CNH Industrial N.V. (CNH)

Management's Discussion and Analysis

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to promote understanding of the Company's financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying Notes to the Consolidated Financial Statements.

This discussion includes forward-looking statements, which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those expressed or implied by the forward-looking statements. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the Company’s business under “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Overview

CNH is an equipment and services company engaged in the design, production, marketing, sale, and financing of agricultural and construction equipment.

CNH operates across three business segments: Agriculture, Construction and Financial Services. CNH refers to its Agriculture and Construction operations as "Industrial Activities".

We generate revenues and cash flows principally from the sale of equipment to dealers and distributors. Financial Services provides a range of financial products focused on financing the sale and lease of equipment to our dealers and their customers.

Revenues of Industrial Activities are presented net of discounts, allowances, settlement discounts and rebates, as well as costs for sales incentive programs, determined on the basis of historical costs, country by country, and charged against profit for the period in which the corresponding sales are recognized. Our sales incentive programs may include the granting by Financial Services of retail financing at discounts to market interest rates. The corresponding cost to Industrial Activities is recognized at the time of the initial sale and the revenues of Financial Services are recognized on a pro rata basis in order to match the cost of funding.

Principal Factors Affecting Results

Our operating performance is highly correlated to sales volumes, which are influenced by several different factors that vary across our segments.

For our Agriculture segment, the key factors influencing sales are the level of net farm income, which is influenced by commodity prices, and, to a lesser extent, general economic conditions, interest rates and the availability of financing and related subsidy programs. Variations by region and product are also attributable to differences in typical climate and farming calendars, as well as extraordinary weather conditions.

For our Construction segment, sales levels for heavy construction equipment are particularly dependent on the expected level of major infrastructure construction and repair projects, which is a function of expected economic growth and government spending. For light construction equipment, the principal factor influencing demand is the level of residential and commercial construction, remodeling and renovation, which is influenced in turn by interest rates and availability of financing, as well as, in the residential sector, levels of disposable income and, in the commercial sector, the broader economic cycle.

Demand for services and service-related products, including parts, is a function of the nature and extent of the use of the related agricultural and construction equipment. The after-sales market is historically less volatile than the wholegoods market and, therefore, helps reduce the impact on operating results of fluctuations in new sales.

Our cost base principally comprises the cost of raw materials and personnel costs.

Raw material costs are closely linked to commodity markets and largely outside of our control, although we are making a targeted effort to increase procurement and production efficiencies. Historically, we have been able to pass on to our customers most of the increase in the cost of raw materials through increases in product pricing. Nevertheless, even when we are able to do so, there is usually a time lag between an increase in materials cost and a realized increase in product prices and, accordingly, our results are typically adversely affected at least in the short-term until price increases are accepted in the market.

Personnel costs change over time and are impacted by the terms of collective bargaining agreements, inflation and average number of employees. A significant proportion of our employees are based in countries where labor laws impose significant protection of employees’ rights and, accordingly, we have limited ability to downsize our personnel in response to a decrease in production during periods of market downturn.

Our results are also affected by changes in foreign exchange rates from period to period, mainly due to the difference in geographic distribution between our manufacturing activities and our commercial activities, resulting in cash flows from exports denominated in currencies that differ from those associated with production costs. In addition, our Consolidated Financial Statements are expressed in

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U.S. dollars and are therefore subject to movements in exchange rates upon translation of the financial statements of subsidiaries whose functional currency is not the U.S. dollar.

Finally, our results may be materially affected, directly or indirectly, by governmental policies, including monetary and fiscal policies and policies on international trade and investment.

Global Business Conditions

The global economy is experiencing volatile disruptions due to a combination of factors, including geopolitical events, shifts in trade and economic policies from the new U.S. presidential administration, change in commodity prices, as well as change in climate conditions. These disruptions have affected the price and availability of certain products and services used in the Company's operations in 2024, and are expected to persist in 2025. These factors also affect our customers' profitability, impacting their ability to achieve higher returns on their output, and reducing their purchasing power and demand for our products. The Company is closely monitoring global economic conditions and the impact that macroeconomic pressures, such as new and retaliatory tariffs, fluctuating currency exchange rates, interest rates and inflation, have on its business, customers, and suppliers.

For a discussion of the Company’s risks and uncertainties, see Part 1, Item 1A: Risk Factors.

Non-GAAP Financial Measures

CNH monitors its operations through the use of several non-GAAP financial measures. CNH’s management believes that these non-GAAP financial measures provide useful and relevant information regarding its operating results and enhance the readers’ ability to assess CNH’s financial performance and financial position. Management uses these non-GAAP measures to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions as they provide additional transparency with respect to our core operations. These non-GAAP financial measures have no standardized meaning under U.S. GAAP and are unlikely to be comparable to other similarly titled measures used by other companies and are not intended to be substitutes for measures of financial performance and financial position as prepared in accordance with U.S. GAAP.

As of December 31, 2024, CNH’s non-GAAP financial measures are defined as follows:

Adjusted EBIT of Industrial Activities

Adjusted EBIT of Industrial Activities is defined as net income (loss) before: income taxes, Financial Services' results, Industrial Activities' interest expenses, net, foreign exchange gains/losses, finance and non-service component of pension and other post-confirm this term is employment benefit costs, restructuring expenses, and certain non-recurring items. Such non-recurring items are specifically disclosed items that management considers rare or discrete events that are infrequent in nature and not reflective of ongoing operational activities.

Net Cash (Debt) and Net Cash (Debt) of Industrial Activities

Net Cash (Debt) is defined as total debt less: intersegment notes receivable, cash and cash equivalents, restricted cash, other current financial assets (primarily current securities, short-term deposits and investments towards high-credit rating counterparties) and derivative hedging debt. CNH provides the reconciliation of Net Cash (Debt) to Total (Debt), which is the most directly comparable measure included in the consolidated balance sheets. Due to different sources of cash flows used for the repayment of the debt between Industrial Activities and Financial Services (by cash from operations for Industrial Activities and by collection of financing receivables for Financial Services), management separately evaluates the cash flow performance of Industrial Activities using Net Cash (Debt) of Industrial Activities.

Revenues on a Constant Currency Basis

CNH discusses the fluctuations in revenues on a constant currency basis by applying the prior year average exchange rates to current year’s revenues expressed in local currency in order to eliminate the impact of foreign exchange rate fluctuations from year to year.

Free Cash Flow of Industrial Activities

Free Cash Flow of Industrial Activities (or Industrial Free Cash Flow) refers to Industrial Activities, only, and is computed as consolidated cash flow from operating activities less: cash flow from operating activities of Financial Services; investments of Industrial Activities in property, plant and equipment, intangible assets, and assets sold under operating leases; change in derivatives hedging debt of Industrial Activities; as well as other changes and intersegment eliminations.

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Operating Results

The operations, key financial measures, and financial analysis differ significantly for manufacturing and distribution businesses (Industrial Activities) and financial services businesses; therefore, management believes that certain supplemental disclosures are important in understanding our consolidated operations and financial results. For further information, see “Supplemental Information” within this section, where we present supplemental consolidating data split by Industrial Activities and Financial Services. Transactions between Industrial Activities and Financial Services have been eliminated to arrive at the consolidated data.

2024 Compared to 2023

Consolidated Results of Operations

(1) See Note 23 Immaterial Revision of Prior Period Financial Statements.

Revenues

We recorded revenues of $19,836 million in 2024, a decline of 19.6% (down 18.7% on a constant currency basis) compared to 2023. This decline was mainly due to lower shipment volumes on decreased industry demand and dealer destocking.

Cost of Goods Sold

Cost of goods sold were $13,350 million in 2024 compared to $16,838 million in 2023, a decrease of 20.7% year over year. As a percentage of net sales, cost of goods sold was 78.3% in 2024 (76.3% in 2023), the increase in the percentage from 2023 reflects lower production volumes and unfavorable mix, partially offset by improved purchasing and manufacturing costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") decreased to $1,712 million in 2024 (8.6% of revenues) from $1,863 million in 2023 (7.5% of revenues). The year over year decrease is primarily due to lower labor costs, driven by the Company's restructuring program and lower variable compensation, partially offset by higher credit risk provisions in the Financial Services segment.

Research and Development

In 2024, R&D expenses were $924 million compared to $1,041 million in 2023. The expense in both years was primarily attributable to continued investment in new products, technologies and digital solutions.

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Restructuring Expenses

The Company incurred restructuring costs of $118 million and $67 million in 2024 and 2023, respectively. The Company’s restructuring program announced in November 2023 targeted both labor and non-labor SG&A expenses. This program was completed in 2024, and the Company has incurred a total of $128 million from launch to December 31, 2024, under it.

Interest Expense

Interest expense increased to $1,611 million in 2024 from $1,345 million in 2023 primarily due to higher average interest rates and higher external borrowings. The interest expense attributable to Industrial Activities, net of interest income and eliminations, was $152 million in 2024 compared to $76 million in 2023 primarily due to higher external borrowings to support working capital requirements and higher average interest rates.

Other, net

Other, net expenses were $664 million in 2024 and included a pre-tax gain of $24 million ($18 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 U.S. healthcare plan modification and a gain of $14 million for investment fair value adjustments, partially offset by a loss of $17 million on the sale of certain non-core product lines.

Other, net expenses were $830 million in 2023 and included a pre-tax gain of $24 million ($18 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 U.S. healthcare plan modification and a gain of $13 million in relation to the fair value remeasurement of previously held investments in Augmenta and Bennamann, offset by a loss of $23 million on the sale of CNH Industrial Russia.

Income Taxes

(1) See Note 23 Immaterial Revision of Prior Period Financial Statements.

In 2024, income taxes were an expense of $336 million, compared to a tax expense of $594 million in 2023. The effective tax rates for 2024 and 2023 were 23.1% and 22.0%, respectively. The decreased tax expense in 2024, as compared to 2023, was largely attributable to lower profit-before tax and the tax impact from Argentina’s highly inflationary economy. The 2024 tax expense was also reduced by the recognition of $29 million of previously unrecognized deferred tax assets in China, offset by the derecognition of $35 million deferred tax assets in Argentina, increases in withholding tax on dividends, and lower benefit from U.S. exports.

The 2023 effective tax rate was reduced by the recognition of $99 million of previously unrecognized deferred tax assets in the United Kingdom, lower profitability in high-tax jurisdictions as a percent of total profit, higher credits and incentives, and the tax benefits related to the sale of CNH Industrial Russia; offset the tax impact from the Argentina highly inflationary economy and discrete tax expense associated with prior periods.

The Organization for Economic Cooperation and Development (the "OECD") has proposed a global minimum tax of 15% of reported profits ("Pillar Two") that has been agreed upon in principle by over 140 countries. Pillar Two legislation has been enacted in one or more jurisdictions in which the Company operates and the Company has determined that it falls within the scope of the legislation. The Company has assessed the impact of the Pillar Two legislation and related transitional safe harbor provisions and does not expect the tax impacts of the legislation to have a material impact on the Company’s financial results during 2024.

Equity in Income of Unconsolidated Subsidiaries and Affiliates

Equity in income of unconsolidated subsidiaries and affiliates was $138 million in 2024 compared to $178 million in 2023 primarily due to lower sales in our joint venture TürkTraktör ve Ziraat Makineleri A.S.

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Industrial Activities and Business Segments

The following tables include Revenues and Adjusted EBIT of Industrial Activities by segment. We have also included a discussion of our results of Industrial Activities and of each of our segments.

(1) See Note 23 Immaterial Revision of Prior Period Financial Statements.

(2) A reconciliation from the most closely related U.S. GAAP measure to this non-GAAP measure is included on page 53.

Net sales of Industrial Activities were $17,060 million in 2024, down 22.7% compared to the prior year (down 21.9% on a constant currency basis) primarily due to lower shipment volumes on decreased industry demand and dealer destocking.

Adjusted EBIT of Industrial Activities was $1,404 million in 2024 ($2,634 million in 2023), with an Adjusted EBIT margin of 8.2%. The decline was primarily due to lower shipment volumes on decreased industry demand and unfavorable mix in the Agriculture segment; partially offset by improved purchasing and manufacturing costs, along with a reduction in SG&A expenses.

Business Segment Performance

Agriculture

Net Sales

The following table includes Agriculture net sales by geographic region in 2024 compared to 2023:

Agriculture Sales – by geographic region:

Net sales for Agriculture were $14,007 million in 2024, a 22.8% decline (down 22.1% on a constant currency basis) compared to 2023. This decline is mainly due to lower shipment volumes on decreased industry demand across all regions and dealer inventory unit requirements across all regions.

In North America, industry volume was down 16% year over year in 2024 for tractors over 140 hp and was down 13% for tractors under 140 hp; combines were down 22%. In Europe, Middle East and Africa (EMEA), tractor and combine demand was down 13% and 43%, respectively, of which Europe tractor and combine demand was down 12% and 35%, respectively. South America tractor demand was down 9% and combine demand was down 31%. Asia Pacific tractor demand was down 1% and combine demand was up 11%.

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Adjusted EBIT

Adjusted EBIT was $1,470 million in 2024, compared to $2,636 million in 2023. The decline was mostly driven by lower shipment volumes and unfavorable mix, partially offset by improved purchasing and manufacturing costs, along with a reduction in SG&A expenses. R&D investments accounted for 5.9% of sales (5.2% in 2023). Adjusted EBIT margin was 10.5%.

Construction

Net Sales

The following table includes Construction net sales by geographic region in 2024 compared to 2023:

Construction Sales – by geographic region:

Net sales for Construction were $3,053 million in 2024, a decline of 22.4% (down 21.4% on a constant currency basis) compared to 2023, due to lower shipment volumes across all regions driven mainly by lower market demand and dealer destocking.

Global industry volume for construction equipment increased 1% year over year in 2024 for Heavy construction equipment; Light construction equipment was down 7%. Aggregated demand decreased 5% in North America and 12% in EMEA, respectively, and increased 13% in South America and 3% for Asia Pacific, particularly in China.

Adjusted EBIT

Adjusted EBIT was $169 million in 2024, compared to $238 million in 2023. The decline was primarily due to lower volumes, partially offset by improved purchasing and manufacturing costs, along with lower SG&A expenses. Adjusted EBIT margin was 5.5%.

Financial Services Performance

Finance, Interest and Other Income

Financial Services reported revenues of $2,774 million in 2024, up 7.8% compared to 2023 (up 10.1% on a constant currency basis) due to favorable volumes in all regions except EMEA and higher yields in all regions, except South America; partially offset by lower used equipment sales due to decreased operating lease maturities.

Net Income

Net income for Financial Services was $379 million in 2024, an $8 million increase compared to 2023, primarily due to favorable volumes in all regions except EMEA, margin improvement in all regions except Asia Pacific, and a favorable effective tax rate due to Argentina inflation adjustment in the current year; partially offset by increased risk costs due to higher delinquencies in South America, increased specific reserve needs in North America, the derecognition of previously recognized deferred tax assets in Argentina, and lower used equipment sales from less operating lease maturities.

In 2024, retail originations (including unconsolidated joint ventures) were $11.4 billion, down $0.1 billion compared to 2023 (flat on a constant currency basis). The managed portfolio (including unconsolidated joint ventures) was $27.8 billion as of December 31, 2024 (of which retail was 68% and wholesale 32%), down $1.1 billion compared to December 31, 2023 (up $1.0 billion on a constant currency basis).

At December 31, 2024, the receivable balance greater than 30 days past due as a percentage of receivables was 1.9% (1.4% as of December 31, 2023) due to economic and environmental factors impacting farmers, specifically in South America.

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2023 Compared to 2022

Please refer to the “Management’s Discussion and Analysis” section of our 2023 Form 10-K.

Reconciliation of Adjusted EBIT to Net Income (Loss)

The following table includes the reconciliation of Adjusted EBIT for Industrial Activities to net income, the most comparable U.S.

GAAP financial measure.

(1) See Note 23 Immaterial Revision of Prior Period Financial Statements.

(2) Unallocated items, eliminations and other primarily includes certain corporate costs and other operating expenses and incomes not allocated to segments' results.

(3) In the years ended December 31, 2024, 2023, and 2022, this item includes a pre-tax gain of $24 million, $24 million, and $24 million, respectively as a result of the amortization over 4 years of the $101 million positive impact from the 2021 modifications of a healthcare plan in the U.S. In the years ended December 31, 2022 this item includes the pre-tax gain of $90 million respectively as a result of the amortization over approximately 4.5 years of the $527 million positive impact from 2018 modification of a healthcare plan in the U.S.

(4) In the year ended December 31, 2024, this item includes a loss of $17 million on the sale of certain non-core product lines and a gain of $14 million for investment fair value adjustments. In the year ended December 31, 2023, this item includes a loss of $23 million on the sale of the CNH Industrial Russia and CNH Capital Russia businesses, partially offset by a gain of $13 million for the fair value remeasurement of Augmenta and Bennamann. In the year ended December 31, 2022, this item included $43 million of asset write-downs, $25 million of separation costs incurred in a connection with our spin-off of the Iveco Group Business and $22 million of costs related to the activity of the Raven segments held for sale, including the loss on the sale of the Engineered Films and Aerostar divisions, partially offset by a $65 million dollar gain on the sale of our Canada parts depot.

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Management's Discussion and Analysis

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the Company's financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying Notes to the Consolidated Financial Statements.

This discussion includes forward-looking statements, which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those expressed or implied by the forward-looking statements. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the Company’s business under “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Overview

CNH is a leading equipment and services company engaged in the design, production, marketing, sale, and financing of agricultural and construction equipment.

Until December 31, 2021, CNH Industrial N.V. owned and controlled the Commercial and Specialty Vehicles business, the Powertrain business, and the related Financial Services business (together the “Iveco Group Business” or the “On-Highway Business”), as well as the Agriculture business, the Construction business, and the related Financial Services business (collectively, the “Off-Highway Business”). Effective January 1, 2022, the Iveco Group Business was separated from CNH Industrial N.V. by way of a demerger under Dutch law (the "Demerger") to Iveco Group N.V. (the "Iveco Group") and the Iveco Group became a public listed company independent from CNH, with its common shares trading on Euronext Milan. The On-Highway Business' financial results for the periods prior to the Demerger have been reflected in our Consolidated Statement of Operations, retrospectively, as discontinued operations. Additionally, the related assets and liabilities associated with the On-Highway Business in the prior year consolidated balance sheet are classified as discontinued operations within Assets Held for Distribution and Liabilities Held for Distribution on the Consolidated Balance Sheet.

We generate revenues and cash flows principally from the sale of equipment to dealers and distributors. Financial Services provides a range of financial products focused on financing the sale and lease of equipment to our dealers and their customers.

Revenues of Industrial Activities are presented net of discounts, allowances, settlement discounts and rebates, as well as costs for sales incentive programs, determined on the basis of historical costs, country by country, and charged against profit for the period in which the corresponding sales are recognized. Our sales incentive programs may include the granting by Financial Services of retail financing at discounts to market interest rates. The corresponding cost to Industrial Activities is recognized at the time of the initial sale and the revenues of Financial Services are recognized on a pro rata basis in order to match the cost of funding.

Principal Factors Affecting Results

Our operating performance is highly correlated to sales volumes, which are influenced by several different factors that vary across our segments.

For Agriculture, the key factors influencing sales are the level of net farm income, which is influenced by commodity prices, and, to a lesser extent, general economic conditions, interest rates and the availability of financing and related subsidy programs. Variations by region and product are also attributable to differences in typical climate and farming calendars, as well as extraordinary weather conditions.

For Construction, segmentation varies by regional market: in developed markets, demand is oriented toward more sophisticated machines that increase operator productivity, while in developing markets, demand is oriented toward more utilitarian models with greater perceived durability. Sales levels for heavy construction equipment are particularly dependent on the expected level of major infrastructure construction and repair projects, which is a function of expected economic growth and government spending. For light construction equipment, the principal factor influencing demand is the level of residential and commercial construction, remodeling and renovation, which is influenced in turn by interest rates and availability of financing, as well as, in the residential sector, levels of disposable income and, in the commercial sector, the broader economic cycle.

Demand for services and service-related products, including parts, is a function of the nature and extent of the use of the related agricultural and construction equipment. The after-sales market is historically less volatile than the wholegoods market and, therefore, helps reduce the impact on operating results of fluctuations in new sales.

Our cost base principally comprises the cost of raw materials and personnel costs.

Raw material costs are closely linked to commodity markets and largely outside of our control, although we are making a targeted effort to increase procurement and production efficiencies. Historically, we have been able to pass on to our customers most of the increase in the cost of raw materials through increases in product pricing. Nevertheless, even when we are able to do so, there is

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usually a time lag between an increase in materials cost and a realized increase in product prices and, accordingly, our results are typically adversely affected at least in the short-term until price increases are accepted in the market.

Personnel costs change over time and are impacted by the terms of collective bargaining agreements, inflation and average number of employees. A significant proportion of our employees are based in countries where labor laws impose significant protection of employers’ rights and, accordingly, we have limited ability to downsize our personnel in response to a decrease in production during periods of market downturn.

Our results are also affected by changes in foreign exchange rates from period to period, mainly due to the difference in geographic distribution between our manufacturing activities and our commercial activities, resulting in cash flows from exports denominated in currencies that differ from those associated with production costs. In addition, our Consolidated Financial Statements are expressed in U.S. dollars and are therefore subject to movements in exchange rates upon translation of the financial statements of subsidiaries whose functional currency is not the U.S. dollar.

Finally, our results may be materially affected, directly or indirectly, by governmental policies, including monetary and fiscal policies and policies on international trade and investment.

Global Business Conditions

In combination with the economic recovery factors and repercussions from geopolitical events, the global economy continues to experience volatile disruptions including to the commodity, labor and transportation markets. These disruptions have contributed to an inflationary environment which has affected, and may continue to affect, the price and availability of certain products and services necessary for the Company's operations. For example, the Company experienced supply chain disruptions and inflationary pressures in 2022 and, while these trends improved in 2023, the Company continues to experience some disruptions. The reduction in supply chain disruptions contributed to improved efficiencies in our manufacturing operations, but purchasing costs remain elevated.

In addition, the Company continues to monitor global economic conditions and the impact of macroeconomic pressures, including repercussions from rising interest rates, fluctuating currency exchange rates, inflation and recession fears, on the Company’s business, customers and suppliers.

For a discussion of the Company’s risks and uncertainties, see Part 1, Item 1A: Risk Factors.

Non-GAAP Financial Measures

CNH monitors its operations through the use of several non-GAAP financial measures. CNH’s management believes that these non-GAAP financial measures provide useful and relevant information regarding its operating results and enhance the readers’ ability to assess CNH’s financial performance and financial position. Management uses these non-GAAP measures to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions as they provide additional transparency with respect to our core operations. These non-GAAP financial measures have no standardized meaning under U.S. GAAP and are unlikely to be comparable to other similarly titled measures used by other companies and are not intended to be substitutes for measures of financial performance and financial position as prepared in accordance with U.S. GAAP.

As of December 31, 2023, CNH’s non-GAAP financial measures are defined as follows:

Adjusted EBIT of Industrial Activities

Adjusted EBIT of Industrial Activities is defined as net income (loss) before: income taxes, Financial Services’ results, Industrial Activities’ interest expenses, net, foreign exchange gains/losses, finance and non-service component of pension and other post-employment benefit costs, restructuring expenses, and certain non-recurring items. Such non-recurring items are specifically disclosed items that management considers rare or discrete events that are infrequent in nature and not reflective of ongoing operational activities.

Net (Cash) Debt and Net (Cash) Debt of Industrial Activities

Net Cash (Debt) is defined as total debt less: intersegment notes receivable, cash and cash equivalents, restricted cash, other current financial assets (primarily current securities, short-term deposits and investments towards high-credit rating counterparties) and derivative hedging debt. CNH provides the reconciliation of Net Cash (Debt) to Total (Debt), which is the most directly comparable measure included in the consolidated balance sheets. Due to different sources of cash flows used for the repayment of the debt between Industrial Activities and Financial Services (by cash from operations for Industrial Activities and by collection of financing receivables for Financial Services), management separately evaluates the cash flow performance of Industrial Activities using Net Cash (Debt) of Industrial Activities.

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Revenues on a Constant Currency Basis

CNH discusses the fluctuations in revenues on a constant currency basis by applying the prior year average exchange rates to current year’s revenues expressed in local currency in order to eliminate the impact of foreign exchange rate fluctuations.

Free Cash Flow of Industrial Activities

Free Cash Flow of Industrial Activities (or Industrial Free Cash Flow) refers to Industrial Activities, only, and is computed as consolidated cash flow from operating activities less: cash flow from operating activities of Financial Services; investments of Industrial Activities in assets sold under operating leases, property, plant and equipment and intangible assets; change in derivatives hedging debt of Industrial Activities; as well as other changes and intersegment eliminations.

Operating Results

The operations and key financial measures and financial analysis differ significantly for manufacturing and distribution businesses and financial services businesses; therefore, management believes that certain supplemental disclosures are important in understanding our consolidated operations and financial results. For further information, see “Supplemental Information” within this section, where we present supplemental consolidating data split by Industrial Activities and Financial Services. Transactions between Industrial Activities and Financial Services have been eliminated to arrive at the consolidated data.

2023 Compared to 2022

Consolidated Results of Operations

Revenues

We recorded revenues of $24,687 million in 2023, an increase of 4.8% (up 4.7% on a constant currency basis) compared to 2022. This increase is primarily due to favorable price realization.

Cost of Goods Sold

Cost of goods sold were $16,838 million in 2023 compared to $16,797 million in 2022, an increase of 0.2% year over year. As a percentage of net sales of Industrial Activities, cost of goods sold was 76.3% in 2023 (78.0% in 2022), as a result of favorable price realization, partially offset by higher manufacturing and purchasing costs. For year ended December 31, 2022 this item includes $41 million of asset write-downs due to the suspension of operations in Russia.

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Selling, General and Administrative Expenses

Selling, General and Administrative Expenses ("SG&A") expenses were $1,863 million in 2023 (7.5% of revenues) compared to $1,752 million in 2022 (7.4% of revenues). The year over year increase is primarily due to increased labor costs. For year ended December 31, 2022, SG&A includes $17 million of asset write-downs due to the suspension of operations in Russia.

Research and Development

In 2023, R&D expenses were $1,041 million compared to $866 million in 2022. The expense in both years was primarily attributable to continued investment in new products, technologies and digital solutions.

Restructuring Expenses

The Company incurred restructuring costs of $67 million and $31 million for the years ended December 31, 2023 and 2022, respectively.

Interest Expense

Interest expense increased to $1,345 million in 2023 from $734 million in 2022 primarily due to higher average interest rates on greater external borrowings, supporting working capital requirements and an increase to the financial services portfolio. The interest expense attributable to Industrial Activities, net of interest income and eliminations, was $76 million in 2023 compared to $119 million in 2022.

Other, net

Other, net expenses were $830 million in 2023 and included a pre-tax gain of $24 million ($18 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 U.S. healthcare plan modification and a gain of $13 million in relation to the fair value remeasurement of previously held investments in Augmenta and Bennamann, offset by a loss of $23 million on the sale of CNH Industrial Russia.

Other, net expenses were $689 million in 2022 and included a pre-tax gain of $90 million ($68 million after-tax) as a result of the Benefit Modification Amortization over approximately 4.5 years of the $527 million positive impact from the 2018 U.S. healthcare plan modification, a pre-tax gain of $24 million ($18 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 U.S. healthcare plan modification, a pre-tax gain of $65 million ($70 million after-tax) on the sale of a facility in Canada, $22 million ($54 million after-tax) of loss on the sale of Raven Engineered Films and Aerostar Divisions, net of income from those businesses held for sale during the period, separation costs in connection with the spin-off of the On-Highway business of $25 million ($24 million after-tax), and foreign exchange losses of $59 million.

Income Taxes

In 2023, income taxes were an expense of $594 million, compared to a tax expense of $747 million in 2022. The effective tax rates for 2023 and 2022 were 22.0% and 27.9%, respectively. The 2023 effective tax rate was reduced by the recognition of $99 million of previously unrecognized deferred tax assets in the United Kingdom, lower profitability in high-tax jurisdictions as a percent of total profit, higher credits and incentives, and the tax benefits related to the sale of CNH Industrial Russia; offset by increases in the tax rate due to the tax impact from the Argentina highly inflationary economy and discrete tax expense associated with prior periods.

In 2022, income taxes were an expense of $747 million with an effective tax rate of 27.9%. The Company's 2022 tax rate was increased by greater profitability in high-tax jurisdictions as a percent of total profit, tax expenses associated with the disposition of Raven’s Engineered Films and Aerostar Divisions, additional reserves for uncertain tax positions and the tax impacts associated with Argentina’s highly inflationary economy. These impacts were partially offset by the recognition of $55 million of previously unrecognized deferred tax assets in Italy.

The Organization for Economic Cooperation and Development (the OECD) has proposed a global minimum tax of 15% of reported profits ("Pillar Two") that has been agreed upon in principle by over 140 countries. During 2023, many countries took steps to incorporate Pillar Two model rule concepts into their domestic laws. The Company continues to monitor developments in the Pillar Two legislation and is working to evaluate the impacts of this legislation on its longer-term financial position.

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Equity in Income of Unconsolidated Subsidiaries and Affiliates

Equity in income of unconsolidated subsidiaries and affiliates was $274 million in 2023 compared to $104 million in 2022 primarily from our joint venture. The 2023 equity income includes a foreign exchange impact of $84 million.

Industrial Activities and Business Segments

The following tables include Revenues and Adjusted EBIT of Industrial Activities by segment. We have also included a discussion of our results by Industrial Activities and each of our segments.

(1) A reconciliation from the most closely related U.S. GAAP measure to this non-GAAP measure is included on page 55.

Net sales of Industrial Activities were $22,080 million in 2023, up 2.5% compared to the prior year (up 2.4% on a constant currency basis) primarily due to favorable price realization.

Adjusted EBIT of Industrial Activities was $2,730 million in 2023 ($2,433 million in 2022), with an Adjusted EBIT margin of 12.4%. The increase in adjusted EBIT was primarily attributable to gross margin improvement in our Agriculture and Construction segments, partially offset by increased SG&A expenditures and R&D investments.

Business Segment Performance

Agriculture

Net Sales

The following table includes Agriculture net sales by geographic region in 2023 compared to 2022:

Agriculture Sales – by geographic region:

Net sales for Agriculture were $18,148 million in 2023, a 1.0% increase (up 0.9% on a constant currency basis) compared to 2022. The increase was driven by favorable price realization, partially offset by dealer destocking actions due to lower industry demand.

In North America, industry volume was up 20% year over year in 2023 for tractors over 140 hp and was down 9% for tractors under 140 hp; combines were up 2%. In Europe, Middle East and Africa (EMEA), tractor and combine demand was flat and up 8%,

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respectively, of which Europe tractor and combine demand was down 3% and 3%, respectively. South America tractor demand was down 8% and combine demand was down 18%. Asia Pacific tractor demand was down 5% and combine demand was down 37%.

Adjusted EBIT

Adjusted EBIT was $2,732 million in 2023, compared to $2,456 million in 2022. The $276 million increase was mostly driven by gross margin improvement, partially offset by increased production costs, SG&A expenses and R&D investments. Adjusted EBIT margin was 15.1%.

Construction

Net Sales

The following table includes Construction net sales by geographic region in 2023 compared to 2022:

Construction Sales – by geographic region:

Net sales for Construction were $3,932 million in 2023, a 10.1% increase (up 9.8% on a constant currency basis) compared to 2022, driven by favorable price realization and positive volume/mix mainly in North America; partially offset by lower net revenue from South America, and ceased activities in China and Russia.

Global industry volume for construction equipment decreased in both Heavy and Light sub-segments year over year in 2023, down 14% and 1%, respectively. Aggregated demand increased 2% in EMEA, increased 3% in North America, decreased 24% in South America and decreased 17% for Asia Pacific, particularly in China.

Adjusted EBIT

Adjusted EBIT was $238 million in 2023 (up $114 million compared to 2022). The improvement was due to favorable volume and mix and favorable price realization, partially offset by higher raw materials and manufacturing costs and increased R&D investments. Adjusted EBIT margin was 6.1%.

Financial Services Performance

Finance, Interest and Other Income

Financial Services reported revenues of $2,573 million in 2023, up 28.9% compared to 2022 (up 28.6% on a constant currency basis) primarily driven by favorable volumes and higher base rates across all regions, partially offset by lower used equipment sales due to decreased operating lease maturities.

Net Income

For the year ended December 31, 2023, net income was $371 million, a $33 million increase compared to 2022, driven by favorable volumes in all regions, partially offset by margin compression in all regions, higher risk costs, increased labor costs and higher taxes, primarily due to increased profitability.

In 2023, retail originations (including unconsolidated joint ventures) were $11.5 billion, up $1.5 billion compared to 2022 (up $1.5 billion on a constant currency basis). The managed portfolio (including unconsolidated joint ventures) was $28.9 billion as of December 31, 2023 (of which retail was 64% and wholesale 36%), up $5.1 billion compared to December 31, 2022 (up $4.4 billion on a constant currency basis).

At December 31, 2023, the receivable balance greater than 30 days past-due as a percentage of receivables was 1.4% (1.3% as of December 31, 2022).

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2022 Compared to 2021

Please refer to the “Management’s Discussion and Analysis” section of our 2022 Form 10-K.

Reconciliation of Adjusted EBIT to Net Income (Loss)

The following table includes the reconciliation of Adjusted EBIT for Industrial Activities to net income, the most comparable U.S. GAAP financial measure.

(1) Unallocated items, eliminations and other primarily includes certain corporate costs and other operating expenses and incomes not allocated to segments’ results.

(2) In the years ended December 31, 2023, 2022 and 2021, this item includes a pre-tax gain of $24 million, $24 million and $5 million, respectively as a result of the amortization over 4 years of the $101 million positive impact from the 2021 modifications of a healthcare plan in the U.S. In the years ended December 31, 2022 and 2021 this item includes the pre-tax gain of $90 million and $119 million, respectively as a result of the amortization over approximately 4.5 years of the $527 million positive impact from 2018 modification of a healthcare plan in the U.S.

(3) In the year ended December 31, 2023, this item includes a loss of $23 million on the sale of the CNH Industrial Russia and CNH Capital Russia businesses, partially offset by a gain of $13 million for the fair value remeasurement of Augmenta and Bennamann. In the year ended December 31, 2022, this item included $43 million of asset write-downs, $25 million of separation costs incurred in a connection with our spin-off of the Iveco Group Business and $22 million of costs related to the activity of the Raven segments held for sale, including the loss on the sale of the Engineered Films and Aerostar divisions, partially offset by a $65 million dollar gain on the sale of our Canada parts depot. In the year ended December 31, 2021, this item included $133 million separation costs in connection with the spin-off of the Iveco Group Business and a charge of $57 million for transaction costs related to the acquisition of Raven Industries, Inc., partially offset by a gain of $12 million for a fair value adjustment of Monarch Tractor investments.

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Management's Discussion and Analysis

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the Company's financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying Notes to the Consolidated Financial Statements.

This discussion includes forward-looking statements, which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those expressed or implied by the forward-looking statements. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the company’s business under “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Overview

CNH Industrial is a leading equipment and services company engaged in the design, production, marketing, sale, and financing of agricultural and construction equipment.

Until December 31, 2021, CNH Industrial N.V. owned and controlled the Commercial and Specialty Vehicles business, the Powertrain business, and the related Financial Services business (together the “Iveco Group Business” or the “On-Highway Business”), as well as the Agriculture business, the Construction business, and the related Financial Services business (collectively, the “Off-Highway Business”). Effective January 1, 2022, the Iveco Group Business was separated from CNH Industrial N.V. by way of a demerger under Dutch law (the "Demerger") to Iveco Group N.V. (the "Iveco Group") and the Iveco Group became a public listed company independent from CNH Industrial, with its common shares trading on Euronext Milan. The On-Highway Business' financial results for the periods prior to the Demerger have been reflected in our Consolidated Statement of Operations, retrospectively, as discontinued operations. Additionally, the related assets and liabilities associated with the On-Highway Business in the prior year consolidated balance sheet are classified as discontinued operations within Assets Held for Distribution and Liabilities Held for Distribution on the Consolidated Balance Sheet.

We generate revenues and cash flows principally from the sale of equipment to dealers and distributors. Financial Services provides a range of financial products focused on financing the sale and lease of equipment to our dealers and their customers.

Revenues of Industrial Activities are presented net of discounts, allowances, settlement discounts and rebates, as well as costs for sales incentive programs, determined on the basis of historical costs, country by country, and charged against profit for the period in which the corresponding sales are recognized. Our sales incentive programs may include the granting by Financial Services of retail financing at discounts to market interest rates. The corresponding cost to Industrial Activities is recognized at the time of the initial sale and the revenues of Financial Services are recognized on a pro rata basis in order to match the cost of funding.

Principal Factors Affecting Results

Our operating performance is highly correlated to sales volumes, which are influenced by several different factors that vary across our segments.

For Agriculture, the key factors influencing sales are the level of net farm income, which is influenced by commodity prices, and, to a lesser extent, general economic conditions, interest rates and the availability of financing and related subsidy programs. Variations by region and product are also attributable to differences in typical climate and farming calendars, as well as extraordinary weather conditions.

For Construction, segmentation varies by regional market: in developed markets, demand is oriented toward more sophisticated machines that increase operator productivity, while in developing markets, demand is oriented toward more utilitarian models with greater perceived durability. Sales levels for heavy construction equipment are particularly dependent on the expected level of major infrastructure construction and repair projects, which is a function of expected economic growth and government spending. For light construction equipment, the principal factor influencing demand is the level of residential and commercial construction, remodeling and renovation, which is influenced in turn by interest rates and availability of financing, as well as, in the residential sector, levels of disposable income and, in the commercial sector, the broader economic cycle.

Demand for services and service-related products, including parts, is a function of the nature and extent of the use of the related agricultural and construction equipment. The after-sales market is historically less volatile than the wholegoods market and, therefore, helps reduce the impact on operating results of fluctuations in new sales.

Our cost base principally comprises the cost of raw materials and personnel costs.

Raw material costs are closely linked to commodity markets and largely outside of our control, although we are making a targeted effort to increase procurement and production efficiencies. Historically, we have been able to pass on to our customers most of the increase in the cost of raw materials through increases in product pricing. Nevertheless, even when we are able to do so, there is

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usually a time lag between an increase in materials cost and a realized increase in product prices and, accordingly, our results are typically adversely affected at least in the short-term until price increases are accepted in the market.

Personnel costs change over time and are impacted by the terms of collective bargaining agreements, inflation and average number of employees. A significant proportion of our employees are based in countries where labor laws impose significant protection of employers’ rights and, accordingly, we have limited ability to downsize our personnel in response to a decrease in production during periods of market downturn.

Our results are also affected by changes in foreign exchange rates from period to period, mainly due to the difference in geographic distribution between our manufacturing activities and our commercial activities, resulting in cash flows from exports denominated in currencies that differ from those associated with production costs. In addition, our Consolidated Financial Statements are expressed in U.S. dollars and are therefore subject to movements in exchange rates upon translation of the financial statements of subsidiaries whose functional currency is not the U.S. dollar.

Finally, our results may be materially affected, directly or indirectly, by governmental policies, including monetary and fiscal policies and policies on international trade and investment.

Global Business Conditions

Significant uncertainties, including rising inflation, geopolitical instability, and the war in the Ukraine, continue to create volatility in the global economy. These factors lead to inefficiencies in our manufacturing operations and impact costs. We continue to work to mitigate the impact of these issues in order to meet end-market demand. We will continue to monitor the situation as conditions remain fluid and evolve.

During the first quarter of 2022, CNH Industrial announced it was suspending non-domestic operations in Russia. The Company has since been supporting its operations in this market through the continuation of employee salaries and payment of other administrative expenses. As a result of the suspension, the Company evaluated the carrying value of assets held within the Company's Russia operations. Upon completion of the evaluation, during the quarter ended March 31, 2022, the Company recorded charges of $71 million related to asset write downs, financial receivable allowances and a valuation allowance against deferred tax assets. The Russia-Ukraine conflict and the ensuing sanctions to Russia and Belarus and Russian counter-sanctions have created additional tensions in the commodity markets. The Company has no critical supplier in the affected countries, but prices for certain commodities, including natural gas, have created and might create further volatility.

Non-GAAP Financial Measures

CNH Industrial monitors its operations through the use of several non-GAAP financial measures. CNH Industrial’s management believes that these non-GAAP financial measures provide useful and relevant information regarding its operating results and enhance the readers’ ability to assess CNH Industrial’s financial performance and financial position. Management uses these non-GAAP measures to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions as they provide additional transparency with respect to our core operations. These non-GAAP financial measures have no standardized meaning under U.S. GAAP or EU-IFRS and are unlikely to be comparable to other similarly titled measures used by other companies and are not intended to be substitutes for measures of financial performance and financial position as prepared in accordance with U.S. GAAP and/or EU-IFRS.

As of December 31, 2022, CNH Industrial’s non-GAAP financial measures are defined as follows:

Adjusted EBIT of Industrial Activities

Adjusted EBIT of Industrial Activities is defined as net income (loss) before: income taxes, Financial Services’ results, Industrial Activities’ interest expenses, net, foreign exchange gains/losses, finance and non-service component of pension and other post-employment benefit costs, restructuring expenses, and certain non-recurring items. Such non-recurring items are specifically disclosed items that management considers rare or discrete events that are infrequent in nature and not reflective of on-going operational activities.

Net (Cash) Debt and Net (Cash) Debt of Industrial Activities (or Net Industrial (Cash) Debt)

Net Cash (Debt) is defined as total debt less: intersegment notes receivable, cash and cash equivalents, restricted cash, other current financial assets (primarily current securities, short-term deposits and investments towards high-credit rating counterparties) and derivative hedging debt. CNH Industrial provides the reconciliation of Net Cash (Debt) to Total (Debt), which is the most directly comparable measure included in the consolidated balance sheets. Due to different sources of cash flows used for the repayment of the debt between Industrial Activities and Financial Services (by cash from operations for Industrial Activities and by collection of financing receivables for Financial Services), management separately evaluates the cash flow performance of Industrial Activities using Net Cash (Debt) of Industrial Activities.

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Revenues on a Constant Currency Basis

CNH Industrial discusses the fluctuations in revenues on a constant currency basis by applying the prior year average exchange rates to current year’s revenues expressed in local currency in order to eliminate the impact of foreign exchange rate fluctuations.

Free Cash Flow of Industrial Activities

Free Cash Flow of Industrial Activities (or Industrial Free Cash Flow) refers to Industrial Activities, only, and is computed as consolidated cash flow from operating activities less: cash flow from operating activities of Financial Services; assets under operating leases, property, plant and equipment and intangible assets; change in derivatives hedging debt of Industrial Activities; as well as other changes and intersegment eliminations.

Operating Results

The operations and key financial measures and financial analysis differ significantly for manufacturing and distribution businesses and financial services businesses; therefore, management believes that certain supplemental disclosures are important in understanding our consolidated operations and financial results. For further information, see “Supplemental Information” within this section, where we present supplemental consolidating data split by Industrial Activities and Financial Services. Transactions between Industrial Activities and Financial Services have been eliminated to arrive at the consolidated data.

2022 Compared to 2021

Consolidated Results of Operations

Revenues

We recorded revenues of $23,551 million in 2022, an increase of 20.8% (up 24.1% on a constant currency basis) compared to 2021. This increase is primarily due to increases in all segments as a result of strong industry demand and price realization.

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Cost of Goods Sold

Cost of goods sold were $16,797 million in 2022 compared to $14,109 million in 2021, an increase of 19.1% year over year. As a percentage of net sales of Industrial Activities, cost of goods sold was 78.0% in 2022 (79.3% in 2021), as a result of favorable fixed cost absorption partially offset by cost escalation. In the year ended December 31, 2022 this item includes $41 million of asset write downs as a result of the suspension of operations in Russia.

Selling, General and Administrative Expenses

SG&A expenses amounted to $1,752 million in 2022 (7.4% of revenues) compared to $1,454 million in 2021 (7.5% of revenues) as activity levels grew and inflation affected expenses. For the year ended December 31, 2022 SG&A includes $17 million in write-downs due to the suspension of operations in Russia.

Research and Development Expenses

In 2022, R&D expenses were $866 million compared to $642 million in 2021. The expense in both years was primarily attributable to continued investment in new products, technologies, and digital solutions.

Restructuring Expenses

The Company incurred restructuring costs of $31 million and $35 million for the years ended December 31, 2022 and 2021, respectively.

Interest Expense

Interest expense was $734 million in 2022 compared to $549 million in 2021. The interest expense attributable to Industrial Activities, net of interest income and eliminations, was $119 million in 2022 compared to $118 million in 2021. In 2021, interest expense included a charge of $8 million related to the repurchase by CNH Industrial Finance Europe S.A. of €316 million (equivalent to $371 million) of outstanding notes due May 23, 2022.

Other, net

Other, net expenses were $689 million in 2022 and included a pre-tax gain of $90 million ($68 million after-tax) as a result of the Benefit Modification Amortization over approximately 4.5 years of the $527 million positive impact from the 2018 U.S. healthcare plan modification, a pre-tax gain of $24 million ($18 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 U.S. healthcare plan modification, a pre-tax gain of $65 million ($70 million after-tax) on the sale of a facility in Canada, $22 million ($54 million after-tax) of loss on the sale of Raven Engineered Films and Aerostar Divisions, net of income from those businesses held for sale during the period, separation costs in connection with the spin-off of the On-Highway business of $25 million ($24 million after-tax), and foreign exchange losses of $59 million.

Other, net expenses were $768 million in 2021 and included a pre-tax gain of $119 million ($90 million net of tax impact) as a result of the Benefit Modification Amortization over approximately 4.5 years of the $527 million positive impact from the 2018 U.S. healthcare plan modification, a gain of $5 million ($4 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 modifications to a healthcare plan in the U.S. which occurred in the fourth quarter of 2021, and a gain of $12 million ($9 million after-tax) for a remeasurement at fair value of the investment in Monarch Tractor, offset by $133 million ($128 million after-tax) in separation costs in connection with the demerger of the Iveco Group business, and foreign exchange losses of $1 million.

Income Taxes

In 2022, income taxes were an expense of $747 million, compared to a tax expense of $229 million in 2021. The effective tax rates for 2022 and 2021 were 27.9% and 11.8%, respectively. The 2022 tax rate was negatively impacted by increased profitability in high-tax jurisdictions, tax expenses associated with the disposition of Raven’s Engineered Films Division and Raven’s Aerostar Division,

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additional reserves for uncertain tax positions and an increase in unrecognized deferred tax assets in jurisdictions with highly inflationary economies. These negative impacts were partially offset by $55 million in benefits associated with previously unrecognized deferred tax assets in Italy.

In 2021, income taxes were an expense of $229 million with an effective tax rate of 11.8%. The Company’s 2021 tax rate was positively impacted by $161 million related to recognizing deferred tax assets associated with the Company’s operations in Brazil. The 2021 rate was also reduced by a reduction in reserves for uncertain tax positions, and the utilization of unrecognized deferred tax assets.

Equity in Income of Unconsolidated Subsidiaries and Affiliates

Equity in income of unconsolidated subsidiaries and affiliates was $104 million in 2022, compared to $91 million in 2021.

Industrial Activities and Business Segments

The following tables show total Revenues and Adjusted EBIT of Industrial Activities by segment. We have also included a discussion of our results by Industrial Activities and each of our segments.

Net sales of Industrial Activities were $21,541 million in 2022, up 21.0% compared to the prior year (up 24.5% on a constant currency basis) due to favorable price realization and increased sales volumes.

Adjusted EBIT of Industrial Activities was $2,433 million in 2022 ($1,763 million in 2021), with an Adjusted EBIT margin of 11.3%. The increase in adjusted EBIT was primarily attributable to year over year increases in both the Agriculture and Construction segments.

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Business Segment Performance

Agriculture

Net Sales

The following table shows Agriculture net sales by geographic region in 2022 compared to 2021:

Agriculture Sales – by geographic region:

Net sales for Agriculture were $17,969 million in 2022, a 22.1% increase (up 25.8% on a constant currency basis) compared to 2021. The increase was mainly due to favorable price realization and better mix, mostly driven by the North America and South America regions.

In North America, industry volume was up 4% year over year in 2022 for tractors over 140 HP and was down 14% for tractors under 140 HP; combines were up 15%. In Europe, Middle East and Africa (EMEA), tractor and combine demand was down 7% and 16%, respectively, of which Europe tractor and combine demand was down 7% and up 5%, respectively. South America tractor demand was up 3% and combine demand was down 1%. Asia Pacific tractor demand was up 5% and combine demand was up 50%.

Adjusted EBIT

Adjusted EBIT was $2,456 million in 2022, compared to $1,810 million in 2021. The $646 million increase was driven by favorable net pricing and sales volume/mix, more than offsetting higher product cost. Adjusted EBIT margin was 13.7%.

Construction

Net Sales

The following table shows Construction net sales by geographic region in 2022 compared to 2021:

Construction Sales – by geographic region:

Net sales for Construction were $3,572 million in 2022, a 15.9% increase (up 18.4% on a constant currency basis) compared to 2021, as a result of positive price realization and contribution from the Sampierana business, partially offset by the negative impact of foreign exchange rates.

Global industry volume for construction equipment decreased in both Heavy and Light sub-segments year over year in 2022, down 11% and 9%, respectively. Aggregated demand increased 2% in EMEA, decreased 2% in North America, increased 18% in South America and decreased 23% for Asia Pacific, particularly in China.

Adjusted EBIT

Adjusted EBIT was $124 million in 2022 (up $34 million compared to 2021). The improvement was due to positive price realization and favorable volume and mix, partially offset by higher product costs related to raw material and freight costs. Adjusted EBIT margin was 3.5%.

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Financial Services Performance

Finance, Interest and Other Income

Financial Services reported revenues of $1,996 million in 2022, up 19.4% compared to 2021 (up 20.0% on a constant currency basis) primarily due to favorable volumes in all regions, higher base rates across all regions, mainly in South America, and higher used equipment sales.

Net Income

For the year ended December 31, 2022, net income was $338 million, a $11 million decrease compared to 2021, primarily due to margin compression in North America and increased labor costs, partially offset by favorable volumes in all regions, higher recoveries on used equipment sales and higher base rates in South America.

In 2022, retail originations (including unconsolidated joint ventures) were $10.0 billion, up $0.2 billion compared to 2021. The managed portfolio (including unconsolidated joint ventures) was $23.8 billion as of December 31, 2021 (of which retail was 67% and wholesale 33%), up $3.6 billion compared to December 31, 2021.

At December 31, 2022, the receivable balance greater than 30 days past-due as a percentage of receivables was 1.3% (1.2% as of December 31, 2021).

2021 Compared to 2020

Consolidated Results of Operations

Revenues

We recorded revenues of $19,496 million in 2021, an increase of 31.9% (up 30.4% on a constant currency basis) compared to 2020. This increase is primarily due to increases in all segments as a result of strong industry demand and price realization.

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Cost of Goods Sold

Cost of goods sold were $14,109 million in 2021 compared to $11,152 million in 2020, an increase of 26.5% year over year. As a percentage of net sales of Industrial Activities, cost of goods sold was 79.3% in 2022 (85.2% in 2020), as a result of favorable fixed cost absorption partially offset by cost escalation.

Selling, General and Administrative Expenses

SG&A expenses amounted to $1,454 million in 2021 (8.2% of revenues) compared to $1,296 million in 2020 (9.9% of revenues) as expenses returned to more normal levels from the pandemic-affected low levels experienced in the prior year. SG&A expenses included provisions for bad debt that were $35 million in 2021 and $107 million in 2020.

Research and Development Expenses

In 2021, R&D expenses were $642 million compared to $493 million in 2020. The expense in both years was primarily attributable to spending on new product development and digital components associated to precision agriculture.

Restructuring Expenses

The Company incurred restructuring costs of $35 million and $22 million for the years ended December 31, 2021 and 2020, respectively.

Interest Expense

Interest expense was $549 million in 2021 compared to $660 million in 2020. The interest expense attributable to Industrial Activities, net of interest income and eliminations, was $118 million in 2021 compared to $140 million in 2020. In 2021, interest expense included a charge of $8 million related to the repurchase of €316 million (equivalent to $371 million) of outstanding notes due May 23, 2022 by CNH Industrial Finance Europe S.A.

Other, net

Other, net expenses were $768 million in 2021 and included a pre-tax gain of $119 million ($90 million net of tax impact) as a result of the Benefit Modification Amortization over approximately 4.5 years of the $527 million positive impact from the 2018 U.S. healthcare plan modification, a gain of $5 million ($4 million after-tax) as a result of the amortization over 4 years of the $101 million positive impact from the 2021 modifications to a healthcare plan in the U.S. which occurred in the fourth quarter of 2021, and a gain of $12 million ($9 million after-tax) for a remeasurement at fair value of the investment in Monarch Tractor, offset by $133 million in separation costs in connection with the demerger of the Iveco Group business and foreign exchange losses of $1 million.

Other, net expenses were $750 million in 2020 and included a pre-tax gain of $119 million ($90 million net of tax impact) as a result of the Benefit Modification Amortization over approximately 4.5 years of the $527 million positive impact from the 2018 U.S. healthcare plan modification, a $125 million pre-tax non-cash settlement charge ($95 million net of tax impact) resulting from the purchase of annuity contracts to settle a portion of the outstanding U.S. pension obligations, and foreign exchange losses of $12 million.

Income Taxes

In 2021, income taxes were an expense of $229 million with an effective tax rate of 11.8%. The Company’s 2021 tax rate was positively impacted by $161 million related to recognizing deferred tax assets associated with the Company’s operations in Brazil. The 2021 rate was also reduced by a reduction in reserves for uncertain tax positions, and the utilization of unrecognized deferred tax assets.

In 2020, income taxes were an expense of $85 million with an effective tax rate of 47.5%. The lower tax rate in 2021, as compared to 2020 was primarily due to favorable differences in earnings mix and valuation allowance in 2021, and non-recurring non-deductible

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goodwill charges in 2020. Improved profitability in 2021 resulted in higher use of previously unrecognized tax assets in 2021 compared to 2020.

Equity in Income of Unconsolidated Subsidiaries and Affiliates

Equity in income of unconsolidated subsidiaries and affiliates was $91 million in 2021, compared to $66 million in 2020.

Industrial Activities and Business Segments

The following tables show total Revenues and Adjusted EBIT of Industrial Activities by segment. We have also included a discussion of our results by Industrial Activities and each of our segments.

Net sales of Industrial Activities were $17,802 million in 2021, up 36.1% compared to the prior year (up 34.4% on a constant currency basis) due to higher volumes driven by strong industry demand, together with favorable price realization.

Adjusted EBIT of Industrial Activities was $1,763 million in 2021 ($583 million in 2020), with an Adjusted EBIT margin of 9.9%. The increase in adjusted EBIT was primarily attributable to all segments being up year over year.

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Business Segment Performance

Agriculture

Net Sales

The following table shows Agriculture net sales by geographic region in 2021 compared to 2020:

Agriculture Sales – by geographic region:

Net sales for Agriculture were $14,721 million in 2021, a 34.8% increase (up 33.0% on a constant currency basis) compared to 2020. The increase was mainly due to higher industry demand, better mix, favorable price realization of 7% and lower destocking compared to 2020.

For 2021, worldwide industry unit sales for tractors increased 14% compared to 2020, while worldwide industry sales for combines were up 19% compared to 2020. In North America, industry volumes in the over 140 hp tractor market sector were up 23% and combines were up 25%. Industry volumes for under 140 hp tractors were up 10%. European markets were up 16% and 17% for tractors and combines, respectively. In South America, tractor industry volumes increased 22% and combine industry volumes increased 19%. Rest of World markets increased 15% for tractors and 19% for combines.

Adjusted EBIT

Adjusted EBIT was $1,810 million in 2021, compared to $880 million in 2020. The $930 million increase was driven by higher volume, favorable mix and price realization in all regions, partially offset by higher raw material and freight costs, higher SG&A costs driven by higher variable compensation, and R&D spend returning to more normal levels from the low levels experienced in the previous year. Adjusted EBIT margin was 12.3%.

Construction

Net Sales

The following table shows Construction net sales by geographic region in 2021 compared to 2020:

Construction Sales – by geographic region:

Net sales for Construction were $3,081 million in 2020, a 42.0% increase (up 40.9% on a constant currency basis) compared to 2020, driven by favorable price realization, higher demand, and lower destocking by dealers and distributors.

In 2021, global demand for construction equipment was up 14% compared to 2020, with Heavy sub-segment up 16% and Light subsegment up 13%. Demand increased 23% in North America, 19% in Europe, 87% in South America, and 6% in Rest of World.

Adjusted EBIT

Adjusted EBIT was $90 million in 2020 (up $274 million compared to 2020). The improvement was due to positive price realization and favorable volume and mix, partially offset by higher product costs related to raw material and freight costs and higher variable compensation. Adjusted EBIT margin was 2.9%.

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Financial Services Performance

Finance, Interest and Other Income

Financial Services reported revenues of $1,672 million in 2021, up 0.7% compared to 2020 (up 0.5% on a constant currency basis) primarily due to higher used equipment sales and higher average portfolios in Europe, South America and Asia Pacific, partially offset by lower average portfolio in North America due to a reduction in wholesale financing.

Net Income

For the year ended December 31, 2021, net income was $349 million, a $106 million increase compared to 2020, driven by lower risks cost due to improved market outlook, stronger pricing in North America, higher recoveries on used equipment sales, and higher average portfolio.

In 2021, retail loan originations (including unconsolidated joint ventures) were $9.7 billion, up $1.2 billion compared to 2020. The managed portfolio (including unconsolidated joint ventures) was $20.2 billion as of December 31, 2021 (of which retail was 65% and wholesale 35%), up $0.2 billion compared to December 31, 2020.

At December 31, 2021, the receivable balance greater than 30 days past-due as a percentage of receivables was 1.2% (1.4% as of December 31, 2020).

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Reconciliation of Adjusted EBIT to Net Income (Loss)

The following table includes the reconciliation of Adjusted EBIT for Industrial Activities to net income, the most comparable U.S. GAAP financial measure.

(1) In the years ended December 31, 2022, this item includes a pre-tax gain of $90 million as a result of the amortization over approximately 4.5 years of the $527 million positive impact from 2018 modification of a healthcare plan in the U.S. and a pre-tax gain of $24 million as a result of the amortization over 4 years of the $101 million positive impact from the 2021 modifications of a healthcare plan in the U.S. In 2021 and 2020, this item includes the pre-tax gain of $119 million as a result of the amortization over approximately 4.5 years of the $527 million positive impact from 2018 modification of a healthcare plan in the U.S. In December 31, 2021 this item includes a pre-tax gain of $5 million as a result of the amortization over 4 years of the $101 million positive impact from 2021 modifications of a healthcare plan in the U.S.

(2) In the year ended December 31, 2022, this item included $43 million of asset write-downs, $25 million of separation costs incurred in a connection with our spin-off of the Iveco Group Business and $22 million of costs related to the activity of the Raven segments held for sale, including the loss on the sale of the Engineered Films and Aerostar divisions, partially offset by a $65 million dollar gain on the sale of our Canada parts depot. In the year ended December 31, 2021, this item included $133 million separation costs in connection with the spin-off of the Iveco Group business and a charge of $57 million for transaction costs related to the acquisition of Raven Industries, Inc., partially offset by a gain of $12 million for a fair value adjustment of Monarch Tractor investments.

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