CNH Industrial NV (CNHI) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to today's CNH Global quarter one 2010 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.

Gerry Spahn.

Please go ahead, sir.

Thank you very much.

I'd like to welcome everybody to the CNH first quarter financial results annual conference call.

Today we have with us Harold Boyanovsky, our CEO; Rich Tobin, our CFO; and Marco Casalino, our Treasurer.

Before we get to the presentation I just am required to read you our forward-looking statement Safe Harbor.

This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements other than the statements of historical fact contained in this press release, including statements regarding our competitive strengths, business strategy, future financial position, operating results, budgets, projected costs and plans and objectives of management are forward-looking statements and these statements may include terminology such as will, expect, could, should, intend, estimate, anticipate, believe, outlook, continue, remain, on track, goal or similar terminology.

Our outlook is predominantly based on our interpretation of what we consider key economic assumptions and involve risks and uncertainties that could cause actual results to differ.

Crop production, commodity prices are strongly affected by weather and could fluctuate significantly.

Housing starts and other construction activity are sensitive to the availability of credit and interest rates and government spending.

Some other significant factors which may impact our results include general economic and capital market conditions.

The cyclical nature of our business, customer buying patterns and preferences, foreign currency exchange rates, movements or hedging practices, and our customers' access to credit.

Actions taken by rating agencies concerning the ratings of our debt securities and the asset backed securities, and the ratings of the SBA risk related to our relationship.

Gerry, why don't you just call the audience's attention to page three in the discussion concerning forward-looking statements and then we can move on.

All right.

We'll do that.

And please read the forward-looking statement Safe Harbor.

We will have a presentation today followed by Q&A.

Before we begin the presentation I'd like to turn the call over to Harold Boyanovsky, our CEO.

Harold?

Thank you and good day, everybody.

Before we turn the conference over to Rich Tobin, we have with us in the room, Steve Bierman who on our last earnings release call was acting CFO.

And so I just wanted to personally thank Steve for the effort and the job that he did when he was wearing two hats and just let everybody know that he's back fully engaged as the President of CNH Capital, supporting our industrial business and sales.

Thanks, Steve.

Rich, over to you.

Thank you, Harold.

Before we start getting into the meat of the presentation, I understand that there was a lot of news flow today in relation to the Fiat Group.

Harold made a presentation today on the five year plan and there was some discussion by the CEO of the Fiat Group, Sergio Marchionne about a de-merger within the group of the various different entities.

We're not going to be really answering any questions today on the technical aspects of the de-merger and we would call your attention to the Fiat Group website where you can see where CNH falls within the proposed new structure.

So with that note, let's move on to slide four, please.

The group highlights, net sales of $3.2 billion for the quarter, up 6%, negative 2% on a constant currency basis.

You see on a reported basis Agricultural Equipment up 2%, Construction Equipment coming off a very low base of a difficult 2009 of 27%.

Equipment operations, operating profit increase of $105 million, compared to Q1 2009 at a 310 basis point operating margin increase to 4.4%.

Equipment operations net cash position increased by $226 million to $756 million, and net income before restructuring and exceptional items of $38 million which is a diluted EPS at that same convention of $0.16 a share.

Just to be clear, it's in the notes in the disclosure, but the exceptional items are the $20 million in the tax line, as a result of the change in legislation on post retirement benefits or the so-called Part D and $2 million of restructuring.

Next slide.

Most of this is gone over.

There again, you see the change in net sales, equipment operations, operating profit.

You see the change in financial services net income, $25 million of which is the change due to the GAAP standard 166, 167, and $16 million just as general volume and improvement in spreads.

Net income of $38 million versus negative $125 million in the previous quarter.

And again, the $0.16 a share.

In terms of the Q to Q performance, I call your attention -- this gives you a look back to 2006 on a geographical basis of the revenues of the CNH group.

And you can look at the developments between 2008 and 2009 and the difficulties in certain markets, especially in the construction sector.

And you can see graphically the movement from 2009 to 2010 where it clearly shows that certain markets still remained, at least in terms of a growth point of view, weak, and then certain markets, especially emerging markets or the CNH convention and rest of the world and Latin America that produced predominantly all of the revenue growth year-over-year, sequential revenue growth year-over-year.

Next.

This is the same graph using the same convention in terms of time between 2006 and 2010, between sales and operating profit.

You can see that the bulk of the operating profit change year-over-year is on the ag side which did not suffer nearly as much as the construction side in 2009.

The CE equipment ops still is in a loss position but we've narrowed that position down to a loss of $36 million for the quarter.

The real key to moving that up above breakeven is moving into the production cycle.

A significant portion of CNH's capacity is still curtailed presently so depending on how the markets move over the year, we can talk about what our guidance is in terms of the construction market in terms of unit volume going over the balance of the year.

But depending on how that progresses and depending on how we progress with the continued liquidation of prior year inventory and preparation for the tier 4 production is really going to be the big swing factor in terms of moving the operating profit of the Construction Equipment business going forward.

Next slide, please.

What you have in the next slide is the devolution of the operating profit of the first quarter.

Starting on the left side and going to the right side, you've got a negative in terms of volume in mix, $38 million.

Net pricing of $45 million.

And to be clear, that is both the pricing on the commercial point of view, so externally, it's the retail sector, plus the pricing of input costs in terms of purchased goods.

So to clear the issue up, we are negative in terms of commercial pricing on a quarter to quarter basis and we can talk about where that is and what markets are competitive and not competitive.

But most of that is as a result of the continuation of the liquidation of the construction equipment that we have, the network and incentivizing the movement of that base.

If you look to the right, you see production costs of $20 million and SG&A at $6 million.

If you just add those two together, the bulk of that is the flow-through of the restructuring charge taken in the prior year, so you're seeing the benefit of the reduced base of cost.

And then an other of $75 million, that's a combination of translation, but the bulk of the benefit year-over-year is the positive transaction effect on currency of purchasing whole goods on an inter-company basis, between the network.

Next slide.

This is equipment operations, change in net debt.

So the movement into the net cash position.

To cut the story short, net working capital performance in Q1was quite good, considering the amount of cash that was generated in Q4 by CNH.

You have a build-up or the beginning of a build-up in terms of inventory, predominantly agricultural equipment right now and you've got the counter benefit of the changes on the AP side which is basically the startup of production capacity on the ag side.

So you have a net movement of working capital, $50 million.

I think it's very important to know and we can talk, we're not going to forecast a net working capital movement position for the entire year but considering the liquidation of inventory in 2009, considering the state of the markets, one would expect in 2010 for net working capital to move in a more traditional way and follow sales growth.

If you look down to the far right at $231 million on other, the biggest part of that movement was the sale of an equity position from the equipment operations to the capital operations, which was, I believe, $150 million of the $231 million.

Next, please.

This is really the numerical explanation of what I just gave you in terms of the block, so you can see the movement, you can see the $53 million in terms of the working capital because of the receivables moving up, predominantly in the areas of the world where sales were moving up briskly.

Balance, I think we covered.

Next.

We're looking at now Company inventory, dealer inventory, CNH produced retails and CNH productions.

You can see that production on the ag side is moving up above retails, in preparation of what we believe the market's going to look like going forward.

I think we can take some more detailed questions on that, where that's going on right now, but principally the change is based on rest of world demand, Brazil and Latin America and an amount of high horsepower tractors in the United States.

There's still, if you move to the right slide, we are still under-producing retail on the Construction Equipment side.

We have positioned the Company to prepare to increase production over the balance of the year, depending on how the markets move.

I think we can discuss that more on a geographical basis but clearly we are still in a position of focusing on liquidating our older finished goods inventory on the Construction Equipment side.

Right now, I think we can pretty much expect for that bar to collapse a little based on what our plans are in Latin America, increasing production capacity.

Next, please.

In terms of capital, just some general comments.

I think it's probably well-known through the market because of the fact that we have to pretty much release every time we do one of these transactions, but the funding position or the capital markets I think is probably a better way to say it, continues to improve vis-a-vis the state it was in in 2009.

The capital group closed two large transactions during the quarter and one subsequent transaction, I believe, in Australia right after the quarter was closed.

In terms of, I mentioned this earlier, of what the balance sheet at CNH looks like now, on an FAS 166, 167, you see the balance sheet movement of $5.7 million(sic-see presentation slides) of the assets that were held in VIEs or depending on the vernacular you want to use in terms of the special purpose vehicles that are now on the balance sheet.

We've already talked about what that means in terms of the profit year-over-year but I think that that was pretty much guided at the closing of 2009 by the group of what that impact was going to be.

The risk environment is stabilizing overall.

Clearly, the risk in Brazil is not getting worse and is getting marginally better.

That's really one of the big focus areas.

That, and the credit quality in Eastern Europe and Western Europe because of the fact that the growth is a little bit behind what we see in some of the North American market.

Next, please.

I'm not going to go through each individual one of these in terms of what we see going in the market and how CNH has performed vis-a-vis what's happened.

I think these are pretty common slides that CNH has used over the years in terms of its performance relative to the market.

But I think that we can make some general comments and then deal with the rest of it in the Q&A session.

I think that the performance, the group, in terms of share on the tractor segment was slightly disappointing.

I think it's explainable in two particular issues on low horsepower tractors.

One in North America, in terms of liquidating an inventory of a product that was not positioned appropriately.

And on the Brazil side, quite frankly, I think that the group was a little bit hesitant of forecasting a buoyant market and missed it in terms of inventory to a certain extent.

I don't think that either one is damaging.

Clearly, the one, if we execute correctly in terms of changing the structure of our low horsepower offering in North America is actually generating year-over-year profit for us, on a quarter to quarter basis.

Get that right in terms of what our sourcing strategy is, and in terms of what's going to be offered in that product line, I think that we can make that share back.

I think the combine, if you look at the performance on the combine side, clearly a very good performance relative to the market.

So I think that while we can be somewhat hard on ourselves in terms of missing on the tractor side in Brazil, clearly we had the product available in Latin America and configured appropriately in terms of the combines, we were allowed to gain market share in relatively a flattish market.

I mentioned earlier in terms of production plans going from what we can see over the next three quarters, presently there's an amount of inventory build going up.

We would expect it to increase that marginally as our backlogs build, but right now we have plans in place and have started in terms of inventory build and high horsepower tractors for the North American market and across the board for Latin America.

Go back one, sorry.

There we go.

If you look to the right of the slide, briefly on the Construction Equipment, a good performance in terms of the heavy, and really that is just a function of having the available product to sell in the market, because despite pricing in the sector being prohibitive in some markets, capacity is somewhat tight because of all the production that has been curtailed.

So the group itself had standing inventory and we're trying to maximize the profitability of that inventory as we sell into the market.

I think that Harold, if you listen to the call today, talked quite a bit about in terms of what's going on in product entries, especially in the skid steer side into the future, so a decent performance in terms of a still a very difficult market in terms of construction equipment.

Next, please.

These are some common slides in terms of the macro drivers that underpin what we're saying we believe is going to happen in terms of demand for capital equipment in the agricultural sector.

So what you see is some of the common IHS data in terms of what we believe is going to be happening for some of the cash crops, so-to-speak, but I think that we can cover that some more when we're talking about the forecast going forward.

Next, please.

Same thing in the CE side has been addressed by CNH in the past, of looking at GDP and looking and using a proxy of 2.5% GDP growth being proactive to the construction market and construction equipment.

So we're following that and that's basically the underlying data in terms of the business going forward, but clearly at least as far as 2010 is concerned, we expect Asia to remain strong.

Latin America looks like it's going to be stronger than we initially expected.

The real question mark right now is the performance of Europe over the balance of the year.

CNH is taking a relatively benign look that it's not going to improve over the balance of the year.

Next, please.

I've touched on some of the drivers behind it so we won't really go through it.

I'll just say again, in terms of the ag market, demand is strong in Latin America and a softening in terms of total units over the balance of the year.

I think the mix is going to be the key and a weak economy in Western Europe really is the swing factor for the balance of the year.

It's very difficult to tell whether that market will trade sideways or improve over the balance of the year.

And worldwide industry demand for light and heavy equipment has been upgraded to 15% to 20%.

Next, please.

So in conclusion, today's message, I think it's fair to say that in terms of its performance, in terms of share, I think there's been some disappointments, some areas where the performance has been quite good.

I think in terms of the cost side, the group has performed on what it said it was going to do in 2008 in terms of the realization of prior period restructuring actions.

The outlook for CE is to cut the Q1 loss on better production volume in the second half.

As you know, that's pretty much an absorption issue and we can talk about where we stand in terms of capacity utilization over the balance of the year.

We will continue to treat this market as somewhat of an unknown.

It is improving, clearly off of 2009.

What the level of improvement is going to be is still an open question, so there's no real strategic, this market's going to take off and let's start ramping up inventory on a global scale.

I think the intent right now is to be selective by product line and by region based on what we see in backlog in demand.

I think that's the entire deck and we can open up for questions, Gerry.

Thanks, Rich.

Before you get prompted for your Q&A, I'd just like to ask you because of audio issue if you could state your name, tell me where you're from and then put all your questions in up-front.

We've got a few people in line.

Dario, you want to prompt them for questions and then we'll move to the first questioner.

(Operator Instructions).

Our first question comes from Ann Duignan from JPMorgan.

Please go ahead.

Hi, guys.

I guess I don't need to repeat my name and where I'm from.

My questions are the following.

Number one, if you could talk about breakeven in Construction Equipment.

What kind of volume would you need, what kind of revenues would you need in order to break even in that business?

Secondly, if you would talk about pricing regionally, because obviously in the press release I've never seen such a plethora of references to competitive pricing, just ran out of new words to call it, whether it was competitive on one page or heightened in another, so if you could talk about what's going on in the pricing environment, both regionally and by business.

Thirdly, help us understand how tractors in Latin America could be up 29% and you underperformed, versus combines up 65% and you outperformed.

Either combines have done a bad job of forecasting last year or I just don't understand how you could have gained share with a market that's up 65%, and underperformed in a market that's up 29%.

So those are my questions.

Ann, Harold.

Let me take the last one for sure.

You're absolutely right.

As you know, a lot of the mid-range tractor sales in Brazil have been driven by the state and federal social plans, and those tractors are purchased by the government and then redistributed, if you may, to the small family farmers or the small farmers.

Two things happened.

One, we under estimated the growth.

There was some discussion about termination of the plan, would it be extended, and as a result of that on the tractor side, clearly the commercial organization missed the industry sales.

But I think it's a quarterly thing.

I don't see it as an issue for the full year relative to Brazil.

But we just missed the industry forecast.

On the pricing side, Rich commented about the continued liquidation of Construction Equipment inventory, particularly in the heavy side of the equipment.

There seems to be more competitive pressures in that area, and across the board in Europe as the market has not given us any real signs of recovery at this point in time.

When you talk about liquidation, are you the price leader in order to reduce inventories or are you being forced to follow other competitors in pricing actions?

And then on your net pricing, can you talk about how much was pricing negative totally?

Okay.

I'll take the next one.

Let's deal with the second question first and I'll come back and get.

Negative $5 million on the retail side in terms of pricing, total.

The bulk of that swing, as Harold just went over again, on the Construction Equipment side.

In terms of price leadership, clearly based on the market position of CNH, we would consider ourselves a price leader.

But the fact of the matter is, by segment, by geography, there's an amount of opportunism.

We would defend share if we think it's financially viable and we will lead with price when we think their markets are tight.

I think from an overall macro perspective we consider ourselves on the ag side to be a price leader, somewhat of a follower on the construction equipment side, at least in products other than backhoe.

The other question that you asked before was on the CE side and what kind of revenue would be required to break even.

I think it's a little bit more complicated than that because really the swing factor on CE is going to be absorption at the plant level.

Then it's a matter of predicting where that revenue takes place.

Clearly, the one thing that would help the most at this point would be some sign of a pick-up in Western Europe in terms of unit demand on the construction equipment side which would allow us to load facilities that have been down for quite some time.

So you foresee a continuation of under production in CE total then, just because of the dynamics in Europe.

Is that the way I should think about it?

Gerry, I'm sorry, we couldn't hear that one.

You want to repeat, Ann?

Sure, sure.

I'm just trying to understand from a modeling standpoint, then we should anticipate that you would under produce in Construction Equipment on a total basis, for at least another couple of quarters, is that the way we should interpret it?

Did you get that, Rich?

I think so.

At least one, probably two we'll under produce unless a market turns in terms of unit demand; that's correct.

Okay.

I'll get back in line because I've asked a lot of questions.

Thanks.

Our next question comes from Jerry Revich of Goldman Sachs.

Please go ahead.

Good afternoon and good evening.

Can you talk about the cost cutting opportunities you're targeting for 2011, what proportion will be in Construction Equipment versus Ag.

Harold, I believe you've outlined some common platforms.

I'm wondering what contribution you expect from those efforts, other material cost reduction efforts, and any incremental reorganization.

Thank you.

On the Construction Equipment side, we have major product development programs underway to renew our skid steer loader line for our brands, as well as bringing on-stream a new loader backhoe that will really drive the performance and also the profitability, because we'll be able to offer the customers best-in-class features and it will also be at a cost that will improve our margin.

Those will come on-stream end of fourth quarter and early in 2011.

But to your question about the CE business, and I think this is where Ann was also interested, at the end of the day on the volumes that we have and the restructuring actions that we've taken, we're positioning the CE business to be profitable going into 2011.

Okay.

Thank you, Harold.

And so it sounds like the answer is a big chunk of improvement from here is on the product redesign side and material cost reduction side, versus more restructuring.

Is that fair?

Yes, the restructuring of the commercial organization is in place.

Year-over-year, you see more benefit, you'll see more benefit in the first and second quarter as year-over-year comparisons and less in the third or fourth, because, as you recall, we executed that operation in the second half of 2009.

And Harold, in your 2011 margin outlook, can you talk about what kind of raw material cost assumptions you have in there?

And you pointed out pricing's pretty challenging here.

What are your assumptions for price moving forward and how's the change in emission standards in US and Europe going to impact that dynamic as well?

Thank you.

The easiest one to answer is the Tier 4 emissions standards and cost.

We're planning on recovering the cost increase of the new Tier 4 engines.

And its not just passing the cost on to the customers.

We're going to launch product with added features, added horsepower, and also more fuel savings than we have in today's Tier 3 engines.

So we plan on fully recovering any incremental cost, if you may, in the Tier 4, plus repositioning some of the products as we reconfigure the horsepower on the tractors, as an example.

And Harold, the raw materials and pure pricing part of that question?

Yes, raw materials, one of the real advantages we have, or one of many, I should say, of being part of the Fiat Group, is the leverage of purchasing across all sectors.

And so for the most part, the steel impact, we're covered by contracts and you won't see a lot of impact to us in the second quarter.

But we do see some headwinds in the third, fourth quarter and we're now reviewing this with our brands in each region, to look at what the anticipated costs will be and what we can do commercially to offset those costs.

Thank you.

Our next question comes from Matt Vittorioso from Barclays Capital.

Please go ahead.

Good afternoon.

First , understanding that you don't want to get into specifics, I was wondering if you could just comment broadly, as a bond holder, looking at this transaction in front of us or the spinoff, should I expect the CNH credit profile to change materially, specifically in the net

It's hard to say right now.

I think that what was stated today in the presentation about the proposed de-merger was that the debt that resides with the various entities is the responsibility for those particular entities to service.

Whether or not that puts us in a better or worse credit condition I think is far too early to make a statement on that.

But in terms of our ability to service the debt that is currently on the balance sheet of CNH, I think it changes nothing and I find it difficult to believe it would make the situation worse.

Okay.

That's helpful.

And maybe this is too early to get into, but would you envision in the new entity there being a parent entity that issues its own debt, structurally subordinated to that of CNH or is that too early to forecast.

As I said at the beginning of the presentation, I apologize but I think it's just too early to speculate in terms of capital structure on the de-merger.

Lastly for me then would just be I think in your 10-K or 6-K for the end of '09 you had commented that CapEx in 2010 could approach $400 million.

CapEx looked a bit light here in the first quarter.

Should we expect that to ramp up or do you have any updated views on CapEx?

Right now I think that $400 million would be the upper end, and that would be from a committed capital basis, not on a cash basis.

I think from a cash side, that the estimate right now is $300 million, $320 million maximum on the cash side.

Okay.

Thank you.

Our next question comes from Mark Koznarek from Cleveland Research.

Please go ahead.

Hi.

Good afternoon.

First of all, just some minor details.

The tax rate that we should expect for the year on the equipment operations, and then a reasonable target for the financial services part of the business.

Could you repeat the first part of the question?

Yes.

I'm looking for a tax rate guidance on the equipment operations.

Cash flow estimate for the full year.

We're having difficulty hearing you here.

So a tax rate for the group itself.

I guess this has been the subject of some debate over a period of time in CNH.

Since you asked the question about tax I'm probably going to give you a longer answer that you'd like.

Right now our estimate for the tax rate for the group is between $130 million to an upper end of $150 million for the year.

That is not inclusive of the $20 million of the charge that we took for the change in legislation for Part D.

Now we're working on a variety of different things that can reduce that tax rate over the year but it's really too early to tell because of the fact it's coupled with us moving some of our predominantly European operations that are not benefiting from the losses any longer.

So they're just not getting any benefit.

That was $27 million in Q1 and the estimate that I've given you is that that situation does not resolve itself in 2010.

Which makes giving a net income guidance for the full year and a translation to EPS extremely difficult because of the impact of the tax line itself.

So like I said, the number that we can give now is $130 million to $150 million.

I think it's probably reasonable to say $130 million is probably a far better bet.

And we can do materially better than that, depending on some things going our way, working with different tax authorities and depending on our ability to move some of those operations in Europe into a profit position.

Okay.

Then an outlook for the finance business.

Okay.

The question was an outlook for the finance business.

Can you specify a little in terms of what?

The net profit or other marker?

Yes, looking for the contribution of the finance subsidiary to the equipment operations net income.

The $50 million that you're referring to that you see in Q1?

Yes.

Is that ratable through the remaining quarters?

That's a reasonable performance over the balance of the year, correct.

Reflection of the quarterly performance for the balance of the year.

Great.

Thank you.

Could you discuss the 2010 revenue outlook for Ag Equipment that was discussed in the CNH strategic presentation.

It seems surprisingly light, up only 1% this year.

My comment was that we expected revenue to be up in the area of 5%, and the trading margin in the range of 4.4% to 5.2%.

Okay.

Thank you.

Our next question comes from Bob Franklin from Prudential Financial.

Please go ahead.

Hi.

Could you just clarify something on slide eight?

Actually, two things on slide eight.

I didn't understand your comments about the $45 million you got out of net pricing and the $75 million out of the other.

Did you catch that, Rich?

The question's on slide eight.

You understood it or you did not understand it?

I did not understand your comments on those two boxes.

Okay.

I apologize, we can barely hear you.

But I understand you just want me to repeat what the commentary around those two boxes are.

Hopefully if you say the same thing I'll get it this time.

But I may not.

I'll try to remember.

So the net pricing is a combination of the pricing of the finished good, plus or minus the pricing on the input cost, the purchased material, in making up that good.

Deconstructing that line, the $50 million is the benefit from positive purchase variance.

We have a negative of $5 million on the commercial side.

The bulk of the negative $5 million, the swing, is due to the liquidation of the construction equipment inventory.

On the $45 million, are you talking about passing through higher prices, higher cost pass-throughs or was it something else?

No, we have negative pricing for the finished goods equipment and positive performance in terms of the component cost.

So you're buying better, is what you're saying.

That's correct.

We're buying better and then the actual sale of the parts itself are doing better.

Got it.

All right.

Then the $75 million?

Of the $75 million, $50 million of the $75 million is FX on transaction costs of whole goods going through the CNH network.

So combines being sold, European manufacturing base to Australia, for example.

Got it.

All right, that's $50 million.

And the other $25 million?

It's a variety of other.

Cost of quality contributes, which is a positive of $13 million, and then a variety of small immaterial numbers that add up to $10 million to $15 million.

Okay.

And one other question.

You mentioned when you were going through the slides the purchasing leverage that you have as part of the Fiat Group, which opens the question, if you're not going to be part of Fiat, how does that affect your purchasing leverage?

I think in the structure that was explained by Mr.

Marchionne, one of the key comments that he made was we wanted to continue to leverage the benefits that we were getting across the group, even though there may be a new structure.

So I am not anticipating any change in the leverage that we get from Fiat Group purchasing because we're working together on common commodities across the sectors, single point negotiation and any benefits accrued from that are associated with the volume associated with the component or the piece part.

Okay.

Thank you.

I think we just have one last question.

I think we know who it is.

Do you want to introduce her.

Our next question is from Ann Duignan from JPMorgan.

Thanks.

I just had a couple of quick follow-ups.

One is just for clarification, the new organization Fiat Industrial will comprise CNH, Iveco, and does the Fiat Powertrain Group go in there too or any part of it, or is that going to remain with Fiat Automotive?

My understanding, Iveco is a portion of Powertrain and CNH but for clarity's sake, you may have missed it at the beginning of the presentation, we refer you to Fiat's website where Mr.

Marchionne presentation with the proposed organizational structure is completely laid out.

We had difficulty finding that.

And then my second question is just maybe an update on your joint venture in Russia with KAMAZ.

Can you give us some color on when you might expect that to really start to pick up and when it might be material to revenues?

We're now starting to do some SKD activity on tractors and combines, so we'll start to see some benefit of that in the third and fourth quarter.

But as one of the comments, Ann, that I made during my presentation is that before the collapse, the market yield is $750 million in revenue, and we intend to move back a minimum to that level at a lower cost base, now that we're considered a local manufacturer, not only in Russia but once we get established we'll expand to the other states.

Okay.

I'll leave it at that, given the reception.

So thank you.

We're going to extend one more last call, Larry popped on.

So operator?

Our next question comes from Larry De Maria from Sterne Agee.

As relates to the de-merger, it looks like CNH will be relatively unaffected, at least initially.

Can you just let us know, are there any operational impacts to the Company?

And why not?

Is there any debate internally about actually merging the companies together?

It sounds like they'll all be pretty separate, in a holding company, like they were previously just a different parent company.

But why not merge the companies together?

Is that being talked about at all?

That's a question for the Fiat board.

I think one of the things that was communicated during the five-year plan session is that, one, the announcement was today, just an hour or two ago, and secondly that now Fiat would begin the planning and the work to effectively execute this in the best possible way for the shareholders by the end of the year.

So in the future, who knows, maybe they could be merged together or not but in the meantime there basically are no operational impacts to CNH at this point?

Correct.

Okay.

Thanks, Larry.

We're going to wrap the call up there.

Do you have any parting words, Rich or Harold?

No, none from us.

Thanks, Gerry.

Okay, thanks, everybody for taking time out of your afternoon and evenings.

We have all the information on the website, CNH.com.

Ann, to your point, if you have questions we can direct you to the proper website to the locations for the Fiat materials, we can definitely help you with that.

So once again, thank you for joining us.

If you have any questions you can please follow up with myself or Federico.

And we look forward to speaking with you in the future.

Good evening.

That will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.