The following discussion of liquidity and capital resources principally focuses on CNH Industrial’s consolidated statement of financial position and CNH Industrial’s consolidated statement of cash flows.
Statement of financial position review
Statement of Financial Position by Activity
|($ million)||At December 31, 2014||At December 31, 2013(1)|
|Consolidated||Industrial Activities||Financial Services||Consolidated||Industrial Activities||Financial Services|
|Other intangible assets||3,537||3,515||22||3,532||3,518||14|
|Property, plant and equipment||6,733||6,730||3||6,967||6,962||5|
|Investments and other financial assets||690||3,122||136||758||3,136||129|
|Defined benefit plan assets||20||19||1||44||43||1|
|Deferred tax assets||1,655||1,460||195||1,672||1,485||187|
|Total Non-current assets||16,647||17,225||1,990||16,546||17,553||1,500|
|Receivables from financing activities||21,472||4,788||22,724||21,986||5,853||23,655|
|Current taxes receivable||324||200||124||348||332||16|
|Other current assets||1,434||1,137||588||1,900||1,284||951|
|Current financial assets:||205||198||9||261||254||10|
|Other financial assets||205||198||9||261||254||10|
|Cash and cash equivalents||6,141||4,123||2,018||6,489||4,010||2,479|
|Total Current assets||37,770||18,448||25,718||39,882||20,511||27,295|
|Assets held for sale||24||4||20||34||10||24|
|Other financial liabilities||235||221||16||94||78||19|
|Current taxes payable||206||114||92||418||393||25|
|Deferred tax liabilities||399||191||208||302||197||105|
|Other current liabilities||3,955||3,729||515||4,143||4,034||441|
|Liabilities held for sale||-||-||-||-||-||-|
|TOTAL EQUITY AND LIABILITIES||54,441||35,677||27,728||56,462||38,074||28,819|
(1) Amounts recast in order to reflect the change in presentation currency from euro to U.S. dollar. For additional information, refer to the section “Significant accounting policies”, paragraph “Change in presentation currency” in the Notes to the Consolidated Financial Statements.
At December 31, 2014, total assets amounted to $54,441 million, a decrease of $2,021 million compared to $56,462 million at year-end 2013.
Non-current assets totaled $16,647 million, an increase of $101 million over year-end 2013, primarily attributable to investments for the year (net of amortization/depreciation).
Current assets decreased $2,112 million to $37,770 million at year-end 2014. The change was primarily attributable to a decrease in receivables from financing activities ($514 million), in other current assets ($466 million), in inventories ($396 million), in trade receivables ($308 million) and in cash and cash equivalents ($348 million).
Receivables from financing activities totaled $21,472 million at December 31, 2014. Net of currency translation differences and write-downs, there was a $799 million increase mainly relating to increases in retail and wholesale receivables in NAFTA and wholesale receivables in LATAM.
Working capital (net of items relating to vehicles sold under buy-back commitments and vehicles no longer subject to lease agreements that are held in inventory) was positive at $1,488 million, representing a $573 million increase for the year.
|($ million)||At December 31, 2014||At December 31, 2013||Change|
|Net current taxes receivable/(payable) & other current receivables/(payables)||(b)||(441)||(412)||(29)|
(a) Inventories are repor ted net of vehicles held for sale by Commercial Vehicles segment that have been bought back (under buy-back commitments) or returned following expiry of a lease agreement.
(b) Other current payables, included under Net current taxes receivable/(payable) & other current receivables/(payables), are stated net of amounts due to customers in relation to vehicles sold under buy-back commitments, which consist of the repurchase amount payable at the end of the lease period, together with the value of any lease installments received in advance. The value at the beginning of the contract period, equivalent to the difference between the sale price and the repurchase amount, is recognized on a straight-line basis over the contract period.
Working capital increased $705 million over the year on a comparable scope of operations and on a constant currency basis.
At December 31, 2014, trade receivables, other receivables and receivables from financing activities falling due after that date and sold without recourse (and, therefore, eliminated from the statement of financial position pursuant to the derecognition requirements of IAS 39) totaled $654 million ($1,091 million at December 31, 2013).
At December 31, 2014, CNH Industrial’s debt was $29,701 million ($29,946 million at the end of 2013) of which $13,587 million ($14,727 million at December 31, 2013) related to asset-backed financing operations. Remaining debt of $16,114 million at December 31, 2014 ($15,219 million at the end of 2013) included bonds of $9,519 million ($7,329 million at the end of 2013), bank loans of $5,547 million ($7,101 million at the end of 2013) and other indebtedness of $1,048 million ($789 million at the end of 2013). Debt decreased $245 million during 2014, mainly reflecting a decrease of $1,997 million due to currency translation impact, a decrease of $507 million in asset-backed financing, a net decrease of $497 million in bank debt, net of $2,759 million in new bond issues. See Note 27 to the CNH Industrial Consolidated Financial Statements for additional information on CNH Industrial’s indebtedness at December 31, 2014, including a table summarizing the maturity profile and interest rates payable on its outstanding bonds at that date.
At December 31, 2014, CNH Industrial’s net debt (a non-GAAP measure which is calculated as debt plus other financial liabilities, net of cash, cash equivalents, current securities and other financial assets, all as recorded in the consolidated statement of financial position) was $23,590 million, an increase of $300 million, or 1.3%, compared with the $23,290 million at the end of 2013. Cash from operating activities was more than offset by the increase in the loan portfolios of Financial Services, as well as by capital expenditures and dividend distributions during the year. Currency translation differences positively affected net debt by $1,824 million.
The following table details CNH Industrial’s net debt at December 31, 2014 and 2013, and provides a reconciliation of this non-GAAP measure to debt, the most directly comparable measure included in CNH Industrial’s consolidated statement of financial position. Net debt is one of management’s primary measures for analyzing CNH Industrial’s debt and managing its liquidity, because CNH Industrial believes this measure illustrates how much indebtedness would remain if all of CNH Industrial’s available liquid resources were applied to the repayment of debt.
Due to different sources of cash flows used for the repayment of the debt between Industrial Activities and Financial Services (by cash from operations for Industrial Activities and by collection of financing receivables for Financial Services), management separately evaluates the cash flow performance of Industrial Activities using the net debt of Industrial Activities (i.e., net industrial debt). Net industrial debt is the principal indicator of changes in financial structure and, as such, is one of the key targets used to measure Group performance.
|($ million)||At December 31, 2014||At December 31, 2013|
|Consolidated||Industrial Activities||Financial Services||Consolidated||Industrial Activities||Financial Services|
|Intersegment financial receivables(1)||-||4,692||1,348||-||5,707||1,815|
|Debt, net of intersegment balances||(29,701)||(6,974)||(22,727)||(29,946)||(6,381)||(23,565)|
|Other financial assets (2)||205||198||9||261||254||10|
|Other financial liabilities (2)||(235)||(221)||-16||(94)||(78)||(19)|
|Cash and cash equivalents||6,141||4,123||2,018||6,489||4,010||2,479|
At December 31, 2014, liquidity totaled $6,141 million (down $348 million over the $6,489 million at year-end 2013). Cash and cash equivalents included $978 million at December 31, 2014 ($922 million at December 31, 2013) of restricted cash the use of which is primarily limited to the repayment of the debt relating to securitizations classified as asset-backed financing.
Based on changes to the way Venezuela’s exchange rate mechanism operates, CNH Industrial changed the Bs.F. rate used to re-measure its Venezuelan Commercial Vehicles operations financial statements in U.S. dollars. Effective March 31, 2014, CNH Industrial started to use the exchange rate determined by U.S. dollar auctions conducted under Venezuela’s Complementary System of Foreign Currency Administration (SICAD I). The SICAD I exchange rate which CNH Industrial used at December 31, 2014 is 12.0 Bs.F. to the U.S. dollar compared with a previously used Official Exchange Rate of 6.3 Bs.F. to the U.S. dollar before March 31, 2014. At December 31, 2014, CNH Industrial’s Venezuelan subsidiary had net monetary assets of $125 million at 12.0 Bs.F., including $106 million of cash and cash equivalents. As the SICAD I rate is based on periodic auctions, there may be significant changes to the exchange rate in future years, as well as other related developments in Venezuela, which may impact CNH Industrial’s Consolidated Financial Statements.
Total available liquidity (including $2,716 million and $2,224 million in undrawn committed facilities at year-end 2014 and 2013, respectively) increased $144 million to $8,857 million, as proceeds from three capital markets issuances (€1 billion bond, 2.75% due March 2019; a €700 million bond, 2.875% due September 2021, both issued by CNH Industrial Finance Europe S.A., and a $500 million bond, 3.375% due July 2019, issued by CNH Industrial Capital LLC) more than offset cash utilized by increase in working capital, by capital expenditures, by reduction of bank debt and by dividend payments and negative currency translation. During the year, a €1.75 billion five-year committed revolving credit facility was signed, replacing an existing €2 billion three-year committed revolving credit facility due to mature in February 2016.
CNH Industrial has traditionally relied upon the ABS market and committed asset-backed facilities as a primary source of funding and liquidity.
The Group carried out term securitizations for a total amount of $3,448 million in 2014 ($5,332 million in 2013). CNH Industrial also established or renewed wholesale securitized credit facilities for a total commitment amount of $4,946 million in 2014 ($2,245 million in 2013) and retail securitized credit facilities for a total commitment amount of $2,167 million in 2014 ($2,401 million in 2013).
In January, 2014, CNH Industrial and BNP Paribas reached an agreement to extend the joint venture services (retail financing) to CNH Industrial’s Commercial Vehicles business in Italy, Germany, France, the United Kingdom and other major European markets. As a result of this increase in scope, CNH Industrial Capital Europe is now the captive finance company for all the Group’s current businesses in major European countries.
In 2013, Financial Services further diversified its sources of funding for the Commercial Vehicle business (end customers and dealers) through new arrangements, including receivables factoring agreements and revolving unsecured credit facilities. A pan-European securitization program set in place in 2011, with a maximum amount of $827 million, continued to ensure the funding of dealer financing activities.
Change in Net Industrial Debt
|Net industrial (debt)/cash at beginning of the year||(2,195)||(2,166)|
|Amortization and depreciation (net of vehicles sold under buy-back commitments and operating lease)||1,145||994|
|Change in provisions for risks and charges and similar||(115)||84|
|Change in working capital||(942)||192|
|Investments in property, plant and equipment and intangible assets (net of vehicles sold under buy-back commitments and operating lease)||(1,681)||(1,979)|
|Change in consolidation scope and other changes||(193)||20|
|Net industrial cash flow||(870)||529|
|Capital increases and dividends||(364)||(374)|
|Currency translation differences||555||(184)|
|Change in net industrial debt||(679)||(29)|
|Net industrial (debt)/cash at end of year||(2,874)||(2,195)|
During 2014, net industrial debt increased $679 million to $2,874 million. Cash generation in the operations before changes in working capital contributed for $1,946 million. Changes in working capital negatively impacted by $942 million, mainly due to lower payables as a result of the relevant production curtailments in Agricultural Equipment in the fourth quarter, and of Commercial Vehicles in EMEA returning to normalized levels of production as compared to prior year’s Euro V pre-buy activity, as well as in LATAM operations. Capital expenditures activity totaled $1,681 million and dividend payments, net of capital increases, were $364 million. Currency translation differences positively affected net industrial debt by $555 million.
Changes in Net Debt of Financial Services
Net debt of Financial Services at December 31, 2014 was $379 million lower than year-end 2013. The decrease mainly reflects positive currency translation differences ($1,269 million) and cash from operating activities ($329 million), partially offset by the increase in the lending portfolio ($1,004 million) and dividend distributions of $160 million.
Cash flow analysis
CNH Industrial’s operations are capital intensive and subject to seasonal variations in financing requirements for dealer receivables and dealer and company inventories.
CNH Industrial finances its operations through cash flows generated by operations, issuance of bonds and other medium-term borrowings, as well as securitization transactions which principally provide funding and liquidity to Financial Services.
In 2014 operating activities generated $1,173 million of cash. Investing activities absorbed a total of $2,380 million of cash to fund capital expenditures of $1,698 million and increases in receivables from financing activities of $923 million. Financing activities generated a total of $1,373 million in cash.
In 2013, operating activities generated $2,437 million in cash. Investing activities absorbed a total of $4,555 million of cash to fund capital expenditures of $1,985 million and increases in financial receivables of $2,399 million. Financing activities generated a total of $2,532 million in cash.
Statement of Cash Flows by Activity
|($ million)||Consolidated||Industrial Activities||Financial Services||Consolidated||Industrial Activities||Financial Services|
|A)||CASH AND CASH EQUIVALENTS AT BEGINNING OFYEAR||6,489||4,010||2,479||6,084||3,890||2,194|
|B)||CASH FROM/(USED IN) OPERATING ACTIVITIES:|
|Amortization and depreciation (net of vehicles sold under buy-back commitments and operating lease)||1,151||1,145||6||997||994||3|
|(Gains)/losses on disposal of non-current assets (net of vehicles sold under buy-back commitments) and other non-cash items||156||(340)||132||66||(383)||110|
|Change in provisions||(70)||(66)||(4)||132||128||4|
|Change in deferred taxes||108||35||73||(49)||(52)||3|
|Changes relating to buy-back commitments||(a)||111||4||107||105||44||61|
|Changes relating to operating lease||(b)||(582)||4||(586)||(210)||3||(213)|
|Change in working capital||(705)||(942)||237||97||192||(95)|
|C)||CASH FROM/(USED IN) INVESTING ACTIVITIES:|
|Property, plant and equipment and intangible assets (net of vehicles sold under buy-back commitments and operating lease)||(1,698)||(1,681)||(17)||(1,985)||(1,979)||(6)|
|Subsidiaries and other investments||(104)||(117)||-||(113)||(124)||-|
|Proceeds from the sale of non-current assets (net of vehicles sold under buy-back commitments)||25||25||-||7||7||-|
|Net change in receivables from financing activities||(923)||81||(1,004)||(2,399)||(41)||(2,358)|
|Change in current securities||-||-||-||5||-||5|
|D)||CASH FROM/(USED IN) FINANCING ACTIVITIES:|
|Net change in debt and other financial assets/liabilities||1,737||995||742||2,906||(467)||3,373|
|Increase in share capital||18||18||13||4||4||11|
|(Purchase)/sale of treasury shares||-||-||-||8||8||-|
|(Purchase)/sale of ownership interests in subsidiaries||-||-||-||(18)||(18)||-|
|Currency translation differences||(514)||(389)||(125)||(9)||28||(37)|
|E)||NET CHANGE IN CASH AND CASH EQUIVALENTS||(348)||113||(461)||405||120||285|
|F)||CASH AND CASH EQUIVALENTS AT END OFYEAR||6,141||4,123||2,018||6,489||4,010||2,479|
(a) Cash generated from the sale of vehicles under buy-back commitments, net of amounts included in profit/(loss), are recognized under operating activities in a single line item, which includes changes in working capital, capital expenditure, depreciation and impairment losses. The item also includes gains and losses arising from the sale of vehicles subject to buy-back commitments before the end of the agreement and without repossession of the vehicle.
(b) Cash from operating lease is recognized under operating activities in a single line item, which includes capital expenditure, depreciation, write-downs and changes in inventory.
Net Cash from Operating Activities
Cash generated by operating activities in 2014 totaled $1,173 million (compared to $2,437 million in cash generated in 2013) and comprised the following elements:
- $916 million profit for 2014;
- plus $1,151 million in non-cash charges for depreciation and amortization (net of vehicles sold under buy-back commitments and operating lease);
- plus $156 million in (gains)/losses on disposal and other non-cash items;
- plus $88 million in dividends received, minus changes in provisions of $70 million and plus change in deferred income taxes of $108 million; and
- plus $111 million for changes in items due to buy-back commitments, minus $582 million for changes in operating lease items and minus $705 million in change in working capital.
In 2013, $2,340 million of the $2,437 million in cash generated by operating activities during the year was from income-related cash inflows (calculated as profit plus amortization and depreciation, dividends, changes in provisions and deferred taxes, various items related to sales with buy-back commitments and operating lease, net of gains/losses on disposals and other non-cash items) with $97 million resulting from an increase in working capital (calculated on a comparable scope of operations and on a constant currency basis).
Net Cash from Investing Activities
In 2014, investing activities absorbed $2,380 million in cash (compared to $4,555 million in cash absorbed by investing activities in 2013). The negative flows were mainly generated by:
- investments in tangible and intangible assets that used $1,698 million in cash (compared to $1,985 million used in 2013), including $676 million in capitalized development costs. Investments in tangible and intangible assets are net of investments in vehicles for CNH Industrial’s longterm rental operations and of investments relating to vehicles sold under buy-back commitments, which are reflected in cash flows relating to operating activities; and
- $923 million increase in receivables from financing activities, primarily as a result of higher levels of financing provided to both dealers and customers in NAFTA and dealers in LATAM.
In 2013, cash used in investing activities totaled $4,555 million. Expenditure on tangible and intangible assets (including $759 million in capitalized development costs) totaled $1,985 million. The increase in receivables from financing activities, which accounts for cash absorption of $2,399 million, related primarily to dealer and customer financing for Agricultural Equipment and Construction Equipment.
The following table summarizes CNH Industrial’s investments in tangible and intangible assets by segment for each of the years ended December 31, 2014 and 2013:
|Eliminations and Other||5||1|
|Total of Industrial Activities||1,681||1,979|
The Group incurred these capital expenditures to acquire property, plant and equipment necessary to introduce and manufacture new products, enhance CNH Industrial’s manufacturing efficiency and implement further environmental and safety programs.
Net Cash from Financing Activities
In 2014, cash generated from financing activities totaled $1,373 million (compared to a total of $2,532 million cash generated in 2013). New bond issues ($2,759 million) and issuance of medium-term borrowings ($2,306 million) were partially offset by repayments and by dividend payments of $382 million.
Cash generated from financing activities totaled $2,532 million in 2013. New bond issues ($1,100 million) and issuance of medium-term borrowings ($2,520 million) were partially offset by repayments and by dividend payments of $368 million.
Statement of Cash Flows by Activity
For 2014, Industrial Activities generated cash and cash equivalents totaling $113 million. In particular:
- operating activities generated $1,004 million in cash, primarily related to profit adjusted for amortization and depreciation, gains/losses on disposals and other non-cash items, changes in provisions and deferred taxes, items related to vehicles sold under buy-back commitments and operating lease and dividends received, totaling $1,946 million, and to an increase in working capital of $942 million (on a comparable scope of operations and on a constant currency basis);
- investing activities absorbed a total of $1,133 million in cash, primarily related to investments in fixed assets and in subsidiaries and other equity investments ($1,798 million), partially offset by the changes in financial receivables from/debt payable to Financial Services (included under other changes); and
- financing activities generated cash of $631 million, essentially due to new bond issues ($2,259 million), medium-term borrowing issuances ($1,032 million), partially offset by borrowing repayments ($2,093 million) and by the distribution of dividends ($382 million).
At December 31, 2014, cash and cash equivalents for Financial Services totaled $2,018 million, down $461 million from December 31, 2013.
Changes in cash for Financial Services were attributable to:
- operating activities, which generated $329 million in cash, mainly deriving from income-related cash inflows;
- investing activities (including changes in financial receivables from/debt payable to Industrial Activities), which absorbed $1,260 million in cash, with a $1,004 million increase in the loan portfolio; and
- financing activities, which generated a total of $595 million in cash, mainly from proceeds from a new bond issuance ($500 million).
The funding requirements and liquidity of CNH Industrial’s companies are managed on a standard and centralized basis. This centralized system is aimed at optimizing the efficiency, effectiveness and security of CNH Industrial’s management of capital resources.
In the major jurisdictions where CNH Industrial operates, its subsidiaries participate in a Group-wide cash management system. In these jurisdictions, the cash balances of all CNH Industrial’s companies are aggregated at the end of each business day to central pooling accounts.
The centralized treasury management offers professional financial and systems expertise in managing these accounts, as well as providing related services and consulting to CNH Industrial’s business segments.
In the continuing environment of uncertainty in the financial markets, CNH Industrial’s policy is to keep a high degree of flexibility with its funding and investment options in order to maintain its desired level of liquidity. In managing its liquidity requirements, CNH Industrial is pursuing a financing strategy that includes open access to a variety of financing sources, including capital markets, bank credit lines and ABS transactions.
A summary of CNH Industrial’s strategy is set forth below:
- to fund Industrial Activities’ short-term financing requirements and to ensure near-term liquidity, Industrial Activities will continue to sell certain of its receivables to Financial Services and rely on internal cash flows including managing working capital. CNH Industrial will also supplement its short-term financing by drawing on existing or new credit lines with banks;
- to the extent funding needs of Industrial Activities are determined to be of a longer-term nature, CNH Industrial may access public mediumterm debt markets as well as private investors and banks, as appropriate, to refinance borrowings and replenish its liquidity; and
- Financial Services’ funding strategy is to maintain a sufficient level of liquidity and flexible access to a wide variety of financial instruments. CNH Industrial expects securitizations, intersegment borrowings and sale of receivables (factoring) to continue to represent a substantial portion of its capital structure. However, CNH Industrial will continue to diversify its funding sources and expand its investor base within Financial Services to create a stand-alone funding profile and support the target of investment grade credit ratings. CNH Industrial will continue to look at the public ABS market as an important source of funding in North America and Australia. In addition to its current funding and liquidity sources, which include a combination of term receivables, securitizations, committed asset-backed facilities and unsecured and secured borrowings, CNH Industrial expects changes to its funding profile as costs and terms of accessing the unsecured term market are favorable. In addition to offering unsecured notes and accessing unsecured committed bank facilities, Financial Services will continue to evaluate financing alternatives to further diversify its funding base. CNH Industrial will tailor its offerings to improve investor interest in the Group’s securities while optimizing economic factors and reducing execution risks.
On a global level, CNH Industrial will continue to evaluate alternatives to ensure that Financial Services has access to capital on favorable terms to support its business, including agreements with global or regional partners, new funding arrangements or a combination of the foregoing.
CNH Industrial’s access to external sources of financing, as well as the cost of financing, is dependent on various factors, including its credit ratings.
Currently, CNH Industrial is rated below investment grade, with long-term corporate credit ratings of “BB+” (with a stable outlook) and a shortterm rating of “B” from S&P, and a “Ba1” corporate family rating with a stable outlook from Moody’s. A credit rating is not a recommendation to buy, sell or hold securities. Ratings may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. A deterioration in CNH Industrial’s ratings could impair its ability to obtain debt financing and would increase the cost of such financing. Ratings are influenced by a number of factors, including, among others: financial leverage on an absolute basis or relative to peers, the composition of the balance sheet and/or capital structure, material changes in earnings trends and volatility, ability to dividend monies from subsidiaries and CNH Industrial’s competitive position. Material deterioration in any one, or a combination, of these factors could result in a downgrade of CNH Industrial’s ratings, thus increasing the cost, and limiting the availability, of financing.
At December 31, 2014, CNH Industrial’s debt was $29,701 million ($29,946 million at the end of 2013) of which $13,587 million ($14,727 million at December 31, 2013) related to asset-backed financing operations. Remaining debt of $16,114 million at December 31, 2014 ($15,219 million at the end of 2013) included bonds of $9,519 million ($7,329 million at the end of 2013), bank loans of $5,547 million ($7,101 million at the end of 2013) and other indebtedness of $1,048 million ($789 million at the end of 2013).
At December 31, 2014, the principal amount of bonds outstanding amounted to $9,339 million, net of hedge accounting effect and amortized cost valuation of $180 million. For information on the terms and conditions of the bonds, including applicable financial covenants, see Note 27 to the CNH Industrial Consolidated Financial Statements.
CNH Industrial has a Global Medium Term Note Program (“GMTN”), which was established in February 2011 and has a total authorized amount of €10 billion, equivalent to $12 billion, allowing for the placement of debt securities with institutional investors. At December 31, 2014, €3,900 million ($4,735 million) was outstanding under the program, all such debt having been issued by CNH Industrial Finance Europe S.A. and guaranteed by CNH Industrial N.V.
On November 21, 2014, CNH Industrial refinanced the €2 billion ($2.4 billion) three-year, multi-currency revolving credit facility due in February 2016 with a €1.75 billion ($2.1 billion) five-year multi-currency revolving credit facility. The facility, expires in November 2019 and includes typical provisions for contracts of this type and size such as:
- financial covenants (Net debt/EBITDA and EBITDA/Net interest ratios relating to Industrial Activities) and other customary covenants (including a negative pledge, pari passu and restrictions on the incurrence of indebtedness by certain subsidiaries);
- customary events of default (some of which are subject to minimum thresholds and customary mitigants), including cross-default provisions, failure to pay amounts due or to comply with certain provisions under the loan agreement and the occurrence of certain bankruptcy-related events; and
- mandatory prepayment obligations upon a change in control of CNH Industrial or the borrowers.
The failure to comply with the above provisions, in certain cases if not suitably remedied, can lead to the requirement to make early repayment of the outstanding loans.
CNH Industrial N.V. has guaranteed any borrowings under the revolving credit facility with cross-guarantees from each of the Borrowers (i.e., CNH Industrial Finance S.p.A., CNH Industrial Finance Europe S.A., CNH Industrial Finance North America Inc.).
For more information on CNH Industrial’s outstanding indebtedness, see Note 27 to the CNH Industrial Consolidated Financial Statements.
During 2014, CNH Industrial Capital LLC (formerly known as CNH Capital LLC, a Financial Services subsidiary in NAFTA) continued to diversify its funding sources and issued debt securities in the amount of $500 million, at an annual fixed rate of 3.375%, due in 2019. In 2013, CNH Industrial Capital LLC entered into two issuances of debt securities, for an aggregate amount of $1.1 billion. The first issue of debt securities was in the amount of $600 million, at an annual fixed rate of 3.625% due 2018; the second issue of debt securities was in the amount of $500 million, at an annual fixed rate of 3.25% due in 2017.
CNH Industrial also sells certain of its finance, trade and tax receivables to third parties in order to improve liquidity, to take advantage of market opportunities and, in certain circumstances, to reduce credit and concentration risk in accordance with its risk management objectives.
The sale of financial receivables is executed primarily through securitization transactions and involves mainly accounts receivable from final (retail) customers and from the network of dealers to Financial Services.
At December 31, 2014, CNH Industrial’s current receivables included receivables sold and financed through both securitization and factoring transactions of $15,301 million ($15,916 million at December 31, 2013), which do not meet IAS 39 derecognition requirements and therefore must be recorded on CNH Industrial’s statement of financial position. These receivables are recognized as such in CNH Industrial’s financial statements even though they have been legally sold; a corresponding financial liability is recorded in the consolidated statement of financial position as debt in Asset-backed financing, as described above (see Note 19 to the CNH Industrial Consolidated Financial Statements).
At December 31, 2014, the Group had discounted receivables without recourse having due dates after December 31, 2014 (and meeting IAS 39 requirements for derecognition) amounting to $654 million ($1,091 million at December 31, 2013, with due dates after that date), which refer to trade receivables and other receivables for $585 million ($1,043 million at December 31, 2013) and receivables from financing activities for $69 million ($48 million at December 31, 2013).
CNH Industrial has adopted formal policies and decision-making processes aimed at optimizing its overall financial situation and the allocation of financial funds, cash management processes and financial risk management. CNH Industrial’s liquidity needs could increase in the event of an extended economic slowdown or recession that would reduce its cash flow from operations and impair the ability of its dealers and retail customers to meet their payment obligations. Any reduction of CNH Industrial’s credit ratings would increase its cost of funding and potentially limit its access to the capital markets and other sources of financing.
CNH Industrial believes that funds available under its current liquidity facilities, those realized under existing and planned asset-backed securitization programs and issuances of debt securities and those expected from ordinary course refinancing of existing credit facilities, together with cash provided by operating activities, will allow CNH Industrial to satisfy its debt service requirements for the coming year. At December 31, 2014 CNH Industrial had available committed lines of credit expiring after twelve months of $2.7 billion.
CNH Industrial’s securitized debt is repaid with the cash generated by the underlying amortizing receivables. Accordingly, additional liquidity is not normally necessary for the repayment of such debt. CNH Industrial has traditionally relied upon the term ABS market and committed asset-backed facilities as a primary source of funding and liquidity.
If CNH Industrial were unable to obtain ABS funding at competitive rates, its ability to conduct financing business would be limited.
Off-Balance Sheet Arrangements
CNH Industrial uses certain off-balance sheet arrangements with unconsolidated third parties in the ordinary course of business, including financial guarantees. CNH Industrial’s arrangements are described in more detail below. For additional information, see Note 30 to the CNH Industrial Consolidated Financial Statements.
CNH Industrial’s financial guarantees require it to make contingent payments upon the occurrence of certain events or changes in an underlying instrument that is related to an asset, a liability or the equity of the party in the interest of which the guarantee was issued. These guarantees include arrangements that are in some cases direct obligations, giving the guaranteed party a direct claim against CNH Industrial, or in other cases indirect obligations, under which CNH Industrial has agreed to provide the funds necessary for the party in the interest of which the guarantee was issued to satisfy an obligation.
At December 31, 2014, CNH Industrial had granted guarantees on the debt or commitments of third parties or unconsolidated subsidiaries, joint ventures and associated entities totaling $383 million ($513 million at December 31, 2013). These guarantees mainly consist of obligations of certain CNH Industrial’s companies undertaken in the interest of certain dealers in relation to bank financings, as well as performance guarantees in the interest of a joint venture of Commercial Vehicles.
The following table sets forth CNH Industrial’s contractual obligations and commercial commitments with definitive payment terms that will require significant cash outlays in the future, as of December 31, 2014:
|At December 31, 2014||At December 31, 2013|
|($ million)||within one year||between one and three years||between three and five years||beyond five|
|between one and three years||between three and five years||beyond five|
|Long-term debt obligations(*):|
|Borrowings from banks||1,218||1,885||1,237||163||4,503||837||3,660||716||240||5,453|
|Total Long-term debt obligations||9,825||10,398||6,972||1,129||28,324||8,508||12,040||7,009||442||27,999|
|Capital (Finance) lease obligations||7||13||14||30||64||8||15||12||39||74|
|Operating lease obligations||72||95||51||35||253||65||88||54||48||255|
|Uncertain tax positions(1)||18||-||138||-||156||15||-||237||-||252|
|Total Contractual obligations||11,002||11,078||7,321||1,214||30,615||9,634||12,668||7,446||559||30,307|
(*) Amounts presented exclude the related interest expense that will be paid when due. The table above does not include short term debt obligations; furthermore, it does not include obligations for pension plans, health care plans, other post-employment benefits and other employee benefits. CNH Industrial’s best estimate of expected contributions in 2015 to pension plans and healthcare plans is $28 million and zero, respectively. Potential outflows in the years after 2015 are subject to a number of uncertainties, including future asset performance and changes in assumptions, and therefore CNH Industrial is unable to make sufficiently reliable estimates of future contributions beyond that period.
(1) The total amount of CNH Industrial’s tax contingencies was $156 million at December 31, 2014. Payment of these liabilities would result from settlements with tax authorities. CNH Industrial estimates that settlements with tax authorities may result in payment of $18 million of these liabilities in 2015 and a final refund of $20 million from Canada related to the 2013 transfer pricing settlement reached with the U.S. and Canada competent authorities. Because of the high degree of uncertainty relating to the timing of future cash outflows associated with these liabilities, CNH Industrial is unable to reasonably estimate the timing of any settlement with tax authorities after 2015.
Long-Term Debt Obligations
For information on CNH Industrial’s long-term debt obligations, see “Capital Resources” above and Note 27 to the CNH Industrial Consolidated Financial Statements.
The Long-term debt obligations reflected in the table above can be reconciled to the amount in the December 31, 2014 statement of financial position as follows:
|($ million)||Note||At December 31, 2014||At December 31, 2013|
|Debt reflected in the statement of financial position||(27)||29,701||29,946|
|Less: Capital (Finance) lease obligations||(27)||(64)||(74)|
|Total debt obligations||29,637||29,872|
|Less: Short-term debt obligations||(1,313)||(1,873)|
|Long-term debt obligations as reported||28,324||27,999|
The amount reported as Long-term debt obligations in the table above is that of CNH Industrial’s bonds, borrowings from banks, asset-backed financing and other debt (excluding finance lease obligations, which are reported in a separate line item in the table above), that at inception had a contractual maturity greater than one year.
Capital (Finance) Lease Obligations
CNH Industrial’s capital leases consist mainly of industrial buildings and plant, machinery and equipment used in CNH Industrial’s businesses.
The amounts reported above include the minimum future lease payments and payment commitments due under such leases. For information on CNH Industrial’s capital leases, see Note 27 to the CNH Industrial Consolidated Financial Statements.
Operating Lease Obligations
CNH Industrial’s operating leases consist mainly of leases for commercial and industrial properties used in carrying out CNH Industrial’s businesses. The amounts reported above under “Operating lease obligations” include the minimal rental and payment commitments due under such leases.
CNH Industrial’s purchase obligations at December 31, 2014, included the following:
- the repurchase price guaranteed to certain customers on sales with a buy-back commitment which is included in the line item Other current receivables in CNH Industrial’s consolidated statement of financial position in an aggregate amount of $1,421 million; and
- commitments to purchase tangible fixed assets, largely in connection with planned capital expenditures of various Group companies, in an aggregate amount of approximately $397 million.