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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13098
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CASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0433811
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
700 STATE STREET, RACINE, WI 53404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 636-6011
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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 $0.01 per share: 72,402,898 shares outstanding as of
March 31, 1996.
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TABLE OF CONTENTS
PAGE
----
Part I--Financial Information
Case Corporation and Consolidated Subsidiaries--
Balance Sheets........................................................ 2
Statements of Income.................................................. 3
Statements of Cash Flows.............................................. 4
Statements of Changes in Stockholders' Equity......................... 5
Notes to Financial Statements......................................... 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 11
Part II--Other Information
Item 1. Legal Proceedings............................................... 15
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................................ 15
- --------
* No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
1
PART I
FINANCIAL INFORMATION
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1996, AND DECEMBER 31, 1995
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
CONSOLIDATED CASE INDUSTRIAL CASE CREDIT
---------------------- ---------------------- ----------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995
--------- ------------ --------- ------------ --------- ------------
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 71 $ 132 $ 59 $ 117 $ 12 $ 15
Accounts and notes
receivable:
Trade.................. 1,721 1,504 1,543 1,323 179 181
Affiliates............. -- -- -- -- 5 16
Other.................. 74 55 27 18 47 37
Inventories............ 1,066 901 1,066 901 -- --
Deferred income taxes.. 201 200 185 185 16 15
Prepayments and other.. 68 60 68 57 -- 3
------ ------ ------ ------ ------ ------
Total current assets. 3,201 2,852 2,948 2,601 259 267
------ ------ ------ ------ ------ ------
Long-Term Receivables... 1,071 1,244 266 395 793 835
Other Assets:
Investments in joint
ventures.............. 73 65 73 65 -- --
Investment in Case
Credit................ -- -- 201 193 -- --
Goodwill and
intangibles........... 189 176 189 176 -- --
Other.................. 151 176 151 139 11 51
------ ------ ------ ------ ------ ------
Total other assets... 413 417 614 573 11 51
------ ------ ------ ------ ------ ------
Property, Plant and
Equipment, at cost..... 1,953 1,970 1,953 1,970 -- --
Accumulated
depreciation.......... (1,015) (1,014) (1,015) (1,014) -- --
------ ------ ------ ------ ------ ------
Net property, plant and
equipment.............. 938 956 938 956 -- --
------ ------ ------ ------ ------ ------
Total................ $5,623 $5,469 $4,766 $4,525 $1,063 $1,153
====== ====== ====== ====== ====== ======
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of
long-term debt........ $ 45 $ 47 $ 45 $ 47 $ -- $ --
Short-term debt........ 775 1,005 237 97 538 908
Accounts payable....... 587 533 579 533 13 16
Restructuring
liability............. 77 97 77 97 -- --
Other accrued
liabilities........... 762 784 729 748 33 36
------ ------ ------ ------ ------ ------
Total current
liabilities......... 2,246 2,466 1,667 1,522 584 960
------ ------ ------ ------ ------ ------
Long-Term Debt.......... 1,160 889 882 889 278 --
Other Liabilities:
Pension benefits....... 132 134 132 134 -- --
Other postretirement
benefits.............. 103 98 103 98 -- --
Other postemployment
benefits.............. 39 40 39 40 -- --
Restructuring
liability............. 205 210 205 210 -- --
Other.................. 46 35 46 35 -- --
------ ------ ------ ------ ------ ------
Total other
liabilities......... 525 517 525 517 -- --
------ ------ ------ ------ ------ ------
Commitments and
Contingencies
Preferred Stock with
Mandatory Redemption
Provisions............. 77 77 77 77 -- --
Stockholders' Equity:
Common Stock, $0.01 par
value; authorized
200,000,000 shares,
issued 72,439,557,
outstanding
72,402,898............ 1 1 1 1 -- --
Paid-in capital........ 1,199 1,154 1,199 1,154 199 199
Cumulative translation
adjustment............ (19) (21) (19) (21) (6) (8)
Unearned compensation
on restricted stock... (10) (10) (10) (10) -- --
Pension liability
adjustment............ (2) (2) (2) (2) -- --
Retained earnings...... 447 399 447 399 8 2
Treasury stock, 36,659
shares, at cost....... (1) (1) (1) (1) -- --
------ ------ ------ ------ ------ ------
Total stockholders'
equity.............. 1,615 1,520 1,615 1,520 201 193
------ ------ ------ ------ ------ ------
Total................ $5,623 $5,469 $4,766 $4,525 $1,063 $1,153
====== ====== ====== ====== ====== ======
The accompanying notes to financial statements are an integral part of these
Balance Sheets.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Credit."
2
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
CASE
CONSOLIDATED INDUSTRIAL CASE CREDIT
-------------- -------------- -------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
-------------- -------------- -------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
Revenues:
Net sales....................... $1,105 $1,141 $1,105 $1,141 $ -- $ --
Interest income and other....... 66 37 16 15 66 51
------ ------ ------ ------ ------ ------
1,171 1,178 1,121 1,156 66 51
Costs and Expenses:
Cost of goods sold.............. 844 876 844 876 -- --
Selling, general and
administrative................. 119 133 128 156 7 6
Research, development and
engineering.................... 45 35 45 35 -- --
Interest expense................ 40 43 23 34 17 10
Other, net...................... 4 3 4 3 -- --
------ ------ ------ ------ ------ ------
Income before taxes and
cumulative effect of changes in
accounting principles and
extraordinary loss.............. 119 88 77 52 42 35
Income tax provision............. 44 18 28 3 16 14
------ ------ ------ ------ ------ ------
Income before cumulative effect
of changes in accounting
principles and extraordinary
loss............................ 75 70 49 49 26 21
Equity in income--Case Credit.... -- -- 26 21 -- --
------ ------ ------ ------ ------ ------
Income before cumulative effect
of changes in accounting
principles and extraordinary
loss............................ 75 70 75 70 26 21
Cumulative effect of changes in
accounting
principles ..................... -- (9) -- (9) -- --
Extraordinary loss............... (22) -- (22) -- -- --
------ ------ ------ ------ ------ ------
Net income....................... $ 53 $ 61 $ 53 $ 61 $ 26 $ 21
====== ====== ====== ====== ====== ======
Preferred stock dividends........ 2 2
------ ------
Net income to common............. $ 51 $ 59
====== ======
Per share data:
Primary income per share of
common stock................... $ 0.70 $ 0.83
====== ======
Fully diluted net income per
share of common stock.......... $ 0.69 $ 0.82
====== ======
The accompanying notes to financial statements are an integral part of these
Statements of Income.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Credit."
3
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(IN MILLIONS)
(UNAUDITED)
CASE
CONSOLIDATED INDUSTRIAL CASE CREDIT
-------------- -------------- --------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
-------------- -------------- --------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
Operating activities:
Net income.................... $ 53 $ 61 $ 53 $ 61 $ 26 $ 21
Adjustments to reconcile net
income to net cash provided
(used) by operating
activities:
Depreciation and
amortization.............. 30 31 30 31 -- --
Deferred income tax
benefit................... (3) (26) (3) (26) -- --
Loss on disposal of fixed
assets.................... 2 -- 2 -- -- --
Extraordinary loss, after
tax....................... 22 -- 22 -- -- --
Cumulative effect of
changes in accounting
principles................ -- 9 -- 9 -- --
Cash paid for
restructuring............. (18) (10) (18) (10) -- --
Changes in components of
working capital:
(Increase) decrease in
receivables............ (209) (80) (225) (48) 27 (22)
(Increase) decrease in
inventories............ (164) (182) (164) (182) -- --
(Increase) decrease in
prepayments and other
current assets......... (7) (8) (9) (8) 2 --
Increase (decrease) in
payables............... 44 105 56 105 (23) 2
Increase (decrease) in
accrued liabilities.... (8) 13 (5) 15 (3) (2)
(Increase) decrease in
long-term receivables..... 180 (160) 132 (107) 45 (59)
Increase (decrease) in
other liabilities......... 5 3 5 3 -- --
Other, net................. 32 7 (3) 8 40 (7)
------ ------ ------ ------ ------ ------
Net cash provided (used) by
operating activities...... (41) (237) (127) (149) 114 (67)
------ ------ ------ ------ ------ ------
Investing activities:
Expenditures for property,
plant and equipment.......... (15) (9) (15) (9) -- --
Acquisitions and investments.. (17) -- (17) -- -- --
Other, net.................... 2 4 (6) 4 -- --
------ ------ ------ ------ ------ ------
Net cash used by investing
activities................ (30) (5) (38) (5) -- --
------ ------ ------ ------ ------ ------
Financing activities:
Proceeds from issuance of
common stock................. 30 -- 30 -- -- --
Proceeds from issuance of
long-term debt............... 500 -- 300 -- 200 --
Payment of long-term debt..... (353) (25) (353) (25) -- --
Net (decrease) increase in
revolving credit facilities.. (161) 261 136 173 (297) 87
Dividends paid (common and
preferred)................... (5) (5) (5) (5) (20) (18)
Other, net.................... (1) 3 (1) 1 -- --
------ ------ ------ ------ ------ ------
Net cash provided (used) by
financing activities...... 10 234 107 144 (117) 69
------ ------ ------ ------ ------ ------
Effect of foreign exchange rate
changes on cash and cash
equivalents................... -- 1 -- 1 -- --
Increase (decrease) in cash and
cash equivalents.............. (61) (7) (58) (9) (3) 2
Cash and cash equivalents,
beginning of period........... 132 68 117 64 15 4
------ ------ ------ ------ ------ ------
Cash and cash equivalents, end
of period..................... $ 71 $ 61 $ 59 $ 55 $ 12 $ 6
====== ====== ====== ====== ====== ======
Cash paid during the period for
interest...................... $ 53 $ 37 $ 38 $ 26 $ 15 $ 11
====== ====== ====== ====== ====== ======
Cash paid during the period for
taxes......................... $ 27 $ 46 $ 3 $ 32 $ 24 $ 14
====== ====== ====== ====== ====== ======
The accompanying notes to financial statements are an integral part of these
Statements of Cash Flows.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Credit."
4
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
CUMULATIVE PENSION
COMMON PAID-IN TRANSLATION UNEARNED LIABILITY RETAINED TREASURY
STOCK CAPITAL ADJUSTMENT COMPENSATION ADJUSTMENT EARNINGS STOCK TOTAL
------ ------- ----------- ------------ ---------- -------- -------- ------
Balance, December 31,
1994................... $ 1 $1,128 $(22) $ (7) $(2) $ 83 $-- $1,181
Net income............. -- -- -- -- -- 337 -- 337
Dividends declared..... -- -- -- -- -- (21) -- (21)
Translation adjustment. -- -- 1 -- -- -- -- 1
Capital contributions
on stock issuance..... -- 20 -- -- -- -- -- 20
Recognition of
compensation on
restricted stock...... -- -- -- 3 -- -- -- 3
Issuance of restricted
stock................. -- 6 -- (6) -- -- -- --
Acquisition of treasury
stock................. -- -- -- -- -- -- (1) (1)
--- ------ ---- ---- --- ---- --- ------
Balance, December 31,
1995................... 1 1,154 (21) (10) (2) 399 (1) 1,520
Net income (unaudited). -- -- -- -- -- 53 -- 53
Dividends declared
(unaudited)........... -- -- -- -- -- (5) -- (5)
Translation adjustment
(unaudited)........... -- -- 2 -- -- -- -- 2
Capital contributions
on stock issuance
(unaudited)........... -- 45 -- -- -- -- -- 45
--- ------ ---- ---- --- ---- --- ------
Balance, March 31, 1996
(unaudited)............ $ 1 $1,199 $(19) $(10) $(2) $447 $(1) $1,615
=== ====== ==== ==== === ==== === ======
The accompanying notes to financial statements are an integral part of
these Statements of Changes in Stockholders' Equity.
5
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying financial statements reflect the consolidated results of
Case Corporation ("Case" or the "Company") and also include, on a separate and
supplemental basis, the combination of Case's industrial companies and credit
companies as follows:
Case Industrial -- The financial information captioned "Case Industrial"
reflects the consolidation of all majority-owned
subsidiaries except for the wholly-owned retail credit
subsidiaries. The credit operations are included on an
equity basis.
Case Credit -- The financial information captioned "Case Credit" reflects
Case's wholly-owned retail credit subsidiaries.
All significant intercompany transactions, including activity within and
between "Case Industrial" and "Case Credit" have been eliminated.
In the opinion of management, the accompanying unaudited financial
statements of Case Corporation and Consolidated Subsidiaries contain all
adjustments which are of a normal recurring nature necessary to present fairly
the financial position as of March 31, 1996, and the results of operations,
changes in stockholders' equity and cash flows for the periods indicated.
Interim financial results are not necessarily indicative of operating results
for an entire year.
Certain reclassifications have been made to conform the prior years'
financial statements to the 1996 presentation.
(2) ASSET-BACKED SECURITIZATIONS
In the first quarter of 1996, limited-purpose business trusts organized by
Case issued $625 million of asset-backed securities to outside investors of
which $234 million was prefunded. The Company will sell the remaining retail
notes to the trust as new receivables are acquired. The proceeds from the sale
of the notes were used to repay outstanding debt and to finance additional
receivables. In the first quarter of 1995, the Company completed a $600
million asset-backed securitization transaction, of which $247 million was
prefunded.
6
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) LONG-TERM DEBT
A summary of long-term debt is set forth in the following table (in
millions):
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
Case Industrial
Case Corporation
Senior subordinated notes, payable in 2002, interest
rate of 10.5%........................................ $ -- $ 277
Term loan, payable on various dates through 2000,
average interest
rates of 6.0% and 6.4%, respectively................. 288 324
Notes, payable in 2005, interest rate of 7.25%,
effective rate of 7.36%.............................. 298 298
Notes, payable in 2016, interest rate of 7.25%........ 300 --
Case France S.A.
Notes, payable on various dates through 2000, interest
rate of 4.5%......................................... 32 33
Other debt.............................................. 9 4
------ ------
927 936
Less-current maturities................................. (45) (47)
------ ------
Total long-term debt--Case Industrial............... $ 882 $ 889
------ ------
Case Credit
Case Credit Corporation
Notes, payable in 2003, interest rate of 6.125%....... $ 200 $ --
Case Credit Australia Pty., Ltd.
Long-term portion of borrowings on a line of credit,
average interest
rate of 7.4%......................................... 78 --
------ ------
Total long-term debt--Case Credit................... $ 278 $ --
------ ------
Total long-term debt................................ $1,160 $ 889
====== ======
In the first quarter of 1996, the Company sold $300 million aggregate
principal amount of its 7 1/4% unsecured and unsubordinated notes due 2016
pursuant to a shelf registration statement filed with the Securities and
Exchange Commission in June 1995. The net proceeds from the offering, together
with cash and additional borrowings under the Company's credit facilities,
were used to exercise the Company's option to repurchase for cash all of the
Company's 10 1/2% Senior Subordinated Notes and pay accrued interest thereon.
The Company incurred an extraordinary charge of $22 million after tax in the
first quarter of 1996 as a result of the repurchase.
In the first quarter of 1996, Case Credit sold $200 million aggregate
principal amount of its 6 1/8% unsecured and unsubordinated notes due 2003
pursuant to a $300 million shelf registration statement filed with the
Securities and Exchange Commission in December 1995. The net proceeds from the
offering were used to repay indebtedness and finance Case Credit's growing
portfolio of receivables. The Company has guaranteed the obligations of Case
Credit under these notes and the Company will be released from its obligations
under the guarantee upon the occurrence of certain events.
(4) INCOME TAXES
On a consolidated basis, the Company's first quarter effective tax rate of
37% was slightly higher than the U.S. statutory tax rate of 35% primarily due
to state income taxes and foreign income taxed at different rates partially
offset by a reduction in the tax valuation reserve in certain foreign
jurisdictions. In the first quarter of 1995, the effective tax rate of 20% was
lower than the U.S. statutory tax rate primarily due to a reduction in the tax
valuation reserve.
7
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) ACQUISITION OF BUSINESSES
In the first quarter of 1996, the Company acquired Concord Inc., a
manufacturer of air drills based in Fargo, North Dakota, with annual sales of
approximately $25 million. In addition, the Company launched a bid to acquire
Austoft Holdings Limited ("Austoft") of Australia, the world's largest
manufacturer of sugar-cane harvesting equipment. Case has acquired over 95% of
Austoft's common stock in the market and pursuant to a tender offer and
expects to complete the acquisition in the second quarter.
(6) STOCKHOLDERS' EQUITY
At the March 15, 1996, meeting of the Board of Directors of the Company,
several resolutions were adopted to increase the number of shares of common
stock reserved for issuance under the following benefit plans:
ADDITIONAL
PLAN NAME SHARES AUTHORIZED
--------- -----------------
Case Corporation Equity Incentive Plan ("EIP")............. 2,500,000
Case Corporation Employee Stock Purchase Plan ("ESPP")..... 1,000,000
Case Corporation Retirement Savings Plan................... 4,000,000
The shares reserved for issuance under these plans will be issued
periodically over the next several years. As set forth in the aforementioned
resolutions, stockholder approval is required for the increase in the shares
in the EIP and the ESPP, and will be voted on at the Company's 1996 Annual
Meeting to be held on May 15, 1996.
(7) COMMITMENTS AND CONTINGENCIES
Environmental matters
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations
and which do not contribute to current or future revenue generation are
expensed. Liabilities are recorded when environmental assessments indicate
that remedial efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations. All available evidence
is considered, including prior experience in remediation of contaminated
sites, other parties' share of liability at waste sites and their ability to
pay and data concerning the waste sites released by the U.S. Environmental
Protection Agency or other organizations. These liabilities are included in
the accompanying Balance Sheets at their undiscounted amounts. Recoveries are
evaluated separately from the liability and, if appropriate, are recorded
separately from the associated liability in the accompanying Balance Sheets.
Case has received and from time to time receives inquiries and/or notices of
potential liability at 33 sites that are the subject of remedial activities
under Federal or state environmental laws and Case may be required to share in
the cost of clean-up. Case is also involved in remediating a number of other
sites, including certain of its currently and formerly operated facilities or
those assumed through corporate acquisitions. Based upon information currently
available, management estimates potential environmental remediation costs to
be in a range of $19 million to $38 million, of which approximately $3 million
is estimated for Case's remediation share at the 33 waste sites. As of March
31, 1996, environmental reserves of approximately $38 million had been
established to address Case's specific estimated potential liabilities. After
considering these reserves, management believes that the outcome of these
proceedings will not have a material adverse effect on Case's financial
position or results of operations.
8
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Product and general liability
Product and general liability claims against Case arise from time to time in
the ordinary course of business. For claims arising out of accidents occurring
prior to September 1, 1986, Case maintained product and general liability
insurance. For claims arising out of accidents occurring between September 1,
1986, and August 31, 1995, Case elected to self-insure against any expected
future claims up to $10 million per claim. For claims arising out of accidents
occurring after August 31, 1995, Case has elected to self-insure against any
expected future claims up to $5 million per claim for product liability claims
and $2 million per claim for general liability claims. Accordingly, a reserve
is maintained for costs expected to arise out of product and general liability
claims after September 1, 1986. At March 31, 1996, the reserve for product,
general liability and worker's compensation claims was $44 million based on
actuarial estimates.
There is an inherent uncertainty as to the eventual resolution of unsettled
claims. However, in the opinion of management, any losses with respect to
potential existing claims in excess of established reserves will not have a
material adverse effect on Case's financial position or results of operations.
Legal matters
Case has been named in a three-count criminal information filed in the
United States District Court for the Eastern District of Wisconsin
(Milwaukee). The first count charges a violation of the International
Emergency Economic Powers Act ("IEEPA") due to the involvement of four Case
employees in the 1991 sales by Case's French affiliate, Case Poclain, of
French-built excavators to a South Korean company for use in Libya; the second
count charges a separate IEEPA violation premised on the 1986 and 1987 sales
by Case's UK affiliate, J.I. Case Europe Limited, of U.S.-origin parts to
British and Korean companies for use in Libya; the final count charges a
violation of the Export Administration Act premised on Case's mislabeling of
parts shipments to a Syrian dealer from 1988 to 1991.
The maximum penalty which could be imposed upon conviction of these charges
is a fine not to exceed $2 million. If this fine were to be imposed,
management believes it would not have a material adverse effect on the
financial condition or results of operations of the Company. Further, neither
Case's export privileges nor its ability to contract with the government will
be adversely affected by this matter.
In March 1990, Lupia Beteiligungs GmbH ("Lupia"), a subsidiary of Deutsche
Bank AG, purchased from Universaltrac Beteiligungs GmbH ("Universaltrac"), a
Case subsidiary, all of Case's 50% ownership interest in Intertractor Viehmann
GmbH ("Intertractor"), a German producer of crawler tractor undercarriage
parts. In November 1992, Lupia demanded rescission of the sale and asserted
that Intertractor's 1989 financial statements and its projections for fiscal
year 1990 fraudently misstated Intertractor's earning capacity. Lupia also
claimed damages for transaction costs related to the sale, for losses
sustained by Intertractor after the sale and for restructuring charges
incurred to mitigate Intertractor's losses. The total amount claimed by Lupia
is approximately DM 220 million, or $153 million.
Lupia has asserted similar claims against the former owners of the other 50%
interest in Intertractor and on or about September 29, 1994, Lupia filed suit
against these other former owners on the grounds that they breached their
contracts relating to the sale of their interests in Intertractor. Neither the
Company nor Universaltrac has been named in that litigation. On or about June
14, 1995, the District Court dismissed the suit without hearing evidence.
Lupia appealed the decision, and on May 3, 1996, the Court of Appeals issued a
written judgment dismissing Lupia's appeal. Lupia has the right, within the
next thirty days, to file a further appeal to the German Supreme Court.
9
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company understands that the public prosecutor in Germany, at, the
Company believes, the instigation of Lupia, has undertaken a criminal fraud
investigation of Intertractor's former general managers in connection with the
sale. The Company also understands that the investigation continues, but that
no criminal charges have been filed. In connection with the civil case, the
District Court held that the former general managers were not agents of the
defendant in connection with the sale and the Court of Appeals specifically
held that they were not such agents of Universaltrac.
The Company has agreed to indemnify Tenneco, Inc. against any losses it or
its subsidiaries may incur as a result of Lupia's demand. The Company and the
Company's outside legal counsel in both the United States and Germany have
conducted an investigation into the allegations made by Lupia and have
concluded that Lupia's claims are unfounded and not supported by the facts.
Based upon these investigations, the Company is of the opinion that the
resolution of the dispute will not have a material adverse effect on the
financial condition or results of operations of the Company. However, the
uncertainties and vagaries attendant to any litigation that may ultimately
arise out of Lupia's claims make it impossible to predict with certainty any
eventual outcome. As a result, should Lupia continue to pursue and prevail in
its allegations, such a result could have a material adverse effect on the
financial condition or results of operations of the Company.
Case is party to numerous legal proceedings arising from its operations, the
most common of which involve product liability claims, disputes with dealers
and employment matters. Management believes that the outcome of these
proceedings, individually and in the aggregate, will not have a material
adverse effect on Case's financial position or results of operations.
(8) EARNINGS PER SHARE OF COMMON STOCK
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
Earnings per average share of Common Stock (shares in
millions):
Primary
Net earnings after preferred stock dividends and before
cumulative effect of changes in accounting principles
and extraordinary loss................................ $ 1.00 $ 0.96
Cumulative effect of changes in accounting principles.. -- (0.13)
Extraordinary loss..................................... (0.30) --
--------- ---------
Net earnings per share of common stock................. $ 0.70 $ 0.83
========= =========
Average common and common equivalent shares
outstanding........................................... 73 71
Fully Diluted
Net earnings before cumulative effect of changes in
accounting principles and extraordinary loss.......... $ 0.98 $ 0.94
Cumulative effect of changes in accounting principles.. -- (0.12)
Extraordinary loss..................................... (0.29) --
--------- ---------
Net earnings per share of common stock................. $ 0.69 $ 0.82
========= =========
Average common and common equivalent shares
outstanding........................................... 77 75
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
First Quarter 1996 vs. First Quarter 1995
EARNINGS
The Company recorded income before cumulative effect of changes in
accounting principles and extraordinary loss of $75 million in the first
quarter of 1996. This represents a $5 million improvement compared to income
of $70 million in the first quarter of 1995. Earnings per share before
accounting changes and extraordinary loss for the quarter was $1.00 per share
compared to $0.96 per share in the first quarter of 1995.
Net income in the first quarter of 1996 was $53 million, with earnings per
share of $0.70, versus net income and earnings per share of $61 million and
$0.83, respectively, in the first quarter of 1995. In January 1996, the
Company repurchased for cash all of its 10 1/2% Senior Subordinated Notes. As
a result of the repurchase, the Company recorded an extraordinary loss of $22
million, after tax. Effective January 1, 1995, Case adopted Statement of
Financial Accounting Standard ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits other than Pensions," for its non-U.S. plans. The
cumulative effect of adopting this standard was to decrease net income by $9
million, after tax, in the first quarter of 1995.
The Company's industrial operations recorded income before cumulative effect
of changes in accounting principles, extraordinary loss and equity income of
Case Credit of $49 million in both the first quarter of 1996 and in the first
quarter of 1995. On a pretax basis, income increased $25 million to $77
million in the first quarter of 1996 from $52 million in the first quarter of
1995. The industrial effective income tax rate was lower in the first quarter
of 1995 as a result of the reversal of certain tax valuation reserves in that
period. Case Credit recorded $26 million of net income in the first quarter of
1996, $5 million more than net income of $21 million in the first quarter of
1995.
Case's operating earnings for the first quarter of 1996 were $126 million,
versus $107 million for the same period in 1995. Case defines operating
earnings as industrial earnings before interest, taxes, changes in accounting
principles and extraordinary loss, including the income of Case Credit on an
equity basis. Case's earnings improvement primarily resulted from improved
pricing, lower operating expenses and higher equity income from Case Credit,
partially offset by the effects of inflation, lower sales volumes and
increased expenditures associated with new product development.
A reconciliation of the Company's industrial net income to operating
earnings is as follows (in millions):
CASE INDUSTRIAL
---------------
THREE MONTHS
ENDED
MARCH 31,
---------------
1996 1995
------- -------
Income before cumulative effect of changes in accounting
principles
and extraordinary loss.................................. $ 75 $ 70
Income tax provision..................................... 28 3
Interest expense......................................... 23 34
------- -------
Operating earnings..................................... $ 126 $ 107
======= =======
REVENUES
On a consolidated basis, worldwide revenues decreased $7 million in the
first quarter of 1996 to $1,171 million compared to $1,178 million in the
first quarter of 1995. Consolidated interest income and other revenue
increased $29 million in the first quarter of 1996 to $66 million primarily
due to a higher year-over-year net gain on the asset-backed securitization
transactions, resulting from increased portfolio margins. Net sales of
equipment and parts decreased $36 million to $1,105 million. The net sales
decrease is comprised of a 3% decrease in volume and a 3% decrease resulting
from actions taken during 1995, including the divestiture of 45 company-owned
retail stores and the sale of Viscosity Oil, both of which are included in the
first quarter 1995 results. These volume declines were partially offset by a
3% improvement in price realization.
11
In North America, net sales of agricultural equipment decreased 27%, while
net sales of construction equipment increased 7%. The decrease in agricultural
equipment sales in North America was primarily driven by the delay of
impending overseas shipments of product that otherwise would have been
available for sale in the North American market. In addition, the Company's
progress in implementing its supply chain management initiative to reduce
working capital enabled Case to lower production relative to 1995, resulting
in lower first quarter wholesale (dealer) sales and correspondingly lower
seasonal inventory builds. This planned action, in combination with higher
retail sales, is expected to reduce the Company's working capital
requirements. The 7% increase in North American construction equipment sales
was primarily driven by a significant increase in loader/backhoe sales.
In Europe, net sales of agricultural equipment in the first quarter of 1996
increased 27% while net sales of construction equipment decreased 19%, as
compared to the same period in 1995. The increase in European agricultural
equipment sales resulted from significant increases in sales of both 40-plus
horsepower tractors and Magnum(TM) tractors (120-plus horsepower), along with
a significant increase in combine sales. The 19% decrease in construction
equipment sales in Europe resulted from lower sales of excavators,
loader/backhoes and compaction equipment in the first quarter of 1996, as
compared to the first quarter of 1995, primarily due to weakening economic
conditions in Europe, particularly in France and Germany.
In Case's other international markets, sales of agricultural equipment in
the first quarter of 1996 rose 85%, while sales of construction equipment
decreased 7% as compared to the first quarter of 1995. The increase in
agricultural equipment sales resulted from significant increases in sales of
120-plus horsepower tractors, four-wheel drive tractors, combines and cotton
pickers. Sales in the Asia Pacific region were particularly strong due to
better weather conditions for broadacre farming and continued stability in
commodity prices in Australia/New Zealand. The 7% decrease in construction
equipment sales was due to the continued weakness of the construction
equipment market in Brazil that began in the third quarter of 1995.
COSTS AND EXPENSES
Cost of goods sold for the industrial operations decreased $32 million to
$844 million in the first quarter of 1996 as compared to the same quarter in
1995. This decrease was primarily due to a decrease in sales volume, with cost
of goods sold as a percentage of net sales decreasing to 76% in the first
quarter of 1996 from 77% in the first quarter of 1995. This decrease, as a
percentage of net sales, reflects benefits from restructuring and other cost
reduction initiatives partially offset by inflationary cost increases.
Selling, general and administrative expenses for the industrial operations
decreased $28 million in the first quarter of 1996 to $128 million. As a
percentage of net sales, selling, general and administrative expenses
decreased to 12% in the first quarter of 1996 as compared to 14% in the first
quarter of 1995. This decrease reflects lower retail selling expenses as a
result of restructuring-related sales of company-owned stores and decreased
selling expenses related to low-rate and other sales financing programs. Case
Industrial makes payments to Case Credit in an amount equal to the difference
between the interest rate actually paid by retail customers and the interest
rate charged by Case Credit.
Research, development and engineering expenses increased 29% to $45 million
in the first quarter of 1996 as compared to the same quarter in 1995. The
increased expenditures primarily related to new product development.
Interest expense for Case Industrial was $23 million, $11 million lower than
the same quarter of 1995. The decreased interest expense was primarily due to
lower debt levels during the first quarter of 1996, as compared to the first
quarter of 1995.
The consolidated income tax provision for the first quarter of 1996 was 37%,
as compared to 20% in the first quarter of 1995. The 1996 effective income tax
rate was slightly higher than the U.S. statutory rate of 35%
12
primarily due to state income taxes and foreign income taxed at different
rates partially offset by a reversal of the tax valuation reserve in certain
foreign jurisdictions. The income tax rate in 1995 was significantly lower
than the U.S. statutory rate primarily due to reductions in the tax valuation
reserve in 1995 that resulted from income generated in certain tax
jurisdictions.
RESTRUCTURING PROGRAM
During the first quarter of 1996, restructuring-related actions included the
divestiture of 13 company-owned retail stores. The Vierzon, France,
manufacturing facility was closed during the quarter and loader/backhoe
production was transferred to the Crepy, France, facility. Regional North
American depots have begun to supply component parts to dealers that were
previously supplied by the Racine, Wisconsin parts depot. The Company
previously announced its intention to close the Racine parts depot during
1996.
CREDIT OPERATIONS
Case Credit recorded net income of $26 million in the first quarter of 1996,
versus $21 million in the first quarter of 1995. Revenues were $66 million,
compared to $51 million in the first quarter of 1995. The increase in revenues
for the first quarter of 1996 over the prior year was due to the higher net
gain on asset-backed securitization transactions, resulting from increased
margins on portfolio yield versus investor yield, and higher finance income on
retail notes partially offset by lower payments from Case Industrial for low-
rate financing programs.
Interest expense for the first quarter of 1996 was $17 million versus $10
million in the first quarter of 1995. This increase is primarily due to higher
overall debt levels to support the increase in Case Credit's portfolio.
Case Credit's serviced portfolio increased 14% to $3.8 billion. New
equipment acquisitions in the first quarter of 1996 were up 6% versus the
comparable period last year. Portfolio losses for the total serviced portfolio
were $0.7 million versus $0.1 million during the first quarter of 1995. This
represents a loss to liquidation ratio of 0.14% in the first quarter of 1996
versus 0.04% in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The discussion of liquidity and capital resources focuses on the
consolidated balance sheets and statements of cash flows. Case's industrial
operations are capital intensive and subject to seasonal variations in
financing requirements for dealer receivables and inventories. Whenever
necessary, funds provided from operations are supplemented from external
sources.
Cash used by operating activities was $41 million in the first quarter of
1996. This use of cash was primarily due to increased levels of inventories
and wholesale (dealer) receivables partially offset by operating income and
lower levels of retail receivables. Inventories have increased, since December
31, 1995, in anticipation of traditionally strong sales in the second quarter
when most soil preparation and seeding is done. Cash used by operating
activities in the first quarter of 1995 was $237 million, and was also
primarily driven by increases in inventories and receivables.
During the first quarter of 1996, the Company identified two strategic
acquisitions resulting in $32 million of investment, including $15 million in
non-cash consideration. In January, the Company acquired Concord, Inc.
("Concord"), a manufacturer of air drills based in Fargo, North Dakota, with
annual sales of approximately $25 million. In February, the Company launched a
bid to acquire Austoft Holdings Limited ("Austoft") of Australia, the world's
largest manufacturer of sugar-cane harvesting equipment. Holders of more than
95% of Austoft's common stock have accepted the Company's offer and
expectations are that completion of the acquisition will occur in the second
quarter of this year. The Company arranged an additional two-year, $A90
million credit facility for the purpose of acquiring the outstanding common
stock of Austoft.
During the quarter, the Company issued common stock in conjunction with the
purchase of Concord, and also issued 566,100 shares in conjunction with an
over-allotment option exercised by the underwriters of a 15.2
13
million share offering of Case shares held by Tenneco, Inc. The Company
received approximately $30 million in proceeds from the exercise of the over-
allotment options. The first quarter equity offering fully divested Tenneco,
Inc. of its holdings in Case.
The Company received proceeds from the issuance of long-term debt of $500
million during the first quarter of 1996. In January, the Company issued $300
million aggregate principal amount of 7 1/4% unsecured and unsubordinated
notes due 2016. In February, Case Credit issued $200 million aggregate
principal amount of its 6 1/8% unsecured and unsubordinated notes due 2003
pursuant to a $300 million shelf registration statement filed with the
Securities and Exchange Commission in 1995. The net proceeds from the offering
were used to repay indebtedness and finance Case Credit's growing portfolio of
receivables.
The Company repaid $353 million of long-term debt during the first quarter
of 1996. The proceeds from the $300 million note offering, together with cash
and additional borrowings under the Company's credit facilities were used to
exercise the Company's option to repurchase for cash all of the Company's 10
1/2% Senior Subordinated Notes and to pay accrued interest thereon. As a
result of this repurchase, the Company recorded an extraordinary after-tax
charge of $22 million.
Total debt at March 31, 1996, was $1,980 million, $816 million of which
related to Case Credit. The consolidated debt to capitalization ratio, defined
as total debt divided by the sum of total debt, stockholders' equity and
preferred stock with mandatory redemption provisions, was 53.9% at March 31,
1996, and the Company's industrial debt to capitalization ratio was 40.8%. The
consolidated and industrial ratios at December 31, 1995 were 54.9% and 39.3%,
respectively.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
The Company has various sources of future liquidity: the asset-backed
securitization markets, public debt offerings and other available lines of
credit. In addition, the Company has a $400 million private, revolving
wholesale receivable asset-backed securitization facility that can be utilized
to periodically sell wholesale (dealer) receivables to third party investors.
Also, the Company anticipates that it will continue to pool retail receivables
and issue asset-backed securities in the United States and Canada depending
upon the availability of the asset-backed securities market. Case Credit may
also issue additional debt securities of up to $100 million aggregate
principal amount under the registration statement previously mentioned.
OUTLOOK
Case expects the fundamentals that have driven growth in its markets to
continue through 1996.
The global market for agricultural equipment is poised for sustained growth
as a result of a number of positive factors. Increased demand for food, low
carryover stocks of wheat and other grains and high commodity prices all are
contributing to a positive, long-term growth outlook. In North America, the
adoption of a new Farm Bill with corresponding market transition payments
expected to total more than $5 billion in 1996, along with increased acreage
available for planting this year, should further improve the market.
The North American market for light-to-medium construction equipment is
expected to be stable to improving, due to a sustained housing market driven
by favorable interest rates. However, the Company believes the European
construction market could continue to experience some weakness, particularly
in France and Germany, if lower interest rates do not generate economic
growth.
In the rest of Case's markets, the Company expects generally favorable
conditions. In the Asia Pacific region, the outlook in 1996 for agricultural
equipment is strong in Australia/New Zealand due to better weather conditions
for broadacre farming and continued stability in commodity prices. The market
for construction equipment in the Asia Pacific region is expected to be flat
in Australia/New Zealand, but the Company expects growth in Asia, including
commencement of sales in China, where the Company established a joint venture
in
14
1995 for the manufacture and distribution of construction equipment. In the
Latin America region, Brazil's market for construction equipment is expected
to gradually improve from the extreme economic weakness experienced in the
second half of 1995.
The information included in this outlook section is forward looking and
involves risks and uncertainties that could significantly impact expected
results. 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, government spending and general economic conditions. Some of the other
significant factors for the Company include foreign currency movements,
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, changes in environmental laws, employee relations and other
factors.
OTHER MATTERS
The Company announced that it will sell 324 grain and rice combines to
Uzbekistan for more than $50 million. Financing for the sale is guaranteed by
the Export-Import Bank of the United States and other private commercial
banks. The combines will be shipped throughout the spring of this year in
anticipation of the Uzbekistan harvest that begins in mid-to-late May 1996.
The Company's board of directors elected Jean-Pierre Rosso to the additional
position of chairman. Mr. Rosso has been president and chief executive officer
of the company since April 1994.
Katherine M. Hudson, president and chief executive officer of W.H. Brady
Company, was elected to the Company's board of directors.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of legal proceedings to which the Company is party, see
Item 3 in the Company's Form 10-K for the fiscal year ended December 31, 1995,
and footnote 7 of this Form 10-Q.
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.
In a report filed on Form 8-K dated January 16, 1996, the Company reported
(i) the issuance of $300 million aggregate principal amount of its 7 1/4%
unsecured and unsubordinated notes due 2016 (the "Note Offering") and (ii)
that the Company had exercised its option to repurchase for cash with the net
proceeds of the Note Offering, together with cash and additional borrowings
under the Company's credit facilities, all of the Company's 10 1/2% Senior
Subordinated Notes due 2002.
In a report filed on Form 8-K dated January 25, 1996, the Company reported
the issuance of a press release that disclosed, among other things, the
unaudited operating results of Case Corporation for the quarter ended December
31, 1995.
15
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 CORPORATION
Theodore R. French
By __________________________________
Theodore R. French
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and authorized signatory
for Case Corporation)
Date: May 10, 1996
16
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NUMBER
NUMBER DESCRIPTION OF EXHIBITS PAGES
------- ----------------------- ----------
4 The Company hereby agrees to furnish to the Securities
and Exchange Commission, upon its request, the
instruments with respect to its guaranty of certain
indebtedness issued by its subsidiaries, which
indebtedness does not exceed 10% of the Company's total
consolidated assets.
11 Computation of Earnings Per Share of Common Stock. 18
Computation of Ratio of Earnings to Fixed Charges and
12 Preferred Dividends. 19
27 Financial Data Schedule
17