LIQUIDITY AND CAPITAL RESOURCES

The  following  discussion  of  liquidity  and  capital  resources  principally  focuses  on  CNH  Industrial’s  consolidated statement of financial position and CNH Industrial’s consolidated statement of cash flows.

Statement of financial position review

Statement of Financial Position by Activity

   At December 31, 2013At December 31, 2012
(€ million)ConsolidatedIndustrial ActivitiesFinancial ServicesConsolidatedIndustrial ActivitiesFinancial Services
Intangible assets:4,3844,2731114,1744,056118
Goodwill1,8231,7221011,9071,798109
Other intangible assets2,5612,551102,2672,2589
Property, plant and equipment5,0525,04844,5724,5693
Investments and other financial assets5502,274905312,36488
Leased assets7682474462227595
Defined benefit plan assets323113838-
Deferred tax assets1,2121,0771351,2281,088140
Total Non-current assets11,99812,7271,08511,16512,142944
Inventory5,4645,394704,8434,75588
Trade receivables988971651,4361,381119
Receivables from financing activities15,9434,24417,15315,2374,70216,331
Current taxes receivable252241113022939
Other current assets1,3779326881,117837596
Current financial assets:18918471251216
Current securities---4-4
Other financial assets18918471211212
Cash and cash equivalents4,7052,9071,7984,6112,9481,663
Total Current assets28,91814,87319,79227,67115,03718,812
Assets held for sale2581725817
TOTAL ASSETS40,94127,60820,89438,86127,18719,773
Equity5,5565,5561,8165,3765,3761,922
Provisions:4,7334,684494,8614,81051
Employee benefits1,9671,942252,2132,18726
Other provisions2,7662,742242,6482,62325
Debt:21,7148,76518,40320,6339,23817,191
Asset-backed financing10,6798710,6679,7081499,597
Other debt11,0358,6787,73610,9259,0897,594
Other financial liabilities685614977821
Trade payables5,3445,1941984,8434,730179
Current taxes payable3032851821716750
Deferred tax liabilities2191437616810860
Other current liabilities3,0042,9253202,6662,680299
Liabilities held for sale------
Total Liabilities35,38522,05219,07833,48521,81117,851
TOTAL EQUITY AND LIABILITIES40,94127,60820,89438,86127,18719,773

At December 31, 2013, total assets amounted to €40,941 million, increasing €2,080 million over the €38,861 million figure at year-end 2012.

Non-current assets totaled €11,998 million, an increase of €833 million over year-end 2012, primarily attributable to investments for the period (net of amortization/depreciation).

Current assets increased €1,247 million to €28,918 million at year-end 2013. The increase was primarily attributable to a €621 million increase in inventories and €706 million increase in receivables from financing activities.

Receivables from financing activities totaled  €15,943 million at December  31, 2013.  Net of  currency translation differences and write-downs, there was a €1,692 million increase principally relating to an increase in financing provided to Agricultural and Construction Equipment customers in the U.S., Trucks and Commercial Vehicles dealers in Europe and Agricultural and Construction Equipment dealers in the U.S. and Brazil.

Working capital (net of items relating to vehicles sold under buy-back commitments and vehicles no longer subject to lease agreements that are held in inventory) was a positive €661 million, representing a €214 million decrease for the year.

(€ million) At December 31,
2013
At December 31,
2012
Change
Inventory(a)5,3174,673644
Trade receivables 9881,436(448)
Trade payables (5,344)(4,843)(501)
Net Current Taxes Receivable/(Payable) & Other Current Receivables/(Payables)(b)(300)(391)91
Working capital 661875(214)
(a) Inventory is reported net of vehicles held for sale by Trucks and Commercial Vehicles segment that have been bought back (under buy-back commitments) or returned following expiry of a lease agreement
(b) Other current payables, included under current taxes receivable/(payable) & other current receivables/(payables), are stated net of amounts due to customers in relation to vehicles sold under buy-back commitments, which consist of the repurchase amount payable at the end of the lease period, together with the value of any lease installments received in advance. The value at the beginning of the contract period, equivalent to the difference between the sale price and the repurchase amount, is recognized on a straight-line basis over the contract period

At December 31, 2013, trade receivables, other receivables and receivables from financing activities falling due after that date and sold without recourse – and, therefore, eliminated from the statement of financial position pursuant to the derecognition requirements of IAS 39 – totaled €791 million (€763 million at December 31, 2012).

Working capital decreased €73 million over the year on a comparable scope of operations and at constant exchange rates.

At December 31, 2013, CNH Industrial’s total debt was €21,714 million, compared to €20,633 million at the end of 2012. Of the total debt at December 31, 2013, €10,679 million (€9,708 million at December 31, 2012) related to asset- backed financing operations that are treated as debt under IFRS. Of the remaining €11,035 million of debt at December 31, 2013 (€10,925 million at the end of 2012), bonds accounted for €5,314 million (€5,424 million at the end of 2012), bank loans accounted for €5,149 million (€5,174 million at the end of 2012), and other indebtedness accounted for the remaining €572 million (€327 million at the end of 2012). In addition, at December 31, 2013, CNH Industrial had approximately €1.6 billion in available committed credit lines expiring after December 31, 2014. See Note 27 to the CNH Industrial Consolidated Financial Statements for additional information on CNH Industrial’s indebtedness at December 31, 2013, including a table summarizing the maturity profile and interest rates payable on its outstanding bonds at that date.

At December 31, 2013, CNH Industrial’s net debt (a non-GAAP measure which is calculated as debt plus other financial liabilities, net of cash, cash equivalents, current securities and other financial assets, all as recorded in CNH Industrial’s statement of financial position) was €16,888 million, an increase of €894 million, or 5.6%, compared with the €15,994 million recorded at the end of 2012. Excluding positive currency translation differences of approximately €788 million, cash from operating activities was more than offset by increases in the loan portfolios of the financial services companies, as well as capital expenditures and dividend distributions during the year.

The following table details CNH Industrial’s net debt at December 31, 2013 and 2012, and provides a reconciliation of this non-GAAP measure to debt, the most directly comparable measure included in CNH Industrial’s consolidated statement of financial position. Net debt is one of management’s primary measures for analyzing CNH Industrial’s debt and managing its liquidity, because CNH Industrial believes this measure illustrates how much indebtedness would remain if all of CNH Industrial’s available liquid resources were applied to the repayment of debt. In particular, for CNH Industrial Group, Net Industrial Debt (i.e., Net Debt of Industrial Activities) is the principal indicator of changes in financial structure and, as such, is one of the key targets used to measure Group performance.

  At December 31, 2013At December 31, 2012
(€ million)ConsolidatedIndustrial
Activities
Financial
Services
ConsolidatedIndustrial
Activities
Financial
Services
Debt:(21,714)(8,765)(18,403)(20,633)(9,238)(17,191)
Asset-backed financing(10,679)(87)(10,667)(9,708)(149)(9,597)
Other debt(11,035)(8,678)(7,736)(10,925)(9,089)(7,594)
Intersegment financial receivables (1)-4,1381,316-4,6051,191
Debt, net of intersegment balances(21,714)(4,627)(17,087)(20,633)(4,633)(16,000)
Other financial assets (2)18918471211212
Other financial liabilities (2)(68)(56)(14)(97)(78)(21)
Liquidity:      
Current securities (3)---4-4
Cash and cash equivalents4,7052,9071,7984,6112,9481,663
Net (Debt)/Cash(16,888)(1,592)(15,296)(15,994)(1,642)(14,352)
(1) As a result of the role played by the central treasury, debt for Industrial Activities also includes funding raised by the central treasury on behalf of consolidated Financial Services companies (included under intersegment financial receivables). Intersegment financial receivables for Financial Services companies, on the other hand, represent loans or advances to industrial companies – for receivables sold to Financial Services companies that do not meet the derecognition requirements of IAS 39  – as well as cash deposited temporarily with the central treasury.
(2) Other financial liabilities and other financial assets include, respectively, the negative and positive fair values of derivative financial instruments.
(3) Current securities include short-term or marketable securities held as temporary investments of available funds which do not satisfy the requirements for being classified as cash equivalents under IFRS.

Debt for the Group increased €1,081 million during 2013 (increase of €2,180 million at constant exchange rates), mainly reflecting an increase of €971 million in asset-backed financing and €828 million in new bond issues, net of repayment of new medium/long-term bank financing.

At December 31, 2013, liquidity totaled approximately €4.7 billion (up €0.1 billion over the €4.6 billion at year-end 2012). Total available liquidity (including €1.6 billion in undrawn committed facilities at year-end 2013 and 2012) increased €0.1 billion to €6.3 billion, mainly as a result of increase in bonds and in medium-term borrowings, partially offset by cash utilization related to bonds and borrowings repayments, refinancing needs and portfolio growth for financial services, as well as capital expenditures and dividend payments.

At December 31, 2013, cash and cash equivalents included approximately €668 million (€670 million at December 31, 2012) of restricted cash the use of which is primarily limited to the repayment of the debt relating to securitizations classified as asset-backed financing.

Historically, CNH Industrial has relied significantly on the securitization market for funding its financial business and anticipates that it will continue to do so in the future. CNH Industrial carried out term securitizations for a total amount of €3,866 million in 2013, and €2,913 million in 2012. The Group also established or renewed wholesale securitized credit facilities for a total commitment amount of €1,628 million in 2013, and €2,279 million in 2012 and retail securitized credit facilities for a total commitment amount of €1,741 in 2013, and €1,870 million in 2012. After December 31, 2013, an additional US$1 billion (€752 million) of term securitization has been closed.

In 2013, Financial Services further diversified its sources of funding for the Trucks and Commercial Vehicle business (end customers and dealers) through new arrangements, including receivables factoring agreements and revolving unsecured credit facilities. A pan-European securitization program set in place in 2011, with a maximum amount of €600 million, continued to ensure the funding of dealer financing activities. During 2013, Net Industrial Debt decreased €50 million to €1,592 million.

Change in Net Industrial Debt

(€ million)20132012
Net Industrial (Debt)/Cash at beginning of the year(1,642)(1,239)
Profit/(loss)917900
Amortization and depreciation (net of vehicles sold under buy-back commitments or leased out)748716
Change in provisions for risks and charges and similar65144
Cash from/(used in) operating activities during the year
before change in working capital
1,7301,760
Change in working capital144(291)
Cash from/(used in) operating activities1,8741,469
Investments in property, plant and equipment and intangible assets
(net of vehicles sold under buy-back commitments or leased out)
(1,490)(1,344)
Cash from/(used in) operating activities, net of capital expenditures384125
Change in consolidation scope and other changes15(86)
Net Industrial cash flow39939
Capital increases and dividends(282)(470)
Currency translation differences(67)28
Change in Net Industrial Debt50(403)
Net Industrial (Debt)/Cash at end of year(1,592)(1,642)

The €1,730 million in cash generated by operating activities (before changes in working capital) was partially offset by investments in fixed assets (€1,490 million) and dividend payment. Changes in working capital generated cash of €144 million.

Changes in Net debt for financial services

Net debt for the Financial Services companies at December 31, 2013 was €944 million higher than year-end 2012. That increase mainly reflects the increase in the lending portfolio (€1,776 million), partially compensated by cash from operating activities (€164 million) and positive currency translation differences (€855 million).

Cash flow analysis

CNH Industrial’s operations are capital intensive and subject to seasonal variations in financing requirements for dealer receivables and dealer and company inventories.

CNH Industrial finances its operations through cash flows generated by operations, issuance of bonds and other medium-term borrowings, as well as securitization transactions which principally provide funding and liquidity for its Financial Services activities.

In 2013, operating activities generated €1,835 million in cash. Investing activities absorbed a total of €3,430 million of cash to fund capital expenditures of  €1,495 million and increases in financial receivables of €1,807 million primarily as a result of financing provided to the Agricultural and Construction Equipment dealer network. Financing activities generated a total of €1,907 million in cash.

In 2012, operating activities generated €1,698 million in cash. Investing activities absorbed a total of €2,974 million of cash to fund capital expenditures of €1,349 million and increases in financial receivables of €1,749 million primarily as a result of higher levels of financing provided to the Agricultural and Construction Equipment dealer network. Financing activities generated a total of €327 million in cash.

CNH Industrial’s principal sources of liquidity in 2013 were cash provided by operations, which totaled €1,835 million, bonds issued, which totaled €828 million, and the issuance of other medium-term borrowings, which totaled €1,898 million. CNH Industrial used these sources of liquidity primarily to fund its capital expenditures of €1,495 million and increases in financial receivables of €1,807 million, primarily due to an increase in the loan portfolio of financial services companies.

CNH Industrial’s principal sources of liquidity in 2012 were cash provided by operations, which totaled €1,698 million, bonds issued, which totaled €584 million and the issuance of other medium-term borrowings, which totaled €2,113 million. CNH Industrial used these sources of liquidity primarily to fund its capital expenditures of €1,349 million and increases in financial receivables of €1,749 million primarily due to an increase in the loan portfolio of financial services companies.

At December 31, 2013, CNH Industrial had cash and cash equivalents of €4,705 million, an increase of €94 million, or 2.0%, from the €4,611 million at December 31, 2012. Of the amount at December 31, 2013, €668 million (€670 million at December 31, 2012) was reserved principally for the servicing of securitization-related debt included in the line item “Asset-backed financing” in CNH Industrial’s statement of financial position. The aggregate of cash, cash equivalents and current securities, which management considers constitute CNH Industrial’s principal liquid assets, totaled €4,705 million at December 31, 2013, an increase of €90 million or 1.9% from the total at the end of year 2012 (which totaled €4,615 million).

Statement of Cash Flows by Activity

 20132012
 ConsolidatedIndustrial
Activities
Financial
Services
ConsolidatedIndustrial
Activities
Financial
Services
A)   CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR4,6112,9481,6635,6394,2361,403
B)   CASH FROM/(USED IN) OPERATING   ACTIVITIES:           
Profit/(loss)917917255900900177
Amortization and depreciation (net of vehicles sold under buy-back commitments or leased out) vehicles sold under buy-back commitments or leased out)75174837197163
(Gains)/losses on disposal of non-current assets (net of vehicles sold under buy-back commitments) and other non-cash items50(288)83243(93)159
Dividends received612595801276
Change in provisions9997273685
Change in deferred taxes(37)(39)2103958
Changes relating to buy-back commitments (a)793346(117)(51)(66)
Changes relating to operating leases (b)(158)3(161)(89)(2)(87)
Change in working capital73144(71)(214)(291)77
TOTAL1,8351,8741641,6981,469282
C) CASH FROM/(USED IN) INVESTING ACTIVITIES     
Investments in:              
Property, plant and equipment and intangible assets (net of vehicles sold under buy-back commitments or leased out)(1,495)(1,490)(5)(1,349)(1,344)(5)
Subsidiaries and other investments(85)(93)-(4)(210)-
Proceeds from the sale of non-current assets (net of vehicles sold under buy-back commitments)55-767730
Net change in receivables from financing activities(1,807)(31)(1,776)(1,749)(43)(1,706)
Change in current securities4-461-61
Other changes(52)438(490)(9)(1,603)1,594
TOTAL(3,430)(1,171)(2,267)(2,974)(3,123)(26)
D)   CASH FROM/(USED IN) FINANCING ACTIVITIES     
Net change in debt and other financial assets/liabilities2,189(352)2,541797880(83)
Increase in share capital 381010175
Dividends paid(277)(277)(203)(480)(480)(53)
(Purchase)/sale of treasury shares 6----
(Purchase)/sale of ownership interests in subsidiaries(14)(14)----
TOTAL1,907(634)2,34632741039
Currency translation differences(218)(110)(108)(79)(44)(35)
E) NET CHANGE IN CASH AND CASH
EQUIVALENTS
94(41)135(1,028)(1,288)260
F) CASH AND CASH EQUIVALENTS AT END OF YEAR4,7052,9071,7984,6112,9481,663
(a) Cash generated from the sale of vehicles under buy-back commitments, net of amounts included in profit/(loss), are recognized under operating activities in a single line item, which includes changes in working capital, capital expenditure, depreciation and impairment losses. The item also includes gains and losses arising from the sale of vehicles subject to buy-back commitments before the end of the agreement and without repossession of the vehicle.
(b) Cash from operating leases is recognized under operating activities in a single line item, which includes capital expenditure, depreciation, write- downs and changes in inventory

Net Cash from Operating Activities

Cash provided by operating activities in 2013 totaled €1,835 million, compared to €1,698 million in  2012,  and comprised the following elements:

  • €917 million in net income that CNH Industrial recorded in 2013;
  • plus €751 million in non-cash charges for depreciation and amortization (net of vehicles sold under buy-back commitments and operating leases);
  • plus €50 million in (gains)/losses on disposal and other non-cash items;
  • plus €61 million in dividends received and changes in provisions of €99 million, minus change in deferred income taxes of €37 million; and
  • plus changes in items due to buy-back commitments of €79 million and a €73 million change in working capital, minus €158 million for changes in operating lease items.

In 2012, €1,912 million of the €1,698 million in cash generated by operating activities during the year was from income- related cash inflows (calculated as net profit plus amortization and depreciation, dividends, changes in provisions and various items related to sales with buy-back commitments and operating leases, net of gains/losses on disposals and other non-cash items) with €214 million resulting from an increase in working capital (calculated on a comparable scope of operations and at constant exchange rates).

Net Cash from Investing Activities

In 2013, investing activities absorbed €3,430 million in cash (compared to €2,974 million in cash used by investing activities in 2012). The negative flows were mainly generated by:

  • €1,807 million increase  in  receivables from  financing  activities,  primarily as a  result of  higher  levels of financing provided by Agricultural and Construction Equipment to both dealers and customers; and
  • investments in tangible and intangible assets that used €1,495 million in cash (compared to €1,349 million in 2012), including €572 million in capitalized development costs. Investments in tangible and intangible assets are net of investments in vehicles for CNH Industrial’s long-term rental operations and of investments relating to vehicles sold under buy-back commitments, which are reflected in cash flows relating to operating activities.

In 2012, cash used in investing activities totaled €2,974 million. Expenditure on tangible and  intangible  assets (including €533 million in capitalized development costs) totaled €1,349 million. The increase in receivables from financing activities, which accounts for cash absorption of €1,749 million, related primarily to dealer financing for Agricultural and Construction Equipment segment.

The following table summarizes CNH Industrial’s investments in tangible and intangible assets by segment for each of the years ended December 31, 2013 and 2012:

(€ million)20132012
Agricultural and Construction Equipment784758
Trucks and Commercial Vehicles552439
Powertrain158151
Other Activities and Eliminations11
Total1,4951,349

The Group incurred these capital expenditures to acquire property, plant and equipment necessary to introduce and manufacture new products, enhance CNH Industrial’s manufacturing efficiency and implement further environmental and safety programs

Net Cash from Financing Activities

In 2013, cash generated from financing activities totaled €1,907 million (compared to a total of €327 million cash generated in 2012). New bond issues (€828 million) and issuance of medium-term borrowings were partially offset by repayments and by dividend payments of €277 million.

Cash generated from  financing  activities  totaled  €327 million  in 2012. Dividend  payments  of €480 million, which included an approximately €237 million payment of the extraordinary dividend to CNH non-controlling interests, and repayment by IFHL Group of debt outstanding with Barclays Group at year-end 2011 were offset by increased utilization of bank lines and the €584 million in cash proceeds from new bond issues.

Statement of Cash Flows by Activity

For 2013, Industrial Activities absorbed cash and cash equivalents totaling €41 million. Specifically:

  • Operating activities generated €1,874 million in cash, primarily related to net profit adjusted for amortization and depreciation, gains/losses on disposals and other non-cash items, changes in provisions, deferred taxes, items related to vehicles sold under buy-back commitments or leased out and dividends received totaling €1,730 million and to a decrease in working capital of €144 million (on a comparable scope of operations and at constant exchange rates).
  • Investing activities absorbed a total of €1,171 million in cash, primarily related to investments in fixed assets and in subsidiaries and other equity investments (€1,583 million), as well as changes in financial receivables from/debt payable to the Group’s financial services companies (included under other changes).
  • Financing activities absorbed cash of €634 million, essentially due to reduction in short-term debt and the distribution of €277 million in dividends.

At December 31, 2013, cash and cash equivalents for Financial Services totaled €1,798 million, up €135 million over December 31, 2012. Changes in cash for Financial Services were attributable to:

  • Operating activities, which generated €164 million in cash, principally from income-related cash inflows.
  • Investing activities (including changes in financial receivables from/debt payable to the Group’s industrial companies), which absorbed €2,267 million in cash, with a €1,776 million increase in the loan portfolio and changes in financial receivables/debt payables to the Group’s Industrial activities.
  • Financing activities, which generated a total of €2,346 million, mainly from proceeds from new bond issues (totaling €828 million) and from the issuance of new medium-term borrowings, net of repayments.

Capital Resources

The cash flows, funding requirements and liquidity of CNH Industrial Group companies are managed on a standard and centralized basis, under the control of CNH Industrial’s central treasury. This centralized system is aimed at optimizing the efficiency and effectiveness of CNH Industrial’s management of capital resources. It also aims to ensure the efficiency and security of treasury management processes.

Group companies participate in a Group-wide cash management system, which CNH Industrial operates in a number of jurisdictions. Under this system, the cash balances of all CNH Industrial companies are aggregated at the end of each business day to central pooling accounts. The central treasury offers CNH Industrial high levels of professional financial and systems expertise, as well as providing related services and consulting to its business segments.

In the continuing environment of uncertainty in the financial markets, CNH Industrial’s policy is to keep a high degree of flexibility with its funding and investment options in order to maintain its desired level of liquidity. In managing its liquidity requirements, CNH Industrial is pursuing a financing strategy that includes open access to a variety of financing sources, including capital markets, bank credit lines and asset-backed securitizations.

At December 31, 2013, CNH Industrial had an aggregate amount of €5,314 million in bonds outstanding. Net of hedge accounting effect and amortized cost valuation of €137 million, the principal amount of bonds outstanding amounted to €5,177 million. For information on the terms and conditions of the bonds, including applicable financial covenants, see Note 27 to the CNH Industrial Consolidated Financial Statements.

Global Medium Term Note (GMTN) Program. CNH Industrial has a global medium-term note program (which was established in February 2011 and has a total authorized amount of €10 billion) allowing for the placement of debt securities with institutional investors. At December 31, 2013, €2,200 million was outstanding under the program, all such debt having been issued by CNH Industrial Finance Europe S.A. and guaranteed by CNH Industrial.

Euro 2.0 billion Revolving Credit Facility. On February 7, 2013, CNH Industrial renewed a €2 billion three-year, multi- currency revolving credit facility with 21 banks. The facility, which was drawn for €750 million at December 31, 2013, expires in February 2016 and includes:

  • financial and other customary covenants (including a negative pledge, pari passu and restrictions on the incurrence of indebtedness by certain subsidiaries);
  • customary events of default (some of which are subject to minimum thresholds and customary mitigants), including cross-default provisions, failure to pay amounts due or to comply with certain provisions under the loan agreement and the occurrence of certain bankruptcy-related events; and
  • mandatory prepayment obligations upon a change in control of CNH Industrial or the borrower.

CNH Industrial has guaranteed any borrowings under the revolving credit facility with cross-guarantees from each of the Borrowers (i.e., CNH Industrial Finance S.p.A., CNH Industrial Finance Europe S.A., CNH Industrial Finance North America Inc.).

For more information on CNH Industrial’s outstanding indebtedness, see Note 27 to the CNH Industrial Consolidated Financial Statements at December 31, 2013.

During 2013, CNH Capital LLC continued to diversify its funding sources with two issues of debt securities, for an aggregate amount of US$1.1 billion. The first issue of debt securities was in the amount of US$600 million, at an annual fixed rate of 3.625% due 2018; the second issue of debt securities was in the amount of US$500 million, at an annual fixed rate of 3.25% due in 2017. The notes, which were issued in private placement  transactions  with registration rights, are senior unsecured obligations of CNH Capital LLC and are guaranteed by CNH Capital America and New Holland Credit. The notes were respectively exchanged in August 2013 for US$600 million of publicly registered notes with the same original terms and in January 2014 for US$500 million of publicly registered notes with the same original terms. In 2012, CNH Capital LLC entered into a US$250 million unsecured three-year revolving credit facility. Also during 2012, CNH Capital LLC issued US$750 million of unsecured three-year notes in  a  private placement transaction with registration rights (which were exchanged in February 2013 for US$750 million of publicly registered notes with the same original terms).

CNH Industrial also sells certain of its finance, trade and tax receivables to third parties in order to improve liquidity, to take advantage of market opportunities and, in certain circumstances, to reduce credit and concentration risk in accordance with its risk management objectives.

The sale of financial receivables is executed primarily through securitization transactions and involves mainly accounts receivable from final (retail) customers and from the network of dealers to CNH Industrial’s financial services companies.

At December 31, 2013, CNH Industrial’s current receivables included receivables sold and financed through both securitization and factoring transactions of €11,541 million (€10,286 million at December 31, 2012), which do not meet IAS 39 derecognition requirements and therefore must be recorded on CNH Industrial’s statement of financial position. These receivables are recognized as such in CNH Industrial’s financial statements even though they have been legally sold; a corresponding financial liability is recorded in the consolidated statement of financial position as Asset-backed financing, as described above (see Note 19 to the CNH Industrial Consolidated Financial Statements).

At December 31, 2013, the Group had discounted receivables and bills without recourse having due dates after December 31, 2013 (and meeting IAS 39 requirements for de-recognition) amounting to €791 million (€763 million at December 31,  2012,  with  due dates after that date),  which refer to trade receivables and other  receivables for €756 million (€708 million at December 31, 2012) and receivables from financing activities for €35 million (€55 million at December 31, 2012).

Future Liquidity

CNH Industrial has adopted formal policies and decision-making processes aimed at optimizing its overall financial situation and the allocation of financial funds, cash management processes and financial risk management. CNH Industrial’s liquidity needs could increase in the event of an extended economic slowdown or recession that would reduce its cash flow from operations and impair the ability of its dealers and retail customers to meet their payment obligations. Any reduction of CNH Industrial’s credit ratings would increase its cost of funding and potentially limit its access to the capital markets and other sources of financing.

Management believes that funds available under CNH Industrial’s current liquidity facilities (including the approximately €1.6 billion available under committed lines of credit lines expiring after December 31, 2014), those realized under existing and planned asset-backed securitization programs and issuances of debt securities and those expected from ordinary course refinancing of existing credit facilities, together with cash provided by operating activities, will allow CNH Industrial to satisfy its debt service requirements for the coming year.

CNH Capital’s securitized debt is repaid with the cash generated by the underlying amortizing receivables. Accordingly, additional liquidity is not normally necessary for the repayment of such debt. CNH Capital has traditionally relied upon the term asset-backed securities market and committed asset-backed facilities as a primary source of funding and liquidity.

If CNH Capital were unable to obtain asset-backed securities funding at competitive rates, its ability to conduct financing business would be limited.

Off-Balance Sheet Arrangements

CNH Industrial uses certain off-balance sheet arrangements with unconsolidated third parties in the ordinary course of business, including financial guarantees. CNH Industrial’s arrangements are described in more detail below. For additional information, see Note 30 to the CNH Industrial Consolidated Financial Statements.

Financial Guarantees

CNH Industrial’s financial guarantees require it to make contingent payments upon the occurrence of certain events or changes in an underlying instrument that is related to an asset, a liability or the equity of the guaranteed party. These guarantees include arrangements that are direct obligations, giving the party receiving the guarantee a direct claim against CNH Industrial, as well as indirect obligations, under which CNH Industrial has agreed to provide the funds necessary for another party to satisfy an obligation.

At December 31, 2013, CNH Industrial had granted guarantees on the debt or commitments of third parties or unconsolidated subsidiaries, jointly controlled and associated entities totaling  €372 million (€486 million  at December 31, 2012). These guarantees consist of obligations of certain Agricultural and Construction Equipment companies in favor of certain dealers in relation to bank financings and Trucks and Commercial Vehicles companies performance guarantees on behalf of a joint venture in relation to commercial commitments for specialty vehicles.

Contractual obligations and commitments

The following table sets forth CNH Industrial’s contractual obligations and commercial commitments with definitive payment terms that will require significant cash outlays in the future, as of December 31, 2013:

 At December 31, 2013At December 31, 2012
(€ million)within
one
year
between
one and
three
years
between
three
and five
years
beyond
five
years
Totalwithin
one
year
between
one and
three
years
between
three
and five
years
beyond
five
years
Total
Long-term debt obligations (*):          
Bonds1072,0933,114-5,3148831,5681,7731,2005,424
Borrowings from banks6072,6545191743,9541,6271,8344913614,313
Asset-backed financing5,4633,7351,36911210,6795,1593,566952319,708
Other debt(8)249803535639123044125
Total Long-term debt obligations6,1698,7315,08232120,3037,7086,9803,2461,63619,570
Capital (Finance) lease obligations611928546882749
Operating lease obligations4764393518556764849229
Purchase obligations75338197221,25353138197181,027
Uncertain tax positions (1)11-172-18342---42
Total contractual obligations6,9869,1875,39940621,9788,3437,4453,3991,73020,917
(*) Amounts presented exclude the related interest expense that will be paid when due. The table above does not include short term debt obligations;
furthermore, it does not include obligations for pensions, post-retirement benefits and health care plans. CNH Industrial’s best estimate of expected contributions in 2014 to pension plans and health care plans is €22 million and zero, respectively. Potential outflows in the years after 2013 are subject to a number of uncertainties, including future asset performance and changes in assumptions, and therefore CNH Industrial is unable to make sufficiently reliable estimates of future contributions beyond that period.
(1) The total amount of CNH Industrial’s tax contingencies was €183 million at December 31, 2013. Payment of these liabilities would result from settlements with tax authorities. CNH Industrial estimates that settlements with tax authorities may result in payment of €11 million of these liabilities in 2014. Because of the high degree of uncertainty relating to the timing of future cash outflows associated with these liabilities, CNH Industrial is unable to reasonably estimate the timing of any settlement with tax authorities after 2013.

Long-Term Debt Obligations

For information on CNH Industrial’s long-term debt obligations, see “Capital Resources” above and Note 27 to the CNH Industrial Consolidated Financial Statements.

The Long-term debt obligations reflected in the table above can be reconciled to the amount in the December 31, 2013 statement of financial position as follows:

(€ million)NoteAt December 31, 2013At December 31, 2012
Debt reflected in the statement of financial position2721,71420,633
Less: Capital (Finance) lease obligations27(54)(49)
Total debt obligations 21,66020,584
Less: Short-term debt obligations (1,357)(1,014)
Long-term debt obligations as reported 20,30319,570

The amount reported as Long-term debt obligations in the table above is that of CNH Industrial’s bonds, borrowings from banks, asset-backed financing and other debt (excluding finance lease obligations, which are reported in a separate line item in the table above), that at inception had a contractual maturity greater than one year.

Capital (Finance) Lease Obligations

CNH Industrial’s capital leases consist mainly of industrial buildings and plant, machinery and equipment used in CNH Industrial’s businesses. The  amounts reported above  include the minimum  future lease payments  and payment commitments due under such leases. For information on CNH Industrial’s capital leases, see Note 27 to the CNH Industrial Consolidated Financial Statements.

Operating Lease Obligations

CNH Industrial’s operating leases consist mainly of leases for commercial and industrial properties used in carrying out CNH Industrial’s businesses. The amounts reported above under “Operating lease obligations” include the minimal rental and payment commitments due under such leases.

Purchase Obligations

CNH Industrial’s purchase obligations at December 31, 2013, included the following:

  • the repurchase price guaranteed to certain customers on sales with a buy-back commitment which is included in the line item other payables in CNH Industrial’s consolidated statement of financial position in an aggregate amount of €1,000 million; and
  • commitments to purchase tangible fixed assets, largely in connection with planned capital expenditures of various Group companies, in an aggregate amount of approximately €253 million.