UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-80775-01
Case Credit Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
76-0394710
(I.R.S. Employer Identification No.)
233 Lake Ave., Racine, WI 53403
(Address of principal executive offices including Zip Code)
Registrant's telephone number, including area code: (262) 636-6011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, par value $5.00 per share: 200 shares outstanding as of
May 15, 2001, all of which are owned by CNH Capital Corporation.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Financial Statements
Consolidated Statements of Income........................................ 3
Consolidated Balance Sheets.............................................. 4
Consolidated Statements of Cash Flows.................................... 5
Consolidated Statements of Changes in Stockholder's Equity............... 6
Notes to Financial Statements............................................ 7
Item 2. Management's Analysis of Results of Operations..................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 13
PART II
Item 1. Legal Proceedings.................................................. *
Item 2. Changes in Securities.............................................. *
Item 3. Defaults Upon Senior Securities.................................... *
Item 4. Submission of Matters to a Vote of Security Holders................ *
Item 5. Other Information.................................................. *
Item 6. Exhibits and Reports on Form 8-K................................... 14
- --------
*No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
2
PART I.
Item 1. Financial Statements.
CASE CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in millions)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2001 2000
------------ ------------
Revenues:
Finance income earned on retail and other notes and finance leases................................. $ 53 $ 42
Interest income from Case Corporation.............................................................. 8 7
Net gain on retail and wholesale notes sold........................................................ 6 7
Securitization and servicing fee income............................................................ 12 12
Lease income on operating leases................................................................... 27 29
Other income....................................................................................... 4 7
---- ----
Total revenues................................................................................... 110 104
Expenses:
Interest expense................................................................................... 31 53
On payables to affiliates.......................................................................... 21 1
---- ----
Interest expense................................................................................. 52 54
Operating expenses:
Fees charged by Case Corporation................................................................... 12 7
Administrative and operating expenses.............................................................. 5 6
Provision for credit losses........................................................................ 33 14
Goodwill amortization.............................................................................. 2 2
Depreciation of equipment on operating leases...................................................... 17 19
Other.............................................................................................. 1 --
---- ----
Total operating expenses......................................................................... 70 48
---- ----
Total expenses................................................................................... 122 102
---- ----
(Loss) income before taxes........................................................................... (12) 2
Income tax (benefit) provision....................................................................... (4) 1
---- ----
Net (loss) income.................................................................................... $ (8) $ 1
- --------------------------------------------------
==== ====
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Income.
3
CASE CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
(in millions, except share data)
(Unaudited)
March 31, December 31,
ASSETS 2001 2000
------ --------- ------------
Cash and cash equivalents............................... $ 25 $ 38
Retail and other notes and finance leases............... 2,607 2,263
Wholesale notes and accounts............................ 427 273
Due from trusts......................................... 265 265
------ ------
Total receivables................................... 3,299 2,801
Allowance for credit losses............................. (89) (84)
------ ------
Total receivables--net.............................. 3,210 2,717
Affiliated receivables.................................. 23 18
Equipment on operating leases, at cost.................. 638 637
Accumulated depreciation................................ (98) (82)
------ ------
Net equipment on operating leases................... 540 555
Property and equipment, at cost......................... 10 12
Accumulated depreciation................................ (2) (2)
------ ------
Net property and equipment.......................... 8 10
Goodwill, net........................................... 117 121
Asset-backed certificates............................... 187 204
Other assets............................................ 196 196
------ ------
Total............................................... $4,306 $3,859
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Short-term debt......................................... $1,305 $1,299
Accounts payable and other accrued liabilities.......... 182 201
Affiliated debt......................................... 1,712 1,170
Deposits withheld from dealers.......................... 13 9
Long-term debt.......................................... 471 527
------ ------
Total liabilities................................... 3,683 3,206
------ ------
Stockholder's equity:
Common Stock, $5 par value, 200 shares authorized,
issued and outstanding............................... -- --
Paid-in capital....................................... 674 674
Accumulated other comprehensive income................ (38) (16)
Retained (deficit).................................... (13) (5)
------ ------
Total stockholder's equity.......................... 623 653
------ ------
Total............................................... $4,306 $3,859
====== ======
The accompanying notes to financial statements are an integral part of these
Consolidated Balance Sheets.
4
CASE CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in millions)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2001 2000
------------ ------------
Operating activities:
Net (loss) income.................................................................................. $ (8) $ 1
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Purchase accounting amortization................................................................. 5 6
Depreciation and amortization.................................................................... 20 20
Provision for credit losses...................................................................... 33 14
Net gain on retail and wholesale notes sold...................................................... (6) (7)
Unremitted equity method earnings from joint ventures............................................ (1) --
Changes in components of working capital:
Decrease (increase) in other assets............................................................ 15 (4)
(Decrease) increase in accounts payable and other accrued liabilities.......................... (36) 53
Other, net..................................................................................... (11) (8)
----- -----
Net cash provided by operating activities.................................................... 11 75
===== =====
Investing activities:
Cost of retail receivables acquired................................................................ (761) (568)
Cost of wholesale receivables acquired............................................................. (716) --
Proceeds from sales of retail receivables.......................................................... 70 340
Proceeds from sales of wholesale receivables....................................................... 373 --
Collections of retail receivables.................................................................. 314 237
Collections of wholesale receivables............................................................... 192 --
Purchase of equipment on operating leases (net of disposals)....................................... (1) (33)
Increase in investments and other assets........................................................... 17 (20)
----- -----
Net cash (used) by investing activities...................................................... (512) (44)
----- -----
Financing activities:
Proceeds from issuance of long-term debt........................................................... -- --
Proceeds from issuance of affiliate debt (net of repayment)........................................ 542 --
Payment of long-term debt.......................................................................... (370) (150)
Increase in borrowings under revolving credit facilities........................................... 316 83
----- -----
Net cash provided (used) by financing activities............................................. 488 (67)
----- -----
(Decrease) in cash and cash equivalents.............................................................. (13) (36)
Cash and cash equivalents, beginning of period....................................................... 38 67
----- -----
Cash and cash equivalents, end of period............................................................. $ 25 $ 31
===== =====
Cash paid during the period for interest............................................................. $ 58 $ 51
===== =====
Cash paid (received) during the period for taxes..................................................... $ 7 $ (26)
- --------------------------------------------------
===== =====
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Cash Flows.
5
CASE CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(in millions)
(Unaudited)
Accumulated
Other Retained
Common Paid-in Comprehensive Earnings Comprehensive
Stock Capital Income/(Loss) (Deficit) Total (Loss)
------ ------- ------------- --------- ----- -------------
Balance, December 31, 1999...................................... $-- $674 $ 4 $ 3 $681
Comprehensive loss:
Net loss...................................................... -- -- -- (8) (8) $ (8)
Translation adjustment........................................ -- -- (20) -- (20) (15)
----
Total ...................................................... $(28)
---- ---- ---- ---- ---- ====
Balance, December 31, 2000...................................... $-- $674 $(16) $ (5) $653
==== ==== ==== ==== ====
Comprehensive loss:
Net loss...................................................... -- -- -- (8) (8) $ (8)
Translation adjustment........................................ -- -- (15) -- (15) (15)
Unrealized loss on effective hedges...........................
Cumulative effect of change in accounting principle........... (5) (5) (5)
Reclassification of deferred loss to earnings................. 1 1 1
Unrealized loss for the period................................ (3) (3) (3)
---- ---- ---- ---- ---- ----
Balance of unrealized loss on effective hedges................ (7) (7) (7)
---- ---- ---- ---- ---- ----
Total ...................................................... $(30)
====
Balance, March 31, 2001......................................... $-- $674 $(38) $(13) $623
- --------------------------------------------------
==== ==== ==== ==== ====
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Changes in Stockholder's Equity.
6
CASE CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1)--Basis of Presentation
The accompanying financial statements reflect the consolidated results of
Case Credit Corporation and its subsidiaries ("Case Credit" or the "Company").
All significant intercompany transactions have been eliminated in
consolidation.
Case Credit Corporation is a subsidiary of CNH Capital Corporation ("CNH
Capital"), formerly Case Capital. CNH Capital, a wholly owned subsidiary of
Case Corporation ("Case"), provides broad-based financial services for the
global marketplace. Case Corporation is a wholly owned subsidiary of CNH
Global N.V. ("CNH"). Through Fiat Netherlands Holding N.V. ("Fiat Netherlands
Holding"), formerly New Holland Holdings N.V., Fiat S.p.A. ("Fiat") owns
approximately 84.5% of CNH's outstanding common shares.
In the opinion of management, the accompanying unaudited financial
statements of Case Credit contain all adjustments which are of a normal
recurring nature necessary to present fairly the financial position as of
March 31, 2001, and the results of operations, changes in shareholder's equity
and cash flows for the periods indicated. We suggest that you read these
interim financial statements in conjunction with the financial statements and
the notes thereto included in the Company's 2000 Annual Report on Form 10-K
for the year ended December 31, 2000. Interim financial results are not
necessarily indicative of operating results for an entire year.
Certain reclassifications have been made to conform the prior year's
financial statements to the 2001 presentation.
(2)--Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133 "Accounting for
Derivative Instruments and Hedging Activities," which has been amended by SFAS
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of SFAS 133, an amendment of SFAS 133" and SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an amendment of SFAS 133." SFAS 133 is effective for fiscal years beginning
after June 15, 2000 and will be applied to: (a) derivative instruments; and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantively modified after December 31, 1998. SFAS 133
requires that every derivative instrument be recorded on the balance sheet as
an asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.
The Company adopted SFAS 133 on January 1, 2001. SFAS 133 requires that as
of the date of initial adoption, the difference between the fair market value
of derivative instruments recorded on the balance sheet and the previous
carrying amount of those derivatives be reported in net income or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle in accordance with Accounting Principles Board Opinion
20, "Accounting Changes." To the extent that these amounts are recorded in
other comprehensive income, they will be reflected into earnings in the period
in which the hedged transaction occurs. Adoption of this accounting standard
resulted in cumulative net of tax reductions in other comprehensive income of
approximately $5 million as of January 1, 2001 and had no material impact on
net income. The adoption also resulted in an increase to assets and
liabilities recorded on the balance sheet of approximately $4 million and $9
million, respectively. The Company expects approximately $3 million net of tax
losses deferred in other comprehensive income as of January 1, 2001 to be
recognized in earnings over the 12 months ended December 31, 2001.
Case Credit utilizes derivative instruments to mitigate its exposure to
interest rate risk. The Company does not issue such instruments for trading
purposes. These instruments include interest rate swaps and back-to-back
7
CASE CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
interest rate caps. Interest rate swaps that have been designated in cash flow
hedging relationships are being used by the Company to mitigate the risk of
rising interest rates related to the anticipated issuance of short-term LIBOR
based debt in future periods. Gains and losses on these instruments, to the
extent that the hedge relationship has been effective, are deferred in other
comprehensive income and recognized in interest expense over the period in
which the Company recognizes interest expense on the related debt.
Ineffectiveness recognized related to these hedge relationships was not
significant for the three months ended March 31, 2001 and is recorded in other
operating expense on the Consolidated Statements of Income. The maximum length
of time over which the Company is hedging its interest rate exposure through
the use of derivative instruments designated in cash flow hedge relationships
is 48 months and the Company expects approximately $2 million net of tax
losses deferred in other comprehensive income to be recognized in earnings
over the 12 months ended March 31, 2002.
Interest rate swaps that have been designated in fair value hedge
relationships are being used by the Company to mitigate the risk of reductions
in the fair value of existing LIBOR based fixed rate medium-term notes due to
decreases in LIBOR based interest rates. Gains and losses on these instruments
are reflected in interest expense in the period in which they occur and an
offsetting gain or loss is also reflected in interest expense based on changes
in the fair value of the debt instrument being hedged due to changes in LIBOR
based interest rates. There was no ineffectiveness as a result of fair value
hedge relationships in the three months ended March 31, 2001.
Case Credit also utilizes both back-to-back interest rate swaps and back-
to-back interest rate caps that are not designated in hedge relationships.
These instruments are used to mitigate interest rate risk related to the
Company's asset backed commercial paper facility and various limited purpose
business trusts associated with the Company's retail note asset backed
securitization programs in North America. These facilities and trusts require
Case Credit to enter into interest rate swaps and caps to mitigate their
interest rate risk. To ensure that these transactions do not result in the
Company being exposed to this risk, Case Credit enters into an offsetting
interest rate swap or cap with substantially similar terms. Net Gains and
losses on these instruments were insignificant for the three months ended
March 31, 2001 and are included in other operating expense on the Consolidated
Statements of Income.
In September 2000, FASB issued SFAS 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities--A
Replacement of FASB Statement 125". SFAS 140 is effective for transfers
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
The Company adopted the disclosure provisions related to the securitization of
financial assets on December 31, 2000. All transactions entered into after
March 31, 2001 will be accounted for in accordance with this standard. This
adoption is not expected to have a material impact on the Company.
(3)--Asset-Backed Securitizations
During the first three months of 2001, limited-purpose business trusts
organized by CNH Capital issued no asset-backed securities to outside
investors. As of March 31, 2001, Case Credit had sold $72 million of retail
notes to the trusts in connection with a prefunded 2000 securitization. Of the
$72 million of retail receivables sold to the trust, Case Credit originated
$54 million and the remaining $18 million were purchased from New Holland
Credit Company, a wholly owned subsidiary of CNH, at fair value. During the
first three months of 2000, limited-purpose business trusts organized by Case
Credit issued $1,127 million of asset-backed securities to outside investors,
of which $427 million was prefunded and was sold to the trusts in the second
quarter of 2000 in connection with these issuances. Of the $722 million of
retail receivables sold to the trust, Case Credit originated $363 million and
the remaining $359 million were purchased from New Holland Credit Company, a
wholly owned subsidiary of CNH, at fair value. The proceeds from the sale of
retail notes during the first three months of 2001 and 2000 were used to repay
outstanding debt and to finance additional receivables.
8
CASE CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Concluded)
(4)--Long-Term Debt
During the first quarter of 2001, Case Credit retired $370 million of long-
term debt.
(5)--Income Taxes
Case Credit's effective income tax rate of 33% for the first quarter of
2001 was lower than the U.S. statutory tax rate of 35%, primarily due to non-
deductible expenses such as goodwill and capital taxes, foreign income taxed
at different rates, and state income taxes. Case Credit's effective income tax
rate of 35% for the first quarter of 2000 was equal to the U.S. statutory tax
rate.
(6)--Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive loss of $38 million as of March 31, 2001,
consists of currency translation adjustments and unrealized loss on effective
hedges. Further information concerning accumulated other comprehensive income
(loss) is included in "Accounting Pronouncements". Accumulated other
comprehensive loss of $16 million as of December 31, 2000, consists solely of
currency translation adjustments.
(7)--Related Party Transactions
As of March 31, 2001, New Holland Credit Company has various loans totaling
$1,317 million to Case Credit. These loans bear interest based on one-month
LIBOR (5.45%--6.45% as of March 31, 2001), and mature in the second quarter of
2001. Case Credit purchased $257 million of receivables from New Holland
Credit Company at fair market value, of which $239 million were pledged as
collateral to the Company's asset-backed commercial paper facility and $18
million of which were sold to limited purpose business trusts organized by CNH
Capital.
As of March 31, 2001, Case Canada has various loans totaling $181 million
to Case Credit Ltd. These loans bear interest based on one-month LIBOR (5.15%
as of March 31, 2001), and mature in the second quarter of 2001.
As of March 31, 2001, Case has various loans totaling $79 million to Case
Credit. These loans bear interest based on one-month LIBOR (5.31% as of March
31, 2001), and mature in the second quarter of 2001.
As of March 31, 2001, Fiat has various loans totaling $47 million to Case
Credit. These loans bear interest based on three-month LIBOR (5.81% as of
March 31, 2001), and mature in February, 2003.
As of March 31, 2001, Fiat has various loans totaling $55 million to Case
Credit Ltd. These loans bear interest based on one-month LIBOR (5.18% as of
March 31, 2001), and mature in the second quarter of 2001.
As of March 31, 2001, Fiat has various loans totaling $20 million to Case
Credit Australia. These loans bear interest based on Japanese LIBOR (.3575% as
of March 31, 2001), and mature in the second quarter of 2001.
As of March 31, 2001, Case Canada Investments has various loans totaling
$13 million to Case Credit Ltd. These loans bear interest based on Prime +
.75% (7.44% as of March 31, 2001), and mature in the third quarter of 2001.
9
Item 2. Management's Analysis of Results of Operations.
CASE CREDIT CORPORATION AND CONSOLIDATED SUBSIDIARIES
Three Months Ended March 31, 2001 vs. Three Months Ended March 31, 2000
Net Income
Case Credit recorded a net loss of $8 million for the first quarter of
2001, as compared to net income of $1 million in the prior year. The $9
million decrease in net income is attributable to a year-over-year increase in
bad debt provisions, and the absence of asset-backed securitization of
receivables transactions as compared to the prior year.
Revenues
Case Credit reported total revenues of $110 million for the first quarter
of 2001, an increase of $6 million from the prior year primarily due to higher
finance income earned on retail and other notes and finance leases.
Expenses
Interest expense for the first quarter of 2001 was $52 million,
representing a decrease of $2 million from the $54 million reported in the
first quarter of 2000. The decrease in interest expense primarily resulted
from lower interest rates.
Operating expenses increased $22 million to a total of $70 million in the
first quarter of 2001 as compared to the $48 million in first quarter of 2000.
This increase primarily resulted from a $19 million increase in Case Credit's
loss provision as a result of higher average receivables, sustained weakness
in the farm economy, and the impact of portfolio diversification into markets
that have historically had higher loss rates than Case Credit's core
agricultural and construction equipment businesses.
Serviced Portfolio
During the first quarter of 2001, Case Credit's serviced portfolio of
receivables decreased 7% over the same period last year to $6.8 billion. Gross
receivables originated in the first three months of 2001 decreased 40% to a
total of $478 million versus the same period in 2000 primarily due a lower
volume of equipment sales by Case.
During the first three months of 2001, limited-purpose business trusts
organized by CNH Capital issued no asset-backed securities to outside
investors. As of March 31, 2001, Case Credit had sold $72 million of retail
notes to the trusts in connection with a prefunded 2000 securitization. Of the
$72 million of retail receivables sold to the trust, Case Credit originated
$54 million and the remaining $18 million were purchased from New Holland
Credit Company and New Holland (Canada) Credit Company, wholly owned
subsidiaries of CNH, at fair value. During the first three months of 2000,
limited-purpose business trusts organized by Case Credit issued $1,127 million
of asset-backed securities to outside investors, of which $427 million was
prefunded and was sold to the trusts in the second quarter of 2000 in
connection with these issuances. Of the $722 million of retail receivables
sold to the trust, Case Credit originated $363 million and the remaining $359
million were purchased from New Holland Credit Company, a wholly owned
subsidiary of CNH, at fair value. The proceeds from the sale of retail notes
during the first three months of 2001 and 2000 were used to repay outstanding
debt and to finance additional receivables.
Liquidity and Capital Resources
The discussion of liquidity and sources of capital focuses on the balance
sheets and statements of cash flows. Liquidity in the structured ABS market
and funding from affiliates, including Fiat, are critical sources of capital
to meet the Company's plan to finance the acquisition of additional
receivables.
Net cash provided by operating activities decreased $64 million to a total
of $11 million in the first quarter of 2001 as compared to the first quarter
of 2000. The primary driver was a decrease in accounts payable.
10
Net cash used by investing activities was $512 million and $44 million for
the first three months of 2001 and 2000, respectively. Increased retail and
wholesale acquisitions of $909 million, offset by the increase in proceeds
from sales of receivables of $103 million, and the increase in the collections
of receivables of $269 million, caused the decrease between years.
Net cash provided by financing activities was $488 million for the first
three months of 2001, primarily due to the issuances of $542 million of
affiliated debt and $316 million of revolving credit facilities, partially
offset by the repayment of $370 of long term debt. Net cash used by financing
activities was $67 million for the first three months of 2000 as Case Credit
repaid $150 million of outstanding debt.
On July 27, 2000, the Company, together with Fiat, CNH, Fiat Finance and
Trade Ltd. S.A., New Holland Credit Company LLC and Case, as co-borrowers,
entered into a $2.0 billion five-year Credit Agreement with Chase Manhattan
International Limited, as Facility Agent and Euro Swing-line Agent, The Chase
Manhattan Bank, as US Swing-line Agent, and ABN Amro Bank N.V., Banca Intesa
S.p.A. and Chase Manhattan plc, as Arrangers, on behalf of additional banks.
This new Credit Agreement replaces the Case Credit Corporation $1.2 billion
Revolving Credit and Guarantee Agreement dated August 23, 1996 with Chase
Manhattan Bank, as administrative agent.
On April 3, 2001, Standard & Poor's downgraded the senior debt rating of
Case Credit Corporation from BBB- to BB and downgraded its short-term debt
rating from A2 to B.
On April 18, 2001, Moody's downgraded the senior debt rating of Case Credit
Corporation from Baa3 to Baa2 and downgraded its short-term debt rating from
P3 to Not Prime.
Future Liquidity and Capital Resources
The Company has various lines of committed and uncommitted credit and
asset-backed commercial paper facilities to fund the business plan. The
Company also has the ability to issue commercial paper currently in Australia,
as well as through affiliated companies. The commercial paper program in the
US has been suspended due to year 2000 ratings downgrades. The commercial
paper program in Canada, issued by Case Credit Ltd. has been withdrawn. Under
the terms of the Company's commercial paper programs, the principal amount of
the commercial paper outstanding, combined with the amounts outstanding under
the applicable revolving credit facility, cannot exceed the total amount
available under the revolving credit facility.
The Company maintains sufficient committed lines of credit and asset-backed
commercial paper facilities to cover its expected funding needs on a short-
term basis. The Company manages its aggregate short-term borrowings so as not
to exceed its availability under its committed lines of credit including those
lines from affiliates. The Company accesses short-term debt markets,
predominantly through asset-backed commercial paper issuances, bank credit
facilities, and loans from affiliates to fund its short-term financing
requirements and to ensure liquidity. As funding needs are determined to be of
a longer-term nature, the Company accesses the term ABS markets, as, to
refinance short-term borrowings and, thus, replenish its short-term liquidity.
The Company's long-term financing strategy is to maintain continuous access to
the United States and Canadian asset-backed securities, and bank debt markets
to accommodate its liquidity needs. In addition, the company intends to add
the Australian market for asset backed securitization in 2001. Whenever
necessary, funds provided from operations are supplemented from external
borrowing sources, including financing from Fiat and Fiat affiliates.
Outlook
The pressure from higher interest rates experienced in 2000 is expected to
decrease with the slowdown in the economy. CNH Capital has decreased its
volume of loan origination activity in its diversified business in the first
quarter of 2001 and has made the strategic decision to exit the commercial
truck financing business and curtail other diversified financing activities in
2000. The outlook for CNH's agricultural equipment and construction equipment
markets is consistent with statements made by CNH in its Form 6-K filing on
February 14, 2001. The financial services operations are directly impacted by
the performance of CNH. Recent supply and demand reports for global
agricultural commodities project continued pressure on commodity prices in
2001. Production remains strong in the Southern Hemisphere, including record
soybean crops from Brazil, and analysts
11
do not foresee lower planting levels in North America or Europe for the year
ahead. In addition, recent forecasts for U.S. exports have been trimmed. These
factors will impact the market for CNH's agricultural equipment, but will be
somewhat offset by underlying demand resulting from the low sales levels of
recent years and relatively strong farmers' balance sheets. However, the
market could be affected by the current Bovine Spongiform Encephalopathy
("BSE") crisis in Europe and other countries around the world, as well as
potential consequences of the Foot and Mouth disease affecting more countries
in Western Europe. The scope of this situation has grown in recent weeks, and
the complete impact on farm equipment sales isn't clear at this time. As a
result of these factors, but not including the potential impact of BSE, CNH
expects industry sales of agricultural equipment to be relatively unchanged
from 2000. In its construction equipment business, CNH expects slightly lower
industry sales worldwide, the result of a continued, gradual decline in North
America as well as weaker market conditions in Europe. CNH anticipates that
worldwide industry sales of loader backhoes in 2001 could decline by about 10
percent, sales of heavy construction equipment could be down about 5 percent,
while industry sales of skid steer loaders could be flat to up slightly. The
recent decline in interest rates in the U.S. is expected to support
construction activity, but weakening overall economic conditions may temper
new housing starts. In Latin America and in the company's remaining markets
around the world, the company expects to see continued market improvement,
resulting from more stable economic conditions. In 2001, following the
expected industry declines in Europe, CNH's European sales will be slightly
lower than in 2000, which may have a slight negative impact on the company's
margins. However, CNH expects to launch several new models of agricultural and
construction equipment in the second half of 2001 that should improve the
company's market position. These new models will expand the product offerings
from CNH's brands, broadening the company's potential customer base. In
addition, equipment sales are expected to be less impacted by customer and
dealer uncertainty in 2001 as many of the merger-related issues have been
resolved. CNH plans to produce slightly below anticipated retail sales levels
in 2001 in order to reduce field inventory levels. In 2001, CNH expects to
achieve at least $300 million of further merger-related profit improvements,
primarily through lower selling, general and administration expenses, lower
purchasing costs, cross selling opportunities and initial savings from
manufacturing rationalization actions. A significant portion of the company's
manufacturing rationalization savings will not be realized until 2002. The
company continues to expect to reduce its headcount by approximately 20
percent from a base of 36,000 by the end of 2003. As a result of this current
market outlook, CNH expects the first quarter of 2001 to reflect continued
improvement in its industrial operations. However, due to weaker performance
expected from financial services and a normalized tax rate, CNH currently
expects a net loss, before restructuring, of $.20 to $.30 per share, slightly
worse than the loss of $54 million, or $.20 per share on a comparable common
share count basis, in the first quarter of 2000. For the full year, CNH
anticipates that the industrial operating margin could improve by $400
million, reflecting at least $300 million in merger related profit
improvements, including cross selling. However, continued inflationary and
competitive pressures will slightly reduce profit margins. Including lower
interest costs and an improved contribution from the company's financial
services businesses, net income, before restructuring, in 2001 should improve
by about $100 million.
The information included in the "Outlook" section represents forward-
looking statements and involves risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. The Company's outlook is predominantly based on its interpretation
of what it considers key economic assumptions. Crop production and commodity
prices are strongly affected by weather and can fluctuate significantly.
Housing starts and other construction activity are sensitive to interest rates
and government spending. Some of the other significant factors for the Company
include general economic and capital market conditions, the cyclical nature of
our business, currency exchange rate movements, our hedging practices, the
Company's and its customers' access to credit, political uncertainty and civil
unrest in various areas of the world, pricing, product initiatives and other
actions taken by competitors, disruptions in production capacity, excess
inventory levels, the effect of changes in laws and regulations (including
government subsidies and international trade regulations), the effect of
conversion to the Euro, the impact in Europe of foot and mouth disease and
BSE, technological difficulties, changes in environmental laws, and employee
and labor relations. Additionally, CNH's achievement of the anticipated
benefits of the merger of New Holland and Case, including the realization of
expected annual operating synergies, depends upon, among other things, its
ability to integrate effectively the
12
operations and employees of New Holland and Case, and to execute its multi-
branding strategy. The timing and costs for implementing CNH's merger
integration initiatives are subject to the outcome of negotiations with
numerous third parties, including governmental regulators, purchasers of
product lines required to be divested, labor unions, dealers and others.
Further information concerning factors that could significantly impact
expected results is included in the following sections of CNH Global N.V.'s
Annual Report on Form 20-F for 1999, as filed with the Securities and Exchange
Commission: Item 1 Description of Business and Item 9 Management's Discussion
and Analysis of Financial Condition and Results of Operations. Further
information concerning factors that could significantly impact expected
results is also included in the following sections of the Case Credit
Corporation Annual Report on Form 10-K for 2000, as filed with the Securities
and Exchange Commission: Item 1 Business and Item 7 Management's Analysis of
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk Management
The Company uses derivative financial instruments to manage its interest
rate exposures. Case Credit does not hold or issue financial instruments for
trading purposes. For information regarding Case Credit's interest rate risk
management, reference is made to Item 7A and Note 12 to the Case Credit
Financial Statements in the Company's 2000 Annual Report on Form 10-K. There
has been no material change in the Company's market risk exposures that affect
the quantitative and qualitative disclosures as presented as of December 31,
2000.
Commodity Price and Foreign Currency Risk Management
Commodity prices impact Case Corporation's sales, which may have an impact
on Case Credit's originations. Case Credit is subject to foreign currency risk
in Canada, Australia, and Europe as the investments in these countries are
impacted by currency fluctuations. For information regarding Case Credit's
commodity price and foreign currency risk management, reference is made to
Item 7A to the Case Credit Financial Statements in the Company's 2000 Annual
Report on Form 10-K. There has been no material change in the Company's market
risk exposures that affect the quantitative and qualitative disclosures as
presented as of December 31, 2000.
13
PART II.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
A list of the exhibits included as part of this Form 10-Q is set forth
in the Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.
(b) Reports on Form 8-K.
None.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASE CREDIT CORPORATION
/s/ Michel Lecomte
By __________________________________
Michel Lecomte
President and Chief Executive
Officer
(Principal Financial and
Accounting Officer and Director
and
Authorized Signatory for Case
Credit
Corporation)
Date: May 15, 2001
15
EXHIBIT INDEX
Sequential
Exhibit Page
Number Description of Exhibit Numbers
------- ------------------------------------------------- ----------
12 Computation of Ratio of Earnings to Fixed Charges
16