EDGAR 10-K Filing

Company CIK: 1552493
Filing Year: 2022
Filename: 1552493_10-K_2022_0001558370-22-002550.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
CNH Industrial Capital LLC (together with its consolidated subsidiaries, “CNH Industrial Capital,” the “Company” or “we”) is an indirect wholly-owned subsidiary of CNH Industrial N.V. (“CNHI” and together with its consolidated subsidiaries, “CNH Industrial”) and is headquartered in Racine, Wisconsin. As a captive finance company, our primary business is to underwrite and manage financing products for end-use customers and dealers of CNH Industrial America LLC (“CNH Industrial America”) and CNH Industrial Canada Ltd. (collectively, “CNH Industrial North America”) and provide other related financial products and services to support the sale of agricultural and construction equipment sold by CNH Industrial North America. We also provide wholesale and retail financing related to new and used equipment manufactured by entities other than CNH Industrial North America. We are often able to offer financing to customers at advantageous interest rates or other terms (such as longer contract terms, longer warranty terms or parts and service incentives), due to our participation in subsidized financing programs sponsored by CNH Industrial North America, which reimburses us for some or all of the cost of such terms. The primary operating subsidiaries of CNH Industrial Capital LLC include CNH Industrial Capital America LLC (“CNH Industrial Capital America”), New Holland Credit Company, LLC (“New Holland Credit”) and CNH Industrial Capital Canada Ltd. (“CNH Industrial Capital Canada”). CNH Industrial Capital America is the primary financing and business entity of CNH Industrial Capital for the United States that enters into retail and wholesale financing arrangements with end-use customers and equipment dealers, and CNH Industrial Capital Canada performs the same functions in Canada, while New Holland Credit acts as the servicer for retail and wholesale receivables originated by CNH Industrial Capital America.
CNH Industrial is the company initially formed by a business combination transaction, completed September 29, 2013, between Fiat Industrial S.p.A. (“Fiat Industrial”) and CNH Global N.V. (“CNH Global”), the former indirect parents of CNH Industrial Capital. As a result of this transaction, CNH Industrial Capital LLC and its primary operating subsidiaries, including CNH Industrial Capital America, New Holland Credit and CNH Industrial Capital Canada, are indirect wholly-owned subsidiaries of CNHI (with all of the equity interests in CNH Industrial Capital LLC owned by CNHI through intermediate companies, through which CNHI exercises indirect control over CNH Industrial Capital LLC). CNHI is incorporated in and under the laws of The Netherlands. CNHI has its corporate seat in Amsterdam, The Netherlands, and its principal office in London, England.
Until December 31, 2021, CNH Industrial owned and controlled the Agriculture equipment business, the Construction equipment business, and the related Financial Services business (collectively, the “Off-Highway business”) as well as the Commercial and Specialty Vehicles business, the Powertrain business and the related Financial Services business (collectively, the “On Highway business” or the “Iveco Group business”). Effective January 1, 2022, the Iveco Group business was separated from CNHI by way of a demerger under Dutch law to Iveco Group N.V. (the Demerger) and Iveco Group became a public listed company independent from CNH Industrial.
CNH Industrial Capital offers retail loan and lease financing to end-use customers for the purchase of new and used equipment and components, as well as other financial services. CNH Industrial Capital also provides wholesale financing to CNH Industrial North America equipment dealers and distributors (all of which are independently owned and operated). Wholesale financing consists primarily of dealer floorplan financing and gives dealers the ability to maintain a representative inventory of new products. In addition, CNH Industrial Capital provides financing to dealers for used equipment taken in trade, equipment utilized in dealer-owned rental yards, parts inventory, working capital and other financing needs. As a holding company, CNH Industrial Capital LLC generally does not conduct operations of its own, but relies on its subsidiaries for the generation and distribution of profits.
CNH Industrial Capital’s revenue is primarily generated through the income of its portfolio and the income generated through marketing programs with CNH Industrial North America. The size of the portfolio is in part related to the level of equipment sales by CNH Industrial North America. The portfolio profitability is linked to the difference between lending and borrowing rates, the credit quality of the borrowers and the value of collateral. For each of the years ended December 31, 2021 and 2020, we derived 38% of our revenue from CNH Industrial North America and other CNH Industrial subsidiaries.
Our retail borrowers are generally commercial entities and, in many cases, have had a previous borrowing relationship with CNH Industrial Capital. Retail receivables are secured by the purchased equipment, which generally has a longer useful life than the term of the receivable. Wholesale financings are likewise secured by the equipment purchased by the dealer.
CNH Industrial Capital funds its operations and lending activity through a combination of term receivables securitizations, secured and unsecured facilities, commercial paper, unsecured bonds, affiliate borrowings and retained earnings. CNH Industrial Capital’s current funding strategy is to maintain sufficient liquidity and flexible access to a wide variety of financial instruments and funding options.
To help fund its retail and wholesale financing business, CNH Industrial Capital participates in the asset backed securitization (“ABS”) markets. CNH Industrial Capital periodically transfers retail and wholesale receivables originated from end-use customers and dealers to special purpose entities, in exchange for cash proceeds from asset backed securities issued by these special purpose entities. Investors in these asset backed securities in turn receive payments on their securities based on the cash flows from the transferred receivables. CNH Industrial Capital continues to service the transferred receivables and maintains a cash reserve account, which provides security to investors in the event that cash collections from the receivables are not sufficient to permit principal and interest payments to the holders of the securities. These special purpose entities and the investors in the asset backed securities have no recourse, beyond the applicable cash reserve account, for failure of any end-use customers or dealers to make payments on the transferred receivables when due.
In addition to portfolio quality and funding costs, CNH Industrial Capital’s long-term profitability is also dependent on service levels and operational effectiveness. CNH Industrial Capital performs billing and collection services, customer support, repossession and remarketing functions, reporting and data management operations and marketing activities.
As of December 31, 2021, CNH Industrial Capital had total assets of $12.2 billion and total stockholder’s equity of $1.2 billion. For the year ended December 31, 2021, CNH Industrial Capital had total revenues of $789.2 million and net income of $230.2 million. As of December 31, 2021, CNH Industrial Capital had outstanding debt (excluding debt owed to affiliates) of $9.9 billion, approximately 69% of which represented secured debt as of such date.
Relationship with CNH Industrial
Until December 31, 2021, CNH Industrial organized its operations into five operating segments: Agriculture, Construction, Commercial and Specialty Vehicles, Powertrain and Financial Services. CNH Industrial’s five segments design, produce, market, sell and finance agricultural and construction equipment, trucks, commercial vehicles, buses and specialty vehicles for firefighting, defense and other uses, as well as engines, transmissions and axles for those vehicles and engines for marine and power generation applications. CNH Industrial has industrial and financial services companies located in 44 countries and a commercial presence in approximately 180 countries around the world.
CNH Industrial’s Agricultural segment designs, manufactures and distributes a full line of farm machinery and implements, including two-wheel and four-wheel drive tractors, crawler tractors (Quadtrac®), combines, cotton pickers, grape and sugar cane harvesters, hay and forage equipment, planting and seeding equipment, soil preparation and cultivation implements and material handling equipment. Agricultural equipment is sold in North America under the New Holland Agriculture and Case IH brands, as well as the STEYR, Kongskilde and Överum brands in Europe and the Miller brand, primarily in North America and Australia.
CNH Industrial’s Construction segment designs, manufactures and distributes a full line of construction equipment including excavators, crawler dozers, graders, wheel loaders, backhoe loaders, skid steer loaders and compact track loaders. Construction equipment is sold in North America under the CASE Construction Equipment and New Holland Construction brands.
As of December 31, 2021 and 2020, CNH Industrial had total assets of $49.4 billion and $48.7 billion, respectively, and total equity of $6.8 billion and $5.0 billion, respectively.
For the years ended December 31, 2021 and 2020, CNH Industrial had total revenues of $33.4 billion and $26.0 billion, respectively, and net income (loss) attributable to CNH Industrial N.V. of $1.7 billion and ($0.5) billion, respectively. For the year ended December 31, 2021, CNH Industrial’s net sales of agricultural equipment and net sales of construction equipment generated in North America (United States, Canada and Mexico) were $5.1 billion and $1.4 billion, respectively, representing increases of 35% and 50% from the same period in 2020, respectively.
CNH Industrial Capital is a key financing source for CNH Industrial North America’s end-use customers and dealers. The Company offers financing to customers with advantageous terms that are subsidized by CNH Industrial North America, including low-rate, interest-free or interest-only periods and other sales incentive programs.
Although our primary focus is to finance CNH Industrial North America equipment, we also provide retail and wholesale financing related to new and used agricultural and construction equipment manufactured by entities other than CNH Industrial North America. We are dependent on CNH Industrial North America for substantially all of our business, with revenues related to financing provided to CNH Industrial North America dealers and retail customers purchasing and/or leasing from CNH Industrial North America and its dealers accounting for over 90% of our total revenues for the year ended December 31, 2021, and with loan portfolios attributable to such financing accounting for over 90% of our total managed receivables as of December 31, 2021.
The size of our lending portfolio is related in part to the level of equipment sales by CNH Industrial North America, which is driven by the strength of the agricultural and construction markets. The credit quality of our portfolio reflects the underwriting standards of CNH Industrial Capital, which are developed internally and independent of the sales volume goals of CNH Industrial North America.
We borrow from our affiliates as one of the funding sources for our operations and lending activity. As of December 31, 2021 and 2020, we had outstanding affiliate borrowings of $2.1 million and $187.3 million, respectively, representing 0.02% and 1.8% of our total indebtedness, respectively.
CNH Industrial North America also provides us with other types of operational and administrative support, such as payroll and other human resource services. For the years ended December 31, 2021 and 2020, we incurred fees charged by our affiliates of $47.4 million and $45.9 million, respectively, representing 16% and 12%, respectively, of our total administrative and operating expenses.
Effective as of September 29, 2013, in connection with the business combination transaction of CNH Global with and into CNHI, CNHI assumed all of CNH Global’s obligations under a support agreement, pursuant to which CNHI has agreed to, among other things, (a) make cash capital contributions to us, to the extent necessary to cause our ratio of net earnings available for fixed charges to fixed charges to be not less than 1.05 for each fiscal quarter (with such ratio determined, on a consolidated basis and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), for such fiscal quarter and the immediately preceding three fiscal quarters taken as a whole), (b) generally maintain an ownership of at least 51% of the voting equity interests in us and (c) cause us to have, as of the end of any fiscal quarter, a consolidated tangible net worth of at least $50 million. The support agreement is not intended to be and is not a guarantee by CNHI of our indebtedness or other obligations. The obligations of CNHI to us pursuant to this support agreement are to us only and do not run to, and are not enforceable directly by, any creditor of ours, including holders of our notes or the trustee under the indenture governing our notes. The support agreement may be modified, amended or terminated, at CNHI’s election, upon thirty days’ prior written notice to us and the rating agencies, if (a) the modification, amendment or termination would not result in a downgrade of our rated indebtedness; (b) the modification, amendment or notice of termination provides that the support agreement will continue in effect with respect to our rated indebtedness then outstanding; or (c) we have no long-term rated indebtedness outstanding.
Products and Services
CNH Industrial Capital’s financing products and services fall into the following main categories:
Retail (78.2% of managed portfolio as of December 31, 2021): CNH Industrial Capital provides and administers retail financing to end-use customers for the purchase or lease of new and used CNH Industrial North America equipment or other agricultural and construction equipment sold primarily through CNH Industrial North America dealers and distributors. Retail financing products primarily include retail installment sales contracts, finance leases and operating leases to end-use customers. The terms of retail contracts, finance leases and operating leases generally range from two to six years, and interest rates vary depending on prevailing market interest rates and certain incentive programs offered by CNH Industrial North America.
CNH Industrial Capital utilizes a proprietary credit scoring model as part of the retail credit approval and review process. CNH Industrial Capital also provides servicing and collection operations generally performed through its subsidiary, New Holland Credit, for the retail financing products.
Wholesale (21.8% of managed portfolio as of December 31, 2021): CNH Industrial Capital provides wholesale financing to dealers to finance purchases of new and used agricultural and construction equipment and parts. In addition, CNH Industrial Capital extends credit to dealers for working capital and other financing needs. Currently, credit is extended to approximately 800 CNH Industrial North America dealers (with each being a separate legal entity) with approximately 1,500 locations in North America.
The dealer financing agreements provide CNH Industrial Capital with a first priority security interest in the equipment and parts financed and possibly other collateral. A majority of dealers also provide a personal or corporate guarantee (from an affiliate of the dealer). The amount of credit extended is primarily based upon the dealer’s expected annual sales, effective net worth, utilization of existing credit lines and inventory turnover. CNH Industrial Capital evaluates and assesses dealers on an ongoing basis as to their credit worthiness and conducts audits of dealer equipment inventories on a regular basis. The amounts of credit made available to dealers are reviewed on a regular basis, which is usually annually, and such amounts are adjusted when deemed appropriate by CNH Industrial Capital.
CNH Industrial Capital finances other products, including insurance and equipment protection products underwritten through a third-party insurer.
Competition
CNH Industrial Capital’s financing products and services are intended to be competitive with those available from third parties. CNH Industrial North America sponsors certain marketing programs that allow us to offer financing to customers at competitive or advantageous interest rates or other terms (such as longer contract terms, longer warranty terms or parts and service incentives). Under these programs, including our low-rate financing programs or interest waiver programs, we are compensated by CNH Industrial North America for some or all of the cost of such terms. This support from CNH Industrial North America provides a material competitive advantage in offering financing to customers of CNH Industrial North America’s products.
We compete primarily with banks, equipment finance and leasing companies, and other financial institutions. Typically, this competition is based upon financial products and services offered, customer service, financial terms and interest rates charged. In addition, some of our competitors may be eligible to participate in government programs providing access to capital at more favorable rates, which may create a competitive disadvantage for CNH Industrial Capital. CNH Industrial Capital believes that its strong, long-term relationship with the dealers and end-use customers and the ease-of-use of our products provides a competitive edge over other third-party financing options. In addition, the marketing programs offered by CNH Industrial North America have a positive influence on the proportion of CNH Industrial North America’s equipment sales financed by CNH Industrial Capital.
Employees
The ability to attract, retain, and further develop qualified employees is crucial to the success of CNH Industrial Capital’s business and its ability to create value over the long-term. As of December 31, 2021, the Company had approximately 340 employees, none of which were represented by unions.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
CNH Industrial Capital LLC is an indirect wholly-owned subsidiary of CNHI. The results of operations of the Company are primarily affected by its relationships with CNH Industrial North America.
The following risks are considered the most significant to the Company’s business based upon current knowledge, information and assumptions. This discussion of risk factors should be considered in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 17 and the other risks described in the Cautionary Note Regarding Forward-Looking Statements beginning on page 27. These risks may affect our operating results and, individually or in the aggregate, could cause our actual results to differ materially from past and projected future results. Except as may be required by law, we undertake no obligation to publicly update these risks or any forward-looking statements, whether as a result of new information, future events, or otherwise. It is impossible to predict or identify all risk factors and, consequently, you should not consider the following factors to be a complete discussion of risks and uncertainties that may affect us. We invite you to consult further related disclosures we make from time to time in materials filed with or furnished to the United States Securities and Exchange Commission (“SEC”).
COVID-19 Risk
The COVID-19 pandemic could materially adversely affect our business, financial condition, results of operations and/or liquidity.
COVID-19 was first identified in late 2019, spread globally and was declared a global pandemic by the World Health Organization in March 2020. Efforts to combat the virus have been complicated by viral variants and uneven access to, and acceptance and effectiveness of, vaccines globally. The global spread of the virus led governments around the world to implement numerous measures to contain the virus, such as travel bans, mandated shutdowns, border closures and other restrictions on the free movement of people and goods. These measures have impacted and may further impact our future ability to operate as well as the ability of our suppliers and distributors to operate. Any future closing of manufacturing facilities due to government mandates, insufficient staffing, weaker demand, or supply constraints, or similar limitations or restrictions for suppliers, or the impact of the COVID-19 pandemic on our ability to execute business continuity plans, could have a material adverse effect on our business, financial condition, results of operations, and/or liquidity.
Disruption caused by business responses to the COVID-19 pandemic, including remote working arrangements, may create increased vulnerability to cybersecurity or data privacy incidents, including breaches of information technology and systems. Risks related to information technology and systems are described in our risk factor “A cybersecurity breach could interfere with our operations, compromise confidential information, negatively impact our corporate reputation and expose us to liability”.
From an economic perspective, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruptions in CNH Industrial North America’s supply chain, higher raw materials pricing, and volatility in demand for CNH Industrial North America’s products and in global capital markets. The COVID-19 pandemic may materially adversely impact many of our customers and other third parties, and may affect their ability to fulfill their obligations to us in a timely manner.
The extent to which the COVID-19 pandemic will continue to impact our business, financial condition, results of operations and/or liquidity will depend on the scale, duration, severity and geographic reach of future developments, which are highly uncertain and cannot be predicted, including notably the possibility of “further waves” of COVID-19 infections or the appearance of new variants in the virus. There have been instances of re-imposed local lockdowns where infection rates have started to increase again and there is a risk that widespread measures such as strict social distancing and curtailing or ceasing normal business activities may be reintroduced in the future until effective treatments or vaccines have been fully deployed. Continued uncertainties and persistent effects also include: the impact of the pandemic on our customers and dealers, and delays in their plans to purchase equipment; requests by our customers or dealers for, or government mandated, payment deferrals and contract modifications; difficulties in collecting financial receivables resulting in increased allowances for credit losses; a deterioration in the market value of used equipment resulting in further reserve requirements; the impact of
disruptions in the global capital markets and/or declines in our financial performance, outlook or credit ratings, which could increase the cost of capital and could adversely impact our ability to obtain funding in the future; and the impact of the pandemic on demand for CNH Industrial North America’s products and our services as discussed above. In addition, the COVID-19 pandemic may exacerbate many of the other risks described in this Annual Report on Form 10-K.
Risks Related to Our Indebtedness and Liquidity
Credit rating changes could affect our access to funding and our cost of funds, which could in turn adversely affect our financial condition and results of operations.
Our ability to access the capital markets or other forms of financing and our funding costs are highly dependent on, among other things, our credit ratings and those of CNHI and our ABS transactions. Rating agencies may review and revise their ratings from time to time, and any downgrade or other negative action with respect to our credit ratings by one or more rating agencies may increase our funding costs, potentially limit our access to sources of financing and have a material adverse effect on our financial condition and results of operations. A lack of funding could result in our inability to meet customer demand for equipment financing, while increased funding costs could lead to deteriorating margins, decreased profits and could result in our inability to meet customer demand at attractive interest rates, which in turn may adversely affect our financial condition and results of operations.
We have significant outstanding indebtedness, which may limit our ability to obtain additional funding and may limit our financial and operating flexibility.
As of December 31, 2021, we had an aggregate of $9.9 billion of consolidated indebtedness and our equity was $1.2 billion. The extent of our indebtedness could have important consequences on our operations and financial results, including:
● we may not be able to secure additional funds for working capital, capital expenditures, debt service requirements or general corporate purposes;
● we may need to use a portion of our projected future cash flow from operations to pay principal and interest on our indebtedness, which may reduce the amount of funds available to us for other purposes;
● we may be more financially leveraged than some of our competitors, which could put us at a competitive disadvantage;
● we may not be able to invest in the development or introduction of new products or new business opportunities;
● our future cash may be exposed to the risk of rate volatility;
● we may not be able to adjust rapidly to changing market conditions, which may make us more vulnerable to a downturn in general economic conditions; and
● we may not be able to access the capital markets on favorable terms, which may adversely affect our ability to provide competitive retail and wholesale financing programs.
Further, our indebtedness under some of our instruments, including certain derivative transactions, may bear interest at variable interest rates or have other terms based on the London Interbank Offered Rate (“LIBOR”). The LIBOR benchmark has been subject to national, international, and other regulatory guidance and proposals for reform. The administrator of LIBOR has announced that the publication of the most commonly used U.S. dollar LIBOR tenors will cease to be provided or cease to be representative after June 30, 2023. The publication of all other LIBOR tenors ceased to be provided or ceased to be representative as of December 31, 2021. The consequences of these developments cannot be predicted at this time, and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us, as well as the revenue and expenses associated with those securities, loans and financial instruments. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact new variable rate credit facilities and derivative transactions. Any changes to benchmark rates could have an impact on our cost of funds and our access to the capital markets, which could impact our financial condition.
Restrictive covenants in our debt agreements could limit our financial and operating flexibility.
The agreements governing our outstanding debt securities and other credit agreements to which we are a party from time to time contain, or may contain, covenants that restrict our ability and/or that of our subsidiaries to, among other things:
● incur additional indebtedness;
● make certain investments;
● enter into certain types of transactions with affiliates;
● sell or acquire certain assets or merge with or into other companies;
● use assets as security in other transactions; and/or
● enter into sale and leaseback transactions.
These restrictive covenants could limit our financial and operating flexibility. For example:
● limits on incurring additional debt and using assets as security in other transactions could materially limit our future business prospects by restricting us from financing as many customers as we otherwise would, particularly if our traditional funding sources (including principally the ABS markets) were not available;
● limits on investments could result in a return on assets lower than that of our competitors; and
● limits on the sale of assets or merger with or into other companies could deny us a future business opportunity despite the benefits that could be realized from such a transaction.
In addition, we are required to maintain a certain coverage level for leverage; our leverage ratio, defined as the ratio of total net debt to equity, is required not to exceed 9.00:1.
Although we do not believe any of these covenants materially restrict our operations currently, a breach of one or more of the covenants could result in adverse consequences that could negatively impact our businesses, results of operations and financial condition. These consequences may include the acceleration of amounts outstanding under certain of our credit facilities, triggering an obligation to redeem certain debt securities, termination of existing unused commitments by our lenders, refusal by our lenders to extend further credit under one or more of the facilities or to enter into new facilities or the lowering or modification of CNHI’s or our credit ratings. We cannot assure you that we will continue to comply with each restrictive covenant at all times, particularly if we were to encounter challenging and volatile market conditions. For further information, see Note 8: Credit Facilities and Debt to the consolidated financial statements for the year ended December 31, 2021.
Risks Related to Our Business, Strategy and Operations
Reduced demand for agricultural and construction equipment would reduce the opportunities for us to finance equipment.
Our business is largely dependent upon the demand for CNH Industrial North America’s products and its customers’ willingness to enter into financing or leasing arrangements with respect thereto. A significant and prolonged decrease in demand for CNH Industrial North America’s products could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our primary business is to provide retail and wholesale financing alternatives for CNH Industrial North America’s products to CNH Industrial North America’s customers and dealers. The demand for CNH Industrial North America’s products and our financing products and services is influenced by factors such as:
● the price of agricultural commodities and the ability to competitively export agricultural commodities;
● the profitability of agricultural enterprises, farmers’ income and their capitalization;
● the demand for food products;
● the availability of stocks and yields from previous harvests;
● agricultural policies, including aid and subsidies to agricultural enterprises provided by governments and/or supranational organizations, policies impacting commodity prices or limiting the export or import of commodities, and alternative fuel mandates;
● change in trade agreements or trade terms, negotiation of new trade agreements and the imposition of new tariffs against certain countries or covering certain products or raw materials;
● change in or uncertainty surrounding global trade policies;
● droughts, floods and other unfavorable climatic conditions, especially during the spring, a particularly important period for generating CNH Industrial North America’s sales orders;
● public infrastructure spending;
● new residential and non-residential construction;
● capital spending in oil and gas and, to a lesser extent, in mining;
● engine emissions and other applicable legal requirements, as well as the effective date of such requirements; and
● changes in global market conditions, including interest rates.
In the equipment industry, changes in demand can occur suddenly, resulting in imbalances in inventories, product capacity, and prices for new and used equipment. If fewer pieces of equipment are sold, CNH Industrial Capital will be presented with fewer opportunities to finance equipment.
We are subject to interest rate risks and changes in interest rates can reduce demand for CNH Industrial North America equipment, adversely affect our interest margins, and limit access to capital markets while increasing borrowing costs. Rising interest rates could have a dampening effect on overall economic activity as well as on the financial health of our customers, either of which could negatively affect customer demand for CNH Industrial North America’s products and our services as well as customers’ ability to service any financing provided by us. In addition, credit market dislocations could have an impact on funding costs, which in turn may make it more difficult for us to offer customers competitive financing. While we aim to limit the exposure of our net financial assets to changes in prevailing interest rates, interest rate volatility could have an adverse effect on our net interest rate margin, i.e., the difference between the yield we earn on assets and the interest rates we pay. Actions by credit rating agencies, such as downgrades or negative changes to ratings outlooks, can affect the availability and cost of funding for the Company and can increase the Company’s cost of capital and hurt its competitive position.
Change in support from CNH Industrial North America could limit our ability to offer competitively priced financing, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.
CNH Industrial North America sponsors certain marketing programs that allow us to offer financing to customers at advantageous interest rates or other terms (such as longer contract terms, longer warranty terms or parts and service incentives). This support from CNH Industrial North America provides a material competitive advantage in offering financing to customers of CNH Industrial North America’s products. Any elimination or reduction of these marketing programs, which affects our ability to offer competitively priced financing to customers, could in turn reduce the percentage of CNH Industrial North America’s products financed by us and could have a material adverse effect on our business, financial condition, results of operations and cash flows. For the years ended December 31, 2021, 2020 and 2019, we recognized revenues from CNH Industrial North America for marketing programs of $296.5 million, $323.8 million and $343.2 million, respectively, each representing 38% of our total revenues for that year.
CNH Industrial North America also provides us with other types of operational and administrative support, such as payroll and other human resource services. For the years ended December 31, 2021, 2020 and 2019, we incurred fees charged by our affiliates of $47.4 million, $45.9 million and $46.6 million, respectively, representing 16%, 12% and 13%, respectively, of our total administrative and operating expenses.
An increase in customer credit risk may result in higher delinquencies and defaults, and deterioration in collateral valuation may reduce our collateral recoveries, which could increase losses on our receivables and operating leases and adversely affect our financial condition and results of operations.
Fundamental to any organization that extends credit is the credit risk associated with its customers/borrowers. The creditworthiness of each customer, rates of delinquency and default, repossessions and net losses on customer receivables are impacted by many factors, including:
● relevant industry and general economic conditions (in particular, those conditions most directly affecting the agricultural and construction industries);
● the availability of capital;
● the terms and conditions applicable to extensions of credit;
● interest rates;
● the experience and skills of the customer’s management team;
● commodity prices;
● political events, including government mandated moratoria on payments;
● the weather; and
● the value of the collateral securing the extension of credit.
Deterioration in the quality of our financial assets, an increase in delinquencies or defaults, or a reduction in collateral recovery rates could have an adverse impact on our financial performance. These risks become more acute in an economic slowdown or recession due to decreased demand for (or availability of) credit, declining asset values, changes in government subsidies, reductions in collateral to receivable balance ratios, and an increase in delinquencies, defaults, insolvencies, foreclosures and losses. In such circumstances, our receivable servicing and litigation costs may also increase. In addition, governments may pass laws, or implement regulations, that modify rights and obligations under existing agreements, or which prohibit or limit the exercise of contractual rights, which events occurred in response to the COVID-19 pandemic in certain jurisdictions.
When a borrower defaults on a receivable and we repossess collateral securing the repayment of the receivable, our ability to recover or mitigate losses by selling the collateral is subject to the current market value of such collateral. Those values are affected by levels of new and used inventory of agricultural and construction equipment on the market. They are also dependent upon the strength or weakness of market demand for new and used agricultural and construction equipment, which is affected by the strength of the general economy. In addition, repossessed collateral may be in poor condition, which would reduce its value. Finally, relative pricing of used equipment, compared with new equipment, can affect levels of market demand and the resale of repossessed equipment. All of the foregoing could increase losses on receivables and operating leases, adversely affecting our financial condition and results of operations.
Changes in interest rates, exchange rates and market liquidity could have a material adverse effect on our earnings and cash flows.
Because a significant number of our receivables are generated at fixed interest rates, our business is subject to fluctuations in interest rates. Although we seek to match fund our assets, with approximately 74% of our receivables and approximately 76% of our funding at a fixed rate, respectively, as of December 31, 2021, changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and/or cash flow.
We are subject to currency exchange risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, the reporting currency for the consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, expenses and revenues are denominated in other currencies. Those assets, liabilities, expenses and revenues are translated into the U.S. dollar at the applicable exchange rates to prepare our consolidated financial statements. Therefore, increases or decreases in exchange rates between the U.S. dollar and those other currencies affect the value of those items reflected in the consolidated financial statements, even if their value remains unchanged in the original currency. Changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our financial condition and results of operations.
We also rely on the capital markets and a variety of funding programs to provide liquidity for our operations, including committed asset backed and unsecured facilities and the issuance of secured and unsecured debt. Significant changes in market liquidity conditions could affect our access to funding and the associated funding costs and reduce our earnings and cash flow.
Although we seek to manage interest rate, exchange rate and market liquidity risks with a variety of techniques, including a match funding program, the selective use of derivatives and a diversified funding program, there can be no assurance that we will be able to do so successfully, and our financial condition and results of operations could be adversely affected. In addition, by utilizing these techniques, we potentially forego the benefits that may result from favorable fluctuations in interest rates and exchange rates.
Changes in government monetary or fiscal policies may negatively impact our results.
Governments may implement measures designed to slow economic growth (e.g., higher interest rates, reduced bank lending and other anti-inflation measures). Rising interest rates could have a dampening effect on the overall economic activity and/or the financial condition of our customers, either or both of which could negatively affect demand for our products and our customers’ ability to repay obligations to us. Central banks and other policy arms of many countries may take actions to vary the amount of liquidity and credit available in an economy. The impact from a change in liquidity and credit policies could negatively affect the customers and markets we serve, which could adversely impact our business, financial condition and results of operations. Government initiatives that are intended to stimulate or reduce demand for products sold by CNH Industrial North America, such as changes in tax treatment or purchase incentives for new equipment, can significantly influence the timing and level of our revenues. The terms, size and duration of such government actions are unpredictable and outside of our control. Any adverse change in government policy relating to those initiatives could have a material adverse effect on our business, financial condition and results of operations. As noted above, it is unclear what the macroeconomic effects will be of the economic stimulus actions taken by various countries in order to mitigate the adverse economic impact of the COVID-19 pandemic and of the resulting increase in government debt.
If we are unable to obtain funding, in particular through the ABS market and committed asset-backed facilities, at competitive rates, our ability to conduct our financing business may be severely impaired and our financial condition, results of operations and cash flows may be materially and adversely affected.
We have traditionally relied upon the ABS market and committed asset-backed facilities as a primary source of funding and liquidity. Access to funding at competitive rates is essential to our business. An inability to access the ABS market or a significant reduction in liquidity in the secondary market for ABS transactions could adversely affect our ability to sell receivables on a favorable or timely basis. Such conditions could have an adverse impact on our access to funding, financial condition and results of operations.
If we breach our representations and warranties in connection with our ABS transactions, we may be required to repurchase non-conforming receivables from the securitization vehicles, which could have an adverse effect on our financial condition, results of operations and cash flows.
In connection with our ABS transactions, we make customary representations and warranties regarding the assets being securitized, as disclosed in the relevant offering documents. While no recourse provisions exist that allow holders of asset-backed securities issued by our ABS trusts to require us to repurchase those securities, a breach of these representations and warranties could give rise to an obligation to repurchase non-conforming receivables from the trusts. Any obligation to make future repurchases could have an adverse effect on our financial condition, results of operations and cash flows.
Certain of our operations are subject to supervision and regulation by governmental authorities and changes in applicable laws or regulations may adversely impact our ability to engage in related business activities or increase the cost of our operations, thus adversely affecting our business, financial condition and results of operations.
Our operations are subject to extensive, complex and frequently changing rules, regulations and legal interpretations from various governmental authorities, which among other things:
● regulate credit granting activities, including establishing licensing requirements;
● establish maximum interest rates, finance and other charges;
● regulate customers’ insurance coverage;
● require disclosures to customers;
● govern secured and unsecured transactions;
● set collection, foreclosure, repossession and claims handling procedures and other trade practices;
● prohibit discrimination in the extension of credit and administration of loans; and
● regulate the use, handling and reporting of information related to applicants and borrowers.
As applicable laws are amended or construed differently, new laws are adopted to expand the scope of regulation imposed upon us, or existing laws prohibit interest rates we charge from rising to a level commensurate with risk and market conditions, such events could adversely affect our business and our financial condition and results of operations.
New regulations or changes in financial services regulations could adversely impact us.
Our operations are highly regulated by governmental authorities which can impose significant additional costs and/or restrictions on our business. For example, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), including its regulations, as well as other efforts at regulatory reform in financial services, may substantially affect our origination, servicing and securitization programs as well as limit the ability of our customers to enter into hedging transactions or finance purchases of CNH Industrial North America equipment. The Dodd-Frank Act also strengthened the regulatory oversight of these securities and related capital market activities by the SEC and increased the regulation of the ABS markets through, among other things, a mandated risk retention requirement for securitizers and a direction to regulate credit rating agencies. Future
regulations may affect our ability to engage in these capital market activities or increase the effective cost of such transactions, which could adversely affect our financial condition, results of operations and cash flows.
Our business may be affected by climate change, unfavorable weather conditions or other calamities.
Poor, severe or unusual weather conditions caused by climate change or other factors, particularly during the planting and early growing season, can significantly affect the purchasing decisions of CNH Industrial North America’s agricultural equipment customers. The timing and quantity of rainfall are two of the most important factors in agricultural production. Insufficient levels of rain prevent farmers from planting crops or may cause growing crops to die, resulting in lower yields. Excessive rain or flooding can also prevent planting or harvesting from occurring at optimal times and may cause crop loss through increased disease or mold growth. Temperature affects the rate of growth, crop maturity, crop quality and yield.
Temperatures outside normal ranges can cause crop failure or decreased yields and may also affect disease incidence. Natural disasters such as floods, hurricanes, storms, droughts, diseases and pests can have a negative impact on agricultural production. The resulting negative impact on farm income can strongly affect demand for CNH Industrial North America’s agricultural equipment in any given period.
In addition, natural disasters, epidemics and pandemics, acts of terrorism or violence, equipment failures, power outages, disruptions to our information technology systems and networks or other unexpected events could result in physical damage to and complete or partial closure of one or more of CNH Industrial’s manufacturing facilities or distribution centers, temporary or long-term disruption in the supply of parts or component products, and disruption and delay in the transport of CNH Industrial North America’s products to dealers and customers. In the event such events occur, our financial results might be negatively impacted. Our existing insurance arrangements may not protect against all costs that may arise from such events.
Furthermore, the potential physical impacts of climate change on CNH Industrial North America’s facilities, suppliers and customers, and therefore on its operations, are highly uncertain and will be driven by the circumstances developing in various geographical regions. These may include long-term changes in temperature and water availability. These potential physical effects may adversely impact the demand for CNH Industrial North America’s products and the cost, production, sales and financial performance of its operations and as a result could adversely affect our financial condition, results of operations and cash flows.
Changes in demand for food and alternate energy sources could impact our revenues.
Changing worldwide demand for farm outputs to meet the world’s growing food and alternative energy demands, driven in part by government policies and a growing world population, are likely to result in fluctuating agricultural commodity prices, which affect sales of agricultural equipment. While higher commodity prices will benefit our crop producing agricultural equipment customers, higher commodity prices also result in greater feed costs for livestock and poultry producers, which in turn may result in lower levels of equipment purchased by these customers. Lower commodity prices directly affect farm income, which could negatively affect sales of agricultural equipment. Moreover, changing alternative energy demands may cause farmers to change the types or quantities of the crops they grow, with corresponding changes in equipment demands. Finally, changes in governmental policies regulating bio-fuel utilization could affect demand for CNH Industrial North America equipment and result in higher research and development costs related to equipment fuel standards.
Competitive activity or failure by us to respond to actions by our competitors could adversely affect our results of operations, in particular due to a cost of funds disparity between us and some of our competitors.
We operate in a highly competitive environment, with financing for owners or operators of CNH Industrial North America equipment available through a variety of sources, such as banks, finance companies and other financial institutions, including government sponsored entities. Some of our competitors enjoy certain regulatory, government support or credit rating advantages over CNH Industrial Capital today, which often enable them to access capital on favorable terms, among other things. Such cost of funds disparities between us and our competitors, or any additional regulatory, government support or credit rating changes that enhance the competitive position of our competitors, could result in our inability to effectively compete.
The success of our business also depends on our ability to identify emerging industry changes and develop and market new products and services that meet the evolving needs of existing and potential customers. Increasing competition may adversely affect our business if we are unable to match the products and services of our competitors. If we are unable to effectively compete, our business, financial condition and results of operations will suffer.
Our ability to execute our strategy is dependent upon our ability to attract, motivate and retain qualified personnel.
Our ability to compete successfully, to manage our business effectively, to expand our business and to execute our strategic direction depends, in part, on our ability to attract, motivate and retain qualified personnel in key functions and markets. In particular, we are dependent on our ability to attract, motivate and retain qualified personnel with the requisite education, skills, background, talents and industry experience. Failure to attract and retain qualified personnel, whether as a result of an insufficient number of qualified applicants, difficulty in recruiting new personnel, or the inability to integrate and retain qualified personnel, could impair our ability to execute our business strategy and meet our business objectives. These may be affected by the loss of employees, particularly when departures involve larger numbers of employees, such as those experienced by many employers and industries since 2020. Higher rates of employee separations may adversely affect us through decreased employee morale, the loss of knowledge of departing employees, and the devotion of resources to recruiting and onboarding new employees.
A decrease in the value of the equipment that we lease or higher than expected return volumes of our leased equipment could adversely affect our results.
We estimate the expected residual values of leased equipment at the inception of the lease, which is the estimated future value of leased equipment at the time of the expiration of the lease term. The residual values are reviewed quarterly. Changes in residual value assumptions would affect the amount of depreciation expense and the net amount of equipment on operating leases. If estimated future values significantly decline due to economic factors, obsolescence, the overall industry volume of lease returns, or other adverse circumstances, we may not realize such residual values, which could reduce our earnings.
Actual proceeds realized by us upon the sale of returned leased equipment at lease termination may be lower than the amount projected. Among the factors that can affect the value of returned lease equipment are the volume of equipment returned (primarily affected by contractual lease-end values relative to prevailing market values and marketing programs for new equipment), any significant trends in the used equipment market and any new product trends. Each of these factors, alone or in combination, has the potential to adversely affect our profitability if actual results were to differ significantly from our estimates.
As of December 31, 2021, our total operating lease residual values were $1.4 billion.
Our results of operations may be adversely impacted by various types of claims, lawsuits, and other contingent obligations.
We are involved in various lawsuits and other legal proceedings that arise in the ordinary course of our business. The ultimate outcome of the legal matters pending against us or our subsidiaries is uncertain. Furthermore, we could in the future become subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our results of operations in any particular period. In addition, while we maintain insurance coverage with respect to certain risks, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against claims under such policies.
Our affiliates may cease to provide us with financing support.
During previous capital markets crises, which had a material adverse effect on the ABS markets, we relied more heavily upon financing provided by CNH Industrial and its predecessors. In the event of a severe downturn in the ABS markets, we would need to look to alternative funding sources, including CNH Industrial, though CNH Industrial would have no obligation to provide such financing (other than the obligations assumed by CNHI under the support agreement, dated November 4, 2011). To the extent CNH Industrial does not provide such financing to us when needed, we could suffer from a lack of funding and/or incur increased funding costs if funding is obtained through less favorable sources.
Our participation in cash management pools exposes us to CNH Industrial credit risk, which, in the event of a bankruptcy or insolvency of certain CNH Industrial entities, could render us unable to recover our deposits and in turn materially and adversely affect our financial condition and results of operations.
We participate in a group-wide cash management system with other companies within CNH Industrial, including CNH Industrial America and CNH Industrial Canada Ltd. Our positive cash deposits with CNH Industrial, if any, are either invested by CNH Industrial treasury subsidiaries in highly rated, highly liquid money market instruments or bank deposits, or may be applied by CNH Industrial treasury subsidiaries to meet the financial needs of other CNH Industrial entities and vice versa. While we believe participation in such CNH Industrial treasury subsidiaries’ cash management pools provides us with financial benefits, it exposes us to CNH Industrial credit risk.
In the event of a bankruptcy or insolvency of CNHI (or any other CNH Industrial entity, including CNH Industrial America and CNH Industrial Canada Ltd., in the jurisdictions with set off agreements) or in the event of a bankruptcy or insolvency of the CNH Industrial entity in whose name the deposit is pooled, we may be unable to secure the return of such funds to the extent they belong to us, and we may be viewed as a creditor of such CNH Industrial entity with respect to such deposits. It is possible that our claims as a creditor could be subordinated to the rights of third-party creditors in certain situations. If we are not able to recover our deposits, our financial condition and results of operations may be materially and adversely impacted.
A cybersecurity breach could interfere with our operations, compromise confidential information, negatively impact our corporate reputation and expose us to liability.
We rely upon information technology systems and networks, some of which are managed by third parties, in connection with a variety of our business activities. These systems include invoicing and collection of payments from CNH Industrial North America’s dealers and from our customers. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information and the proprietary information of our customers and CNH Industrial North America’s dealers, as well as personally identifiable information of those dealers, customers and our employees, in data centers and on information technology networks. Operating these information technology systems and networks, and processing and maintaining this data, in a secure manner, are critical to our business operations and strategy. Increased information technology security threats (e.g. worms, viruses, malware, phishing attacks, ransomware, and other malicious threats) and more sophisticated computer crime pose a significant risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Cybersecurity attacks could also include attacks targeting customer data. The foregoing risks are heightened in the current environment where our employees perform their duties both in the office and from home due to the COVID-19 pandemic.
While we actively manage information technology security risks within our control through security measures, business continuity plans and employee training around phishing and other cyber risks, these attacks have proliferated and there can be no assurance that our actions will be sufficient to successfully prevent attacks or to mitigate potential risks to our systems, networks, data and products. Furthermore, third parties on which we rely, including internet, mobile communications technology and cloud service providers, pose their own information security risk to us.
A failure or breach in security, whether of our systems and networks or those of third parties on which we rely, could expose us and our customers and dealers to risks of misuse of information or systems, the compromising of confidential information, loss of financial resources, manipulation and destruction of data and operations disruptions, which in turn could adversely affect our reputation, competitive position, businesses and results of operations. Security breaches could also result in litigation, regulatory action, unauthorized release of confidential or otherwise protected information and corruption of data, as well as remediation costs and higher operational and other costs of implementing further data protection measures. In addition, as security threats continue to evolve, we may need to invest additional resources to protect the security of our systems and data. The amount or scope of insurance coverage we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity attack.
Changes in privacy laws could disrupt our business.
The regulatory framework for privacy and data security issues is rapidly evolving and is likely to remain uncertain for the foreseeable future. We collect personal information and other data as part of our business operations. This data is subject to a variety of U.S. and foreign laws and regulations. New privacy laws will continue to come into effect around the world. We may be required to incur significant costs to comply with this and other privacy and data security laws, rules and regulations. Any inability to adequately address privacy and security concerns or comply with applicable privacy and data security laws, rules and regulations could have an adverse effect on our business prospects, financial condition and/or results of operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Our principal executive offices are located at 5729 Washington Avenue, Racine, WI 53406. We maintain the following offices:
Primary
Location
Function
Tenant
Ownership Status
Burlington, ON
Office
CNH Industrial Capital Canada
Leased
New Holland, PA
Office
New Holland Credit Company
Leased from New Holland North America, Inc.
Racine, WI
Office
CNH Industrial Capital
Leased from CNH Industrial America

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
CNH Industrial Capital is party to various litigation matters and claims arising from its operations. Management believes that the outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on CNH Industrial Capital’s financial condition or results of operations.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
All of CNH Industrial Capital LLC’s limited liability company interests are owned by CNH Industrial America, which is indirectly wholly-owned by CNHI. There is currently no established trading market for CNH Industrial Capital LLC’s limited liability company interests. CNH Industrial Capital LLC paid cash dividends of $250 million, $130 million and $265 million to CNH Industrial America in 2021, 2020 and 2019, respectively.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Managements’ Discussion and Analysis of Financial Condition and Results of Operations
Overview
Organization
We offer a range of financial products and services to the dealers and customers of CNH Industrial North America. The principal products offered are retail financing for the purchase or lease of new and used CNH Industrial North America equipment and wholesale financing to CNH Industrial North America dealers. Wholesale financing consists primarily of floor plan financing as well as financing equipment used in dealer-owned rental yards, parts inventory and working capital needs. In addition, we purchase equipment from dealers that is leased to retail customers under operating lease agreements.
Trends and Economic Conditions
During 2020 and to a lesser extent in 2021, the effects of the COVID-19 pandemic and the related actions of governments and other authorities to contain COVID-19 spread have affected and continue to affect our operational and financial performance. Governments in the U.S. and Canada designated part of CNH Industrial North America’s businesses as essential critical infrastructure businesses. This designation allows us to operate in support of our dealers and customers to the extent possible. We also continue to prioritize the health, safety and well-being of our employees.
CNH Industrial continues to monitor the impact of the COVID-19 pandemic on all aspects of its business, its employees and its results of operations, financial condition and cash flows in 2021. For additional risks related to the COVID-19 pandemic, see “Item 1A. Risk Factors - COVID-19 Risks.”
Global supply chain represented the main challenge for CNH Industrial’s operations in 2021, with multiple bottlenecks resulting in increased raw material prices, intermittent sub-component availability, notably for semiconductors, and increased transportation costs.
Until December 31, 2021, CNH Industrial owned and controlled the Off-Highway business as well as the Iveco Group business. Effective January 1, 2022, the Iveco Group business was separated from CNHI by way of a demerger under Dutch law to Iveco Group N.V. (the Demerger) and Iveco Group became a public listed company independent from CNH Industrial.
Our business is closely related to the agricultural and construction equipment industries because we offer financing products for such equipment. For the year ended December 31, 2021, CNH Industrial’s net sales of agricultural equipment and net sales of construction equipment generated in North America were $5.1 billion and $1.4 billion, respectively, representing increases of 35% and 50% from the same period in 2020, respectively.
In general, our receivable mix between agricultural and construction equipment financing directionally reflects the mix of equipment sales by CNH Industrial North America. As such, changes in the agricultural industry or with respect to our agricultural equipment borrowers may affect the majority of our portfolio.
Net income was $230.2 million for the year ended December 31, 2021, compared to $143.3 million for the year ended December 31, 2020. The increase in net income was primarily due to lower provisions for credit losses, an increased net interest margin and lower losses on used equipment sales, partially offset by a lower average managed portfolio. The receivables balance greater than 30 days past due as a percentage of managed receivables was 0.5%, 0.7% and 0.7% at December 31, 2021, 2020 and 2019, respectively.
In addition to the impacts from COVID-19 previously discussed, macroeconomic issues for us include the uncertainty of governmental actions with respect to monetary, fiscal and legislative policies, the global economic recovery, changes in demand and pricing for used equipment, capital market disruptions, trade agreements, and financial regulatory reform. Significant volatility in the price of certain commodities could also impact CNH Industrial North America’s and our results.
Results of Operations
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenues
Revenues for the years ended December 31, 2021 and 2020 were as follows (dollars in thousands):
$ Change
% Change
Interest income on retail notes and finance leases
$
154,994
$
183,229
$
(28,235)
(15.4)
%
Interest income on wholesale notes
31,011
53,109
(22,098)
(41.6)
Interest and other income from affiliates
297,579
324,424
(26,845)
(8.3)
Rental income on operating leases
267,606
255,878
11,728
4.6
Other income
37,994
27,767
10,227
36.8
Total revenues
$
789,184
$
844,407
$
(55,223)
(6.5)
%
Revenues totaled $789.2 million for the year ended December 31, 2021 compared to $844.4 million for the year ended December 31, 2020. A lower average portfolio and a lower average yield drove the year-over-year decrease in total revenues. The average yield for the managed portfolio was 7.0% for the year ended December 31, 2021, compared to 7.3% for the year ended December 31, 2020.
Interest income on retail notes and finance leases for the year ended December 31, 2021 was $155.0 million, representing a decrease of $28.2 million from the year ended December 31, 2020. The decrease was primarily due to a $34.6 million unfavorable impact from lower interest rates, partially offset by a $6.4 million favorable impact from higher average earning assets.
Interest income on wholesale notes for the year ended December 31, 2021 was $31.0 million, representing a decrease of $22.1 million from the year ended December 31, 2020. The decrease was primarily due to the unfavorable impacts of $16.8 million from lower average earning assets and $5.3 million from lower interest rates.
Interest and other income from affiliates for the year ended December 31, 2021 was $297.6 million, representing a decrease of $26.8 million from the year ended December 31, 2020. Compensation from CNH Industrial North America for retail low-rate financing programs and interest waiver programs offered to customers was $142.9 million and $154.0 million for the years ended December 31, 2021 and 2020, respectively. The decrease was primarily due to pricing. For the year ended December 31, 2021, compensation from CNH Industrial North America for wholesale marketing programs was $94.7 million compared to $108.5 million for the prior year. The decrease was primarily due to a lower utilization of interest-free periods. For select operating leases, compensation from CNH Industrial North America for the difference between market rental rates and the amounts paid by customers was $59.0 million and $61.3 million for the years ended December 31, 2021 and 2020, respectively.
Rental income on operating leases for the year ended December 31, 2021 was $267.6 million, representing an increase of $11.7 million from the year ended December 31, 2020. The increase was primarily due to the favorable impacts of $9.3 million from higher interest rates and $2.4 million from higher average earning assets.
Other income for the year ended December 31, 2021 was $38.0 million, representing an increase of $10.2 million from the year ended December 31, 2020.
Expenses
Expenses for the years ended December 31, 2021 and 2020 were as follows (dollars in thousands):
$ Change
% Change
Total interest expense
$
195,778
$
279,958
$
(84,180)
(30.1)
%
Fees charged by affiliates
47,369
45,905
1,464
3.2
Provision (benefit) for credit losses
(7,460)
59,044
(66,504)
(112.6)
Depreciation of equipment on operating leases
239,331
237,405
1,926
0.8
Other expenses
14,016
35,303
(21,287)
(60.3)
Total expenses
$
489,034
$
657,615
$
(168,581)
(25.6)
%
Interest expense totaled $195.8 million for the year ended December 31, 2021 compared to $280.0 million for the year ended December 31, 2020. The decrease was primarily due to the favorable impacts of $72.0 million from lower average total debt and $12.2 million from lower average interest rates. The average debt cost was 2.0% for the year ended December 31, 2021 compared to 2.7% for the year ended December 31, 2020.
The benefit for credit losses was $7.5 million for the year ended December 31, 2021 compared to a provision of $59.0 million for the year ended December 31, 2020. The decrease in the provision for credit losses in 2021 was due to the improved outlook for the agricultural industry and a reduced expected impact on credit conditions from the COVID-19 pandemic.
Depreciation of equipment on operating leases increased by $1.9 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to mix of products in the operating lease portfolio.
Other expenses decreased by $21.3 million for the year ended December 31, 2021 compared to the prior year, primarily due to improved pricing on used equipment sales.
The effective tax rate for the years ended December 31, 2021 and 2020 was a provision of 23.3%.
Receivables and Equipment on Operating Leases Originated and Held
Receivables and equipment on operating lease originations for the years ended December 31, 2021 and 2020 were as follows (dollars in thousands):
$ Change
% Change
Retail
$
3,638,535
$
3,030,219
$
608,316
20.1
%
Wholesale
8,888,909
7,441,811
1,447,098
19.4
Equipment on operating leases
536,401
598,387
(61,986)
(10.4)
Total originations
$
13,063,845
$
11,070,417
$
1,993,428
18.0
%
The year-over-year increase in retail and wholesale originations was primarily due to an increase in unit sales of CNH Industrial North America equipment. The year-over-year decrease in operating lease originations was primarily due to customers’ preference for retail financing products.
Total receivables and equipment on operating leases held as of December 31, 2021 and 2020 were as follows (dollars in thousands):
$ Change
% Change
Retail
$
6,722,247
$
6,270,448
$
451,799
7.2
%
Wholesale
2,345,005
2,762,499
(417,494)
(15.1)
Equipment on operating leases
1,707,531
1,859,184
(151,653)
(8.2)
Total receivables and equipment on operating leases
$
10,774,783
$
10,892,131
$
(117,348)
(1.1)
%
The total retail receivables balance greater than 30 days past due as a percentage of the retail receivables was 0.7% and 1.1% at December 31, 2021 and 2020, respectively. The total wholesale receivables balance greater than 30 days past due as a percentage of the wholesale receivables was not significant at December 31, 2021 or 2020. Total retail receivables on nonaccrual status, which represent receivables for which we have ceased accruing finance income, were $27.2 million and $37.5 million at December 31, 2021 and 2020, respectively. Total wholesale receivables on nonaccrual status was $35.4 million at December 31, 2020.
Total receivable charge-offs and recoveries, by product, for the years ended December 31, 2021 and 2020 were as follows (dollars in thousands):
Charge-offs:
Retail
$
14,929
$
23,147
Wholesale
1,530
Total charge-offs
15,108
24,677
Recoveries:
Retail
(2,177)
(2,481)
Wholesale
(126)
(10)
Total recoveries
(2,303)
(2,491)
Charge-offs, net of recoveries:
Retail
12,752
20,666
Wholesale
1,520
Total charge-offs, net of recoveries
$
12,805
$
22,186
Our allowance for credit losses on all receivables financed totaled $116.0 million at December 31, 2021 and $136.1 million at December 31, 2020.
The allowance is subject to a quarterly evaluation based on many quantitative and qualitative factors, including historical loss experience by product category, portfolio duration, delinquency trends, forward looking macroeconomic factors (in particular, those conditions directly affecting the profitability and financial strength of our customers), and collateral value. No single factor determines the adequacy of the allowance. Different assumptions or changes in forward looking economic assumptions would result in changes to the allowance for credit losses and the provision for credit losses. These qualitative factors are subjective and require a degree of management judgment.
We believe our allowance is sufficient to provide for losses in our receivable portfolio as of December 31, 2021.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Comparisons for the year ended December 31, 2020 to the year ended December 31, 2019 are discussed in Item 7 of the Company’s 2020 annual report filed with the SEC on March 3, 2021.
Liquidity and Capital Resources
The following discussion of liquidity and capital resources principally focuses on our statements of cash flows, balance sheets and capitalization. CNH Industrial Capital’s current funding strategy is to maintain sufficient liquidity and flexible access to a wide variety of financial instruments.
In the past, securitization has been one of our most economical sources of funding and, therefore, the majority of our originated receivables are securitized, with the cash generated from such receivables utilized to repay the related debt or purchase new receivables.
In addition, we have secured and unsecured facilities, commercial paper, unsecured notes, affiliate borrowings and cash to fund our liquidity needs.
Cash Flows
For the years ended December 31, 2021 and 2020, our cash flows were as follows (dollars in thousands):
Cash flows from (used in):
Operating activities
$
777,757
$
117,118
Investing activities
(126,204)
757,935
Financing activities
(641,445)
(660,746)
Net cash increase (decrease)
$
10,108
$
214,307
Operating activities in the year ended December 31, 2021 generated cash of $778 million, resulting primarily from net income of $230 million, adjusted by depreciation and amortization of $241 million and changes in working capital of $324 million, partially offset by a $7 million benefit for credit losses and $10 million of deferred tax benefits. The increase in cash provided by operating activities in 2021 compared to 2020 was primarily due to $636 million related to changes in working capital, an $87 million increase in net income, a $2 million increase in depreciation and amortization expense and a $2 million change in deferred income tax adjustment, partially offset by a $66 million decrease in provision for credit losses. Operating activities in 2020 generated cash of $117 million, resulting primarily from net income of $143 million, adjusted by depreciation and amortization of $239 million and provision for credit losses of $59 million, partially offset by $12 million of deferred tax benefits and changes in working capital of $312 million.
Investing activities in the year ended December 31, 2021 used cash of $126 million, resulting primarily from net expenditures of $42 million for receivables, $79 million for equipment on operating leases and $5 million for property, equipment and software. The increase in cash used by investing activities in 2021 compared to 2020 was primarily due to a $957 million increase in net expenditures for receivables and a $2 million increase in expenditures for property, equipment and software, partially offset by a $75 million decrease in net expenditures for equipment on operating leases. Investing activities in 2020 generated cash of $758 million, resulting primarily from a net reduction in receivables of $915 million, partially offset by net expenditures of $154 million for equipment on operating leases and $3 million for property, equipment and software.
Financing activities in the year ended December 31, 2021 used cash of $641 million, resulting primarily from net cash paid on affiliated debt, long-term debt and short-term borrowings of $185 million, $156 million and $50 million, respectively, and $250 million in dividends paid to CNH Industrial America. The decrease in cash used in financing activities in 2021 compared to 2020 was primarily due to a decrease in net cash paid on short-term borrowings of $589 million, partially offset by an increase in net cash paid on long-term debt and affiliated debt of $295 million and $155 million, respectively, and higher dividends of $120 million paid to CNH Industrial America. Financing activities in 2020 used cash of $661 million, resulting primarily from net cash paid on short-term borrowings and affiliated debt of $640 million and $30 million, respectively, and $130 million in dividends paid to CNH Industrial America, partially offset by net cash received on long-term debt of $139 million.
Securitization
CNH Industrial Capital and its predecessor entities have been securitizing receivables since 1992. This market is a cost-effective financing source and allows access to a wide investor base. CNH Industrial Capital had approximately $4.9 billion of public and private asset-backed securities outstanding in both the U.S. and Canada as of December 31, 2021. Our securitizations are treated as financing arrangements for accounting purposes.
Committed Asset-Backed Facilities
CNH Industrial Capital has committed asset-backed facilities with several banks or through their commercial paper conduit programs. Committed asset-backed facilities for the U.S. and Canada totaled $2.7 billion at December 31, 2021, with original borrowing maturities of up to two years. The unused availability under the facilities varies during the year, depending on origination volume and the refinancing of receivables with term securitization transactions and/or other financing. At December 31, 2021, approximately $778 million of funding was available for use under these facilities.
Unsecured Facilities and Debt
Committed unsecured facilities with banks as of December 31, 2021 totaled $620 million. These credit facilities, which are eligible for renewal at various future dates, are used primarily for working capital and other general corporate purposes. As of December 31, 2021, we had $126 million outstanding under these credit facilities. The remaining available credit commitments are maintained primarily to provide backup liquidity for our commercial paper borrowings, as needed. There was no outstanding commercial paper as of December 31, 2021.
As of December 31, 2021, our unsecured senior notes were as follows (dollars in thousands):
Issued by CNH Industrial Capital LLC (the “U.S. Senior Notes”): (1)
4.375% notes, due 2022
$
500,000
1.950% notes, due 2023
600,000
4.200% notes, due 2024
500,000
1.875% notes, due 2026
500,000
1.450% notes, due 2026
600,000
Hedging, discounts and unamortized issuance costs
8,356
2,708,356
Issued by CNH Industrial Capital Canada. (the “Canadian Senior Notes”): (2)
1.500% notes, due 2024
236,073
Discounts and unamortized issuance costs
(1,286)
234,787
Total
$
2,943,143
(1) These notes, which are senior unsecured obligations of CNH Industrial Capital LLC, are guaranteed by CNH Industrial Capital America and New Holland Credit.
(2) These notes, which are senior unsecured obligations of CNH Industrial Capital Canada, are guaranteed by CNH Industrial Capital LLC, CNH Industrial Capital America and New Holland Credit.
On May 24, 2021, CNH Industrial Capital LLC completed an offering of $600 million in aggregate principal amount of 1.450% unsecured notes due 2026, with an issue price of 99.208% of their principal amount.
In a private placement on September 28, 2021, CNH Industrial Capital Canada completed an offering of C$300 million ($236 million) in aggregate principal amount of 1.500% unsecured notes due 2024, with an issue price of 99.936% of their principal amount.
Credit Ratings
Our ability to obtain funding is affected by credit ratings of our debt, which are closely related to the outlook for and the financial condition of CNHI, and the nature and availability of our support agreement with CNHI.
To access public debt capital markets, we rely on credit rating agencies to assign short-term and long-term credit ratings to our securities as an indicator of credit quality for fixed income investors. A credit rating agency may change or withdraw our ratings based on its assessment of our current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets.
On January 7, 2022, Fitch upgraded the Long-Term Issuer Default Ratings (“IDR”) and senior long-term debt ratings of CNH Industrial Capital LLC and CNH Industrial Capital Canada to ‘BBB+’ from ‘BBB-’. The outlook is stable. Fitch has also upgraded CNH Industrial Capital LLC’s short-term IDR and commercial paper ratings to ‘F2’ from ‘F3’. On February 25, 2022, Moody’s upgraded the senior unsecured ratings of CNH Industrial Capital LLC and CNH Industrial Capital Canada to ‘Baa2’ from ‘Baa3’. The rating outlook is stable. Our long-term credit ratings remained unchanged at ‘BBB’ from S&P Global Ratings with stable outlook.
Our current credit ratings are as follows:
Senior
Long-Term
Short-Term
Outlook
S&P Global Ratings
BBB
A-2
Stable
Fitch Ratings
BBB+
Stable
Moody's Investors Service
Baa2
-
Stable
Our debt is fully investment grade, which we believe will allow us to access funding at better rates.
Affiliate Sources
CNH Industrial Capital borrows, as needed, from CNH Industrial. This source of funding is primarily used to finance various assets and provides additional flexibility when evaluating market conditions and potential third-party financing options. We had affiliated debt of $2 million and $187 million as of December 31, 2021 and 2020, respectively.
Equity Position
Our equity position also supports our ability to access various funding sources. Our stockholder’s equity at December 31, 2021 and 2020 was $1.2 billion and $1.3 billion, respectively. During 2021, CNH Industrial Capital LLC paid cash dividends of $250 million to CNH Industrial America.
Liquidity
While we expect securitization to continue to represent a material portion of our capital structure and affiliated borrowings to remain a marginal source of funding, we will continue to diversify our funding sources and expand our investor base to support our investment grade credit ratings. These diversified funding sources include committed asset-backed facilities, unsecured notes, bank facilities and a commercial paper program.
The liquidity available for use varies due to: (a) changes in origination volumes, reflecting the financing needs of our customers, and is influenced by the timing of any refinancing of underlying receivables; and (b) the execution of our funding strategy of maintaining a sufficient level of liquidity and flexible access to a wide variety of financial instruments.
Debt
Our consolidated debt as of December 31, 2021 and 2020 is set forth in the table below (dollars in thousands):
Short-term debt (including current maturities of long-term debt)
$
3,755,368
$
4,229,428
Long-term debt
6,141,970
5,869,860
Total third-party debt
9,897,338
10,099,288
Affiliated debt
2,100
187,310
Total debt
$
9,899,438
$
10,286,598
Cash, Cash Equivalents and Restricted Cash
The following table shows cash and cash equivalents and restricted cash as of December 31, 2021 and 2020 (dollars in thousands):
Cash and cash equivalents
$
426,917
$
392,929
Restricted cash
601,742
625,622
Total cash
$
1,028,659
1,018,551
Cash and cash equivalents and restricted cash are comprised of highly liquid investments with short-term original maturities. See “Liquidity and Capital Resources - Cash Flows” for a further discussion of the change in our cash position.
Restricted cash is principally held by depository banks in order to comply with securitization contractual agreements, such as providing cash reserve accounts for the benefit of securitization investors.
Off-Balance Sheet Arrangements
For additional information, see “Note 13: Commitments and Contingencies” to our consolidated financial statements for the year ended December 31, 2021.
Contractual Obligations
The following table sets forth the aggregate amounts of our contractual obligations and commitments as of December 31, 2021 with definitive payment terms that will require significant cash outlays in the future (dollars in thousands).
Payments Due by Period
Less than
After
Total
1 year
1 - 3 years
4 - 5 years
5 years
Short-term and long-term debt (1)
$
9,897,338
$
3,755,369
$
3,884,397
$
2,226,046
$
31,526
Affiliated debt
2,100
2,100
-
-
-
Interest on fixed rate debt
544,679
140,250
252,001
152,428
-
Interest on floating rate debt (2)
90,735
20,540
39,582
30,128
Operating leases (3)
9,500
1,900
5,700
1,900
-
Total contractual obligations
$
10,544,352
$
3,920,159
$
4,181,680
$
2,410,502
$
32,011
(1)Short-term debt shown as less than one year includes current maturities of long-term debt of $2,490,671.
(2)The interest funding requirements are based on the year-end 2021 interest rates.
(3)Minimum rental commitments.
See “Liquidity and Capital Resources - Debt” for information relating to our consolidated debt as of December 31, 2021.
Guarantor Statements
CNH Industrial Capital America and New Holland Credit, which are 100%-owned subsidiaries of CNH Industrial Capital LLC, guarantee the U.S. Senior Notes (the “U.S. Notes Guarantees”). CNH Industrial Capital LLC, CNH Industrial Capital America and New Holland Credit (the “Guarantor Entities”) guarantee the Canadian Senior Notes (the “Canadian Notes Guarantees” and, together with the U.S. Notes Guarantees, the “Guarantees”). The Guarantees are full, unconditional, and joint and several.
The Guarantees are general unsecured obligations of the applicable Guarantor Entities and rank senior in right of payment to all future obligations of such Guarantor Entities that are, by their terms, expressly subordinated in right of payment to such Guarantees and pari passu in right of payment with all existing and future unsecured indebtedness of such Guarantor Entities that are not so subordinated.
The Guarantor Entities’ obligations under their applicable Guarantees are limited as necessary to prevent the Guarantees from constituting a fraudulent conveyance under applicable law. If the Guarantees were rendered voidable, they could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Guarantor Entities and, depending on the amount of the indebtedness, such Guarantor Entities’ liability on the Guarantees to which they are parties could be reduced to zero.
The Guarantees of the Guarantor Entities will be automatically released:
(1) in connection with any sale or other disposition of all of the capital stock of the applicable Guarantor Entities to a person other than, for purposes of the U.S. Notes Guarantees, CNH Industrial Capital LLC or any subsidiary of CNH Industrial Capital LLC, or, for purposes of the Canadian Notes Guarantees, CNH Industrial N.V. or any subsidiary of CNH Industrial N.V.;
(2) in connection with the sale or other disposition of all or substantially all of the assets or properties of the applicable Guarantor Entities, including by way of merger, consolidation or otherwise, to a person other than, for purposes of the U.S. Notes Guarantees, CNH Industrial Capital LLC or any subsidiary of CNH Industrial Capital LLC or, for purposes of the Canadian Notes Guarantees, CNH Industrial N.V. or any subsidiary of CNH Industrial N.V.; or
(3) certain other circumstances.
The following tables present summarized financial information for the obligor groups of the U.S. Senior Notes and the Canadian Senior Notes. The obligor group consists of the issuer and guarantors for the applicable senior notes. Intercompany balances and transactions between the issuer and guarantors have been eliminated. The investments in, and equity in income from, non-guarantor subsidiaries has been excluded.
For the years ended December 31, 2021 and 2020, the summarized statement of income information for the obligor group of the U.S. Senior Notes was as follows (dollars in thousands):
Revenues
$
461,054
$
471,374
Interest expense
157,691
230,025
Administrative and operating expenses
247,101
273,998
Income tax provision (benefit)
12,511
(6,697)
Net income (loss)
$
43,751
$
(25,952)
As of December 31, 2021 and 2020, the summarized balance sheet information for the obligor group of the U.S. Senior Notes was as follows (dollars in thousands):
Cash and cash equivalents
$
183,809
$
158,334
Restricted cash and cash equivalents
-
-
Receivables, less allowance for credit losses of $34,173 and $35,710
1,715,740
1,479,160
Equipment on operating leases, net
1,283,428
1,434,253
Short-term debt, including current maturities of long-term debt
740,257
1,109,953
Accounts payable and other accrued liabilities
838,482
798,624
Long-term debt
2,327,853
2,528,576
For the U.S. Senior Notes, the obligors’ amounts due from and due to the non-guarantor subsidiaries of CNH Industrial Capital LLC as of December 31, 2021 and 2020 were as follows (dollars in thousands):
Affiliated accounts and notes receivable from non-guarantor subsidiaries
$
2,253,415
$
2,135,799
Accounts payable and other accrued liabilities to non-guarantor subsidiaries
3,156,639
2,810,187
For the years ended December 31, 2021 and 2020, the summarized statement of income information for the obligor group of the Canadian Senior Notes was as follows (dollars in thousands):
Revenues
$
622,973
$
316,110
Interest expense
195,371
99,800
Administrative and operating expenses
307,290
158,821
Income tax provision
28,396
14,230
Net income
$
91,916
$
43,259
As of December 31, 2021 and 2020, the summarized balance sheet information for the obligor group of the Canadian Senior Notes was as follows (dollars in thousands):
Cash and cash equivalents
$
203,428
$
177,581
Restricted cash and cash equivalents
103,378
117,645
Receivables, less allowance for credit losses of $47,635 and $52,151
3,648,390
3,300,108
Equipment on operating leases, net
1,707,531
1,859,184
Short-term debt, including current maturities of long-term debt
1,362,012
1,857,629
Accounts payable and other accrued liabilities
921,681
905,226
Long-term debt
3,419,175
3,314,796
For the Canadian Senior Notes, the obligors’ amounts due from and due to the non-guarantor subsidiaries of CNH Industrial Capital LLC as of December 31, 2021 and 2020 were as follows (dollars in thousands):
Affiliated accounts and notes receivable from non-guarantor subsidiaries
$
2,133,655
$
2,056,011
Accounts payable and other accrued liabilities to non-guarantor subsidiaries
3,270,583
2,923,954
Other Data
As of or for the
Year Ended December 31,
(Dollars in thousands)
Total managed receivables
$
9,067,252
$
9,032,947
$
9,908,025
Operating lease equipment
1,707,531
1,859,184
1,783,283
Total managed portfolio
$
10,774,783
$
10,892,131
$
11,691,308
Delinquency (1)
0.48
%
0.74
%
0.69
%
Average managed receivables
$
8,970,948
$
9,356,087
$
9,987,527
Net credit loss (2)
0.14
%
0.24
%
0.38
%
Profitability:
Average receivable yields (3)
4.72
%
5.33
%
5.72
%
Average debt cost
2.00
%
2.73
%
3.26
%
Return on average managed portfolio (4)
2.14
%
1.29
%
1.27
%
Asset Quality:
Allowance for credit losses/total receivables (5)
1.28
%
1.51
%
0.73
%
(1) Delinquency means managed receivables that are past due over 30 days, expressed as a percentage of the managed receivables as of the end of the respective period.
(2) Net credit losses on the managed receivables means charge-offs, net of recoveries, for the preceding 12 months expressed as a percentage of the respective average managed receivables.
(3) Yield on retail and wholesale receivables.
(4) Net income for the period expressed as a percentage of the average managed portfolio.
(5) The Company’s adoption of ASC 326 on January 1, 2020 measures the allowance based on management’s estimate of the lifetime expected credit losses inherent in the receivables owned by the Company. Prior periods presented reflect measurement of the allowance based on management’s estimate of incurred credit losses. See Note 2: Summary of Significant Accounting Policies to this Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
The annual report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact contained in this filing, including competitive strengths; business strategy; future financial position or operating results; budgets; projections with respect to revenue, income, capital expenditures, dividends, capital structure or other financial items; costs; and plans and objectives of management regarding operations, products and services, are forward-looking statements. These statements may include terminology such as “may,” “will,” “expect,” “could,” “should,” “intend,” “estimate,” “anticipate,” “believe,” “outlook,” “continue,” “remain,” “on track,” “design,” “target,” “objective,” “goal,” “forecast,” “projection,” “prospects,” “plan,” or similar terminology. Forward-looking statements, 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 other assumptions underlying any of the forward-looking statements prove to be incorrect, the actual results or developments may differ materially from any future results or developments expressed or implied by the forward-looking statements.
Factors, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others: the many interrelated factors that affect customer confidence and demand for our financing products and services; the unknown duration and economic, operational and financial impacts of the COVID-19 pandemic and governmental, business and individuals’ response thereto; general economic conditions; changes in government policies regarding banking, monetary and fiscal policies; legislation, particularly relating to capital goods-related issues such as agriculture, the environment, debt relief and subsidy program policies, trade and commerce and infrastructure development; government policies on international trade and investment,
including protectionist trade policies such as higher tariffs, sanctions, import quotas, capital controls and new barriers to entry or consequent reactions by other governments against such policies; costs related to litigation or regulatory actions; actions of competitors in the various industries in which CNH Industrial North America competes; interest rates and currency exchange rates; inflation and deflation; energy prices; prices for agricultural commodities; housing starts and other construction activity; weather conditions and the effects of climate change; our ability to obtain financing or to refinance existing debt; restrictive covenants in our debt agreements; actions by rating agencies concerning the ratings on our debt and asset-backed securities and the credit rating of CNHI; a decline in the price of used equipment; security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its CNH Industrial North America dealers; security breaches with respect to CNH Industrial’s products; further developments of the COVID-19 pandemic on both our operations and CNH Industrial’s operations, supply chains and distribution network; political and civil unrest; volatility and deterioration of capital and financial markets, other similar risks and uncertainties and our success, and CNH Industrial North America’s success, in managing the risks involved in the foregoing.
Forward-looking statements are based upon assumptions relating to the factors described in this annual report, which are sometimes based upon estimates and data received from third parties. Such estimates and data are often revised. Actual results may differ materially from the forward-looking statements as a result of a number of risks and uncertainties, many of which are outside of our control. CNH Industrial Capital expressly disclaims any intention or obligation to provide, update or revise any forward-looking statements.
Additional factors, which could cause actual results to differ from those expressed or implied by the forward-looking statements, are included in the section “Item 1A. Risk Factors” of this annual report.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses during the reported periods. Actual results may differ from these estimates under different assumptions and conditions. Our critical accounting policies and estimates, which require management assumptions and complex judgments, are summarized below.
Allowance for Credit Losses
The allowance for credit losses is our estimate of the lifetime expected credit losses inherent in the receivables owned by us. Retail receivables include retail and other notes and finance lease products offered for retail purchases of new and used equipment sold through our dealer network. Wholesale receivables include financing of the sale of goods to dealers and distributors by us, and to a lesser extent, the financing of dealer operations. Typically, our receivables within a geographic area have similar risk profiles and methods for assessing and monitoring risk.
Retail receivables that share the same risk characteristics such as, collateralization levels, geography, product type and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for retail credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward looking macroeconomic factors, such as GDP and Net Farm Income. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors, such as the evolving impact of COVID-19, that are not fully captured in the loss forecast models are considered in the evaluation of the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
Wholesale receivables that share the same risk characteristics such as, collateralization levels, term, geography and other relevant factors are reviewed on a collective basis using measurement models and management judgment. The allowance for wholesale credit losses is based on loss forecast models that consider a variety of factors that include, but are not limited to, historical loss experience, collateral value, portfolio balance and delinquency. The loss forecast models are updated on a quarterly basis. The calculation is adjusted for forward looking macroeconomic factors, such as industry sales volumes. The forward-looking macroeconomic factors are updated quarterly. In addition, qualitative factors that are not fully captured in the loss forecast models are considered in the evaluation of
the adequacy of the allowance for credit losses. These qualitative factors are subjective and require a degree of management judgment.
Wholesale and retail receivables that do not have similar risk characteristics are individually reviewed based on, among other items, amounts outstanding, days past due and prior collection history. Expected credit losses are measured by considering: the probability-weighted estimates of cash flows and collateral value; the time value of money; current conditions and forecasts of future economic conditions. Expected credit losses are measured as the probability-weighted present value of all cash shortfalls (including the value of the collateral, if appropriate) over the expected life of each financial asset. Charge-offs of principal amounts of receivables outstanding are deducted from the allowance at the point when it is estimated that amounts due are deemed uncollectible.
The total allowance for credit losses at December 31, 2021 and 2020 was $116.0 million and $136.1 million, respectively. Management’s ongoing evaluation of the adequacy of the allowance for credit losses takes into consideration historical loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current and future economic conditions.
While management believes it has exercised prudent judgment and applied reasonable assumptions, there can be no assurance that, in the future, changes in economic conditions or other factors will not cause changes in the financial condition of our customers. If the financial condition of some of our customers deteriorates, the timing and level of payments received could be impacted and, therefore, could result in an increase in losses on the current portfolio.
Equipment on Operating Lease Residual Values
We purchase equipment from our dealers and other independent third parties and lease such equipment to retail customers under operating leases. Income from these operating leases is recognized over the term of the lease. Our decision on whether or not to offer lease financing to customers is based, in part, upon estimated residual values of the leased equipment, which are estimated at the lease inception date and periodically updated. Realization of the residual values, a component in the profitability of a lease transaction, is dependent on our ability to market the equipment at lease termination under the then prevailing market conditions. Equipment model changes and updates, as well as market strength and product acceptance, are monitored and adjustments are made to residual values in accordance with the significance of any such changes. Although realization is not assured, management believes that the estimated residual values are realizable.
Total operating lease residual values at December 31, 2021 and 2020 were $1.4 billion and $1.5 billion, respectively.
Estimates used in determining end-of-lease market values for equipment on operating leases significantly impact the amount and timing of depreciation expense. If future values for this equipment were to decrease 10% from our present estimates, the total impact would be to increase our depreciation expense on equipment on operating leases by approximately $135.6 million. This amount would be charged to depreciation expense during the remaining lease terms such that the net amount of equipment on operating leases at the end of the lease terms would be equal to the revised residual values. Initial lease terms generally range from two to five years.
New Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 can be adopted beginning as of March 12, 2020 through December 31, 2022 and may be applied as of the beginning of the interim period that includes March 12, 2020 or any date thereafter. We have not adopted ASU 2020-04 as of December 31, 2021. ASU 2020-04 is not expected to have a material impact on our consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, primarily changes in interest rates. We monitor our exposure to these risks, and manage the underlying economic exposures on transactions using financial instruments such as forward contracts, interest rate swaps, interest rate caps and forward starting swaps. We do not hold or issue derivatives or other financial instruments for speculative purposes or to hedge translation risks. See “Note 10: Financial Instruments” in the notes to our consolidated financial statements for the year ended December 31, 2021, for a description of our risk management strategy and the methods and assumptions used to determine the fair values of financial instruments.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. We monitor our exposure to this risk and manage the underlying exposure both through the matching of financial assets and liabilities and through the use of financial instruments, including swaps, caps, and forward starting swaps for the net exposure. The instruments aim to stabilize funding costs by managing the exposure created by the differing maturities and interest rate structures of our financial assets and liabilities. We do not hold or issue derivative or other financial instruments for speculative purposes.
We monitor interest rate risk to achieve a predetermined level of matching between the interest rate structure of our financial assets and liabilities. Fixed-rate financial instruments, including receivables, debt and other investments, are segregated from floating-rate instruments in evaluating the potential impact of changes in applicable interest rates. A sensitivity analysis was performed to compute the impact on fair value which would be caused by a hypothetical 10% change in the interest rates used to discount each category of financial assets and liabilities. The net impact on the fair value of the financial instruments and derivative instruments held as of December 31, 2021 and 2020, resulting from a hypothetical 10% change in interest rates, would be approximately $13.6 million and $10.7 million, respectively. For the sensitivity analysis the financial instruments are grouped according to the currency in which financial assets and liabilities are denominated and the applicable interest rate index. As a result, our interest rate risk sensitivity model may overstate the impact of interest rate fluctuations for such financial instruments, as consistently unfavorable movements of all interest rates are unlikely.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements are included in this annual report beginning on page.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision, and with the participation, of our management, including our President and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2021. Based on that evaluation, our President and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on this assessment, management believes that, as of December 31, 2021, our internal control over financial reporting was effective.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Omitted pursuant to General Instruction I of Form 10-K.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Omitted pursuant to General Instruction I of Form 10-K.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management
Omitted pursuant to General Instruction I of Form 10-K.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Omitted pursuant to General Instruction I of Form 10-K.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
For the years ended December 31, 2021 and 2020, Ernst & Young LLP, the member firms of Ernst & Young and their respective affiliates (collectively, the “Ernst & Young Entities”) were appointed to serve as our independent registered public accounting firm.
We incurred the following fees for professional services performed by the Ernst & Young Entities for the years ended December 31, 2021 and 2020, respectively:
Audit fees
$
933,834
$
914,600
Audit-related fees
662,807
419,700
Total
$
1,596,641
$
1,334,300
“Audit Fees” are the aggregate fees billed for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. “Audit-related fees” are fees charged for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category is comprised of fees for agreed-upon procedure engagements and other attestation services subject to regulatory and funding requirements. There were no fees billed for professional services in connection with tax compliance, tax advice, tax planning or other fees not included above for the years ended December 31, 2021 and 2020.
Audit Committee’s Pre-Approval Policies and Procedures
As a wholly-owned subsidiary of CNHI, audit and non-audit services provided by our independent registered public accounting firm are subject to CNHI’s Audit Committee pre-approval policies and procedures. During the year ended December 31, 2021, all audit and non-audit services provided by our independent registered public accounting firm were pre-approved in accordance with such policies and procedures.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
1.
Financial Statements
2.
Financial Statement Schedules
See table of contents to financial statements and schedules immediately preceding the financial statements and schedules to the consolidated financial statements.
3.
Exhibits.
Exhibit
Description
3.1
Certificate of Formation of CNH Industrial Capital LLC dated December 31, 2004, as amended by the Certificate of Amendment to the Certificate of Formation of CNH Industrial Capital LLC dated February 10, 2014. (Previously filed as Exhibit 3.1 to the annual report on Form 10-K of the registrant for the year ended December 31, 2015 (File No. 333-182411) and incorporated herein by reference).
3.2
Amended and Restated Limited Liability Company Agreement of CNH Industrial Capital LLC, amended on July 7, 2011. (Previously filed as Exhibit 3.2 to the registration statement on Form S-4 of the registrant (File No. 333-182411) and incorporated herein by reference).
4.1
Indenture, dated as of September 11, 2015, by and among CNH Industrial Capital LLC, as issuer, the Guarantors named therein and Wells Fargo Bank, National Association, as trustee. (Previously filed as Exhibit 4.9 to the registration statement on Form of the registrant (File No. 333- 206891-03) and incorporated herein by reference).
4.2
Officers’ Certificate, dated as of April 10, 2017 (including Form of 4.375% Note due 2022 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8-K of the registrant on April 10, 2017 (File No. 000-55510) and incorporated herein by reference).
4.3
Officers’ Certificate, dated as of August 14, 2018 (including Form of 4.200% Note due 2024 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8-K of the registrant on August 14, 2018 (File No. 000-55510) and incorporated herein by reference).
4.4
Officers’ Certificate, dated as of July 2, 2020 (including Form of 1.950% Note due 2023 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8-K of the registrant on July 2, 2020 (File No. 000-55510) and incorporated herein by reference).
4.5
Officers’ Certificate, dated as of October 6, 2020 (including Form of 1.875% Note due 2026 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8-K of the registrant on October 6, 2020 (File No. 000-55510) and incorporated herein by reference).
4.6
Officers’ Certificate, dated as of May 24, 2021 (including Form of 1.450% Note due 2026 included therein). (Previously filed as Exhibit 4.1 to the current report on Form 8-K of the registrant on May 24, 2021 (File No. 000-55510) and incorporated herein by reference).
10.1
Support Agreement, dated as of November 4, 2011, by and between CNH Industrial Capital LLC and CNH Global N.V. (Previously filed as Exhibit 10.1 to the registration statement on Form S-4 of the registrant (File No. 333-182411) and incorporated herein by reference).
10.2
Fourth Amended and Restated Wholesale and Parts CNHi Capital Financing Agreement, dated December 31, 2017, by and between CNH Industrial America LLC and CNH Industrial Capital America LLC.
Exhibit
Description
10.3
Second Amended and Restated Wholesale and Parts CNHi Capital Financing Agreement, dated December 31, 2017, by and between CNH Industrial Canada Ltd. and CNH Industrial Capital Canada Ltd.
10.4
Supplemental Support Agreement, dated as of September 27, 2013, by and among CNH Industrial Capital LLC, CNH Global N.V. and CNH Industrial N.V. (formerly known as FI CBM Holdings N.V.). (Previously filed as Exhibit 10.1 to the quarterly report on Form 10-Q of the registrant for the quarter ended September 30, 2013 (File No. 333-182411) and incorporated herein by reference).
Issuer and Guarantors of Guaranteed Securities.
23.1
Consent of Ernst & Young LLP.
31.1
Certifications of President Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certifications of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification required by Exchange Act Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
† These certifications are deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section; nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of holders of certain long-term debt have not been filed. The registrant will furnish copies thereof to the SEC upon request.