industrial’s management believes that these non-GAAP financial measures provide useful and relevant information regarding its operating results and enhance the readers’ ability to assess CNH Industrial’s financial performance and financial position. Management uses these non-GAAP measures to identify operational trends, as well as to make decisions regarding future spending, resource allocations and other operational decisions as they provide additional transparency with respect to our core operations. These non-GAAP financial measures have no standardized meaning under U.S. GAAP or EU-IFRS and are unlikely to be comparable to other similarly titled measures used by other companies and are not intended to be substitutes for measures of financial performance and financial position as prepared in accordance with U.S. GAAP or EU-IFRS.
Our primary non-GAAP financial measures are defined as follows:
Adjusted EBIT of Industrial Activities
Adjusted EBIT of Industrial Activities is defined as net income (loss) before income taxes, Financial Services’ results, Industrial Activities’ interest expenses, net, foreign exchange gains/losses, finance and non-service component of pension and other post-employment benefit costs, restructuring expenses, and certain non-recurring items. In particular, non-recurring items are specifically disclosed items that management considers rare or discrete events that are infrequent in nature and not reflective of on-going operational activities.
Net Cash (Debt) and Net Cash (Debt) of Industrial Activities
Net Cash (Debt) is defined as total debt less intersegment notes receivable, cash and cash equivalents, restricted cash, other current financial assets (primarily current securities, short-term deposits and investments towards high-credit rating counterparties) and derivative hedging debt. CNH Industrial provides the reconciliation of Net Cash (Debt) to Total (Debt), which is the most directly comparable measure included in the consolidated balance sheets. Due to different sources of cash flows used for the repayment of the debt between Industrial Activities and Financial Services (by cash from operations for Industrial Activities and by collection of financing receivables for Financial Services), management separately evaluates the cash flow performance of Industrial Activities using Net Cash (Debt) of Industrial Activities.
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Revenues on a Constant Currency Basis
We discuss the fluctuations in revenues on a constant currency basis by applying the prior-year average exchange rates to current year’s revenue expressed in local currency in order to eliminate the impact of foreign exchange (“FX”) rate fluctuations.
Free Cash Flow of Industrial Activities
Free Cash Flow of Industrial Activities (or Industrial Free Cash Flow) refers to Industrial Activities, only, and is computed as consolidated cash flow from operating activities less: cash flow from operating activities of Financial Services; investments of Industrial Activities in assets sold under buy-back commitments, assets under operating leases, property, plant and equipment and intangible assets; change in derivatives hedging debt of Industrial Activities; as well as other changes and intersegment eliminations.
A. Operating Results
The operations and key financial measures and financial analysis differ significantly for manufacturing and distribution businesses and financial services businesses; therefore, management believes that certain supplemental disclosures are important in understanding our consolidated operations and financial results. For further information, see “Supplemental Information” within this section, where we present supplemental consolidating data split by Industrial Activities and Financial Services. Transactions between Industrial Activities and Financial Services have been eliminated to arrive at the consolidated data.
COVID-19 Effects and Actions
The COVID-19 pandemic and the related actions of governments and other authorities to contain COVID-19 spread continue to affect CNH Industrial’s business, results, cash flow and outlook. Many governments in countries where the Company operates, designated part of our businesses as essential critical infrastructure businesses. This designation allows us to operate in support of our dealers and customers to the extent possible. CNH Industrial also continues to prioritize the health, safety and well-being of its employees.
Rising demand is adding pressure to our supply chain, requiring diligent coordination to keep our production at desired levels. Adverse market trends in raw materials (particularly steel), freight and logistics costs have impacted our product cost performance in the first quarter of 2021.
We remain cautious about future impacts on CNH Industrial’s end-markets and business operations of restrictions on social interactions and business operations to limit the resurgence of the pandemic. CNH Industrial is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, its employees and the Company's results of operations, financial condition and cash flows in 2021. For additional risks related to the COVID-19 pandemic, see "Item 3 - Key Information - D. Risk Factors - COVID-19 Risks" in our 2020 annual report on Form 20-F.
Planned Spin-off of On-Highway Business
The Company has confirmed its intention to enhance its customer focus through the separation of its "On-Highway" (commercial and specialty vehicles and powertrain) and "Off-Highway" (agriculture and construction) businesses in early 2022. The separation is expected to be effected through the spin-off of CNH Industrial N.V.’s equity interest in "On-Highway" to CNH Industrial N.V. shareholders. Execution of the transaction requires further work on structure, management, governance and other significant matters as well as appropriate corporate approvals (including approval of our stockholders at an Extraordinary General Meeting of shareholders) and satisfaction of other conditions. CNH Industrial can make no assurance that any spin-off transaction will ultimately occur, or, if one does occur, its terms or timing.
29
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Consolidated Results of Operations
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions) | |||||||||||
| Revenues: | |||||||||||
| Net sales | $ | 7,043 | $ | 4,993 | |||||||
| Finance, interest and other income | 430 | 468 | |||||||||
| Total Revenues | 7,473 | 5,461 | |||||||||
| Costs and Expenses: | |||||||||||
| Cost of goods sold | 5,733 | 4,414 | |||||||||
| Selling, general and administrative expenses | 540 | 526 | |||||||||
| Research and development expenses | 263 | 214 | |||||||||
| Restructuring expenses | 2 | 5 | |||||||||
| Interest expense | 161 | 181 | |||||||||
| Other, net | 217 | 197 | |||||||||
| Total Costs and Expenses | 6,916 | 5,537 | |||||||||
| Income (loss) before income taxes and equity in income of unconsolidated subsidiaries and affiliates | 557 | (76) | |||||||||
| Income tax (expense) benefit | (157) | 23 | |||||||||
| Equity in income of unconsolidated subsidiaries and affiliates | 25 | (1) | |||||||||
| Net income (loss) | 425 | (54) | |||||||||
| Net income attributable to noncontrolling interests | 17 | 11 | |||||||||
| Net income (loss) attributable to CNH Industrial N.V. | $ | 408 | $ | (65) | |||||||
Revenues
We recorded revenues of $7,473 million for the three months ended March 31, 2021, up 36.8% (up 32.4% on a constant currency basis) compared to the three months ended March 31, 2020. Net sales of Industrial Activities were $7,043 million in the three months ended March 31, 2021, up 41.1% (up 36.1% on a constant currency basis) compared to the three months ended March 31, 2020, due to higher volumes driven by strong industry demand, particularly in Agriculture and Commercial and Specialty Vehicles, together with favorable price realization, primarily in Agriculture.
Cost of Goods Sold
Cost of goods sold were $5,733 million for the three months ended March 31, 2021 compared with $4,414 million for the three months ended March 31, 2020. As a percentage of net sales of Industrial Activities, cost of goods sold was 81.4% in the three months ended March 31, 2021 (88.4% for the three months ended March 31, 2020), as a result of positive fixed cost absorption, partially offset by higher input costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $540 million during the three months ended March 31, 2021 (7.2% of total revenues), up $14 million compared to the three months ended March 31, 2020 (9.6% of total revenues). Selling, general and administrative expenses include provisions for bad debt that were $16 million during the three months ended March 31, 2021 and $27 million during the three months ended March 31, 2020.
Research and Development Expenses
For the three months ended March 31, 2021, research and development expenses were $263 million compared to $214 million for the three months ended March 31, 2020. The expense for the three months ended March 31, 2021 and 2020 was primarily attributable to spending on engine development costs associated with emission requirements and continued investment in new products.
Restructuring Expenses
Restructuring expenses for the three months ended March 31, 2021 were $2 million, compared to $5 million for the three months ended March 31, 2020.
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Interest Expense
Interest expense was $161 million for the three months ended March 31, 2021 compared to $181 million for the three months ended March 31, 2020. The interest expense attributable to Industrial Activities for the three months ended March 31, 2021, net of interest income and eliminations, was $66 million compared to $59 million in the three months ended March 31, 2020. In the three months ended March 31, 2021, interest expense included a charge of $8 million related to the repurchase of €316 million (equivalent to $371 million) of outstanding notes due May 23, 2022 by CNH Industrial Finance Europe S.A.
Other, net
Other, net expenses were $217 million for the three months ended March 31, 2021 and includes a pre-tax gain of $30 million ($22 million after-tax) as a result of the Benefit Modification Amortization over approximately 4.5 years of the $527 million positive impact from the 2018 U.S. healthcare plan modification, a pre-tax loss of $35 million ($35 million after-tax) from the remeasurement at fair value of the investment in Nikola Corporation and foreign exchange losses of $18 million. Other, net expenses were $197 million for the three months ended March 31, 2020 and included a pre-tax gain of $30 million due to the Benefit Modification Amortization.
Income Taxes
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in millions, except percentages) | |||||||||||
| Income (loss) before income taxes and equity in income of unconsolidated subsidiaries and affiliates | $ | 557 | $ | (76) | |||||||
| Income tax (expense) benefit | $ | (157) | $ | 23 | |||||||
| Effective tax rate | 28.2 | % | 30.3 | % | |||||||
Income tax expense for the three months ended March 31, 2021 was $157 million compared to income tax benefit of $23 million for the three months ended March 31, 2020. The effective tax rates for the three months ended March 31, 2021 and 2020 were 28.2% and 30.3%, respectively. The lower 2021 effective tax rate was primarily due to the reduced impact, on a percentage basis, of discrete tax items, which increased the effective tax rates by approximately 3% and 5% in 2021 and 2020, respectively.
Excluding the pre-tax and tax impacts of the remeasurement to fair value of the investment in Nikola Corporation, restructuring charges, the Benefit Modification Amortization and charges for retiring certain debt, the effective tax rate was 25% for the three months ended March 31, 2021. Excluding the pre-tax and tax impacts of restructuring, the Benefit Modification Amortization, and charges taken due to actions included in the "Transform2Win" strategy, the effective tax rate was 31% for the three months ended March 31, 2020.
Equity in Income of Unconsolidated Subsidiaries and Affiliates
Equity in income of unconsolidated subsidiaries and affiliates was a $25 million gain and a $1 million loss for the three months ended March 31, 2021 and 2020, respectively.
Net Income (Loss)
Net income was $425 million in the three months ended March 31, 2021, compared to net loss of $54 million in the three months ended March 31, 2020. Net income for the three months ended March 31, 2021 included a pre-tax loss of $35 million ($35 million after-tax) due to the remeasurement to fair value of the investment in Nikola Corporation, a pre-tax gain of $30 million ($22 million after-tax) as a result of the amortization over approximately 4.5 years of the $527 million positive impact from the 2018 U.S. healthcare plan modification, restructuring expenses of $2 million as well as pre-tax loss of $8 million for the cost of repurchase and early redemption of all notes due May 23, 2022 by CNH Industrial Finance S.A. In the three months ended March 31, 2020, net income included $30 million ($23 million after tax) as a result of the Benefit Modification Amortization, as well as pre-tax restructuring and other discrete charges of $12 million ($11 million after-tax) due to actions included in the “Transform2Win” strategy.
31
Industrial Activities and Business Segments
The following tables show revenues and Adjusted EBIT by segment. We have also included a discussion of our results by Industrial Activities and each of our business segments.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | % Change | % Change Excl. FX | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Agriculture | $ | 3,038 | $ | 2,244 | 35.4 | % | 33.8 | % | |||||||||||||||
| Construction | 656 | 422 | 55.5 | % | 55.2 | % | |||||||||||||||||
| Commercial and Specialty Vehicles | 2,805 | 2,021 | 38.8 | % | 30.4 | % | |||||||||||||||||
| Powertrain | 1,234 | 753 | 63.9 | % | 52.3 | % | |||||||||||||||||
| Eliminations and other | (690) | (447) | |||||||||||||||||||||
| Total Net sales of Industrial Activities | 7,043 | 4,993 | 41.1 | % | 36.1 | % | |||||||||||||||||
| Financial Services | 448 | 489 | (8.4) | % | (8.5) | % | |||||||||||||||||
| Eliminations and other | (18) | (21) | |||||||||||||||||||||
| Total Revenues | $ | 7,473 | $ | 5,461 | 36.8 | % | 32.4 | % | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| 2021 | 2020 | $ Change | 2021 Adj EBIT Margin | 2020 Adj EBIT Margin | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Adjusted EBIT by segment: | |||||||||||||||||||||||||||||
| Agriculture | $ | 399 | $ | 24 | $ | 375 | 13.1 | % | 1.1 | % | |||||||||||||||||||
| Construction | 25 | (83) | 108 | 3.8 | % | (19.7) | % | ||||||||||||||||||||||
| Commercial and Specialty Vehicles | 76 | (56) | 132 | 2.7 | % | (2.8) | % | ||||||||||||||||||||||
| Powertrain | 115 | 31 | 84 | 9.3 | % | 4.1 | % | ||||||||||||||||||||||
| Unallocated items, eliminations and other | (70) | (64) | (6) | ||||||||||||||||||||||||||
| Total Adjusted EBIT of Industrial Activities | $ | 545 | $ | (148) | $ | 693 | 7.7 | % | (3.0) | % | |||||||||||||||||||
Net sales of Industrial Activities were $7,043 million during the three months ended March 31, 2021, up 41.1% compared to the three months ended March 31, 2020 (up 36.1% on a constant currency basis), due to higher volumes driven by strong industry demand, particularly in Agriculture and Commercial and Specialty Vehicles, together with favorable price realization, primarily in Agriculture.
Adjusted EBIT of Industrial Activities was $545 million during the three months ended March 31, 2021, compared to an adjusted EBIT loss of $148 million during the three months ended March 31, 2020. The increase in adjusted EBIT was primarily attributable to all segments being up year over year.
32
Segment Performance
Agriculture
Net Sales
The following table shows Agriculture net sales by geographic region for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:
Agriculture Sales—by geographic region:
| Three Months Ended March 31, | |||||||||||||||||
| (in millions, except percentages) | 2021 | 2020 | % Change | ||||||||||||||
| North America | $ | 1,058 | $ | 829 | 27.6 | % | |||||||||||
| Europe | 1,024 | 783 | 30.8 | % | |||||||||||||
| South America | 398 | 290 | 37.2 | % | |||||||||||||
| Rest of World | 558 | 342 | 63.2 | % | |||||||||||||
| Total | $ | 3,038 | $ | 2,244 | 35.4 | % | |||||||||||
Agriculture's net sales totaled $3,038 million in the three months ended March 31, 2021, with an increase of 35.4% compared to the three months ended March 31, 2020 (up 33.8% on a constant currency basis). The increase was due to higher industry demand, better mix, favorable price realization and lower destocking actions.
For the three months ended March 31, 2021, worldwide industry unit sales for tractors were up 51% compared to the three months ended March 31, 2020, while worldwide industry sales for combines were up 27%. In North America, industry volumes in the over 140 hp tractor market sector were up 15% and combines were up 17%. Industry volumes for under 140 hp tractors in North America were up 53%. European markets were up 20% and 14% for tractors and combines, respectively. In South America, the tractor market increased 31% and the combine market increased 28%. Rest of World markets increased 57% and 30% for tractors and combines, respectively.
Adjusted EBIT
Adjusted EBIT was $399 million in the three months ended March 31, 2021, a $375 million increase compared to the three months ended March 31, 2020. The increase was driven by higher volumes, favorable mix, positive price realization and improved income from non-consolidated joint ventures. Higher raw material and freight costs partially offset favorable product cost and quality performances. Adjusted EBIT margin was 13.1% (1.1% in the three months ended March 31, 2020).
Construction
Net Sales
The following table shows Construction net sales by geographic region for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:
Construction Sales—by geographic region:
| Three Months Ended March 31, | |||||||||||||||||
| (in millions, except percentages) | 2021 | 2020 | % Change | ||||||||||||||
| North America | $ | 280 | $ | 170 | 64.7 | % | |||||||||||
| Europe | 129 | 91 | 41.8 | % | |||||||||||||
| South America | 89 | 66 | 34.8 | % | |||||||||||||
| Rest of World | 158 | 95 | 66.3 | % | |||||||||||||
| Total | $ | 656 | $ | 422 | 55.5 | % | |||||||||||
Construction's net sales totaled $656 million in the three months ended March 31, 2021, an increase of 55.5% compared to the three months ended March 31, 2020 (up 55.2% on a constant currency basis), as a result of higher volumes, re-alignment of production levels to retail performance, and better price realization.
Global demand in construction equipment increased in both Heavy and Light sub-segments, with Heavy up 38% and Light up 24%. Demand increased 41% in both Rest of World and South America, 25% in North America, but decreased 2% in Europe.
33
Adjusted EBIT
Adjusted EBIT was $25 million in the three months ended March 31, 2021, a $108 million increase compared to the three months ended March 31, 2020. The improvement was due to favorable volume and mix, positive price realization, and positive fixed cost absorption, partially offset by higher purchasing and freight costs. Adjusted EBIT margin at 3.8%.
Commercial and Specialty Vehicles
Net Sales
The following table shows Commercial and Specialty Vehicles’ net sales by geographic region for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:
Commercial and Specialty Vehicles Sales—by geographic region:
| Three Months Ended March 31, | |||||||||||||||||
| (in millions, except percentages) | 2021 | 2020 | % Change | ||||||||||||||
| North America | $ | 23 | $ | 10 | n.m. | ||||||||||||
| Europe | 2,235 | 1,631 | 37.0 | % | |||||||||||||
| South America | 191 | 121 | 57.9 | % | |||||||||||||
| Rest of World | 356 | 259 | 37.5 | % | |||||||||||||
| Total | $ | 2,805 | $ | 2,021 | 38.8 | % | |||||||||||
n.m. - not meaningful
Commercial and Specialty Vehicles’ net sales totaled $2,805 million in the three months ended March 31, 2021, an increase of 38.8% compared to the three months ended March 31, 2020 (up 30.4% on a constant currency basis), primarily driven by higher truck volumes.
During the three months ended March 31, 2021, the European truck market (GVW ≥3.5 tons), excluding U.K. and Ireland, increased 22% compared to the same period in 2020. In Europe, the Light Commercial Vehicles ("LCV") market (GVW 3.5-7.49 tons) increased 24% and the Medium and Heavy ("M&H") truck market (GVW ≥7.5 tons) increased 17%. In South America, new truck registrations (GVW ≥3.5 tons) increased 29% over the same period of 2020 with an increase of 23% and 78% in Brazil and in Argentina, respectively. In Rest of World, new truck registrations increased by 10%.
In the three months ended March 31, 2021, trucks’ estimated market share in the European truck market (GVW ≥3.5 tons), excluding U.K. and Ireland, was 10.8%, flat compared to the three months ended March 31, 2020. In the three months ended March 31, 2021, trucks' market share in South America was 9.7%, up 1.7 p.p. compared to the three months ended March 31, 2020.
In the three months ended March 31, 2021, Commercial and Specialty Vehicles delivered approximately 36,600 vehicles (including buses and specialty vehicles), representing a 46% increase compared to the same period of 2020. Further, volumes were up 49% in LCV and 48% in M&H truck segments and Commercial and Specialty Vehicles’ deliveries increased 43% in Europe, 56% in South America and 52% in Rest of World.
In the first quarter of 2021, the ratio of orders received to units shipped and billed, or book-to-bill ratio, for the European truck market was 1.92. In the first quarter of 2021, truck order intake in Europe increased 96% compared to the first quarter of 2020, with an increase of 95% and 101% in LCV and in M&H, respectively.
Adjusted EBIT
Adjusted EBIT was $76 million in the three months ended March 31, 2021 ($132 million increase compared to the three months ended March 31, 2020). The improvement was driven by higher volumes and positive price realization.
Powertrain
Net Sales
Powertrain's net sales totaled $1,234 million in the three months ended March 31, 2021, an increase of 63.9% compared to the three months ended March 31, 2020 (up 52.3% on a constant currency basis), due to higher sales volume. Sales to external customers accounted for 47% of total net sales (44% in the first quarter of 2020).
During the three months ended March 31, 2021, Powertrain sold approximately 159,500 engines, an increase of 56% compared to the three months ended March 31, 2020. In terms of customers, 27% of engine units were supplied to Commercial and Specialty Vehicles, 15% to Agriculture, 4% to Construction and the remaining 54% to external customers. Additionally, Powertrain delivered
34
approximately 17,200 transmissions, an increase of 34% compared to the three months ended March 31, 2020, and approximately 49,900 axles, an increase of 39% compared to the three months ended March 31, 2020.
Adjusted EBIT
Adjusted EBIT was $115 million for the three months ended March 31, 2021, up $84 million compared to the three months ended March 31, 2020). The increase was mainly due to favorable volume and mix partially offset by higher freight costs and higher spending for regulatory programs. Adjusted EBIT margin was 9.3% in the three months ended March 31, 2021 (4.1% in the three months ended March 31, 2020).
Financial Services
Finance, Interest and Other Income
Financial Services' revenues totaled $448 million in the three months ended March 31, 2021, a decrease of 8.4% compared to the three months ended March 31, 2020 (down 8.5% on a constant currency basis), primarily due to a lower average portfolio in North America and lower off-lease equipment sales, partially offset by higher loan yields in North America and higher average portfolios in Europe, South America and Rest of World.
Net Income
Net income of Financial Services was $91 million in the three months ended March 31, 2021, an increase of $11 million compared to the three months ended March 31, 2020, primarily as a result of lower risk costs, favorable retail margin in North America and lower losses on used equipment sales.
In the three months ended March 31, 2021, retail loan originations, including unconsolidated joint ventures, were $2.4 billion, up $0.3 billion compared to the three months ended March 31, 2020. The managed portfolio, including unconsolidated joint ventures, was $25.8 billion as of March 31, 2021 (of which retail was 65% and wholesale 35%), up $1.1 billion compared to March 31, 2020 (flat on a constant currency basis).
At March 31, 2021, the receivable balance greater than 30 days past due as a percentage of receivables was 2.1% (2.6% as of March 31, 2020.
35
Reconciliation of Net Income (Loss) to Adjusted EBIT
The following table includes the reconciliation of Adjusted EBIT, a non-GAAP financial measure, to net income, the most comparable U.S. GAAP financial measure.
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (in millions) | ||||||||||||||
| Agriculture | $ | 399 | $ | 24 | ||||||||||
Construction | 25 | (83) | ||||||||||||
| Commercial and Specialty Vehicles | 76 | (56) | ||||||||||||
| Powertrain | 115 | 31 | ||||||||||||
| Unallocated items, eliminations and other | (70) | (64) | ||||||||||||
| Total Adjusted EBIT of Industrial Activities | $ | 545 | $ | (148) | ||||||||||
| Financial Services Net Income | 91 | 80 | ||||||||||||
| Financial Services Income Taxes | 33 | 30 | ||||||||||||
| Interest expense of Industrial Activities, net of interest income and eliminations | (66) | (59) | ||||||||||||
| Foreign exchange gains (losses), net of Industrial Activities | (18) | 2 | ||||||||||||
Finance and non-service component of Pension and other post-employment benefit cost of Industrial Activities(1) | 34 | 30 | ||||||||||||
| Restructuring expense of Industrial Activities | (2) | (5) | ||||||||||||
| Other discrete items of Industrial Activities | — | (7) | ||||||||||||
| Nikola investment fair value adjustment | (35) | — | ||||||||||||
| Income (loss) before taxes | $ | 582 | $ | (77) | ||||||||||
| Income tax (expense) benefit | (157) | 23 | ||||||||||||
| Net income (loss) | $ | 425 | $ | (54) | ||||||||||
(1) In the three months ended March 31, 2021 and 2020 this item includes the pre-tax gain of $30 million as a result of the amortization over approximately 4.5 years of the $527 million positive impact from the modification of a healthcare plan in the U.S.
36
Supplemental Information
The operations, key financial measures, and financial analysis differ significantly for manufacturing and distribution businesses and financial services businesses; therefore, management believes that certain supplemental disclosures are important in understanding the consolidated operations and financial results of CNH Industrial. This supplemental information does not purport to represent the operations of each group as if each group were to operate on a standalone basis. This supplemental data is as follows:
Industrial Activities—The financial information captioned “Industrial Activities” reflects the consolidation of all majority-owned subsidiaries except for Financial Services business.
Financial Services—The financial information captioned “Financial Services” reflects the consolidation or combination of Financial Services business.
| Statement of Operations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Industrial Activities(1) | Financial Services | Eliminations | Consolidated | Industrial Activities(1) | Financial Services | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 7,043 | $ | — | $ | — | $ | 7,043 | $ | 4,993 | $ | — | $ | — | $ | 4,993 | ||||||||||||||||||||||||||||||||||||||||||||||
| Finance, interest and other income | 16 | 448 | (34) | (2) | 430 | 15 | 489 | (36) | (2) | 468 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Revenues | $ | 7,059 | $ | 448 | $ | (34) | $ | 7,473 | $ | 5,008 | $ | 489 | $ | (36) | $ | 5,461 | ||||||||||||||||||||||||||||||||||||||||||||||
| Costs and Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of goods sold | $ | 5,733 | $ | — | $ | — | $ | 5,733 | $ | 4,414 | $ | — | $ | — | $ | 4,414 | ||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general & administrative expenses | 486 | 54 | — | 540 | 464 | 62 | — | 526 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | 263 | — | — | 263 | 214 | — | — | 214 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring expenses | 2 | — | — | 2 | 5 | — | — | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 82 | 113 | (34) | (3) | 161 | 74 | 143 | (36) | (3) | 181 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other, net | 54 | 163 | — | 217 | 15 | 182 | — | 197 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Costs and Expenses | $ | 6,620 | $ | 330 | $ | (34) | $ | 6,916 | $ | 5,186 | $ | 387 | $ | (36) | $ | 5,537 | ||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes and equity in income of unconsolidated subsidiaries and affiliates | 439 | 118 | — | 557 | (178) | 102 | — | (76) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax (expense) benefit | (124) | (33) | — | (157) | 53 | (30) | — | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity income (loss) of unconsolidated subsidiaries and affiliates | 19 | 6 | — | 25 | (9) | 8 | — | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 334 | $ | 91 | $ | — | $ | 425 | $ | (134) | $ | 80 | $ | — | $ | (54) | ||||||||||||||||||||||||||||||||||||||||||||||
(1) Industrial Activities represents the enterprise without Financial Services. Industrial Activities includes the Company's Agriculture, Construction, Commercial and Specialty Vehicles and Powertrain segments, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
(2) Eliminations of Financial Services' interest income earned from Industrial Activities.
(3) Eliminations of Industrial Services' interest expense to Financial Services.
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| Balance Sheets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Industrial Activities(1) | Financial Services | Eliminations | Consolidated | Industrial Activities(1) | Financial Services | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 6,590 | $ | 469 | — | $ | 7,059 | $ | 8,017 | $ | 768 | $ | — | $ | 8,785 | |||||||||||||||||||||||||||||||||||||||||||||||
| Restricted cash | 104 | 804 | — | 908 | 99 | 745 | — | 844 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade receivables, net | 491 | 22 | (20) | (2) | 493 | 508 | 23 | (25) | (2) | 506 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financing receivables, net | 1,217 | 18,850 | (2,317) | (3) | 17,750 | 902 | 19,428 | (1,873) | (3) | 18,457 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories, net | 6,851 | 29 | — | 6,880 | 5,981 | 41 | — | 6,022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | 4,573 | 1 | — | 4,574 | 4,922 | 1 | — | 4,923 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in unconsolidated subsidiaries and affiliates | 232 | 267 | — | 499 | 256 | 273 | — | 529 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments at fair value through profit and loss | 357 | — | — | 357 | 392 | — | — | 392 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equipment under operating leases | 54 | 1,889 | — | 1,943 | 65 | 1,913 | — | 1,978 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill, net | 1,766 | 156 | — | 1,922 | 1,767 | 157 | — | 1,924 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other intangible assets, net | 736 | 17 | — | 753 | 755 | 17 | — | 772 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred tax assets | 1,359 | 166 | (157) | (4) | 1,368 | 1,422 | 189 | (160) | (4) | 1,451 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative assets | 89 | 67 | (18) | (5) | 138 | 103 | 76 | (19) | (5) | 160 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other assets | 2,005 | 158 | (102) | (2) | 2,061 | 1,919 | 172 | (115) | (2) | 1,976 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL ASSETS | $ | 26,424 | $ | 22,895 | $ | (2,614) | $ | 46,705 | $ | 27,108 | $ | 23,803 | $ | (2,192) | $ | 48,719 | ||||||||||||||||||||||||||||||||||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | 7,434 | 18,688 | (2,317) | (3) | 23,805 | 8,288 | 19,638 | (1,873) | (3) | 26,053 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade payables | 6,259 | 230 | (24) | (2) | 6,465 | 6,167 | 220 | (30) | (2) | 6,357 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred tax liabilities | 15 | 261 | (157) | (4) | 119 | 14 | 258 | (160) | (4) | 112 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension, postretirement and other postemployment benefits | 1,535 | 21 | — | 1,556 | 1,597 | 20 | — | 1,617 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative liabilities | 122 | 52 | (18) | (5) | 156 | 102 | 56 | (19) | (5) | 139 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 8,520 | 676 | (98) | (2) | 9,098 | 8,842 | 680 | (110) | (2) | 9,412 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL LIABILITIES | $ | 23,885 | $ | 19,928 | $ | (2,614) | $ | 41,199 | $ | 25,010 | $ | 20,872 | $ | (2,192) | $ | 43,690 | ||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable noncontrolling interest | 41 | — | — | 41 | 40 | — | — | 40 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity | 2,498 | 2,967 | — | 5,465 | 2,058 | 2,931 | — | 4,989 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 26,424 | $ | 22,895 | $ | (2,614) | $ | 46,705 | $ | 27,108 | $ | 23,803 | $ | (2,192) | $ | 48,719 | ||||||||||||||||||||||||||||||||||||||||||||||
(1) Industrial Activities represents the enterprise without Financial Services. Industrial Activities includes the Company's Agriculture, Construction, Commercial and Specialty Vehicles and Powertrain segments, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
(2) Eliminations of primarily receivables/payables between Industrial Activities and Financial Services.
(3) Eliminations of financing receivables/payables between Industrial Activities and Financial Services.
(4) Reclassification of deferred tax assets/liabilities in the same jurisdiction and reclassification needed for appropriate consolidated presentation.
(5) Elimination of derivative assets/liabilities between Industrial Activities and Financial Services.
38
| Cash Flow Statements | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||
Industrial Activities(1) | Financial Services | Eliminations | Consolidated | Industrial Activities(1) | Financial Services | Eliminations | Consolidated | |||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Operating activities: | ||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 334 | $ | 91 | $ | — | $ | 425 | $ | (54) | $ | 80 | $ | (80) | $ | (54) | ||||||||||||||||
| Adjustments to reconcile net income to net cash provided (used) by operating activities: | ||||||||||||||||||||||||||||||||
| Depreciation and amortization expense, net of assets under operating lease and assets sold under buy-back commitments | 150 | 1 | — | 151 | 155 | — | — | 155 | ||||||||||||||||||||||||
| Depreciation and amortization expense of assets under operating lease and assets sold under buy-back commitments | 68 | 68 | — | 136 | 65 | 63 | — | 128 | ||||||||||||||||||||||||
| Loss on repurchase of notes | 8 | — | — | 8 | — | — | — | — | ||||||||||||||||||||||||
| Undistributed income (loss) of unconsolidated subsidiaries | 26 | (6) | (2) | (2) | 18 | (25) | (8) | 40 | (2) | 7 | ||||||||||||||||||||||
| Other non-cash items | 64 | 14 | — | 78 | 15 | 24 | — | 39 | ||||||||||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||||||||||||||
| Provisions | 25 | (1) | — | 24 | (150) | (2) | — | (152) | ||||||||||||||||||||||||
| Deferred income taxes | 30 | 11 | — | 41 | (27) | (5) | — | (32) | ||||||||||||||||||||||||
Trade and financing receivables related to sales, net | 9 | 126 | (3) | (3) | 132 | 46 | 600 | (2) | (3) | 644 | ||||||||||||||||||||||
| Inventories, net | (1,014) | 112 | — | (902) | (697) | 146 | — | (551) | ||||||||||||||||||||||||
| Trade payables | 273 | 12 | 4 | (3) | 289 | (478) | (28) | 2 | (3) | (504) | ||||||||||||||||||||||
| Other assets and liabilities | (73) | 46 | (1) | (3) | (28) | (223) | 11 | — | (3) | (212) | ||||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | (100) | $ | 474 | $ | (2) | $ | 372 | $ | (1,373) | $ | 881 | $ | (40) | $ | (532) | ||||||||||||||||
| Investing activities: | ||||||||||||||||||||||||||||||||
| Additions to retail receivables | — | (1,077) | — | (1,077) | — | (926) | — | (926) | ||||||||||||||||||||||||
| Collections of retail receivables | — | 1,191 | — | 1,191 | — | 1,035 | — | 1,035 | ||||||||||||||||||||||||
| Proceeds from sale of assets, net of assets sold under operating leases and assets sold under buy-back commitments | — | — | — | — | 5 | — | — | 5 | ||||||||||||||||||||||||
| Expenditures for property, plant and equipment and intangible assets, net of assets under operating lease and sold under buy-back commitments | (70) | (1) | — | (71) | (63) | — | — | (63) | ||||||||||||||||||||||||
| Expenditures for assets under operating lease and assets sold under buy-back commitments | (155) | (142) | — | (297) | (98) | (158) | — | (256) | ||||||||||||||||||||||||
Other(4) | (134) | 192 | 6 | (4) | 64 | 517 | (390) | — | (4) | 127 | ||||||||||||||||||||||
| Net cash provided by (used in) investing activities | $ | (359) | $ | 163 | $ | 6 | $ | (190) | $ | 361 | $ | (439) | $ | — | $ | (78) | ||||||||||||||||
| Financing activities: | ||||||||||||||||||||||||||||||||
| Proceeds from long-term debt | 66 | 2,340 | — | 2,406 | 100 | 2,120 | — | 2,220 | ||||||||||||||||||||||||
| Payments of long-term debt | (737) | (2,873) | — | (3,610) | (5) | (2,652) | — | (2,657) | ||||||||||||||||||||||||
| Net increase (decrease) in other financial liabilities | (64) | (325) | — | (389) | 150 | 93 | — | 243 | ||||||||||||||||||||||||
| Dividends paid | (1) | (2) | 2 | (2) | (1) | (1) | (40) | 40 | (2) | (1) | ||||||||||||||||||||||
| Other | — | 6 | (6) | (4) | — | — | — | — | (4) | — | ||||||||||||||||||||||
| Net cash provided by (used in) financing activities | $ | (736) | $ | (854) | $ | (4) | $ | (1,594) | $ | 244 | $ | (479) | $ | 40 | $ | (195) | ||||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash | (227) | (23) | — | (250) | (208) | (56) | — | (264) | ||||||||||||||||||||||||
| Increase (decrease) in cash and cash equivalents and restricted cash | $ | (1,422) | $ | (240) | $ | — | $ | (1,662) | $ | (976) | $ | (93) | $ | — | $ | (1,069) | ||||||||||||||||
| Cash and cash equivalents and restricted cash, beginning of year | 8,116 | 1,513 | — | 9,629 | 4,527 | 1,246 | — | 5,773 | ||||||||||||||||||||||||
| Cash and cash equivalents and restricted cash, end of year | $ | 6,694 | $ | 1,273 | $ | — | $ | 7,967 | $ | 3,551 | $ | 1,153 | $ | — | $ | 4,704 | ||||||||||||||||
(1) Industrial Activities represents the enterprise without Financial Services. Industrial Activities includes the Company's Agriculture, Construction, Commercial and Specialty Vehicles and Powertrain segments, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
(2) This item includes the elimination of dividends from Financial Services to Industrial Activities, which are included in Industrial Activities net cash used in operating activities.
(3) This item includes the elimination of certain minor activities between Industrial Activities and Financial Services.
(4) This item includes the elimination of paid in capital from Industrial Activities to Financial Services.
39
CRITICAL ACCOUNTING POLICIES
See our critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 20-F. There have been no material changes to these policies.
B. LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources principally focuses on our condensed consolidated statement of cash flows and our condensed consolidated statement of financial position. Our operations are capital intensive and subject to seasonal variations in financing requirements for dealer receivables and dealer and company inventories. Whenever necessary, funds from operating activities are supplemented from external sources. CNH Industrial, focusing on cash preservation and leveraging its good access to funding, continues to maintain solid financial strength and liquidity.
Cash Flow Analysis
During the three months ended March 31, 2021, consolidated cash, cash equivalents and restricted cash decreased by $1,662 million due to debt repayment of $1.6 billion (including $0.4 billion of notes repurchase) and negative foreign currency impact offset by cash generated by operating activities.
At March 31, 2021, Cash and cash equivalents and Restricted cash were $7,059 million ($8,785 million at December 31, 2020) and $908 million ($844 million at December 31, 2020), respectively. Undrawn medium-term unsecured committed facilities were $5,755 million ($6,148 million at December 31, 2020) and other current financial assets were $164 million ($94 million at December 31, 2020). At March 31, 2021, the aggregate of Cash and cash equivalents, Restricted cash, undrawn medium-term unsecured committed facilities and other current financial assets, which we consider to constitute our principal liquid assets (or "available liquidity"), totaled $13,886 million ($15,871 million at December 31, 2020).
Net Cash from Operating Activities
Cash provided by operating activities in the three months ended March 31, 2021 totaled $372 million and comprised the following elements:
▪$425 million net income;
▪plus $287 million in non-cash charges for depreciation and amortization ($151 million excluding assets sold with buy back commitments and equipment on operating leases);
▪plus $8 million in cost of repurchase of notes;
▪plus change in deferred income taxes of $41 million and change in provisions of $24 million;
▪plus $78 million in Other non-cash items primarily due to the remeasurement at fair value of the investment in Nikola Corporation, share based payments, write downs of assets under operating leases and assets sold under buyback commitments, and writedowns of financial assets;
▪less $509 million in change in working capital.
In the three months ended March 31, 2020, cash used in operating activities during the year was $532 million primarily as a result of $623 million related to the seasonal increase in working capital.
Net Cash from Investing Activities
Net cash used by investing activities was $190 million in the three months ended March 31, 2021 and was primarily due to expenditures for assets under operating leases and assets sold under buyback commitments ($297 million) and expenditures for Property, Plant, and Equipment and intangible assets ($71 million) offset by net reductions in retail receivables ($114 million).
For the three months ended March 31, 2020, cash used in investing activities ($78 million) was primarily due to expenditures for assets under operating leases and assets sold under buyback commitments ($256 million) partially offset by net reductions in retail receivables ($109 million).
Net Cash from Financing Activities
Net cash used in financing activities was $1,594 million in the three months ended March 31, 2021 compared to $195 million used in financing activities in the three months ended March 31, 2020. Net cash used in financing activities for the three months ended March 31, 2021 and 2020 was primarily due to a net reduction in long-term debt.
40
Debt
Our consolidated debt as of March 31, 2021 and December 31, 2020 is as detailed in the following table:
| Consolidated | Industrial Activities | Financial Services | |||||||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Total Debt | $ | 23,805 | $ | 26,053 | $ | 7,434 | $ | 8,288 | $ | 18,688 | $ | 19,638 | |||||||||||||||||||||||
A summary of total debt as of March 31, 2021 and December 31, 2020, is as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Industrial Activities | Financial Services | Total | Industrial Activities | Financial Services | Total | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Total Bonds | $ | 5,753 | $ | 3,202 | $ | 8,955 | $ | 6,366 | $ | 3,216 | $ | 9,582 | |||||||||||||||||||||||
| Asset-backed debt | — | 11,104 | 11,104 | — | 11,922 | 11,922 | |||||||||||||||||||||||||||||
| Other debt | 533 | 3,213 | 3,746 | 905 | 3,644 | 4,549 | |||||||||||||||||||||||||||||
| Intersegment debt | 1,148 | 1,169 | — | 1,017 | 856 | — | |||||||||||||||||||||||||||||
| Total Debt | $ | 7,434 | $ | 18,688 | $ | 23,805 | $ | 8,288 | $ | 19,638 | $ | 26,053 | |||||||||||||||||||||||
41
A summary of issued bonds outstanding as of March 31, 2021 is as follows:
| Currency | Face value of outstanding bonds (in millions) | Coupon | Maturity | Outstanding amount ($ millions) | |||||||||||||||||||||||||
| Industrial Activities | |||||||||||||||||||||||||||||
| Euro Medium Term Notes: | |||||||||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 367 | 2.875 | % | September 27, 2021 | 431 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 75 | 1.625 | % | March 29, 2022 | 88 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 369 | 2.875 | % | May 17, 2023 | 432 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 750 | 0.000 | % | April 1, 2024 | 879 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 650 | 1.750 | % | September 12, 2025 | 762 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 100 | 3.500 | % | November 12, 2025 | 117 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 500 | 1.875 | % | January 19, 2026 | 586 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 600 | 1.750 | % | March 25, 2027 | 704 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 50 | 3.875 | % | April 21, 2028 | 59 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 500 | 1.625 | % | July 3, 2029 | 586 | |||||||||||||||||||||||
CNH Industrial Finance Europe S.A. (1) | EUR | 50 | 2.200 | % | July 15, 2039 | 59 | |||||||||||||||||||||||
| Other Bonds: | |||||||||||||||||||||||||||||
CNH Industrial N.V. (2) | USD | 600 | 4.500 | % | August 15, 2023 | 600 | |||||||||||||||||||||||
CNH Industrial N.V. (2) | USD | 500 | 3.850 | % | November 15, 2027 | 500 | |||||||||||||||||||||||
| Hedging effects, bond premium/discount, and unamortized issuance costs | (50) | ||||||||||||||||||||||||||||
| Total Industrial Activities | $ | 5,753 | |||||||||||||||||||||||||||
| Financial Services | |||||||||||||||||||||||||||||
| CNH Industrial Capital LLC | USD | 500 | 4.875 | % | April 1, 2021 | 500 | |||||||||||||||||||||||
| CNH Industrial Capital LLC | USD | 400 | 3.875 | % | October 15, 2021 | 400 | |||||||||||||||||||||||
| CNH Industrial Capital Argentina SA | ARS | 701 | 36.000 | % | August 31, 2021 | 7 | |||||||||||||||||||||||
| CNH Industrial Capital LLC | USD | 500 | 4.375 | % | April 5, 2022 | 500 | |||||||||||||||||||||||
| CNH Industrial Capital Australia Pty Ltd. | AUD | 175 | 2.100 | % | December 12, 2022 | 133 | |||||||||||||||||||||||
| CNH Industrial Capital LLC | USD | 600 | 1.950 | % | July 2, 2023 | 600 | |||||||||||||||||||||||
| CNH Industrial Capital Argentina SA | USD | 31 | 0.000 | % | August 31, 2023 | 31 | |||||||||||||||||||||||
| CNH Industrial Capital LLC | USD | 500 | 4.200 | % | January 15, 2024 | 500 | |||||||||||||||||||||||
| CNH Industrial Capital LLC | USD | 500 | 1.875 | % | January 15, 2026 | 500 | |||||||||||||||||||||||
| Hedging effects, bond premium/discount, and unamortized issuance costs | 31 | ||||||||||||||||||||||||||||
| Total Financial Services | $ | 3,202 | |||||||||||||||||||||||||||
(1) Bond listed on the Irish Stock Exchange.
(2) Bond listed on the New York Stock Exchange.
42
The calculation of Net Debt as of March 31, 2021 and December 31, 2020 and the reconciliation of Total Debt, the U.S. GAAP financial measure that we believe to be most directly comparable, to Net Debt are shown below:
| Consolidated | Industrial Activities | Financial Services | |||||||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Third party (debt) | $ | (23,805) | $ | (26,053) | $ | (6,286) | $ | (7,271) | $ | (17,519) | $ | (18,782) | |||||||||||||||||||||||
| Intersegment notes payable | — | — | (1,148) | (1,017) | (1,169) | (856) | |||||||||||||||||||||||||||||
Total (Debt)(1) | (23,805) | (26,053) | (7,434) | (8,288) | (18,688) | (19,638) | |||||||||||||||||||||||||||||
| Cash and cash equivalents | 7,059 | 8,785 | 6,590 | 8,017 | 469 | 768 | |||||||||||||||||||||||||||||
| Restricted cash | 908 | 844 | 104 | 99 | 804 | 745 | |||||||||||||||||||||||||||||
| Intersegment notes receivable | — | — | 1,169 | 856 | 1,148 | 1,017 | |||||||||||||||||||||||||||||
Other current financial assets(2) | 164 | 94 | 164 | 94 | — | — | |||||||||||||||||||||||||||||
| Derivatives hedging debt | (2) | 8 | (2) | 8 | — | — | |||||||||||||||||||||||||||||
Net Cash (Debt)(3) | $ | (15,676) | $ | (16,322) | $ | 591 | $ | 786 | $ | (16,267) | $ | (17,108) | |||||||||||||||||||||||
(1) Total (Debt) of Industrial Activities includes Intersegment notes payable to Financial Services of $1,148 million and $1,017 million as of March 31, 2021 and December 31, 2020, respectively. Total (Debt) of Financial Services includes Intersegment notes payable to Industrial Activities of $1,169 million and $856 million as of March 31, 2021 and December 31, 2020, respectively.
(2) This item includes short-term deposits and investments towards high-credit rating counterparties.
(3) The net intersegment receivable/(payable) balance recorded by Financial Services relating to Industrial Activities was $(21) million and $161 million as of March 31, 2021 and December 31, 2020, respectively.
Excluding positive exchange rate differences effect of $566 million, Net Debt at March 31, 2021 decreased by $80 million compared to December 31, 2020 reflecting a reduction in receivables portfolio partially offset by cash absorption from operating activities.
The following table shows the change in Net Cash (Debt) of Industrial Activities for the three months ended March 31, 2021 and 2020:
| (in millions) | 2021 | 2020 | |||||||||
| Net Cash (Debt) of Industrial Activities at beginning of period | $ | 786 | $ | (854) | |||||||
| Adjusted EBIT of Industrial Activities | 545 | (148) | |||||||||
| Depreciation and amortization | 150 | 155 | |||||||||
| Depreciation of assets under operating leases and assets sold with buy-back commitments | 68 | 65 | |||||||||
| Cash interest and taxes | (85) | (79) | |||||||||
Changes in provisions and similar(1) | (71) | (166) | |||||||||
| Change in working capital | (873) | (1,293) | |||||||||
| Operating cash flow of Industrial Activities | (266) | (1,466) | |||||||||
Investments in property, plant and equipment, and intangible assets(2) | (70) | (63) | |||||||||
| Other changes | (35) | 6 | |||||||||
| Free Cash Flow of Industrial Activities | (371) | (1,523) | |||||||||
| Capital increases and dividends | (1) | (1) | |||||||||
Currency translation differences and other(3) | 177 | 68 | |||||||||
| Change in Net Cash (Debt) of Industrial Activities | (195) | (1,456) | |||||||||
| Net Cash (Debt) of Industrial Activities at end of period | $ | 591 | $ | (2,310) | |||||||
(1) Including other cash flow items related to operating lease and buy-back activities.
(2) Excluding assets sold under buy-back commitments and assets under operating leases.
(3) In the three months ended March 31, 2021, this item also includes the charge of $8 million related to the repurchase of Notes.
For the three months ended March 31, 2021, the Free Cash Flow of Industrial Activities was a negative $371 million as the strong performance of the segments was more than offset by the seasonal increase in working capital. The seasonal increase in working capital was down approximately 30% from the prior year as the Company continued to manage working capital to expected retail demand.
43
The following table shows the change in Net cash provided by (used in) Operating Activities to Free Cash Flow of Industrial Activities for the three months ended March 31, 2021 and 2020:
| (in millions) | 2021 | 2020 | ||||||||||||
| Net cash provided by (used in) Operating Activities | $ | 372 | $ | (532) | ||||||||||
| Less: Cash flows from Operating Activities of Financial Services net of eliminations | 472 | 841 | ||||||||||||
| Change in derivatives hedging debt of Industrial Activities and other | (11) | 5 | ||||||||||||
| Investments in assets sold under but-back commitments and operating lease assets of Industrial Activities | (155) | (98) | ||||||||||||
| Operating cash flow of Industrial Activities | (266) | (1,466) | ||||||||||||
| Investments in property, plant, and equipment, and intangible assets of Industrial Activities | (70) | (63) | ||||||||||||
Other changes (1) | (35) | 6 | ||||||||||||
| Free Cash Flow of Industrial Activities | $ | (371) | $ | (1,523) | ||||||||||
(1) This item primarily includes change in intersegment financial receivables and capital increases in intersegment investments.
With the purpose of further diversifying its funding structure, CNH Industrial has established various commercial paper programs. CNH Industrial Financial Services S.A. in Europe issued commercial paper under a program which had an amount of $88 million outstanding at March 31, 2021 ($112 million at December 31, 2020).
In March 2019, CNH Industrial signed a five-year committed revolving credit facility for €4 billion ($4.5 billion at March 31, 2019 exchange rate) due to mature in 2024 with two extension options of 1-year each, exercisable on the first and second anniversary of the signing date. CNH Industrial exercised the first of the two extension options as of February 28, 2020 and the second extension option as of February 26, 2021. The facility is now due to mature in March 2026 for €3,950.5 million; the remaining €49.5 million will mature in March 2025.
Available committed unsecured facilities expiring after twelve months amounted to approximately $5.8 billion at March 31, 2021 ($6.1 billion at December 31, 2020). Total committed secured facilities expiring after twelve months amounted to approximately $2.7 billion at March 31, 2021 ($3.9 billion at December 31, 2020), of which $0.9 billion was available at March 31, 2021 ($0.2 billion at December 31, 2020).
In March 2021, CNH Industrial Finance Europe S.A. repurchased all its outstanding notes due May 23, 2022 equaling €316 million (approximately $371 million) through the exercise of a make whole option.
The Company will closely monitor its liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on its operations. With the strong liquidity position at the end of March and the demonstrated access to the financial markets, the Company believes that its cash and cash equivalents, access to credit facilities and cash flows from future operations will be adequate to fund its known cash needs during the COVID-19 pandemic.
Please refer to “Note 10: Debt” in our most recent annual report on Form 20-F for more information related to our debt and credit facilities.
CONTINGENCIES
As a global company with a diverse business portfolio, CNH Industrial is exposed to numerous legal risks, including legal proceedings, claims and governmental investigations, particularly in the areas of product liability (including asbestos-related liability), product performance, emissions and fuel economy, retail and wholesale credit, competition and antitrust law, intellectual property matters (including patent infringement), disputes with dealers and suppliers and service providers, environmental risks, and tax and employment matters. For more information, please refer to the information presented in “Note 15: Commitments and Contingencies” to our condensed consolidated financial statements.
SAFE HARBOR STATEMENT
All statements other than statements of historical fact contained in this filing, including statements regarding our future responses to and effects of the COVID-19 pandemic; competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, earnings (or loss) per share, capital expenditures, dividends, liquidity, capital structure or other financial items; costs; and plans and objectives of management regarding operations and products, 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, including those related to the COVID-19 pandemic, 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.
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Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: the unknown duration and economic, operational and financial impacts of the global COVID-19 pandemic and the actions taken or contemplated by governmental authorities or others in connection with the pandemic on our business, our employees, customers and suppliers, including supply chain disruptions caused by mandated shutdowns and the adverse impact on customers, borrowers and other third parties to fulfill their obligations to us; disruption caused by business responses to COVID-19, including remote working arrangements, which may create increased vulnerability to cybersecurity or data privacy incidents; our ability to execute business continuity plans as a result of COVID-19; the many interrelated factors that affect consumer confidence and worldwide demand for capital goods and capital goods-related products, including demand uncertainty caused by COVID-19; general economic conditions in each of our markets, including the significant economic uncertainty and volatility caused by COVID-19; travel bans, border closures, other free movement restrictions, and the introduction of social distancing measures in our facilities may affect in the future our ability to operate as well as the ability of our suppliers and distributors to operate; 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 we compete; 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 our products; production difficulties, including capacity and supply constraints and excess inventory levels; labor relations; 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; price pressure on new and used vehicles; the resolution of pending litigation and investigations on a wide range of topics, including dealer and supplier litigation, follow-on private litigation in various jurisdictions after the settlement of the EU antitrust investigation announced on July 19, 2016, intellectual property rights disputes, product warranty and defective product claims, and emissions and/or fuel economy regulatory and contractual issues; the Company’s pension plans and other post-employment obligations; further developments of the COVID-19 pandemic on our operations, supply chains, distribution network, and level of demand for our products, as well as negative evolutions of the economic and financial conditions at global and regional levels; political and civil unrest; volatility and deterioration of capital and financial markets, including possible effects of “Brexit”, other pandemics, terrorist attacks in Europe and elsewhere; our ability to realize the anticipated benefits from our business initiatives as part of our strategic plan; the impact of significant or unanticipated material extraordinary transactions or any business combinations and other similar transaction on our businesses, our financial or business projections; our failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures, strategic alliances or divestitures; expected benefits and costs of the proposed spin-off of the Company’s On-Highway business; the expected timing of completion of the spin-off transaction; the ability of the Company to complete the spin-off transaction considering the various conditions to the completion of the spin-off transaction (some of which are outside the Company’s control); business disruption during the pendency of or following the spin-off transaction, diversion of management time on the spin-off transaction-related issues, and other similar risks and uncertainties, and our success in managing the risks involved in the foregoing.
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. 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, whether as a result of new developments or otherwise.
Additional factors could cause actual results to differ from those express or implied by the forward-looking statements included in the Company’s filings with the SEC (including, but not limited to, the factors discussed in our annual report on Form 20-F and quarterly reports submitted on Form 6-K).
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See our most recent annual report filed on Form 20-F (Part I, Item 11). There has been no material change in this information.
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PART II – OTHER INFORMATION
LEGAL PROCEEDINGS
See “Note 15: Commitments and Contingencies” to our condensed consolidated financial statements.
RISK FACTORS
There have been no material changes from the risk factors previously disclosed in our annual report on Form 20-F for the year ended December 31, 2020. The risks described in the most recent annual report on Form 20-F, and in the “Safe Harbor Statement” within this report are not the only risks faced by us. Additional risks and uncertainties not currently known or that are currently judged to be immaterial may also materially affect our business, financial condition or operating results.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not purchase any of its equity securities during the first quarter of 2021.
DEFAULT UPON SENIOR SECURITIES
Not applicable.
MINE SAFETY DISCLOSURES
Not applicable.
OTHER INFORMATION
None.
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