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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/09/22 CNH Industrial Capital LLC 10-Q 9/30/22 58:9.3M Toppan Merrill Bridge/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 2.42M
2: EX-22 Published Report re: Matters Submitted to a Vote HTML 20K
of Security Holders
3: EX-31.1 Certification -- §302 - SOA'02 HTML 23K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 23K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 18K
11: R1 Document and Entity Information HTML 63K
12: R2 Consolidated Statements of Income HTML 82K
13: R3 Consolidated Statements of Comprehensive Income HTML 46K
14: R4 Consolidated Balance Sheets HTML 100K
15: R5 Consolidated Balance Sheets (Parenthetical) HTML 49K
16: R6 Consolidated Statements of Cash Flows HTML 101K
17: R7 Consolidated Statements of Changes in HTML 70K
Stockholder's Equity
18: R8 Basis of Presentation HTML 24K
19: R9 New Accounting Pronouncements HTML 31K
20: R10 Accumulated Other Comprehensive Income HTML 165K
21: R11 Receivables HTML 431K
22: R12 Equipment on Operating Leases HTML 26K
23: R13 Credit Facilities and Debt HTML 23K
24: R14 Income Taxes HTML 21K
25: R15 Financial Instruments HTML 124K
26: R16 Geographical Information HTML 126K
27: R17 Related - Party Transactions HTML 76K
28: R18 Commitments and Contingencies HTML 21K
29: R19 Subsequent Events HTML 20K
30: R20 Summary of Significant Accounting Policies HTML 21K
(Policies)
31: R21 Accumulated Other Comprehensive Income (Tables) HTML 163K
32: R22 Receivables (Tables) HTML 427K
33: R23 Equipment on Operating Leases (Tables) HTML 25K
34: R24 Financial Instruments (Tables) HTML 118K
35: R25 Geographical Information (Tables) HTML 123K
36: R26 Related-Party Transactions (Tables) HTML 74K
37: R27 ACCUMULATED OTHER COMPREHENSIVE INCOME - Change in HTML 65K
Components of AOCI (Details)
38: R28 RECEIVABLES - Summary of Receivables (Details) HTML 39K
39: R29 RECEIVABLES - Allowance for Credit Losses Activity HTML 45K
(Details)
40: R30 RECEIVABLES - Aging of Receivables (Details) HTML 110K
41: R31 RECEIVABLES - Aging of Receivables in Prior Period HTML 115K
(Details)
42: R32 RECEIVABLES - Impaired Receivables (Details) HTML 31K
43: R33 Equipment on Operating Leases (Details) HTML 31K
44: R34 Credit Facilities and Debt (Details) HTML 36K
45: R35 Income Taxes (Details) HTML 19K
46: R36 FINANCIAL INSTRUMENTS - General Information HTML 21K
(Details)
47: R37 FINANCIAL INSTRUMENTS - Fair Market Value of HTML 51K
Derivatives (Details)
48: R38 FINANCIAL INSTRUMENTS - Items Measured at Fair HTML 39K
Value (Details)
49: R39 FINANCIAL INSTRUMENTS - Carrying Amount and HTML 27K
Estimated Fair Value (Details)
50: R40 Geographical Information (Details) HTML 86K
51: R41 Related Party Transactions (Details) HTML 62K
52: R42 Commitments and Contingencies (Details) HTML 23K
53: R43 Subsequent Events (Details) HTML 27K
56: XML IDEA XML File -- Filing Summary XML 99K
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57: JSON XBRL Instance as JSON Data -- MetaLinks 274± 413K
58: ZIP XBRL Zipped Folder -- 0001558370-22-017187-xbrl Zip 313K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i September 30, 2022 | |
or | |
i ☐ | 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: i 000-55510
i CNH INDUSTRIAL CAPITAL LLC
(Exact name of registrant as specified in its charter)
i Delaware | | i 39-1937630 |
i 5729 Washington Avenue | ( i 262) i 636-6011 | i 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. x i Yes o 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). x i Yes o 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 o | Accelerated filer o |
Non-accelerated filer x | Smaller reporting company i ☐ |
Emerging growth company i ☐ | |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). i ☐ Yes x No
As of September 30, 2022, 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, 2022 and December 31, 2021 (Unaudited) | 3 |
| 5 | |
| 6 | |
| Condensed Notes to Consolidated Financial Statements (Unaudited) | 8 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | * |
37 | ||
38 | ||
38 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | * |
Item 3. | Defaults Upon Senior Securities | * |
38 | ||
38 | ||
38 | ||
* | This item has been omitted pursuant to the reduced disclosure format as set forth in General Instruction (H)(2) of Form 10-Q |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | |||||||||
| | 2022 |
| 2021 | | 2022 |
| 2021 | ||||
REVENUES |
| | | | | |
| | | | | |
Interest income on retail notes and finance leases | | $ | i 54,888 | | $ | i 43,531 | | $ | i 150,637 | | $ | i 123,582 |
Interest income on wholesale notes | |
| i 8,043 | |
| i 7,577 | |
| i 19,731 | |
| i 24,906 |
Interest and other income from affiliates | |
| i 67,488 | |
| i 71,322 | |
| i 195,027 | |
| i 226,399 |
Rental income on operating leases | |
| i 61,657 | |
| i 66,870 | |
| i 188,243 | |
| i 202,894 |
Other income | |
| i 7,481 | |
| i 16,791 | |
| i 22,604 | |
| i 29,220 |
Total revenues |
|
| i 199,557 | |
| i 206,091 |
|
| i 576,242 | |
| i 607,001 |
EXPENSES |
| | | | | |
| | | | | |
Interest expense: | | | | | | | | | | | | |
Interest expense to third parties | |
| i 62,539 | |
| i 46,093 | |
| i 147,831 | |
| i 149,643 |
Interest expense to affiliates | |
| i 2,933 | |
| i 1,260 | |
| i 4,632 | |
| i 3,825 |
Total interest expense |
|
| i 65,472 | |
| i 47,353 |
|
| i 152,463 | |
| i 153,468 |
Administrative and operating expenses: |
| | | | | |
| | | | | |
Fees charged by affiliates | |
| i 12,946 | |
| i 11,394 | |
| i 36,519 | |
| i 34,118 |
Provision (benefit) for credit losses | |
| ( i 1,825) | |
| i 622 | |
| i 2,944 | |
| ( i 8,917) |
Depreciation of equipment on operating leases | |
| i 50,086 | |
| i 59,577 | |
| i 153,444 | |
| i 181,273 |
Other expenses, net | |
| i 3,416 | |
| i 5,209 | |
| ( i 564) | |
| i 17,084 |
Total administrative and operating expenses |
|
| i 64,623 | |
| i 76,802 |
|
| i 192,343 | |
| i 223,558 |
Total expenses |
|
| i 130,095 | |
| i 124,155 |
|
| i 344,806 | |
| i 377,026 |
INCOME BEFORE TAXES |
|
| i 69,462 | |
| i 81,936 |
|
| i 231,436 | |
| i 229,975 |
Income tax provision | |
| i 16,159 | |
| i 19,514 | |
| i 54,752 | |
| i 55,060 |
NET INCOME |
| $ | i 53,303 | | $ | i 62,422 |
| $ | i 176,684 | | $ | i 174,915 |
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, 2022 AND 2021
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | |||||||||
| | 2022 |
| 2021 | | 2022 |
| 2021 | ||||
NET INCOME |
| $ | i 53,303 | | $ | i 62,422 |
| $ | i 176,684 | | $ | i 174,915 |
Other comprehensive income (loss): | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| ( i 37,238) | |
| ( i 16,310) | |
| ( i 47,830) | |
| ( i 661) |
Pension liability adjustment | |
| ( i 158) | |
| ( i 42) | |
| ( i 512) | |
| ( i 157) |
Change in derivative financial instruments | |
| i 1,572 | |
| i 757 | |
| i 11,931 | |
| i 3,830 |
Total other comprehensive income |
|
| ( i 35,824) | |
| ( i 15,595) |
|
| ( i 36,411) | |
| i 3,012 |
COMPREHENSIVE INCOME |
| $ | i 17,479 | | $ | i 46,827 |
| $ | i 140,273 | | $ | i 177,927 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
2
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(Dollars in thousands)
(Unaudited)
| | | | | | |
|
| September 30, |
| |||
| | 2022 | | 2021 | ||
ASSETS |
| | |
| | |
Cash and cash equivalents | | $ | i 105,915 | | $ | i 426,917 |
Restricted cash and cash equivalents | |
| i 440,152 | |
| i 601,742 |
Receivables, less allowance for credit losses of $ i 108,358 and $ i 115,953, respectively | |
| i 9,881,490 | |
| i 8,951,299 |
Affiliated accounts and notes receivable | |
| i 52,911 | |
| i 259,699 |
Equipment on operating leases, net | |
| i 1,510,285 | |
| i 1,707,531 |
Equipment held for sale | |
| i 15,314 | |
| i 26,320 |
Goodwill | |
| i 108,181 | |
| i 110,226 |
Other intangible assets, net | |
| i 16,850 | |
| i 16,452 |
Other assets | |
| i 107,154 | |
| i 87,582 |
TOTAL |
| $ | i 12,238,252 | | $ | i 12,187,768 |
LIABILITIES AND STOCKHOLDER’S EQUITY |
| | | | | |
Liabilities: | | | | | | |
Short-term debt (including current maturities of long-term debt) | | $ | i 3,858,269 | | $ | i 3,755,368 |
Accounts payable and other accrued liabilities | |
| i 1,009,771 | |
| i 1,038,930 |
Affiliated debt | |
| i 216,364 | |
| i 2,100 |
Long-term debt | |
| i 5,873,776 | |
| i 6,141,970 |
Total liabilities |
|
| i 10,958,180 | |
| i 10,938,368 |
Commitments and contingent liabilities (Note 11) |
| | | | | |
Stockholder’s equity: |
| | | | | |
Member’s capital | |
| — | |
| — |
Paid-in capital | |
| i 843,868 | |
| i 843,469 |
Accumulated other comprehensive loss | |
| ( i 147,868) | |
| ( i 111,457) |
Retained earnings | |
| i 584,072 | |
| i 517,388 |
Total stockholder’s equity |
|
| i 1,280,072 | |
| i 1,249,400 |
TOTAL |
| $ | i 12,238,252 | | $ | i 12,187,768 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
3
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(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, |
| |||
| | 2022 | | 2021 | ||
Restricted cash and cash equivalents |
| $ | i 440,152 | | $ | i 601,742 |
Receivables, less allowance for credit losses of $ i 54,244 and $ i 61,652, respectively | |
| i 6,789,044 | |
| i 6,634,540 |
TOTAL |
| $ | i 7,229,196 | | $ | i 7,236,282 |
| | | | | | |
Short-term debt (including current maturities of long-term debt) |
| $ | i 2,997,387 | | $ | i 3,015,110 |
Long-term debt | |
| i 3,537,942 | |
| i 3,453,396 |
TOTAL |
| $ | i 6,535,329 | | $ | i 6,468,506 |
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, 2022 AND 2021
(Dollars in thousands)
(Unaudited)
| | | | | | |
|
| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES |
| | | | | |
Net income | | $ | i 176,684 | | $ | i 174,915 |
Adjustments to reconcile net income to net cash from (used in) operating activities: | | | | | | |
Depreciation on property and equipment and equipment on operating leases | |
| i 153,450 | |
| i 181,279 |
Amortization of intangibles | |
| i 1,632 | |
| i 1,400 |
Provision (benefit) for credit losses | |
| i 2,944 | |
| ( i 8,917) |
Deferred income tax expense (benefit) | |
| ( i 31,375) | |
| i 3,890 |
Changes in components of working capital: | | | | | | |
Change in affiliated accounts and notes receivables | |
| i 206,788 | |
| ( i 222,541) |
Change in other assets and equipment held for sale | |
| ( i 6,130) | |
| i 21,988 |
Change in accounts payable and other accrued liabilities | |
| i 11,612 | |
| i 71,616 |
Net cash from (used in) operating activities |
|
| i 515,605 | |
| i 223,630 |
CASH FLOWS FROM INVESTING ACTIVITIES |
| | | | | |
Cost of receivables acquired | |
| ( i 10,325,233) | |
| ( i 8,733,466) |
Collections of receivables | |
| i 9,238,310 | |
| i 8,743,735 |
Purchase of equipment on operating leases | |
| ( i 354,324) | |
| ( i 334,539) |
Proceeds from disposal of equipment on operating leases | |
| i 374,439 | |
| i 281,336 |
Change in property, equipment and software, net | | | ( i 2,029) | | | ( i 1,652) |
Net cash from (used in) investing activities |
|
| ( i 1,068,837) | |
| ( i 44,586) |
CASH FLOWS FROM FINANCING ACTIVITIES |
| | | | | |
Proceeds from issuance of affiliated debt | |
| i 670,960 | |
| i 259,793 |
Payment of affiliated debt | |
| ( i 446,072) | |
| ( i 443,103) |
Proceeds from issuance of long-term debt | |
| i 2,594,387 | |
| i 3,039,408 |
Payment of long-term debt | |
| ( i 2,825,471) | |
| ( i 3,002,563) |
Change in short-term borrowings, net | |
| i 186,836 | |
| ( i 6,688) |
Dividends paid to CNH Industrial America LLC | |
| ( i 110,000) | |
| ( i 160,000) |
Net cash from (used in) financing activities |
|
| i 70,640 | |
| ( i 313,153) |
DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| ( i 482,592) | |
| ( i 134,109) |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
| | | | | |
Beginning of period | |
| i 1,028,659 | |
| i 1,018,551 |
End of period |
| $ | i 546,067 | | $ | i 884,442 |
CASH PAID DURING THE PERIOD FOR INTEREST |
| $ | i 159,632 | | $ | i 156,617 |
CASH PAID DURING THE PERIOD FOR TAXES |
| $ | i 86,751 | | $ | i 43,459 |
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, 2022 AND 2021
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | |
|
| | |
| | |
| Accumulated |
| | |
| | | |
| | | | | | | | Other | | | | | | | |
| | Member’s | | Paid-in | | Comprehensive | | Retained | | | | ||||
| | Capital | | Capital | | Income (Loss) | | Earnings | | Total | |||||
BALANCE — January 1, 2022 |
| $ | — | | $ | i 843,469 | | $ | ( i 111,457) | | $ | i 517,388 | | $ | i 1,249,400 |
Net income | | | — | | | — | | | — | | | i 63,487 | | | i 63,487 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | ( i 25,000) | | | ( i 25,000) |
Foreign currency translation adjustment | | | — | | | — | | | i 9,154 | | | — | | | i 9,154 |
Stock compensation | | | — | | | i 101 | | | — | | | — | | | i 101 |
Pension liability adjustment, net of tax | | | — | | | — | | | ( i 186) | | | — | | | ( i 186) |
Change in derivative financial instruments, net of tax | | | — | | | — | | | i 6,451 | | | — | | | i 6,451 |
BALANCE — March 31, 2022 |
| $ | — | | $ | i 843,570 | | $ | ( i 96,038) | | $ | i 555,875 | | $ | i 1,303,407 |
Net income | | | — | | | — | | | — | | | i 59,894 | | | i 59,894 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | ( i 65,000) | | | ( i 65,000) |
Foreign currency translation adjustment | | | — | | | — | | | ( i 19,746) | | | — | | | ( i 19,746) |
Stock compensation | | | — | | | i 134 | | | — | | | — | | | i 134 |
Pension liability adjustment, net of tax | | | — | | | — | | | ( i 168) | | | — | | | ( i 168) |
Change in derivative financial instruments, net of tax | | | — | | | — | | | i 3,908 | | | — | | | i 3,908 |
BALANCE — June 30, 2022 |
| $ | — | | $ | i 843,704 | | $ | ( i 112,044) | | $ | i 550,769 | | $ | i 1,282,429 |
Net income | | | — | | | — | | | — | | | i 53,303 | | | i 53,303 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | ( i 20,000) | | | ( i 20,000) |
Foreign currency translation adjustment | | | — | | | — | | | ( i 37,238) | | | — | | | ( i 37,238) |
Stock compensation | | | — | | | i 164 | | | — | | | — | | | i 164 |
Pension liability adjustment, net of tax | | | — | | | — | | | ( i 158) | | | — | | | ( i 158) |
Change in derivative financial instruments, net of tax | | | — | | | — | | | i 1,572 | | | — | | | i 1,572 |
BALANCE — September 30, 2022 |
| $ | — | | $ | i 843,868 | | $ | ( i 147,868) | | $ | i 584,072 | | $ | i 1,280,072 |
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, 2022 AND 2021 (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | |
|
| | |
| | |
| Accumulated |
| | |
| | | |
| | | | | | | | Other | | | | | | | |
| | Member’s | | Paid-in | | Comprehensive | | Retained | | | | ||||
| | Capital | | Capital | | Income (Loss) | | Earnings | | Total | |||||
BALANCE — January 1, 2021 |
| $ | — | | $ | i 843,234 | | $ | ( i 120,235) | | $ | i 537,173 | | $ | i 1,260,172 |
Net income | | | — | | | — | | | — | | | i 55,980 | | | i 55,980 |
Foreign currency translation adjustment | | | — | | | — | | | i 5,758 | | | — | | | i 5,758 |
Stock compensation | | | — | | | i 111 | | | — | | | — | | | i 111 |
Pension liability adjustment, net of tax | | | — | | | — | | | ( i 56) | | | — | | | ( i 56) |
Change in derivative financial instruments, net of tax | | | — | | | — | | | i 2,263 | | | — | | | i 2,263 |
BALANCE — March 31, 2021 |
| $ | — | | $ | i 843,345 | | $ | ( i 112,270) | | $ | i 593,153 | | $ | i 1,324,228 |
Net income | | | — | | | — | | | — | | | i 56,513 | | | i 56,513 |
Dividends paid to CNH Industrial America LLC | | | — | | | — | | | — | | | ( i 80,000) | | | ( i 80,000) |
Foreign currency translation adjustment | | | — | | | — | | | i 9,891 | | | — | | | i 9,891 |
Stock compensation | | | — | | | i 116 | | | — | | | — | | | i 116 |
Pension liability adjustment, net of tax | | | — | | | — | | | ( i 59) | | | — | | | ( i 59) |
Change in derivative financial instruments, net of tax | | | — | | | — | | | i 810 | | | — | | | i 810 |
BALANCE — June 30, 2021 |
| $ | — | | $ | i 843,461 | | $ | ( i 101,628) | | $ | i 569,666 | | $ | i 1,311,499 |
Net income | |
| — | |
| — | |
| — | |
| i 62,422 | |
| i 62,422 |
Dividends paid to CNH Industrial America LLC | |
| — | |
| — | |
| — | |
| ( i 80,000) | |
| ( i 80,000) |
Foreign currency translation adjustment | |
| — | |
| — | |
| ( i 16,310) | |
| — | |
| ( i 16,310) |
Stock compensation | |
| — | |
| ( i 33) | |
| — | |
| — | |
| ( i 33) |
Pension liability adjustment, net of tax | |
| — | |
| — | |
| ( i 42) | |
| — | |
| ( i 42) |
Change in derivative financial instruments, net of tax | |
| — | |
| — | |
| i 757 | |
| — | |
| i 757 |
BALANCE — September 30, 2021 |
| $ | — | | $ | i 843,428 | | $ | ( i 117,223) | | $ | i 552,088 | | $ | i 1,278,293 |
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)
NOTE 1: BASIS OF PRESENTATION
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, 2021. 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. Actual results could differ from these estimates.
The COVID-19 pandemic has resulted in uncertainties in the Company’s business, which may cause actual results to differ materially from the estimates and assumptions used in the 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 the 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
iNew Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 can be adopted beginning as of March 12, 2020 through December 31, 2022 and may be applied as of the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Company has not adopted ASU 2020-04 as of September 30, 2022. ASU 2020-04 is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings (“TDRs”) for creditors in ASC 310-40 and amends the guidance on vintage disclosures to require disclosure of current-period gross write-offs by year of origination. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. Entities can elect to adopt the guidance on TDRs using either a prospective or modified retrospective transition. The amendments related to disclosures should be adopted prospectively. The Company is currently evaluating the impact of adoption to its consolidated financial statements.
There are other new accounting pronouncements issued by the FASB that the Company will adopt, as applicable. The Company does not believe any of these accounting pronouncements will have a material impact on its consolidated financial statements.
/ iNOTE 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.
9
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 three months ended September 30, 2022:
| | | | | | | | | | | | |
| | Currency | | | | | Unrealized | | | | ||
| | Translation | | Pension | | (Losses) Gains | | | | |||
|
| Adjustment |
| Liability |
| on Derivatives |
| Total | ||||
Beginning balance, gross |
| $ | ( i 123,210) | | $ | i 1,983 | | $ | i 12,911 | | $ | ( i 108,316) |
Tax asset (liability) | |
| — | |
| ( i 473) | |
| ( i 3,255) | |
| ( i 3,728) |
Beginning balance, net of tax |
|
| ( i 123,210) | |
| i 1,510 | |
| i 9,656 | |
| ( i 112,044) |
Other comprehensive income (loss) before reclassifications | |
| ( i 37,238) | |
| ( i 59) | |
| i 2,439 | |
| ( i 34,858) |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| ( i 150) | |
| ( i 342) | |
| ( i 492) |
Tax effects | |
| — | |
| i 51 | |
| ( i 525) | |
| ( i 474) |
Net current-period other comprehensive income (loss) |
|
| ( i 37,238) | |
| ( i 158) | |
| i 1,572 | |
| ( i 35,824) |
Total |
| $ | ( i 160,448) | | $ | i 1,352 | | $ | i 11,228 | | $ | ( i 147,868) |
The following table summarizes the changes in the components of the Company’s AOCI balance and related tax effects for the nine months ended September 30, 2022:
| | | | | | | | | | | | |
| | Currency | | | | | Unrealized | | | | ||
| | Translation | | Pension | | (Losses) Gains | | | | |||
|
| Adjustment |
| Liability |
| on Derivatives |
| Total | ||||
Beginning balance, gross |
| $ | ( i 112,618) | | $ | i 2,451 | | $ | ( i 956) | | $ | ( i 111,123) |
Tax asset (liability) | |
| — | |
| ( i 587) | |
| i 253 | |
| ( i 334) |
Beginning balance, net of tax |
|
| ( i 112,618) | |
| i 1,864 | |
| ( i 703) | |
| ( i 111,457) |
Other comprehensive income (loss) before reclassifications | |
| ( i 47,830) | |
| ( i 229) | |
| i 16,521 | |
| ( i 31,538) |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| ( i 447) | |
| ( i 557) | |
| ( i 1,004) |
Tax effects | |
| — | |
| i 164 | |
| ( i 4,033) | |
| ( i 3,869) |
Net current-period other comprehensive income (loss) |
|
| ( i 47,830) | |
| ( i 512) | |
| i 11,931 | |
| ( i 36,411) |
Total |
| $ | ( i 160,448) | | $ | i 1,352 | | $ | i 11,228 | | $ | ( i 147,868) |
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, 2021:
| | | | | | | | | | | | |
| | Currency | | | | | Unrealized | | | | ||
| | Translation | | Pension | | (Losses) Gains | | | | |||
|
| Adjustment |
| Liability |
| Derivatives |
| Total | ||||
Beginning balance, gross |
| $ | ( i 97,635) | | $ | ( i 85) | | $ | ( i 5,360) | | $ | ( i 103,080) |
Tax asset | |
| — | |
| i 32 | |
| i 1,420 | |
| i 1,452 |
Beginning balance, net of tax |
|
| ( i 97,635) | |
| ( i 53) | |
| ( i 3,940) | |
| ( i 101,628) |
Other comprehensive income (loss) before reclassifications | |
| ( i 16,310) | |
| ( i 91) | |
| i 833 | |
| ( i 15,568) |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| i 36 | |
| i 197 | |
| i 233 |
Tax effects | |
| — | |
| i 13 | |
| ( i 273) | |
| ( i 260) |
Net current-period other comprehensive income (loss) |
|
| ( i 16,310) | |
| ( i 42) | |
| i 757 | |
| ( i 15,595) |
Total |
| $ | ( i 113,945) | | $ | ( i 95) | | $ | ( i 3,183) | | $ | ( i 117,223) |
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, 2021:
| | | | | | | | | | | | |
| | Currency | | | | | Unrealized | | | | ||
| | Translation | | Pension | | (Losses) Gains | | | | |||
|
| Adjustment |
| Liability |
| Derivatives |
| Total | ||||
Beginning balance, gross |
| $ | ( i 113,284) | | $ | i 67 | | $ | ( i 9,542) | | $ | ( i 122,759) |
Tax asset (liability) | |
| — | |
| ( i 5) | |
| i 2,529 | |
| i 2,524 |
Beginning balance, net of tax |
|
| ( i 113,284) | |
| i 62 | |
| ( i 7,013) | |
| ( i 120,235) |
Other comprehensive income (loss) before reclassifications | |
| ( i 661) | |
| ( i 314) | |
| i 4,665 | |
| i 3,690 |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| i 107 | |
| i 546 | |
| i 653 |
Tax effects | |
| — | |
| i 50 | |
| ( i 1,381) | |
| ( i 1,331) |
Net current-period other comprehensive income (loss) |
|
| ( i 661) | |
| ( i 157) | |
| i 3,830 | |
| i 3,012 |
Total |
| $ | ( i 113,945) | | $ | ( i 95) | | $ | ( i 3,183) | | $ | ( i 117,223) |
The reclassifications out of AOCI for the three and nine months ended September 30, 2022 and 2021 were immaterial.
iNOTE 4: RECEIVABLES
A summary of receivables included in the consolidated balance sheets as of September 30, 2022 and December 31, 2021 is as follows:
i
| | | | | | |
|
| September 30, |
| |||
| | 2022 | | 2021 | ||
Retail |
| $ | i 1,265,557 |
| $ | i 993,768 |
Wholesale | |
| i 784,228 | |
| i 576,810 |
Finance lease | |
| i 187,890 | |
| i 177,347 |
Restricted receivables | |
| i 7,752,173 | |
| i 7,319,327 |
Gross receivables |
|
| i 9,989,848 |
|
| i 9,067,252 |
Less: Allowance for credit losses | |
| ( i 108,358) | |
| ( i 115,953) |
Total receivables, net |
| $ | i 9,881,490 |
| $ | i 8,951,299 |
Restricted Receivables and Securitization
As part of its overall funding strategy, the Company periodically transfers certain receivables into 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. i 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.
/11
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
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, 2022 and December 31, 2021:
i
| | | | | | |
|
| September 30, |
| |||
| | 2022 | | 2021 | ||
Retail |
| $ | i 5,712,873 |
| $ | i 5,551,132 |
Wholesale | |
| i 2,039,300 | |
| i 1,768,195 |
Total restricted receivables |
| $ | i 7,752,173 | | $ | i 7,319,327 |
Within the U.S. retail receivables securitization programs, qualifying retail receivables are sold to bankruptcy- remote SPEs. In turn, these SPEs establish separate trusts, which are VIEs, to either transfer receivables 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, qualifying retail receivables are transferred directly to trusts, which are also VIEs. The VIEs are consolidated since the Company has both the power to direct the activities that most significantly impact the VIEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.
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.
Allowance for Credit Losses
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. 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.
12
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
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.
iAllowance for credit losses activity for the three months ended September 30, 2022 is as follows:
| | | | | | | | | |
| | Retail | | Wholesale | | Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance |
| $ | i 105,937 |
| $ | i 5,467 | | $ | i 111,404 |
Charge-offs | |
| ( i 1,689) | |
| — | | | ( i 1,689) |
Recoveries | |
| i 739 | |
| i 508 | | | i 1,247 |
Provision (benefit) | |
| ( i 1,410) | |
| ( i 415) | | | ( i 1,825) |
Foreign currency translation and other | |
| ( i 743) | |
| ( i 36) | | | ( i 779) |
Ending balance |
| $ | i 102,834 |
| $ | i 5,524 | | $ | i 108,358 |
Allowance for credit losses activity for the nine months ended September 30, 2022 is as follows:
| | | | | | | | | |
| | Retail | | Wholesale | | Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance |
| $ | i 109,742 |
| $ | i 6,211 | | $ | i 115,953 |
Charge-offs | |
| ( i 7,164) | |
| ( i 4,631) | | | ( i 11,795) |
Recoveries | |
| i 1,632 | |
| i 523 | | | i 2,155 |
Provision (benefit) | |
| ( i 527) | |
| i 3,471 | | | i 2,944 |
Foreign currency translation and other | |
| ( i 849) | |
| ( i 50) | | | ( i 899) |
Ending balance |
| $ | i 102,834 |
| $ | i 5,524 | | $ | i 108,358 |
Receivables: |
| | |
| | | | | |
Ending balance |
| $ | i 7,166,320 |
| $ | i 2,823,528 | | $ | i 9,989,848 |
At September 30, 2022, the allowance for credit losses included decreases in reserves primarily due to charge-offs and a reduction in the expected impact on credit conditions from the COVID-19 pandemic, partially offset by specific reserve needs. The Company continues to monitor the situation and will update the macroeconomic factors and qualitative factors in future periods, as warranted.
/13
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, 2021 is as follows:
| | | | | | | | | |
|
| Retail |
| Wholesale |
| Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance, as previously reported |
| $ | i 116,684 |
| $ | i 7,234 | | $ | i 123,918 |
Charge-offs | |
| ( i 4,736) | |
| — | |
| ( i 4,736) |
Recoveries | |
| i 368 | |
| i 108 | |
| i 476 |
Provision (benefit) | |
| i 2,420 | |
| ( i 1,798) | |
| i 622 |
Foreign currency translation and other | |
| ( i 433) | |
| ( i 22) | |
| ( i 455) |
Ending balance |
| $ | i 114,303 |
| $ | i 5,522 | | $ | i 119,825 |
Allowance for credit losses activity for the nine months ended September 30, 2021 is as follows:
| | | | | | | | | |
| | Retail | | Wholesale | | Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance |
| $ | i 126,851 |
| $ | i 9,285 | | $ | i 136,136 |
Charge-offs | |
| ( i 9,056) | |
| ( i 179) | |
| ( i 9,235) |
Recoveries | |
| i 1,719 | |
| i 114 | |
| i 1,833 |
Provision (benefit) | |
| ( i 5,218) | |
| ( i 3,699) | |
| ( i 8,917) |
Foreign currency translation and other | |
| i 7 | |
| i 1 | |
| i 8 |
Ending balance |
| $ | i 114,303 |
| $ | i 5,522 | | $ | i 119,825 |
Receivables: |
| | |
| | | | | |
Ending balance |
| $ | i 6,444,586 |
| $ | i 2,570,906 | | $ | i 9,015,492 |
Allowance for credit losses activity for the year ended December 31, 2021 is as follows:
| | | | | | | | | |
|
| Retail |
| Wholesale |
| Total | |||
Allowance for credit losses: | | | | | | | | | |
Beginning balance, as previously reported |
| $ | i 126,851 |
| $ | i 9,285 |
| $ | i 136,136 |
Charge-offs | |
| ( i 14,929) | |
| ( i 179) | |
| ( i 15,108) |
Recoveries | |
| i 2,177 | |
| i 126 | |
| i 2,303 |
Provision (benefit) | |
| ( i 4,437) | |
| ( i 3,023) | |
| ( i 7,460) |
Foreign currency translation and other | |
| i 80 | |
| i 2 | |
| i 82 |
Ending balance |
| $ | i 109,742 |
| $ | i 6,211 |
| $ | i 115,953 |
Receivables: |
| | |
| | |
| | |
Ending balance |
| $ | i 6,722,247 |
| $ | i 2,345,005 |
| $ | i 9,067,252 |
At both September 30, 2021 and December 31, 2021, the allowance for credit losses included a release of reserves primarily due to the improved outlook for the agricultural industry and a reduced expected impact on credit conditions from the COVID-19 pandemic.
14
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
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 i i 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.
iThe aging of receivables as of September 30, 2022 is as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Greater | | | | | | | | | | |
| | 31 – 60 Days | | 61 – 90 Days | | Than | | Total | | | | | Total | |||||
| | Past Due | | Past Due | | 90 Days | | Past Due | | Current | | Receivables | ||||||
Retail |
| | | | | | | | | | | | | | | | | |
United States | | | | | | | | | | | | | | | | | | |
2022 | | $ | i 1,604 | | $ | i 1,342 | | $ | i 63 | | $ | i 3,009 | | $ | i 2,184,219 | | $ | i 2,187,228 |
2021 | | | i 4,687 | | | i 574 | | | i 2,471 | | | i 7,732 | | | i 1,795,388 | | | i 1,803,120 |
2020 | | | i 2,331 | | | i 911 | | | i 29,664 | | | i 32,906 | | | i 919,516 | | | i 952,422 |
2019 | | | i 2,082 | | | i 817 | | | i 4,520 | | | i 7,419 | | | i 450,975 | | | i 458,394 |
2018 | | | i 869 | | | i 752 | | | i 1,334 | | | i 2,955 | | | i 241,825 | | | i 244,780 |
Prior to 2018 | | | i 446 | | | i 527 | | | i 4,868 | | | i 5,841 | | | i 96,666 | | | i 102,507 |
Total |
| $ | i 12,019 | | $ | i 4,923 | | $ | i 42,920 | | $ | i 59,862 | | $ | i 5,688,589 | | $ | i 5,748,451 |
Canada | | | | | | | | | | | | | | | | | | |
2022 | | $ | i 7 | | $ | — | | $ | i 52 | | $ | i 59 | | $ | i 534,194 | | $ | i 534,253 |
2021 | | | i 719 | | | i 902 | | | i 1,186 | | | i 2,807 | | | i 491,232 | | | i 494,039 |
2020 | | | i 354 | | | i 1,055 | | | i 697 | | | i 2,106 | | | i 212,934 | | | i 215,040 |
2019 | | | i 90 | | | i 277 | | | i 835 | | | i 1,202 | | | i 103,762 | | | i 104,964 |
2018 | | | i 102 | | | i 246 | | | i 494 | | | i 842 | | | i 50,233 | | | i 51,075 |
Prior to 2018 | | | i 113 | | | i 104 | | | i 1,163 | | | i 1,380 | | | i 17,118 | | | i 18,498 |
Total |
| $ | i 1,385 | | $ | i 2,584 | | $ | i 4,427 | | $ | i 8,396 | | $ | i 1,409,473 | | $ | i 1,417,869 |
Wholesale |
| | | | | | | | | | | | | | | | | |
United States | | $ | i 20 | | $ | — | | $ | i 3 | | $ | i 23 | | $ | i 2,349,183 | | $ | i 2,349,206 |
Canada | | $ | i 2 | | $ | i 1 | | $ | — | | $ | i 3 | | $ | i 474,319 | | $ | i 474,322 |
Total |
| | |
| | |
| | |
| | |
| | |
| | |
Retail | | $ | i 13,404 | | $ | i 7,507 | | $ | i 47,347 | | $ | i 68,258 | | $ | i 7,098,062 | | $ | i 7,166,320 |
Wholesale | | $ | i 22 | | $ | i 1 | | $ | i 3 | | $ | i 26 | | $ | i 2,823,502 | | $ | i 2,823,528 |
The aging of receivables as of December 31, 2021 is as follows:
/15
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Greater | | | | | | | | | | |
| | 31 – 60 Days | | 61 – 90 Days | | Than | | Total | | | | | Total | |||||
| | Past Due | | Past Due | | 90 Days | | Past Due | | Current | | Receivables | ||||||
Retail |
| | | | | | | | | | | | | | | | | |
United States | | | | | | | | | | | | | | | | | | |
2021 | | $ | i 3,244 | | $ | i 364 | | $ | i 719 | | $ | i 4,327 | | $ | i 2,491,994 | | $ | i 2,496,321 |
2020 | | | i 4,957 | | | i 606 | | | i 2,749 | | | i 8,312 | | | i 1,355,498 | | | i 1,363,810 |
2019 | | | i 3,977 | | | i 808 | | | i 3,937 | | | i 8,722 | | | i 739,005 | | | i 747,727 |
2018 | | | i 2,437 | | | i 602 | | | i 2,968 | | | i 6,007 | | | i 442,892 | | | i 448,899 |
2017 | | | i 1,351 | | | i 638 | | | i 2,486 | | | i 4,475 | | | i 191,998 | | | i 196,473 |
2016 | | | i 723 | | | i 85 | | | i 1,839 | | | i 2,647 | | | i 48,535 | | | i 51,182 |
Prior to 2016 | | | i 221 | | | i 71 | | | i 1,361 | | | i 1,653 | | | i 13,009 | | | i 14,662 |
Total |
| $ | i 16,910 | | $ | i 3,174 | | $ | i 16,059 | | $ | i 36,143 | | $ | i 5,282,931 | | $ | i 5,319,074 |
Canada | | | | | | | | | | | | | | | | | | |
2021 | | $ | i 1,777 | | $ | — | | $ | — | | $ | i 1,777 | | $ | i 713,889 | | $ | i 715,666 |
2020 | | | i 1,183 | | | i 198 | | | i 564 | | | i 1,945 | | | i 356,076 | | | i 358,021 |
2019 | | | i 531 | | | i 126 | | | i 817 | | | i 1,474 | | | i 175,824 | | | i 177,298 |
2018 | | | i 422 | | | i 186 | | | i 620 | | | i 1,228 | | | i 96,205 | | | i 97,433 |
2017 | | | i 136 | | | i 4 | | | i 232 | | | i 372 | | | i 40,938 | | | i 41,310 |
2016 | | | i 114 | | | — | | | i 604 | | | i 718 | | | i 10,001 | | | i 10,719 |
Prior to 2016 | | | i 1 | | | — | | | i 290 | | | i 291 | | | i 2,435 | | | i 2,726 |
Total |
| $ | i 4,164 | | $ | i 514 | | $ | i 3,127 | | $ | i 7,805 | | $ | i 1,395,368 | | $ | i 1,403,173 |
Wholesale |
| | | | | | | | | | | | | | | | | |
United States | | $ | i 3 | | $ | — | | $ | i 9 | | $ | i 12 | | $ | i 1,802,052 | | $ | i 1,802,064 |
Canada | | $ | — | | $ | — | | $ | — | | $ | — | | $ | i 542,941 | | $ | i 542,941 |
Total |
| | |
| | |
| | |
| | |
| | |
| | |
Retail | | $ | i 21,074 | | $ | i 3,688 | | $ | i 19,186 | | $ | i 43,948 | | $ | i 6,678,299 | | $ | i 6,722,247 |
Wholesale | | $ | i 3 | | $ | — | | $ | i 9 | | $ | i 12 | | $ | i 2,344,993 | | $ | i 2,345,005 |
Included in the receivables balance at September 30, 2022 and December 31, 2021 is accrued interest of $ i 51,835 and $ i 41,953, respectively. The Company does not include accrued interest in its allowance for credit losses. Recognition of income is generally suspended when management determines that collection of future finance income is not probable or when an account becomes i i 90 days / past due, 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, 2022 and 2021. 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, 2022 and December 31, 2021 are as follows:
i
| | | | | | | | | | | | | | | | | | |
| | | ||||||||||||||||
|
| Retail |
| Wholesale |
| Total |
| Retail |
| Wholesale |
| Total | ||||||
United States |
| $ | i 45,982 |
| $ | — |
| $ | i 45,982 |
| $ | i 24,028 |
| $ | — |
| $ | i 24,028 |
Canada | | $ | i 4,427 | | $ | — | | $ | i 4,427 | | $ | i 3,127 | | $ | — | | $ | i 3,127 |
As of September 30, 2022 and December 31, 2021, 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, 2022 and 2021 was immaterial.
16
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Troubled Debt Restructurings
A restructuring of a receivable constitutes a 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.
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, 2022 and 2021, the Company’s retail and wholesale TDRs were immaterial.
iNOTE 5: EQUIPMENT ON OPERATING LEASES
Lease payments owed to the Company for equipment under non-cancelable operating leases (excluding deferred operating lease subsidy of $ i 76,484) as of September 30, 2022 are as follows:
i
| | | |
2022 |
| $ | i 55,721 |
2023 | |
| i 176,326 |
2024 | |
| i 111,867 |
2025 | |
| i 52,737 |
2026 and thereafter | |
| i 22,415 |
Total lease payments |
| $ | i 419,066 |
/ iNOTE 6: CREDIT FACILITIES AND DEBT
On August 23, 2022, the Company, through a bankruptcy-remote trust, issued $ i 835,690 of amortizing asset-backed notes secured by U.S. retail receivables.
On September 15, 2022, the Company extended the maturity date of the U.S. retail committed asset-backed facility to September 2024.
Committed unsecured facilities with banks as of September 30, 2022, totaled $ i 602,233. 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, 2022, the Company had $ i 56,751 outstanding under these credit facilities. The remaining available credit commitments are maintained primarily to provide backup liquidity for commercial paper borrowings. The Company’s outstanding commercial paper totaled $ i 150,772 as of September 30, 2022.
/ iNOTE 7: INCOME TAXES
The effective tax rates for the three months ended September 30, 2022 and 2021 were i 23.3% and i 23.8%, respectively. The effective tax rate was i 23.7% for the nine months ended September 30, 2022, compared to i 23.9% for the same period in 2021.
/17
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 8: FINANCIAL INSTRUMENTS
The Company may elect to measure financial instruments and certain other items at fair value. This fair value option would be applied on an instrument-by-instrument basis with changes in fair value reported in earnings. The election can be made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once made. The Company has not elected the fair value measurement option for eligible items.
Fair-Value Hierarchy
The hierarchy of valuation techniques for financial instruments is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:
Level 1 — | Quoted prices for identical instruments in active markets. |
Level 2 — | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
Level 3 — | Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
This hierarchy requires the use of observable market data when available.
Determination of Fair Value
When available, the Company uses quoted market prices to determine fair value and classifies such items in Level 1. In some cases where a market price is not available, the Company will use observable market-based inputs to calculate fair value, in which case the items are classified in Level 2.
If quoted or observable market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters such as interest rates, currency rates, or yield curves. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models and the key inputs to those models, as well as any significant assumptions.
Derivatives
The Company utilizes derivative instruments to mitigate its exposure to interest rate and foreign currency exposures. Derivatives used as hedges are effective at reducing the risk associated with the exposure being hedged and are designated as a hedge at the inception of the derivative contract. The Company does not hold or enter into derivative or other financial instruments for speculative purposes. The credit and market risk related to derivatives is reduced through diversification among various counterparties, utilizing mandatory termination clauses and/or collateral support agreements. Derivative instruments are generally classified as Level 2 in the fair value hierarchy.
18
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
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, 2022, 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 i 54 months. As of September 30, 2022, the after-tax gains deferred in accumulated other comprehensive income (loss) that will be recognized in interest expense over the next 12 months are approximately ($ i 1,518).
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, 2022 and 2021.
All of the Company’s interest rate derivatives as of September 30, 2022 and December 31, 2021 are considered Level 2. The fair market value of these derivatives is calculated using market data inputs and can be compared to actively traded derivatives. The total notional amount of the Company’s interest rate derivatives was $ i 3,615,729 and $ i 3,561,606 at September 30, 2022 and December 31, 2021, respectively. The ten-month average notional amounts for the nine months ended September 30, 2022 and 2021 were $ i 3,746,080 and $ i 4,167,183, 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, net” and are expected to offset the foreign exchange gains or losses on the exposures being managed.
All of the Company’s foreign exchange derivatives are considered Level 2 as the fair value is calculated using market data inputs and can be compared to actively traded derivatives.
19
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, 2022 and December 31, 2021 in the consolidated balance sheets are recorded as follows:
i
| | | | | | |
|
| September 30, |
| |||
| | 2022 | | 2021 | ||
Derivatives Designated as Hedging Instruments |
| | | | | |
Other assets: |
| | | | | |
Interest rate derivatives | | $ | i 7,783 | | $ | i 32,632 |
Accounts payable and other accrued liabilities: |
| | | | | |
Interest rate derivatives | | $ | i 51,040 | | $ | i 6,750 |
Derivatives Not Designated as Hedging Instruments |
| | | | | |
Other assets: |
| | | | | |
Interest rate derivatives | | $ | i 70,225 | | $ | i 8,391 |
Foreign exchange contracts | |
| i 5,016 | |
| i 1,938 |
Total |
| $ | i 75,241 | | $ | i 10,329 |
Accounts payable and other accrued liabilities: |
| | | | | |
Interest rate derivatives | | $ | i 70,225 | | $ | i 8,391 |
Foreign exchange contracts | | | — | | | i 4,041 |
Total |
| $ | i 70,225 | | $ | i 12,432 |
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, 2022 and 2021 are recorded in the following accounts:
i
| | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | |||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Cash Flow Hedges | | | | | | |
| | | | | |
Recognized in accumulated other comprehensive income (loss): | | | | | | |
| | | | | |
Interest rate derivatives | | $ | i 2,439 | | $ | i 833 |
| $ | i 16,521 | | $ | i 4,665 |
Reclassified from accumulated other comprehensive income (loss): | | | | | | |
| | | | | |
Interest rate derivatives—Interest expense to third parties | | $ | i 342 | | $ | ( i 197) | | $ | i 557 | | $ | ( i 546) |
Not Designated as Hedges |
| | | | | |
| | | | | |
Foreign exchange contracts—Other expenses, net | | $ | ( i 6,256) | | $ | ( i 4,150) |
| $ | ( i 7,119) | | $ | ( i 2,038) |
20
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, 2022 and December 31, 2021, all of which are measured as Level 2:
i
| | | | | | |
| | September 30, | | |||
|
| 2022 |
| 2021 | ||
Assets |
| | | | | |
Interest rate derivatives | | $ | i 78,008 | | $ | i 41,023 |
Foreign exchange contracts | |
| i 5,016 | |
| i 1,938 |
Total assets |
| $ | i 83,024 | | $ | i 42,961 |
Liabilities |
| | | | | |
Interest rate derivatives | | $ | i 121,265 | | $ | i 15,141 |
Foreign exchange contracts | | | — | | | i 4,041 |
Total liabilities |
| $ | i 121,265 | | $ | i 19,182 |
There were i i 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, 2022 and December 31, 2021 are as follows:
i
| | | | | | | | | | | | |
| | | ||||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated | ||||
| | Amount | | Fair Value * | | Amount | | Fair Value * | ||||
Receivables |
| $ | i 9,881,490 | | $ | i 9,667,490 | | $ | i 8,951,299 | | $ | i 9,044,561 |
Long-term debt | | $ | i 5,873,776 | | $ | i 5,438,956 | | $ | i 6,141,970 | | $ | i 6,059,202 |
______________
* | 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.
21
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:
i
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | |||||||||
| | 2022 |
| 2021 | | 2022 |
| 2021 | ||||
Revenues | | | | | | |
| | | | | |
United States | | $ | i 157,790 | | $ | i 165,669 | | $ | i 454,254 | | $ | i 484,528 |
Canada | |
| i 42,301 | |
| i 41,915 | |
| i 125,229 | |
| i 126,382 |
Eliminations | |
| ( i 534) | |
| ( i 1,493) | |
| ( i 3,241) | |
| ( i 3,909) |
Total |
| $ | i 199,557 | | $ | i 206,091 |
| $ | i 576,242 | | $ | i 607,001 |
Interest expense |
| | | | | |
| | | | | |
United States | | $ | i 52,303 | | $ | i 39,064 | | $ | i 122,066 | | $ | i 127,264 |
Canada | |
| i 13,703 | |
| i 9,782 | |
| i 33,638 | |
| i 30,113 |
Eliminations | |
| ( i 534) | |
| ( i 1,493) | |
| ( i 3,241) | |
| ( i 3,909) |
Total |
| $ | i 65,472 | | $ | i 47,353 |
| $ | i 152,463 | | $ | i 153,468 |
Net income |
| | | | | |
| | | | | |
United States | | $ | i 44,005 | | $ | i 50,377 | | $ | i 141,972 | | $ | i 136,919 |
Canada | |
| i 9,298 | |
| i 12,045 | |
| i 34,712 | |
| i 37,996 |
Total |
| $ | i 53,303 | | $ | i 62,422 |
| $ | i 176,684 | | $ | i 174,915 |
Depreciation and amortization |
| | | | | |
| | | | | |
United States | | $ | i 37,813 | | $ | i 47,292 | | $ | i 117,244 | | $ | i 144,373 |
Canada | |
| i 12,814 | |
| i 12,760 | |
| i 37,838 | |
| i 38,306 |
Total |
| $ | i 50,627 | | $ | i 60,052 |
| $ | i 155,082 | | $ | i 182,679 |
Expenditures for equipment on operating leases |
| | | | | |
| | | | | |
United States | | $ | i 73,055 | | $ | i 81,918 | | $ | i 251,617 | | $ | i 250,488 |
Canada | |
| i 34,755 | |
| i 25,883 | |
| i 102,707 | |
| i 84,051 |
Total |
| $ | i 107,810 | | $ | i 107,801 |
| $ | i 354,324 | | $ | i 334,539 |
Provision (benefit) for credit losses |
| | | | | |
| | | | | |
United States | | $ | ( i 2,373) | | $ | i 83 | | $ | i 2,826 | | $ | ( i 9,274) |
Canada | |
| i 548 | |
| i 539 | |
| i 118 | |
| i 357 |
Total |
| $ | ( i 1,825) | | $ | i 622 |
| $ | i 2,944 | | $ | ( i 8,917) |
/ /22
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
| | | | | | |
|
| As of |
| As of | ||
| | September 30, | | |||
| | 2022 |
| 2021 | ||
Total assets |
| | | | | |
United States | | $ | i 10,027,341 | | $ | i 9,870,766 |
Canada | |
| i 2,426,001 | |
| i 2,538,581 |
Eliminations | |
| ( i 215,090) | |
| ( i 221,579) |
Total |
| $ | i 12,238,252 | | $ | i 12,187,768 |
Managed receivables |
| | | | | |
United States | | $ | i 8,097,657 | | $ | i 7,121,138 |
Canada | |
| i 1,892,191 | |
| i 1,946,114 |
Total |
| $ | i 9,989,848 | | $ | i 9,067,252 |
iNOTE 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.
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, 2022 and 2021 is as follows:
i
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | |||||||||
| | 2022 |
| 2021 | | 2022 |
| 2021 | ||||
Subsidy from CNH Industrial North America | | | | | | |
| | | | | |
Retail | | $ | i 30,885 | | $ | i 34,793 | | $ | i 94,373 | | $ | i 108,634 |
Wholesale | | | i 24,563 | | | i 22,566 | | | i 63,310 | | | i 71,945 |
Operating lease | |
| i 11,328 | |
| i 13,620 | |
| i 36,179 | |
| i 45,096 |
Income from affiliated receivables |
| | | | | |
| | |
| | |
CNH Industrial North America | |
| i 206 | |
| i 291 | |
| i 535 | |
| i 590 |
Other affiliates | | | i 506 | | | i 52 | | | i 630 | | | i 134 |
Total interest and other income from affiliates |
| $ | i 67,488 | | $ | i 71,322 |
| $ | i 195,027 | | $ | i 226,399 |
Interest expense to affiliates was $ i 2,933 and $ i 1,260, respectively, for the three months ended September 30, 2022 and 2021 and $ i 4,632 and $ i 3,825, respectively, for the nine months ended September 30, 2022 and 2021. Fees charged by affiliates were $ i 12,946 and $ i 11,394, respectively, for the three months ended September 30, 2022 and 2021, and $ i 36,519 and $ i 34,118, respectively, for the nine months ended September 30, 2022 and 2021, which amounts consist of payroll and other human resource services CNH Industrial America performs on behalf of the Company.
/23
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
As of September 30, 2022 and December 31, 2021, the Company had various accounts and notes receivable and debt with the following affiliates:
i
| | | | | | |
| | September 30, | | |||
| | 2022 | | 2021 | ||
Affiliated receivables |
| | | | | |
CNH Industrial America |
| $ | — | | $ | i 243,499 |
CNH Industrial Canada Ltd. |
| | — | | | i 3,289 |
Banco CNH Industrial Capital Brazil | | | i 40,418 | | | — |
Other affiliates |
| | i 12,493 | | | i 12,911 |
Total affiliated receivables |
| $ | i 52,911 | | $ | i 259,699 |
Affiliated debt |
| | | | | |
CNH Industrial America | | $ | i 86,196 | | $ | — |
CNH Industrial Canada Ltd. | | | i 129,868 | | | — |
Other affiliates | | | i 300 | | | i 2,100 |
Total affiliated debt |
| $ | i 216,364 | | $ | i 2,100 |
Accounts payable and other accrued liabilities, including tax payables, of $ i 198,345 and $ i 164,500 were payable to related parties as of September 30, 2022 and December 31, 2021, respectively.
iNOTE 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 $ i 26,400. 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, 2022, the total credit limit available was $ i 5,933,774, of which $ i 2,725,609 was utilized.
/
i
24
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 12: SUBSEQUENT EVENTS
On October 7, 2022, CNH Industrial Capital America and CNH Industrial Capital Canada closed on its previously announced purchase of Citibank, N.A. and Citi Cards Canada Inc.’s portfolio of commercial revolving account (“CRA”) receivables underlying a private-label CRA product offered through CNH Industrial North America dealers.
On October 14, 2022, the Company completed an offering of $ i 400,000 in aggregate principal amount of its i 5.450% unsecured notes due 2025, with an issue price of i 99.349%.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Organization
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” the “Company” or “we”) are each an indirect wholly owned subsidiary of CNH Industrial N.V. (“CNHI” and together with its consolidated subsidiaries, “CNH Industrial”) and is headquartered in Racine, Wisconsin. As a captive finance company, our primary business is to underwrite and manage financing products for end use customers and dealers of CNH Industrial America LLC (“CNH Industrial America”) and CNH Industrial Canada Ltd. (collectively, “CNH Industrial North America”) and provide other related financial products and services to support the sale of agricultural and construction equipment sold by CNH Industrial North America.
We 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
The effects of the COVID-19 pandemic and the related actions of governments and other authorities to contain COVID-19 spread have affected and may continue to affect our operational and financial performance. Governments in the U.S. and Canada designated part of CNH Industrial North America’s businesses as essential critical infrastructure businesses. This designation allows us to operate in support of our dealers and customers to the extent possible. We also continue to prioritize the health, safety and well-being of our employees.
For CNH Industrial, the COVID-19 pandemic and other economic and geopolitical factors, including inflation, increased raw material prices and the war in Ukraine, continue to create volatility in the global economy, including supply chain disruptions, as well as increased transportation costs. These factors along with intermittent sub-component availability (notably for semiconductors) leads to pressure in production at CNH Industrial facilities. CNH Industrial will continue to work to mitigate the impact of these issues in order to meet end-market demand and continue to monitor the situation as conditions remain fluid and evolve throughout the year.
Our business is closely related to the agricultural and construction equipment industries because we offer financing products for such equipment. For the three months ended September 30, 2022, CNH Industrial’s net sales of agricultural equipment and net sales of construction equipment generated in North America were $1,718 million and $438 million, respectively, representing increases of 33.1% and 27.7% from the same period in 2021, respectively. For the nine months ended September 30, 2022, CNH Industrial’s net sales of agricultural equipment and net sales of construction equipment generated in North America were $4,651 million and $1,244 million, respectively, representing increases of 27.9% and 24.8% from the same period in 2021, 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.
26
Net income was $53.3 million for the three months ended September 30, 2022, compared to $62.4 million for the same period in 2021. The decrease was primarily due to a lower net interest margin, partially offset by lower depreciation of equipment on operating leases, higher recoveries on used equipment sales and a decreased provision for credit losses. Net income was $176.7 million and $174.9 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in net income was primarily due to lower depreciation of equipment on operating leases, higher recoveries on used equipment sales and a decreased provision for credit losses, partially offset by a lower net interest margin. The receivables balance greater than 30 days past due as a percentage of managed receivables was 0.7% at September 30, 2022 and 0.5% at both December 31, 2021 and September 30, 2021.
Macroeconomic issues for us include the uncertainty of governmental actions with respect to monetary, fiscal and legislative policies, 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, 2022 Compared to Three and Nine Months Ended September 30, 2021
Revenues
Revenues for the three and nine months ended September 30, 2022 and 2021 were as follows (dollars in thousands):
| | | | | | | | | | | | |
|
| Three Months Ended |
| | |
| |
| ||||
| | | | | | | | |||||
| | 2022 |
| 2021 |
| $ Change |
| % Change | | |||
Interest income on retail notes and finance leases |
| $ | 54,888 | | $ | 43,531 | | $ | 11,357 | | 26.1 | % |
Interest income on wholesale notes | |
| 8,043 | |
| 7,577 | |
| 466 | | 6.2 | |
Interest and other income from affiliates | |
| 67,488 | |
| 71,322 | |
| (3,834) | | (5.4) | |
Rental income on operating leases | |
| 61,657 | |
| 66,870 | |
| (5,213) | | (7.8) | |
Other income | |
| 7,481 | |
| 16,791 | |
| (9,310) | | (55.4) | |
Total revenues |
| $ | 199,557 | | $ | 206,091 | | $ | (6,534) | | (3.2) | % |
| | | | | | | | | | | | |
|
| Nine Months Ended |
| | |
| | | ||||
| | | | | | | | |||||
| | 2022 |
| 2021 |
| $ Change |
| % Change | | |||
Interest income on retail notes and finance leases |
| $ | 150,637 | | $ | 123,582 | | $ | 27,055 | | 21.9 | % |
Interest income on wholesale notes | |
| 19,731 | |
| 24,906 | |
| (5,175) | | (20.8) | |
Interest and other income from affiliates | |
| 195,027 | |
| 226,399 | |
| (31,372) | | (13.9) | |
Rental income on operating leases | |
| 188,243 | |
| 202,894 | |
| (14,651) | | (7.2) | |
Other income | |
| 22,604 | |
| 29,220 | |
| (6,616) | | (22.6) | |
Total revenues |
| $ | 576,242 | | $ | 607,001 | | $ | (30,759) | | (5.1) | % |
Revenues totaled $199.6 million and $576.2 million for the three and nine months ended September 30, 2022, respectively, compared to $206.1 million and $607.0 million for the same periods in 2021, respectively. The quarter-over-quarter and year-over-year decreases were primarily due to lower retail and wholesale yields and a portfolio mix shift to lower-yield retail financing products. The average yield for the managed portfolio was 6.7% and 7.0% for the three months ended September 30, 2022 and 2021, respectively, and 6.7% and 7.1% for the nine months ended September 30, 2022 and 2021, respectively.
Interest income on retail notes and finance leases for the three and nine months ended September 30, 2022 was $54.9 million and $150.6 million, respectively, representing increases of $11.4 million and $27.1 million from the same periods in 2021, respectively. For the third quarter, the increase was due to the favorable impacts of $6.3 million from higher interest rates and $5.1 million from higher average earning assets. For the nine months ended September 30, 2022, compared to the same period in 2021, the increase was due to the favorable impacts of $14.1 million from higher interest rates and $13.0 million from higher average earning assets.
27
Interest income on wholesale notes for the three and nine months ended September 30, 2022 was $8.0 million and $19.7 million, respectively, representing an increase of $0.4 million and a decrease of $5.2 million from the same periods in 2021, respectively. For the third quarter, the increase was due to a $2.0 million favorable impact from higher interest rates, partially offset by a $1.6 million unfavorable impact from lower average earning assets. For the nine months ended September 30, 2022, compared to the same period in 2021, the decrease was due to a $6.1 million unfavorable impact from lower average earning assets, partially offset by a $0.9 million favorable impact from higher interest rates.
Interest and other income from affiliates for the three and nine months ended September 30, 2022 was $67.5 million and $195.0 million, respectively, compared to $71.3 million and $226.4 million for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2022, compensation from CNH Industrial North America for retail low-rate financing programs and interest waiver programs offered to customers was $30.9 million and $94.4 million, respectively, a decrease of $3.9 million and $14.3 million from the same periods in 2021, respectively. Both the quarter-over-quarter and year-over-year decreases were primarily due to pricing. For the three and nine months ended September 30, 2022, compensation from CNH Industrial North America for wholesale marketing programs was $24.6 million and $63.3 million, respectively, an increase of $2.0 million and a decrease of $8.6 million from the same periods in 2021, respectively. The quarter-over-quarter increase was primarily due to higher originations. The year-over-year decrease was primarily due to lower utilization of interest-free periods. For select operating leases, compensation from CNH Industrial North America for the difference between market rental rates and the amounts paid by customers was $11.3 million and $36.2 million for the three and nine months ended September 30, 2022, respectively, a decrease of $2.3 million and $8.9 million from the same periods in 2021, respectively. The decreases were primarily due to lower average earning assets.
Rental income on operating leases for the three and nine months ended September 30, 2022 was $61.7 million and $188.2 million, respectively, representing decreases of $5.2 million and $14.6 million from the same periods in 2021, respectively. The third quarter decrease was primarily due to a $7.9 million unfavorable impact from lower average earning assets, partially offset by a $2.7 million favorable impact from higher interest rates. For the nine months ended September 30, 2022, compared to the same period in 2021, the decrease was primarily due to a $22.3 million unfavorable impact from lower average earning assets, partially offset by a $7.7 million favorable impact from higher interest rates.
Other income for the three and nine months ended September 30, 2022 was $7.5 million and $22.6 million, respectively, representing a decrease of $9.3 million and $6.6 million from the same periods in 2021, respectively.
Expenses
Expenses for the three and nine months ended September 30, 2022 and 2021 were as follows (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended |
| | |
| | | ||||
| | | | | | | | |||||
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
| |||
Total interest expense |
| $ | 65,472 | | $ | 47,353 | | $ | 18,119 | | 38.3 | % |
Fees charged by affiliates | |
| 12,946 | |
| 11,394 | |
| 1,552 | | 13.6 | |
Provision (benefit) for credit losses | |
| (1,825) | |
| 622 | |
| (2,447) | | (393.4) | |
Depreciation of equipment on operating leases | |
| 50,086 | |
| 59,577 | |
| (9,491) | | (15.9) | |
Other expenses, net | |
| 3,416 | |
| 5,209 | |
| (1,793) | | (34.4) | |
Total expenses |
| $ | 130,095 | | $ | 124,155 | | $ | 5,940 | | 4.8 | % |
| | | | | | | | | | | | |
| | Nine Months Ended |
| | |
| | | ||||
| | | | | | | | |||||
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
| |||
Total interest expense |
| $ | 152,463 |
| $ | 153,468 | | $ | (1,005) | | (0.7) | % |
Fees charged by affiliates | |
| 36,519 | |
| 34,118 | |
| 2,401 | | 7.0 | |
Provision (benefit) for credit losses | |
| 2,944 | |
| (8,917) | |
| 11,861 | | (133.0) | |
Depreciation of equipment on operating leases | |
| 153,444 | |
| 181,273 | |
| (27,829) | | (15.4) | |
Other expenses, net | |
| (564) | |
| 17,084 | |
| (17,648) | | (103.3) | |
Total expenses |
| $ | 344,806 |
| $ | 377,026 | | $ | (32,220) | | (8.5) | % |
28
Interest expense totaled $65.5 million and $152.5 million for the three and nine months ended September 30, 2022, respectively, compared to $47.4 million and $153.5 million for the same periods in 2021, respectively. For the three months ended September 30, 2022, the increase was due to the unfavorable impacts of $17.6 million from higher average interest rates and $0.5 million from higher average total debt. For the nine months ended September 30, 2022, the decrease was due to a $1.2 million favorable impact from lower average interest rates, partially offset by a $0.2 million unfavorable impact from higher average total debt. The average debt cost was 2.1% for the nine months ended September 30, 2022 and September 30, 2021.
The provision (benefit) for credit losses was a $1.8 million benefit and a $2.9 million provision for the three and nine months ended September 30, 2022, respectively, compared to a $0.6 million provision and an $8.9 million benefit for the same periods in 2021, respectively. For the nine months ended September 30, 2022, the increase was due to specific reserve needs and an increase in charge-offs, partially offset by a reduction in the expected impact on credit conditions from the COVID‑19 pandemic.
Depreciation of equipment on operating leases was $50.1 million and $153.4 million for the three and nine months ended September 30, 2022, respectively, compared to $59.6 million and $181.3 million for the same periods in 2021, respectively. The decrease for the three and nine months ended September 30, 2022, compared to the same periods in 2021, was primarily due to a lower average operating lease portfolio.
Other expenses, net were an expense of $3.4 million and income of $0.6 million for the three and nine months ended September 30, 2022, respectively, compared to expenses of $5.2 million and $17.1 million for the same periods in 2021, respectively. For the three and nine months ended September 30, 2022, compared to the same periods in 2021, the decreases were due to higher gains on equipment held for sale.
The effective tax rates for the three months ended September 30, 2022 and 2021 were 23.3% and 23.8%, respectively. The effective tax rate was 23.7% for the nine months ended September 30, 2022, compared to 23.9% for the same period in 2021.
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, 2022 and 2021 were as follows (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | | | | | | ||||
| | | | | | | | |||||
| | 2022 |
| 2021 |
| $ Change |
| % Change |
| |||
Retail |
| $ | 925,927 | | $ | 849,568 | | $ | 76,359 | | 9.0 | % |
Wholesale | |
| 2,788,771 | |
| 2,177,139 | |
| 611,632 |
| 28.1 | |
Equipment on operating leases | |
| 107,810 | |
| 107,801 | |
| 9 |
| 0.0 | |
Total originations |
| $ | 3,822,508 | | $ | 3,134,508 | | $ | 688,000 | | 21.9 | % |
| | | | | | | | | | | | |
| | Nine Months Ended | | | | | | | ||||
| | | | | | | | |||||
| | 2022 |
| 2021 |
| $ Change |
| % Change |
| |||
Retail |
| $ | 2,857,004 | | $ | 2,507,618 | | $ | 349,386 | | 13.9 | % |
Wholesale | |
| 7,468,229 | |
| 6,225,848 | |
| 1,242,381 |
| 20.0 | |
Equipment on operating leases | |
| 354,324 | |
| 334,539 | |
| 19,785 |
| 5.9 | |
Total originations |
| $ | 10,679,557 | | $ | 9,068,005 | | $ | 1,611,552 | | 17.8 | % |
The quarter-over-quarter and year-over-year increases in originations for retail, wholesale and equipment on operating leases were primarily due to an increase in sales of CNH Industrial North America equipment.
29
Total receivables and equipment on operating leases held as of September 30, 2022, December 31, 2021 and September 30, 2021 were as follows (dollars in thousands):
| | | | | | | | | |
| | September 30, | | December 31, | | ||||
|
| 2022 |
| 2021 |
| 2021 | |||
Retail |
| $ | 7,166,320 | | $ | 6,722,247 | | $ | 6,444,586 |
Wholesale | |
| 2,823,528 | |
| 2,345,005 | |
| 2,570,906 |
Equipment on operating leases | |
| 1,510,285 | |
| 1,707,531 | |
| 1,740,969 |
Total receivables and equipment on operating leases |
| $ | 11,500,133 | | $ | 10,774,783 | | $ | 10,756,461 |
The total retail receivables balance greater than 30 days past due as a percentage of the retail receivables was 1.0% at September 30, 2022 and 0.7% at both December 31, 2021 and September 30, 2021. The total wholesale receivables balance greater than 30 days past due as a percentage of the wholesale receivables was not significant at September 30, 2022, December 31, 2021 or September 30, 2021. Total retail receivables on nonaccrual status, which represent receivables for which we have ceased accruing finance income, were $50.4 million, $27.2 million and $32.3 million at September 30, 2022, December 31, 2021 and September 30, 2021, respectively.
Total receivable charge-off amounts and recoveries, by product, for the three and nine months ended September 30, 2022 and 2021 were as follows (dollars in thousands):
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | |||||||||
| | 2022 |
| 2021 | | 2022 |
| 2021 | ||||
Charge-offs: | | | | | | |
| | | | | |
Retail | | $ | 1,689 | | $ | 4,736 | | $ | 7,164 | | $ | 9,056 |
Wholesale | |
| — | |
| — | |
| 4,631 | |
| 179 |
Total charge-offs |
|
| 1,689 | |
| 4,736 |
|
| 11,795 | |
| 9,235 |
Recoveries: |
| | | | | |
| | | | | |
Retail | |
| (739) | |
| (368) | |
| (1,632) | |
| (1,719) |
Wholesale | |
| (508) | |
| (108) | |
| (523) | |
| (114) |
Total recoveries |
|
| (1,247) | |
| (476) |
|
| (2,155) | |
| (1,833) |
Charge-offs, net of recoveries: |
| | | | | |
| | | | | |
Retail | |
| 950 | |
| 4,368 | |
| 5,532 | |
| 7,337 |
Wholesale | |
| (508) | |
| (108) | |
| 4,108 | |
| 65 |
Total charge-offs, net of recoveries |
| $ | 442 | | $ | 4,260 |
| $ | 9,640 | | $ | 7,402 |
Our allowance for credit losses on all receivables financed totaled $108.4 million at September 30, 2022, $116.0 million at December 31, 2021 and $119.8 million at September 30, 2021.
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 expected losses in our receivable portfolio as of September 30, 2022.
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.
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.
30
In addition, we have secured and unsecured facilities, commercial paper, unsecured notes, affiliate borrowings and cash to fund our liquidity needs.
Cash Flows
For the nine months ended September 30, 2022 and 2021, our cash flows were as follows (dollars in thousands):
| | | | | | |
| | 2022 |
| 2021 | ||
Cash flows from (used in): |
| | |
| | |
Operating activities | | $ | 515,605 | | $ | 223,630 |
Investing activities | |
| (1,068,837) | |
| (44,586) |
Financing activities | |
| 70,640 | |
| (313,153) |
Net cash increase (decrease) |
| $ | (482,592) | | $ | (134,109) |
Operating activities in the nine months ended September 30, 2022 generated cash of $516 million, resulting primarily from net income of $177 million, adjusted by depreciation and amortization of $155 million, changes in working capital of $212 million and a provision for credit losses of $3 million, partially offset by $31 million in deferred income tax benefit. The increase in cash provided by operating activities for the nine months ended September 30, 2022, compared to the same period in 2021, was primarily due to $341 million related to changes in working capital, a $12 million increase in provision for credit losses and a $2 million increase in net income, partially offset by a $35 million decrease in deferred income tax adjustment and a $28 million decrease in depreciation and amortization.
Investing activities in the nine months ended September 30, 2022 used cash of $1,069 million, resulting primarily from net expenditures for receivables of $1,087 million and net expenditures for property, equipment and software of $2 million, partially offset by a $20 million reduction in net expenditures for equipment on operating leases. The increase in cash used by investing activities for the nine months ended September 30, 2022, compared to the same period in 2021, was primarily due to a $1,097 million increase in net expenditures for receivables, partially offset by a $73 million decrease in net expenditures for equipment on operating leases.
Financing activities in the nine months ended September 30, 2022 generated cash of $71 million, resulting primarily from net cash received on affiliated debt and short-term borrowings of $225 million and $187 million, respectively, partially offset by net cash paid on long-term debt of $231 million and $110 million in dividends paid to CNH Industrial America. The increase in cash provided in financing activities for the nine months ended September 30, 2022, compared to the same period in 2021, was primarily due to an increase in net cash proceeds issued of affiliated debt and short-term borrowings of $408 million and $194 million, respectively, and lower dividends of $50 million paid to CNH Industrial America, partially offset by an increase in net cash paid on long-term debt of $268 million.
Securitization
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 $4.8 billion of public and private asset-backed securities outstanding in the U.S. and Canada as of September 30, 2022. 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 $2.7 billion at September 30, 2022, 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, 2022, approximately $0.8 billion of funding was available for use under these facilities.
31
Unsecured Facilities and Debt
Committed unsecured facilities with banks as of September 30, 2022, totaled $602 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, 2022, we had $57 million outstanding under these credit facilities. The remaining available credit commitments are maintained primarily to provide backup liquidity for commercial paper borrowings. Our outstanding commercial paper totaled $151 million as of September 30, 2022.
As of September 30, 2022, our unsecured senior notes were as follows (dollars in thousands):
| | | |
Issued by CNH Industrial Capital LLC (the "U.S. Senior Notes"): (1) | | | |
1.950% notes, due 2023 |
| $ | 600,000 |
4.200% notes, due 2024 | |
| 500,000 |
3.950% notes, due 2025 | | | 500,000 |
1.875% notes, due 2026 | | | 500,000 |
1.450% notes, due 2026 | | | 600,000 |
Hedging, discounts and unamortized issuance costs | | | (69,366) |
|
| | 2,630,634 |
Issued by CNH Industrial Capital Canada (the "Canadian Senior Notes"): (2) | | | |
1.500% notes, due 2024 |
| | 218,222 |
Discounts and unamortized issuance costs | | | (1,028) |
|
| | 217,194 |
Total |
| $ | 2,847,828 |
| (1) | These notes, which are senior unsecured obligations of CNH Industrial Capital LLC, are guaranteed by CNH Industrial Capital America and New Holland Credit. |
| (2) | These notes, which are senior unsecured obligations of CNH Industrial Capital Canada, are guaranteed by CNH Industrial Capital LLC, 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.
Our current credit ratings are as follows:
| | | | | | |
| | Senior |
| Short-Term |
| Outlook |
S&P Global Ratings |
| BBB | | A-2 | | Stable |
Fitch Ratings | | BBB+ | | F2 | | Stable |
Moody's Investors Service | | Baa2 | | - | | 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 $216 million and $2 million as of September 30, 2022 and December 31, 2021, respectively.
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Equity Position
Our equity position also supports our ability to access various funding sources. Our stockholder’s equity at September 30, 2022 and December 31, 2021 was $1.3 billion and $1.2 billion, respectively. For the nine months ended September 30, 2022, CNH Industrial Capital LLC paid cash dividends of $110 million to CNH Industrial America.
Liquidity
While we expect securitization to continue to represent a material portion of our capital structure and affiliated borrowings to remain a marginal source of funding, we will continue to diversify our funding sources and expand our investor base to support our investment grade credit ratings. These diversified funding sources include committed asset-backed facilities, unsecured notes, bank facilities and a commercial paper program.
The liquidity available for use varies due to: (a) changes in origination volumes, reflecting the financing needs of our customers, and is influenced by the timing of any refinancing of underlying receivables; and (b) the execution of our funding strategy of maintaining a sufficient level of liquidity and flexible access to a wide variety of financial instruments.
Guarantor Statements
CNH Industrial Capital America and New Holland Credit, which are 100%-owned subsidiaries of CNH Industrial Capital LLC, guarantee the U.S. Senior Notes (the “U.S. Notes Guarantees”). CNH Industrial Capital LLC, CNH Industrial Capital America and New Holland Credit (the “Guarantor Entities”) guarantee the Canadian Senior Notes (the “Canadian Notes Guarantees” and, together with the U.S. Notes Guarantees, the “Guarantees”). The Guarantees are full, unconditional, and joint and several.
The Guarantees are general unsecured obligations of the applicable Guarantor Entities and rank senior in right of payment to all future obligations of such Guarantor Entities that are, by their terms, expressly subordinated in right of payment to such Guarantees and pari passu in right of payment with all existing and future unsecured indebtedness of such Guarantor Entities that are not so subordinated.
The Guarantor Entities’ obligations under their applicable Guarantees are limited as necessary to prevent the Guarantees from constituting a fraudulent conveyance under applicable law. If the Guarantees were rendered voidable, they could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Guarantor Entities and, depending on the amount of the indebtedness, such Guarantor Entities’ liability on the Guarantees to which they are parties could be reduced to zero.
The Guarantees of the Guarantor Entities will be automatically released:
(1) | in connection with any sale or other disposition of all of the capital stock of the applicable Guarantor Entities to a person other than, for purposes of the U.S. Notes Guarantees, CNH Industrial Capital LLC or any subsidiary of CNH Industrial Capital LLC, or, for purposes of the Canadian Notes Guarantees, CNH Industrial N.V. or any subsidiary of CNH Industrial N.V.; |
(2) | in connection with the sale or other disposition of all or substantially all of the assets or properties of the applicable Guarantor Entities, including by way of merger, consolidation or otherwise, to a person other than, for purposes of the U.S. Notes Guarantees, CNH Industrial Capital LLC or any subsidiary of CNH Industrial Capital LLC or, for purposes of the Canadian Notes Guarantees, CNH Industrial N.V. or any subsidiary of CNH Industrial N.V.; or |
(3) | in certain other circumstances. |
The following tables present summarized financial information for the obligor groups of the U.S. Senior Notes and the Canadian Senior Notes. The obligor group consists of the issuer and guarantors for the applicable senior notes. Intercompany balances and transactions between the issuer and guarantors have been eliminated. The investments in, and equity in income from, non-guarantor subsidiaries has been excluded.
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For the three and nine months ended September 30, 2022 and 2021, the summarized statement of income information for the obligor group of the U.S. Senior Notes was as follows (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | |||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
Revenues |
| $ | 118,898 | | $ | 122,823 |
| $ | 336,461 | | $ | 355,097 |
Interest expense | | | 53,491 | | | 40,358 | | | 104,503 | | | 120,458 |
Administrative and operating expenses | | | 66,696 | | | 57,113 | | | 204,111 | | | 185,739 |
Income tax provision (benefit) | | | (431) | | | 6,180 | | | 6,594 | | | 11,910 |
Net income |
| $ | (858) | | $ | 19,172 |
| $ | 21,253 | | $ | 36,990 |
As of September 30, 2022 and December 31, 2021, the summarized balance sheet information for the obligor group of the U.S. Senior Notes was as follows (dollars in thousands):
| | | | | | |
| | September 30, | | |||
| | 2022 | | 2021 | ||
Cash and cash equivalents |
| $ | 84,176 | | $ | 183,809 |
Restricted cash and cash equivalents | | | — | | | — |
Receivables, less allowance for credit losses of $29,466 and $34,173 | | | 1,884,339 | | | 1,715,740 |
Equipment on operating leases, net | | | 1,113,484 | | | 1,283,428 |
Short-term debt, including current maturities of long-term debt | | | 860,883 | | | 740,257 |
Accounts payable and other accrued liabilities | | | 746,625 | | | 838,482 |
Long-term debt | | | 2,060,402 | | | 2,327,853 |
For the U.S. Senior Notes, the obligors’ amounts due from and due to the non-guarantor subsidiaries of CNH Industrial Capital LLC as of September 30, 2022 and December 31, 2021 were as follows (dollars in thousands):
| | | | | | |
| | September 30, | | |||
| | 2022 | | 2021 | ||
Affiliated accounts and notes receivable from non-guarantor subsidiaries |
| $ | 2,360,097 | | $ | 2,253,415 |
Accounts payable and other accrued liabilities to non-guarantor subsidiaries | | | 3,123,491 | | | 3,156,639 |
For the three and nine months ended September 30, 2022 and 2021, the summarized statement of income information for the obligor group of the Canadian Senior Notes was as follows (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | |||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
Revenues |
| $ | 160,644 | | $ | 164,143 |
| $ | 459,970 | | $ | 480,253 |
Interest expense | | | 66,639 | | | 49,545 | | | 136,422 | | | 149,345 |
Administrative and operating expenses | | | 83,371 | | | 73,177 | | | 251,037 | | | 231,998 |
Income tax provision | | | 2,535 | | | 10,176 | | | 17,931 | | | 24,406 |
Net income |
| $ | 8,099 | | $ | 31,245 |
| $ | 54,580 | | $ | 74,504 |
As of September 30, 2022 and December 31, 2021, the summarized balance sheet information for the obligor group of the Canadian Senior Notes was as follows (dollars in thousands):
| | | | | | |
| | September 30, | | |||
| | 2022 | | 2021 | ||
Cash and cash equivalents |
| $ | 105,377 | | $ | 203,428 |
Restricted cash and cash equivalents | | | 75,345 | | | 103,378 |
Receivables, less allowance for credit losses of $41,620 and $47,635 | | | 3,764,376 | | | 3,648,390 |
Equipment on operating leases, net | | | 1,510,285 | | | 1,707,531 |
Short-term debt, including current maturities of long-term debt | | | 1,423,141 | | | 1,362,012 |
Accounts payable and other accrued liabilities | | | 831,008 | | | 921,681 |
Long-term debt | | | 2,977,906 | | | 3,419,175 |
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For the Canadian Senior Notes, the obligors’ amounts due from and due to the non-guarantor subsidiaries of CNH Industrial Capital LLC as of September 30, 2022 and December 31, 2021 were as follows (dollars in thousands):
| | | | | | |
| | September 30, | | |||
| | 2022 | | 2021 | ||
Affiliated accounts and notes receivable from non-guarantor subsidiaries |
| $ | 2,247,750 | | $ | 2,133,655 |
Accounts payable and other accrued liabilities to non-guarantor subsidiaries | | | 3,146,335 | | | 3,270,583 |
Other Data
| | | | | | | |
| | As of or for the | |||||
| | Nine Months Ended September 30, | |||||
| | 2022 | | 2021 | | ||
| | (Dollars in thousands) | |||||
Total managed receivables |
| $ | 9,989,848 | | $ | 9,015,492 | |
Operating lease equipment | |
| 1,510,285 | | | 1,740,969 | |
Total managed portfolio |
| $ | 11,500,133 | | $ | 10,756,461 | |
Delinquency (1) |
|
| 0.68 | % | | 0.46 | % |
Average managed receivables |
| $ | 9,360,888 | | $ | 9,009,768 | |
Net credit loss (2) |
|
| 0.16 | % | | 0.15 | % |
Profitability: (3) |
|
|
| | | | |
Return on average managed portfolio (4) | |
| 2.13 | % | | 2.17 | % |
Asset Quality: |
|
|
| | | | |
Allowance for credit losses/total receivables | |
| 1.08 | % | | 1.33 | % |
| (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, 2022 and 2021 annualized. |
| (4) | Net income for the period expressed as a percentage of the average managed portfolio. |
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact contained in this filing; including competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, capital expenditures, dividends, liquidity, capital structure or other financial items; costs; and plans and objectives of management regarding operations, products and services, are forward-looking statements. Forward-looking statements also include statements regarding the future performance of CNH Industrial and its subsidiaries on a stand-alone basis. These statements may include terminology such as “may,” “will,” “expect,” “could,” “should,” “intend,” “estimate,” “anticipate,” “believe,” “outlook,” “continue,” “remain,” “on track,” “design,” “target,” “objective,” “goal,” “forecast,” “projection,” “prospects,” “plan,” or similar terminology. Forward-looking statements, including those related to the COVID-19 pandemic, are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside our control and are difficult to predict. If any of these risks and uncertainties materialize (or they occur with a degree of severity that the Company is unable to predict) or other assumptions underlying any of the forward-looking statements prove to be incorrect, including any assumptions regarding strategic plans, the actual results or developments may differ materially from any future results or developments expressed or implied by the forward-looking statements.
Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: the continued uncertainties related to the unknown duration and economic, operational and financial impacts of the global COVID-19 pandemic and the actions taken or contemplated by governmental authorities or others in connection with the pandemic on our business, our employees, customers and suppliers; supply chain disruptions, including delays caused by mandated shutdowns, industry capacity constraints, material availability, and global logistics delays and constraints; disruption caused by business
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responses to COVID-19, including remote working arrangements, which may create increased vulnerability to cybersecurity or data privacy incidents; our ability to execute business continuity plans as a result of COVID-19; the many interrelated factors that affect consumer confidence and worldwide demand for capital goods and capital goods-related products, including demand uncertainty caused by COVID-19; general economic conditions in each of our markets, including the significant economic uncertainty and volatility caused by the war in the Ukraine and COVID-19; changes in government policies regarding banking, monetary and fiscal policy; legislation, particularly pertaining to capital goods-related issues such as agriculture, the environment, debt relief and subsidy program policies, trade and commerce and infrastructure development; government policies on international trade and investment, including sanctions, import quotas, capital controls and tariffs; volatility in international trade caused by the imposition of tariffs, sanctions, embargoes, and trade wars; actions of competitors in the various industries in which CNH Industrial North America competes; development and use of new technologies and technological difficulties; the interpretation of, or adoption of new, compliance requirements with respect to engine emissions, safety or other aspects of CNH Industrial’s products; production difficulties, including capacity and supply constraints and excess inventory levels; labor relations; interest rates and currency exchange rates; inflation and deflation; energy prices; prices for agricultural commodities; housing starts and other construction activity; our ability to obtain financing or to refinance existing debt; restrictive covenants in our debt agreements; actions by rating agencies concerning the ratings on our debt and asset-backed securities and the credit rating of CNHI; price pressure on new and used equipment; security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its CNH Industrial North America dealers; security breaches with respect to CNH Industrial’s products; political and civil unrest; volatility and deterioration of capital and financial markets, including other pandemics and terrorist attacks; our ability to realize the anticipated benefits from our business initiatives as part of CNHI’s strategic plan; CNHI’s failure to realize, or a delay in realizing, all of the anticipated benefits of its acquisitions, joint ventures, strategic alliances or divestitures and other similar risks and uncertainties, and our and CNHI’s success in managing the risks involved in the foregoing.
Forward-looking statements are based upon assumptions relating to the factors described in this filing, which are sometimes based upon estimates and data received from third parties. Such estimates and data are often revised. Actual results may differ materially from the forward-looking statements as a result of a number of risks and uncertainties, many of which are outside of our control. CNH Industrial Capital expressly disclaims any intention or obligation to provide, update or revise any forward-looking statements to reflect any change in expectations or any change in events, conditions or circumstances on which these forward-looking statements are based.
All future written and oral forward-looking statements by CNH Industrial Capital or persons acting on the behalf of CNH Industrial Capital are expressly qualified in their entirety by the cautionary statements contained herein or referred to above.
Additional factors could cause actual results to differ from those expressed or implied by the forward-looking statements included in the Company’s filings with the SEC (including, but not limited to, the factors discussed in our annual report on Form 10-K and quarterly reports submitted on Form 10-Q).
Critical Accounting Policies and Estimates
See our critical accounting policies and estimates discussed in our annual report for the year ended December 31, 2021 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, 2022.
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, 2022. 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, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 1A. Risk Factors
See our most recent annual report on Form 10-K (Part I, Item 1A). There was no material change in our risk factors during the three months ended September 30, 2022.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| ||
Exhibit | | Description |
22 | | |
31.1 | | |
31.2 | | |
32.1† | | |
101 | | Interactive Inline data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021, (iii) Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, (v) Consolidated Statements of Changes in Stockholder’s Equity for the nine months ended September 30, 2022 and 2021 and (vi) Condensed Notes to Consolidated Financial Statements. |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
† | 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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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | ||
| CNH INDUSTRIAL CAPITAL LLC | ||
Date: November 9, 2022 | By: | /s/ Douglas MacLeod | |
| | Name: | |
| | Title: | Chairman and President |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/22 | ||||
| 12/15/22 | ||||
| Filed on: | 11/9/22 | |||
| 10/14/22 | 8-K | |||
| 10/7/22 | 424B2 | |||
| For Period end: | 9/30/22 | |||
| 9/15/22 | ||||
| 8/23/22 | ||||
| 6/30/22 | 10-Q | |||
| 3/31/22 | 10-Q | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K | |||
| 9/30/21 | 10-Q | |||
| 6/30/21 | 10-Q | |||
| 3/31/21 | 10-Q | |||
| 1/1/21 | ||||
| 3/12/20 | ||||
| List all Filings | ||||