Company Quick10K Filing
CNH Industrial Capital
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 0 $-0
10-K 2020-03-03 Annual: 2019-12-31
10-Q 2019-11-12 Quarter: 2019-09-30
10-Q 2019-08-02 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-03-01 Annual: 2018-12-31
10-Q 2018-11-13 Quarter: 2018-09-30
10-Q 2018-08-03 Quarter: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-31
10-K 2018-03-02 Annual: 2017-12-31
10-Q 2017-11-07 Quarter: 2017-09-30
10-Q 2017-08-04 Quarter: 2017-06-30
10-Q 2017-05-05 Quarter: 2017-03-31
10-K 2017-03-03 Annual: 2016-12-31
10-Q 2016-11-07 Quarter: 2016-09-30
10-Q 2016-08-03 Quarter: 2016-06-30
10-Q 2016-05-10 Quarter: 2016-03-31
10-K 2016-03-04 Annual: 2015-12-31
10-Q 2015-11-02 Quarter: 2015-09-30
10-Q 2015-08-03 Quarter: 2015-06-30
10-Q 2015-05-07 Quarter: 2015-03-31
10-K 2015-03-05 Annual: 2014-12-31
10-Q 2014-11-06 Quarter: 2014-09-30
10-Q 2014-08-04 Quarter: 2014-06-30
10-Q 2014-05-08 Quarter: 2014-03-31
10-K 2014-03-28 Annual: 2013-12-31
10-Q 2013-11-06 Quarter: 2013-09-30
10-Q 2013-08-05 Quarter: 2013-06-30
10-K 2013-03-04 Annual: 2012-12-31
10-Q 2012-11-16 Quarter: 2012-09-30
8-K 2018-08-14 Off-BS Arrangement, Other Events, Exhibits
8-K 2018-08-09 Other Events, Exhibits
8-K 2018-08-09 Other Events, Exhibits
8-K 2018-04-27 Officers
CNHC 2019-12-31
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’S Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Managements’ Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Note 1: Nature of Operations
Note 2: Summary of Significant Accounting Policies
Note 3: Accumulated Other Comprehensive Income
Note 4: Receivables
Note 5: Equipment on Operating Leases
Note 6: Goodwill and Intangible Assets
Note 7: Other Assets
Note 8: Credit Facilities and Debt
Note 9: Income Taxes
Note 10: Financial Instruments
Note 11: Geographical Information
Note 12: Related‑Party Transactions
Note 13: Commitments and Contingencies
Note 14: Supplemental Condensed Consolidating Financial Information
Note 15: Supplemental Quarterly Information (Unaudited)
EX-10.2 cnhc-20191231ex102b6eb89.htm
EX-10.3 cnhc-20191231ex103e3f2e3.htm
EX-31.1 cnhc-20191231ex311994325.htm
EX-31.2 cnhc-20191231ex312f6fcf8.htm
EX-32.1 cnhc-20191231ex3210d9471.htm

CNH Industrial Capital Earnings 2019-12-31

CNHC 10K Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CNHC 12,759 11,445 890 0 145 711 5,717 0% 8.0 1%
ROYE 236 164 167 15 -24 -5 26 9% -5.6 -10%
SPL 14,871 14,350 6,516 1,539 814 1,669 13,333 24% 8.0 5%
TLSRP 84 219 149 50 -5 4 -2 33% -0.4 -6%
RBCA 5,222 4,546 225 0 82 139 -366 0% -2.6 2%
EXENT 0 0 0 0 -0 -0 -0 0.2 -295%
CCPTV 625 360 14 0 -0 14 341 0% 24.1 -0%
DIFU 15 4 0 0 2 2 -0 -0.0 15%
SQNF 20 1 2 0 0 0 1 0% 3.7 2%
ANDES 1 2 0 0 -0 -0 -0 66% 0.0 -21%

10-K 1 cnhc-20191231x10k.htm 10-K cnhc_Current_Folio_10K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K


 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 000-55510

CNH INDUSTRIAL CAPITAL LLC

(Exact name of registrant as specified in its charter)

 

 

Delaware
(State or other jurisdiction of
incorporation or organization)

39‑1937630
(I.R.S. Employer
Identification Number)

5729 Washington Avenue
Racine, Wisconsin
(Address of principal executive offices)

53406
(Zip code)

(262) 636‑6011

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined by Rule 405 of the Securities Act. ☒ Yes  ☐No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐Yes  ☒No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes  ☐No

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes  ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

 

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Emerging growth company ☐

Smaller reporting company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). ☐ Yes  ☒ No

As of March 3, 2020, all of the limited liability company interests of the registrant were held by CNH Industrial America LLC, a wholly-owned subsidiary of CNH Industrial N.V.

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with certain reduced disclosures as permitted by those instructions.

 

 

TABLE OF CONTENTS

 

 

PAGE

 

PART I 

 

 

 

Item 1. 

Business

2

Item 1A. 

Risk Factors

6

Item 1B. 

Unresolved Staff Comments

14

Item 2. 

Properties

14

Item 3. 

Legal Proceedings

14

Item 4. 

Mine Safety Disclosures

14

 

PART II 

 

 

 

Item 5. 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

15

Item 6. 

Selected Financial Data

15

Item 7. 

Managements’ Discussion and Analysis of Financial Condition and Results of Operations

15

Item 7A. 

Quantitative and Qualitative Disclosures About Market Risk

25

Item 8. 

Financial Statements and Supplementary Data

26

Item 9. 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

26

Item 9A. 

Controls and Procedures

26

Item 9B 

Other Information

27

 

PART III 

 

 

 

Item 10. 

Directors, Executive Officers and Corporate Governance

28

Item 11. 

Executive Compensation

28

Item 12. 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

28

Item 13. 

Certain Relationships and Related Transactions, and Director Independence

28

Item 14. 

Principal Accounting Fees and Services

28

 

PART IV 

 

 

 

Item 15. 

Exhibits and Financial Statement Schedules

29

 

 

1

PART I

Item 1.  Business

Overview

CNH Industrial Capital LLC (together with its consolidated subsidiaries, “CNH Industrial Capital,” the “Company” or “we”) is an indirect wholly‑owned subsidiary of CNH Industrial N.V. (“CNHI” and together with its consolidated subsidiaries, “CNH Industrial”) 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 also provide wholesale and retail financing related to new and used equipment manufactured by entities other than CNH Industrial North America. We are often able to offer financing to customers at advantageous interest rates or other terms (such as longer contract terms, longer warranty terms or parts and service incentives), due to our participation in subsidized financing programs sponsored by CNH Industrial North America, which reimburses us for some or all of the cost of such terms. The primary operating subsidiaries of CNH Industrial Capital LLC include CNH Industrial Capital America LLC (“CNH Industrial Capital America”), New Holland Credit Company, LLC (“New Holland Credit”) and CNH Industrial Capital Canada Ltd. (“CNH Industrial Capital Canada”). CNH Industrial Capital America is the primary financing and business entity of CNH Industrial Capital for the United States that enters into retail and wholesale financing arrangements with end‑use customers and equipment dealers, and CNH Industrial Capital Canada performs the same functions in Canada, while New Holland Credit acts as the servicer for retail and wholesale receivables originated by CNH Industrial Capital America.

CNH Industrial is the company formed by the merger, completed September 29, 2013, between Fiat Industrial S.p.A. (“Fiat Industrial”) and CNH Global N.V. (“CNH Global”), the former indirect parents of CNH Industrial Capital. As a result of the merger, CNH Industrial Capital LLC and its primary operating subsidiaries, including CNH Industrial Capital America, New Holland Credit and CNH Industrial Capital Canada, are indirect wholly‑owned subsidiaries of CNHI (with all of the equity interests in CNH Industrial Capital LLC owned by CNHI through intermediate companies, through which CNHI exercises indirect control over CNH Industrial Capital LLC). CNHI is incorporated in and under the laws of The Netherlands. CNHI has its corporate seat in Amsterdam, The Netherlands, and its principal office in London, England.

On September 3, 2019, CNH Industrial announced its intention to separate its “On-Highway” (commercial vehicles and powertrain) and “Off-Highway” (agriculture, construction and specialty vehicles) businesses. The separation is expected to be effected through the spin-off of CNH Industrial N.V.’s equity interest in “On-Highway” to CNH Industrial N.V. shareholders. The proposed spin-off is expected to be completed in early 2021, subject to approval at an Extraordinary General Meeting of shareholders.

CNH Industrial Capital offers retail loan and lease financing to end‑use customers for the purchase of new and used equipment and components, as well as other financial services. CNH Industrial Capital also provides wholesale financing to CNH Industrial North America equipment dealers and distributors (all of which are independently owned and operated). Wholesale financing consists primarily of dealer floorplan financing and gives dealers the ability to maintain a representative inventory of new products. In addition, CNH Industrial Capital provides financing to dealers for used equipment taken in trade, equipment utilized in dealer‑owned rental yards, parts inventory, working capital and other financing needs. CNH Industrial Capital Canada purchases short-term wholesale receivables at a discount (“wholesale factoring”) from Iveco Argentina S.A. (“Iveco Argentina”), an indirect wholly-owned subsidiary of CNHI, from time to time. The purchase is consistent with factoring arrangements between CNHI’s industrial and financial services companies. As a holding company, CNH Industrial Capital LLC generally does not conduct operations of its own, but relies on its subsidiaries for the generation and distribution of profits.

CNH Industrial Capital’s revenue is primarily generated through the income of its portfolio and the income generated through marketing programs with CNH Industrial North America. The size of the portfolio is in part related to the level of equipment sales by CNH Industrial North America. The portfolio profitability is linked to the difference between lending and borrowing rates, the credit quality of the borrowers and the value of collateral. For each of the

2

years ended December 31, 2019 and 2018, the percentage of revenue derived by us from CNH Industrial North America and other CNH Industrial subsidiaries was 38% and 39%, respectively.

Our retail borrowers are generally commercial entities and, in many cases, have had a previous borrowing relationship with CNH Industrial Capital. Retail receivables are secured by the purchased equipment, which generally has a longer useful life than the term of the receivable. Wholesale financings are likewise secured by the equipment purchased by the dealer.

CNH Industrial Capital funds its operations and lending activity through a combination of term receivables securitizations, secured and unsecured facilities, commercial paper, unsecured bonds, affiliate borrowings and retained earnings. CNH Industrial Capital’s current funding strategy is to maintain sufficient liquidity and flexible access to a wide variety of financial instruments and funding options.

To help fund its retail and wholesale financing business, CNH Industrial Capital participates in the asset backed securitization (“ABS”) markets. CNH Industrial Capital periodically transfers retail and wholesale receivables originated from end‑use customers and dealers to special purpose entities, in exchange for cash proceeds from asset backed securities issued by these special purpose entities. Investors in these asset backed securities in turn receive payments on their securities based on the cash flows from the transferred receivables. CNH Industrial Capital continues to service the transferred receivables and maintains a cash reserve account, which provides security to investors in the event that cash collections from the receivables are not sufficient to permit principal and interest payments to the holders of the securities. These special purpose entities and the investors in the asset backed securities have no recourse, beyond the applicable cash reserve account, for failure of any end‑use customers or dealers to make payments on the transferred receivables when due.

In addition to portfolio quality and funding costs, CNH Industrial Capital’s long-term profitability is also dependent on service levels and operational effectiveness. CNH Industrial Capital performs billing and collection services, customer support, repossession and remarketing functions, reporting and data management operations and marketing activities.

As of December 31, 2019, CNH Industrial Capital had total assets of $12.9 billion and total stockholder’s equity of $1.3 billion. For the year ended December 31, 2019, CNH Industrial Capital had total revenues of $900.9 million and net income of $149.0 million. As of December 31, 2019, CNH Industrial Capital had outstanding debt (excluding debt owed to affiliates) of $10.6 billion, approximately 67% of which represented secured debt as of such date.

Relationship with CNH Industrial

CNH Industrial organizes its operations into five operating segments: Agriculture, Construction, Commercial and Specialty Vehicles, Powertrain and Financial Services. CNH Industrial’s five segments design, produce, market, sell and finance agricultural and construction equipment, trucks, commercial vehicles, buses and specialty vehicles for firefighting, defense and other uses, as well as engines, transmissions and axles for those vehicles and engines for marine and power generation applications. CNH Industrial has industrial and financial services companies located in 44 countries and a commercial presence in approximately 180 countries around the world.

CNH Industrial’s Agricultural segment designs, manufactures and distributes a full line of farm machinery and implements, including two‑wheel and four‑wheel drive tractors, crawler tractors (Quadtrac®), combines, cotton pickers, grape and sugar cane harvesters, hay and forage equipment, planting and seeding equipment, soil preparation and cultivation implements and material handling equipment. Agricultural equipment is sold in North America under the New Holland Agriculture and Case IH Agriculture brands, as well as the Steyr, Kongskilde and Överum brands in Europe and the Miller brand, primarily in North America and Australia.

CNH Industrial’s Construction segment designs, manufactures and distributes a full line of construction equipment including excavators, crawler dozers, graders, wheel loaders, backhoe loaders, skid steer loaders and compact track loaders. Construction equipment is sold in North America under the CASE Construction and New Holland Construction brands.

As of December 31, 2019 and 2018, CNH Industrial had total assets of $47.4 billion and $46.1 billion and total equity of $6.1 billion and $5.1 billion, respectively.

3

For the years ended December 31, 2019 and 2018, CNH Industrial had total revenues of $28.1 billion and $29.7 billion, respectively, and net income attributable to CNH Industrial N.V. of $1.4 billion and $1.1 billion, respectively. For the year ended December 31, 2019, CNH Industrial’s net sales of agricultural equipment and net sales of construction equipment generated in North America (United States, Canada and Mexico) were $3.9 billion and $1.4 billion, respectively, representing decreases of 2% and 8% from the same period in 2018, respectively.

CNH Industrial Capital is a key financing source for CNH Industrial North America’s end‑use customers and dealers. CNH Industrial North America offers subsidized financing programs such as low‑rate, interest‑free or interest‑only periods and other sales incentive programs. We participate in and receive reimbursement for these programs, which allow us to offer financing to customers at advantageous terms.

Although our primary focus is to finance CNH Industrial North America equipment, we also provide retail and wholesale financing related to new and used agricultural and construction equipment manufactured by entities other than CNH Industrial North America. We are dependent on CNH Industrial North America for substantially all of our business, with revenues related to financing provided to CNH Industrial North America dealers and retail customers purchasing and/or leasing from CNH Industrial North America and its dealers accounting for over 90% of our total revenues for the year ended December 31, 2019, and with loan portfolios attributable to such financing accounting for over 90% of our total managed receivables as of December 31, 2019.

The size of our lending portfolio is related in part to the level of equipment sales by CNH Industrial North America, which is driven by the strength of the agricultural and construction markets. The credit quality of our portfolio reflects the underwriting standards of CNH Industrial Capital, which are developed internally and independent of the sales volume goals of CNH Industrial North America.

We borrow from our affiliates as one of the funding sources for our operations and lending activity. As of December 31, 2019 and 2018, we had outstanding affiliate borrowings of $213.9 million and $276.3 million, respectively, representing 2.0% and 2.5% of our total indebtedness.

CNH Industrial North America also provides us with other types of operational and administrative support, such as payroll and other human resource services. For the years ended December 31, 2019 and 2018, we incurred fees charged by our affiliates of $46.6 million and $47.5 million, respectively, representing 13% of our total administrative and operating expenses for both years.

Effective as of September 29, 2013, in connection with the merger of CNH Global with and into CNHI, CNHI assumed all of CNH Global’s obligations under a support agreement, pursuant to which CNHI has agreed to, among other things, (a) make cash capital contributions to us, to the extent necessary to cause our ratio of net earnings available for fixed charges to fixed charges to be not less than 1.05 for each fiscal quarter (with such ratio determined, on a consolidated basis and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), for such fiscal quarter and the immediately preceding three fiscal quarters taken as a whole), (b) generally maintain an ownership of at least 51% of the voting equity interests in us and (c) cause us to have, as of the end of any fiscal quarter, a consolidated tangible net worth of at least $50 million. The support agreement is not intended to be and is not a guarantee by CNHI of our indebtedness or other obligations. The obligations of CNHI to us pursuant to this support agreement are to us only and do not run to, and are not enforceable directly by, any creditor of ours, including holders of our notes or the trustee under the indenture governing our notes. The support agreement may be modified, amended or terminated, at CNHI’s election, upon thirty days’ prior written notice to us and the rating agencies, if (a) the modification, amendment or termination would not result in a downgrade of our rated indebtedness; (b) the modification, amendment or notice of termination provides that the support agreement will continue in effect with respect to our rated indebtedness then outstanding; or (c) we have no long‑term rated indebtedness outstanding.

Products and Services

CNH Industrial Capital’s financing products and services fall into the following main categories:

Retail (68.9% of managed portfolio as of December 31, 2019): CNH Industrial Capital provides and administers retail financing to end‑use customers for the purchase or lease of new and used CNH Industrial North America equipment or other agricultural and construction equipment sold primarily through CNH Industrial North America dealers and distributors. Retail financing products primarily include retail installment sales contracts, finance leases

4

and operating leases to end‑use customers. The terms of retail contracts, finance leases and operating leases generally range from two to six years, and interest rates vary depending on prevailing market interest rates and certain incentive programs offered by CNH Industrial North America.

CNH Industrial Capital utilizes a proprietary credit scoring model as part of the retail credit approval and review process. CNH Industrial Capital also provides servicing and collection operations generally performed through its subsidiary, New Holland Credit, for the retail financing products.

Wholesale (31.1% of managed portfolio as of December 31, 2019): CNH Industrial Capital provides wholesale financing to dealers to finance purchases of new and used agricultural and construction equipment and parts. In addition, CNH Industrial Capital extends credit to dealers for working capital and other financing needs. Currently, credit is extended to approximately 900 CNH Industrial North America dealers (with each being a separate legal entity) with approximately 1,700 locations in North America.

The dealer financing agreements provide CNH Industrial Capital with a first priority security interest in the equipment and parts financed and possibly other collateral. A majority of dealers also provide a personal or corporate guarantee (from an affiliate of the dealer). The amount of credit extended is primarily based upon the dealer’s expected annual sales, effective net worth, utilization of existing credit lines and inventory turnover. CNH Industrial Capital evaluates and assesses dealers on an ongoing basis as to their credit worthiness and conducts audits of dealer equipment inventories on a regular basis. The amounts of credit made available to dealers are reviewed on a regular basis, which is usually annually, and such amounts are adjusted when deemed appropriate by CNH Industrial Capital.

Wholesale Factoring (0.0% of managed portfolio as of December 31, 2019): CNH Industrial Capital Canada purchases short-term receivables from Iveco Argentina from time to time.

CNH Industrial Capital finances other products, including insurance and equipment protection products underwritten through a third‑party insurer.

Competition

CNH Industrial Capital’s financing products and services are intended to be competitive with those available from third parties. CNH Industrial North America sponsors certain marketing programs that allow us to offer financing to customers at competitive or advantageous interest rates or other terms (such as longer contract terms, longer warranty terms or parts and service incentives). Under these programs, including our low‑rate financing programs or interest waiver programs, we are compensated by CNH Industrial North America for some or all of the cost of such terms. This support from CNH Industrial North America provides a material competitive advantage in offering financing to customers of CNH Industrial North America’s products.

We compete primarily with banks, equipment finance and leasing companies, and other financial institutions. Typically, this competition is based upon financial products and services offered, customer service, financial terms and interest rates charged. In addition, some of our competitors may be eligible to participate in government programs providing access to capital at more favorable rates, which may create a competitive disadvantage for CNH Industrial Capital. CNH Industrial Capital believes that its strong, long‑term relationship with the dealers and end‑use customers and the ease‑of‑use of our products provides a competitive edge over other third‑party financing options. In addition, the marketing programs offered by CNH Industrial North America have a positive influence on the proportion of CNH Industrial North America’s equipment sales financed by CNH Industrial Capital.

Employees

As of December 31, 2019, CNH Industrial Capital had approximately 360 employees, none of which were represented by unions.

5

Item 1A.  Risk Factors

CNH Industrial Capital LLC is an indirect wholly-owned subsidiary of CNHI. The results of operations of the Company are primarily affected by its relationships with CNH Industrial North America.

The following risks are considered the most significant to the Company’s business based upon current knowledge, information and assumptions. This discussion of risk factors should be considered in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 15 and the other risks described in the Cautionary Note Regarding Forward‑Looking Statements beginning on page 23. These risks may affect our operating results and, individually or in the aggregate, could cause our actual results to differ materially from past and projected future results. Except as may be required by law, we undertake no obligation to publicly update these risks or any forward‑looking statements, whether as a result of new information, future events, or otherwise.

Risks Related to Our Indebtedness and Liquidity

Credit rating changes could affect our access to funding and our cost of funds, which could in turn adversely affect our financial position and results of operations.

Our ability to access the capital markets or other forms of financing and our funding costs are highly dependent on, among other things, our credit ratings and those of CNHI and our ABS transactions. Rating agencies may review and revise their ratings from time to time, and any downgrade or other negative action with respect to our credit ratings by one or more rating agencies may increase our funding costs, limit our access to sources of financing and/or adversely affect our financial position and results of operations. A lack of funding could result in our inability to meet customer demand for equipment financing, while increased funding costs could lead to deteriorating margins, decreased profits and could result in our inability to meet customer demand at attractive interest rates, which in turn may adversely affect our financial position and results of operations.

We have significant outstanding indebtedness, which may limit our ability to obtain additional funding and may limit our financial and operating flexibility.

As of December 31, 2019, we had an aggregate of $10.8 billion of consolidated indebtedness and our equity was $1.3 billion.

The extent of our indebtedness could have important consequences on our operations and financial results, including:

·

we may not be able to secure additional funds for working capital, capital expenditures, debt service requirements or general corporate purposes;

·

we may need to use a portion of our projected future cash flow from operations to pay principal and interest on our indebtedness, which may reduce the amount of funds available to us for other purposes;

·

we may be more financially leveraged than some of our competitors, which could put us at a competitive disadvantage;

·

we may not be able to invest in the development or introduction of new products or new business opportunities;

·

we may not be able to adjust rapidly to changing market conditions, which may make us more vulnerable to a downturn in general economic conditions; and

·

we may not be able to access the capital markets on favorable terms, which may adversely affect our ability to provide competitive retail and wholesale financing programs.

Further, our indebtedness under some of our instruments, including our revolving credit facilities and derivative transactions, may bear interest at variable interest rates based on the London Interbank Offered Rate (“LIBOR”). The LIBOR benchmark has been subject to national, international, and other regulatory guidance and proposals for reform. In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or

6

compelling banks to submit rates for calculation of LIBOR after 2021. These reforms may cause LIBOR to perform differently than in the past and LIBOR may ultimately cease to exist after 2021 or be unsuitable to use as a benchmark. The consequences of any potential cessation, modification or other reform of LIBOR cannot be predicted at this time. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact new credit facilities and derivative transactions entered into after 2021. Any changes to benchmark rates could have an impact on our cost of funds and our access to the capital markets, which could impact our financial position.

Restrictive covenants in our debt agreements could limit our financial and operating flexibility.

The agreements governing our outstanding debt securities and other credit agreements to which we are a party from time to time contain, or may contain, covenants that restrict our ability and/or that of our subsidiaries to, among other things:

·

incur additional indebtedness;

·

make certain investments;

·

enter into certain types of transactions with affiliates;

·

sell or acquire certain assets or merge with or into other companies;

·

use assets as security in other transactions; and/or

·

enter into sale and leaseback transactions.

These restrictive covenants could limit our financial and operating flexibility. For example:

·

limits on incurring additional debt and using assets as security in other transactions could materially limit our future business prospects by restricting us from financing as many customers as we otherwise would, particularly if our traditional funding sources (including principally the ABS markets) were not available;

·

limits on investments could result in a return on assets lower than that of our competitors; and

·

limits on the sale of assets or merger with or into other companies could deny us a future business opportunity despite the benefits that could be realized from such a transaction.

In addition, we are required to maintain a certain coverage level for leverage; our leverage ratio, defined as the ratio of total net debt to equity, is required not to exceed 9.00:1.

Although we do not believe any of these covenants materially restrict our operations currently, a breach of one or more of the covenants could result in adverse consequences that could negatively impact our businesses, results of operations and financial position. These consequences may include the acceleration of amounts outstanding under certain of our credit facilities, triggering an obligation to redeem certain debt securities, termination of existing unused commitments by our lenders, refusal by our lenders to extend further credit under one or more of the facilities or to enter into new facilities or the lowering or modification of CNHI’s or our credit ratings. We cannot assure you that we will continue to comply with each restrictive covenant at all times, particularly if we were to encounter challenging and volatile market conditions.

Risks Related to Our Business, Strategy and Operations

Reduced demand for agricultural and construction equipment would reduce the opportunities for us to finance equipment.

Our business is largely dependent upon the demand for CNH Industrial North America’s products and its customers’ willingness to enter into financing or leasing arrangements with respect thereto. A significant and prolonged decrease in demand for CNH Industrial North America’s products could have a material adverse effect on our business, financial position, results of operations and cash flows. Our primary business is to provide retail and wholesale financing alternatives for CNH Industrial North America’s products to CNH Industrial North America’s

7

customers and dealers. The demand for CNH Industrial North America’s products and our financing products and services is influenced by factors such as:

·

the price of agricultural commodities and the relative level of inventories;

·

the profitability of agricultural enterprises, farmers’ income and their capitalization;

·

the demand for food products;

·

CNH Industrial North America’s ability to produce products that meet the quality, performance and price expectations of customers;

·

agricultural policies, including aid and subsidies to agricultural enterprises provided by governments and/or supranational organizations as well as alternative fuel mandates;

·

withdrawal from or change in trade agreements or trade terms, negotiation of new trade agreements and the imposition of new (and retaliatory) tariffs against certain countries or covering certain products or raw materials, including developments in the U.S.-China trade relations;

·

change in or uncertainty surrounding global trade policies;

·

droughts and other unfavorable climatic conditions, especially during the spring, a particularly important period for generating CNH Industrial North America’s sales orders;

·

public infrastructure spending;

·

new residential and non-residential construction;

·

capital spending in oil and gas and, to a lesser extent, in mining; and

·

changes in currency exchange rates and interest rates.

In the equipment industry, changes in demand can occur suddenly, resulting in imbalances in inventories, product capacity, and prices for new and used equipment. If fewer pieces of equipment are sold, CNH Industrial Capital will be presented with fewer opportunities to finance equipment.

The recent outbreak of Coronavirus, a virus causing potentially deadly respiratory tract infections originating in China, may negatively affect economic conditions regionally as well as globally, and may impact demand for CNH Industrial North America’s products and its customers’ willingness to enter into financing or leasing arrangements. Governments in affected countries are imposing travel bans, quarantines and other emergency public safety measures. Those measures, though temporary in nature, may continue and increase depending on developments in the virus’ outbreak. The ultimate severity of the Coronavirus outbreak is uncertain at this time and therefore we cannot predict the impact it may have on demand for CNH Industrial North America’s products and its customers’ willingness to enter into financing or leasing arrangements; however, the effect on our results may be material and adverse.

Change in support from CNH Industrial North America could limit our ability to offer competitively priced financing, which may have a material adverse effect on our business, financial position, results of operations and cash flows.

CNH Industrial North America sponsors certain marketing programs that allow us to offer financing to customers at advantageous interest rates or other terms (such as longer contract terms, longer warranty terms or parts and service incentives). This support from CNH Industrial North America provides a material competitive advantage in offering financing to customers of CNH Industrial North America’s products. Any elimination or reduction of these marketing programs, which affects our ability to offer competitively priced financing to customers, could in turn reduce the percentage of CNH Industrial North America’s products financed by us and could have a material adverse effect on our business, financial condition, results of operations and cash flows. For the years ended December 31, 2019, 2018 and 2017, the revenues recognized by us from CNH Industrial North America for marketing programs were $343.2 million, $333.8 million and $392.9 million, respectively, representing 38%, 38% and 42%, respectively, of our total revenues.

8

CNH Industrial North America also provides us with other types of operational and administrative support, such as payroll and other human resource services. For the years ended December 31, 2019, 2018 and 2017, we incurred fees charged by our affiliates of $46.6 million, $47.5 million and $46.4 million, respectively, representing 13%, 13% and 11%, respectively, of our total administrative and operating expenses.

An increase in customer credit risk may result in higher delinquencies and defaults, and deterioration in collateral valuation may reduce our collateral recoveries, which could increase losses on our receivables and operating leases and adversely affect our financial position and results of operations.

Fundamental to any organization that extends credit is the credit risk associated with its customers/borrowers. The creditworthiness of each customer, rates of delinquency and default, repossessions and net losses on customer receivables are impacted by many factors, including:

·

relevant industry and general economic conditions (in particular, those conditions most directly affecting the agricultural and construction industries);

·

the availability of capital;

·

the terms and conditions applicable to extensions of credit;

·

interest rates (and changes in the applicable interest rates);

·

the experience and skills of the customer’s management team;

·

commodity prices;

·

political events;

·

the weather; and

·

the value of the collateral securing the extension of credit.

Deterioration in the quality of our financial assets, an increase in delinquencies or defaults, or a reduction in collateral recovery rates could have an adverse impact on our financial performance. These risks become more acute in an economic slowdown or recession due to decreased demand for (or availability of) credit, declining asset values, changes in government subsidies, reductions in collateral to receivable balance ratios, and an increase in delinquencies, defaults, insolvencies, foreclosures and losses. In such circumstances, our receivable servicing and litigation costs may also increase. In addition, governments may pass laws, or implement regulations, that modify rights and obligations under existing agreements, or which prohibit or limit the exercise of contractual rights.

When a borrower defaults on a receivable and we repossess collateral securing the repayment of the receivable, our ability to recover or mitigate losses by selling the collateral is subject to the current market value of such collateral. Those values are affected by levels of new and used inventory of agricultural and construction equipment on the market. They are also dependent upon the strength or weakness of market demand for new and used agricultural and construction equipment, which is affected by the strength of the general economy. In addition, repossessed collateral may be in poor condition, which would reduce its value. Finally, relative pricing of used equipment, compared with new equipment, can affect levels of market demand and the resale of repossessed equipment. An industry‑wide decrease in demand for agricultural or construction equipment could result in lower resale values for repossessed equipment, which could increase losses on receivables and operating leases, adversely affecting our financial position and results of operations.

Changes in interest rates, exchange rates and market liquidity could have a material adverse effect on our earnings and cash flows.

Because a significant number of our receivables are generated at fixed interest rates, our business is subject to fluctuations in interest rates. Although we seek to match fund our assets, with approximately 63% of our receivables and approximately 74% of our funding at a fixed rate, respectively, as of December 31, 2019, changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and/or cash flow.

9

We are subject to currency exchange risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, the reporting currency for the consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses and revenues are denominated in other currencies. Those assets, liabilities, expenses and revenues are translated into the U.S. dollar at the applicable exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in exchange rates between the U.S. dollar and those other currencies affect the value of those items reflected in the consolidated financial statements, even if their value remains unchanged in the original currency. Changes in currency exchange rates between the U.S. dollar and other currencies could adversely affect our financial position and results of operations.

We also rely on the capital markets and a variety of funding programs to provide liquidity for our operations, including committed asset backed and unsecured facilities and the issuance of secured and unsecured debt. Significant changes in market liquidity conditions could affect our access to funding and the associated funding costs and reduce our earnings and cash flow.

Although we manage interest rate, exchange rate and market liquidity risks with a variety of techniques, including a match funding program, the selective use of derivatives and a diversified funding program, there can be no assurance that fluctuations in interest rates, exchange rates and market liquidity conditions will not have a material adverse effect on our earnings and cash flow. If any of the variety of instruments and strategies we use to hedge our exposure to these various types of risk is ineffective, we may incur losses.

Changes in government monetary or fiscal policies may negatively impact our results.

Governments may implement measures designed to slow economic growth (e.g., higher interest rates, reduced bank lending and other anti-inflation measures). Rising interest rates could have a dampening effect on the overall economic activity and/or the financial condition of our customers, either or both of which could negatively affect demand for our products and our customers’ ability to repay obligations to us. Central banks and other policy arms of many countries may take actions to vary the amount of liquidity and credit available in an economy. The impact from a change in liquidity and credit policies could negatively affect the customers and markets we serve, which could adversely impact our business, results of operations and financial condition. Government initiatives that are intended to stimulate demand for products sold by CNH Industrial North America, such as changes in tax treatment or purchase incentives for new equipment, can significantly influence the timing and level of our revenues. The terms, size and duration of such government actions are unpredictable and outside of our control. Any adverse change in government policy relating to those initiatives could have a material adverse effect on our business, results of operations and financial condition.

If we are unable to obtain funding, in particular through the ABS market and committed asset‑backed facilities, at competitive rates, our ability to conduct our financing business may be severely impaired and our financial position, results of operations and cash flows may be materially and adversely affected.

We have traditionally relied upon the ABS market and committed asset‑backed facilities as a primary source of funding and liquidity. Access to funding at competitive rates is essential to our business. An inability to access the ABS market or a significant reduction in liquidity in the secondary market for ABS transactions could adversely affect our ability to sell receivables on a favorable or timely basis. Such conditions could have an adverse impact on our access to funding, financial position and results of operations.

If we breach our representations and warranties in connection with our ABS transactions, we may be required to repurchase non‑conforming receivables from the securitization vehicles, which could have an adverse effect on our financial position, results of operations and cash flows.

In connection with our ABS transactions, we make customary representations and warranties regarding the assets being securitized, as disclosed in the relevant offering documents. While no recourse provisions exist that allow holders of asset‑backed securities issued by our ABS trusts to require us to repurchase those securities, a breach of these representations and warranties could give rise to an obligation to repurchase non‑conforming receivables from the trusts. Any obligation to make future repurchases could have an adverse effect on our financial position, results of operations and cash flows.

10

Certain of our operations are subject to supervision and regulation by governmental authorities and changes in applicable laws or regulations may adversely impact our ability to engage in related business activities or increase the cost of our operations, thus adversely affecting our business, financial position and results of operations.

Our operations are subject to extensive, complex and frequently changing rules, regulations and legal interpretations from various governmental authorities, which among other things:

·

regulate credit granting activities, including establishing licensing requirements;

·

establish maximum interest rates, finance and other charges;

·

regulate customers’ insurance coverage;

·

require disclosures to customers;

·

govern secured and unsecured transactions;

·

set collection, foreclosure, repossession and claims handling procedures and other trade practices;

·

prohibit discrimination in the extension of credit and administration of loans; and

·

regulate the use, handling and reporting of information related to applicants and borrowers.

As applicable laws are amended or construed differently, new laws are adopted to expand the scope of regulation imposed upon us, or existing laws prohibit interest rates we charge from rising to a level commensurate with risk and market conditions, such events could adversely affect our business and our financial position and results of operations.

New regulations or changes in financial services regulations could adversely affect us.

Our operations are highly regulated by governmental authorities which can impose significant additional costs and/or restrictions on our business. For example, the requirements of the Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd‑Frank Act”), including its implementing regulations, may substantially affect our origination, servicing and securitization programs. The Dodd‑Frank Act also strengthens the regulatory oversight of these securities and related capital market activities by the SEC and increases the regulation of the ABS markets through, among other things, a mandated risk retention requirement for securitizers and a direction to regulate credit rating agencies. Other future regulations may affect our ability to engage in funding these capital market activities or increase the effective cost of such transactions, which could adversely affect our financial position, results of operations and cash flows.

Our business may be affected by unfavorable weather conditions, climate change or other calamities.

Poor, severe or unusual weather conditions caused by climate change or other factors, particularly during the planting and early growing season, can significantly affect the purchasing decisions of CNH Industrial North America’s agricultural equipment customers. The timing and quantity of rainfall are two of the most important factors in agricultural production. Insufficient levels of rain prevent farmers from planting crops or may cause growing crops to die, resulting in lower yields. Excessive rain or flooding can also prevent planting or harvesting from occurring at optimal times and may cause crop loss through increased disease or mold growth. Temperature affects the rate of growth, crop maturity, crop quality and yield. Temperatures outside normal ranges can cause crop failure or decreased yields and may also affect disease incidence. Natural disasters such as floods, hurricanes, storms, droughts, diseases and pests can have a negative impact on agricultural production. The resulting negative impact on farm income can strongly affect demand for CNH Industrial North America’s agricultural equipment in any given period.

In addition, natural disasters, epidemics and pandemics, including the recent outbreak of Coronavirus, terrorist attacks or violence, equipment failures, power outages, disruptions to our information technology systems and networks or other unexpected events could result in physical damage to and complete or partial closure of one or more of CNH Industrial’s manufacturing facilities or distribution centers, temporary or long‑term disruption in the supply of parts or component products, disruption in the transport of CNH Industrial North America’s products to dealers and customers and delay in delivery of products to distribution centers. In the event such events occur, our

11

financial results might be negatively impacted. Our existing insurance arrangements may not protect against all costs that may arise from such events.

Furthermore, the potential physical impacts of climate change on CNH Industrial North America’s facilities, suppliers and customers and therefore on its operations are highly uncertain and will be particular to the circumstances developing in various geographical regions. These may include long-term changes in temperature and water availability. These potential physical effects may adversely impact the demand for CNH Industrial North America’s products and the cost, production, sales and financial performance of its operations and as a result could adversely affect our financial position, results of operations and cash flows.

Changes in demand for food and alternate energy sources could impact our revenues.

Changing worldwide demand for farm outputs to meet the world’s growing food and alternative energy demands, driven in part by government policies and a growing world population, are likely to result in fluctuating agricultural commodity prices, which affect sales of agricultural equipment. While higher commodity prices will benefit our crop producing agricultural equipment customers, higher commodity prices also result in greater feed costs for livestock and poultry producers, which in turn may result in lower levels of equipment purchased by these customers. Lower commodity prices directly affect farm income, which could negatively affect sales of agricultural equipment. Moreover, changing alternative energy demands may cause farmers to change the types or quantities of the crops they grow, with corresponding changes in equipment demands. Finally, changes in governmental policies regulating bio‑fuel utilization could affect demand for CNH Industrial North America’s equipment and result in higher research and development costs related to equipment fuel standards.

Competitive activity or failure by us to respond to actions by our competitors could adversely affect our results of operations, in particular due to a cost of funds disparity between us and some of our competitors.

We operate in a highly competitive environment, with financing for owners or operators of CNH Industrial North America equipment available through a variety of sources, such as banks, finance companies and other financial institutions, including government sponsored entities. Some of our competitors enjoy certain regulatory, government support or credit rating advantages over CNH Industrial Capital today, which often enable them to access capital on favorable terms, among other things. Such cost of funds disparities between us and our competitors, or any additional regulatory, government support or credit rating changes that enhance the competitive position of our competitors, could result in our inability to effectively compete.

The success of our business also depends on our ability to identify emerging industry changes and develop and market new products and services that meet the evolving needs of existing and potential customers. Increasing competition may adversely affect our business if we are unable to match the products and services of our competitors. If we are unable to effectively compete, our business, financial position and results of operations will suffer.

A decrease in the value of the equipment that we lease or higher than expected return volumes of our leased equipment could adversely affect our results.

We estimate the expected residual values of leased equipment at the inception of the lease, which is the estimated future value of leased equipment at the time of the expiration of the lease term. The residual values are reviewed quarterly. Changes in residual value assumptions would affect the amount of depreciation expense and the net amount of equipment on operating leases. If estimated future values significantly decline due to economic factors, obsolescence, the overall industry volume of lease returns, or other adverse circumstances, we may not realize such residual values, which could reduce our earnings.

Actual proceeds realized by us upon the sale of returned leased equipment at lease termination may be lower than the amount projected. Among the factors that can affect the value of returned lease equipment are the volume of equipment returned (primarily affected by contractual lease‑end values relative to prevailing market values and marketing programs for new equipment), any significant trends in the used equipment market and any new product trends. Each of these factors, alone or in combination, has the potential to adversely affect our profitability if actual results were to differ significantly from our estimates.

As of December 31, 2019, our total operating lease residual values were $1.4 billion.

12

Our results of operations may be adversely impacted by various types of claims, lawsuits, and other contingent obligations.

We are involved in various lawsuits and other legal proceedings that arise in the ordinary course of our business. The ultimate outcome of the legal matters pending against us or our subsidiaries is uncertain. Furthermore, we could in the future become subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our results of operations in any particular period. In addition, while we maintain insurance coverage with respect to certain risks, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against claims under such policies.

Our affiliates may cease to provide us with financing support.

During the capital markets crisis, which had a material adverse effect on the ABS markets, we relied more heavily upon financing provided by CNH Industrial and its predecessors. In the event of a repeat of the severe downturn in the ABS markets, we would need to look to alternative funding sources, including CNH Industrial, though CNH Industrial would have no obligation to provide such financing (other than the obligations assumed by CNHI under the support agreement, dated November 4, 2011). To the extent CNH Industrial does not provide such financing to us when needed, we could suffer from a lack of funding and/or incur increased funding costs if funding is obtained through other third‑party sources.

Our participation in cash management pools exposes us to CNH Industrial credit risk, which, in the event of a bankruptcy or insolvency of certain CNH Industrial entities, could render us unable to recover our deposits and in turn materially and adversely affect our financial position and results of operations.

We participate in a group‑wide cash management system with other companies within CNH Industrial, including CNH Industrial America and CNH Industrial Canada Ltd. Our positive cash deposits with CNH Industrial, if any, are either invested by CNH Industrial treasury subsidiaries in highly rated, highly liquid money market instruments or bank deposits, or may be applied by CNH Industrial treasury subsidiaries to meet the financial needs of other CNH Industrial entities and vice versa. While we believe participation in such CNH Industrial treasury subsidiaries’ cash management pools provides us with financial benefits, it exposes us to CNH Industrial credit risk.

In the event of a bankruptcy or insolvency of CNHI (or any other CNH Industrial entity, including CNH Industrial America and CNH Industrial Canada Ltd., in the jurisdictions with set off agreements) or in the event of a bankruptcy or insolvency of the CNH Industrial entity in whose name the deposit is pooled, we may be unable to secure the return of such funds to the extent they belong to us, and we may be viewed as a creditor of such CNH Industrial entity with respect to such deposits. It is possible that our claims as a creditor could be subordinated to the rights of third‑party creditors in certain situations. If we are not able to recover our deposits, our financial position and results of operations may be materially and adversely impacted.

Our financial statements may be adversely impacted by changes in accounting standards.

Our financial statements are prepared in accordance with U.S. GAAP, which are periodically revised. At times, we are required to adopt new or revised accounting standards issued by recognized bodies. It is possible such changes could have a material adverse effect on our reported results of operations or financial position. See “Note 2: Summary of Significant Accounting Policies” to our audited consolidated financial statements for the year ended December 31, 2019 for additional information on the adoption of new accounting guidance.

A cybersecurity breach could interfere with our operations, compromise confidential information, negatively impact our corporate reputation and expose us to liability.

We rely upon information technology systems and networks, some of which are managed by third parties, in connection with a variety of our business activities. These systems include invoicing and collection of payments from CNH Industrial North America’s dealers and from our customers. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information and the proprietary information of our customers and CNH Industrial North America’s dealers, as well as personally identifiable information of our dealers, customers

13

and our employees, in data centers and on information technology networks. Operating these information technology systems and networks, and processing and maintaining this data, in a secure manner, are critical to our business operations and strategy. Increased information technology security threats and more sophisticated computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.

While we actively manage information technology security risks within our control through security measures, business continuity plans and employee training around phishing and other cyber risks, there can be no assurance that such actions will be sufficient to mitigate all potential risks to our systems, networks, data and products. Furthermore, third parties on which we rely, including internet, mobile communications technology and cloud service providers, could be sources of information security risk to us.

A failure or breach in security, whether of our systems and networks or those of third parties on which we rely, could expose us and our customers and dealers to risks of misuse of information or systems, the compromising of confidential information, loss of financial resources, manipulation and destruction of data and operations disruptions, which in turn could adversely affect our reputation, competitive position, businesses and results of operations. Security breaches could also result in litigation, regulatory action, unauthorized release of confidential or otherwise protected information and corruption of data, as well as remediation costs and higher operational and other costs of implementing further data protection measures. In addition, as security threats continue to evolve we may need to invest additional resources to protect the security of our systems and data. The amount or scope of insurance coverage we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity attack.

Changes in privacy laws could disrupt our business. We are also subject to various laws regarding privacy and the protection of personal information.

The regulatory framework for privacy and data security issues is rapidly evolving and is likely to remain uncertain for the foreseeable future. New privacy laws will continue to come into effect, including the California Consumer Privacy Act. We may be required to incur significant costs to comply with this and other privacy and data security laws, rules and regulations. Any inability to adequately address privacy and security concerns or comply with applicable privacy and data security laws, rules and regulations could have an adverse effect on our business prospects, results of operations and/or financial position.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

Our principal executive offices are located at 5729 Washington Avenue, Racine, WI 53406. We maintain the following offices:

 

 

 

 

 

 

 

 

 

    

Primary

    

 

    

 

 

Location

 

Function

 

Tenant

 

Ownership Status

 

Burlington, ON

 

Office

 

CNH Industrial Capital Canada Ltd.

 

Leased

 

New Holland, PA

 

Office

 

New Holland Credit Company, LLC

 

Leased from New Holland North America, Inc.

 

Racine, WI

 

Office

 

CNH Industrial Capital LLC

 

Leased from CNH Industrial America

 

 

 

Item 3.  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 4.  Mine Safety Disclosures

Not applicable.

14

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

All of CNH Industrial Capital LLC’s limited liability company interests are owned by CNH Industrial America, which is indirectly wholly‑owned by CNHI. There is currently no established trading market for CNH Industrial Capital LLC’s limited liability company interests. CNH Industrial Capital LLC paid cash dividends of $265 million, $130 million and $285 million to CNH Industrial America in 2019, 2018 and 2017, respectively.

Item 6.  Selected Financial Data

Omitted pursuant to General Instruction I of Form 10‑K.

Item 7.  Managements’ Discussion and Analysis of Financial Condition and Results of Operations

Overview

Organization

We offer a range of financial products and services to the dealers and customers of CNH Industrial North America. The principal products offered are retail financing for the purchase or lease of new and used CNH Industrial North America equipment and wholesale financing to CNH Industrial North America dealers. Wholesale financing consists primarily of floor plan financing as well as financing equipment used in dealer‑owned rental yards, parts inventory and working capital needs. In addition, we purchase equipment from dealers that is leased to retail customers under operating lease agreements.

Trends and Economic Conditions

Our business is closely related to the agricultural and construction equipment industries because we offer financing products for such equipment. For the year ended December 31, 2019, CNH Industrial’s net sales of agricultural equipment and net sales of construction equipment generated in North America were $3.9 billion and $1.4 billion, respectively, representing decreases of 2% and 8% from the same period in 2018, respectively.

In general, our receivable mix between agricultural and construction equipment financing directionally reflects the mix of equipment sales by CNH Industrial North America. As such, changes in the agricultural industry or with respect to our agricultural equipment borrowers may affect the majority of our portfolio.

Net income was $149.0 million for the year ended December 31, 2019, compared to $156.8 million for the year ended December 31, 2018. The decrease in net income was primarily due to increased expenses related to the operating lease portfolio and higher provisions for credit losses and income taxes, partially offset by a higher average yield for the managed portfolio. The receivables balance greater than 30 days past due as a percentage of managed receivables was 0.7%, 0.6% and 0.8% at December 31, 2019, 2018 and 2017, respectively.

Macroeconomic issues for us include the uncertainty of governmental actions with respect to monetary, fiscal and legislative policies, the global economic recovery, changes in demand and pricing for used equipment, capital market disruptions, trade agreements, and financial regulatory reform. Significant volatility in the price of certain commodities could also impact CNH Industrial North America’s and our results.

15

Results of Operations

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenues

Revenues for the years ended December 31, 2019 and 2018 were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

    

$ Change

    

% Change

 

Interest income on retail notes and finance leases

 

$

218,454

 

$

201,269

 

$

17,185

 

8.5

%

Interest income on wholesale notes

 

 

67,773

 

 

66,899

 

 

874

 

1.3

 

Interest and other income from affiliates

 

 

345,789

 

 

345,933

 

 

(144)

 

 —

 

Rental income on operating leases

 

 

243,044

 

 

241,582

 

 

1,462

 

0.6

 

Other income

 

 

25,829

 

 

22,671

 

 

3,158

 

13.9

 

Total revenues

 

$

900,889

 

$

878,354

 

$

22,535

 

2.6

%

Revenues totaled $900.9 million for the year ended December 31, 2019 compared to $878.4 million for the year ended December 31, 2018. A higher average yield drove the year-over-year increase in total revenues. The average yield for the managed portfolio was 7.5% for the year ended December 31, 2019, compared to 7.3% for the year ended December 31, 2018.

Interest income on retail notes and finance leases for the year ended December 31, 2019 was $218.5 million,  representing an increase of $17.2 million from the year ended December 31, 2018. The increase was primarily due to a $23.8 million favorable impact from higher interest rates, partially offset by a $6.6 million unfavorable impact from lower average earning assets.

Interest income on wholesale notes for the year ended December 31, 2019 was $67.8 million, representing an increase of $0.9 million from the year ended December 31, 2018. The increase was primarily due to a $1.1 million favorable impact from higher average earning assets, partially offset by a $0.2 million unfavorable impact from lower interest rates.

Interest and other income from affiliates for the year ended December 31, 2019 was $345.8 million, flat compared to the year ended December 31, 2018. Compensation from CNH Industrial North America for retail low‑rate financing programs and interest waiver programs offered to customers was $160.4 million and $149.4 million for the years ended December 31, 2019 and 2018, respectively. The increase was primarily due to pricing and mix of programs. For the year ended December 31, 2019, compensation from CNH Industrial North America for wholesale marketing programs was $122.6 million, flat compared to $123.6 million for the prior year. For select operating leases, compensation from CNH Industrial North America for the difference between market rental rates and the amounts paid by customers was $60.2 million and $60.8 million for the years ended December 31, 2019 and 2018, respectively. Also included in interest and other income from affiliates was $2.2 million of wholesale factoring income for the year ended December 31, 2019 compared to $10.9 million for the year ended December 31, 2018.

Rental income on operating leases for the year ended December 31, 2019 was $243.0 million, representing an increase of $1.5 million from the year ended December 31, 2018. The increase was primarily due to higher average earning assets.

Other income for the year ended December 31, 2019 was $25.8 million, representing an increase of $3.2 million from the year ended December 31, 2018.

16

Expenses

Expenses for the years ended December 31, 2019 and 2018 were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

    

$ Change

    

% Change

    

Total interest expense

 

$

347,273

 

$

325,280

 

$

21,993

 

6.8

%

Fees charged by affiliates

 

 

46,601

 

 

47,475

 

 

(874)

 

(1.8)

 

Provision for credit losses

 

 

35,703

 

 

31,699

 

 

4,004

 

12.6

 

Depreciation of equipment on operating leases

 

 

229,652

 

 

231,805

 

 

(2,153)

 

(0.9)

 

Other expenses

 

 

48,446

 

 

43,778

 

 

4,668

 

10.7

 

Total expenses

 

$

707,675

 

$

680,037

 

$

27,638

 

4.1

%

Interest expense totaled $347.3 million for the year ended December 31, 2019 compared to $325.3 million for the year ended December 31, 2018. The increase was primarily due to a $25.3 million unfavorable impact from higher average interest rates, partially offset by a $3.3 million favorable impact from lower average total debt. The average debt cost was 3.3% for the year ended December 31, 2019 compared to 3.0% for the year ended December 31, 2018.

The provision for credit losses was $35.7 million for the year ended December 31, 2019 compared to a provision of $31.7 million for the year ended December 31, 2018. The increase in 2019 was primarily due to higher retail losses.

Depreciation of equipment on operating leases decreased by $2.2 million for the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to product mix.

Other expenses increased by $4.7 million for the year ended December 31, 2019 compared to the prior year, primarily due to higher losses on sales of equipment held for sale.

The effective tax rate for the year ended December 31, 2019 was a provision of 22.9%, compared to a provision of 20.9% for the year ended December 31, 2018.

Receivables and Equipment on Operating Leases Originated and Held

Receivables and equipment on operating lease originations for the years ended December 31, 2019 and 2018 were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

    

$ Change

    

% Change

 

Retail

 

$

2,817,879

 

$

2,894,344

 

$

(76,465)

 

(2.6)

%

Wholesale

 

 

8,418,508

 

 

8,730,459

 

 

(311,951)

 

(3.6)

 

Wholesale factoring

 

 

144,040

 

 

177,758

 

 

(33,718)

 

(19.0)

 

Equipment on operating leases

 

 

715,686

 

 

680,266

 

 

35,420

 

5.2

 

Total originations

 

$

12,096,113

 

$

12,482,827

 

$

(386,714)

 

(3.1)

%

The year-over-year decrease in retail and wholesale originations was primarily due to a decrease in unit sales of CNH Industrial North America agricultural equipment. An increased customer preference for new and used leasing products compared to other retail products drove the year-over-year increase in equipment on operating lease originations.

Total receivables and equipment on operating leases held as of December 31, 2019 and 2018 were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

    

$ Change

    

% Change

 

Retail

 

$

6,268,251

 

$

6,441,054

 

$

(172,803)

 

(2.7)

%

Wholesale

 

 

3,639,774

 

 

3,584,284

 

 

55,490

 

1.5

 

Equipment on operating leases

 

 

1,783,283

 

 

1,724,217

 

 

59,066

 

3.4

 

Total receivables and equipment on operating leases

 

$

11,691,308

 

$

11,749,555

 

$

(58,247)

 

(0.5)

%

17

The total retail receivables balance greater than 30 days past due as a percentage of the retail receivables was 1.0% and 0.8% at December 31, 2019 and 2018, respectively. The total wholesale receivables balance greater than 30 days past due as a percentage of the wholesale receivables was not significant at December 31, 2019 or 2018. Total retail receivables on nonaccrual status, which represent receivables for which we have ceased accruing finance income, were $37.2 million and $28.5 million at December 31, 2019 and 2018, respectively. Total wholesale receivables on nonaccrual status were $29.2 million and $23.0 million at December 31, 2019 and 2018, respectively.

Total receivable write‑offs and recoveries, by product, for the years ended December 31, 2019 and 2018 were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

Write-offs:

 

 

 

 

 

 

Retail

 

$

35,535

 

$

39,375

Wholesale

 

 

5,102

 

 

1,567

Total write-offs

 

 

40,637

 

 

40,942

Recoveries:

 

 

 

 

 

 

Retail

 

 

(3,046)

 

 

(4,702)

Wholesale

 

 

(16)

 

 

(71)

Total recoveries

 

 

(3,062)

 

 

(4,773)

Write-offs, net of recoveries:

 

 

 

 

 

 

Retail

 

 

32,489

 

 

34,673

Wholesale

 

 

5,086

 

 

1,496

Total write-offs, net of recoveries

 

$

37,575

 

$

36,169

Our allowance for credit losses on all receivables financed totaled $72.8 million at December 31, 2019 and $74.4 million at December 31, 2018.

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, economic conditions (in particular, those conditions directly affecting the profitability and financial strength of our customers), collateral value and credit risk quality. No single factor determines the adequacy of the allowance. Different assumptions or changes in economic conditions would result in changes to the allowance for credit losses and the provision for credit losses. These qualitative factors are subjective and require a degree of management judgment.

We believe our allowance is sufficient to provide for losses in our receivable portfolio as of December 31, 2019.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Comparisons for the year ended December 31, 2018 to the year ended December 31, 2017 are discussed in Item 7 of the Company’s 2018 annual report filed with the SEC on March 2, 2019.

Liquidity and Capital Resources

The following discussion of liquidity and capital resources principally focuses on our statements of cash flows, balance sheets and capitalization. CNH Industrial Capital’s current funding strategy is to maintain sufficient liquidity and flexible access to a wide variety of financial instruments and funding options.

In the past, securitization has been one of our most economical sources of funding and, therefore, the majority of our originated receivables are securitized, with the cash generated from such receivables utilized to repay the related debt or purchase new receivables.

In addition, we have secured and unsecured facilities, commercial paper, unsecured bonds, affiliate borrowings and cash to fund our liquidity needs.

18

Cash Flows

For the years ended December 31, 2019 and 2018, our cash flows were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

Cash flows from (used in):

 

 

 

 

 

 

Operating activities

 

$

482,684

 

$

362,881

Investing activities

 

 

(46,952)

 

 

52,943

Financing activities

 

 

(431,359)

 

 

(491,511)

Net cash increase (decrease)

 

$

4,373

 

$

(75,687)

Operating activities in the year ended December 31, 2019 generated cash of $483 million, resulting primarily from net income of $149 million, adjusted by depreciation and amortization of $231 million, provision for credit losses of $36 million, deferred tax expenses of $38 million and changes in working capital of $28 million. The increase in cash provided by operating activities in 2019 compared to 2018 was primarily due to $116 million related to changes in working capital, a $10 million change in deferred income tax adjustment and a $4 million increase in provision for credit losses, partially offset by a $8 million decrease in net income and a $3 million decrease in depreciation and amortization expense. Operating activities in 2018 generated cash of $363 million, resulting primarily from net income of $157 million, adjusted by depreciation and amortization of $234 million, provision for credit losses of $32 million, and $28 million in deferred income tax expense, partially offset by changes in working capital of $88 million.

Investing activities in the year ended December 31, 2019 used cash of $47 million, resulting primarily from net expenditures of $214 million for equipment on operating leases and $4 million for property, equipment and software, partially offset by a net reduction in receivables of $171 million. The increase in cash used by investing activities in 2019 compared to 2018 was primarily due to a $99 million lower net reduction in receivables and a $2 million increase in net expenditures for equipment on operating leases, partially offset by a $1 million decrease in net expenditures on property, equipment and software. Investing activities in 2018 generated cash of $53 million, resulting primarily from a net reduction in receivables of $270 million, partially offset by $212 million in net expenditures for equipment on operating leases and $5 million in net expenditures for property, equipment and software.

Financing activities in the year ended December 31, 2019 used cash of $431 million, resulting primarily from $265 million in dividends paid to CNH Industrial America and net cash paid on long-term debt and affiliated debt of $218 million and $62 million, respectively, partially offset by net cash received on short-term borrowings of $114 million. The decrease in cash used in financing activities in 2019 compared to 2018 was primarily due to decreases in net cash paid on long-term debt and affiliated debt of $171 million and $92 million, respectively, partially offset by higher dividends of $135 million paid to CNH Industrial America and a decrease in net cash received on short-term borrowings of $68 million. Financing activities in 2018 used cash of $492 million, resulting primarily from net cash paid on long‑term debt and affiliated debt of $390 million and $154 million, respectively, and $130 million in dividends paid to CNH Industrial America, partially offset by net cash received on short-term borrowings of $182 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 $5.2 billion of public and private asset‑backed securities outstanding in both the U.S. and Canada as of December 31, 2019. Our securitizations are treated as financing arrangements for accounting purposes.

Committed Asset‑Backed Facilities

CNH Industrial Capital has committed asset‑backed facilities with several banks or through their commercial paper conduit programs. Committed asset‑backed facilities for the U.S. and Canada totaled $3.0 billion at December 31, 2019, with original borrowing maturities of up to two years. The unused availability under the facilities

19

varies during the year, depending on origination volume and the refinancing of receivables with term securitization transactions and/or other financing. At December 31, 2019, approximately $1.1 billion of funding was available for use under these facilities.

Unsecured Facilities and Debt

As of December 31, 2019, we had a fully-drawn uncommitted credit line totaling $150 million, which matured in January 2020.

In addition, committed unsecured facilities with banks as of December 31, 2019 totaled $846 million. These credit facilities, which are eligible for renewal at various future dates, are used primarily for working capital and other general corporate purposes. As of December 31, 2019, we had $446 million outstanding under these credit facilities. Included in the remaining available credit commitments is $389 million maintained primarily to provide backup liquidity for commercial paper borrowings.

Our outstanding commercial paper totaled $389 million as of December 31, 2019.

As of December 31, 2019, our unsecured senior notes were as follows (dollars in thousands):

 

 

 

 

4.375% notes, due 2020

 

$

600,000

4.875% notes, due 2021

 

 

500,000

3.875% notes, due 2021

 

 

400,000

4.375% notes, due 2022

 

 

500,000

4.200% notes, due 2024

 

 

500,000

Hedging, discounts and unamortized issuance costs

 

 

25,080

Total

 

$

2,525,080

These notes, which are senior unsecured obligations of CNH Industrial Capital LLC, are guaranteed by CNH Industrial Capital America and New Holland Credit.

On July 15, 2019, we repaid $500 million of our 3.375% unsecured notes due 2019.

Credit Ratings

Our ability to obtain funding is affected by credit ratings of our debt, which are closely related to the outlook for and the financial condition of CNHI, and the nature and availability of our support agreement with CNHI.

To access public debt capital markets, we rely on credit rating agencies to assign short-term and long-term credit ratings to our securities as an indicator of credit quality for fixed income investors. A credit rating agency may change or withdraw our ratings based on its assessment of our current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets.

The senior long-term and short-term debt ratings and outlook currently assigned to our unsecured debt securities by the rating agencies engaged by us are the same as those for CNHI. Those ratings as of December 31, 2019 were as follows:

 

 

 

 

 

 

 

 

 

Senior
Long-Term

    

Short-Term

    

Outlook

S&P Global Ratings

 

BBB

 

A-2

 

Stable

Fitch Ratings

 

BBB-

 

F3

 

Positive

Moody's Investors Service

 

Baa3

 

-

 

Stable

Affiliate Sources

CNH Industrial Capital borrows, as needed, from CNH Industrial. This source of funding is primarily used to finance various assets and provides additional flexibility when evaluating market conditions and potential third‑party

20

financing options. We had affiliated debt of $214 million and $276 million as of December 31, 2019 and 2018, respectively.

Equity Position

Our equity position also supports our ability to access various funding sources. Our stockholder’s equity at December 31, 2019 and 2018 was $1.3 billion and $1.4 billion, respectively. During 2019, CNH Industrial Capital LLC paid cash dividends of $265 million to CNH Industrial America.

Liquidity

The majority of CNH Industrial Capital’s debt is self‑liquidating from the cash generated by the underlying receivables. Normally, additional liquidity should not be necessary for the repayment of such debt. New originations of retail receivables are usually warehoused in committed asset‑backed facilities until being refinanced in the term ABS market or with other third party debt. The majority of new wholesale receivables are financed through a master trust and funded by variable funding notes.

The liquidity available for use varies due to: (a) changes in origination volumes, reflecting the financing needs of our customers, and is influenced by the timing of any refinancing of underlying receivables; and (b) the execution of our funding strategy of maintaining a sufficient level of liquidity and flexible access to a wide variety of financial instruments including both committed and uncommitted, unsecured facilities.

Debt

Our consolidated debt as of December 31, 2019 and 2018 is set forth in the table below (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Short-term debt (including current maturities of long-term debt)

 

$

4,790,172

 

$

4,324,292

Long-term debt

 

 

5,779,581

 

 

6,259,839

Total third-party debt

 

 

10,569,753

 

 

10,584,131

Affiliated debt

 

 

213,856

 

 

276,271

Total debt

 

$

10,783,609

 

$

10,860,402

Cash, Cash Equivalents and Restricted Cash

The following table shows cash and cash equivalents and restricted cash as of December 31, 2019 and 2018 (dollars in thousands):

 

 

 

 

 

 

 

 

    

2019

    

2018

Cash and cash equivalents

 

$

174,966

 

$

160,328

Restricted cash

 

 

629,278

 

 

639,543

Total cash

 

$

804,244

 

 

799,871

Cash and cash equivalents and restricted cash are comprised of highly liquid investments with short‑term original maturities. See “Liquidity and Capital Resources - Cash Flows” for a further discussion of the change in our cash position.

Restricted cash is principally held by depository banks in order to comply with securitization contractual agreements, such as providing cash reserve accounts for the benefit of securitization investors.

Off‑Balance Sheet Arrangements

For additional information, see “Note 13: Commitments and Contingencies” to our consolidated financial statements for the year ended December 31, 2019.

21

Contractual Obligations

The following table sets forth the aggregate amounts of our contractual obligations and commitments as of December 31, 2019 with definitive payment terms that will require significant cash outlays in the future (dollars in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

 

    

 

 

    

Less than

    

 

 

    

 

 

    

After

 

 

 

Total

 

1 year

 

1 - 3 years

 

4 - 5 years

 

5 years

 

Short-term and long-term debt (1)

 

$

10,569,753

 

$

4,790,172

 

$

4,364,784

 

$

1,381,686

 

$

33,111

 

Affiliated debt

 

 

213,856

 

 

213,856

 

 

 

 

 

 

 

Interest on fixed rate debt

 

 

877,235

 

 

245,936

 

 

412,877

 

 

218,422

 

 

 —

 

Interest on floating rate debt (2)

 

 

307,048

 

 

66,162

 

 

126,691

 

 

112,936

 

 

1,259

 

Operating leases (3)

 

 

12,000

 

 

2,400

 

 

7,200

 

 

2,400

 

 

 

Total contractual obligations

 

$

11,979,892

 

$

5,318,526

 

$

4,911,552

 

$

1,715,444

 

$

34,370

 


(1)

Short‑term debt shown as less than one year includes current maturities of long‑term debt of $2,842,221.

(2)

The interest funding requirements are based on the year‑end 2019 interest rates.

(3)

Minimum rental commitments.

See “Liquidity and Capital Resources - Debt” for information relating to our consolidated debt as of December 31, 2019.

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

As of or for the

 

 

 

Year Ended December 31,

 

 

 

2019

 

2018

 

2017

 

 

 

(Dollars in thousands)

 

Total managed receivables

 

$

9,908,025

 

$

10,025,338

 

$

10,500,741

 

Operating lease equipment

 

 

1,783,283

 

 

1,724,217

 

 

1,781,489

 

Total managed portfolio

 

$

11,691,308

 

$

11,749,555

 

$

12,282,230

 

Delinquency (1)

 

 

0.69

%

 

0.57

%

 

0.82

%

Average managed receivables

 

$

9,987,527

 

$

10,051,880

 

$

10,591,308

 

Net credit loss (2)

 

 

0.38

%

 

0.36

%

 

0.42

%

Profitability:

 

 

  

 

 

 

 

 

  

 

Average receivable yields (3) (5)

 

 

5.72

%

 

5.49

%

 

5.63

%

Average debt cost

 

 

3.26

%

 

3.03

%

 

2.80

%

Return on average managed portfolio (4) (5)

 

 

1.27

%

 

1.33

%

 

2.02

%

Asset Quality:

 

 

  

 

 

 

 

 

  

 

Allowance for credit losses/total receivables (5)

 

 

0.73

%

 

0.74

%

 

0.75

%


(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 write-offs, net of recoveries, for the preceding 12 months expressed as a percentage of the respective average managed receivables.

(3)

Yield on retail and wholesale receivables.

(4)

Net income for the period expressed as a percentage of the average managed portfolio.

(5)

2017 figures have been recast following the retrospective adoption on January 1, 2018 of ASU 2014-09.

22

Cautionary Note Regarding Forward‑Looking Statements

All statements other than statements of historical fact contained in this annual report, including statements regarding our competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, capital expenditures, dividends, capital structure or other financial items; costs; and plans and objectives of management regarding operations, products and services, are forward‑looking statements. These statements may include terminology such as “may,” “will,” “expect,” “could,” “should,” “intend,” “estimate,” “anticipate,” “believe,” “outlook,” “continue,” “remain,” “on track,” “design,” “target,” “objective,” “goal,” “forecast,” “projection,” “prospects,” “plan,” or similar terminology. Forward‑looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside our control and are difficult to predict. If any of these risks and uncertainties materialize or other assumptions underlying any of the forward‑looking statements prove to be incorrect, the actual results or developments may differ materially from any future results or developments expressed or implied by the forward‑looking statements.

Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: the many interrelated factors that affect customer confidence and demand for our financing products and services; general economic conditions; changes in government policies regarding banking, monetary and fiscal policies; legislation, particularly relating to capital goods-related issues such as agriculture, the environment, debt relief and subsidy program policies, trade and commerce and infrastructure development; government policies on international trade and investment, including protectionist trade policies such as higher tariffs, sanctions, import quotas, capital controls and new barriers to entry or consequent reactions by other governments against such policies; actions of competitors in the various industries in which CNH Industrial North America competes; interest rates and currency exchange rates; inflation and deflation; energy prices; prices for agricultural commodities; housing starts and other construction activity; our ability to obtain financing or to refinance existing debt; restrictive covenants in our debt agreements; actions by rating agencies concerning the ratings on our debt and asset-backed securities and the credit rating of CNHI; a decline in the price of used equipment; political and civil unrest; volatility and deterioration of capital and financial markets, other similar risks and uncertainties and our success, and CNH Industrial North America’s success, in managing the risks involved in the foregoing.

Forward‑looking statements speak only as of the date on which such statements are made. Our outlook is based upon assumptions, which are sometimes based upon estimates and data received from third parties. Such estimates and data are often revised. Our actual results could differ materially from those anticipated in such forward‑looking statements. Our actual results could differ materially from those anticipated in such forward-looking statements. We undertake no obligation to update or revise publicly our forward‑looking statements.

Additional factors which could cause actual results and developments to differ from those expressed or implied by the forward‑looking statements are included in the section “Item 1A. Risk Factors” of this annual report.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses during the reported periods. Actual results may differ from these estimates under different assumptions and conditions. Our critical accounting policies and estimates, which require management assumptions and complex judgments, are summarized below.

Allowance for Credit Losses

The allowance for credit losses is our estimate of losses for receivables owned by us and consists of two components, depending on whether the receivable has been individually identified as being impaired. The first component of the allowance for credit losses covers the receivables specifically reviewed by management for which we have determined it is probable that we will not collect all the principal and interest as per the terms of the contract. Receivables are individually reviewed for impairment based on, among other items, amounts outstanding, days past due and prior collection history. These receivables are subject to impairment measurement at the loan level based either on the fair value of the collateral for collateral-dependent receivables or on the present value of expected future cash flows discounted at the receivables’ effective interest rate.

23

The second component of the allowance for credit losses covers all receivables that have not been individually reviewed for impairment. The allowance for these receivables is based on aggregated portfolio evaluations, generally by financial product. The allowance for retail and 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. In addition, qualitative factors that are not fully captured in the loss forecast models, including industry trends, and macroeconomic factors 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.

The total allowance for credit losses at December 31, 2019 and 2018 was $72.8 million and $74.4 million, respectively. Management’s ongoing evaluation of the adequacy of the allowance for credit losses takes into consideration historical loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions.

While management believes it has exercised prudent judgment and applied reasonable assumptions, there can be no assurance that, in the future, changes in economic conditions or other factors will not cause changes in the financial condition of our customers. If the financial condition of some of our customers deteriorates, the timing and level of payments received could be impacted and, therefore, could result in an increase in losses on the current portfolio.

Equipment on Operating Lease Residual Values

We purchase equipment from our dealers and other independent third parties and lease such equipment to retail customers under operating leases. Income from these operating leases is recognized over the term of the lease. Our decision on whether or not to offer lease financing to customers is based, in part, upon estimated residual values of the leased equipment, which are estimated at the lease inception date and periodically updated. Realization of the residual values, a component in the profitability of a lease transaction, is dependent on our ability to market the equipment at lease termination under the then prevailing market conditions. Equipment model changes and updates, as well as market strength and product acceptance, are monitored and adjustments are made to residual values in accordance with the significance of any such changes. Although realization is not assured, management believes that the estimated residual values are realizable.

Total operating lease residual values at December 31, 2019 and 2018 were $1.4 billion.

Estimates used in determining end‑of‑lease market values for equipment on operating leases significantly impact the amount and timing of depreciation expense. If future values for this equipment were to decrease 10% from our present estimates, the total impact would be to increase our depreciation expense on equipment on operating leases by approximately $137.0 million. This amount would be charged to depreciation expense during the remaining lease terms such that the net amount of equipment on operating leases at the end of the lease terms would be equal to the revised residual values. Initial lease terms generally range from two to five years.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update  (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which establishes ASC 326, Financial Instruments – Credit Losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (“ASU 2018-19”), which supersedes existing ASU 2016-13. The ASU introduced a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Additional disclosures about significant estimates and credit quality are also required. ASU 2018-19 is effective for annual periods beginning after December 15, 2019. We will adopt the new standard effective January 1, 2020, using the modified retrospective approach which requires us to recognize a cumulative-effect adjustment to the opening balance of “Retained earnings” in the period of adoption, without recasting prior periods. We estimate the adoption of this standard will impact equity by approximately $20 million to $30 million at January 1, 2020.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement.  

24

This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The effective date is the first quarter of fiscal year 2021. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement (“ASU 2018-15”), which expands upon the guidance set forth in ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2018-15 aligns the requirements for capitalization of implementation costs in a cloud computing service contract with those requirements for capitalization of implementation costs incurred for an internal-use software license. ASU 2018-15 may be applied prospectively from the date the guidance is first applied or retrospectively.

ASU 2018-15 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. We expect to adopt the ASU on a prospective basis. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”), which expands the application of a specific private company alternative related to VIEs and changes the guidance for determining whether a decision-making fee is a variable interest. Under the new guidance, to determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety. ASU 2018-17 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted in any interim period. ASU 2018-17 is required to be applied retrospectively from the date the guidance is first applied. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019‑12, Simplifying the Accounting for Income Taxes (“ASU 2019‑12”). This ASU eliminates certain exceptions to the general principles in ASC 740, Income Taxes. Specifically, it eliminates the exception to (1) the incremental approach for intraperiod tax allocation when there is a loss from continuing operations, and income or a gain from other items; (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019‑12 will be effective for the annual periods beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which made targeted changes to standards on credit losses, hedging, and recognizing and measuring financial instruments to clarify them and address implementation issues. The amendments clarify the scope of the credit losses standard and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. On recognizing and measuring financial instruments, the amendments address the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. We will adopt the amendments related to ASU 2016-13, ASU 2017-12 and ASU 2016-01 at January 1, 2020. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, primarily changes in interest rates. We monitor our exposure to these risks, and manage the underlying economic exposures on transactions using financial instruments such as forward contracts, interest rate swaps, interest rate caps and forward starting swaps. We do not hold or issue derivatives or other financial instruments for speculative purposes or to hedge translation risks. See “Note 10: Financial Instruments” in the notes to our consolidated financial statements for the year ended December 31, 2019, for a description of our risk management strategy and the methods and assumptions used to determine the fair values of financial instruments.

25

Interest Rate Risk

We are exposed to market risk from changes in interest rates. We monitor our exposure to this risk and manage the underlying exposure both through the matching of financial assets and liabilities and through the use of financial instruments, including swaps, caps, and forward starting swaps for the net exposure. The instruments aim to stabilize funding costs by managing the exposure created by the differing maturities and interest rate structures of our financial assets and liabilities. We do not hold or issue derivative or other financial instruments for speculative purposes.

We monitor interest rate risk to achieve a predetermined level of matching between the interest rate structure of our financial assets and liabilities. Fixed‑rate financial instruments, including receivables, debt and other investments, are segregated from floating‑rate instruments in evaluating the potential impact of changes in applicable interest rates. A sensitivity analysis was performed to compute the impact on fair value which would be caused by a hypothetical 10% change in the interest rates used to discount each category of financial assets and liabilities. The net impact on the fair value of the financial instruments and derivative instruments held as of December 31, 2019 and 2018, resulting from a hypothetical 10% change in interest rates, would be approximately $9.5 million and $12.6 million, respectively. For the sensitivity analysis the financial instruments are grouped according to the currency in which financial assets and liabilities are denominated and the applicable interest rate index. As a result, our interest rate risk sensitivity model may overstate the impact of interest rate fluctuations for such financial instruments, as consistently unfavorable movements of all interest rates are unlikely.

Item 8.  Financial Statements and Supplementary Data

Our consolidated financial statements are included in this annual report beginning on page F‑1.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.  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 December 31, 2019. 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 December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

26

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on this assessment, management believes that, as of December 31, 2019, our internal control over financial reporting was effective.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.

Item 9B.  Other Information

None.

 

27

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Omitted pursuant to General Instruction I of Form 10‑K.

Item 11.  Executive Compensation

Omitted pursuant to General Instruction I of Form 10‑K.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Omitted pursuant to General Instruction I of Form 10‑K.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

Omitted pursuant to General Instruction I of Form 10‑K.

Item 14.  Principal Accounting Fees and Services

For the years ended December 31, 2019 and 2018, Ernst & Young LLP, the member firms of Ernst & Young and their respective affiliates (collectively, the “Ernst & Young Entities”) were appointed to serve as our independent registered public accounting firm.

We incurred the following fees for professional services performed by the Ernst & Young Entities for the years ended December 31, 2019 and 2018, respectively:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

 

Audit fees

 

$

780,500

 

$

784,400

 

Audit-related fees

 

 

575,100

 

 

569,120

 

Total

 

$

1,355,600

 

$

1,353,520

 

“Audit Fees” are the aggregate fees billed for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. “Audit‑related fees” are fees charged for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category is comprised of fees for agreed‑upon procedure engagements and other attestation services subject to regulatory and funding requirements. There were no fees billed for professional services in connection with tax compliance, tax advice, tax planning or other fees not included above for the years ended December 31, 2019 and 2018.

Audit Committee’s Pre‑Approval Policies and Procedures

As a wholly‑owned subsidiary of CNHI, audit and non‑audit services provided by our independent registered public accounting firm are subject to CNHI’s Audit Committee pre‑approval policies and procedures. During the year ended December 31, 2019, all audit and non‑audit services provided by our independent registered public accounting firm were pre‑approved in accordance with such policies and procedures.

 

28

PART IV

Item 15.  Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

1.Financial Statements

2.Financial Statement Schedules

See table of contents to financial statement and schedules immediately preceding the financial statements and schedules to the consolidated financial statements.

3.Exhibits.

 

 

Exhibit

    

Description

3.1

 

Certificate of Formation of CNH Industrial Capital LLC dated December 31, 2004, as amended by the Certificate of Amendment to the Certificate of Formation of CNH Industrial Capital LLC dated February 10, 2014. (Previously filed as Exhibit 3.1 to the annual report on Form 10‑K of the registrant for the year ended December 31, 2015 (File No. 333‑182411) and incorporated herein by reference).

3.2

 

Amended and Restated Limited Liability Company Agreement of CNH Industrial Capital LLC, amended on July 7, 2011. (Previously filed as Exhibit 3.2 to the registration statement on Form S‑4 of the registrant (File No. 333‑182411) and incorporated herein by reference).

4.1

 

Indenture, dated as of September 11, 2015, by and among CNH Industrial Capital LLC, as issuer, the Guarantors named therein and Wells Fargo Bank, National Association, as trustee. (Previously filed as Exhibit 4.9 to the registration statement on Form F-3 of the registrant (File No. 333 206891-03) and incorporated herein by reference).

4.2

 

Officers’ Certificate, dated as of November 6, 2015, (including Form of 4.375% Note due 2020 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8‑K of the registrant on November 6, 2015 (File No. 000‑55510) and incorporated herein by reference).

4.3

 

Officers’ Certificate, dated as of March 17, 2016, (including Form of 4.875% Note due 2021 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8‑K of the registrant on March 17, 2016 (File No. 000‑55510) and incorporated herein by reference).

4.4

 

Officers’ Certificate, dated as of October 21, 2016 (including Form of 3.875% Note due 2021 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8‑K of the registrant on October 21, 2016 (File No. 000‑55510) and incorporated herein by reference).

4.5

 

Officers’ Certificate, dated as of April 10, 2017 (including Form of 4.375% Note due 2022 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8-K of the registrant on April 10, 2017 (File No. 000-55510) and incorporated herein by reference).

4.6

 

Officers’ Certificate, dated as of August 14, 2018 (including Form of 4.200% Note due 2024 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8-K of the registrant on August 14, 2018 (File No. 000-55510) and incorporated herein by reference).

10.1

 

Support Agreement, dated as of November 4, 2011, by and between CNH Industrial Capital LLC and CNH Global N.V. (Previously filed as Exhibit 10.1 to the registration statement on Form S‑4 of the registrant (File No. 333‑182411) and incorporated herein by reference).

10.2

 

Fourth Amended and Restated Wholesale and Parts CNHi Capital Financing Agreement, dated December 31, 2017, by and between CNH Industrial America LLC and CNH Industrial Capital America LLC.

29

 

 

Exhibit

    

Description

10.3

 

Second Amended and Restated Wholesale and Parts CNHi Capital Financing Agreement, dated December 31, 2017, by and between CNH Industrial Canada Ltd. and CNH Industrial Capital Canada Ltd.

10.4

 

Supplemental Support Agreement, dated as of September 27, 2013, by and among CNH Industrial Capital LLC, CNH Global N.V. and CNH Industrial N.V. (formerly known as FI CBM Holdings N.V.). (Previously filed as Exhibit 10.1 to the quarterly report on Form 10-Q of the registrant for the quarter ended September 30, 2013 (File No. 333-182411) and incorporated herein by reference).

31.1

 

Certifications of President Pursuant to Exchange Act Rule 13a‑14(a), as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

31.2

 

Certifications of Chief Financial Officer Pursuant to Exchange Act Rule 13a‑14(a), as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

32.1†

 

Certification required by Exchange Act Rule 13a‑14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

101

 

Interactive data files pursuant to Rule 405 of Regulation S‑T: (i) Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017, (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017, (iii) Consolidated Balance Sheets as of December 31, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017, (v) Consolidated Statements of Changes in Stockholder’s Equity for the years ended December 31, 2019, 2018 and 2017 and (vi) Notes to Consolidated Financial Statements.

 

 

 


†     These certifications are deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section; nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.

Pursuant to Item 601(b)(4)(iii) of Regulation S‑K, copies of instruments defining the rights of holders of certain long‑term debt have not been filed. The registrant will furnish copies thereof to the SEC upon request.

 

30

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

CNH INDUSTRIAL CAPITAL LLC

 

 

 

Date: March 3, 2020

By:

/s/ Carlo Alberto Sisto

 

 

Name:

Carlo Alberto Sisto

 

 

Title:

Chairman and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

 

 

Signature

    

Title

  

Date

 

 

 

 

 

/s/ Carlo Alberto Sisto

 

Chairman, President and Director

 

March 3, 2020

Carlo Alberto Sisto

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Douglas MacLeod

 

Chief Financial Officer and Assistant Treasurer

 

March 3, 2020

Douglas MacLeod

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

 

 

 

/s/ Leandro Lecheta

 

Director

 

March 3, 2020

Leandro Lecheta

 

 

 

 

 

 

 

31

 

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES

 

 

 

    

PAGE

Report of Independent Registered Public Accounting Firm 

 

F‑2

Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017 

 

F‑3

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017 

 

F‑4

Consolidated Balance Sheets as of December 31, 2019 and 2018 

 

F‑5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 

 

F‑7

Consolidated Statements of Changes in Stockholder’s Equity for the Years Ended December 31, 2019, 2018 and 2017 

 

F‑8

Notes to Consolidated Financial Statements 

 

F‑9

Schedules Omitted

 

 

The following schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the Notes to the Consolidated Financial Statements:

 

 

I, II, III, IV and V

 

 

 

 

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholder and Board of Directors of CNH Industrial Capital LLC

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CNH Industrial Capital LLC and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholder’s equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ ERNST & YOUNG LLP

We have served as the Company’s auditor since 2011.

Milwaukee, WI

March 3, 2020

 

F-2

CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

    

2017

REVENUES

 

 

 

 

 

 

 

 

 

Interest income on retail notes and finance leases

 

$

218,454

 

$

201,269

 

$

201,533

Interest income on wholesale notes

 

 

67,773

 

 

66,899

 

 

65,721

Interest and other income from affiliates

 

 

345,789

 

 

345,933

 

 

398,258

Rental income on operating leases

 

 

243,044

 

 

241,582

 

 

251,609

Other income

 

 

25,829

 

 

22,671

 

 

21,811

Total revenues

 

 

900,889

 

 

878,354

 

 

938,932

EXPENSES

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Interest expense to third parties

 

 

333,147

 

 

317,747

 

 

311,128

Interest expense to affiliates

 

 

14,126

 

 

7,533

 

 

11,442

Total interest expense

 

 

347,273

 

 

325,280

 

 

322,570

Administrative and operating expenses:

 

 

 

 

 

 

 

 

 

Fees charged by affiliates

 

 

46,601

 

 

47,475

 

 

46,431

Provision for credit losses

 

 

35,703

 

 

31,699

 

 

40,898

Depreciation of equipment on operating leases

 

 

229,652

 

 

231,805

 

 

280,765

Other expenses

 

 

48,446

 

 

43,778

 

 

44,827

Total administrative and operating expenses

 

 

360,402

 

 

354,757

 

 

412,921

Total expenses

 

 

707,675

 

 

680,037

 

 

735,491

INCOME BEFORE TAXES

 

 

193,214

 

 

198,317

 

 

203,441

Income tax provision

 

 

44,211

 

 

41,472

 

 

(47,048)

NET INCOME

 

$

149,003

 

$

156,845

 

$

250,489

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-3

CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

    

2017

NET INCOME

 

$

149,003

 

$

156,845

 

$

250,489

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

21,593

 

 

(48,009)

 

 

40,868

Pension liability adjustment

 

 

2,850

 

 

665

 

 

499

Change in derivative financial instruments

 

 

(1,243)

 

 

508

 

 

2,606

Total other comprehensive income (loss)

 

 

23,200

 

 

(46,836)

 

 

43,973

COMPREHENSIVE INCOME

 

$

172,203

 

$

110,009

 

$

294,462

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-4

CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2019 AND 2018

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

174,966

 

$

160,328

Restricted cash and cash equivalents

 

 

629,278

 

 

639,543

Receivables, less allowance for credit losses of $72,751 and $74,412, respectively

 

 

9,835,274

 

 

9,950,926

Affiliated accounts and notes receivable

 

 

64,307

 

 

43,389

Equipment on operating leases, net

 

 

1,783,283

 

 

1,724,217

Equipment held for sale

 

 

170,218

 

 

209,991

Goodwill

 

 

109,629

 

 

108,399

Other intangible assets, net

 

 

12,195

 

 

10,182

Other assets

 

 

74,937

 

 

84,937

TOTAL

 

$

12,854,087

 

$

12,931,912

LIABILITIES AND STOCKHOLDER’S EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Short-term debt (including current maturities of long-term debt)

 

$

4,790,172

 

$

4,324,292

Accounts payable and other accrued liabilities

 

 

807,437

 

 

715,778

Affiliated debt

 

 

213,856

 

 

276,271

Long-term debt

 

 

5,779,581

 

 

6,259,839

Total liabilities

 

 

11,591,046

 

 

11,576,180

Commitments and contingent liabilities (Note 13)

 

 

 

 

 

 

Stockholder’s equity:

 

 

 

 

 

 

Member’s capital

 

 

 —