Attached files
file | filename |
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EX-32.1 - EX-32.1 - CNH Industrial Capital LLC | cnhc-20200930ex3215eb47b.htm |
EX-31.2 - EX-31.2 - CNH Industrial Capital LLC | cnhc-20200930ex312240a5c.htm |
EX-31.1 - EX-31.1 - CNH Industrial Capital LLC | cnhc-20200930ex31153021f.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
⌧ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020 | |
or | |
◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number: 000-55510
CNH INDUSTRIAL CAPITAL LLC
(Exact name of registrant as specified in its charter)
Delaware | | 39-1937630 |
5729 Washington Avenue | (262) 636-6011 | 53406 |
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes ◻ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Accelerated filer ◻ |
Non-accelerated filer ⌧ Emerging growth company ◻ | Smaller reporting company ◻ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ◻ Yes ⌧ No
As of September 30, 2020, all of the limited liability company interests of the registrant were held by CNH Industrial America LLC, a wholly-owned subsidiary of CNH Industrial N.V.
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced disclosures as permitted by those instructions.
| | PAGE |
1 | ||
| 1 | |
| 2 | |
| Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (Unaudited) | 3 |
| 5 | |
| 6 | |
| Condensed Notes to Consolidated Financial Statements (Unaudited) | 8 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | * |
45 | ||
46 | ||
46 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | * |
Item 3. | Defaults Upon Senior Securities | * |
46 | ||
46 | ||
46 |
* | This item has been omitted pursuant to the reduced disclosure format as set forth in General Instruction (H)(2) of Form 10-Q |
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2020 |
| 2019 | | 2020 |
| 2019 | ||||
REVENUES |
| | | | | |
| | | | | |
Interest income on retail notes and finance leases | | $ | 46,995 | | $ | 54,110 | | $ | 143,015 | | $ | 166,690 |
Interest income on wholesale notes | |
| 12,673 | |
| 17,385 | |
| 41,814 | |
| 51,120 |
Interest and other income from affiliates | |
| 75,233 | |
| 84,315 | |
| 242,745 | |
| 257,560 |
Rental income on operating leases | |
| 64,406 | |
| 60,534 | |
| 188,600 | |
| 181,667 |
Other income | |
| 10,367 | |
| 8,012 | |
| 23,021 | |
| 18,500 |
Total revenues |
|
| 209,674 | |
| 224,356 |
|
| 639,195 | |
| 675,537 |
EXPENSES |
| | | | | |
| | | | | |
Interest expense: | | | | | | | | | | | | |
Interest expense to third parties | |
| 68,122 | |
| 82,411 | |
| 212,738 | |
| 252,616 |
Interest expense to affiliates | |
| 718 | |
| 6,368 | |
| 2,764 | |
| 9,791 |
Total interest expense |
|
| 68,840 | |
| 88,779 |
|
| 215,502 | |
| 262,407 |
Administrative and operating expenses: |
| | | | | |
| | | | | |
Fees charged by affiliates | |
| 10,399 | |
| 11,568 | |
| 33,542 | |
| 35,523 |
Provision for credit losses | |
| 12,575 | |
| 7,917 | |
| 47,712 | |
| 27,983 |
Depreciation of equipment on operating leases | |
| 59,722 | |
| 56,070 | |
| 176,848 | |
| 172,670 |
Other expenses | |
| 8,208 | |
| 10,536 | |
| 23,609 | |
| 26,795 |
Total administrative and operating expenses |
|
| 90,904 | |
| 86,091 |
|
| 281,711 | |
| 262,971 |
Total expenses |
|
| 159,744 | |
| 174,870 |
|
| 497,213 | |
| 525,378 |
INCOME BEFORE TAXES |
|
| 49,930 | |
| 49,486 |
|
| 141,982 | |
| 150,159 |
Income tax provision | |
| 11,775 | |
| 12,965 | |
| 32,759 | |
| 36,643 |
NET INCOME |
| $ | 38,155 | | $ | 36,521 |
| $ | 109,223 | | $ | 113,516 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
1
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2020 |
| 2019 | | 2020 |
| 2019 | ||||
NET INCOME |
| $ | 38,155 | | $ | 36,521 |
| $ | 109,223 | | $ | 113,516 |
Other comprehensive income (loss): | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| 10,733 | |
| (5,720) | |
| (14,225) | |
| 12,214 |
Pension liability adjustment | |
| (17) | |
| 98 | |
| (72) | |
| 275 |
Change in derivative financial instruments | |
| 362 | |
| 438 | |
| (8,184) | |
| (2,573) |
Total other comprehensive income (loss) |
|
| 11,078 | |
| (5,184) |
|
| (22,481) | |
| 9,916 |
COMPREHENSIVE INCOME |
| $ | 49,233 | | $ | 31,337 |
| $ | 86,742 | | $ | 123,432 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
2
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019
(Dollars in thousands)
(Unaudited)
|
| September 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
ASSETS |
| | |
| | |
Cash and cash equivalents | | $ | 260,500 | | $ | 174,966 |
Restricted cash and cash equivalents | |
| 508,277 | |
| 629,278 |
Receivables, less allowance for credit losses of $129,945 and $72,751, respectively | |
| 9,070,542 | |
| 9,835,274 |
Affiliated accounts and notes receivable | |
| 312,813 | |
| 64,307 |
Equipment on operating leases, net | |
| 1,769,774 | |
| 1,783,283 |
Equipment held for sale | |
| 92,056 | |
| 170,218 |
Goodwill | |
| 108,850 | |
| 109,629 |
Other intangible assets, net | |
| 12,034 | |
| 12,195 |
Other assets | |
| 108,401 | |
| 74,937 |
TOTAL |
| $ | 12,243,247 | | $ | 12,854,087 |
LIABILITIES AND STOCKHOLDER’S EQUITY |
| | | | | |
Liabilities: | | | | | | |
Short-term debt (including current maturities of long-term debt) | | $ | 4,446,295 | | $ | 4,790,172 |
Accounts payable and other accrued liabilities | |
| 906,496 | |
| 807,437 |
Affiliated debt | |
| 208,063 | |
| 213,856 |
Long-term debt | |
| 5,482,339 | |
| 5,779,581 |
Total liabilities |
|
| 11,043,193 | |
| 11,591,046 |
Commitments and contingent liabilities (Note 11) |
| | | | | |
Stockholder’s equity: |
| | | | | |
Member’s capital | |
| — | |
| — |
Paid-in capital | |
| 843,815 | |
| 843,749 |
Accumulated other comprehensive loss | |
| (146,877) | |
| (124,396) |
Retained earnings | |
| 503,116 | |
| 543,688 |
Total stockholder’s equity |
|
| 1,200,054 | |
| 1,263,041 |
TOTAL |
| $ | 12,243,247 | | $ | 12,854,087 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
3
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019
(Dollars in thousands)
(Unaudited)
The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”), which are included in the consolidated balance sheets. The assets in the table include those assets that can only be used to settle obligations of consolidated VIEs. The liabilities in the table include third-party liabilities of the consolidated VIEs, for which creditors do not have recourse to the general credit of CNH Industrial Capital LLC.
|
| September 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Restricted cash and cash equivalents |
| $ | 508,277 | | $ | 629,278 |
Receivables, less allowance for credit losses of $69,940 and $48,413, respectively | |
| 5,919,711 | |
| 6,748,621 |
TOTAL |
| $ | 6,427,988 | | $ | 7,377,899 |
| | | | | | |
Short-term debt (including current maturities of long-term debt) |
| $ | 2,863,738 | | $ | 3,274,216 |
Long-term debt | |
| 2,982,982 | |
| 3,495,022 |
TOTAL |
| $ | 5,846,720 | | $ | 6,769,238 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
4
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollars in thousands)
(Unaudited)
|
| 2020 |
| 2019 | ||
CASH FLOWS FROM OPERATING ACTIVITIES |
| | | | | |
Net income | | $ | 109,223 | | $ | 113,516 |
Adjustments to reconcile net income to net cash from (used in) operating activities: | | | | | | |
Depreciation on property and equipment and equipment on operating leases | |
| 176,853 | |
| 172,671 |
Amortization of intangibles | |
| 1,171 | |
| 1,375 |
Provision for credit losses | |
| 47,712 | |
| 27,983 |
Deferred income tax expense (benefit) | |
| (10,783) | |
| 44,055 |
Changes in components of working capital: | | | | | | |
Change in affiliated accounts and notes receivables | |
| (248,652) | |
| 19,643 |
Change in other assets and equipment held for sale | |
| (38,750) | |
| (3,570) |
Change in accounts payable and other accrued liabilities | |
| 81,704 | |
| (34,061) |
Net cash from (used in) operating activities |
|
| 118,478 | |
| 341,612 |
CASH FLOWS FROM INVESTING ACTIVITIES |
| | | | | |
Cost of receivables acquired | |
| (7,327,903) | |
| (8,149,836) |
Collections of receivables | |
| 7,991,709 | |
| 8,200,468 |
Purchase of equipment on operating leases | |
| (375,458) | |
| (514,369) |
Proceeds from disposal of equipment on operating leases | |
| 285,890 | |
| 337,284 |
Change in property, equipment and software, net | | | (1,010) | | | (2,317) |
Net cash from (used in) investing activities |
|
| 573,228 | |
| (128,770) |
CASH FLOWS FROM FINANCING ACTIVITIES |
| | | | | |
Proceeds from issuance of affiliated debt | |
| 765,415 | |
| 1,370,930 |
Payment of affiliated debt | |
| (764,889) | |
| (1,164,078) |
Proceeds from issuance of long-term debt | |
| 2,556,026 | |
| 1,945,345 |
Payment of long-term debt | |
| (2,625,939) | |
| (2,475,771) |
Change in short-term borrowings, net | |
| (527,786) | |
| 123,108 |
Dividends paid to CNH Industrial America LLC | |
| (130,000) | |
| (165,000) |
Net cash from (used in) financing activities |
|
| (727,173) | |
| (365,466) |
DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| (35,467) | |
| (152,624) |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
| | | | | |
Beginning of period | |
| 804,244 | |
| 799,871 |
End of period |
| $ | 768,777 | | $ | 647,247 |
CASH PAID DURING THE PERIOD FOR INTEREST |
| $ | 187,712 | | $ | 243,398 |
CASH PAID (RECEIVED) DURING THE PERIOD FOR TAXES |
| $ | 24,511 | | $ | (40,936) |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
5
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | |
|
| | |
| | |
| Accumulated |
| | |
| | | |
| | | | | | | | Other | | | | | | | |
| | Member’s | | Paid-in | | Comprehensive | | Retained | | | | ||||
| | Capital | | Capital | | Income (Loss) | | Earnings | | Total | |||||
BALANCE - January 1, 2020 as previously reported |
| $ | — | | $ | 843,749 | | $ | (124,396) | | $ | 543,688 | | $ | 1,263,041 |
Adoption of ASC 326 | | | — | | | — | | | — | | | (19,790) | | | (19,790) |
BALANCE - January 1, 2020 as recast | | | — | | | 843,749 | | | (124,396) | | | 523,898 | | | 1,243,251 |
Net income | | | — | | | — | | | — | | | 35,077 | | | 35,077 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (40,000) | | | (40,000) |
Foreign currency translation adjustment | | | — | | | — | | | (44,269) | | | — | | | (44,269) |
Stock compensation | | | — | | | (1) | | | — | | | — | | | (1) |
Pension liability adjustment, net of tax | | | — | | | — | | | (6) | | | — | | | (6) |
Change in derivative financial instruments, net of tax | | | — | | | — | | | (7,756) | | | — | | | (7,756) |
BALANCE - March 31, 2020 |
| $ | — | | $ | 843,748 | | $ | (176,427) | | $ | 518,975 | | $ | 1,186,296 |
Net income | | | — | | | — | | | — | | | 35,991 | | | 35,991 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (50,000) | | | (50,000) |
Foreign currency translation adjustment | | | — | | | — | | | 19,311 | | | (5) | | | 19,306 |
Stock compensation | | | — | | | 72 | | | — | | | — | | | 72 |
Pension liability adjustment, net of tax | | | — | | | — | | | (49) | | | — | | | (49) |
Change in derivative financial instruments, net of tax | | | — | | | — | | | (790) | | | — | | | (790) |
BALANCE - June 30, 2020 |
| $ | — | | $ | 843,820 | | $ | (157,955) | | $ | 504,961 | | $ | 1,190,826 |
Net income | | | — | | | — | | | — | | | 38,155 | | | 38,155 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (40,000) | | | (40,000) |
Foreign currency translation adjustment | | | — | | | — | | | 10,733 | | | — | | | 10,733 |
Stock compensation | | | — | | | (5) | | | — | | | — | | | (5) |
Pension liability adjustment, net of tax | | | — | | | — | | | (17) | | | — | | | (17) |
Change in derivative financial instruments, net of tax | | | — | | | — | | | 362 | | | — | | | 362 |
BALANCE - September 30, 2020 |
| $ | — | | $ | 843,815 | | $ | (146,877) | | $ | 503,116 | | $ | 1,200,054 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
6
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | |
|
| | |
| | |
| Accumulated |
| | |
| | | |
| | | | | | | | Other | | | | | | | |
| | Member’s | | Paid-in | | Comprehensive | | Retained | | | | ||||
| | Capital | | Capital | | Income (Loss) | | Earnings | | Total | |||||
BALANCE - January 1, 2019 |
| $ | — | | $ | 843,643 | | $ | (146,999) | | $ | 659,088 | | $ | 1,355,732 |
Net income | | | — | | | — | | | — | | | 39,211 | | | 39,211 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | — | | | — |
Foreign currency translation adjustment | | | — | | | — | | | 8,690 | | | — | | | 8,690 |
Stock compensation | | | — | | | 164 | | | — | | | — | | | 164 |
Reclassification of certain tax effects | | | — | | | — | | | (597) | | | 597 | | | — |
Pension liability adjustment, net of tax | | | — | | | — | | | 88 | | | — | | | 88 |
Change in derivative financial instruments, net of tax |
| | — | | | — | | | (1,950) | | | — | | | (1,950) |
BALANCE - March 31, 2019 |
| $ | — | | $ | 843,807 | | $ | (140,768) | | $ | 698,896 | | $ | 1,401,935 |
Net income | | | — | | | — | | | — | | | 37,784 | | | 37,784 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (125,000) | | | (125,000) |
Foreign currency translation adjustment | | | — | | | — | | | 9,244 | | | — | | | 9,244 |
Stock compensation | | | — | | | 94 | | | — | | | — | | | 94 |
Pension liability adjustment, net of tax | | | — | | | — | | | 89 | | | — | | | 89 |
Change in derivative financial instruments, net of tax | | | — | | | — | | | (1,061) | | | — | | | (1,061) |
BALANCE - June 30, 2019 |
| $ | — | | $ | 843,901 | | $ | (132,496) | | $ | 611,680 | | $ | 1,323,085 |
Net income | | | — | | | — | | | — | | | 36,521 | | | 36,521 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | (40,000) | | | (40,000) |
Foreign currency translation adjustment | | | — | | | — | | | (5,720) | | | — | | | (5,720) |
Stock compensation | | | — | | | 176 | | | — | | | — | | | 176 |
Pension liability adjustment, net of tax | | | — | | | — | | | 98 | | | — | | | 98 |
Change in derivative financial instruments, net of tax | | | — | | | — | | | 438 | | | — | | | 438 |
BALANCE - September 30, 2019 |
| $ | — | | $ | 844,077 | | $ | (137,680) | | $ | 608,201 | | $ | 1,314,598 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
7
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
CNH Industrial Capital LLC and its primary operating subsidiaries, including New Holland Credit Company, LLC (“New Holland Credit”), CNH Industrial Capital America LLC (“CNH Industrial Capital America”) and CNH Industrial Capital Canada Ltd. (“CNH Industrial Capital Canada”) (collectively, “CNH Industrial Capital” or the “Company”), are each a subsidiary of CNH Industrial America LLC (“CNH Industrial America”), which is an indirect wholly-owned subsidiary of CNH Industrial N.V. (“CNHI” and, together with its consolidated subsidiaries, “CNH Industrial”). CNH Industrial America and CNH Industrial Canada Ltd. (collectively, “CNH Industrial North America”) design, manufacture, and sell agricultural and construction equipment. CNH Industrial Capital provides financial services for CNH Industrial North America dealers and end-use customers primarily located in the United States and Canada.
CNHI is incorporated in and under the laws of The Netherlands. CNHI has its corporate seat in Amsterdam, The Netherlands, and its principal office in London, England. The common shares of CNHI are listed on the New York Stock Exchange under the symbol “CNHI,” as well as on the Mercato Telematico Azionario managed by Borsa Italiana S.p.A.
The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, which should be read in conjunction with the audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019. Certain financial information that is normally included in annual financial statements prepared in conformity with U.S. GAAP, which is not required for interim reporting purposes, has been condensed or omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our interim unaudited financial statements have been reflected.
The consolidated financial statements include the Company and its consolidated subsidiaries. The consolidated financial statements are expressed in U.S. dollars. The consolidated financial statements include the accounts of the Company’s subsidiaries in which the Company has a controlling financial interest and reflect the noncontrolling interests of the minority owners of the subsidiaries that are not fully owned for the periods presented, as applicable. A controlling financial interest may exist based on ownership of a majority of the voting interest of a subsidiary, or based on the Company’s determination that it is the primary beneficiary of a variable interest entity (“VIE”). The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the economic performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. The Company assesses whether it is the primary beneficiary on an ongoing basis, as prescribed by the accounting guidance on the consolidation of VIEs. The consolidated status of the VIEs with which the Company is involved may change as a result of such reassessments.
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and reported amounts of revenues and expenses. Significant estimates in these consolidated financial statements include the allowance for credit losses and residual values of equipment on operating leases. Due to the ongoing Novel Coronavirus (“COVID-19”) situation and the potential for additional outbreaks, actual results could differ materially from the estimates and assumptions used in preparation of the financial statements including, but not limited to, future cash flows associated with the allowance for credit losses, the determination of end-of-lease market values for equipment on operating leases, goodwill and income taxes. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.
8
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncements Adopted in 2020
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which established ASC 326, Financial Instruments – Credit Losses (“ASC 326”). In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (“ASU 2018-19”), which superseded existing ASU 2016-13. The ASU introduced a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Additional disclosures about significant estimates and credit quality were also required. The Company adopted ASU 2018-19 on January 1, 2020, using the modified retrospective approach. The impact to the consolidated balance sheet on January 1, 2020 was an increase to the allowance for credit losses of $26 million and an increase to deferred tax assets of $6 million, with the offset to retained earnings, net of tax, of $20 million. See “Note 4: Receivables” for the Company’s updated accounting policy on Allowance for Credit Losses.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amended ASC 820, Fair Value Measurement. This ASU modified the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures were adopted on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement (“ASU 2018-15”), which expanded the guidance set forth in ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2018-15 aligned the requirements for capitalization of implementation costs in a cloud computing service contract with those requirements for capitalization of implementation costs incurred for an internal-use software license. The Company adopted ASU 2018-15 on January 1, 2020. The adoption of this standard did not have a material impact on its consolidated financial statements.
In October 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”), which expanded the application of a specific private company alternative related to VIEs and changed the guidance for determining whether a decision-making fee is a variable interest. Under the new guidance, to determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety. The Company adopted ASU 2018-17 on January 1, 2020. The adoption of this standard did not have a material impact on its consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which made targeted changes to standards on credit losses, hedging, and recognizing and measuring financial instruments, to clarify them and address implementation issues. The amendments clarified the scope of the credit losses standard and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. On recognizing and measuring financial instruments, the amendments addressed the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. The Company adopted ASU 2019-04 on January 1, 2020. The adoption of this standard did not have a material impact on its consolidated financial statements.
9
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
New Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU No. 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 where there is a loss from continuing operations, and income or a gain from other items; (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 will be effective for the annual periods beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
NOTE 3: ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income (“AOCI”) includes net income plus other comprehensive income, which includes foreign currency translation gains and losses, certain changes in pension plans and changes in fair value of certain derivatives designated as cash flow hedges.
The following table summarizes the change in the components of the Company’s AOCI balance and related tax effects for the three months ended September 30, 2020:
| | | | | | | | | | | | |
| | Currency | | | | | Unrealized | | | | ||
| | Translation | | Pension | | (Losses) Gains | | | | |||
|
| Adjustment |
| Liability |
| on Derivatives |
| Total | ||||
Beginning balance, gross |
| $ | (150,091) | | $ | (373) | | $ | (10,292) | | $ | (160,756) |
Tax asset | |
| — | |
| 74 | |
| 2,727 | |
| 2,801 |
Beginning balance, net of tax |
|
| (150,091) | |
| (299) | |
| (7,565) | |
| (157,955) |
Other comprehensive income (loss) before reclassifications | |
| 10,733 | |
| (109) | |
| 383 | |
| 11,007 |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| 52 | |
| 110 | |
| 162 |
Tax effects | |
| — | |
| 40 | |
| (131) | |
| (91) |
Net current-period other comprehensive income (loss) |
|
| 10,733 | |
| (17) | |
| 362 | |
| 11,078 |
Total |
| $ | (139,358) | | $ | (316) | | $ | (7,203) | | $ | (146,877) |
10
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The following table summarizes the change in the components of the Company’s AOCI balance and related tax effects for the nine months ended September 30, 2020:
| | | | | | | | | | | | |
| | Currency | | | | | Unrealized | | | | ||
| | Translation | | Pension | | (Losses) Gains | | | | |||
|
| Adjustment |
| Liability |
| on Derivatives |
| Total | ||||
Beginning balance, gross |
| $ | (125,133) | | $ | (302) | | $ | 1,335 | | $ | (124,100) |
Tax asset | |
| — | |
| 58 | |
| (354) | |
| (296) |
Beginning balance, net of tax |
|
| (125,133) | |
| (244) | |
| 981 | |
| (124,396) |
Other comprehensive income (loss) before reclassifications | |
| (14,225) | |
| (283) | |
| (11,193) | |
| (25,701) |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| 154 | |
| 59 | |
| 213 |
Tax effects | |
| — | |
| 57 | |
| 2,950 | |
| 3,007 |
Net current-period other comprehensive income (loss) |
|
| (14,225) | |
| (72) | |
| (8,184) | |
| (22,481) |
Total |
| $ | (139,358) | | $ | (316) | | $ | (7,203) | | $ | (146,877) |
The following table summarizes the change in the components of the Company’s AOCI balance and related tax effects for the three months ended September 30, 2019:
| | | | | | | | | | | | |
| | Currency | | | | | Unrealized | | | | ||
| | Translation | | Pension | | (Losses) Gains | | | | |||
|
| Adjustment |
| Liability |
| Derivatives |
| Total | ||||
Beginning balance, gross |
| $ | (128,792) | | $ | (3,836) | | $ | (1,071) | | $ | (133,699) |
Tax asset | |
| — | |
| 919 | |
| 284 | |
| 1,203 |
Beginning balance, net of tax |
|
| (128,792) | |
| (2,917) | |
| (787) | |
| (132,496) |
Other comprehensive income (loss) before reclassifications | |
| (5,720) | |
| (97) | |
| 761 | |
| (5,056) |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| 227 | |
| (166) | |
| 61 |
Tax effects | |
| — | |
| (32) | |
| (157) | |
| (189) |
Net current-period other comprehensive income (loss) |
|
| (5,720) | |
| 98 | |
| 438 | |
| (5,184) |
Total |
| $ | (134,512) | | $ | (2,819) | | $ | (349) | | $ | (137,680) |
11
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The following table summarizes the change in the components of the Company’s AOCI balance and related tax effects for the nine months ended September 30, 2019:
| | | | | | | | | | | | |
| | Currency | | | | | Unrealized | | | | ||
| | Translation | | Pension | | (Losses) Gains | | | | |||
|
| Adjustment |
| Liability |
| Derivatives |
| Total | ||||
Beginning balance, gross |
| $ | (146,726) | | $ | (4,070) | | $ | 3,025 | | $ | (147,771) |
Tax asset | |
| — | |
| 1,573 | |
| (801) | |
| 772 |
Beginning balance, net of tax |
|
| (146,726) | |
| (2,497) | |
| 2,224 | |
| (146,999) |
Other comprehensive income (loss) before reclassifications | |
| 12,214 | |
| (320) | |
| (2,978) | |
| 8,916 |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| 684 | |
| (523) | |
| 161 |
Tax effects | |
| — | |
| (89) | |
| 928 | |
| 839 |
Net current-period other comprehensive income (loss) |
|
| 12,214 | |
| 275 | |
| (2,573) | |
| 9,916 |
Reclassification of certain tax effects | | | — | | | (597) | | | — | | | (597) |
Total |
| $ | (134,512) | | $ | (2,819) | | $ | (349) | | $ | (137,680) |
The reclassifications out of AOCI and the location on the consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended |
| |
| ||||||||
| | September 30, | | September 30, | | | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| Affected Line Item | | ||||
Amortization of defined benefit pension items: | | | | | | | | | | | | | | | |
|
| $ | (52) |
| $ | (227) |
| $ | (154) |
| $ | (684) |
| Various line items individually insignificant | |
|
| | (52) | | | (227) |
| | (154) | | | (684) |
| Income before taxes | |
| | | 44 | | | 56 | | | 68 | | | 167 | | Income tax effects | |
|
| $ | (8) |
| $ | (171) |
| $ | (86) |
| $ | (517) |
| Net of tax | |
Unrealized losses on derivatives: |
| | | | | |
| | | | | |
| | |
|
| $ | (110) |
| $ | 166 |
| $ | (59) |
| $ | 523 |
| Interest expense to third parties | |
|
| | (110) | | | 166 |
| | (59) | | | 523 |
| Income before taxes | |
| | | 29 | | | (45) | | | 16 | | | (139) | | Income tax effects | |
|
| $ | (81) |
| $ | 121 |
| $ | (43) |
| $ | 384 |
| Net of tax | |
12
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 4: RECEIVABLES
A summary of receivables included in the consolidated balance sheets as of September 30, 2020 and December 31, 2019 is as follows:
|
| September 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Retail |
| $ | 1,309,362 |
| $ | 656,518 |
Wholesale | |
| 748,634 | |
| 813,454 |
Finance lease | |
| 110,819 | |
| 79,848 |
Restricted receivables | |
| 7,031,672 | |
| 8,358,205 |
Gross receivables |
|
| 9,200,487 |
|
| 9,908,025 |
Less: Allowance for credit losses | |
| (129,945) | |
| (72,751) |
Total receivables, net |
| $ | 9,070,542 |
| $ | 9,835,274 |
Restricted Receivables and Securitization
As part of its overall funding strategy, the Company periodically transfers certain receivables into VIEs that are special purpose entities (“SPEs”) as part of its asset-backed securitization (“ABS”) programs.
SPEs utilized in the securitization programs differ from other entities included in the Company’s consolidated financial statements because the assets they hold are legally isolated from the Company’s assets. For bankruptcy analysis purposes, the Company has sold the receivables to the SPEs in a true sale and the SPEs are separate legal entities. Upon transfer of the receivables to the SPEs, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the SPEs’ creditors. The SPEs have ownership of cash balances that also have restrictions for the benefit of the SPEs’ investors. The Company’s interests in the SPEs’ receivables are subordinate to the interests of third-party investors. None of the receivables that are directly or indirectly sold or transferred in any of these transactions are available to pay the Company’s creditors until all obligations of the SPE have been fulfilled or the receivables are removed from the SPE.
The secured borrowings related to the restricted receivables are obligations that are payable as the receivables are collected. The following table summarizes the restricted receivables as of September 30, 2020 and December 31, 2019:
|
| September 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Retail |
| $ | 4,784,809 |
| $ | 5,531,885 |
Wholesale | |
| 2,246,863 | |
| 2,826,320 |
Total restricted receivables |
| $ | 7,031,672 | | $ | 8,358,205 |
Within the U.S. retail receivables securitization programs, qualifying retail receivables are sold to bankruptcy remote SPEs. In turn, these SPEs either establish separate trusts to which the receivables are transferred in exchange for proceeds from asset-backed securities issued by the trusts or pledge the receivables as collateral in exchange for proceeds from a committed asset-backed facility. In Canada, the receivables are transferred directly to the trusts. These trusts were determined to be VIEs. 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. Consequently, the Company has consolidated these retail trusts.
13
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
With regard to the wholesale receivable securitization programs, the Company sells eligible receivables on a revolving basis to structured master trust facilities, which are bankruptcy-remote SPEs. These trusts were determined to be VIEs. In its role as servicer, CNH Industrial Capital has the power to direct the trusts’ activities. Through its retained interests, the Company provides security to investors in the event that cash collections from the receivables are not sufficient to make principal and interest payments on the securities. Consequently, CNH Industrial Capital has consolidated these wholesale trusts.
The allowance for credit losses is the Company’s estimate of the lifetime expected credit losses inherent in the receivables owned by the Company. Retail receivables include retail and other notes and finance lease products offered for retail purchases of new and used equipment sold through CNH Industrial North America’s dealer network. Wholesale receivables include financing of the sale of goods to dealers and distributors by CNH Industrial North America, and to a lesser extent, the financing of dealer operations. Wholesale factoring receivables represent the short-term receivables purchased from Iveco Argentina S.A. Typically, the Company’s receivables within a geographic area have similar risk profiles and methods for assessing and monitoring risk.
Retail receivables that share the same risk characteristics such as, collateralization levels, geography, product type and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for retail credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward looking macroeconomic factors, such as GDP and Net Farm Income. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
Wholesale receivables that share the same risk characteristics such as, collateralization levels, term, geography and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for wholesale credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward looking macroeconomic factors, such as industry sales volumes. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
Wholesale and retail receivables that do not have similar risk characteristics are individually reviewed based on, among other items, amounts outstanding, days past due and prior collection history. Expected credit losses are measured by considering: the probability-weighted estimates of cash flows and collateral value; the time value of money; current conditions and forecasts of future economic conditions. Expected credit losses are measured as the probability-weighted present value of all cash shortfalls (including the value of the collateral, if appropriate) over the expected life of each financial asset. Charge offs of principal amounts of receivables outstanding are deducted from the allowance at the point when it is estimated that amounts due are deemed uncollectible.
14
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Allowance for credit losses activity for the three months ended September 30, 2020 is as follows:
| | | | Wholesale | | Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance |
| $ | 112,492 |
| $ | 7,333 | | $ | 119,825 |
Charge-offs | |
| (3,244) | |
| (1) | | | (3,245) |
Recoveries | |
| 578 | |
| 5 | | | 583 |
Provision | |
| 11,331 | |
| 1,244 | | | 12,575 |
Foreign currency translation and other | |
| 190 | |
| 17 | | | 207 |
Ending balance |
| $ | 121,347 |
| $ | 8,598 | | $ | 129,945 |
Allowance for credit losses activity for the nine months ended September 30, 2020 is as follows:
| | Retail | | Wholesale | | Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance, as previously reported |
| $ | 64,750 |
| $ | 8,001 | | $ | 72,751 |
Adoption of ASC 326 | | | 25,877 | | | — | | | 25,877 |
Beginning balance, as recast | | $ | 90,627 | | $ | 8,001 | | $ | 98,628 |
Charge-offs | |
| (18,028) | |
| (213) | | | (18,241) |
Recoveries | |
| 1,905 | |
| 8 | | | 1,913 |
Provision | |
| 46,882 | |
| 830 | | | 47,712 |
Foreign currency translation and other | |
| (39) | |
| (28) | | | (67) |
Ending balance |
| $ | 121,347 |
| $ | 8,598 | | $ | 129,945 |
Receivables: |
| | |
| | | | | |
Ending balance |
| $ | 6,204,990 |
| $ | 2,995,497 | | $ | 9,200,487 |
At September 30, 2020, the allowance for credit losses includes a continued build of reserves primarily due to the expectation of deteriorating credit conditions related to the COVID-19 pandemic. The Company continues to monitor the situation and will update the macroeconomic factors and qualitative factors in future periods, as warranted.
Allowance for credit losses activity for the three months ended September 30, 2019 is as follows:
| | | | | | | | Wholesale | | | | |
|
| Retail |
| Wholesale |
| Factoring |
| Total | ||||
Allowance for credit losses: | | | | | | | | | | | | |
Beginning balance |
| $ | 70,311 |
| $ | 7,239 |
| $ | 60 | | $ | 77,610 |
Charge-offs | |
| (11,233) | |
| (2,416) | |
| — | |
| (13,649) |
Recoveries | |
| 512 | |
| 3 | |
| — | |
| 515 |
Provision | |
| 5,797 | |
| 2,169 | |
| (49) | |
| 7,917 |
Foreign currency translation and other | |
| (51) | |
| (12) | |
| — | |
| (63) |
Ending balance |
| $ | 65,336 |
| $ | 6,983 |
| $ | 11 | | $ | 72,330 |
15
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Allowance for credit losses activity for the nine months ended September 30, 2019 is as follows:
| | | | | | | | | | | | | | |
| | | | | | | | Wholesale | | | | | ||
| | Retail | | Wholesale | | Factoring | | Total | | |||||
Allowance for credit losses: | | | | | | | | | | | | | | |
Beginning balance |
| $ | 66,944 |
| $ | 7,468 | | $ | — |
| $ | 74,412 | | |
Charge-offs | |
| (27,799) | |
| (4,581) | |
| — | |
| (32,380) | | |
Recoveries | |
| 2,188 | |
| 12 | |
| — | |
| 2,200 | | |
Provision | |
| 23,903 | |
| 4,069 | |
| 11 | |
| 27,983 | | |
Foreign currency translation and other | |
| 100 | |
| 15 | |
| — | |
| 115 | | |
Ending balance |
| $ | 65,336 |
| $ | 6,983 | | $ | 11 |
| $ | 72,330 | | |
Receivables: |
| | |
| | | | | |
| | | | |
Ending balance |
| $ | 6,348,795 |
| $ | 3,635,250 | | $ | 15,673 |
| $ | 9,999,718 | |
Allowance for credit losses activity for the year ended December 31, 2019 is as follows:
| | | | | | | | | |
|
| Retail |
| Wholesale |
| Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance |
| $ | 66,944 |
| $ | 7,468 |
| $ | 74,412 |
Charge-offs | |
| (35,535) | |
| (5,102) | |
| (40,637) |
Recoveries | |
| 3,046 | |
| 16 | |
| 3,062 |
Provision | |
| 30,115 | |
| 5,588 | |
| 35,703 |
Foreign currency translation and other | |
| 180 | |
| 31 | |
| 211 |
Ending balance |
| $ | 64,750 |
| $ | 8,001 |
| $ | 72,751 |
Receivables: |
| | |
| | |
| | |
Ending balance |
| $ | 6,268,251 |
| $ | 3,639,774 |
| $ | 9,908,025 |
The Company assesses and monitors the credit quality of its receivables based on past due information. Receivables are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Delinquency is reported on receivables greater than 30 days past due. As the terms for retail receivables are greater than one year, the past due information is presented by year of origination.
16
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The aging of receivables as of September 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Greater | | | | | | | | | | |
| | 31 – 60 Days | | 61 – 90 Days | | Than | | Total | | | | | Total | |||||
| | Past Due | | Past Due | | 90 Days | | Past Due | | Current | | Receivables | ||||||
Retail |
| | | | | | | | | | | | | | | | | |
United States | | | | | | | | | | | | | | | | | | |
2020 | | $ | 5,664 | | $ | 1,165 | | $ | 1,661 | | $ | 8,490 | | $ | 1,507,649 | | $ | 1,516,139 |
2019 | | | 11,176 | | | 2,520 | | | 7,284 | | | 20,980 | | | 1,436,109 | | | 1,457,089 |
2018 | | | 7,062 | | | 2,659 | | | 5,702 | | | 15,423 | | | 981,829 | | | 997,252 |
2017 | | | 4,904 | | | 1,994 | | | 5,062 | | | 11,960 | | | 548,310 | | | 560,270 |
2016 | | | 2,967 | | | 815 | | | 3,652 | | | 7,434 | | | 291,003 | | | 298,437 |
2015 | | | 927 | | | 645 | | | 2,925 | | | 4,497 | | | 98,861 | | | 103,358 |
Prior to 2015 | | | 113 | | | 119 | | | 3,251 | | | 3,483 | | | 30,126 | | | 33,609 |
Total |
| $ | 32,813 | | $ | 9,917 | | $ | 29,537 | | $ | 72,267 | | $ | 4,893,887 | | $ | 4,966,154 |
Canada | | | | | | | | | | | | | | | | | | |
2020 | | $ | 480 | | $ | 198 | | $ | 73 | | $ | 751 | | $ | 423,911 | | $ | 424,662 |
2019 | | | 3,081 | | | 376 | | | 2,300 | | | 5,757 | | | 379,540 | | | 385,297 |
2018 | | | 1,786 | | | 275 | | | 1,414 | | | 3,475 | | | 230,689 | | | 234,164 |
2017 | | | 1,376 | | | 139 | | | 810 | | | 2,325 | | | 111,816 | | | 114,141 |
2016 | | | 871 | | | 119 | | | 1,090 | | | 2,080 | | | 54,863 | | | 56,943 |
2015 | | | 210 | | | 49 | | | 535 | | | 794 | | | 19,404 | | | 20,198 |
Prior to 2015 | | | 26 | | | 4 | | | 20 | | | 50 | | | 3,381 | | | 3,431 |
Total |
| $ | 7,830 | | $ | 1,160 | | $ | 6,242 | | $ | 15,232 | | $ | 1,223,604 | | $ | 1,238,836 |
Wholesale |
| | | | | | | | | | | | | | | | | |
United States | | $ | 393 | | $ | 1 | | $ | 1,320 | | $ | 1,714 | | $ | 2,467,310 | | $ | 2,469,024 |
Canada | | $ | 4 | | $ | 1 | | $ | 4 | | $ | 9 | | $ | 526,464 | | $ | 526,473 |
Total |
| | |
| | |
| | |
| | |
| | |
| | |
Retail | | $ | 40,643 | | $ | 11,077 | | $ | 35,779 | | $ | 87,499 | | $ | 6,117,491 | | $ | 6,204,990 |
Wholesale | | $ | 397 | | $ | 2 | | $ | 1,324 | | $ | 1,723 | | $ | 2,993,774 | | $ | 2,995,497 |
The above aging table is not necessarily reflective of the potential credit risk in the portfolio due to payment schedules changes granted by the Company and government stimulus policies benefiting CNH Industrial North America dealers or the Company’s end-use customers.
17
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The aging of receivables as of December 31, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| Recorded | | |
| | | | | | | | | | | | | | | | | | | | Investment | | |
| | | | | | | | Greater | | | | | | | | | | | > 90 Days | | ||
| | 31 – 60 Days | | 61 – 90 Days | | Than | | Total | | | | | Total | | and | | ||||||
| | Past Due | | Past Due | | 90 Days | | Past Due | | Current | | Receivables | | Accruing | | |||||||
Retail |
| | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 19,781 | | $ | 5,896 | | $ | 29,192 | | $ | 54,869 | | $ | 5,001,400 | | $ | 5,056,269 | | $ | 7,356 | |
Canada | | $ | 4,470 | | $ | 1,063 | | $ | 4,703 | | $ | 10,236 | | $ | 1,201,746 | | $ | 1,211,982 | | $ | 1,167 | |
Wholesale |
| | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 2,081 | | $ | 42 | | $ | 551 | | $ | 2,674 | | $ | 2,887,599 | | $ | 2,890,273 | | $ | 189 | |
Canada | | $ | 57 | | $ | 370 | | $ | 571 | | $ | 998 | | $ | 748,503 | | $ | 749,501 | | $ | 4 | |
Total |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
Retail | | $ | 24,251 | | $ | 6,959 | | $ | 33,895 | | $ | 65,105 | | $ | 6,203,146 | | $ | 6,268,251 | | $ | 8,523 | |
Wholesale | | $ | 2,138 | | $ | 412 | | $ | 1,122 | | $ | 3,672 | | $ | 3,636,102 | | $ | 3,639,774 | | $ | 193 | |
Included in the receivables balance is accrued interest of $59,701. The Company does not include accrued interest in its allowance for credit losses. Recognition of income is generally suspended when management determines that collection of future finance income is not probable or when an account becomes 90 days delinquent, whichever occurs first. Accrued interest is charged-off to interest income. Interest income charged-off was not material for the three and nine months ended September 30, 2020. Interest accrual is resumed if the receivable becomes contractually current and collection becomes probable. Previously suspended income is recognized at that time.
The receivables on nonaccrual status as of September 30, 2020 and December 31, 2019 are as follows:
| | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| ||||||||||||||
|
| Retail |
| Wholesale |
| Total |
| Retail |
| Wholesale |
| Total |
| ||||||
United States |
| $ | 38,531 |
| $ | 32,280 |
| $ | 70,811 |
| $ | 33,463 |
| $ | 29,211 |
| $ | 62,674 | |
Canada | | $ | 6,242 | | $ | — | | $ | 6,242 | | $ | 3,749 | | $ | — | | $ | 3,749 | |
As of September 30, 2020 and December 31, 2019, the Company’s receivables on non-accrual status without an allowance were immaterial. Interest income recognized for receivables on non-accrual status for the three and nine months ended September 30, 2020 and 2019 was immaterial.
Troubled Debt Restructurings
A restructuring of a receivable constitutes a troubled debt restructuring (“TDR”) when the 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.
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.
18
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Before removing a receivable from TDR classification, a review of the borrower is conducted. If concerns exist about the future ability of the borrower to meet its obligations based on a credit review, the TDR classification is not removed from the receivable.
As of September 30, 2020, the Company had 254 retail and finance lease contracts classified as TDRs where a court has determined the concession. The pre-modification value of these contracts was $7,876 and the post-modification value was $7,065. Additionally, the Company had 394 accounts with a balance of $26,338 undergoing bankruptcy proceedings where a concession has not yet been determined. As of September 30, 2019, the Company had 284 retail and finance lease contracts classified as TDRs where a court has determined the concession. The pre-modification value of these contracts was $10,587 and the post-modification value was $9,553. Additionally, the Company had 346 accounts with a balance of $14,890 undergoing bankruptcy proceedings where a concession has not yet been determined. As the outcome of the bankruptcy cases is determined by a court based on available assets, subsequent re-defaults are unusual and were not material for retail and finance lease contracts that were modified in a TDR during the previous 12 months ended September 30, 2020 and 2019.
As of September 30, 2020 and 2019, the Company’s wholesale TDRs were immaterial.
NOTE 5: EQUIPMENT ON OPERATING LEASES
Lease payments owed to the Company for equipment under non-cancelable operating leases (excluding deferred operating lease subsidy of $111,850) as of September 30, 2020 are as follows:
2020 |
| $ | 62,077 | |
2021 | |
| 210,124 | |
2022 | |
| 125,271 | |
2023 | |
| 50,315 | |
2024 and thereafter | |
| 21,208 | |
Total lease payments |
| $ | 468,995 |
NOTE 6: CREDIT FACILITIES AND DEBT
On July 2, 2020, the Company completed an offering of $600,000 in aggregate principal amount of its 1.950% unsecured notes due 2023, issued at a price to the public of 99.370%.
On September 25, 2020, the Company extended the maturity date of the $1,200,000 U.S. retail committed asset-backed facility to September 2022.
Committed unsecured facilities with banks as of September 30, 2020 totaled $833,187. These credit facilities, which are eligible for renewal at various future dates, are used primarily for working capital and other general corporate purposes. As of September 30, 2020, the Company had $224,062 outstanding under these credit facilities. Included in the remaining available credit commitments is $85,000 maintained primarily to provide backup liquidity for commercial paper borrowings.
The Company’s outstanding commercial paper totaled $85,000 as of September 30, 2020.
19
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The effective tax rates for the three months ended September 30, 2020 and 2019 were 23.6% and 26.2%, respectively. The effective tax rate was 23.1% for the nine months ended September 30, 2020, compared to 24.4% for the same period in 2019.
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.
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.
20
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The Company utilizes derivative instruments to mitigate its exposure to interest rate and foreign currency exposures. Derivatives used as hedges are effective at reducing the risk associated with the exposure being hedged and are designated as a hedge at the inception of the derivative contract. The Company does not hold or enter into derivative or other financial instruments for speculative purposes. The credit and market risk related to derivatives is reduced through diversification among various counterparties, utilizing mandatory termination clauses and/or collateral support agreements. Derivative instruments are generally classified as Level 2 in the fair value hierarchy. The cash flows underlying all derivative contracts were recorded in operating activities in the consolidated statements of cash flows.
Interest Rate Derivatives
The Company has entered into interest rate derivatives in order to manage interest rate exposures arising in the normal course of business. Interest rate derivatives that have been designated as cash flow hedges are being used by the Company to mitigate the risk of rising interest rates related to existing debt and anticipated issuance of fixed-rate debt in future periods. Gains and losses on these instruments are deferred in accumulated other comprehensive income (loss) and recognized in interest expense over the period in which the Company recognizes interest expense on the related debt. As of September 30, 2020, the maximum length of time over which the Company is hedging its interest rate exposure through the use of derivative instruments designated in cash flow hedge relationships is 51 months. As of September 30, 2020, the after-tax losses deferred in accumulated other comprehensive income (loss) that will be recognized in interest expense over the next 12 months are approximately $425.
The Company also enters into offsetting interest rate derivatives with substantially similar economic terms that are not designated as hedging instruments to mitigate interest rate risk related to the Company’s committed asset-backed facilities. Unrealized and realized gains and losses resulting from fair value changes in these instruments are recognized directly in income and were insignificant for the three and nine months ended September 30, 2020 and 2019.
All of the Company’s interest rate derivatives as of September 30, 2020 and December 31, 2019 are considered Level 2. The fair market value of these derivatives is calculated using market data input and can be compared to actively traded derivatives. The total notional amount of the Company’s interest rate derivatives was $3,351,042 and $3,004,709 at September 30, 2020 and December 31, 2019, respectively. The ten-month average notional amounts for the nine months ended September 30, 2020 and 2019 were $3,205,481 and $2,966,980, respectively.
Foreign Exchange Contracts
The Company uses forward contracts to hedge certain assets and liabilities denominated in foreign currencies. Such derivatives are considered economic hedges and are not designated as hedging instruments. The changes in the fair value of these instruments are recognized directly as income in “Other expenses” and are expected to offset the foreign exchange gains or losses on the exposures being managed.
All of the Company’s foreign exchange derivatives are considered Level 2 as the fair value is calculated using market data input and can be compared to actively traded derivatives.
21
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Financial Statement Impact of the Company’s Derivatives
The fair values of the Company’s derivatives as of September 30, 2020 and December 31, 2019 in the consolidated balance sheets are recorded as follows:
|
| September 30, |
| December 31, |
| ||
| | 2020 | | 2019 | | ||
Derivatives Designated as Hedging Instruments | | | | | | | |
Other assets: |
| | | | | | |
Interest rate derivatives | | $ | 62,411 | | $ | 38,732 | |
Accounts payable and other accrued liabilities: |
| | | | | | |
Interest rate derivatives | | $ | 5,254 | | $ | 1,243 | |
Derivatives Not Designated as Hedging Instruments |
| | | | | | |
Other assets: |
| | | | | | |
Interest rate derivatives | | $ | 300 | | $ | 440 | |
Foreign exchange contracts | |
| 332 | |
| — | |
Total |
| $ | 632 | | $ | 440 | |
Accounts payable and other accrued liabilities: |
| | | | | | |
Interest rate derivatives | | $ | 300 | | $ | 440 | |
Foreign exchange contracts | | | 442 | | | 800 | |
Total |
| $ | 742 | | $ | 1,240 | |
Pre-tax gains (losses) on the consolidated statements of income and comprehensive income related to the Company’s derivatives for the three and nine months ended September 30, 2020 and 2019 are recorded in the following accounts:
| | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Cash Flow Hedges | | | | | | |
| | | | | |
Recognized in accumulated other comprehensive income (loss): | | | | | | | | | | | | |
Interest rate derivatives | | $ | 383 | | $ | 761 | | $ | (11,193) | | $ | (2,978) |
Reclassified from accumulated other comprehensive income (loss): | | | | | | |
| | | | | |
Interest rate derivatives—Interest expense to third parties | |
| (110) | |
| 166 | |
| (59) | |
| 523 |
Not Designated as Hedges | | | | | | |
| | | | | |
Foreign exchange contracts—Other expenses | | $ | 1,290 | | $ | (1,381) | | $ | (1,910) | | $ | 1,812 |
22
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Items Measured at Fair Value on a Recurring Basis
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, all of which are measured as Level 2:
| | September 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
Assets |
| | | | | |
Interest rate derivatives | | $ | 62,711 | | $ | 39,172 |
Foreign exchange contracts | |
| 332 | |
| — |
Total assets |
| $ | 63,043 | | $ | 39,172 |
Liabilities |
| | | | | |
Interest rate derivatives | | $ | 5,554 | | $ | 1,683 |
Foreign exchange contracts | | | 442 | | | 800 |
Total liabilities |
| $ | 5,996 | | $ | 2,483 |
There were no transfers between Level 1, Level 2 and Level 3 hierarchy levels during the periods presented.
Fair Value of Other Financial Instruments
The carrying amount of cash and cash equivalents, restricted cash and cash equivalents, floating-rate affiliated accounts and notes receivable, floating-rate short-term debt, interest payable and short-term affiliated debt was assumed to approximate its fair value. Under the fair value hierarchy, cash and cash equivalents and restricted cash and cash equivalents are classified as Level 1 and the remainder of the financial instruments listed is classified as Level 2.
Financial Instruments Not Carried at Fair Value
The carrying amount and estimated fair value of assets and liabilities considered financial instruments as of September 30, 2020 and December 31, 2019 are as follows:
| | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| ||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| ||||
| | Amount | | Fair Value * | | Amount | | Fair Value * |
| ||||
Receivables |
| $ | 9,070,542 | | $ | 9,153,556 | | $ | 9,835,274 | | $ | 9,870,076 | |
Long-term debt | | $ | 5,482,339 | | $ | 5,556,605 | | $ | 5,779,581 | | $ | 5,830,157 | |
______________
* | Under the fair value hierarchy, receivables measurements are classified as Level 3 and long-term debt measurements are classified as Level 2. |
Receivables
The fair value of receivables was determined by discounting the estimated future payments using a discount rate which includes an estimate for credit risk.
Long-term debt
The fair values of long-term debt were based on current market quotes for identical or similar borrowings and credit risk.
23
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 9: GEOGRAPHICAL INFORMATION
A summary of the Company’s geographical information is as follows:
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
| | September 30, | | September 30, | | ||||||||
| | 2020 |
| 2019 | | 2020 |
| 2019 | | ||||
Revenues | | | | | | |
| | | | | |
|
United States | | $ | 169,661 | | $ | 182,277 | | $ | 516,624 | | $ | 543,926 | |
Canada | |
| 41,054 | |
| 44,832 | |
| 126,388 | |
| 138,340 | |
Eliminations | |
| (1,041) | |
| (2,753) | |
| (3,817) | |
| (6,729) | |
Total |
| $ | 209,674 | | $ | 224,356 |
| $ | 639,195 | | $ | 675,537 |
|
Interest expense |
| | | | | |
| | | | | |
|
United States | | $ | 57,837 | | $ | 75,112 | | $ | 180,498 | | $ | 219,471 | |
Canada | |
| 12,044 | |
| 16,420 | |
| 38,821 | |
| 49,665 | |
Eliminations | |
| (1,041) | |
| (2,753) | |
| (3,817) | |
| (6,729) | |
Total |
| $ | 68,840 | | $ | 88,779 |
| $ | 215,502 | | $ | 262,407 |
|
Net income |
| | | | | |
| | | | | |
|
United States | | $ | 29,397 | | $ | 26,179 | | $ | 82,954 | | $ | 80,194 | |
Canada | |
| 8,758 | |
| 10,342 | |
| 26,269 | |
| 33,322 | |
Total |
| $ | 38,155 | | $ | 36,521 |
| $ | 109,223 | | $ | 113,516 |
|
Depreciation and amortization |
| | | | | |
| | | | | |
|
United States | | $ | 48,738 | | $ | 45,593 | | $ | 145,140 | | $ | 141,495 | |
Canada | |
| 11,354 | |
| 10,878 | |
| 32,884 | |
| 32,551 | |
Total |
| $ | 60,092 | | $ | 56,471 |
| $ | 178,024 | | $ | 174,046 |
|
Expenditures for equipment on operating leases |
| | | | | |
| | | | | |
|
United States | | $ | 75,148 | | $ | 139,986 | | $ | 297,566 | | $ | 419,570 | |
Canada | |
| 26,846 | |
| 27,208 | |
| 77,892 | |
| 94,799 | |
Total |
| $ | 101,994 | | $ | 167,194 |
| $ | 375,458 | | $ | 514,369 |
|
Provision for credit losses |
| | | | | |
| | | | | |
|
United States | | $ | 9,848 | | $ | 7,159 | | $ | 37,441 | | $ | 25,219 | |
Canada | |
| 2,727 | |
| 758 | |
| 10,271 | |
| 2,764 | |
Total |
| $ | 12,575 | | $ | 7,917 |
| $ | 47,712 | | $ | 27,983 |
|
24
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
|
| As of |
| As of |
| ||
| | September 30, | | December 31, | | ||
| | 2020 |
| 2019 | | ||
Total assets |
| | | | | | |
United States | | $ | 10,101,791 | | $ | 10,439,737 | |
Canada | |
| 2,292,449 | |
| 2,566,635 | |
Eliminations | |
| (150,993) | |
| (152,285) | |
Total |
| $ | 12,243,247 | | $ | 12,854,087 |
|
Managed receivables |
| | | | | |
|
United States | | $ | 7,435,178 | | $ | 7,946,542 | |
Canada | |
| 1,765,309 | |
| 1,961,483 | |
Total |
| $ | 9,200,487 | | $ | 9,908,025 |
|
NOTE 10: RELATED-PARTY TRANSACTIONS
The Company receives compensation from CNH Industrial North America for retail, wholesale and operating lease sales programs offered by CNH Industrial North America on which finance charges are waived or below market rate financing programs are offered. The Company receives compensation from CNH Industrial North America based on the Company’s estimated costs and a targeted return on equity. The Company is also compensated for lending funds to CNH Industrial North America.
In addition, the Company receives income from Iveco Argentina for wholesale factoring receivables purchased at a discount.
The summary of sources included in “Interest and other income from affiliates” in the accompanying consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 is as follows:
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2020 |
| 2019 | | 2020 |
| 2019 | ||||
Subsidy from CNH Industrial North America | | | | | | |
| | | | | |
Retail | | $ | 36,807 | | $ | 40,161 | | $ | 117,190 | | $ | 119,674 |
Wholesale | | | 23,387 | | | 28,230 | | | 79,501 | | | 90,610 |
Operating lease | |
| 14,780 | |
| 14,891 | |
| 45,550 | |
| 44,956 |
Income from Iveco Argentina |
|
| | |
| |
|
| |
|
| |
Wholesale factoring | | | — | | | 978 | | | — | | | 2,184 |
Income from affiliated receivables |
| | | | | |
| | |
| | |
CNH Industrial North America | |
| 229 | |
| 55 | |
| 392 | |
| 136 |
Other affiliates | | | 30 | | | — | | | 112 | | | — |
Total interest and other income from affiliates |
| $ | 75,233 | | $ | 84,315 |
| $ | 242,745 | | $ | 257,560 |
Interest expense to affiliates was $718 and $6,368, respectively, for the three months ended September 30, 2020 and 2019 and $2,764 and $9,791, respectively, for the nine months ended September 30, 2020 and 2019. Fees charged by affiliates were $10,399 and $11,568, respectively, for the three months ended September 30, 2020 and 2019, and $33,542 and $35,523, respectively, for the nine months ended September 30, 2020 and 2019, and represents payroll and other human resource services CNH Industrial America performs on behalf of the Company.
25
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
As of September 30, 2020 and December 31, 2019, the Company had various accounts and notes receivable and debt with the following affiliates:
| | September 30, | | December 31, | ||
| | 2020 | | 2019 | ||
Affiliated receivables |
| | | | | |
CNH Industrial America |
| $ | 295,430 | | $ | 24,832 |
CNH Industrial Canada Ltd. |
| | 4,796 | | | 26,931 |
Other affiliates |
| | 12,587 | | | 12,544 |
Total affiliated receivables |
| $ | 312,813 | | $ | 64,307 |
Affiliated debt |
| | | | | |
CNH Industrial America | | $ | — | | $ | 213,856 |
CNH Industrial Canada Ltd. | | | 208,063 | | | — |
Total affiliated debt |
| $ | 208,063 | | $ | 213,856 |
Accounts payable and other accrued liabilities, including tax payables, of $72,394 and $20,527 were payable to related parties as of September 30, 2020 and December 31, 2019, respectively.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is party to various litigation matters and claims arising from its operations. Management believes that the outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or results of operations.
Guarantees
The Company provides payment guarantees on the financial debt of various foreign financial services subsidiaries of CNHI for approximately $45,000. The guarantees are in effect for the term of the underlying funding facilities.
Commitments
The Company has various agreements, on an uncommitted basis, to extend credit for the wholesale and dealer financing managed portfolio. At September 30, 2020, the total credit limit available was $6,088,358, of which $2,917,904 was utilized.
26
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 12: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
CNH Industrial Capital America and New Holland Credit (the “Guarantor Entities”), which are 100%-owned subsidiaries of CNH Industrial Capital LLC, guarantee certain indebtedness of CNH Industrial Capital LLC. As the guarantees are full, unconditional, and joint and several, and because the Guarantor Entities are 100%-owned by CNH Industrial Capital LLC, the Company has included the following condensed consolidating financial information as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019. The condensed consolidating financial information reflects investments in consolidated subsidiaries under the equity method of accounting.
| | | | | | | | | | | | | | | | |
| | Condensed Statements of Comprehensive Income for the |
| |||||||||||||
| | Three Months Ended September 30, 2020 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
REVENUES |
| | | | | | | | | | | | | | |
|
Interest income on retail notes and finance leases | | $ | — | | $ | 2,701 | | $ | 44,294 | | $ | — | | $ | 46,995 | |
Interest income on wholesale notes | | | — | | | (220) | | | 12,893 | | | — | | | 12,673 | |
Interest and other income from affiliates | |
| 5,029 | | | 41,091 | | | 61,712 | | | (32,599) | | | 75,233 | |
Rental income on operating leases | |
| — | | | 50,339 | | | 14,067 | | | — | | | 64,406 | |
Other income | |
| — | | | 24,389 | | | 818 | | | (14,840) | | | 10,367 | |
Total revenues |
|
| 5,029 | | | 118,300 | | | 133,784 | | | (47,439) | | | 209,674 |
|
EXPENSES |
| | | | | | | | | | | | | | |
|
Interest expense: | | | | | | | | | | | | | | | | |
Interest expense to third parties | |
| 28,183 | |
| 4,416 | |
| 35,523 | |
| — | |
| 68,122 | |
Interest expense to affiliates | |
| — | |
| 27,632 | |
| 5,685 | |
| (32,599) | |
| 718 | |
Total interest expense |
|
| 28,183 | |
| 32,048 | |
| 41,208 | |
| (32,599) | |
| 68,840 |
|
Administrative and operating expenses: |
| | | | | | | | | | | | | | |
|
Fees charged by affiliates | |
| — | |
| 8,558 | |
| 16,681 | |
| (14,840) | |
| 10,399 | |
Provision for credit losses | |
| — | |
| 6,546 | |
| 6,029 | |
| — | |
| 12,575 | |
Depreciation of equipment on operating leases | |
| — | |
| 48,369 | |
| 11,353 | |
| — | |
| 59,722 | |
Other expenses | |
| 6 | |
| 6,845 | |
| 1,357 | |
| — | |
| 8,208 | |
Total administrative and operating expenses |
|
| 6 | |
| 70,318 | |
| 35,420 | |
| (14,840) | |
| 90,904 |
|
Total expenses |
|
| 28,189 | |
| 102,366 | |
| 76,628 | |
| (47,439) | |
| 159,744 |
|
Income (loss) before income taxes and equity in income of consolidated subsidiaries accounted for under the equity method |
|
| (23,160) | |
| 15,934 | |
| 57,156 | |
| — | |
| 49,930 |
|
Income tax provision (benefit) | |
| (5,654) | |
| 3,964 | |
| 13,465 | |
| — | |
| 11,775 | |
Equity in income of consolidated subsidiaries accounted for under the equity method | |
| 55,661 | |
| 43,691 | |
| — | |
| (99,352) | |
| — | |
NET INCOME |
| $ | 38,155 | | $ | 55,661 | | $ | 43,691 | | $ | (99,352) | | $ | 38,155 |
|
COMPREHENSIVE INCOME |
| $ | 49,233 | | $ | 66,739 | | $ | 53,011 | | $ | (119,750) | | $ | 49,233 |
|
27
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
|
| Condensed Statements of Comprehensive Income for the |
| |||||||||||||
| | Nine Months Ended September 30, 2020 | | |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
|
| Industrial | | Guarantor | | All Other | | | | | | |
| |||
|
| Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
REVENUES |
| | | | | | | | | | | | | | |
|
Interest income on retail notes and finance leases | | $ | — | | $ | 2,971 | | $ | 140,044 | | $ | — | | $ | 143,015 | |
Interest income on wholesale notes | |
| — | | | (690) | | | 42,504 | | | — | | | 41,814 | |
Interest and other income from affiliates | |
| 15,277 | | | 134,253 | | | 204,137 | | | (110,922) | | | 242,745 | |
Rental income on operating leases | |
| — | | | 147,740 | | | 40,860 | | | — | | | 188,600 | |
Other income | |
| — | | | 68,120 | | | 1,622 | | | (46,721) | | | 23,021 | |
Total revenues | |
| 15,277 | | | 352,394 | | | 429,167 | | | (157,643) | | | 639,195 |
|
EXPENSES |
| | | | | | | | | | | | | | |
|
Interest expense: |
| | | | | | | | | | | | | | | |
Interest expense to third parties | |
| 121,560 | |
| (27,915) | |
| 119,093 | |
| — | |
| 212,738 | |
Interest expense to affiliates | |
| — | |
| 94,124 | |
| 19,562 | |
| (110,922) | |
| 2,764 | |
Total interest expense | |
| 121,560 | |
| 66,209 | |
| 138,655 | |
| (110,922) | |
| 215,502 |
|
Administrative and operating expenses: |
| | | | | | | | | | | | | | |
|
Fees charged by affiliates |
|
| — | |
| 27,345 | |
| 52,918 | |
| (46,721) | |
| 33,542 | |
Provision for credit losses | |
| — | |
| 14,576 | |
| 33,136 | |
| — | |
| 47,712 | |
Depreciation of equipment on operating leases | |
| — | |
| 143,965 | |
| 32,883 | |
| — | |
| 176,848 | |
Other expenses | |
| 18 | |
| 20,170 | |
| 3,421 | |
| — | |
| 23,609 | |
Total administrative and operating expenses | |
| 18 | |
| 206,056 | |
| 122,358 | |
| (46,721) | |
| 281,711 |
|
Total expenses |
|
| 121,578 | |
| 272,265 | |
| 261,013 | |
| (157,643) | |
| 497,213 |
|
Income (loss) before income taxes and equity in income of consolidated subsidiaries accounted for under the equity method |
|
| (106,301) | |
| 80,129 | |
| 168,154 | |
| — | |
| 141,982 |
|
Income tax provision (benefit) |
|
| (25,955) | |
| 19,799 | |
| 38,915 | |
| — | |
| 32,759 | |
Equity in income of consolidated subsidiaries accounted for under the equity method | |
| 189,569 | |
| 129,239 | |
| — | |
| (318,808) | |
| — | |
NET INCOME | | $ | 109,223 | | $ | 189,569 | | $ | 129,239 | | $ | (318,808) | | $ | 109,223 |
|
COMPREHENSIVE INCOME |
| $ | 86,742 | | $ | 167,088 | | $ | 109,354 | | $ | (276,442) | | $ | 86,742 |
|
28
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Condensed Balance Sheets as of September 30, 2020 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
ASSETS |
| | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | 85,335 | | $ | 175,165 | | $ | — | | $ | 260,500 | |
Restricted cash and cash equivalents | |
| — | |
| — | |
| 508,277 | |
| — | |
| 508,277 | |
Receivables, less allowance for credit losses | |
| — | |
| 1,864,935 | |
| 7,205,607 | |
| — | |
| 9,070,542 | |
Affiliated accounts and notes receivable | |
| 1,527,651 | |
| 2,394,219 | |
| 2,772,533 | |
| (6,381,590) | |
| 312,813 | |
Equipment on operating leases, net | |
| — | |
| 1,384,453 | |
| 385,321 | |
| — | |
| 1,769,774 | |
Equipment held for sale | |
| — | |
| 84,340 | |
| 7,716 | |
| — | |
| 92,056 | |
Investments in consolidated subsidiaries accounted for under the equity method | |
| 3,200,752 | |
| 2,660,775 | |
| — | |
| (5,861,527) | |
| — | |
Goodwill and intangible assets, net | |
| — | |
| 93,606 | |
| 27,278 | |
| — | |
| 120,884 | |
Other assets | |
| 5,551 | |
| 81,558 | |
| 24,098 | |
| (2,806) | |
| 108,401 | |
TOTAL |
| $ | 4,733,954 | | $ | 8,649,221 | | $ | 11,105,995 | | $ | (12,245,923) | | $ | 12,243,247 | |
LIABILITIES AND STOCKHOLDER’S EQUITY |
| | | | | | | | | | | | | | | |
Liabilities: |
| | | | | | | | | | | | | | | |
Short-term debt, including current maturities of long-term debt | | $ | 1,188,685 | | $ | 169,809 | | $ | 3,087,801 | | $ | — | | $ | 4,446,295 | |
Accounts payable and other accrued liabilities | |
| 300,916 | |
| 3,716,932 | |
| 1,181,342 | |
| (4,292,694) | |
| 906,496 | |
Affiliated debt | |
| — | |
| 1,106,580 | |
| 1,193,185 | |
| (2,091,702) | |
| 208,063 | |
Long-term debt | |
| 2,044,299 | |
| 455,148 | |
| 2,982,892 | |
| — | |
| 5,482,339 | |
Total liabilities |
|
| 3,533,900 | |
| 5,448,469 | |
| 8,445,220 | |
| (6,384,396) | |
| 11,043,193 | |
Stockholder’s equity |
|
| 1,200,054 | |
| 3,200,752 | |
| 2,660,775 | |
| (5,861,527) | |
| 1,200,054 | |
TOTAL |
| $ | 4,733,954 | | $ | 8,649,221 | | $ | 11,105,995 | | $ | (12,245,923) | | $ | 12,243,247 | |
29
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | ||
| | Condensed Statements of Cash Flows for the |
| |||||||||||||||
| | Nine Months Ended September 30, 2020 | | |||||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |||
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| | | | | | | | | | | | | | | | ||
Net cash from (used in) operating activities | | $ | (42,477) | | $ | 303,007 | | $ | (121,408) | | $ | (20,644) | | $ | 118,478 | | ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
| | | | | | | | | | | | | | | | ||
Cost of receivables acquired | |
| — | |
| (6,023,520) | |
| (5,583,468) | |
| 4,279,085 | |
| (7,327,903) | | ||
Collections of receivables | |
| — | |
| 5,657,544 | |
| 6,614,000 | |
| (4,279,835) | |
| 7,991,709 | | ||
Purchase of equipment on operating leases, net | |
| — | |
| (48,238) | |
| (41,330) | |
| — | |
| (89,568) | | ||
Change in property and equipment and software, net | |
| — | |
| (1,010) | |
| — | |
| — | |
| (1,010) | | ||
Net cash from (used in) investing activities |
|
| — | |
| (415,224) | |
| 989,202 | |
| (750) | |
| 573,228 | | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
| | | | | | | | | | | | | | | | ||
Intercompany activity | |
| — | |
| (254,910) | |
| 234,042 | |
| 21,394 | |
| 526 | | ||
Net change in indebtedness | |
| 172,477 | |
| 331,262 | |
| (1,101,438) | |
| — | |
| (597,699) | | ||
Dividends paid to CNH Industrial America LLC | |
| (130,000) | |
| — | |
| — | |
| — | |
| (130,000) | | ||
Net cash from (used in) financing activities |
|
| 42,477 | |
| 76,352 | |
| (867,396) | |
| 21,394 | |
| (727,173) | | ||
DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| — | |
| (35,865) | |
| 398 | |
| — | |
| (35,467) | | ||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: |
| | | | | | | | | | | | | | | | ||
Beginning of period | |
| — | |
| 121,200 | |
| 683,044 | |
| — | |
| 804,244 | | ||
End of period |
| $ | — | | $ | 85,335 | | $ | 683,442 | | $ | — | | $ | 768,777 | |
30
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
|
| Condensed Statements of Comprehensive Income for the |
| |||||||||||||
|
| Three Months Ended September 30, 2019 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
|
| Industrial | | Guarantor | | All Other | | | | | | |
| |||
|
| Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
REVENUES |
| | | | | | | | | | | | | | | |
Interest income on retail notes and finance leases | | $ | — | | $ | 2,192 | | $ | 51,918 | | $ | — | | $ | 54,110 | |
Interest income on wholesale notes | |
| — | |
| (254) | |
| 17,639 | |
| — | |
| 17,385 | |
Interest and other income from affiliates | |
| 10,499 | |
| 50,229 | |
| 34,086 | |
| (10,499) | |
| 84,315 | |
Rental income on operating leases | |
| — | |
| 47,034 | |
| 13,500 | |
| — | |
| 60,534 | |
Other income | |
| — | |
| 24,338 | |
| 471 | |
| (16,797) | |
| 8,012 | |
Total revenues |
|
| 10,499 | |
| 123,539 | |
| 117,614 | |
| (27,296) | |
| 224,356 |
|
EXPENSES |
| | | | | | | | | | | | | | |
|
Interest expense: | | | | | | | | | | | | | | | | |
Interest expense to third parties | |
| 36,867 | |
| (5,154) | |
| 50,698 | |
| — | |
| 82,411 | |
Interest expense to affiliates | |
| — | |
| 16,199 | |
| 668 | |
| (10,499) | |
| 6,368 | |
Total interest expense |
|
| 36,867 | |
| 11,045 | |
| 51,366 | |
| (10,499) | |
| 88,779 |
|
Administrative and operating expenses: |
| | | | | | | | | | | | | | |
|
Fees charged by affiliates | |
| — | |
| 11,133 | |
| 17,232 | |
| (16,797) | |
| 11,568 | |
Provision for credit losses | |
| — | |
| 1,918 | |
| 5,999 | |
| — | |
| 7,917 | |
Depreciation of equipment on operating leases | |
| — | |
| 45,191 | |
| 10,879 | |
| — | |
| 56,070 | |
Other expenses | |
| 6 | |
| 7,201 | |
| 3,329 | |
| — | |
| 10,536 | |
Total administrative and operating expenses |
|
| 6 | |
| 65,443 | |
| 37,439 | |
| (16,797) | |
| 86,091 |
|
Total expenses |
|
| 36,873 | |
| 76,488 | |
| 88,805 | |
| (27,296) | |
| 174,870 |
|
Income (loss) before income taxes and equity in income of consolidated subsidiaries accounted for under the equity method |
|
| (26,374) | |
| 47,051 | |
| 28,809 | |
| — | |
| 49,486 |
|
Income tax provision (benefit) | |
| (6,440) | |
| 11,555 | |
| 7,850 | |
| — | |
| 12,965 | |
Equity in income of consolidated subsidiaries accounted for under the equity method | |
| 56,455 | |
| 20,959 | |
| — | |
| (77,414) | |
| — | |
NET INCOME |
| $ | 36,521 | | $ | 56,455 | | $ | 20,959 | | $ | (77,414) | | $ | 36,521 |
|
COMPREHENSIVE INCOME |
| $ | 31,337 | | $ | 51,271 | | $ | 16,708 | | $ | (67,979) | | $ | 31,337 |
|
31
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
|
| Condensed Statements of Comprehensive Income for the |
| |||||||||||||
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
|
| Industrial | | Guarantor | | All Other | | | | | | |
| |||
|
| Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
REVENUES |
| | | | | | | | | | | | | | | |
Interest income on retail notes and finance leases | | $ | — | | $ | 15,823 | | $ | 150,867 | | $ | — | | $ | 166,690 | |
Interest income on wholesale notes | |
| — | |
| (788) | |
| 51,908 | |
| — | |
| 51,120 | |
Interest and other income from affiliates | |
| 41,947 | |
| 152,738 | |
| 104,822 | |
| (41,947) | |
| 257,560 | |
Rental income on operating leases | |
| — | |
| 141,290 | |
| 40,377 | |
| — | |
| 181,667 | |
Other income | |
| — | |
| 66,365 | |
| 1,644 | |
| (49,509) | |
| 18,500 | |
Total revenues |
|
| 41,947 | |
| 375,428 | |
| 349,618 | |
| (91,456) | |
| 675,537 |
|
EXPENSES |
| | | | | | | | | | | | | | |
|
Interest expense: | | | | | | | | | | | | | | | | |
Interest expense to third parties | |
| 137,093 | |
| (33,240) | |
| 148,763 | |
| — | |
| 252,616 | |
Interest expense to affiliates | |
| — | |
| 73,842 | |
| (22,104) | |
| (41,947) | |
| 9,791 | |
Total interest expense |
|
| 137,093 | |
| 40,602 | |
| 126,659 | |
| (41,947) | |
| 262,407 |
|
Administrative and operating expenses: |
| | | | | | | | | | | | | | |
|
Fees charged by affiliates | |
| — | |
| 34,126 | |
| 50,906 | |
| (49,509) | |
| 35,523 | |
Provision for credit losses | |
| — | |
| 10,650 | |
| 17,333 | |
| — | |
| 27,983 | |
Depreciation of equipment on operating leases | |
| — | |
| 140,119 | |
| 32,551 | |
| — | |
| 172,670 | |
Other expenses | |
| 18 | |
| 17,558 | |
| 9,219 | |
| — | |
| 26,795 | |
Total administrative and operating expenses |
|
| 18 | |
| 202,453 | |
| 110,009 | |
| (49,509) | |
| 262,971 |
|
Total expenses |
|
| 137,111 | |
| 243,055 | |
| 236,668 | |
| (91,456) | |
| 525,378 |
|
Income (loss) before income taxes and equity in income of consolidated subsidiaries accounted for under the equity method |
|
| (95,164) | |
| 132,373 | |
| 112,950 | |
| — | |
| 150,159 |
|
Income tax provision (benefit) | |
| (23,236) | |
| 32,619 | |
| 27,260 | |
| — | |
| 36,643 | |
Equity in income of consolidated subsidiaries accounted for under the equity method | |
| 185,444 | |
| 85,690 | |
| — | |
| (271,134) | |
| — | |
NET INCOME |
| $ | 113,516 | | $ | 185,444 | | $ | 85,690 | | $ | (271,134) | | $ | 113,516 |
|
COMPREHENSIVE INCOME |
| $ | 123,432 | | $ | 195,360 | | $ | 93,615 | | $ | (288,975) | | $ | 123,432 |
|
32
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Condensed Balance Sheets as of December 31, 2019 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
ASSETS |
| | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | 121,200 | | $ | 53,766 | | $ | — | | $ | 174,966 | |
Restricted cash and cash equivalents | |
| — | |
| — | |
| 629,278 | |
| — | |
| 629,278 | |
Receivables, less allowance for credit losses | |
| — | |
| 1,512,786 | |
| 8,322,488 | |
| — | |
| 9,835,274 | |
Affiliated accounts and notes receivable | |
| 1,549,666 | |
| 2,257,928 | |
| 2,553,665 | |
| (6,296,952) | |
| 64,307 | |
Equipment on operating leases, net | |
| — | |
| 1,394,706 | |
| 388,577 | |
| — | |
| 1,783,283 | |
Equipment held for sale | |
| — | |
| 154,050 | |
| 16,168 | |
| — | |
| 170,218 | |
Investments in consolidated subsidiaries accounted for under the equity method | |
| 3,053,394 | |
| 2,565,785 | |
| — | |
| (5,619,179) | |
| — | |
Goodwill and intangible assets, net | |
| — | |
| 93,767 | |
| 28,057 | |
| — | |
| 121,824 | |
Other assets | |
| 4,236 | |
| 58,048 | |
| 16,209 | |
| (3,556) | |
| 74,937 | |
TOTAL |
| $ | 4,607,296 | | $ | 8,158,270 | | $ | 12,008,208 | | $ | (11,919,687) | | $ | 12,854,087 | |
LIABILITIES AND STOCKHOLDER’S EQUITY |
| | | | | | | | | | | | | | | |
Liabilities: |
| | | | | | | | | | | | | | | |
Short-term debt, including current maturities of long-term debt | | $ | 1,136,455 | | $ | 33,200 | | $ | 3,620,517 | | $ | — | | $ | 4,790,172 | |
Accounts payable and other accrued liabilities | |
| 283,748 | |
| 3,449,690 | |
| 1,261,411 | |
| (4,187,412) | |
| 807,437 | |
Affiliated debt | |
| — | |
| 1,361,490 | |
| 965,462 | |
| (2,113,096) | |
| 213,856 | |
Long-term debt | |
| 1,924,052 | |
| 260,496 | |
| 3,595,033 | |
| — | |
| 5,779,581 | |
Total liabilities |
|
| 3,344,255 | |
| 5,104,876 | |
| 9,442,423 | |
| (6,300,508) | |
| 11,591,046 | |
Stockholder’s equity |
|
| 1,263,041 | |
| 3,053,394 | |
| 2,565,785 | |
| (5,619,179) | |
| 1,263,041 | |
TOTAL |
| $ | 4,607,296 | | $ | 8,158,270 | | $ | 12,008,208 | | $ | (11,919,687) | | $ | 12,854,087 | |
33
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Condensed Statements of Cash Flows for the |
| |||||||||||||
| | Nine Months Ended September 30, 2019 |
| |||||||||||||
|
| CNH |
| | |
| | |
| | |
| | |
| |
| | Industrial | | Guarantor | | All Other | | | | | | |
| |||
| | Capital LLC | | Entities | | Subsidiaries | | Eliminations | | Consolidated |
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Net cash from (used in) operating activities | | $ | 573,636 | | $ | 400,476 | | $ | (116,918) | | $ | (515,582) | | $ | 341,612 | |
CASH FLOWS FROM INVESTING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Cost of receivables acquired | |
| — | |
| (6,504,409) | |
| (6,975,212) | |
| 5,329,785 | |
| (8,149,836) | |
Collections of receivables | |
| — | |
| 6,497,730 | |
| 7,032,713 | |
| (5,329,975) | |
| 8,200,468 | |
Purchase of equipment on operating leases, net | |
| — | |
| (152,641) | |
| (24,444) | |
| — | |
| (177,085) | |
Change in property and equipment and software, net | |
| — | |
| (2,317) | |
| — | |
| — | |
| (2,317) | |
Net cash from (used in) investing activities |
|
| — | |
| (161,637) | |
| 33,057 | |
| (190) | |
| (128,770) | |
CASH FLOWS FROM FINANCING ACTIVITIES: |
| | | | | | | | | | | | | | | |
Intercompany activity | |
| — | |
| (271,666) | |
| (37,254) | |
| 515,772 | |
| 206,852 | |
Net change in indebtedness | |
| (408,636) | |
| 2 | |
| 1,316 | |
| — | |
| (407,318) | |
Dividends paid to CNH Industrial America LLC | | | (165,000) | |
| — | |
| — | |
| — | |
| (165,000) | |
Net cash from (used in) financing activities |
|
| (573,636) | |
| (271,664) | |
| (35,938) | |
| 515,772 | |
| (365,466) | |
DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| — | |
| (32,825) | |
| (119,799) | |
| — | |
| (152,624) | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: |
| | | | | | | | | | | | | | | |
Beginning of period | | | — | |
| 118,508 | |
| 681,363 | |
| — | |
| 799,871 | |
End of period |
| $ | — | | $ | 85,683 | | $ | 561,564 | | $ | — | | $ | 647,247 | |
On October 6, 2020, the Company completed an offering of $500,000 in aggregate principal amount of its 1.875% unsecured notes due 2026, with an issue price of 99.761%.
ds
34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Organization
We offer a range of financial products and services to the dealers and customers of CNH Industrial North America. The principal products offered are retail financing for the purchase or lease of new and used CNH Industrial North America equipment and wholesale financing to CNH Industrial North America dealers. Wholesale financing consists primarily of floor plan financing as well as financing equipment used in dealer-owned rental yards, parts inventory and working capital needs. In addition, we purchase equipment from dealers that is leased to retail customers under operating lease agreements.
Trends and Economic Conditions
As previously disclosed, we face risks related to outbreaks of infectious diseases, including the ongoing Novel Coronavirus (“COVID-19”) pandemic. The challenges posed by the COVID-19 pandemic on the economy continued during the third quarter. The impact of economic uncertainty caused by COVID-19 led to an increase in our allowance for credit losses. COVID-19 has caused disruption and volatility in the capital markets and an economic slowdown. In response to COVID-19, national and local governments have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The duration of these measures is unknown and may be extended, reimposed and/or additional measures may be imposed.
With respect to liquidity, we took several actions to bolster our financial condition and to reduce costs while supporting business operations through the COVID-19 pandemic. Some of these actions included limiting discretionary spending, temporarily furloughing employees, eliminating non-essential travel and delaying or reducing hiring activities.
The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the resurgence of COVID-19, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time. We will continue to proactively respond to the situation and may take further actions that alter our business operations as may be required by governmental authorities, or that we determine are in the best interests of our employees and customers.
The COVID-19 pandemic has necessitated a careful balancing of our objective to minimize losses on existing retail receivables, with the needs of those customers hardest hit by the economic slowdown. Historically we have offered customers experiencing temporary financial hardship due to natural disasters and other calamities the ability to defer one or more payments. Those payments are then re-amortized later in the contract, generally within the original contract duration, and with some contemporaneous curtailment payment (each a “payment schedule change” or “PSC”). PSC approvals are based on our internal business rules, along with a risk-based analysis for each customer.
Similar to PSCs previously granted to victims of wildfires or hurricanes, we have granted PSCs to customers impacted by COVID-19, particularly in the construction industry, where many businesses were prevented from operating due to a governmental “non-essential business” designation. We continue to review each request for a PSC on an individual basis and only grant those requests that are consistent with our business rules and which will in our judgment minimize losses to our portfolio over time. Though there have been increases in PSC activity over prior periods, PSCs continue to represent a small portion of our portfolio.
| | Three Months Ended | | Three Months Ended | | ||||||||
| | June 30, | | September 30, | | ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||||
Number of retail receivables with PSCs granted |
| | 4,153 | | | 474 | | | 474 | | | 429 | |
Retail receivables with PSCs granted | | $ | 212,473 | | $ | 35,106 | | $ | 29,652 | | $ | 28,343 | |
Percentage of retail receivables with PSCs granted | | | 1.17 | % | | 0.19 | % | | 0.16 | % | | 0.15 | % |
35
CNH Industrial has confirmed its intention to separate its “On-Highway” (commercial vehicles and powertrain) and “Off-Highway” (agriculture, construction and specialty vehicles) businesses while the original timeline for the implementation of the proposed separation will be extended as a consequence of the market conditions due to the COVID-19 pandemic.
Our business is closely related to the agricultural and construction equipment industries because we offer financing products for such equipment. During the third quarter of 2020, the COVID-19 pandemic continued to negatively impact certain of CNH Industrial’s end-markets and operations. For the three months ended September 30, 2020, CNH Industrial’s net sales of agricultural equipment and net sales of construction equipment generated in North America were $937 million and $269 million, respectively, representing an increase of 6.8% and a decrease of 21.1% from the same period in 2019, respectively. For the nine months ended September 30, 2020, CNH Industrial’s net sales of agricultural equipment and net sales of construction equipment generated in North America were $2,662 million and $600 million, respectively, representing decreases of 6.4% and 42.0% from the same period in 2019, respectively.
In general, our receivable mix between agricultural and construction equipment financing directionally reflects the mix of equipment sales by CNH Industrial North America. As such, changes in the agricultural industry or with respect to our agricultural equipment borrowers may affect the majority of our portfolio.
Net income was $38.2 million and $109.2 million for the three and nine months ended September 30, 2020, compared to $36.5 million and $113.5 million for the three and nine months ended September 30, 2019. The quarter-over-quarter increase in net income was primarily due to an increased net interest margin and lower income taxes, partially offset by a higher provision for credit losses. The decrease in net income for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to a higher provision for credit losses and increased expenses related to the operating lease portfolio, partially offset by an increased net interest margin and lower income taxes. The receivables balance greater than 30 days past due as a percentage of managed receivables was 1.0% at September 30, 2020 and 0.7% at both December 31, 2019 and September 30, 2019.
In addition to the impacts from COVID-19 previously discussed, macroeconomic issues for us include the uncertainty of governmental actions with respect to monetary, fiscal and legislative policies, the global economic recovery, changes in demand and pricing for used equipment, capital market disruptions, trade agreements and financial regulatory reform. Significant volatility in the price of certain commodities could also impact CNH Industrial North America’s and our results.
Results of Operations
Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019
Revenues
Revenues for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
|
| Three Months Ended |
| | |
| |
| ||||
| | September 30, | | | | | | | ||||
| | 2020 |
| 2019 |
| $ Change |
| % Change | | |||
Interest income on retail notes and finance leases |
| $ | 46,995 | | $ | 54,110 | | $ | (7,115) | | (13.1) | % |
Interest income on wholesale notes | |
| 12,673 | |
| 17,385 | |
| (4,712) | | (27.1) | |
Interest and other income from affiliates | |
| 75,233 | |
| 84,315 | |
| (9,082) | | (10.8) | |
Rental income on operating leases | |
| 64,406 | |
| 60,534 | |
| 3,872 | | 6.4 | |
Other income | |
| 10,367 | |
| 8,012 | |
| 2,355 | | 29.4 | |
Total revenues |
| $ | 209,674 | | $ | 224,356 | | $ | (14,682) | | (6.5) | % |
36
|
| Nine Months Ended |
| | |
| | | ||||
| | September 30, | | | | | | | ||||
| | 2020 |
| 2019 |
| $ Change |
| % Change | | |||
Interest income on retail notes and finance leases |
| $ | 143,015 | | $ | 166,690 | | $ | (23,675) | | (14.2) | % |
Interest income on wholesale notes | |
| 41,814 | |
| 51,120 | |
| (9,306) | | (18.2) | |
Interest and other income from affiliates | |
| 242,745 | |
| 257,560 | |
| (14,815) | | (5.8) | |
Rental income on operating leases | |
| 188,600 | |
| 181,667 | |
| 6,933 | | 3.8 | |
Other income | |
| 23,021 | |
| 18,500 | |
| 4,521 | | 24.4 | |
Total revenues |
| $ | 639,195 | | $ | 675,537 | | $ | (36,342) | | (5.4) | % |
Revenues totaled $209.7 million and $639.2 million for the three and nine months ended September 30, 2020, respectively, compared to $224.4 million and $675.5 million for the same periods in 2019. The quarter-over-quarter and year-over-year decreases were primarily driven by lower average managed portfolios and slightly lower average yields. The average yield for the managed portfolio was 7.2% and 7.3% for the three months ended September 30, 2020 and 2019, respectively, and 7.3% and 7.5% for the nine months ended September 30, 2020 and 2019, respectively.
Interest income on retail notes and finance leases for the three and nine months ended September 30, 2020 was $47.0 million and $143.0 million, respectively, representing a decrease of $7.1 million and $23.6 million from the same periods in 2019, respectively. For the third quarter, the decrease was due to the unfavorable impacts of $5.5 million from lower interest rates and $1.6 million from lower average earning assets. For the nine months ended September 30, 2020, compared to the same period in 2019, the decrease was due to the unfavorable impacts of $17.2 million from lower interest rates and $6.4 million from lower average earning assets.
Interest income on wholesale notes for the three and nine months ended September 30, 2020 was $12.7 million and $41.8 million, respectively, representing a decrease of $4.7 million and $9.3 million from the same periods in 2019, respectively. For the third quarter, the decrease was due to the unfavorable impacts of $3.4 million from lower interest rates and $1.3 million from lower average earning assets. For the nine months ended September 30, 2020, compared to the same period in 2019, the decrease was due to the unfavorable impacts of $8.8 million from lower interest rates and $0.5 million from lower average earning assets.
Interest and other income from affiliates for the three and nine months ended September 30, 2020 was $75.2 million and $242.7 million, respectively, compared to $84.3 million and $257.6 million, respectively, for the three and nine months ended September 30, 2019. For the three and nine months ended September 30, 2020, compensation from CNH Industrial North America for retail low-rate financing programs and interest waiver programs offered to customers was $36.8 million and $117.2 million, respectively, a decrease of $3.4 million and $2.5 million from the same periods in 2019, respectively. Both the quarter-over-quarter and year-over-year decreases were primarily due to pricing and mix of programs. For the three and nine months ended September 30, 2020, compensation from CNH Industrial North America for wholesale marketing programs was $23.4 million and $79.5 million, respectively, a decrease of $4.8 million and $11.1 million from the same periods in 2019, respectively. The decreases were primarily due to lower CNH Industrial North America volumes. For select operating leases, compensation from CNH Industrial North America for the difference between market rental rates and the amounts paid by customers was $14.8 million and $45.6 million for the three and nine months ended September 30, 2020, a decrease of $0.1 million and an increase of $0.6 million from the same periods in 2019, respectively. Also included in interest and other income from affiliates was $1.0 million and $2.2 million of wholesale factoring income for the three and nine months ended September 30, 2019.
Rental income on operating leases for the three and nine months ended September 30, 2020 was $64.4 million and $188.6 million, representing an increase of $3.9 million and $6.9 million from the same periods in 2019, respectively. The third quarter increase was due to the favorable impacts of $2.5 million from higher interest rates and $1.4 million from higher average earning assets. For the nine months ended September 30, 2020, compared to the same period in 2019, the increase was due to the favorable impacts of $4.7 million from higher average earnings assets and $2.2 million from higher interest rates.
Other income for the three and nine months ended September 30, 2020 was $10.4 million and $23.0 million, representing an increase of $2.4 million and $4.5 million from the same periods in 2019, respectively.
37
Expenses
Expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended |
| | |
| | | ||||
| | September 30, | | | | | | | ||||
|
| 2020 |
| 2019 |
| $ Change |
| % Change |
| |||
Total interest expense |
| $ | 68,840 | | $ | 88,779 | | $ | (19,939) | | (22.5) | % |
Fees charged by affiliates | |
| 10,399 | |
| 11,568 | |
| (1,169) | | (10.1) | |
Provision for credit losses | |
| 12,575 | |
| 7,917 | |
| 4,658 | | 58.8 | |
Depreciation of equipment on operating leases | |
| 59,722 | |
| 56,070 | |
| 3,652 | | 6.5 | |
Other expenses | |
| 8,208 | |
| 10,536 | |
| (2,328) | | (22.1) | |
Total expenses |
| $ | 159,744 | | $ | 174,870 | | $ | (15,126) | | (8.6) | % |
| | | | | | | | | | | | |
| | Nine Months Ended |
| | |
| | | ||||
| | September 30, | | | | | | | ||||
|
| 2020 |
| 2019 |
| $ Change |
| % Change |
| |||
Total interest expense |
| $ | 215,502 |
| $ | 262,407 | | $ | (46,905) | | (17.9) | % |
Fees charged by affiliates | |
| 33,542 | |
| 35,523 | |
| (1,981) | | (5.6) | |
Provision for credit losses | |
| 47,712 | |
| 27,983 | |
| 19,729 | | 70.5 | |
Depreciation of equipment on operating leases | |
| 176,848 | |
| 172,670 | |
| 4,178 | | 2.4 | |
Other expenses | |
| 23,609 | |
| 26,795 | |
| (3,186) | | (11.9) | |
Total expenses |
| $ | 497,213 |
| $ | 525,378 | | $ | (28,165) | | (5.4) | % |
Interest expense totaled $68.8 million and $215.5 million for the three and nine months ended September 30, 2020, respectively, compared to $88.8 million and $262.4 million for the same periods in 2019. For the three months ended September 30, 2020, the decrease was due to the favorable impacts of $16.9 million from lower average interest rates and $3.0 million from lower average total debt. For the nine months ended September 30, 2020, the decrease was due to the favorable impacts of $38.2 million from lower average interest rates and $8.7 million from lower average total debt. The average debt cost was 2.8% for the nine months ended September 30, 2020 compared to 3.3% for the nine months ended September 30, 2019.
The provision for credit losses was $12.6 million and $47.7 million for the three and nine months ended September 30, 2020, respectively, compared to $7.9 million and $28.0 million for the same periods in 2019. The increases in the provision for credit losses during 2020 were due to the expectation of deteriorating credit conditions related to the COVID-19 pandemic.
Depreciation of equipment on operating leases was $59.7 million and $176.8 million for the three and nine months ended September 30, 2020, respectively, compared to $56.1 million and $172.7 million for the same periods in 2019. The increase for the three and nine months ended September 30, 2020, compared to the same periods in 2019, was primarily due to mix of products in the operating lease portfolio.
Other expenses were $8.2 million and $23.6 million for the three and nine months ended September 30, 2020, respectively, compared to $10.5 million and $26.8 million for the same periods in 2019. For the three months ended September 30, 2020, compared to the same period in 2019, the decrease was due to lower losses on equipment held for sale. The year-over year decrease was primarily due to lower foreign exchange.
38
The effective tax rates for the three months ended September 30, 2020 and 2019 were 23.6% and 26.2%, respectively. The effective tax rate was 23.1% for the nine months ended September 30, 2020, compared to 24.4% for the same period in 2019.
Receivables and Equipment on Operating Leases Originated and Held
Receivables and equipment on operating lease originations for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | | | | | | ||||
| | September 30, | | | | | | | ||||
| | 2020 |
| 2019 |
| $ Change |
| % Change |
| |||
Retail |
| $ | 790,435 | | $ | 717,856 | | $ | 72,579 | | 10.1 | % |
Wholesale | |
| 1,744,468 | |
| 1,892,401 | |
| (147,933) |
| (7.8) | |
Equipment on operating leases | |
| 101,994 | |
| 167,194 | |
| (65,200) |
| (39.0) | |
Total originations |
| $ | 2,636,897 | | $ | 2,777,451 | | $ | (140,554) | | (5.1) | % |
| | Nine Months Ended | | | | | | | ||||
| | September 30, | | | | | | | ||||
| | 2020 |
| 2019 |
| $ Change |
| % Change |
| |||
Retail |
| $ | 2,178,958 | | $ | 2,074,525 | | $ | 104,433 | | 5.0 | % |
Wholesale | |
| 5,148,945 | |
| 5,931,271 | |
| (782,326) |
| (13.2) | |
Wholesale factoring | | | — | | | 144,040 | | | (144,040) | | (100.0) | |
Equipment on operating leases | |
| 375,458 | |
| 514,369 | |
| (138,911) |
| (27.0) | |
Total originations |
| $ | 7,703,361 | | $ | 8,664,205 | | $ | (960,844) | | (11.1) | % |
The quarter-over-quarter and year-over-year increase in retail originations was primarily due to increased penetration. The quarter-over-quarter and year-over-year decrease in wholesale originations was primarily due to a decrease in unit sales of CNH Industrial North America equipment, while the quarter-over-quarter and year-over-year decrease in operating lease originations was primarily due to programming.
Total receivables and equipment on operating leases held as of September 30, 2020, December 31, 2019 and September 30, 2019 were as follows (dollars in thousands):
| | September 30, | | December 31, | | September 30, | |||
|
| 2020 |
| 2019 |
| 2019 | |||
Retail |
| $ | 6,204,990 | | $ | 6,268,251 | | $ | 6,348,795 |
Wholesale | |
| 2,995,497 | |
| 3,639,774 | |
| 3,635,250 |
Wholesale factoring | | | — | | | — | | | 15,673 |
Equipment on operating leases | |
| 1,769,774 | |
| 1,783,283 | |
| 1,741,913 |
Total receivables and equipment on operating leases |
| $ | 10,970,261 | | $ | 11,691,308 | | $ | 11,741,631 |
The total retail receivables balance greater than 30 days past due as a percentage of the retail receivables was 1.4% at September 30, 2020, 1.0% at December 31, 2019 and 0.9% at September 30, 2019. The total wholesale receivables balance greater than 30 days past due as a percentage of the wholesale receivables was not significant at September 30, 2020, December 31, 2019 or September 30, 2019. Total retail receivables on nonaccrual status, which represent receivables for which we have ceased accruing finance income, were $44.8 million, $37.2 million and $28.4 million at September 30, 2020, December 31, 2019 and September 30, 2019, respectively. Total wholesale receivables on nonaccrual status were $32.3 million, $29.2 million and $4.6 million at September 30, 2020, December 31, 2019 and September 30, 2019, respectively.
39
Total receivable charge-off amounts and recoveries, by product, for the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2020 |
| 2019 | | 2020 |
| 2019 | ||||
Charge-offs: | | | | | | |
| | | | | |
Retail | | $ | 3,244 | | $ | 11,233 | | $ | 18,028 | | $ | 27,799 |
Wholesale | |
| 1 | |
| 2,416 | |
| 213 | |
| 4,581 |
Total charge-offs |
|
| 3,245 | |
| 13,649 |
|
| 18,241 | |
| 32,380 |
Recoveries: |
| | | | | |
| | | | | |
Retail | |
| (578) | |
| (512) | |
| (1,905) | |
| (2,188) |
Wholesale | |
| (5) | |
| (3) | |
| (8) | |
| (12) |
Total recoveries |
|
| (583) | |
| (515) |
|
| (1,913) | |
| (2,200) |
Charge-offs, net of recoveries: |
| | | | | |
| | | | | |
Retail | |
| 2,666 | |
| 10,721 | |
| 16,123 | |
| 25,611 |
Wholesale | |
| (4) | |
| 2,413 | |
| 205 | |
| 4,569 |
Total charge-offs, net of recoveries |
| $ | 2,662 | | $ | 13,134 |
| $ | 16,328 | | $ | 30,180 |
Our allowance for credit losses on all receivables financed totaled $129.9 million at September 30, 2020, $72.8 million at December 31, 2019 and $72.3 million at September 30, 2019. The allowance for credit losses includes $26 million recorded at January 1, 2020 upon the adoption of ASC 326.
The allowance is subject to a quarterly evaluation based on many quantitative and qualitative factors, including historical loss experience by product category, portfolio duration, delinquency trends, forward looking macroeconomic factors (in particular, those conditions directly affecting the profitability and financial strength of our customers), and collateral value. No single factor determines the adequacy of the allowance. Different assumptions or changes in forward looking economic assumptions would result in changes to the allowance for credit losses and the provision for credit losses. These qualitative factors are subjective and require a degree of management judgment.
We believe our allowance is sufficient to provide for losses in our receivable portfolio as of September 30, 2020.
Liquidity and Capital Resources
The following discussion of liquidity and capital resources principally focuses on our statements of cash flows, balance sheets and capitalization. CNH Industrial Capital’s current funding strategy is to maintain sufficient liquidity and flexible access to a wide variety of financial instruments and funding options.
In the past, securitization has been one of our most economical sources of funding and, therefore, the majority of our originated receivables are securitized, with the cash generated from such receivables utilized to repay the related debt or purchase new receivables.
In addition, we have secured and unsecured facilities, commercial paper, unsecured bonds, affiliate borrowings and cash to fund our liquidity needs.
40
Cash Flows
For the nine months ended September 30, 2020 and 2019, our cash flows were as follows (dollars in thousands):
| | 2020 |
| 2019 | ||
Cash flows from (used in): |
| | |
| | |
Operating activities | | $ | 118,478 | | $ | 341,612 |
Investing activities | |
| 573,228 | |
| (128,770) |
Financing activities | |
| (727,173) | |
| (365,466) |
Net cash increase (decrease) |
| $ | (35,467) | | $ | (152,624) |
Operating activities in the nine months ended September 30, 2020 generated cash of $118 million, resulting primarily from net income of $109 million, adjusted by depreciation and amortization of $178 million and provision for credit losses of $48 million, partially offset by $11 million in deferred tax benefits and changes in working capital of $206 million. The decrease in cash provided by operating activities for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to $188 million related to changes in working capital, a $55 million change in deferred income tax adjustment and a $4 million decrease in net income, partially offset by a $20 million increase in provision for credit losses and a $4 million increase in depreciation and amortization.
Investing activities in the nine months ended September 30, 2020 generated cash of $573 million, resulting primarily from a reduction in net expenditures for receivables of $664 million, partially offset by $90 million in net expenditures for equipment on operating leases and $1 million in expenditures for property, equipment and software. The increase in cash provided by investing activities for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to a $613 million decrease in net expenditures for receivables, a $88 million decrease in net expenditures for equipment on operating leases and a $1 million decrease in expenditures for property, equipment and software.
Financing activities in the nine months ended September 30, 2020 used cash of $727 million, resulting primarily from net cash paid on short-term borrowings and long-term debt of $528 million and $70 million, respectively, and $130 million in dividends paid to CNH Industrial America, partially offset by net cash received on affiliated debt of $1 million. The increase in cash used in financing activities in the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to an increase in net cash paid on short-term borrowings and affiliated debt of $651 million and $206 million, respectively, partially offset by a decrease in net cash paid on long-term debt of $460 million and lower dividends of $35 million paid to CNH Industrial America.
CNH Industrial Capital and its predecessor entities have been securitizing receivables since 1992. This market is a cost-effective financing source and allows access to a wide investor base. CNH Industrial Capital had approximately $4.6 billion of public and private asset-backed securities outstanding in both the U.S. and Canada as of September 30, 2020. Our securitizations are treated as financing arrangements for accounting purposes.
Committed Asset-Backed Facilities
CNH Industrial Capital has committed asset-backed facilities with several banks or through their commercial paper conduit programs. Committed asset-backed facilities for the U.S. and Canada totaled $3.0 billion at September 30, 2020, with original borrowing maturities of up to two years. The unused availability under the facilities varies during the year, depending on origination volume and the refinancing of receivables with term securitization transactions and/or other financing. At September 30, 2020, approximately $1.1 billion of funding was available for use under these facilities.
Unsecured Facilities and Debt
Committed unsecured facilities with banks as of September 30, 2020 totaled $833 million. These credit facilities, which are eligible for renewal at various future dates, are used primarily for working capital and other general corporate purposes. As of September 30, 2020, we had $224 million outstanding under these credit facilities. Included in the remaining available credit commitments is $85 million maintained primarily to provide backup liquidity for commercial paper borrowings.
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Our outstanding commercial paper totaled $85 million as of September 30, 2020.
As of September 30, 2020, our unsecured senior notes were as follows (dollars in thousands):
4.375% notes, due 2020 | | $ | 600,000 |
4.875% notes, due 2021 | |
| 500,000 |
3.875% notes, due 2021 | |
| 400,000 |
4.375% notes, due 2022 | | | 500,000 |
1.950% notes, due 2023 | | | 600,000 |
4.200% notes, due 2024 | | | 500,000 |
Hedging, discounts and unamortized issuance costs | | | 49,241 |
Total |
| $ | 3,149,241 |
These notes, which are senior unsecured obligations of CNH Industrial Capital LLC, are guaranteed by CNH Industrial Capital America and New Holland Credit.
Credit Ratings
Our ability to obtain funding is affected by credit ratings of our debt, which are closely related to the outlook for and the financial condition of CNHI, and the nature and availability of our support agreement with CNHI.
To access public debt capital markets, we rely on credit rating agencies to assign short-term and long-term credit ratings to our securities as an indicator of credit quality for fixed income investors. A credit rating agency may change or withdraw our ratings based on its assessment of our current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets.
The senior long-term and short-term debt ratings and outlook currently assigned to our unsecured debt securities by the rating agencies engaged by us are the same as those for CNHI. Those ratings as of September 30, 2020 were as follows:
| | Senior |
| Short-Term |
| Outlook |
S&P Global Ratings | | BBB | | A-2 | | Stable |
Fitch Ratings | | BBB- | | F3 | | Stable |
Moody's Investors Service | | Baa3 | | — | | Stable |
Affiliate Sources
CNH Industrial Capital borrows, as needed, from CNH Industrial. This source of funding is primarily used to finance various assets and provides additional flexibility when evaluating market conditions and potential third-party financing options. We had affiliated debt of $208 million and $214 million as of September 30, 2020 and December 31, 2019, respectively.
Equity Position
Our equity position also supports our ability to access various funding sources. Our stockholder’s equity was $1.2 billion at September 30, 2020 and $1.3 billion at December 31, 2019. For the nine months ended September 30, 2020, CNH Industrial Capital LLC paid cash dividends of $130 million to CNH Industrial America.
Liquidity
The majority of CNH Industrial Capital’s debt is self-liquidating from the cash generated by the underlying receivables. Normally, additional liquidity should not be necessary for the repayment of such debt. New originations of retail receivables are usually warehoused in committed asset-backed facilities until being refinanced in the term ABS market or with other third party debt. The majority of new wholesale receivables are financed through a master trust and funded by variable funding notes.
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The liquidity available for use varies due to: (a) changes in origination volumes, reflecting the financing needs of our customers, and is influenced by the timing of any refinancing of underlying receivables; and (b) the execution of our funding strategy of maintaining a sufficient level of liquidity and flexible access to a wide variety of financial instruments including both committed and uncommitted, unsecured facilities.
Other Data
| | As of or for the | |||||
| | Nine Months Ended September 30, | |||||
| | 2020 | | 2019 | | ||
| | (Dollars in thousands) | |||||
Total managed receivables |
| $ | 9,200,487 | | $ | 9,999,718 | |
Operating lease equipment | |
| 1,769,774 | | | 1,741,913 | |
Total managed portfolio |
| $ | 10,970,261 | | $ | 11,741,631 | |
Delinquency (1) |
|
| 0.97 | % | | 0.66 | % |
Average managed receivables |
| $ | 9,539,726 | | $ | 10,008,156 | |
Net credit loss (2) |
|
| 0.25 | % | | 0.40 | % |
Profitability: (3) |
|
|
| | | | |
Return on average managed portfolio (4) | |
| 1.30 | % | | 1.29 | % |
Asset Quality: |
|
|
| | | | |
Allowance for credit losses/total receivables | |
| 1.41 | % | | 0.72 | % |
(1) | Delinquency means managed receivables that are past due over 30 days, expressed as a percentage of the managed receivables as of the end of the respective period. |
(2) | Net credit losses on the managed receivables means charge-offs, net of recoveries, for the preceding 12 months expressed as a percentage of the respective average managed receivables. |
(3) | Nine months ended September 30, 2020 and 2019 annualized. |
(4) | Net income for the period expressed as a percentage of the average managed portfolio. |
(5) | The Company’s adoption of ASC 326 on January 1, 2020 measures the allowance based on management’s estimate of the lifetime expected credit losses inherent in the receivables owned by the Company. Prior periods presented reflect measurement of the allowance based on management’s estimate of probable incurred credit losses. See Note 2: New Accounting Pronouncements to this Form 10 Q . |
Cautionary Note Regarding Forward-Looking Statements
This quarterly report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact contained in this filing, including statements regarding our future responses to and effects of the COVID-19 pandemic; competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, capital expenditures, dividends, capital structure or other financial items; costs; and plans and objectives of management regarding operations, products and services, are forward-looking statements. These statements may include terminology such as “may,” “will,” “expect,” “could,” “should,” “intend,” “estimate,” “anticipate,” “believe,” “outlook,” “continue,” “remain,” “on track,” “design,” “target,” “objective,” “goal,” “forecast,” “projection,” “prospects,” “plan,” or similar terminology. Forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside our control and are difficult to predict. If any of these risks and uncertainties materialize or other assumptions underlying any of the forward-looking statements prove to be incorrect, the actual results or developments may differ materially from any future results or developments expressed or implied by the forward-looking statements.
Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: the many interrelated factors that affect customer confidence and demand for our financing products and services; the unknown duration and economic, operational and financial impacts of the COVID-19 pandemic; general economic conditions; changes in government policies regarding banking, monetary and fiscal policies; legislation, particularly relating to capital goods-related issues such as agriculture, the environment, debt relief and subsidy program policies, trade and commerce and infrastructure
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development; government policies on international trade and investment, including protectionist trade policies such as higher tariffs, sanctions, import quotas, capital controls and new barriers to entry or consequent reactions by other governments against such policies; costs related to litigation or regulatory actions; actions of competitors in the various industries in which CNH Industrial North America competes; interest rates and currency exchange rates; inflation and deflation; energy prices; prices for agricultural commodities; housing starts and other construction activity; our ability to obtain financing or to refinance existing debt; restrictive covenants in our debt agreements; actions by rating agencies concerning the ratings on our debt and asset-backed securities and the credit rating of CNHI; a decline in the price of used equipment; political and civil unrest; volatility and deterioration of capital and financial markets; the duration and scope of the COVID-19 pandemic and governmental, business and individuals’ response thereto; other similar risks and uncertainties and our success, and CNH Industrial North America’s success, in managing the risks involved in the foregoing.
Forward-looking statements speak only as of the date on which such statements are made. Our outlook is based upon assumptions, 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. We undertake no obligation to update or revise publicly our forward-looking statements.
Additional factors which could cause actual results and developments to differ from those expressed or implied by the forward-looking statements are included in the section “Item 1A. Risk Factors” in our most recent annual report on Form 10-K.
Critical Accounting Policies and Estimates
See our critical accounting policies and estimates discussed in our annual report for the year ended December 31, 2019 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 to our audited consolidated financial statements included in such annual report. There were no material changes to these policies or estimates during the three months ended September 30, 2020, except for the adoption of ASC 326 on January 1, 2020, which impacted our allowance for credit losses. See Note 2: New Accounting Pronouncements to this Form 10-Q.
New Accounting Pronouncements Not Yet Adopted
See Note 2: New Accounting Pronouncements to this Form 10-Q.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision, and with the participation, of our management, including our President and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2020. Based on that evaluation, our President and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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CNH Industrial Capital is party to various litigation matters and claims arising from its operations. Management believes that the outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on CNH Industrial Capital’s financial position or results of operations.
There have been no material changes from the risk factors previously disclosed in our annual report on Form 10-K (Part I, Item 1A) and our quarterly report for the quarter ended March 31, 2020 filed with the SEC on Form 10-Q (Part II, Item 1A) on May 8, 2020 (“Q1 2020 Form 10-Q”). The risks described in the annual report on Form 10-K, the Q1 2020 Form 10-Q and in the “Cautionary Note Regarding Forward Looking Statements” 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.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Exhibit | | Description |
31.1 | | |
31.2 | | |
32.1† | | |
101 | | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iii) Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, (v) Consolidated Statements of Changes in Stockholder’s Equity for the nine months ended September 30, 2020 and 2019 and (vi) Condensed Notes to Consolidated Financial Statements. |
† | These certifications are deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section; nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act. |
Pursuant to Item 601(b)(4)(iii) of Regulation S K, copies of instruments defining the rights of holders of certain long term debt have not been filed. The registrant will furnish copies thereof to the SEC upon request.
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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 CAPITAL LLC | ||
Date: November 10, 2020 | By: | /s/ Carlo Alberto Sisto | |
| | | |
| | Name: | Carlo Alberto Sisto |
| | Title: | Chairman and President |
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