CNH Industrial NV (CNHI) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to today's CNH 2008 fourth-quarter and full-year results conference call.

For your information today's conference is being recorded.

At this time I would like to turn the call over to Mr.

Al Trefts.

Please go ahead, sir.

Thank you, Jo.

Welcome, everyone, to CNH's fourth-quarter and full-year 2008 results webcast conference call.

We are pleased to have with us today Mr.

Harold Boyanovsky, our President and Chief Executive Officer; Mr.

Rubin McDougal, our Chief Financial Officer; and Mr.

Marco Casalino, our Treasurer.

In recognition of Regulation FD we have provided public guidance in this morning's press release on which we will elaborate in today's call.

After this call guidance will not be updated until CNH issues a press release on the subject.

During the course of today's presentation and in answering your questions we will be making some forward-looking statements concerning the Company's plans, projections and objectives for the future that are subject to risks and uncertainties.

Please refer to this morning's press release and our annual report on Form 20F for the year ended December 31, 2007 as filed with the US Securities and Exchange Commission for additional information on the important risk factors and uncertainties in the Company's businesses that are subject to change and could cause actual results to differ materially from our expectations today.

The Company, except as required by law, undertakes no obligation to update or revise its forward-looking information.

As noted on the slides, the appendix contains reconciliations to Generally Accepted Accounting Principles in the United States, or US GAAP.

Various non-GAAP financial measures were used in analyzing our performance.

Finally, this conference call and live webcast over the Internet are being recorded for future transmission and used by CNH, Thomson Reuters and third parties.

The contents are the property of CNH Global NV and are not to be rerecorded or rebroadcast without our express written permission.

Participants in the call, including the Q&A session, agree that their likenesses and remarks in all media may be stored and used as a part of the earnings call.

Now I would like to turn the call over to Rubin McDougal to make a few remarks on the quarter.

Ruben?

Thank you, Al.

Good morning and good afternoon, everyone.

We're delighted today to be able to talk about the full year 2008 results where we reported net income up 48%, a record.

We had full-year earnings per share of $3.59, up 38% from last year.

Full-year net sales grew 16% driven by a very strong agricultural market with Agricultural Equipment up 30% year over year.

This was offset in part by construction and -- Construction Equipment.

If you'll notice in the fourth quarter on the chart, that dropped by almost half in the quarter.

We're also delighted to have another quarter of year-over-year increase in operating profit.

In the quarter we saw some benefits from the investments we've been making in world-class manufacturing and we've made some significant progress in reducing the bottleneck toss we've been referring to in the past.

We also saw, and partly as a result of the comments I just made, agricultural growth margins at a record level.

Between the operating profit and net we have several items; we had an improvement in taxes and we are close to the year-end guidance we gave and we are now at a rate we feel is something more appropriate for our operation.

In the fourth quarter we saw a significant slowing in certain key markets.

Credit conditions in Latin America, and the CIS particularly, caused a slowdown in equipment sales.

And globally there was a pronounced drop-off in the Construction Equipment industry.

If we look at page 5 you can see some highlights about equipment operation's operating profit.

It was up 13% for the fourth quarter and up 21% for the full year.

Pricing actions we've been putting in place throughout the year offset higher material costs for both the quarter and the full year.

The agricultural volume and mix improvements offset the impact of the CE industry decline.

The sales drop in CE was pronounced and, at the same time, we idled our factories -- the CE factories, for a significant portion of the quarter.

Operating leverage, R&D and SG&A costs in total were down -- were improved.

And agricultural operating profit compared to 2007 offset the CE results.

If we look at the equipment operation's operating profit year-over-year evolution you can see that the higher agricultural volumes drove -- overall we were up about $22 million, but agricultural equipment volumes were up almost -- were up about $151 million offset in part by the CE reductions.

Pricing at $207 million for the quarter continues to be in the -- around the 2% range overall, Agricultural Equipment is better and CE is very weak.

If we look at the net price recovery, something we've talked about most quarters, you can see that the $207 million overall was a very significant contributor, but in a net price basis we did offset the cost of inbound material; in the quarter currency impacted us negatively as did some economics.

So in the quarter our net price recovery was negative, about $85 million.

In the full year, as we turn to page 7, the net price recovery was positive, almost $200 million, as the pricing of almost $500 million more than offset material cost, currency and economics.

If we look at the overall number, you can see that for the full year the strong agricultural volume mix improvement of $765 million was only partially offset by the CE volume decline and contributed a very robust $559 million to the operating profit.

Pricing, as I mentioned previously, was favorable.

We are offsetting some significant material costs.

And during the year those numbers became -- they increased as we went through the year and were more significant in the latter half of the quarter -- or latter half of the year, particularly in the fourth quarter.

Turning to page 8, looking at the fourth-quarter Agricultural Equipment industry -- the combine industry is at the highest point since the creation of CNH.

We had share gains in both tractors and combines.

We still have some ongoing issues with capacity in certain key products and that restricted our ability, particularly in the North American market, to take advantage of our very strong product portfolio and product offering and we had a slight decline in share in the fourth quarter there.

If we look at the impact of the slowing in the fourth quarter, we did have some slowdown in the markets I mentioned previously, but even with that our inventory in ag continues to be consistent and/or down in terms of months of supply.

So we're feeling very comfortable there that we are managing the inventory appropriately, albeit up in dollars or days or months of supply are remaining constant.

And we did have significant share gains in both Western Europe and the rest of the world.

Looking at the full year just briefly, tractor share was up, combine market was up 35% but our share was flat.

If we look at the fourth-quarter Construction Equipment industry, it was a dramatic decline in the industry that is most pronounced.

As you can see, the declines were across all products and in fact they were across all regions.

We had about a 37% decline in the quarter.

The industry is approaching the 2003 levels in the quarter.

As you look at it, particularly pronounced is the Western European markets, down 60% in light, down 59% in Western Europe.

And of course the rest of world markets in the quarter, particularly driven by the credit crisis, are down 43%.

CNH during the quarter, as we talked about at the third quarter, reduced its production level significantly.

However, with a 50% decline in the industry, or a 37% decline, we did not get the significant reduction in inventory that we had hoped for.

We did, however, produce 18% below retail sales and did reduce dealer inventories in the quarter.

Looking at the full year, the overall industry was down around 11% with the light industry down 20% while the heavy was up 2%.

As you look at the industry change by region you'll notice the pronounced difference between the full-year results and the fourth quarter in some cases.

CNH's volume overall -- our share overall was flat.

Our full-year production volume was down 12% compared with 2007.

That was not sufficient to keep our inventory at the appropriate levels and will be remedied in the first half of 2009.

Turning to page 12, discussing the net debt, you can see that the change in net cash in 2008 was a consumption of almost slightly more than $900 million.

The key drivers of that were a favorable income, but more than offset by a higher usage of working capital and capital expenditures.

The capital expenditures of $492 million were focused on new product, factory efficiencies as part of the world-class manufacturing operation and debottlenecking, selective capacity improvements to deal with those areas where we are continuing to face capacity constraints, and systems and processes to improve the ease that our customers can deal with CNH.

We also had finished good inventories up during the year, almost $1 billion.

This is largely due to the slowdown in demand in CE and partially due to the increases in [ag] inventory to deal with increased demand.

As I mentioned earlier, our months of supply in agriculture are in good shape and our CE is the area where we're most concerned.

Of the $1 billion increase, about half is in CE, finished goods; about 15% to 20% is in the agricultural finished goods and the rest is in parts, raw and in process and other areas.

But we're dealing with the issue and we'll talk more about that as we come to the outlook for 2009.

As we exit the year we have some very strong portfolios in the agricultural area.

The Case IH brand during the course of 2008 has refreshed almost its entire product line -- it's closed key gaps; it has an all new or upgraded product in virtually every segment of the market.

In Class 5 and 6 they launched a product that's very significantly upgraded.

The new Magnum line, starting at 165 hp, will be manufactured in Racine, Wisconsin and is receiving a very favorable reception.

And we've launched a new Puma with the CVT transmission.

We lead the market with many of our products and the brand is delighted with their position as they start 2009.

The New Holland brand is launching the new Boomer 8N tractor.

For those who are familiar with the new Holland Heritage, this does evoke and brings back memories for a lot of folks who have a farm background, and some who don't, because of its distinctive styling and it also has a brand-new and unique retro styling.

And as I commented on the new Holland Heritage, the New Holland brand is historically, through acquisition, has acquired a number of other brands.

The 8N itself was actually a Ford model that was very popular for a number of years.

Briefly just a comment on the construction side -- on the product portfolio there.

The Case skid steer is celebrating its 40th anniversary.

In 1969 Case launched the Uni-Loader and in 2009 we're celebrating its 40th anniversary and has just launched a 40th anniversary special.

Turning to CNH Capital, on page 15, you can see that we had solid results in CNH Capital for 2009.

We had good results or positive results in all of our geographic regions, our operations have managed to pass on the higher cost of funds in North America through rate increases on both retail and wholesale offerings.

I should clarify that the multiple sources of funding comment primarily applies to North America where our customers have access to credit both through CNH Capital and through its competitors.

Our portfolio performance during these very trying times has been very good.

Overall over 90-day delinquencies are about level with the prior year.

That is a mix of the agricultural receivable delinquencies being near record low levels while the North American construction receivables are trending unfavorably as the CE market has declined.

Our strategy in CNH Capital is to be very selective and maintain the product portfolio quality as we go through these market declines.

Wrapping up 2008, on page 16, just a couple of comments.

The increase in net sales of equipment was almost 16%.

Our equipment operations operating margins were 8.6%, up from last year even as we dealt with the difficult CE market.

The ag market was up strongly while the CE market was down.

We contributed to the bottom line by improving our tax rate and our diluted earnings per share at $3.59 were up 38%.

And as you can look at this chart, we've had significant year-over-year improvement for seven years.

Now, we're in a different environment.

The credit crisis, the financial turbulence that we've been seeing in the markets has only increased as we exited the year.

In order to deal with this market and particularly to deal with the turbulence in the financial markets we are working with CNH Capital to develop alternate sources of funds.

We are replacing the traditional market in which we rely, the ABS market, with bank funding in North America.

We have signed new credit facilities in Australia and Europe.

We've raised over $1 billion of funds in North America in the fourth quarter alone.

We have put in place some new and have existing asset-backed commercial paper facilities which continue to function well.

In order to deal with the slowdown in volume, and particularly the pronounced slowdown in the CE markets, we are instituting, or actually have instituted, but continue to reinforce and accelerate reductions in expense spending across all of our business and across all areas.

And within ongoing projects we are reprioritizing those to focus on those key projects that deliver the most clear and immediate return and to make ourselves -- we will continue to focus on items that make CNH easier to deal with.

We are reducing our capital expense.

Similarly to the expense control I talked about, we're focusing on key projects and on those limited areas where we see ongoing capacity constraints and where we have bottleneck issues that continue to -- where we will see near-term benefit.

And we are having to manage our inventory even more closely particularly in the construction and equipment area.

We will continue to have many of our plants idled for a significant period certainly in the first quarter.

And in the agricultural area, in the areas where we're seeing the most pronounced downturns, we have taken some downtime and have reduced line rates to maintain the inventories at appropriate levels.

Looking at the 2009 outlook.

We expect the cash commodity prices for grain will remain at levels above 2007 in that US net farm income will be at near record levels.

However, tight financial and credit conditions in many markets and adverse weather conditions in the Southern Hemisphere will cause contraction in the market in the first quarter.

We do expect high horse power tractors -- over 40 hp tractors to be down 10% to 15% and particularly pronounced declines in rest of world markets dealing with the credit issues causing unit sales of combines to be down 20% to 25% in the first quarter.

This contrasts sharply to the full-year view that tractors will be down 5% to 10% and combines 15% to 20%.

If you look at the Construction Equipment industry, we do and expect a very challenging first quarter, similar to the fourth quarter, with unit sales down 35% to 40%.

We expect the light market to be down about 45% with the heavy market down 25% to 30%.

Again this contrasts with our full-year view that light equipment will be down around 20% while the heavy equipment will be down 10% to 15%.

Now other comments concerning the near-term view, we are seeing significant improvement in material markets.

We will not see significant improvement in material costs in the first quarter.

As many of you commented or asked questions about in the second quarter, the fact that we are on FIFO accounting means that we saw the material costs come in later, but certainly in the first quarter we will be burning off some of that higher priced material before we see the bottom-line benefit of the lower costs that we are seeing in the commodity markets.

We will also be dealing with the impact of the lower line rates, but particularly the idle factories in the Construction Equipment industry as we absorb those fixed costs in the quarter.

We mentioned in the earnings release that we will be also looking at some higher cost of funds and, as we diversify our funding in this turbulent market, we would expect some tightening in the margins that we see at CNH's capital company.

Overall, again, just in conclusion, an excellent 2008.

We are planning and preparing for 2009.

We believe we're taking the appropriate steps.

We will be managing for cash.

We are reducing our inventory and that some of the steps and some of the actions I mentioned earlier will help us to significantly reduce our inventory as we go through the year.

And with that I will conclude my comments and turn it back over to Al.

Thank you, Rubin.

For the Q&A session we ask that everyone please limit themselves to one question and one follow-up at a time.

Jo, could you please retrieve the first question?

(Operator Instructions).

David Raso, ISI Group.

Good morning.

Regarding the guidance, if you can just give a little more specificity.

You note sales for the equipment company to be down 10% to 20%; can you give us some split between ag and construction, especially given the construction shutdowns you're planning for the first half of '09?

We're not giving a lot of guidance.

But if we looked at the ag and the CE split, I think you should look to see the earnings -- or the revenue, sorry, following fairly closely with the industry numbers in the Construction Equipment side.

On the ag side you'll see revenues being better than the unit volume declines of the industry primarily because the shifts are -- the most pronounced declines are in the under 40 and in some of those markets where there's a lower average unit price.

So I would say that the revenues in ag will not be down as much as the unit volume, CE you might see actually a little higher than in the unit volume decline just because of some mix issues.

But that will be as much guidance as I will give on that topic.

And on the profit profile for the divisions, given that the loss we had in construction in the fourth quarter was relatively sizable and it sounds like the shutdowns might be as severe in the first quarter and maybe even the second.

Is that business looking at continuing to be unprofitable the first half of the year and what's the thought for the full year on profitability?

We're not giving annual guidance on any of the industries and on profitability.

I would say that you should expect the first quarter to have some of the similar trends to what you saw in the fourth quarter.

I guess lastly (multiple speakers).

Right now the markets, they're just so volatile that we're just not -- we're loathe to get too specific on guidance.

How about this, price versus cost for '09?

I know you mentioned after the first quarter you might begin to see some cost relief.

But what is the thought on price versus cost, or at least compare price versus cost versus what you did in '08?

We believe that the price will continue to, certainly in the ag business, continue to be better than cost, particularly as we deal -- we start to see some of the relief from material costs as we go through the year.

On the Construction Equipment side, I'm not going to venture a comment on that right now.

It's just in a market down this pronounced price is under pressure and I wouldn't care to comment further.

I appreciate it.

Thank you very much.

Terry Darling, Goldman Sachs.

Thanks.

Rubin, I'm wondering if you could help us with that profile of production versus retail for Construction Equipment.

You talked in the press release about being 18% under retail in the fourth quarter.

Does it get more significant below retail as we move into the first half of the year or is that a run rate that seems reasonable -- as any guess at this point?

Yes, Terry, this is Harold Boyanovsky; let me take that one.

Overall if you look at both ag and CE businesses, we'll be under producing retail about 2%.

And that compares to in the first quarter of '08 we were in total overproducing about 25%.

So a significant adjustment on the ag side of the business, we will be overproducing retail about 11% as we build for the spring selling season and replenishing some of these high horsepower tractors and combines, particularly in North America where we have some inventory shortages.

But on the Construction Equipment side the production is planned right now to be down about 53% to retail, as Rubin had indicated.

Just to be clear, because I know (inaudible).

You're saying minus 2% overall for the Company -- 11% over retail in ag and minus 53% in CE and that's first half or first quarter or --?

First quarter, first quarter.

Okay.

And I got that right, you're still going to be producing over retail in ag in the first half of the year?

Yes, which is typical of the industry, Terry, as you know because we have to get the planting and seeding equipment out in the first quarter to be ready for spring seeding and planting as well as replenishing some of our high horsepower tractors, in particular four-wheel drives, Racine-based tractors where we have some short supply.

Okay.

And the over 11% in ag in the first half, do you have what the comp would have been there as you gave it to us for the full company?

Could you repeat that, Terry?

I think you were saying minus 2% for the total company in the first half and that's versus the first half of '08 of over 25%.

And I'm just trying to get those comps for ag and CE.

So you said over --.

Excuse me.

What I gave you was the first quarter and we'll, when we have a clearer view of the market and the retail globally, then we'll address appropriate production versus retail for the second quarter.

Okay.

But maybe just to be clear, the ag business you're going to continue to have good absorption -- kind of the bottom-line message from the over 11% comment for Q1 for ag?

Yes.

That's correct?

Okay.

And then restructuring expenses and benefits, the Fiat Group has talked about some numbers at the Group level.

I'm wondering if you can talk about what we ought to expect for at the CNH level and timing and payback.

Right now we're not talking about restructuring plans.

Certainly we are looking at various things to do within the Company to address the financial cost.

The restructurings announced by the Fiat Group are that -- in their fourth-quarter earnings release were not items that were recorded at CNH.

Okay.

And then, Rubin, I wonder if you can take us through the items in the '09 guidance that are fair game here.

I understand you're staying away from margins given the uncertainty, but tax rate, equity income, obviously there was a shortfall or a surprise negative there in the fourth quarter.

It can you help us with that?

Any of those below the line items that you can help us with would be helpful.

Just briefly, what I will say is on the tax rate, as I mentioned during the 2008 commentary, I believe the 33.7% that we recorded for the year is a more normalized and appropriate rate for CNH.

When I say normalized, obviously we've been running much higher than that for many years, but I expect to be in that range plus or minus a percent for 2009.

For equity earnings, given the volatility of the markets and the fact that much of our equity earnings come through JV's around the world in these markets that are being affected heavily by the credit crisis, at this point I wouldn't venture to change them from the '08 numbers.

I would comment that, to your point about the drop in Q4 of 2008, if you actually look historically, the anomaly was 2007 with the high number there rather than the low number in 2008.

Now 2008 fourth quarter was unusually low partly because of some of the CE ventures.

But the normal seasonal pattern has a fairly small number in the fourth quarter.

I think the 2008 numbers are more seasonally representative of what you should expect.

Okay.

And then on CNH Capital, there was a comment in the press release, Rubin, that was made that sort of referenced profitability at CNH Capital will be limited.

Do we take that as kind of a breakeven plus or minus type of thought process at this point knowing that there are a myriad of assumptions here that can swing that in either direction, but is that where you were trying to take that?

We are trying to take that and to say it's so volatile in the financial markets we would rather not put a specific number on that.

I do not expect a loss in financial services, but that's as far as we'll go.

Okay, that's helpful.

Thank you.

(Operator Instructions).

Mark Koznarek, Cleveland Research.

Good morning or good afternoon.

The one detail I was wondering if you could clarify is the capital spending reduction.

Certainly.

What we have said, we have previously announced that we were expanding capacity and investing in a number of things.

As the market has slowed down, we were cutting back on that.

Now we've not given specific guidance on 2009 capital spending, but at this point I would venture that it will be below the 2008 level.

Okay.

Yes, I think we would have assumed that.

Will it be a 50% reduction or is it something that is a nominal cut based on the [bendum] of prior projects?

Based on the project backlog and the, if you will, the orders outstanding for product or for equipment right now, it will not be cut in half.

It will be a more nominal reduction.

Okay.

Then on the finance operations, would you be able to review the trends as they unfolded during the year in delinquencies and loss experience, particularly in the Construction Equipment side of the business?

Pardon me, just one second.

I'm taking a look there.

Let me start with the -- just briefly, we look at obviously various metrics there, over 30, over 90, loss ratios as a percentage of portfolio and whatnot.

But the most basic measure looking at just over 30 days the ag portfolio has continued to be well under 3% across the -- actually it started the year -- well, it started actually -- it's continued to be underneath that and stayed underneath that the whole year.

As you look at CE during the course of the year using that same metric, it's moved in the call it the 8-ish range of up to about -- well, less than 12 in aggregate.

So it began the year around 8% and now is in 11% to 12% range?

Generally in that range.

And then, in your past experience, for instance the downturn in the -- earlier in the decade, how severe did these over 30-day metrics get for both of these (multiple speakers)?

If you look at 2000 -- going back into say 2003 ag, which was not in that -- particularly that downturn, was in the 5% to 6% or let's call it 3% to 5% range.

CE got up to about 12%.

Okay.

(multiple speakers) -- go ahead.

That was the end of my question.

Thank you.

All right.

Ann Duignan, JPMorgan.

Good morning, guys.

Herald, can you talk about -- a little bit about your commitment to Fiat in terms of your operating margin commitment both on a GAAP and IFRS perspective?

And I think what you're saying right now is that there's probably no way that you're going to meet those commitments.

Can you talk about -- you're not giving us guidance, but what is your commitment to Fiat for 2009?

And then has there been any discussion about your future within Fiat given its new direction or potential direction with Chrysler?

Those are good questions, Ann; thank you.

I think that relative to Fiat those should be asked directly of the Fiat management team.

But I can assure you that from an importance in contribution to the Group the commitment that Fiat has to CNH and CNH's continuing improvement in performance is unchanged.

But you're not going to meet the goals that you have -- have been set for you with Fiat?

It depends -- a lot depends upon where the industries and the markets go.

We have not taken our sights off of our 2010 targets.

But a lot depends upon how the market returns to some sense of normality around the globe.

Okay.

In that line of thought then, can you talk about how specifically you will lower your inventory?

Given how drastically the Construction Equipment industry has fallen and where you're sitting right now in terms of days on hand, how specifically -- I know you're shutting down factories, but there's basically no demand out there.

How specifically are you going to reduce those inventories?

Does it have to be through pricing?

Does it have to be through some kind of an incentive scheme whether it's financing or pricing to dealers?

How do you incentivize those dealers to take equipment right now?

Yes, first off we're not trying to park any iron on the dealer lots.

Our first line of defense is looking at the forecasted retail of the brands and making sure that we are under producing to the retail as indicated earlier.

In the first quarter it will be significant 53% as I indicated.

And that compared, so you just get a sensitivity year over year, Ann, to an increase of production over retail in the first quarter of '08 of 19%.

You take those two, that's 72%.

So very significant actions to curtail the supply side.

Secondly, we're following the aging of the inventory very closely with all the brands in all the regions and we're putting special emphasis to relocate, move, sell, assist in the sale of those units to get the over aged inventory out.

But one thing that we're committed to do and that is not park iron on our dealer or distributor lots.

Okay.

And one final just quick follow-up on that.

I'm out here in farmland with about 600 farmers and one of the topics that came up last night was cancellation of orders in agriculture.

Are you seeing any cancellations out there in the agricultural space in terms of equipment that might have been made and farmers backing away?

No, there's no question that on the new order side there's a lot of discussion this winter around the coffee tables in the markets.

But we haven't seen any significant cancellation or request for cancellation of orders.

Clearly the grow crop -- corn/bean farmers in particular, have had an outstanding year in looking at the current futures prices and their cost to production.

They're still profitable in a double digit way.

And even if the net income comes in at $80 billion plus, $80.2 billion I think is the last forecast which is down a little over 7% from last year, it's still the fourth highest year on record.

And you compare that to a 10-year average of $61 billion, there are farmers out there that are going to make some money.

Now on the other side of the coin, if we look at the dairy milk prices, there's clearly -- with the current milk prices there's going to be pressure on those operators even though their input costs are coming down a little bit.

But we have not seen any softening of the order board.

In fact, in North America our combine order board is up over last year as we look at it at the current level.

The large four-wheel-drive production is equal to the order board we had last year and we still have strong orders for our Magnum sized tractors at Racing.

So where there's softening it's those markets, those products, Ann, that are associated more with the hobby farmer, consumer spending and we're seeing softening in that area, as Rubin indicated earlier.

But not in our big cash grain areas.

Okay, thank you.

I'll get back in queue and take my other questions off-line.

I appreciate it.

Thanks.

Ann, just one other comment.

This is Rubin.

As you think about the effectiveness of the plant closures or the idlings to reduce the inventory and particularly as we started the year they'll be more effective than they were in the fourth quarter because of the longer lead time we had in these closures and therefore you don't also have the inbound materials.

So you have the underproduction, what you did in the fourth quarter, but the same underproduction or more in the first quarter but you won't have the inbound material pressure because you already have long lead-time commitments to suppliers.

So we expect that to be more effective in the first half of '09.

(Operator Instructions).

Terry Darling, Goldman Sachs.

Rubin.

I'm wondering if you can have a little discussion with us here in terms of the FX impact on profit in 2008 and any thoughts in terms of 2009.

Obviously the revenue impact will be negative, I assume that's not in the down 10% to down 20%.

When you look at your unit sales that's the obvious translation.

But I wonder if you'd just talk about 2009 versus 2008 impact on profit, any special items that maybe hit '08 that maybe don't hit '09 and the like?

First of all, the comparison in some key markets will be unfavorable in the first half.

The Brazilian reais, for example, obviously significantly weakened during the year; that's an area where we will see some -- both translation impacts and transaction as they import material from other markets.

It has not been a huge export base for us, but of course, as we look at the new currency environment we'll start to shift some of the flows of currency.

The other thing to think of as we look at it, the yen is a source of product for us both in the Construction Equipment and in the agricultural side.

That has continued to move very -- it's a very strong currency.

And those -- that higher yen will be unfavorable for us, it was unfavorable in '08, it will continue to be in '09 because it has moved during the course of the year.

Some of the other moves, of course, we have production around the world.

The euro/dollar is the single most important mix for us and we have some balance in [flows] and some where we're out of balance.

Right now, of course, a strong dollar is very unfavorable for us in translation.

And it has some unfavorability for us as well because of a supply base that has some heavy concentration, some key suppliers for machine components in Europe.

The other currency that's key -- so that will be -- I'm not going to say whether it's going to be favorable or unfavorable just because I'm not sure which direction the dollar is going right now.

We seem to be spending a fair amount of money at the US level that could have some impact, but who knows where that's going to go.

The other currency that's important for us particularly too is the sterling.

And a weak sterling overall should benefit over time because we have primarily value add there.

We take product from Europe into -- or components into the UK so we have unfavorable input cost, but when we ship it back to the continent of the US, if you have a weak sterling that will be favorable for us.

So on an all-in basis '09 versus '08 profit impact, including special items, hedges and so forth, you're not in a position here to help with whether that's a headwind or a tailwind here?

It's a headwind.

Okay.

And can you remind us what the '08 impact in total was?

Do you have that number handy?

The '08 number --?

Just on operating income?

On an operating income level it was about $200 million --- between $150 million and $200 million.

Okay.

And then pension for 2009, any thoughts for us there?

Yes, pension costs for 2009 will probably be unfavorable in the $80 million to $90 million range.

And that's P&L impact or you're talking about cash flow impact there?

I'm talking P&L impact there.

Cash flow impact would be unfavorable as well, of course.

Do you have a number there for us?

About 120.

Okay.

And in terms of working capital, it typically builds in the first quarter, but I guess I'm taking your response to an earlier question as just perhaps the -- it won't be as dramatic a seasonal build in the first quarter as is normal, is that the right translation?

That's absolutely the correct translation of Harold's comments.

But it will still be a use of cash?

It will probably be a use of cash, but certainly not the normal seasonal pattern.

Okay.

Last question if I could.

Harold, I wonder if you could just -- from a longer-term strategic perspective give us any updated thoughts you might be having with regards to the Construction Equipment business, just probably more your thoughts on the whole industry than CNH.

If we look at the profitability of the business, 8.7% margins at the peak, we're at losses now.

I don't think that's a significantly different profile for the industry as a whole.

It's probably actually a bit better, which begs the question on consolidation and that brings us back to it's tough to do because of all the dealer issues and so forth.

But I mean, at some point it just seems to be the forces of nature have got to come together and drive some change in the industry dynamic.

I wonder if you can update us as to whether you're more optimistic that we might see some of that here given the downturn pressures.

That's probably a half a day discussion, Terry.

I don't think we have that long.

But again, having said that, one of the benefits that I have of spending the time that I have in these two great businesses is over a period of time there is a countercyclical factor.

So when the ag business was down before the last run up the past several years, CE business moved from an unprofitable business to making a significant contribution to our company, as well as the associated parts and service business that goes with the park of machinery that we have.

But through this cycle my personal opinion, I don't see much change in the key players in this industry, they have a game plan, they're going to move forward and adjust to the industry cycle.

If there is room for opportunities or consolidation I think it's still in some of the regional players.

Okay, thanks and good luck.

You're welcome.

Mark Koznarek, Cleveland Research.

Thanks for taking this follow-up.

In the past you have commented on agricultural equipment not only over and under 40 hp, but sometimes you'll talk about over 100 hp categories.

And I'm wondering if you could give us your thoughts on that category across the regions for the year and for the first quarter?

I think in general if you look, Mark, at 140 plus large four-wheel drives, I think you're still going to find strength for sure for the first quarter and going into the spring planting season.

If you look at I'll say under 100 hp, this is where you're going to find, as we indicated, some softening, particularly in the under 60, which is, as I indicated, associated with those hobby farmers or twilight farmers with all farm income that are more consumer related.

(multiple speakers) North American -- North American comments here or is this a global comment?

No, it's a global comment.

But for sure the under 40 is a North American comment because, as you know, that's where the predominant marketplace is.

Right.

Okay, thanks.

As we have no further questions I'd now like to turn the call back over to you, Mr.

Trefts, for any additional or closing remarks.

Thank you, Jo.

Thank you, everyone, for participating with us on the call today.

And if you have any questions after the call, please don't hesitate to give me a call.

Have a good day.

Goodbye.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.