These Consolidated Financial Statements have been prepared in accordance with the IFRS as issued by the IASB and as adopted by the European Union (refer to section “Signifi cant accounting policies”, paragraph “Basis of preparation”, for additional information).
Starting from the Annual Report on Form 20-F at December 31, 2013, CNH Industrial has begun to report fi nancial results under U.S.
GAAP for U.S. reporting and investor presentation purposes, continuing to report under IFRS for European listing purposes and Dutch law requirements.
IFRS differ in certain signifi cant respects from U.S. GAAP. In order to help readers to understand the difference between the Group’s two sets of fi nancial statements, CNH Industrial has provided, on a voluntary basis, a reconciliation from IFRS to U.S. GAAP as follows:
Reconciliation of Profit
|Profit in accordance with IFRS||916||1,218|
|Adjustments to conform with U.S. GAAP:|
|Development costs, net||(a)||(231)||(443)|
|Goodwill and other intangible assets||(b)||(8)||(8)|
|Deﬁned beneﬁt plans||(c)||(56)||(16)|
|Tax impact on adjustments||(f)||103||158|
|Deferred tax assets and tax contingencies recognition||(g)||(4)||(45)|
|Net income in accordance with U.S. GAAP||708||828|
Reconciliation of Total Equity
|($ million)||Note||At December 31, 2014||At December 31, 2013|
|Total Equity in accordance with IFRS||7,577||7,662|
|Adjustments to conform with U.S. GAAP:|
|Development costs, net||(a)||(2,819)||(2,862)|
|Goodwill and other intangible assets||(b)||122||130|
|Deﬁned beneﬁt plans||(c)||6||29|
|Tax impact on adjustments||(f)||815||773|
|Deferred tax assets and tax contingencies recognition||(g)||(768)||(798)|
|Total Equity in accordance with U.S. GAAP||4,961||4,955|
Description of reconciling items
Reconciling items presented in the tables above are described as follows:
- a. Development costs, net Under IFRS, costs relating to development projects are recognized as intangible assets when costs can be measured reliably and the technical feasibility of the product, volumes and pricing support the view that the development expenditure will generate future economic benefi ts.
Under U.S. GAAP, development costs are expensed as incurred. As a result, costs incurred related to development projects that have been capitalized under IFRS are expensed as incurred under U.S. GAAP. Amortization expenses, net result on disposal and impairment charges of previously capitalized development costs recorded under IFRS have been reversed under U.S. GAAP. In 2014, under IFRS the Group capitalized $676 million ($759 million in 2013) of development costs, amortized $420 million ($316 million in 2013) of previously capitalized development costs that were reversed under U.S. GAAP, and recognized an impairment for an amount of $25 million. In 2013, no impairment charges and no result on disposal were recorded.
- b. Goodwill and other intangible assets Goodwill is not amortized but rather tested for impairment at least annually under both IFRS and U.S. GAAP. The difference in goodwill and other intangible assets between the Group’s two sets of fi nancial statements is primarily due to the different times when IFRS and ASC 350 - Intangibles – Goodwill and Other, where adopted. CNH Industrial transitioned to IFRS on January 1, 2004. Prior to the adoption of IFRS, goodwill was recorded as an intangible asset and amortized to income on a straight-line basis over its estimated period of recoverability, not exceeding 20 years. CNH Industrial adopted ASC 350 on January 1, 2002. Under U.S. GAAP, through December 31, 2001, goodwill was recorded as an intangible asset and amortized to income on a straight-line basis over a period not exceeding 40 years. In addition, IFRS and U.S. GAAP differ in the determination of the goodwill impairment amount, if any goodwill impairment needs to be recognized. However, no difference arose as no goodwill impairment was required in 2014 and 2013.
- c. Defined benefi t plans The differences related to defi ned benefi t plans are mainly due to the different accounting for actuarial gains and losses and the net interest component of the defi ned benefi t cost between IFRS and U.S. GAAP. Under IFRS, actuarial gains and losses are recognized immediately in other comprehensive income without reclassifi cation to profi t or loss in subsequent years; net interest expense or income is recognized by applying the discount rate to the net defi ned benefi t liability or asset (the defi ned benefi t obligation less the fair value of plan assets, allowing for any assets ceiling restriction). Under U.S. GAAP, actuarial gain and losses are deferred through the use of the corridor method; interest cost applicable to the liability is recognized using the discount rate, while an expected return on assets is recognized refl ecting management’s expectations on long-term average rates of return on funds invested to provide for benefi ts included in the projected benefi t obligations.
- d. Restructuring provisions The principal difference between IFRS and U.S. GAAP with respect to accruing for restructuring costs is that IFRS places emphasis on the recognition of the costs of the exit plan as a whole, whereas U.S. GAAP requires that each type of cost is examined individually to determine when it may be accrued. Under IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, a provision for restructuring costs is recognized when the Group has a constructive obligation to restructure. Under U.S. GAAP, termination benefi ts are recognized in the period in which a liability is incurred. The application of U.S. GAAP often results in different timing recognition for the Group’s restructuring activities.
- e. Other adjustments Other adjustments refer to differences that are not individually material for the Group and are therefore shown as a combined total.
- f. Tax impact on adjustments This item includes the tax effects of adjustments from (a) to (e) and mainly refers to development costs.
- g. Deferred tax assets and tax contingencies recognition The Group’s policy for accounting for deferred income taxes under IFRS is described in section “Signifi cant accounting policies”. This policy is similar to U.S. GAAP which states that a deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences and tax loss carry forwards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefi t will not be realized based on available evidence. The most signifi cant accounting difference between IFRS and U.S.
GAAP relates to development costs, which also has a signifi cant impact on accumulated deferred tax assets or liabilities and on U.S. GAAP pretax book income or loss in certain jurisdictions. As a result, the assessment of tax contingencies and recoverability of deferred tax assets in each jurisdiction can vary signifi cantly between IFRS and U.S. GAAP for fi nancial reporting purposes. This adjustment relates primarily to foreign jurisdictions with U.S. GAAP pretax book losses in recent years higher than those recorded for IFRS purposes.