CNH Industrial N.V. — FY 2015 Form 20-F
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report, not a standalone fourth-quarter report; it does not provide a clear standalone Q4 financial summary. Figures are in U.S. dollars unless noted and prepared under U.S. GAAP.
Business context and financial performance
CNH Industrial is a global manufacturer and financier of agricultural and construction equipment, commercial vehicles, buses, specialty vehicles, and powertrains. Its five segments are Agricultural Equipment, Construction Equipment, Commercial Vehicles, Powertrain, and Financial Services.
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $25.912 billion | $32.555 billion |
| Net income | $248 million | $708 million |
| Net income attributable to CNH Industrial N.V. | $253 million | $710 million |
| Basic and diluted EPS | $0.19 | $0.52 |
| Operating profit (company-defined, non-GAAP) | $1.635 billion | $2.199 billion |
| Cash provided by operating activities | $2.782 billion | $681 million |
| Cash and cash equivalents | $5.384 billion | $5.163 billion |
| Total debt | $26.388 billion | $29.594 billion |
| Total equity | $4.843 billion | $4.961 billion |
The filing reports cost of goods sold at 82.5% of Industrial Activities net sales, versus 81.9% in 2014. Industrial Activities operating profit was $1.432 billion, with a 5.8% operating margin, down 0.6 percentage points year over year. Consolidated net debt was $20.050 billion; Industrial Activities net debt was $1.622 billion. Cash plus restricted cash totaled $6.311 billion, although $927 million of restricted cash was principally reserved for securitization debt servicing.
Changes versus the prior year
- Total revenue fell 20.4% (9.2% on a constant-currency basis); Industrial Activities net sales fell 20.9% (9.6% constant currency).
- Net income declined to $248 million from $708 million. Lower volumes and adverse currency effects weighed on results; Venezuela and Argentina remeasurement charges and a higher effective tax rate also contributed.
- Agricultural Equipment revenue declined 27.5% and operating profit fell to $952 million from $1.770 billion. Lower demand, particularly in NAFTA and LATAM row-crop markets, was partly offset by pricing and cost reductions.
- Construction Equipment revenue fell 24.0%, but operating profit increased to $90 million from $79 million, supported by pricing and cost containment.
- Commercial Vehicles revenue declined 12.4% as reported, but increased 4.8% on a constant-currency basis. Operating profit improved to $283 million from $29 million, with stronger EMEA volumes, pricing, manufacturing efficiencies, and lower SG&A.
- Powertrain revenue fell 20.3% as reported, while operating profit decreased to $186 million from $223 million. Financial Services net income was broadly stable at $368 million versus $364 million.
- Operating cash flow rose to $2.782 billion from $681 million, including a $948 million working-capital contribution. Inventories fell to $5.690 billion from $7.008 billion. Capital expenditures excluding operating-lease and buy-back assets declined to $656 million from $1.022 billion.
- Total debt decreased by $3.206 billion; reported consolidated net debt decreased by $3.368 billion, reflecting currency translation, lower Industrial Activities working capital, and a smaller Financial Services lending portfolio.
Liquidity, outlook, risks, and unusual items
- Management said cash reserves, operating cash flow, available facilities, securitization programs, and expected refinancing should be sufficient for working capital, capital expenditures, and debt service at least through the end of 2016. Committed credit lines expiring after 12 months totaled $3.0 billion at year-end.
- The company was rated below investment grade: S&P BB+ (stable outlook) and Moody’s Ba1 (stable outlook). Management identified access to funding, refinancing costs, credit ratings, and asset-backed securities market conditions as important risks.
- No specific numerical 2016 revenue or earnings guidance is provided in the filing text. The efficiency program was expected to incur cumulative charges of approximately $360 million over 2014–2016 and generate estimated annual savings of approximately $200 million.
- Other, net expenses were $625 million, including a $150 million pre-tax charge to remeasure Venezuelan net monetary assets using the SIMADI exchange rate and a $40 million charge related to Argentine peso devaluation. The company said Venezuelan operations generated less than 1% of consolidated revenue and operating profit in the second half of 2015; a future loss of control could trigger an approximately $130 million charge.
- The effective tax rate was 63.5%, versus 42.9%. Excluding the Venezuelan charge, which received no tax benefit, and the inability to recognize deferred tax assets on losses in certain jurisdictions, primarily Brazil, management estimated the 2015 rate would have been 37%.
- Defined benefit pension, healthcare, and other postemployment plans had a combined funded deficit of $2.276 billion; $1.988 billion related to plans the company was not then required to fund. Expected 2016 contributions and direct benefit payments were $164 million in total.
- An EU Commission truck antitrust investigation remained unresolved; the company said it could not predict the outcome or estimate a potential fine. The filing also discloses approximately $1.3 billion of outstanding legacy liabilities for which CNH Industrial may be jointly liable with FCA; management assessed FCA insolvency risk as extremely remote and recorded no specific provision.
- On January 29, 2016, the company announced a buyback of up to $300 million. The board also recommended a €0.13-per-share dividend, approximately €177 million, subject to shareholder approval.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the improvement in operating cash flow is sustainable, given the significant working-capital contribution and continuing market weakness.
- Industrial Activities profitability and inventory levels, especially Agricultural Equipment demand and the outlook for Construction Equipment.
- Funding and refinancing needs, debt maturities, covenant compliance, and Financial Services’ access to securitization and other funding markets.
- The development and accounting impact of Venezuelan and Argentine currency changes, including any further exchange-rate or control changes.
- Potential exposure from the EU antitrust investigation, FCA-related joint liabilities, tax matters, environmental claims, and other contingencies.
- Whether the announced efficiency savings, proposed dividend, and share repurchase are delivered as planned; the dividend remained subject to shareholder approval at the filing date.