SOURCE: CNH Global N.V.
July 23, 2007 07:00 ET
CNH Second Quarter 2007 Net Income Up 55 Percent From 2006, to the Highest in CNH History
LAKE FOREST, IL--(Marketwire - July 23, 2007) - CNH Global N.V. (NYSE: CNH)
-- Second quarter diluted EPS of $0.96 up 55% from 2006
-- First half diluted EPS of $1.36 up 68% from 2006
-- Equipment Operations second quarter gross margin up 0.7 percentage
points
-- CNH Equipment Operations net debt free for first quarter-end in its
history
-- Full year 2007 financial outlook increased, with a new expected range
of diluted EPS, net of restructuring, forecast at $2.30 to $2.45
CNH Global N.V. (NYSE: CNH) today reported second quarter 2007 net income
of $228 million, up 55 percent compared to net income of $147 million in
the second quarter of 2006. Results included restructuring charges, net of
tax, of $19 million in the second quarter of 2007, compared with $7 million
in the second quarter of 2006. Net income excluding restructuring charges,
net of tax, was $247 million, up 60 percent compared to $154 million in the
prior year. Second quarter diluted earnings per share were $0.96, compared
with $0.62 per share in 2006. Before restructuring, net of tax, second
quarter diluted earnings were $1.04 per share, compared with $0.65 per
share in 2006.
First half 2007 net income of $323 million was up 70 percent compared to
net income of $190 million in the first half of 2006. Results included
restructuring charges, net of tax, of $29 million in the first half of
2007, compared with $10 million in the first half of 2006. Net income
excluding restructuring charges, net of tax, was $352 million, up 76
percent compared to $200 million in the prior year. First half diluted
earnings per share were $1.36, compared with $0.81 per share in 2006.
Before restructuring, net of tax, first half diluted earnings were $1.48
per share, compared with $0.85 per share in 2006.
"Our Equipment Operations gross margin rose 0.7 percentage points compared
with the second quarter last year -- our eighth consecutive quarter of
year-over-year gross margin improvement. Our industrial operating margin
rose 1.5 percentage points to 10.8%, making it the best quarterly margin in
CNH history," said Harold Boyanovsky, CNH President and Chief Executive
Officer. "Our stronger performance reflects our revitalized brand, customer
and quality focus and stronger worldwide agricultural and construction
equipment industries. We are reaffirming our industrial operating margin
target of between 7.6% and 8.4% for the full year."
Highlights for the quarter include:
-- Worldwide CNH retail unit volumes showed particular strength in higher
horsepower agricultural tractors and combines, with increased agricultural
industry demand in all major markets outside of Western Europe.
-- Worldwide Construction Equipment industry and CNH retail unit sales
up, with sales outside of North America showing continued strength, more
than compensating for weaker industry unit sales in North America.
-- Higher economic-related cost increases, including key commodities such
as steel, cast iron, rubber and related products, were offset by positive
impacts of exchange rate changes, driving another quarter of positive net
price recovery for both Agricultural and Construction Equipment operations.
-- Equipment Operations positive cash flow drove a $537 million reduction
in Net Debt in the quarter, resulting in a Net Cash position of $531
million at quarter-end.
-- CNH's improved industrial and financial performance, its high cash
balances, and the continuing support of the Fiat Group led Case New
Holland, Inc. to announce the redemption of the full $1.05 billion
aggregate principal amount of its outstanding 9 1/4% Senior Notes due 2011
on August 1, 2007, allowing CNH to improve its balance sheet structure and
better manage its liquidity.
-- The American Society of Agricultural and Biological Engineers (ASABE)
recognized CNH with multiple awards for the most innovative product designs
to enter the market in 2006. It cited Case IH for the Module Express 625
Cotton Harvester, the AFS Cotton Yield Monitor and the Case IH Steiger®
AccuSteer™ II System and New Holland Agricultural Equipment for the
SuperSuite™ Compact Tractor Cab, New Holland FastSteer™ Steering System,
New Holland Flexicoil SD550 Air Hoe Drill and Smart Sieve™ Grain Cleaning
System.
-- New Holland Construction also received a Top 10 AE 50 award from the
ASABE for its On-the-Go Two-Speed Shift feature that gives operators of the
Super Boom™ L185 skid steer loader the ability to shift from high to low
range at the touch of a fingertip.
EQUIPMENT OPERATIONS - Second Quarter Financial Results
Net sales of equipment, comprising the company's agricultural and
construction equipment businesses, were $4.1 billion for 2007, compared to
$3.5 billion for the same period in 2006. Net of currency variations, net
sales increased 12%.
Agricultural Equipment Net Sales
-- Agricultural equipment net sales increased 23% to $2.8 billion,
compared with the prior year. Excluding currency variations, net sales
were up 17%.
-- Net sales, excluding currency variations, were up 85% in Latin
America, 32% in Rest-of-World markets, 17% in Western Europe, and up 4% in
North America, in total, reflecting primarily better tractor and combine
volume and mix and new products.
Construction Equipment Net Sales
-- Construction equipment net sales increased 7% to $1.3 billion,
compared to the prior year. Net sales were up 2% excluding currency
variations.
-- Net sales, excluding currency variations, increased 72% in Rest-of-
World markets, 34% in Latin America and 29% in Western Europe, and declined
34% in North America, in total, reflecting primarily better heavy equipment
volume and mix and new products.
Gross Margin
Equipment Operations gross margin (defined as net sales of equipment less
cost of goods sold) for agricultural and construction equipment increased
by 21% to $831 million, compared to the second quarter of 2006. As a
percent of net sales, gross margin increased 0.7 percentage points to
20.3%.
-- Agricultural equipment gross margin increased in both dollars and as a
percent of net sales compared to the prior year. Higher volume and mix,
positive net price recovery and improved quality costs were the primary
contributors to the improvement.
-- Construction equipment gross margin decreased both in dollars and as a
percent of net sales. Positive industry and retail performance outside of
North America, positive net price recovery and improved quality costs were
offset by effects of the decline in the North American industry and
additional actions taken to reduce dealer inventories of both heavy and
light equipment in North America.
Industrial Operating Margin
Equipment Operations industrial operating margin (defined as net sales of
equipment, less cost of goods sold, SG&A and R&D costs) increased 36% to
$441 million, or 10.8% of net sales, compared to $324 million or 9.3% of
net sales in the second quarter of 2006. The higher gross margin noted
above drove the improvement. SG&A costs increased primarily for exchange
rate changes, economics and investments in enhanced customer care programs.
As a percent of net sales, SG&A costs declined, compared with the second
quarter last year.
FINANCIAL SERVICES - Second Quarter Financial Results
Financial Services operations reported an 18% year-over-year increase in
second quarter net income, to $58 million, reflecting the impact of higher
receivables under management. Financial Services also recorded lower
provisions for credit losses than in 2006, partially offset by increases in
SG&A costs.
EQUIPMENT OPERATIONS - First Half Financial Results
Net sales of equipment, comprising the company's agricultural and
construction equipment businesses, were $7.3 billion for 2007, compared to
$6.4 billion for the same period in 2006. Net of currency variations, net
sales increased 9%.
Agricultural Equipment Net Sales
-- Agricultural equipment net sales increased 17% to $4.9 billion,
compared with the prior year. Excluding currency variations, net sales
were up 12%.
-- Net sales, excluding currency variations, were up 63% in Latin
America, 22% in Rest-of-World markets and 14% in Western Europe, but down
1% in North America. Net sales increased due to better tractor and combine
volume and mix outside of North America and new products.
Construction Equipment Net Sales
-- Construction equipment net sales increased 9% to $2.4 billion,
compared to the prior year. Net sales were up 4% excluding currency
variations.
-- Net sales increased 68% in Rest-of-World markets, 29% inWestern
Europe, and 28% in Latin America, but declined 26% in North America,
excluding currency variations. Net sales increased due to better heavy
equipment volume and mix outside of North America and new products.
Gross Margin
Equipment Operations gross margin for agricultural and construction
equipment increased by 22% to $1.4 billion, compared to the first half of
2006. As a percent of net sales, gross margin increased 1.3 percentage
points to 19.5%.
-- Agricultural equipment gross margin increased in both dollars and as a
percent of net sales compared to the prior year. Higher volume and mix,
positive net price recovery and improved quality costs were the primary
contributors to the improvement.
-- Construction equipment gross margin increased in dollars but decreased
slightly as a percent of net sales. Positive industry and retail
performance outside of North America, positive net price recovery and
improved quality costs were offset by effects of the decline in the North
American industry and additional actions taken to reduce dealer
inventories.
Industrial Operating Margin
Equipment Operations industrial operating margin increased 38% to $660
million, or 9.0% of net sales, compared to $478 million or 7.4% of net
sales in the first half of 2006. The higher gross margin noted above drove
the improvement. SG&A costs increased in dollars but were unchanged as a
percent of net sales while R&D also increased slightly in dollars but
declined slightly as a percent of net sales.
FINANCIAL SERVICES - First Half Financial Results
Financial Services operations reported a 22% year-over-year increase in
first half net income, to $123 million, reflecting the impact of higher
receivables under management. Financial Services also recorded lower
provisions for credit losses than in 2006, partially offset by increases in
SG&A costs.
NET DEBT (CASH) AND OPERATING CASH FLOW
Equipment Operations Net Debt (Cash) position (defined as total debt less
cash and cash equivalents, deposits in Fiat affiliates cash management
pools and intersegment notes receivables) was Net Cash of $531 million on
June 30, 2007, compared to Net Debt of $6 million on March 31, 2007 and
$263 million on December 31, 2006.
In the quarter, Equipment Operations Net Debt decreased by $537 million.
Operating activities, primarily from earnings and changes in other assets
and liabilities, generated $583 million of cash in the quarter. Working
Capital (defined as accounts and notes receivable, excluding inter-segment
notes receivable, plus inventories less accounts payables), net of currency
variations, decreased by $12 million in the quarter. Capital expenditures,
in the quarter, were $51 million. Year-to-date, Equipment Operations Net
Debt has been reduced by $794 million, driven by $913 million of cash
generation by operating activities.
At incurred currency rates, Equipment Operations working capital on June
30, 2007 was $2,105 million, up $29 million from $2,076 million at March
31, 2007.
In June 2007, Case New Holland, Inc. announced the redemption of the full
$1.05 billion aggregate principal amount of its outstanding 9 1/4% Senior
Notes due 2011 on August 1, 2007. Rubin McDougal, CNH's Chief Financial
Officer, cited "CNH's improved industrial and financial performance, high
cash balances, a commitment to improve CNH's balance sheet structure while
reducing interest expense and the continuing support of the Fiat Group as
the principal reasons behind the early redemption. We will permanently
retire a portion of the notes," he said, "and refinance the balance through
new term financing available from Fiat Finance North America." The
redemption will have a net positive earnings impact over time and will
allow CNH to better manage its liquidity. The decision to redeem the notes
also was facilitated by Standard and Poor's raising of CNH's credit rating
to BB+, with a positive outlook, at the end of May. One-time charges to
redeem the notes and write-off remaining unamortized issuance costs will
total approximately $60 million and are expected to be recorded in the
third quarter of 2007.
Financial Services Net Debt increased by $1,684 million to $6,661 million
on June 30, 2007 from $4,977 million on March 31, 2007, driven primarily by
financing of higher levels of receivables.
SECOND QUARTER 2007 BRAND ACTIVITIES
-- New Holland Agricultural Equipment launched its T5600 Series tractors
in the domestic Chinese market, targeting the higher end of the growing 80
to 100 horsepower market segment with the most advanced and efficiently
performing tractors manufactured in China. In Latin America, New Holland
introduced the TT Series tractors for small farm and orchard applications.
New Holland also upgraded its line of economic and simple utility tractors
with improved ergonomics and added a high clearance model for applications
such as vegetable and specialty crops requiring extra ground clearance.
Fifty-five and sixty horsepower engines became available for New Holland's
popular line of compact tractors, providing more muscle to power through
tougher jobs, as well as a thirty-five horsepower model for homeowners and
hobby farmers looking for reliable performance, solid construction and easy
operation at an economical price.
-- New Holland Construction Equipment introduced new models of
telehandlers, skid steer loaders and mini-excavators with upgraded engines
and enhanced features and also upgraded the cabs on its skid steer loaders.
-- Case IH Agricultural Equipment began shipping a new series of Chopping
Corn Heads for its Axial Flow Combines in North America, providing a lower
cost alternative for corn residue management than operating a tractor
driven stalk chopper.
-- Case Construction Equipment launched its new M Series 2 backhoe
loaders in the 76 to 98 horsepower range with Pilot controls, Tier 3
engines and backhoe performance improvements.
-- A sponsorship agreement between the Fiat Group and Juventus Football
Club S.p.A. will place the New Holland name on the famous Juventus black
and white shirts beginning in August. Like New Holland, Juventus has more
than 100 years of history and leadership behind it, and a determination to
win, and to set and achieve new goals. Having the New Holland logo on the
Juventus players' shirts will give New Holland an additional boost, by
bringing the brand into the homes of millions of fans and sports-lovers all
over the world.
-- Case IH announced its new "MAX Service" providing 24 hour a day, 7
days a week toll-free phone number for above-and-beyond the dealer backup
after sales service support, including parts procurement from the company's
depots, plants and suppliers, for our dealers and customers. This service
currently is available in the Midwest United States and in Europe and will
be expanded throughout the U.S. and Canada next year.
-- New Holland's "Top Service" program was launched in Europe to all New
Holland customers with outstanding service, information and support 24
hours a day, 7 days a week. The New Holland Top Service team includes
technical experts, parts and logistics specialists, working in close
partnership with the dealer network, and uses all the resources of New
Holland to resolve customer issues quickly. The team can source and
distribute parts rapidly from its depots across Europe or immediately call
on engineering and service teams to identify the best solution for any
issue. A Top Service team member will follow every issue to conclusion,
only closing it when the customer is back at work and is completely
satisfied.
-- Case Construction supports Habitat for Humanity with a series of more
than 80 Case dealer rodeo events planned before year-end. More than 5,000
participants throughout North America are expected to compete in the "Case
Rodeo Series," which culminates in March 2008 with a Championship event in
Las Vegas and a grand prize of a Case Loader/Backhoe. Case Construction
estimates that these dealer sponsored events will raise more than $150,000
for local Habitat for Humanity Affiliates by year-end.
-- Case Construction won the U.S. Army Tank-Automotive and Armaments
Command's $160 million order to build nearly 1,500 compact track loaders
and more than 1,900 skid steer loaders over the next 10 years, in its
Wichita, Kansas facility.
AGRICULTURAL EQUIPMENT MARKET OUTLOOK
CNH expects U.S. net farm income in 2007 to be 15% higher than in 2006,
bolstered by the increased demand for corn for fuel ethanol. The North
American market for over 40 horsepower tractors performed better than
expected in the second quarter. For the full year, CNH expects North
American industry retail sales of over-40 horsepower tractors to be up
slightly, compared with 2006, with sales of over 140 horsepower tractors up
10 to 15%. Industry sales of under-40 horsepower tractors are expected to
be lower than in 2006. Industry retail unit sales of combines in North
America should be up.
Outside of North America, for the full year, we continue to expect industry
retail unit sales of agricultural tractors to be flat to up slightly,
compared with 2006, with particular strength in the Latin American market
which is expected to be up 25 to 30%. Tractor industry unit sales in
Rest-of-World markets should be up as much as 5%, with sales in Western
Europe on par with 2006. Industry unit sales of combines are expected to
be up is all markets.
In total, we expect the worldwide agricultural tractor industry unit retail
sales to be up as much as 5% compared with 2006. Combine sales could be up
10 to 15%, an improvement from our prior outlook.
CONSTRUCTION EQUIPMENT MARKET OUTLOOK
For the full year, CNH expects North American industry retail unit sales of
both heavy and light construction equipment to be down compared with 2006.
North American industry sales of both heavy and light construction
equipment weakened in the second quarter, as housing starts and activity
levels continued to decline.
For the year, the company expects both heavy and light construction
equipment industry retail unit sales outside of North America to be up,
more than offsetting the decline in North America. Industry sales of heavy
and light equipment are expected to be up about 15% in Western Europe, and
between 25 and 30% in Latin American and Rest of World markets.
Construction activity remains robust, supported by solid GDP growth and
stable used equipment prices.
In total, CNH now expects worldwide industry retail unit sales of both
heavy and light construction equipment to be up about 10%.
CNH OUTLOOK FOR FULL YEAR 2007
Based on these agricultural and construction equipment market outlooks and
the initiatives undertaken in the last two years designed to properly
position our four main brands, CNH anticipates that 2007 diluted earnings
per share, before restructuring, net of tax, should be in the range of
$2.30 to 2.45, compared with $1.53 for the full year 2006.
Restructuring costs, net of tax, in 2007 are expected to be about $60
million primarily related to previously announced actions.
CNH Global N.V. is a world leader in the agricultural and construction
equipment businesses. Supported by about 11,500 dealers in 160 countries,
CNH brings together the knowledge and heritage of its Case and New Holland
brand families with the strength and resources of its worldwide commercial,
industrial, product support and finance organizations. CNH Global N.V.,
whose stock is listed at the New York Stock Exchange (NYSE: CNH), is a
majority-owned subsidiary of Fiat S.p.A. (FIA.MI) (NYSE: FIA). More
information about CNH and its Case and New Holland products can be found
online at www.cnh.com.
CNH management will hold a conference call later today to review its second
quarter 2007 results. The conference call Webcast will begin at
approximately 9:00 a.m. U.S. Central Time; 10:00 a.m. U.S. Eastern Time.
This call can be accessed through the investor information section of the
company's Web site at www.cnh.com and is being carried by CCBN.
Forward-looking statements. This press release includes "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. All statements other than statements of historical fact
contained in this press release, including statements regarding our
competitive strengths, business strategy, future financial position,
budgets, projected costs and plans and objectives of management, are
forward-looking statements. These statements may include terminology such
as "may," "will," "expect," "could," "should," "intend," "estimate,"
"anticipate," "believe," "outlook," "continue," "remain," "on track,"
"goal," or similar terminology.
Our outlook is predominantly based on our interpretation of what we
consider key economic assumptions and involves risks and uncertainties that
could cause actual results to differ. Crop production and commodity prices
are strongly affected by weather and can fluctuate significantly. Housing
starts and other construction activity are sensitive to interest rates and
government spending. Some of the other significant factors for us include
general economic and capital market conditions, the cyclical nature of our
business, customer buying patterns and preferences, foreign currency
exchange rate movements, our hedging practices, our customers' access to
credit, actions by rating agencies concerning the ratings of our debt
securities and asset backed securities, risks related to our relationship
with Fiat S.p.A., political uncertainty and civil unrest or war in various
areas of the world, pricing, product initiatives and other actions taken by
competitors, disruptions in production capacity, excess inventory levels,
the effect of changes in laws and regulations (including government
subsidies and international trade regulations), the results of legal
proceedings, technological difficulties, results of our research and
development activities, changes in environmental laws, employee and labor
relations, pension and health care costs, relations with and the financial
strength of dealers, the cost and availability of supplies from our
suppliers, raw material costs and availability, energy prices, real estate
values, animal diseases, crop pests, harvest yields, government farm
programs and consumer confidence, housing starts and construction activity,
concerns related to modified organisms and fuel and fertilizer costs.
Additionally, our achievement of the anticipated benefits of our margin
improvement initiatives depends upon, among other things, industry volumes
as well as our ability to effectively rationalize our operations and to
execute our brand strategy. Further information concerning factors that
could significantly affect expected results is included in our Form 20-F
for the year ended December 31, 2006.
We can give no assurance that the expectations reflected in our
forward-looking statements will prove to be correct. Our actual results
could differ materially from those anticipated in these forward-looking
statements. All written and oral forward-looking statements attributable to
us are expressly qualified in their entirety by the factors we disclose
that could cause our actual results to differ materially from our
expectations. We undertake no obligation to update or revise publicly any
forward-looking statements.
CNH GLOBAL N.V.
ESTIMATES OF WORLDWIDE RETAIL INDUSTRY UNIT SALES PERFORMANCE(1)
Worldwide N.A. W.E. L.A. ROW
'07 B(W) '07 B(W) '07 B(W) '07 B(W) '07 B(W)
====== ====== ====== ======= ======
First Quarter 2007 Industry Unit Sales Revised Actual Compared with First
Quarter 2006 Actual
Agricultural Equipment:
-----------------------
Agricultural Tractors:
- Under 40 horsepower n/a (1)% n/a n/a n/a
- Over 40 horsepower n/a 6 % n/a n/a n/a
Total Tractors 1 % 2 % 4 % 23% (3)%
Combine Harvesters 17 % 12 % (1)% 34% 38 %
Total Tractors and Combines 2 % 3 % 4 % 24% (2)%
Construction Equipment:
-----------------------
Light Construction Equipment:
Tractor Loaders & Backhoes 26 % (25)% 40 % 41% 76 %
Skid Steer Loaders (3)% (15)% 9 % 48% 43 %
Other Light Equipment 18 % (11)% 28 % 40% 24 %
Total Light Equipment 14 % (16)% 27 % 43% 38 %
Total Heavy Equipment 17 % (10)% 24 % 44% 29 %
Total Light & Heavy Equipment 15 % (14)% 27 % 43% 33 %
Second Quarter 2007 Industry Unit Sales Estimated Actual Compared
with Second Quarter 2006 Actual
Agricultural Equipment:
-----------------------
Agricultural Tractors:
- Under 40 horsepower n/a (3)% n/a n/a n/a
- Over 40 horsepower n/a 6 % n/a n/a n/a
Total Tractors 4 % 1 % (2)% 33% 6 %
Combine Harvesters 15 % 1 % 4 % 82% 26 %
Total Tractors and Combines 4 % 1 % (1)% 35% 6 %
Construction Equipment:
-----------------------
Light Construction Equipment:
Tractor Loaders & Backhoes 19 % (14)% 22 % 13% 60 %
Skid Steer Loaders (5)% (14)% 2 % 59% 12 %
Other Light Equipment 9 % (10)% 13 % 16% 20 %
Total Light Equipment 7 % (12)% 12 % 23% 30 %
Total Heavy Equipment 13 % (16)% 23 % 39% 28 %
Total Light & Heavy Equipment 10 % (14)% 15 % 31% 29 %
First Half 2007 Industry Unit Sales Estimated Actual Compared
with First Half 2006 Actual
Agricultural Equipment:
-----------------------
Agricultural Tractors:
- Under 40 horsepower n/a (2)% n/a n/a n/a
- Over 40 horsepower n/a 6 % n/a n/a n/a
Total Tractors 3 % 1 % 1 % 29% 2 %
Combine Harvesters 16 % 5 % 2 % 47% 30 %
Total Tractors and Combines 3 % 1 % 1 % 30% 2 %
Construction Equipment:
-----------------------
Light Construction Equipment:
Tractor Loaders & Backhoes 22 % (19)% 30 % 24% 67 %
Skid Steer Loaders (4)% (15)% 6 % 54% 25 %
Other Light Equipment 13 % (10)% 20 % 27% 22 %
Total Light Equipment 11 % (14)% 19 % 31% 34 %
Total Heavy Equipment 15 % (13)% 24 % 41% 28 %
Total Light & Heavy Equipment 12 % (14)% 21 % 36% 31 %
Full Year 2007 Industry Unit Sales Forecast Compared with Full
Year 2006 Estimated Actual
Agricultural Equipment:
-----------------------
Agricultural Tractors 0-5 % 0-5 % FLAT 25-30% 0-5 %
Combine Harvesters 10-15 % 5-10 % 0-5 % 50-60% 10-15 %
Construction Equipment:
-----------------------
Total Light Equipment ~10 % ~(10)% 10-15 % 20-25% 25-30 %
Total Heavy Equipment ~10 % (5-10)% 15-20 % 30-35% 20-25 %
(1) Excluding India
CNH GLOBAL N.V.
REVENUES AND NET SALES
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
% %
2007 2006 Change 2007 2006 Change
------- ------- ------ ------- ------- ------
(in Millions)
Revenues:
Net sales
Agricultural
equipment $ 2,789 $ 2,275 23% $ 4,906 $ 4,210 17%
Construction
equipment 1,307 1,222 7% 2,431 2,237 9%
------- ------- ------- -------
Total net
sales 4,096 3,497 17% 7,337 6,447 14%
Financial services 262 229 14% 516 452 14%
Eliminations and
other (35) (22) (57) (34)
------- ------- ------- -------
Total revenues $ 4,323 $ 3,704 17% $ 7,796 $ 6,865 14%
======= ======= ======= =======
Net sales:
North America $ 1,475 $ 1,642 (10%) $ 2,766 $ 3,076 (10%)
Western Europe 1,412 1,081 31% 2,461 1,914 29%
Latin America 415 249 67% 737 478 54%
Rest of World 794 525 51% 1,373 979 40%
------- ------- ------- -------
Total net sales $ 4,096 $ 3,497 17% $ 7,337 $ 6,447 14%
======= ======= ======= =======
CNH GLOBAL N.V.
CONDENSED CONSOLIDATED INCOME STATEMENTS
AND SUPPLEMENTAL INFORMATION
(Unaudited)
EQUIPMENT FINANCIAL
CONSOLIDATED OPERATIONS SERVICES
Three Months Three Months Three Months
Ended Ended Ended
June 30, June 30, June 30,
--------------- --------------- ---------------
2007 2006 2007 2006 2007 2006
------- ------- ------- ------- ------- -------
(in Millions, except per share data)
Revenues
Net sales $ 4,096 $ 3,497 $ 4,096 $ 3,497 $ - $ -
Finance and interest
income 227 207 49 45 262 229
------- ------- ------- ------- ------- -------
Total 4,323 3,704 4,145 3,542 262 229
------- ------- ------- ------- ------- -------
Costs and Expenses
Cost of goods sold 3,265 2,811 3,265 2,811 - -
Selling, general and
administrative 351 325 291 266 60 59
Research and development 99 96 99 96 - -
Restructuring 26 7 26 7 - -
Interest expense 147 156 76 92 103 87
Interest compensation to
Financial Services - - 62 66 - -
Other, net 75 86 50 53 15 10
------- ------- ------- ------- ------- -------
Total 3,963 3,481 3,869 3,391 178 156
------- ------- ------- ------- ------- -------
Income before income
taxes, minority interest
and equity in income
of unconsolidated
subsidiaries and
affiliates 360 223 276 151 84 73
Income tax provision 141 92 113 66 28 26
Minority interest 5 7 5 8 - -
Equity in income of
unconsolidated
subsidiaries and
affiliates:
Financial Services 2 2 58 49 2 2
Equipment Operations 12 21 12 21 - -
------- ------- ------- ------- ------- -------
Net income $ 228 $ 147 $ 228 $ 147 $ 58 $ 49
======= ======= ======= ======= ======= =======
Weighted average shares
outstanding:
Basic 236.7 235.6
======= =======
Diluted 237.5 235.7
======= =======
Basic and diluted earnings
per share ("EPS"):
Basic:
EPS before
restructuring, net of
tax $ 1.04 $ 0.65
======= =======
EPS $ 0.96 $ 0.62
======= =======
Diluted:
EPS before
restructuring, net of
tax $ 1.04 $ 0.65
======= =======
EPS $ 0.96 $ 0.62
======= =======
Dividends per share $ 0.25 $ 0.25
======= =======
See Notes to Condensed Consolidated Financial Statements.
CNH GLOBAL N.V.
CONDENSED CONSOLIDATED INCOME STATEMENTS
AND SUPPLEMENTAL INFORMATION
(Unaudited)
EQUIPMENT FINANCIAL
CONSOLIDATED OPERATIONS SERVICES
Six Months Six Months Six Months
Ended Ended Ended
June 30, June 30, June 30,
--------------- --------------- ---------------
2007 2006 2007 2006 2007 2006
------- ------- ------- ------- ------- -------
(in Millions, except per share data)
Revenues
Net sales $ 7,337 $ 6,447 $ 7,337 $ 6,447 $ - $ -
Finance and interest
income 459 418 88 85 516 452
------- ------- ------- ------- ------- -------
Total 7,796 6,865 7,425 6,532 516 452
------- ------- ------- ------- ------- -------
Costs and Expenses
Cost of goods sold 5,905 5,273 5,905 5,273 - -
Selling, general and
administrative 696 632 583 516 113 116
Research and development 189 180 189 180 - -
Restructuring 40 11 40 11 - -
Interest expense 288 295 149 173 193 164
Interest compensation to
Financial Services - - 117 116 - -
Other, net 163 183 107 119 30 25
------- ------- ------- ------- ------- -------
Total 7,281 6,574 7,090 6,388 336 305
------- ------- ------- ------- ------- -------
Income before income
taxes, minority interest
and equity in income
of unconsolidated
subsidiaries and
affiliates 515 291 335 144 180 147
Income tax provision 205 122 144 72 61 50
Minority interest 10 14 10 14 - -
Equity in income of
unconsolidated
subsidiaries and
affiliates:
Financial Services 4 4 123 101 4 4
Equipment Operations 19 31 19 31 - -
------- ------- ------- ------- ------- -------
Net income $ 323 $ 190 $ 323 $ 190 $ 123 $ 101
======= ======= ======= ======= ======= =======
Weighted average shares
outstanding:
Basic 236.5 190.6
======= =======
Diluted 237.5 235.6
======= =======
Basic and diluted earnings
per share ("EPS"):
Basic:
EPS before
restructuring, net of
tax $ 1.49 $ 1.05
======= =======
EPS $ 1.37 $ 1.00
======= =======
Diluted:
EPS before
restructuring, net of
tax $ 1.48 $ 0.85
======= =======
EPS $ 1.36 $ 0.81
======= =======
Dividends per share $ 0.25 $ 0.25
======= =======
See Notes to Condensed Consolidated Financial Statements.
CNH GLOBAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
AND SUPPLEMENTAL INFORMATION
(Unaudited)
EQUIPMENT FINANCIAL
CONSOLIDATED OPERATIONS SERVICES
------------------- ------------------ -------------------
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31,
2007 2006 2007 2006 2007 2006
--------- --------- -------- --------- --------- ---------
(in Millions)
Assets
Cash and
cash
equivalents $ 1,031 $ 1,174 $ 692 $ 703 $ 339 $ 471
Deposits in
Fiat
affiliates
cash
management
pools 1,286 497 1,261 496 25 1
Accounts,
notes
receivable
and other -
net 8,837 6,549 1,517 1,314 7,449 5,344
Intersegment
notes
receivable - - 1,479 1,445 -
Inventories 3,038 2,735 3,038 2,735 - -
Property,
plant and
equipment -
net 1,313 1,307 1,308 1,295 5 12
Equipment on
operating
leases -
net 364 254 - - 364 254
Investment
in
Financial
Services - - 1,920 1,788 - -
Investments
in
unconsol-
idated
affiliates 431 457 336 354 95 103
Goodwill and
intangibles 3,146 3,144 2,986 2,998 160 146
Other assets 2,455 2,157 1,401 1,386 1,054 771
--------- --------- -------- --------- --------- ---------
Total Assets $ 21,901 $ 18,274 $ 15,938 $ 14,514 $ 9,491 $ 7,102
========= ========= ======== ========= ========= =========
Liabilities and Equity
Short-term
debt $ 3,245 $ 1,270 $ 545 $ 488 $ 2,700 $ 782
Intersegment
short-term
debt - - - - 1,479 1,348
Accounts
payable 2,405 1,881 2,450 1,939 74 42
Long-term
debt 5,202 5,132 2,356 2,419 2,846 2,713
Intersegment
long-term
debt - - - - - 97
Accrued and
other
liabilities 5,583 4,871 5,121 4,548 472 332
--------- --------- -------- --------- --------- ---------
Total
Liabilities 16,435 13,154 10,472 9,394 7,571 5,314
Equity 5,466 5,120 5,466 5,120 1,920 1,788
--------- --------- -------- --------- --------- ---------
Total
Liabilities
and Equity $ 21,901 $ 18,274 $ 15,938 $ 14,514 $ 9,491 $ 7,102
========= ========= ======== ========= ========= =========
Total debt
less cash and
cash
equivalents,
deposits in
Fiat affiliates
cash management
pools and
intersegment notes
receivables ("Net
Debt" or
("Net Cash")) $ 6,130 $ 4,731 $ (531) $ 263 $ 6,661 $ 4,468
========= ========= ======== ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
CNH GLOBAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
AND SUPPLEMENTAL INFORMATION
(Unaudited)
EQUIPMENT FINANCIAL
CONSOLIDATED OPERATIONS SERVICES
Six Months Ended Six Months Ended Six Months Ended
June 30, June 30, June 30,
---------------- ---------------- ----------------
2007 2006 2007 2006 2007 2006
------- ------- ------- ------- ------- -------
(in Millions)
Operating
Activities:
Net income $ 323 $ 190 $ 323 $ 190 $ 123 $ 101
Adjustments to
reconcile net
income to net
cash from
operating
activities:
Depreciation
and
amortization 177 148 143 125 34 23
Intersegment
activity - - (30) (52) 30 52
Changes in
operating
assets and
liabilities (590) (92) 492 508 (1,082) (600)
Other, net 54 (40) (15) (67) 6 (14)
------- ------- ------- ------- ------- -------
Net cash from
operating
activities (36) 206 913 704 (889) (438)
------- ------- ------- ------- ------- -------
Investing
Activities:
Expenditures for
property, plant
and equipment (90) (58) (90) (56) - (2)
Expenditures for
equipment on
operating leases (161) (66) - - (161) (66)
Net (additions)
collections from
retail
receivables and
related
securitizations (668) (463) - - (668) (463)
Net (deposits in)
withdrawals from
Fiat affiliates
cash
management pools (770) (4) (747) (3) (23) (1)
Other, net (11) 35 (32) 6 21 29
------- ------- ------- ------- ------- -------
Net cash from
investing
activities (1,700) (556) (869) (53) (831) (503)
------- ------- ------- ------- ------- -------
Financing
Activities:
Intersegment
activity - - 17 (685) (17) 685
Net increase
(decrease) in
indebtedness 1,613 229 (31) (10) 1,644 239
Dividends paid (59) (59) (59) (59) (60) (60)
Other, net - (9) - (9) - -
------- ------- ------- ------- ------- -------
Net cash from
financing
activities 1,554 161 (73) (763) 1,567 864
------- ------- ------- ------- ------- -------
Other, net 39 38 18 6 21 32
------- ------- ------- ------- ------- -------
Increase (decrease)
in cash and cash
equivalents (143) (151) (11) (106) (132) (45)
Cash and cash
equivalents,
beginning of period 1,174 1,245 703 858 471 387
------- ------- ------- ------- ------- -------
Cash and cash
equivalents, end of
period $ 1,031 $ 1,094 $ 692 $ 752 $ 339 $ 342
======= ======= ======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
CNH GLOBAL N.V. - Notes to Unaudited Condensed Consolidated Financial
Statements
1. Principles of Consolidation and Basis of Presentation - The accompanying
unaudited condensed consolidated financial statements reflect all normal
and recurring adjustments that are, in the opinion of management, necessary
for a fair presentation of the consolidated results of CNH Global N.V. and
its consolidated subsidiaries ("CNH" or the "Company") in accordance with
generally accepted accounting principles in the United States of America
("U.S. GAAP"); however, because of their condensed nature, they do not
include all of the information and note disclosures required by U.S. GAAP
for complete financial statements. These financial statements should
therefore be read in conjunction with the audited, consolidated financial
statements and notes thereto for the year ended December 31, 2006 included
in the Company's Annual Report on Form 20-F filed with the Securities and
Exchange Commission ("SEC") on March 30, 2007.
CNH is controlled by Fiat Netherlands Holding N.V., a wholly owned
subsidiary of Fiat S.p.A. ("Fiat"). As of June 30, 2007, Fiat owned
approximately 90% of CNH's outstanding common shares.
The condensed consolidated financial statements include the accounts of
CNH's majority-owned and controlled subsidiaries and reflect the interests
of the minority owners of the subsidiaries that are not fully owned for the
periods presented, as applicable. 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 the consolidated operations and financial results of CNH.
The supplemental financial information captioned "Equipment Operations"
includes the results of operations of CNH's agricultural and construction
equipment operations, with the Company's financial services businesses
reflected on the equity method basis. The supplemental financial
information captioned "Financial Services" reflects the combination of
CNH's financial services businesses.
2. Stock-Based Compensation Plans - In February, 2007, CNH granted
approximately 1.5 million performance-based stock options (at targeted
performance levels) which may result in an estimated expense over the
vesting period of approximately $18 million under the CNH Equity Incentive
Plan ("CNH EIP"). One-third of the options will vest if specified fiscal
2007 targets are achieved when 2007 results are approved by the Board of
Directors in the first quarter of 2008 (the "Determination Date"). The
remaining options will vest equally on the first and second anniversary of
the Determination Date. The actual number of shares vesting may exceed 1.5
million if CNH's performance exceeds targets; however, if minimum target
levels are not achieved, the options will not vest. Options granted under
the CNH EIP have a contractual life of five years from the Determination
Date or approximately six years. The grant date fair value of $12.65 per
option was determined using the Black-Scholes pricing model.
The assumptions used in this model were:
Risk-free interest rate 4.40%
Expected volatility 38.32%
Expected life 4.0 years
Dividend yield 0.97%
The risk-free interest rate was based on the current U.S. Treasury rate for
a bond of approximately the expected life of the options. The expected
volatility was based on the historical activity of CNH's common shares
looking back over a period equal to the expected life of the options. The
expected life was based on the average of the vesting term of 72 months and
the original contract term of approximately six years. The expected
dividend yield was based on the annual dividend of $.25 per share which has
been paid on CNH's common shares over the last several years.
3. Accounts and Notes Receivable - In CNH's receivable asset securitization
programs, retail finance receivables are sold to limited purpose,
bankruptcy remote, consolidated subsidiaries of CNH. In turn, these
subsidiaries establish separate trusts to which they transfer the
receivables in exchange for the proceeds from asset-backed securities sold
by the trusts. Due to the nature of the assets held by the trusts and the
limited nature of each trust's activities, they are each classified as a
qualifying special purpose entity ("QSPE") under Statement of Financial
Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
No. 140"). In accordance with SFAS No. 140, assets and liabilities of the
QSPEs are not consolidated in the Company's consolidated balance sheets.
The amounts outstanding under these programs were $4.8 billion and $4.9
billion at June 30, 2007 and December 31, 2006, respectively. In addition
to the retail securitization programs, certain subsidiaries of CNH
securitized or discounted wholesale receivables without recourse. As of
June 30, 2007 and December 31, 2006, $3.6 billion and $3.7 billion,
respectively remained outstanding under these programs.
Included in the securitized or discounted wholesale receivables without
recourse amount above are amounts sold to CNH's European wholesale
securitization program. Certain Equipment Operations entities sell
receivables directly into this program while some of the Financial Services
entities sell into the program wholesale receivables purchased from the
Equipment Operations entities. A Financial Services subsidiary subscribes
to notes representing undivided retained interests. At June 30, 2007 and
December 31, 2006, the amounts outstanding under this program were $1.1
billion and $827 million, respectively and Financial Services had an
undivided retained interest of $528 million and $318 million, respectively.
Starting in the first quarter of 2007, an affiliate of Fiat began
purchasing debt securities issued by this securitization program. At June
30, 2007, Fiat affiliates held approximately $941million of these
securities.
Starting in March, 2007, programs to sell receivables from Equipment
Operations to Financial Services were expanded to include certain export
receivables that were previously held by Equipment Operations. As of June
30, 2007, approximately $352 million of these export receivables remained
outstanding.
4. Inventories - Inventories as of June 30, 2007 and December 31, 2006
consist of the following:
June 30, December 31,
2007 2006
------------- -------------
(in Millions)
Raw materials $ 679 $ 591
Work-in-process 294 267
Finished goods and parts 2,065 1,877
------------- -------------
Total Inventories $ 3,038 $ 2,735
============= =============
5. Goodwill and Intangibles - The following table sets forth changes in
carrying value of goodwill and intangibles for the six months ended June
30, 2007:
Additions,
Balance at Currency Balance at
January 1, Translation June 30,
2007 Amortization and Other 2007
-------------- ------------- ------------- --------------
(in Millions)
Goodwill $ 2,365 $ - $ 12 $ 2,377
Intangibles 779 (34) 24 769
-------------- ------------- ------------- --------------
Total
Goodwill and
Intangibles $ 3,144 $ (34) $ 36 $ 3,146
============== ============= ============= ==============
As of June 30, 2007 and December 31, 2006, the Company's intangible assets
and related accumulated amortization consisted of the following:
June 30, 2007 December 31, 2006
------------------------- -------------------------
Accumu- Accumu-
Weighted lated lated
Average Amorti- Amorti-
Life Gross zation Net Gross zation Net
-------- -------- -------- -------- -------- --------
(in Millions)
Intangible
assets subject
to amortization:
Engineering
drawings 20 $ 382 $ 167 $ 215 $ 380 $ 153 $ 227
Dealer
network 25 216 65 151 216 61 155
Software 5 286 188 98 248 157 91
Other 10-30 55 22 33 55 21 34
-------- -------- -------- -------- -------- --------
939 442 497 899 392 507
-------- -------- -------- -------- -------- --------
Intangible
assets not
subject to
amortization:
Trademarks 272 - 272 272 - 272
-------- -------- -------- -------- -------- --------
$ 1,211 $ 442 $ 769 $ 1,171 $ 392 $ 779
======== ======== ======== ======== ======== ========
CNH recorded amortization expense of approximately $34 million for the six
months ended June 30, 2007. CNH recorded amortization expense of
approximately $72 million for the year ended December 31, 2006. Based on
the current amount of intangible assets subject to amortization, the
estimated amortization expense for each of the years 2007 to 2011 is
approximately $70 million.
Any adjustment related to valuation allowances recorded against deferred
tax assets of Case Corporation and its subsidiaries (now known as CNH
America LLC) as of the Case Corporation acquisition date have in the past
and will in the future be treated as a reduction of goodwill and will not
impact future periods' tax expense.
6. Debt - The following table sets forth total debt and total debt less
cash and cash equivalents, deposits in Fiat affiliates cash management
pools and intersegment notes receivable ("Net Debt" or ("Net Cash")) as of
June 30, 2007 and December 31, 2006:
Equipment Financial
Consolidated Operations Services
------------------- ------------------- -------------------
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31,
2007 2006 2007 2006 2007 2006
--------- --------- -------- --------- --------- ---------
(in Millions)
Short-term
debt:
With Fiat
Affiliates $ 1,868 $ 438 $ 108 $ 260 $ 1,760 $ 178
Other 1,377 832 437 228 940 604
Intersegment - - - - 1,479 1,348
--------- --------- -------- --------- --------- ---------
Total
short-term
debt 3,245 1,270 545 488 4,179 2,130
--------- --------- -------- --------- --------- ---------
Long-term debt:
With Fiat
Affiliates 248 52 - - 248 52
Other 4,954 5,080 2,356 2,419 2,598 2,661
Intersegment - - - - - 97
--------- --------- -------- --------- --------- ---------
Total long-term
debt 5,202 5,132 2,356 2,419 2,846 2,810
--------- --------- -------- --------- --------- ---------
Total debt:
With Fiat
Affiliates 2,116 490 108 260 2,008 230
Other 6,331 5,912 2,793 2,647 3,538 3,265
Intersegment - - - - 1,479 1,445
--------- --------- -------- --------- --------- ---------
Total debt 8,447 6,402 2,901 2,907 7,025 4,940
--------- --------- -------- --------- --------- ---------
Less:
Cash and cash
equivalent 1,031 1,174 692 703 339 471
Deposits in Fiat
affiliates cash
management pools 1,286 497 1,261 496 25 1
Intersegment
notes
receivable - - 1,479 1,445 - -
--------- --------- -------- --------- --------- ---------
Net Debt
(Net Cash) $ 6,130 $ 4,731 ($ 531) $ 263 $ 6,661 $ 4,468
========= ========= ======== ========= ========= =========
At June 30, 2007, CNH had approximately $3.5 billion available under $7.3
billion total lines of credit and asset-backed facilities.
CNH participates in Fiat affiliates cash management pools with other Fiat
affiliates. Amounts deposited with Fiat affiliates as part of the Fiat
cash management system are repayable to CNH upon one business day's notice.
To the extent that Fiat affiliates are unable to return any such amounts
upon one business day's notice, and in the event of a bankruptcy or
insolvency of Fiat, CNH may be unable to secure the return of such funds,
and CNH may be viewed as a creditor of such Fiat entity with respect to
such funds. There is no assurance that the future operations of the Fiat
cash management system may not adversely impact CNH's ability to recover
its funds to the extent one or more of the above described events were to
occur.
On June 28, 2007, CNH announced the redemption of all of its 9 1/4% Senior
Notes due in 2011. The redemption price will be 104.625% of the amount of
the Senior Notes plus accrued but unpaid interest. As of the expected
August 1, 2007 redemption date, this would total approximately $1.1
billion. The redemption payment will be made from cash balances and a new
10-year term financing facility at market interest rates available from
Fiat Finance North America. The charge associated with this early
extinguishment of debt is expected to be approximately $60 million.
7. Income Taxes - In July 2006, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN 48").
FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." FIN 48 also prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The adoption of
FIN 48 by CNH, which was effective as of January 1, 2007, resulted in a
reduction of shareholders' equity in the first quarter of 2007 of
approximately $49 million.
For the six months ended June 30, 2007 and 2006, effective income tax rates
were 39.8% and 41.9%, respectively. For the three months ended June 30,
2007 and 2006, effective income tax rates were 39.2% and 41.3%,
respectively. For 2007, tax rates differ from the Dutch statutory rate of
25.5% due primarily to the higher tax rates in certain jurisdictions,
provisioning of unrecognized tax benefits, reversal of valuation allowance
on tax losses in certain jurisdictions, and the impact of tax losses in
certain jurisdictions where no immediate tax benefit is recognized. For
2006, tax rates differ from the Dutch statutory rate of 29.6% due primarily
to higher tax rates in certain jurisdictions and the impact of tax losses
in certain jurisdictions where no immediate tax benefit is recognized.
8. Restructuring - During the three and six months ended June 30, 2007 and
2006, CNH expense and utilization related to restructuring was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
(in Millions)
Balance, beginning of
period $ 81 $ 46 $ 85 $ 47
Expense 26 7 40 11
Utilization (22) (6) (40) (13)
Foreign currency
translation and other 1 4 1 6
---------- ---------- ---------- ----------
Balance, end of period $ 86 $ 51 $ 86 $ 51
========== ========== ========== ==========
Restructuring expense primarily relates to severance and other costs
incurred due to headcount reductions and plant closures. Utilization
primarily represents benefit plan curtailments, payments of involuntary
employee severance costs and costs related to the closing of facilities.
Included in the second quarter charges was an approximate $15 million
charge relating to the rationalization of the construction equipment
manufacturing facility in Berlin, Germany which commenced in 2005.
In 2006, CNH announced actions around the globe aimed at readjusting its
organizational structure to evolving business needs. These actions include
optimizing its North American Agricultural Equipment manufacturing
footprint to drive efficiency and reduce salaried headcount. CNH
anticipates that the cost of these actions, in total, will be approximately
$100 million before tax. Approximately $50 million, before tax, was
recognized in the fourth quarter of 2006 with the balance to be recognized
in 2007 and beyond.
9. Commitment and Contingencies - CNH pays for normal and extended warranty
costs and the cost of major programs to modify products in the customers'
possession within certain pre-established time periods. A summary of
recorded activity as of and for the six months ended June 30, 2007 for this
commitment is as follows:
Amount
----------
(in Millions)
Balance, January 1, 2007 $ 277
Current year provision 180
Claims paid and other adjustments (154)
----------
Balance, June 30, 2007 $ 303
==========
Certain of the Company's Brazilian subsidiaries have obtained a favorable
judicial decision or are still awaiting a decision regarding the
appropriateness of the enactment and/or assessment basis of a value added
tax ("Cofins") introduced in 1999. CNH would expect to begin recording
these favorable decisions upon receipt of final administrative approval
from the Brazilian Internal Revenue Service which would allow CNH to use
these amounts to offset other Brazilian federal tax payments due. CNH
anticipates receiving administrative approval beginning as early as the
second half of 2007. CNH expects to continue to pursue favorable judicial
decisions and final administrative approval beyond 2007 for certain of its
Brazilian subsidiaries.
10. Employee Benefit Plans - During the three months ended June 30, 2007
and 2006, CNH made discretionary contributions to its U.S. defined benefit
pension plan trust of approximately $30 million and $120 million,
respectively. CNH is currently evaluating options to begin funding, as
early as the second half of 2007, its U.S. postretirement medical benefits.
11. Shareholders' Equity - Shareholders approved a dividend of $0.25 per
common share at the Annual General Meeting on April 2, 2007. The dividend
was paid on April 30, 2007 to shareholders of record at the close of
business on April 23, 2007.
Pursuant to their terms, the 8 million shares of Series A Preferred Stock
automatically converted into 100 million newly issued CNH common shares on
March 23, 2006 in a non-cash transaction.
During each of the quarters ended June 30, 2007 and 2006, Financial
Services paid a dividend of $60 million to Equipment Operations.
As of June 30, 2007, CNH had 236.8 million common shares outstanding.
12. Earnings per Share - The following table reconciles the numerator and
denominator of the basic and diluted earnings per share computations for
the three and six months ended June 30, 2007 and 2006:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
(in Millions, except per share data)
Basic:
Net income $ 228 $ 147 $ 323 $ 190
========= ========= ========= =========
Weighted average common shares
outstanding - basic 236.7 235.6 236.5 190.6
========= ========= ========= =========
Basic earnings per share $ 0.96 $ 0.62 $ 1.37 $ 1.00
========= ========= ========= =========
Diluted:
Net income $ 228 $ 147 $ 323 $ 190
========= ========= ========= =========
Weighted average common shares
outstanding - basic 236.7 235.6 236.5 190.6
Effect of dilutive securities (when
dilutive):
Series A Preferred Stock - - - 44.8
Stock-Based Compensation Plans 0.8 0.1 1.0 0.2
--------- --------- --------- ---------
Weighted average common shares
outstanding - diluted 237.5 235.7 237.5 235.6
========= ========= ========= =========
Diluted earnings per share $ 0.96 $ 0.62 $ 1.36 $ 0.81
========= ========= ========= =========
13. Comprehensive Income (Loss) - The components of comprehensive income
(loss) for the three and six months ended June 30, 2007 and 2006 are as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
(in Millions)
Net income $ 228 $ 147 $ 323 $ 190
Other comprehensive income (loss),
net of tax:
Cumulative translation
adjustment 96 77 129 86
Deferred gains (losses) on
derivative financial
instruments (37) 20 (48) 55
Unrealized gains (losses)
on retained interests in
securitized transactions 1 8 (1) 8
Unrecognized defined
benefit plan obligations 30 - 29 -
Minimum pension liability
adjustment - (7) - (10)
-------- -------- -------- --------
Total $ 318 $ 245 $ 432 $ 329
======== ======== ======== ========
14. Segment Information - CNH has three reportable operating segments:
Agricultural Equipment, Construction Equipment and Financial Services.
A reconciliation from consolidated trading profit reported to Fiat under
International Financial Reporting Standards and International Accounting
Standards (collectively "IFRS") to income before taxes, minority interest
and equity in income of unconsolidated subsidiaries and affiliates under
U.S. GAAP for the three and six months ended June 30, 2007 and 2006 is as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
(in Millions)
Trading profit reported to Fiat
under IFRS $ 465 $ 340 $ 713 $ 505
Adjustments to convert from trading
profit under IFRS to U.S. GAAP
income before income taxes,
minority interest and equity in
income of unconsolidated
subsidiaries and affiliates:
Accounting for benefit plans (21) (23) (34) (51)
Accounting for intangible assets,
primarily development costs (11) (9) (23) (11)
Restructuring (26) 7 (40) 11
Net financial expense (48) (65) (108) (138)
Accounting for receivable
securitizations and other 1 (27) 7 (25)
-------- -------- -------- --------
Income before income taxes,
minority interest and equity in
income of unconsolidated
subsidiaries and affiliates under
U.S. GAAP $ 360 $ 223 $ 515 $ 291
======== ======== ======== ========
The following summarizes trading profit under IFRS by segment:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
(in Millions)
Agricultural Equipment $ 283 $ 155 $ 380 $ 199
Construction Equipment 88 110 152 165
Financial Services 94 75 181 141
--------- --------- --------- ---------
Trading profit under IFRS $ 465 $ 340 $ 713 $ 505
========= ========= ========= =========
15. Reconciliation of Non-GAAP Financial Measures - CNH, in its quarterly
press release announcing results, utilizes various figures that are "Non-
GAAP Financial Measures" as this term is defined under Regulation G as
promulgated by the SEC. In accordance with Regulation G, CNH has detailed
either the computation of these measures from multiple U.S. GAAP figures or
reconciled these non-GAAP financial measures to the most relevant U.S. GAAP
equivalent. Some of these measures do not have standardized meanings and
investors should consider that the methodology applied in calculating such
measures may differ among companies and analysts. CNH's management
believes these non-GAAP measures provide useful supplementary information
to investors in order that they may evaluate CNH's financial performance
using the same measures used by our management. These non-GAAP financial
measures should not be considered as a substitute for, nor superior to,
measures of financial performance prepared in accordance with U.S. GAAP.
Net Income Before Restructuring and Earnings Per Share Before
Restructuring, Net of Tax
CNH defines net income before restructuring, net of tax as U.S. GAAP net
income, less U.S. GAAP restructuring charges, net of tax applicable to the
restructuring charges.
The following table reconciles net income to net income before
restructuring, net of tax and the related pro-forma computation of earnings
per share:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
(in Millions, except per share data)
Basic:
Net income $ 228 $ 147 $ 323 $ 190
--------- --------- --------- ---------
Restructuring, net of tax:
Restructuring 26 7 40 11
Tax benefit (7) - (11) (1)
--------- --------- --------- ---------
Restructuring, net of tax 19 7 29 10
--------- --------- --------- ---------
Net income before restructuring,
net of tax $ 247 $ 154 $ 352 $ 200
========= ========= ========= =========
Weighted average common shares
outstanding - basic 236.7 235.6 236.5 190.6
========= ========= ========= =========
Basic earnings per share before
restructuring, net of tax $ 1.04 $ 0.65 $ 1.49 $ 1.05
========= ========= ========= =========
Diluted:
Net income before restructuring,
net of tax $ 247 $ 154 $ 352 $ 200
========= ========= ========= =========
Weighted average common shares
outstanding - basic 236.7 235.6 236.5 190.6
Effect of dilutive securities
(when dilutive):
Series A Preferred Stock - - - 44.8
Stock Compensation Plans 0.8 0.1 1.0 0.2
--------- --------- --------- ---------
Weighted average common shares
outstanding - diluted 237.5 235.7 237.5 235.6
========= ========= ========= =========
Diluted earnings per share before
restructuring, net of tax $ 1.04 $ 0.65 $ 1.48 $ 0.85
========= ========= ========= =========
Industrial Gross and Operating Margin
CNH defines industrial gross margin as Equipment Operations net sales less
cost of goods sold. CNH defines industrial operating margin as Equipment
Operations gross margin less selling, general and administrative, and
research and development costs. The following table summarizes the
computation of Equipment Operations industrial gross and operating margin.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2007 2006 2007 2006
-------------- -------------- -------------- --------------
(in Millions)
Net sales $ 4,096 100.0% $ 3,497 100.0% $ 7,337 100.0% $ 6,447 100.0%
Less:
Cost of
goods sold 3,265 79.7% 2,811 80.4% 5,905 80.5% 5,273 81.8%
------- ------- ------- -------
Gross
margin 831 20.3% 686 19.6% 1,432 19.5% 1,174 18.2%
Less:
Selling,
general
and admin-
istrative 291 7.1% 266 7.6% 583 7.9% 516 8.0%
Research
and
development 99 2.4% 96 2.7% 189 2.6% 180 2.8%
------- ------- ------- -------
Industrial
operating
margin $ 441 10.8% $ 324 9.3% $ 660 9.0% $ 478 7.4%
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Net Debt
Net Debt or (Net Cash) is defined as total debt less cash and cash
equivalents, deposits in Fiat affiliates cash management pools and
intersegment notes receivable. The calculation of Net Debt or (Net Cash) is
shown below:
Equipment Operations Financial Services
----------------------------- ------------------
June 30, March 31, Dec. 31, June 30, March 31,
2007 2007 2006 2007 2007
-------- -------- -------- -------- --------
(in Millions)
Total debt $ 2,901 $ 2,950 $ 2,907 $ 7,025 $ 5,397
Less:
Cash and cash
equivalent 692 594 703 339 419
Deposits in Fiat
affiliates cash
management pools 1,261 731 496 25 1
Intersegment
notes receivables 1,479 1,619 1,445 - -
Net Debt (Net Cash) -------- -------- -------- -------- --------
$ (531) $ 6 $ 263 $ 6,661 $ 4,977
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Working Capital
Equipment Operations working capital is defined as accounts and notes
receivable and other-net, excluding intersegment notes receivable, plus
inventories less accounts payable. The U.S. dollar computation of working
capital, as defined, is impacted by exchange rate movements. To
demonstrate the impact of these movements, we have computed working capital
as of June 30, 2007 using December 31, 2006 exchange rates.
The calculation of Equipment Operations working capital is shown below:
June 30, March 31,
2007 at 2007 at
June Dec. 31, March Dec. 31, Dec. June
30, 2006 FX 31, 2006 FX 31, 30,
2007 Rates 2007 Rates 2006 2006
------- ------- ------- ------- ------- -------
(in Millions)
Accounts, notes
receivable
and other - net -
Third Party $ 1,478 $ 1,427 $ 1,310 $ 1,293 $ 1,300 $ 1,378
Accounts, notes
receivable and
other - net -
Intersegment 39 38 31 30 14 22
------- ------- ------- ------- ------- -------
Accounts, notes
receivable and
other - net -
Total 1,517 1,465 1,341 1,323 1,314 1,400
------- ------- ------- ------- ------- -------
Inventories 3,038 2,955 3,037 3,005 2,735 2,657
------- ------- ------- ------- ------- -------
Accounts payable -
Third Party (2,365) (2,302) (2,171) (2,152) (1,848) (1,968)
Accounts payable -
Intersegment (85) (84) (131) (130) (91) (22)
------- ------- ------- ------- ------- -------
Accounts payable -
Total (2,450) (2,386) (2,302) (2,282) (1,939) (1,990)
------- ------- ------- ------- ------- -------
Working capital $ 2,105 $ 2,034 $ 2,076 $ 2,046 $ 2,110 $ 2,067
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