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CNH Reports Record Second Quarter Net Income of $347 Million, Up 52%, Highest Quarterly Results in CNH History
(Marketwire Via Acquire Media NewsEdge) BURR RIDGE, IL, July 23 / MARKET WIRE/ --
CNH Global NV (NYSE: CNH):
-- Robust agricultural industry sales and market share gains drove net
sales of equipment to $5.3 billion, up 29%
-- Pricing actions offset higher input costs, primarily steel
-- Agricultural Equipment Gross Margin improved
-- Construction Equipment revenues up almost 50% in Latin America and
Rest-of-World more than offsetting soft markets in North America and
Western Europe
-- Revenue growth and cost discipline contributed to record Equipment
Operations Operating Margin of 11.1%
-- Financial Services net income up 21%
-- Full year 2008 financial outlook tightened, with expected range of
diluted EPS before restructuring, after tax, forecasted to be $3.40 to
$3.60
Robust sales growth in the agricultural equipment business combined with
favorable product sales mix were the primary drivers of CNH's diluted
earnings per share growth of 52% for the second quarter of 2008 compared to
the second quarter of 2007. Continued strong agriculture equipment
industry growth and new product introductions, coupled with an emphasis on
quality and disciplined supply chain management, lay the groundwork for
solid future top line and earnings growth.
Second Quarter & First Half Highlights
(Unaudited, in millions, except per share data)
Quarter Ended Six Months Ended
----------------- Percent ----------------- Percent
6/30/08 6/30/07 Change 6/30/08 6/30/07 Change
-------- -------- ------ -------- -------- ------
Net Sales of
Equipment $ 5,279 $ 4,096 28.9 % $ 9,378 $ 7,337 27.8 %
Equipment Operations
Operating Profit $ 585 $ 441 32.7 % $ 849 $ 660 28.6 %
Financial Services
Net Income $ 70 $ 58 20.7 % $ 122 $ 123 (0.8)%
Consolidated Net
Income $ 347 $ 228 52.2 % $ 459 $ 323 42.1 %
Restructuring (After
Tax) $ 4 $ 19 (78.9)% $ 18 $ 29 (37.9)%
Net Income Before
Restructuring, After
Tax $ 351 $ 247 42.1 % $ 477 $ 352 35.5 %
Diluted Earnings Per
Share (EPS) $ 1.46 $ 0.96 52.1 % $ 1.93 $ 1.36 41.9 %
Diluted EPS Before
Restructuring, After
Tax $ 1.48 $ 1.04 42.3 % $ 2.01 $ 1.48 35.8 %
"We are pleased to report strong double digit growth in sales, operating
profit and net income for the second quarter, making this our tenth
consecutive quarter of year over year improvement," said Harold Boyanovsky,
CNH President and Chief Executive Officer. "Our Agricultural Equipment
business continues to strengthen in all regions while our Construction
Equipment business grew sales, driven by growth in Latin America and
Rest-of-World which more than offset declining market conditions in North
America and Western Europe. Given the continued robust market growth in
Latin America, we announced the reopening of our Sorocaba, Brazil
production facility that will increase our capacity in combine harvesters
and construction equipment. Pricing and operational actions implemented in
earlier quarters, part of a continuous program to improve margins and
maximize profits on our growing volumes, are showing positive results in
offsetting rising material cost pressures and production capacity
constraints. Based on our first half performance, we are tightening our
full year 2008 guidance to $3.40 to $3.60 diluted EPS, before
restructuring, after tax."
Mr. Boyanovsky continued: "Our Gross Margin improved as a result of actions
taken by the company which reduced the cost of industrial supply
bottlenecks by approximately $18 million in the quarter. We anticipate
further substantial reductions during the balance of the year."
Second Quarter and Six Months 2008 Operating Review - Equipment Operations
Strong worldwide agricultural equipment industry retail unit sales growth
in the second quarter and first half of this year combined with improved
market share drove net sales of Agricultural Equipment up 38% for the
quarter and first half of 2008. Industry sales of high horsepower tractors
and combines, particularly in North America, increased more than the
overall market, contributing to a more robust product mix of agricultural
equipment sales.
Worldwide construction equipment industry retail unit sales remained at
near-record levels with continuing increases in Latin American and
Rest-of-World markets despite Western Europe's decline from its record
level and a continued weak market in North America. Industry sales of heavy
construction equipment were robust in most markets, leading to a more
favorable product sales mix.
Net Sales of Equipment Quarter Ended Six Months Ended
(Unaudited, US$ in --------------- Percent --------------- Percent
millions, except percents) 6/30/08 6/30/07 Change 6/30/08 6/30/07 Change
------- ------- ------ ------- ------- ------
Agricultural Equipment $ 3,838 $ 2,789 37.6% $ 6,764 $ 4,906 37.9%
Construction Equipment $ 1,441 $ 1,307 10.3% $ 2,614 $ 2,431 7.5%
------- ------- ------- -------
Total Net Sales of
Equipment $ 5,279 $ 4,096 28.9% $ 9,378 $ 7,337 27.8%
In addition to CNH's agricultural equipment unit sales growth and
improvements in product mix, price actions taken earlier in the year,
continued introduction of new products and the positive effects of
variations in exchange rate changes (7%) helped drive the robust sales
growth.
Sales grew 10% for CNH's worldwide Construction Equipment business in the
second quarter as positive variations in currency (10%), strength in Latin
American and Rest-of-World markets and pricing offset soft markets in North
America and Western Europe.
Equipment Operations Gross Profit and Margin
Agricultural Equipment sales growth, mix improvements and pricing actions
drove a 28% increase in CNH's Gross Profit in the second quarter compared
with 2007 and offset weakness in Construction Equipment due to unfavorable
absorption as production rates in Europe were reduced in response to a
softer market, thus enabling the company to maintain a Gross Margin
consistent with 2007.
Equipment Operations
(Unaudited, US$ in Quarter Ended Six Months Ended
millions, except -------------- ----------------
percents) 6/30/08 6/30/07 Change 6/30/08 6/30/07 Change
------- ----- --------- ------- ------- ---------
Gross Profit $ 1,064 $ 831 28.0% $ 1,764 $ 1,432 23.2%
Gross Margin 20.2% 20.3% (0.1)pts 18.8% 19.5% (0.7)pts
Equipment Operations Operating Profit and Margin
Equipment Operations Operating Profit grew 33% in the second quarter
compared with 2007, driven by the significant improvements in Agricultural
Equipment Gross Profit.
Equipment Operations
Operating Profit and Margin
(Unaudited, US$ in Quarter Ended Six Months Ended
millions, except ------------ ------------
percents) 6/30/08 6/30/07 Change 6/30/08 6/30/07 Change
----- ----- --------- ----- ----- ---------
Agricultural Equipment $ 491 $ 327 50.2 % $ 726 $ 460 57.8 %
Construction Equipment $ 94 $ 114 (17.5)% $ 123 $ 200 (38.5)%
----- ----- ----- -----
Total Operating Profit $ 585 $ 441 32.7 % $ 849 $ 660 28.6 %
Agricultural Equipment 12.8% 11.7% 1.1 pts 10.7% 9.4% 1.3 pts
Construction Equipment 6.5% 8.7% (2.2)pts 4.7% 8.2% (3.5)pts
Total Operating Margin 11.1% 10.8% 0.3 pts 9.1% 9.0% 0.1 pts
Agricultural Equipment Operating Margin reached a record 12.8% in the
second quarter, as a result of Gross Margin improvements and selling,
general and administrative (SG&A) and research and development (R&D) costs
declining as a percent of net sales.
Construction Equipment Operating Margin declined to 6.5% primarily as
positive price recovery was not sufficient to offset volume declines and
unfavorable manufacturing costs associated with an imbalance in the
distribution of demand combined with higher SG&A as a percent of sales.
Second Quarter 2008 Brand Activities
Case Construction Equipment launched 16 Tier 3 engine re-powered models in
North America, 15 in Europe, 10 in the Rest-of-World and 7 in Latin America
during the second quarter. The equipment ranged from crawler excavators to
wheel loaders and tractor loader backhoes.
Customer Assistance call centers were inaugurated for France, Germany and
Spain, and a training center opened in Shanghai, China, to provide
certified training programs for up to 400 mechanics in 2008.
New Holland Construction Equipment launched products upgraded with new
functionality including 10 in Europe, 7 in the Americas and 6 in the
Rest-of-World.
Among the new products were the E385B and E485B demolition series
excavators with Tier 3 engines and new hydraulics. The demolition segment
continues to expand in response to customer requirements for efficient
machines that can excel in this specific segment but are flexible enough to
be used for standard excavator applications.
Case IH launched, in North America, the Farmall 65C & 75C, 64 and
76-horsepower Tier 3 compliant compact utility tractors for a wide variety
of applications from livestock operations to municipalities. Its Puma
165-210 models, in the 135 to 180 horsepower range, can now be ordered
autoguidance-ready with Case IH Advanced Farming Systems (AFS) for
precision-farming applications.
In Europe, Case IH launched the Quantum 65C & 75C utility tractors suitable
for grassland, dairy, livestock arable, poultry and vegetable farms. The
Magnum 335 was launched in Australia, representing the highest powered
drawbar machine, ideal for Australia's cotton, cereal and broad-acre farms
where maximum power is needed.
New Holland Agricultural Equipment launched the 523-horsepower CR9080 Twin
Rotor Combine?, in North America, a product which has industry-leading
horsepower and maximizes productivity with the largest threshing capacity,
cleaning area and cab on the market. It also launched the TV6070
Bidirectional(TM) tractor, which offers high visibility and features a new
6.7L engine with an efficient eight-range transmission.
In Europe, the brand launched three T4000F specialty tractors developed to
work in orchards. Equipped with four-cylinder engines, they are designed to
work in confined spaces. Meanwhile, T5000, TT50 and TL5000 tractors were
shipped to Turkey, Angola and Australia.
Second Quarter and Six Months 2008 Operating Review - Financial Services
Financial Services Highlights
(Unaudited, US$ in Quarter Ended Six Months Ended
millions, except ----------------- Percent ----------------- Percent
percents) 6/30/08 6/30/07 Change 6/30/08 6/30/07 Change
-------- -------- ------- -------- -------- ------
Net Income $ 70 $ 58 20.7% $ 122 $ 123 (0.8)%
On-Book Asset
Portfolio $ 12,378 $ 7,160 72.9% $ 12,378 $ 7,160 72.9 %
Managed Asset
Portfolio $ 20,647 $ 17,727 16.5% $ 20,647 $ 17,727 16.5 %
CNH Financial Services' Second Quarter Net Income grew by 21% in the
quarter as income from higher levels of on-book receivables more than
offset a $14.7 million reduction in Retail ABS transaction gains from the
year-ago quarter. Ongoing improvement in Agricultural Equipment portfolios
offset an unfavorable delinquency trend in Construction Equipment. First
half Net Income declined by 1% from the prior year, as increased income
from higher levels of on-book receivables did not offset a $40.3 million
reduction in Retail ABS gains.
Equipment Operations Cash Flow and Net (Cash) / Debt
Cash Flow and Net Debt Quarter Ended Six Months Ended
---------------- ----------------
(Unaudited, US$ in millions) 6/30/08 6/30/07 6/30/08 6/30/07
------- ------- ------- -------
Net Income $ 347 $ 228 $ 459 $ 323
Depreciation & Amortization 72 72 133 143
Changes in Working Capital* 68 12 (369) 76
Other*** 332 271 422 371
------- ------- ------- -------
Cash Generated by Operating Activities 819 583 645 913
Net Cash from Investing Activities** (108) (49) (187) (122)
All Other, Including FX Impact for the
Period (88) 3 (115) 3
------- ------- ------- -------
(Increase) / Decrease in Net Debt
(Cash) $ 623 $ 537 $ 343 $ 794
======= ======= ======= =======
Net Debt (Cash) $ (829) $ (531) $ (829) $ (531)
======= ======= ======= =======
* Net change in receivables, inventories and payables including
inter-segment receivables and payables, net of FX impact for the
period.
** Excluding Net (Deposits In) Withdrawals from Fiat Cash Pools, as they
are a part of Net Debt (Cash).
*** Changes in Other items such as marketing programs and tax accruals.
CNH's net cash position improved in the quarter by $623 million. Cash
generated by operating activities, primarily from earnings and changes in
working capital, were significantly higher than growth in capital
investments and the increased annual dividend paid to shareholders in
April, resulting in an $829 million net cash position at June 30, 2008.
During the first half of 2008, CNH's net cash position improved by $343
million, as cash generated by operating activities was utilized to fund
higher levels of inventory to support growing demand for agricultural
products, increased capital investments to meet demand growth and improve
operating efficiency, and higher dividends to shareholders.
During the second quarter, CNH securitized $1.2 billion of U.S. retail
notes at a net loss of $5.3 million, reflecting the current pricing of ABS
transactions in general. During the first half of 2008, CNH Capital renewed
approximately $2.3 billion of credit lines and conduit facilities providing
the liquidity for ongoing growth of financing in support of higher demand
for agricultural and construction equipment.
Market Outlook
We believe the global agricultural industry outlook remains excellent. High
cash grain commodity prices and low levels of commodity stocks provide
strong support for continued growth for higher horsepower agricultural
tractors and combines throughout the world. U.S. Net Farm Cash Income is
expected to be at record levels, notwithstanding weakness in milk and meat
prices. CNH expects the Western European tractor market to remain strong
while the combine market will grow significantly. In Eastern Europe and the
CIS, we expect the markets to grow, spurred by high cash grain commodity
prices and the need to update equipment. We expect Latin American markets
to show continued strong growth, supported by increase in sugar cane for
use in ethanol production and cash grain commodity prices.
Our outlook for the global construction industry is for growth in heavy
equipment industry sales to offset a decline in light equipment industry
sales. We expect continuing strength in Latin American and Rest-of-World
markets driven by growing economies and infrastructure spending. We expect
construction demand in Western Europe to decline from recent record levels
as GDP growth and construction activity levels weaken, but that demand will
remain at high levels compared with recent history. Driven largely by
weakness in the housing market, the North American construction outlook
remains soft and we expect North American construction demand to continue
its decline for the remainder of the year from already low levels.
In view of these growth expectations, especially in the agriculture sector,
CNH is embarking on an intensive program to strengthen its manufacturing
footprint on a global scale. The primary objective of these activities is
to provide additional capacity for larger horsepower tractors and combines
and to remove bottlenecks.
CNH Outlook
Taking advantage of strong global agricultural demand and construction
strength in Latin American and Rest-of-World markets, CNH expects revenues
for the full year 2008 to be up approximately 25% compared to 2007. CNH
expects to fully offset recent increases in input costs with previously
announced pricing actions and will continue to closely monitor future
developments in raw material costs. CNH expects full year Operating Margins
to approximate 9% as CNH continues the improvement trend started in the
second quarter. CNH is tightening its expected full year Diluted EPS,
before restructuring, after taxes of $3.40 to $3.60.
CNH believes it is well positioned in the rapidly growing agricultural
market by its continued investment in new products, further capacity and
enhanced processes while leveraging our global footprint. During the second
quarter CNH announced the introduction of many new products and the planned
reopening of its Sorocaba, Brazil manufacturing facility to increase
capacity for both agricultural and construction equipment in the robust
Latin American market. The company is also investing to enhance its
processes with a significant investment in information systems worldwide to
accelerate its efforts in world class manufacturing in addition to driving
customer service and cost efficiency throughout CNH to position itself to
capitalize on the market opportunities in 2009.
CNH Global N.V. is a world leader in the agricultural and construction
equipment businesses. Supported by more than 11,000 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). 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 2008 results. The conference call Webcast will begin at
approximately 6:30 a.m. U.S. Central Time; 7:30 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,
operating results, 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 the availability of
credit and 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 (including the ultimate
outcome of the consolidated arbitration proceeding pending in London before
the ICC International Court of Arbitration), 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 annual report on Form 20-F for the year
ended December 31, 2007.
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.
Revenues and Net Sales
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
% %
2008 2007 Change 2008 2007 Change
------- ------- ----- ------- ------- -----
(in Millions)
Revenues:
Net sales
Agricultural
equipment $ 3,838 $ 2,789 38% $ 6,764 $ 4,906 38%
Construction
equipment 1,441 1,307 10% 2,614 2,431 8%
------- ------- ------- -------
Total net
sales 5,279 4,096 29% 9,378 7,337 28%
Financial services 341 262 30% 657 516 27%
Eliminations and other (69) (35) (119) (57)
------- ------- ------- -------
Total revenues $ 5,551 $ 4,323 28% $ 9,916 $ 7,796 27%
======= ======= ======= =======
Net sales:
North America $ 1,715 $ 1,475 16% $ 3,005 $ 2,766 9%
Western Europe 1,716 1,412 22% 3,100 2,461 26%
Latin America 669 415 61% 1,265 737 72%
Rest of World 1,179 794 48% 2,008 1,373 46%
------- ------- ------- -------
Total net sales $ 5,279 $ 4,096 29% $ 9,378 $ 7,337 28%
======= ======= ======= =======
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,
--------------- --------------- ---------------
2008 2007 2008 2007 2008 2007
------- ------- ------- ------- ------- -------
(in Millions, except per share data)
Revenues
Net sales $ 5,279 $ 4,096 $ 5,279 $ 4,096 $ - $ -
Finance and interest
income 272 227 48 49 341 262
------- ------- ------- ------- ------- -------
Total 5,551 4,323 5,327 4,145 341 262
------- ------- ------- ------- ------- -------
Costs and Expenses
Cost of goods sold 4,215 3,265 4,215 3,265 - -
Selling, general and
administrative 445 351 369 291 76 60
Research and development 110 99 110 99 - -
Restructuring 6 26 6 26 - -
Interest expense 203 147 90 76 163 103
Interest compensation to
Financial Services - - 60 62 - -
Other, net 61 75 48 50 20 15
------- ------- ------- ------- ------- -------
Total 5,040 3,963 4,898 3,869 259 178
------- ------- ------- ------- ------- -------
Income before income
taxes, minority interest
and equity in income
of unconsolidated
subsidiaries and
affiliates 511 360 429 276 82 84
Income tax provision 184 141 169 113 15 28
Minority interest 5 5 5 5 - -
Equity in income of
unconsolidated
subsidiaries and
affiliates:
Financial Services 3 2 70 58 3 2
Equipment Operations 22 12 22 12 - -
------- ------- ------- ------- ------- -------
Net income $ 347 $ 228 $ 347 $ 228 $ 70 $ 58
======= ======= ======= ======= ======= =======
Weighted average shares
outstanding:
Basic 237.3 236.7
======= =======
Diluted 237.7 237.5
======= =======
Basic and diluted earnings
per share ("EPS"):
Basic:
EPS before
restructuring, after
tax $ 1.48 $ 1.04
======= =======
EPS $ 1.46 $ 0.96
======= =======
Diluted:
EPS before
restructuring, after
tax $ 1.48 $ 1.04
======= =======
EPS $ 1.46 $ 0.96
======= =======
Dividends per share $ 0.50 $ 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,
--------------- --------------- ---------------
2008 2007 2008 2007 2008 2007
------- ------- ------- ------- ------- -------
(in Millions, except per share data)
Revenues
Net sales $ 9,378 $ 7,337 $ 9,378 $ 7,337 $ - $ -
Finance and interest
income 538 459 93 88 657 516
------- ------- ------- ------- ------- -------
Total 9,916 7,796 9,471 7,425 657 516
------- ------- ------- ------- ------- -------
Costs and Expenses
Cost of goods sold 7,614 5,905 7,614 5,905 - -
Selling, general and
administrative 846 696 699 583 147 113
Research and development 216 189 216 189 - -
Restructuring 24 40 24 40 - -
Interest expense 389 288 165 149 314 193
Interest compensation to
Financial Services - - 127 117 - -
Other, net 151 163 110 107 36 30
------- ------- ------- ------- ------- -------
Total 9,240 7,281 8,955 7,090 497 336
------- ------- ------- ------- ------- -------
Income before income
taxes, minority interest
and equity in income
of unconsolidated
subsidiaries and
affiliates 676 515 516 335 160 180
Income tax provision 247 205 202 144 45 61
Minority interest 10 10 10 10 - -
Equity in income of
unconsolidated
subsidiaries and
affiliates:
Financial Services 7 4 122 123 7 4
Equipment Operations 33 19 33 19 - -
------- ------- ------- ------- ------- -------
Net income $ 459 $ 323 $ 459 $ 323 $ 122 $ 123
======= ======= ======= ======= ======= =======
Weighted average shares
outstanding:
Basic 237.3 236.5
======= =======
Diluted 237.6 237.5
======= =======
Basic and diluted earnings
per share ("EPS"):
Basic:
EPS before
restructuring, after
tax $ 2.01 $ 1.49
======= =======
EPS $ 1.93 $ 1.37
======= =======
Diluted:
EPS before
restructuring, after
tax $ 2.01 $ 1.48
======= =======
EPS $ 1.93 $ 1.36
======= =======
Dividends per share $ 0.50 $ 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, December June 30, December June 30, December
2008 31, 2007 2008 31, 2007 2008 31, 2007
--------- --------- -------- -------- --------- ---------
Assets
Cash and
cash
equivalents $ 1,059 $ 1,025 $ 365 $ 405 $ 694 $ 620
Deposits in
Fiat
affiliates
cash
management
pools 1,216 1,231 1,026 1,157 190 74
Accounts,
notes
receivable
and other -
net 13,456 10,593 1,654 1,544 12,118 9,310
Intersegment
notes
receivable - - 2,877 1,831 - -
Inventories 4,430 3,488 4,430 3,488 - -
Property,
plant and
equipment -
net 1,596 1,510 1,591 1,505 5 5
Equipment on
operating
leases -
net 560 511 - - 560 511
Investment
in
Financial
Services - - 2,313 2,099 - -
Investments in
unconsolidated
affiliates 538 528 429 420 109 108
Goodwill and
other
intangibles 3,133 3,142 2,963 2,973 170 169
Other assets 1,831 1,717 1,339 1,215 492 502
--------- --------- -------- -------- --------- ---------
Total Assets $ 27,819 $ 23,745 $ 18,987 $ 16,637 $ 14,338 $ 11,299
========= ========= ======== ======== ========= =========
Liabilities and
Equity
Short-term
debt $ 5,971 $ 4,269 $ 798 $ 728 $ 5,173 $ 3,541
Intersegment
short-term
debt - - - - 2,877 1,831
Accounts
payable 3,497 2,907 3,559 2,989 242 161
Long-term
debt 6,017 5,367 2,641 2,179 3,376 3,188
Accrued and
other
liabilities 5,468 4,900 5,123 4,439 357 479
--------- --------- -------- -------- --------- ---------
Total
Liabilities 20,953 17,443 12,121 10,335 12,025 9,200
Equity 6,866 6,302 6,866 6,302 2,313 2,099
--------- --------- -------- -------- --------- ---------
Total
Liabilities
and Equity $ 27,819 $ 23,745 $ 18,987 $ 16,637 $ 14,338 $ 11,299
========= ========= ======== ======== ========= =========
Total debt
less cash and
cash equivalents,
deposits in
Fiat affiliates
cash management
pools and
intersegment
notes
receivables "Net
Debt(Cash)" $ 9,713 $ 7,380 $ (829) $ (486) $ 10,542 $ 7,866
========= ========= ======== ======== ========= =========
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 Six Months Six Months
Ended Ended Ended
June 30, June 30, June 30,
---------------- ---------------- ----------------
2008 2007 2008 2007 2008 2007
------- ------- ------- ------- ------- -------
Operating
Activities:
Net income $ 459 $ 323 $ 459 $ 323 $ 122 $ 123
Adjustments to
reconcile net
income to net
cash from
operating
activities:
Depreciation
and
amortization 186 177 133 143 53 34
Intersegment
activity - - (90) (30) 90 30
Changes in
operating
assets and
liabilities (1,036) (590) 237 492 (1,273) (1,082)
Other, net 54 54 (94) (15) 26 6
------- ------- ------- ------- ------- -------
Net cash from
operating
activities (337) (36) 645 913 (982) (889)
------- ------- ------- ------- ------- -------
Investing
Activities:
Expenditures for
property, plant
and equipment (154) (90) (154) (90) - -
Expenditures for
equipment on
operating leases (148) (161) - - (148) (161)
Net (additions)
collections from
retail
receivables and
related
securitizations (1,115) (668) - - (1,115) (668)
Net (deposits in)
withdrawals from
Fiat affiliates
cash management
pools 76 (770) 176 (747) (100) (23)
Other, net (29) (11) (33) (32) (3) 21
------- ------- ------- ------- ------- -------
Net cash from
investing
activities (1,370) (1,700) (11) (869) (1,366) (831)
------- ------- ------- ------- ------- -------
Financing
Activities:
Intersegment
activity - - (1,045) 17 1,045 (17)
Net increase
(decrease) in
indebtedness 1,790 1,613 471 (31) 1,319 1,644
Dividends paid (118) (59) (118) (59) - (60)
Other, net 3 - 3 - 7 -
------- ------- ------- ------- ------- -------
Net cash from
financing
activities 1,675 1,554 (689) (73) 2,371 1,567
------- ------- ------- ------- ------- -------
Other, net 66 39 15 18 51 21
------- ------- ------- ------- ------- -------
Increase (decrease)
in cash and cash
equivalents 34 (143) (40) (11) 74 (132)
Cash and cash
equivalents,
beginning of period 1,025 1,774 405 703 620 471
------- ------- ------- ------- ------- -------
Cash and cash
equivalents, end of
period $ 1,059 $ 1,031 $ 365 $ 692 $ 694 $ 339
======= ======= ======= ======= ======= =======
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 and supplemental
information reflect all adjustments consisting only of normal, recurring
adjustments except where noted, that are, in the opinion of management,
necessary for a fair presentation of the consolidated results of CNH Global
N.V., a Netherlands corporation, and its consolidated subsidiaries ("CNH"
or the "Company") in accordance with accounting principles generally
accepted 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 or the rules of the Securities and
Exchange Commission ("SEC") for complete annual or interim period 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, 2007 included in the Company's
Annual Report on Form 20-F filed with the SEC on March 5, 2008. CNH is
controlled by Fiat Netherlands Holding N.V., a wholly owned subsidiary of
Fiat S.p.A. ("Fiat"). As of June 30, 2008, Fiat owned approximately 89% 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 analyses 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 of accounting. The supplemental financial
information captioned "Financial Services" reflects the combination of
CNH's financial services businesses.
2. Recent Accounting Developments - As of the beginning of 2008, CNH
adopted Statement of Financial Accounting Standards ("SFAS") No. 157 "Fair
Values Measurements" ("SFAS No. 157") and No. 159 "The Fair Value Option
for Financial Assets and Financial Liabilities" ("SFAS No. 159"), except as
SFAS No. 157 applies to nonfinancial assets and nonfinancial liabilities.
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, which defines fair value, establishes a framework for the
measurement of fair value, and enhances disclosures about fair value
measurements. The Statement does not require any new fair value measures
but rather eliminates inconsistencies in guidance found in various prior
accounting pronouncements. In February 2008, the FASB issued FSP No. FAS
157-2, which delayed the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). This FSP partially deferred the
effective date of Statement 157 to fiscal years beginning after November
15, 2008. The partial adoption of SFAS No. 157 on January 1, 2008, did not
have a material impact to CNH's financial position and results of
operations.
In February 2007, the FASB issued SFAS No. 159, which permits an entity to
choose to measure many financial instruments and certain other items at
fair value that are not currently required to be measured at fair value.
The fair value option established by SFAS No. 159 permits all entities to
choose to measure eligible items at fair value at specified election dates.
A business entity will report unrealized gains and losses on items for
which the fair value option has been elected in income at each subsequent
reporting date. This standard also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. The adoption of SFAS No. 159 on January 1, 2008, did not have
an impact to CNH's financial position and results of operations, as the
Company did not elect the fair value option for eligible items.
3. Stock-Based Compensation Plans - Stock-based compensation consists of
stock options and performance-based shares that have been granted under the
CNH Outside Directors' Compensation Plan and the CNH Equity Incentive Plan
("CNH EIP"). For the six months ended June 30, 2008 and 2007, pre-tax
stock-based compensation costs were $13.9 million and $9.9 million,
respectively. For the three months ended June 30, 2008 and 2007, pre-tax
stock-based compensation costs were $6.4 million and $5.1 million,
respectively.
In June 2008, CNH granted approximately 1.2 million performance-based stock
options (at targeted performance levels) under the CNH EIP. This grant may
result in an estimated expense over the vesting period of approximately $13
million. One-third of the options will vest if specified fiscal 2008
targets are achieved when 2008 results are approved by the Board of
Directors in the first quarter of 2009 (the "Determination Date"). The
remaining options will vest equally on the first and second anniversary of
the Determination Date. The actual number of options that vest may exceed
1.2 million if CNH's 2008 performance exceeds targets; however, if minimum
target levels are not achieved, the options will not vest. This grant has
a contractual life of five years from the Determination date. The grant
date fair value of $12.78 was determined using the Black-Scholes pricing
model.
The assumptions used in the Black-Scholes model were:
Risk-free interest rate 3.02%
Expected volatility 40.65%
Expected life 3.63 years
Dividend yield 0.94%
The risk-free interest rate is based on the current U.S. Treasury rate for
a bond of approximately the expected life of the options. The expected
volatility is based on the historical activity of CNH's common shares over
a period equal to the expected life of the options. The expected life is
based on the average of the vesting period of each vesting tranche and the
original contract term of 68 months. The expected dividend yield is based
on the annual dividends which have been paid on CNH's common shares over
the past several years.
4. Accounts and Notes Receivable - In CNH's receivable securitization
programs, certain retail and wholesale finance receivables are sold and not
included in the Company's consolidated balance sheets.
The amounts outstanding under these retail programs were $4.4 billion and
$4.6 billion at June 30, 2008 and December 31, 2007, respectively. In
addition, as of June 30, 2008 and December 31, 2007, $1.4 billion and $2.3
billion, respectively, of wholesale receivables remained outstanding under
these programs.
During the second quarter 2008, CNH securitized $1.2 billion of U.S. retail
notes at a net loss of $5.3 million.
5. Inventories - Inventories as of June 30, 2008 and December 31, 2007
consist of the following:
June 30, December 31,
2008 2007
------------- -------------
(in millions)
Raw materials $ 1,064 $ 890
Work-in-process 428 333
Finished goods and parts 2,938 2,265
------------- -------------
Total Inventories $ 4,430 $ 3,488
============= =============
6. Goodwill and Other Intangibles - The following table sets forth changes
in goodwill and other intangibles for the three months ended June 30, 2008:
Foreign
Balance at Currency
December 31, Translation Balance at
2007 Amortization and Other June 30, 2008
------------- ------------- ------------- -------------
(in millions)
Goodwill $ 2,382 $ - $ (5) $ 2,377
Other Intangibles 760 (29) 25 756
------------- ------------- ------------- -------------
Total
Goodwill and
Other
Intangibles $ 3,142 $ (29) $ 20 $ 3,133
============= ============= ============= =============
As of June 30, 2008 and December 31, 2007, the Company's other intangible
assets and related accumulated amortization consisted of the following:
June 30, 2008 December 31, 2007
-------------------------- --------------------------
Weighted Accumulated Accumulated
Average Amorti- Amorti-
Life Gross zation Net Gross zation Net
-------- -------- -------- -------- -------- --------
(in millions)
Other intangible
assets subject
to amortization:
Engineering
drawings 20 $ 385 $ 195 $ 190 $ 391 $ 186 $ 205
Dealer network 25 216 74 142 216 70 146
Software 5 345 227 118 318 207 111
Other 10-30 62 28 34 49 23 26
-------- -------- -------- -------- -------- --------
1,008 524 484 974 486 488
Other intangible
assets not
subject to
amortization:
Trademarks 272 - 272 272 - 272
-------- -------- -------- -------- -------- --------
Total other
intangibles $ 1,280 $ 524 $ 756 $ 1,246 $ 486 $ 760
======== ======== ======== ======== ======== ========
CNH recorded amortization expense of approximately $29 million for the six
months ended June 30, 2008 and $69 million for the year ended December 31,
2007.
7. 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 (Cash)") as of June 30,
2008 and December 31, 2007:
Equipment Financial
Consolidated Operations Services
----------------- ------------------ -----------------
June 30, December June 30, December June 30, December
2008 31, 2007 2008 31, 2007 2008 31, 2007
-------- -------- -------- -------- -------- --------
(in millions)
Short-term debt:
With Fiat
affiliates $ 4,170 $ 2,562 $ 640 $ 263 $ 3,530 $ 2,299
Other 1,801 1,707 158 465 1,643 1,242
Intersegment - - - - 2,877 1,831
-------- -------- -------- -------- -------- --------
Total short-term
debt 5,971 4,269 798 728 8,050 5,372
-------- -------- -------- -------- -------- --------
Long-term debt:
With Fiat
affiliates 1,959 1,668 942 800 1,017 868
Other 4,058 3,699 1,699 1,379 2,359 2,320
Intersegment - - - - - -
-------- -------- -------- -------- -------- --------
Total long-term
debt 6,017 5,367 2,641 2,179 3,376 3,188
-------- -------- -------- -------- -------- --------
Total debt:
With Fiat
affiliates 6,129 4,230 1,582 1,063 4,547 3,167
Other 5,859 5,406 1,857 1,844 4,002 3,562
Intersegment - - - - 2,877 1,831
-------- -------- -------- -------- -------- --------
Total debt 11,988 9,636 3,439 2,907 11,426 8,560
-------- -------- -------- -------- -------- --------
Less:
Cash and cash
equivalents 1,059 1,025 365 405 694 620
Deposits in Fiat
affiliates cash
management pools 1,216 1,231 1,026 1,157 190 74
Intersegment
notes receivable - - 2,877 1,831 - -
-------- -------- -------- -------- -------- --------
Net debt (cash) $ 9,713 $ 7,380 $ (829) $ (486) $ 10,542 $ 7,866
======== ======== ======== ======== ======== ========
At June 30, 2008, CNH had approximately $3.2 billion available under $10.8
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.
8. Income Taxes - For the six months ended June 30, 2008 and 2007,
effective income tax rates were 36.5% and 39.8%, respectively. For the
three months ended June 30, 2008 and 2007, effective income tax rates were
36.0% and 39.2%, respectively. For 2008 and 2007, tax rates differ from the
Netherlands statutory rate of 25.5% due primarily to higher tax rates in
certain jurisdictions, tax credits and incentives, provisioning
of unrecognized tax benefits, utilization of tax losses in certain
jurisdictions where no tax benefit was previously recognized, impact of tax
losses in certain jurisdictions where no immediate tax benefit is
recognized, and enacted changes in tax rates.
The Company is engaged in competent authority proceedings at June 30, 2008.
The Company anticipates reaching a settlement with competent authority
within the next twelve months that may result in a tax deficiency
assessment for which there should be correlative relief under competent
authority. The potential tax deficiency assessment could have a net effect
on cash flows in the range of $40 million to $45 million. The Company has
provided for the unrecognized tax benefits and related competent authority
recovery under FIN 48. The Company does not believe that the resolution of
the competent authority proceedings will have a material adverse effect on
the results of operation.
9. Restructuring - During the six months ended June 30, 2008 and 2007, CNH
recognized expense of approximately $24 million and $40 million,
respectively. For the three months ended June 30, 2008 and 2007, CNH
recognized expense of approximately $6 million and $26 million,
respectively. Restructuring expense for the first six months of 2008
primarily relates to severance and other costs incurred due to headcount
reductions and plant closures. During the six months ended June 30, 2008
and 2007, CNH recorded cash utilization of approximately $24 million and
$40 million, respectively. For the three months ended June 30, 2008 and
2007, CNH recorded cash utilization of approximately $9 million and $22
million, respectively. Cash utilization recorded in the first six months
of 2008 primarily represents payments of involuntary employee severance
costs and costs related to the closing of facilities.
10. Commitments and Contingencies - CNH pays for 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, 2008 for this
commitment is as follows:
Amount
-----------
(in millions)
Balance at January 1, 2008 $ 297
Current year provision 208
Claims paid and other adjustments (155)
-----------
Balance at June 30, 2008 $ 350
===========
Management makes estimates and assumptions that affect the reported amounts
of deferred tax assets. The Company has recorded valuation allowances to
reduce its deferred tax assets to the amount we believe more likely than
not to be realized. A change in judgment of the realizability of the
Company's deferred tax assets may significantly impact CNH's results of
operations and financial position in the period that such a determination
is made.
On September 21, 2007, the Company submitted a response in a consolidated
arbitration proceeding (the "Arbitration") pending in London before the ICC
International Court of Arbitration. The Arbitration arose under a Services
Agreement between CNH and PGN Logistics Ltd ("PGN"), pursuant to which PGN
provided specified logistics services for certain of the Company's
subsidiaries in Europe. The dispute arose following CNH's termination of
the Services Agreement in January 2005 and involves CNH's right to
terminate (based upon alleged breach of contract and illegal activities) as
well as invoices under the Services Agreement that were disputed by CNH and
unpaid. The Tribunal in the Arbitration issued a partial decision on
liability issues, finding, among other things, that CNH was not permitted
to terminate the Services Agreement and that PGN was entitled in principle
to recover amounts properly owed to it at the time of termination as well
as additional damages that PGN may establish it has suffered for lost
profits.
The hearing on damages was held on October 8-9, 2007. Prior to the damages
hearing, the Company paid to PGN approximately ?27.4 million ($55 million,
of which $42 million was classified as restructuring) which represented
payment of claims which the Tribunal held CNH was responsible for and with
respect to which CNH did not have an objection as to amount. At the
damages hearing PGN advanced a variety of theories purporting to
substantiate damages for lost profits and other items. On February 4,
2008, the Tribunal issued its damages award. Pursuant to the award, the
Tribunal, among other things, required CNH to pay certain invoices,
compensate PGN for lost future profits under the Services Agreement and
bear a portion of the costs incurred in connection with the dispute and the
Arbitration. The Tribunal dismissed all of PGN's other claims.
In March 2008, both CNH and PGN submitted applications requesting that the
Tribunal correct certain errors in the damages award. On June 10, 2008,
the Tribunal issued an Addendum pursuant to which it corrected the errors
in the award. While CNH is assessing the financial implications of the
Addendum as well as considering whether to appeal certain aspects of the
latest decision, CNH estimates that the aggregate remaining amount to be
paid to PGN in connection with this matter will not exceed $27 million.
The Company believes its reserves are adequate to cover the ultimate amount
payable.
11. Shareholders' Equity - Shareholders approved a dividend of $0.50 per
common share at the Annual General Meeting on March 20, 2008. The dividend
was paid on April 15, 2008 to shareholders of record at the close of
business on April 4, 2008.
As of June 30, 2008, CNH had 237.4 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, 2008 and 2007:
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2008 2007 2008 2007
-------- -------- -------- --------
(in Millions, except per share data)
Basic:
Net income $ 347 $ 228 $ 459 $ 323
======== ======== ======== ========
Weighted average common shares
outstanding - basic 237.3 236.7 237.3 236.5
======== ======== ======== ========
Basic earnings per share $ 1.46 $ 0.96 $ 1.93 $ 1.37
======== ======== ======== ========
Diluted:
Net income $ 347 $ 228 $ 459 $ 323
======== ======== ======== ========
Weighted average common shares
outstanding - basic 237.3 236.7 237.3 236.5
Effect of dilutive securities
(when dilutive):
Stock compensation plans 0.4 0.8 0.3 1.0
-------- -------- -------- --------
Weighted average common shares
outstanding - dilutive 237.7 237.5 237.6 237.5
======== ======== ======== ========
Diluted earnings per share $ 1.46 $ 0.96 $ 1.93 $ 1.36
======== ======== ======== ========
13. Comprehensive Income (Loss) - The components of comprehensive income
(loss) for the three and six months ended June 30, 2008 and 2007 are as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2008 2007 2008 2007
------- ------- ------- -------
(in Millions)
Net income 347 228 459 323
Other comprehensive income, net of tax
Cumulative translation adjustment 85 96 203 129
Deferred gains (losses) on derivative
financial instruments (10) (37) 13 (48)
Unrealized gains (losses) on retained
interests in securitization
transactions 1 1 (1) (1)
Minimum pension liability adjustment (5) 30 (9) 29
------- ------- ------- -------
Comprehensive net income $ 418 $ 318 $ 665 $ 432
======= ======= ======= =======
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 (loss) before taxes, minority
interest and equity in income (loss) of unconsolidated subsidiaries and
affiliates under U.S. GAAP for the three and six months ended June 30, 2008
and 2007 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2008 2007 2008 2007
------- ------- ------- -------
(in Millions)
Trading profit reported to Fiat under
IFRS $ 618 $ 465 $ 914 $ 713
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 employee benefit plans (12) (21) (23) (34)
Accounting for intangible assets,
primarily product development costs (7) (11) (18) (23)
Restructuring (6) (26) (24) (40)
Net financial expense (65) (48) (137) (108)
Accounting for receivable
securitizations and other (17) 1 (36) 7
------- ------- ------- -------
Income before income taxes, minority
interest and equity in income of
unconsolidated subsidiaries and
affiliates under U.S. GAAP $ 511 $ 360 $ 676 $ 515
======= ======= ======= =======
The following summarizes trading profit under IFRS by segment:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
(in Millions)
Agricultural Equipment 444 283 640 380
Construction Equipment 72 88 77 152
Financial Services 102 94 197 181
-------- -------- -------- --------
Trading profit under IFRS $ 618 $ 465 $ 914 $ 713
======== ======== ======== ========
15. Reconciliation of Non-GAAP Financial Measures - CNH, in its quarterly
unaudited condensed financial statements, 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.
An explanation and reconciliation of the measures to U.S. GAAP follows.
Net Income Before Restructuring and Earnings Per Share Before
Restructuring, After Tax
CNH defines net income before restructuring, after tax, as U.S. GAAP net
income, less U.S. GAAP restructuring charges, after tax applicable to the
restructuring charges.
The following table reconciles net income to net income before
restructuring, after tax and the related pro-forma computation of earnings
per share:
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
-------- -------- -------- --------
(in Millions, except per share data)
Basic:
Net income $ 347 $ 228 $ 459 $ 323
-------- -------- -------- --------
Restructuring, after tax:
Restructuring 6 26 24 40
Tax benefit (2) (7) (6) (11)
-------- -------- -------- --------
Restructuring, after tax 4 19 18 29
-------- -------- -------- --------
Net income before restructuring,
after tax $ 351 $ 247 $ 477 $ 352
======== ======== ======== ========
Weighted average common shares
outstanding - basic 237.3 236.7 237.3 236.5
======== ======== ======== ========
Basic earnings per share before
restructuring, after tax $ 1.48 $ 1.04 $ 2.01 $ 1.49
======== ======== ======== ========
Diluted:
Net income before restructuring,
after tax $ 351 $ 247 $ 477 $ 352
======== ======== ======== ========
Weighted average common shares
outstanding - basic 237.3 236.7 237.3 236.5
Effect of dilutive securities
(when dilutive):
Stock compensation plans 0.4 0.8 0.3 1.0
-------- -------- -------- --------
Weighted average common shares
outstanding - dilutive 237.7 237.5 237.6 237.5
======== ======== = | | |
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