CNH Global N.V.

CNH Reports Improved Third Quarter Net Income

Lake Forest, Illinois (ots/PRNewswire) - - September Year-To-Date Net Income up 58% to US$156 Million - Equipment Operations Profitability Improvement Continues - Equipment Markets Remained Generally Strong - CNH Capital Continues Strong Performance - Reorganization By Global Brands to Accelerate Growth LAKE FOREST, Illinois, October 25 /PRNewswire/ -- CNH Global N.V. (NYSE: CNH) today reported third quarter 2005 net income of US$27 million, compared to third quarter 2004 net income of US$25 million. Results include restructuring charges, net of tax, of US$16 million in the third quarter of 2005, and US$9 million during the same period last year. Third quarter diluted earnings per share of US$.12, were up US$.01 compared with the third quarter of 2004. Before restructuring charges, net of tax, third quarter 2005 diluted earnings per share were US$.19, compared with US$.15, for the third quarter of 2004. During the third quarter Harold Boyanovsky was confirmed as the company's President and Chief Executive Officer, a position he had held on an interim basis since February. Subsequently, the company announced its reorganization to global brand businesses, in order to invigorate its Case IH and New Holland agricultural brands and its Case and New Holland construction equipment brands, whose heritages and loyal dealer networks are its most powerful assets. "For the past several years and again this quarter we have steadily improved our financial results" said Boyanovsky. "We must strengthen our position and accelerate growth in sales, margins and earnings. Driven by customer expectations for quality, service and responsiveness, global brand businesses are key for our transformation. We expect the achievement of our growth plans will follow." Other highlights from the quarter included the following: -- Compared with last year's third quarter, increased pricing offset higher material costs and other cost increases, particularly in North America and Western Europe. Steel costs, especially for construction equipment, increased more than anticipated, and are currently not moderating as expected. -- Component shortages have improved since the second quarter but shipment delays continued for some products. -- During the third quarter, the company launched several new models of agricultural tractors and hay & forage equipment, including its first products powered by Tier 3-compliant engines. Tier 3 product launches will continue through 2006. Construction equipment launches of Tier 3- compliant products will begin in the fourth quarter. -- In North America, during the quarter, the Case IH ASM planter and the New Holland Speedrower (TM) self propelled windrower both received "AE50" awards recognizing these products as among the top 50 innovative new products introduced in 2004, from the American Society of Agricultural and Biological Engineers. -- During the third quarter, CNH Capital completed its second retail asset backed securitization ("ABS") transaction of the year in the U.S. totaling US$1.15 billion. EQUIPMENT OPERATIONS - Third Quarter Financial Results Net sales of equipment, comprising the company's agricultural and construction equipment businesses, were US$2.8 billion for the third quarter, essentially the same as in the third quarter of 2004. Agricultural Equipment Net Sales -- Agricultural equipment net sales were US$1.8 billion for the third quarter, down 5% from the prior year, and down 7%, excluding currency variations. -- Excluding currency variations, our sales in North America were up 5%. Sales in Europe were down 8%. The sharp industry decline in Latin America continued in the third quarter, driving down our sales in the region by approximately 62%. -- Third quarter 2005 production of tractors and combines was approximately 12% lower than retail unit sales in the third quarter, approximately the same level of underproduction as in the third quarter of 2004. Construction Equipment Net Sales -- Net sales of construction equipment increased by 9% to US$950 million for the third quarter, compared to US$871 million in the third quarter of 2004, and were up 7% excluding currency variations. -- Excluding currency variations, North American sales were up 12%. However, increased sales of backhoe loaders and heavy equipment in North America were offset by a decrease in sales for the same products in Europe, where sales decreased by 10%. Sales in Latin America and Rest-of-World markets were up 27% and 31% respectively. -- Production of CNH's major construction equipment products was higher than retail unit sales by approximately 5%, slightly less than the overproduction in the third quarter of 2004. Gross Margin Equipment Operations gross margin (net sales of equipment less cost of goods sold) for agricultural and construction equipment represented as a percent of net sales, improved by 1.5 percentage points to 15.7% of net sales, or US$434 million, in the third quarter of 2005, compared to 14.2% of net sales, or US$396 million, in the third quarter of last year. -- Agricultural equipment gross margin improved strongly compared to the prior year's third quarter as net price realization and manufacturing efficiencies more than offset a continued decline in volumes of higher-margin combines in Latin America and Rest-of-World markets. -- Construction equipment gross margin improved compared to the prior year's third quarter due to net price realization and manufacturing efficiencies. Industrial Operating Margin Equipment Operations industrial operating margin (defined as net sales, less cost of goods sold, SG&A and R&D costs) expressed as a percent of net sales improved by 1.3 percentage points to 4.7% of net sales, or US$131 million in the third quarter of 2005, compared to 3.4% of net sales, or US$94 million, in the same period of 2004. The improvement in gross margin dollars, noted above, accounted for the increase. Increased R&D expenditures, primarily for new products, were offset by lower SG&A costs, due to lower than previously anticipated incentive compensation. Adjusted EBITDA Adjusted EBITDA for Equipment Operations increased by 19% to US$160 million for the quarter, or 5.8% of net sales, compared to US$135 million in the third quarter of 2004, or 4.8% of net sales. Our interest coverage ratio for the three months ended on September 30, 2005 was 3.2 times, compared to 2.7 times for the three months ended September 30, 2004. FINANCIAL SERVICES - Third Quarter Financial Results Financial Services operations third quarter 2005 net income increased by 8% to US$52 million, compared to US$48 million net income earned in the third quarter of last year. This increase reflects continued improvements in the Financial Services receivables portfolio quality. CNH - Year-to-Date Financial Results CNH's net income for the first nine months of 2005 improved by 58% to US$156 million, compared to US$99 million for the first nine months of 2004. Results include restructuring charges, net of tax, of US$24 million in the first nine months of 2005 compared to US$46 million in the same period of 2004. Diluted earnings per share were US$.67, compared to US$.42 in 2004. Before restructuring, year-to-date diluted earnings per share increased by 24% to US$.77 compared with US$.62 for the same period last year. EQUIPMENT OPERATIONS - Year-to-Date Financial Results Net sales of equipment, comprising the company's agricultural and construction equipment businesses were US$9.0 billion for the first nine months of 2005, compared to US$8.7 billion for the same period in 2004. Net of currency variations, net sales were at approximately the same level as in the prior year. Adjusted EBITDA for Equipment Operations increased by 8% to US$564 million for 2005, or 6.3% of net sales, compared to US$522 million in 2004, or 6.0% of net sales. Our interest coverage ratio for the nine months ended on September 30, 2005 was 3.5 times, compared to 3.0 times for the nine months ended September 30, 2004. FINANCIAL SERVICES - Year-to-Date Financial Results Financial Services operations net income improved by 39% to US$145 million for the first nine months of 2005, compared to US$104 million for the same period last year. This improvement reflects ABS transactions, improved yields on our wholesale portfolio, higher retail and wholesale ABS volumes, as well as ongoing improvements in receivables portfolio quality. NET DEBT AND OPERATING CASH FLOW Equipment Operations net debt (defined as total debt less cash and cash equivalents, deposits in Fiat affiliates cash management pools and inter-segment receivables) was US$839 million on September 30, 2005, compared to US$824 million on June 30, 2005 and US$1.3 billion on September 30, 2004. In the quarter, US$59 million of net cash was generated by operating activities. Positive net income plus depreciation and amortization and a decrease in working capital (defined as accounts and notes receivable, excluding inter-segment notes receivable, plus inventories less accounts payable) net of currency variations of approximately US$135 million, all contributed to cash generation from operating activities in the quarter. The company's US$120 million contribution to its U.S. defined benefit pension plan during the quarter was a partial offset. At incurred currency rates, working capital on September 30, 2005 was US$2.3 billion, compared to US$2.7 billion on September 30, 2004. In the quarter, CNH became an eligible borrower under Fiat S.p.A.'s 1 billion Euro credit facility agreement. Under the new facility, CNH was allocated exclusive rights to 300 million Euros of the syndicated credit line, plus the opportunity to access the remainder of any unutilized capacity. In addition, Fiat has renewed its US$1 billion credit line revolver with CNH through January 31, 2007. As of September 30, 2005, CNH had approximately US$3.9 billion available under US$6.3 billion total lines of credit and asset-backed facilities. During the quarter, the company modified its cash management operations, to pool the North American cash balances of Equipment Operations and Financial Services rather than to have each separately pooling with the Fiat cash management system. The result of this action is a decline in debt with Fiat Affiliates at Financial Services, a decline in deposits in Fiat Affiliates cash management pools by Equipment Operations and an increase in inter-segment funding. These actions, amongst others, are reflected in the US$836 million reduction in Financial Services debt with Fiat Affiliates in the quarter, to a debt balance of US$285 million on September 30, 2005. In the same period, Equipment Operations reduced its deposits in Fiat Affiliates cash management pools by US$839 million to US$580 million. This reduction in deposits also funded repayment of US$218 million of Case Corporation bonds that matured in August and a US$170 million increase in cash and cash equivalents deposited with third parties. Financial Services net debt decreased approximately US$238 million to US$3.8 billion on September 30, 2005 from US$4.0 billion on June 30, 2005, primarily reflecting the completion of its US$1.15 billion U.S. retail ABS transaction during the third quarter 2005. AGRICULTURAL EQUIPMENT MARKET OUTLOOK FOR 2005 CNH continues to believe that for the full year 2005, industry retail unit sales of agricultural equipment will be at about the same level as last year, although with regional differences not previously anticipated. CNH expects worldwide tractor industry unit retail sales will be up slightly with industry sales of combines down about 19%. Industry sales of under 40 horsepower tractors in North America are now anticipated to be lower than previously forecast, but industry sales of over 40 horsepower tractors are expected to be better than last year by 5%-10%. In Western Europe, industry unit sales of tractors could be down about 6% although combine sales should be up about 6%. In Latin America, CNH continues to expect that full-year tractor industry volumes will be about 25% below last year and sales of combines will be down 60%-65%. Industry sales in Rest-of-World markets now should be up strongly for tractors and up slightly for combines. CONSTRUCTION EQUIPMENT MARKET OUTLOOK FOR 2005 CNH now expects that full year construction equipment industry retail unit sales will be stronger than previously anticipated in all regions of the world, except for North America which remains unchanged from the previous forecast. Worldwide industry unit sales of light and heavy construction equipment should be up approximately 10% compared with full year 2004. Industry sales in North America should be the strongest, up approximately 12% for light equipment and up about 15% for heavy construction equipment. CNH's estimates of major agricultural and construction equipment industry retail unit sales by major market area are included in the supplemental information provided at the end of the release. CNH OUTLOOK FOR 2005 CNH expects that its net sales of equipment for the full year 2005 will increase by up to 5%. Margin improvements at Equipment Operations and higher profitability at Financial Services and the company's joint ventures are expected to more than offset the impact of selected investments being done to better support CNH's dealers, improve product quality, enhance global sourcing initiatives, and strengthen European logistics operations, thus leading to an improvement of approximately 35% in Equipment Operations profit before taxes, minority interest and restructuring costs. The full benefit of these expected improvements will be partially offset by an increase in our effective tax rate when compared to 2004. As a result, we anticipate net income before restructuring, net of tax, compared with the full year of 2004 will improve by approximately 15%. In addition, net of tax, restructuring costs for the full year are expected to be approximately US$65 million. The company expects Equipment Operations to generate approximately US$250 million of cash flow during the year, after its third-quarter contribution to its U.S. defined benefit pension plan of US$120 million. CNH expects to use that cash to further reduce Equipment Operations net debt, as compared with year-end 2004 levels. Based on data through the first nine months of 2005, including our on-going contributions to plan assets, asset returns less than our assumptions and the current discount rate environment, CNH expects an increase in its minimum pension liability of about US$100 million at year end 2005. This would result in a non-cash charge to shareholders' equity of about US$65 million, net of tax. CNH management will hold a conference call later today to review its third quarter results. The conference call webcast will begin at approximately 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 and is being carried by CCBN. CNH is the power behind leading agricultural and construction equipment brands of the Case and New Holland brand families. Supported by more than 11,400 dealers in 160 countries, CNH brings together the knowledge and heritage of its brands with the strength and resources of its worldwide commercial, industrial, product support and finance organizations. More information about CNH and its products can be found on line at 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," "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 and our customers' access to credit, actions by rating agencies concerning the ratings on our debt and asset backed securities and the ratings of Fiat S.p.A., 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), technological difficulties, results of our research and development activities, changes in environmental laws, employee and labor relations, pension and health care costs, 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 profit improvement initiatives depends upon, among other things, industry volumes as well as our ability to effectively rationalize our operations and to execute our dual 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, 2004. 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. All Figures are in US$ CNH GLOBAL N.V. CONSOLIDATED SELECTED FINANCIAL DATA (Millions, except per share data) (Unaudited) September 30, December 31, 2005 2004 BALANCE SHEETS Total assets $17,541 $18,080 Short-term debt $1,372 $2,057 Long-term debt, including current maturities $4,799 $4,906 Total liabilities $12,486 $13,051 Equity $5,055 $5,029 Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 STATEMENTS OF OPERATIONS Revenues: Net sales $2,768 $2,789 $8,985 $8,714 Finance and interest income 194 184 551 464 Total revenues $2,962 $2,973 $9,536 $9,178 Net income $27 $25 $156 $99 Per share data: Basic earnings per share $0.12 $0.19 $0.79 $0.74 Diluted earnings per share $0.12 $0.11 $0.67 $0.42 Dividends per share $ - $ - $0.25 $0.25 STATEMENTS OF CASH FLOWS Net cash from operating activities $367 $682 Net cash from investing activities 677 (980) Net cash from financing activities (1,038) 203 Other, net 23 - Increase (decrease) in cash and cash equivalents 29 (95) Cash and cash equivalents, beginning of period 931 619 Cash and cash equivalents, end of period $960 $524 Note: For a complete set of CNH's condensed consolidated financial statements, please go to Web site: ots Originaltext: CNH Global N.V. 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