08/02/2024 | Press release | Distributed by Public on 08/02/2024 12:33
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024 |
|
or |
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number: 000-55510
CNH INDUSTRIAL CAPITAL LLC
(Exact name of registrant as specified in its charter)
Delaware |
|
39-1937630 |
5729 Washington Avenue |
(262) 636-6011 |
53406 |
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes oNo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes oNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer x |
Smaller reporting company ☐ |
Emerging growth 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐Yes xNo
As of June 30, 2024, all of the limited liability company interestsof the registrant were held by CNH Industrial America LLC, a wholly-owned subsidiary of CNH Industrial N.V.
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced disclosures as permitted by those instructions.
Table of Contents
TABLE OF CONTENTS
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PAGE |
PART I. FINANCIAL INFORMATION |
||
Item 1. |
Financial Statements |
1 |
|
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited) |
1 |
|
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited) |
2 |
|
Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (Unaudited) |
3 |
|
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited) |
5 |
|
Consolidated Statements of Changes in Stockholder's Equity for the Six Months Ended June 30, 2024 and 2023 (Unaudited) |
6 |
|
Condensed Notes to Consolidated Financial Statements (Unaudited) |
8 |
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
26 |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
* |
Item 4. |
Controls and Procedures |
38 |
PART II. OTHER INFORMATION |
||
Item 1. |
Legal Proceedings |
40 |
Item 1A. |
Risk Factors |
40 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
* |
Item 3. |
Defaults Upon Senior Securities |
* |
Item 4. |
Mine Safety Disclosures |
40 |
Item 5. |
Other Information |
40 |
Item 6. |
Exhibits |
41 |
* |
This item has been omitted pursuant to the reduced disclosure format as set forth in General Instruction (H)(2) of Form 10-Q |
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Six Months Ended |
||||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
2023 |
|
2024 |
2023 |
||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
||
Interest income on retail notes and finance leases |
|
$ |
92,184 |
|
$ |
69,626 |
|
$ |
179,575 |
|
$ |
137,850 |
Rental income on operating leases |
|
57,540 |
|
57,451 |
|
117,346 |
|
114,500 |
||||
Revolving charge account income |
|
10,883 |
|
9,996 |
|
20,189 |
|
18,326 |
||||
Interest income on wholesale notes |
|
|
31,007 |
|
|
13,336 |
|
|
57,930 |
|
|
23,931 |
Interest and other income from affiliates |
|
128,259 |
|
95,569 |
|
247,733 |
|
179,673 |
||||
Other income |
|
3,490 |
|
1,136 |
|
6,896 |
|
1,352 |
||||
Total revenues |
323,363 |
|
247,114 |
629,669 |
|
475,632 |
||||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense to third parties |
|
174,896 |
|
117,103 |
|
337,699 |
|
212,359 |
||||
Interest expense to affiliates |
|
968 |
|
4,985 |
|
5,592 |
|
13,433 |
||||
Total interest expense |
175,864 |
|
122,088 |
343,291 |
|
225,792 |
||||||
Administrative and operating expenses: |
|
|
|
|
|
|
|
|
|
|
||
Fees charged by affiliates |
|
11,448 |
|
13,112 |
|
25,043 |
|
26,987 |
||||
Provision for credit losses |
|
11,771 |
|
2,649 |
|
22,283 |
|
4,568 |
||||
Depreciation of equipment on operating leases |
|
44,195 |
|
44,675 |
|
87,295 |
|
89,727 |
||||
Other expenses, net |
|
4,699 |
|
4,706 |
|
5,295 |
|
8,239 |
||||
Total administrative and operating expenses |
72,113 |
|
65,142 |
139,916 |
|
129,521 |
||||||
Total expenses |
247,977 |
|
187,230 |
483,207 |
|
355,313 |
||||||
INCOME BEFORE TAXES |
75,386 |
|
59,884 |
146,462 |
|
120,319 |
||||||
Income tax provision |
|
16,548 |
|
12,186 |
|
33,151 |
|
26,320 |
||||
NET INCOME |
$ |
58,838 |
|
$ |
47,698 |
$ |
113,311 |
|
$ |
93,999 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
1
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Six Months Ended |
||||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
2023 |
|
2024 |
2023 |
||||||
NET INCOME |
$ |
58,838 |
|
$ |
47,698 |
$ |
113,311 |
|
$ |
93,999 |
||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
(4,298) |
|
13,366 |
|
(14,778) |
|
13,072 |
||||
Pension liability adjustment |
|
(112) |
|
(186) |
|
(220) |
|
(367) |
||||
Change in derivative financial instruments |
|
(489) |
|
(387) |
|
1,446 |
|
(2,780) |
||||
Total other comprehensive income (loss) |
(4,899) |
|
12,793 |
(13,552) |
|
9,925 |
||||||
COMPREHENSIVE INCOME |
$ |
53,939 |
|
$ |
60,491 |
$ |
99,759 |
|
$ |
103,924 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
2
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2024 AND DECEMBER 31, 2023
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
June 30, |
December 31, |
||||
|
|
2024 |
|
2023 |
||
ASSETS |
|
|
|
|
||
Cash |
|
$ |
81,128 |
|
$ |
390,110 |
Restricted cash and cash equivalents |
|
364,111 |
|
407,817 |
||
Receivables, less allowance for credit losses of $123,971 and $114,745, respectively |
|
14,408,805 |
|
13,455,717 |
||
Affiliated accounts and notes receivable |
|
182,049 |
|
74,667 |
||
Equipment on operating leases, net |
|
1,320,375 |
|
1,378,384 |
||
Equipment held for sale |
|
29,835 |
|
20,215 |
||
Goodwill |
|
108,261 |
|
109,118 |
||
Other intangible assets, net |
|
17,987 |
|
19,352 |
||
Other assets |
|
92,594 |
|
108,147 |
||
TOTAL |
$ |
16,605,145 |
|
$ |
15,963,527 |
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Short-term debt (including current maturities of long-term debt) |
|
$ |
5,780,961 |
|
$ |
5,519,792 |
Accounts payable and other accrued liabilities |
|
837,147 |
|
852,638 |
||
Affiliated debt |
|
- |
|
132,492 |
||
Long-term debt |
|
8,364,690 |
|
7,859,629 |
||
Total liabilities |
14,982,798 |
|
14,364,551 |
|||
Commitments and contingent liabilities (Note 11) |
|
|
|
|
|
|
Stockholder's equity: |
|
|
|
|
|
|
Member's capital |
|
- |
|
- |
||
Paid-in capital |
|
918,314 |
|
919,702 |
||
Accumulated other comprehensive loss |
|
(150,860) |
|
(137,308) |
||
Retained earnings |
|
854,893 |
|
816,582 |
||
Total stockholder's equity |
1,622,347 |
|
1,598,976 |
|||
TOTAL |
$ |
16,605,145 |
|
$ |
15,963,527 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
3
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF JUNE 30, 2024 AND DECEMBER 31, 2023
(Dollars in thousands)
(Unaudited)
The following table presents certain assets and liabilities of consolidated variable interest entities ("VIEs"), which are included in the consolidated balance sheets. The assets in the table include those assets that can only be used to settle obligations of consolidated VIEs. The liabilities in the table include third-party liabilities of the consolidated VIEs, for which creditors do not have recourse to the general credit of CNH Industrial Capital LLC. See Note 4: Receivables for additional information on the Company's VIEs.
|
|
|
|
|
|
|
|
June 30, |
December 31, |
||||
|
|
2024 |
|
2023 |
||
Restricted cash and cash equivalents |
$ |
364,111 |
|
$ |
407,817 |
|
Receivables, less allowance for credit losses of $57,008 and $54,889, respectively |
|
8,507,730 |
|
8,103,838 |
||
TOTAL |
$ |
8,871,841 |
|
$ |
8,511,655 |
|
|
|
|
|
|
|
|
Short-term debt (including current maturities of long-term debt) |
$ |
4,046,399 |
|
$ |
3,824,385 |
|
Long-term debt |
|
4,220,433 |
|
4,086,419 |
||
TOTAL |
$ |
8,266,832 |
|
$ |
7,910,804 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
4
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
2024 |
2023 |
||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income |
|
$ |
113,311 |
|
$ |
93,999 |
Adjustments to reconcile net income to net cash from (used in) operating activities: |
|
|
|
|
|
|
Depreciation on property and equipment and equipment on operating leases |
|
87,299 |
|
89,731 |
||
Amortization of intangibles |
|
1,582 |
|
1,400 |
||
Provision for credit losses |
|
22,283 |
|
4,568 |
||
Deferred income tax benefit |
|
(20,153) |
|
(9,589) |
||
Other non-cash items |
|
|
29,125 |
|
|
- |
Changes in components of working capital: |
|
|
|
|
|
|
Change in affiliated accounts and notes receivables |
|
15,083 |
|
(5,582) |
||
Change in other assets and equipment held for sale |
|
(5,361) |
|
(14,881) |
||
Change in accounts payable and other accrued liabilities |
|
7,501 |
|
(109,013) |
||
Net cash from (used in) operating activities |
250,670 |
|
50,633 |
|||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
Cost of receivables acquired (retail customer, revolving charge accounts and wholesale) |
|
(8,704,128) |
|
(8,440,653) |
||
Collections of receivables (retail customer, revolving charge accounts and wholesale) |
|
7,660,929 |
|
7,305,071 |
||
Change in affiliated cash pooling receivables, net |
|
|
(134,074) |
|
|
- |
Collections of affiliated notes receivables |
|
|
10,800 |
|
|
- |
Purchase of equipment on operating leases |
|
(202,390) |
|
(227,809) |
||
Proceeds from disposal of equipment on operating leases |
|
153,345 |
|
190,007 |
||
Change in property, equipment and software, net |
|
|
(217) |
|
|
(462) |
Net cash from (used in) investing activities |
(1,215,735) |
|
(1,173,846) |
|||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Change in affiliated debt, net |
|
(131,366) |
|
(83,515) |
||
Proceeds from issuance of long-term debt |
|
3,281,064 |
|
2,368,436 |
||
Payment of long-term debt |
|
(2,365,410) |
|
(1,361,216) |
||
Change in committed asset-backed facilities, net |
|
|
(282,739) |
|
|
115,685 |
Change in short-term borrowings, net |
|
185,828 |
|
(29,448) |
||
Dividends paid to CNH Industrial America LLC |
|
(75,000) |
|
- |
||
Net cash from (used in) financing activities |
612,377 |
|
1,009,942 |
|||
DECREASE IN CASH AND RESTRICTED CASH AND CASH EQUIVALENTS |
(352,688) |
|
(113,271) |
|||
CASH AND RESTRICTED CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
Beginning of period |
|
797,927 |
|
708,579 |
||
End of period |
$ |
445,239 |
|
$ |
595,308 |
|
COMPONENTS OF CASH AND RESTRICTED CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
Cash |
|
$ |
81,128 |
|
$ |
198,036 |
Restricted cash and cash equivalents |
|
|
364,111 |
|
|
397,272 |
TOTAL CASH AND RESTRICTED CASH AND CASH EQUIVALENTS |
$ |
445,239 |
|
$ |
595,308 |
|
CASH PAID DURING THE PERIOD FOR INTEREST |
$ |
331,843 |
|
$ |
222,746 |
|
CASH PAID DURING THE PERIOD FOR TAXES |
$ |
49,174 |
|
$ |
46,464 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
5
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Member's |
|
Paid-in |
|
Comprehensive |
|
Retained |
|
|
|
||||
|
|
Capital |
|
Capital |
|
Income (Loss) |
|
Earnings |
|
Total |
|||||
BALANCE - January 1, 2024 |
$ |
- |
|
$ |
919,702 |
|
$ |
(137,308) |
|
$ |
816,582 |
|
$ |
1,598,976 |
|
Net income |
|
|
- |
|
|
- |
|
|
- |
|
|
54,473 |
|
|
54,473 |
Dividends paid to CNH Industrial America LLC |
|
|
- |
|
|
- |
|
|
- |
|
|
(60,000) |
|
|
(60,000) |
Foreign currency translation adjustment |
|
|
- |
|
|
- |
|
|
(10,480) |
|
|
- |
|
|
(10,480) |
Stock compensation |
|
|
- |
|
|
(1,219) |
|
|
- |
|
|
- |
|
|
(1,219) |
Pension liability adjustment, net of tax |
|
|
- |
|
|
- |
|
|
(108) |
|
|
- |
|
|
(108) |
Change in derivative financial instruments, net of tax |
|
|
- |
|
|
- |
|
|
1,935 |
|
|
- |
|
|
1,935 |
BALANCE - March 31, 2024 |
$ |
- |
|
$ |
918,483 |
|
$ |
(145,961) |
|
$ |
811,055 |
|
$ |
1,583,577 |
|
Net income |
|
|
- |
|
|
- |
|
|
- |
|
|
58,838 |
|
|
58,838 |
Dividends paid to CNH Industrial America LLC |
|
|
- |
|
|
- |
|
|
- |
|
|
(15,000) |
|
|
(15,000) |
Foreign currency translation adjustment |
|
|
- |
|
|
- |
|
|
(4,298) |
|
|
- |
|
|
(4,298) |
Stock compensation |
|
|
- |
|
|
(169) |
|
|
- |
|
|
- |
|
|
(169) |
Pension liability adjustment, net of tax |
|
|
- |
|
|
- |
|
|
(112) |
|
|
- |
|
|
(112) |
Change in derivative financial instruments, net of tax |
|
|
- |
|
|
- |
|
|
(489) |
|
|
- |
|
|
(489) |
BALANCE - June 30, 2024 |
$ |
- |
|
$ |
918,314 |
|
$ |
(150,860) |
|
$ |
854,893 |
|
$ |
1,622,347 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
6
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Member's |
|
Paid-in |
|
Comprehensive |
|
Retained |
|
|
|
||||
|
|
Capital |
|
Capital |
|
Income (Loss) |
|
Earnings |
|
Total |
|||||
BALANCE - January 1, 2023 |
$ |
- |
|
$ |
844,022 |
|
$ |
(137,833) |
|
$ |
601,510 |
|
$ |
1,307,699 |
|
Net income |
|
|
- |
|
|
- |
|
|
- |
|
|
46,301 |
|
|
46,301 |
Foreign currency translation adjustment |
|
|
- |
|
|
- |
|
|
(294) |
|
|
- |
|
|
(294) |
Stock compensation |
|
|
- |
|
|
196 |
|
|
- |
|
|
- |
|
|
196 |
Pension liability adjustment, net of tax |
|
|
- |
|
|
- |
|
|
(181) |
|
|
- |
|
|
(181) |
Change in derivative financial instruments, net of tax |
|
|
- |
|
|
- |
|
|
(2,393) |
|
|
- |
|
|
(2,393) |
BALANCE - March 31, 2023 |
$ |
- |
|
$ |
844,218 |
|
$ |
(140,701) |
|
$ |
647,811 |
|
$ |
1,351,328 |
|
Net income |
|
- |
|
- |
|
- |
|
47,698 |
|
47,698 |
|||||
Foreign currency translation adjustment |
|
- |
|
- |
|
13,366 |
|
- |
|
13,366 |
|||||
Stock compensation |
|
- |
|
253 |
|
- |
|
- |
|
253 |
|||||
Pension liability adjustment, net of tax |
|
- |
|
- |
|
(186) |
|
- |
|
(186) |
|||||
Change in derivative financial instruments, net of tax |
|
- |
|
- |
|
(387) |
|
- |
|
(387) |
|||||
BALANCE - June 30, 2023 |
$ |
- |
|
$ |
844,471 |
|
$ |
(127,908) |
|
$ |
695,509 |
|
$ |
1,412,072 |
See the accompanying Condensed Notes to Consolidated Financial Statements (Unaudited).
7
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
CNH Industrial Capital LLC and its primary operating subsidiaries, including New Holland Credit Company, LLC ("New Holland Credit"), CNH Industrial Capital America LLC ("CNH Capital America") and CNH Industrial Capital Canada Ltd. ("CNH Capital Canada") (collectively, "CNH Capital" or the "Company"), are each a subsidiary of CNH Industrial America LLC ("CNH America"), which is an indirect wholly-owned subsidiary of CNH Industrial N.V. ("CNHI" and, together with its consolidated subsidiaries, "CNH"). CNH America and CNH Industrial Canada Ltd. ("CNH Canada" and, together with CNH America, "CNH North America") design, manufacture, and sell agricultural and construction equipment. CNH Capital provides financial services for CNH North America dealers and end-use customers primarily located in the United States and Canada.
CNHI is incorporated in and under the laws of the Netherlands. CNHI has its corporate seat in Amsterdam, the Netherlands, and its principal office in Basildon, England, United Kingdom. The common shares of CNHI are listed on the New York Stock Exchange under the symbol "CNH."
The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information, which should be read in conjunction with the audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2023. Certain financial information that is normally included in annual financial statements prepared in conformity with U.S. GAAP, which is not required for interim reporting purposes, has been condensed or omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our interim unaudited financial statements have been reflected.
The consolidated financial statements include the Company and its consolidated subsidiaries. The consolidated financial statements are expressed in U.S. dollars. The consolidated financial statements include the accounts of the Company's subsidiaries in which the Company has a controlling financial interest and reflect the noncontrolling interests of the minority owners of the subsidiaries that are not fully owned for the periods presented, as applicable. A controlling financial interest may exist based on ownership of a majority of the voting interest of a subsidiary, or based on the Company's determination that it is the primary beneficiary of a variable interest entity ("VIE"). The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the economic performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. The Company assesses whether it is the primary beneficiary on an ongoing basis, as prescribed by the accounting guidance on the consolidation of VIEs. The consolidated status of the VIEs with which the Company is involved may change as a result of such reassessments.
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and reported amounts of revenues and expenses. Significant estimates in these consolidated financial statements include the allowance for credit losses and residual values of equipment on operating leases. Actual results could differ from these estimates.
Certain reclassifications have been made to prior period amounts to conform to current period presentation. These reclassifications did not have an impact on the Company's results of operations or financial position as of December 31, 2023 or June 30, 2023.
8
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Improvements to Reportable Segment Disclosures, to improve the disclosures about a public entity's reportable segments and address requests from investors for additional, more detailed information about a reportable segment's expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adoption to its disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adoption to its income tax disclosures.
NOTE 3: ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income ("AOCI") includes net income plus other comprehensive income, which includes foreign currency translation gains and losses, certain changes in pension plans and changes in fair value of certain derivatives designated as cash flow hedges.
The following table summarizes the change in the components of the Company's AOCI balance and related tax effects for the three months ended June 30, 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
Unrealized |
|
|
|
||
|
|
Translation |
|
Pension |
|
(Losses) Gains |
|
|
|
|||
|
Adjustment |
Liability |
on Derivatives |
Total |
||||||||
Beginning balance, gross |
$ |
(153,278) |
|
$ |
1,417 |
|
$ |
8,335 |
|
$ |
(143,526) |
|
Tax liability |
|
- |
|
(339) |
|
(2,096) |
|
(2,435) |
||||
Beginning balance, net of tax |
(153,278) |
|
1,078 |
|
6,239 |
|
(145,961) |
|||||
Other comprehensive income (loss) before reclassifications |
|
(4,298) |
|
(94) |
|
431 |
|
(3,961) |
||||
Amounts reclassified from accumulated other comprehensive income (loss) |
|
- |
|
(54) |
|
(1,071) |
|
(1,125) |
||||
Tax effects |
|
- |
|
36 |
|
151 |
|
187 |
||||
Net current-period other comprehensive income (loss) |
(4,298) |
|
(112) |
|
(489) |
|
(4,899) |
|||||
Total |
$ |
(157,576) |
|
$ |
966 |
|
$ |
5,750 |
|
$ |
(150,860) |
9
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The following table summarized the change in the components of the Company's AOCI balance and related tax effects for the six months ended June 30, 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
Unrealized |
|
|
|
||
|
|
Translation |
|
Pension |
|
(Losses) Gains |
|
|
|
|||
|
Adjustment |
Liability |
on Derivatives |
Total |
||||||||
Beginning balance, gross |
$ |
(142,798) |
|
$ |
1,559 |
|
$ |
5,677 |
|
$ |
(135,562) |
|
Tax liability |
|
- |
|
(373) |
|
(1,373) |
|
(1,746) |
||||
Beginning balance, net of tax |
(142,798) |
|
1,186 |
|
4,304 |
|
(137,308) |
|||||
Other comprehensive income (loss) before reclassifications |
|
(14,778) |
|
(182) |
|
3,306 |
|
(11,654) |
||||
Amounts reclassified from accumulated other comprehensive income (loss) |
|
- |
|
(108) |
|
(1,288) |
|
(1,396) |
||||
Tax effects |
|
- |
|
70 |
|
(572) |
|
(502) |
||||
Net current-period other comprehensive income (loss) |
(14,778) |
|
(220) |
|
1,446 |
|
(13,552) |
|||||
Total |
$ |
(157,576) |
|
$ |
966 |
|
$ |
5,750 |
|
$ |
(150,860) |
The following table summarized the change in the components of the Company's AOCI balance and related tax effect for the three month ended June 30, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
Unrealized |
|
|
|
||
|
|
Translation |
|
Pension |
|
(Losses) Gains |
|
|
|
|||
|
Adjustment |
Liability |
Derivatives |
Total |
||||||||
Beginning balance, gross |
$ |
(151,548) |
|
$ |
2,323 |
|
$ |
12,061 |
|
$ |
(137,164) |
|
Tax liability |
|
- |
|
(561) |
|
(2,976) |
|
(3,537) |
||||
Beginning balance, net of tax |
(151,548) |
|
1,762 |
|
9,085 |
|
(140,701) |
|||||
Other comprehensive income (loss) before reclassifications |
|
13,366 |
|
(111) |
|
(56) |
|
13,199 |
||||
Amounts reclassified from accumulated other comprehensive income (loss) |
|
- |
|
(135) |
|
(400) |
|
(535) |
||||
Tax effects |
|
- |
|
60 |
|
69 |
|
129 |
||||
Net current-period other comprehensive income (loss) |
13,366 |
|
(186) |
|
(387) |
|
12,793 |
|||||
Total |
$ |
(138,182) |
|
$ |
1,576 |
|
$ |
8,698 |
|
$ |
(127,908) |
The following table summarizes the change in the components of the Company's AOCI balance and related tax effects for the six months ended June 30, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
Unrealized |
|
|
|
||
|
|
Translation |
|
Pension |
|
(Losses) Gains |
|
|
|
|||
|
Adjustment |
Liability |
Derivatives |
Total |
||||||||
Beginning balance, gross |
$ |
(151,254) |
|
$ |
2,563 |
|
$ |
15,288 |
|
$ |
(133,403) |
|
Tax liability |
|
- |
|
(620) |
|
(3,810) |
|
(4,430) |
||||
Beginning balance, net of tax |
(151,254) |
|
1,943 |
|
11,478 |
|
(137,833) |
|||||
Other comprehensive income (loss) before reclassifications |
|
13,072 |
|
(216) |
|
(2,621) |
|
10,235 |
||||
Amounts reclassified from accumulated other comprehensive income (loss) |
|
- |
|
(270) |
|
(1,062) |
|
(1,332) |
||||
Tax effects |
|
- |
|
119 |
|
903 |
|
1,022 |
||||
Net current-period other comprehensive income (loss) |
13,072 |
|
(367) |
|
(2,780) |
|
9,925 |
|||||
Total |
$ |
(138,182) |
|
$ |
1,576 |
|
$ |
8,698 |
|
$ |
(127,908) |
The reclassifications out of AOCI were immaterial for the three and six months ended June 30, 2024 and 2023.
10
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 4: RECEIVABLES
A summary of receivables included in the consolidated balance sheets as of June 30, 2024 and December 31, 2023 is as follows:
|
|
|
|
|
|
|
|
June 30, |
December 31, |
||||
|
|
2024 |
|
2023 |
||
Retail notes |
$ |
1,047,146 |
$ |
1,291,559 |
||
Revolving charge accounts |
|
259,572 |
|
205,872 |
||
Finance leases |
|
224,689 |
|
219,386 |
||
Wholesale |
|
1,783,758 |
|
1,575,142 |
||
Restricted receivables |
|
|
11,217,611 |
|
|
10,278,503 |
Gross receivables |
14,532,776 |
13,570,462 |
||||
Less: Allowance for credit losses |
|
(123,971) |
|
(114,745) |
||
Total receivables, net |
$ |
14,408,805 |
$ |
13,455,717 |
Restricted Receivables and Securitization
As part of its overall funding strategy, the Company periodically transfers certain receivables into special purpose entities ("SPEs") as part of its asset-backed securitization programs.
SPEs utilized in the securitization programs differ from other entities included in the Company's consolidated financial statements because the assets they hold are legally isolated from the Company's assets. For bankruptcy analysis purposes, the Company has sold the receivables to the SPEs in a true sale and the SPEs are separate legal entities. Upon transfer of the receivables to the SPEs, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the SPEs' creditors. The SPEs have ownership of cash balances that also have restrictions for the benefit of the SPEs' investors. The Company's interests in the SPEs' receivables are subordinate to the interests of third-party investors. None of the receivables that are directly or indirectly sold or transferred in any of these transactions are available to pay the Company's creditors until all obligations of the SPE have been fulfilled or the receivables are removed from the SPE.
The secured borrowings related to the restricted receivables are obligations that are payable as the receivables are collected. The following table summarizes the restricted receivables as of June 30, 2024 and December 31, 2023:
|
|
|
|
|
|
|
|
June 30, |
December 31, |
||||
|
|
2024 |
|
2023 |
||
Retail notes |
$ |
7,232,463 |
$ |
6,693,525 |
||
Wholesale |
|
3,985,148 |
|
3,584,978 |
||
Total restricted receivables |
$ |
11,217,611 |
|
$ |
10,278,503 |
Within the U.S. retail notes securitization programs, qualifying retail notes are sold to bankruptcy-remote SPEs. In turn, these SPEs establish separate trusts, which are VIEs, to either transfer receivables in exchange for proceeds from asset-backed securities issued by the trusts, or pledge the receivables as collateral in exchange for proceeds from a committed asset-backed facility. In Canada, qualifying retail notes are transferred directly to trusts, which are also VIEs. The VIEs are consolidated since the Company has both the power to direct the activities that most significantly impact the VIEs' economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.
11
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
With regard to the wholesale receivable securitization programs, the Company sells eligible receivables on a revolving basis to structured master trust facilities, which are bankruptcy-remote SPEs. These trusts were determined to be VIEs. In its role as servicer, the Company has the power to direct the trusts' activities. Through its retained interests, the Company provides security to investors in the event that cash collections from the receivables are not sufficient to make principal and interest payments on the securities. Consequently, the Company has consolidated these wholesale trusts.
Allowance for Credit Losses
The allowance for credit losses is the Company's estimate of the lifetime expected credit losses inherent in the receivables owned by the Company. Retail customer receivables primarily include retail notes and finance leases to end-use customers. Revolving charge accounts represent financing for customers to purchase parts, service, rentals, implements and attachments from CNH North America dealers. Wholesale receivables include dealer floorplan financing, and to a lesser extent, the financing of dealer operations. Typically, the Company's receivables within a geographic area have similar risk profiles and methods for assessing and monitoring risk.
Retail customer receivables that share the same risk characteristics, such as collateralization levels, geography, product type and other relevant factors, are reviewed on a collective basis using measurement models and management judgment. The allowance for credit losses on retail customer receivables is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward-looking macroeconomic factors, such as GDP and Net Farm Income. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
Wholesale receivables that share the same risk characteristics, such as collateralization levels, term, geography and other relevant factors, are reviewed on a collective basis using measurement models and management judgment. The allowance for wholesale credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward-looking macroeconomic factors, such as industry sales volumes. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
Retail customer receivables and wholesale receivables that do not have similar risk characteristics are individually reviewed based on, among other items, amounts outstanding, days past due and prior collection history. Expected credit losses are measured by considering: the probability-weighted estimates of cash flows and collateral value; the time value of money; current conditions and forecasts of future economic conditions. Expected credit losses are measured as the probability-weighted present value of all cash shortfalls (including the value of the collateral, if appropriate) over the expected life of each financial asset.
Charge-offs of principal amounts of retail customer receivables and wholesale receivables outstanding are deducted from the allowance at the point when it is estimated that amounts due are deemed uncollectible. When delinquency reaches 120 days, revolving charge accounts are generally deemed to be uncollectible and charged-off to the allowance for credit losses.
12
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Allowance for credit losses activity for the three months ended June 30, 2024 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving |
|
|
|
|
|
|||
|
|
Retail |
|
Charge |
|
|
|
|
|
|
||
|
|
Customer |
|
Accounts |
|
Wholesale |
|
Total |
||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
104,244 |
$ |
8,396 |
$ |
5,725 |
|
$ |
118,365 |
|||
Charge-offs |
|
(6,034) |
|
|
(1,146) |
|
- |
|
|
(7,180) |
||
Recoveries |
|
910 |
|
|
206 |
|
8 |
|
|
1,124 |
||
Provision |
|
7,116 |
|
|
2,302 |
|
2,353 |
|
|
11,771 |
||
Foreign currency translation and other |
|
(91) |
|
|
(7) |
|
(11) |
|
|
(109) |
||
Ending balance |
$ |
106,145 |
$ |
9,751 |
$ |
8,075 |
|
$ |
123,971 |
Allowance for credit losses activity for the six months ended June 30, 2024 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving |
|
|
|
|
|
|
|
|
|
Retail |
|
Charge |
|
|
|
|
|
|
||
|
|
Customer |
|
Accounts |
|
Wholesale |
|
Total |
||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
$ |
101,649 |
$ |
7,594 |
$ |
5,502 |
|
$ |
114,745 |
|||
Charge-offs |
|
(11,887) |
|
|
(2,296) |
|
- |
|
|
(14,183) |
||
Recoveries |
|
1,185 |
|
|
302 |
|
21 |
|
|
1,508 |
||
Provision (benefit) |
|
15,529 |
|
|
4,170 |
|
2,584 |
|
|
22,283 |
||
Foreign currency translation and other |
|
(331) |
|
|
(19) |
|
(32) |
|
|
(382) |
||
Ending balance |
$ |
106,145 |
$ |
9,751 |
$ |
8,075 |
|
$ |
123,971 |
|||
Gross receivables: |
|
|
|
|
|
|
|
|
|
|||
Ending balance |
$ |
8,504,298 |
$ |
259,572 |
$ |
5,768,906 |
|
$ |
14,532,776 |
At June 30, 2024, the allowance for credit losses included an increase in reserves primarily due to higher specific reserve needs.
Allowance for credit losses activity for the three months ended June 30, 2023 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving |
|
|
|
|
|
|
|
|
|
Retail |
|
Charge |
|
|
|
|
|
|
||
|
Customer |
Accounts |
Wholesale |
|
Total |
|||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, as previously reported |
$ |
103,442 |
$ |
7,345 |
$ |
6,685 |
|
$ |
117,472 |
|||
Charge-offs |
|
(5,358) |
|
(447) |
|
- |
|
|
(5,805) |
|||
Recoveries |
|
521 |
|
1 |
|
5 |
|
|
527 |
|||
Provision (benefit) |
|
1,119 |
|
1,749 |
|
(219) |
|
|
2,649 |
|||
Foreign currency translation and other |
|
241 |
|
14 |
|
22 |
|
|
277 |
|||
Ending balance |
$ |
99,965 |
$ |
8,662 |
$ |
6,493 |
|
$ |
115,120 |
13
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Allowance for credit losses activity for the six months ended June 30, 2023 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving |
|
|
|
|
|
|
|
|
|
Retail |
|
Charge |
|
|
|
|
|
|
||
|
|
Customer |
|
Accounts |
|
Wholesale |
|
Total |
||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
110,341 |
$ |
8,519 |
$ |
6,152 |
|
$ |
125,012 |
||
Charge-offs |
|
(10,970) |
|
(4,685) |
|
- |
|
|
(15,655) |
|||
Recoveries |
|
913 |
|
1 |
|
16 |
|
|
930 |
|||
Benefit |
|
(550) |
|
4,814 |
|
304 |
|
|
4,568 |
|||
Foreign currency translation and other |
|
231 |
|
13 |
|
21 |
|
|
265 |
|||
Ending balance |
$ |
99,965 |
$ |
8,662 |
$ |
6,493 |
|
$ |
115,120 |
|||
Gross receivables: |
|
|
|
|
|
|
|
|
|
|||
Ending balance |
$ |
7,369,084 |
$ |
233,695 |
$ |
4,430,693 |
|
$ |
12,033,472 |
The Company assesses and monitors the credit quality of its receivables based on delinquency status. Receivables are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Delinquency is reported on receivables greater than 30 days past due. As the terms for the retail customer receivables are greater than one year, the past due information is presented by year of origination.
14
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The aging of receivables by vintage as of June 30, 2024 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
31 - 60 Days |
|
61 - 90 Days |
|
Than |
|
Total |
|
|
|
|
Total |
|
Gross |
||||||
|
Past Due |
Past Due |
90 Days |
Past Due |
Current |
Receivables |
Charge-offs |
||||||||||||||
Retail customer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
$ |
2,852 |
|
$ |
934 |
|
$ |
- |
|
$ |
3,786 |
|
$ |
1,665,647 |
|
$ |
1,669,433 |
|
$ |
51 |
2023 |
|
|
17,034 |
|
|
7,332 |
|
|
6,000 |
|
|
30,366 |
|
|
2,484,144 |
|
|
2,514,510 |
|
|
2,579 |
2022 |
|
|
12,396 |
|
|
4,806 |
|
|
5,401 |
|
|
22,603 |
|
|
1,479,422 |
|
|
1,502,025 |
|
|
2,989 |
2021 |
|
|
6,946 |
|
|
2,713 |
|
|
3,337 |
|
|
12,996 |
|
|
822,854 |
|
|
835,850 |
|
|
2,115 |
2020 |
|
|
2,902 |
|
|
985 |
|
|
32,695 |
|
|
36,582 |
|
|
319,936 |
|
|
356,518 |
|
|
1,075 |
Prior to 2020 |
|
|
1,163 |
|
|
782 |
|
|
4,220 |
|
|
6,165 |
|
|
122,250 |
|
|
128,415 |
|
|
1,482 |
Total |
$ |
43,293 |
|
$ |
17,552 |
|
$ |
51,653 |
|
$ |
112,498 |
|
$ |
6,894,253 |
|
$ |
7,006,751 |
|
$ |
10,291 |
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
$ |
90 |
|
$ |
- |
|
$ |
- |
|
$ |
90 |
|
$ |
392,357 |
|
$ |
392,447 |
|
$ |
- |
2023 |
|
|
1,302 |
|
|
1,130 |
|
|
1,166 |
|
|
3,598 |
|
|
466,795 |
|
|
470,393 |
|
|
251 |
2022 |
|
|
1,415 |
|
|
731 |
|
|
289 |
|
|
2,435 |
|
|
299,051 |
|
|
301,486 |
|
|
291 |
2021 |
|
|
811 |
|
|
91 |
|
|
629 |
|
|
1,531 |
|
|
221,520 |
|
|
223,051 |
|
|
542 |
2020 |
|
|
969 |
|
|
132 |
|
|
280 |
|
|
1,381 |
|
|
78,899 |
|
|
80,280 |
|
|
255 |
Prior to 2020 |
|
|
18 |
|
|
30 |
|
|
222 |
|
|
270 |
|
|
29,620 |
|
|
29,890 |
|
|
257 |
Total |
$ |
4,605 |
|
$ |
2,114 |
|
$ |
2,586 |
|
$ |
9,305 |
|
$ |
1,488,242 |
|
$ |
1,497,547 |
|
$ |
1,596 |
|
Revolving charge accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
6,238 |
|
$ |
2,733 |
|
$ |
1,748 |
|
$ |
10,719 |
|
$ |
230,945 |
|
$ |
241,664 |
|
$ |
2,132 |
Canada |
|
$ |
412 |
|
$ |
130 |
|
$ |
61 |
|
$ |
603 |
|
$ |
17,305 |
|
$ |
17,908 |
|
$ |
164 |
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
196 |
|
$ |
254 |
|
$ |
440 |
|
$ |
890 |
|
$ |
4,633,379 |
|
$ |
4,634,269 |
|
$ |
- |
Canada |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
1,134,637 |
|
$ |
1,134,637 |
|
$ |
- |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Retail customer |
|
$ |
47,898 |
|
$ |
19,666 |
|
$ |
54,239 |
|
$ |
121,803 |
|
$ |
8,382,495 |
|
$ |
8,504,298 |
|
$ |
11,887 |
Revolving charge accounts |
|
$ |
6,650 |
|
$ |
2,863 |
|
$ |
1,809 |
|
$ |
11,322 |
|
$ |
248,250 |
|
$ |
259,572 |
|
$ |
2,296 |
Wholesale |
|
$ |
196 |
|
$ |
254 |
|
$ |
440 |
|
$ |
890 |
|
$ |
5,768,016 |
|
$ |
5,768,906 |
|
$ |
- |
15
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The aging of receivables by vintage as of December 31, 2023 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 - 60 Days |
|
61 - 90 Days |
|
Than |
|
Total |
|
|
|
|
Total |
|
Gross |
||||||
|
Past Due |
Past Due |
90 Days |
Past Due |
Current |
Receivables |
Charge-offs |
||||||||||||||
Retail customer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
$ |
9,662 |
|
$ |
1,415 |
|
$ |
1,288 |
|
$ |
12,365 |
|
$ |
3,111,476 |
|
$ |
3,123,841 |
|
$ |
552 |
2022 |
|
|
10,008 |
|
|
2,583 |
|
|
5,821 |
|
|
18,412 |
|
|
1,755,538 |
|
|
1,773,950 |
|
|
3,221 |
2021 |
|
|
6,808 |
|
|
2,118 |
|
|
3,554 |
|
|
12,480 |
|
|
1,041,185 |
|
|
1,053,665 |
|
|
2,716 |
2020 |
|
|
3,270 |
|
|
1,106 |
|
|
32,831 |
|
|
37,207 |
|
|
451,292 |
|
|
488,499 |
|
|
2,987 |
2019 |
|
|
1,829 |
|
|
529 |
|
|
2,001 |
|
|
4,359 |
|
|
164,634 |
|
|
168,993 |
|
|
3,203 |
Prior to 2019 |
|
|
631 |
|
|
318 |
|
|
3,831 |
|
|
4,780 |
|
|
56,779 |
|
|
61,559 |
|
|
2,849 |
Total |
$ |
32,208 |
|
$ |
8,069 |
|
$ |
49,326 |
|
$ |
89,603 |
|
$ |
6,580,904 |
|
$ |
6,670,507 |
|
$ |
15,528 |
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
$ |
647 |
|
$ |
149 |
|
$ |
420 |
|
$ |
1,216 |
|
$ |
667,887 |
|
$ |
669,103 |
|
$ |
78 |
2022 |
|
|
2,395 |
|
|
60 |
|
|
1,236 |
|
|
3,691 |
|
|
395,757 |
|
|
399,448 |
|
|
941 |
2021 |
|
|
1,090 |
|
|
159 |
|
|
2,361 |
|
|
3,610 |
|
|
291,974 |
|
|
295,584 |
|
|
964 |
2020 |
|
|
755 |
|
|
- |
|
|
320 |
|
|
1,075 |
|
|
113,630 |
|
|
114,705 |
|
|
(227) |
2019 |
|
|
158 |
|
|
14 |
|
|
201 |
|
|
373 |
|
|
44,042 |
|
|
44,415 |
|
|
253 |
Prior to 2019 |
|
|
126 |
|
|
152 |
|
|
366 |
|
|
644 |
|
|
10,064 |
|
|
10,708 |
|
|
87 |
Total |
$ |
5,171 |
|
$ |
534 |
|
$ |
4,904 |
|
$ |
10,609 |
|
$ |
1,523,354 |
|
$ |
1,533,963 |
|
$ |
2,096 |
|
Revolving charge accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
6,036 |
|
$ |
2,422 |
|
$ |
1,089 |
|
$ |
9,547 |
|
$ |
182,728 |
|
$ |
192,275 |
|
$ |
5,993 |
Canada |
|
$ |
374 |
|
$ |
169 |
|
$ |
122 |
|
$ |
665 |
|
$ |
12,932 |
|
$ |
13,597 |
|
$ |
519 |
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
4,271,583 |
|
$ |
4,271,583 |
|
$ |
- |
Canada |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
888,537 |
|
$ |
888,537 |
|
$ |
- |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Retail customer |
|
$ |
37,379 |
|
$ |
8,603 |
|
$ |
54,230 |
|
$ |
100,212 |
|
$ |
8,104,258 |
|
$ |
8,204,470 |
|
$ |
17,624 |
Revolving charge accounts |
|
$ |
6,410 |
|
$ |
2,591 |
|
$ |
1,211 |
|
$ |
10,212 |
|
$ |
195,660 |
|
$ |
205,872 |
|
$ |
6,512 |
Wholesale |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
5,160,120 |
|
$ |
5,160,120 |
|
$ |
- |
Included in the receivables balance at June 30, 2024 and December 31, 2023 is accrued interest of $94,761 and $83,879, respectively. The Company does not include accrued interest in its allowance for credit losses.
Recognition of income is generally suspended when management determines that collection of future finance income is not probable or when an account becomes 90 days past due, whichever occurs first. The amount of interest income suspended was not material for the three and six months ended June 30, 2024 and 2023. Interest accrual is resumed if the receivable becomes contractually current and collection becomes probable. Previously suspended income is recognized at that time.
The retail customer receivables on nonaccrual status as of June 30, 2024 and December 31, 2023 are as follows:
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2024 |
|
2023 |
||
United States |
$ |
61,760 |
$ |
55,564 |
||
Canada |
|
$ |
3,183 |
|
$ |
5,321 |
16
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
As of June 30, 2024 and December 31, 2023, total revolving charge account receivables on nonaccrual status were immaterial. As of June 30, 2024, there were $29,510 of wholesale receivables on nonaccrual status in the United States and no wholesale receivables on nonaccrual status in Canada. As of December 31, 2023, there were no wholesale receivables on nonaccrual status.
As of June 30, 2024 and December 31, 2023, the Company's receivables on non-accrual status without an allowance were immaterial. Interest income recognized for receivables on non-accrual status for the three and six months ended June 30, 2024 and 2023 was immaterial.
Troubled Debt Restructurings
A restructuring of a receivable constitutes a troubled debt restructuring ("TDR") when the lender grants a concession it would not otherwise consider to a customer that is experiencing financial difficulties. As a collateral-based lender, the Company typically will repossess collateral in lieu of restructuring receivables. As such, for retail customer receivables, concessions are typically provided based on bankruptcy court proceedings. For wholesale receivables, concessions granted may include extended contract maturities, inclusion of interest-only periods, modification of a contractual interest rate to a below market interest rate and waiving of interest and principal.
TDRs are reviewed along with other receivables as part of management's ongoing evaluation of the adequacy of the allowance for credit losses. As of June 30, 2024 and 2023, the Company's TDRs were immaterial.
NOTE 5: EQUIPMENT ON OPERATING LEASES
Lease payments owed to the Company for equipment under non-cancelable operating leases (excluding deferred operating lease subsidy of $69,191) as of June 30, 2024 are as follows:
|
|
|
|
2024 |
$ |
111,496 |
|
2025 |
|
165,697 |
|
2026 |
|
103,503 |
|
2027 |
|
44,424 |
|
2028 and thereafter |
|
19,005 |
|
Total lease payments |
$ |
444,125 |
NOTE 6: CREDIT FACILITIES AND DEBT
On May 20, 2024, the Company, through a bankruptcy-remote trust, issued $908,970 of amortizing asset-backed notes secured by U.S. retail receivables.
Repurchase Agreement
The Company is a party to a Global Master Repurchase Agreement which expires in September 2025. As of June 30, 2024, the Company had sold, and not yet repurchased, C$450,000 ($328,374) of Canadian receivables under the repurchase agreement, with an obligation to repurchase such receivables in 30 days. The repurchase agreement is treated as a financing arrangement for accounting purposes.
Unsecured Facilities and Debt
Committed and uncommitted unsecured facilities with banks as of June 30, 2024, totaled $881,344. 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 June 30, 2024, the Company had $408,372 outstanding under these credit facilities.
17
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The remaining available credit commitments are maintained primarily to provide backup liquidity for commercial paper borrowings. The Company's outstanding commercial paper totaled $387,142 as of June 30, 2024.
NOTE 7: INCOME TAXES
The effective tax rates for the three months ended June 30, 2024 and 2023 were 22.0% and 20.3%, respectively. The effective tax rate was 22.6% for the six months ended June 30, 2024, compared to 21.9% for the same period in 2023.
NOTE 8: FINANCIAL INSTRUMENTS
The Company may elect to measure financial instruments and certain other items at fair value. This fair value option would be applied on an instrument-by-instrument basis with changes in fair value reported in earnings. The election can be made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once made. The Company has not elected the fair value measurement option for eligible items.
Fair-Value Hierarchy
The hierarchy of valuation techniques for financial instruments is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy:
Level 1 - |
Quoted prices for identical instruments in active markets. |
Level 2 - |
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
Level 3 - |
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
This hierarchy requires the use of observable market data when available.
Determination of Fair Value
When available, the Company uses quoted market prices to determine fair value and classifies such items in Level 1. In some cases where a market price is not available, the Company will use observable market-based inputs to calculate fair value, in which case the items are classified in Level 2.
18
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
If quoted or observable market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters such as interest rates, currency rates, or yield curves. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.
The following sections describe the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models and the key inputs to those models, as well as any significant assumptions.
Derivatives
The Company utilizes derivative instruments to mitigate its exposure to interest rate and foreign currency exposures. The Company designates derivatives that are effective at reducing the risk associated with the exposure being hedged as accounting hedges at the inception of the contract and does not hold or enter into derivative or other financial instruments for speculative purposes. The credit and market risk related to derivatives is reduced through diversification among various counterparties, utilizing mandatory termination clauses and/or collateral support agreements. Derivative instruments are generally classified as Level 2 in the fair value hierarchy. The cash flows underlying all derivative contracts were recorded in operating activities in the consolidated statements of cash flows.
Interest Rate Derivatives
The Company has entered into interest rate derivatives in order to manage interest rate exposures arising in the normal course of business. Interest rate derivatives that have been designated as cash flow hedges are being used by the Company to mitigate the risk of rising interest rates related to existing debt and anticipated issuance of fixed-rate debt in future periods. Gains and losses on these instruments are deferred in accumulated other comprehensive income (loss) and recognized in interest expense over the period in which the Company recognizes interest expense on the related debt. As of June 30, 2024, the maximum length of time over which the Company is hedging its interest rate exposure through the use of derivative instruments designated in cash flow hedge relationships is 52 months. As of June 30, 2024, the after-tax gains deferred in accumulated other comprehensive income (loss) that will be recognized in interest expense over the next 12 months are approximately ($3,030).
The Company also enters into offsetting interest rate derivatives with substantially similar terms that are not designated as hedging instruments to mitigate interest rate risk related to the Company's committed asset-backed facilities. Unrealized and realized gains and losses resulting from fair value changes in these instruments are recognized directly in income and were insignificant for the three and six months ended June 30, 2024 and 2023.
All of the Company's interest rate derivatives as of June 30, 2024 and December 31, 2023 are considered Level 2. The fair market value of these derivatives is calculated using market data input and can be compared to actively traded derivatives. The total notional amount of the Company's interest rate derivatives was $4,023,657 and $4,428,285 at June 30, 2024 and December 31, 2023, respectively. The seven-month average notional amounts for the six months ended June 30, 2024 and 2023 were $3,996,818 and $3,687,713, respectively.
19
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
As a result of the reform and replacement of specific benchmark interest rates, the Company elected to make the replacement using the optional expedient under ASC 848, which allows the change in critical terms without dedesignation and the Company also elected the optional expedient to apply a spread adjustment to hedged items cash flows that resulted in no change to the cumulative basis adjustment reflected in earnings.
Foreign Exchange Contracts
The Company uses forward contracts to hedge certain assets and liabilities denominated in foreign currencies. Such derivatives are considered economic hedges and are not designated as hedging instruments. The changes in the fair value of these instruments are recognized directly as income in "Other expenses, net" and are expected to offset the foreign exchange gains or losses on the exposures being managed.
All of the Company's foreign exchange derivatives are considered Level 2 as the fair value is calculated using market data input and can be compared to actively traded derivatives.
Financial Statement Impact of the Company's Derivatives
The fair values of the Company's derivatives as of June 30, 2024 and December 31, 2023 in the consolidated balance sheets are recorded as follows:
|
|
|
|
|
|
|
|
June 30, |
December 31, |
||||
|
|
2024 |
|
2023 |
||
Derivatives Designated as Hedging Instruments |
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
10,694 |
|
$ |
22,633 |
Accounts payable and other accrued liabilities: |
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
33,977 |
|
$ |
32,579 |
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
26,490 |
|
$ |
30,420 |
Foreign exchange contracts |
|
1,755 |
|
2,601 |
||
Total |
$ |
28,245 |
|
$ |
33,021 |
|
Accounts payable and other accrued liabilities: |
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
26,490 |
|
$ |
30,420 |
20
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Pre-tax gains (losses) on the consolidated statements of income and comprehensive income related to the Company's derivatives for the three and six months ended June 30, 2024 and 2023 are recorded in the following accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
2023 |
2024 |
2023 |
|||||||
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
431 |
|
$ |
(56) |
$ |
3,306 |
|
$ |
(2,621) |
|
Reclassified from accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives-Interest expense to third parties |
|
$ |
1,071 |
|
$ |
400 |
|
$ |
1,288 |
|
$ |
1,062 |
Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
||
Foreign exchange contracts-Other expenses, net |
|
$ |
(339) |
|
$ |
2,220 |
$ |
(1,243) |
|
$ |
2,251 |
Items Measured at Fair Value on a Recurring Basis
The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, all of which are measured as Level 2:
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
2024 |
2023 |
||||
Assets |
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
37,184 |
|
$ |
53,053 |
Foreign exchange contracts |
|
1,755 |
|
2,601 |
||
Total assets |
$ |
38,939 |
|
$ |
55,654 |
|
Liabilities |
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
60,467 |
|
$ |
62,999 |
There were no transfers between Level 1, Level 2 and Level 3 hierarchy levels during the periods presented.
Fair Value of Other Financial Instruments
The carrying amount of cash, restricted cash and cash equivalents, floating-rate affiliated accounts and notes receivable, floating-rate short-term debt, interest payable and short-term affiliated debt was assumed to approximate its fair value. Under the fair value hierarchy, cash and restricted cash and cash equivalents are classified as Level 1 and the remainder of the financial instruments listed is classified as Level 2.
21
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
Financial Instruments Not Carried at Fair Value
The carrying amount and estimated fair value of assets and liabilities considered financial instruments as of June 30, 2024 and December 31, 2023 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2024 |
|
December 31, 2023 |
||||||||
|
Carrying |
Estimated |
Carrying |
Estimated |
||||||||
|
|
Amount |
|
Fair Value * |
|
Amount |
|
Fair Value * |
||||
Receivables |
$ |
14,408,805 |
|
$ |
14,326,605 |
|
$ |
13,455,717 |
|
$ |
13,224,506 |
|
Long-term debt |
|
$ |
8,364,690 |
|
$ |
8,226,539 |
|
$ |
7,859,629 |
|
$ |
7,739,874 |
______________
* |
Under the fair value hierarchy, receivables measurements are classified as Level 3 and long-term debt measurements are classified as Level 2. |
Receivables
The fair value of receivables was determined by discounting the estimated future payments using a discount rate which includes an estimate for credit risk.
Long-term debt
The fair values of long-term debt were based on current market quotes for identical or similar borrowings and credit risk.
22
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
NOTE 9: GEOGRAPHICAL INFORMATION
A summary of the Company's geographical information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Six Months Ended |
||||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
2023 |
|
2024 |
2023 |
||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
259,630 |
|
$ |
197,024 |
|
$ |
505,307 |
|
$ |
379,919 |
Canada |
|
63,920 |
|
50,630 |
|
124,764 |
|
96,738 |
||||
Eliminations |
|
(187) |
|
(540) |
|
(402) |
|
(1,025) |
||||
Total |
$ |
323,363 |
|
$ |
247,114 |
$ |
629,669 |
|
$ |
475,632 |
||
Interest expense |
|
|
|
|
|
|
|
|
|
|
||
United States |
|
$ |
143,975 |
|
$ |
101,441 |
|
$ |
281,059 |
|
$ |
187,093 |
Canada |
|
32,076 |
|
21,187 |
|
62,634 |
|
39,724 |
||||
Eliminations |
|
(187) |
|
(540) |
|
(402) |
|
(1,025) |
||||
Total |
$ |
175,864 |
|
$ |
122,088 |
$ |
343,291 |
|
$ |
225,792 |
||
Net income |
|
|
|
|
|
|
|
|
|
|
||
United States |
|
$ |
46,174 |
|
$ |
35,823 |
|
$ |
89,792 |
|
$ |
72,082 |
Canada |
|
12,664 |
|
11,875 |
|
23,519 |
|
21,917 |
||||
Total |
$ |
58,838 |
|
$ |
47,698 |
$ |
113,311 |
|
$ |
93,999 |
||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
||
United States |
|
$ |
31,230 |
|
$ |
32,432 |
|
$ |
61,412 |
|
$ |
65,261 |
Canada |
|
13,778 |
|
12,978 |
|
27,469 |
|
25,870 |
||||
Total |
$ |
45,008 |
|
$ |
45,410 |
$ |
88,881 |
|
$ |
91,131 |
||
Expenditures for equipment on operating leases |
|
|
|
|
|
|
|
|
|
|
||
United States |
|
$ |
58,338 |
|
$ |
90,878 |
|
$ |
138,260 |
|
$ |
166,119 |
Canada |
|
41,868 |
|
33,652 |
|
64,130 |
|
61,690 |
||||
Total |
$ |
100,206 |
|
$ |
124,530 |
$ |
202,390 |
|
$ |
227,809 |
||
Provision (benefit) for credit losses |
|
|
|
|
|
|
|
|
|
|
||
United States |
|
$ |
10,976 |
|
$ |
3,279 |
|
$ |
20,993 |
|
$ |
6,438 |
Canada |
|
795 |
|
(630) |
|
1,290 |
|
(1,870) |
||||
Total |
$ |
11,771 |
|
$ |
2,649 |
$ |
22,283 |
|
$ |
4,568 |
23
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
As of |
As of |
||||
|
|
June 30, |
|
December 31, |
||
|
|
2024 |
2023 |
|||
Total assets |
|
|
|
|
|
|
United States |
|
$ |
13,420,826 |
|
$ |
13,034,959 |
Canada |
|
3,312,789 |
|
3,077,089 |
||
Eliminations |
|
(128,470) |
|
(148,521) |
||
Total |
$ |
16,605,145 |
|
$ |
15,963,527 |
|
Gross receivables |
|
|
|
|
|
|
United States |
|
$ |
11,882,684 |
|
$ |
11,134,365 |
Canada |
|
2,650,092 |
|
2,436,097 |
||
Total |
$ |
14,532,776 |
|
$ |
13,570,462 |
NOTE 10: RELATED-PARTY TRANSACTIONS
The Company receives compensation from CNH North America for retail customer, wholesale and operating lease sales programs offered by CNH North America on which finance charges are waived or below market rate financing programs are offered. The Company receives compensation from CNH North America based on the Company's estimated costs and a targeted return on equity. The Company is also compensated for lending funds to CNH North America.
The summary of sources included in "Interest and other income from affiliates" in the accompanying consolidated statements of income for the three and six months ended June 30, 2024 and 2023 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Six Months Ended |
||||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
2023 |
|
2024 |
2023 |
||||||
Subsidy from CNH North America |
|
|
|
|
|
|
|
|
|
|
|
|
Retail customer |
|
$ |
49,675 |
|
$ |
29,389 |
|
$ |
99,082 |
|
$ |
57,864 |
Operating lease |
|
9,119 |
|
9,835 |
|
18,569 |
|
20,158 |
||||
Revolving charge accounts |
|
|
1,160 |
|
|
1,106 |
|
|
1,999 |
|
|
1,965 |
Wholesale |
|
|
66,349 |
|
|
53,953 |
|
|
124,994 |
|
|
97,366 |
Income from affiliated receivables |
|
|
|
|
|
|
|
|
|
|||
CNH North America |
|
1,033 |
|
83 |
|
1,033 |
|
83 |
||||
Banco CNH Industrial Capital Brazil |
|
|
640 |
|
|
779 |
|
|
1,356 |
|
|
1,417 |
Other affiliates |
|
|
283 |
|
|
424 |
|
|
700 |
|
|
820 |
Total interest and other income from affiliates |
$ |
128,259 |
|
$ |
95,569 |
$ |
247,733 |
|
$ |
179,673 |
Interest expense to affiliates was $968 and $4,985, respectively, for the three months ended June 30, 2024 and 2023 and $5,592 and $13,433, respectively, for the six months ended June 30, 2024 and 2023. Fees charged by affiliates were $11,448 and $13,112, respectively, for the three months ended June 30, 2024 and 2023, and $25,043 and $26,987, respectively, for the six months ended June 30, 2024 and 2023, which amounts consist of payroll and other human resource services CNH America performs on behalf of the Company.
24
Table of Contents
CNH INDUSTRIAL CAPITAL LLC AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
As of June 30, 2024 and December 31, 2023, the Company had various accounts and notes receivable and debt with the following affiliates:
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2024 |
|
2023 |
||
Affiliated receivables |
|
|
|
|
|
|
CNH America |
$ |
46,233 |
|
$ |
13,377 |
|
CNH Canada |
|
87,842 |
|
|
704 |
|
Banco CNH Industrial Capital Brazil |
|
|
35,449 |
|
|
47,997 |
Other affiliates |
|
12,525 |
|
|
12,589 |
|
Total affiliated receivables |
$ |
182,049 |
|
$ |
74,667 |
|
Affiliated debt |
|
|
|
|
|
|
CNH America |
|
$ |
- |
|
$ |
86,234 |
CNH Canada |
|
|
- |
|
|
46,258 |
Total affiliated debt |
$ |
- |
|
$ |
132,492 |
Accounts payable and other accrued liabilities, including tax payables, of $162,064 and $82,621 were payable to related parties as of June 30, 2024 and December 31, 2023, respectively.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is party to various litigation matters and claims arising from its operations. Management believes that the outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company's financial position or results of operations.
Guarantees
The Company provides payment guarantees on the financial debt of various foreign financial services subsidiaries of CNHI for approximately $50,400. The guarantees are in effect for the term of the underlying funding facilities.
Commitments
As of June 30, 2024, the Company had various agreements, on an uncommitted basis, to extend credit for the following portfolios:
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|||
|
|
Credit Limit |
|
Utilized |
|
Not Utilized |
|||
Wholesale and dealer financing |
|
$ |
7,327,466 |
|
$ |
5,715,800 |
|
$ |
1,611,666 |
Revolving charge accounts |
|
$ |
2,611,813 |
|
$ |
263,332 |
|
$ |
2,348,481 |
25
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Organization
CNH Industrial Capital LLC and its primary operating subsidiaries, including New Holland Credit Company, LLC ("New Holland Credit"), CNH Industrial Capital America LLC ("CNH Capital America") and CNH Industrial Capital Canada Ltd. ("CNH Capital Canada") (collectively, "CNH Capital", the "Company" or "we") are each an indirect wholly owned subsidiary of CNH Industrial N.V. ("CNHI" and, together with its consolidated subsidiaries, "CNH") 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 America") and CNH Industrial Canada Ltd. ("CNH Canada" and, together with CNH America, "CNH North America") and provide other related financial products and services to support the sale of agricultural and construction equipment sold by CNH North America.
We offer a range of financial products and services to the customers and dealers of CNH North America. Retail financing products primarily include retail notes, finance leases, operating leases and revolving charge account financing to end-use customers. Wholesale financing consists primarily of dealer floorplan financing as well as financing to dealers for used equipment taken in trade, equipment utilized in dealer-owned rental yards, parts inventory, working capital and other financing needs.
Trends and Economic Conditions
In combination with the downturn in CNH North America's industry cycle, lower commodity prices, changes in government policies, higher interest rates and repercussions from geopolitical events, the global economy continues to experience events affecting CNH North America's suppliers, customers and business operations. As a consequence of the industry downturn, CNH North America expects production volumes to decline for the rest of 2024 due to lower demand. Given these conditions, CNH North America expects manufacturing inefficiencies and lower fixed cost absorption.
These disruptions have contributed to an inflationary environment which has affected, and may continue to affect, the price and availability of certain products and services necessary for CNH North America's operations, how CNH North America plans production for the end-customer demand, and how CNH North America invests in future innovations.
Our business is closely tied to the agricultural and construction equipment industries because we offer financing products for such equipment. For the three months ended June 30, 2024, CNH's net sales of agricultural equipment and net sales of construction equipment generated in North America were $1,739.5 million and $503.5 million, respectively, representing decreases of 7.1% and 14.3% from the same period in 2023, respectively. For the six months ended June 30, 2024, CNH's net sales of agricultural equipment and net sales of construction equipment generated in North America were $3,181.2 million and $942.4 million, respectively, representing decreases of 5.3% and 10.3% from the same period in 2023, respectively.
In general, our receivable mix between agricultural and construction equipment financing directionally reflects the mix of equipment sales by CNH North America. As such, changes in the agricultural industry or with respect to our agricultural equipment customers may affect the majority of our portfolio.
As a finance company, we are subject to interest rate risks. Changing interest rates can reduce demand for CNH North America equipment, adversely affect our interest margins and increase our borrowing costs. Most of our retail customer receivables are fixed rate, while our revolving charge accounts and wholesale receivables are a combination of fixed and floating rate. We manage interest rate risks via a match funding program and the selective use of derivatives.
26
Table of Contents
Net income was $58.8 million and $113.3 million for the three and six months ended June 30, 2024, respectively, compared to $47.7 million and $94.0 million for the same periods in 2023, respectively. The quarter-over-quarter and year-over-year increases were primarily driven by a higher average portfolio coupled with a higher average yield for the total portfolio, partially offset by increased borrowing costs, higher provisions for credit losses, and lower gains on used equipment sales due to decreased operating lease maturities and recovery rates. The receivables balance greater than 30 days past due as a percentage of receivables was 0.9% at June 30, 2024 and 0.8% at December 31, 2023 and June 30, 2023.
Macroeconomic issues for us include the uncertainty of governmental actions with respect to monetary, fiscal and legislative policies, global economic volatility, 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 North America's and our results.
Results of Operations
Three and Six Months Ended June 30, 2024 Compared to Three and Six Months Ended June 30, 2023
Revenues
Revenues for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
||||||||
|
|
June 30, |
|
|
|
|
|
|
||||
|
|
2024 |
2023 |
$ Change |
% Change |
|
||||||
Interest income on retail notes and finance leases |
$ |
92,184 |
|
$ |
69,626 |
|
$ |
22,558 |
|
32.4 |
% |
|
Rental income on operating leases |
|
57,540 |
|
57,451 |
|
89 |
|
0.2 |
|
|||
Interest income on revolving charge accounts |
|
10,883 |
|
9,996 |
|
887 |
|
8.9 |
|
|||
Interest income on wholesale notes |
|
|
31,007 |
|
|
13,336 |
|
|
17,671 |
|
132.5 |
|
Interest and other income from affiliates |
|
128,259 |
|
95,569 |
|
32,690 |
|
34.2 |
|
|||
Other income |
|
3,490 |
|
1,136 |
|
2,354 |
|
207.2 |
|
|||
Total revenues |
$ |
323,363 |
|
$ |
247,114 |
|
$ |
76,249 |
|
30.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|||||||
|
|
June 30, |
|
|
|
|
|
|
||||
|
|
2024 |
2023 |
$ Change |
% Change |
|
||||||
Interest income on retail notes and finance leases |
$ |
179,575 |
|
$ |
137,850 |
|
$ |
41,725 |
|
30.3 |
% |
|
Rental income on operating leases |
|
117,346 |
|
114,500 |
|
2,846 |
|
2.5 |
|
|||
Interest income on revolving charge accounts |
|
20,189 |
|
18,326 |
|
1,863 |
|
10.2 |
|
|||
Interest income on wholesale notes |
|
|
57,930 |
|
|
23,931 |
|
|
33,999 |
|
142.1 |
|
Interest and other income from affiliates |
|
247,733 |
|
179,673 |
|
68,060 |
|
37.9 |
|
|||
Other income |
|
6,896 |
|
1,352 |
|
5,544 |
|
410.1 |
|
|||
Total revenues |
$ |
629,669 |
|
$ |
475,632 |
|
$ |
154,037 |
|
32.4 |
% |
Total revenues were $323.4 million and $629.7 million for the three and six months ended June 30, 2024, respectively, compared to $247.1 million and $475.6 million for the same periods in 2023, respectively. The quarter-over-quarter and year-over-year increases were due to a higher average portfolio coupled with a higher average yield for the total portfolio. The average yield for the total portfolio was 8.3% and 7.6% for the three months ended June 30, 2024 and 2023, respectively, and 8.2% and 7.5% for the six months ended June 30, 2024 and 2023, respectively.
Interest income on retail notes and finance leases for the three and six months ended June 30, 2024 was $92.2 million and $179.6 million, respectively, representing an increase of $22.6 million and $41.7 million from the same periods in 2023, respectively. For the three months ended June 30, 2024, the increase from the same period in 2023 was due to the favorable impacts of $12.0 million from higher interest rates and $10.6 million from higher average earning assets. For the six months ended June 30, 2024, the increase from the same period in 2023 was due to the favorable impacts of $22.0 million from higher interest rates and $19.7 million from higher average earning assets.
27
Table of Contents
Rental income on operating leases for the three and six months ended June 30, 2024 was $57.5 million and $117.3 million, respectively, representing an increase of $0.1 million and $2.8 million from the same periods in 2023, respectively. For the six months ended June 30, 2024, compared to the same period in 2023, the increase was primarily due to a $10.9 million favorable impact from higher interest rates, partially offset by a $8.1 million unfavorable impact from lower average earning assets.
Revolving charge accounts income for the three and six months ended June 30, 2024 was $10.9 million and $20.2 million, respectively, representing an increase of $0.9 million and $1.9 million from the same periods in 2023, respectively. For the three months ended June 30, 2024, the increase from the same period in 2023 was due to the favorable impacts of $0.7 million from higher average earning assets and $0.2 million from higher interest rates. For the six months ended June 30, 2024, the increase from the same period in 2023 was due to the favorable impacts of $1.2 million from higher average earning assets and $0.7 million from higher interest rates.
Interest income on wholesale notes for the three and six months ended June 30, 2024 was $31.0 million and $57.9 million, respectively, representing an increase of $17.7 million and $34.0 million from the same periods in 2023, respectively. For the three months ended June 30, 2024, the increase from the same period in 2023 was due to the favorable impacts of $17.5 million from higher average earning assets and $0.2 million from higher interest rates. For the six months ended June 30, 2024, the increase from the same period in 2023 was due to the favorable impacts of $31.7 million from higher average earning assets and $2.3 million from higher interest rates.
Interest and other income from affiliates for the three and six months ended June 30, 2024 was $128.3 million and $247.7 million, respectively, compared to $95.6 million and $179.7 million for the three and six months ended June 30, 2023, respectively. For the three and six months ended June 30, 2024, compensation from CNH North America for retail low-rate financing programs and interest waiver programs offered to customers was $49.7 million and $99.1 million, respectively, an increase of $20.3 million and $41.2 million from the same periods in 2023, respectively. The increases were primarily due to higher base rates and the mix in pricing programs. For select operating leases, compensation from CNH North America for the difference between market rental rates and the amounts paid by customers was $9.1 million and $18.6 million for the three and six months ended June 30, 2024, respectively, a decrease of $0.7 million and $1.6 million from the same periods in 2023, respectively. The decreases were primarily due to lower average earning assets. For revolving charge accounts, compensation from CNH North America for low-rate financing programs and interest waiver programs offered to customers was $1.2 million and $2.0 million for the three and six months ended June 30, 2024, respectively, flat from the same periods in 2023. For the three and six months ended June 30, 2024, compensation from CNH North America for wholesale marketing programs was $66.3 million and $125.0 million, respectively, an increase of $12.4 million and $27.6 million from the same periods in 2023, respectively. The increases were primarily due to higher base rates and an increased utilization of interest-free periods.
Other income represents commissions earned on insurance and equipment protection products underwritten through a third-party insurer. For the three and six months ended June 30, 2024, other income was $3.5 million and $6.9 million, respectively, representing an increase of $2.4 million and $5.5 million from the same periods in 2023, respectively. The increases were primarily due to the Company changing insurance partners.
Expenses
Expenses for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
June 30, |
|
|
|
|
|
|
||||
|
2024 |
2023 |
$ Change |
% Change |
||||||||
Total interest expense |
$ |
175,864 |
|
$ |
122,088 |
|
$ |
53,776 |
|
44.0 |
% |
|
Fees charged by affiliates |
|
11,448 |
|
13,112 |
|
(1,664) |
|
(12.7) |
|
|||
Provision for credit losses |
|
11,771 |
|
2,649 |
|
9,122 |
|
344.4 |
|
|||
Depreciation of equipment on operating leases |
|
44,195 |
|
44,675 |
|
(480) |
|
(1.1) |
|
|||
Other expenses, net |
|
4,699 |
|
4,706 |
|
(7) |
|
(0.1) |
|
|||
Total expenses |
$ |
247,977 |
|
$ |
187,230 |
|
$ |
60,747 |
|
32.4 |
% |
28
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
||||||
|
|
June 30, |
|
|
|
|
|
|
||||
|
2024 |
2023 |
$ Change |
% Change |
||||||||
Total interest expense |
$ |
343,291 |
|
$ |
225,792 |
|
$ |
117,499 |
|
52.0 |
% |
|
Fees charged by affiliates |
|
25,043 |
|
26,987 |
|
(1,944) |
|
(7.2) |
|
|||
Provision for credit losses |
|
22,283 |
|
4,568 |
|
17,715 |
|
387.8 |
|
|||
Depreciation of equipment on operating leases |
|
87,295 |
|
89,727 |
|
(2,432) |
|
(2.7) |
|
|||
Other expenses, net |
|
5,295 |
|
8,239 |
|
(2,944) |
|
(35.7) |
|
|||
Total expenses |
$ |
483,207 |
$ |
355,313 |
|
$ |
127,894 |
|
36.0 |
% |
Total interest expense was $175.9 million and $343.3 million for the three and six months ended June 30, 2024, respectively, compared to $122.1 million and $225.8 million for the same periods in 2023, respectively. For the three months ended June 30, 2024, the increase was due to the unfavorable impacts of $28.7 million from higher average interest rates and $25.1 million from higher average total debt. For the six months ended June 30, 2024, the increase was due to the unfavorable impacts of $68.9 million from higher average interest rates and $48.6 million from higher average total debt. The average debt cost was 5.1% for the six months ended June 30, 2024 compared to 4.1% for the six months ended June 30, 2023.
The provision for credit losses were $11.8 million and $22.3 million for the three and six months ended June 30, 2024, respectively, compared to $2.6 million and $4.6 million for the same periods in 2023, respectively. For the three and six months ended June 30, 2024, compared to the same periods in 2023, the increases were due to higher specific reserve needs.
Depreciation of equipment on operating leases was $44.2 million and $87.3 million for the three and six months ended June 30, 2024, respectively, compared to $44.7 million and $89.7 million for the same periods in 2023, respectively. The decrease for the three and six months ended June 30, 2024, compared to the same periods in 2023, was primarily due to a lower average operating lease portfolio.
Other expenses, net were $4.7 million and $5.3 million for the three and six months ended June 30, 2024, respectively, compared to $4.7 million and $8.2 million for the same periods in 2023, respectively. For the three and six months ended June 30, 2024, compared to the same periods in 2023, the decreases were due to lower general and administrative costs.
The effective tax rates for the three months ended June 30, 2024 and 2023 were 22.0% and 20.3%, respectively. The effective tax rate was 22.6% for the six months ended June 30, 2024, compared to 21.9% for the same period in 2023.
Receivables and Equipment on Operating Leases Originated and Held
Receivables and equipment on operating lease originations for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
||||
|
|
June 30, |
|
|
|
|
|
|
||||
|
|
2024 |
2023 |
$ Change |
% Change |
|||||||
Retail customer |
$ |
1,282,222 |
|
$ |
1,031,802 |
|
$ |
250,420 |
|
24.3 |
% |
|
Revolving charge accounts |
|
|
271,268 |
|
|
280,626 |
|
|
(9,358) |
|
(3.3) |
|
Wholesale |
|
3,237,119 |
|
3,593,199 |
|
(356,080) |
(9.9) |
|
||||
Equipment on operating leases |
|
100,206 |
|
124,530 |
|
(24,324) |
(19.5) |
|
||||
Total originations |
$ |
4,890,815 |
|
$ |
5,030,157 |
|
$ |
(139,342) |
|
(2.8) |
% |
29
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
||||
|
|
June 30, |
|
|
|
|
|
|
||||
|
|
2024 |
2023 |
$ Change |
% Change |
|||||||
Retail customer |
$ |
2,266,000 |
|
$ |
1,736,102 |
|
$ |
529,898 |
|
30.5 |
% |
|
Revolving charge accounts |
|
481,405 |
|
478,359 |
|
3,046 |
0.6 |
|
||||
Wholesale |
|
|
5,956,723 |
|
|
6,226,192 |
|
|
(269,469) |
|
(4.3) |
|
Equipment on operating leases |
|
202,390 |
|
227,809 |
|
(25,419) |
(11.2) |
|
||||
Total originations |
$ |
8,906,518 |
|
$ |
8,668,462 |
|
$ |
238,056 |
|
2.7 |
% |
The increases in originations for retail customer receivables for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, were primarily due to better penetration rates. Wholesale originations decreased due to lower new equipment deliveries, partially offset by higher trade-in volumes. The decreases in operating lease originations were primarily due to customers' preference for retail financing products.
Receivables and equipment on operating leases held as of June 30, 2024, December 31, 2023 and June 30, 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|||
|
2024 |
2023 |
2023 |
||||||
Retail customer |
$ |
8,504,298 |
|
$ |
8,204,470 |
|
$ |
7,369,084 |
|
Revolving charge accounts |
|
|
259,572 |
|
|
205,872 |
|
|
233,695 |
Wholesale |
|
5,768,906 |
|
5,160,120 |
|
4,430,693 |
|||
Equipment on operating leases |
|
1,320,375 |
|
1,378,384 |
|
1,429,645 |
|||
Total receivables and equipment on operating leases |
$ |
15,853,151 |
|
$ |
14,948,846 |
|
$ |
13,463,117 |
The total balance of retail customer receivables greater than 30 days past due as a percentage of retail customer receivables was 1.4% at June 30, 2024, 1.2% at December 31, 2023 and 1.1% at June 30, 2023. The total wholesale receivables balance greater than 30 days past due as a percentage of the wholesale receivables was not significant at June 30, 2024, December 31, 2023 or June 30, 2023. The total revolving charge account receivables balance greater than 30 days past due as a percentage of the revolving charge account receivables was 4.4% at June 30, 2024, 5.0% at December 31, 2023 and 4.7% at June 30, 2023.
Total retail customer receivables on nonaccrual status were $64.9 million, $60.9 million and $47.8 million at June 30, 2024, December 31, 2023 and June 30, 2023, respectively. As of June 30, 2024, December 31, 2023 and June 30, 2023, total revolving charge account receivables on nonaccrual status were immaterial. Total wholesale receivables on nonaccrual status were $29.5 million at June 30, 2024, and there were no wholesale receivables on nonaccrual status at December 31, 2023 and June 30, 2023.
30
Table of Contents
Total receivable charge-offs and recoveries, by product, for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Six Months Ended |
||||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
2023 |
|
2024 |
2023 |
||||||
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
Retail customer |
|
$ |
6,034 |
|
$ |
5,358 |
|
$ |
11,887 |
|
$ |
10,970 |
Revolving charge accounts |
|
1,146 |
|
447 |
|
2,296 |
|
4,685 |
||||
Wholesale |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Total charge-offs |
7,180 |
|
5,805 |
14,183 |
|
15,655 |
||||||
Recoveries: |
|
|
|
|
|
|
|
|
|
|
||
Retail customer |
|
(910) |
|
(521) |
|
(1,185) |
|
(913) |
||||
Revolving charge accounts |
|
(206) |
|
(1) |
|
(302) |
|
(1) |
||||
Wholesale |
|
|
(8) |
|
|
(5) |
|
|
(21) |
|
|
(16) |
Total recoveries |
(1,124) |
|
(527) |
(1,508) |
|
(930) |
||||||
Charge-offs, net of recoveries: |
|
|
|
|
|
|
|
|
|
|
||
Retail customer |
|
5,124 |
|
4,837 |
|
10,702 |
|
10,057 |
||||
Revolving charge accounts |
|
940 |
|
446 |
|
1,994 |
|
4,684 |
||||
Wholesale |
|
|
(8) |
|
(5) |
|
(21) |
|
(16) |
|||
Total charge-offs, net of recoveries |
$ |
6,056 |
|
$ |
5,278 |
$ |
12,675 |
|
$ |
14,725 |
Our allowance for credit losses on all receivables financed totaled $124.0 million at June 30, 2024, $114.7 million at December 31, 2023 and $115.1 million at June 30, 2023.
The allowance is subject to a quarterly evaluation based on many quantitative and qualitative factors, including historical loss experience by product category, portfolio duration, delinquency trends, forward-looking macroeconomic factors (in particular, those conditions directly affecting the profitability and financial strength of our customers), and collateral value. No single factor determines the adequacy of the allowance. Different assumptions or changes in forward-looking economic assumptions would result in changes to the allowance for credit losses and the provision for credit losses. These qualitative factors are subjective and require a degree of management judgment.
We believe our allowance is sufficient to provide for losses in our receivable portfolio as of June 30, 2024.
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 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, a repurchase agreement, commercial paper, unsecured bonds, affiliate borrowings and cash to fund our liquidity needs.
31
Table of Contents
Cash Flows
For the six months ended June 30, 2024 and 2023, our cash flows were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
2024 |
2023 |
|||
Cash flows from (used in): |
|
|
|
|
||
Operating activities |
|
$ |
250,670 |
|
$ |
50,633 |
Investing activities |
|
(1,215,735) |
|
(1,173,846) |
||
Financing activities |
|
612,377 |
|
1,009,942 |
||
Net cash decrease |
$ |
(352,688) |
|
$ |
(113,271) |
The increase in net cash from operating activities during the six months of 2024 compared to the same period in 2023 was primarily due to changes in components of working capital, an increase in net income and adjustments for non-cash items. The increase in net cash used for investing activities for the six months ended June 30, 2024 was primarily due to the net increase in affiliated cash pooling receivables of $134.1 million, partially offset by the decrease in net expenditures for receivables of $92.4 million. The decrease in net cash from financing activities for the six months ended June 30, 2024 was primarily due to an increase in net cash paid on external borrowings of $274.7 million and higher dividends paid of $75.0 million.
Securitization
CNH Capital and its predecessor entities have been securitizing receivables since 1992. CNH Capital had approximately $5.6 billion of public and private asset-backed securities outstanding in the U.S. and Canada as of June 30, 2024. Our securitizations are treated as financing arrangements for accounting purposes.
Committed Asset-backed Facilities
CNH 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 $3.3 billion at June 30, 2024, with original borrowing maturities of up to two years. The unused availability under the facilities varies during the year, depending on origination volume and the refinancing of receivables with term securitization transactions and/or other financing. At June 30, 2024, there was approximately $0.3 billion of funding available under these facilities.
Repurchase Agreement
We are a party to a Global Master Repurchase Agreement which expires in September 2025. As of June 30, 2024, the Company had sold, and not yet repurchased, C$450.0 million ($328.4 million) of Canadian receivables under the repurchase agreement, with an obligation to repurchase such receivables in 30 days. The repurchase agreement is treated as a financing arrangement for accounting purposes.
Unsecured Facilities and Debt
Committed and uncommitted unsecured facilities with banks as of June 30, 2024, totaled $881.3 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 June 30, 2024, we had $408.4 million outstanding under these credit facilities. The remaining available credit commitments are maintained primarily to provide backup liquidity for commercial paper borrowings. Our outstanding commercial paper totaled $387.1 million as of June 30, 2024.
32
Table of Contents
As of June 30, 2024, our unsecured senior notes were as follows (dollars in thousands):
|
|
|
|
Issued by CNH Industrial Capital LLC (the "U.S. Senior Notes"): (1) |
|
|
|
3.950% notes, due 2025 |
$ |
500,000 |
|
5.450% notes, due 2025 |
|
400,000 |
|
1.875% notes, due 2026 |
|
|
500,000 |
1.450% notes, due 2026 |
|
|
600,000 |
4.550% notes, due 2028 |
|
|
600,000 |
5.500% notes, due 2029 |
|
|
500,000 |
5.100% notes, due 2029 |
|
|
600,000 |
Hedging, discounts and unamortized issuance costs |
|
|
(56,992) |
|
|
3,643,008 |
|
Issued by CNH Industrial Capital Canada (the "Canadian Senior Notes"): (2) |
|
|
|
1.500% notes, due 2024 |
|
218,916 |
|
5.500% notes, due 2026 |
|
|
291,888 |
4.800% notes, due 2027 |
|
|
291,888 |
Discounts and unamortized issuance costs |
|
|
(3,486) |
|
|
799,206 |
|
Total |
$ |
4,442,214 |
(1) | These notes, which are senior unsecured obligations of CNH Industrial Capital LLC, are guaranteed by CNH Capital America and New Holland Credit. |
(2) | These notes, which are senior unsecured obligations of CNH Capital Canada, are guaranteed by CNH Industrial Capital LLC, CNH Capital America and New Holland Credit. |
Credit Ratings
Our ability to obtain funding is affected by credit ratings of our debt, which are closely related to the outlook for and the financial condition of CNHI, and the nature and availability of our support agreement with CNHI.
To access public debt capital markets, we rely on credit rating agencies to assign short-term and long-term credit ratings to our securities as an indicator of credit quality for fixed income investors. A credit rating agency may change or withdraw our ratings based on its assessment of our current and future ability to meet interest and principal repayment obligations. Each agency's rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets.
Our current credit ratings are as follows:
|
|
|
|
|
|
|
|
|
Senior |
Short-Term |
Outlook |
||
S&P Global Ratings |
BBB+ |
|
A-2 |
|
Stable |
|
Fitch Ratings |
|
BBB+ |
|
F2 |
|
Stable |
Moody's Investors Service |
|
Baa2 |
|
- |
|
Stable |
Affiliate Sources
CNH Capital borrows, as needed, from CNH. This source of funding is primarily used to finance various assets and provides additional flexibility when evaluating market conditions and potential third-party financing options. We had no affiliated debt as of June 30, 2024 and $132.5 million of affiliated debt as of December 31, 2023.
Equity Position
Our equity position also supports our ability to access various funding sources. Our stockholder's equity at both June 30, 2024 and December 31, 2023 was $1.6 billion.
33
Table of Contents
Liquidity
While we expect securitization to continue to represent a material portion of our capital structure and affiliated borrowings to remain a marginal source of funding, we will continue to diversify our funding sources and expand our investor base to support our investment grade credit ratings. These diversified funding sources include committed asset-backed facilities, a repurchase agreement, unsecured notes, bank facilities and a commercial paper program.
The liquidity available for use varies due to: (a) changes in origination volumes, reflecting the financing needs of our customers, and is influenced by the timing of any refinancing of underlying receivables; and (b) the execution of our funding strategy of maintaining a sufficient level of liquidity and flexible access to a wide variety of financial instruments.
Guarantor Statements
CNH Capital America and New Holland Credit, which are 100%-owned subsidiaries of CNH Industrial Capital LLC, guarantee the U.S. Senior Notes (the "U.S. Notes Guarantees"). CNH Industrial Capital LLC, CNH Capital America and New Holland Credit (the "Guarantor Entities") guarantee the Canadian Senior Notes (the "Canadian Notes Guarantees" and, together with the U.S. Notes Guarantees, the "Guarantees"). The Guarantees are full, unconditional, and joint and several.
The Guarantees are general unsecured obligations of the applicable Guarantor Entities and rank senior in right of payment to all future obligations of such Guarantor Entities that are, by their terms, expressly subordinated in right of payment to such Guarantees and pari passu in right of payment with all existing and future unsecured indebtedness of such Guarantor Entities that are not so subordinated.
The Guarantor Entities' obligations under their applicable Guarantees are limited as necessary to prevent the Guarantees from constituting a fraudulent conveyance under applicable law. If the Guarantees were rendered voidable, they could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Guarantor Entities and, depending on the amount of the indebtedness, such Guarantor Entities' liability on the Guarantees to which they are parties could be reduced to zero.
The Guarantees of the Guarantor Entities will be automatically released:
(1) |
in connection with any sale or other disposition of all of the capital stock of the applicable Guarantor Entities to a person other than, for purposes of the U.S. Notes Guarantees, CNH Industrial Capital LLC or any subsidiary of CNH Industrial Capital LLC, or, for purposes of the Canadian Notes Guarantees, CNH Industrial N.V. or any subsidiary of CNH Industrial N.V.; |
(2) |
in connection with the sale or other disposition of all or substantially all of the assets or properties of the applicable Guarantor Entities, including by way of merger, consolidation or otherwise, to a person other than, for purposes of the U.S. Notes Guarantees, CNH Industrial Capital LLC or any subsidiary of CNH Industrial Capital LLC or, for purposes of the Canadian Notes Guarantees, CNH Industrial N.V. or any subsidiary of CNH Industrial N.V.; or |
(3) |
in certain other circumstances. |
The following tables present summarized financial information for the obligor groups of the U.S. Senior Notes and the Canadian Senior Notes. The obligor group consists of the issuer and guarantors for the applicable senior notes. Intercompany balances and transactions between the issuer and guarantors have been eliminated. The investments in, and equity in income from, non-guarantor subsidiaries has been excluded.
34
Table of Contents
For the three and six months ended June 30, 2024 and 2023, the summarized statement of income information for the obligor group of the U.S. Senior Notes was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
||||
Revenues |
$ |
173,134 |
|
$ |
148,275 |
$ |
336,641 |
|
$ |
287,726 |
||
Interest expense |
|
|
117,760 |
|
|
94,699 |
|
|
225,050 |
|
|
169,091 |
Administrative and operating expenses |
|
|
48,501 |
|
|
55,164 |
|
|
97,026 |
|
|
102,385 |
Income tax provision (benefit) |
|
|
3,730 |
|
|
(410) |
|
|
3,899 |
|
|
3,924 |
Net income |
$ |
3,143 |
|
$ |
(1,178) |
$ |
10,666 |
|
$ |
12,326 |
For the U.S. Senior Notes, affiliated interest amounts recorded from and to the non-guarantor subsidiaries of CNH Industrial Capital LLC for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
||||
Interest and other income from affiliates |
|
$ |
16,952 |
|
$ |
15,720 |
|
$ |
33,683 |
|
$ |
30,791 |
Interest expense to affiliates |
|
|
55,027 |
|
|
43,775 |
|
|
104,986 |
|
|
79,154 |
As of June 30, 2024 and December 31, 2023, the summarized balance sheet information for the obligor group of the U.S. Senior Notes was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2024 |
|
2023 |
||
Cash |
$ |
65,575 |
|
$ |
268,448 |
|
Restricted cash and cash equivalents |
|
|
- |
|
|
- |
Receivables, less allowance for credit losses of $36,564 and $33,308 |
|
|
3,391,462 |
|
|
3,247,283 |
Equipment on operating leases, net |
|
|
881,956 |
|
|
924,835 |
Short-term debt, including current maturities of long-term debt |
|
|
1,150,798 |
|
|
1,091,813 |
Accounts payable and other accrued liabilities |
|
|
604,868 |
|
|
660,587 |
Long-term debt |
|
|
3,381,547 |
|
|
3,398,119 |
For the U.S. Senior Notes, the obligors' amounts due from and due to the non-guarantor subsidiaries of CNH Industrial Capital LLC as of June 30, 2024 and December 31, 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2024 |
|
2023 |
||
Affiliated accounts and notes receivable |
$ |
3,353,485 |
|
$ |
3,223,627 |
|
Accounts payable and other accrued liabilities |
|
|
3,843,755 |
|
|
3,706,424 |
For the three and six months ended June 30, 2024 and 2023, the summarized statement of income information for the obligor group of the Canadian Senior Notes was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
||||
Revenues |
$ |
236,865 |
|
$ |
198,364 |
$ |
461,000 |
|
$ |
383,437 |
||
Interest expense |
|
|
149,649 |
|
|
115,347 |
|
|
287,282 |
|
|
207,791 |
Administrative and operating expenses |
|
|
65,970 |
|
|
72,250 |
|
|
131,653 |
|
|
134,308 |
Income tax provision |
|
|
6,166 |
|
|
1,045 |
|
|
9,258 |
|
|
8,248 |
Net income |
$ |
15,080 |
|
$ |
9,722 |
$ |
32,807 |
|
$ |
33,090 |
35
Table of Contents
For the Canadian Senior Notes, affiliated interest amounts recorded from and to the non-guarantor subsidiaries of CNH Industrial Capital LLC for the three and six months ended June 30, 2024 and 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
||||
Interest and other income from affiliates |
|
$ |
16,765 |
|
$ |
15,181 |
|
$ |
33,281 |
|
$ |
29,767 |
Interest expense to affiliates |
|
|
55,027 |
|
|
43,775 |
|
|
104,986 |
|
|
79,154 |
As of June 30, 2024 and December 31, 2023, the summarized balance sheet information for the obligor group of the Canadian Senior Notes was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2024 |
|
2023 |
||
Cash |
$ |
75,053 |
|
$ |
319,921 |
|
Restricted cash and cash equivalents |
|
|
63,999 |
|
|
70,949 |
Receivables, less allowance for credit losses of $47,471 and $44,954 |
|
|
6,030,645 |
|
|
5,671,733 |
Equipment on operating leases, net |
|
|
1,320,375 |
|
|
1,378,384 |
Short-term debt, including current maturities of long-term debt |
|
|
2,422,255 |
|
|
2,393,553 |
Accounts payable and other accrued liabilities |
|
|
708,726 |
|
|
800,693 |
Long-term debt |
|
|
4,808,158 |
|
|
4,473,453 |
For the Canadian Senior Notes, the obligors' amounts due from and due to the non-guarantor subsidiaries of CNH Industrial Capital LLC as of June 30, 2024 and December 31, 2023 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2024 |
|
2023 |
||
Affiliated accounts and notes receivable |
$ |
3,333,638 |
|
$ |
3,183,986 |
|
Accounts payable and other accrued liabilities |
|
|
3,866,671 |
|
|
3,729,866 |
36
Table of Contents
Other Data
|
|
|
|
|
|
|
|
|
|
As of or for the |
|||||
|
|
Six Months Ended June 30, |
|||||
|
|
2024 |
|
2023 |
|
||
|
|
(Dollars in thousands) |
|||||
Gross receivables |
$ |
14,532,776 |
|
$ |
12,033,472 |
|
|
Equipment on operating leases, net |
|
1,320,375 |
|
|
1,429,645 |
|
|
Total portfolio |
$ |
15,853,151 |
|
$ |
13,463,117 |
|
|
Delinquency (1) |
0.92 |
% |
|
0.76 |
% |
||
Average gross receivables balance |
$ |
13,250,065 |
|
$ |
10,660,656 |
|
|
Net credit loss (2) |
0.15 |
% |
|
0.15 |
% |
||
Profitability: (3) |
|
|
|
|
|||
Return on average portfolio (4) |
|
1.50 |
% |
|
1.49 |
% |
|
Asset Quality: |
|
|
|
|
|||
Allowance for credit losses / gross receivables |
|
0.85 |
% |
|
0.96 |
% |
(1) | Delinquency is reported on gross receivables greater than 30 days past due, expressed as a percentage of the gross receivables as of the end of the respective period. |
(2) | Net credit losses on the receivables means charge-offs, net of recoveries, for the preceding 12 months expressed as a percentage of the respective average balance of gross receivables. |
(3) | Six months ended June 30, 2024 and 2023 annualized. |
(4) | Net income for the period expressed as a percentage of the average portfolio. |
Critical Accounting Policies and Estimates
See our critical accounting policies and estimates discussed in our annual report for the year ended December 31, 2023 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 to our audited consolidated financial statements included in such annual report. There were no material changes to these policies or estimates during the three months ended June 30, 2024.
Cautionary Note on Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact contained in this filing; including competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, capital expenditures, dividends, liquidity, capital structure or other financial items; costs; and plans and objectives of management regarding operations, products and services, are forward-looking statements. Forward-looking statements also include statements regarding the future performance of CNH and its subsidiaries on a stand-alone basis. These statements may include terminology such as "may," "will," "expect," "could," "should," "intend," "estimate," "anticipate," "believe," "outlook," "continue," "remain," "on track," "design," "target," "objective," "goal," "forecast," "projection," "prospects," "plan," or similar terminology. Forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside our control and are difficult to predict. If any of these risks and uncertainties materialize (or they occur with a degree of severity that the Company is unable to predict) or other assumptions underlying any of the forward-looking statements prove to be incorrect, including any assumptions regarding strategic plans, the actual results or developments may differ materially from any future results or developments expressed or implied by the forward-looking statements.
37
Table of Contents
Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: economic conditions in each of CNH's markets, including the significant uncertainty caused by geopolitical events; production and supply chain disruptions, including industry capacity constraints, material availability, and global logistics delays and constraints; the many interrelated factors that affect consumer confidence and worldwide demand for capital goods and capital goods-related products; changes in government policies regarding banking, monetary and fiscal policy; legislation, particularly pertaining to capital goods-related issues such as agriculture, the environment, debt relief and subsidy program policies, trade and commerce and infrastructure development; government policies on international trade and investment, including sanctions, import quotas, capital controls and tariffs; volatility in international trade caused by the imposition of tariffs, sanctions, embargoes, and trade wars; actions of competitors in the various industries in which CNH North America competes; development and use of new technologies and technological difficulties; the interpretation of, or adoption of new, compliance requirements with respect to engine emissions, safety or other aspects of CNH's products; labor relations; interest rates and currency exchange rates; inflation and deflation; energy prices; prices for agricultural commodities and material price increases; housing starts and other construction activity; our ability to obtain financing or to refinance existing debt; restrictive covenants in our debt agreements; actions by rating agencies concerning the ratings on our debt and asset-backed securities and the credit rating of CNHI; price pressure on new and used equipment; security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its CNH North America dealers; security breaches with respect to CNH's products; political and civil unrest; volatility and deterioration of capital and financial markets, including pandemics (such as the COVID-19 pandemic); terrorist attacks in Europe and elsewhere; the remediation of the material weaknesses; our ability to realize the anticipated benefits from our business initiatives as part of CNHI's strategic plan including targeted restructuring actions to optimize CNHI's cost structure and improve the efficiency of its operations; CNHI's failure to realize, or a delay in realizing, all of the anticipated benefits of its acquisitions, joint ventures, strategic alliances or divestitures and other similar risks and uncertainties, and our and CNHI's success in managing the risks involved in the foregoing.
Forward-looking statements are based upon assumptions relating to the factors described in this filing, which are sometimes based upon estimates and data received from third parties. Such estimates and data are often revised. Actual results may differ materially from the forward-looking statements as a result of a number of risks and uncertainties, many of which are outside of our control. CNH Capital expressly disclaims any intention or obligation to provide, update or revise any forward-looking statements to reflect any change in expectations or any change in events, conditions or circumstances on which these forward-looking statements are based.
Further information concerning CNH Capital, including factors that potentially could materially affect its financial results, is included in the Company's reports and filings with the U.S. Securities and Exchange Commission ("SEC").
All future written and oral forward-looking statements by CNH Capital or persons acting on the behalf of CNH Capital are expressly qualified in their entirety by the cautionary statements contained herein or referred to above.
Additional factors could cause actual results to differ from those expressed or implied by the forward-looking statements included in the Company's filings with the SEC (including, but not limited to, the factors discussed in our 2023 Annual Report and subsequent quarterly reports).
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Exchange Act of 1934. Based on this evaluation, our principal executive officer and principal financial officer concluded that due to two material weaknesses in our internal control over financial reporting (better described below and respectively relating to the design and implementation of information technology ("IT") general controls in certain areas related to our enterprise resource planning ("ERP") application and the classification of certain items within our Statement of Cash Flows), our disclosure controls and procedures were not effective as of June 30, 2024.
38
Table of Contents
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis.
As of September 30, 2023, as previously reported, we identified a material weakness in our internal control over financial reporting, which persisted as of June 30, 2024. The material weakness relates to the design and implementation of IT general controls in the areas of user access limits and segregation of duties related to our ERP application.
In addition, as of December 31, 2023, as previously reported, we determined that we have an additional material weakness in our internal control over financial reporting, which persisted as of June 30, 2024. This material weakness relates to the design and implementation of general controls over classification in our Statement of Cash Flows of changes in certain intercompany and operating lease receivables from our investing activities, and of bond discounts and debt issuance costs from our debt financing activities.
These control deficiencies have not resulted in the need to revise any previously published financial results. However, the IT deficiency if not timely remediated, could impact maintaining effective segregation of duties and the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatements to one or more assertions, and IT controls and underlying data that support the effectiveness of IT system-generated data and reports). The classification deficiency in the Statement of Cash Flows, if not timely remediated, could impact the proper classification of certain amounts deriving from operating, investing or financing activities.
These control deficiencies could have resulted in a misstatement of one or more account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected, and accordingly, we determined that these control deficiencies constitute material weaknesses.
Management's Plan to Remediate the Material Weaknesses
Subsequent to the identification of the material weaknesses, we have been implementing measures and taking steps to address the underlying causes of the material weaknesses.
With respect to the IT-related material weakness, our efforts have included enhancing our IT general controls framework that addresses risks associated with user access and security, application change management and IT operations. We are implementing enhanced compensating controls and providing focused training for control owners to help sustain effective control operations and comprehensive remediation efforts relating to segregation of duties to strengthen user access controls and security.
With respect to the material weakness relating to the classification of items within our Statement of Cash Flows, our management plans to enhance the Company's controls and review activity to assess and validate the classification of items in the operating, investing or financing sections within our Statement of Cash Flows. The Company's remediation plan is expected to include the following actions: (i) reviewing and enhancing the Company's organizational structure including technical training and supervision of individuals responsible for the preparation and review of the Statement of Cash Flows; and (ii) engaging with third-party resources to assist with the enhancement and formalization of roles and review responsibilities related to the technical review process for the Statement of Cash Flows.
While we believe these efforts have improved, and will continue to improve, our internal controls and address the underlying causes of the material weaknesses, the material weaknesses will not be remediated until our remediation plans have been fully implemented and tested and we have concluded that following the improvements to our internal controls, our current control environment is operating effectively for a sufficient period of time. In particular, the enhanced compensating controls and training will require time to test and assess. We cannot be certain that the steps we are taking will be sufficient to remediate the control deficiencies that led to the material weaknesses in our internal control over financial reporting or prevent future material weaknesses or control deficiencies from occurring. In addition, we cannot be certain that we have identified all material weaknesses in our internal control over financial reporting, or that in the future we will not have additional material weaknesses in our internal control over financial reporting.
39
Table of Contents
Changes in Internal Control over Financial Reporting
As described above, the Company is taking steps to remediate the material weaknesses noted above. Other than in connection with these remediation steps, there have been no changes in our internal control over financial reporting during the three months ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Disclosure Controls and Procedures and Internal Control over Financial Reporting
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to the costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
CNH 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 Capital's financial position or results of operations.
Item 1A. Risk Factors
See our most recent annual report on Form 10-K (Part I, Item 1A). There was no material change in our risk factors during the three months ended June 30, 2024.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
40
Table of Contents
Item 6. Exhibits
|
||
Exhibit |
|
Description |
22 |
|
Issuer and Guarantors of Guaranteed Securities |
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.INS |
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are imbedded within the Inline XBRL document) |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover page Interactive Data File is formatted in Inline XBRL and included in Exhibits 101 |
† |
These certifications are deemed not filed for purposes of 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.
41
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
||
|
CNH INDUSTRIAL CAPITAL LLC |
||
Date: August 2, 2024 |
/s/ Douglas MacLeod |
||
Douglas MacLeod, Chairman and President |
|||
(Principal Executive Officer) |
|
|
||
Date: August 2, 2024 |
/s/ Daniel Willems Van Dijk |
||
Daniel Willems Van Dijk, Chief Financial Officer and Assistant Treasurer |
|||
(Principal Financial Officer) |
42