Principal Office: 25 St. James’s Street, London, SW1A 1HA, United Kingdom
Share Capital: €17,608,744.72 (as of June 30, 2021)
Amsterdam Chamber of Commerce: reg. no. 56532474
Contents 1
BOARD OF DIRECTORS AND
AUDITOR
BOARD OF DIRECTORS
Chair
Suzanne Heywood
INDEPENDENT AUDITOR
Ernst & Young Accountants LLP
Chief Executive Officer
Scott W. Wine(a)
Directors(b)
Léo W. Houle(2)(3)(*)
Howard W. Buffett(2)(3)(**)
Tufan Erginbilgic(2)(3)(**)
John Lanaway(1)(**)
Alessandro Nasi(2)(3)
Lorenzo Simonelli(1)(**)
Vagn Sørensen(1)(**)
(1) Member of the Audit Committee
(2) Member of the Governance and Sustainability Committee
(3) Member of the Compensation Committee
(*) Independent Director and Senior Non-Executive Director
(**) Independent Director
(a) Mr. Scott W. Wine is Chief Executive Officer since January 4, 2021 and Executive Director since April 15, 2021.
(b) Ms. Jacqueline A. Tammenoms Bakker and Mr. Jacques Theurillat members of the Board until April 15, 2021.
Disclaimer
All statements other than statements of historical fact contained in this filing, including statements under “2021 Outlook” and statements regarding our future responses to and effects of the COVID-19 pandemic; competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, earnings (or loss) per share, capital expenditures, dividends, liquidity, capital structure or other financial items; costs; and plans and objectives of management regarding operations and products, are forward-looking statements. These statements may include terminology such as “may”, “will”, “expect”, “could”, “should”, “intend”, “estimate”, “anticipate”, “believe”, “outlook”, “continue”, “remain”, “on track”, “design”, “target”, “objective”, “goal”, “forecast”, “projection”, “prospects”, “plan”, or similar terminology. Forward-looking statements, including those related to the COVID-19 pandemic, are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside our control and are difficult to predict. If any of these risks and uncertainties materialize (or they occur with a degree of severity that the Company is unable to predict) or other assumptions underlying any of the forward-looking statements prove to be incorrect, including any assumptions regarding strategic plans, the actual results or developments may differ materially from any future results or developments expressed or implied by the forward-looking statements.
Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: the unknown duration and economic, operational and financial impacts of the global COVID-19 pandemic and the actions taken or contemplated by governmental authorities or others in connection with the pandemic on our business, our employees, customers and suppliers, including supply chain disruptions caused by mandated shutdowns and the adverse impact on customers, borrowers and other third parties to fulfill their obligations to us; disruption caused by business responses to COVID-19, including remote working arrangements, which may create increased vulnerability to cybersecurity or data privacy incidents; our ability to execute business continuity plans as a result of COVID-19; the many interrelated factors that affect consumer confidence and worldwide demand for capital goods and capital goods-related products, including demand uncertainty caused by COVID-19; general economic conditions in each of our markets, including the significant economic uncertainty and volatility caused by COVID-19; travel bans, border closures, other free movement restrictions, and the introduction of social distancing measures in our facilities may affect in the future our ability to operate as well as the ability of our suppliers and distributors to operate; 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 we compete; 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 our products; production difficulties, including capacity and supply constraints and excess inventory levels; labor relations; interest rates and currency exchange rates; inflation and deflation; energy prices; prices for agricultural commodities; housing starts and other construction activity; our ability to obtain financing or to refinance existing debt; price pressure on new and used vehicles; the resolution of pending litigation and investigations on a wide range of topics, including dealer and supplier litigation, follow-on private litigation in various jurisdictions after the settlement of the EU antitrust investigation announced on July 19, 2016, intellectual property rights disputes, product warranty and defective product claims, and emissions and/or fuel economy regulatory and contractual issues; the Company’s pension plans and other post-employment obligations; further developments of the COVID-19 pandemic on our operations, supply chains, distribution network, and level of demand for our products, as well as negative evolutions of the economic and financial conditions at global and regional levels; political and civil unrest; volatility and deterioration of capital and financial markets, including possible effects of “Brexit”, other pandemics, terrorist attacks in Europe and elsewhere; our ability to realize the anticipated benefits from our business initiatives as part of our strategic plan; the impact of significant or unanticipated material extraordinary transactions or any business combinations and other similar transaction on our businesses, our 2021 Outlook and other financial or business projections; our failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures, strategic alliances or divestitures; including our proposed acquisition of Raven Industries, Inc.; expected benefits and costs of the proposed spin-off of the Company’s On-Highway business; the expected timing of completion of the spin-off transaction; the ability of the Company to complete the spin-off transaction considering the various conditions to the completion of the spin-off transaction (some of which are outside the Company’s control); business disruption during the pendency of or following the spin-off transaction, diversion of management time on the spin-off transaction-related issues, and other similar risks and uncertainties, and our success in managing the risks involved in the foregoing.
Board of Directors and Auditor 2
Further information concerning factors, risks, and uncertainties that could materially affect CNH Industrial’s financial results is included in CNH Industrial N.V.’s EU Annual Report at December 31, 2020, prepared in accordance with EU-IFRS and in its annual report on Form 20-F for the year ended December 31, 2020, prepared in accordance with U.S. GAAP. Investors are expressly invited to refer to and consider the information on risks, factors, and uncertainties incorporated in the above-mentioned documents, in addition to the information presented here.
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. Our actual results could differ materially from those anticipated in such forward-looking statements. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update or revise publicly our forward-looking statements, whether as a result of new developments or otherwise.
The impact of COVID-19 has already exacerbated, and is expected to further exacerbate, all or part of the risks discussed in this section. Further information concerning CNH Industrial and its businesses, including factors that potentially could materially affect CNH Industrial’s financial results, is included in CNH Industrial’s reports and filings with the U.S. Securities and Exchange Commission (“SEC”), the Autoriteit Financiële Markten (“AFM”) and Commissione Nazionale per le Società e la Borsa (“CONSOB”).
All future written and oral forward-looking statements by CNH Industrial or persons acting on the behalf of CNH Industrial are expressly qualified in their entirety by the cautionary statements contained herein or referred to above.
Board of Directors and Auditor 3
SEMI-ANNUAL MANAGEMENT REPORT
(Unaudited)
GENERAL
CNH Industrial N.V. (the “Company” and collectively with its subsidiaries, “CNH Industrial” or the “CNH Industrial Group” or the “Group”) is incorporated under the laws of the Netherlands and has its corporate seat in Amsterdam, the Netherlands, and its principal office in London, England, United Kingdom. Unless otherwise indicated or the context otherwise requires, the terms “we”, “us” and “our” refer to CNH Industrial N.V. together with its subsidiaries.
CNH Industrial reports quarterly and annual consolidated financial results in accordance with accounting standards generally accepted in the United States (“U.S. GAAP”) for U.S. Securities and Exchange Commission (“SEC”) reporting purposes, and in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and adopted by the European Union (“EU-IFRS”) for European listing proposes and for Dutch law requirements. The reconciliation from EU-IFRS figures to U.S. GAAP is presented, on a voluntary basis, in the Notes to the Semi-Annual Condensed Consolidated Financial Statements.
Financial information included in this Semi-Annual Report has been prepared in accordance with EU-IFRS. This Semi-Annual Report is prepared using the U.S. dollar as the presentation currency, and with segment reporting based on the following five operating segments:
▪Agriculture designs, manufactures and distributes a full line of farm machinery and implements, including two-wheel and four-wheel drive tractors, crawler tractors (Quadtrac®), combines, cotton pickers, grape and sugar cane harvesters, hay and forage equipment, planting and seeding equipment, soil preparation and cultivation implements and material handling equipment. Agricultural equipment is sold under the New Holland Agriculture and Case IH brands, as well as the STEYR, Kongskilde and Överum brands in Europe and the Miller brand, primarily in North America and Australia.
▪Construction designs, manufactures and distributes a full line of construction equipment including excavators, crawler dozers, graders, wheel loaders, backhoe loaders, skid steer loaders and compact track loaders. Construction equipment is sold under the CASE Construction Equipment and New Holland Construction brands.
▪Commercial and Specialty Vehicles designs, manufactures and distributes a full range of light, medium, and heavy vehicles for the transportation and distribution of goods under the IVECO brand, city-buses, commuter buses under the IVECO BUS (previously Iveco Irisbus) and HEULIEZ BUS brands, quarry and mining equipment under the IVECO ASTRA brand, firefighting vehicles under the Magirus brand, and vehicles for civil defense and peace-keeping missions under the Iveco Defence Vehicles brand.
▪Powertrain designs, manufactures and distributes, under the FPT Industrial brand, a range of engines, transmission systems and axles for on- and off-road applications, as well as for marine and power generation.
▪Financial Services offers a range of financial products and services to dealers and customers. Financial Services provides and administers retail financing to customers for the purchase or lease of new and used industrial equipment or vehicles and other equipment sold by CNH Industrial brand dealers. In addition, Financial Services provides wholesale financing to CNH Industrial brand dealers. Wholesale financing consists primarily of floor plan financing and allows the dealers to purchase and maintain a representative inventory of products. Financial Services also provides trade receivables factoring services to CNH Industrial companies.
Certain financial information in this report has been presented by geographic area. Our geographical regions are: (1) North America; (2) Europe; (3) South America and (4) Rest of World. The geographic designations have the following meanings:
▪North America: United States, Canada and Mexico;
▪Europe: member countries of the European Union, European Free Trade Association, the United Kingdom, Ukraine, and Balkans;
▪South America: Central and South America, and the Caribbean Islands; and
▪Rest of World: Continental Asia (including Turkey and Russia), Oceania and member countries of the Commonwealth of Independent States, the African continent, and Middle East.
This Semi-Annual Report is unaudited.
Semi-Annual Management Report 4
Alternative performance measures (or “Non-GAAP financial measures”)
We monitor our operations through the use of several non-GAAP financial measures. We believe that these non-GAAP financial measures provide useful and relevant information regarding our operating results and enhance the readers' ability to assess CNH Industrial’s financial performance and financial position. Management uses these non-GAAP financial measures to identify operational trends, as well as to make decisions regarding future spending, resource allocations and other operational decisions as they provide additional transparency with respect to our core operations. These non-GAAP financial measures have no standardized meaning under EU-IFRS or U.S. GAAP and are unlikely to be comparable to other similarly titled measures used by other companies and are not intended to be substitutes for measures of financial performance and financial position as prepared in accordance with EU-IFRS or U.S. GAAP.
Our non-GAAP financial measures are defined as follows:
▪Adjusted EBIT of Industrial Activities under EU-IFRS: is defined as profit/(loss) before taxes, Financial Services' results, Industrial Activities' financial expenses, restructuring costs, and certain non-recurring items. Such non-recurring items are specifically disclosed items that management considers rare or discrete events that are infrequent in nature and not reflective of on-going operational activities.
▪Adjusted EBIT of Industrial Activities under U.S. GAAP: is derived from financial information prepared in accordance with U.S. GAAP and is defined as net income (loss) before Income taxes, Financial Services' results, Industrial Activities' interest expenses, net, foreign exchange gains/losses, finance and non-service component of pension and other post-employment benefit costs, restructuring expenses, and certain non-recurring items.
▪Adjusted Diluted EPS under U.S. GAAP: is derived from financial information prepared in accordance with U.S. GAAP and is computed by dividing Adjusted Net Income (loss) attributable to CNH Industrial N.V. by a weighted-average number of common shares outstanding during the period that takes into consideration potential common shares outstanding deriving from the CNH Industrial share-based payment awards, when inclusion is not anti-dilutive. When we provide guidance for adjusted diluted EPS, we do not provide guidance on an earnings per share basis because the GAAP measure will include potentially significant items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end.
▪Net Cash (Debt) and Net Cash (Debt) of Industrial Activities under EU-IFRS: Net Cash (Debt) is defined as total Debt plus Derivative liabilities, net of Cash and cash equivalents, Current securities, Derivative assets and other current financial assets (primarily current securities, short-term deposits and investments towards high-credit rating counterparties). We provide the reconciliation of Net Cash (Debt) to Total (Debt), which is the most directly comparable GAAP financial measure included in our consolidated statement of financial position. 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 Net Cash (Debt) of Industrial Activities.
▪Net Cash (Debt) and Net Cash (Debt) of Industrial Activities under U.S. GAAP: are derived from financial information prepared in accordance with U.S. GAAP. Net Cash (Debt) under U.S. GAAP is defined as total debt less intersegment notes receivable, cash and cash equivalents, restricted cash, other current financial assets (primarily current securities, short-term deposits and investments towards high-credit rating counterparties) and derivative hedging debt.
▪Free Cash Flow of Industrial Activities (or Industrial Free Cash Flow) under EU-IFRS: refers to Industrial Activities, only, and is computed as consolidated cash flow from operating activities less: cash flow from operating activities of Financial Services; investments of Industrial Activities in property, plant and equipment and intangible assets; as well as other changes and intersegment eliminations.
▪Free Cash Flow of Industrial Activities (or Industrial Free Cash Flow) under U.S. GAAP: refers to Industrial Activities, only, and is computed as consolidated cash flow from operating activities less: cash flow from operating activities of Financial Services; investments of Industrial Activities in assets sold under buy-back commitments, assets under operating leases, property, plant and equipment and intangible assets; change in derivatives hedging debt of Industrial Activities; as well as other changes and intersegment eliminations.
▪Available Liquidity under IFRS: is defined as cash and cash equivalents (including restricted cash), undrawn medium-term unsecured committed facilities and other current financial assets (primarily current securities, short-term deposits and investments towards high-credit rating counterparties).
▪Change excl. FX or Constant Currency: we discuss the fluctuations in revenues on a constant currency basis by applying the prior year average exchange rates to current year’s revenues expressed in local currency in order to eliminate the impact of foreign exchange rate fluctuations.
Semi-Annual Management Report 5
RESULTS OF OPERATIONS
Introduction
The operations, and key financial measures and financial analysis, differ significantly for manufacturing and distribution businesses and financial services businesses; therefore, for a better understanding of our operations and financial results, we present the following commentary split by Industrial Activities and Financial Services. Industrial Activities represent the activities carried out by the four industrial segments Agriculture, Construction, Commercial and Specialty Vehicles, and Powertrain, as well as Corporate functions. The parent company, CNH Industrial N.V., is included under Industrial Activities as well as subsidiaries that provide centralized treasury services (i.e., raising funding in the market and financing Group subsidiaries). The activities of the treasury subsidiaries do not include the offer of financing to third parties.
COVID-19 Effects and Actions
The COVID-19 pandemic and the related actions of governments and other authorities to contain COVID-19 spread continue to affect CNH Industrial’s business, results, cash flow and outlook. Governments in many countries where the Company operates, designated part of our businesses as essential critical infrastructure businesses. This designation allows CNH Industrial to operate in support of its dealers and customers to the extent possible. CNH Industrial also continues to prioritize the health, safety and well-being of its employees.
Rising demand is adding pressure to our supply chain, requiring diligent coordination to keep our production at desired levels. Adverse market trends in raw materials (particularly steel), freight and logistics costs have impacted our product cost performance in the first half of 2021.
We remain cautious about future impacts on CNH Industrial's end-markets and business operations of restrictions on social interactions and business operations to limit the resurgence of the pandemic. CNH Industrial is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, its employees and the Company's results of operations, financial condition and cash flows in 2021. For additional risks related to the COVID-19 pandemic, see section "Risk Factors", paragraph "COVID-19 Risks" in our 2020 Annual Report prepared under EU-IFRS.
Planned spin-off of On-Highway business
The Company has confirmed its intention to enhance its customer focus through the separation of its "On-Highway" (commercial and specialty vehicles, powertrain and the related financial services business) and "Off-Highway" (agriculture, construction and the related financial services business) businesses in early 2022. The separation is expected to be effected through the spin-off of CNH Industrial N.V.’s equity interest in "On-Highway" to CNH Industrial N.V. shareholders. Execution of the transaction requires further work on structure, management, governance and other significant matters as well as appropriate corporate approvals (including approval of our shareholders at an Extraordinary General Meeting) and satisfaction of other conditions. CNH Industrial can make no assurance that any spin-off transaction will ultimately occur, or, if one does occur, its terms or timing.
CNH Industrial did not classify the business that will be separated as assets held for distribution at June 30, 2021. The criteria within IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations were not met as the organization, terms, financing aspects and timeline of the transaction had not yet been finalized and will be subject to final approval by an Extraordinary General Meeting of CNH Industrial N.V.'s shareholders.
Semi-Annual Management Report 6
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Consolidated Results of Operations
Three Months Ended June 30, 2021
Three Months Ended June 30, 2020
($ million)
Industrial Activities(1)
Financial Services
Elimination
Consolidated
Industrial Activities(1)
Financial Services
Elimination
Consolidated
Net revenues
8,508
437
(27)
(2)
8,918
5,148
437
(23)
(2)
5,562
Cost of sales
6,897
265
(27)
(3)
7,135
5,087
329
(23)
(3)
5,393
Selling, general and administrative costs
580
42
—
622
396
35
—
431
Research and development costs
321
—
—
321
307
—
—
307
Result from investments
25
7
—
32
8
4
—
12
Gains/(losses) on disposal of investments
(1)
—
—
(1)
—
—
—
—
Restructuring costs
10
—
—
10
7
—
—
7
Goodwill impairment loss
—
—
—
—
576
—
—
576
Other income/(expenses)
(56)
(5)
—
(61)
(59)
(2)
—
(61)
Financial income/(expenses)
(53)
—
—
(53)
(75)
—
—
(75)
PROFIT/(LOSS) BEFORE TAXES
615
132
—
747
(1,351)
75
—
(1,276)
Income tax (expense) benefit
(148)
(33)
—
(181)
98
(17)
—
81
PROFIT/(LOSS) FOR THE PERIOD
467
99
—
566
(1,253)
58
—
(1,195)
(1) Industrial Activities represents the enterprise without Financial Services. Industrial Activities includes the Company's Agriculture, Construction, Commercial and Specialty Vehicles and Powertrain segments, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
(2) Elimination of Financial Services' interest income earned from Industrial Activities.
(3) Elimination of Industrial Activities' interest expense to Financial Services.
Net revenues
Net revenues were $8,918 million in the three months ended June 30, 2021, an increase of 60.3% (up 52.6% on a constant currency basis) compared to the three months ended June 30, 2020. Net revenues of Industrial Activities were $8,508 million in the three months ended June 30, 2021, an increase of 65.3% compared to the three months ended June 30, 2020 (up 57.1% on a constant currency basis), due to solid performance from all segments, as a result of higher volumes driven by strong industry demand and favorable price realization.
Cost of sales
Cost of sales were $7,135 million for the three months ended June 30, 2021 compared with $5,393 million for the three months ended June 30, 2020. As a percentage of net revenues of Industrial Activities, cost of sales was 81.1% in the three months ended June 30, 2021 (98.8% for the three months ended June 30, 2020), as a result of positive fixed cost absorption, partially offset by higher input costs. In the second quarter of 2020, cost of sales included $245 million of impairment losses against intangible and tangible assets, as well as $282 million asset optimization charges.
Selling, general and administrative costs
Selling, general and administrative costs were $622 million during the three months ended June 30, 2021 (7.0% of net revenues), up $191 million compared to the three months ended June 30, 2020 (7.7% of net revenues), as costs returned to more normal levels from the low levels experienced last year.
Semi-Annual Management Report 7
Research and development costs
In the three months ended June 30, 2021, research and development costs were $321 million ($307 million in the three months ended June 30, 2020) and included all the research and development costs not recognized as assets in the period amounting to $211 million ($130 million in the three months ended June 30, 2020), the amortization of capitalized development costs of $110 million ($105 million in the three months ended June 30, 2020), and no impairment losses ($72 million in the three months ended June 30, 2020). During the three months ended June 30, 2021, CNH Industrial capitalized new expenditures for development costs for $121 million ($77 million in the three months ended June 30, 2020). The costs in both periods were primarily attributable to spending on engine development costs associated with emission requirements and continued investment in new products.
Result from investments
Result from investments was a net gain of $32 million in the three months ended June 30, 2021 ($12 million for the three months ended June 30, 2020).
Restructuring costs
Restructuring costs for the three months ended June 30, 2021 were $10 million compared to $7 million for the three months ended June 30, 2020.
Goodwill impairment loss
No goodwill impairment loss was recorded in the three months ended June 30, 2021. In the three months ended June 30, 2020 goodwill impairment loss was $576 million and represented the total impairment of goodwill allocated to Construction.
Other income/(expenses)
Other expenses were $61 million for the three months ended June 30, 2021 and 2020. In both periods, this item primarily included legal costs, indirect taxes and the benefit costs for former employees.
Financial income/(expenses)
Net financial expenses were $53 million for the three months ended June 30, 2021 compared to $75 million for the three months ended June 30, 2020. The decrease was primarily attributable to a lower negative foreign exchange impact as well as lower average indebtedness, partially offset by higher currency translation impact.
Income tax (expense) benefit
Three Months Ended June 30,
($ million)
2021
2020
Profit (loss) before taxes
747
(1,276)
Income tax (expense) benefit
(181)
81
Effective tax rate
24.2
%
6.3
%
Income tax expense for the three months ended June 30, 2021 was $181 million, compared to an income tax benefit of $81 million for the three months ended June 30, 2020, based on CNH Industrial's loss before taxes of $1,276 million. The effective tax rates for the three months ended June 30, 2021 and 2020 were 24.2% and 6.3%, respectively. The 2021 effective tax rate primarily reflects the Company’s full year estimated annual tax rate, which was calculated in accordance with the applicable jurisdictional tax laws. Excluding the impacts of restructuring costs and other discrete charges associated with the Company’s spin-off of its On-Highway operations and pending acquisition of Raven Industries, the effective tax rate was 24% for the three months ended June 30, 2021. Excluding the impacts of the impairment charge related to Construction goodwill, for which no income tax benefits were reported, asset optimization charges, other assets impairment charges, restructuring costs and certain other tax adjustments, income taxes were an expense of $22 million for the three months ended June 30, 2020, with an effective tax rate of negative 23%, which was primarily due to the impact of pre-tax losses in jurisdictions where tax benefits were not recognized.
Profit/(loss) for the period
Net profit was $566 million for the three months ended June 30, 2021 compared to a net loss of $1,195 million for the three months ended June 30, 2020, which included the pre- and after-tax goodwill impairment loss of $576 million related to Construction, other assets impairment charges of $317 million ($261 million after-tax), as well as asset optimization charges of $282 million ($227 million after-tax).
Semi-Annual Management Report 8
Industrial Activities Performance
The following tables show net revenues and Adjusted EBIT by segment. Also included is a discussion of results by Industrial Activities and each business segment.
Net revenues by segment
Three Months Ended June 30,
($ million)
2021
2020
% change
% change excl. FX
Agriculture
3,979
2,537
56.8
51.1
Construction
808
420
92.4
86.3
Commercial and Specialty Vehicles
3,224
1,738
85.5
73.5
Powertrain
1,291
763
69.2
57.8
Eliminations and Other
(794)
(310)
—
—
Total Net revenues of Industrial Activities
8,508
5,148
65.3
57.1
Financial Services
437
437
—
-3.1
Eliminations and Other
(27)
(23)
—
—
Total Net revenues
8,918
5,562
60.3
52.6
Adjusted EBIT by segment
Three Months Ended June 30,
($ million)
2021
2020
Change
2021 Adjusted EBIT margin
2020 Adjusted EBIT margin
Agriculture
573
213
360
14.4
%
8.4
%
Construction
23
(86)
109
2.8
%
(20.5)
%
Commercial and Specialty Vehicles
113
(176)
289
3.5
%
(10.1)
%
Powertrain
71
28
43
5.5
%
3.7
%
Unallocated items, eliminations and other
(89)
(73)
-16
—
—
Adjusted EBIT of Industrial Activities
691
(94)
785
8.1
%
(1.8)
%
Net revenues of Industrial Activities were $8,508 million during the three months ended June 30, 2021, an increase of 65.3% compared to the three months ended June 30, 2020 (up 57.1% on a constant currency basis), due to solid performance from all segments as a result of higher volumes driven by strong industry demand and favorable price realization.
Adjusted EBIT of Industrial Activities was $691 million during the three months ended June 30, 2021, compared to an adjusted EBIT loss of $94 million during the three months ended June 30, 2020. The increase in adjusted EBIT was primarily attributable to all segments increasing year over year.
Semi-Annual Management Report 9
The following tables summarize the reconciliation of Adjusted EBIT of Industrial Activities, a non-GAAP financial measure, to consolidated profit/(loss), the most comparable EU-IFRS financial measure, for the three months ended June 30, 2021 and 2020.
Three Months Ended June 30, 2021
($ million)
Agriculture
Construction
Commercial and Specialty Vehicles
Powertrain
Unallocated items, elimination and other
Total
Consolidated Profit/(loss)
566
Less: Consolidated Income tax (expense) benefit
(181)
Consolidated Profit (loss) before taxes
747
Less: Financial Services
Financial Services Net income
99
Financial Services Income taxes
33
Add back of the following Industrial Activities items:
Financial expenses
53
Adjustments for the following Industrial Activities items:
Restructuring costs
5
2
2
1
—
10
Other discrete items
—
—
—
—
13
13
Adjusted EBIT of Industrial Activities
573
23
113
71
(89)
691
Three Months Ended June 30, 2020
($ million)
Agriculture
Construction
Commercial and Specialty Vehicles
Powertrain
Unallocated items, elimination and other
Total
Consolidated Profit/(loss)
(1,195)
Less: Consolidated Income tax (expense) benefit
81
Consolidated Profit (loss) before taxes
(1,276)
Less: Financial Services
Financial Services Net income
58
Financial Services Income taxes
17
Add back of the following Industrial Activities items:
Financial expenses
75
Adjustments for the following Industrial Activities items:
Restructuring costs
5
1
1
—
—
7
Goodwill impairment loss
—
—
—
—
576
576
Other discrete items(1)
248
62
289
—
—
599
Adjusted EBIT of Industrial Activities
213
(86)
(176)
28
(73)
(94)
(1) This item included impairment of intangible and other long-lived assets, as well as asset optimization charges.
Semi-Annual Management Report 10
Agriculture
Net revenues
The following table shows Agriculture net revenues by geographic region for the three months ended June 30, 2021 compared to the three months ended June 30, 2020:
Agriculture Net revenues – by geographic region:
Three Months Ended June 30,
($ million)
2021
2020
% change
North America
1,286
896
43.5
Europe
1,401
937
49.5
South America
575
308
86.7
Rest of World
717
396
81.1
Total
3,979
2,537
56.8
Net revenues for Agriculture were $3,979 million in the three months ended June 30, 2021, an increase of 56.8% compared to the three months ended June 30, 2020 (up 51.1% on a constant currency basis). Net revenues were higher mainly due to increased industry demand, as well as better mix, and favorable price realization in all regions.
For the second quarter of 2021, worldwide industry unit sales were up in all key regions. In North America, industry volumes in the over 140 horsepower (“hp”) tractor market sector and combines were up 49% and 10%, respectively. Industry volumes for under 140 hp tractors in North America were up 3%. European markets were up 31% and 13% for tractors and combines, respectively. In South America, tractor and combine demand increased 38%. In Rest of World, tractor and combine demand increased 38% and 12%, respectively.
Adjusted EBIT
Adjusted EBIT was $573 million in the three months ended June 30, 2021, an increase of $360 million compared to the three months ended June 30, 2020. The increase was driven by higher volume, favorable mix and positive price realization, partially offset by higher raw material and freight costs, higher selling, general and administrative costs ("SG&A") and research and development ("R&D") costs from the low levels of the previous year, as well as higher variable compensation. Adjusted EBIT margin was 14.4% (8.4% in the three months ended June 30, 2020).
Construction
Net revenues
The following table shows Construction net revenues by geographic region for the three months ended June 30, 2021 compared to the three months ended June 30, 2020:
Construction Net revenues – by geographic region:
Three Months Ended June 30,
($ million)
2021
2020
% change
North America
372
161
131.1
Europe
171
89
92.1
South America
117
71
64.8
Rest of World
148
99
49.5
Total
808
420
92.4
Net revenues for Construction were $808 million in the three months ended June 30, 2021, an increase of 92.4% compared to the three months ended June 30, 2020 (up 86.3% on a constant currency basis), as a result of higher volumes driven by industry demand, channel destocking actions in 2020, and better price realization.
Global demand in construction equipment increased in both Heavy and Light sub-segments, with Heavy up 6% and Light up 21%. Demand increased 42% in North America, 36% in Europe and 102% in South America, but decreased 4% in Rest of World.
Semi-Annual Management Report 11
Adjusted EBIT
Adjusted EBIT was $23 million in the three months ended June 30, 2021, an increase of $109 million compared to the three months ended June 30, 2020. The improvement was due to favorable volume and mix, positive price realization and favorable quality performance, partially offset by higher material and freight costs. Adjusted EBIT margin at 2.8%.
Commercial and Specialty Vehicles
Net revenues
The following table shows Commercial and Specialty Vehicles’ net revenues by geographic region for the three months ended June 30, 2021 compared to the three months ended June 30, 2020:
Commercial and Specialty Vehicles Net revenues – by geographic region:
Three Months Ended June 30,
($ million)
2021
2020
% change
North America
27
18
n.m.
Europe
2,557
1,391
83.8
South America
300
109
175.2
Rest of World
340
220
54.5
Total
3,224
1,738
85.5
n.m. - not meaningful.
Commercial and Specialty Vehicles’ net revenues were $3,224 million in the three months ended June 30, 2021, an increase of 85.5% compared to the three months ended June 30, 2020 (up 73.5% on a constant currency basis), primarily driven by higher truck volumes.
During the second quarter of 2021, the European truck market (GVW ≥3.5 tons), excluding U.K. and Ireland, increased 45% compared to the same period in 2020. In Europe, the Light Commercial Vehicles ("LCV") market (GVW 3.5-7.49 tons) increased 40% and the Medium & Heavy (“M&H”) truck market (GVW ≥7.5 tons) increased 61%. In South America, new truck registrations (GVW ≥3.5 tons) increased 78% over the same period of 2020, with an increase of 82% in Brazil and an increase of 57% in Argentina. In Rest of World, new truck registrations increased by 46%.
In the second quarter of 2021, our estimated market share in the European truck market (GVW ≥3.5 tons), excluding U.K. and Ireland, was 12.1%, up 2.7 percentage points ("p.p.") compared to the second quarter of 2020. Our market share in the South American truck market in the second quarter of 2021 was 10.0%, up 1.4 p.p. compared to the second quarter of 2020.
Commercial and Specialty Vehicles delivered approximately 45,840 vehicles (including buses and specialty vehicles) in the second quarter of 2021, up 121% compared to the second quarter of 2020. Volumes were 147% higher in LCV and 94% higher in M&H truck segments, respectively. Commercial and Specialty Vehicles’ deliveries were up 123% in Europe and up 155% and 83% in South America and in Rest of World, respectively.
In the second quarter of 2021, the ratio of orders received to units shipped and billed, or book-to-bill ratio, for the European truck market was 1.22. In the second quarter of 2021, truck order intake in Europe increased 150% compared to the second quarter of 2020, with an increase of 141% and 172% in LCV and in M&H, respectively.
Adjusted EBIT
Adjusted EBIT was $113 million in the three months ended June 30, 2021, an increase of 289 million compared to the three months ended June 30, 2020. The improvement was driven by favorable volume and mix, and positive price realization, partially offset by higher material costs, higher SG&A and R&D costs from low levels of prior year, as well as higher variable compensation. Adjusted EBIT margin was 3.5% in the three months ended June 30, 2021.
Semi-Annual Management Report 12
Powertrain
Net revenues
Powertrain's net revenues were $1,291 million in the three months ended June 30, 2021, an increase of 69.2% compared to the three months ended June 30, 2020 (up 57.8% on a constant currency basis), due to higher sales volume with both captive and external customers. Sales to external customers accounted for 42% of total net revenues (63% in the three months ended June 30, 2020).
During the second quarter of 2021, Powertrain sold approximately 160,000 engines, an increase of 55% compared to the second quarter of 2020. In terms of customers, 31% of engine units were supplied to Commercial and Specialty Vehicles, 15% to Agriculture, 6% to Construction and the remaining 48% to external customers. Additionally, Powertrain delivered approximately 20,800 transmissions and 59,000 axles, an increase of 225% and 155%, respectively, compared to the second quarter of 2020.
Adjusted EBIT
Adjusted EBIT was $71 million for the three months ended June 30, 2021, an increase of $43 million compared to the three months ended June 30, 2020. The increase was mainly due to favorable volume and mix, and positive price realization more than offsetting higher freight costs and higher costs for regulatory and new programs. Adjusted EBIT margin was 5.5% in the three months ended June 30, 2021 (3.7% in the three months ended June 30, 2020).
Financial Services Performance
Three Months Ended June 30,
($ million)
2021
2020
Change
Net revenues
437
437
—
%
Net income
99
58
41
Net revenues
Financial Services' net revenues totaled $437 million in the three months ended June 30, 2021, flat compared to the three months ended June 30, 2020 (down 3.1% on a constant currency basis), primarily due to a lower average portfolio in North America and lower loan yields, offset by the positive impact of currency translation. Retail loan and lease originations were up 21% on the back of higher industrial sales.
Net income
Net income of Financial Services was $99 million in the three months ended June 30, 2021, an increase of $41 million compared to the three months ended June 30, 2020, primarily due lower risk costs and improved pricing on used equipment sales.
In the second quarter of 2021, retail loan originations, including unconsolidated joint ventures, were $2.9 billion, up $0.5 billion compared to the second quarter of 2020. The managed portfolio, including unconsolidated joint ventures, was $27.0 billion as of June 30, 2021 (of which retail was 64% and wholesale 36%), up $2.4 billion compared to June 30, 2020. Excluding the impact of currency translation, the managed portfolio increased $1.2 billion compared to the second quarter of 2020.
At June 30, 2021, the receivables balance greater than 30 days past due as a percentage of receivables was 2.0% (2.8% as of June 30, 2020).
Semi-Annual Management Report 13
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Consolidated Results of Operations
Six Months Ended June 30, 2021
Six Months Ended June 30, 2020
($ million)
Industrial Activities(1)
Financial Services
Eliminations
Consolidated
Industrial Activities(1)
Financial Services
Eliminations
Consolidated
Net revenues
15,553
884
(55)
(2)
16,382
10,140
925
(53)
(2)
11,012
Cost of sales
12,635
550
(55)
(3)
13,130
9,507
668
(53)
(3)
10,122
Selling, general and administrative costs
1,065
82
—
1,147
859
74
—
933
Research and development costs
608
—
—
608
555
—
—
555
Result from investments
46
14
—
60
—
12
—
12
Gains/(losses) on disposal of investments
(1)
—
—
(1)
—
—
—
—
Restructuring costs
12
—
—
12
12
—
—
12
Goodwill impairment loss
—
—
—
—
576
—
—
576
Other income/(expenses)
(92)
(5)
—
(97)
(108)
1
—
(107)
Financial income/(expenses)
(142)
—
—
(142)
(129)
—
—
(129)
PROFIT/(LOSS) BEFORE TAXES
1,044
261
—
1,305
(1,606)
196
—
(1,410)
Income tax (expense) benefit
(262)
(64)
—
(326)
165
(49)
—
116
PROFIT/(LOSS) FOR THE PERIOD
782
197
—
979
(1,441)
147
—
(1,294)
(1) Industrial Activities represents the enterprise without Financial Services. Industrial Activities includes the Company's Agriculture, Construction, Commercial and Specialty Vehicles and Powertrain segments, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
(2) Elimination of Financial Services' interest income earned from Industrial Activities.
(3) Elimination of Industrial Activities' interest expense to Financial Services.
Net revenues
Net revenues were $16,382 million in the six months ended June 30, 2021, an increase of 48.8% compared to the six months ended June 30, 2020 (up 43.2% on a constant currency basis). Net revenues of Industrial Activities were $15,553 million in the six months ended June 30, 2021, an increase of 53.4% (up 47.4% on a constant currency basis) compared to the six months ended June 30, 2020, due to higher volumes driven by strong industry demand together with favorable price realization.
Cost of sales
Cost of sales were $13,130 million for the six months ended June 30, 2021, compared with $10,122 million for the six months ended June 30, 2020. As a percentage of net revenues, cost of sales of Industrial Activities was 81.2% in the six months ended June 30, 2021, compared to 93.8% for the six months ended June 30, 2020, as a result of positive fixed cost absorption, partially offset by higher input costs. In the six months ended June 30, 2020, cost of sales included $245 million of impairment losses against intangible and tangible assets, as well as $282 million asset optimization charges.
Selling, general and administrative costs
Selling, general and administrative costs were $1,147 million during the six months ended June 30, 2021 (7.0% of net revenues), up $214 million compared to the six months ended June 30, 2020 (8.5% of net revenues), as costs returned to more normal levels from the low levels experienced last year.
Research and development costs
In the six months ended June 30, 2021, research and development costs were $608 million ($555 million in the six months ended June 30, 2020) and included all the research and development costs not recognized as assets in the
Semi-Annual Management Report 14
period amounting to $388 million ($269 million in the six months ended June 30, 2020), the amortization of capitalized development costs of $220 million ($214 million in the six months ended June 30, 2020), and no impairment losses ($72 million in the six months ended June 30, 2020). During the six months ended June 30, 2021, CNH Industrial capitalized new expenditures for development costs for $211 million ($155 million in the six months ended June 30, 2020). The costs in both periods were primarily attributable to spending on engine development costs associated with emission requirements and continued investment in new products.
Result from investments
Result from investments was a net gain of $60 million in the six months ended June 30, 2021 ($12 million in the six months ended June 30, 2020).
Restructuring costs
Restructuring costs were $12 million both in the six months ended June 30, 2021 and 2020.
Goodwill impairment loss
No goodwill impairment loss was recorded in the six months ended June 30, 2021. In the six months ended June 30, 2020 goodwill impairment loss was $576 million and represented the total impairment of goodwill allocated to Construction.
Other income/(expenses)
Other expenses were $97 million for the six months ended June 30, 2021 compared to $107 million in the six months ended June 30, 2020. In both periods, this item primarily included legal costs, indirect taxes and the benefit costs for former employees.
Financial income/(expenses)
Net financial expenses were $142 million for the six months ended June 30, 2021, compared to $129 million for the six months ended June 30, 2020, and included a charge of $8 million related to the repurchase of all CNH Industrial Finance Europe S.A. outstanding notes due May 23, 2022. Excluding this charge, the increase was primarily attributable to a higher negative foreign exchange impact and higher currency translation impact, partially offset by lower average indebtedness.
Income tax (expense) benefit
Six Months Ended June 30,
($ million)
2021
2020
Profit (loss) before taxes
1,305
(1,410)
Income tax (expense) benefit
(326)
116
Effective tax rate
25.0
%
8.2
%
Income tax expense for the six months ended June 30, 2021 was $326 million, compared to an income tax benefit of $116 million for the six months ended June 30, 2020, based on CNH Industrial's loss before taxes of $1,410 million in the period. The effective tax rates for the six months ended June 30, 2021 and 2020 were 25.0% and 8.2%, respectively. The 2021 effective tax rate primarily reflects the Company’s full year estimated annual tax rate, which was calculated in accordance with the applicable jurisdictional tax laws. Excluding the impacts of restructuring, the charge from repurchase of notes, other discrete charges associated with the Company's spin-off of its On-Highway operations and pending acquisition of Raven Industries, and certain other tax adjustments, the effective tax rate was 24% in the six months ended June 30, 2021. Excluding the impacts of the impairment charge related to Construction goodwill, for which no income tax benefits were reported, asset optimization charges, other assets impairment charges, restructuring costs, other discrete charges, and certain other tax adjustments, income tax was a benefit of $10 million in the six months ended June 30, 2020, with an effective tax rate of 5%.
Profit/(loss) for the period
Net profit was $979 million for the six months ended June 30, 2021, as a result of the strong performance from all segments. In the six months ended June 30, 2020, net result was a loss of $1,294 million and included the pre- and after-tax goodwill impairment loss of $576 million, other assets impairment charges of $317 million ($261 million after-tax), as well as asset optimization charges of $282 million ($227 million after-tax).
Semi-Annual Management Report 15
Industrial Activities Performance
The following tables show net revenues and Adjusted EBIT by segment. Also included is a discussion of results by Industrial Activities and each business segment.
Net revenues by segment
Six Months Ended June 30,
($ million)
2021
2020
% change
% change excl. FX
Agriculture
7,018
4,780
46.8
43.5
Construction
1,464
842
73.9
70.7
Commercial and Specialty Vehicles
6,029
3,759
60.4
51.2
Powertrain
2,526
1,516
66.6
56.3
Eliminations and Other
(1,484)
(757)
—
—
Total Net revenues of Industrial Activities
15,553
10,140
53.4
47.4
Financial Services
884
925
-4.4
-5.4
Eliminations and Other
(55)
(53)
—
—
Total Net revenues
16,382
11,012
48.8
43.2
Adjusted EBIT by segment
Six Months Ended June 30,
($ million)
2021
2020
Change
2021 Adjusted EBIT margin
2020 Adjusted EBIT margin
Agriculture
963
229
734
13.7
%
4.8
%
Construction
47
(169)
216
3.2
%
(20.1)
%
Commercial and Specialty Vehicles
184
(242)
426
3.1
%
(6.4)
%
Powertrain
179
41
138
7.1
%
2.7
%
Unallocated items, eliminations and other
(162)
(142)
-20
—
—
Adjusted EBIT of Industrial Activities
1,211
(283)
1,494
7.8
%
(2.8)
%
Net revenues of Industrial Activities were $15,553 million during the six months ended June 30, 2021, an increase of 53.4% compared to the six months ended June 30, 2020 (up 47.4% on a constant currency basis), due to higher volumes driven by strong industry demand, together with favorable price realization.
Adjusted EBIT of Industrial Activities was $1,211 million during the six months ended June 30, 2021, compared to an adjusted EBIT loss of $283 million during the six months ended June 30, 2020. The increase in adjusted EBIT was primarily attributable to all segments being up year over year.
Semi-Annual Management Report 16
The following tables summarize the reconciliation of Adjusted EBIT of Industrial Activities, a non-GAAP financial measures, to consolidated profit/(loss), the most comparable EU-IFRS financial measure, for the six months ended June 30, 2021 and 2020.
Six Months Ended June 30, 2021
($ million)
Agriculture
Construction
Commercial and Specialty Vehicles
Powertrain
Unallocated items, elimination and other
Total
Consolidated Profit/(loss)
979
Less: Consolidated Income tax (expense) benefit
(326)
Consolidated Profit (loss) before taxes
1,305
Less: Financial Services
Financial Services Net income
197
Financial Services Income taxes
64
Add back of the following Industrial Activities items:
Financial expenses
142
Adjustments for the following Industrial Activities items:
Restructuring costs
7
1
3
1
—
12
Other discrete items
—
—
—
—
13
13
Adjusted EBIT of Industrial Activities
963
47
184
179
(162)
1,211
Six Months Ended June 30, 2020
($ million)
Agriculture
Construction
Commercial and Specialty Vehicles
Powertrain
Unallocated items, elimination and other
Total
Consolidated Profit/(loss)
(1,294)
Less: Consolidated Income tax (expense) benefit
116
Consolidated Profit (loss) before taxes
(1,410)
Less: Financial Services
Financial Services Net income
147
Financial Services Income taxes
49
Add back of the following Industrial Activities items:
Financial expenses
129
Adjustments for the following Industrial Activities items:
Restructuring costs
7
2
3
—
—
12
Goodwill impairment loss
—
—
—
—
576
576
Other discrete items(1)
248
62
289
—
7
606
Adjusted EBIT of Industrial Activities
229
(169)
(242)
41
(142)
(283)
(1) This item included impairment of intangible and other long-lived assets, as well as asset optimization charges.
Semi-Annual Management Report 17
Agriculture
Net revenues
The following table shows Agriculture net revenues by geographic region for the six months ended June 30, 2021 compared to the six months ended June 30, 2020:
Agriculture Net revenues – by geographic region:
Six Months Ended June 30,
($ million)
2021
2020
% change
North America
2,344
1,725
35.9
Europe
2,425
1,720
41.0
South America
974
597
63.1
Rest of World
1,275
738
72.8
Total
7,018
4,780
46.8
Net revenues for Agriculture were $7,018 million for the six months ended June 30, 2021, an increase of 46.8% compared to the six months ended June 30, 2020 (up 43.5% on a constant currency basis). The increase was due to higher industry demand, better mix, and favorable price realization.
For the six months ended June 30, 2021, worldwide industry unit sales for tractors were up 38% compared to the six months ended June 30, 2020, while worldwide industry sales for combines were up 19%. In North America, industry volumes in the over 140 hp tractor market sector were up 32% and combines were up 13%. Industry volumes for under 140 hp tractors in North America were up 17%. European markets were up 27% and 14% for tractors and combines, respectively. In South America, the tractor market increased 38% and the combine market increased 31%. Rest of World markets increased 46% and 19% for tractors and combines, respectively.
Adjusted EBIT
Adjusted EBIT was $963 million in the six months ended June 30, 2021, an increase of $734 million compared to the six months ended June 30, 2020. The increase was driven by higher volumes, favorable mix, and positive price realization, partially offset by higher raw material and freight costs, and SG&A and R&D costs returning to more normal levels from the low levels experienced in the previous year. Adjusted EBIT margin was 13.7% (4.8% in the six months ended June 30, 2020).
Construction
Net revenues
The following table shows Construction net revenues by geographic region for the six months ended June 30, 2021 compared to the six months ended June 30, 2020:
Construction Net revenues – by geographic region:
Six Months Ended June 30,
($ million)
2021
2020
% change
North America
652
331
97.0
Europe
300
180
66.7
South America
206
137
50.4
Rest of World
306
194
57.7
Total
1,464
842
73.9
Net revenues for Construction were $1,464 million in the six months ended June 30, 2021, an increase of 73.9% compared to the six months ended June 30, 2020 (up 70.7% on a constant currency basis), as a result of higher volumes driven by industry demand, channel destocking actions in 2020, and better price realization.
Global demand in construction equipment increased in both Heavy and Light sub-segments, with Heavy up 23% and Light up 24%. Demand increased 37% in North America, 23% in Europe, 83% in South America and 17% in Rest of World.
Semi-Annual Management Report 18
Adjusted EBIT
Adjusted EBIT was $47 million in the six months ended June 30, 2021, an increase of $216 million compared to the six months ended June 30, 2020. The improvement was due to favorable volume and mix, positive price realization, and positive fixed cost absorption, partially offset by higher material and freight costs. Adjusted EBIT margin at 3.2%.
Commercial and Specialty Vehicles
Net revenues
The following table shows Commercial and Specialty Vehicles’ net revenues by geographic region for the six months ended June 30, 2021 compared to the six months ended June 30, 2020:
Commercial and Specialty Vehicles Net revenues – by geographic region:
Six Months Ended June 30,
($ million)
2021
2020
% change
North America
50
28
n.m.
Europe
4,792
3,022
58.6
South America
491
230
113.5
Rest of World
696
479
45.3
Total
6,029
3,759
60.4
n.m. - not meaningful.
Commercial and Specialty Vehicles’ net revenues were $6,029 million in the six months ended June 30, 2021, an increase of 60.4% compared to the six months ended June 30, 2020 (up 51.2% on a constant currency basis), primarily driven by higher truck volumes.
During the six months ended June 30, 2021, the European truck market (GVW ≥3.5 tons), excluding U.K. and Ireland, increased 33% compared to the same period in 2020. In Europe, the LCV market (GVW 3.5-7.49 tons) increased 32% and the M&H truck market (GVW ≥7.5 tons) increased 36%. In South America, new truck registrations (GVW ≥3.5 tons) increased 52% over the same period of 2020, with an increase of 50% and 66% in Brazil and in Argentina, respectively. In Rest of World, new truck registrations increased by 32%.
In the six months ended June 30, 2021, trucks’ estimated market share in the European truck market (GVW ≥3.5 tons), excluding U.K. and Ireland, was 11.5%, up 1.4 p.p. compared to the six months ended June 30, 2020. In the six months ended June 30, 2021, trucks' market share in South America was 9.9%, up 1.6 p.p. compared to the six months ended June 30, 2020.
In the six months ended June 30, 2021, Commercial and Specialty Vehicles delivered approximately 82,400 vehicles (including buses and specialty vehicles), representing an 80% increase compared to the same period of 2020. Further, volumes were up 92% in LCV and 70% in M&H truck segments, and Commercial and Specialty Vehicles’ deliveries increased 79% in Europe, 102% in South America, and 66% in Rest of World.
Adjusted EBIT
Adjusted EBIT was $184 million in the six months ended June 30, 2021 (up $426 million increase compared to the six months ended June 30, 2020). The improvement was due to favorable volumes and mix, and positive price realization, partially offset by higher material costs and SG&A and R&D costs returning to more normal levels of spend from the low levels experienced in the prior year. Adjusted EBIT margin was 3.1% in the six months ended June 30, 2021.
Semi-Annual Management Report 19
Powertrain
Net revenues
Powertrain's net revenues were $2,526 million in the six months ended June 30, 2021, an increase of 66.6% compared to the six months ended June 30, 2020 (up 56.3% on a constant currency basis), due to higher sales volume. Sales to external customers accounted for 44% of total net revenues (53% in the six months ended June 30, 2020).
During the six months ended June 30, 2021, Powertrain sold approximately 319,600 engines, an increase of 56% compared to the six months ended June 30, 2020. In terms of customers, 29% of engine units were supplied to Commercial and Specialty Vehicles, 15% to Agriculture, 5% to Construction and the remaining 51% to external customers. Additionally, Powertrain delivered approximately 38,000 transmissions, an increase of 97% compared to the six months ended June 30, 2020, and approximately 109,000 axles, an increase of 85% compared to the six months ended June 30, 2020.
Adjusted EBIT
Adjusted EBIT was $179 million for the six months ended June 30, 2021, up $138 million compared to the six months ended June 30, 2020. The increase was mainly due to favorable volume and mix, partially offset by higher freight costs and higher costs for regulatory programs. Adjusted EBIT margin was 7.1% in the six months ended June 30, 2021 (2.7% in the six months ended June 30, 2020).
Financial Services Performance
Six Months Ended June 30,
($ million)
2021
2020
Change
Net revenues
884
925
-4.4
%
Net income
197
147
50
Net revenues
Financial Services' net revenues totaled $884 million in the six months ended June 30, 2021, a decline of 4.4% compared to the six months ended June 30, 2020 (down 5.4% on a constant currency basis), primarily due to a lower average portfolio in North America and lower off-lease equipment sales, partially offset by positive impact from currency translation.
Net income
Net income of Financial Services was $197 million in the six months ended June 30, 2021, an increase of $50 million compared to the six months ended June 30, 2020, primarily as a result of lower risk costs and improved pricing on used equipment sales.
In the six months ended June 30, 2021, retail loan originations, including unconsolidated joint ventures, were $5.3 billion, up $0.8 billion compared to the six months ended June 30, 2020. The managed portfolio, including unconsolidated joint ventures, was $27.0 billion as of June 30, 2021 (of which retail was 64% and wholesale 36%), up $2.4 billion compared to June 30, 2020 (up $1.2 billion on a constant currency basis).
Semi-Annual Management Report 20
CONDENSED STATEMENT OF FINANCIAL POSITION BY ACTIVITY
At June 30, 2021
At December 31, 2020
($ million)
Industrial Activities(1)
Financial Services
Eliminations
Consolidated
Industrial Activities(1)
Financial Services
Eliminations
Consolidated
ASSETS
Intangible assets:
4,618
149
—
4,767
4,683
149
—
4,832
Goodwill
1,811
133
—
1,944
1,812
132
—
1,944
Other intangible assets
2,807
16
—
2,823
2,871
17
—
2,888
Property, plant and equipment
5,132
4
—
5,136
5,411
3
—
5,414
Investments and other non-current financial assets
808
267
—
1,075
722
299
—
1,021
Leased assets
62
1,848
—
1,910
65
1,913
—
1,978
Defined benefit plan assets
22
—
—
22
24
1
—
25
Deferred tax assets
985
162
(105)
(5)
1,042
1,039
172
(150)
(5)
1,061
Total Non-current assets
11,627
2,430
(105)
13,952
11,944
2,537
(150)
14,331
Inventories
7,444
21
—
7,465
5,959
41
—
6,000
Trade receivables
522
18
(20)
(3)
520
504
23
(24)
(3)
503
Receivables from financing activities
1,337
20,027
(2,552)
(3)
18,812
931
19,500
(1,902)
(3)
18,529
Current tax receivables
151
7
(36)
(4)
122
179
12
(31)
(4)
160
Other current receivables and financial assets
1,176
124
(53)
(2)
1,247
975
121
(55)
(2)
1,041
Prepaid expenses and other assets
153
16
—
169
162
27
—
189
Derivative assets
84
65
(13)
(6)
136
103
76
(19)
(6)
160
Cash and cash equivalents
7,431
1,153
—
8,584
8,116
1,513
—
9,629
Total Current assets
18,298
21,431
(2,674)
37,055
16,929
21,313
(2,031)
36,211
Assets held for sale
9
—
—
9
14
—
—
14
TOTAL ASSETS
29,934
23,861
(2,779)
51,016
28,887
23,850
(2,181)
50,556
EQUITY AND LIABILITIES
Total Equity
4,646
3,080
—
7,726
3,758
2,977
—
6,735
Provisions:
5,249
118
—
5,367
5,127
112
—
5,239
Employee benefits
1,761
34
—
1,795
1,830
34
—
1,864
Other provisions
3,488
84
—
3,572
3,297
78
—
3,375
Debt:
7,936
19,654
(2,552)
(3)
25,038
8,798
19,722
(1,902)
(3)
26,618
Asset-backed financing
—
11,013
—
11,013
—
11,923
—
11,923
Other debt
7,936
8,641
(2,552)
(3)
14,025
8,798
7,799
(1,902)
(3)
14,695
Derivative liabilities
140
44
(13)
(6)
171
102
56
(19)
(6)
139
Trade payables
6,945
177
(22)
(3)
7,100
6,166
220
(31)
(3)
6,355
Tax liabilities
271
58
(36)
(4)
293
183
34
(31)
(4)
186
Deferred tax liabilities
31
270
(105)
(5)
196
86
267
(150)
(5)
203
Other current liabilities
4,716
460
(51)
(2)
5,125
4,667
462
(48)
(2)
5,081
Total Liabilities
25,288
20,781
(2,779)
43,290
25,129
20,873
(2,181)
43,821
TOTAL EQUITY AND LIABILITIES
29,934
23,861
(2,779)
51,016
28,887
23,850
(2,181)
50,556
(1) Industrial Activities represents the enterprise without Financial Services. Industrial Activities includes CNH Industrial's Agriculture, Construction, Commercial and Specialty Vehicles and Powertrain segments, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
(2) This item includes the elimination of intercompany activity between Industrial Activities and Financial Services.
(3) This item includes the elimination of receivables/payables between Industrial Activities and Financial Services.
(4) This item includes the elimination of tax receivables/payables between Industrial Activities and Financial Services and reclassifications needed for appropriate consolidated presentation.
(5) This item includes the reclassification of deferred tax assets/liabilities in the same jurisdiction and reclassifications needed for appropriate consolidated presentation.
(6) This item includes the elimination of derivative assets/liabilities between Industrial Activities and Financial Services.
Semi-Annual Management Report 21
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources principally focuses on our condensed consolidated statement of cash flows and our condensed consolidated statement of financial position. Our operations are capital intensive and subject to seasonal variations in financing requirements for dealer receivables and dealer and company inventories. Whenever necessary, funds from operating activities are supplemented from external sources. CNH Industrial, focusing on cash preservation and leveraging its good access to funding, continues to maintain solid financial strength and liquidity.
Cash Flow Analysis
The following table presents the cash flows from operating, investing and financing activities by activity for the six months ended June 30, 2021 and 2020:
Semi-Annual Management Report 22
Six months ended June 30,
2021
2020
($ million)
Industrial Activities(1)
Financial Services
Elimina- tions
Consoli- dated
Industrial Activities(1)
Financial Services
Elimina- tions
Consoli- dated
A)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
8,116
1,513
—
9,629
4,527
1,246
—
5,773
B)
CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES:
Profit/(loss)
782
197
—
979
(1,441)
147
—
(1,294)
Amortization and depreciation (net of vehicles sold under buy-back commitments and operating leases)
594
2
—
596
579
2
—
581
Goodwill impairment loss
—
—
—
—
576
—
—
576
Other non-cash items
(14)
(5)
—
(19)
328
55
—
383
Loss on repurchase of notes
8
—
—
8
—
—
—
—
Dividends received
163
—
(82)
(2)
81
121
—
(90)
(2)
31
Change in provisions
210
8
—
218
(96)
(4)
—
(100)
Change in deferred income taxes
(13)
(1)
—
(14)
(212)
(7)
—
(219)
Change in items due to buy-back commitments
(a)
12
—
—
12
108
(19)
—
89
Change in operating lease items
(b)
(7)
95
—
88
2
42
—
44
Change in working capital
(525)
(3)
—
(528)
(860)
46
—
(814)
TOTAL
1,210
293
(82)
1,421
(895)
262
(90)
(723)
C)
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES:
Investments in:
Property, plant and equipment and intangible assets (net of vehicles sold under buy-back commitments and operating leases)
(411)
(1)
—
(412)
(287)
(1)
—
(288)
Consolidated subsidiaries and other equity investments
(26)
—
8
(3)
(18)
(154)
—
9
(3)
(145)
Proceeds from the sale of non-current assets (net of vehicles sold under buy-back commitments)
13
—
—
13
5
—
—
5
Net change in receivables from financing activities
(13)
(373)
—
(386)
(42)
1,076
—
1,034
Change in other current financial assets
(78)
—
—
(78)
—
—
—
—
Other changes
(16)
153
—
137
31
97
—
128
TOTAL
(531)
(221)
8
(744)
(447)
1,172
9
734
D)
CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES:
Net change in debt and derivative assets/liabilities
(1,011)
(355)
—
(1,366)
1,675
(1,403)
—
272
Capital increase
—
8
(8)
(3)
—
—
9
(9)
(3)
—
Dividends paid
(183)
(82)
82
(4)
(183)
(3)
(90)
90
(4)
(3)
Purchase of ownership interests in subsidiaries
—
—
—
—
(9)
—
—
(9)
TOTAL
(1,194)
(429)
74
(1,549)
1,663
(1,484)
81
260
Translation exchange differences
(170)
(3)
—
(173)
(133)
(43)
—
(176)
E)
TOTAL CHANGE IN CASH AND CASH EQUIVALENTS
(685)
(360)
—
(1,045)
188
(93)
—
95
F)
CASH AND CASH EQUIVALENTS AT END OF YEAR
7,431
1,153
—
8,584
4,715
1,153
—
5,868
(a) Cash generated from the sale of vehicles under buy-back commitments is recognized under operating activities in a single line item, which includes changes in working capital, capital expenditure, depreciation and impairment losses.
(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.
(1) Industrial Activities represents the enterprise without Financial Services. Industrial Activities includes CNH Industrial's Agriculture, Construction, Commercial and Specialty Vehicles and Powertrain segments, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
(2) This item includes the elimination of dividends from Financial Services to Industrial Activities
(3) This item includes the elimination of paid in capital from Industrial Activities to Financial Services.
(4) This item include the elimination of dividends from Financial Services to Industrial Activities, which are included in Industrial Activities net cash provided by/(used in) operating activities.
Semi-Annual Management Report 23
At June 30, 2021, we had cash and cash equivalents of $8,584 million, a decrease of $1,045 million, or -10.9%, from $9,629 million at December 31, 2020, due to dividends paid of $0.2 billion, debt repayment of $1.9 billion (including $0.4 billion of notes repurchase), $0.4 billion in expenditures for property, plant, and equipment and intangible assets and $0.2 billion in translation exchange differences, partially offset by $1.4 billion in cash generated by operating activities and $600 million in new Capital bonds issuance.
Cash and cash equivalents at June 30, 2021 included $764 million ($844 million at December 31, 2020) of restricted cash that was reserved principally for the servicing of securitization-related debt. At June 30, 2021, undrawn medium-term unsecured committed facilities were $5,677 million ($6,148 million at December 31, 2020) and other current financial assets were $162 million ($94 million at December 31, 2020). At June 30, 2021, the aggregate of Cash and cash equivalents, undrawn medium-term unsecured committed facilities and other current financial assets, which we consider to constitute our principal liquid assets (or "Available liquidity"(1)), totaled $14,423 million ($15,871 million at December 31, 2020).
Net Cash from Operating Activities
Cash provided by operating activities in the six months ended June 30, 2021 totaled $1,421 million and primarily comprised the following elements:
▪$979 million profit;
▪plus $596 million in non-cash charges for depreciation and amortization (net of commercial vehicles sold under buy-back commitments and operating leases);
▪plus change in provisions of $218 million;
▪less $528 million in change in working capital.
In the six months ended June 30, 2020, cash used by operating activities was $723 million primarily due to the adverse impact of COVID-19 and the increase in working capital.
Net Cash from Investing Activities
In the six months ended June 30, 2021, cash used by investing activities was $744 million, primarily due to investments in tangible and intangible assets of $412 million (including $211 million in capitalized development costs) and a net increase in receivables from financing activities of $386 million, partially offset by other changes of $137 million due to change in intersegment receivables/payables. Investments in tangible and intangible assets are net of investments in commercial vehicles for our long-term rental operations and of investments relating to vehicles sold under buy-back commitments, which are reflected in cash flows relating to operating activities.
In the six months ended June 30, 2020, cash provided by investing activities totaled $734 million due to a net decrease in receivables from financing activities of $1,034 million, partially offset by expenditures on tangible and intangible assets of $288 million (including $155 million in capitalized development costs).
(1) a non-GAAP financial measure as defined in paragraph "Alternative performance measures (or "Non-GAAP financial measures") of section "General" above.
Semi-Annual Management Report 24
Net Cash from Financing Activities
In the six months ended June 30, 2021, cash used by financing activities was $1,549 million, compared to $260 million provided in the six months ended June 30, 2020. Net cash used in and provided by financing activities for the six months ended June 30, 2021 and 2020 was primarily due to the net decrease or increase in debt.
Consolidated Debt
Our consolidated Debt at June 30, 2021 and December 31, 2020, is as detailed in the following table:
At June 30, 2021
At December 31, 2020
($ million)
Consolidated
Industrial Activities
Financial Services
Consolidated
Industrial Activities
Financial Services
Total Debt
25,038
7,936
19,654
26,618
8,798
19,722
We believe that Net Cash (Debt), a non-GAAP financial measure as defined in paragraph "Alternative performance measures (or "Non-GAAP financial measures")" of section "General" above, is a useful analytical metric for measuring our effective borrowing requirements. We provide a separate analysis of Net Cash (Debt) of Industrial Activities and Net Cash (Debt) of Financial Services to reflect the different cash flow management practices in the two activities. Industrial Activities reflects the consolidation of all majority-owned subsidiaries, including those performing centralized treasury activities, except for Financial Services. Financial Services reflects the consolidation of the Financial Services’ businesses.
The calculation of Net Cash (Debt) at June 30, 2021 and December 31, 2020 and the reconciliation of Total (Debt), the EU-IFRS financial measure that we believe to be most directly comparable, to Net Cash (Debt), are shown below:
At June 30, 2021
At December 31, 2020
($ million)
Consolidated
Industrial Activities
Financial Services
Consolidated
Industrial Activities
Financial Services
Third party (debt)
(25,038)
(6,665)
(18,373)
(26,618)
(7,780)
(18,838)
Intersegment notes payable
—
(1,271)
(1,281)
—
(1,018)
(884)
Total (Debt)(1)
(25,038)
(7,936)
(19,654)
(26,618)
(8,798)
(19,722)
Cash and cash equivalents
8,584
7,431
1,153
9,629
8,116
1,513
Intersegment notes receivable
—
1,281
1,271
—
884
1,018
Derivative assets(2)
136
84
65
160
103
76
Derivative (liabilities)(2)
(171)
(140)
(44)
(139)
(102)
(56)
Other current financial assets(3)
162
162
—
94
94
—
Net Cash (Debt)(4)
(16,327)
882
(17,209)
(16,874)
297
(17,171)
(1) As a result of the role played by the central treasury, debt for Industrial Activities also includes funding raised by the central treasury on behalf of Financial Services (included under Intersegment financial receivables). Intersegment notes receivable for Financial Services, on the other hand, represent loans or advances to Industrial Activities – for receivables sold to Financial Services that do not meet the derecognition requirements – as well as cash deposited temporarily with the central treasury. Total (Debt) of Industrial Activities includes Intersegment notes payable to Financial Services of $1,271 million and $1,018 million as of June 30, 2021 and December 31, 2020, respectively. Total Debt of Financial Services includes Intersegment notes payable to Industrial Activities of $1,281 million and $884 million as of June 30, 2021 and December 31, 2020, respectively.
(2) Derivative assets and Derivative liabilities include, respectively, the positive and negative fair values of derivative financial instruments.
(3) This item includes short-term deposits and investments towards high-credit rating counterparties.
(4) The net intersegment receivable/(payable) balance recorded by Financial Services relating to Industrial Activities was $-10 million and $134 million as of June 30, 2021 and December 31, 2020, respectively.
Excluding positive exchange rate differences effect of $235 million, Net Debt at June 30, 2021 decreased by $312 million compared to December 31, 2020 mainly reflecting $0.6 billion positive Free Cash Flow of Industrial Activities, partially offset by $0.2 billion in dividends paid.
Semi-Annual Management Report 25
The following table shows the change in Net Cash (Debt) of Industrial Activities for the six months ended June 30, 2021 and 2020:
Six months ended June 30,
($ million)
2021
2020
Net Cash (Debt) of Industrial Activities at beginning of period
297
(1,403)
Adjusted EBIT of Industrial Activities
1,211
(283)
Depreciation and amortization
594
579
Depreciation of assets under operating leases and assets sold with buy-back commitments
136
132
Cash interest and taxes
(263)
(117)
Changes in provisions and similar(1)
57
(346)
Change in working capital
(525)
(860)
Operating cash flow of Industrial Activities
1,210
(895)
Investments in property, plant and equipment, and intangible assets(2)
(411)
(287)
Other changes
(181)
(90)
Free Cash Flow of Industrial Activities
618
(1,272)
Capital increases and dividends
(183)
(3)
Currency translation differences and other(3)
150
(35)
Change in Net Cash (Debt) of Industrial Activities
585
(1,310)
Net Cash (Debt) of Industrial Activities at end of period
882
(2,713)
(1) Including other cash flow items related to operating lease and buy-back activities.
(2) Excluding assets sold under buy-back commitments and assets under operating leases.
(3) In the six months ended June 30, 2021, this item also includes the charge of $8 million related to the repurchase of notes.
We believe that Free Cash Flow of Industrial Activities (a non-GAAP financial measure as defined in paragraph "Alternative performance measures (or "Non-GAAP financial measures")" of section "General" above) is a useful analytical metric for measuring the cash generation ability of our Industrial Activities. For the six months ended June 30, 2021, the Free Cash Flow of Industrial Activities was a generation of $618 million due to the strong operating performance, partially offset by the seasonal increase in working capital.
The reconciliation of Free Cash Flow of Industrial Activities to Net cash provided by (used in) Operating Activities, the EU-IFRS financial measure that we believe to be most directly comparable, for the six months ended June 30, 2021 and 2020, is shown below:
Six months ended June 30,
($ million)
2021
2020
Net cash provided by (used in) Operating Activities
1,421
(723)
Less: Cash flows from Operating Activities of Financial Services net of eliminations
(211)
(172)
Operating cash flow of Industrial Activities
1,210
(895)
Investments in property, plant and equipment, and intangible assets of Industrial Activities
(411)
(287)
Other changes(1)
(181)
(90)
Free Cash Flow of Industrial Activities
618
(1,272)
(1) This item primarily includes change in intersegment financial receivables and capital increases in intersegment investments.
The non-GAAP financial measures (Available liquidity, Net Cash (Debt) and Free Cash Flow of Industrial Activities), used in this section, should neither be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with EU-IFRS. In addition, this non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.
With the purpose of further diversifying its funding structure, CNH Industrial has established various commercial paper programs. CNH Industrial Financial Services S.A. in Europe issued commercial paper under a program which had an amount of $61 million outstanding at June 30, 2021 ($112 million at December 31, 2020).
In March 2019, CNH Industrial signed a five-year committed revolving credit facility for €4 billion ($4.5 billion at March 31, 2019 exchange rate) due to mature in 2024 with two extension options of 1-year each, exercisable on the first and second anniversary of the signing date. CNH Industrial exercised the first of the two extension options as of February 28, 2020 and the second extension option as of February 26, 2021. The facility is now due to mature in March 2026 for €3,950.5 million; the remaining €49.5 million will mature in March 2025. Available committed unsecured facilities expiring after twelve months amounted to approximately $5.7 billion at June 30, 2021 ($6.1 billion at December 31, 2020). Total
Semi-Annual Management Report 26
committed secured facilities expiring after twelve months amounted to approximately $2.9 billion at June 30, 2021 ($3.9 billion at December 31, 2020), of which $0.7 billion was available at June 30, 2021 ($0.2 billion at December 31, 2020).
CNH Industrial continues to closely monitor its liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on its operations. With the strong liquidity position at the end of June and the demonstrated access to the financial markets, CNH Industrial believes that its cash and cash equivalents, access to credit facilities and cash flows from future operations will be adequate to fund its known cash needs during the COVID-19 pandemic.
Semi-Annual Management Report 27
RELATED PARTY TRANSACTIONS
See Note 28. “Related party transactions” of the Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021.
IMPORTANT EVENTS DURING THE FIRST SIX MONTHS OF 2021
▪On February 26, 2021, CNH Industrial N.V. announced the extension by one additional year to March 2026 of its syndicated committed revolving credit facility for €3,950.5 million; the remaining €49.5 million will mature in March 2025.
▪On April 15, 2021, at the Annual General Meeting (the “AGM”), CNH Industrial N.V. shareholders approved the 2020 EU Annual Report (including the Company’s 2020 statutory financial statements) and a dividend of €0.11 per common share. The cash dividend was declared in euro and paid on May 5, 2021 for a total amount of approximately $180 million (€150 million). Shareholders who at the record date held common shares traded on the NYSE received the dividend in U.S. dollars in the amount of $0.13167 per common share based on the official USD/EUR exchange rate reported by the European Central Bank on April 15, 2021. Shareholders also replaced the authorization for the Board to repurchase up to a maximum of 10% of the Company’s common shares issued as of the date of the AGM for a period of 18 months from April 15, 2021 and up to and including October 14, 2022.
▪On May 24, 2021, CNH Industrial Capital LCC issued $600 million in aggregate principal amount of 1.450% notes due 2026, with an issue price of 99.208%.
▪On June 11, 2021, CNH Industrial N.V. announced to have named Mr. Gerrit Marx as the designated Chief Executive Officer of the On-Highway business.
▪On June 21, 2021, CNH Industrial announced that it entered into an agreement and plan of merger to acquire 100% of the capital stock of Raven Industries, Inc., ("Raven") for $58 per share, representing a $2.1 billion enterprise value. The transaction will be funded with available cash on hand of CNH Industrial. Closing is expected to occur in the fourth quarter of 2021, subject to the satisfaction of customary closing conditions, including approval of Raven shareholders and receipt of regulatory approvals. Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, commercial lighter-than-air, and aerospace and defense markets. Raven markets its products around the world and has its principal operations in the United States of America.
RISKS AND UNCERTAINTIES
The Company believes that the risks and uncertainties identified for the second half of 2021 are in line with the main risks and uncertainties to which CNH Industrial N.V. and the Group are exposed and that the Company presented in its Annual Report at December 31, 2020 prepared in accordance with EU-IFRS, as well as those Risk Factors identified and discussed in Item 3.D of the Company’s annual report for 2020 on Form 20-F (which contains financial statements prepared in accordance with U.S. GAAP) filed with the SEC on March 3, 2021. Those risks and uncertainties should be read in conjunction with this Semi-Annual Report, including its notes and disclosures.
Additional risks and uncertainties not currently known or that are currently judged to be immaterial may also materially affect our business, financial condition or operating results.
Semi-Annual Management Report 28
2021 U.S. GAAP OUTLOOK
CNH Industrial manages its operations, assesses its performance and makes decisions about allocation of resources based on financial results prepared only in accordance with U.S. GAAP, and, accordingly, its full year guidance presented below had been prepared under U.S. GAAP.
The Company expects solid demand to continue across regions and segments. In the second half of the year, increased impact of raw material and continued freight and logistics costs will be partially offset by positive price realization.
The Company is updating the 2021 outlook for its Industrial Activities as follows:
▪Net sales(*) up between 24% and 28% year on year including currency translation effects
▪SG&A expenses lower/equal to 7.5% of net sales
▪Free cash flow positive in excess of $1.0 billion
▪R&D expenses and capital expenditures up slightly from previous ~ $2.0 billion.
(*) Net sales reflecting the exchange rate of 1.20 EUR/USD.
Issuance of other medium-term borrowings (net of repayment)
(147)
348
Net change in other financial payables and derivative assets/liabilities
(948)
(76)
Dividends paid
(183)
(3)
Purchase of ownership interests in subsidiaries
—
(9)
TOTAL
(1,549)
260
Translation exchange differences
(173)
(176)
E) TOTAL CHANGE IN CASH AND CASH EQUIVALENTS
(1,045)
95
F) CASH AND CASH EQUIVALENTS AT END OF PERIOD
(18)
8,584
5,868
(a)Cash generated from the sale of vehicles under buy-back commitments is recognized under operating activities in a single line item, which includes changes in working capital, capital expenditure, depreciation and impairment losses.
(b)Cash from operating lease is recognized under operating activities in a single line item, which includes capital expenditure, depreciation, write-downs and changes in inventory.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 35
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
Attributable to the owners of the parent
($ million)
Share capital
Treasury shares
Capital reserves
Earnings reserves
Cash flow hedge reserve
Cumulative translation adjustment reserve
Defined benefit plans remeasure-ment reserve
Equity investments at FVTOCI
Cumulative share of OCI of entities consolidated under the equity method
Non-controlling interests
Total
AT DECEMBER 31, 2019
25
(154)
3,240
6,935
(49)
(1,473)
(524)
(5)
(176)
44
7,863
Changes in equity for the six months ended June 30, 2020
Dividends distributed
—
—
—
—
—
—
—
—
—
(3)
(3)
Share-based compensation expense
—
—
9
—
—
—
—
—
—
—
9
Purchase of ownership interests in subsidiaries from non-controlling interests
—
—
(5)
—
—
—
—
—
—
(4)
(9)
Total comprehensive income/(loss) for the period
—
—
—
(1,316)
59
(517)
(9)
1,464
(16)
20
(315)
Other changes(1)
—
—
—
12
—
—
—
—
—
(3)
9
AT JUNE 30, 2020
25
(140)
3,230
5,631
10
(1,990)
(533)
1,459
(192)
54
7,554
Attributable to the owners of the parent
($ million)
Share capital
Treasury shares
Capital reserves
Earnings reserves
Cash flow hedge reserve
Cumulative translation adjustment reserve
Defined benefit plans remeasure-ment reserve
Equity investments at FVTOCI
Cumulative share of OCI of entities consolidated under the equity method
Non-controlling interests
Total
AT DECEMBER 31, 2020
25
(109)
3,220
6,211
(21)
(2,126)
(527)
133
(155)
84
6,735
Dividends distributed
—
—
—
(180)
—
—
—
—
—
(3)
(183)
Common shares issued from treasury stock and capital increase for share-based compensation
—
4
(4)
—
—
—
—
—
—
—
—
Share-based compensation expense
—
—
30
—
—
—
—
—
—
—
30
Total comprehensive income/(loss) for the period
—
—
—
952
(52)
161
—
71
(23)
29
1,138
Other changes(1)
—
—
(3)
13
—
—
—
—
—
(4)
6
AT JUNE 30, 2021
25
(105)
3,243
6,996
(73)
(1,965)
(527)
204
(178)
106
7,726
(1) Other changes of Earnings reserves include the impact of IAS 29 - Financial reporting in hyperinflationary economies applied for subsidiaries that prepare their financial statements in a functional currency of a hyperinflationary economy. In particular, from July 1, 2018, Argentina’s economy was considered to be hyperinflationary.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 36
NOTES
(Unaudited)
CORPORATE INFORMATION
CNH Industrial N.V. (the “Company” and, collectively with its subsidiaries, “CNH Industrial” or the “CNH Industrial Group” or the “Group”) is the company formed as a result of the business combination transaction (the “Merger”), completed on September 29, 2013, between Fiat Industrial S.p.A. (“Fiat Industrial” and, together with its subsidiaries, the “Fiat Industrial Group”) and its majority owned subsidiary CNH Global N.V. (“CNH Global”). CNH Industrial N.V. is incorporated under the laws of the Netherlands. CNH Industrial N.V. has its corporate seat in Amsterdam, the Netherlands, and its principal office in London, England, United Kingdom. CNH Industrial is a leading company in the capital goods sector that, through its various businesses, designs, produces and sells agricultural equipment, construction equipment, trucks, commercial vehicles, buses and specialty vehicles, in addition to a broad portfolio of powertrain applications (see Note 26 “Segment reporting”). In addition, CNH Industrial’s Financial Services segment offers an array of financial products and services, including retail financing for the purchase or lease of new and used CNH Industrial and other manufacturers’ products and other retail financing programs and wholesale financing to dealers.
SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 together with the notes thereto (the "Semi-Annual Condensed Consolidated Financial Statements”) were authorized for issuance on August 5, 2021 and have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU-IFRS”). The designation “IFRS” also includes International Accounting Standards (“IAS”), as well as all interpretations of the IFRS Interpretations Committee (“IFRIC”).
The Semi-Annual Condensed Consolidated Financial Statements, which have been prepared in accordance with IAS 34 - Interim Financial Reporting, do not include all of the information and disclosures required for annual financial statements and should be read in conjunction with the audited CNH Industrial Consolidated Financial Statements at December 31, 2020, included in the Annual Report prepared under EU-IFRS (in the following, the “CNH Industrial Consolidated Financial Statements at December 31, 2020”). The accounting standards and policies are consistent with those used at December 31, 2020, except as described in the following paragraph “New standards and amendments effective from January 1, 2021”.
The financial statements are prepared under the historical cost convention, modified as required for the measurement of certain financial instruments, as well as on a going concern basis. Despite operating in a continuously difficult economic and financial environment negatively impacted by the continuing spread of the COVID-19 pandemic, the Group’s assessment is that no material uncertainties (as defined in paragraph 25 of IAS 1) exist about its ability to continue as a going concern, in view also of the measures already undertaken by the Group to preserve cash and contain costs, and to preserve its industrial and financial flexibility and its strong liquidity position.
These Semi-Annual Condensed Consolidated Financial Statements are prepared using the U.S. dollar as the presentation currency. The functional currency of the parent company (CNH Industrial N.V.) is the euro. The U.S. dollar presentation currency was elected to be used in order to improve comparability with main competitors, mainly in the agriculture and construction businesses, and to provide more meaningful information to U.S. investors.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 37
Use of accounting estimates and management’s assumptions
The preparation of the Semi-Annual Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of income, expenses, assets, liabilities, accumulated other comprehensive income and disclosure of contingent assets and contingent liabilities. Furthermore, certain valuation procedures, in particular those of a more complex nature, are only carried out in full during the preparation of the annual financial statements, when all the information required is available, other than in the event that there are indications of impairment when an immediate assessment is necessary. In the same way, the actuarial valuations that are required for the determination of employee benefit provisions are also usually carried out during the preparation of the annual consolidated financial statements. The recoverability of deferred tax assets is assessed quarterly using historical financial results and figures from budget and plans for subsequent years. Income taxes are recognized based upon the best estimate of the actual income tax rate expected for the full financial year.
Due to the currently unforeseeable global consequences of the COVID-19 pandemic, these estimates and assumptions are subject to increased uncertainty. Actual results could differ materially from the estimates and assumptions used in preparation of the financial statements. If in the future such estimates and assumptions, which are based on management’s best judgment at the date of the Semi-Annual Condensed Consolidated Financial Statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.
These Semi-Annual Condensed Consolidated Financial Statements include all updates of estimates and assumptions considered necessary by management to fairly state the Group’s results of operations, financial position and cash flows. See section “Significant accounting policies”, paragraph “Use of estimates”, in the CNH Industrial Consolidated Financial Statements at December 31, 2020 for a description of the significant estimates, judgments and assumptions of CNH Industrial at that date.
CNH Industrial is exposed to operational financial risks such as credit risk, liquidity risk and market risk, mainly relating to exchange rates and interest rates. These Semi-Annual Condensed Consolidated Financial Statements do not include all the information and notes about financial risk management required in the preparation of annual financial statements. For a detailed description of this information see the “Risk management and Control System” section and Note 30 “Information on financial risks” of CNH Industrial Consolidated Financial Statements at December 31, 2020, as well as those discussed in Note 16 “Current receivables and Other current financial assets”.
Format of the financial statements
CNH Industrial presents an income statement using a classification based on the function of expenses (otherwise known as the “cost of sales” method), rather than one based on their nature, as this is believed to provide information that is more relevant.
For the statement of financial position, a mixed format has been selected to present current and non-current assets and liabilities, as permitted by IAS 1 – Presentation of Financial Statements. Legal entities carrying out industrial activities and those carrying out financial services are both consolidated in the Group’s financial statements. The investment portfolios of Financial Services are included in current assets, as the investments will be realized in their normal operating cycle. Financial Services, though, obtains funds only partially from the market: the remainder is obtained from CNH Industrial N.V. through its treasury legal entities (included in Industrial Activities), which lend funds both to Industrial Activities and to Financial Services legal entities as the need arises. This Financial Services structure within the Group means that any attempt to separate current and non-current liabilities in the consolidated statement of financial position is not meaningful.
The statement of cash flows is presented using the indirect method.
New standards and amendments effective from January 1, 2021
On August 27, 2020 the IASB issued Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16), which addresses the accounting for changes in the basis for determining contractual cash flows as a consequence of IBOR reform. Furthermore, the amendments include additional temporary exceptions from applying specific hedge accounting requirements and additional disclosures. The amendments are effective retrospectively for annual reporting periods beginning on or after January 1, 2021. These amendments had no impact on these Semi-Annual Condensed Consolidated Financial Statements. The Group intends to apply these amendments in the future periods if they become applicable.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 38
Accounting standards, amendments and interpretations not yet applicable and not early adopted by the Group
See paragraph “Accounting standards, amendments and interpretations not yet applicable and not early adopted by the Group” of the section “Significant accounting policies” in the Notes to the Consolidated Financial Statements as of December 31, 2020, for a description of other new standards not yet effective and not adopted as of June 30, 2021. Furthermore, on May 7, 2021 the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12), which specifies how companies should account for deferred tax on transactions such as leases and decommissioning obligations. The amendments clarify that no exemption applies on such transactions and that companies are required to recognize deferred tax when they recognize the related assets or liabilities for the first time. The amendments are effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. At the date of these Semi-Annual Condensed Consolidated Financial Statements, the European Union has not yet completed its endorsement process for these amendments. The Group is currently evaluating the impact of the adoption of these amendments on its Consolidated Financial Statements.
SCOPE OF CONSOLIDATION
Planned spin-off of On-Highway business
The Company has confirmed its intention to enhance its customer focus through the separation of its "On-Highway" (commercial and specialty vehicles, powertrain and the related financial services business) and "Off-Highway" (agriculture, construction and the related financial services business) businesses in early 2022. The separation is expected to be effected through the spin-off of CNH Industrial N.V.’s equity interest in "On-Highway" to CNH Industrial N.V. shareholders. Execution of the transaction requires further work on structure, management, governance and other significant matters as well as appropriate corporate approvals (including approval of our shareholders at an Extraordinary General Meeting) and satisfaction of other conditions. CNH Industrial can make no assurance that any spin-off transaction will ultimately occur, or, if one does occur, its terms or timing.
CNH Industrial did not classify the business that will be separated as assets held for distribution at June 30, 2021. The criteria within IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations were not met as the organization, terms, financing aspects and timeline of the transaction had not yet been finalized and will be subject to final approval by an Extraordinary General Meeting of CNH Industrial N.V.'s shareholders.
BUSINESS COMBINATIONS
There were no significant business combinations in the six months ended June 30, 2021 and 2020.
On June 21, 2021, CNH Industrial announced that it entered into an agreement and plan of merger to acquire 100% of the capital stock of Raven Industries, Inc., ("Raven") for $58 per share, representing a $2.1 billion enterprise value. The transaction will be funded with available cash on hand of CNH Industrial. Closing is expected to occur in the fourth quarter of 2021, subject to the satisfaction of customary closing conditions, including approval of Raven shareholders and receipt of regulatory approvals. Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, commercial lighter-than-air, and aerospace and defense markets. Raven markets its products around the world and has its principal operations in the United States of America.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 39
COMPOSITION AND PRINCIPAL CHANGES
1. Net revenues
The following table summarizes Net revenues for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30,
Six Months Ended June 30,
($ million)
2021
2020
2021
2020
Agriculture
3,979
2,537
7,018
4,780
Construction
808
420
1,464
842
Commercial and Specialty Vehicles
3,224
1,738
6,029
3,759
Powertrain
1,291
763
2,526
1,516
Eliminations and Other
(794)
(310)
(1,484)
(757)
Total Industrial Activities
8,508
5,148
15,553
10,140
Financial Services
437
437
884
925
Eliminations and Other
(27)
(23)
(55)
(53)
Total Net revenues
8,918
5,562
16,382
11,012
The following table disaggregates Net revenues by major source for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30,
Six Months Ended June 30,
($ million)
2021
2020
2021
2020
Revenues from:
Sales of goods
8,263
4,944
15,058
9,698
Rendering of services and other revenues
164
126
333
282
Rents and other income on assets sold with a buy-back commitment
81
78
162
160
Revenues from sales of goods and services
8,508
5,148
15,553
10,140
Finance and interest income
225
240
456
503
Rents and other income on operating lease
185
174
373
369
Total Net revenues
8,918
5,562
16,382
11,012
During the three months ended June 30, 2021 and 2020, revenues included $123 million and $112 million, respectively, relating to the reversal of contract liabilities outstanding at the beginning of each period. During the six months ended June 30, 2021 and 2020, revenues included $274 million and $257 million, respectively, relating to the reversal of contract liabilities outstanding at the beginning of each period. Refer to Note 24 "Other current liabilities" for additional details on contract liabilities.
As of June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations related to extended warranties/maintenance and repair contracts, and transactions for the sale of vehicles with a buy-back commitment, was approximately $2.5 billion (approximately $2.2 billion as of December 31, 2020). CNH Industrial expects to recognize revenue on approximately 29% and 71% of the remaining performance obligations over the next 12 and 36 months, respectively (approximately 32% and 77%, respectively, as of December 31, 2020), with the remaining recognized thereafter.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 40
2. Cost of sales
The following summarizes the main components of Cost of sales:
Three months ended June 30,
Six months ended June 30,
($ million)
2021
2020
2021
2020
Interest cost and other financial charges from Financial Services
77
150
175
282
Other costs of sales
7,058
5,243
12,955
9,840
Total Cost of sales
7,135
5,393
13,130
10,122
3. Selling, general and administrative costs
Selling, general and administrative costs amounted to $622 million and $1,147 million in the three and six months ended June 30, 2021, respectively, compared to $431 million and $933 million recorded in the three and six months ended June 30, 2020, respectively, as costs returned to more normal levels from the low levels experienced last year.
4. Research and development costs
In the three months ended June 30, 2021, research and development costs were $321 million ($307 million in the three months ended June 30, 2020) and included all the research and development costs not recognized as assets in the period amounting to $211 million ($130 million in the three months ended June 30, 2020), the amortization of capitalized development costs of $110 million ($105 million in the three months ended June 30, 2020), and no impairment losses ($72 million in the three months ended June 30, 2020). During the three months ended June 30, 2021, the Group capitalized new development costs of $121 million ($77 million in the three months ended June 30, 2020).
In the six months ended June 30, 2021, research and development costs were $608 million ($555 million in the six months ended June 30, 2020) and included all the research and development costs not recognized as assets in the period amounting to $388 million ($269 million in the six months ended June 30, 2020), the amortization of capitalized development costs of $220 million ($214 million in the six months ended June 30, 2020) and no impairment losses ($72 million in the six months ended June 30, 2020). During the six months ended June 30, 2021 the Group capitalized new development costs of $211 million ($155 million in the six months ended June 30, 2020).
5. Result from investments
This item mainly includes CNH Industrial’s share in the net profit or loss of the investees accounted for using the equity method, as well as any impairment losses, reversal of impairment losses, accruals to the investment provision, and dividend income. In the three and six months ended June 30, 2021, CNH Industrial’s share in the net profit or loss of the investees accounted for using the equity method was a gain of $32 million and $60 million, respectively (a gain of $12 million in the three and six months ended June 30, 2020, respectively).
6. Restructuring costs
CNH Industrial incurred restructuring costs of $10 million and $12 million during the three and six months ended June 30, 2021, respectively, compared to $7 million and $12 million during the three and six months ended June 30, 2020, respectively.
7. Other income/(expenses)
This item consists of miscellaneous costs which cannot be allocated to specific functional areas, such as accruals for various provisions not attributable to other items of Cost of sales or Selling, general and administrative costs, net of income arising from operations which is not attributable to the sale of goods and services.
This item amounted to other expenses of $61 million in the three months ended June 30, 2021 and 2020, and primarily included legal costs and indirect taxes. This item amounted to other expenses of $97 million and $107 million in the six
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 41
months ended June 30, 2021 and 2020, respectively and primarily included legal costs, indirect taxes and the benefit cost for former employees.
8. Financial income/(expenses)
In addition to the items forming part of the specific lines of the condensed consolidated income statement, the following analysis of Net financial income/(expenses) in the three and six months ended June 30, 2021 and 2020 also takes into account the Interest income earned by Financial Services (presented in item “Interest income from customers and other financial income of Financial Services” in the following table) included in Net revenues for $172 million and $367 million in the three and six months ended June 30, 2021, respectively ($196 million and $418 million in the three and six months ended June 30, 2020, respectively), and the costs incurred by Financial Services (included in item “Interest cost and other financial expenses” in the following table) included in Cost of sales for $77 million and $175 million in the three and six months ended June 30, 2021, respectively ($150 million and $282 million in the three and six months ended June 30, 2020, respectively).
A reconciliation to the condensed consolidated income statement is provided under the following table:
Three months ended June 30,
Six months ended June 30,
($ million)
2021
2020
2021
2020
Financial income:
Interest earned and other financial income
9
9
18
18
Interest income from customers and other financial income of Financial Services
Net (income)/expenses from derivative financial instruments at fair value through profit or loss
6
38
(15)
(115)
Exchange rate differences from derivative financial instruments
8
(10)
60
158
Total interest and other financial expenses, net (income)/expenses from derivative financial instruments and exchange differences
139
234
335
429
of which:
Interest and other financial expenses, effects resulting from derivative financial instruments and exchange differences, excluding Financial Services (b)
62
84
160
147
Net financial income/(expenses) excluding Financial Services (a) - (b)
(53)
(75)
(142)
(129)
In the six months ended June 30, 2021, net financial expenses included a charge of $8 million related to the repurchase of all CNH Industrial Finance Europe S.A. outstanding notes due May 23, 2022.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 42
9. Income tax (expense) benefit
Income tax (expense) benefit recognized in the condensed consolidated income statement consists of the following:
Three months ended June 30,
Six months ended June 30,
($ million)
2021
2020
2021
2020
Current taxes
(212)
(112)
(323)
(115)
Deferred taxes
31
191
8
220
Taxes relating to prior periods
—
2
(11)
11
Total Income tax (expense) benefit
(181)
81
(326)
116
The effective tax rates for the three months ended June 30, 2021 and 2020 were 24.2% and 6.3%, respectively. The effective tax rates for the six months ended June 30, 2021 and 2020 were 25.0% and 8.2%, respectively. The current period effective tax rate primarily reflects the Company’s full year estimated annual tax rate, which was calculated in accordance with the applicable jurisdictional tax laws. For the three and six months ended June 30, 2020, income taxes were a benefit of $81 million and $116 million, respectively, primarily caused by CNH Industrial reporting a loss before taxes during the periods of $1,276 million and $1,410 million, respectively.
As in all financial reporting periods, CNH Industrial assessed the realizability of its deferred tax assets, which relate to multiple tax jurisdictions in all regions of the world. While no assessment changes occurred during the current period, it is possible that, within the next twelve months, assessment changes could occur and may have a material impact on CNH Industrial’s results of operations. The jurisdictions where assessment changes are most likely to occur include CNH Industrial’s primary manufacturing operations in Europe and Brazil.
CNH Industrial operates in many jurisdictions around the world and is routinely subject to income tax audits. As various ongoing audits are concluded, or as the applicable statutes of limitations expire, it is possible CNH Industrial’s amount of unrecognized tax benefits could change during the next twelve months. Those changes, however, are not expected to have a material impact on CNH Industrial’s results of operations, statement of financial position, or cash flows.
10. Earnings per share
Basic earnings/(loss) per common share (“EPS”) is computed by dividing the Profit/(loss) for the period attributable to the owners of the parent by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur on the conversion of all dilutive potential common shares into common shares. Stock options, restricted stock units, and performance stock units deriving from the CNH Industrial share-based payment awards are considered dilutive potential common shares.
Shares acquired under the buy-back program are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share. For additional information on the buy-back program, see Note 20 “Equity”.
A reconciliation of basic and diluted earnings/(loss) per share is as follows:
Three months ended June 30,
Six months ended June 30,
2021
2020
2021
2020
Basic:
Profit/(loss) attributable to the owners of the parent
$ million
556
(1,206)
952
(1,316)
Weighted average common shares outstanding – basic
million
1,354
1,350
1,354
1,350
Basic earnings/(loss) per common share
$
0.41
(0.89)
0.70
(0.97)
Diluted:
Profit/(loss) attributable to the owners of the parent
$ million
556
(1,206)
952
(1,316)
Weighted average common shares outstanding – basic
million
1,354
1,350
1,354
1,350
Effect of dilutive potential common shares (when dilutive):
Stock compensation plans(a)
million
7
—
6
—
Weighted average common shares outstanding – diluted
million
1,361
1,350
1,360
1,350
Diluted earnings/(loss) per common share
$
0.41
(0.89)
0.70
(0.97)
(a) Shares excluded from the computation of diluted earnings per share due to an anti-dilutive impact were not material in all periods presented.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 43
11. Intangible assets
Changes in the carrying amount of Intangible assets for the six months ended June 30, 2021 were as follows:
($ million)
At December 31, 2020
Additions
Amortization
Foreign exchange effects and other changes
At June 30, 2021
Goodwill
1,944
—
—
—
1,944
Development costs
2,193
211
(220)
(51)
2,133
Other
695
48
(55)
2
690
Total Intangible assets
4,832
259
(275)
(49)
4,767
Goodwill is allocated to the segments as follows: Agriculture for $1,743 million, Commercial and Specialty Vehicles for $62 million, Powertrain for $6 million and Financial Services for $133 million. Goodwill and intangible assets with indefinite useful lives are tested for impairment annually or more frequently if a triggering event occurs and impairment indicators are identified. CNH Industrial performed its most recent annual impairment review as of December 31, 2020. At that date, the estimated recoverable amounts of the Agriculture and Financial Services cash-generating units exceeded the carrying value by approximately 188% and 46%, respectively.
12. Property, plant and equipment
Changes in the carrying amount of Property, plant and equipment for the six months ended June 30, 2021 were as follows:
($ million)
Carrying amount at December 31, 2020
Additions
Depreciation
Foreign exchange effects
Disposals and other changes
Carrying amount at June 30, 2021
Property, plant and equipment acquired
3,283
153
(250)
(68)
37
3,155
Right-of-use assets
446
63
(71)
(10)
(1)
427
Assets sold with a buy-back commitment
1,685
325
(131)
(51)
(274)
1,554
Total Property, plant and equipment
5,414
541
(452)
(129)
(238)
5,136
At June 30, 2021, right-of-use assets refer primarily to the following lease contracts: industrial buildings for $295 million ($311 million at December 31, 2020), plant, machinery and equipment for $31 million ($36 million at December 31, 2020), and other assets for $101 million ($99 million at December 31, 2020). For a description of the related lease liabilities, refer to Note 22 "Debt".
Short-term and low-value leases are not recorded in the statement of financial position; CNH Industrial recognizes lease expense ($11 million in the six months ended June 30, 2021 and $10 million in the six months ended June 30, 2020) in the income statement for these leases on a straight-line basis over the lease term.
13. Investments and other non-current financial assets
Investments and other non-current financial assets at June 30, 2021 and December 31, 2020 consisted of the following:
($ million)
At June 30, 2021
At December 31, 2020
Equity investments measured at fair value through other comprehensive income
464
392
Other investments
561
584
Total Investments
1,025
976
Non-current financial receivables and other non-current securities
50
45
Total Investments and other non-current financial assets
1,075
1,021
Equity investments measured at fair value through other comprehensive income include the fair value of the approximately 6.5% investment held by CNH Industrial in Nikola Corporation ("Nikola"), made in the context of the strategic partnership with Nikola to industrialize fuel-cell and battery electric Heavy-Duty trucks. During the second quarter of 2020, Nikola completed a business combination with VectoIQ Acquisition Corp., a publicly-traded special purpose acquisition company. Under the terms and conditions of the business combination, the former shareholders of Nikola received 1.901 shares of VectoIQ for each share held in Nikola and became shareholders of VectoIQ, which, in turn, changed its name to “Nikola Corporation”. The combined company’s shares continued to list on NASDAQ under the new ticker symbol “NKLA”. Before the completion of the business combination, CNH Industrial increased its
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 44
investment in Nikola to $250 million. The market price of Nikola shares as of June 30, 2021 was $18.06, determining a value of $464 million for the 25,661,448 shares held by CNH Industrial through its fully-owned subsidiary Iveco S.p.A. During the three and six months ended June 30, 2021, CNH Industrial recorded in Other comprehensive income a pre-tax gain of $107 million ($106 million after tax) and of $72 million ($71 million after tax), respectively, from the remeasurement at fair value of the investment in Nikola. During the three and six months ended June 30, 2020, CNH Industrial recorded in Other comprehensive income a pre-tax gain of $1,480 million ($1,462 million after tax) and of $1,483 million ($1,464 million after tax), respectively, from the remeasurement at fair value of the investment in Nikola Corporation.
Iveco S.p.A. and Nikola Corporation are jointly developing cab over battery-electric vehicle (“BEV”) and hydrogen fuel cell electric vehicle (“FCEV”) trucks, which will be manufactured in Europe through a legal entity 50/50 owned by Iveco S.p.A. and Nikola Corporation, and in the U.S. by Nikola Corporation. During 2020, Iveco S.p.A. and Nikola entered into a series of agreements to establish the European legal entity. The set-up activities of the legal entity started in the fourth quarter of 2020 and the implementation continues in line with the roadmap.
Changes in Investments were as follows:
($ million)
At December 31, 2020
Revaluations/ (Write-downs)
Acquisitions and capitalizations
Fair value remeasurements
Other changes
At June 30, 2021
Equity investments measured at fair value through other comprehensive income
392
—
—
72
—
464
Other investments
584
60
27
—
(110)
561
Total Investments
976
60
27
72
(110)
1,025
Other investments amounted to $561 million at June 30, 2021 ($584 million at December 31, 2020) and primarily included the following: Naveco (Nanjing Iveco Motor Co.) Ltd. $65 million ($66 million at December 31, 2020), Turk Traktor Ve Ziraat Makineleri A.S. $51 million ($69 million at December 31, 2020) and CNH Industrial Capital Europe S.a.S. $205 million ($235 million at December 31, 2020).
Revaluations and write-downs primarily consist of adjustments for the result of the period to the carrying amount of investments accounted for using the equity method.
14. Leased assets
Leased assets primarily include equipment and vehicles leased to retail customers by Financial Services under operating lease arrangements. Such leases typically have terms of 3 to 5 years with options available for the lessee to purchase the equipment at the lease term date. Revenues for non-lease components are accounted for separately.
Changes in the carrying amount of Leased assets for the six months ended June 30, 2021 were as follows:
($ million)
Carrying amount at December 31, 2020
Additions
Depreciation
Foreign exchange effects
Disposals and other changes
Carrying amount at June 30, 2021
Leased assets
1,978
280
(141)
10
(217)
1,910
15. Inventories
At June 30, 2021 and December 31, 2020, Inventories consisted of the following:
($ million)
At June 30, 2021
At December 31, 2020
Raw materials
1,994
1,518
Work-in-progress
1,330
623
Finished goods
4,141
3,859
Total Inventories
7,465
6,000
At June 30, 2021, Inventories included assets which are no longer subject to operating lease arrangements or buy-back commitments and were held for sale for a total amount of $181 million ($216 million at December 31, 2020).
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 45
16. Current receivables and Other current financial assets
A summary of Current receivables and Other current financial assets as of June 30, 2021 and December 31, 2020 is as follows:
($ million)
At June 30, 2021
At December 31, 2020
Trade receivables
520
503
Receivables from financing activities
18,812
18,529
Current tax receivables
122
160
Other current receivables and financial assets:
Other current receivables
1,067
937
Other current financial assets
180
104
Total Other current receivables and financial assets
1,247
1,041
Total Current receivables and Other current financial assets
20,701
20,233
Receivables from financing activities
A summary of Receivables from financing activities as of June 30, 2021 and December 31, 2020 is as follows:
($ million)
At June 30, 2021
At December 31, 2020
Retail:
Retail financing
9,116
9,050
Finance leases
290
277
Total Retail
9,406
9,327
Wholesale:
Dealer financing
9,323
9,129
Total Wholesale
9,323
9,129
Other
83
73
Total Receivables from financing activities
18,812
18,529
CNH Industrial provides and administers financing for retail purchases of new and used equipment and vehicles sold through its dealer network. The terms of retail and other notes and finance leases generally range from two to six years, and interest rates on retail and other notes and finance leases vary depending on prevailing market interest rates and certain incentive programs offered by Industrial Activities.
Wholesale receivables arise primarily from the sale of goods to dealers and distributors and, to a lesser extent, the financing of dealer operations. Under the standard terms of the wholesale receivable agreements, these receivables typically have “interest-free” periods of up to twelve months and stated original maturities of up to twenty-four months, with repayment accelerated upon the sale of the underlying equipment by the dealer. During the “interest free” period, Financial Services is compensated by Industrial Activities for the difference between market interest rates and the amount paid by the dealer. After the expiration of any “interest-free” period, interest is charged to dealers on outstanding balances until CNH Industrial receives payment in full. The “interest-free” periods are determined based on the type of equipment sold and the time of year of the sale. CNH Industrial evaluates and assesses dealers on an ongoing basis as to their credit worthiness. CNH Industrial may be obligated to repurchase the dealer’s equipment upon cancellation or termination of the dealer’s contract for such causes as change in ownership, closeout of the business, or default. There were no significant losses in the three and six months ended June 30, 2021 and 2020 relating to the termination of dealer contracts.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 46
Financing receivables are considered past due if the required principal and interest payments have not yet been received as of the contractual payment due date. Delinquency is reported in financing receivables greater than 30 days past due. Non-performing financing receivables represent loans for which CNH Industrial has ceased accruing finance income. These receivables are generally 90 days delinquent. Finance income for non-performing receivables is recognized on a cash basis. Accrued interest is charged-off to Interest income. Interest income charged-off was not material for the three and six months ended June 30, 2021 and 2020. Accrual of finance income is resumed when the receivable becomes contractually current and collections are reasonably assured.
The aging of Receivables from financing activities as of June 30, 2021 and December 31, 2020 is as follows:
At June 30, 2021
($ million)
Total Current
31-60 Days Past Due
61-90 Days Past Due
Total Performing
Non-Performing
Total
Retail
North America
6,215
12
—
6,227
—
6,227
Europe
98
—
—
98
—
98
South America
1,919
23
—
1,942
—
1,942
Rest of World
1,116
10
9
1,135
4
1,139
Total Retail
9,348
45
9
9,402
4
9,406
Wholesale
North America
2,729
—
—
2,729
17
2,746
Europe
5,264
—
—
5,264
—
5,264
South America
601
—
—
601
32
633
Rest of World
674
3
2
679
1
680
Total Wholesale
9,268
3
2
9,273
50
9,323
At December 31, 2020
($ million)
Total Current
31-60 Days Past Due
61-90 Days Past Due
Total Performing
Non-Performing
Total
Retail
North America
6,125
25
—
6,150
—
6,150
Europe
99
—
—
99
—
99
South America
1,885
4
1
1,890
12
1,902
Rest of World
1,162
7
4
1,173
3
1,176
Total Retail
9,271
36
5
9,312
15
9,327
Wholesale
North America
2,722
—
—
2,722
31
2,753
Europe
5,252
—
—
5,252
—
5,252
South America
537
—
—
537
42
579
Rest of World
542
3
—
545
—
545
Total Wholesale
9,053
3
—
9,056
73
9,129
There is not a disproportionate concentration of credit risk in any geographic region. Receivables from financing activities generally relate to the agricultural, construction and truck businesses. CNH Industrial typically retains a security interest in the equipment or vehicle being financed. In addition, CNH Industrial may also obtain other forms of collateral including letter of credit/guarantees, insurance coverage, real estate and personal guarantees.
A financial asset has experienced a significant increase in credit risk when the customer shows signs of operational or financial weakness including past dues, which requires significant collection effort and monitoring and generally occurs when the customer becomes past due greater than 30 days. The assessment considers available information regarding the financial stability of the customer and other market/industry data; an account is typically considered in default when it is 90 days past due.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 47
CNH Industrial utilizes three categories for receivables from financing activities that reflect their credit risk and how the loan provision is determined.
Internal risk grade
IFRS 9 classification
Definition
Basis for recognition of expected credit loss provision
Performing
Stage 1
Low risk of default; payments are generally less than 30 days past due
12 month expected credit losses
Performing
Stage 2
Significant increase in credit risk; payments generally between 31 and 90 days past due
Lifetime expected credit losses
Non-performing
Stage 3
Accounts are credit impaired and/or a legal action has been initiated; payments generally greater than 90 days past due
Lifetime expected credit losses
Charge-offs of principal amounts of receivables outstanding are deducted from the allowance at the point when it is estimated that amounts due are deemed uncollectible. CNH Industrial continues to engage in collection efforts to attempt to recover the receivables. When recoveries are collected, these are recognized as income.
Allowance for Credit Losses
CNH Industrial’s allowance for credit losses is segregated into two portfolio segments: retail and wholesale. A portfolio segment is the level at which CNH Industrial develops a systematic methodology for determining its allowance for credit losses. Further, CNH Industrial evaluates its retail and wholesale portfolio segments by class of receivable: North America, Europe, South America and Rest of World regions. Typically, CNH Industrial’s receivables within a geographic region have similar risk profiles and methods for assessing and monitoring risk. These classes align with management reporting.
The Group accounts for its credit risk by appropriately providing for expected credit losses on a timely basis. In calculating the expected credit loss rates, CNH Industrial considers historical loss rates for each category of customers and adjusts for forward looking macroeconomic data.
In calculating the expected credit losses, CNH Industrial’s calculations depend on whether the receivable has been individually identified as being impaired. The first component of the allowance for credit losses covers the receivables specifically reviewed by management for which CNH Industrial has determined it is probable that it will not collect all of the contractual principal and interest. Receivables are individually reviewed for impairment based on, among other items, amounts outstanding, days past due and prior collection history. Expected credit losses are measured by considering: the unbiased and probability-weighted amount; the time value of money; and reasonable and supportable information (available without undue costs or effort) at the reporting date about past events, current conditions and forecasts of future economic conditions. Expected credit losses are measured as the probability-weighted present value of all cash shortfalls over the expected life of each financial asset.
The second component of the allowance for credit losses covers all receivables that have not been individually reviewed for impairment. The allowance for these receivables is based on aggregated portfolio evaluations, generally by financial product. The allowance for wholesale and retail credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward looking macroeconomic factors. 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.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 48
Allowance for credit losses activity for the three and six months ended June 30, 2021 is as follows:
Three months ended June 30, 2021
Retail
Wholesale
($ million)
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Opening balance
69
24
187
280
24
1
153
178
Provision (benefit)
(3)
—
—
(3)
2
—
(1)
1
Charge-offs, net of recoveries
4
—
(15)
(11)
—
—
(2)
(2)
Transfers
—
(1)
1
—
2
1
(3)
—
Foreign currency translation and other
(4)
1
11
8
—
—
6
6
Ending balance
66
24
184
274
28
2
153
183
Six months ended June 30, 2021
Retail
Wholesale
($ million)
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Opening balance
87
26
191
304
26
1
147
174
Provision (benefit)
(7)
1
6
—
2
—
5
7
Charge-offs, net of recoveries
4
—
(23)
(19)
—
—
(3)
(3)
Transfers
(11)
(2)
13
—
—
1
(1)
—
Foreign currency translation and other
(7)
(1)
(3)
(11)
—
—
5
5
Ending balance
66
24
184
274
28
2
153
183
Receivables:
Ending balance
9,098
239
69
9,406
9,099
47
177
9,323
At June 30, 2021, the allowance for credit losses includes a continued reassessment of the outlook by region regarding the impact of the COVID-19 pandemic on credit conditions. CNH Industrial continues to monitor the situation and will update the macroeconomic factors and qualitative factors in future periods, as warranted.
At both June 30, 2020 and December 31, 2020, the allowance for credit losses was based on CNH Industrial's expectation of deteriorating credit conditions related to the COVID-19 pandemic.
Allowance for credit losses activity for the three and six months ended June 30, 2020 and for the year ended December 31, 2020 is as follows:
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 49
Three Months Ended June 30, 2020
Retail
Wholesale
($ million)
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Opening balance
81
8
184
273
30
1
117
148
Provision (benefit)
23
—
8
31
7
—
6
13
Charge-offs, net of recoveries
(5)
—
(19)
(24)
—
—
—
—
Transfers
(22)
22
—
—
(1)
1
—
—
Foreign currency translation and other
11
—
(11)
—
—
—
2
2
Ending balance
88
30
162
280
36
2
125
163
Six months ended June 30, 2020
Retail
Wholesale
($ million)
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Opening balance
68
5
220
293
35
1
123
159
Provision (benefit)
45
—
5
50
3
—
7
10
Charge-offs, net of recoveries
(9)
—
(35)
(44)
—
—
—
—
Transfers
(19)
25
(6)
—
—
1
(1)
—
Foreign currency translation and other
3
—
(22)
(19)
(2)
—
(4)
(6)
Ending balance
88
30
162
280
36
2
125
163
Receivables:
Ending balance
8,191
340
77
8,608
8,241
225
190
8,656
Year ended December 31, 2020
Retail
Wholesale
($ million)
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Stage 1 12 months ECL
Stage 2 Lifetime ECL
Stage 3 Lifetime ECL
Total
Opening balance
68
5
220
293
35
1
123
159
Provision (benefit)
42
1
32
75
(7)
—
25
18
Charge-offs, net of recoveries
(8)
—
(45)
(53)
—
—
(14)
(14)
Transfers
(10)
20
(10)
—
(2)
—
2
—
Foreign currency translation and other
(5)
—
(6)
(11)
—
—
11
11
Ending balance
87
26
191
304
26
1
147
174
Receivables:
Ending balance
9,012
272
43
9,327
8,820
93
216
9,129
Troubled Debt Restructurings
A restructuring of a receivable constitutes a troubled debt restructuring (“TDR”) when the lender grants a concession it would not otherwise consider to a borrower that is experiencing financial difficulties. As a collateral-based lender, CNH Industrial typically will repossess collateral in lieu of restructuring receivables. As such, for retail receivables, concessions are typically provided based on bankruptcy court proceedings. For wholesale receivables, concessions granted may include extended contract maturities, inclusion of interest-only periods, modification of a contractual interest rate to a below market interest rate and waiving of interest and principal.
TDRs are reviewed along with other receivables as part of management’s ongoing evaluation of the adequacy of the allowance for credit losses. The allowance for credit losses attributable to TDRs is based on the most probable source of repayment, which is normally the liquidation of the collateral. In determining collateral value, CNH Industrial estimates the current fair market value of the equipment collateral and considers credit enhancements such as additional collateral and third-party guarantees.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 50
Before removing a receivable from TDR classification, a review of the borrower is conducted. If concerns persist about the future ability of the borrower to meet its obligations, based on a credit review, the TDR classification is not removed from the receivable.
As of June 30, 2021, CNH Industrial had 204 retail and finance lease contracts classified as TDRs in North America where a court has determined the concession. The pre-modification value of these contracts was $6 million and the post-modification value was $5 million. Additionally, CNH Industrial had 339 accounts with a balance of $22 million in North America undergoing bankruptcy proceedings where a concession has not yet been determined. As of June 30, 2020, CNH Industrial had 275 retail and finance lease contracts classified as TDRs in North America where a court has determined the concession. The pre-modification value was $9 million and the post-modification value was $8 million. Additionally, CNH Industrial had 330 accounts with a balance of $21 million in North America undergoing bankruptcy proceedings where a concession has not yet been determined. As the outcome of the bankruptcy cases is determined by a court based on available assets, subsequent re-defaults are unusual and were not material for retail and finance lease contracts that were modified in a TDR during the previous twelve months ended June 30, 2021 and 2020.
As of June 30, 2021 and 2020, CNH Industrial had retail and finance lease receivable contracts classified as TDRs in Europe. The pre-modification value was $86 million and $78 million, respectively, and the post-modification value was $79 million and $71 million, respectively. Subsequent re-defaults were not material for retail and finance lease receivable contracts that were modified in a TDR during the previous twelve months ended June 30, 2021 and 2020.
As of June 30, 2021 and 2020, CNH Industrial’s wholesale TDRs were immaterial.
Transfers of financial receivables
The Group transfers a number of its financial receivables to securitization programs or factoring transactions.
A securitization transaction entails the sale of a portfolio of receivables to a securitization vehicle. This structured entity finances the purchase of the receivables by issuing asset-backed securities (i.e. securities whose repayment and interest flow depend upon the cash flow generated by the portfolio). Asset-backed securities are divided into classes according to their degree of seniority and rating: the most senior classes are placed with investors on the market; the junior class, whose repayment is subordinated to the senior classes, is normally subscribed for by the seller. The residual interest in the receivables retained by the seller is therefore limited to the junior securities it has subscribed for. In accordance with IFRS 10 – Consolidated Financial Statements, all securitization vehicles are included in the scope of consolidation because the subscription of the junior asset-backed securities by the seller implies its control in substance over the structured entity.
Furthermore, factoring transactions may be either with recourse or without recourse; certain without recourse transfers include deferred payment clauses (for example, when the payment by the factor of a minor part of the purchase price is dependent on the total amount collected from the receivables), requiring first loss cover, meaning that the transferor takes priority participation in the losses, or requires a significant exposure to the cash flows arising from the transferred receivables to be retained. These types of transactions do not comply with the requirements of IFRS 9 – Financial Instruments for the derecognition of the assets, since the risks and rewards connected with collection are not substantially transferred and, accordingly, the Group continues to recognize the receivables transferred by this means in its consolidated statement of financial position and recognizes a financial liability of the same amount under Asset-backed financing (see Note 22 “Debt”). The gains and losses arising from the transfer of these assets are only recognized when the assets are derecognized.
At June 30, 2021 and December 31, 2020, the carrying amounts of such restricted assets included in Receivables from financing activities are the following:
($ million)
At June 30, 2021
At December 31, 2020
Restricted receivables:
Retail financing and finance lease receivables
5,662
6,224
Wholesale receivables
6,613
7,011
Total restricted receivables
12,275
13,235
CNH Industrial has discounted receivables and bills without recourse having due dates beyond June 30, 2021 amounting to $276 million ($351 million at December 31, 2020, with due dates beyond that date), which refer to trade receivables and other receivables for $269 million ($337 million at December 31, 2020), and receivables from financing activities for $7 million ($14 million at December 31, 2020).
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 51
17. Derivative assets and Derivative liabilities
These items consist of derivative financial instruments measured at fair value at the balance sheet date.
CNH Industrial utilizes derivative instruments to mitigate its exposure to interest rate and foreign currency exposures. Derivatives used as hedges are effective at reducing the risk associated with the exposure being hedged and are designated as a hedge at the inception of the derivative contract. CNH Industrial 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.
In accordance with IFRS 9, derivative financial instruments qualify for hedge accounting only when, at the inception of the hedge, there is formal designation and documentation of the hedging relationship, there is an economic relationship between the hedging instrument and the hedged item, credit risk does not dominate the value changes that result from the economic relationship, and the hedging relationship’s hedging ratio reflects the actual quantity of the hedging instrument and the hedged item. Hedge effectiveness is determined at the inception of the hedge relationship and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.
With regard to hedge accounting, CNH Industrial continues to monitor significant developments in order to assess the potential future impacts of the COVID-19 pandemic on the hedging relationships in place and to update its estimates concerning whether forecasted transactions can still be considered highly likely to occur.
Foreign Exchange Derivatives
CNH Industrial has entered into foreign exchange forward contracts and swaps in order to manage and preserve the economic value of cash flows in a currency different from the functional currency of the relevant legal entity. CNH Industrial conducts its business on a global basis in a wide variety of foreign currencies and hedges foreign currency exposures arising from various receivables, liabilities, and expected inventory purchases and sales. Derivative instruments utilized to hedge the foreign currency risk associated with anticipated inventory purchases and sales in foreign currencies are designated as cash flow hedges. Gains and losses on these instruments are deferred in accumulated other comprehensive income/(loss) and recognized in earnings when the related transaction occurs.
For hedging cash flows in a currency different from the functional currency, the hedge relationship reflects the hedge ratio of 1:1, which means that relationship is characterized by the value of the hedging instrument and the value of the hedged item moving in the opposite direction as a result of the common underlying of hedged risk.
The main sources of hedge ineffectiveness are:
▪the effect of the counterparty and the Group’s own credit risk on the fair value of the foreign exchange derivatives, which is not reflected in the change in the fair value of the hedged cash flow attributable to the change in the exchange rates, and
▪changes in timing of the hedged transaction.
Ineffectiveness related to these hedge relationships is recognized in the condensed consolidated income statement in the line “Financial income/(expenses)” and was not significant for all periods presented. Fair value changes used as a basis to calculate hedge ineffectiveness were $-83 million for foreign exchange contracts in the six months ended June 30, 2021. The maturity of these instruments does not exceed 24 months and the after-tax gains/(losses) deferred in accumulated other comprehensive income/(loss) that will be recognized in net revenues and cost of sales over the next twelve months, assuming foreign exchange rates remain unchanged, is approximately $-21 million. If a derivative instrument is terminated because the hedge relationship is no longer effective or because the hedged item is a forecasted transaction that is no longer determined to be probable, the cumulative amount recorded in accumulated other comprehensive income/(loss) is recognized immediately in earnings. Such amounts were insignificant in all periods presented.
CNH Industrial also uses forwards and swaps to hedge certain assets and liabilities denominated in foreign currencies. Such derivatives are considered economic hedges and not designated as hedging instruments. The changes in the fair values of these instruments are recognized directly in income in “Financial income/(expenses)” and are expected to offset the foreign exchange gains or losses on the exposures being managed.
All of CNH Industrial’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. The total notional amount of CNH Industrial’s foreign exchange derivatives was $7.9 billion at June 30, 2021 and $6.3 billion at December 31, 2020.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 52
Interest Rate Derivatives
CNH Industrial has entered into interest rate derivatives (swaps and caps) 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 CNH Industrial 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, to the extent that the hedge relationship has been effective, are deferred in other comprehensive income/(loss) and recognized in “Financial income/(expenses)” over the period in which CNH Industrial recognizes interest expense on the related debt. The after-tax gains (losses) deferred in other comprehensive income/(loss) that will be recognized in interest expense over the next twelve months are insignificant.
Interest rate derivatives that have been designated as fair value hedge relationships have been used by CNH Industrial to mitigate the volatility in the fair value of existing fixed rate bonds and medium-term notes due to changes in floating interest rate benchmarks. Gains and losses on these instruments are recorded in “Financial income/(expenses)” in the period in which they occur and an offsetting gain or loss is also reflected in “Financial income/(expenses)” based on changes in the fair value of the debt instrument being hedged due to changes in floating interest rate benchmarks.
For hedging interest rate exposures, the hedge relationship reflects the hedge ratio 1:1, which means that relationship is characterized by the value of the hedging instrument and the value of the hedged item that move in the opposite direction as a result of the common underlying of hedged risk.
The main sources of hedge ineffectiveness are:
▪the effect of the counterparty and the Group’s own credit risk on the fair value of the swaps, which is not reflected in the change in the fair value of the hedged cash flow attributable to the change in the interest rates, and
▪differences in repricing dates between the swaps and the borrowings.
Any ineffectiveness is recorded in “Financial income/(expenses)” in the condensed consolidated income statement and its amount was insignificant for all periods presented. Fair value changes used as a basis to calculate hedge ineffectiveness were $-3 million for interest rate derivatives in the six months ended June 30, 2021.
CNH Industrial 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 CNH Industrial’s committed asset-backed facilities. Unrealized and realized gains and losses resulting from fair value changes in these instruments are recognized directly in income. Net gains and losses on these instruments were insignificant in all periods presented.
All of CNH Industrial’s interest rate derivatives outstanding as of June 30, 2021 and December 31, 2020 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 CNH Industrial’s interest rate derivatives was approximately $7.8 billion and $7.5 billion at June 30, 2021 and December 31, 2020, respectively.
As a result of the reform and replacement of specific benchmark interest rates, uncertainty remains regarding the timing and exact nature of those changes. At June 30, 2021, the notional amount of hedging instruments that could be affected by the reform of benchmark interest rates is $1,230 million ($1,194 million at December 31, 2020).
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 53
Financial statement impact of CNH Industrial derivatives
The following table summarizes the gross impact of changes in the fair value of derivatives recognized in other comprehensive income and profit or loss during the three and six months ended June 30, 2021 and 2020:
The fair values of CNH Industrial’s derivatives as of June 30, 2021 and December 31, 2020 in the condensed consolidated statement of financial position are recorded as follows:
At June 30, 2021
At December 31, 2020
($ million)
Positive fair value
Negative fair value
Positive fair value
Negative fair value
Derivatives designated as hedging instruments
Fair value hedges:
Interest rate derivatives
48
(3)
68
(1)
Total Fair value hedges
48
(3)
68
(1)
Cash flow hedges:
Foreign exchange derivatives
32
(118)
67
(62)
Interest rate derivatives
12
(25)
9
(45)
Total Cash flow hedges
44
(143)
76
(107)
Total Derivatives designated as hedging instruments
92
(146)
144
(108)
Derivatives not designated as hedging instruments
Foreign exchange derivatives
35
(16)
16
(31)
Interest rate derivatives
9
(9)
—
—
Total Derivatives not designated as hedging instruments
44
(25)
16
(31)
Derivative assets/(liabilities)
136
(171)
160
(139)
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 54
Derivatives not designated as hedging instruments consist mainly of derivatives (mostly currency-based derivatives) acquired to hedge receivables and payables subject to currency risk and/or interest rate risk which are not formally designated as hedges at Group level.
18. Cash and cash equivalents
Cash and cash equivalents include cash at bank and other easily marketable securities that are readily convertible into cash and are subject to an insignificant risk of changes in value.
At June 30, 2021, this item included $764 million ($844 million at December 31, 2020) of restricted cash which mainly includes bank deposits that may be used exclusively for the repayment of the debt relating to securitizations classified as Asset-backed financing.
At June 30, 2021, this item also included $451 million ($1,272 million at December 31, 2020) of money market securities and other cash equivalents.
19. Assets held for sale
Assets held for sale at June 30, 2021 and December 31, 2020 primarily included buildings.
20. Equity
Share capital
The Articles of Association of CNH Industrial N.V. provide for authorized share capital of €40 million, divided into 2 billion common shares and 2 billion special voting shares to be held with associated common shares, each with a per share par value of €0.01. As of June 30, 2021, the Company’s share capital was €18 million (equivalent to $25 million), fully paid-in, and consisted of 1,364,400,196 common shares (1,354,242,505 common shares outstanding, net of 10,157,691 common shares held in treasury by the Company as described in the following section) and 396,474,276 special voting shares (371,241,879 special voting shares outstanding, net of 25,232,397 special voting shares held in treasury by the Company as described in the following section), all with a par value of €0.01 each.
For more complete information on the share capital of CNH Industrial N.V., see Note 21 “Equity” to the CNH Industrial Consolidated Financial Statements at December 31, 2020.
Treasury shares
As of June 30, 2021, the Company held 10.2 million common shares in treasury, net of transfers of common shares to fulfill its obligations under its stock compensation plans, at an aggregate cost of $102 million.
In order to maintain the necessary operating flexibility over an adequate time period, on April 15, 2021, the Annual General Meeting (“AGM”) granted to the Board of Directors the authority to acquire common shares in the capital of the Company through stock exchange trading on the MTA and the NYSE or otherwise for a period of 18 months (i.e., up to and including October 14, 2022). Under such authorization the Board’s authority is limited to a maximum of up to 10% of the issued common shares as of the date of the AGM and, in compliance with applicable rules and regulations, subject to a maximum price per common share equal to the average of the highest price on each of the five trading days prior to the date of acquisition, as shown in the Official Price List of the MTA or NYSE (as the case may be) plus 10% (maximum price) and to a minimum price per common share equal to the average of the lowest price on each of the five trading days prior to the date of acquisition, as shown in the Official Price List of the MTA or NYSE (as the case may be) minus 10% (minimum price). Neither the renewal of the authorization, nor the launch of any program obliges the Company to buy-back any common shares. The launch of any new program will be subject to a further resolution of the Board of Director. In any event, such programs may be suspended, discontinued or modified at any time for any reason and without previous notice, in accordance with applicable laws and regulations.
Capital reserves
At June 30, 2021 capital reserves, amounting to $3,243 million ($3,220 million at December 31, 2020), mainly consisted of the share premium deriving from the merger occurred in 2013 between Fiat Industrial and its majority owned subsidiary CNH Global.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 55
Earnings reserves
Earnings reserves, amounting to $6,996 million at June 30, 2021 ($6,211 million at December 31, 2020), mainly consist of retained earnings and profits attributable to the owners of the parent.
On April 15, 2021, at the AGM, CNH Industrial N.V. shareholders approved a dividend of €0.11 per common share, as recommended on March 3, 2021 by the Board of Directors. The cash dividend was declared in euro and paid on May 5, 2021 for a total amount of $178 million (€149 million).
Other comprehensive income/(loss)
Other comprehensive income/(loss) consisted of the following:
Three months ended June 30,
Six months ended June 30,
($ million)
2021
2020
2021
2020
Other comprehensive income/(loss) that will not be reclassified subsequently to profit or loss:
Gains/(losses) on the remeasurement of defined benefit plans
—
—
(2)
(2)
Net change in fair value of equity investments measured at fair value through other comprehensive income(1)
107
1,480
72
1,483
Total Other comprehensive income/(loss) that will not be reclassified subsequently to profit or loss (A)
107
1,480
70
1,481
Other comprehensive income/(loss) that may be reclassified subsequently to profit or loss:
Gains/(losses) on cash flow hedging instruments arising during the period
(39)
(19)
(37)
47
(Gains)/losses on cash flow hedging instruments reclassified to profit or loss
1
10
(14)
13
Gains/(losses) on cash flow hedging instruments
(38)
(9)
(51)
60
Exchange gains/(losses) on translating foreign operations arising during the period
131
(35)
164
(519)
Exchange (gains)/losses on translating foreign operations reclassified to profit or loss
—
—
—
—
Exchange gains/(losses) on translating foreign operations
131
(35)
164
(519)
Share of Other comprehensive income/(loss) of entities accounted for using the equity method arising during the period
1
5
(23)
(16)
Share of Other comprehensive income/(loss) of entities accounted for using the equity method
1
5
(23)
(16)
Total Other comprehensive income/(loss) that may be reclassified subsequently to profit or loss (B)
94
(39)
90
(475)
Tax effect (C)
(2)
(16)
(1)
(27)
Total Other comprehensive income/(loss), net of tax (A) + (B) + (C)
199
1,425
159
979
(1) In the three and six months ended June 30, 2021 and 2020, Net change in fair value of equity investments at fair value through other comprehensive income includes the remeasurement at fair value of the investment in Nikola Corporation. Refer to Note 13 for additional information on this investment.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 56
The income tax effect for each component of Other comprehensive income/(loss) consisted of the following:
Three months ended June 30,
Six months ended June 30,
2021
2020
2021
2020
($ million)
Before tax amount
Tax (expense)/ benefit
Net-of-tax amount
Before tax amount
Tax (expense)/ benefit
Net-of-tax amount
Before tax amount
Tax (expense)/ benefit
Net-of-tax amount
Before tax amount
Tax (expense)/ benefit
Net-of-tax amount
Other comprehensive income/(loss) that will not be reclassified subsequently to profit or loss:
Gains/(losses) on the remeasurement of defined benefit plans
—
2
2
—
1
1
(2)
2
—
(2)
(7)
(9)
Net change in fair value of equity investments measured at fair value through other comprehensive income(1)
107
(1)
106
1,480
(18)
1,462
72
(1)
71
1,483
(19)
1,464
Total Other comprehensive income/(loss) that will not be reclassified subsequently to profit or loss
107
1
108
1,480
(17)
1,463
70
1
71
1,481
(26)
1,455
Other comprehensive income/(loss) that may be reclassified subsequently to profit or loss:
Gains/(losses) on cash flow hedging instruments
(38)
(3)
(41)
(9)
1
(8)
(51)
(2)
(53)
60
(1)
59
Exchange gains/(losses) on translating foreign operations
131
—
131
(35)
—
(35)
164
—
164
(519)
—
(519)
Share of Other comprehensive income/(loss) of entities accounted for using the equity method
1
—
1
5
—
5
(23)
—
(23)
(16)
—
(16)
Total Other comprehensive income/(loss) that may be reclassified subsequently to profit or loss
94
(3)
91
(39)
1
(38)
90
(2)
88
(475)
(1)
(476)
Total Other comprehensive income/(loss)
201
(2)
199
1,441
(16)
1,425
160
(1)
159
1,006
(27)
979
(1) In the three and six months ended June 30, 2021 and 2020, Net change in fair value of equity investments at fair value through other comprehensive income includes the remeasurement at fair value of the investment in Nikola Corporation. Refer to Note 13 for additional information on this investment.
Share-based compensation
CNH Industrial recognized total share-based compensation expense of $16 million and $30 million for the three and six months ended June 30, 2021 , respectively ($4 million and $21 million in the three and six months ended June 30, 2020, respectively).
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 57
21. Provisions
A summary of Provisions at June 30, 2021 and December 31, 2020 is as follows:
($ million)
At June 30, 2021
At December 31, 2020
Employee benefits
1,795
1,864
Other provisions:
Warranty and technical assistance provision
1,026
995
Restructuring provision
68
78
Investment provision
14
15
Other risks
2,464
2,287
Total Other provisions
3,572
3,375
Total Provisions
5,367
5,239
Provisions for Employee benefits include provisions for health care plans, pension plans and other post-employment benefits, as well as other provisions for employees and provisions for other long-term employee benefits.
Provisions for Other risks include primarily provisions for contractual and commercial risks and disputes.
Employee benefits
The following tables summarize the components of net benefit cost of CNH Industrial’s post-employment benefits for the three and six months ended June 30, 2021 and 2020:
Pension plans
Healthcare plans
Other
Three Months Ended June 30,
Three Months Ended June 30,
Three Months Ended June 30,
($ million)
2021
2020
2021
2020
2021
2020
Service cost:
Current service cost
5
5
1
1
3
2
Total Service cost
5
5
1
1
3
2
Net interest expense
1
3
1
2
—
—
Other costs (income)
1
2
—
—
—
—
Net benefit cost/(income) recognized to profit or loss
7
10
2
3
3
2
Pension plans
Healthcare plans
Other
Six Months Ended June 30,
Six Months Ended June 30,
Six Months Ended June 30,
($ million)
2021
2020
2021
2020
2021
2020
Service cost:
Current service cost
10
10
2
2
6
4
Total Service cost
10
10
2
2
6
4
Net interest expense
2
4
2
6
—
—
Other costs (income)
2
4
—
—
—
—
Net benefit cost/(income) recognized to profit or loss
14
18
4
8
6
4
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 58
22. Debt
An analysis of debt by nature is as follows:
($ million)
At June 30, 2021
At December 31, 2020
Asset-backed financing
11,013
11,923
Other debt:
Bonds
9,198
9,675
Borrowings from banks
3,138
3,381
Payables represented by securities
951
824
Lease liabilities
436
453
Other
302
362
Total Other debt
14,025
14,695
Total Debt
25,038
26,618
Total Debt was $25,038 million at June 30, 2021, a decrease of $1,580 million compared to December 31, 2020. Excluding the positive impact of exchange translation differences ($282 million of decrease in Debt), Debt decreased by $1,298 million as a result of the repurchase of notes and the repayment of bonds and borrowings from banks, partially offset by new bond issuance as described in the following.
During the six months ended June 30, 2021, $71 million for the principal portion of Lease liabilities and $6 million for interest expenses related to lease liabilities were paid, respectively ($64 million and $6 million, respectively, were paid during the six months ended June 30, 2020).
The following table sets out a maturity analysis of Lease liabilities at June 30, 2021 and December 31, 2020:
($ million)
At June 30, 2021
At December 31, 2020
Less than one year
129
133
One to two years
94
98
Two to three years
67
69
Three to four years
52
51
Four to five years
35
39
More than five years
103
108
Total undiscounted lease payments
480
498
Less: Interest
(44)
(45)
Total Lease liabilities
436
453
At June 30, 2021, the weighted average remaining lease term (calculated on the basis of the remaining lease term and the lease liability balance for each lease) and the weighted average discount rate for leases were 6.3 years and 3.0%, respectively (6.6 years and 3.0%, respectively, at December 31, 2020).
In March 2021, CNH Industrial Finance Europe S.A. repurchased all its outstanding notes due May 23, 2022, equaling €316 million (approximately $371 million) through the exercise of a make whole option.
In May 2021, CNH Industrial Capital LLC issued $600 million in aggregate principal amount of 1.450% notes due 2026, with an issue price of 99.208%.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 59
The following table shows the summary of the Group’s issued bonds outstanding at June 30, 2021:
Currency
Face value of outstanding bonds (in million)
Coupon
Maturity
Outstanding amount ($ million)
Euro Medium Term Notes
CNH Industrial Finance Europe S.A.(1)
EUR
367
2.875
%
September 27, 2021
437
CNH Industrial Finance Europe S.A.(1)
EUR
75
1.625
%
March 29, 2022
89
CNH Industrial Finance Europe S.A.(1)
EUR
369
2.875
%
May 17, 2023
438
CNH Industrial Finance Europe S.A.(1)
EUR
750
0.000
%
April 1, 2024
891
CNH Industrial Finance Europe S.A.(1)
EUR
650
1.75
%
September 12, 2025
773
CNH Industrial Finance Europe S.A.(1)
EUR
100
3.5
%
November 12, 2025
119
CNH Industrial Finance Europe S.A.(1)
EUR
500
1.875
%
January 19, 2026
594
CNH Industrial Finance Europe S.A.(1)
EUR
600
1.75
%
March 25, 2027
713
CNH Industrial Finance Europe S.A.(1)
EUR
50
3.875
%
April 21, 2028
59
CNH Industrial Finance Europe S.A.(1)
EUR
500
1.625
%
July 3, 2029
594
CNH Industrial Finance Europe S.A.(1)
EUR
50
2.2
%
July 15, 2039
59
Total Euro Medium Term Notes
4,766
Other Bonds
CNH Industrial Capital LLC
USD
400
3.875
%
October 15, 2021
400
CNH Industrial Capital LLC
USD
500
4.375
%
April 5, 2022
500
CNH Industrial Capital LLC
USD
600
1.95
%
July 2, 2023
600
CNH Industrial Capital LLC
USD
500
4.2
%
January 15, 2024
500
CNH Industrial Capital LLC
USD
500
1.875
%
January 15, 2026
500
CNH Industrial Capital LLC
USD
600
1.450
%
July 15, 2026
600
CNH Industrial N.V.(2)
USD
600
4.5
%
August 15, 2023
600
CNH Industrial N.V.(2)
USD
500
3.85
%
November 15, 2027
500
CNH Industrial Capital Australia Pty Limited
AUD
175
2.1
%
December 12, 2022
131
CNH Industrial Capital Argentina SA
ARS
701
36.0
%
August 31, 2021
7
CNH Industrial Capital Argentina SA
USD
31
0.000
%
August 31, 2023
31
Total Other bonds
4,369
Hedging effect and amortized cost valuation
63
Total Bonds
9,198
(1) Bond listed on the Irish Stock Exchange.
(2) Bond listed on the New York Stock Exchange.
The bonds issued by the Group may contain commitments of the issuer, and in certain cases commitments of CNH Industrial N.V. in its capacity as guarantor, which are typical of international practice for bond issues of this type such as, in particular, negative pledge (in relation to quoted indebtedness), a status (or pari passu) covenant and cross default clauses. A breach of these commitments can lead to the early repayment of the applicable notes. The bonds guaranteed by CNH Industrial N.V. under the Euro Medium Term Note Programme (and its predecessor the Global Medium Term Note Programme), as well as the notes issued by CNH Industrial N.V., contain clauses which could lead to early repayment if there is a change of control of CNH Industrial N.V. leading to a rating downgrading of CNH Industrial N.V.
The Group intends to repay the issued bonds in cash at the due date by utilizing available liquid resources. In addition, the companies in the Group may from time to time buy back their issued bonds. Such buy backs, if made, depend upon market conditions, the financial situation of the Group and other factors which could affect such decisions. Further information about these bonds is included in Note 24 “Debt” to the CNH Industrial Consolidated Financial Statements at December 31, 2020.
With the purpose of further diversifying its funding structure, CNH Industrial has established various commercial paper programs. CNH Industrial Financial Services S.A. in Europe issued commercial paper under a program which had an amount of $61 million outstanding at June 30, 2021 ($112 million at December 31, 2020).
In March 2019, CNH Industrial signed a five-year committed revolving credit facility for €4 billion ($4.5 billion at March 31, 2019 exchange rate) due to mature in 2024 with two extension options of 1-year each, exercisable on the first and
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 60
second anniversary of the signing date. CNH Industrial exercised the first of the two extension options as of February 28, 2020 and the second extension option as of February 26, 2021. The facility is now due to mature in March 2026 for €3,950.5 million; the remaining €49.5 million will mature in March 2025. Available committed unsecured facilities expiring after twelve months amounted to approximately $5.7 billion at June 30, 2021 ($6.1 billion at December 31, 2020). Total committed secured facilities expiring after twelve months amounted to approximately $2.9 billion at June 30, 2021 ($3.9 billion at December 31, 2020), of which $0.7 billion was available at June 30, 2021 ($0.2 billion at December 31, 2020).
23. Trade payables
Trade payables were $7,100 million at June 30, 2021 and increased by $745 million from the amount at December 31, 2020.
24. Other current liabilities
At June 30, 2021, Other current liabilities mainly included $1,183 million of amounts payable to customers relating to repurchase price on buy-back agreements ($1,355 million at December 31, 2020), and $1,392 million of contract liabilities ($1,381 million at December 31, 2020), of which $722 million for future rents related to buy-back agreements ($740 million at December 31, 2020). Other current liabilities also included accrued expenses and deferred income of $592 million ($561 million at December 31, 2020).
25. Commitments and contingencies
As a global Group with a diverse business portfolio, CNH Industrial in the ordinary course of business is exposed to numerous legal risks, including, without limitation, dealer and supplier litigation, intellectual property right disputes, product warranty and defective product claims, product performance, asbestos, personal injury, emissions and/or fuel economy regulatory and contractual issues, competition law and other investigations and environmental claims. The most significant of these matters are described below.
The outcome of any current or future proceedings, claims, or investigations cannot be predicted with certainty. Adverse decisions in one or more of these proceedings, claims or investigations could require CNH Industrial to pay substantial damages or fines or undertake service actions, recall campaigns or other costly actions. It is therefore possible that legal judgments could give rise to expenses that are not covered, or not fully covered, by insurers’ compensation payments and could affect CNH Industrial’s financial position and results. When it is probable that an outflow of resources embodying economic benefits will be required to settle obligations and this amount can be reliably estimated, CNH Industrial recognizes specific provisions for this purpose.
Although the ultimate outcome of legal matters pending against CNH Industrial and its subsidiaries cannot be predicted, CNH Industrial believes the reasonable possible range of losses for these unresolved legal matters in addition to the amounts accrued would not have a material effect on its Semi-Annual Condensed Consolidated Financial Statements.
Other litigation and investigation
Follow-up on Damages Claims: in 2011 Iveco S.p.A., the Company’s wholly owned subsidiary, active in the commercial vehicle business, and its competitors in the European Union were subject to an investigation by the European Commission (the “Commission”) into certain business practices in the European Union (in the period 1997-2011) in relation to M&H trucks. On July 19, 2016, the Commission announced a settlement with Iveco. Following the settlement, CNH Industrial has been named as defendant in private litigation commenced in various European jurisdictions and Israel by customers and other third parties, either acting individually or as part of a wider group or class of claimants. Most of these claims remain at an early stage. Further, on the basis of the letters issued by a significant number of customers indicating that they may commence proceedings in the future, CNH Industrial expects to face further claims based on the same legal grounds in the same and other jurisdictions. The extent and outcome of these claims cannot be predicted at this time.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 61
FPT Emissions Investigation: on July 22, 2020, a number of CNH Industrial's offices in Europe were visited by investigators in the context of a request for assistance by the public prosecutors of Frankfurt am Main, Germany and Turin, Italy in relation to alleged noncompliance of two engine models produced by FPT Industrial S.p.A., a wholly owned subsidiary of CNH Industrial, installed in certain Ducato (a vehicle distributed by the Stellantis group) and Iveco Daily vehicles. CNH Industrial immediately made itself available to these investigators and is providing its full cooperation to properly address the requests received. Although at the date hereof CNH Industrial has no evidence of any wrongdoing, CNH Industrial cannot predict at this time the extent and outcome of these requests and directly or indirectly related legal proceedings.
Guarantees
CNH Industrial provided guarantees on the debt or commitments of third parties and performance guarantees, mainly in the interest of a joint venture related to commercial commitments of defense vehicles, totaling $490 million and $615 million at June 30, 2021 and December 31, 2020, respectively.
26. Segment reporting
The operating segments through which CNH Industrial manages its operations are based on the internal reporting used by the CNH Industrial Chief Operating Decision Maker (“CODM”) to assess performance and make decisions about resource allocation. The segments are organized based on products and services provided by CNH Industrial.
CNH Industrial has five operating segments:
▪Agriculture designs, manufactures and distributes a full line of farm machinery and implements, including two-wheel and four-wheel drive tractors, crawler tractors (Quadtrac®), combines, cotton pickers, grape and sugar cane harvesters, hay and forage equipment, planting and seeding equipment, soil preparation and cultivation implements and material handling equipment. Agricultural equipment is sold under the New Holland Agriculture and Case IH brands, as well as the STEYR, Kongskilde and Överum brands in Europe and the Miller brand, primarily in North America and Australia.
▪Construction designs, manufactures and distributes a full line of construction equipment including excavators, crawler dozers, graders, wheel loaders, backhoe loaders, skid steer loaders and compact track loaders. Construction equipment is sold under the CASE Construction Equipment and New Holland Construction brands.
▪Commercial and Specialty Vehicles designs, manufactures and distributes a full range of light, medium, and heavy vehicles for the transportation and distribution of goods under the IVECO brand, city-buses, commuter buses under the IVECO BUS (previously Iveco Irisbus) and HEULIEZ BUS brands, quarry and mining equipment under the IVECO ASTRA brand, firefighting vehicles under the Magirus brand, and vehicles for civil defense and peace-keeping missions under the Iveco Defence Vehicles brand.
▪Powertrain designs, manufactures and distributes, under the FPT Industrial brand, a range of engines, transmission systems and axles for on- and off-road applications, as well as for marine and power generation.
▪Financial Services offers a range of financial products and services to dealers and customers. Financial Services provides and administers retail financing to customers for the purchase or lease of new and used industrial equipment or vehicles and other equipment sold by CNH Industrial brand dealers. In addition, Financial Services provides wholesale financing to CNH Industrial brand dealers. Wholesale financing consists primarily of floor plan financing and allows the dealers to purchase and maintain a representative inventory of products. Financial Services also provides trade receivables factoring services to CNH Industrial companies.
The activities carried out by the four industrial segments Agriculture, Construction, Commercial and Specialty Vehicles, and Powertrain, as well as corporate functions, are collectively referred to as “Industrial Activities”.
Revenues for each reported segment are those directly generated by or attributable to the segment as a result of its business activities and include revenues from transactions with third parties as well as those deriving from transactions with other segments, recognized at normal market prices. Segment expenses represent expenses deriving from each segment's business activities both with third parties and other operating segments or which may otherwise be directly attributable to it. Expenses deriving from business activities with other segments are recognized at normal market prices.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 62
With reference to Industrial Activities' segments, the CODM assesses segment performance and makes decisions about resource allocation based upon Adjusted EBIT calculated using U.S. GAAP. CNH Industrial believes Adjusted EBIT more fully reflects Industrial Activities segments' inherent profitability. Adjusted EBIT of Industrial Activities under U.S. GAAP is defined as net income (loss) before: Income taxes, Financial Services' results, Industrial Activities' interest expenses, (net), foreign exchange gains/losses, finance and non-service component of pension and other post-employment benefit costs, restructuring expenses, and certain non-recurring items. In particular, non-recurring items are specifically disclosed items that management considers to be rare or discrete events that are infrequent in nature and not reflective of on-going operational activities. With reference to Financial Services, the CODM assesses the performance of the segment and makes decisions about resource allocation on the basis of net income prepared in accordance with U.S. GAAP.
The following table summarizes Adjusted EBIT of Industrial Activities under U.S. GAAP by reportable segment:
Three months ended June 30,
Six months ended June 30,
($ million)
2021
2020
2021
2020
Agriculture
582
203
981
227
Construction
24
(87)
49
(170)
Commercial and Specialty Vehicles
100
(156)
176
(212)
Powertrain
74
32
189
63
Unallocated items, eliminations and other
(81)
(50)
(151)
(114)
Adjusted EBIT of Industrial Activities under U.S. GAAP
699
(58)
1,244
(206)
A reconciliation from Adjusted EBIT of Industrial Activities under U.S. GAAP to CNH Industrial's consolidated Profit/(loss) before taxes under EU-IFRS for the three and six months ended June 30, 2021 and 2020 is provided below:
Three months ended June 30,
Six months ended June 30,
($ million)
2021
2020
2021
2020
Adjusted EBIT of Industrial Activities under U.S. GAAP
699
(58)
1,244
(206)
Adjustments/reclassifications to convert from Adjusted EBIT of Industrial Activities under U.S. GAAP to Profit/(loss) before taxes under EU-IFRS:
Financial income/(expenses) under EU-IFRS
(53)
(75)
(142)
(129)
Development costs
11
(100)
(9)
(131)
Other adjustments(1)
90
(1,043)
212
(944)
Total adjustments/reclassifications
48
(1,218)
61
(1,204)
Profit/(loss) before taxes under EU-IFRS
747
(1,276)
1,305
(1,410)
(1) Primarily includes Financial Services results before taxes under IFRS and the accounting impact of the measurement at fair value through profit or loss under U.S. GAAP of the investment in Nikola Corporation (see Note 13 for additional information on this investment).
Net income of Financial Services prepared under U.S. GAAP for the three and six months ended June 30, 2021 and 2020 is summarized as follows, together with a reconciliation to CNH Industrial’s consolidated Profit/(loss) before taxes under EU-IFRS for the same periods:
Three months ended June 30,
Six months ended June 30,
($ million)
2021
2020
2021
2020
Net income of Financial Services under U.S. GAAP (A)
99
53
190
133
Eliminations and other (B)(*)
600
308
934
174
CNH Industrial’s consolidated Net income (loss) under U.S. GAAP (C) = (A) + (B)
699
361
1,124
307
Adjustments to conform to EU-IFRS (D)(**)
(133)
(1,556)
(145)
(1,601)
Income tax (expense) benefit under EU-IFRS (E)
(181)
81
(326)
116
Profit/(loss) before taxes under EU-IFRS (F) = (C) + (D) - (E)
747
(1,276)
1,305
(1,410)
(*) Includes Net income of Industrial Activities under U.S. GAAP
(**) Details about this item are provided in Note 30 “EU-IFRS to U.S. GAAP reconciliation”.
There are no segment assets reported to the CODM for assessing performance and allocating resources. Additional reportable segment information under U.S. GAAP is provided as follows.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 63
Additional reportable segment information under U.S. GAAP
Revenues under U.S. GAAP, together with a reconciliation to the corresponding EU-IFRS consolidated item for the three and six months ended June 30, 2021 and 2020, are provided below:
Three months ended June 30,
Six months ended June 30,
($ million)
2021
2020
2021
2020
Agriculture
3,970
2,541
7,008
4,785
Construction
808
420
1,464
842
Commercial and Specialty Vehicles
3,220
1,739
6,025
3,760
Powertrain
1,287
763
2,521
1,516
Eliminations and other
(795)
(313)
(1,485)
(760)
Net sales of Industrial Activities
8,490
5,150
15,533
10,143
Financial Services
439
441
887
930
Eliminations and other
(18)
(13)
(36)
(34)
Total Revenues under U.S. GAAP
8,911
5,578
16,384
11,039
Difference(*)
(403)
(430)
(2)
(27)
Total Net Revenues under EU-IFRS
8,508
5,148
16,382
11,012
(*) Primarily different classification of interest income of Industrial Activities
27. Fair value measurement
Fair value measurements are categorized within the fair value hierarchy, described as follows, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the entire measurement:
▪Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
▪Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;
▪Level 3 — Unobservable inputs for the asset or liability.
This hierarchy requires the use of observable market data when available.
Assets and liabilities measured at fair value on a recurring basis
The following table presents, for each of the fair value hierarchy levels, the assets and liabilities that are measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020:
At June 30, 2021
At December 31, 2020
($ million)
Note
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Equity investments measured at fair value through other comprehensive income
(13)
464
—
—
464
392
—
—
392
Other investments
(13)
—
—
30
30
—
—
15
15
Derivative assets
(17)
—
136
—
136
—
160
—
160
Money market securities
(18)
274
—
—
274
1,023
—
—
1,023
Total Assets
738
136
30
904
1,415
160
15
1,590
Derivative liabilities
(17)
—
(171)
—
(171)
—
(139)
—
(139)
Total Liabilities
—
(171)
—
(171)
—
(139)
—
(139)
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 64
The following table provides a reconciliation from the opening balance to the closing balance for fair value measurements categorized in Level 3 of fair value in the six months ended June 30, 2021 and 2020:
($ million)
Six months ended June 30, 2021
Six months ended June 30, 2020
At January 1
15
108
Acquisitions/(disposals)
15
142
Gains/(Losses) recognized in Other comprehensive income/(loss)
—
1,483
Transfer from Level 3 to Level 1
—
(1,733)
At June 30
30
—
Description of the valuation techniques used to determine the fair value of derivative financial instruments is included in Note 17 “Derivative assets and Derivative liabilities”.
Assets and liabilities not measured at fair value
The estimated fair values for financial assets and liabilities that are not measured at fair value in the condensed statement of financial position at June 30, 2021 and December 31, 2020 are as follows:
At June 30, 2021
($ million)
Note
Level 1
Level 2
Level 3
Total Fair Value
Carrying amount
Retail financing
(16)
—
—
9,398
9,398
9,116
Dealer financing
(16)
—
—
9,317
9,317
9,323
Finance leases
(16)
—
—
294
294
290
Other receivables from financing activities
(16)
—
—
83
83
83
Total Receivables from financing activities
—
—
19,092
19,092
18,812
Asset-backed financing
(22)
—
11,012
—
11,012
11,013
Bonds
(22)
6,256
3,381
—
9,637
9,198
Borrowings from banks
(22)
—
3,084
—
3,084
3,138
Payables represented by securities
(22)
—
985
—
985
951
Lease liabilities
(22)
—
—
436
436
436
Other debt
(22)
—
302
—
302
302
Total Debt
6,256
18,764
436
25,456
25,038
At December 31, 2020
($ million)
Note
Level 1
Level 2
Level 3
Total Fair Value
Carrying amount
Retail financing
(16)
—
—
9,232
9,232
9,050
Dealer financing
(16)
—
—
9,114
9,114
9,129
Finance leases
(16)
—
—
307
307
277
Other receivables from financing activities
(16)
—
—
73
73
73
Total Receivables from financing activities
—
—
18,726
18,726
18,529
Asset-backed financing
(22)
—
11,928
—
11,928
11,923
Bonds
(22)
6,839
3,340
—
10,179
9,675
Borrowings from banks
(22)
—
3,334
—
3,334
3,381
Payables represented by securities
(22)
—
827
—
827
824
Lease liabilities
(22)
—
—
453
453
453
Other debt
(22)
—
362
—
362
362
Total Debt
6,839
19,791
453
27,083
26,618
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 65
Receivables from financing activities
The fair value of Receivables from financing activities is based on the discounted values of their related cash flows at market discount rates that reflect conditions applied in various reference markets on receivables with similar characteristic, adjusted to take into account the credit risk of the counterparties.
Debt
All Debt is classified as a Level 2 fair value measurement, with the exception of the bonds issued by CNH Industrial Finance Europe S.A. and the bonds issued by CNH Industrial N.V. that are classified as a Level 1 fair value measurement. The fair value of these bonds has been estimated making reference to quoted prices in active markets.
The fair value of Asset-backed financing, Borrowings from banks, Payable represented by securities and Other debt are included in the Level 2 and has been estimated based on discounted cash flows analysis using the current market interest rates at period-end adjusted for the Group non-performance risk over the remaining term of the financial liability.
The fair value of Lease liabilities classified within Level 3 of the fair value hierarchy has been estimated using discounted cash flow models that require significant adjustments using unobservable inputs.
Other financial assets and liabilities
The carrying amount of Cash at banks, Restricted cash, Other cash equivalents, Trade receivables, Other current receivables and financial assets, Trade payables and Other current liabilities included in the condensed consolidated statement of financial position approximates their fair value, due to the short maturity of these items.
28. Related party transactions
In accordance with IAS 24 – Related Party Disclosures, CNH Industrial’s related parties are companies and persons capable of exercising control, joint control or significant influence over the Group. As of June 30, 2021 and December 31, 2020, related parties included CNH Industrial N.V.’s parent company EXOR N.V. and the companies that EXOR N.V. and its subsidiaries and affiliates including Stellantis N.V. (formerly Fiat Chrysler Automobiles N.V. which, effective January 16, 2021, merged with Peugeot S.A. by means of a cross-border legal merger) and its subsidiaries and affiliates ("Stellantis"), and CNH Industrial’s unconsolidated subsidiaries, associates or joint ventures. In addition, the members of the Board of Directors and managers of CNH Industrial with strategic responsibility and members of their families were also considered related parties.
As of June 30, 2021, based on public information available and in reference to Company's files, EXOR N.V. held 42.5% of CNH Industrial’s voting power and had the ability to significantly influence the decisions submitted to a vote of CNH Industrial’s shareholders, including approval of annual dividends, the election and removal of directors, mergers or other business combinations, the acquisition or disposition of assets, and issuances of equity and the incurrence of indebtedness. The percentage above has been calculated as the ratio of (i) the aggregate number of common shares and special voting shares owned by EXOR N.V. to (ii) the aggregate number of outstanding common shares and special voting shares of CNH Industrial as of June 30, 2021.
In addition, CNH Industrial engages in transactions with its unconsolidated subsidiaries, joint ventures, associates and other related parties on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved. The Company’s Audit Committee reviews and evaluates all significant related party transactions.
Transactions with EXOR N.V. and its subsidiaries and affiliates
EXOR N.V. is an investment holding company. As of June 30, 2021 and December 31, 2020, among other things, EXOR N.V. managed a portfolio that includes investments in Stellantis. CNH Industrial did not enter into any significant transactions with EXOR N.V. during the three and six months ended June 30, 2021 and 2020.
In connection with the establishment of Fiat Industrial (now CNH Industrial) through the demerger from Fiat (which was subsequently merged into Fiat Chrysler Automobiles N.V. which is now Stellantis), the two companies entered into a Master Services Agreement (“Stellantis MSA”) which sets forth the primary terms and conditions pursuant to which the service provider subsidiaries of CNH Industrial and Stellantis provide services to the service receiving subsidiaries. As structured, the applicable service provider and service receiver subsidiaries become parties to the Stellantis MSA through the execution of an Opt-in letter that may contain additional terms and conditions. Pursuant to the Stellantis MSA, service receivers are required to pay to service providers the actual cost of the services plus a negotiated margin. During the six months ended June 30, 2021 and 2020, Stellantis subsidiaries provided CNH Industrial with
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 66
administrative services such as accounting, maintenance of plant and equipment, security, information systems and training under the terms and conditions of the Stellantis MSA and the applicable Opt-in letters.
Additionally, CNH Industrial sold engines and light commercial vehicles to and purchased engine blocks and other components from Stellantis subsidiaries. Furthermore, CNH Industrial and Stellantis engage in other minor transactions in the ordinary course of business.
These transactions with Stellantis are reflected in these Semi-Annual Condensed Consolidated Financial Statements as follows:
Six months ended June 30,
($ million)
2021
2020
Net revenues
362
243
Cost of sales
126
87
Selling, general and administrative costs
64
56
($ million)
At June 30, 2021
At December 31, 2020
Trade receivables
4
8
Trade payables
90
85
Transactions with joint ventures
CNH Industrial sells commercial vehicles, agricultural and construction equipment, and provides technical services to joint ventures such as IVECO - OTO MELARA Società Consortile a responsabilità limitata, CNH de Mexico SA de CV, Turk Traktor ve Ziraat Makineleri A.S. and New Holland HFT Japan Inc. CNH Industrial also purchases equipment from joint ventures, such as Turk Traktor ve Ziraat Makineleri A.S. These transactions are reflected in these Semi-Annual Condensed Consolidated Financial Statements as follows:
Six months ended June 30,
($ million)
2021
2020
Net revenues
563
366
Cost of sales
232
151
($ million)
At June 30, 2021
At December 31, 2020
Trade receivables
93
154
Trade payables
64
61
At June 30, 2021 and December 31, 2020, CNH Industrial had provided guarantees on commitments of its joint ventures for an amount of $186 million and $259 million, respectively, mainly related to IVECO - OTO MELARA Società Consortile a responsabilità limitata.
Transactions with associates
CNH Industrial sells trucks and commercial vehicles and provides services to associates. In the six months ended June 30, 2021, revenues from associates totaled $119 million ($62 million in the comparable period of 2020) and cost of sales from associates totaled $10 million ($4 million in the comparable period of 2020). At June 30, 2021, receivables from associates amounted to $14 million ($15 million at December 31, 2020). Trade payables to associates amounted to $22 million at June 30, 2021 ($36 million at December 31, 2020). At June 30, 2021, CNH Industrial had provided guarantees on commitments of its associates for an amount of $293 million related to CNH Industrial Capital Europe S.a.S. ($323 million at December 31, 2020).
Transactions with unconsolidated subsidiaries
In the six months ended June 30, 2021 and 2020, there were no material transactions with unconsolidated subsidiaries.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 67
Compensation to Directors and Key Management
The fees of the Directors of CNH Industrial N.V. for carrying out their respective functions, including those in other consolidated legal entities, and the notional compensation cost arising from stock grants awarded to certain Executive Directors and Officers, amounted to an expense of approximately $5 million and $3 million in the six months ended June 30, 2021 and 2020, respectively.
The aggregate expense incurred in the six months ended June 30, 2021 and 2020 for the compensation of Executives with strategic responsibilities of the Group amounted to approximately $19 million and $9 million, respectively. These amounts included the notional compensation cost for share-based payments.
29. Translation of financial statements denominated in a currency other than the U.S. dollar
The principal exchange rates used to translate into U.S. dollars the financial statements prepared in currencies other than the U.S. dollar were as follows:
Six months ended June 30, 2021
At December 31, 2020
Six months ended June 30, 2020
Average
At June 30
Average
At June 30
Euro
0.830
0.841
0.815
0.907
0.893
Pound sterling
0.720
0.722
0.733
0.794
0.815
Swiss franc
0.908
0.924
0.880
0.966
0.951
Polish zloty
3.764
3.804
3.716
4.003
3.979
Brazilian real
5.384
4.969
5.194
4.909
5.458
Canadian dollar
1.247
1.239
1.274
1.364
1.368
Argentine peso(1)
95.730
95.730
83.973
70.450
70.450
Turkish lira
7.900
8.685
7.427
6.487
6.855
(1) From July 1, 2018, Argentina’s economy was considered to be hyperinflationary. After the same date, transactions for entities with the Argentine peso as the functional currency were translated using the closing spot rate.
30. EU-IFRS to U.S. GAAP reconciliation
These Semi-Annual Condensed Consolidated Financial Statements have been prepared in accordance with the EU-IFRS (see section “Significant accounting policies”, paragraph “Basis of preparation”, for additional information).
CNH Industrial reports quarterly and annual consolidated financial results in accordance with EU-IFRS for European listing purposes and for Dutch law requirements and in accordance with U.S. GAAP for SEC reporting purposes.
EU-IFRS differ in certain significant requirements from U.S. GAAP. In order to help readers to understand the difference between the two sets of financial statements of the Group, CNH Industrial has provided, on a voluntary basis, a reconciliation from EU-IFRS to U.S. GAAP as follows:
Reconciliation of Profit
Six months ended June 30,
($ million)
Note
2021
2020
Profit/(loss) in accordance with EU-IFRS
979
(1,294)
Adjustments to conform to U.S. GAAP:
Development costs
(a)
9
131
Nikola investment fair value adjustment
(b)
72
1,475
Other adjustments(1)
(c)
83
48
Tax impact on adjustments and other income tax differences
(d)
(19)
(53)
Total adjustments
145
1,601
Net income (loss) in accordance with U.S. GAAP
1,124
307
(1) This item also includes the different accounting impact from the modification of a healthcare plan in the U.S.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 68
Reconciliation of Total Equity
($ million)
Note
At June 30, 2021
At December 31, 2020
Total Equity in accordance with EU-IFRS
7,726
6,735
Adjustments to conform to U.S. GAAP:
Development costs
(a)
(2,133)
(2,193)
Other adjustments
(c)
(14)
(34)
Tax impact on adjustments and other income tax differences
(d)
451
481
Total adjustments
(1,696)
(1,746)
Total Equity in accordance with U.S. GAAP
6,030
4,989
Description of reconciling items
Reconciling items presented in the tables above are described as follows:
(a)Development costs
Under EU-IFRS, costs relating to development projects are recognized as intangible assets when costs can be measured reliably and the technical feasibility of the product, volumes and pricing support the view that the development expenditure will generate future economic benefits. Under U.S. GAAP, development costs are expensed as incurred. As a result, costs incurred related to development projects that have been capitalized under EU-IFRS are expensed as incurred under U.S. GAAP. Amortization expenses, net of result on disposal and impairment charges of previously capitalized development costs recorded under EU-IFRS, have been reversed under U.S. GAAP.
(b) Nikola investment fair value adjustment
Under EU-IFRS, CNH Industrial elected to measure its investment in Nikola Corporation at fair value through other comprehensive income. Under U.S. GAAP, starting from the second quarter of 2020, this investment is measured at fair value through profit or loss (measured at cost before that period). Any fair value remeasurement gain or loss is therefore recorded in other comprehensive income under EU-IFRS and in profit or loss under US GAAP. Refer to Note 13 for a detailed description of this investment and the remeasurement adjustment recognized under EU-IFRS.
(c) Other adjustments
It mainly includes the following items:
▪Goodwill and other intangible assets: goodwill is not amortized but rather tested for impairment at least annually under both EU-IFRS and U.S. GAAP. The difference in goodwill and other intangible assets between the Group’s two sets of financial statements is primarily due to the different times when EU-IFRS and ASC 350 - Intangibles – Goodwill and Other, were adopted. CNH Industrial transitioned to EU-IFRS on January 1, 2004. Prior to the adoption of EU-IFRS, goodwill was recorded as an intangible asset and amortized to income on a straight-line basis over its estimated period of recoverability, not exceeding 20 years. CNH Industrial adopted ASC 350 on January 1, 2002. Under U.S. GAAP through December 31, 2001, goodwill was recorded as an intangible asset and amortized to income on a straight-line basis over a period not exceeding 40 years.
▪Defined benefit plans: the differences related to defined benefit plans are mainly due to the different accounting for actuarial gains and losses and the net interest component of the defined benefit cost between EU-IFRS and U.S. GAAP. Under EU-IFRS, actuarial gains and losses are recognized immediately in other comprehensive income without reclassification to profit or loss in subsequent years; net interest expense or income is recognized by applying the discount rate to the net defined benefit liability or asset (the defined benefit obligation less the fair value of plan assets, allowing for any assets ceiling restriction). Under U.S. GAAP, actuarial gains and losses are deferred through the use of the corridor method; interest cost applicable to the liability is recognized using the discount rate, while an expected return on assets is recognized reflecting management’s expectations on long-term average rates of return on funds invested to provide for benefits included in the projected benefit obligations.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 69
▪Restructuring provisions: the main difference between EU-IFRS and U.S. GAAP with respect to accruing for restructuring costs is that EU-IFRS places emphasis on the recognition of the costs of the exit plan as a whole, whereas U.S. GAAP requires that each type of cost is examined individually to determine when it may be accrued. Under IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, a provision for restructuring costs is recognized when the Group has a constructive obligation to restructure. Under U.S. GAAP, termination benefits are recognized in the period in which a liability is incurred. The application of U.S. GAAP often results in different timing recognition for the Group’s restructuring activities.
(d) Tax impact on adjustments and other income tax differences
This item includes the tax effects of adjustments included in (a) and (b), primarily related to development costs, as well as other differences arising in the accounting for deferred tax assets and liabilities. The Group’s policy for accounting for deferred income taxes under EU-IFRS is described in section “Significant accounting policies” of the CNH Industrial Consolidated Financial Statements at December 31, 2020. This policy is similar to U.S. GAAP, which states that a deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences and tax loss carry forwards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized based on available evidence. The most significant accounting difference between EU-IFRS and U.S. GAAP relates to development costs, which also has a significant impact on accumulated deferred tax assets or liabilities and on U.S. GAAP pre-tax book income or loss in certain jurisdictions. As a result, the assessment of tax contingencies and recoverability of deferred tax assets in each jurisdiction can vary significantly between EU-IFRS and U.S. GAAP for financial reporting purposes. This adjustment relates primarily to jurisdictions with U.S. GAAP pre-tax book losses higher than those recorded for EU-IFRS purposes.
31. Subsequent events
CNH Industrial has evaluated subsequent events through August 5, 2021, which is the date the condensed consolidated financial statements were authorized for issuance. No significant events have occurred.
Semi-Annual Condensed Consolidated Financial Statements at June 30, 2021 70
RESPONSIBILITY STATEMENT
The Board of Directors is responsible for preparing the 2021 Semi-Annual Report, inclusive of the Semi-Annual Condensed Consolidated Financial Statements and the Semi-Annual Management Report, in accordance with the Dutch Financial Supervision Act and IAS 34 - Interim Financial Reporting as endorsed by the European Union.
In accordance with Section 5:25d, paragraph 2 of the Dutch Financial Supervision Act, the Board of Directors states that, to the best of its knowledge, the Semi-Annual Condensed Consolidated Financial Statements prepared in accordance with applicable accounting standards provide a true and fair view of the assets, liabilities, financial position and profit or loss of CNH Industrial N.V. and its subsidiaries, and the undertakings included in the consolidation as a whole, and the Semi-Annual Management Report provides a fair review of the information required pursuant to Section 5:25d, paragraphs 8 and 9 of the Dutch Financial Supervision Act.
