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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTIONS 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14528
CNH GLOBAL N.V.
(Exact name of registrant as specified in its charter)
KINGDOM OF THE NETHERLANDS
(State or other jurisdiction of
incorporation or organization)
WORLD TRADE CENTER
TOWER B, 10TH FLOOR
AMSTERDAM AIRPORT
THE NETHERLANDS
(Address of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Shares, par value Euro 0.45 New York
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)OF
THE ACT: NONE
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report: 277,175,498 Common Shares
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days. [X]
Indicate by check mark which financial statement item the registrant has
elected to follow: Item 17 [ ] or Item 18 [X].
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Identity of Directors, Senior Management and Advisers....... 5
Item 2. Offer Statistics and Expected Timetable..................... 5
Item 3. Key Information............................................. 5
Item 4. Information on the Company.................................. 8
Item 5. Operating and Financial Review and Prospects................ 23
Item 6. Directors, Senior Management and Employees.................. 42
Item 7. Major Shareholders and Related Party Transactions........... 48
Item 8. Financial Information....................................... 50
Item 9. The Offer and Listing....................................... 50
Item 10. Additional Information...................................... 51
Item 11. Quantitative and Qualitative Disclosures About Market 60
Risk........................................................
Item 12. Description of Securities Other than Equity Securities...... 62
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies............. 62
Item 14. Material Modifications to the Rights of Security Holders and 62
Use of Proceeds.............................................
Item 15. [Reserved].................................................. 62
Item 16. [Reserved].................................................. 62
PART III
Item 17. Financial Statements........................................ 63
Item 18. Financial Statements........................................ 63
Item 19. Exhibits.................................................... 63
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PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION
CNH Global N.V. combines the operations of New Holland N.V. ("New Holland")
and Case Corporation ("Case") as a result of their business merger ("the
merger") on November 12, 1999 ("the merger date"). Effective with the closing of
the merger, New Holland changed its name to CNH Global N.V. As used in this
report, "CNH" refers to CNH Global N.V. and its consolidated subsidiaries. In
addition, "CNH" may refer to New Holland N.V. for financial information prior to
the merger.
CNH has prepared its annual consolidated financial statements in accordance
with generally accepted accounting principles in the United States or U.S. GAAP,
and certain reclassifications have been made to conform the historical New
Holland financial statements to the CNH presentation. The accompanying financial
statements reflect the historical operating results of CNH, including the
results of operations of Case since the merger date. CNH has prepared its
consolidated financial statements in U.S. dollars and, unless otherwise
indicated, all financial data set forth in this report is expressed in U.S.
dollars.
Certain information in this report has been presented separately by
geographic area. CNH defines its geographic areas as (1) North America, (2)
Western Europe, (3) Latin America, and (4) Rest of World. As used in this
report, all references to "North America," "Western Europe," "Latin America" and
"Rest of World" are defined as follows:
- North America -- United States and Canada.
- Western Europe -- Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Iceland, Ireland, Italy, Luxembourg, The Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom.
- Latin America -- Mexico, Central and South America, and the Caribbean
Islands.
- Rest of World -- Those areas not included in North America, Western
Europe and Latin America, as defined above.
In this report, management estimates of market share information are
generally based on registrations of equipment in most of Europe and on retail
data collected by a central information bureau from equipment manufacturers in
North America, as well as on shipment data collected by an independent service
bureau. Not all agricultural and construction equipment is registered, and
registration data may thus underestimate actual retail demand. In many
countries, there may also be a period of time between the delivery, sale and
registration of a vehicle; as a result, delivery or registration data for a
particular period may not correspond directly to retail sales in such a period.
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* * * * *
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The information included in this report contains certain forward-looking
statements and involves risks and uncertainties that could cause actual results
to differ materially from those in the forward-looking statements.
CNH's outlook is predominantly based on its interpretation of what it
considers key economic assumptions. Crop production and commodity prices are
strongly affected by weather conditions, energy prices, real estate values,
animal diseases, crop pests, harvest yields, government farm programs and
consumer confidence and can fluctuate significantly. Housing starts and other
construction activity are sensitive to interest rates and government spending.
The spread of foot-and-mouth disease ("FMD") and other animal diseases within
and outside of Europe also could adversely affect livestock and feed prices and
overall levels of farmer's confidence. Concerns pertaining to genetically
modified organisms ("GMO") and China's delayed entry into the World Trade
Organization also may affect farm exports. In addition, higher fuel and
fertilizer costs could have a negative impact on farm income. Some of the other
significant factors for CNH include general economic and capital market
conditions, the cyclical nature of its business, foreign currency movements,
hedging practices, CNH's and its customers' access to credit, political
uncertainty and civil unrest 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, changes in environmental laws, and employee and
labor relations. Additionally, CNH's achievement of the anticipated benefits of
the merger of New Holland and Case, including the realization of expected annual
operating synergies, depends upon, among other things, its ability to integrate
effectively the operations and employees of New Holland and Case, and to execute
its multi-branding strategy. The timing and costs for implementing CNH's merger
initiatives is subject to the outcome of negotiations with numerous third
parties, including purchasers of product lines required to be divested, labor
unions, dealers and others. Further information concerning factors that could
significantly impact expected results is included in the following sections of
this Form 20-F: Key Information; Information on the Company; Operating and
Financial Review and Prospects; Directors, Senior Management and Employees; and
Financial Information.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA.
The financial data set forth below at December 31, 2000 and 1999, and for
the years ended December 31, 2000, 1999 and 1998, have been derived from the
audited consolidated financial statements of CNH included herein. Financial data
at December 31, 1998, 1997, and 1996, and for the years ended December 31, 1997
and 1996, have been derived from CNH's published financial statements not
included herein.
CNH has presented the selected historical financial data as of and for each
of the five years ended December 31, 2000, in accordance with U.S. GAAP, and
certain reclassifications have been made to conform the historical financial
statements to the 2000 presentation.
CNH acquired Case on November 12, 1999. The accompanying selected financial
data reflects the historical operating results of CNH, including the results of
operations of Case since November 12, 1999.
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(SHARES OUTSTANDING IN THOUSANDS)
INCOME STATEMENT DATA:
Revenues:
Net sales.................................. $ 9,337 $ 5,949 $ 5,474 $ 5,798 $ 5,474
Finance and interest income................ 677 324 223 193 58
-------- -------- -------- -------- --------
Total revenues........................ $ 10,014 $ 6,273 $ 5,697 $ 5,991 $ 5,532
======== ======== ======== ======== ========
Net income (loss).......................... $ (381) $ 148 $ 258 $ 388 $ 250
======== ======== ======== ======== ========
Earnings (loss) per share:
Basic.................................... $ (1.79) $ 0.99 $ 1.73 $ 2.60 $ 1.68
Diluted.................................. $ (1.79) $ 0.97 $ 1.73 $ 2.60 $ 1.68
Cash dividends declared per common share... $ 0.55 $ 0.55 $ 0.55 $ 0.55 $ --
BALANCE SHEET DATA (AT THE END OF YEAR):
Total assets............................... $ 17,577 $ 17,678 $ 7,296 $ 6,330 $ 5,111
Long-term debt, including current
maturities............................... $ 5,539 $ 4,558 $ 1,011 $ 651 $ 72
Shareholders' equity....................... $ 2,514 $ 1,710 $ 1,784 $ 1,621 $ 1,374
Common Shares Euro 0.45 par value.......... $ 143 $ 88 $ 88 $ 88 $ 88
Shares outstanding......................... 277,175 149,660 149,000 149,000 149,000
B. CAPITALIZATION AND INDEBTEDNESS.
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS.
Not applicable.
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D. RISK FACTORS.
CNH MAY NOT FULLY ACHIEVE THE ANTICIPATED BENEFITS OF THE BUSINESS MERGER OF NEW
HOLLAND AND CASE
CNH's ability to achieve the anticipated benefits of the merger, including
the realization of at least $600 million in annual profit improvements by 2003,
depends on, among other things, CNH's ability to integrate and rationalize
effectively the operations and employees of New Holland and Case.
AN OVERSUPPLY OF USED AND RENTAL EQUIPMENT MAY NEGATIVELY AFFECT CNH'S SALES
In recent years, short-term lease programs and commercial rental agencies
for agricultural and construction equipment have expanded significantly. As this
equipment comes off lease or is replaced with newer equipment by rental
agencies, there will be a significant increase in the availability of late-model
used equipment. An oversupply in used equipment could depress sales of new
equipment. CNH cannot predict how much an oversupply of used equipment would
affect demand for, and the market prices of, new and used equipment in the event
of a continued downturn in market demand.
CNH'S BUSINESS IS AFFECTED BY CYCLICAL ECONOMIC CONDITIONS AND OTHER FACTORS
BEYOND ITS CONTROL
CNH's business depends upon general activity levels in the agricultural and
construction industries. Historically, these industries have been highly
cyclical. CNH's equipment operations and financial services operations are
subject to many factors beyond their direct control, such as the credit quality,
availability and prevailing terms of credit for customers, CNH's own access to
credit, adverse political and economic developments in emerging markets, such as
Brazil and the former Soviet Union, the response of its competitors to adverse
cyclical conditions and dealer inventory management. In addition, CNH's
operating profits are susceptible to a number of industry-specific factors,
including:
AGRICULTURAL EQUIPMENT INDUSTRY
- changes in farm income and farm land value;
- the level of worldwide farm output and demand for farm products;
- commodity prices;
- government agricultural policies and subsidies;
- limits on agricultural imports; and
- weather.
CONSTRUCTION EQUIPMENT INDUSTRY
- prevailing levels of construction, especially housing starts, and levels
of industrial production;
- public spending on infrastructure; and
- real estate values.
The nature of the agricultural equipment business is such that a downturn
in demand can occur suddenly, resulting in excess inventories and production
capacity. These downturns may be prolonged and may result in significant losses
during affected periods. Equipment manufacturers, including New Holland N.V. and
Case Corporation, have responded in the past by reducing production and
discounting product prices. These actions have resulted in restructuring charges
and lower earnings in past affected periods. In the event of future downturns,
additional restructuring may become necessary.
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THE INDUSTRIES IN WHICH CNH OPERATES ARE HIGHLY COMPETITIVE
The agricultural equipment industry is highly competitive, particularly in
North America, Europe and Latin America. CNH competes primarily with:
- large global full-line suppliers, including Deere & Company and AGCO
Corporation;
- manufacturers focused on particular industry segments, including Kubota
Corporation, Caterpillar Inc. and various implement manufacturers;
- regional manufacturers in mature markets, including Claas KGa and SAME
Deutz-Fahr Group, which are expanding worldwide; and
- local, low-cost manufacturers in individual markets, particularly in
emerging markets such as Eastern Europe, India and China.
The construction equipment industry is highly competitive, particularly in
Western Europe, North America, Latin America and the Asia Pacific region. CNH
competes primarily with:
- two large global full-line suppliers, Caterpillar and Komatsu
Construction Equipment, which together account for approximately 40% of
the world industry;
- product specialists operating on a global basis, including Kobelco
Construction Equipment, Ingersoll-Rand Company, Hitachi Ltd.; and
- local and multi-regional manufacturers, such as Volvo Construction
Equipment Corporation, Deere & Company and J.C. Bamford Excavators Ltd.
Banks, finance companies and other financial institutions compete with
CNH's financial services operations.
Some of CNH's competitors have greater financial, marketing and operating
resources than CNH.
FIAT OWNS A MAJOR PART OF CNH; CNH RELIES TO SOME EXTENT ON THE FIAT GROUP TO
FINANCE ITS OPERATIONS
On December 31, 2000, Fiat S.p.A. ("Fiat") owned, indirectly through Fiat
Netherlands Holding N.V., approximately 84.5% of CNH's outstanding common
shares. As a result, Fiat controls all matters submitted to a vote of CNH's
shareholders, including approval of dividends, election and removal of its
directors and officers and approval of extraordinary business transactions.
CNH relies on Fiat to provide either guarantees or funding in connection
with some of its external financing needs, including the short-term credit
facilities that CNH used to finance the merger. Fiat has agreed to maintain its
existing treasury and debt financing arrangements with CNH for as long as it
maintains control of CNH and, in any event, at least until December 31, 2003.
After that time, Fiat has committed that it will not terminate CNH's access to
these financing arrangements without affording CNH an appropriate time period to
develop suitable substitutes. The terms of any alternative sources of financing
may not be as favorable as those provided or facilitated by Fiat.
CNH IS SUSCEPTIBLE TO CURRENCY EXCHANGE RATE FLUCTUATIONS AND INTEREST RATE
CHANGES
CNH is subject to currency exchange rate risk to the extent that its costs
are denominated in currencies other than those in which it earns revenues.
Similarly, changes in interest rates affect CNH's results of operations by
increasing or decreasing borrowing costs and finance income. In 2000, higher
interest rates and unfavorable currency exchange rate fluctuations had an
adverse impact on CNH's financial condition and results of operations. CNH seeks
to manage these risks, which arise in the ordinary course of business, through
the use of financial hedging instruments. Any default by the counterparties to
these transactions, including by affiliates of CNH, could adversely affect CNH.
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It is possible that, notwithstanding CNH's financial hedging transactions,
currency exchange rate or interest rate fluctuations will continue to adversely
affect CNH's results of operations, cash flow, financial condition or the price
of its common shares.
COMPLIANCE WITH ENVIRONMENTAL LAWS MAY INCREASE CNH'S COSTS
CNH's operations and products are subject to increasingly stringent
environmental laws and regulations in the countries in which it operates. Such
regulations govern, among other things, emissions into the air, discharges into
water, the use, handling and disposal of hazardous substances, waste disposal
and the remediation of soil and groundwater contamination. CNH regularly expends
significant resources to comply with regulations concerning the emissions levels
of its manufacturing facilities and the emissions levels of its equipment
products. In addition, CNH is currently conducting environmental investigations
or remedial activities at a number of its properties, including some facilities
recently added through mergers and acquisitions. CNH expects that it may make
material environmental and related capital expenditures in connection with
reducing the emissions of its existing facilities and its manufactured equipment
in the future depending on the levels and timing of new standards.
LABOR MATTERS COULD IMPAIR CNH'S ABILITY TO ACHIEVE COST SAVINGS
Labor unions represent most of CNH's production and maintenance employees
worldwide. In Europe, CNH's employees are protected by various worker protection
laws which afford employees, through local and central works councils, rights of
consultation with respect to specific matters involving their employers'
business and operations, including the downsizing or closure of facilities and
employment terminations. These laws and the collective bargaining agreements to
which CNH is subject could impair its flexibility in streamlining existing
manufacturing facilities and in restructuring its combined businesses. The
combination of New Holland and Case may provide the labor unions representing
employees at some of CNH's facilities with opportunities to expand into
currently non-union facilities.
OTHER RISK FACTORS
Other factors that may affect the success of CNH include the following:
energy prices; crop pests; consumer confidence; construction activity that is
sensitive to interest rates and government spending; the spread of FMD and other
animal diseases within and outside of Europe; concerns pertaining to GMOs;
higher fuel and fertilizer costs; general economic and capital market
conditions; the cyclical nature of its business; political uncertainty and civil
unrest in various areas of the world; disruptions in production capacity; excess
inventory levels; the effect of changes in laws and regulations (including
government subsidies and international trade regulations); and technological
difficulties.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY.
CNH Global N.V. is a corporation organized under the laws of the Kingdom of
The Netherlands, with a registered office in the World Trade Center, Tower B,
10th Floor, Amsterdam Airport, The Netherlands (telephone number:
+(31)-20-46-0429). It was incorporated on August 30, 1996. CNH's agent for
purposes of service of process in the United States is Roberto Miotto, 100 South
Sanders Road, Lake Forest, Illinois 60045.
CNH is a leading manufacturer of agricultural equipment throughout the
world, the third largest manufacturer of construction equipment and one of the
world's largest equipment finance companies. CNH distributes its strong,
globally recognized brands in over 160 markets through an extensive network of
approximately 12,100 dealers and distributors.
CNH combines the operations of New Holland and Case as a result of their
business merger on November 12, 1999. Effective with the closing of the merger,
New Holland changed its name to CNH. As
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used in this report, all references to "New Holland" or "Case" refer to (1) the
pre-merger business and/or operating results of either New Holland or Case on a
stand-alone basis, or (2) the continued use of the New Holland and Case product
brands.
On November 12, 1999, New Holland acquired Case for $4.6 billion in cash,
including related costs and expenses. CNH financed the merger with total
borrowings of $3.0 billion under short-term credit facilities, a subordinated
advance to capital of $1.4 billion from Fiat Netherlands Holding N.V., formerly
New Holland Holdings N.V., a wholly owned subsidiary of Fiat, and available cash
of $200 million.
In approving the merger, the European and U.S. regulatory authorities
identified a number of competitive concerns related to the combined operations
of Case and New Holland in specified product lines and markets. CNH has
addressed these competitive concerns by divesting the required product lines and
facilities.
For a listing of CNH's acquisitions and divestitures see Note 3,
"Acquisitions and Divestitures of Businesses and Investments" to the
Consolidated Financial Statements of this report.
B. BUSINESS OVERVIEW.
CNH has three business segments: Agricultural Equipment, Construction
Equipment and Financial Services. CNH's equipment operations manufacture, market
and distribute a full line of agricultural and construction equipment on a
worldwide basis. CNH is a leading global manufacturer of agricultural tractors
and also has leading positions in combines, hay and forage equipment and
specialty harvesting equipment. In construction equipment, CNH has leading
positions in excavators, crawler dozers, graders, wheel loaders,
loader/backhoes, skid steer loaders and trenchers. CNH also provides a complete
range of replacement parts and services to support its equipment. CNH's net
sales from equipment operations were approximately $9.3 billion in 2000.
CNH offers a broad array of financial services products, including retail
financing for the purchase or lease of new and used CNH and other equipment
manufacturers' products and other retail financing programs. To facilitate the
sale of its products, CNH offers wholesale financing to dealers and rental
equipment yards. Wholesale financing consists primarily of floorplan financing
and allows dealers to maintain a representative inventory of products. CNH's
retail financing alternatives are intended to be competitive with financing
available from third parties. At December 31, 2000, CNH's serviced portfolio of
receivables, including receivables owned and receivables serviced for others,
was approximately $11.6 billion. CNH's revenues from financial services were
approximately $772 million in 2000.
Agricultural Equipment
The operators of food and grain producing farms, as well as independent
contractors that provide services to such farms, purchase most agricultural
equipment. One of the key factors influencing sales of agricultural equipment is
the level of total farm cash receipts, which is impacted by the volume of
acreage planted, commodity prices, crop yields, farm operating expenses,
including fuel and fertilizer costs, and government subsidies or payments.
General economic conditions, interest rates and the availability of financing
also influence sales. Farmers tend to postpone the purchase of equipment when
the farm economy is depressed, and to increase their purchases when economic
conditions improve. Weather conditions are a major determinant of crop yields
and therefore also affect equipment-buying decisions. Government policies,
including the availability and extent of government subsidies, also affect the
agricultural equipment market by directly or indirectly regulating or
influencing the levels of acreage planted and crop prices.
Customer preferences regarding product types and features vary by region.
In North America, Europe, Australia and other areas where soil conditions,
climate, economic factors and population density allow for intensive mechanized
agriculture, farmers demand high capacity, sophisticated machines equipped with
current technology. In Europe, where farms are generally smaller than those in
North America and Australia, there is greater demand for somewhat smaller, yet
sophisticated, machines. In the developing regions of the world where labor is
abundant and infrastructure, soil conditions and/or climate are not adequate for
intensive
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agriculture, customers prefer simple, robust and durable machines with lower
purchase and operating costs. In many developing countries, tractors are the
primary, if not the sole, agricultural equipment, and much of the agricultural
work in such countries that cannot be performed by tractor is carried out by
hand. A growing number of "part-time" or "hobby" farmers in Western Europe and
North America also prefer simple, low-cost agricultural equipment.
Major trends in the agricultural industry include a growth in farm size and
machinery capacity, concurrent with a decline in the number of farms and units
of equipment sold. The agricultural equipment industry, in most markets, began
to experience an increase in demand in the early 1990s as a result of both
higher commodity prices and low levels of grain stocks worldwide. The amount of
land under cultivation also increased as government agricultural support
programs shifted away from mandatory set-aside programs. This trend was
maintained through 1997, but the markets started to decline in 1998 as a result
of generally unfavorable economic conditions, lower commodity prices and reduced
aid to developing countries. In 2000, global prices for agricultural commodities
remained low and, as a result, overall industry demand for high horsepower
agricultural equipment continued at depressed levels, with worldwide industry
demand for high horsepower agricultural tractors and combines even slightly
lower than in 1999.
CNH sells agricultural equipment products primarily under the following
brand names: New Holland, Case IH, DMI, Flexi-Coil, Steyr, Tyler and Concord.
Construction Equipment
Contractors, farmers, builders and rental fleet owners are the primary
purchasers of light- to medium-sized construction equipment, while major
customers of heavy equipment include construction companies, municipalities,
local governments and rental fleet owners. The principal factor influencing
sales of light construction equipment is the level of residential and commercial
construction, remodeling and renovation, each of which is primarily impacted by
prevailing interest rates. The light- to medium-sized equipment sector has
experienced significant growth as smaller machines, equipped with multiple
attachments for specialized applications, replace other forms of tool carrying
and material handling equipment, including some heavy equipment. This trend,
which is partially related to low levels of public spending on new
infrastructure, has favored increased sales of skid steer loaders, mini- and
midi-excavators, mini-wheeled loaders, and telescopic handlers.
Worldwide customer preferences for construction equipment products are
similar to preferences for agricultural equipment products. In developed
markets, customers tend to favor more sophisticated machines equipped with the
latest technology and comfort features. In less developed markets, customers
tend to favor more basic equipment with greater perceived durability. With
respect to power capacity, customer demand and the range of products offered
does not vary significantly from one market to another. Customers in North
America and Europe place strong emphasis on product reliability, while in other
markets, customers often use a particular piece of equipment even after its
performance begins to diminish. In general, most construction equipment sold in
mature markets such as North America and Europe replaces older equipment. In
contrast, demand in less mature markets includes replacements and net increases
in equipment demand.
Sales of heavy construction equipment are particularly dependent on the
levels of major infrastructure construction and repair projects, which is a
function of government spending and economic growth. The heavy equipment
industry in North America, as well as in Europe, is primarily a replacement
market that follows general economic patterns, whereas the industry in newly
industrialized and emerging markets exhibits an overall growth trend. In recent
years, demand for heavy construction equipment in North America has increased as
interest rates have remained relatively stable and the level of government
spending on infrastructure projects has increased, although in 2000, with
increasing interest rates, industry demand for heavy construction equipment in
North America did decline compared with 1999. In Europe, demand has also been
increasing, primarily as a result of higher spending by European governments.
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CNH sells construction equipment products under the following brand names:
New Holland, New Holland Construction, Case, Case Poclain, Link-Belt
(earthmoving equipment), O&K, FiatAllis and Fiat-Hitachi.
Financial Services
CNH provides broad-based financial services for various customers through
wholly owned subsidiaries and joint ventures in the United States, Canada,
Argentina, Australia, Brazil and Europe. CNH provides and administers retail
financing to end-use customers for the purchase or lease of new and used CNH and
other agricultural and construction equipment. To facilitate sales of
agricultural and construction equipment products, CNH and other major providers
of financial services typically offer retail financing to end-use customers and
wholesale financing to equipment dealers. Retail financing consists of the
financing of retail installment sales contracts, leases and similar products,
including insurance, for the benefit of retail customers in conjunction with the
purchase of new and used equipment from dealers. Wholesale financing consists
primarily of dealer floorplan financing and allows dealers the ability to
maintain a representative inventory of products.
CNH also has provided financing options to dealers and non-captive third
parties to finance inventory, working capital, real estate acquisitions,
construction and remodeling, business acquisitions, dealer systems and service
and maintenance equipment. CNH has offered a broad range of retail and wholesale
financing products, including equipment and commercial loans and leases for
North American manufacturers' products, dealers, distributors and their
customers. During the fourth quarter of 2000 CNH decreased its volume of loan
origination activity in its diversified business and has made the strategic
decision to exit the commercial truck financing business and curtail other
diversified financing activities.
CNH competes primarily with banks, finance companies and other financial
institutions. Typically, this competition is based upon customer service and
finance rates charged. Long-term profitability in CNH's financial services
segment is largely dependent on the cyclical nature of the agricultural and
construction equipment industries and on prevailing interest rates.
BUSINESS STRATEGY
CNH's primary objectives are ongoing value creation for shareholders,
increasing customer satisfaction, realizing the synergies offered by the merger
of New Holland and Case and continuing sales growth. As the first global
full-line competitor in both the agricultural and construction equipment
markets, CNH plans to grow its business through market expansion and product
offering enlargement. CNH expects that its commitment to cost controls and to
more efficient and effective use of resources will create value for its
shareholders, and CNH believes that its focus on further improving its products,
distribution and services will lead to increased customer satisfaction and
loyalty.
CNH is managed as a global company, supporting the Case IH and New Holland
brand names and dealer networks in its agricultural equipment business, and
marketing multiple brands in its construction equipment business. CNH is
organizing its manufacturing operations with global product line
responsibilities, and CNH is organizing its sales and marketing activities on a
geographic basis.
The following are the key elements of CNH's strategy for achieving the
above objectives:
Capitalize on Global Brands through Multi-Distribution
CNH intends to build on its global distribution network and world-class
brands to further strengthen its position in all principal existing markets and
to access growth opportunities by entering new markets. CNH believes this
strategy will maintain a high level of dealer and customer loyalty, enhance its
global market position and create cross-selling opportunities among brands.
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Leverage Operational Expertise to Enter New Markets
CNH believes that the merger of Case and New Holland will enable further
global expansion in the agricultural equipment and construction equipment
industries. The merger provides CNH with opportunities to significantly enhance
its worldwide equipment product offerings.
CNH views international expansion, particularly in the construction
industry, as a major source of future growth and intends to expand primarily
into markets characterized by rapidly increasing food, housing and
infrastructure demand as evidenced by its recently announced global alliance
with Kobe Steel, Ltd., and Kobelco Construction Machinery Co., Ltd. of Japan,
and joint venture with Shanghai Tractor and Internal Combustion Engine
Corporation. CNH plans to capitalize on its position as the most geographically
diversified manufacturer in its industries to identify and pursue opportunities
in these desirable markets. CNH expects to expand its local manufacturing and
distribution operations in selected developing markets through a combination of
internal development, joint ventures and acquisitions.
Invest in Product Development and Global Product Platforms
To retain existing customers, attract new customers and enhance its
competitive position, CNH plans to continue to invest in product development to
strengthen and broaden its product lines. CNH intends to:
- introduce products with leading-edge technology;
- tailor product offerings for entering new geographic markets and
customer segments;
- upgrade equipment models with an emphasis on quality, reliability and
product simplification; and
- pursue complementary product lines through strategic partnerships, joint
ventures and acquisitions.
CNH will seek to develop, over time, global products that maximize common
design elements and share capital-intensive components. The use of global
product platforms with differentiated product features for its different brands
should permit CNH to lower product development and manufacturing costs, increase
production efficiencies and reduce inventories and order-to-delivery cycle
times.
Continue Reengineering Core Business Processes
Through the combination of New Holland and Case, CNH expects to achieve
annual profit improvements of at least $600 million by 2003, including the $155
million realized in 2000. To generate these cost savings, CNH is focused on
enhancing the efficiencies of its core business processes, including product
development, manufacturing and supply chain, and on providing shared
administrative services.
Refocusing on Financing Core Activities
CNH intends to refocus its financial services operations on supporting
sales of agricultural and construction equipment to its base of equipment
dealers and retail customers. CNH is fully committed to supporting its equipment
operations and thus has decided to reduce activities in non-core business areas.
PRODUCTS AND MARKETS
CNH designs, manufactures and distributes agricultural and construction
equipment and provides financial services through several subsidiaries and joint
ventures. CNH sells and distributes its products in more than 160 markets
through an extensive network of approximately 12,100 dealers and distributors.
CNH's 2000 net sales of agricultural and construction equipment represented
93% of total revenues, and financing operations accounted for 7% of total
revenues. CNH's net sales of agricultural equipment represented 63% of revenues
from 2000 equipment sales, and net sales of construction equipment represented
37% of such revenues. For the year ended December 31, 2000, CNH's net sales of
equipment were generated from the following geographic areas: North America 43%,
Western Europe 39%, Latin America 7%, and Rest of World 11%.
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13
RESTRUCTURING
CNH management formulated a plan to integrate the operations of the Case
and New Holland businesses at the time of the merger. CNH's goal is to divest or
close more than 30% of its manufacturing locations, as well as approximately
one-third of its 45 parts depots. Through the consolidation of all functional
areas, CNH expects to reduce its worldwide workforce by approximately 24% by
2003. As of December 31, 2000, CNH recorded $315 million in cumulative purchase
accounting reserves as part of its integration plan with respect to Case's
operations.
In 2000 and 1999, CNH recorded restructuring and other merger related costs
of $157 million and $19 million, respectively. These merger integration
restructuring charges relate to severance and other employee-related costs,
write-down of assets, loss on the sale of assets and businesses, costs related
to closing, selling, and downsizing existing facilities and other merger related
costs. The CNH merger integration plan is expected to realize at least $600
million in annual merger related profit improvements by 2003, including the $155
million annual cost savings, realized in 2000. In 1999, CNH recorded
restructuring charges of $19 million related to headcount actions contemplated
under the 1998 restructuring initiated by CNH, then New Holland, to better align
its operations in response to the then current economic and market conditions.
See Note 4, "Restructuring" to the Consolidated Financial Statements of this
report for further analysis of the Company's restructuring programs.
MANUFACTURING
CNH manufactures equipment and components in fifty manufacturing
facilities, including fifteen facilities in the United States, five each in
Italy and France, four each in the United Kingdom and Brazil, two each in
Belgium, China, Germany, Mexico and Uzbekistan, and one each in Australia,
Austria, Canada, India, Pakistan, Poland and Turkey. Similar manufacturing
techniques are employed in the production of agricultural and construction
equipment, resulting in certain economies and efficiencies.
In March 2001, CNH announced that it has reached an agreement with Kobe
Steel, Ltd., and Kobelco Construction Machinery Co., Ltd. to form a global
alliance for the marketing development and production of crawler excavators
worldwide. In addition, the alliance with Kobelco contemplates the distribution
of CNH construction equipment in Japan and the Asia Pacific region.
In March 2001, CNH also announced that it had entered into an agreement
with Shanghai Tractor and Internal Combustion Engine Corporation to form a joint
venture company to manufacture, distribute and ultimately support agricultural
tractors under 100 horsepower.
In addition to the equipment manufactured by CNH and its joint ventures,
CNH also purchases both agricultural and construction equipment from other
sources. The terms of purchase from an original equipment manufacturer or OEM,
allow CNH to market the equipment under its brands and generally require CNH to
purchase agreed-upon volumes of products, although either party may terminate
the relationship upon notice. Certain manufactured components are also purchased
on an OEM basis. OEM purchases allow CNH to offer a broader line of products and
range of models to its dealer network and global customer base. In 2000, the
total value of OEM purchases comprised less than 10% of CNH's total purchases.
SUPPLIERS
CNH purchases a number of materials and components from third-party
suppliers. In general, CNH is not dependent on any single supplier or exposed in
any substantial way to price fluctuations in respect of the materials or
commodities it purchases.
CNH is currently rationalizing its supply chain to substantially reduce the
number of its suppliers. In implementing this program, CNH plans to build
mutually beneficial partnerships with long-term suppliers based on increased
volumes and shared product development activities. CNH believes that a reduction
in the number of suppliers will result in more cost-effective arrangements,
lower investment requirements, greater access to technological developments and
lower per-unit costs. By rationalizing its supplier base, however,
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14
CNH is increasing its dependence on its remaining suppliers, although in most
instances, the products CNH purchases from its suppliers are available from
other sources.
DISTRIBUTION AND SALES
CNH sells and distributes its products through an extensive network of
approximately 12,100 dealers and distributors in more than 160 markets
worldwide. Dealers typically sell either agricultural equipment or construction
equipment, although some dealers sell both types of equipment. CNH plans to
continue to distribute New Holland and Case products and services through their
pre-merger global dealer networks.
In most established markets, the distribution of CNH products is
accomplished through the dealer network. In other parts of the world, CNH
products are sold initially to distributors and then to dealers (or initially to
dealers and then to sub-dealers), leveraging distributor expertise and
minimizing CNH's marketing costs. Distributors generally have responsibility for
marketing goods in very large geographic regions, including entire countries.
PRICING AND PROMOTION
The actual retail price of any particular piece of equipment is determined
by the individual dealer or distributor and generally depends on market
conditions, features and options. Actual retail sales prices may be lower than
the suggested list prices. CNH sells equipment to its dealers and distributors
at wholesale prices, which reflect a discount from the suggested list price. In
the ordinary course of its business, CNH engages in promotional campaigns that
may include price incentives or preferential credit terms on the purchase of
certain products.
CNH regularly advertises its products to the community of farmers,
contractors, builders and agricultural and construction contractors, as well as
to distributors and dealers in each of its major markets. To reach its target
audience, CNH uses a combination of general media, specialized design and trade
magazines and direct mail. CNH also regularly participates in major
international and national trade shows and engages in co-operative advertising
programs with major distributors.
SERVICE AND WARRANTY
CNH products are warranted to the end-user to ensure end-user confidence in
design, workmanship and material quality. Warranty lengths vary depending on
competitive standards established within individual markets. In general,
warranties tend to be for one to three years, with some as short as six months,
and cover all parts and labor for non-maintenance repairs and wear items,
provided operator abuse, improper use or negligence did not necessitate the
repair. Warranty on some products is limited by hours of use, and purchased
warranty is available on most products. Dealers submit claims for warranty
reimbursement to CNH and are credited for the cost of repairs if the repairs
meet CNH's prescribed standards. Warranty expense is accrued at the time of
sale, and purchased warranty revenue is deferred and amortized over the life of
the warranty contract.
CNH distributors and dealers provide service support outside of the
warranty period. CNH service engineers or service training specialists train
service personnel in one of several CNH training facilities around the world or
on location at dealerships.
INSURANCE
CNH maintains insurance with third-party insurers and with affiliates of
Fiat to cover various risks resulting from its business activities including,
but not limited to, risk of loss or damage to its facilities, business
interruption losses, general liability, product liability, automobile liability
and directors and officers liability insurance. Management believes that CNH's
present level of insurance coverage is adequate to cover such potential losses
arising out of these and other insurable risks.
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SEASONALITY AND PRODUCTION SCHEDULES
Seasonal demand for agricultural equipment varies by region and product,
primarily due to differing climates and farming calendars. Peak retail demand
for tractors and tillage machines occurs in the March through June months in the
Northern Hemisphere and in the September through November months in the Southern
Hemisphere. Equipment dealers generally order harvesting equipment in the
Northern Hemisphere in the fall and winter so that they can receive inventory
during the winter and spring prior to the peak equipment selling season, which
begins in May and June. In the Southern Hemisphere, equipment dealers generally
order between September and November and the primary selling season for
harvesting equipment extends from November through February.
Seasonal demand fluctuations for construction equipment are somewhat less
significant than for agricultural equipment. Nevertheless, in North America,
housing construction slows down, especially in the Midwest and on the East
Coast, during the winter months. North American and European retail demand for
construction equipment is strongest in the second and fourth quarters.
CNH production levels are based upon estimated retail demand. These
estimates take into account the timing of dealer shipments (which are in advance
of retail demand), dealer inventory levels, the need to retool manufacturing
facilities to produce new or different models and the efficient use of manpower
and facilities. CNH adjusts its production levels to reflect changes in
estimated demand, dealer inventory levels, labor disruptions and other matters
not within its control. But because CNH spreads its production and wholesale
shipments throughout the year to take into account the factors described above,
wholesale sales of agricultural equipment products in any given period may not
reflect the timing of dealer orders and retail demand.
COMPETITION
The agricultural equipment industry is highly competitive, particularly in
North America, Europe and Latin America. CNH competes primarily with large
global full-line suppliers, including Deere & Company and AGCO; manufacturers
focused on particular industry segments, including Caterpillar Inc., Kubota
Corporation and various implement manufacturers; regional manufacturers in
mature markets, including Claas KGaA and SAME Duetz-Fahr Group, that are
expanding worldwide to build a global presence; and local, low cost
manufacturers in individual markets, particularly in emerging markets such as
Eastern Europe, India and China.
The construction equipment industry is highly competitive, particularly in
Western Europe, North America, Latin America and the Asia Pacific region. CNH
competes primarily with two large full-line suppliers, Caterpillar and Komatsu
Construction Equipment; product specialists operating on a global basis,
including Ingersoll-Rand Company and Hitachi, Ltd.; and local and multi-regional
manufacturers such as Volvo Construction Equipment Corporation, Deere & Company
and J.C. Bamford Excavators Ltd., ("JCB").
CNH believes that multiple factors influence a buyer's choice of equipment.
These factors include product performance, availability of a full product range,
the strength and quality of a company's dealers, the quality and pricing of
products, brand loyalty, technological innovations, product availability,
financing terms, parts and warranty programs, resale value, customer service and
satisfaction and timely delivery. CNH continually seeks to improve in each of
these areas but focuses primarily on providing high-quality and high-value
products and supporting those products through its dealer network. In both the
agricultural and construction equipment industries, buyers tend to favor brands
based on past experience with the product and the dealer. Customers' perceptions
of value in terms of product productivity, reliability, resale value and dealer
support are formed over many years.
The financial services industry is highly competitive. CNH competes
primarily with banks, finance companies and other financial institutions.
Typically, this competition is based upon customer service and finance rates
charged.
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C. ORGANIZATIONAL STRUCTURE.
As of April 30, 2001, approximately 84.6% of CNH's outstanding common
shares are owned by Fiat Netherlands Holding N.V., a wholly owned subsidiary of
Fiat. Fiat was founded in Turin on July 11, 1899. In addition to automobile
manufacturing, Fiat produces commercial vehicles, buses, farm tractors and
marine engines.
As of the end of December 2000, Fiat remains one of the world's biggest
industrial groups, operating in 61 countries with 1,063 companies, of which 244
subsidiaries and affiliates are located in Italy. Fiat employs over 223,953
people, more than 111,729 of which are outside Italy. The Fiat Group runs 242
production facilities (167 of which are outside Italy) and 131 research centers
(61 outside Italy).
Fiat Group companies are organized into ten operating sectors: Automobiles,
Commercial Vehicles, Agricultural and Construction Equipment, Metallurgical
Products, Components, Production Systems, Aviation, Publishing and
Communications, Insurance and Services. These companies include Fiat Auto,
Iveco, CNH, Magneti Marelli, Comau, Teksid, Fiat Avio, Itedi, and Toro
Assicurazioni.
Set forth below is a listing of CNH's directly and indirectly owned (10% or
greater) subsidiaries and affiliates as of December 31, 2000:
OWNERSHIP
COMPANY NAME COUNTRY PERCENTAGE
------------ --------------- ----------
A.M. Exports Limited........................................ United Kingdom 100
Austoft Holdings Limited.................................... Australia 100
Austoft Inc. ............................................... Australia 100
Austoft Industries Limited.................................. Australia 100
Banco CNH Capital Brazil S.A. .............................. Brazil 100
Bizon-Ukrania S.P. ......................................... Ukraine 51
BLI Group, Inc. ............................................ USA 100
BLI Sales, Inc. ............................................ Barbados 100
Blue Leaf I.P., Inc. ....................................... USA 100
Brascor Corretora de Seguros, Participacoes e Servicios
S.A. ..................................................... Brazil 100
C.W., Inc. ................................................. USA 100
Case (Barbados) FSC, Ltd. .................................. Barbados 100
Case Argentina S.A. ........................................ Argentina 100
Case Belgium N.V. .......................................... Belgium 100
Case Bodenverdichtungs-gerate Verwatungs GmbH............... Germany 100
Case bor-mor Holdings, Inc. ................................ USA 100
Case Brasil & Cia........................................... Brazil 100
Case Brazil Holdings, Inc. ................................. USA 100
Case Canada Corporation..................................... Canada 100
Case Canada Equipment Corporation........................... USA 100
Case Canada Investments, Ltd. .............................. Canada 100
Case Canada Receivables, Inc. .............................. Canada 100
Case CDC Holdings, Inc. .................................... USA 100
Case Corporation............................................ USA 100
Case Corporation Pty Ltd. .................................. Australia 100
Case Credit Australia Investments Pty Ltd. ................. Australia 100
Case Credit Australia Pty Ltd. ............................. Australia 100
Case Credit Corporation..................................... USA 100
Case Credit Global Investments Ltd. ........................ Bermuda 100
Case Credit Holdings Limited................................ USA 100
Case Credit Limited......................................... United Kingdom 100
Case Credit Ltd. ........................................... Canada 100
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OWNERSHIP
COMPANY NAME COUNTRY PERCENTAGE
------------ --------------- ----------
Case Credit Wholesale Pty Ltd. ............................. Australia 100
Case Credits Limited........................................ United Kingdom 100
Case Currency Management, Inc. ............................. USA 100
Case Equipment Holdings Limited............................. USA 100
Case Equipment International Corporation.................... USA 100
Case Equipment International Marketing, Inc. ............... USA 100
Case Europe S.A.R.L. ....................................... France 100
Case France S.A. ........................................... France 100
Case Germany GmbH........................................... Germany 100
Case Harvesting Systems, GmbH............................... Germany 100
Case India Limited.......................................... USA 100
Case India USLT Limited..................................... USA 100
Case International France S.A.R.L. ......................... France 100
Case International Limited.................................. United Kingdom 100
Case International Marketing, Inc. ......................... USA 100
Case International United Kingdom Limited................... United Kingdom 100
Case Irrigation Company..................................... USA 100
Case Italy S.p.A. .......................................... Italy 100
Case LBX Holdings, Inc. .................................... USA 100
Case Leasing Asset Securitization Inc. ..................... USA 100
Case Licensing/Lending Company.............................. USA 100
Case Machinery (Shanghai) Co., Ltd. ........................ China 100
Case Mauritius US Limited................................... Mauritius 100
Case Melbourne Pty Ltd. .................................... Australia 100
Case Mexico S.A. ........................................... Mexico 100
Case Poclain Ltd. .......................................... United Kingdom 100
Case Receivables, Inc. ..................................... USA 100
Case Spain S.A. ............................................ Spain 100
Case Sprayers Limited....................................... United Kingdom 100
Case Steyr Landmaschinentechnik GmbH........................ Austria 100
Case United Kingdom Limited................................. United Kingdom 100
Case Wholesale Receivables, Inc. ........................... USA 100
CaseNewHolland Inc. ........................................ USA 100
Case-Poclain GmbH........................................... Germany 100
CNH Capital U.K. Ltd. ...................................... United Kingdom 100
CNH Capital Benelux......................................... Belgium 100
CNH Capital Corporation..................................... USA 100
CNH Capital Insurance Agency Inc. .......................... USA 100
CNH Capital PLC............................................. Ireland 100
CNH Capital Receivables Inc. ............................... USA 100
CNH Capital (Europe) PLC.................................... Ireland 100
CNH International Services Corporation...................... USA 100
CNH Receivables Inc. ....................................... USA 100
Concord, Inc. .............................................. USA 100
Consolidated Diesel Company................................. USA 50
David Brown Tractors (Belfast) Ltd. ........................ United Kingdom 100
David Brown Tractors (Ireland) Ltd. ........................ Ireland 100
David Brown Tractors (Retail) Ltd. ......................... United Kingdom 100
David Brown Tractors Limited................................ United Kingdom 100
Eagle Global Insurance Company Limited...................... Bermuda 100
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OWNERSHIP
COMPANY NAME COUNTRY PERCENTAGE
------------ --------------- ----------
Farm One AgServices, Inc. .................................. USA 100
Fermec North America, Inc. ................................. USA 100
Fiat E.M. Corp. ............................................ USA 100
Fiat Hitachi Excavators Belgium SA.......................... Belgium 57
Fiat Hitachi Excavators Deutschland GmbH.................... Germany 40
Fiat Hitachi Excavators France S.A. ........................ France 57
Fiat Hitachi Excavators S.p.A. ............................. Italy 57
Fiatallis Latino Americana Ltda. ........................... Brazil 100
Fiatallis North America, Inc. .............................. USA 100
Flexi-Coil (Australia) Pty Ltd. ............................ Australia 100
Flexi-Coil (Netherlands) Holding B.V. ...................... The Netherlands 100
Flexi-Coil (U.K.) Ltd. ..................................... United Kingdom 100
Flexi-Coil Inc. ............................................ USA 100
Flexi-Coil Ltd. ............................................ Canada 100
Ford New Holland Australia Ltd. ............................ Australia 100
GalwaKor Sp.Zo.o Plock...................................... Poland 100
Grand Detour Plow Company................................... USA 100
Grundstuckeverw. Ges. Stahlhauser Llegenschaften GmbH
& Co KG................................................... Germany 93
Harbin New Holland Beidahuang Tractors Ltd. ................ China 70
HFI Holdings, Inc. ......................................... USA 100
Hischmann GmbH.............................................. Germany 99
International Harvester Co. of Great Britain Limited........ United Kingdom 100
International Harvester Company............................. USA 100
International Harvester Company of Belgium N.V. ............ Belgium 100
J.I. Case Argentina, S.A. .................................. Argentina 100
J.I. Case Company Ltd. ..................................... United Kingdom 100
J.I. Case Germany Holdings Inc. ............................ USA 100
J.I. Case International, S.A. .............................. Venezuela 100
J.I. Case Leasing Corporation............................... USA 100
J.I. Case Property Company.................................. USA 100
J.I. Case Threshing Machine Company......................... USA 100
Kestrin Pty Ltd. ........................................... Australia 100
Lake Hull Pty Ltd. ......................................... Australia 100
MBA AG, Baumaschinen........................................ Switzerland 99
New Holland (Canada) Credit Company Ltd. ................... Canada 100
New Holland (Canada) Credit Holding Ltd. ................... Canada 100
New Holland Argentina S.A. ................................. Argentina 100
New Holland Australia Pty Ltd. ............................. Australia 100
New Holland Belgium N.V. ................................... Belgium 100
New Holland Bizon Sp.Zo.o................................... Poland 100
New Holland Braud S.A. ..................................... France 100
New Holland Canada Ltd...................................... Canada 100
New Holland Portugal -- Comercio de Tractores e
Maquinas Agricolas, Limitada.............................. Portugal 100
New Holland Credit Australia Pty Limited.................... Australia 100
New Holland Danmark A/S..................................... Denmark 100
New Holland Deutschland GmbH................................ Germany 100
New Holland Espana S.A. .................................... Spain 100
New Holland Europe S.A. .................................... Luxembourg 100
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OWNERSHIP
COMPANY NAME COUNTRY PERCENTAGE
------------ --------------- ----------
New Holland Financial Services A/S.......................... Denmark 100
New Holland Financial Services Ltd. ........................ United Kingdom 100
New Holland Financial Services S.A. ........................ France 100
New Holland Financial Services S.R.L. ...................... Italy 100
New Holland France S.A. .................................... France 100
New Holland HFT Japan, Inc. ................................ Japan 50
New Holland Holding Limited................................. United Kingdom 100
New Holland Holdings (Argentina) S.A. ...................... Argentina 100
New Holland Investments Canada Ltd.......................... Canada 100
New Holland Italia S.p.A.................................... Italy 100
New Holland Latino Americana Ltda........................... Brazil 100
New Holland Limited......................................... United Kingdom 100
New Holland Logistics S.p.A................................. Italy 100
New Holland Luxembourg S.A. ................................ Luxembourg 100
New Holland Mauritius (Private) Ltd......................... Mauritius 100
New Holland North America, Inc. ............................ USA 100
New Holland Receivables Corporation......................... USA 100
New Holland Retail Receivables Corporation I................ USA 100
New Holland Retail Receivables Corporation II............... USA 100
New Holland Romania Srl..................................... Romania 100
New Holland S.A. ........................................... Luxembourg 100
New Holland Superannuation Pty Ltd. ........................ Australia 100
New Holland Tractor Limited N.V............................. Belgium 100
New Holland Tractors (India) Private Ltd.................... India 100
New Holland Trade N.V....................................... The Netherlands 100
New Holland U.K. Limited.................................... United Kingdom 100
O&K Antriebstechnik GmbH.................................... Germany 99
O&K Hilfe GmbH.............................................. Germany 99
O&K Norge A/S............................................... Norway 99
O&K Orenstein & Koppel AG................................... Germany 99
O&K Orenstein & Koppel Ges.m.b.H............................ Austria 99
O&K Orenstein & Koppel S.A. ................................ France 99
O&K Orenstein & Koppel S.A. ................................ Spain 99
O&K Orenstein & Koppel S.p.A................................ Italy 99
Olaf Poulsen A/S............................................ Denmark 99
Poclain do Brasil S.A. ..................................... Brazil 100
Poclain Limited............................................. United Kingdom 100
Poclain Services North America Inc. ........................ USA 100
PPM do Brazil Ltda. ........................................ Brazil 100
Pryor Foundry, Inc. ........................................ USA 100
Receivables Credit Corporation.............................. Canada 100
Receivables Credit II Corporation........................... Canada 100
Receivables Credit III Corporation.......................... Canada 100
Servicios Case Mexicana, S.A. de C.V. ...................... Mexico 100
Steiger Credit Company...................................... USA 100
Steiger International, Ltd. ................................ Guam 100
Tiede Landtechnik GmbH...................................... Germany 100
Tractorwork, Limited........................................ United Kingdom 100
Universaltrac Beteiligungs GmbH............................. Germany 100
Versatile Credit Pty. Ltd. ................................. Australia 100
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OWNERSHIP
COMPANY NAME COUNTRY PERCENTAGE
------------ --------------- ----------
Versatile Farm Equipment Pty. Ltd........................... Australia 100
CNH Information Technology Company LLC...................... USA 100
New Holland Credit Company, LLC............................. USA 100
Ag-Chem/New Holland, LLC.................................... USA 50
Al-Ghazi Tractors Ltd....................................... Pakistan 43
Brahma Steyr Tractors Limited............................... India 10
Case Credit Europe S.A.S.................................... France 50
Case Credit UK Ltd. ........................................ United Kingdom 50
Consorzio Cofhirete......................................... Italy 27
Employers' Health Initiatives, LLC.......................... USA 50
European Engine Alliance EEIG............................... United Kingdom 33
GQM Products LLC............................................ USA 50
JV UzCaseMash LLC........................................... Uzbekistan 60
JV UzCaseService LLC........................................ Uzbekistan 51
JV UzCaseTractor LLC........................................ Uzbekistan 51
L&T-Case Equipment Limited.................................. India 50
LBX Company LLC............................................. USA 50
Lublesha Fabryka Maszyn Rolniczysh.......................... Poland 18
Megavolt, L.P. ............................................. USA 40
New Holland de Mexico, S.A. de C.V. ........................ Mexico 50
New Holland Finance Ltd..................................... United Kingdom 49
New Holland Trakmak Traktor Ve Ziraat Makineleri A.S........ Turkey 38
O&K Schiffstechnik GmbH..................................... Germany 49
Plast-Form Sp.Zo.o.......................................... Poland 15
Polagris S.A. Pikieliszki-Litwa............................. Lithuania 11
Sip-Mot S.A. ............................................... Poland 22
Turk Traktor Ve Ziraat Makineleri A.S. ..................... Turkey 38
UzCaseagroleasing........................................... Uzbekistan 51
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D. PROPERTY, PLANTS AND EQUIPMENT.
DESCRIPTION OF PROPERTY
The following table provides information about CNH's principal
manufacturing, engineering and administrative facilities as of December 31,
2000:
APPROXIMATE
COVERED OWNERSHIP
LOCATION PRIMARY FUNCTIONS AREA* STATUS
-------- ----------------- ----------- ------------
UNITED STATES
Belleville, PA................. Skid Steer Loaders; Manure Spreaders 540 Owned
Benson, MN..................... Agricultural Sprayers 219 Owned
Burlington, IA................. Loader/Backhoes; Crawler/Dozers; Fork Lift 989 Owned
Trucks
Dublin, GA..................... Compact Tractors 60 Leased
East Moline, IL................ Combine Harvesters; Cotton Pickers; Grain 2,375 Owned
Heads
Fargo, ND...................... Tractors, Wheel Loaders 531 Owned
Fargo, ND...................... Planters/Seeders 146 Leased
Grand Island, NE............... Combine Harvesters; Hay & Forage 680 Owned
Lake Forest, IL................ Global Management Offices 65 Leased
New Holland, PA................ Administrative Facilities; Hay & Forage; 1,190 Owned
Engineering Center
Racine, WI..................... Tractor Assembly; Transmissions; Foundry 2,834 Owned
Racine, WI..................... Principal Administrative Facilities 400 Owned/Leased
Wichita, KS.................... Skid Steer Loaders; Directional Drills; 455 Owned
Trenchers
ITALY
Imola.......................... Loader/Backhoes; Engineering Center 384 Owned
Jesi........................... Tractors 710 Owned
Lecce.......................... Construction Equipment; Engineering Center 1,550 Owned
Modena......................... Components 1,150 Owned
San Matteo..................... Research and Development 540 Owned
San Mauro...................... Construction Equipment; Engineering Center 590 Owned
FRANCE
Coex........................... Grape Harvesters; Engineering Center 280 Owned
Crepy-En-Valois................ Excavators; Loader/Backhoes 676 Owned
Croix.......................... Cabs 466 Owned
St. Dizier(1).................. Transmissions 234 Owned
Tracy-Le-Mont.................. Hydraulic Cylinders 204 Owned
Villepinte..................... Administrative Facilities 55 Leased
UNITED KINGDOM
Basildon....................... Tractors; Components; Engineering Center 1,390 Owned
Doncaster(1)/Carr Hill(2)...... Tractors; Gear Shifts; Shafts 1,074 Owned
GERMANY
Berlin......................... Construction Equipment; Engineering Center 1,113 Leased
Dortmund....................... Administrative Facilities; Test and Parts 348 Leased
Centers
Heidelberg..................... Administrative and Warehouse Facilities 162 Owned
Neustadt....................... Forage and Combine Harvesters 515 Owned
BRAZIL
Curitiba....................... Tractors; Combine Harvesters; Engineering 760 Owned
Center
Belo Horizonte................. Construction Equipment; Engineering Center 510 Owned
Piracicaba..................... Sugar Cane Harvesters 108 Owned
Sorocaba....................... Wheel Loaders; Loader/Backhoes; Excavators 525 Owned
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APPROXIMATE
COVERED OWNERSHIP
LOCATION PRIMARY FUNCTIONS AREA* STATUS
-------- ----------------- ----------- ------------
CANADA
Saskatoon...................... Air-Seeding Equipment; Engineering Center 750 Owned
BELGIUM
Antwerp........................ Components 850 Leased
Zedelgem....................... Combine Harvesters; Hay & Forage; Tractor
Loaders; Engineering Center 1,590 Owned
OTHERS
Bundaberg, Australia........... Sugar Cane Harvesters 206 Owned
St. Valentin, Austria.......... Tractors 398 Leased
New Delhi, India............... Tractors; Engineering Center 360 Owned
Plock, Poland.................. Combine Harvesters 1,020 Owned
------------
* in thousands of square feet
(1) Facilities divested in first quarter 2001.
(2) Facility sold in April 2001.
In addition, CNH owns or leases a number of other manufacturing and
non-manufacturing facilities, including office facilities, parts depots and
dealerships, worldwide.
As a result of the merger, management believes it has excess capacity in
certain of its product lines when compared with current market demand. CNH
management formulated a plan to integrate the operations of the Case and New
Holland businesses and to address overall combined manufacturing capacity. This
plan includes the divestiture or closure of more than 30% of CNH's manufacturing
locations as of the merger date. CNH believes that once the closure and
divestitures of required facilities is completed, CNH will have adequate
capacity to meet anticipated market demand.
ENVIRONMENTAL MATTERS
CNH's operations and products are subject to extensive environmental laws
and regulations in each of the countries in which it operates. CNH is a
voluntary participant in several government-sponsored initiatives that benefit
the environment. CNH has an ongoing Pollution Prevention Program to reduce
industrial waste, air emissions and water usage by incorporating adjustments in
business activity, recycling efforts and hazard assessments of raw materials.
CNH has a program designed to implement environmental management practices and
compliance, to promote continuing environmental improvements and to identify and
evaluate environmental risks at manufacturing and other facilities worldwide.
CNH engines and equipment are subject to extensive statutory and regulatory
requirements that impose standards with respect to air emissions. Further
emissions reductions in the future from non-road engines and equipment have been
promulgated or are contemplated in the United States as well as by non-U.S.
regulatory authorities in many jurisdictions throughout the world. CNH expects
that it may make significant capital and research expenditures to comply with
these standards now and in the future. CNH anticipates that these costs are
likely to increase as emissions limits become more stringent, however, at this
time, CNH is not able to quantify the dollar amount of such expenditures as the
levels and timing is not agreed by the regulatory bodies. Failure to comply
could result in adverse effects on future financial results.
CNH will incur capital expenditures in connection with matters relating to
environmental control and will also be required to spend additional amounts in
connection with ongoing compliance with current and future laws and regulations.
Capital expenditures for environmental control and compliance in 2000 were not
material and projections for 2001 and 2002 are not expected to be material. In
particular, the Clean Air Act Amendments of 1990 and European Commission
Directives will affect directly the operations of all of CNH's manufacturing
facilities in the United States and Europe. The manufacturing processes that
will be affected
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23
include painting, coating and foundry operations. Although capital expenditures
for environmental control equipment and compliance costs in future years will
depend on legislative, regulatory and technological developments that cannot
accurately be predicted at this time, CNH anticipates that these costs are
likely to increase as environmental requirements become more stringent. CNH
believes that these capital costs, exclusive of product-related costs, will not
have a material adverse effect on CNH's financial position or results of
operations.
Pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act, or CERCLA, and other federal and state laws that impose similar
liabilities, CNH has received inquiries for information or notices of its
potential liability regarding 38 non-owned sites to which Case allegedly sent
hazardous substances for disposal ("Waste Sites"). Sixteen of the Waste Sites
are on the National Priority List promulgated pursuant to CERCLA. At 34 of the
Waste Sites, the monetary amount or extent of CNH's liability has been resolved,
CNH has not been named as a potentially responsible party ("PRP"), or CNH's
liability is likely de minimis in comparison with other PRPs. Because estimates
of remediation costs are subject to revision as more information becomes
available about the extent and cost of remediation and because settlement
agreements can be reopened under certain circumstances, CNH's potential
liability for remediation costs associated with the 38 Waste Sites could change.
Moreover, because liability under CERCLA and similar laws can be joint and
several, CNH could be required to pay amounts in excess of its pro rata share of
remediation costs. However, when appropriate, CNH's understanding of the
financial strength of other PRPs has been considered in the determination of its
potential liability. CNH believes that the costs associated with the Waste Sites
will not have a material adverse effect on CNH's financial position or results
of operations.
CNH has conducted environmental investigatory or remedial activities at
certain properties that are currently or were formerly owned and/or operated or
which are being decommissioned. CNH believes that the outcome of these
activities will not have a material adverse effect on CNH's financial position
or results of operations. The preceding paragraphs regarding environmental
matters are forward-looking statements, and the actual costs could differ
materially from those costs currently anticipated due to the nature of the
historical disposal and release activities typical of manufacturing and related
operations that have occurred in the United States and other countries, and as a
result of laws which now and in the future may impose liability for previously
lawful disposal and release activities. As it has in the past, CNH intends to
fund its costs of environmental compliance from operating cash flows.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
CNH has prepared its financial statements, including the financial data
disclosed in this Item 5, in accordance with generally accepted accounting
principles in the United States or U.S. GAAP. The impact of acquisitions,
particularly the impact of the Case and New Holland merger, and the December
1998 acquisition of Orenstein & Koppel Aktiengesellschaft ("O&K"), has affected
the comparability of the respective prior-year data.
CNH's agricultural and construction equipment businesses are collectively
referred to as CNH's "Equipment Operations." CNH's financial services businesses
are collectively referred to as "Financial Services." Unless otherwise
indicated, all financial data set forth herein is expressed in U.S. dollars.
A. OPERATING RESULTS.
OVERVIEW
Consolidated revenues for 2000 totaled $10,014 million versus $6,273
million in 1999 and net sales of agricultural and construction equipment were
$9,337 million in 2000, up 57% from $5,949 million in 1999. The increase in net
sales in 2000 was largely due to the full year impact of the Case acquisition
and the acquisition of Flexi-Coil in January 2000, offset in part by
approximately $425 million in unfavorable currency translations on net sales of
equipment and lower industry volumes. Consolidated revenues for 1999 totaled
$6,273 million, versus $5,697 million in 1998, and net sales of agricultural and
construction equipment were
23
24
$5,949 million in 1999, up 9% from $ 5,474 million in 1998. The increase in net
sales was largely attributable to the full year impact of the O&K acquisition
and the six week impact of the Case merger, partially offset by currency
translations and lower industry volumes.
In 2000, CNH's Equipment Operations recorded a net loss, before equity in
income of Financial Services, of $407 million, versus comparable net income of
$76 million in 1999. The decrease in earnings was primarily attributable to the
Case acquisition, including acquisition related costs and increased interest
expense, as well as the amortization of fair value purchase accounting
adjustments and goodwill related to the merger. On a pretax basis, CNH's
Equipment Operations recorded a loss of $540 million in 2000, as compared to
income of $162 million in 1999.
Financial Services recorded net income of $26 million in 2000, as compared
to net income of $72 million in 1999. The year-over-year decrease in net income
was primarily attributable to the impact of the acquisition of Case.
Net loss before restructuring and other merger related costs, net of tax,
was $269 million in 2000 versus net income of $162 million in 1999 and net
income of $284 million in 1998.
Net loss in 2000 was $381 million compared with net income of $148 million
in 1999 and net income of $258 million in 1998. Diluted earnings (loss) per
share for 2000 were a loss of $1.79 versus earnings of $0.97 in 1999 and
earnings of $1.73 in 1998.
Management believes that a comparison of the actual financial results for
the years 2000 and 1999 is not meaningful due to the magnitude, in particular,
of the Case acquisition, which approximately doubled the revenue and asset base
of CNH. Thus, management has prepared 1999 unaudited consolidated pro forma
statements of operations to illustrate the estimated effects of the acquisition
of Case by New Holland as if this transaction had occurred at January 1, 1999.
The pro forma data reflect the impact of the fair value adjustments to the Case
assets and liabilities acquired, as well as incremental goodwill amortization
and interest expense for the related acquisition financing.
24
25
COMPARISON OF THE YEARS ENDED
DECEMBER 31, 2000 (ACTUAL) AND 1999 (PRO FORMA)
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
CONSOLIDATED EQUIPMENT OPERATIONS FINANCIAL SERVICES
-------------------------- -------------------------- ------------------------
PRO FORMA PRO FORMA PRO FORMA
2000 1999 (UNAUDITED) 2000 1999 (UNAUDITED) 2000 1999 (UNAUDITED)
------- ---------------- ------- ---------------- ----- ----------------
REVENUES:
Net sales.............. $ 9,337 $ 9,929 $ 9,337 $ 9,929 $ -- $ --
Finance and interest
income.............. 677 744 -- -- 772 785
------- ------- ------- ------- ----- ----
10,014 10,673 9,337 9,929 772 785
COSTS AND EXPENSES:
Cost of goods sold..... 7,820 8,320 7,820 8,320 -- --
------- ------- ------- ------- ----- ----
Gross margin........... 2,194 2,353 1,517 1,609 772 785
Selling, general and
administrative...... 1,250 1,315 1,007 1,173 247 142
Research, development
and engineering..... 338 357 338 357 -- --
------- ------- ------- ------- ----- ----
Operating margin....... 606 681 172 79 525 643
Interest income from
dealers*............ -- -- 68 74 -- --
Other, net............. 186 150 100 73 86 77
EQUITY IN INCOME OF
UNCONSOLIDATED
SUBSIDIARIES AND
AFFILIATES:
Financial Services..... 2 -- 26 112 2 --
Equipment Operations... 4 1 4 1 -- --
Minority interest........ (10) (4) (11) (4) 1 --
------- ------- ------- ------- ----- ----
Operating earnings....... 416 528 159 189 442 566
Interest expense......... 793 794 542 519 410 390
Restructuring and other
merger related costs... 157 19 157 19 -- --
------- ------- ------- ------- ----- ----
Income (loss) before
taxes.................. (534) (285) (540) (349) 32 176
Income tax provision
(benefit).............. (153) (97) (159) (161) 6 64
------- ------- ------- ------- ----- ----
Net income (loss)........ $ (381) $ (188) $ (381) $ (188) $ 26 $112
======= ======= ======= ======= ===== ====
PER SHARE DATA:
Basic earnings (loss) per
share.................. $ (1.79) $ (1.26)
======= =======
Diluted earnings (loss)
per share.............. $ (1.79) $ (1.26)
======= =======
------------
* For Equipment Operations only interest income from dealers has been shown
below the operating margin line.
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26
2000 ACTUAL COMPARED WITH 1999 PRO FORMA RESULTS
CNH has three business segments: Agricultural Equipment, Construction
Equipment and Financial Services. For purposes of Item 5, "Operating and
Financial Review and Prospects" additional details have been provided regarding
product and geographic markets to provide a more meaningful understanding of the
factors that affected the three segments of CNH's business.
In the following discussions, all references to the Company's 1999 net
sales or units sold will refer to 1999 on a pro forma or combined basis, as if
the acquisition of Case by New Holland had occurred at January 1, 1999, unless
specifically stated otherwise.
Net Sales of Equipment by Geographic Area
Net sales of CNH's Equipment Operations for the years ended December 31,
2000 and 1999 by geographic area were as follows:
PRO FORMA
2000 1999 (UNAUDITED)
------ ----------------
NET SALES (IN MILLIONS OF DOLLARS)
Western Europe................................... $3,613 $4,179
North America.................................... 4,072 4,114
Latin America.................................... 633 573
Rest of World.................................... 1,019 1,063
------ ------
Total net sales............................... $9,337 $9,929
====== ======
Net sales of equipment decreased in 2000 as increased unit sales of
agricultural equipment were more than offset by decreased unit sales of
construction equipment and approximately $625 million in unfavorable currency
translation. Overall world market demand for major agricultural and construction
equipment product lines increased slightly in 2000, driven by increased demand
for under 40 horsepower tractors in North America; increased demand for skid
steer loaders in North America, Western Europe and Latin America; and by
increased demand for heavy construction equipment in Western Europe and Rest of
World markets. Demand for large tractors and combines in North America, combines
in Western Europe, and backhoe loaders in North America and Western Europe
declined. The Company's mix of sales weakened and its overall market share
declined slightly, reflecting strong competitive responses to the Case and New
Holland merger, particularly in North America, dealer and customer uncertainties
as to the product lines affected by merger-related divestitures and the timing
of new product introductions by CNH and new products launched by competitors,
and the relative mix of strengthening versus weakening markets and CNH's share
in those markets.
Agricultural Equipment
PRO FORMA
2000 1999 (UNAUDITED)
------ ----------------
NET SALES (IN MILLIONS OF DOLLARS)
Western Europe................................... $2,181 $2,581
North America.................................... 2,510 2,313
Latin America.................................... 413 368
Rest of World.................................... 773 882
------ ------
Total net sales............................... $5,877 $6,144
====== ======
Net sales of agricultural equipment decreased by 4% in 2000 compared with
1999. The decline in net sales occurred as higher unit sales and the addition of
Flexi-Coil were more than offset by unfavorable product
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27
mix and the unfavorable effects of currency translation. Overall worldwide
tractor market demand in 2000, as measured in units, decreased by about 3% from
1999 levels, while overall combine demand decreased by about 2%.
In Western Europe, net sales of agricultural equipment decreased by 15%,
reflecting lower unit sales and the 13% decline in the value of the Euro and the
6% decline in the value of the British Pound, in each case as compared with the
U.S. dollar from 1999 to 2000. Overall tractor market demand, as measured in
units, decreased by about 7% in 2000 and overall combine market demand decreased
by about 19%.
In North America, net sales of agricultural equipment increased by about 9%
in 2000 compared with 1999. Total market demand for agricultural tractors in
North America increased by about 9%, led by a 13% increase in demand for under
40 horsepower tractors. Industry demand for mid-sized (40 to 100 horsepower
tractors) increased by about 5% while demand for large two wheel drive tractors
over 100 horsepower declined by 1% and demand for four wheel drive tractors
declined by about 9%, reflecting continued low commodity prices. Combine market
demand increased by about 5%.
In Latin America, net sales increased by 12% in 2000 compared with 1999.
Unit sales increased by about 22%. Total market demand for agricultural tractors
in Latin America increased by 10%, led by higher market demand in Brazil as the
Brazilian government sustained its programs to assist farmers in purchasing
equipment. Total market demand for combines rose by about 22%.
In markets throughout the Rest of the World, net sales of agricultural
equipment decreased by 12% in 2000 compared with 1999 despite higher unit sales
of tractors and combines. The decline in net sales principally reflects the 10%
decline in the value of the Australian Dollar as compared with the U.S. Dollar
from 1999 to 2000, and a weaker mix of tractor sales particularly in the
weakening Australian market.
Construction Equipment
PRO FORMA
1999
2000 (UNAUDITED)
------ -----------
NET SALES (IN MILLIONS OF DOLLARS)
Western Europe....................................... $1,432 $1,598
North America........................................ 1,562 1,801
Latin America........................................ 220 205
Rest of World........................................ 246 181
------ ------
Total net sales................................... $3,460 $3,785
====== ======
Net sales of construction equipment decreased about 9% in 2000 compared
with 1999. The decline in net sales was primarily attributable to lower unit
sales in North America as construction activity slowed during the year and to
the unfavorable effects of currency translations. Overall unit sales decreased
in 2000 by about 2%. Overall worldwide market demand as measured in units,
increased by about 5% from 1999 to 2000.
In Western Europe, net sales of construction equipment decreased by 10%,
reflecting slightly higher unit sales offset by the 13% decline in the value of
the Euro and the 6% decline in the value of the British Pound, both as compared
with the U.S. dollar from 1999 to 2000. Overall market demand, as measured in
units, increased by about 8% in 2000.
In North America, net sales of construction equipment decreased by about
13% in 2000 compared with 1999. Total market demand for construction equipment
decreased by about 1%, including 10% declines in demand for backhoe loaders and
heavy construction equipment partially offset by increased demand for skid steer
loaders.
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28
In Latin America, net sales of construction equipment increased by 7% in
2000 compared with 1999. The increase in net sales was principally due to the
strong increase in unit sales in that region. Total market demand increased by
about 4%.
In markets throughout the Rest of the World, net sales of construction
equipment increased by 36% in 2000 compared with 1999 as unit sales increased
significantly. Total market demand increased by about 18%.
Costs and Expenses
The gross margin of CNH's Equipment Operations, as a percentage of net
sales of equipment, was 16.2% in 2000, the same as in 1999. Lower shipments of
construction equipment more than offset higher shipments of agricultural
equipment. Slightly weaker product mix and unfavorable impacts of currency
translation were offset by slightly positive pricing, the addition of Flexi-Coil
results and $55 million of merger related profit improvements, primarily related
to lower material costs.
Selling, general and administrative ("SG&A") expenses of the Equipment
Operations decreased to $1,007 million in 2000 from $1,173 million in 1999, or
as a percentage of net sales of equipment decreased from 11.8% in 1999 to 10.8%
in 2000, despite lower net sales. The decrease in expenses was primarily driven
by reductions in salaried headcount. These reductions were principally due to
the divestitures required by the U.S. and European regulatory authorities,
ongoing cost reduction initiatives and merger integration profit improvement
activities initiated by the Company. These actions, totaling approximately $100
million, to eliminate overlapping and redundant activities resulting from the
acquisition of Case by New Holland in November 1999, plus the material cost
savings referenced above, are part of the Company's merger integration plan that
is expected to realize at least $600 million in annual profit improvements by
2003, including those realized in 2000.
Ongoing research and development expenses as a percentage of net sales of
equipment were unchanged at approximately 3.6%.
Salaried employment levels declined from approximately 14,900 at December
31, 1999 to approximately 12,700 at December 31, 2000. This decline was
consistent with the decline in overall employment levels from nearly 36,000 at
the time of the merger to approximately 31,000 at December 31, 2000, and in line
with the planned 24% reduction in total employment levels by the end of 2003.
This 5,000 reduction includes approximately 1,200 employees that were part of
divestitures. The balance is from the Company's headcount reduction initiatives.
Operating margin of the Equipment Operations increased from $79 million in
1999, or approximately 0.8% of net sales of equipment, to $172 million in 2000,
or approximately 1.8% of net sales. As described above, the $93 million
operating margin improvement was partially due to the $155 million in merger
related profit improvements coupled with reduced compensation and benefit costs,
partially offset by lower volume and unfavorable mix, the negative impact of
currency translation, and the effects of inflation.
Other expenses, net of other income, of the Equipment Operations, increased
from $73 million in 1999 to $100 million in 2000. The increase in other expenses
was primarily attributable to unfavorable foreign exchange impacts.
Equity in income from CNH's unconsolidated Financial Services activities
decreased to $26 million in 2000, down from $112 million in 1999. The decline
was primarily due to $92 million in higher pre-tax loan loss provisions,
decreased loan originations and lower gains on asset backed securitization
("ABS") transactions. In addition, SG&A in Financial Services increased as a
result of expansion in Europe aimed at improving CNH's level of financing in
Europe relative to its equipment sales. This decline in Financial Services' net
income was a critical factor in CNH's overall decline in net income for the
year. The increase in loan loss provisions was due principally to prolonged
weakness in the North American farm economy and higher loan loss delinquencies,
particularly in the fourth quarter, in Financial Services' diversified financing
business. This increase in diversified financing business delinquencies largely
stemmed from late payments and bankruptcies in the North American commercial
truck industry in the past year. Consequently, the Company decreased its
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29
volume of loan originations during the fourth quarter by 35% in its diversified
business under the Soris brand. During the fourth quarter of 2000, the Company
also decided to exit the financing activities related to the commercial truck
financing business and to refocus on supporting sales of agricultural and
construction equipment to its base of equipment dealers and retail customers.
Operating earnings of the Equipment Operations declined from $189 million
in 1999 to $159 million in 2000 principally as a result of the decline in
earnings at the Company's unconsolidated Financial Services activities noted
above. Operating earnings of the Company's Agricultural Equipment Operations
improved from a loss of $139 million in 1999 to a loss of $95 million in 2000,
while earnings at the Construction Equipment Operations improved from a profit
of $216 million in 1999 to a profit of $228 million in 2000. Results of both
operations improved principally as a result of the improvements in operating
margin noted above.
Interest expense of CNH's Equipment Operations increased from $519 million
in 1999 to $542 million in 2000 primarily as a result of higher debt levels and
higher interest rates.
During 2000, CNH recorded $157 million in restructuring and other merger
related costs related to the CNH Merger Integration Plan. These restructuring
and other merger related costs relate to severance and other employee-related
costs, write-down of assets, loss on the sale of assets and businesses, costs
related to closing, selling, and downsizing existing facilities and other merger
related costs. The CNH Merger Integration Plan, which is anticipated to result
in additional pre-tax restructuring charges of approximately $400 million over
the next two to three years, is expected to realize at least $600 million in
annual profit improvements by 2003, including the $155 million realized in 2000.
In 1999, CNH recorded additional restructuring charges of $19 million related to
headcount actions contemplated under the 1998 restructuring program initiated by
CNH, then New Holland, to better align its operations in response to the then
current economic and market conditions. See Note 4, "Restructuring" to the
Consolidated Financial Statements of this report for a detailed analysis of the
Company's restructuring programs.
As a consequence of events and actions mentioned above, Equipment
Operations Income before Taxes declined from a loss of $349 million in 1999 to a
loss of $540 million in 2000.
Tax Rates -- Consolidated
The Company's principal wholly owned manufacturing operations are located
in the United States, the United Kingdom, Italy, Belgium, France, Germany,
Canada, and Brazil and these jurisdictions therefore have the most significant
impact on the effective tax rate for the Company as a whole. The highest
statutory tax rate in these countries in the year ended December 31, 2000 and
1999, respectively, was 53% in Germany. The lowest statutory tax rates in these
countries in the years ended December 31, 2000 and 1999, were 30% and 31%,
respectively, in the United Kingdom. The Company's effective tax rate was
approximately 29% in 2000 and 27% in 1999. For an analysis of the principal
factors affecting the Company's effective tax rate, see Note 16, "Income Taxes"
to the Consolidated Financial Statements of this report.
Net Income
In 2000, net income declined from a loss of $188 million in 1999 to a loss
of $381 million. Basic and fully diluted earnings per share declined from a loss
of $1.26 to a loss of $1.79.
Effect of Currency Translation
For financial reporting purposes, CNH converts the financial results of
each if its operating companies into U.S. Dollars, using average exchange rates
calculated with reference to those rates in effect during the year. As a result,
any change from year to year in the U.S. Dollar value of the many other
currencies in which CNH incurs costs or receives income is reflected in a
currency translation effect on the Company's financial results.
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30
The impact of currency translation on the results of Financial Services
Operations is minimal, reflecting the geographic concentration of such
operations. For Equipment Operations, the impact of currency translation on net
sales generally is largely offset by the translation impact on costs and
expenses.
During 2000, the average change in the currencies of CNH's major operations
as compared with the U.S. Dollar were declines in the values of the Euro by 13%,
the Australian Dollar by 10%, the British Pound by 6% and the Brazilian Real by
1%. The value of the Canadian Dollar remained stable and the value of the
Japanese Yen improved by 5%. The impact of these movements reduced net sales by
slightly over 6% and reduced the absolute gross margin by slightly over 8%. The
impact on net income was approximately $30 million unfavorable, as the impact on
overhead costs, on other costs and on taxes was favorable.
1999 COMPARED TO 1998
In the following discussion, all references to 1999 refer to the Company's
historical results for the year ended December 31, 1999.
Worldwide revenues were $6,273 million in 1999 versus $5,697 million in
1998. Net sales of agricultural and construction equipment were $5,949 million
in 1999, up 9% from $5,474 million in 1998. The year-over-year improvement in
net sales was attributable to a 20% increase from acquisitions, largely driven
by the Case and O&K acquisitions, partially offset by a 7% decrease in base
volumes and a 4% deterioration from the impact of foreign exchange. In 1999,
sales of CNH agricultural equipment continued at depressed levels, primarily
reflecting ongoing market weakness as a result of low global prices for
agricultural commodities. Sales of CNH agricultural equipment in 1999 were down
6% from prior-year levels to $3,904 million, largely due to low commodity prices
and excess farm products inventory. The impact of the slowdown was most
significant in North America, where demand for high-horsepower agricultural
tractors was considerably lower than the previous year. Sales of CNH
construction equipment were up 55% over 1998 levels to $2,045 million, driven by
the impact of the O&K and Case acquisitions.
Sales in Western Europe were $2,918 million in 1999 versus $2,334 million
in 1998. This 25%, year-over-year increase primarily reflects higher sales of
CNH construction equipment, largely due to the full-year impact of the O&K
acquisition. Total sales of CNH agricultural equipment in Western Europe
remained unchanged from prior-year levels, as lower year-over-year sales of New
Holland brand tractors and combines were offset by incremental sales from the
fourth quarter acquisition of Case. In North America, sales of CNH agricultural
and construction equipment were $2,076 million in 1999, down slightly from
$2,107 million in 1998. Incremental sales from the Case acquisition partially
offset a significant decline in year-over-year sales of New Holland brand
agricultural equipment as a result of the continued industry downturn. Sales of
CNH construction equipment in North America were up approximately 56%,
reflecting the impact of significant year-over-year increases in most New
Holland brand product categories, as well as the impact of the Case acquisition.
In Latin America, 1999 sales of CNH equipment were $386 million, down 27% from
prior-year levels, largely due to unfavorable market conditions as a result of
the year-over-year devaluation of the Brazilian Real. In the Rest of World
markets, sales of CNH agricultural and construction equipment were $569 million,
up 13% from the $505 million reported in 1998, reflecting strong year-over-year
increases in most product categories.
Revenues for Financial Services increased to $412 million in 1999, up 14%
as compared with $361 million in 1998, largely driven by the impact of New
Holland's first retail ABS transaction, the fourth quarter acquisition of Case
and slight growth in new business in Western Europe, Australia and Brazil.
Financial Services' year-over-year revenue growth was partially offset by the
impact of the continuing weakness in the agricultural equipment market.
Earnings
CNH recorded net income of $148 million in 1999, as compared to net income
of $258 million in 1998. Diluted earnings per share for 1999 was $0.97, as
compared to $1.73 in 1998. In 1999, CNH recorded restructuring charges of $19
million ($14 million after tax) for actions taken in response to lower retail
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31
demand in the global agricultural equipment market. In 1998, CNH recorded a $40
million restructuring charge ($29 million after tax) for employee termination
payments. Excluding the impact of restructuring, 1999 net income was $162
million, with diluted earnings per share of $1.05, and comparable 1998 net
income was $287 million, with diluted earnings per share of $1.92. Basic
earnings per share, before restructuring, were $1.09 in 1999 versus $1.92 in
1998.
In 1999, CNH's Equipment Operations recorded net income, before equity
income of Financial Services, of $76 million, versus comparable net income of
$198 million in 1998. The decrease in earnings primarily resulted from lower
agricultural equipment sales volumes driven by the continued downturn in the
agricultural equipment market. Increased acquisition-related costs, including
increased interest expense, as well as the amortization of fair value purchase
accounting adjustments and goodwill related to the merger, also negatively
impacted CNH's 1999 net income. The impact of these factors was partially offset
by favorable foreign exchange and hedging activities, the inclusion of $21
million for the amortization of negative goodwill related to the O&K acquisition
and lower income tax expense. Throughout 1999, CNH progressively lowered
agricultural equipment production to address declining retail demand. On a
pretax basis, CNH's Equipment Operations recorded income of $166 million, as
compared to $383 million in 1998.
Financial Services recorded net income of $72 million in 1999, as compared
to net income of $60 million in 1998. The year-over-year increase in net income
was primarily due to the gain on sale from the successful completion of CNH's
first retail ABS transaction, increased operating lease income, and increased
finance income earned on retail and other notes and finance leases, including
the impact of the acquisition of Case.
Consolidated interest expense was $266 million in 1999, as compared to $162
million in 1998. This year-over-year increase primarily reflects the impact of
acquisition-related debt and rising interest rates.
The consolidated income tax provision for 1999 was $55 million, as compared
to $148 million in 1998. CNH's 1999 and 1998 effective income tax rates were 27%
and 36%, respectively. These rates differ from the Dutch statutory rate of 35%
primarily due to differences in the geographical mix of profits, losses in
jurisdictions for which no immediate tax benefit is recognizable and the
reduction of valuation reserves attributable to the utilization of prior-year
losses.
Business Segment Operating Results
The following is a discussion of CNH's industry segment operating results.
CNH defines operating earnings as the income of CNH's Equipment Operations
before interest, taxes and restructuring charges, including the net income of
Financial Services on an equity basis. Operating earnings for Financial Services
are reported on a net income basis. Also see Note 20, "Segment and Geographical
Information" to the Consolidated Financial Statements of this report.
CNH's operating earnings for 1999 were $335 million versus $495 million in
1998. Financial Services recorded net income of $72 million in 1999, as compared
to net income of $60 million in 1998. A reconciliation of CNH's Equipment
Operations' net income to operating earnings is as follows (in millions):
FOR THE
YEARS ENDED
DECEMBER 31,
-------------
1999 1998
----- -----
EQUIPMENT OPERATIONS
Net income................................................ $148 $258
Income tax provision...................................... 14 118
Interest expense.......................................... 154 79
Restructuring charge...................................... 19 40
---- ----
Operating earnings..................................... $335 $495
==== ====
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Agricultural Equipment
Operating earnings for CNH's worldwide agricultural equipment business
decreased from $316 million in 1998 to $146 million in 1999. The decrease in
operating earnings was driven by the continued weakness in the agricultural
equipment industry. This weakness resulted in lower dealer orders, reflecting
the ongoing decline in the near-term fundamentals in the global agricultural
market. Low commodity prices, driven principally by continued higher than normal
grain inventory levels, adversely affected net farm income. Throughout 1999, CNH
progressively lowered its agricultural equipment production levels to align
production relative to declining retail demand.
Worldwide sales of CNH agricultural equipment in 1999 declined $247 million
or 6% from prior-year levels. Excluding the impact of the Case merger in the
fourth quarter of 1999, year-over-year sales of New Holland brand agricultural
equipment declined $591 million or 14% from 1998 levels. On a full year, pro
forma basis after giving effect to the merger, net sales of CNH agricultural
equipment were $6,144 million, down 20% from $7,683 million in 1998.
In addition to the overall volume decline, 1999 operating earnings for
CNH's agricultural equipment business were adversely impacted by variations in
geographic and product line sales mix, including significantly lower sales of
higher margin, large equipment. Worldwide sales of CNH tractors decreased 9%
while worldwide sales of combines decreased 11% from the same period last year.
Sales of CNH hay and forage equipment declined 14% as compared to prior-year
levels. The lower retail demand and resulting decrease in dealer orders were due
to the continued decline in the global agricultural market and the overall
economic uncertainties in several emerging markets. In addition, commodity
prices have dropped substantially year-over-year, affecting large-scale
production agriculture. CNH's 1999 operating earnings also reflect the impact of
higher year-over-year costs for increased research and development expenses and
costs associated with the acquisition of Case, including the amortization of
fair value purchase accounting adjustments and goodwill related to the merger.
These decreases in operating earnings were partially offset by the impact of
favorable manufacturing performance, as well as by benefits from CNH's
restructuring actions and ongoing cost improvement initiatives.
Construction Equipment
Operating earnings for CNH's worldwide construction equipment business were
$117 million in 1999, as compared to $119 million in 1998. The year-over-year
increase in sales of CNH construction equipment, coupled with the $21 million of
income from the amortization of O&K negative goodwill, was more than offset by
the impact of an adverse product mix, including higher sales of lower margin
products. In addition, CNH incurred additional costs associated with advancing
CNH's presence in the North American construction equipment market. Costs
associated with the acquisition of Case, including the amortization of fair
value purchase accounting adjustments and goodwill related to the merger, also
negatively impacted operating earnings. Additionally, the year-over-year
comparison of operating earnings was negatively impacted by the inclusion of $14
million of income in CNH's 1998 operating earnings from an equity method
investment that conducts research and development in Italy.
Worldwide sales of CNH construction equipment increased $722 million or 55%
in 1999 from 1998 levels, largely driven by strong retail demand in Western
Europe, and the full-year impact of the December 1998 acquisition of O&K.
Increased sales of skid steer loaders and graders, as well as additional sales
from the acquisition of Case, also contributed to the year-over-year sales
growth. Excluding the impact of the Case merger, year-over-year sales of New
Holland brand construction equipment increased $446 million or 34% from 1998
levels. On a full year, pro forma basis after giving effect to the merger, net
sales of CNH construction equipment were $3,785 million, up 7% from $3,529
million in 1998.
Financial Services
Financial Services recorded net income of $72 million in 1999, as compared
to net income of $60 million in 1998. Pretax income for Financial Services
increased to $113 million in 1999 from $90 million in 1998. The
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year-over-year increase in pretax income was primarily due to a $27 million gain
on retail notes sold as a result of the successful completion of CNH's first
retail ABS transaction, increased operating lease income, and increased finance
income earned on retail and other notes and finance leases, including the impact
of the acquisition of Case. These increases in pretax income were partially
offset by the impact of lower margins on receivables due to a rising interest
rate environment and competitive market conditions, net amortization expense for
purchase accounting adjustments related to the merger and additional provisions
for loan losses. The increased loan loss provisions reflect the significant
growth in Financial Services' serviced portfolio, including higher losses
associated with portfolio diversification, as well as higher losses resulting
from the depressed agricultural equipment market. In addition, operating results
for the full year reflect higher operating expenses as a result of Financial
Services' growth initiatives, including operating expenses associated with the
acquisition of Case.
RESTRUCTURING
1998 Restructuring Program
In 1998, CNH reviewed its manufacturing, selling and administrative
processes in an effort to strengthen its competitive position and to better
align its operations in response to current economic and market conditions. As a
result, CNH announced a pretax restructuring charge of $40 million for severance
and other costs related to headcount reductions. CNH refers to these actions as
the 1998 Restructuring Program. The 1998 Restructuring Program included
termination costs to eliminate approximately 420 salaried and 600 hourly
positions. These termination payments included the cost of severance and
contractual benefits in accordance with collective bargaining agreements and CNH
policy, and also included costs for outplacement services, medical and
supplemental vacation and retirement payments.
In connection with the 1998 acquisition of O&K, CNH recorded additional
restructuring reserves of approximately $29 million for employee and dealer
termination costs. These costs were recorded in conjunction with the allocation
of the initial O&K purchase price.
In 1999, CNH also recorded additional restructuring charges of $19 million
related to the remaining headcount actions contemplated under the 1998
Restructuring Program. These charges primarily represent severance and other
related costs for the elimination of approximately 340 of the remaining salaried
positions under the original plan. In 1999 CNH expended $52 million for
severance costs as contemplated under its restructuring programs. In 1999, CNH
reversed $26 million of purchase accounting reserves, as CNH was unable to
complete the required actions within one year of the O&K acquisition. The
reversal of the $26 million restructuring reserve was recorded against the
initial O&K purchase accounting goodwill.
In 2000, CNH expended $12 million for severance and other employee costs as
contemplated under the 1998 Restructuring Program. The 1998 Restructuring
Program is complete and there are no other actions expected under this program.
The following tables set forth the CNH activities for the years ended
December 31, 1998, 1999 and 2000 under the 1998 Restructuring Program (in
millions):
1998 ACTIVITY
-----------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1997 ADDITIONS UTILIZED * ESTIMATES 1998
------------ --------- ---------- ---------- ------------
Severance and other employee-related
costs................................... $18 $ 67 $(14) $ -- $ 71
Cost related to closing/selling/downsizing
existing facilities..................... -- 2 (2) -- --
--- ---- ---- ---- ----
Total restructuring............. $18 $ 69 $(16) $ -- $ 71
=== ==== ==== ==== ====
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1999 ACTIVITY
-----------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1998 ADDITIONS UTILIZED * ESTIMATES 1999
------------ --------- ---------- ---------- ------------
Severance and other employee-related
costs................................... $71 $19 $(52) $(26) $12
Cost related to closing/selling/downsizing
existing facilities..................... -- -- -- -- --
--- --- ---- ---- ---
Total restructuring............. $71 $19 $(52) $(26) $12
=== === ==== ==== ===
2000 ACTIVITY
-----------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1999 ADDITIONS UTILIZED * ESTIMATES 2000
------------ --------- ---------- ---------- ------------
Severance and other employee-related
costs................................... $12 $ -- $(12) $ -- $ --
Cost related to closing/selling/downsizing
existing facilities..................... -- -- -- -- --
--- ---- ---- ---- ----
Total restructuring............. $12 $ -- $(12) $ -- $ --
=== ==== ==== ==== ====
------------
* Includes currency translation.
CNH Merger Integration Plan
As part of its merger integration, CNH has evaluated the divestiture or
closure of certain manufacturing locations and parts depots. Through the
consolidation of all functional areas, including the impact of divestiture
actions required by the European and U.S. regulatory agencies in connection with
the merger, CNH expects to significantly reduce its worldwide workforce. The CNH
Merger Integration Plan takes into consideration duplicate capacity and other
synergies including purchasing and supply chain management, and selling, general
and administrative functions.
The CNH Merger Integration Plan is comprised of two separate programs, the
Case Purchase Accounting Restructuring Program and the CNH Merger Integration
Program. The Case Purchase Accounting Restructuring Program encompasses all
actions of the CNH Merger Integration Plan related to Case that qualify for
purchase accounting treatment. The CNH Merger Integration Program encompasses
all other actions of the CNH Merger Integration Plan that qualify for the
establishment of restructuring reserves.
Case Purchase Accounting Restructuring Program
As of December 31, 1999, CNH had recorded $90 million in merger-related
restructuring reserves for severance and other costs associated with identified
headcount reductions as part of CNH's initial plan to integrate the Case
operations. These costs were recorded in conjunction with the preliminary
allocation of the Case purchase price. During 2000, CNH recorded an additional
$225 million in merger integration restructuring reserves related to Case's
operations, net of changes in estimates. These costs were recorded in
conjunction with the finalization of the Case Purchase Accounting Restructuring
Program. The additional merger integration restructuring reserves primarily
relate to severance and other employee-related costs and costs related to
closing, selling, and downsizing existing facilities.
The severance and other employee-related costs reserved for in 2000
amounted to $78 million and relate to severance costs required to reduce the
remainder of the approximately 2,700 Case employees identified in the CNH Merger
Integration Plan. These termination payments included the cost of severance and
contractual benefits in accordance with collective bargaining agreements, other
agreements and CNH policy, and also included costs for outplacement services,
medical and supplemental vacation and retirement payments. As of December 31,
2000, CNH had terminated approximately 2,200 Case employees related to the Case
Purchase Accounting Restructuring Program.
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The costs related to closing, selling, and downsizing existing facilities,
primarily relate to the following actions of the Case Purchase Accounting
Restructuring Program:
- Sale of Case's CX and MXC product lines and the Doncaster, United
Kingdom, plant in which they are assembled and its related component
manufacturing plant in St. Dizier, France;
- Sale of Case's large square balers product line which is assembled in
Neustadt, Germany;
- Sale of Case's Fermec brand loader/backhoe and industrial tractor
product lines and the Fermec manufacturing plant in Manchester, United
Kingdom;
- Sale of Case's ownership interest in Hay & Forage Industries in Hesston,
Kansas, a 50% joint venture with AGCO Corporation that produces hay and
forage implements;
- Closure of Case's Concord plant in Fargo, North Dakota, which produces
air seeders;
- Closure of Case's manufacturing plant in Sorocaba, Brazil;
- Sale of Case's Carr Hill Works, Doncaster, England, components facility;
- Sale of Case's Racine, Wisconsin, foundry;
- Closure of Case's Racine, Wisconsin, tractor manufacturing facility; and
- Other actions which take into consideration duplicate capacity and other
synergies including purchasing and supply chain management, research and
development and selling, general and administrative functions related to
Case's operations.
The following table sets forth the CNH activities for the years ended
December 31, 1999 and 2000 under the Case Purchase Accounting Restructuring
Program (in millions):
1999 ACTIVITY
----------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1998 ADDITIONS UTILIZED* ESTIMATES 1999
------------ --------- --------- ---------- ------------
Severance and other employee-related
costs.................................... $-- $ 90 $ -- $ -- $ 90
--- ---- ---- ---- ----
Total restructuring.............. $-- $ 90 $ -- $ -- $ 90
=== ==== ==== ==== ====
2000 ACTIVITY
----------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1999 ADDITIONS UTILIZED* ESTIMATES 2000
------------ --------- --------- ---------- ------------
Severance and other employee-related
costs.................................... $90 $ 78 $ (61) $(39) $ 68
Cost related to closing/selling/downsizing
existing facilities...................... -- 185 (72) -- 113
Other costs................................ -- 1 -- -- 1
--- ---- ----- ---- ----
Total restructuring.............. $90 $264 $(133) $(39) $182
=== ==== ===== ==== ====
------------
* Includes currency translation.
The specific restructuring measures and associated estimated costs were
based on management's best business judgment under prevailing circumstances.
Management believes that the Case Purchase Accounting Restructuring Program
reserve balance of $182 million at December 31, 2000, is adequate to carry out
the restructuring activities as outlined above, and CNH anticipates that all
actions will be completed by December 31, 2001. As prescribed under U.S. GAAP,
if future events warrant changes to the reserve, such adjustments will be
reflected in the applicable statements of operations as "Restructuring and other
merger related costs," or in the applicable balance sheets as an adjustment to
goodwill, as appropriate. CNH expects
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to fund the cash requirements of the Case Purchase Accounting Restructuring
Program with cash flows from operations and additional borrowings under CNH's
credit facilities.
CNH Merger Integration Program
During 2000, CNH recorded $157 million in restructuring and other merger
related costs related to the CNH Merger Integration Program, which did not
qualify for purchase accounting treatment. These restructuring and other merger
related costs primarily relate to severance and other employee-related costs,
writedown of assets, loss on the sale of assets and businesses, costs related to
closing, selling, downsizing existing facilities and other merger related costs.
The severance and other employee-related costs reserved for in 2000
amounted to $43 million and relate to severance costs required to reduce CNH
headcount by approximately 3,500 employees as identified in the CNH Merger
Integration Plan. These termination payments included the cost of severance and
contractual benefits in accordance with collective bargaining agreements, other
agreements and CNH policy, and also included costs for outplacement services,
medical and supplemental vacation and retirement payments. As of December 31,
2000, CNH had terminated approximately 1,500 CNH employees related to the CNH
Merger Integration Program.
The writedown of assets, loss on the sale of assets and businesses, and
costs related to closing, selling, and downsizing existing facilities, primarily
relate to the following actions of the CNH Merger Integration Program:
- Sale of CNH's New Holland Laverda combine harvester product line
(excluding hillside models) and the Breganze, Italy facility in which
they are made;
- Sale of CNH's New Holland Versatile, Genesis and G/70 series four-wheel
and two-wheel drive tractor lines, together with the Winnipeg, Canada,
plant in which they are made;
- Closure of CNH's administrative offices in Brentford, United Kingdom;
and
- Other actions which take into consideration duplicate capacity and other
synergies including purchasing and supply chain management, research and
development and selling, general and administrative functions related to
CNH's operations.
The other merger related costs of $28 million relate to incremental costs
incurred by CNH in conjunction with the merger integration activities at CNH.
These costs are classified as "Restructuring and other merger related costs" on
the consolidated statements of operations. These expenses consist primarily of
consulting expenses, systems integration expenses and employee relocation
expenses.
The following table sets forth the CNH activities for the year ended
December 31, 2000 under the CNH Merger Integration Program (in millions):
2000 ACTIVITY
-----------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1999 ADDITIONS UTILIZED* ESTIMATES 2000
------------ --------- ---------- ---------- ------------
Severance and other employee-related
costs................................... $ -- $ 43 $(31) $ -- $ 12
Writedown of assets....................... -- 12 (12) -- --
Loss on sale of assets and businesses..... -- 7 (7) -- --
Cost related to closing/selling/downsizing
existing facilities..................... -- 60 (9) -- 51
Other restructuring costs................. -- 7 (1) 6
Other merger related costs................ -- 28 (28) -- --
---- ---- ---- ---- ----
Total restructuring....................... $ -- $157 $(88) $ -- $ 69
==== ==== ==== ==== ====
---------------
* Includes currency translation.
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The specific restructuring measures and associated estimated costs were
based on management's best business judgment under prevailing circumstances.
Management believes that the CNH Merger Integration Program reserve balance of
$69 million at December 31, 2000, is adequate to carry out the restructuring
activities as outlined above, and CNH anticipates that all actions will be
completed by December 31, 2001. As prescribed under U.S. GAAP, if future events
warrant changes to the reserve, such adjustments will be reflected in the
applicable statements of operations as "Restructuring and other merger related
costs." CNH expects to fund the cash requirements of the CNH Merger Integration
Program with cash flows from operations and additional borrowings under CNH's
credit facilities.
B. LIQUIDITY AND CAPITAL RESOURCES.
The discussion of liquidity and capital resources focuses on the balance
sheets and statements of cash flows. CNH's operations are capital intensive and
subject to seasonal variations in financing requirements for dealer receivables
and inventories. Whenever necessary, funds from operating activities are
supplemented from external sources.
Net Indebtedness
CNH's consolidated net indebtedness, defined as short- and long-term
borrowings less cash and cash equivalents, is as follows (in millions):
AT DECEMBER 31,
---------------
2000 1999
------ ------
Short-term borrowings.................................... $4,186 $4,953
Long-term borrowings, including current maturities....... 5,539 4,558
Cash and cash equivalents................................ (886) (466)
------ ------
Net indebtedness......................................... $8,839 $9,045
====== ======
The increase in CNH's long-term borrowing at December 31, 2000, primarily
reflects the refinancing of short-term credit facilities used to finance the
acquisition of Case with long-term loans from a Fiat affiliate. Also, certain
short-term borrowings were reduced during the year with the proceeds from
Financial Services' retail ABS transactions.
Cash Flow from Operating Activities
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
2000 1999 1998
----- ------ -----
(IN MILLIONS)
Equipment Operations............................... $(191) $ 377 $ 70
Financial Services................................. 314 708 (233)
Eliminations....................................... 685 -- --
----- ------ -----
Consolidated....................................... $ 808 $1,085 $(163)
===== ====== =====
In 2000, cash provided by consolidated operating activities primarily
related to reduced working capital. The eliminations relate to intercompany
loans from Equipment Operations to Financial Services. Excluding the
intercompany loans, the Equipment Operations generated cash by reducing
receivables and inventories in response to the continued weakness in the
agricultural equipment industry. Cash generated by Financial Services was
primarily the result of retail receivable sales in ABS transactions, partially
offset by the growth in the retail receivables portfolio.
The increase in cash generated by operating activities in 1999 versus 1998
is due to greater decreases in levels of inventory and receivables in 1999
versus 1998, partially offset by lower earnings. In 1999, production
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cuts to realign high year end 1998 inventories with lower market demand brought
inventory and receivable levels down. The increased cash provided by operating
activities for Financial Services resulted from a $1.0 billion retail ABS
transaction.
Cash Flow from Investing Activities
Cash used by investment activities in 2000 was $296 million, as total
expenditures for property, plant and equipment and equipment on operating leases
were partially offset by proceeds from divestitures. Cash used by investment
activities in 1999 was $4,552 million, substantially all of which was for the
acquisition of Case, including related costs and expenses. In 1998, CNH expended
$73 million, net of cash acquired, for its acquisition and investment
activities.
Expenditures for property, plant and equipment in 2000, 1999 and 1998
totaled $228 million, $210 million and $150 million, respectively. CNH made
these capital expenditures to acquire the property, plant and equipment
necessary to introduce new products, enhance manufacturing efficiency and
further environmental and safety programs.
Cash Flow from Financing Activities
For 2000, cash used by financing activities was $42 million. During 2000,
CNH refinanced its maturing debt and increased its ratio of long term debt to
total debt. For 1999, cash provided by financing activities was $3,327 million,
primarily resulting from funds raised to finance the acquisition of Case. For
1998, cash provided by financing activities was $241 million, and CNH increased
its short-term borrowings to finance the growth of its retail receivables
portfolio, and paid dividends to common shareholders.
Future Liquidity and Capital Resources
CNH has various lines of credit and liquidity facilities that include
borrowings under both committed credit facilities and uncommitted lines of
credit. A significant portion of CNH's financing has historically come from Fiat
and Fiat affiliates.
In 1999 CNH borrowed $3.0 billion from two 364-day credit facilities
specifically established to finance the acquisition of Case. Of this amount $200
million was repaid in December 1999. The remaining $2.8 billion was refinanced
during 2000 with $2.0 billion in term loans with Fiat with maturities from 2002
to 2005 and a weighted average interest rate of 7.6% and $800 million in
short-term borrowings.
CNH also has the ability to issue commercial paper in various countries
under the following programs (in millions):
COMMERCIAL PAPER
----------------------
AVAILABILITY
PROGRAM DECEMBER 31,
SIZE 2000
------- ------------
United States........................................ $3,450 $2,848
Australia............................................ 220 172
------ ------
Total........................................... $3,670 $3,020
====== ======
Under the terms of CNH's commercial paper programs, the principal amounts
of the commercial paper outstanding, combined with amounts outstanding under the
committed credit facilities, cannot exceed the total amount available under the
committed credit facilities. Borrowings under the New Holland Credit Company's
$1.5 billion commercial paper program are guaranteed by Fiat. On December 15,
2000, CNH increased its asset-backed commercial paper liquidity facility in the
U.S. by $450 million. In addition, CNH terminated its European and Canadian
commercial paper programs in 2000.
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The following credit facilities were available to CNH at December 31, 2000:
- a $2.0 billion third party revolving credit facility with Fiat and
certain of Fiat's affiliates as co-borrowers, of which $1.8 billion is
available to CNH, expiring in July 2005;
- a $1.0 billion revolving credit facility with an affiliate of Fiat,
expiring in October 2002;
- a $500 million revolving credit facility, guaranteed by an affiliate of
Fiat, that expires in December 2001;
- a total of $1,671 million in committed lines of credit expiring between
2001 and 2004;
- a total of $495 million in committed lines of credit with Fiat and
certain of Fiat's affiliates as co-borrowers, expiring between 2001 and
2003, and guaranteed by an affiliate of Fiat;
- a 364-day, $1.2 billion U.S. asset-backed commercial paper liquidity
facility that expires in December 2001; and
- a total of $751 million in uncommitted credit facilities.
At December 31, 2000, CNH had approximately $3.6 billion available under
its total lines of credit. In addition to these credit facilities, CNH also had
at December 31, 2000, $3.1 billion term loans with an affiliate of Fiat. These
facilities primarily were established in conjunction with the refinancing of the
Case acquisition debt. On December 31, 2000, CNH's outstanding debt with Fiat
and its affiliates was approximately 46% of the total debt. This percentage
increased in the last quarter of 2000 due to the temporary illiquidity of the
commercial paper market in the United States.
Borrowings under the revolving credit facilities bear interest at (1)
EURIBOR plus an applicable margin; (2) LIBOR, plus an applicable margin, or (3)
banker's bills of acceptance rates, plus an applicable margin. Borrowings
against commercial paper and asset-backed commercial paper liquidity facilities
bear interest at prevailing commercial paper rates. The weighted-average
interest rate on consolidated short-term borrowings at December 31, 2000, was
6.82%.
CNH also has four securitization programs through which it may sell, on a
revolving basis, wholesale receivables generated in the United States and
Canada. Under these facilities, the maximum amount of proceeds that can be
accessed at one time is $1.35 billion, and is subject to change based on the
level of eligible wholesale receivables. CNH expects to sell additional pools of
receivables in the future.
In addition to the above availability, CNH has other sources of future
liquidity including the asset-backed securities markets in the United States and
Canada. CNH also established medium-term note programs prior to 2000. As of
December 31, 2000, subsidiaries of CNH have remaining availability of $425
million in medium-term notes issuable pursuant to an $800 million U.S. shelf
registration statement; $284 million of medium-term notes issuable under a $500
million Canadian program; and $190 million of medium-term notes issuable under a
$330 million Australian program.
CNH maintains sufficient committed lines of credit and liquidity facilities
to cover its expected funding needs on both a short-term and long-term basis.
CNH manages its aggregate short-term borrowings so as not to exceed availability
under its committed lines of credit. CNH accesses capital and banking markets,
predominantly through commercial paper issuances and committed and uncommitted
credit facilities, to fund its short-term financing requirements and to ensure
near-term liquidity. As funding needs are determined to be of a longer-term
nature, CNH accesses medium- and long-term debt, as appropriate, to refinance
short-term borrowings and, thus, replenish its short-term liquidity.
During the fourth quarter of 2000, the Company's ability to access the
commercial paper market through the Case Corporation and Case Credit programs
was significantly reduced due to downgrades in the credit ratings of those
subsidiaries. New Holland Credit Company's $1.5 billion program (borrowings
under which are guaranteed by Fiat) was not impacted by the rating agencies'
actions in the fourth quarter of 2000.
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In April 2001, Standard & Poor's downgraded the long-term corporate credit
ratings of CNH, Case Corporation and Case Credit Corporation and related
entities (other than New Holland Credit Company) to BB from BBB- and also
lowered the long-term and short-term debt ratings of such entities, with a
negative outlook. In addition, in April 2001, Moody's lowered its long-term and
short-term debt ratings of Case Corporation to Ba2 and NP from Baa3 and P-3,
respectively, also with a negative outlook. The expected impact of these ratings
downgrades on CNH's short-term funding will be to restrict substantially (if not
totally) the Company's access to the commercial paper market through the Case
Corporation and Case Credit Corporation programs. In view of these rating agency
actions, CNH has determined to access the asset-backed commercial paper markets
in various countries in which it operates as a core source of funding for its
Financial Services operations.
In managing its future liquidity requirements, CNH expects to pursue a
financing strategy that includes:
- consolidating existing bank credit arrangements and other borrowing
facilities available to CNH, developing common standards for borrowing
terms and conditions;
- maintaining a relationship with Fiat, including credit support when
appropriate;
- maintaining continuous access to a variety of financing sources,
including U.S. and international capital markets and commercial bank
lines; and
- funding Financial Services with a combination of financing and
receivables securitizations.
In 2000, CNH paid a guarantee fee of between 0.0625% per annum and 0.125%
per annum on the average amount outstanding under facilities guaranteed by Fiat.
Fiat has agreed to maintain its existing treasury and debt financing
arrangements with CNH for as long as it maintains control of CNH and, in any
event, at least until December 31, 2003. After that time, Fiat has committed
that it will not terminate CNH's access to these financing arrangements without
affording CNH an appropriate time period to develop suitable substitutes.
CNH estimates that for 2001, expenditures for property, plant and equipment
and other investments amounting to $45 million in the aggregate will be required
to complete projects authorized as of December 31, 2000, for which substantial
commitments by CNH have been made. In addition, CNH estimates that for 2001,
investments in connection with its recently announced alliance with Kobelco will
be approximately $150 million. CNH expects that these commitments will be funded
with cash flows from operations and additional borrowings under CNH's credit
facilities.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
RESEARCH, DEVELOPMENT AND ENGINEERING
CNH's research, development and engineering personnel design, engineer,
manufacture and test new products, components and systems. CNH incurred $338
million, $196 million and $152 million of research, development and engineering
costs in the years ended December 31, 2000, 1999 and 1998, respectively. After
giving effect to the merger, 1999 CNH pro forma research, development and
engineering costs would have been $357 million.
CNH also benefits from the research, development and engineering
expenditures of its joint ventures, which are not included in CNH's research,
development and engineering expenditure figures, and from the continuing
engineering efforts of its suppliers.
PATENTS AND TRADEMARKS
CNH continues to operate the New Holland and Case businesses under their
respective corporate names, trademarks and trade names.
New Holland -- CNH sells its New Holland brand products under heritage
brand names such as Ford, Braud, FiatAllis, Flexi-Coil, Fiat-Hitachi, O&K and
FiatAgri, and is promoting the New Holland name and
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logo as the primary brand name for its agricultural equipment. CNH also has a
one-year, renewable, royalty-bearing license from Fiat to use the FiatAgri
trademark.
Case -- Case manufactures and distributes equipment primarily under the
brand names Case, IH, Case IH, Steyr, Austoft, Concord, Tyler, DMI, and Case
Poclain.
Other than the New Holland, Case, IH and Case IH trademarks, CNH does not
believe that its business is materially dependent on any single patent or
trademark or group of patents or trademarks.
CNH, through New Holland and Case, has a significant tradition of
technological innovation in the agricultural and construction equipment
industries. CNH holds over 2,600 patents, with 1,350 additional applications
pending. CNH believes that it is among the market leaders for patented
innovations in the product classes in which it operates.
D. TREND INFORMATION.
MARKET OUTLOOK
The Company views the market demand for its agricultural equipment in 2001
as being influenced by the same factors seen in the second half of 2000. Recent
supply and demand reports for global agricultural commodities project continued
pressure on commodity prices. Production remains strong in the Southern
Hemisphere, including record soybean crops from Brazil, and analysts do not
foresee lower planting levels in North America or Europe for the year ahead.
These factors will continue to impact the market for CNH's agricultural
equipment but may be somewhat offset by underlying demand resulting from low
sales levels of recent years and relatively strong farmer's balance sheets. In
the first quarter of 2001, sales of agricultural equipment in the Americas were
better than last year and somewhat better than expected, particularly in the
United States and Brazil. CNH anticipates that for the full year the
agricultural equipment industry will be flat to up slightly in the Americas
compared to last year. In Europe, industry sales have been somewhat weaker in
the first quarter. For the full year, without considering any major impact of
foot and mouth disease and BSE, the impact of which is still unclear, sales in
Europe may be down about 10%.
In its construction equipment business, CNH expects slightly lower industry
sales worldwide, as a result of continued decline in North America, as well as
weaker market conditions in Western Europe. The Company expects that worldwide
industry sales of backhoe loaders and heavy construction equipment will be down
while industry sales of skid steer loaders could be flat to up slightly. The
recent decline in interest rates in the U.S. is expected to support construction
activity but weakening overall economic conditions may temper new housing starts
particularly in the second half of the year. In the first quarter of 2001,
construction equipment sales in North America were lower than expected and
significantly below last year in most product lines, while in Europe, industry
sales were better than anticipated. In North America, demand for construction
equipment is expected to be down about 5-10% for the year, while in Europe,
industry sales may be down slightly from record levels in 2000. Sales of
construction equipment in Latin America, particularly Brazil, and Rest of World
markets are expected to be up. CNH does not expect a recovery in the
construction equipment market until at least the second half of 2001, with
worldwide sales for the full year down slightly from last year's levels.
INFLATION
Inflation impacts CNH's business in both the costs of production and the
demand for its products.
A significant portion of the cost of CNH machinery is comprised of material
costs. Therefore, material price inflation could result in increased
manufacturing costs through supplier price increases to CNH. CNH's ability to
recover increased supplier costs would be dependent, in part, on its
competitors' responses to these economic conditions. Manufacturing cost
increases in excess of increased pricing in the market could have an adverse
effect on CNH.
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Increases in inflation tend to cause higher interest rates. The demand for
agricultural and, to a greater extent, construction equipment, is negatively
impacted by high interest rates. As interest rates on farm debt escalate,
farmers tend to delay equipment purchases. CNH's construction equipment business
is heavily tied to the housing construction sector, and in the face of rising
mortgage rates, potential homeowners tend to delay purchases. Increases in the
level of worldwide inflation could have a negative effect on the level of demand
for agricultural and construction equipment.
EURO
CNH has implemented systems to prepare for the transition from European
national currencies to the Euro. CNH believes that the greatest impact on CNH
brought about by the introduction of the Euro has been the increased price
transparency on European sales of European manufactured products.
Management believes that the price convergence from the Euro introduction
has not resulted in any material adverse impact on the financial results of
CNH's existing operations in the participating member states. In addition, the
elimination of currency exchange fluctuations as a result of the Euro
introduction has reduced CNH's exposure to foreign exchange risk within the Euro
member states.
CNH has not found it necessary to make significant investments in systems
hardware or software to prepare for and operate in the Euro. CNH is not in a
position to quantify any possible long-term impact of the Euro on its revenues
or expenses. However, at this time, CNH has no reason to believe that it is in a
weak or unfavorable position relative to the Euro introduction as compared to
its competitors or other companies dealing in Europe.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT.
As of April 30, 2001, the directors and executive officers of CNH are as
set forth below:
DIRECTOR/
EXECUTIVE
NAME POSITION WITH CNH OFFICER SINCE
---- ----------------- -------------
Jean-Pierre Rosso.............. Director and Chairman 1999
Paolo Cantarella............... Director 1996
Damien Clermont................ Director 1999
Alfredo Diana.................. Director 1999
Katherine M. Hudson............ Director 1999
Kenneth Lipper................. Director 1996
Paolo Monferino................ Director, President and Chief Executive Officer 1999
James L.C. Provan.............. Director 1995
Michel Lecomte................. Chief Financial Officer, and President, Financial 2000
Services and President, CNH Capital
Richard M. Christman........... President, Case IH Agricultural Business 2000
Harold D. Boyanovsky........... President, Worldwide Agricultural Equipment Products 1999
Fausto Lanfranco............... President, Worldwide Construction Equipment Business 1996
William T. Kennedy............. President, New Holland Agricultural Business 1996
Roberto Miotto................. Senior Vice President, General Counsel and Secretary 1991
Giovanni B. Ravina............. Senior Vice President, Human Resources 2000
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Jean-Pierre Rosso, Director and Chairman, born on July 11, 1940, has served
as Chairman of the Board of Directors of CNH since November 12, 1999 and as its
Chief Executive Officer until November 7, 2000. Prior to this, Mr. Rosso served
as Chairman and Chief Executive Officer of Case from October 1997 until November
1999. From March 1996 through October 1997, he served as Case's Chairman,
President and Chief Executive Officer, and from April 1994 through March 1996,
he served as its President and Chief Executive Officer. Prior to April 1994, Mr.
Rosso served in various capacities with Honeywell, Inc., a producer of advanced
technology products, including as President of the Home and Building Control
Business from 1992 through April 1994, and as President of its European
operations from 1987 through 1991. Mr. Rosso is also director of ADC
Telecommunications, Inc., and Medtronic, Inc.
Paolo Cantarella, Director, born on December 4, 1944, has served as
director of CNH, and previously of New Holland, its predecessor, since April
1996. Mr. Cantarella is the Chief Executive Officer of Fiat and the Chairman of
Fiat Auto S.p.A., Iveco N.V., and Vice President of IHF (Internazionale Holding
Fiat S.A.), having served in a variety of senior executive positions with the
Fiat Group. He is also a member of the Board of HdP (Holding di Partecipazioni
Industriali S.p.A.). Prior to his current position, Mr. Cantarella was the
Managing Director and head of Fiat Auto S.p.A., the Fiat Group's Automobile
Sector.
Damien Clermont, Director, born on July 12, 1951, has served as director of
CNH since October 1999. Mr. Clermont has served as Chief Financial Officer of
Fiat S.p.A. since 1999. He also served as Senior Vice President, Planning and
Strategy, of Fiat from April 1996. Prior to joining Fiat, Mr. Clermont held
several key management positions with the Schneider Group, a leading producer of
electrical equipment, including Senior Vice President, Strategic Planning and
member of its Executive Committee. Mr. Clermont also held positions with
France's Total Company (oil) in the International Finance Department, where he
served as Head of International Cash Management.
Alfredo Diana, Director, born on June 2, 1930, has served as a director of
CNH since November 1999. Prior to that, Mr. Diana served as the Italian governor
of the International Fund for Agricultural Development from 1977 to 1999. He was
an elected member of the European Parliament in 1979, and an elected senator of
the Italian Republic in 1983. Mr. Diana held several government positions,
including President of the General Federation of Agriculture, Commissioner and
President of the Experimental Institute for fruit-growing, Vice President of the
National Council of Economy and Labour, President of the National Council for
Forestry and Timber, and Minister of Agriculture and Forestry in the Amato
government. He was also President of Tecnagro, an association for innovations in
agriculture, and president of Montedison agricultural services. Mr. Diana is
also the president of the Italian Agricultural Society, and is a member of the
Board of Directors of the Central Institute of the Support of the Clergy.
Katherine M. Hudson, Director, born on January 19, 1947, has served as a
director of CNH since November 1999. Ms. Hudson has served as the President and
Chief Executive Officer of Brady Corporation, an international manufacturer of
identification and material solution products, since January 1994. Prior to
assuming her position with that company, she was Vice President and General
Manager of the Professional, Printing and Publishing Imaging Division of Eastman
Kodak Company. Prior to the business merger of New Holland N.V. and Case
Corporation, Ms. Hudson served as a director of Case since 1996. In addition to
Brady, Ms. Hudson is also a director of Charming Shoppes, Inc.
Kenneth Lipper, Director, born on June 19, 1941, has been the Chairman of
Lipper & Company, Inc., a $5.5 billion investment management and investment
banking company, since 1986. Prior to that, he was the Deputy Mayor of the City
of New York under Mayor Koch from 1983-1985. He was also an adjunct professor at
the School of International and Public Affairs at Columbia University during the
years 1976-1982 and a general partner at Lehman Brothers during the years
1969-1975. During 1968-1969, Mr. Lipper was the Director of Industrial Policy
for the Office of Foreign Direct Investment at the US Department of Commerce.
Currently, Mr. Lipper is on the Board of Trustees for the Sundance Institute, as
well as the Guggenheim Foundation, and on the International Advisory Committee
of the Federal Reserve Bank of New York. He is also on the Advisory Board for
Chase Manhattan Bank and on the Executive Committee for Resource
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Allocation, Harvard University. Mr. Lipper is a member of the International
Institute for Strategic Studies (London), the Council on Foreign Relations, the
Economic Club of New York and the Century Association.
Paolo Monferino, Director, President and Chief Executive Officer, born on
December 15, 1946, served as President and Chief Operating Officer of CNH from
March 24, 2000 to November 7, 2000. On November 8, 2000, Mr. Monferino was
appointed a director and President and Chief Executive Officer, leading the
overall management of CNH, including the execution of the Company's wide-ranging
integration plan. Mr. Monferino has more than 15 years of experience in the
agricultural and construction equipment business beginning in the United States
with Fiatallis, a joint venture between Fiat's construction equipment business
and Allis Chalmers. In 1983, he was named chief executive officer of Fiatallis'
Latin American operations in Brazil. Two years later, he was appointed chief
operating officer at Fiatallis and in 1987 was named the chief operating officer
at Fiatagri, the farm machinery division of the Fiat Group. Following Fiat
Geotech's 1991 acquisition of Ford New Holland, Monferino was named executive
vice president of the new company headquartered in London. He was responsible
for strategy and business development, including product, marketing and
industrial policies.
James L.C. Provan, Director, born on December 19, 1936, has served as
director of CNH, and previously of New Holland, since 1995. Mr. Provan has
served as a Member of the European Parliament since 1994, where he has served on
the Agricultural and Rural Affairs Committee, the Conservative National Union
Executive Committee, and the Transport and Tourism Committee. Mr. Provan is also
the Chairman of the Rowett Research Institute, Aberdeen, one of Europe's leading
nutritional research centers.
Michel Lecomte, Chief Financial Officer, and President, Financial Services
and President, CNH Capital, born on January 27, 1949, was appointed Chief
Financial Officer and President, Financial Services and President, CNH Capital
of CNH on November 8, 2000. Prior to joining CNH, Mr. Lecomte served as Chief
Financial Officer of Iveco, a sector of the Fiat Group and Transolver, Iveco's
financial services business. From 1989 to 1996, he served as chief financial
officer of the Framatome Group based in France. Mr. Lecomte also served as chief
financial officer of CertainTeed Corporation in the U.S. from 1984 to 1989.
Harold D. Boyanovsky, President, Worldwide Agricultural Equipment Products,
born on August 15, 1944, has served as President, Worldwide Agricultural
Equipment Products of CNH since November 1999. Prior to the business merger of
New Holland N.V. and Case Corporation, he served as a Senior Vice President of
Case from May 1997 to November 1999. Between November 1999 and December 1966,
Mr. Boyanovsky served in a variety of executive positions with Case.
Richard M. Christman, President, Case IH Agricultural Business, born on May
23, 1950, was appointed President, Case IH Agricultural Business on July 1,
2000. From November 1999 to July 2000, he served as Senior Vice President,
Strategy and Business Development of CNH. Prior to the business merger of New
Holland N.V. and Case Corporation, Mr. Christman served as a Senior Vice
President of Case from May 1996 to November 1999. Between November 1999 and June
1975, Mr. Christman served in a variety of executive positions with Case.
William T. Kennedy, President, New Holland Agricultural Business, born on
January 1, 1943, has served as President, New Holland Agricultural Business of
CNH since November 1999. Prior to the business merger of New Holland N.V. and
Case Corporation, he served as Executive Vice President, Chief Marketing
Officer, New Holland, between September 1996 and November 1999. Between May 1991
and November 1999, Mr. Kennedy served in a variety of executive positions with
the Fiat Group. Between June 1964 to May 1991, he served in a variety of
Management positions with the predecessor companies Ford New Holland and Sperry
New Holland.
Fausto Lanfranco, President, Worldwide Construction Equipment Business,
born on July 20, 1944, has served as President, Worldwide Construction Equipment
Business of CNH since November 1999. Prior to the business merger of New Holland
N.V. and Case Corporation, Mr. Lanfranco served as Managing Director of Fiat
Hitachi Excavators and was in charge of New Holland Earthmoving Equipment
Operations. In this capacity he was responsible for the strategic repositioning
of this business in the worldwide scenario. Between
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1991 and 1996 Mr. Lanfranco was assigned responsibility for the Strategies and
Industrial Policies Department of Fiat Corporate. In 1983 he joined Fiat Group
and between 1983 and 1991 Mr. Lanfranco served in a variety of executive
positions in the Components Sector. Mr. Lanfranco worked for Olivetti between
1971 and 1983 where he held managerial positions in the Planning, Research &
Development and Production departments in Mexico, the US and Far East. In his
last assignment for Olivetti he was in charge of the Consumer Products Division.
Roberto Miotto, Senior Vice President, General Counsel and Secretary, born
on December 15, 1946, has served as Senior Vice President, General Counsel and
Secretary of CNH since November 1999. Prior to the business merger of New
Holland N.V. and Case Corporation, Mr. Miotto served as Vice President, General
Counsel and Secretary of New Holland N.V. Prior to that, Mr. Miotto served in a
variety of executive positions with the Fiat Group.
Giovanni B. Ravina, Senior Vice President, Human Resources, born on April
21, 1951, was appointed Senior Vice President, Human Resources of CNH, effective
December 1, 2000. Prior to joining CNH, he served as Managing Director, Fiat
India. Between September 1978 and December 2000, Mr. Ravina served in a variety
of executive positions with the Fiat Group.
B. COMPENSATION.
The aggregate amount of compensation paid by CNH to its directors and
executive officers that held office during 2000 was approximately $14.9 million.
The aggregate amount paid or set aside by CNH with respect to pension and
similar benefits during 2000 totaled approximately $4.6 million. Such aggregate
amounts respectively include compensation paid and pension and similar benefits
set aside for (i) Umberto Quadrino, who served as Co-Chairman of the CNH Board
of Directors from November 12, 1999 until August 31, 2000; (ii) Theodore R.
French, who served as president, Financial Services and Chief Financial Officer
of Case prior to the merger and thereafter in the same capacity for CNH until
November 8, 2000; (iii) Leopold Plattner, who served as President, Case IH
Agricultural Business of CNH from November 12, 1999 until June 30, 2000; (iv)
Andrew E. Graves, who served as President, CNH Capital from November 12, 1999
until November 8, 2000; and (v) Gustavo Bracco, who served as Senior Vice
President, Human Resources, from November 12, 1999 until December 1, 2000.
CNH maintains a management bonus program that links a portion of the
compensation paid to senior executives to CNH's achievement of financial
performance criteria specified by the Nominating and Compensation Committee of
CNH's Board of Directors.
Certain CNH officers were a party to "Change in Control" agreements in 1999
that provided for severance benefits if the officer's employment terminated
other than for "cause" within 12 months following a potential change in control
or within 24 to 36 months following a change in control. Those agreements were
either exercised or amended in 2000. The amendment included three annual
installment payments, the first of which was paid in 2000. The aggregate amount
paid by CNH to its executive officers for the first installment was
approximately $0.8 million. The aggregate benefit paid by CNH to those executive
officers that exercised their Change in Control agreements was approximately
$4.0 million.
There are currently no director's service contracts providing for benefits
upon termination of employment.
CNH Outside Directors' Compensation Plan
In 1999, CNH established the CNH Global N.V. Outside Directors'
Compensation Plan ("CNH Directors' Plan") that provides for (1) the payment of
an annual retainer fee and committee chair fee (collectively, the "Annual Fees")
to independent outside members of the Board in the form of common shares of CNH;
(2) an annual grant of options to purchase common shares of CNH; (3) an
opportunity to receive up to 50% of their Annual Fees in cash; and (4) an
opportunity to convert all or a portion of their Annual Fees into stock options.
Each outside director of CNH is paid a fee of $1,250 plus expenses for each
Board of Directors and committee meeting attended. Outside directors also
receive an annual retainer fee of $35,000. In addition, each outside director
who chairs a committee is paid an annual retainer fee of $5,000 per
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committee chair held. The value of these fees is included in the aggregate
compensation amount set forth above. Under the CNH Directors' Plan, all outside
director annual retainer fees are paid in the form of CNH common shares unless a
director elects to receive a portion of his or her fees, up to a maximum of 50%,
in cash. In addition, outside directors may also elect to forego payment of all
or any portion of their fees otherwise payable in common shares and to instead
receive an option to purchase common shares at a purchase price equal to the
fair market value of the common shares on the date that such fees would
otherwise have been paid to the director. The number of shares subject to such
an option will be equal to the amount of fees that the director elected to
forego, multiplied by four and divided by the fair market value of a common
share on the date the fees would otherwise have been paid to the director. Stock
options granted as a result of such an election vest immediately upon grant, but
the shares purchased under the option cannot be sold for six months following
the date of grant. Outside directors also receive an annual grant of options to
purchase CNH common shares that will vest on the third anniversary of the grant
date. The exercise price of all options granted under the CNH Directors' Plan is
equal to the fair market value of CNH's common shares on the date of grant.
There are one million common shares reserved for issuance under this plan.
Exercise prices for options outstanding under the CNH Directors' Plan at
December 31, 2000 ranged from $9.82 to $15.41. The remaining weighted average
contractual life of the options issued pursuant to the CNH Directors' Plan is
approximately nine years. As of December 31, 2000, there were 879,243 common
shares available for issuance under the CNH Directors' Plan. During the last two
years, changes in shares subject to issuance under stock option were as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2000 1999
------------------ -----------------
EXERCISE EXERCISE
SHARES PRICE* SHARES PRICE
------- -------- ------ --------
Outstanding at beginning of year............................ 18,750 $15.41 -- N/A
Granted................................................... 102,007 $11.19 18,750 $15.41
------- ------
Outstanding at end of year.................................. 120,757 $11.85 18,750 $15.41
======= ======
Exercisable at end of year.................................. 64,507 $10.72 -- N/A
======= ======
------------
* Weighted-average
CNH Equity Incentive Plan
In 1999, CNH established the CNH Equity Incentive Plan or CNH EIP that
provides for grants of various types of awards to officers and employees of CNH
and its subsidiaries. There are 28 million common shares reserved for issuance
under this plan. Options granted under the CNH EIP have an exercise price that
is no less than the fair market value of the common shares on the date of grant.
Certain options vest ratably over three or four years from the award date, while
certain performance-based options vest subject to the attainment of specified
performance criteria. Such performance-based options vest no later than seven
years from the award date. All options expire after ten years. The exercise
price for options outstanding under the CNH EIP at December 31, 2000 was $13.77.
The remaining weighted average contractual life of the options issued pursuant
to the CNH EIP is approximately nine years. During the last two years, changes
in shares subject to issuance under stock option were as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999
--------------------- --------------------
EXERCISE EXERCISE
SHARES PRICE* SHARES PRICE
---------- -------- --------- --------
Outstanding at beginning of year....................... 5,291,050 $13.77 -- N/A
Granted.............................................. 2,299,500 $13.77 5,291,050 $13.77
Forfeited............................................ (2,388,613) $13.77 -- N/A
---------- ---------
Outstanding at end of year............................. 5,201,937 $13.77 5,291,050 $13.77
========== =========
Exercisable at end of year............................. 621,168 $13.77 -- N/A
========== =========
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Under the CNH EIP, shares may also be granted as restricted shares. CNH
establishes the period of restriction for each award and holds the stock during
the restriction period. Certain restricted shares vest over six months to seven
years, while certain performance-based restricted shares vest subject to the
attainment of specified performance criteria. Such performance-based restricted
shares vest no later than seven years from the award date. For the years ended
December 31, 2000 and 1999, 75,000 and 660,000 restricted shares, respectively,
were awarded at no cost to employees, at weighted-average values of $12.81 and
$11.94, respectively. At December 31, 2000, restricted common shares outstanding
totaled 175,000 shares.
As of December 31, 2000, there were 22,571,395 common shares available for
issuance under the CNH EIP.
Fiat Stock Option Program
CNH also participates in stock option plans of Fiat ("Fiat Option
Programs"), whereby eligible employees of Fiat and its subsidiaries may be
granted options to purchase ordinary shares of Fiat. On February 18, 2000, the
Board of Directors of Fiat approved a stock option program ("Fiat Options
2000"), whereby eligible employees of Fiat and its subsidiaries, which included
eligible senior management of CNH, were granted options to purchase 5,158,000
Fiat ordinary shares. Under the terms of Fiat Options 2000, options were granted
at the price of Euro 30.63 per share, which was the average official price on
the Milan Stock Exchange during the twenty-day period preceding the date of
grant. These options vest 25% on February 18, 2001, 50% on February 18, 2002,
75% on February 18, 2003, and 100% on February 18, 2004, and expire on February
18, 2008.
On March 30, 1999, the Board of Directors of Fiat approved a stock option
program ("Fiat Options 1999"), whereby eligible employees of Fiat and its
subsidiaries, which included eligible senior management of CNH, were granted
options to purchase 1,248,000 Fiat ordinary shares. Under the terms of Fiat
Options 1999, options were granted at the price of Euro 28.45 per share, which
was the average official price on the Milan Stock Exchange during the twenty-day
period preceding the date of grant. These options vest 50% on April 1, 2001, and
100% on April 1, 2002, and expire on March 31, 2007.
As of December 31, 2000 and 1999, eligible senior management of CNH held
93,200 and 103,200, of said options, respectively. None of the options issued to
eligible senior management of CNH are exercisable at December 31, 2000.
C. BOARD PRACTICES.
Responsibility for the management of CNH lies with the Board of Directors
of CNH, which supervises the policies of CNH and the general course of corporate
affairs. The members of the Board are appointed at the Meetings of Shareholders
and do not have fixed terms of office.
The Company has both an Audit Committee and a Nominating and Compensation
Committee of the Board of Directors.
The principal functions of the Audit Committee are to recommend the
selection and review the activities of CNH's independent public accountants, and
to exercise general oversight with respect to CNH's financial reporting process
and internal accounting controls. The Committee currently consists of Ms. Hudson
and Messrs. Lipper and Provan. Mr. Lipper serves as Chairperson of this
Committee.
The principal functions of the Nominating and Compensation Committee are to
aid in attracting qualified candidates to serve as outside directors and
exercise general oversight of CNH's executive compensation program, including
fixing the compensation of executive and certain other senior officers of CNH.
The Committee currently consists of Messrs. Cantarella, Provan and Diana. Mr.
Cantarella serves as Chairperson of this Committee.
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D. EMPLOYEES.
At December 31, 2000, CNH had approximately 31,000 employees. As broken
down by main category of activity, there were 19,000 employees in the
agricultural equipment business, 8,000 in the construction equipment business,
1,000 in the financial services business, with the remaining 3,000 shared by all
business units. As broken down by geographic location, there were 11,000
employees in North America, 17,000 employees in Western Europe, 2,000 employees
in Latin America and 1,000 employees for the Rest of the World. CNH's employment
levels are down from nearly 36,000 at the time of the merger and in line with
the planned 24 percent reduction in employee headcount by the end of 2003. The
5,000 reduction includes approximately 1,200 employees that were part of
divestitures. The balance is from the CNH's headcount reduction initiatives.
Unions represent many of CNH's worldwide production and maintenance
employees. CNH's collective bargaining agreement with the United Automobile,
Aerospace and Agricultural Implement Workers of America (the "UAW"), which
represents approximately 2,200 of CNH's hourly production and maintenance
employees in the United States, expires May 2, 2004. Labor agreements covering
employees in certain European countries generally expire annually. CNH can offer
no assurance that future contracts with the UAW or any of CNH's other union
contracts or labor agreements will be renegotiated upon terms acceptable to CNH.
CNH's employees in Europe are also protected by various worker
co-determination and similar laws that afford employees, through local and
central works councils, certain rights of consultation with respect to matters
involving the business and operations of their employers, including the
downsizing or closure of facilities and the termination of employment. Over the
years, CNH has experienced various work slow-downs, stoppages and other labor
disruptions.
E. SHARE OWNERSHIP.
All of CNH's directors and executive officers beneficially own, or were
granted options with respect to, less than one percent of CNH's common shares.
As of April 30, 2001, the aggregate number of common shares (including
restricted shares) held by all directors and executive officers as a group
amounted to 143,134 shares. The aggregate number of options issued to the
directors and executive officers as a group amounted to 2,102,066. Each option
entitles the holder to purchase one CNH common share. The terms of such options
are as follows:
NUMBER OF OPTIONS EXERCISE PRICE EXPIRATION DATE
----------------- -------------- ---------------
70,000................................ (1) (1)
15,000................................ $15.41 November 12, 2009
1,569,000............................. $13.77 December 20, 2009
12,926................................ $11.22 February 10, 2010
225,000............................... $13.77 April 18, 2010
11,961................................ $12.13 June 2, 2010
30,000................................ $12.00 June 7, 2010
14,633................................ $9.91 September 4, 2010
120,000............................... $13.77 November 29, 2010
14,774................................ $9.82 December 3, 2010
18,772................................ $7.73 March 2, 2011
------------
(1) 70,000 options were granted to an officer who was subsequently terminated,
of which 7,500 may be exercised through July 30, 2001, at an exercise price
of $13.77, and the remainder being unvested and unexercisable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS.
CNH's capital stock consists of common shares, par value Euro 0.45. As of
April 30, 2001, there were 277,100,298 common shares outstanding. As of April
30, 2001, 47,265,048 of the common shares were held of
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record in the United States by 1,001 holders (including 3,911,400 shares held on
behalf of Fiat Netherlands Holding N.V.) and represented, in the aggregate,
approximately 17% of the number of common shares outstanding. Since certain of
the common shares are held by brokers or other nominees, the number of direct
record holders in the United States may not be fully indicative of the number of
direct beneficial owners in the United States or of where the direct beneficial
owners of such shares are resident.
CNH is controlled by its largest single shareholder, Fiat Netherlands
Holding N.V., a wholly owned subsidiary of Fiat. Fiat Netherlands Holding N.V.
increased its ownership interest in CNH from 71.1% to approximately 84.5% of
CNH's outstanding common shares in connection with the conversion on June 30,
2000 of Fiat Netherlands Holding N.V.'s $1.4 billion advance to capital into
additional CNH Common Shares, described in Item 7.B. below. As of April 30,
2001, Fiat Netherlands Holding N.V. owned 234,330,182 common shares,
representing approximately 84.6% of CNH's outstanding common shares as of such
date. As a result, Fiat controls all matters submitted to a vote of CNH's
shareholders, including approval of annual dividends, election and removal of
its directors and approval of extraordinary business combinations. Fiat
Netherlands Holding N.V. has the same voting rights as CNH's other shareholders.
B. RELATED PARTY TRANSACTIONS.
On November 12, 1999, Fiat Netherlands Holding N.V., the majority
shareholder of CNH, contributed $1.4 billion to CNH in the form of an advance to
capital to partially finance the merger of New Holland and Case. The terms of
this advance to capital provided that Fiat Netherlands Holding N.V. would
receive common shares of CNH in exchange for its advance at the earlier of (1)
any public equity offering by CNH, or (2) June 30, 2000. If CNH had conducted a
public equity offering before June 30, 2000, Fiat Netherlands Holding N.V. would
have received that number of CNH common shares that it could have purchased with
$1.4 billion at the public offering price, less any underwriting discount. CNH
did not conduct a public equity offering prior to June 30, 2000. On June 30,
2000, Fiat Netherlands Holding N.V. received 127,918,782 CNH common shares, or
the number of shares that it could have purchased with $1.4 billion at $10.9444
per share, a price determined by averaging the daily closing prices (after
excluding the highest and lowest prices) of CNH common shares on the New York
Stock Exchange during the 20 trading days immediately preceding June 30, 2000
and CNH paid a discretionary return to Fiat Netherlands Holding N.V. on its
advance to capital of $56 million, an annual rate of 6.25%.
CNH continues to rely on Fiat to provide either guarantees or funding in
connection with some of its external debt financing needs. At December 31, 2000,
CNH's outstanding debt with Fiat and its affiliates was approximately 46% of the
total debt. This percentage increased in the last quarter of 2000 due to
temporary illiquidity of the commercial paper market in the United States. In
2000, CNH paid a guarantee fee of between 0.0625% per annum and 0.125% per annum
on the average amount outstanding under facilities guaranteed by Fiat. Fiat has
agreed to maintain its existing treasury and debt financing arrangements with
CNH for as long as it maintains control of CNH and, in any event, at least until
December 31, 2003. After that time, Fiat has committed that it will not
terminate CNH's access to these financing arrangements without affording CNH an
appropriate time period to develop suitable substitutes. The terms of any
alternative sources of financing may not be as favorable as those provided or
facilitated by Fiat.
CNH purchases some of its engines and other components from the Fiat Group,
and companies of the Fiat Group provide CNH administrative services such as
accounting, cash management and legal services. In addition, CNH may from time
to time enter into hedging arrangements with counterparties that are members of
the Fiat Group. In 2000, CNH purchased approximately $165 million in goods and
approximately $78 million in services from companies in the Fiat Group,
including $78 million for engines purchased from Iveco. CNH's principal
purchases of goods from Fiat and its affiliates include diesel engines from
Iveco N.V., electric and mechanical components from Magneti Marelli S.p.A.,
castings from Teksid S.p.A., and lubricants from Fiat Lubrificanti S.p.A. As of
December 31, 2000, CNH and its subsidiaries were parties to derivative or other
financial instruments having an aggregate contract value of $113 million to
which affiliates of Fiat were counterparties. CNH has an agreement by which the
license fees paid to Fiat for certain trade names and brand marks is 0.3% of
sales of related products. CNH also purchases tractors from its Mexican joint
venture for resale in the United States. For material related party
transactions, CNH generally solicits and evaluates
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bid proposals prior to entering into any such transactions, and in such
instances, the Audit Committee generally conducts a review to determine that
such transactions are on arm's-length terms.
If the goods or services or financing arrangements described above were not
available from Fiat, CNH would have to obtain them from other sources. CNH can
offer no assurance that such alternative sources would provide goods and
services on terms as favorable as those offered by Fiat.
Additionally, CNH participates in the stock option program of Fiat as
described in Note 13, "Shareholders' Equity and Stock-Based Compensation" to the
Consolidated Financial Statements of this report.
C. INTERESTS OF EXPERTS AND COUNSEL.
Not applicable
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.
See Item 18. "Financial Statements" for a list of the Financial Statements
filed with this document.
B. SIGNIFICANT CHANGES.
No significant changes have occurred since the date of the Consolidated
Financial Statements.
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS.
The following table sets forth the high and low closing prices per share of
CNH common shares on the New York Stock Exchange Composite Transactions Tape
during the periods indicated:
CLOSING PRICES
---------------
HIGH LOW
------ ------
Most recent six months
April 2001............................................... $6.33 $5.46
March 2001............................................... 8.30 6.35
February 2001............................................ 9.75 8.10
January 2001............................................. 9.38 8.50
December 2000............................................ 10.00 8.63
November 2000............................................ 9.81 9.00
2001
1st quarter.............................................. 9.75 6.35
2000
1st quarter.............................................. 14.81 9.13
2nd quarter.............................................. 14.69 8.63
3rd quarter.............................................. 11.56 7.56
4th quarter.............................................. 10.06 8.63
Full year................................................ 14.81 7.56
1999
1st quarter.............................................. 13.75 8.75
2nd quarter.............................................. 18.00 10.31
3rd quarter.............................................. 17.19 13.94
4th quarter.............................................. 15.69 11.38
Full year................................................ 18.00 8.75
1998....................................................... 28.31 9.75
1997....................................................... 30.81 21.00
1996 (from November 1, 1996)............................... 21.50 19.13
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At the end of trading on April 30, 2001, CNH's common share closing price
was $5.77 and 277,100,298 common shares were outstanding. Accordingly, at such
date, CNH's total market capitalization, including those shares held by the Fiat
Group, was approximately $1.6 billion.
B. PLAN OF DISTRIBUTION.
Not applicable.
C. MARKETS.
The outstanding common shares of CNH are listed on the New York Stock
Exchange under the symbol "CNH." Prior to the merger, the common shares were
listed on the New York Stock Exchange under the symbol "NH."
D. SELLING SHAREHOLDERS.
Not applicable.
E. DILUTION.
Not applicable.
F. EXPENSES OF THE ISSUE.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL.
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION.
Material provisions of CNH's Articles of Association and particular
provisions of Dutch law relevant to CNH's statutory existence are summarized
below. This summary does not restate the Company's Articles of Association or
relevant Dutch law in their entirety.
REGISTRATION AND OBJECTIVES
CNH is registered at Commercial Register kept at the Chamber of Commerce in
Amsterdam under file number 33283760.
CNH's objectives are:
- to engage in, and/or to participate in and operate one or more companies
engaged in the design, engineering, manufacture, sale or distribution of
machines whether pulled or self-propelled, for agricultural and
construction use as well as implements, components, assemblies,
sub-assemblies, spare parts, accessories thereof and more generally any
other activity related to the field of agricultural and construction
equipment;
- to engage in and/or to participate in and operate one or more companies
engaged in any business, financial or otherwise, which the company may
deem suitable to be carried on in conjunction with the foregoing;
- to render management and advisory services; and
- to do anything which a company may lawfully do under the laws of the
Netherlands which may be deemed conducive to the attainment of the
objects set out in the foregoing paragraphs.
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The above objectives are specified in article 2 of CNH's Articles of
Association.
AUTHORIZED CAPITAL
The Company's authorized share capital is Euro 200,000,007, consisting of
444,444,460 common shares with a par value of Euro 0.45. CNH will issue common
shares only in registered form. CNH has appointed Morgan Guaranty Trust
Corporation of New York as its agent to maintain the share register relating to
the common shares and to act as transfer agent and registrar for the common
shares.
DIVIDENDS
The Company's board of directors may establish reserves out of CNH's annual
profits at a general meeting of shareholders. The holders of common shares have
discretion as to the use of that portion of CNH's annual profits remaining after
the board of directors establishes these reserves. The board of directors may
resolve at the annual general meeting that CNH pay dividends out of its share
premium account or out of any other reserve available for shareholder
distributions under Dutch law. However, CNH may not pay dividends if the payment
would reduce shareholders' equity to an amount less than the aggregate share
capital plus required statutory reserves. The board of directors may resolve
that CNH pay interim dividends, but the payments are also subject to these
statutory restrictions. If a shareholder does not collect any cash dividend or
other distribution within six years after the date on which it became due and
payable, the right to receive the payment reverts to CNH.
At any general meeting of shareholders, the Company's shareholders may
declare dividends in the form of cash (in U.S. dollars), common shares or a
combination of both.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
Each shareholder has a right to attend general meetings of shareholders,
either in person or by proxy, and to exercise voting rights in accordance with
the provisions of the Company's Articles of Association. CNH must hold at least
one general meeting of shareholders each year. This meeting must be convened at
one of four specified locations in The Netherlands within six months after the
end of CNH's fiscal year. Our board of directors may convene additional general
meetings as often as it deems necessary, or upon the call of holders
representing at least 10% of the Company's outstanding common shares or other
persons entitled to attend the general meetings. Dutch law does not restrict the
rights of holders of common shares who do not reside in the Kingdom of The
Netherlands to hold or vote their common shares.
CNH will give notice of each meeting of shareholders by notice published in
at least one national daily newspaper distributed throughout The Netherlands and
in any other manner that CNH may be required to follow in order to comply with
applicable stock exchange requirements. In addition, the Company will notify
registered holders of the common shares by letter, cable, telex or telefax that
it intends to convene a meeting. CNH will give this notice no later than the
fifteenth day prior to the day of the meeting. The notice will include or be
accompanied by an agenda identifying the business to be considered at the
meeting.
Each share is entitled to one vote. Unless otherwise required by the
Company's Articles of Association or Dutch law, shareholders may validly adopt
resolutions at the general meeting by a majority vote. Except in circumstances
specified in the Articles of Association or provided under Dutch law, there is
no quorum requirement for the valid adoption of resolutions. In this prospectus,
references to actions by the shareholders refer to actions taken by resolution
or by the unanimous written consent of the shareholders.
CNH is exempt from the proxy rules under the Securities Exchange Act of
1934.
BOARD OF DIRECTORS; ADOPTION OF ANNUAL ACCOUNTS
The shareholders elect the members of the Company's board of directors at
the annual general meeting. The shareholders may also dismiss or suspend any
member of the board of directors at any time by the vote of a majority of the
votes cast at a general meeting.
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The Company's board of directors must prepare the Company's annual accounts
and make them available to the shareholders for inspection at the Company's
offices within five months after the end of our fiscal year. Under some special
circumstances, Dutch law permits an extension of this period for up to six
additional months by approval of the shareholders at a general meeting. During
this period, including any extension, the board of directors must submit the
annual accounts to the shareholders for confirmation and adoption at a general
meeting.
Under Dutch law, the board of directors must consider in the performance of
its duties the interests of CNH, its shareholders and its employees, in all
cases with reasonableness and fairness.
The Articles of Association provide that the Chairman of the Board may fix
the remuneration of the members of the board of directors.
When the Company's shareholders adopt the annual accounts prepared by the
board of directors, the members of the board of directors are discharged from
potential liability with respect to the exercise of their duties during the
fiscal year covered by the accounts. This discharge applies unless the
shareholders explicitly reserve this liability or unless a reservation of
liability is otherwise required under Dutch law. Examples of reservations of
liability required by Dutch law include: (1) liability of members of management
boards and supervisory boards upon the bankruptcy of a company; and (2) general
principles of reasonableness and fairness. Under Dutch law, a discharge of
liability does not extend to matters not properly disclosed to shareholders.
LIQUIDATION RIGHTS
In the event of dissolution or liquidation, CNH will distribute the assets
remaining after payment of all debts and the liquidation of all expenses to
holders of the Company's common shares in proportion to the par value of common
shares held. In the event of a liquidation, CNH will make no distribution with
respect to common shares that CNH holds.
ISSUE OF SHARES; PREFERENCE RIGHTS
The Company's board of directors has the power to issue common shares if
and to the extent that a general meeting of shareholders has designated the
board to act as the authorized body for this purpose. A designation of authority
to the board of directors to issue common shares remains effective for the
period specified by the general meeting and may be up to five years from the
date of designation. A general meeting of shareholders may renew this
designation for additional periods of up to five years. Without this
designation, only the general meeting of shareholders has the power to authorize
the issuance of common shares. At a general meeting of shareholders in October
1999, the shareholders authorized the Company's board of directors to issue
common shares and/or rights to purchase common shares for five years. At the
Company's general meeting of shareholders in June 2000, CNH shareholders
authorized the Company's board of directors to issue common shares and/or rights
to purchase common shares for five years following the date of the meeting.
The Company's shareholders have a ratable preference right to subscribe for
common shares that we issue for cash unless a general meeting of shareholders,
or its designee, limits or eliminates this right. In addition, the right of the
Company's shareholders in the United States to subscribe for common shares
pursuant to this preference right may be limited under some circumstances to a
right to receive approximately the market value of the right, if any, in cash.
The Company's shareholders have no ratable preference subscription right with
respect to common shares issued for consideration other than cash. If a general
meeting of shareholders delegates its authority to the board of directors for
this purpose, then the board of directors will have the power to limit or
eliminate the preference rights of shareholders. In the absence of this
designation, the general meeting of shareholders will have the power to limit or
eliminate these rights. Such a proposal requires the approval of at least
two-thirds of the votes cast by shareholders at a general meeting if less than
half of the issued share capital is represented at the meeting. Designations of
authority to the board of directors may remain in effect for up to five years
and may be renewed for additional periods of up to five
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years. At a general meeting of shareholders in September 1996, New Holland
Holdings (now Fiat Netherlands Holding) authorized the Company's board of
directors to limit or eliminate the preference rights of shareholders for five
years. As of the date of this prospectus, the Company's board of directors has
not exercised this authority in any way. At the Company's general meeting of
shareholders in June 2000, CNH shareholders authorized the Company's board of
directors to limit or eliminate the preference rights of shareholders for five
years following the date of the meeting.
These provisions apply equally to any issue by CNH of rights to subscribe
for common shares.
Under Dutch law shareholders are not liable to further capital calls by
CNH.
REPURCHASES OF SHARES
CNH may acquire common shares, subject to applicable provisions of Dutch
law and of the Company's Articles of Association, to the extent:
- the Company's shareholders' equity, less the amount to be paid for the
common shares to be acquired, exceeds the sum of (1) the Company's share
capital account plus (2) any reserves required to be maintained by Dutch
law; and
- after the acquisition of common shares, CNH and its subsidiaries would
not hold, or hold as pledgees, common shares having an aggregate par
value that exceeds 10% of the Company's issued share capital account, as
these amounts would be calculated under generally accepted accounting
principles in The Netherlands.
The Company's board of directors may repurchase common shares only if the
Company's shareholders have authorized the repurchases. Under Dutch law, an
authorization to repurchase common shares will remain in effect for a maximum of
18 months.
REDUCTION OF SHARE CAPITAL
At a general meeting of shareholders, the Company's shareholders may vote
to reduce the issued share capital by canceling common shares held by CNH or by
reducing the par value of the Company's common shares. In either case, this
reduction would be subject to applicable statutory provisions. Holders of at
least two-thirds of the votes cast must vote in favor of a resolution to reduce
the Company's issued share capital if less than half of the issued share capital
is present at the general meeting in person or by proxy.
AMENDMENT OF THE ARTICLES OF ASSOCIATION
A majority of the votes cast by holders of the Company's common shares at a
general meeting must approve any resolution proposed by the Company's board of
directors to amend the Articles of Association or to wind up CNH. Any such
resolution proposed by one or more shareholders must likewise be approved by a
majority of the votes cast at a general meeting of shareholders.
The rights of the Company's shareholders may be changed by amendment of the
Articles of Association. It should be noted however that a resolution to that
effect could be declared null and void on the grounds that it is contrary to the
principles of reasonableness and fairness, which CNH, its Board and its
shareholders must observe in relation to each other under Dutch law.
DISCLOSURE OF HOLDINGS
Under Dutch law regarding the disclosure of holdings in listed companies,
if the Company's common shares are admitted to official quotation or listing on
the Amsterdam Stock Exchange or on any other stock exchange in the European
economic area, registered holders and some beneficial owners of the Company's
common shares must promptly notify CNH and the Securities Board of The
Netherlands if their shareholding reaches, exceeds or thereafter falls below 5%,
10%, 25%, 50% or 66 2/3% of the Company's outstanding common shares. For this
purpose, shareholding includes economic interests, voting rights or both.
Failure to comply
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with this requirement would constitute a criminal offense and could result in
civil sanctions, including the suspension of voting rights.
LIMITATIONS ON RIGHT TO HOLD OR VOTE SHARES
The Company's Articles of Association and relevant provisions of Dutch law
do not currently impose any limitations on the right of holders of common shares
to hold or vote their common shares.
C. MATERIAL CONTRACTS.
Not applicable.
D. EXCHANGE CONTROLS.
Under existing laws of The Netherlands there are no exchange controls
applicable to the transfer to persons outside of The Netherlands of dividends or
other distributions with respect to, or of the proceeds from the sale of, shares
of a Dutch company.
E. TAXATION.
UNITED STATES TAXATION
The following discussion contains a description of the principal U.S.
federal income tax consequences of the purchase, ownership and disposition of
CNH's common shares or shares, by a holder that is a citizen or resident of the
United States or a U.S. domestic corporation or that otherwise will be subject
to U.S. federal income tax on a net income basis in respect of the shares ("U.S.
holders"). The discussion is based on laws, regulations, rulings and decisions
now in effect, all of which are subject to change, including changes made on a
retroactive basis. It is not a full description of all tax considerations that
may be relevant to ownership of shares or a decision to purchase shares. In
particular, the discussion is directed only to U.S. holders that will hold
shares as capital assets and whose functional currency is the U.S. dollar. The
discussion does not address the tax treatment of holders that are subject to
special tax rules such as banks, security dealers, dealers in currencies,
securities traders who elect to account for their investment in shares on a
mark-to-market basis, persons that hold shares as a position in a straddle or
conversion transaction, insurance companies, tax-exempt entities and holders of
ten percent or more of the voting shares of CNH.
Prospective purchasers and current holders of shares are advised to consult
their own tax advisors about the U.S., Netherlands, or other tax consequences to
them of the purchase, beneficial ownership and disposition of shares including,
in particular, the effect of any state, local or national tax laws.
Taxation of Dividends
The gross amount of cash dividends paid in respect of the shares (including
amounts withheld in respect of Dutch taxes) generally will be included in the
gross income of a U.S. holder as ordinary income on the day on which the
dividends are actually or constructively received by the U.S. holder, and will
not be eligible for the dividends-received deduction allowed to U.S.
corporations.
Subject to generally applicable limitations and the discussion below, any
Dutch withholding tax imposed on dividends will be treated as a foreign income
tax eligible for credit against a U.S. holder's U.S. federal income tax
liability (or, at a U.S. holder's election, may be deducted in computing taxable
income). Dividends generally will constitute foreign-source "passive income" or,
in the case of certain holders, "financial services income," for U.S. foreign
tax credit purposes. Under rules enacted by Congress in 1997 and other guidance
issued by the U.S. Treasury, foreign tax credits will not be allowed for
withholding taxes imposed in respect of certain short-term or hedged positions
in securities or in respect of arrangements in which a U.S. holder's reasonably
expected economic profit, after non-U.S. taxes, is insubstantial compared to the
value of the expected foreign tax credits. U.S. holders should consult their own
tax advisors concerning the implications of these rules in light of their
particular circumstances.
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CNH generally will fund dividend distributions on the shares with dividends
received from its non-Dutch subsidiaries. Assuming that certain conditions are
met, CNH would be entitled to a reduction in the amount payable to the Dutch tax
authorities in respect of withholding taxes equal to 3% of the lesser of gross
dividends it receives from its non-Dutch subsidiaries or dividends, net of
withholding tax, it pays to its shareholders. There is a risk that such a credit
constitutes a partial subsidy in respect of, or reduction of, the Dutch
withholding tax payable on CNH's dividends and that, therefore, a U.S. holder
would not be entitled to a foreign tax credit with respect to the amount of the
credit so allowed to CNH.
Taxation of Capital Gains
Gain or loss realized by a U.S. holder on the sale or other disposition of
shares will be subject to U.S. federal income taxation as capital gain or loss.
Such gain or loss will be a long-term capital gain or loss if the shares were
held for more than one year. Long-term capital gain realized by a U.S. holder
that is an individual generally is subject to a maximum rate of 20%, although a
lesser rate may be applicable based upon the tax stature of the holder and the
length of the holding period of the shares. Gain realized by a U.S. holder on a
sale or other disposition of shares generally will be treated as U.S.-source
income for U.S. foreign tax credit purposes.
Backup Withholding Tax
Distributions made on shares and proceeds from the sale of shares to or
through certain brokers may be subject to a "backup" withholding tax at a rate
of 31% unless, in general, the U.S. holder complies with certain procedures or
is a corporation or other person exempt from such withholding. The amount of
backup withholding imposed on a payment to a U.S. holder may be refunded by the
Internal Revenue Service or allowed as a credit against the federal income tax
of the U.S. holder provided that the required information is properly furnished
to the Internal Revenue Service.
NETHERLANDS TAXATION
The following summary of Dutch tax considerations is limited to the tax
implications for an owner of shares whom owns less than 10% of the voting power
of CNH.
Withholding Tax
Dividends distributed by CNH generally are subject to a withholding tax
imposed by The Netherlands at a rate of 25%. The expression "dividends
distributed by CNH" as used herein includes, but is not limited to:
1) distributions in cash or in kind, deemed and constructive
distributions and repayments of paid-in capital not recognized for
Netherlands dividend withholding tax purposes;
2) liquidation proceeds, proceeds of redemption of shares or, as a
rule, consideration for the repurchase of shares by CNH in excess of the
average paid-in capital recognized for Netherlands dividend withholding tax
purposes;
3) the par value of shares issued to a holder of shares or an increase
of the par value of shares, as the case may be, to the extent that it does
not appear that a contribution, recognized for Netherlands dividend
withholding tax purposes, has been made or will be made; and
4) partial repayment of paid-in capital, recognized for Netherlands
dividends withholding tax purposes, if and to the extent that there are net
profits ("zuivere winst"), unless the general meeting of shareholders of
CNH has resolved in advance to make such repayment and provided that the
par value of the shares concerned has been reduced by an equal amount by
way of an amendment of the Articles of Association.
If a holder of shares is a resident in a country other than The Netherlands
and if a double taxation convention is in effect between The Netherlands and
such country, such holder of shares may, depending on
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the terms of such double taxation convention, be eligible for a full or partial
exemption from, or refund of, Netherlands dividend withholding tax.
Legislation is in force, but not yet effective, pursuant to which
withholding taxes will only be creditable or refundable to the beneficial owner
of dividends distributed. Under this legislation, when effective, a recipient of
dividends distributed will in any case not be recognized as the beneficial owner
thereof if:
1) The recipient acquires the shares within ten days prior to the day
on which it is resolved to distribute the dividend, or
2) The recipient disposes of the shares within a period of three month
after acquiring them.
This legislation (the "ten days/three months test") may be declared
effective by a Royal Decree. The Dutch Undersecretary of Finance has indicated
that, once this legislation becomes effective, the "ten days/ three month test"
can also be applied to deny relief from Dutch dividend withholding tax under
double taxation conventions.
Under the treaty in effect between The Netherlands and the United States
(the "U.S./NL Income Tax Treaty"), dividends paid by CNH to a resident of the
United States (other than an exempt organization or exempt pension organization)
are generally eligible for a reduction of the 25% Netherlands withholding tax to
15%, unless the shares held by such resident are attributable to an enterprise
or part of an enterprise that is, in whole or in part, carried on though a
permanent establishment or a permanent representative in The Netherlands. The
U.S./NL Income Tax Treaty provides for a complete exemption for dividends
received by exempt pension organizations and exempt organizations, as defined
therein. Except in the case of exempt organizations, the reduced
dividend-withholding rate can be applied at source upon payment of the
dividends, provided that the proper forms have been filed in advance of the
payment. A holder of shares other than an individual will not be eligible for
the benefits of the U.S./NL Income Tax Treaty if such holder of shares does not
satisfy one or more of the tests set forth in the limitations on benefits
provisions of Article 26 of such Treaty.
A holder of shares (other than an exempt organization) generally may claim
the benefits of a reduced withholding tax rate or an exemption from withholding
tax pursuant to the U.S./NL Income Tax Treaty by submitting a duly signed Form
IB 92 USA, which form includes a banker's affidavit stating that the shares are
in the bank's custody in the name of the applicant, or that the shares have been
exhibited to the bank as being the property of the applicant. If the Form IB 92
USA is submitted prior to the dividend payment date, CNH can apply the reduced
withholding tax rate to the dividend payment. A shareholder unable to claim
withholding tax relief in this manner can obtain a refund of excess tax withheld
by filing a Form IB 92 USA and describing the circumstances that prevented
claiming withholding tax relief at the source.
Qualifying U.S. exempt organizations must seek a full refund of the tax
withheld by using the Form IB 95 USA, which form also includes a banker's
affidavit.
Distribution Tax
Under new legislation, a Netherlands company will be subject to a temporary
special distribution tax at a rate of twenty percent to the extent that the
company distributes "excessive" proceeds (such as dividends) in the period from
January 1, 2001 up to and including December 31, 2005. For purposes of this
distribution tax, proceeds are considered "excessive" when, during a particular
calendar year, the total proceeds distributed exceed the highest of the
following three amounts:
1) Four percent of the Netherlands's market capitalization at the
beginning of the relevant calendar year,
2) Twice the amount of the average annual dividends (exclusive of
extraordinary distributions) that were distributed in the three calendar
years immediately preceding January 1, 2001, and
3) The adjusted consolidated commercial results for the preceding book
year.
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The temporary special distribution tax will not be levied to the extent
that the aggregate profit distributions during the period from January 1, 2001
up to and including December 31, 2005 exceed the fair market value of the
assets, net of liabilities and provisions and reduced by the paid-in-capital, at
the end of the book year ending December 31, 2000.
The special distribution tax will be reduced in proportion to the
percentage of shares that were held, at the time of the distribution of the
"excessive proceeds", during an uninterrupted period of three years, by
individuals or entities (other than investment
institutions/beleggingsinstellingen as defined in the Dutch Corporate Income Tax
Act 1969) holding at least five percent of the nominal paid-in-capital. The
special distribution tax is not a withholding tax; it is imposed on the
distributing company directly. Therefore, if it is reduced because the company
has shareholders who own at least five percent of the paid-in-capital, the
company will receive the benefit of the reduction and it will inure indirectly
to all ordinary shareholders, not only to the large shareholders whose large
shareholdings cause the reduction to apply.
Taxes on Income and Capital Gains
If the holder of the shares is a Non-Resident, the holder will not be
subject to any Dutch taxes on income or capital gains in respect of dividends
distributed by CNH (other than the withholding tax described above), or to any
Dutch taxes in respect of capital gains unless:
1) The shares form part or are deemed to form part of a substantial
interest (aanmerlelijk belang) in CNH that does not form part of the assets
of the enterprise, or
2) The holder of the shares is an individual and the benefits derived
from the shares are taxable as a benefit from miscellaneous activities
(resultaat uit overige werkzaamheden), or
3) All of the following are true:
A) The holder of the shares derives profits from an enterprise,
whether as an entrepreneur (ondernemer) or pursuant to a co-entitlement
to the net worth of such enterprise (other than as an entrepreneur or a
shareholder), which enterprise is, in whole or in part, carried on
through a permanent establishment or a permanent representative in the
Netherlands,
B) The shares are attributable to that enterprise or a part of an
enterprise, as the case may be, and
C) The benefits derived from the shares are not exempt under the
participation exemption (as laid down in the Dutch Corporate Income Tax
Act 1969).
A Non-Resident holder of shares is a holder of shares who is neither
resident nor deemed resident in the Netherlands for purposes of Dutch taxation
and has not elected to be treated as a resident of the Netherlands for Dutch
income tax purposes.
The shares form a part of a substantial interest in CNH if the holder of
the shares, whether or not together with his or her partner (partner), directly
or indirectly has the ownership of, or certain rights, for instance a right of
usufruct, over shares of CNH representing five percent or more of the total
issued and outstanding capital (or the issued and outstanding capital of any
class of shares) of CNH, or rights to acquire shares of CNH, whether or not
already issued, that represent at any time five percent or more of the total
issued and outstanding capital (or the issued and outstanding capital of any
class of shares) of CNH or the ownership of, or certain rights, for instance a
right of usufruct, over profit participating certificates (winstbewijzen) that
relate to five percent or more of thee annual profit of CNH or to five percent
or more of the liquidation proceeds of CNH. Furthermore, the shares form part of
a substantial interest in CNH if the partner or any of the relatives by blood or
marriage in the direct line (including foster children) of the holder of the
shares or his or her partner holds shares that form part of, or are deemed to
form part of, a substantial interest in CNH. Finally, if the shares do not form
a substantial interest pursuant to the two previous sentences, they may be
deemed to form part of a substantial interest in CNH if they have been acquired
or are deemed to have been acquired by the holder of shares under a
non-recognition provision.
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Gift, Estate and Inheritance Taxes
No gift, estate or inheritance taxes will arise in The Netherlands with
respect to an acquisition of shares by way of a gift by, or on the death of, a
holder of shares who is neither resident nor deemed to be resident in The
Netherlands for purposes of Dutch taxation nor, in the case of an individual,
has elected to be treated as a resident of the Netherlands for Dutch income tax
purposes, unless:
1) such holder at the time of the gift has, or at the time of his
death had, an enterprise or an interest in an enterprise that is or was, in
whole or in part, carried on through a permanent establishment or a
permanent representative in The Netherlands and to which enterprise or part
of an enterprise, as the case may be, the shares are or were attributable;
or
2) in the case of a gift of shares by an individual who at the time of
the gift was neither resident nor deemed to be resident in The Netherlands,
such individual dies within 180 days after the date of the gift, while
being resident or deemed to be resident in The Netherlands.
For purposes of Netherlands gift, estate and inheritance tax, an individual
who holds The Netherlands nationality will be deemed to be resident in The
Netherlands if he has been resident in The Netherlands at any time during the
ten years preceding the date of the gift or his death.
For purposes of Netherlands gift tax, an individual not holding The
Netherlands nationality will be deemed to be resident in The Netherlands if he
has been resident in The Netherlands at any time during the twelve months
preceding the date of the gift.
Capital Tax Payable by CNH
Netherlands capital tax will be payable by CNH at the rate of 0.55% of any
contribution made in respect of the shares.
Other Taxes and Duties
No Netherlands registration tax, transfer tax, stamp duty or any other
similar documentary tax or duty will be payable in The Netherlands in respect of
or in connection with the subscription, issue, placement, allotment or delivery
of the shares.
F. DIVIDENDS AND PAYING AGENTS.
The gross amount of cash dividends paid in respect of the shares (including
amounts withheld in respect of Dutch taxes) generally will be included in the
gross income of a U.S. holder as ordinary income on the day on which the
dividends are actually or constructively received by the U.S. holder, and will
not be eligible for the dividends-received deduction allowed to corporations.
Subject to generally applicable limitations and the discussion below, any
Dutch withholding tax imposed on dividends will be treated as a foreign income
tax eligible for credit against a U.S. holder's U.S. federal income tax
liability (or, at a U.S. holder's election, may be deducted in computing taxable
income). Dividends generally will constitute foreign-source "passive income" or,
in the case of certain holders, "financial services income," for U.S. foreign
tax credit purposes. Under rules enacted by Congress in 1997 and other guidance
issued by the U.S. Treasury, foreign tax credits will not be allowed for
withholding taxes imposed in respect of certain short-term or hedged positions
in securities or in respect of arrangements in which a U.S. holder's expected
economic profit, after non-U.S. taxes, is insubstantial compared to the value of
the expected foreign tax credits. U.S. holders should consult their own tax
advisors concerning the implications of these rules in light of their particular
circumstances. For further discussion of the U.S. and Dutch consequences to
shareholders of the receipt of dividends paid in respect of the CNH common
shares see Item 10E. "Taxation."
CNH generally will fund dividend distributions on the shares with dividends
received from its non-Dutch subsidiaries. Assuming that certain conditions are
met, CNH would be entitled to a reduction in the amount
59
60
payable to the Dutch tax authorities in respect of withholding taxes equal to 3%
of the lesser of gross dividends it receives from its non-Dutch subsidiaries or
dividends, net of withholding tax, it pays to its shareholders. There is a risk
that such a credit constitutes a partial subsidy in respect of, or reduction of,
the Dutch withholding tax payable on CNH's dividends and that, therefore, a U.S.
holder would not be entitled to a foreign tax credit with respect to the amount
of the credit so allowed to CNH.
In each of the years ended December 31, 2000, 1999, 1998 and 1997, CNH
distributed cash dividends of $82 million, or $0.55 per share. CNH did not
declare a cash dividend for the year ended December 31, 1996.
On March 12, 2001 the Board of Directors of CNH recommended a dividend for
the year 2000 of $0.10 per share, or approximately $28 million, reflecting the
recently reported financial results. Payment of the dividend was approved at the
Annual Shareholders Meeting in Amsterdam on May 3, 2001 for payment on May 31,
2001 to shareholders of record on May 17, 2001.
The declaration and payment of dividends are at the discretion of the Board
of Directors and must be ratified at the annual general meeting of CNH's
shareholders. CNH's ability to pay cash dividends will depend upon many factors
including CNH's competitive position, financial condition, earnings and capital
requirements. As a holding company, CNH is dependent on dividends or other
advances from its subsidiaries to fund future cash dividends. In addition, the
ability of CNH and its principal operating subsidiaries to pay dividends is
subject to statutory limitations applicable in their respective jurisdictions
that primarily relate to the required allocation of a nominal percentage of
earnings to the establishment and maintenance of statutory reserves. As a
result, the ability of these subsidiaries to pay dividends may be limited.
Accordingly, there is no requirement or assurance that dividends will be
declared or paid.
Dividends from several of CNH's subsidiaries, including its U.S.
subsidiaries, are subject to withholding taxes that will reduce the amount of
such dividends available to CNH. Dividends payable by CNH are subject to Dutch
withholding tax at the current rate of 25%. The withholding tax on dividends
paid to shareholders that are not residents of The Netherlands may be reduced by
virtue of an applicable income tax convention in effect between The Netherlands
and the country of residence of the recipient of the dividends.
G. STATEMENT OF EXPERTS.
Not applicable.
H. DOCUMENTS ON DISPLAY.
CNH files reports, including annual reports on Form 20-F, periodic reports
on Form 6-K and other information with the Securities and Exchange Commission
pursuant to the rules and regulations of the SEC that apply to foreign private
issuers. These may be read and copied at the Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20459. To obtain information on the operation of
the Public Reference Room, the telephone number is 1-800-SEC-0330. Any SEC
materials may also be read and copied at the SEC regional offices located at
Seven World Trade Center, 13th Floor, New York, New York, 10048, and at
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60662.
I. SUBSIDIARY INFORMATION.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CNH is exposed to market risk from changes in both foreign currency
exchange rates and interest rates. CNH monitors its exposure to these risks, and
manages the underlying economic exposures through the use of financial
instruments such as forward contracts, currency options, interest rate swaps and
forward rate agreements. CNH does not hold or issue derivative or other
financial instruments for speculative or trading purposes. Fiat has executed, on
CNH's behalf, certain foreign exchange and interest rate-related contracts. As
of December 31, 2000, CNH and its subsidiaries were parties to derivative or
other financial instruments
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61
having an aggregate contract value of $113 million to which affiliates of Fiat
were counterparties. CNH management believes that the terms of the contracts
entered into with Fiat and its affiliates are at least as favorable to those
available from unaffiliated third parties.
FOREIGN CURRENCY RISK MANAGEMENT
CNH has significant international manufacturing operations. Foreign
exchange risk exists to the extent that CNH has payment obligations or receipts
denominated in currencies other than the functional currency of the various
manufacturing operations. To manage these exposures, CNH identifies naturally
offsetting positions and then purchases hedging instruments to protect the
remaining net anticipated exposures. In addition, CNH hedges the anticipated
repayment of intercompany loans to foreign subsidiaries denominated in foreign
currencies. For further information on CNH's foreign exchange rate risk
management, see Note 15, "Financial Instruments," to the Consolidated Financial
Statements of this report.
CNH manufactures products and purchases raw materials from many locations
around the world. CNH's cost base is well diversified over a number of European,
Asia/Pacific, and Latin American currencies, as well as the U.S. dollar. The
diversified cost base counterbalances some of the cash flow and earning impact
of non-U.S. dollar revenues and minimize the effect of foreign exchange rate
movements on consolidated earnings. Due to periodic mismatches in cash inflows
and outflows, currencies that may have a possible impact on earnings are the
Euro, Pound Sterling, Canadian Dollar, Australian Dollar, and Japanese Yen. The
primary currencies for cash outflows were the Pound Sterling, Japanese Yen, and
Euro. The primary currencies for cash inflows were the Canadian Dollar and
Australian Dollar.
CNH regularly monitors its currency exchange rate exposure, executes
policy-defined hedging strategies and reviews the ongoing effectiveness of such
strategies. At December 31, 2000, the notional amount of forward contracts and
currency swaps was approximately $629 million. No purchase or sold options were
held as of December 31, 2000. At December 31, 1999, the notional amount of
forward contracts and currency swaps was approximately $774 million, purchased
options was $26 million and of sold options was $11 million. The net potential
loss in fair value of such financial instruments and foreign financial exposures
(which includes intercompany loans to foreign subsidiaries and funding in
non-local currency) resulting from a hypothetical 10% change in foreign currency
exchange rates would be approximately $16 million and $22 million at December
31, 2000 and 1999, respectively.
Management believes that the above movement in foreign exchange rates would
have an offsetting impact on the underlying business transactions that the
financial instruments are used to hedge. The above sensitivity analysis assumes
an unfavorable 10% fluctuation in the exchange rates affecting the foreign
currencies in which the financial instruments are denominated. As consistently
and simultaneously unfavorable movements in all relevant exchange rates are
unlikely, this assumption may overstate the impact of exchange rate fluctuations
on such financial instruments. Further, this calculation does not include
anticipated foreign currency cash flows related to the underlying business
transactions.
INTEREST RATE RISK MANAGEMENT
CNH is exposed to market risk from changes in interest rates. CNH monitors
its exposure to this risk and manages the underlying exposure both through the
matching of financial assets and liabilities and through the use of financial
instruments, including swaps, caps, and forward rate agreements, for the net
exposure. These instruments aim to stabilize funding costs by managing the
exposure created by the differing maturities and interest rate structures of
CNH's financial assets and liabilities. CNH does not hold or issue derivative or
other financial instruments for speculative or trading purposes. For further
information on CNH's interest rate risk management, see Note 15, "Financial
Instruments," to the Consolidated Financial Statements of this report.
CNH uses a model to monitor interest rate risk and to achieve a
predetermined level of matching between the interest rate structure of its
financial assets and liabilities. Fixed-rate financial instruments, including
receivables, debt, ABS certificates and other investments, are segregated from
floating-rate instruments in evaluating the potential impact of changes in
applicable interest rates. The potential change in
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fair market value of financial instruments including derivative instruments held
at December 31, 2000 and 1999, resulting from a hypothetical, instantaneous 10%
change in the interest rate applicable to such financial instruments would be
approximately $31 million and $20 million, respectively, based on the discounted
values of their related cash flows.
The above sensitivity analyses are based on the assumption of a 10%
movement of the interest rates applicable to each homogeneous category of
financial assets and liabilities. A homogeneous category is defined according to
the currency in which financial assets and liabilities are denominated and
assumes the same interest rate movement within each homogeneous category. As a
result, CNH's inherent rate risk sensitivity model may overstate the impact of
interest rate fluctuations for such financial instruments, as consistently
unfavorable movements of all interest rates are unlikely.
COMMODITY PRICE RISK MANAGEMENT
Commodity prices impact CNH's Equipment Operations' sales and Financial
Services' originations. Commodity risk is managed through geographic and
enterprise diversification. It is not possible to determine the impact of
commodity prices on earnings, cash flows or fair values of the Financial
Services' portfolio.
CHANGES IN MARKET RISK EXPOSURE AS COMPARED TO 1999
CNH's exposure to interest rate, foreign currency and commodity price risk
has not changed significantly from 1999.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
On March 28, 2000, CNH amended the indenture governing Case's 7.25% Notes
due 2016, Case's 7.25% Notes due 2005 and Case's 6.25% Notes due 2003 to provide
for a full and unconditional guarantee by CNH of Case's obligations under this
indenture. Approximately $288 million, $273 million and $291 million of these
series of Notes, respectively, remained outstanding at December 31, 2000.
ITEM 15. [RESERVED]
ITEM 16. [RESERVED]
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PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS:
CNH GLOBAL N.V. AND SUBSIDIARIES
PAGE
----
Reports of independent public accountants................... 64
Consolidated statements of operations for the years ended
December 31, 2000, 1999 and 1998.......................... 67
Consolidated balance sheets as of December 31, 2000 and
1999...................................................... 68
Consolidated statements of cash flows for the years ended
December 31, 2000, 1999 and 1998.......................... 69
Consolidated statements of changes in shareholders' equity
for the years ended December 31, 2000, 1999 and 1998...... 70
Notes to financial statements............................... 71
INDEX TO SCHEDULES:
Schedule II -- Valuation and qualifying accounts for the
years ended December 31, 2000, 1999 and 1998.............. 119
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or the notes thereto.
ITEM 19. EXHIBITS
A list of exhibits included as part of this annual report on Form 20-F is
set forth in the Index to Exhibits that immediately precedes such exhibits,
which is incorporated herein by reference.
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64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of CNH Global N.V.
We have audited the accompanying consolidated balance sheet of CNH Global
N.V. (a Netherlands Corporation) and its subsidiaries as of December 31, 2000,
and the related statements of operations, cash flows, and changes in
shareholders' equity for the year then ended. These consolidated financial
statements and the supplemental financial statements and supplemental schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements, the supplemental financial statements and supplemental schedule
based on our audit. The financial statements of CNH Global N.V. as of December
31, 1999, were audited by other auditors whose report dated February 1, 2000,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNH Global
N.V. as of December 31, 2000, and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental financial
statements of Equipment Operations and Financial Services are presented for the
purposes of additional analysis and are not a required part of the basic
consolidated financial statements. This information has been subjected to the
auditing procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole. Also,
the supplemental schedule listed in the index to Item 18 is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. The supplemental
schedule has been subjected to the auditing procedures applied in the audit of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 14, 2001
64
65
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of CNH Global N.V.
We have audited the accompanying consolidated balance sheets of CNH Global
N.V. (formerly New Holland N.V.) and its subsidiaries as of December 31, 1999
and the related consolidated statements of operations, of cash flows and of
changes in shareholders' equity for each of the two years in the period ended
December 31, 1999, all expressed in U.S. dollars. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of the Company's wholly owned subsidiary, Case
Corporation, which was acquired on November 12, 1999, which statements reflect
total assets of U.S. $11,613 million at December 31, 1999, and net sales and
revenues of U.S. $684 million for the period from date of acquisition through
December 31, 1999. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion expressed herein, insofar as it
relates to the amounts included for Case Corporation, is based solely on the
report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNH Global
N.V. and its subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles
in the United States.
Our audits, and the audit of the other auditors, were made for the purpose
of forming an opinion on the consolidated financial statements taken as a whole.
The supplemental financial information for the financial position and results of
operations of the Equipment Operations and Financial Services businesses of CNH
Global N.V. is presented for purposes of additional analysis and is not a
required part of the basic consolidated financial statements. This information
has been subjected to the auditing procedures applied in our audits of the
consolidated financial statements and, in our opinion, based on our audits and
the report of the other auditors, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole. Also,
the schedule listed in the index to Item 18 is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, based on our audits and the report of the other auditors, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
PRICEWATERHOUSECOOPERS N.V.
Amsterdam, The Netherlands
February 1, 2000
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66
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of CNH Global N.V.
We have audited the consolidated balance sheet of Case Corporation (a
Delaware Corporation and wholly owned subsidiary of CNH Global N.V.) and
subsidiaries as of December 31, 1999, and the related statements of income,
shareholders' investment and cash flows for the period November 12, 1999 to
December 31, 1999. These consolidated financial statements and the supplemental
financial statements referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and the supplemental financial statements based on our
audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Case
Corporation and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the period November 12, 1999 to December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental financial
statements of Equipment Operations and Financial Services are presented for
purposes of additional analysis and are not a required part of the basic
consolidated financial statements. This information has been subjected to the
auditing procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 24, 2000
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67
CNH GLOBAL N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
CONSOLIDATED EQUIPMENT OPERATIONS FINANCIAL SERVICES
------------------------- ------------------------ ------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
------- ------ ------ ------ ------ ------ ---- ---- ----
REVENUES:
Net sales....................................... $ 9,337 $5,949 $5,474 $9,337 $5,949 $5,474 $ -- $ -- $ --
Finance and interest income..................... 677 324 223 68 17 -- 772 412 361
------- ------ ------ ------ ------ ------ ---- ---- ----
10,014 6,273 5,697 9,405 5,966 5,474 772 412 361
COSTS AND EXPENSES:
Cost of goods sold.............................. 7,820 4,884 4,348 7,820 4,884 4,348 -- -- --
Selling, general and administrative............. 1,250 726 585 1,007 657 536 247 69 49
Research, development and engineering........... 338 196 152 338 196 152 -- -- --
Restructuring and other merger related costs.... 157 19 40 157 19 40 -- -- --
Interest expense................................ 793 266 162 542 154 79 410 217 221
Other, net...................................... 186 (16) 11 100 (29) 10 86 13 1
------- ------ ------ ------ ------ ------ ---- ---- ----
10,544 6,075 5,298 9,964 5,881 5,165 743 299 271
EQUITY IN INCOME OF UNCONSOLIDATED SUBSIDIARIES
AND AFFILIATES:
Financial Services.............................. 2 -- -- 26 72 60 2 -- --
Equipment Operations............................ 4 9 14 4 9 14 -- -- --
------- ------ ------ ------ ------ ------ ---- ---- ----
Income (loss) before taxes and minority
interest........................................ (524) 207 413 (529) 166 383 31 113 90
Income tax provision (benefit).................... (153) 55 148 (159) 14 118 6 41 30
Minority interest................................. 10 4 7 11 4 7 (1) -- --
------- ------ ------ ------ ------ ------ ---- ---- ----
Net income (loss)................................. $ (381) $ 148 $ 258 $ (381) $ 148 $ 258 $ 26 $ 72 $ 60
======= ====== ====== ====== ====== ====== ==== ==== ====
PER SHARE DATA:
Basic earnings (loss) per share................... $ (1.79) $ 0.99 $ 1.73
======= ====== ======
Diluted earnings (loss) per share................. $ (1.79) $ 0.97 $ 1.73
======= ====== ======
The accompanying notes to financial statements are an integral part of these
Statements of Operations.
Reference is made to Note 2 for definitions of "Equipment Operations" and
"Financial Services."
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68
CNH GLOBAL N.V.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(IN MILLIONS OF U.S. DOLLARS, EXCEPT SHARE DATA)
EQUIPMENT FINANCIAL
CONSOLIDATED OPERATIONS SERVICES
----------------- ----------------- ---------------
2000 1999 2000 1999 2000 1999
------- ------- ------- ------- ------ ------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 886 $ 466 $ 593 $ 387 $ 293 $ 79
Accounts and notes receivable...................... 3,637 4,136 2,167 2,216 2,347 2,061
Inventories........................................ 2,374 2,422 2,374 2,422 -- --
Deferred income taxes.............................. 436 442 398 424 38 18
Prepayments and other.............................. 242 304 79 238 219 104
------- ------- ------- ------- ------ ------
TOTAL CURRENT ASSETS............................. 7,575 7,770 5,611 5,687 2,897 2,262
------- ------- ------- ------- ------ ------
Long-Term Receivables................................ 2,513 3,037 238 330 2,275 2,707
Property, Plant and Equipment, net................... 1,474 1,875 1,455 1,867 19 8
OTHER ASSETS:
Investments in unconsolidated subsidiaries and
affiliates....................................... 282 328 258 305 24 23
Investment in Financial Services................... -- -- 1,122 1,080 -- --
Equipment on operating leases, net................. 643 557 -- -- 643 557
Goodwill and intangibles........................... 3,817 3,495 3,669 3,338 148 157
Other.............................................. 1,273 616 884 321 394 295
------- ------- ------- ------- ------ ------
TOTAL OTHER ASSETS............................... 6,015 4,996 5,933 5,044 1,209 1,032
------- ------- ------- ------- ------ ------
TOTAL............................................ $17,577 $17,678 $13,237 $12,928 $6,400 $6,009
======= ======= ======= ======= ====== ======
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............... $ 1,649 $ 130 $ 124 $ 25 $1,525 $ 105
Short-term debt.................................... 4,186 4,953 2,724 3,879 2,233 1,160
Accounts payable................................... 1,256 1,362 1,221 1,373 97 28
Restructuring liability............................ 251 102 250 102 1 --
Other accrued liabilities.......................... 1,868 1,690 1,694 1,613 264 117
------- ------- ------- ------- ------ ------
TOTAL CURRENT LIABILITIES........................ 9,210 8,237 6,013 6,992 4,120 1,410
------- ------- ------- ------- ------ ------
Long-Term Debt....................................... 3,890 4,428 2,942 1,073 962 3,369
OTHER LIABILITIES:
Pension, postretirement and postemployment
benefits......................................... 973 1,079 961 1,066 13 13
Advance to capital................................. -- 1,400 -- 1,400 -- --
Other.............................................. 916 754 734 618 182 136
------- ------- ------- ------- ------ ------
TOTAL OTHER LIABILITIES.......................... 1,889 3,233 1,695 3,084 195 149
------- ------- ------- ------- ------ ------
Commitments and Contingencies (Note 18)..............
Minority Interest.................................... 74 70 73 69 1 1
SHAREHOLDERS' EQUITY:
Common Shares, Euro 0.45 par value; authorized
444,444,460 shares, issued 277,683,830 shares in
2000 and 149,660,000 shares in 1999.............. 143 88 143 88 37 12
Paid-in capital.................................... 2,991 1,645 2,991 1,645 856 856
Treasury stock, 508,332 shares in 2000 and 0 shares
in 1999, at cost................................. (6) -- (6) -- -- --
Retained earnings (deficit)........................ (213) 250 (213) 250 238 212
Accumulated other comprehensive income (loss)...... (399) (265) (399) (265) (9) --
Unearned compensation on restricted shares......... (2) (8) (2) (8) -- --
------- ------- ------- ------- ------ ------
TOTAL SHAREHOLDERS' EQUITY....................... 2,514 1,710 2,514 1,710 1,122 1,080
------- ------- ------- ------- ------ ------
TOTAL............................................ $17,577 $17,678 $13,237 $12,928 $6,400 $6,009
======= ======= ======= ======= ====== ======
The accompanying notes to financial statements are an integral part of these
Balance Sheets.
Reference is made to Note 2 for definitions of "Equipment Operations" and
"Financial Services."
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69
CNH GLOBAL N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN MILLIONS OF U.S. DOLLARS)
CONSOLIDATED EQUIPMENT OPERATIONS FINANCIAL SERVICES
--------------------------- ------------------------- -------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
------- ------- ------- ------- ------- ----- ------- ----- -------
OPERATING ACTIVITIES:
Net income (loss)...................... $ (381) $ 148 $ 258 $ (381) $ 148 $ 258 $ 26 $ 72 $ 60
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization........ 429 183 132 336 160 126 93 23 6
Deferred income tax expense
(benefit).......................... (229) 45 43 (196) 31 45 (33) 14 (2)
(Gain) loss on disposal of fixed
assets............................. (6) (5) (2) (8) (7) (2) 2 2 --
Undistributed earnings of
unconsolidated subsidiaries........ (6) (9) (14) (30) (81) (74) (2) -- --
Changes in operating assets and
liabilities:
(Increase) decrease in
receivables...................... 1,033 615 (342) 128 (86) (68) 169 585 (252)
(Increase) decrease in
inventories...................... 36 256 (61) 36 256 (61) -- -- --
(Increase) decrease in prepayments
and other current assets......... 57 (185) (45) 154 (135) (39) (115) (67) (19)
(Increase) decrease in other
assets........................... (66) (441) -- 15 (147) -- (99) (150) --
Increase (decrease) in payables.... (80) 27 (104) (124) 99 (105) 67 5 (1)
Increase (decrease) in other
accrued liabilities.............. 135 (45) (34) 38 (104) (16) 160 84 (25)
Increase (decrease) in other
liabilities...................... (10) 555 -- (56) 419 -- 46 136 --
Other, net............................. (104) (59) 6 (103) (176) 6 -- 4 --
------- ------- ------- ------- ------- ----- ------- ----- -------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES............................. 808 1,085 (163) (191) 377 70 314 708 (233)
------- ------- ------- ------- ------- ----- ------- ----- -------
INVESTING ACTIVITIES:
Acquisitions and investments, net of
cash acquired........................ (58) (4,394) (73) (84) (4,442) (73) 1 36 --
Proceeds from sale of businesses and
assets............................... 170 86 13 157 83 12 13 3 1
Expenditures for property, plant and
equipment............................ (228) (210) (150) (213) (209) (149) (15) (1) (1)
Expenditures for equipment on operating
leases............................... (180) (63) (18) -- -- -- (180) (63) (18)
Other, net............................. -- 29 (3) -- 30 (5) -- (1) 2
------- ------- ------- ------- ------- ----- ------- ----- -------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES............................. (296) (4,552) (231) (140) (4,538) (215) (181) (26) (16)
------- ------- ------- ------- ------- ----- ------- ----- -------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt................................. 1,531 268 288 1,967 61 52 45 207 236
Payment of long-term debt.............. (566) (112) (108) (32) (59) (18) (1,015) (53) (90)
Net increase (decrease) in short-term
revolving credit facilities.......... (841) 1,945 143 (1,191) 2,803 (21) 1,035 (858) 164
Capital contributions.................. -- -- -- -- -- -- 25 12 --
Advance to capital..................... -- 1,400 -- -- 1,400 -- -- -- --
Dividends paid......................... (82) (82) (82) (82) (82) (82) -- -- --
Other, net............................. (84) (92) -- (79) (92) -- (5) -- --
------- ------- ------- ------- ------- ----- ------- ----- -------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES............................. (42) 3,327 241 583 4,031 (69) 85 (692) 310
------- ------- ------- ------- ------- ----- ------- ----- -------
Effect of foreign exchange rate changes
on cash and cash equivalents........... (50) (71) 5 (46) (71) 1 (4) -- 4
------- ------- ------- ------- ------- ----- ------- ----- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 420 (211) (148) 206 (201) (213) 214 (10) 65
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR................................... 466 677 825 387 588 801 79 89 24
------- ------- ------- ------- ------- ----- ------- ----- -------
CASH AND CASH EQUIVALENTS, END OF YEAR... $ 886 $ 466 $ 677 $ 593 $ 387 $ 588 $ 293 $ 79 $ 89
======= ======= ======= ======= ======= ===== ======= ===== =======
The accompanying notes to financial statements are an integral part of these
Statements of Cash Flows.
Reference is made to Note 2 for definitions of "Equipment Operations" and
"Financial Services."
69
70
CNH GLOBAL N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN MILLIONS OF U.S. DOLLARS)
ACCUMULATED
UNEARNED OTHER
COMPENSATION RETAINED COMPREHENSIVE COMPREHENSIVE
COMMON PAID-IN TREASURY ON RESTRICTED EARNINGS INCOME INCOME
SHARES CAPITAL STOCK SHARES (DEFICIT) (LOSS) TOTAL (LOSS)
------ ------- -------- ------------- ----------- ------------- ------ -------------
BALANCE, DECEMBER 31,
1997 $ 88 $1,637 $ -- $ -- $ 8 $(112) $1,621
Comprehensive income:
Net income............. -- -- -- -- 258 -- 258 $ 258
Translation
adjustment........... -- -- -- -- -- 9 9 9
Pension liability
adjustment........... -- -- -- -- -- (22) (22) (22)
-----
Total.............. $ 245
=====
Dividends declared....... -- -- -- -- (82) -- (82)
---- ------ ---- ---- ----- ----- ------
BALANCE, DECEMBER 31,
1998................... 88 1,637 -- -- 184 (125) 1,784
Comprehensive income:
Net income............. -- -- -- -- 148 -- 148 $ 148
Translation
adjustment........... -- -- -- -- -- (162) (162) (162)
Pension liability
adjustment........... -- -- -- -- -- 22 22 22
-----
Total.............. $ 8
=====
Dividends declared....... -- -- -- -- (82) -- (82)
Issuance of restricted
shares................. -- 8 -- (8) -- -- --
---- ------ ---- ---- ----- ----- ------
BALANCE, DECEMBER 31,
1999................... 88 1,645 -- (8) 250 (265) 1,710
Comprehensive income:
Net income (loss)...... -- -- -- -- (381) -- (381) $(381)
Translation
adjustment........... -- -- -- -- -- (133) (133) (133)
Pension liability
adjustment........... -- -- -- -- -- (1) (1) (1)
-----
Total.............. $(515)
=====
Dividends declared....... -- -- -- -- (82) -- (82)
Capital contributions on
stock issuance......... 55 1,345 -- -- -- -- 1,400
Recognition of
compensation on
restricted stock....... -- -- -- 1 -- -- 1
Issuance of restricted
shares, net of
forfeitures............ -- 1 (6) 5 -- -- --
---- ------ ---- ---- ----- ----- ------
BALANCE, DECEMBER 31,
2000................... $143 $2,991 $ (6) $ (2) $(213) $(399) $2,514
==== ====== ==== ==== ===== ===== ======
The accompanying notes to financial statements are an integral part of these
Statements of Changes in Shareholders' Equity.
70
71
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS
CNH Global N.V. ("CNH"), formerly New Holland N.V., is incorporated in The
Netherlands under Dutch law. CNH's equipment operations manufacture, market and
distribute a full line of agricultural and construction equipment on a worldwide
basis. CNH's financial services business offers a broad array of financial
services products, including retail financing for the purchase or lease of new
and used CNH and other manufacturers' products and other retail financing
programs. To facilitate the sale of its products, CNH offers wholesale financing
to dealers and equipment rental yards.
On November 12, 1999 ("the merger date"), New Holland N.V. ("New Holland")
acquired Case Corporation ("Case") by merging a wholly owned subsidiary of New
Holland with and into Case ("the merger"). As a result of the merger, Case as
the surviving company, became a wholly owned subsidiary of New Holland.
Effective with the closing of the merger, New Holland changed its name to CNH
Global N.V. Reference is made to Note 3, "Acquisitions and Divestitures of
Businesses and Investments," for further information regarding the acquisition
of Case.
CNH is controlled by Fiat Netherlands Holding N.V., a wholly owned
subsidiary of Fiat S.p.A. ("Fiat"), a company organized under the laws of Italy,
which owned approximately 84.5% of the outstanding shares of CNH at December 31,
2000.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements present the operating results,
financial position and cash flows of CNH as of and for the year ended December
31, 2000. The comparability of CNH's operating results for the year ended
December 31, 2000, with the respective prior year data, is significantly
affected by the full year impact of (1) the inclusion of Case's results of
operations; (2) the incremental financing and other costs related to the merger;
(3) the amortization of fair value adjustments to the Case assets acquired and
liabilities assumed; and (4) the amortization of goodwill. The comparability of
CNH's operating results for the year ended December 31, 1999, with the
respective prior year data, is significantly affected by (1) the year-end 1998
acquisition of Orenstein & Koppel Aktiengesellschaft ("O&K"); (2) the inclusion
of Case's results of operations from the merger date; (3) the impact of
incremental financing and other costs related to the merger; (4) the
amortization of fair value adjustments to the Case assets acquired and
liabilities assumed; and (5) the amortization of goodwill. Reference is made to
Note 3, "Acquisitions and Divestitures of Businesses and Investments" for
further information regarding the acquisition of Case.
Principles of Consolidation and Presentation
CNH has prepared the accompanying consolidated financial statements in
accordance with accounting principles generally accepted in the United States or
U.S. GAAP. The accompanying financial statements reflect the historical
operating results of CNH, including the results of operations of Case since the
merger date. CNH has prepared its consolidated financial statements in U.S.
dollars and, unless otherwise indicated, all financial data set forth in these
financial statements is expressed in U.S. dollars. The financial statements
include the accounts of CNH's majority-owned subsidiaries, except where control
is expected to be temporary, and reflect the interests of the minority owners of
the subsidiaries that are not fully owned for the periods presented, as
applicable. The financial statements reflect the consolidated results of CNH and
also include, on a separate and supplemental basis, the consolidation of CNH's
equipment operations and financial services operations as follows:
Equipment Operations - The financial information captioned "Equipment
Operations" reflects the consolidation of all majority-owned subsidiaries except
for CNH's financial services business. CNH's financial
71
72
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
services business has been included using the equity method of accounting
whereby the net income and net assets of CNH's financial services business are
reflected, respectively, in "Equity in income of unconsolidated subsidiaries and
affiliates -- Financial Services" in the accompanying statements of operations,
and in "Investment in Financial Services" in the accompanying balance sheets.
Financial Services - The financial information captioned "Financial
Services" reflects the consolidation of CNH's credit operations.
All significant intercompany transactions, including activity within and
between "Equipment Operations" and "Financial Services," have been eliminated in
deriving the consolidated financial data.
Investments in unconsolidated subsidiaries and affiliates that are at least
20% owned, or where CNH exercises significant influence, are accounted for using
the equity method. Under this method, the investment is initially recorded at
cost and is increased or decreased by CNH's proportionate share of the entity's
respective profits or losses, and decreased by amortization of any related
goodwill. Dividends received from these entities reduce the carrying value of
the investments. Investments wherein CNH owns less than 20% and where CNH does
not exercise significant influence are stated at lower of cost or net realizable
value.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
Revenue Recognition
Sales to dealers are recorded at the time of shipment to those dealers. In
accordance with standard dealer terms, all shipments are final and irrevocable,
with the risks and rewards of ownership passing to the dealer at the time of
shipment. CNH grants certain sales incentives to stimulate sales of CNH products
to retail customers. The expense for such incentive programs is recorded as a
deduction in arriving at net sales at the time of sale to the dealer.
To facilitate the sale of its products, CNH offers wholesale financing to
many of its dealers. Under terms of most dealer agreements, wholesale notes
receivable are generally interest free for periods up to twelve months, after
which interest is based on market rates. During these interest-free periods, CNH
bears the cost of financing, and such costs are provided for at the time of
sale.
Financial Services records earned finance charges (interest income) on
retail and other notes receivables and finance leases using the effective
interest method.
Modification Programs and Warranty Costs
The costs of major programs to modify products in the customer's possession
are accrued when these costs can be identified and quantified. Normal warranty
costs are recorded at the time of sale.
Advertising
CNH expenses advertising costs as incurred. Advertising expense totaled $96
million, $51 million and $48 million, for the years ended December 31, 2000,
1999 and 1998, respectively.
72
73
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Research and Development
Research and development costs are expensed as incurred.
Foreign Currency Translation
CNH's non-U.S. subsidiaries and affiliates maintain their books and
accounting records using local currency as the functional currency, except for
those operating in hyperinflationary economies. Assets and liabilities of
non-U.S. subsidiaries are translated into U.S. dollars at period-end exchange
rates, and net exchange gains or losses resulting from such translation are
included in "Accumulated other comprehensive income (loss)" in the accompanying
balance sheets. Income and expense accounts of non-U.S. subsidiaries are
translated at the average exchange rates for the period, and gains and losses
from foreign currency transactions are included in net income (loss) in the
period during which they arise. The U.S. dollar is used as the functional
currency for subsidiaries and affiliates operating in highly inflationary
economies for which both translation adjustments and gains and losses on foreign
currency transactions are included in the determination of net income (loss) in
the period during which they arise.
The Brazilian Real was significantly devalued against the U.S. dollar
during the first quarter of 1999. As a result of its unhedged foreign exchange
exposure in its Brazilian companies, CNH recorded a net exchange loss of
approximately $15 million. Also in the first quarter of 1999, CNH reorganized
its corporate activities for tax and treasury planning purposes and transferred
U.S. dollar deposits to a foreign subsidiary with Euro functional currency. As a
result of the translation of the monetary asset described above during this
period, an exchange gain of approximately $30 million was recognized. The
aforementioned net foreign exchange gains and losses are reflected in "Other,
net" in the accompanying statements of operations.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities", which has been amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of SFAS No. 133, an amendment of
SFAS No. 133" and SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities, an amendment of SFAS No. 133." SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000 and will be applied to:
(a) derivative instruments; and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively modified after
December 31, 1998. SFAS No. 133 requires that every derivative instrument be
recorded on the balance sheet as an asset or liability measured at its fair
value and that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
The Company adopted SFAS No. 133 on January 1, 2001. SFAS No. 133 requires
that as of the date of initial adoption, the difference between the fair market
value of derivative instruments recorded on the balance sheet and the previous
carrying amount of those derivatives be reported in net income (loss) or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle in accordance with Accounting Principles Board No. 20,
"Accounting Changes". To the extent that these amounts are recorded in other
comprehensive income, they will be reversed into earnings in the period in which
the hedged transaction occurs. Adoption of this accounting standard resulted in
cumulative net of tax reductions in other comprehensive income of approximately
$9 million as of January 1, 2001 and had no material impact on net income
(loss). The adoption also resulted in an increase to assets and liabilities
recorded on the balance sheet of approximately $9 million and $18 million
respectively.
73
74
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In September 2000, FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -- A
Replacement of FASB Statement No. 125". SFAS No. 140 is effective for transfers
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2001. The
Company adopted the disclosure provisions related to the securitization of
financial assets on December 31, 2000. All transactions entered into after March
31, 2001 will be accounted for in accordance with this standard. This adoption
is not expected to have a material impact on the Company.
Cash and Cash Equivalents
Cash equivalents are comprised of all highly liquid investments with an
original maturity of three months or less. Cash equivalents also include amounts
deposited with affiliates, principally Fiat and its affiliates, which are
repayable to CNH upon one day's notice. The carrying value of cash equivalents
approximates fair value because of the short maturity of these investments.
Receivables
Receivables are recorded at face value, net of allowances for doubtful
accounts.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost
is determined by the first-in, first-out (FIFO) method. The cost of finished
goods and work in progress includes the cost of raw materials, other direct
costs and production overheads. Net realizable value is the estimate of the
selling price in the ordinary course of business, less the cost of completion
and selling. Provision is made for obsolete and slow-moving inventories.
Equipment on Operating Leases
Financial Services purchases equipment that is leased to retail customers
under operating leases from dealers. Income from operating leases is recognized
over the term of the lease. Financial Services' investment in operating leases
is based on estimated residual values of the leased equipment, which are
calculated at the lease inception date. Realization of the residual values is
dependent on Financial Services' future ability to market the equipment under
the then prevailing market conditions. CNH continually evaluates whether events
and circumstances have occurred which impact the estimated residual values of
equipment on operating leases. Although realization is not assured, management
believes that the estimated residual values are realizable. Each of these assets
is depreciated on a straight-line basis over a period of time consistent with
the term of the lease. Expenditures for maintenance and repairs are the
responsibility of the lessee.
Goodwill and Intangibles
Goodwill represents the excess of the purchase price paid plus the
liabilities assumed over the fair value of the tangible and identifiable
intangible assets purchased. Goodwill is amortized on a straight-line basis over
10 to 30 years. Goodwill relating to acquisitions of unconsolidated subsidiaries
and affiliates is included in "Investments in unconsolidated subsidiaries and
affiliates" in the accompanying balance sheets, and the related amortization is
charged to "Equity in income of unconsolidated subsidiaries and affiliates" in
the accompanying statements of operations. CNH continually evaluates whether
events and circumstances have occurred that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, CNH uses an estimate of the undiscounted cash
flows over the remaining life of the goodwill in measuring whether the goodwill
is recoverable.
74
75
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2000 and 1999, goodwill totaled $3,183 million and $2,723
million, respectively, while accumulated amortization of goodwill was $215
million and $109 million at those respective dates. Amortization expense totaled
$106 million, $20 million and $10 million for the years ended December 31, 2000,
1999 and 1998, respectively.
Negative goodwill represents the excess of the fair value of the tangible
and identifiable intangible assets purchased, with the fair value of non-current
assets having been reduced to zero, over the purchase price paid plus
liabilities assumed. Negative goodwill is being amortized on a straight-line
basis over approximately 3 years. At December 31, 2000 and 1999, negative
goodwill, net of accumulated amortization, totaled $38 million and $72 million,
respectively.
Intangibles consist primarily of acquired dealer networks, trademarks,
product drawings and patents, and are being amortized on a straight-line basis
over 5 to 30 years. At December 31, 2000 and 1999, intangibles, net of
accumulated amortization, totaled $849 million and $881 million, respectively.
Amortization expense totaled $36 million, $6 million and $7 million for the
years ended December 31, 2000, 1999 and 1998, respectively.
Reference is made to Note 3, "Acquisitions and Divestitures of Businesses
and Investments," for further information regarding goodwill and intangibles.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less accumulated
depreciation. Expenditures for improvements that increase asset values and
extend useful lives are capitalized. Expenditures for maintenance and repairs
are expensed as incurred. Depreciation is provided on a straight-line basis over
the estimated useful lives of the respective assets as follows:
Buildings and improvements........................ 10 - 40 years
Plant and machinery............................... 5 - 16 years
Other equipment................................... 3 - 10 years
CNH capitalizes interest costs as part of the cost of constructing certain
facilities and equipment. CNH capitalizes interest costs only during the period
of time required to complete and prepare the facility or equipment for its
intended use. The amount of interest capitalized in 2000, 1999 and 1998 is not
significant in relation to the consolidated financial results.
CNH assesses the recoverability of assets to be held and used by comparing
the carrying amount of an asset to future undiscounted net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets, based on a discounted
cash flow analysis.
Software Developed for Internal Use
CNH defines internal-use software as software acquired or internally
developed or modified solely to meet the internal needs of CNH. Internal and
external costs incurred during the preliminary project stage are expensed as
incurred. Capitalization of such costs begins upon completion of the preliminary
project stage, assessment of technological feasibility and upon management's
authorization and commitment to fund the software project. Capitalization ceases
at the point at which the computer software project is substantially complete
and the software is ready for its intended use. Internal and external costs for
data conversion, training and maintenance are expensed as incurred, and overhead
costs are not capitalized. The capitalized costs of software acquired or
developed for internal use are amortized on a straight-line basis over the
useful life of the software, generally not exceeding 5 years.
75
76
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
CNH follows an asset and liability approach for financial accounting and
reporting for income taxes. CNH recognizes a current tax liability or asset for
the estimated taxes payable or refundable on tax returns for the current year. A
deferred tax liability or asset is recognized for the estimated future tax
effects attributable to temporary differences and carryforwards. The measurement
of current and deferred tax liabilities and assets is based on provisions of the
enacted tax law; the effects of future changes in tax laws or rates are not
anticipated. The measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available evidence, are more
likely than not expected to be realized.
Retirement Programs
CNH operates numerous defined benefit and defined contribution pension
plans, the assets of which are held in separate trustee-administered funds. The
pension plans are generally funded by payments from employees and CNH. The cost
of providing pension and other postretirement benefits is based upon actuarial
valuations and is charged to income during the period of the employees' service.
The liability for termination indemnities is accrued in accordance with labor
legislation in each country where such benefits are required.
Derivatives
CNH utilizes derivative financial instruments, including interest rate
swaps, interest rate caps, treasury rate locks and foreign exchange contracts to
manage its exposure to interest rate and foreign currency exchange rate risks.
CNH does not hold or issue financial instruments for trading purposes.
Net interest to be paid or received under interest rate hedges is accrued
and recognized as an adjustment to interest expense. The costs of interest rate
hedges, as well as gains or losses on terminated interest rate swap and cap
agreements, are deferred and charged to interest expense over the shorter term
of the remaining contractual life of the agreement or the remaining term of the
underlying debt.
Foreign exchange contracts, which effectively meet risk reduction and
correlation criteria, are accounted for using hedge accounting. Under this
method, gains and losses are recognized in income and offset the foreign
exchange gains and losses on the related transactions. Contracts that do not
meet the risk reduction and correlation criteria are recorded at fair value with
the unrealized gain or loss included in "Other, net" in the accompanying
statements of operations. If a foreign exchange contract hedging a net
investment in a foreign subsidiary is terminated, the gain or loss is recognized
in other comprehensive income, net of tax, consistent with the accounting
treatment of the hedged item. If a transactional hedge is terminated, the gain
or loss is recognized in income.
Reference is made to Note 15, "Financial Instruments," for further
information regarding CNH's use of derivative financial instruments.
Restructuring
CNH records restructuring liabilities at the time management approves and
commits CNH to a restructuring plan that identifies all significant actions to
be taken and the expected completion date of the plan is within a reasonable
period of time. The restructuring liability includes those restructuring costs
that (1) can be reasonably estimated, (2) are not associated with or do not
benefit activities that will be continued, and (3) are not associated with or
are not incurred to generate revenues after the plan's commitment date.
Restructuring costs are incurred as a direct result of the plan and (1) are
incremental to other costs incurred by CNH in the conduct of its activities
prior to the commitment date, or (2) existed prior to the commitment date under
a contractual obligation that will either continue after the exit plan is
completed with no economic
76
77
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
benefit to the enterprise or reflect a penalty to cancel a contractual
obligation. Reference is made to Note 4, "Restructuring," for further
information regarding CNH's restructuring programs.
NOTE 3: ACQUISITIONS AND DIVESTITURES OF BUSINESSES AND INVESTMENTS
Acquisitions
Flexi-Coil Ltd.
On January 4, 2000, CNH completed the acquisition of the remaining 61%
ownership interests in Flexi-Coil Ltd. Prior to that date, CNH had maintained a
39% ownership interest in Flexi-Coil Ltd. The purchase price for the additional
61% ownership interest was C$74 million. The acquisition was accounted for as a
step purchase and, accordingly, the accompanying consolidated financial
statements included the results of operations of Flexi-Coil Ltd. from the
acquisition date. The total purchase price paid plus the liabilities assumed
exceeded the fair value of the tangible and identifiable intangible assets
purchased by C$122 million. The goodwill associated with the acquisition of
Flexi-Coil Ltd. is being amortized on a straight-line basis over 30 years.
China Joint Venture
On September 29, 1999, CNH's joint venture in China, Harbin New Holland
Beidahuang Tractor Ltd., received its business license from Heilongjiant State
Administration for Industry and Commerce of the People's Republic of China. The
license grants the joint venture full permission to begin operations and conduct
business in the People's Republic of China. New Holland owns approximately 70%
of the joint venture.
Case
On November 12, 1999, New Holland acquired Case for $4.6 billion in cash,
including related costs and expenses, pursuant to an agreement and plan of
merger dated as of May 15, 1999, by and among Case, New Holland, the merging
subsidiary and Fiat. As a result of the merger, Case as the surviving company,
became a wholly owned subsidiary of New Holland. Effective with the closing of
the merger, New Holland changed its name to CNH. CNH financed the merger with
total borrowings of $3.0 billion under short-term credit facilities, an advance
to capital of $1.4 billion from New Holland Holdings N.V. and available cash of
$200 million. Reference is made to Note 11, "Principal Shareholder's Advance to
Capital."
The merger was accounted for as a purchase and, accordingly, the
accompanying consolidated financial statements include the results of operations
of Case as of the merger date. Case engages in two types of operations. Case's
equipment operations manufacture, market and distribute a full line of
agricultural equipment and light- to medium-sized construction equipment on a
worldwide basis. Case's financial services business provides financing for
retail installment sales contracts and leases, commercial lending within the
equipment industry, multiple lines of insurance products and offers a
private-label credit card.
The total purchase price of $4.6 billion was allocated to the assets and
liabilities of Case based upon their respective fair values, including
identifiable intangibles consisting of acquired trademarks, dealer networks,
product drawings and patents, with the remainder allocated to goodwill. The
purchase price paid plus the liabilities assumed exceeded the fair value of the
tangible and identifiable intangible assets purchased by $2,400 million, on a
preliminary basis. During 2000, CNH finalized its purchase accounting for the
Case acquisition resulting in additional goodwill of $376 million. The
additional goodwill resulted primarily from additional restructuring liabilities
related to the Case business and fair value adjustments to property, plant and
equipment. The goodwill associated with Case's equipment operations of $2,647
million and Case's
77
78
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial services business of $129 million is being amortized on a
straight-line basis over 30 and 20 years, respectively. The fair value
adjustments to Case's historical balance sheet were as follows (in millions):
PURCHASE
PRICE
ALLOCATION
----------
Net assets at historical cost*.............................. $2,057
Fair value adjustments:
Identifiable intangibles.................................. 817
Property, plant and equipment............................. (52)
Inventory................................................. 39
Elimination of historical goodwill........................ (292)
Deferred income taxes..................................... (100)
Pension, postretirement and postemployment benefits....... (167)
Restructuring liability related to the Case business...... (315)
Accounts and notes receivable............................. (29)
Other, net................................................ (134)
------
1,824
Goodwill.................................................... 2,776
------
Total.................................................. $4,600
======
---------------------
* Includes liabilities assumed of $6,622 million.
CNH has prepared the following unaudited pro forma statements of operations
to illustrate the estimated effects of the acquisition of Case by New Holland as
if this transaction had occurred as of the beginning of each of the periods
presented. The pro forma data reflects the impact of the preliminary fair market
value adjustments to the Case assets and liabilities acquired, as well as
incremental interest expense related to the merger financing. These adjustments
are being amortized over the periods estimated to be benefited and primarily
include additional amortization of the fair value adjustments for acquired
receivables and inventories, identifiable intangibles and goodwill. The pro
forma data does not include the impact of the final purchase accounting
adjustments recorded during 2000. The impact of the final purchase accounting
adjustments on the pro forma statements of operations is considered to be
nominal.
78
79
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CNH GLOBAL N.V.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
CONSOLIDATED
----------------
1999 1998
------ -------
Revenues:
Net sales............................................. $9,929 $11,212
Finance and interest income........................... 744 648
------ -------
10,673 11,860
Costs and Expenses:
Cost of goods sold.................................... 8,320 9,088
Selling, general and administrative................... 1,315 1,242
Research, development and engineering................. 357 376
Restructuring and other merger related costs.......... 19 172
Interest expense...................................... 794 718
Other, net............................................ 150 183
------ -------
10,955 11,779
Equity in income of unconsolidated subsidiaries and
affiliates............................................ 1 9
------ -------
Income (loss) before taxes and minority interest........ (281) 90
Income tax provision (benefit).......................... (97) 44
Minority interest....................................... 4 5
------ -------
Net income (loss)....................................... $ (188) $ 41
====== =======
Per share data:
Basic earnings (loss) per share....................... $(1.26) $ 0.28
====== =======
Diluted earnings (loss) per share..................... $(1.26) $ 0.28
====== =======
CNH has presented this unaudited pro forma financial data for illustrative
purposes only. This pro forma data is not necessarily indicative of (1) the
results of operations that would have occurred had the transaction been
effective as of the beginning of each of the years presented, or (2) the results
of operations that CNH will attain in the future. In addition, the pro forma
financial data does not reflect any synergies or cost savings that may occur as
a result of the merger.
The pro forma financial data does not include the impact of any regulatory
divestitures as required by the European Commission or the U.S. Department of
Justice pursuant to the merger. In the opinion of management, these divestiture
actions are not material to the overall pro forma results of operations of CNH.
Divestitures
In May 2000, CNH completed the sale of selected agricultural equipment
assets to ARGO S.p.A., the holding company of Landini S.p.A. The transaction
includes a plant in Breganze, Italy, and the Laverda line of non-hillside
combines that are produced there.
79
80
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In May 2000, CNH completed the sale of its large square balers assembled in
Nuestadt, Germany to Landini S.p.A.
In May 2000, CNH completed the sale of its interest in Hay and Forage
Industries to AGCO Corporation.
In July 2000, CNH completed the sale of its New Holland Versatile, Genesis
and G/70 series four-wheel and two-wheel drive tractor lines, together with the
Winnipeg, Canada, plant in which they are made, to Buhler Versatile Inc., a
subsidiary of Buhler Industries Inc.
In December 2000, CNH completed the divestiture of its Fermec Holdings
Limited construction equipment business to Terex Corporation. Terex acquired the
Manchester, England, plant, and the Fermec loader/backhoe and industrial tractor
product lines.
During 2000, CNH entered into an OEM agreement with Lindner whereby CNH
would build Steyr model M-948 and M-958 (and equivalent Case IH models) for sale
by Lindner.
NOTE 4: RESTRUCTURING
1998 Restructuring Program
In 1998, CNH reviewed its manufacturing, selling and administrative
processes in an effort to strengthen its competitive position and to better
align its operations in response to current economic and market conditions. As a
result, CNH announced a pretax restructuring charge of $40 million for severance
and other costs related to headcount reductions. CNH refers to these actions as
the 1998 Restructuring Program. The 1998 Restructuring Program included
termination costs to eliminate approximately 420 salaried and 600 hourly
positions. These termination payments included the cost of severance and
contractual benefits in accordance with collective bargaining agreements and CNH
policy, and also included costs for outplacement services, medical and
supplemental vacation and retirement payments.
In connection with the 1998 acquisition of O&K, CNH recorded additional
restructuring reserves of approximately $29 million for employee and dealer
termination costs. These costs were recorded in conjunction with the allocation
of the initial O&K purchase price.
In 1999, CNH also recorded additional restructuring charges of $19 million
related to the remaining headcount actions contemplated under the 1998
Restructuring Program. These charges primarily represent severance and other
related costs for the elimination of approximately 340 of the remaining salaried
positions under the original plan. In 1999 CNH expended $52 million for
severance costs as contemplated under its restructuring programs. In 1999, CNH
reversed $26 million of purchase accounting reserves, as CNH was unable to
complete the required actions within one year of the O&K acquisition. The
reversal of the $26 million restructuring reserve was recorded against the
initial O&K purchase accounting goodwill.
In 2000, CNH expended $12 million for severance and other employee costs as
contemplated under the 1998 Restructuring Program. The 1998 Restructuring
Program is complete and there are no other actions expected under this program.
80
81
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the CNH activities for the years ended
December 31, 1998, 1999 and 2000 under the 1998 Restructuring Program (in
millions):
1998 ACTIVITY
--------------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1997 ADDITIONS UTILIZED* ESTIMATES 1998
------------ --------- --------- ---------- ------------
Severance and other employee-related
costs................................... $18 $67 $(14) $-- $71
Cost related to closing/selling/downsizing
existing facilities..................... -- 2 (2) -- --
--- --- ---- --- ---
Total restructuring................ $18 $69 $(16) $-- $71
=== === ==== === ===
1999 ACTIVITY
--------------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1998 ADDITIONS UTILIZED* ESTIMATES 1999
------------ --------- --------- ---------- ------------
Severance and other employee-related
costs................................... $71 $ 19 $(52) $(26) $ 12
Cost related to closing/selling/downsizing
existing facilities..................... -- -- -- -- --
--- ---- ---- ---- ----
Total restructuring................ $71 $ 19 $(52) $(26) $ 12
=== ==== ==== ==== ====
2000 ACTIVITY
--------------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1999 ADDITIONS UTILIZED* ESTIMATES 2000
------------ --------- --------- ---------- ------------
Severance and other employee-related
costs................................... $12 $ -- $(12) $ -- $ --
Cost related to closing/selling/downsizing
existing facilities..................... -- -- -- -- --
--- ---- ---- ---- ----
Total restructuring................ $12 $ -- $(12) $ -- $ --
=== ==== ==== ==== ====
------------
* Includes currency translation.
CNH Merger Integration Plan
As part of its merger integration, CNH has evaluated the divestiture or
closure of certain manufacturing locations and parts depots. Through the
consolidation of all functional areas, including the impact of divestiture
actions required by the European and U.S. regulatory agencies in connection with
the merger, CNH expects to significantly reduce its worldwide workforce. The CNH
Merger Integration Plan takes into consideration duplicate capacity and other
synergies including purchasing and supply chain management, and selling, general
and administrative functions.
The CNH Merger Integration Plan is comprised of two separate programs, the
Case Purchase Accounting Restructuring Program and the CNH Merger Integration
Program. The Case Purchase Accounting Restructuring Program encompasses all
actions of the CNH Merger Integration Plan related to Case that qualify for
purchase accounting treatment. The CNH Merger Integration Program encompasses
all other actions of the CNH Merger Integration Plan that qualify for the
establishment of restructuring reserves.
Case Purchase Accounting Restructuring Program
As of December 31, 1999, CNH had recorded $90 million in merger-related
restructuring reserves for
81
82
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
severance and other costs associated with identified headcount reductions as
part of CNH's initial plan to integrate the Case operations. These costs were
recorded in conjunction with the preliminary allocation of the Case purchase
price. During 2000, CNH recorded an additional $225 million in merger
integration restructuring reserves related to Case's operations, net of changes
in estimates. These costs were recorded in conjunction with the finalization of
the Case Purchase Accounting Restructuring Program. The additional merger
integration restructuring reserves primarily relate to severance and other
employee-related costs and costs related to closing, selling, and downsizing
existing facilities.
The severance and other employee-related costs reserved for in 2000
amounted to $78 million and relate to severance costs required to reduce the
remainder of the approximately 2,700 Case employees identified in the CNH Merger
Integration Plan. These termination payments included the cost of severance and
contractual benefits in accordance with collective bargaining agreements, other
agreements and CNH policy, and also included costs for outplacement services,
medical and supplemental vacation and retirement payments. As of December 31,
2000, CNH had terminated approximately 2,200 Case employees related to the Case
Purchase Accounting Restructuring Program.
The costs related to closing, selling, and downsizing existing facilities,
primarily relate to the following actions of the Case Purchase Accounting
Restructuring Program:
- Sale of Case's CX and MXC product lines and the Doncaster, United
Kingdom, plant in which they are assembled and its related component
manufacturing plant in St. Dizier, France;
- Sale of Case's large square balers product line which is assembled in
Neustadt, Germany;
- Sale of Case's Fermec brand loader/backhoe and industrial tractor
product lines and the Fermec manufacturing plant in Manchester, United
Kingdom;
- Sale of Case's ownership interest in Hay & Forage Industries in Hesston,
Kansas, a 50% joint venture with AGCO Corporation that produces hay and
forage implements;
- Closure of Case's Concord plant in Fargo, North Dakota, which produces
air seeders;
- Closure of Case's manufacturing plant in Sorocaba, Brazil;
- Sale of Case's Carr Hill Works, Doncaster, England, components facility;
- Sale of Case's Racine, Wisconsin, foundry;
- Closure of Case's Racine, Wisconsin, tractor manufacturing facility; and
- Other actions which take into consideration duplicate capacity and other
synergies including purchasing and supply chain management, research and
development and selling, general and administrative functions related to
Case's operations.
82
83
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the CNH activities for the years ended
December 31, 1999 and 2000 under the Case Purchase Accounting Restructuring
Program (in millions):
1999 ACTIVITY
--------------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1998 ADDITIONS UTILIZED* ESTIMATES 1999
------------ --------- --------- ---------- ------------
Severance and other employee-related
costs................................... $ -- $ 90 $ -- $ -- $ 90
---- ---- ----- ----- ----
Total restructuring................ $ -- $ 90 $ -- $ -- $ 90
==== ==== ===== ===== ====
2000 ACTIVITY
---------------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1999 ADDITIONS UTILIZED * ESTIMATES 2000
------------ --------- ---------- ---------- ------------
Severance and other employee-related
costs.................................. $ 90 $ 78 $ (61) $ (39) $ 68
Cost related to
closing/selling/downsizing existing
facilities............................. -- 185 (72) -- 113
Other costs.............................. -- 1 -- -- 1
---- ---- ----- ----- ----
Total restructuring............... $ 90 $264 $(133) $ (39) $182
==== ==== ===== ===== ====
------------
* Includes currency translation.
The specific restructuring measures and associated estimated costs were
based on management's best business judgment under prevailing circumstances.
Management believes that the Case Purchase Accounting Restructuring Program
reserve balance of $182 million at December 31, 2000, is adequate to carry out
the restructuring activities as outlined above, and CNH anticipates that all
actions will be completed by December 31, 2001. As prescribed under U.S. GAAP,
if future events warrant changes to the reserve, such adjustments will be
reflected in the applicable statements of operations as "Restructuring and other
merger related costs," or in the applicable balance sheets as an adjustment to
goodwill, as appropriate. CNH expects to fund the cash requirements of the Case
Purchase Accounting Restructuring Program with cash flows from operations and
additional borrowings under CNH's credit facilities.
CNH Merger Integration Program
During 2000, CNH recorded $157 million in restructuring and other merger
related costs related to the CNH Merger Integration Program, which did not
qualify for purchase accounting treatment. These restructuring and other merger
related costs primarily relate to severance and other employee-related costs,
writedown of assets, loss on the sale of assets and businesses, costs related to
closing, selling, downsizing existing facilities and other merger related costs.
The severance and other employee-related costs reserved for in 2000
amounted to $43 million and relate to severance costs required to reduce CNH
headcount by approximately 3,500 employees as identified in the CNH Merger
Integration Plan. These termination payments included the cost of severance and
contractual benefits in accordance with collective bargaining agreements, other
agreements and CNH policy, and also included costs for outplacement services,
medical and supplemental vacation and retirement payments. As of December 31,
2000, CNH had terminated approximately 1,500 CNH employees related to the CNH
Merger Integration Program.
The writedown of assets, loss on the sale of assets and businesses, and
costs related to closing, selling, and downsizing existing facilities, primarily
relate to the following actions of the CNH Merger Integration
83
84
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Program:
- Sale of CNH's New Holland Laverda combine harvester product line
(excluding hillside models) and the Breganze, Italy facility in which
they are made;
- Sale of CNH's New Holland Versatile, Genesis and G/70 series four-wheel
and two-wheel drive tractor lines, together with the Winnipeg, Canada,
plant in which they are made;
- Closure of CNH's administrative offices in Brentford, United Kingdom;
and
- Other actions which take into consideration duplicate capacity and other
synergies including purchasing and supply chain management, research and
development and selling, general and administrative functions related to
CNH's operations.
The other merger related costs of $28 million relate to incremental costs
incurred by CNH in conjunction with the merger integration activities at CNH.
These costs are classified as "Restructuring and other merger related costs" on
the consolidated statements of operations. These expenses consist primarily of
consulting expenses, systems integration expenses and employee relocation
expenses.
The following table sets forth the CNH activities for the year ended
December 31, 2000 under the CNH Merger Integration Program (in millions):
2000 ACTIVITY
---------------------------------------------------------------------
BALANCE AT BALANCE AT
DECEMBER 31, RESERVES CHANGES IN DECEMBER 31,
1999 ADDITIONS UTILIZED * ESTIMATES 2000
------------ --------- ---------- ---------- ------------
Severance and other employee-related
costs.................................. $-- $ 43 $(31) $-- $12
Writedown of assets...................... -- 12 (12) -- --
Loss on sale of assets and businesses.... -- 7 (7) -- --
Cost related to
closing/selling/downsizing existing
facilities............................. -- 60 (9) -- 51
Other restructuring costs................ -- 7 (1) 6
Other merger related costs............... -- 28 (28) -- --
--- ---- ---- --- ---
Total restructuring............... $-- $157 $(88) $-- $69
=== ==== ==== === ===
------------
* Includes currency translation.
The specific restructuring measures and associated estimated costs were
based on management's best business judgment under prevailing circumstances.
Management believes that the CNH Merger Integration Program reserve balance of
$69 million at December 31, 2000, is adequate to carry out the restructuring
activities as outlined above, and CNH anticipates that all actions will be
completed by December 31, 2001. As prescribed under U.S. GAAP, if future events
warrant changes to the reserve, such adjustments will be reflected in the
applicable statements of operations as "Restructuring and other merger related
costs." CNH expects to fund the cash requirements of the CNH Merger Integration
Program with cash flows from operations and additional borrowings under CNH's
credit facilities.
84
85
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: INVENTORY
Inventories consist of the following (in millions):
DECEMBER 31,
------------------
2000 1999
------- -------
Raw materials.......................................... $ 341 $ 350
Work-in-process........................................ 301 332
Finished goods......................................... 1,732 1,740
------- -------
Total inventories.................................... $ 2,374 $ 2,422
======= =======
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows (in millions):
DECEMBER 31,
------------------
2000 1999
------- -------
Land, buildings and improvements....................... $ 719 $ 800
Plant and machinery.................................... 1,111 1,471
Other equipment........................................ 694 615
Construction in progress............................... 177 199
------- -------
2,701 3,085
Accumulated depreciation............................... (1,227) (1,210)
------- -------
Net property, plant and equipment.................... $ 1,474 $ 1,875
======= =======
Depreciation expense totaled $243 million, $141 million and $113 million
for the years ended December 31, 2000, 1999 and 1998, respectively.
NOTE 7: EQUIPMENT ON OPERATING LEASES
A summary of equipment on operating leases is as follows (in millions):
DECEMBER 31,
------------------
2000 1999
------- -------
Equipment on operating leases.......................... $ 741 $ 577
Accumulated depreciation............................... (98) (20)
------- -------
Net equipment on operating leases.................... $ 643 $ 557
======= =======
Depreciation expense totaled $78 million, $18 million and $2 million for
the years ended December 31, 2000, 1999 and 1998, respectively.
85
86
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Lease payments owed to CNH for equipment under non-cancelable operating
leases as of December 31, 2000, are as follows (in millions):
AMOUNT
------
2001.............................................. $ 90
2002.............................................. 65
2003.............................................. 35
2004.............................................. 18
2005.............................................. 5
2006 and thereafter............................... --
----
Total............................................. $213
====
NOTE 8: INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
DECEMBER 31,
--------------
2000 1999
----- -----
(IN MILLIONS)
Investments using:
Equity method.............................. $275 $324
Cost method................................ 7 4
---- ----
Total................................. $282 $328
==== ====
At December 31, 2000, investments accounted for using the equity method
primarily include the following non-controlling interests:
- 50% in New Holland de Mexico S.A. de C.V.;
- 37.5% in each of Turk Traktor and Trakmak Traktor;
- 50% in New Holland HFT Japan Inc.;
- 43.2% in Al-Ghazi Tractors Ltd.;
- 49% in New Holland Finance Ltd.;
- 50% in Consolidated Diesel Company;
- 50% in L&T-Case Equipment Ltd.;
- 50% in LBX Company LLC; and
- 50% in Case Credit Europe S.A.S.
In addition, CNH has various ownership interests in dealer development
companies. Dealer development companies are legal entities in North America
through which approved dealer candidates purchase a CNH dealership over a fixed
period of years.
The carrying costs of these investments are included in "Investments in
unconsolidated subsidiaries and affiliates" in the accompanying balance sheets
and include goodwill of approximately $43 million and $70 million at December
31, 2000 and 1999, respectively.
86
87
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: SHORT-TERM DEBT
CNH has various lines of credit and liquidity facilities that include
borrowings under both committed credit facilities and uncommitted lines of
credit and similar agreements. CNH also has the ability to issue commercial
paper in the United States and Australia. Under the terms of CNH's commercial
paper programs, the principal amount of the commercial paper outstanding,
combined with the amounts outstanding under the committed credit facilities,
cannot exceed the total amount available under the committed credit facilities.
CNH has historically obtained, and may continue to obtain, a significant
portion of its external financing from Fiat, on terms that CNH believes are at
least as favorable as those available from unaffiliated third parties. In 2000,
CNH paid a guarantee fee of between 0.0625% per annum and 0.125% per annum on
the average amount outstanding under facilities guaranteed by Fiat. Fiat has
agreed to maintain its existing treasury and debt financing arrangements with
CNH for as long as it maintains control of CNH and, in any event, until December
31, 2003. After that time, Fiat has committed that it will not terminate CNH's
access to these financing arrangements without affording CNH an appropriate time
period to develop suitable substitutes.
The following credit facilities were available to CNH at December 31, 2000:
- a $2.0 billion third party revolving credit facility with Fiat and
certain of Fiat's affiliates as co-borrowers, of which $1.8 billion is
available to CNH, expiring in July 2005;
- a $1.0 billion revolving credit facility with an affiliate of Fiat,
expiring in October 2002;
- a $500 million revolving credit facility, guaranteed by an affiliate of
Fiat, that expires in December 2001;
- a total of $1,671 million in committed lines of credit expiring between
2001 and 2004;
- a total of $495 million in committed lines of credit with Fiat and
certain of Fiat's affiliates as co-borrowers, expiring between 2001 and
2003, and guaranteed by an affiliate of Fiat;
- a 364-day, $1.2 billion U.S. asset-backed commercial paper liquidity
facility that expires in December 2001; and
- a total of $751 million in uncommitted credit facilities.
At December 31, 2000, CNH had approximately $3.6 billion available under
its total lines of credit. In addition to these credit facilities, CNH also had
at December 31, 2000, $3.1 billion of term loans with an affiliate of Fiat.
These facilities, were established primarily in conjunction with the refinancing
of the Case acquisition debt.
87
88
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of short-term debt is as follows (in millions):
DECEMBER 31,
---------------
2000 1999
------ ------
Equipment Operations
Credit agreements*........................................ $ 857 $2,644
Commercial paper.......................................... 104 316
Affiliated short-term debt................................ 1,568 861
Short-term debt payable to Financial Services............. 195 58
------ ------
Total short-term debt - Equipment Operations...... 2,724 3,879
------ ------
Financial Services
Credit agreements*........................................ 436 134
Commercial paper.......................................... 546 459
Asset-backed commercial paper liquidity facility.......... 200 184
Affiliated short-term debt................................ 475 355
Short-term debt payable to Equipment Operations........... 576 28
------ ------
Total short-term debt - Financial Services........ 2,233 1,160
Less intracompany short-term debt......................... (771) (86)
------ ------
Total short-term debt............................. $4,186 $4,953
====== ======
------------
* The credit agreements for both Equipment Operations and Financial Services
include borrowings under both committed credit facilities and uncommitted
lines of credit and similar arrangements.
The weighted-average interest rates on consolidated short-term debt at
December 31, 2000 and 1999, were 6.82% and 6.37%, respectively. At December 31,
2000, the unused portion of the committed credit facilities was $2.6 billion and
the unused portion of the asset-backed commercial paper liquidity facility was
$1.0 billion. At December 31, 1999, the unused portion of the committed credit
facilities was $3.7 billion and the unused portion of the asset-backed
commercial paper liquidity facility was $586 million.
Borrowings under the nonaffiliated third party revolving credit facilities
bear interest at: (1) EURIBOR, plus an applicable margin; (2) LIBOR, plus an
applicable margin; or (3) banker's bills of acceptance rates, plus an applicable
margin. Borrowings against commercial paper and asset-backed commercial paper
liquidity facilities bear interest at prevailing commercial paper rates.
Borrowings may be obtained in U.S. dollars and certain other foreign currencies.
Certain of CNH's revolving credit facilities contain restrictive covenants that
require the maintenance of certain financial conditions, including a maximum
debt to capitalization ratio, a fixed charge coverage ratio and a minimum net
worth, and also impose restrictions on certain indebtedness, liens on assets and
ownership of certain subsidiaries. At December 31, 2000, CNH was in compliance
with all debt covenants. The nonaffiliated third party committed credit
facilities generally provide for facility fees on the total commitment, whether
used or unused, and also provide for annual agency fees to the administrative
agents for the facilities.
88
89
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10: LONG-TERM DEBT
A summary of long-term debt is as follows (in millions):
DECEMBER 31,
----------------
2000 1999
------ ------
Equipment Operations
Public Notes:
Payable in 2003, interest rate of 6.25%................ $ 291 $ 289
Payable in 2005, interest rate of 7.25%................ 273 297
Payable in 2016, interest rate of 7.25%................ 288 288
Affiliated long-term debt, average interest rate of 5.61%
and 5.12%.............................................. 133 79
Affiliated Notes:
Payable in 2002, interest rate of 7.01%................ 600 --
Payable in 2003, interest rate of 7.7125%.............. 400 --
Payable in 2004, interest rate of 7.9225%.............. 400 --
Payable in 2005, interest rate of 7.8125%.............. 600 --
Long-term portion of borrowings under revolving credit
facilities, average interest rate of 5.7%.............. -- 55
Other debt............................................... 81 90
------ ------
3,066 1,098
Less-current maturities.................................. (124) (25)
------ ------
Total long-term debt -- Equipment Operations...... 2,942 1,073
------ ------
Financial Services
Public Notes:
Payable in 2000, interest rate, of 6.90%, floating..... -- 100
Payable in 2001, interest rate of 6.125%............... 99 84
Payable in 2003, interest rate of 6.125%............... 196 200
Payable in 2007, interest rate of 6.75%................ 143 150
Notes payable in 2002, interest rate of 6.80% and
6.17%.................................................. 82 82
Medium-term notes due 2001 -- 2003, weighted-average
interest rate of 6.22% and 5.98%....................... 998 1,490
Long-term portion of borrowings under committed revolving
credit facility, weighted-average interest rate of
6.25%.................................................. 500 500
Long-term portion of borrowings under commercial paper
programs, weighted-average interest rate of 5.87%...... -- 320
Affiliated long-term debt, weighted-average interest rate
of 5.67%............................................... 252 396
Intercompany debt with Equipment Operations, interest
rate of 6.54%.......................................... 14 14
Other debt............................................... 203 138
------ ------
2,487 3,474
Less -- current maturities............................... (1,525) (105)
------ ------
Total long-term debt -- Financial Services........ 962 3,369
Less long-term debt payable to Equipment Operations...... (14) (14)
------ ------
Total long-term debt.............................. $3,890 $4,428
====== ======
89
90
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the minimum annual repayments of long-term debt, less current
maturities of long-term debt, as of December 31, 2000, are as follows (in
millions):
AMOUNT
------
2002................................................. $ 947
2003................................................. 939
2004................................................. 429
2005................................................. 893
2006 and thereafter.................................. 682
------
Total........................................ $3,890
======
In November 1997, the Company issued $10 billion Yen of medium term notes
maturing in October 2002. The notes are guaranteed by a subsidiary of Fiat and
bear interest based upon the Japanese LIBOR rate. Simultaneously with the
issuance of the notes, the Company entered an interest rate and currency swap
that fixed the amount payable at $82 million, on which interest is payable based
on the U.S. dollar LIBOR rate. The interest rate at December 31, 2000 and 1999
is 6.80% and 6.17%, respectively.
NOTE 11: PRINCIPAL SHAREHOLDER'S ADVANCE TO CAPITAL
On November 12, 1999, Fiat Netherlands Holding N.V., the majority
shareholder of CNH, contributed $1.4 billion to CNH in the form of an advance to
capital to partially finance the merger of New Holland and Case. The terms of
this advance to capital provided that Fiat Netherlands Holding N.V. would
receive common shares of CNH in exchange for its advance at the earlier of (1)
any public equity offering by CNH, or (2) June 30, 2000. If CNH had conducted a
public equity offering before June 30, 2000, Fiat Netherlands Holding N.V. would
have received that number of CNH common shares that it could have purchased with
$1.4 billion at the public offering price, less any underwriting discount. CNH
did not conduct a public equity offering prior to June 30, 2000. On June 30,
2000, Fiat Netherlands Holding N.V. received 127,918,782 CNH common shares, or
the number of shares that it could have purchased with $1.4 billion at $10.9444
per share, a price determined by averaging the daily closing prices (after
excluding the highest and lowest prices) of CNH common shares on the New York
Stock Exchange during the 20 trading days immediately preceding June 30, 2000.
The Board of Directors of CNH approved and CNH paid a discretionary return to
Fiat Netherlands Holding N.V. on its advance to capital of $56 million, an
annual rate of 6.25%.
NOTE 12: SHARE RIGHTS OFFERING
Shareholders of record as of June 30, 2000 were eligible to purchase
1.2021154 shares for every one share of common stock that they owned at a price
of $10.9444 per share. The subscription period for the offering commenced on
July 3, 2000 and concluded on August 4, 2000. The rights offering price was
determined by averaging the daily closing prices (after excluding the highest
and lowest prices) of CNH common shares on the New York Stock Exchange during
the 20 trading days immediately preceding June 30, 2000. The number of shares
eligible for purchase was determined from a ratio that enabled shareholders to
maintain their ownership position relative to Fiat Netherlands Holding N.V.,
CNH's largest shareholder, following the conversion of Fiat Netherlands
Holding's $1.4 billion advance to capital into CNH common shares, which occurred
on June 30, 2000. Fiat Netherlands Holding agreed not to purchase additional
shares through this rights offering. The rights were issued to shareholders as
of the June 30, 2000 record date and were
90
91
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
non-transferable. Unexercised rights expired at 5 p.m. (U.S. EDT) on August 4,
2000. On August 11, 2000, CNH issued 30,048 common shares through the share
rights offering.
NOTE 13: SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION
As of December 31, 2000, CNH has 444,444,460 authorized common shares, of
which 277,683,830 shares were issued and 277,175,498 shares were outstanding. As
of December 31, 2000, CNH has 508,332 treasury shares which represents
cancellations of restricted shares during 2000 under the CNH Equity Incentive
Plan.
During the last three years, changes in CNH Common Shares issued were as
follows:
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(SHARES ISSUED, IN THOUSANDS)
Issued as of beginning of year.............. 149,660 149,000 149,000
Issuances of CNH Common Shares:
CNH Equity Incentive Plan................. 75 660 --
Conversion of advance to capital.......... 127,919 -- --
Share rights offering..................... 30 -- --
------- ------- -------
Issued as of end of year............... 277,684 149,660 149,000
======= ======= =======
Dividends of $0.55 per common share were paid in each year, and totaled $82
million for each of the years ended December 31, 2000, 1999 and 1998.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (loss) as of
December 31, 2000 and 1999, are as follows (in millions):
DECEMBER 31,
-------------
2000 1999
----- -----
Cumulative translation adjustment................ $(398) $(265)
Minimum pension liability adjustment............. (1) --
----- -----
Total....................................... $(399) $(265)
===== =====
CNH Outside Directors' Compensation Plan
In 1999, CNH established the CNH Global N.V. Outside Directors'
Compensation Plan ("CNH Directors' Plan") that provides for (1) the payment of
an annual retainer fee and committee chair fee (collectively, the "Annual Fees")
to independent outside members of the Board in the form of common shares of CNH;
(2) an annual grant of options to purchase common shares of CNH; (3) an
opportunity to receive up to 50% of their Annual Fees in cash; and (4) an
opportunity to convert all or a portion of their Annual Fees into stock options.
There are one million common shares reserved for issuance under this plan.
Exercise prices for options outstanding under the CNH Directors' Plan at
December 31, 2000 ranged from $9.82 to $15.41. The remaining weighted average
contractual life of the options issued pursuant to the CNH Directors' Plan is
approximately nine years. As of December 31, 2000, there were 879,243 common
shares available for issuance under the CNH Directors' Plan. During the last two
years, changes in shares subject to issuance under stock option were as follows:
91
92
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2000 1999
------------------ -----------------
EXERCISE EXERCISE
SHARES PRICE* SHARES PRICE
------- -------- ------ --------
Outstanding at beginning of year......... 18,750 $15.41 -- N/A
Granted................................ 102,007 $11.19 18,750 $15.41
------- ------
Outstanding at end of year............... 120,757 $11.85 18,750 $15.41
======= ======
Exercisable at end of year............... 64,507 $10.72 -- N/A
======= ======
------------
* Weighted-average
CNH Equity Incentive Plan
In 1999, CNH established the CNH Equity Incentive Plan or CNH EIP that
provides for grants of various types of awards to officers and employees of CNH
and its subsidiaries. There are 28 million common shares reserved for issuance
under this plan. Options granted under the CNH EIP have an exercise price that
is no less than the fair market value of the common shares on the date of grant.
Certain options vest ratably over three or four years from the award date, while
certain performance-based options vest subject to the attainment of specified
performance criteria. Such performance-based options vest no later than seven
years from the award date. All options expire after ten years. The exercise
price for options outstanding under the CNH EIP at December 31, 2000 was $13.77.
The remaining weighted average contractual life of the options issued pursuant
to the CNH EIP is approximately nine years. During the last two years, changes
in shares subject to issuance under stock option were as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999
--------------------- --------------------
EXERCISE EXERCISE
SHARES PRICE* SHARES PRICE
---------- -------- --------- --------
Outstanding at beginning of year.... 5,291,050 $13.77 -- N/A
Granted........................... 2,299,500 $13.77 5,291,050 $13.77
Forfeited......................... (2,388,613) $13.77 -- N/A
---------- ---------
Outstanding at end of year.......... 5,201,937 $13.77 5,291,050 $13.77
========== =========
Exercisable at end of year.......... 621,168 $13.77 -- N/A
========== =========
Under the CNH EIP, shares may also be granted as restricted shares. CNH
establishes the period of restriction for each award and holds the stock during
the restriction period. Certain restricted shares vest over six months to seven
years, while certain performance-based restricted shares vest subject to the
attainment of specified performance criteria. Such performance-based restricted
shares vest no later than seven years from the award date. For the years ended
December 31, 2000 and 1999, 75,000 and 660,000 restricted shares, respectively,
were awarded at no cost to employees, at weighted-average values of $12.81 and
$11.94, respectively. At December 31, 2000, restricted common shares outstanding
totaled 175,000 shares.
As of December 31, 2000, there were 22,571,395 common shares available for
issuance under the CNH EIP.
92
93
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fiat Stock Option Program
CNH also participates in stock option plans of Fiat ("Fiat Option
Programs"), whereby eligible employees of Fiat and its subsidiaries may be
granted options to purchase ordinary shares of Fiat. On February 18, 2000, the
Board of Directors of Fiat approved a stock option program ("Fiat Options
2000"), whereby eligible employees of Fiat and its subsidiaries, which included
eligible senior management of CNH, were granted options to purchase 5,158,000
Fiat ordinary shares. Under the terms of Fiat Options 2000, options were granted
at the price of Euro 30.63 per share, which was the average official price on
the Milan Stock Exchange during the twenty-day period preceding the date of
grant. These options vest 25% on February 18, 2001, 50% on February 18, 2002,
75% on February 18, 2003, and 100% on February 18, 2004, and expire on February
18, 2008.
On March 30, 1999, the Board of Directors of Fiat approved a stock option
program ("Fiat Options 1999"), whereby eligible employees of Fiat and its
subsidiaries, which included eligible senior management of CNH, were granted
options to purchase 1,248,000 Fiat ordinary shares. Under the terms of Fiat
Options 1999, options were granted at the price of Euro 28.45 per share, which
was the average official price on the Milan Stock Exchange during the twenty-day
period preceding the date of grant. These options vest 50% on April 1, 2001, and
100% on April 1, 2002, and expire on March 31, 2007.
As of December 31, 2000 and 1999, eligible senior management of CNH held
93,200 and 103,200, of said options, respectively. None of the options issued to
eligible senior management of CNH are exercisable at December 31, 2000.
SFAS No. 123 Disclosure
CNH has retained the intrinsic value method of accounting for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and, as a result, no compensation
expense for stock options was recognized. For disclosure purposes only under
SFAS No. 123, "Accounting for Stock-Based Compensation," the Black Scholes
pricing model was used to calculate the "fair value" of stock options. Based on
this model, the weighted-average fair values of stock options awarded during
2000 were $4.83, $3.43 and $7.89 per option for the CNH Directors' Plan, CNH EIP
and Fiat Options 2000, respectively. The weighted-average fair values of stock
options awarded during 1999 were $5.12, $3.58 and $11.76 per option for the CNH
Directors' Plan, the CNH EIP and Fiat Options 1999, respectively.
93
94
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma net income (loss) and earnings (loss) per share assuming the fair
value of accounting for stock-based compensation as prescribed under SFAS No.
123, are as follows:
2000 1999
------ -----
Net income (loss) to common (in millions):
As reported.................................... $ (381) $ 148
Pro Forma...................................... $ (384) $ 148
Net income (loss) to common assuming dilution*
(in millions):
As reported.................................... $ (381) $ 160
Pro Forma...................................... $ (384) $ 160
Basic earnings (loss) per share:
As reported.................................... $(1.79) $0.99
Pro Forma...................................... $(1.80) $0.99
Diluted earnings (loss) per share:
As reported.................................... $(1.79) $0.97
Pro Forma...................................... $(1.80) $0.97
------------
* No effect in 2000 as impact is antidilutive.
The weighted-average assumptions used under the Black Scholes pricing model
were as follows:
CNH FIAT
DIRECTORS' CNH OPTION
PLAN EIP PROGRAMS
---------- ---- --------
2000 Assumptions:
Risk-free interest rate.............. 5.1% 5.1% 5.1%
Dividend yield....................... 0.9% 0.9% 0.7%
Stock price volatility............... 46.0% 46.0% 19.6%
Option life (years).................. 5.0 5.0 5.0
1999 Assumptions:
Risk-free interest rate.............. 6.3% 6.5% 6.4%
Dividend yield....................... 4.0% 4.0% 2.0%
Stock price volatility............... 43.0% 43.0% 31.0%
Option life (years).................. 5.0 5.4 4.5
NOTE 14: ACCOUNTS AND NOTES RECEIVABLE
A summary of accounts and notes receivables is as follows (in millions):
DECEMBER 31,
-----------------
2000 1999
------- -------
Wholesale notes and accounts.................. $ 1,393 $ 2,574
Retail and other notes and finance leases..... 4,164 3,991
Other......................................... 862 805
------- -------
Total receivables........................ 6,419 7,370
Less -- Allowance for doubtful accounts....... (269) (197)
Less -- Current portion....................... (3,637) (4,136)
------- -------
Total long-term receivables, net......... $ 2,513 $ 3,037
======= =======
Repayment of wholesale receivables is required in accordance with the
standard terms of the wholesale receivable agreements, with repayment
accelerated upon the sale of the underlying equipment by the dealer.
94
95
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The terms of retail and other notes and finance leases generally range from two
to six years, and interest rates on retail and other notes and finance leases
vary depending on prevailing market interest rates and certain incentive
programs offered by CNH.
At December 31, 2000, approximately $232 million of retail notes receivable
have been pledged as collateral under the Company's asset-backed commercial
paper facility. At December 31, 1999, approximately $206 million of retail notes
receivable have been pledged as collateral under the Company's commercial paper
liquidity facility.
Maturities of long-term receivables as of December 31, 2000, are estimated
as follows (in millions):
AMOUNT
------
2002................................................... $ 852
2003................................................... 691
2004................................................... 685
2005................................................... 122
2006 and thereafter.................................... 163
------
Total long-term receivables, net............. $2,513
======
It has been CNH's experience that substantial portions of retail
receivables are repaid before their contractual maturity dates. As a result, the
above table is not to be regarded as a forecast of future cash collections.
Wholesale, retail and finance lease receivables have significant
concentrations of credit risk in the agricultural and construction business
sectors. CNH typically retains, as collateral, a security interest in the
equipment associated with wholesale and retail notes receivable.
Wholesale Receivables Securitizations
CNH has undivided interests in certain wholesale receivables that were sold
(with limited recourse), on a revolving basis pursuant to several privately
structured facilities. These facilities consist of a 364-day, $475 million
facility that is renewable annually at the sole discretion of the purchasers, a
seven-year committed, $650 million non-renewable facility that expires in
October 2003, a seven-year committed, C$200 million facility that expires in
October 2003 and a 364-day, C$125 million facility that is renewable annually
upon agreement among the parties. At December 31, 2000, $1,050 million and C$250
million was outstanding under these facilities. At December 31, 1999, $945
million and C$150 million was outstanding under these facilities.
At December 31, 2000, $1,330 million and C$378 million of wholesale
receivables were sold under these facilities. At December 31, 1999, $1,392
million and C$266 million of wholesale receivables were sold under these
facilities.
The Company has an undivided interest in $280 million and C$128 million at
December 31, 2000 and $395 million and C$116 million at December 31, 1999, of
the balance sold. This retained interest provides recourse to investors in the
event of default and is recorded at cost, which approximates fair value due to
the short-term nature of the receivables, in "Accounts and notes receivables" in
the accompanying consolidated balance sheets.
95
96
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The cash flows between the Company and the facilities in 2000 included:
UNITED STATES CANADA
------------- ------
Proceeds from new securitizations........... $ 195 million C$150 million
Repurchase of receivables................... 80 million 50 million
Proceeds from collections reinvested in the
facilities................................ 1,794 million 374 million
In addition to the securitizations described above, certain foreign
subsidiaries of CNH securitized or discounted receivables without recourse. For
the year ended December 31, 2000, $489 million wholesale receivables were sold.
At December 31, 2000, $187 million were outstanding under these programs.
Under these programs, CNH records a discount each time receivables are sold
to the counterparties to the facilities. This discount, which reflects the
difference between interest income earned on the receivables sold and interest
expense paid to investors in the facilities, along with related transaction
expenses, is computed at the then prevailing market rates as stated in the sale
agreement.
At December 31, 2000, certain subsidiaries of CNH sold with recourse
wholesale receivables totaling $218 million. The receivables sold are recorded
as "Accounts and notes receivable" on the accompanying consolidated balance
sheets as the transactions do not meet the criteria for derecognition.
Retail Receivables Securitizations
Through its wholly owned subsidiaries, Case Credit and New Holland Credit
Company, CNH completed retail receivables securitizations in 2000 and 1999.
Case Credit
Case Credit sold retail notes with a net principal value of $2.6 billion
and $2.1 billion in 2000 and 1999, respectively, to limited purpose business
trusts ("Trusts") in the United States and Canada. These Trusts were formed for
the purpose of purchasing receivables from Case Credit to be used as collateral
for the issuance of asset-backed securities to outside investors. As these
Trusts are controlled by third parties and meet minimum equity capitalization
standards, the assets of the Trust are not included in the consolidated
financial statements of CNH.
These transactions are recorded as sales in accordance with the provisions
of SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". Case Credit recognized gains on the sales of
these receivables of $61 million in 2000. These gains were calculated based on
comparing the fair value of the net proceeds received from the sale to the
allocated carrying value of assets sold. The allocated carrying value of assets
sold is determined by allocating the previous carrying amount of these assets to
the assets sold and the retained interests based on their relative fair values.
In conjunction with these sales, Case Credit retains certain interests in
the sold receivables including interest-only strips, subordinated tranches of
securities issued by the Trusts ("ABS certificates"), rights to service the sold
receivables and cash reserve accounts held in escrow by the Trusts. ABS
certificates are classified as held to maturity securities and are initially
recorded at their allocated carrying value as a component of "Other assets" on
the consolidated balance sheets. All other retained interests are also initially
recorded at their allocated carrying value as "Accounts and notes receivables"
on the consolidated balance sheets.
Cash reserve accounts are created through the reduction of proceeds
received by Case Credit from sales to provide security to investors in the event
that cash collections from the receivables are not sufficient to remit
96
97
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal and interest payments on the securities. Proceeds from the sales of
retail receivables were reduced by $57 million in 2000. Total amounts held in
escrow by the Trusts were $194 million and $155 million at December 31, 2000 and
1999, respectively. Interest-only strips represent Case Credit's retained
interest in the interest collected by the Trusts on the receivables in excess of
the interest paid to investors in the asset-backed securities. The fair value of
the interest-only strip component of the retained interests is determined based
on the present value of future expected cash flows. The key assumptions used in
the present value calculations are credit loss, prepayment and interest rates.
These assumptions represent management's best estimates of these rates based on
current market conditions. As an additional form of credit enhancement to
investors, Case Credit incurred a recourse liability of up to $19 million, which
obligates Case Credit to fund shortfalls in collections related to one of the
securitizations completed in 2000.
Weighted average assumptions utilized in measuring the initial fair value
of retained interests for securitizations completed during 2000 were as follows:
U.S. CANADA
---- ------
Constant prepayment rate.................................. 17.00% 20.00%
Annual credit loss rate................................... 0.66% 0.56%
Discount rate............................................. 6.91% 6.18%
Weighted average maturity in months....................... 30 26
Case Credit monitors the fair value of its retained interests outstanding
each period by discounting expected future cash flows based on similar
assumptions. The fair value is compared to the carrying value of the retained
interest and any excess of carrying value over fair value results in an
adjustment to the asset with a corresponding offset to earnings. These
differences are recorded in earnings as they are deemed to be unrecoverable.
Case Credit reduced the value of its retained interests by $25 million in 2000
based on this analysis, with a corresponding decrease to "Finance and interest
income" in the consolidated statements of operations. The primary cause of this
reduction was the continued increase in credit losses recognized related to sold
notes and the increase in the assumption used to estimate future credit losses.
The significant assumptions used in estimating the fair values of retained
interests from sold receivables and the sensitivity of the current fair value to
immediate 10% and 20% adverse changes at December 31, 2000 are as follows (in
millions) unless stated otherwise:
United States
IMPACT ON FAIR VALUE
-------------------------------------
DECEMBER 31, 2000 10% 20%
ASSUMPTION CHANGE CHANGE
----------------- ------ ------
Constant prepayment rate.................. 17.00% $0.4 $1.0
Annual credit loss rate................... 0.60% 2.7 5.3
Discount rate............................. 6.89% 0.8 1.7
Weighted average remaining maturity....... 22 months
RECEIVABLES SECURITIZED IN
----------------------------
1997 1998 1999 2000
---- ---- ---- ----
Actual and expected static pool losses........... 1.51% 2.09% 1.61% 1.11%
97
98
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Canada
IMPACT ON FAIR VALUE
-------------------------------------
DECEMBER 31, 2000 10% 20%
ASSUMPTION CHANGE CHANGE
----------------- ------ ------
Constant prepayment rate.................. 20.00% $0.2 $0.6
Annual credit loss rate................... 0.55% 0.3 0.6
Discount rate............................. 6.15% 0.1 0.2
Weighted average remaining maturity....... 21 months
RECEIVABLES SECURITIZED IN
----------------------------
1997 1998 1999 2000
---- ---- ---- ----
Actual and expected static pool losses........... .40% .93% 1.10% .82%
Cash flows between Case Credit and the Trusts for 2000 can be summarized as
follows (in millions):
Proceeds from new retail securitizations.................... $2,560
Servicing fees received..................................... 28
Cash received on other retained interests................... 67
Purchases of receivables from Trusts........................ 169
------------
New Holland Credit Company
During 1999, CNH consummated its first sale of retail notes originated by
New Holland Credit Company to a limited-purpose business trust in the United
States. Receivables purchased by the trust were used as collateral for the
issuance of asset-backed securities to outside investors. As a result of the
transaction, $1.1 billion of retail notes were sold and CNH recorded a gain on
the sale of approximately $27 million, and such gain is recorded in "Finance and
interest income" in the accompanying statements of operations.
The significant assumptions used in estimating the fair values of retained
interests from sold receivables and the sensitivity of the current fair value to
immediate 10% and 20% adverse changes at December 31, 2000 are as follows (in
millions) unless stated otherwise.
IMPACT ON FAIR VALUE
---------------------
DECEMBER 31, 2000 10% 20%
ASSUMPTION CHANGE CHANGE
----------------- ------ ------
Constant prepayment rate............... 17.00% $ 0.04 $ 0.08
Annual credit loss rate................ 0.60% 0.36 0.71
Discount rate.......................... 6.89% 0.07 0.14
Weighted average remaining maturity.... 22 months
RECEIVABLES SECURITIZED IN
1999
--------------------------
Actual and expected static pool losses.............. 1.13%
Static pool losses are calculated by summing the actual and projected
future credit losses and dividing them by the original balance of each pool of
assets securitized.
The changes shown above are hypothetical. They are computed based on
variations of individual assumptions without considering the interrelationship
between these assumptions. As a change in one assumption may affect the other
assumptions, the magnitude of the impact on fair value of actual changes may be
greater or less than those illustrate above.
98
99
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15: FINANCIAL INSTRUMENTS
Fair Market Value of Financial Instruments
The estimated fair market values of financial instruments that do not
approximate their carrying values in the financial statements are as follows (in
millions):
DECEMBER 31,
-------------------------------------
2000 1999
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
Accounts and notes receivable............. $6,150 $6,191 $7,173 $7,207
Long-term debt............................ $3,890 $3,576 $4,428 $4,360
The fair value of accounts and notes receivable was based on discounting
the estimated future payments at prevailing market rates. The fair value of the
interest only strip component of CNH's accounts and notes receivables was based
on loss, prepayment and interest rate assumptions approximating those currently
experienced by CNH. The carrying amounts of ABS certificates and certificates of
deposit approximate their fair value. The fair value of fixed-rate, long-term
debt was based on both quoted prices and the market value of debt with similar
maturities and interest rates; the carrying amount of floating-rate, long-term
debt was assumed to approximate its fair value. The fair values and carrying
values of CNH's foreign exchange forward contracts, currency options, interest
rate swaps and treasury rate locks, were not significant.
Derivatives
CNH uses derivative financial instruments to manage its interest rate and
foreign currency exposures. CNH does not hold or issue financial instruments for
trading purposes. The notional amounts of these contracts do not represent
amounts exchanged by the parties and, thus, are not a measure of CNH's risk. The
net amounts exchanged are calculated on the basis of the notional amounts and
other terms of the contracts, such as interest rates or exchange rates, and only
represent a small portion of the notional amounts. The credit and market risk
under these agreements is minimized through diversification among counterparties
with high credit ratings.
Depending on the item being hedged, gains and losses on derivative
financial instruments are either recognized in the results of operations as they
accrue or are deferred until the hedged transaction occurs. Derivatives used as
hedges are effective at reducing the risk associated with the exposure being
hedged and are designated as a hedge at the inception of the derivative
contract. Accordingly, changes in the market value of the derivative are highly
correlated with changes in the market value of the underlying hedged item at the
inception of the hedge and over the life of the hedge contract.
Foreign Exchange Contracts
CNH has entered into foreign exchange forward contracts, swaps and
purchased options in order to manage the currency exposure of certain
receivables, liabilities and expected inventory purchases. The term of these
contracts is generally one year or less. The purpose of CNH's foreign currency
hedging activities is to protect CNH from the risk that the eventual cash flows
resulting from loan repayments and inventory purchases will be adversely
affected by changes in exchange rates.
The recognition of gains and losses on contracts entered into to hedge
intercompany debt are deferred and included in net income (loss) as an
adjustment to "Finance and interest income" on the date the forward contract
matures. The recognition of gains or losses on contracts entered into to hedge
purchase and sale commitments are included in net income (loss) as an adjustment
to "Cost of goods sold" as foreign exchange
99
100
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
rates change. Gains and losses resulting from the termination of foreign
exchange contracts prior to maturity are also included in net income (loss).
The following foreign currency exchange contracts were held by CNH to hedge
certain currency exposures. All 2000 foreign currency contracts mature in 2001,
with the exception of the swap contract described in Note 10, "Long-Term Debt,"
which matures in 2002.
DECEMBER 31,
-------------------------------------------
2000 1999
-------------------- --------------------
CURRENCIES TO BE CURRENCIES TO BE
RECEIVED DELIVERED RECEIVED DELIVERED
-------- --------- -------- ---------
(IN MILLIONS OF STATED CURRENCIES)
U.S. Dollar............................. 290 320 497 214
Euro.................................... 104 3 57 136
Canadian Dollar......................... 145 -- 168 144
Japanese Yen............................ 12,243 -- 11,000 --
Pound Sterling.......................... 30 71 6 84
Australian Dollar....................... -- 72 -- 90
Brazilian Real.......................... -- 276 -- 234
Indian Rupee............................ 261 -- -- 82
Argentine Peso.......................... -- 14 -- --
CNH also had, at December 31, 1999, purchased options with a notional value of
$26 million and sold options with a notional value of $11 million. There were no
purchased or sold options at December 31, 2000.
Interest Rate Swaps and Forward Rate Agreements
CNH enters into interest rate swaps and forward rate agreements or FRAs, to
stabilize funding costs by minimizing the effect of potential interest rate
increases on floating-rate debt in a rising interest rate environment. Under
these agreements, CNH contracts with a counterparty to exchange the difference
between a fixed rate and a floating rate applied to the notional amount of the
swap or FRA. Swap contracts are principally between one and four years in
duration, and FRAs have starting dates within two months from the contract date
and a maturity ranging from four to six months. The differentials to be paid or
received on interest rate swap agreements and FRAs are accrued as interest rates
change and are recognized in net income (loss) as an adjustment to "Interest
expense."
Gains and losses resulting from terminated interest rate swap agreements
and FRAs are deferred and recognized in net income (loss) over the shorter term
of the remaining contractual life of the agreement or the remaining term of the
debt underlying the agreement. If swap agreements or FRAs are terminated due to
the underlying debt being extinguished in conjunction with an asset-backed
securitization transaction, any resulting gain or loss is recognized in net
income (loss) as an adjustment to "Finance and interest income" at the time of
the termination. If swap agreements are terminated due to the underlying debt
being extinguished, any resulting gain or loss is recognized in net income
(loss) as an adjustment to "Interest expense" at the time of termination.
The weighted-average pay and receive rates for the swaps outstanding at
December 31, 2000, were 6.43% and 6.12%, respectively, at a notional amount of
$1,706 million. The weighted-average pay and receive rates for the swaps
outstanding at December 31, 1999, were 5.74% and 5.50%, respectively, at a
notional amount of $1,711 million. At December 31, 1999, CNH had FRAs with a
notional amount of $1.1 billion with start dates in 2000, with a
weighted-average fixed rate of 6.05%. At December 31, 2000, CNH did not have any
FRAs outstanding.
100
101
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Back-to-Back Interest Rate Caps
The asset-backed commercial paper liquidity facility (the "Liquidity
Facility") requires CNH to have interest rate cap agreements in place. Due to
the relatively high expense of obtaining such an instrument, CNH sells an
identical cap, concurrent with the cap purchase, to the same counterparty. This
effectively minimizes the overall expense to CNH, meets the requirements of the
Liquidity Facility and eliminates any risk of financial loss on the purchased
cap. The defined term of the cap is approximately 48 months.
Premiums paid for interest rate cap agreements purchased and sold are
included in "Other assets" and "Other liabilities," respectively, in the
accompanying balance sheets, and are amortized to interest expense over the
terms of the agreements. Amounts receivable or payable under cap agreements are
recognized in net income (loss) as adjustments to interest expense over the term
of the related debt. If interest rate cap agreements are terminated due to the
underlying debt being extinguished, any resulting gain or loss is recognized in
net income (loss) as an adjustment to "Finance and interest income" at the time
of the termination.
At December 31, 2000, CNH had a back-to-back cap at a rate of 7.00%, at a
notional amount of approximately $430 million.
Treasury Rate Lock Agreements
A Treasury rate lock is a commitment to either purchase or sell the
designated financial instrument at a future date (the determination date) for a
specified price (the reference yield). The purpose of this instrument is to
protect fixed-rate debt from fluctuations in the yield of the Treasury Note that
forms the basis of pricing the debt. CNH held no treasury rate locks as of
December 31, 2000. As of December 31, 1999, CNH had entered into $200 million of
Treasury rate locks based on one-, two- and three-year Treasury notes at a
weighted-average yield of 6.11%.
Guarantees
At December 31, 2000, CNH fully, unconditionally and irrevocably guaranteed
Case's $852 million in outstanding 6.25% Notes due 2003, 7.25% Notes due 2005,
and 7.25% Notes due 2016 that were issued pursuant to two registration
statements under the Securities Act of 1933, as amended. Reference is made in
Note 23, "Guarantee of Subsidiary's Outstanding Debt Securities."
NOTE 16: INCOME TAXES
The sources of income (loss) before taxes and minority interest are as
follows (in millions):
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
2000 1999 1998
----- ---- ----
The Netherlands source...................... $ (37) $(22) $ 13
Foreign sources............................. (487) 229 400
----- ---- ----
Income (loss) before taxes................ $(524) $207 $413
===== ==== ====
101
102
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes consisted of the following (in
millions):
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
2000 1999 1998
----- ---- ----
Current income taxes........................ $ 76 $ 10 $105
Deferred income taxes....................... (229) 45 43
----- ---- ----
Total tax provision (benefit)............. $(153) $ 55 $148
===== ==== ====
A reconciliation of CNH's statutory and effective income tax provision
(benefit) is as follows (in millions):
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
2000 1999 1998
----- ---- ----
Tax provision (benefit) at the Dutch
statutory rate of 35%..................... $(183) $ 72 $144
Foreign income taxed at different rates..... (12) 6 6
Effect of tax loss carryforwards............ (8) 18 (9)
Change in valuation allowance............... 46 (16) 24
Nondeductible goodwill...................... 25 2 4
Dividend withholding taxes and credits...... (4) (3) (6)
Other....................................... (17) (24) (15)
----- ---- ----
Total tax provision (benefit)............. $(153) $ 55 $148
===== ==== ====
During 2000, 1999 and 1998, CNH generated income in certain jurisdictions
that supported reductions in the valuation allowance and recognized losses in
certain jurisdictions that supported increases in the valuation allowance.
The components of the net deferred tax asset are as follows (in millions):
DECEMBER 31,
--------------
2000 1999
------ -----
Deferred tax assets:
Marketing and selling incentives.............. $ 211 $ 204
Bad debt reserves............................. 71 52
Postretirement and postemployment benefits.... 222 197
Inventories................................... 73 86
Warranty reserves............................. 76 102
Restructuring reserves........................ 73 30
Other reserves................................ 440 177
Tax loss carryforwards........................ 814 568
Other......................................... 27 99
Less: Valuation allowance..................... (849) (690)
------ -----
Total deferred tax assets.................. 1,158 825
------ -----
Deferred tax liabilities:
Fixed assets basis difference/depreciation.... 269 262
Intangibles................................... 275 279
Inventories................................... 22 36
Other......................................... 215 195
------ -----
Total deferred tax liabilities............. 781 772
------ -----
Net deferred tax assets.................. $ 377 $ 53
====== =====
102
103
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets are reflected in the accompanying balance
sheets as follows (in millions):
DECEMBER 31,
--------------
2000 1999
------ -----
Current deferred tax asset...................... $ 436 $ 442
Long-term deferred tax asset.................... 672 99
Current deferred tax liability.................. (33) (3)
Long-term deferred tax liability................ (698) (485)
------ -----
Net deferred tax asset........................ $ 377 $ 53
====== =====
CNH has net operating tax loss carryforwards in a number of foreign tax
jurisdictions within its global operations. The net tax value of these
carryforwards and the years in which they expire are as follows: $6 million in
2001; $12 million in 2002; $55 million in 2003; $1 million in 2004; $6 million
in 2005. CNH also has net operating tax loss carryforwards of $734 million with
expiration dates greater than 5 years. As a result of regulatory divestitures
required by the relevant authorities pursuant to the merger, certain tax loss
carryforwards related to the Case business may be at risk. The actual risk and
degree of certainty are not known or quantifiable at this time.
CNH has recorded deferred tax assets in tax jurisdictions where CNH has
been profitable as management believes it is more likely than not that such
assets will be realizable. CNH continues to have valuation reserves in certain
tax jurisdictions where net operating losses exist. Realization of these
deferred tax assets is dependent on generating future income and is thus subject
to change. With respect to the valuation reserves recorded against the deferred
tax assets of Case and its subsidiaries, any reduction in the amounts
attributable to the pre-acquisition operations of Case will, in the future, be
treated as a reduction to the goodwill recorded in conjunction with the
acquisition and will not impact future periods' tax expense. As of December 31,
2000 and 1999, the valuation allowance that is potentially subject to being
allocated to goodwill as part of the Case merger totaled $540 million and $419
million, respectively. The increase during 2000 is primarily attributable to the
finalization of purchase accounting for the Case acquisition.
Effective fiscal years beginning on January 1, 1998, new tax legislation
was introduced in Italy whereby the combined tax rate was reduced from 53.2% to
41.2% or, in certain circumstances, to 31.2% under the Dual Income Tax Scheme. A
portion of the new combined tax rate, or 4.25%, is based upon an adjusted tax
base that approximates CNH's gross margin, excluding payroll costs and other
items.
At December 31, 2000, the undistributed earnings of foreign subsidiaries
totaled approximately $2,239 million. In most cases, such earnings will continue
to be reinvested. Provision has generally not been made for additional taxes on
the undistributed earnings of foreign subsidiaries. These earnings could become
subject to additional tax if they are remitted as dividends or if CNH were to
dispose of its investment in the subsidiaries. It has not been practical to
estimate the amount of additional taxes that might be payable on the foreign
earnings, and CNH believes that additional tax credits and tax planning
strategies would largely eliminate any tax on such earnings.
CNH (received) paid cash of $(129) million, $99 million, and $157 million
for taxes during 2000, 1999 and 1998, respectively.
NOTE 17: EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT BENEFITS
Defined Benefit and Postretirement Benefit Plans
CNH has various defined benefit plans that cover certain employees.
Benefits are based on years of service and, for most salaried employees, on
final average compensation. CNH's funding policies are to
103
104
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contribute to the plans amounts necessary to, at a minimum, satisfy the funding
requirements as prescribed by the laws and regulations of each country. Plan
assets consist principally of listed equity and fixed income securities.
CNH has postretirement health and life insurance plans that cover the
majority of its U.S. and Canadian employees. For New Holland U.S. salaried and
hourly employees, and for Case U.S. non represented hourly and salaried
employees, the plans cover employees retiring on or after attaining age 55 who
have had at least 10 years of service with the respective company. Case Canadian
salaried employees with seven or more years of consecutive service are covered
under the plans upon retirement. For Case U.S. and Canadian hourly employees,
the plans generally cover employees who retire pursuant to their respective
hourly plans. These benefits may be subject to deductibles, copayment provisions
and other limitations, and CNH has reserved the right to change these benefits,
subject to the provisions of any collective bargaining agreement.
In connection with CNH's acquisition of O&K in December 1998, CNH recorded
an unfunded pension obligation of approximately $140 million related to pension
rights of non-active employees of O&K who are retired or whose employment has
been terminated and who have vested rights. The pension obligation reserve of
approximately $140 million has been calculated in accordance with German
statutory requirements. Effective January 1, 1999, CNH entered into an agreement
with the seller of O&K whereby the seller, in return for a payment of $140
million (in equivalent Deutsche Marks) from O&K, has agreed to reimburse O&K for
all future pension payments, including death benefits and medical support
liabilities and any funding obligations under the collective bargaining
agreement related to the non-active employees of O&K. An irrevocable, revolving
bank guarantee was obtained to back the seller's guarantee of the future pension
payment reimbursement. The actuarial present value related to this benefit
obligation that is recorded on the balance sheet and reflected in the
rollforward below was $137 million at December 31, 2000. CNH has an equal,
corresponding other asset on their balance sheet to reflect the payment made by
CNH to the seller in conjunction with the acquisition.
Former parent companies of New Holland and Case have retained certain
accumulated pension benefit obligations and related assets and certain
accumulated postretirement health and life insurance benefit obligations.
104
105
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following assumptions were utilized in determining the funded status of
CNH's defined benefit pension plans:
YEAR ENDED
DECEMBER 31, 2000
-----------------
CNH CNH
U.S. NON-U.S.
(CNH) PLANS PLANS
----- ----- --------
Weighted-average discount rates............................. 7.50% 5.92%
Rate of increase in future compensation..................... 4.00% 4.18%
Weighted-average, long-term rates of return on
plan assets............................................... 9.00% 7.10%
YEAR ENDED DECEMBER 31, 1999
--------------------------------------
NEW HOLLAND CASE
----------------- -----------------
U.S. NON-U.S. U.S. NON-U.S.
(NEW HOLLAND AND CASE) PLANS PLANS PLANS PLANS
---------------------- ----- -------- ----- --------
Weighted-average discount rates............................ 7.50% 5.50% 7.50% 5.85%
Rate of increase in future compensation.................... 4.00% 3.80% N/A 4.30%
Weighted-average, long-term rates of return on plan
assets................................................... 9.00% 7.50% 9.00% 9.37%
YEAR ENDED
DECEMBER 31, 1998
--------------------------
NEW HOLLAND NEW HOLLAND
U.S. NON-U.S.
(NEW HOLLAND) PLANS PLANS
------------- ----------- -----------
Weighted-average discount rates............................. 6.50% 5.40%
Rate of increase in future compensation..................... 4.00% 4.00%
Weighted-average, long-term rates of return on plan
assets.................................................... 9.00% 7.90%
The following assumptions were utilized in determining the accumulated
postretirement benefit obligation of CNH's postretirement health and life
insurance plans:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
2000 1999 1998
----------------- -------------------------------- -----------
CNH CNH NEW HOLLAND CASE CASE NEW HOLLAND
U.S. CANADIAN U.S. U.S. CANADIAN U.S.
PLANS PLAN PLANS PLANS PLAN PLANS
----- -------- ----------- ----- -------- -----------
Weighted-average discount rates..... 7.50% 6.50% 7.50% 7.50% 7.00% 6.50%
Rate of increase in future
compensation...................... 3.42% N/A 4.00% 3.00% 3.00% 4.00%
Weighted-average, assumed health
care cost trend rate.............. 6.50% 8.00% 7.50% 7.00% 8.50% 6.00%
105
106
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The measurement period for CNH's defined benefit pension plans and
postretirement health and life insurance plans is January 1 through December 31.
The following depicts (in millions):
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------------
2000 1999 2000 1999
------- ----- ----- -----
CHANGE IN BENEFIT OBLIGATIONS:
Actuarial present value of benefit obligation at beginning
of measurement period..................................... $1,631 $912 $ 598 $ 345
Service cost................................................ 37 18 11 6
Interest cost............................................... 112 60 44 24
Plan participants' contributions............................ 7 6 -- 2
Actuarial (gain) loss....................................... (33) (75) 15 (27)
Currency fluctuations....................................... (67) (20) -- --
Gross benefits paid......................................... (99) (57) (29) (20)
Plan Amendments............................................. 24 -- (44) --
Acquisitions................................................ 189 734 -- 268
Curtailment loss............................................ (10) -- -- --
Adjustments to reflect re-measurement of benefit
obligation................................................ -- 53 -- --
------ ---- ----- -----
Actuarial present value of benefit obligation at end of
measurement period........................................ 1,791 1,631 595 598
------ ---- ----- -----
CHANGE IN PLAN ASSETS:
Plan assets at fair value at beginning of measurement
period.................................................... 1,571 924 -- --
Actual return on plan assets................................ 36 132 -- --
Currency fluctuations....................................... (33) (20) -- --
Employer contributions...................................... 57 23 29 18
Plan participants' contributions............................ 7 6 -- 2
Gross benefits paid......................................... (99) (57) (29) (20)
Acquisitions/Divestitures................................... (13) 637 -- --
Adjustments to reflect re-measurement of benefit
obligation................................................ -- 2 -- --
Purchase accounting adjustment.............................. -- (76) -- --
------ ---- ----- -----
Plan assets at fair value at end of measurement period...... 1,526 1,571 -- --
------ ---- ----- -----
FUNDED STATUS:.............................................. (265) (60) (595) (598)
Unrecognized prior service cost............................. 28 17 (42) (6)
Unrecognized net loss (gain) resulting from plan experience
and changes in actuarial assumptions...................... 97 6 6 (8)
Remaining unrecognized net asset at initial application..... -- (5) 64 71
------ ---- ----- -----
Net amount recognized at end of year........................ $ (140) $(42) $(567) $(541)
====== ==== ===== =====
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION
CONSIST OF:
Prepaid benefit cost........................................ $ 167 $210 $ -- $ --
Accrued benefit liability................................... (308) (252) (567) (541)
Intangible asset............................................ -- -- -- --
Accumulated other comprehensive income...................... 1 -- -- --
------ ---- ----- -----
Net amount recognized at end of year........................ $ (140) $(42) $(567) $(541)
====== ==== ===== =====
106
107
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------- --------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
(IN MILLIONS)
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost............................................ $ 37 $ 18 $ 20 $11 $ 6 $ 5
Interest cost........................................... 112 60 60 44 24 21
Expected return on assets............................... (146) (84) (75) -- -- --
Amortization of:
Transition asset...................................... -- (1) (1) 9 9 9
Prior service cost.................................... 3 2 2 (4) (1) (1)
Actuarial loss........................................ -- 1 2 -- -- (1)
---- ---- ---- --- --- ---
Net periodic benefit cost............................... 6 (4) 8 60 38 33
Reduction in unrecognized prior service cost due to
curtailment........................................... -- -- 2 -- -- --
Curtailment (gain) loss................................. 17 -- 2 (4) -- --
---- ---- ---- --- --- ---
Total (income) expense................................ $ 23 $ (4) $ 12 $56 $38 $33
==== ==== ==== === === ===
The aggregate projected benefit obligation, aggregate accumulated benefit
obligation and aggregate fair value of plan assets for pension plans with
benefit obligations in excess of plan assets were $805 million, $755 million and
$507 million, respectively, as of December 31, 2000, and $348 million, $344
million and $183 million, respectively, as of December 31, 1999.
The weighted-average assumed health care cost trend rate used in
determining the 2000 accumulated postretirement benefit obligation covering CNH
U.S. employees was 6.5%, and gradually declining to 5.5% in 2002 and remaining
at that level thereafter. The weighted-average assumed health care cost trend
rate used in determining the 1999 accumulated postretirement benefit obligation
covering Case and New Holland U.S. employees was 7.0% and 7.5%, respectively,
and gradually declining to 5.5% in 2002 and remaining at that level thereafter.
The weighted-average assumed health care cost trend rate used in determining the
2000 accumulated postretirement benefit obligation related to Canadian employees
was 8.0% and gradually declining to 5.5% in 2005 and remaining at that level
thereafter. The weighted average assumed health care cost trend rate used in
determining the 1999 accumulated postretirement benefit obligation related to
Canadian employees was 8.5%, declining to 5.5% in 2005 and remaining at that
level thereafter.
Increasing the assumed health care cost trend rate by one percentage point
would increase the total accumulated postretirement benefit obligation at
December 31, 2000, by approximately $85 million, and would increase the
aggregate of the service cost and interest cost components of the net 2000
postretirement benefit cost by approximately $9 million. Decreasing the assumed
health care cost trend rate by one percentage point would decrease the total
accumulated postretirement benefit obligation at December 31, 2000, by
approximately $69 million, and would decrease the aggregate of the service cost
and interest cost components of the net 2000 postretirement benefit cost by
approximately $7 million.
Other Programs
In Belgium, early retirement liabilities were accrued in connection with
the restructuring of CNH's Belgian facilities initiated in 1991. Such
liabilities were $14 million and $18 million at December 31, 2000 and 1999,
respectively. Programs in other countries are provided through payroll tax and
other social contributions in accordance with local statutory requirements.
107
108
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As required by Italian labor legislation, an accrual for employee severance
indemnities has been provided for a portion of CNH's Italian employees' annual
salaries, indexed for inflation. At December 31, 2000 and 1999, the indemnity
accruals were $73 million and $86 million, respectively.
Defined Contribution Plans
CNH has various defined contribution plans that cover certain U.S. and
non-U.S. employees. New Holland has a savings plan for its U.S. salaried and
hourly employees whereby employees may make pre-tax contributions of up to 15%
of base compensation. New Holland will match 50% of the first 10% of a
participant's contribution. This matching contribution is directed based on the
participant's investment elections. During 2000, 1999 and 1998, New Holland
contributed $5 million, $5 million and $6 million, respectively, to its prior
savings plan. Case has a retirement savings plan pursuant to the Internal
Revenue Code for its U.S. salaried employees. Under the retirement savings plan,
certain salaried participants may make pre-tax contributions of up to 10% of
base compensation. Case will match 100% of the first 8% of a participant's
contribution in cash. Annually, Case makes a fixed contribution to the
retirement savings plan equal to 4% of each participant's eligible compensation.
During 2000 and 1999, Case contributed $15 million and $2 million, respectively,
in matching contributions to its prior retirement savings plan and additional
fixed contributions of $3 million and $9 million in 2000 and 1999, respectively.
These contributions are net of forfeitures applied of $8 million and $0 million
in 2000 and 1999, respectively. Subject to CNH's operating results, Case and New
Holland may make additional profit sharing contributions to the retirement
savings plan. Case made additional profit sharing contributions of $0 million
and $4 million in 2000 and 1999, respectively.
Effective January 1, 2001, both the Case and New Holland entities provide
an identical defined contribution plan for their U.S. salaried employees. The
plan allows employee elective deferrals on a pretax basis of up to 10% of pay
with the Company matching such deferrals at a rate of 70 cents for each dollar
deferred. In addition to matching contributions the Company provides a fixed
contribution of 5% of eligible salary per year.
NOTE 18: COMMITMENTS AND CONTINGENCIES
Environmental
CNH is involved in environmental remediation activities with regard to
potential liabilities under U.S. federal, U.S. state and non-U.S. environmental
laws. These activities involve non-owned Waste Sites and properties currently or
formerly owned by CNH where it is believed there has been a release of hazardous
substances. These properties comprise a number of sites currently or formerly
operated by CNH or its predecessors. Expenditures for ongoing compliance with
environmental regulations that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments indicate that remedial efforts are probable and the costs can be
reasonably estimated. Estimates of the liability are based upon currently
available facts, existing technology and presently enacted laws and regulations.
All available evidence is considered, including prior experience in remediation
of contaminated sites, other parties' share of liability at the Waste Sites and
their ability to pay and data concerning the Waste Sites released by the U.S.
Environmental Protection Agency or other organizations. These liabilities are
included in the accompanying balance sheets at their undiscounted amounts.
Based upon information currently available, management estimates potential
environmental remediation, decommissioning, restoration, monitoring and other
closure costs associated with current or formerly owned or operated facilities
to be in the range of $64 million to $105 million. As of December 31, 2000,
environmental
108
109
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reserves of approximately $79 million had been established to address these
specific estimated potential liabilities. Such reserves are undiscounted. After
considering these reserves, management is of the opinion that the outcome of
these matters will not have a material adverse effect on CNH's financial
position or results of operations.
Product liability
Product liability claims against CNH arise from time to time in the
ordinary course of business. There is an inherent uncertainty as to the eventual
resolution of unsettled claims. However, in the opinion of management, any
losses with respect to existing claims will not have a material adverse effect
on CNH's financial position or results of operations.
Other Litigation
CNH is the subject of various other legal claims arising from its
operations, including product warranty, dealer disputes, workmen's compensation,
customs and employment matters. In addition, certain of CNH's Brazilian
subsidiaries are currently contesting certain claims made by the Brazilian tax
authorities related to taxation and employer social contributions.
Management is of the opinion that the resolution of these claims,
individually and in the aggregate, will not have a material adverse effect on
CNH's financial position or results of operations.
Commitments
Minimum rental commitments at December 31, 2000, under non-cancelable
operating leases with lease terms in excess of one year are as follows (in
millions):
AMOUNT
------
2001................................................. $ 34
2002................................................. 27
2003................................................. 16
2004................................................. 12
2005 and thereafter.................................. 59
----
Total minimum rental commitments............. $148
====
Total rental expense for all operating leases was $38 million, $27 million
and $18 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
109
110
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19: EARNINGS (LOSS) PER SHARE
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations for income from continuing operations
(in millions, except per share data):
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
BASIC 2000 1999 1998
----- ------ ----- -----
Net income (loss).............................. $ (381) $ 148 $ 258
Weighted-average shares outstanding............ 213 149 149
Basic earnings (loss) per share................ $(1.79) $0.99 $1.73
====== ===== =====
DILUTED
-----------------------------------------------
Net income (loss).............................. $ (381) $ 148 $ 258
Effect of dilutive securities (when dilutive):
Conversion of advance to capital
subscription.............................. N/A 12 N/A
------ ----- -----
Net income (loss) after adjustment for dilutive
conversions.................................. $ (381) $ 160 $ 258
====== ===== =====
Weighted-average shares outstanding
-- Basic.................................... 213 149 149
Effect of dilutive securities (when dilutive):
Conversion of advance to capital
subscription.............................. N/A 16 N/A
------ ----- -----
Weighted-average shares outstanding
-- Diluted.................................. 213 165 149
====== ===== =====
Diluted earnings per share..................... $(1.79) $0.97 $1.73
====== ===== =====
Reference is made to Note 11, "Principal Shareholder's Advance to Capital,"
for further information regarding the advance to capital.
NOTE 20: SEGMENT AND GEOGRAPHICAL INFORMATION
SEGMENT INFORMATION
CNH has three reportable segments: Agricultural Equipment, Construction
Equipment and Financial Services. Certain reclassifications have been made to
conform the historical segment and geographical information to the current CNH
management reporting format.
Agricultural Equipment
The agricultural equipment segment manufactures and distributes a full line
of farm machinery and implements, including two-wheel and four-wheel drive
tractors, combines, cotton pickers, grape and sugar cane harvesters, hay and
forage equipment, planting and seeding equipment, soil preparation and
cultivation implements and material handling equipment.
Construction Equipment
The construction equipment segment manufactures and distributes a full line
of construction equipment and has leading positions in excavators, crawler
dozers, graders, wheel loaders, loader/backhoes, skid steer loaders and
trenchers.
110
111
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Financial Services
The financial services segment provides broad-based financial services for
the global marketplace through various wholly owned subsidiaries and joint
ventures in the United States, Canada, Argentina, Australia, Brazil and Europe.
CNH provides and administers retail financing to end-use customers for the
purchase or lease of new and used CNH and other agricultural and construction
equipment. CNH also facilitates and finances the sale of insurance products and
other financing programs to retail customers. In addition, CNH provides
wholesale financing to CNH dealers and rental equipment yards. CNH also provides
financing options to dealers and non-captive third parties to finance inventory,
working capital, real estate acquisitions, construction and remodeling, business
acquisitions, dealer systems and service and maintenance equipment.
The accounting policies of the segments are described in Note 2, "Summary
of Significant Accounting Policies." CNH evaluates segment performance based on
operating earnings. CNH defines operating earnings as the income (loss) of
Equipment Operations before interest expense, taxes and restructuring and other
merger related costs, including the income of Financial Services on an equity
basis. Transfers between segments are accounted for at market value.
CNH's reportable segments are strategic business units that offer different
products and services. Each segment is managed separately as they require
different technology and marketing strategies.
A summary of CNH's reportable segment information is set forth in the
following table (in millions):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
------- ------- -------
REVENUES:
Net sales
Agricultural equipment.................................... $ 5,877 $ 3,904 $ 4,151
Construction equipment.................................... 3,460 2,045 1,323
------- ------- -------
Total net sales...................................... 9,337 5,949 5,474
External financial services............................... 677 324 223
Intersegment financial services........................... 95 88 138
Eliminations and other.................................... (95) (88) (138)
------- ------- -------
Total................................................ $10,014 $ 6,273 $ 5,697
======= ======= =======
SEGMENT PROFIT (LOSS):
Agricultural equipment...................................... $ (95) $ 146 $ 316
Construction equipment...................................... 228 117 119
Financial services.......................................... 26 72 60
------- ------- -------
Total................................................ $ 159 $ 335 $ 495
======= ======= =======
RECONCILIATION OF SEGMENT PROFIT (LOSS) TO CONSOLIDATED NET
INCOME (LOSS):
Segment profit.............................................. $ 159 $ 335 $ 495
Equipment Operations:
Income tax (provision) benefit............................ 159 (14) (118)
Interest expense.......................................... (542) (154) (79)
Restructuring and other merger related costs.............. (157) (19) (40)
------- ------- -------
Net income (loss)...................................... $ (381) $ 148 $ 258
======= ======= =======
111
112
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
------- ------- -------
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
(AT THE END OF YEAR):
Agricultural equipment...................................... $ 203 $ 254 $ 209
Construction equipment...................................... 55 51 --
Financial services.......................................... 24 23 6
------- ------- -------
Total................................................ $ 282 $ 328 $ 215
======= ======= =======
DEPRECIATION AND AMORTIZATION:
Agricultural equipment...................................... $ 253 $ 130 $ 104
Construction equipment...................................... 83 33 22
Financial services.......................................... 93 20 6
------- ------- -------
Total................................................ $ 429 $ 183 $ 132
======= ======= =======
SEGMENT ASSETS (AT THE END OF YEAR):
Agricultural equipment...................................... $ 6,895 $ 7,207 $ 2,710
Construction equipment...................................... 3,275 3,614 1,107
Financial services.......................................... 6,400 6,009 2,874
Eliminations and other...................................... 1,007 848 605
------- ------- -------
Total................................................ $17,577 $17,678 $ 7,296
======= ======= =======
EXPENDITURES FOR ADDITIONS TO LONG-LIVED ASSETS*:
Agricultural equipment...................................... $ 134 $ 167 $ 122
Construction equipment...................................... 79 46 26
Financial services.......................................... 195 60 20
------- ------- -------
Total................................................ $ 408 $ 273 $ 168
======= ======= =======
------------
* Includes equipment on operating leases and property, plant and equipment.
112
113
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHICAL INFORMATION
The following highlights the results of CNH's operations by geographic
area, by origin (in millions):
UNITED UNITED
STATES CANADA KINGDOM ITALY BELGIUM OTHER TOTAL
------ ------ ------- ------ ------- ------ -------
At December 31, 2000, and for the
year then ended:
Total revenues..................... $4,344 $406 $1,348 $1,530 $423 $1,963 $10,014
====== ==== ====== ====== ==== ====== =======
Long-lived assets*................. $1,265 $114 $ 141 $ 144 $ 85 $ 368 $ 2,117
====== ==== ====== ====== ==== ====== =======
At December 31, 1999, and for the
year then ended:
Total revenues..................... $1,809 $293 $ 902 $1,589 $511 $1,169 $ 6,273
====== ==== ====== ====== ==== ====== =======
Long-lived assets*................. $1,439 $ 77 $ 221 $ 237 $ 81 $ 377 $ 2,432
====== ==== ====== ====== ==== ====== =======
At December 31, 1998, and for the
year then ended:
Total revenues..................... $1,503 $480 $1,038 $1,509 $642 $ 525 $ 5,697
====== ==== ====== ====== ==== ====== =======
Long-lived assets*................. $ 141 $ 27 $ 84 $ 281 $ 78 $ 132 $ 743
====== ==== ====== ====== ==== ====== =======
------------
* Includes equipment on operating leases and property, plant and equipment.
CNH is organized under the laws of the Kingdom of The Netherlands.
Geographical information for CNH pertaining to The Netherlands is not
significant or not applicable, as CNH primarily maintains a corporate presence
in that country.
NOTE 21: RELATED PARTY INFORMATION
CNH has historically obtained, and may continue to obtain, a significant
portion of its external financing and certain foreign exchange and interest
rate-related contracts from Fiat, on terms that CNH believes are at least as
favorable as those available from unaffiliated third parties. At December 31,
2000, CNH's outstanding debt with Fiat and its affiliates was approximately 46%
of its total debt. In 2000, CNH paid a guarantee fee of between 0.0625% per
annum and 0.125% per annum on the average amount outstanding under facilities
guaranteed by Fiat. Reference is made to Note 9, "Short-Term Debt" and Note 10,
"Long-Term Debt" for further information regarding financing with Fiat.
CNH purchases some of its engines and other components from the Fiat Group,
and companies of the Fiat Group provide CNH administrative services such as
accounting, cash management and legal services. In addition, CNH sells certain
products to subsidiaries and affiliates of Fiat.
CNH's principal purchases of goods from Fiat and its affiliates include
diesel engines from Iveco N.V., electric and mechanical components from Magneti
Marelli S.p.A., castings from Teksid S.p.A., and lubricants from Fiat
Lubrificanti S.p.A. CNH has an agreement by which the license fees paid to Fiat
for certain trade names and brand marks is 0.3% of sales of related products.
CNH also purchases tractors from its Mexican joint venture for resale in the
United States.
Additionally, CNH participates in the stock option program of Fiat as
described in Note 13, "Shareholders' Equity and Stock-Based Compensation."
113
114
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes CNH's sales, purchases, and finance income
and expense with affiliates of Fiat and CNH dealer development companies and
joint ventures (in millions):
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
Sales of equipment............................... $ 16 $ 14 $ 22
Sales to dealer development companies and joint
ventures....................................... 256 259 261
------ ------ ------
Total sales to affiliates................. $ 272 $ 273 $ 283
====== ====== ======
Purchase of materials, production parts,
merchandise and services....................... $ 367 $ 295 $ 297
Finance and interest income...................... $ 34 $ 32 $ 59
Interest expense................................. $ 291 $ 79 $ 56
CNH management believes that the terms of sales and purchases provided to
CNH by Fiat and its affiliates are at least as favorable as those available from
unaffiliated third parties.
NOTE 22: OTHER ACCRUED LIABILITIES
DECEMBER 31,
----------------
2000 1999
------ ------
(IN MILLIONS)
Warranty provisions...................................... $ 292 $ 298
Marketing and sales incentive programs................... 416 429
Accrued payroll.......................................... 152 197
Value-added taxes and other taxes payable................ 250 140
Other accrued expenses................................... 758 626
------ ------
Total other accrued liabilities................... $1,868 $1,690
====== ======
NOTE 23: GUARANTEE OF SUBSIDIARY'S OUTSTANDING DEBT SECURITIES
At December 31, 2000, CNH fully, unconditionally and irrevocably guaranteed
Case's $852 million in outstanding 6.25% Notes due 2003, 7.25% Notes due 2005,
and 7.25% Notes due 2016 that were issued pursuant to two registration
statements under the Securities Act of 1933, as amended. The following condensed
financial statements present CNH Global N.V. (the parent company and guarantor
of the debt securities), Case Corporation (the issuer of the debt securities),
and all other subsidiaries. The 1999 statement of operations and statement of
cash flows for Case Corporation include activity from November 12, 1999, the
date of the merger, through December 31, 1999. In addition, for 1999, the costs
of maintaining the CNH corporate offices were allocated to the operating
subsidiaries. For 2000, the costs of the corporate offices were not allocated
and a substantial majority of such cost was included in the Case Corporation
statement of operations.
114
115
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS OF U.S. DOLLARS)
-----------------------------------------------------------------
CNH ALL
GLOBAL CASE OTHER
N.V. CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ----------- ------------ ------------ ------------
Revenues:
Net sales.................................... $ -- $4,000 $5,342 $ (5) $ 9,337
Finance and interest income.................. -- 476 223 (22) 677
----- ------ ------ ----- -------
-- 4,476 5,565 (27) 10,014
Costs and Expenses:
Cost of goods sold........................... -- 3,541 4,284 (5) 7,820
Selling, general and administrative.......... 17 663 572 (2) 1,250
Research, development and engineering........ -- 180 158 -- 338
Restructuring and other merger related
costs..................................... -- 34 123 -- 157
Interest expense............................. 43 416 354 (20) 793
Other, net................................... 6 207 (27) -- 186
----- ------ ------ ----- -------
66 5,041 5,464 (27) 10,544
Equity in Income of Unconsolidated Subsidiaries
and Affiliates............................... (314) 2 45 273 6
----- ------ ------ ----- -------
Income (loss) before taxes and minority
interest..................................... (380) (563) 146 273 (524)
Income tax provision (benefit)................. 1 (160) 6 -- (153)
Minority interest.............................. -- -- 10 -- 10
----- ------ ------ ----- -------
Net income (loss).............................. $(381) $ (403) $ 130 $ 273 $ (381)
===== ====== ====== ===== =======
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS OF U.S. DOLLARS)
-----------------------------------------------------------------
CNH ALL
GLOBAL CASE OTHER
N.V. CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ----------- ------------ ------------ ------------
Revenues:
Net sales.................................... $ -- $ 620 $5,329 $ -- $5,949
Finance and interest income.................. -- 64 260 -- 324
----- ------ ------ ----- ------
-- 684 5,589 -- 6,273
Costs and Expenses:
Cost of goods sold........................... -- 563 4,321 -- 4,884
Selling, general and administrative.......... 11 105 610 -- 726
Research, development and engineering........ -- 27 169 -- 196
Restructuring and other merger related
costs..................................... -- -- 19 -- 19
Interest expense............................. 10 50 206 -- 266
Other, net................................... 8 9 (33) -- (16)
----- ------ ------ ----- ------
29 754 5,292 6,075
Equity in Income of Unconsolidated Subsidiaries
and Affiliates............................... 179 -- -- (170) 9
----- ------ ------ ----- ------
Income (loss) before taxes and minority
interest..................................... 150 (70) 297 (170) 207
Income tax provision (benefit)................. 2 (25) 78 -- 55
Minority interest.............................. -- -- 4 -- 4
----- ------ ------ ----- ------
Net income (loss).............................. $ 148 $ (45) $ 215 $(170) $ 148
===== ====== ====== ===== ======
115
116
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEETS
AS OF DECEMBER 31, 2000
(IN MILLIONS OF U.S. DOLLARS)
-----------------------------------------------------------------
CNH ALL
GLOBAL CASE OTHER
N.V. CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ----------- ------------ ------------ ------------
ASSETS
--------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents................. $ -- $ 146 $ 740 $ -- $ 886
Accounts and notes receivable............. 3,154 2,055 2,330 (3,902) 3,637
Inventories............................... -- 1,080 1,294 -- 2,374
Deferred income taxes..................... -- 300 136 -- 436
Prepayments and other..................... -- 111 131 -- 242
------ ------- ------ ------- -------
TOTAL CURRENT ASSETS................. 3,154 3,692 4,631 (3,902) 7,575
------ ------- ------ ------- -------
Long-Term Receivables....................... -- 1,570 1,343 (400) 2,513
Property, Plant and Equipment, net.......... -- 887 587 -- 1,474
OTHER ASSETS:
Investment in unconsolidated subsidiaries
and affiliates......................... 2,564 111 2,292 (4,685) 282
Equipment on operating leases, net........ -- 555 88 -- 643
Goodwill and intangibles.................. -- 3,512 305 -- 3,817
Other..................................... -- 711 562 -- 1,273
------ ------- ------ ------- -------
TOTAL OTHER ASSETS................... 2,564 4,889 3,247 (4,685) 6,015
------ ------- ------ ------- -------
TOTAL................................ $5,718 $11,038 $9,808 $(8,987) $17,577
====== ======= ====== ======= =======
LIABILITIES AND EQUITY
--------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt...... $ -- $ 912 $ 737 $ -- $ 1,649
Short-term debt........................... 3,188 2,575 1,850 (3,427) 4,186
Accounts payable.......................... 16 611 770 (141) 1,256
Restructuring liability................... -- 189 62 -- 251
Other accrued liabilities................. -- 746 1,122 -- 1,868
------ ------- ------ ------- -------
TOTAL CURRENT LIABILITIES............ 3,204 5,033 4,541 (3,568) 9,210
------ ------- ------ ------- -------
Long-Term Debt.............................. -- 1,839 2,785 (734) 3,890
OTHER LIABILITIES:
Pension, postretirement and postemployment
benefits............................... -- 329 644 -- 973
Advance to capital........................ -- -- -- -- --
Other..................................... -- 663 253 -- 916
------ ------- ------ ------- -------
TOTAL OTHER LIABILITIES.............. -- 992 897 -- 1,889
------ ------- ------ ------- -------
Commitments and Contingencies...............
Minority Interests.......................... -- 8 66 -- 74
SHAREHOLDERS' EQUITY:
Common Shares............................. 143 -- 14 (14) 143
Paid-in capital........................... 2,991 3,600 1,664 (5,264) 2,991
Treasury stock, at cost................... (6) -- -- -- (6)
Retained earnings (deficit)............... (213) (360) 140 220 (213)
Accumulated other comprehensive income
(loss)................................. (399) (74) (299) 373 (399)
Unearned compensation on restricted
shares................................. (2) -- -- -- (2)
------ ------- ------ ------- -------
TOTAL SHAREHOLDERS' EQUITY........... 2,514 3,166 1,519 (4,685) 2,514
------ ------- ------ ------- -------
TOTAL................................ $5,718 $11,038 $9,808 $(8,987) $17,577
====== ======= ====== ======= =======
116
117
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEETS
AS OF DECEMBER 31, 1999
(IN MILLIONS OF U.S. DOLLARS)
---------------------------------------------------------------------
CNH ALL
GLOBAL CASE OTHER
N.V. CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ----------- ------------ ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ -- $ 214 $ 252 $ -- $ 466
Accounts and notes receivable......... 2,911 2,282 1,880 (2,937) 4,136
Inventories........................... -- 1,166 1,256 -- 2,422
Deferred income taxes................. -- 290 152 -- 442
Prepayments and other................. -- 220 84 -- 304
------ ------- ------ ------- -------
TOTAL CURRENT ASSETS............. 2,911 4,172 3,624 (2,937) 7,770
------ ------- ------ ------- -------
Long-Term Receivables................... -- 1,862 1,175 -- 3,037
Property, Plant and Equipment, net...... -- 1,270 605 -- 1,875
OTHER ASSETS:
Investment in unconsolidated
subsidiaries and affiliates........ 3,091 118 2,313 (5,194) 328
Equipment on operating leases, net.... -- 517 40 -- 557
Goodwill and intangibles.............. -- 3,255 240 -- 3,495
Other................................. -- 419 206 (9) 616
------ ------- ------ ------- -------
TOTAL OTHER ASSETS............... 3,091 4,309 2,799 (5,203) 4,996
------ ------- ------ ------- -------
TOTAL............................ $6,002 $11,613 $8,203 $(8,140) $17,678
====== ======= ====== ======= =======
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................... $ -- $ 6 $ 124 $ -- $ 130
Short-term debt....................... 2,822 1,180 2,859 (1,908) 4,953
Accounts payable...................... 70 478 852 (38) 1,362
Restructuring liability............... -- 90 12 -- 102
Other accrued liabilities............. -- 765 925 -- 1,690
------ ------- ------ ------- -------
TOTAL CURRENT LIABILITIES........ 2,892 2,519 4,772 (1,946) 8,237
------ ------- ------ ------- -------
Long-Term Debt.......................... -- 4,391 1,037 (1,000) 4,428
OTHER LIABILITIES:
Pension, postretirement and
postemployment benefits............ -- 546 533 -- 1,079
Advance to capital.................... 1,400 -- -- -- 1,400
Other................................. -- 593 161 -- 754
------ ------- ------ ------- -------
Total other liabilities.......... 1,400 1,139 694 -- 3,233
------ ------- ------ ------- -------
Commitments and Contingencies...........
Minority Interests...................... -- 8 62 -- 70
SHAREHOLDERS' EQUITY:
Common Shares......................... 88 -- -- -- 88
Paid-in capital....................... 1,645 3,600 1,619 (5,219) 1,645
Treasury stock, at cost............... (6) -- -- -- (6)
Retained earnings (deficit)........... 250 (45) 251 (206) 250
Accumulated other comprehensive income
(loss)............................. (265) 1 (232) 231 (265)
Unearned compensation on restricted
shares............................. (2) -- -- -- (2)
------ ------- ------ ------- -------
TOTAL SHAREHOLDERS' EQUITY....... 1,710 3,556 1,638 (5,194) 1,710
------ ------- ------ ------- -------
TOTAL............................ $6,002 $11,613 $8,203 $(8,140) $17,678
====== ======= ====== ======= =======
117
118
CNH GLOBAL N.V.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS OF U.S. DOLLARS)
------------------------------------------------------------------
CNH ALL
GLOBAL CASE OTHER
N.V. CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----------- ------------ ------------ ------------
Operating Activities:
Net income (loss)............................ $ (381) $ (403) $ 130 $ 273 $ (381)
Adjustments to reconcile net income (loss) to
net cash from operating activities......... 298 745 (530) 676 1,189
------- ------ ------ ------- ------
Net cash provided (used) by operating
activities................................... (83) 342 (400) 949 808
------- ------ ------ ------- ------
Investing activities:
Expenditures for property, plant and
equipment.................................. -- (121) (107) -- (228)
Expenditures for equipment on operating
leases..................................... -- (112) (68) -- (180)
Other, net (primarily acquisitions and
divestitures).............................. (67) 61 51 67 112
------- ------ ------ ------- ------
Net cash provided (used) by investing
activities................................... (67) (172) (124) 67 (296)
------- ------ ------ ------- ------
Financing activities:
Net increase (decrease) in indebtedness...... 366 (251) 1,261 (1,252) 124
Advance to capital........................... -- -- -- -- --
Dividends paid............................... (82) -- (156) 156 (82)
Other, net................................... (131) 20 (53) 80 (84)
------- ------ ------ ------- ------
Net cash provided (used) by financing
activities................................... 153 (231) 1,052 (1,016) (42)
------- ------ ------ ------- ------
Other, net..................................... (3) (7) (40) -- (50)
------- ------ ------ ------- ------
Increase (decrease) in cash and cash
equivalents.................................. -- (68) 488 -- 420
Cash and cash equivalents, beginning of year... -- 214 252 -- 466
------- ------ ------ ------- ------
Cash and cash equivalents, end of year......... $ -- $ 146 $ 740 $ -- $ 886
======= ====== ====== ======= ======
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS OF U.S. DOLLARS)
------------------------------------------------------------------
CNH ALL
GLOBAL CASE OTHER
N.V. CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----------- ------------ ------------ ------------
Operating Activities:
Net income (loss)............................ $ 148 $ (45) $ 215 $ (170) $ 148
Adjustments to reconcile net income (loss) to
net cash from operating activities......... (2,338) 376 690 2,209 937
------- ------ ------ ------- -------
Net cash provided (used) by operating
activities................................... (2,190) 331 905 2,039 1,085
------- ------ ------ ------- -------
Investing activities:
Expenditures for property, plant and
equipment.................................. -- (50) (160) -- (210)
Expenditures for equipment on operating
leases..................................... -- (34) (29) -- (63)
Other, net (primarily acquisitions and
divestitures).............................. (1,823) 212 (2,788) 120 (4,279)
------- ------ ------ ------- -------
Net cash provided (used) by investing
activities................................... (1,823) 128 (2,977) 120 (4,552)
------- ------ ------ ------- -------
Financing activities:
Net increase (decrease) in indebtedness...... 2,822 (246) 1,309 (1,784) 2,101
Advance to capital........................... 1,400 -- -- -- 1,400
Dividends paid............................... (82) -- (167) 167 (82)
Other, net................................... (137) 1 586 (542) (92)
------- ------ ------ ------- -------
Net cash provided (used) by financing
activities................................... 4,003 (245) 1,728 (2,159) 3,327
------- ------ ------ ------- -------
Other, net..................................... (3) -- (68) -- (71)
------- ------ ------ ------- -------
Increase (decrease) in cash and cash
equivalents.................................. (13) 214 (412) -- (211)
Cash and cash equivalents, beginning of year... 13 -- 664 -- 677
------- ------ ------ ------- -------
Cash and cash equivalents, end of year......... $ -- $ 214 $ 252 $ -- $ 466
======= ====== ====== ======= =======
118
119
SCHEDULE II
CNH GLOBAL N.V.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS OF U.S. DOLLARS)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF YEAR EXPENSE ACCOUNTS DEDUCTIONS YEAR
---------- ---------- ---------- ---------- ----------
For the year ended December 31, 2000:
Accounts and notes receivable........... $197 $177 $ (7)(a) $(98) $269
For the year ended December 31, 1999:
Accounts and notes receivable........... 128 58 71(b) (60) 197
For the year ended December 31, 1998:
Accounts and notes receivable........... 128 27 (2)(a) (25) 128
------------
(a) Reflects the impact of exchange rate changes.
(b) Reflects $118 million related to the acquisition of Case and $(47) million
for the impact of exchange rate changes.
119
120
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CNH GLOBAL N.V.
(Registrant)
/s/ MICHEL LECOMTE
--------------------------------------
Michel Lecomte
Chief Financial Officer and
President, Financial Services
Dated: June 12, 2001
120
121
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
1.1 Articles of Association of CNH Global N.V., as last amended
on November 12, 1999.*
1.2 Regulations of the Board of Directors of CNH Global N.V.
dated December 8, 1999.*
4.1 Outside Directors' Compensation Plan of CNH Global N.V.
adopted November 12, 1999 and last amended on April 18,
2000.
4.2 Equity Incentive Plan of CNH Global N.V. adopted November
12, 1999.*
8 See list of subsidiaries of registrant set forth in Item 4.C
of this report.
10.1 Credit Agreement dated 27 July 2000 between Fiat S.p.A., CNH
Global N.V., Fiat Finance and Trade Ltd. S.A., New Holland
Credit Company LLC, Case Corporation, Case Credit
Corporation as Borrowers and The Banks and Chase Manhattan
International Limited as Facility Agent and Euro Swing-Line
Agent and The Chase Manhattan Bank as US Swing-Line Agent
and ABN AMRO Bank N.V., Banca Intesa S.p.A., Chase Manhattan
plc as Arrangers.
10.2 Amended and Restated Transfer and Administration Agreement
dated December 15, 2000 between CNH Capital Receivables Inc.
as Transferor, Case Credit Corporation, in its individual
capacity and as Servicer, Certain APA Banks named therein,
Certain Funding Agents named therein and The Chase Manhattan
Bank as Administrative Agent (filed as Exhibit 10(e)(1) to
the Annual Report on Form 10-K of Case Credit Corporation
(SEC File Number 33-80775-01) for the year ended December
31, 2000 and incorporated herein by reference).
10.3 First Supplemental Indenture dated as of March 28, 2000
among Case Corporation, CNH Global N.V., as guarantor, and
The Bank of New York, as trustee, supplementing the
Indenture dated as of July 31, 1995 between Case Corporation
and The Bank of New York, as trustee.*
* Previously filed as an exhibit to the annual report on Form 20-F of the
registrant for the year ended December 31, 1999 and incorporated herein by
reference.