CNH Industrial N.V. — 2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars. CNH Industrial manufactures agricultural and construction equipment, commercial and specialty vehicles, and powertrains, and provides customer and dealer financing.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $26.032 billion | $28.079 billion |
| Net sales | $24.285 billion | $26.149 billion |
| Net income (loss) | $(438) million | $1.454 billion |
| Net income (loss) attributable to CNH Industrial | $(493) million | $1.422 billion |
| Basic and diluted EPS | $(0.36) | $1.05 basic; $1.05 diluted |
| Operating cash flow | $5.529 billion | $1.826 billion |
| Industrial Activities adjusted EBIT and margin | $552 million; 2.3% | $1.390 billion; 5.3% |
| Cash and cash equivalents | $8.785 billion | $4.875 billion |
| Consolidated debt | $26.053 billion | $24.854 billion |
| Equity | $4.989 billion | $6.121 billion |
Revenue declined 7.3% (5.6% at constant currency), principally reflecting COVID-19 disruption and deliberate reductions in channel inventory, especially in the first half. Cost of goods sold was 87.8% of Industrial Activities net sales, versus 83.5% in 2019. The annual net loss included a $585 million Construction goodwill impairment. No dividend was paid in 2020; a €0.11-per-share dividend, approximately €150 million in total, was proposed in March 2021 and remained subject to shareholder approval.
Cash and liquidity: Operating cash flow rose to $5.529 billion, supported in part by a $3.923 billion working-capital contribution, including inventory reductions. Industrial Activities generated $1.926 billion of free cash flow, a non-GAAP measure, versus $21 million in 2019. Industrial Activities ended the year with $786 million net cash, compared with $854 million net debt a year earlier. Available liquidity was $15.871 billion, including cash, restricted cash, undrawn committed facilities and other current financial assets. Consolidated gross debt includes $19.638 billion attributable to Financial Services; the filing cautions that the financing business has different funding and cash-flow characteristics.
Segment performance: Agriculture sales were nearly flat at $10.923 billion and adjusted EBIT was $880 million (8.1% margin). Construction sales fell 21.6% to $2.170 billion and recorded a $184 million adjusted EBIT loss. Commercial and Specialty Vehicles sales fell 9.8% to $9.421 billion and recorded a $109 million adjusted EBIT loss. Powertrain sales fell 11.9% to $3.629 billion; adjusted EBIT was $233 million. Financial Services net income declined to $249 million from $361 million.
Material changes and notable items
- Industrial Activities adjusted EBIT decreased by $838 million year over year; plant shutdowns, lower volumes and negative fixed-cost absorption weighed on results. Management cited cost containment and recovering performance across segments in the fourth quarter as offsets.
- Construction goodwill was fully impaired by $585 million. The company also recorded $255 million of other asset impairment charges and $282 million of asset-optimization charges related to vehicles with buy-back commitments.
- Other unusual items included a $134 million pre-tax gain from remeasuring the Nikola investment, a $125 million non-cash pension settlement charge, and a $119 million pre-tax gain from amortization of the 2018 U.S. healthcare-plan modification.
- SG&A included $157 million of bad-debt provisions, up from $62 million. The total allowance for credit losses was $555 million, versus $458 million, reflecting expected deterioration in credit conditions and adoption of the current expected credit loss standard.
- Management said cost reduction, cash preservation and dealer support helped maintain liquidity. Free cash flow and cash balances strengthened, while capital expenditures fell to $484 million from $637 million.
Outlook, risks and contingencies
Management described the outlook as highly uncertain due to the pandemic’s duration and potential renewed restrictions, end-market demand, supply interruptions, customer and dealer credit quality, and used-equipment values. It provided no general company-wide 2021 revenue or earnings guidance in the supplied filing text. The 2021 compensation-plan targets are incentive-program goals, not company guidance.
The company confirmed its intention to separate its On-Highway businesses (Commercial and Specialty Vehicles and Powertrain) from its Off-Highway businesses (Agriculture and Construction), but said structure, approvals, conditions and timing remained under development; completion was not assured. In 2021, the board proposed a €0.11-per-share dividend for shareholder approval.
- Material risks include COVID-19-related operational and demand disruption, supplier shortages and cost increases, cyclical agricultural and construction markets, competitive pricing, foreign-exchange and interest-rate exposure, and financial-services credit and funding risks.
- Consolidated gross indebtedness was $26.053 billion. Pension, healthcare and other postemployment plans had a combined funded deficit of $1.580 billion at year-end. Debt covenants and access to funding remain relevant risks, although the company reported compliance with applicable covenants and investment-grade ratings.
- Legal matters include follow-on private claims related to the EU truck antitrust settlement and an investigation concerning alleged noncompliance of two FPT engine models. The company said it had no evidence of wrongdoing in the engine matter and could not predict its outcome. Management said the reasonable possible losses from unresolved legal matters, in addition to accrued amounts, were not expected to materially affect the consolidated financial statements.
- The filing identifies uncertainty around realization of deferred tax assets and tax residence. It reports $941 million of valuation allowances against deferred tax assets and $270 million of gross uncertain tax positions.
Important facts for investors to verify
- Review whether the large 2020 operating-cash-flow increase is repeatable: working-capital changes contributed $3.923 billion, and industrial inventory reductions were a key factor.
- Assess segment recovery, particularly Construction and Commercial and Specialty Vehicles, and whether fourth-quarter improvement persisted after year-end.
- Monitor credit-loss provisions, receivables performance, used-equipment and vehicle residual values, and Financial Services’ funding and portfolio quality.
- Track the On-Highway separation’s approvals, structure, timing, costs and tax treatment; the filing does not assure that it will occur.
- Confirm shareholder approval and payment of the proposed 2021 dividend, and evaluate the company’s debt maturities, liquidity and pension funding needs.
- Consider the effects of the Construction goodwill impairment, remaining asset-impairment exposure, tax-asset recoverability and unresolved litigation or investigations.