New Holland Records $89 Million Profit in Second Quarter

Amsterdam, Netherlands (PROTEXT) - -- Second quarter earnings per share (US GAAP) totaled $.58, bringing first half EPS to $.98. -- Consolidated net revenues totaled $1.6 billion, compared to $1.7 billion in the second quarter of 1998. -- New Holland's acquisition of Case Corporation is on schedule. -- New Holland has offered to acquire the remaining 25% of Orenstein & Koppel. "New Holland performed well in the second quarter, despite the difficulties facing the agricultural equipment industry, particularly in North America and much of Latin America," New Holland Chief Executive Officer Umberto Quadrino stated. "New Holland has delivered a solid return to our shareholders, confirming the validity of our strategic direction and the efficacy of our actions. Our unique position of product and geographic balance has enabled us to capitalize on markets such as Europe and Brazil, and product segments like small tractors, which are stable or growing. Throughout the downturn we have strengthened our competitive advantage by a steady stream of new product introductions, acquisitions, and entry into new markets. "When the early warning signs of the downturn appeared last year, New Holland was swift to respond. The restructuring programs we put in place at that time have contributed significantly to our results in the second quarter. Our industry- leading margin, unchanged from last quarter, is down only slightly from last year's record level. We have reduced the overheads on our base business, and have begun to fully integrate our recent acquisitions in Germany and Poland into the New Holland structure. To match demand, we cut second quarter production of agricultural equipment and tractors over 40 horsepower by 17% compared to last year. Our total worldwide inventory is nearly at normal levels, and we are acting to maintain these levels going forward. "New Holland is a strong and profitable business, with a demonstrated ability to fund an aggressive growth strategy even in the midst of a down market. New Holland comes to the proposed Case merger with a sound financial position, a solid margin, a competitive product line, and a leading dealer network. Itself the result of a series of successful mergers and acquisitions, New Holland is excited by the extraordinary opportunity to create a new global company, even more balanced and competitive. New Holland is confident that the combined company will capitalize on the strengths of both outstanding brands while achieving operating synergies through integrated production, purchasing and support activities." New Holland's restructuring initiatives contribute to the bottom line. New Holland N.V. (NYSE: NH), one of the world's leading producers of agricultural and construction equipment, today reported unaudited results for the second quarter of 1999. Second quarter earnings per share (US GAAP) totaled $.58, compared to $.89 per share in 1998. First half earnings per share (US GAAP) were $.98, compared to $1.60 in 1998. The Company's accounts are prepared in accordance with International Accounting Standards (IAS). Earnings per share reported above are calculated using net income in accordance with United States Generally Accepted Accounting Principles (US GAAP). Second quarter consolidated net income totaled $89 million, compared to $139 million in the same period last year, a decline of 36%. First half 1999 consolidated net income was $152 million. Worldwide consolidated net sales and revenues for the second quarter totaled $1.572 billion, compared to $1.689 billion in 1998, a decline of 7%. First half revenues were $2.970 billion, compared to $3.216 billion last year. New Holland's net sales and revenues benefited significantly from revenues generated by acquisitions, mainly Orenstein & Koppel (O&K). The weakness of the Euro against the dollar reduced top line performance by about $54 million in the quarter and $83 million for the first half of 1999. Currency had a minor impact on net income for the quarter. New Products for Construction and Agriculture. During the quarter, New Holland introduced an extensive array of new construction equipment in North America and enhanced the Company's product offering in the agricultural sector. Following its debut at ConExpo, New Holland Construction introduced 18 new models of construction equipment to dealers and customers. The new models, some of which were displayed at ConExpo, included a full range of wheel loaders, two new mini wheel loaders, two dozers, and three motor graders. Three crawler excavators and one wheeled excavator, all built by O&K, were also launched. In North America, New Holland extended its popular line of disc mower-conditioners based on the Company's innovative modular cutterbar design, and introduced a number of enhancements to its industry leading haytools product line. In Australia and New Zealand, the Company's launch of its award-winning TN tractor line and 8 Series round balers was well received in the marketplace. In the Mercosur region, New Holland extended its TL tractor line to Chile, and introduced the new TC57 Hydro combine harvester in Brazil. Equipment Operations. Second quarter net sales from Equipment Operations totaled $1.506 billion, compared to $1.629 billion for the same period in 1998. The decline reflects the current unfavorable conditions in the industry and the impact of currency, partially offset by the Company's acquisition of O&K. Equipment Operations net sales for the first six months were $2.842 billion compared to $3.102 billion in 1998. Equipment Operations gross margin as a percent of net sales of equipment was 22.7% in the second quarter of 1999 unchanged from the prior quarter, but down from 25.2% for the second quarter of 1998. For the quarter, lower volumes and adverse mix accounted for nearly all the year-over-year drop. R&D expenses rose by nearly 7%, compared to 1998, due to the acquisition of O&K, and to ongoing higher levels of new product development activity, particularly for EEA and new markets. SG&A expenses as a percent of net sales of equipment also increased compared to the second quarter of 1998, reflecting lower revenues in the quarter. In dollars, SG&A expenses were essentially unchanged from 1998 levels as the additional expenses attributable to recent acquisitions, particularly O&K, and higher levels of funding for the Company's Supply Chain Management Project were offset by the Company's restructuring and cost savings initiatives, a favorable re-evaluation of bad debt reserves, and favorable currency effects. On a direct, like-for- like comparison of existing operations, SG&A expenses declined by 9% compared to the same period last year. When compared to the second quarter of 1998, net finance and interest expense for the current quarter increased due mainly to lower interest income and the costs of foreign exchange. Other income for the quarter included a gain on the sale of property and re-evaluation of certain risk reserves. Operating income for the second quarter was $141 million, compared to $208 million in 1998. In the second quarter, the Company estimates that the continued strength of the US dollar had a minimal impact on operating income. For the first half, operating income totaled $223 million, compared to $383 million last year. Financial Services. Second quarter finance and interest income declined by 5%, from $109 million in 1998 to $104 million, due mainly to reduced financing of dealer receivables as the Company reduced dealer inventories in response to market demand. In the United States and Canada, Financial Services second quarter acquisitions of new retail and lease receivables decreased by 1%, to $370 million, compared with 1998 levels, reflecting the slowdown in industry sales. In Europe, second quarter acquisitions of retail and lease receivables by the Company's joint venture with Barclays Bank increased by 81% to $120 million, compared to the second quarter of 1998, as Financial Services continues its rapid expansion in the markets of continental Europe. Effective Tax Rate. The Company's effective consolidated tax rate for the first half of 1999 was 34%, unchanged from the first half of 1998. Changes in Inventories and Receivables. Equipment Operations inventories at June 30, 1999 were down by over $170 million compared to December 31, 1998 levels. This reflects favorable currency translation and the Company's actions in response to market conditions. Trade and other receivables increased by about $310 million due mainly to the normal seasonal trend and the $191 million one-time reclassification from finance to trade receivables reported in the first quarter, partly offset by currency. Adoption of New Accounting Standard. Effective January 1, 1999, the Company has adopted IAS 19 (revised) for the recognition of retirement benefit costs. The cumulative effect of adopting IAS 19 (revised) has been a direct adjustment to opening IAS equity of approximately $60 million. As such accounting differs under US GAAP, the amount has been fully reversed in the determination of US GAAP shareholders' equity. Voluntary Offer of New Holland to O&K Shareholders. On May 12, 1999, New Holland concluded a Domination Agreement with O&K, which was approved at the O&K Annual General Meeting on June 28,1999. In essence, a Domination Agreement limits the risk to minority shareholders and allows New Holland to fully integrate O&K into its operations. The Agreement also provides for an offer of a cash purchase price of DM 31.00 per share to minority shareholders wishing to sell their shares. New Holland completed its acquisition of 75% of O&K from Fried. Krupp AG Hoesch-Krupp on December 22, 1998. Market Outlook: Agricultural Equipment. "Overall, the agricultural equipment industry performed about as we expected through the second quarter of 1999," Tom Kennedy, New Holland's Chief Marketing Officer, said. "Looking ahead, we see a stronger industry in Europe than we had anticipated, while in North America, our outlook for big equipment has worsened. "Last quarter, industry sales of agricultural tractors in North America remained near 1998 levels in unit terms, but with a huge shift in mix. As in the first quarter, the under-40 horsepower segment was up significantly, while sales of over-140 horsepower tractors, large 4WD units, and combines were disappointing. For the full year, we now expect total industry sales of big tractors and combines to be down by about 35% for the year. "Western Europe has continued to perform better than expected. As a result, we now forecast sales of agricultural tractors across Europe to be at or near 1998 levels for the full year. Combine harvester sales are still expected to decline by 5-10%, however. "After a strong start to the year, the market in Brazil returned to 1998 levels during the second quarter, and should end the year at, or slightly above, last year's levels. Outside Brazil, the other markets of Latin America remained down about 30% through the period. Given the weakness in key markets such as Argentina, we believe these markets will remain weak throughout the balance of the year. "Industry sales across the markets of Africa and the Middle East remained weak through the second quarter, and we now expect sales for the year will be below 1998 levels. The Asia Pacific region improved during the quarter, fueled by strong sales in Australia, and we anticipate a recovery of about 5% for the year." Market Outlook: Construction Equipment. The outlook for construction and light industrial equipment is essentially unchanged from the first quarter. In North America, the outlook is still positive, but with some signs of saturation in heavy equipment. New Holland anticipates that demand in the second half will be slightly below 1998 levels. In Latin America, however, sales are expected to be down significantly for the year, particularly outside Brazil. In Brazil, a modest recovery later in the year is possible, but is unlikely to bring the full year back to 1998 levels. In Europe, strong demand in France, Italy and Spain have pushed the industry above 1998 levels for the first half and the industry is expected to remain stable for the balance of 1999. Asia is stabilizing and the main markets such as India, China and Indonesia are beginning to recover. In Japan, which was down about 5% during the first half, recovery is expected in the second half. Certain information included in this release is forward- looking and is subject to important risks and uncertainties that could cause actual results to differ materially. The Company's businesses include its agricultural and construction equipment operations as well as its financial services operations, and its outlook is predominantly based on its interpretation of what it considers to be the key economic factors affecting these businesses. Forward-looking statements with regard to the Company's businesses involve a number of important factors that are subject to change, including: the many interrelated factors that affect farmers' confidence, including world-wide demand for agricultural products, world grain stocks, commodities prices, weather, animal diseases, crop pests, harvest yields, real estate values and governmental farm programs; general economic conditions (including housing starts); legislation, particularly that relating to agriculture, the environment, trade and commerce and infrastructure development; actions of competitors in the various industries in which the Company competes; production difficulties, including capacity and supply constraints and excess inventory levels; labor relations; interest rates and currency exchange rates; political and civil unrest; and other risks and uncertainties. New Holland is a world leader in the design and manufacture of a full line of agricultural and construction equipment, and offers a rapidly expanding line of financial services in many of its markets. The Company and its joint venture partners operate in 160 countries through a network of approximately 6,100 dealers and distributors. NEW HOLLAND N.V. Consolidated Statements of Income (IAS) (Unaudited) (in millions of dollars, except per share amounts) CONSOLIDATED EQUIPMENT OPERATIONS* FINANCIAL SERVICES For the 3 months For the 3 months For the 3 months ended June 30, ended June 30, ended June 30, 1999 1998 1999 1998 1999 1998 Net Sales and Revenues: Net sales of equipment 1,506.3 1,628.9 1,506.3 1,628.9 -- -- Finance and interest inc. 66.1 60.1 -- -- 103.8 109.1 Total net sales and revenues 1,572.4 1,689.0 1,506.3 1,628.9 103.8 109.1 Costs and Expenses: Cost of goods sold 1,164.9 1,217.9 1,164.9 1,217.9 -- -- R&D expenses 42.1 39.4 42.1 39.4 -- -- SG&A expenses 170.5 172.0 163.0 164.5 13.7 12.3 Net finance and interest exp. 69.7 49.9 34.2 21.1 66.4 72.4 Other expenses (income), net (3.9) 0.6 (5.1) (0.5) 1.8 1.7 Total cost and expenses 1,443.3 1,479.8 1,399.1 1,442.4 81.9 86.4 Income from unconsolidated subs. and affiliates - Fin. Serv. subs. and aff. 0.1 (0.1) 13.8 13.9 0.1 (0.1) - Other affiliates 8.2 (2.2) 8.2 (2.2) -- -- Income before tax, min.int. and cum. effect of change in accounting principle 137.4 206.9 129.2 198.2 22.0 22.6 Prov. for income taxes 45.7 67.0 37.5 58.3 8.2 8.7 Minority interest 2.6 1.4 2.6 1.4 -- -- Net income before cum. effect of change in acc. principle 89.1 138.5 89.1 138.5 13.8 13.9 Cumulative effect of change in accounting principle -- -- -- -- -- 0.0 Net income 89.1 138.5 89.1 138.5 13.8 13.9 Net income per share, before cum effect of change in accounting princ. 0.60 0.93 Net income per share of cum. effect of change in accounting princ. -- -- Net income per share 0.60 0.93 Shares outstanding (mil) 149 149 Reconciliation with US GAAP Net income 89.1 138.5 Items increasing/(decreasing) reported net income: Goodwill amortization (0.8) (0.8) Reduction in depr. of PP&E 0.4 0.4 Restruct. reserves reversal -- (3.0) Adjust. to pension reserves -- (1.0) Reversal of change in acc. princ. - post- retirement benefits (2.3) (2.3) Net income (US GAAP) 86.4 131.8 EPS (US GAAP) 0.58 0.89 Shares outstanding (mil) 149 149 * Equipment Operations includes Financial Services on the equity basis. NEW HOLLAND N.V. Consolidated Statements of Income (IAS) (Unaudited) (in millions of dollars, except per share amounts) CONSOLIDATED EQUIPMENT OPERATIONS* FINANCIAL SERVICES For the 6 months For the 6 months For the 6 months ended June 30, ended June 30, ended June 30, 1999 1998 1999 1998 1999 1998 Net Sales and Revenues: Net sales of equipment 2,841.6 3,102.2 2,841.6 3,102.2 -- -- Finance and interest inc. 128.1 114.1 -- -- 205.0 207.8 Total net sales and revenues 2,969.7 3,216.3 2,841.6 3,102.2 205.0 207.8 Costs and Expenses: Cost of goods sold 2,197.6 2,328.4 2,197.6 2,328.4 -- -- R&D expenses 84.6 72.8 84.6 72.8 -- -- SG&A expenses 352.1 331.5 337.3 319.3 27.6 23.3 Net finance and interest exp. 110.2 100.1 44.4 44.8 128.6 136.5 Other expenses (income), net 0.9 1.2 (1.2) (0.9) 3.4 3.5 Total cost and expenses 2,745.4 2,834.0 2,662.7 2,764.4 159.6 163.3 Income from unconsolidated subs. and affiliates - Fin. Serv. subs. and aff. 0.4 0.3 28.8 24.1 0.4 0.3 - Other affiliates 7.7 (2.1) 7.7 (2.1) -- -- Income before tax, min.int. and cum. effect of change in accounting principle 232.4 380.5 215.4 359.8 45.8 44.8 Prov. for income taxes 79.0 127.8 62.0 110.3 17.0 17.5 Minority interest 1.7 1.4 1.7 1.4 -- -- Net income before cum. effect of change in acc. principle 151.7 251.3 151.7 248.1 28.8 27.3 Cumulative effect of change in accounting principle -- 260.4 -- 263.6 -- (3.2) Net income 151.7 511.7 151.7 511.7 28.8 24.1 Net income per share, before cum effect of change in accounting princ. 1.02 1.69 Net income per share of cum. effect of change in accounting princ. -- 1.74 Net income per share 1.02 3.43 Shares outstanding (mil) 149 149 Reconciliation with US GAAP Net income 151.7 511.7 Items increasing/(decreasing) reported net income: Goodwill amortization (1.6) (1.6) Reduction in depr.of PP&E 0.7 0.7 Restruct. reserves reversal -- (6.0) Adjust. to pension reserves -- (2.0) Reversal of change in acc. princ. - post-retirement benefits (4.6) (4.6) Reversal of change in acc. princ. deferred taxes -- (260.4) Net income (US GAAP) 146.2 237.8 EPS (US GAAP) 0.98 1.60 Shares outstanding (mil) 149 149 * Equipment Operations includes Financial Services on the equity basis. NEW HOLLAND N.V. Condensed Consolidated Balance Sheet (IAS) ($ millions) CONSOLIDATED EQUIPMENT OPERATIONS* FINANCIAL SERVICES Jun 30 Dec 31 Jun 30 Dec 31 Jun 30 Dec 31 1999 1998 1999 1998 1999 1998 ASSETS Cash and cash equivalents 917.1 676.7 652.7 587.5 264.4 89.2 Finance receivables 2,511.0 2,320.9 326.3 505.0 2,305.4 2,320.0 Trade and other receivables 1,379.6 1,194.8 1,141.6 828.3 259.4 376.0 Inventories 1,346.6 1,518.0 1,336.9 1,512.1 9.7 5.9 Property, plant and equipment, net 668.9 779.6 637.8 757.7 31.1 21.9 Investments in uncons. subs. and affiliates 203.7 215.3 542.6 517.2 6.5 6.4 Other assets 102.7 175.5 84.6 151.8 42.9 44.9 Deferred income taxes 214.6 224.6 216.2 226.2 -- -- Total assets 7,344.2 7,105.4 4,938.7 5,085.8 2,919.4 2,864.3 LIABILITIES AND SHAREHOLDERS' EQUITY Short term borrowings 2,232.2 1,765.2 693.9 582.8 1,659.0 1,686.5 Accounts payable 921.2 899.3 921.5 898.8 0.1 0.5 Accrued expenses 944.5 1,020.8 955.5 1,028.7 34.8 22.8 Accrued and def. income taxes 94.4 78.5 95.4 78.5 0.6 1.6 Medium and long term borrowings 981.7 927.6 113.5 95.0 868.2 832.6 Retirement benefit accruals 609.6 653.0 598.5 641.5 11.1 11.5 Other liabilities 116.0 141.4 115.8 140.9 0.2 0.5 Total liabilities 5,899.6 5,485.8 3,494.1 3,466.2 2,574.0 2,556.0 Minority interest 64.0 73.2 64.0 73.2 -- -- Shareholders' equity 1,380.6 1,546.4 1,380.6 1,546.4 345.4 308.3 Total liabilities and shareholders' equity 7,344.2 7,105.4 4,938.7 5,085.8 2,919.4 2,864.3 Reconciliation with US GAAP Shareholders' equity in accordance with IAS 1,380.6 1,546.4 Reinstatement of goodwill previously charged to equity 190.2 191.8 Elimination of fixed assets revaluation (21.3) (20.6) Reversal of change in acc. princ. - post- retirement benefits (FAS 106) 77.7 82.3 Reversal of cum. acc. change for postretirement benefits (IAS 19 revised) 60.2 -- Shareholders' equity in accordance with US GAAP 1,687.4 1,799.9 * Equipment Operations includes Financial Services on the equity basis. NEW HOLLAND N.V. Net Sales of Equipment ($ millions) For the 3 months ended June 30 1999 1998 % Change By Product Line Agricultural Equipment (a) 851.1 1,082.3 -21% Construction Equipment 411.1 327.5 +26% Replacement Parts 244.1 219.1 +11% Total 1,506.3 1,628.9 -8% By Geographic Area (b) Europe 793.2 681.8 +16% North America 492.4 667.9 -26% Brazil 61.9 92.1 -33% Rest of World 158.8 187.1 -15% Total 1,506.3 1,628.9 -8% For the 6 months ended June 30 1999 1998 % Change By Product Line Agricultural Equipment (a) 1,644.1 2,097.0 -22% Construction Equipment 740.8 592.0 +25% Replacement Parts 456.7 413.2 +11% 2,841.6 3,102.2 -8% By Geographic Area (b) Europe 1,450.4 1,206.4 +20% North America 944.0 1,344.1 -30% Brazil 125.1 189.9 -34% Rest of World 322.1 361.8 -11% Total 2,841.6 3,102.2 -8% (a) Includes commission on sales of OEM units. (b) Includes sales of equipment and parts made in their domestic markets by New Holland companies located in such markets, plus exports from other New Holland companies in such countries. ots Original Text Service: New Holland N.V. Internet: http://www.newsaktuell.de Contact: Jeffrey Walsh, media relations, +44-181-479-8809, or fax, +44-181-479-8626, or JWALSH@NEWHOLLAND.COM, or Albert Trefts, Jr., investor relations, +44-181-479-8606, or fax, +44-181-479-8658, or ATREFTS@NEWHOLLAND.COM, both of New Holland Subscribers please note that material bearing the slug "PROTEXT" is not part of CTK's news service and is not to be published under the "CTK" slug. Protext is a commercial service providing distribution of press releases from clients, who are identified in the text of Protext reports and who bear full responsibility for their contents. PROTEXT