- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 JUNE 30, 1996
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13098
----------------
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
----------------
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: 72,537,702 shares outstanding as of
June 30, 1996.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
Part I--Financial Information
Case Corporation and Consolidated Subsidiaries--
Balance Sheets........................................................ 2
Statements of Income.................................................. 3
Statements of Cash Flows.............................................. 5
Statements of Changes in Stockholders' Equity......................... 6
Notes to Financial Statements......................................... 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 13
Part II--Other Information
Item 1. Legal Proceedings............................................... 20
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. 20
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 20
- --------
*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 JUNE 30, 1996, AND DECEMBER 31, 1995
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
CONSOLIDATED CASE INDUSTRIAL CASE CREDIT
--------------------- --------------------- ---------------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 1995 1996 1995 1996 1995
-------- ------------ -------- ------------ -------- ------------
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 96 $ 132 $ 81 $ 117 $ 15 $ 15
Accounts and notes
receivable:
Trade.................. 1,837 1,504 1,545 1,323 292 181
Affiliates............. -- -- 2 -- 11 16
Other.................. 99 55 34 18 65 37
Inventories............ 1,058 901 1,058 901 -- --
Deferred income taxes.. 201 200 185 185 16 15
Prepayments and other.. 64 60 64 57 -- 3
------ ------ ------ ------ ------ ------
Total current assets. 3,355 2,852 2,969 2,601 399 267
------ ------ ------ ------ ------ ------
Long-Term Receivables... 1,205 1,244 262 395 927 835
Other Assets:
Investments in joint
ventures.............. 67 65 67 65 -- --
Investment in Case
Credit................ -- -- 220 193 -- --
Goodwill and
intangibles........... 229 176 229 176 -- --
Other.................. 158 176 163 139 12 51
------ ------ ------ ------ ------ ------
Total other assets... 454 417 679 573 12 51
------ ------ ------ ------ ------ ------
Property, Plant and
Equipment, at cost..... 1,968 1,970 1,966 1,970 2 --
Accumulated
depreciation.......... (1,019) (1,014) (1,018) (1,014) (1) --
------ ------ ------ ------ ------ ------
Net property, plant and
equipment.............. 949 956 948 956 1 --
------ ------ ------ ------ ------ ------
Total................ $5,963 $5,469 $4,858 $4,525 $1,339 $1,153
====== ====== ====== ====== ====== ======
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of
long-term debt........ $ 45 $ 47 $ 45 $ 47 $ -- $ --
Short-term debt........ 1,015 1,005 232 97 785 908
Accounts payable....... 568 533 566 533 14 16
Restructuring
liability............. 61 97 61 97 -- --
Other accrued
liabilities........... 794 784 752 748 42 36
------ ------ ------ ------ ------ ------
Total current
liabilities......... 2,483 2,466 1,656 1,522 841 960
------ ------ ------ ------ ------ ------
Long-Term Debt.......... 1,157 889 879 889 278 --
Other Liabilities:
Pension benefits....... 129 134 129 134 -- --
Other postretirement
benefits.............. 108 98 108 98 -- --
Other postemployment
benefits.............. 39 40 39 40 -- --
Restructuring
liability............. 202 210 202 210 -- --
Other.................. 45 35 45 35 -- --
------ ------ ------ ------ ------ ------
Total other
liabilities......... 523 517 523 517 -- --
------ ------ ------ ------ ------ ------
Commitments and
Contingencies
Minority Interest....... 1 -- 1 -- -- --
Preferred Stock with
Mandatory Redemption
Provisions............. 77 77 77 77 -- --
Stockholders' Equity:
Common Stock, $0.01 par
value; authorized
200,000,000 shares,
issued 72,575,093,
outstanding
72,537,702............ 1 1 1 1 -- --
Paid-in capital........ 1,204 1,154 1,204 1,154 199 199
Cumulative translation
adjustment............ (23) (21) (23) (21) (6) (8)
Unearned compensation
on restricted stock... (9) (10) (9) (10) -- --
Pension liability
adjustment............ (2) (2) (2) (2) -- --
Retained earnings...... 552 399 552 399 27 2
Treasury stock, 37,391
shares, at cost....... (1) (1) (1) (1) -- --
------ ------ ------ ------ ------ ------
Total stockholders'
equity.............. 1,722 1,520 1,722 1,520 220 193
------ ------ ------ ------ ------ ------
Total................ $5,963 $5,469 $4,858 $4,525 $1,339 $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 AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995
(IN MILLIONS EXCEPT PER SHARE DATA)
(UNAUDITED)
CONSOLIDATED
--------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1996 1995 1996 1995
--------- --------- -------- --------
Revenues:
Net sales............................. $ 1,398 $ 1,377 $ 2,503 $ 2,518
Interest income and other............. 68 41 134 78
--------- --------- -------- --------
1,466 1,418 2,637 2,596
Costs and Expenses:
Cost of goods sold.................... 1,052 1,042 1,896 1,918
Selling, general and administrative... 140 138 259 271
Research, development and engineering. 46 38 91 73
Interest expense...................... 38 47 78 90
Other, net............................ 12 17 16 20
--------- --------- -------- --------
Income before taxes and cumulative
effect of changes in accounting
principles and extraordinary loss..... 178 136 297 224
Income tax provision................... 68 26 112 44
--------- --------- -------- --------
Income before cumulative effect of
changes in accounting principles and
extraordinary loss.................... 110 110 185 180
Equity in income--Case Credit.......... -- -- -- --
--------- --------- -------- --------
Income before cumulative effect of
changes in accounting principles and
extraordinary loss.................... 110 110 185 180
Cumulative effect of changes in
accounting principles................. -- -- -- (9)
Extraordinary loss..................... -- -- (22) --
--------- --------- -------- --------
Net income............................. $ 110 $ 110 $ 163 $ 171
========= ========= ======== ========
Preferred stock dividends.............. 1 1 3 3
--------- --------- -------- --------
Net income to common................... $ 109 $ 109 $ 160 $ 168
========= ========= ======== ========
Per share data:
Primary earnings per share of common
stock................................ $ 1.47 $ 1.53 $ 2.17 $ 2.36
========= ========= ======== ========
Fully diluted earnings per share of
common stock......................... $ 1.42 $ 1.46 $ 2.11 $ 2.28
========= ========= ======== ========
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 INDUSTRIAL CASE CREDIT
- ------------------------------------ --------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
- ----------------- ---------------- ------------------ ----------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
$1,398 $1,377 $2,503 $2,518 $ -- $ -- $ -- $ --
17 14 33 29 59 59 125 110
------ ------ ------ ------ ------ ------ ------ ------
1,415 1,391 2,536 2,547 59 59 125 110
1,052 1,042 1,896 1,918 -- -- -- --
142 165 270 321 5 4 12 10
46 38 91 73 -- -- -- --
25 38 48 72 14 9 31 19
7 16 11 19 5 1 5 1
------ ------ ------ ------ ------ ------ ------ ------
143 92 220 144 35 45 77 80
52 6 80 9 16 21 32 35
------ ------ ------ ------ ------ ------ ------ ------
91 86 140 135 19 24 45 45
19 24 45 45 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
110 110 185 180 19 24 45 45
-- -- -- (9) -- -- -- --
-- -- (22) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
$ 110 $ 110 $ 163 $ 171 $ 19 $ 24 $ 45 $ 45
====== ====== ====== ====== ====== ====== ====== ======
4
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996, AND 1995
(IN MILLIONS)
(UNAUDITED)
CONSOLIDATED CASE INDUSTRIAL CASE CREDIT
---------------- ---------------- ----------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
---------------- ---------------- ----------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------- -------
Operating activities:
Net income............ $ 163 $ 171 $ 163 $ 171 $ 45 $ 45
Adjustments to
reconcile net income
to net cash provided
(used) by
operating
activities--
Depreciation and
amortization....... 70 62 63 62 7 --
Deferred income tax
expense............ (5) (69) (5) (70) -- 1
(Gain) loss on
disposal of fixed
assets............. 3 (1) 3 (1) -- --
Extraordinary loss,
after tax.......... 22 -- 22 -- -- --
Cumulative effect of
changes in
accounting
principles......... -- 9 -- 9 -- --
Cash paid for
restructuring...... (32) (17) (32) (17) -- --
Undistributed
earnings of
unconsolidated
subsidiaries....... (3) -- (30) -- -- --
Changes in
components of
working capital--
(Increase)
decrease in
receivables...... (376) (329) (236) (301) (137) (26)
(Increase)
decrease in
inventories...... (139) (144) (139) (144) -- --
(Increase)
decrease in
prepayments and
other current
assets........... (4) (10) (6) (10) 2 --
Increase
(decrease) in
payables......... 85 40 82 39 -- --
Increase
(decrease) in
accrued
liabilities...... 15 92 10 87 5 5
(Increase) decrease
in long-term notes
receivable......... 88 212 136 265 (46) (51)
Increase (decrease)
in other
liabilities........ 11 7 11 7 -- --
Other, net.......... (12) 9 (10) 18 (2) (7)
------- ------- ------- ------- ------- -------
Net cash provided
(used) by
operating
activities...... (114) 32 32 115 (126) (33)
------- ------- ------- ------- ------- -------
Investing activities:
Proceeds from sale of
businesses and
assets............... 7 9 7 9 -- --
Expenditures for
property, plant and
equipment............ (56) (23) (54) (23) (2) --
Acquisitions and
investments.......... (71) -- (71) -- -- --
Other, net............ -- 9 -- 9 -- --
------- ------- ------- ------- ------- -------
Net cash provided
(used) by
investing
activities...... (120) (5) (118) (5) (2) --
------- ------- ------- ------- ------- -------
Financing activities:
Proceeds from issuance
of common stock...... 39 -- 39 -- -- --
Proceeds from issuance
of long-term debt.... 500 -- 300 -- 200 --
Payment of long-term
debt................. (356) (325) (356) (325) -- --
Net increase
(decrease) in short-
term debt............ 25 333 77 242 (52) 91
Dividends paid (common
and preferred)....... (10) (10) (10) (10) (20) (43)
Other, net............ -- (5) -- (7) -- (5)
------- ------- ------- ------- ------- -------
Net cash provided
(used) by
financing
activities...... 198 (7) 50 (100) 128 43
------- ------- ------- ------- ------- -------
Effect of foreign
exchange rate changes
on cash and cash
equivalents........... -- 1 -- 1 -- --
Increase (decrease) in
cash and cash
equivalents........... (36) 21 (36) 11 -- 10
Cash and cash
equivalents, beginning
of period............. 132 68 117 64 15 4
------- ------- ------- ------- ------- -------
Cash and cash
equivalents, end of
period................ $ 96 $ 89 $ 81 $ 75 $ 15 $ 14
======= ======= ======= ======= ======= =======
Cash paid during the
period for interest... $ 77 $ 84 $ 52 $ 66 $ 25 $ 18
======= ======= ======= ======= ======= =======
Cash paid during the
period for taxes...... $ 91 $ 96 $ 55 $ 67 $ 36 $ 29
======= ======= ======= ======= ======= =======
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."
5
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
(UNAUDITED)
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............. -- -- -- -- -- 163 -- 163
Dividends declared..... -- -- -- -- -- (10) -- (10)
Translation adjustment. -- -- (2) -- -- -- -- (2)
Capital contributions
on stock issuance..... -- 50 -- -- -- -- -- 50
Recognition of
compensation on
restricted stock...... -- -- -- 1 -- -- -- 1
--- ------ ---- --- --- ---- --- ------
Balance, June 30, 1996.. $ 1 $1,204 $(23) $(9) $(2) $552 $(1) $1,722
=== ====== ==== === === ==== === ======
The accompanying notes to financial statements are an integral part of
these Statements of Changes in Stockholders' Equity.
6
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 June 30, 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
Case Credit sold $771 million and $795 million of retail notes in the six
months ended June 30, 1996 and June 30, 1995, respectively, to limited-purpose
business trusts organized by Case in the United States and Canada. These
trusts were formed for the purpose of purchasing receivables from Case Credit
and the receivables served as collateral for the issuance of asset-backed
securities to outside investors. The proceeds from the sale of retail notes
were used to repay outstanding debt and to finance additional receivables.
7
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):
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
Case Industrial
Case Corporation
Senior subordinated notes, interest rate of 10.5%,
retired January 1996.................................. $ -- $ 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%......... 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%.......................................... 28 33
Other debt............................................... 10 4
------ ------
924 936
Less-current maturities.................................. (45) (47)
------ ------
Total long-term debt--Case Industrial................ $ 879 $ 889
------ ------
Case Credit
Case Credit Corporation
Notes, payable in 2003, interest rate of 6.125%........ $ 200 $ --
Case Credit Australia Pty Limited
Long-term portion of borrowings on a line of credit,
average interest
rate of 7.6%.......................................... 78 --
------ ------
Total long-term debt--Case Credit.................... $ 278 $ --
------ ------
Total long-term debt................................. $1,157 $ 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 if, among other conditions, Case Credit debt guaranteed by
the Company falls below $100 million.
(4) INCOME TAXES
On a consolidated basis, the Company's effective tax rate for the first six
months of 1996 of 38% was slightly higher than the U.S. statutory tax rate of
35% primarily due to state income taxes and foreign income
8
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
taxed at different rates partially offset by a reduction in the tax valuation
reserve in certain foreign jurisdictions. In the first six months 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.
(5) ACQUISITION OF BUSINESSES
During 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 the second quarter of 1996, the Company's
Australian subsidiary completed the acquisition of Austoft Holdings Limited
("Austoft"), the world's largest manufacturer of sugar cane harvesting
equipment. Austoft is based in Bundaberg, Queensland, Australia, and had sales
of approximately $74 million for the fiscal year ended June 30, 1996. Also in
the second quarter, the Company reached an agreement to acquire 75% of Steyr
Landmaschinentechnik GmbH ("Steyr"), an Austrian tractor manufacturer. Steyr
is based in St. Valentin, Austria, and had revenues of approximately $176
million in 1995.
(6) STOCKHOLDERS' EQUITY
On March 15, 1996, the Board of Directors of the Company, adopted
resolutions increasing the number of shares of common stock reserved for
issuance under the following benefit plans:
ADDITIONAL
PLAN NAME SHARES AUTHORIZED
--------- -----------------
Equity Incentive Plan ("EIP").............................. 2,500,000
Employee Stock Purchase Plan ("ESPP")...................... 1,000,000
Retirement Savings Plan.................................... 4,000,000
At that time, the Board of Directors also adopted resolutions reserving for
the first time 100,000 shares of common stock for issuance under the Outside
Directors' Equity Compensation Plan ("ECP").
The resolutions required stockholder approval of the EIP, the ESPP and the
ECP, and such approval was obtained at the Company's 1996 Annual Meeting held
on May 15, 1996.
The shares reserved for issuance under these plans will be issued
periodically over the next several years.
(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.
9
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Case has received and from time to time receives inquiries and/or notices of
potential liability at multiple 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 is of the opinion that any
such potential liability or remediation costs will not have a material adverse
effect on Case's financial position or results of operations.
Product and general liability
Product and general liability claims against Case arise from time to time in
the ordinary course of business. There is an inherent uncertainty as to the
eventual resolution of unsettled claims. However, in the opinion of
management, any losses with respect to existing claims will not have a
material adverse effect on Case's financial position or results of operations.
Legal matters
On May 22, 1996, Case entered into a plea agreement with the United States
Government as a result of a three-count criminal information filed in the
United States District Court for the Eastern District of Wisconsin
(Milwaukee). The first count charged 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 charged a separate IEEPA violation premised on the 1986 and 1987 sales
by Case's U.K. affiliate, J. I. Case Europe Limited, of U.S.-origin parts to
British and Korean companies for use in Libya; the final count charged a
violation of the Export Administration Act as a result of Case's mislabeling
of parts shipments to a Syrian dealer from 1988 to 1991.
The plea agreement which was accepted by the U.S. District Court was a
global settlement. It resolved all issues of an administrative, civil and
criminal nature existing between Case and the United States Departments of
Justice, Treasury and Commerce. Pursuant to the plea agreement, Case paid a
penalty totaling $2 million.
This resolution of the matter did not affect Case's export privileges, nor
did it disqualify Case or any of its affiliates as a government contractor.
The incidents that led to the charges were isolated and occurred more than
five years ago. Upon notification in 1991 that these events took place, Case
took immediate steps to respond. Case instituted and has in place a variety of
compliance programs designed to prevent a recurrence of such violations in the
future.
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 fraudulently 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
was approximately DM 220 million, or $149 million.
Lupia asserted similar claims against the former owners of the other 50%
interest in Intertractor, Thyssen Industrie Aktiengesellschaft ("Thyssen") and
Gebruder Kulenkampff Handelsgesellschaft mbH & Co. Kommanditgesellschaft
("GK"). On or about September 29, 1994, Lupia filed suit in Germany against
Thyssen and GK on the grounds of fraud and breach of contract. Lupia's claims
against Thyssen and GK arise out of essentially the same facts as Lupia's
claim against Universaltrac. However, neither the Company nor Universaltrac
was named in the litigation.
10
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On or about June 14, 1995, the District Court dismissed Lupia's suit against
Thyssen and GK without hearing evidence. Lupia appealed and on May 3, 1996,
the Court of Appeals issued a written judgment dismissing Lupia's appeal.
Lupia did not appeal to the German Supreme Court. The judgment of the Court of
Appeals is therefore final and binding as between Lupia and the defendants.
Although the judgment is not binding as between Lupia and Universaltrac, the
Company believes it is unlikely that Lupia will sue Universaltrac on what
would be essentially the same grounds as those already rejected by both the
District Court and the Court of Appeals. The Company also believes that if
such a suit were filed, the outcome would be the same as in Lupia's suit
against Thyssen and GK.
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. Both the District Court and Court of Appeals held, however, that the
former general managers were not agents of the defendants in connection with
the sale. The Company therefore believes that the criminal investigation
likely presents no risk of liability to Universaltrac or the Company.
The Company has agreed to indemnify Tenneco Inc. against any losses it or
its subsidiaries may incur as a result of Lupia's demand. In light of the
decisions of the District Court and the Court of Appeals, however, the Company
believes that Lupia's claim presents no risk of liability to Tenneco or the
Company.
Case is party to various legal proceedings arising from its operations, the
most common of which involve product liability claims, disputes with dealers
and employment matters. Management is of the opinion 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.
11
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) EARNINGS PER SHARE OF COMMON STOCK
THREE
MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
----------- --------------
1996 1995 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.... $1.47 $1.53 $ 2.47 $ 2.49
Cumulative effect of changes in accounting
principles...................................... -- -- -- (0.13)
Extraordinary loss............................... -- -- (0.30) --
----- ----- ------ ------
Net earnings per share of common stock........... $1.47 $1.53 $ 2.17 $ 2.36
===== ===== ====== ======
Average common and common equivalent shares
outstanding..................................... 74 71 74 71
Fully Diluted
Net earnings before cumulative effect of changes
in accounting principles and extraordinary loss. $1.42 $1.46 $ 2.40 $ 2.40
Cumulative effect of changes in accounting
principles...................................... -- -- -- (0.12)
Extraordinary loss............................... -- -- (0.29) --
----- ----- ------ ------
Net earnings per share of common stock........... $1.42 $1.46 $ 2.11 $ 2.28
===== ===== ====== ======
Average common and common equivalent shares
outstanding..................................... 77 75 77 75
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
Second Quarter 1996 vs. Second Quarter 1995
EARNINGS
The Company recorded net income of $110 million in each of the second
quarters of 1996 and 1995. Primary earnings per share for the second quarter
of 1996 was $1.47 per share compared to $1.53 per share in the same quarter of
1995. The 4% per share decrease is due to an increase in the number of common
shares outstanding.
The Company's industrial operations recorded income before equity income of
Case Credit of $91 million in the second quarter of 1996, increasing 6% from
the $86 million reported in the second quarter of 1995. On a pretax basis, the
Company's industrial earnings increased $51 million to $143 million in the
second quarter of 1996 from $92 million in the second quarter of 1995. The
industrial effective income tax rate increased from 7% in the second quarter
of 1995 to 36% in the second quarter of 1996, resulting from a reversal of the
tax valuation reserve in 1995. Case Credit recorded $19 million in net income
in the second quarter of 1996, $5 million less than net income of $24 million
in the second quarter of 1995. This decrease was primarily due to the timing
of asset-backed securitization transactions and the amount of prefunding on
such transactions.
Case's operating earnings for the second quarter of 1996 were $187 million,
versus $154 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 resulted from significantly higher
price realization; improved manufacturing performance and restructuring-
related savings; lower industrial selling, general and administrative
expenses; higher interest income; and a favorable foreign exchange impact.
These improvements were partially offset by inflationary cost increases,
higher research and development spending, and lower earnings at Case Credit.
A reconciliation of the Company's industrial net income to operating
earnings is as follows (in millions):
CASE
INDUSTRIAL
-----------
THREE
MONTHS
ENDED
JUNE 30,
-----------
1996 1995
----- -----
Income before cumulative effect of changes in accounting
principles and extraordinary loss.......................... $110 $110
Income tax provision........................................ 52 6
Interest expense............................................ 25 38
----- -----
Operating earnings...................................... $187 $154
===== =====
REVENUES
On a consolidated basis, worldwide revenues increased $48 million in the
second quarter of 1996 to $1,466 million compared to $1,418 million in the
second quarter of 1995. Net sales of equipment and parts increased $21 million
to $1,398 million. The increase in net sales is comprised of a 2% increase in
volume and a 3% improvement in price realization, partially offset by a 3%
decrease resulting from the divestiture of company-owned retail stores and the
sale of Viscosity Oil in 1995. Consolidated interest income and other revenue
increased $27 million in the second quarter of 1996 to $68 million. This
reflects higher revenues on Case Credit, primarily related to higher finance
income earned on retail notes and leases, and asset-backed securitization
transactions.
13
In North America, second quarter net sales of construction equipment to
dealers increased slightly, while net sales of agricultural equipment
decreased 14% as compared to the second quarter of 1995. Net sales for the
quarter were affected by the year-over-year impact of selling company-owned
retail stores, the sale of Viscosity Oil in 1995, and the Company's progress
in implementing its supply chain management initiative. This initiative has
allowed the Company to underproduce relative to worldwide retail demand, and
thereby reduce field inventories. This planned action will continue to have a
significant impact in the third quarter and will allow the Company to generate
substantial cash flow in the second half of 1996. Retail unit sales (sales by
Case dealers to retail customers) of agricultural and construction equipment
in North America improved significantly over the second quarter of 1995.
In Europe, net sales of agricultural equipment to dealers in the second
quarter of 1996 decreased 8% and net sales of construction equipment decreased
20%, as compared to the same period in 1995, largely due to the year-over-year
impact of the change in exchange rates. The decrease in agricultural equipment
sales was also driven by a decrease in sales of tractors with less than 120
horsepower, partially offset by an increase in sales of combines. The decrease
in sales of construction equipment also reflects the continued weakness of the
European construction equipment market, particularly in France and Germany.
In Case's other international markets, sales of equipment in the second
quarter of 1996 nearly doubled. 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 improved crop prices and
favorable weather conditions. The increase in construction equipment sales was
primarily due to increases in loader/backhoe sales in the Asia Pacific region,
along with improvements in the Brazilian economy from the severe weakness
experienced in the second half of 1995. The Company experienced increases in
retail unit sales in most product lines during the second quarter of 1996.
COSTS AND EXPENSES
Cost of goods sold for the industrial operations increased $10 million to
$1,052 million in the second quarter of 1996 as compared to the same quarter
in 1995. Cost of goods sold as a percentage of net sales decreased to 75.3% in
the second quarter of 1996 from 75.7% in the second quarter of 1995. This
decrease reflects pricing actions and cost improvement initiatives. These
improvements were partially offset by inflationary cost increases and the
impact of the sale of company-owned retail stores.
Selling, general and administrative expenses for the industrial operations
decreased $23 million in the second quarter of 1996 to $142 million. As a
percentage of net sales, selling, general and administrative expenses
decreased to 10.2% in the second quarter of 1996 as compared to 12.0% in the
second quarter of 1995. This decrease reflects lower retail selling expenses
as a result of restructuring-related sales of company-owned retail stores and
decreased 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 rate actually paid by retail customers and the interest
rate charged by Case Credit.
Research, development and engineering expenses increased 21% to $46 million
in the second quarter of 1996 as compared to the same quarter in 1995. The
increased expenditures primarily related to new product development.
Interest expense for Case's industrial operations was $25 million in the
second quarter of 1996, $13 million lower than the same quarter of 1995. The
decreased interest expense was primarily due to lower debt levels during the
second quarter of 1996 as compared to the second quarter of 1995, and
strategic refinancing actions taken in the second half of 1995 and the first
half of 1996.
The consolidated income tax provision for the second quarter of 1996 was 38%
as compared to 19% in the second quarter of 1995. The 1996 effective income
tax rate was slightly higher than the U.S. statutory rate of 35% primarily due
to state income taxes and foreign income taxed at different rates partially
offset by a reversal
14
of the tax valuation reserve in certain foreign jurisdictions. The income tax
rate in 1995 was significantly lower than the U.S. statutory rate due
primarily to reductions in the tax valuation reserve in 1995 that resulted
from income generated in certain tax jurisdictions.
CREDIT OPERATIONS
Case Credit recorded net income of $19 million in the second quarter of
1996, versus $24 million in the second quarter of 1995. Revenues were level at
$59 million in the second quarters of 1996 and 1995. Case Credit experienced
higher finance income on retail notes and leases during the second quarter of
1996 as compared to the second quarter of 1995, offset by lower payments from
Case Industrial for low rate financing programs.
Interest expense for the second quarter of 1996 was $14 million versus $9
million in the second quarter of 1995. This increase is due to higher overall
debt levels to support the increase in Case Credit's portfolio of receivables.
Case Credit's serviced portfolio increased 18% to $4.0 billion. New
equipment acquisitions in the second quarter of 1996 were up 14% versus the
comparable period last year. Portfolio losses for the total serviced portfolio
were $0.7 million versus $1.1 million during the second quarter of 1995. This
represents a loss to liquidation ratio of 0.15% in the second quarter of 1996
versus 0.32% in the second quarter of 1995.
Six months 1996 vs. Six months 1995
EARNINGS
The Company recorded income before cumulative effect of changes in
accounting principles and extraordinary loss of $185 million in the first six
months of 1996. This represents a $5 million improvement from income of $180
million in the first six months of 1995. Primary earnings per share before
accounting changes and extraordinary loss for the first six months of 1996 was
$2.47 per share compared to $2.49 per share in the first six months of 1995.
The decrease in earnings per share is due to an increase in the number of
common shares outstanding.
Net income in the first six months of 1996 was $163 million, with primary
earnings per share of $2.17, versus net income and primary earnings per share
of $171 million and $2.36, respectively, in the first six months 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 Standards ("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 six months 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 $140 million in the first six months of 1996 compared to $135
million in the same period of 1995. On a pretax basis, the Company's
industrial earnings increased $76 million to $220 million in the first six
months of 1996 from $144 million in the first six months of 1995. The
industrial effective income tax rate increased from 6% in the first six months
of 1995 to 36% in the first six months of 1996 resulting from a reversal of
the tax valuation reserve in 1995. Case Credit recorded $45 million in net
income in the first six months of 1996 and 1995.
Case's operating earnings for the first six months of 1996 were $313
million, versus $261 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 resulted from
significantly higher price realization; improved manufacturing performance and
restructuring-related savings; lower industrial selling, general and
administrative expenses; and a favorable
15
foreign exchange impact. These improvements were partially offset by
inflationary cost increases, higher research and development spending, and
lower sales volumes.
A reconciliation of the Company's industrial net income to operating
earnings is as follows (in millions):
CASE
INDUSTRIAL
-----------
SIX MONTHS
ENDED
JUNE 30,
-----------
1996 1995
----- -----
Income before cumulative effect of changes in accounting
principles and extraordinary loss.......................... $185 $180
Income tax provision........................................ 80 9
Interest expense............................................ 48 72
----- -----
Operating earnings...................................... $313 $261
===== =====
REVENUES
On a consolidated basis, worldwide revenues increased $41 million in the
first six months of 1996 to $2,637 million. Net sales of equipment and parts
decreased $15 million to $2,503 million. This decrease in net sales is
comprised of a 2% decrease resulting from the divestiture of company-owned
retail stores and the sale of Viscosity Oil in 1995, and a 1% decrease related
to foreign exchange partially offset by a 3% improvement in price realization.
Consolidated interest income and other revenue increased $56 million in the
first six months of 1996 to $134 million. This reflects higher revenues on
Case Credit, primarily related to higher finance income earned on retail notes
and leases and asset-backed securitization transactions.
In North America, net sales of construction equipment to dealers increased
4%, while net sales of agricultural equipment decreased 20%, from the first
six months of 1995. Net sales for the period were affected by the year-over-
year impact of selling company-owned retail stores, the sale of Viscosity Oil
in 1995, and the Company's supply chain management initiative. This initiative
has allowed the Company to underproduce relative to worldwide retail demand,
and thereby reduce field inventories. This planned action will continue to
have a significant impact in the third quarter and will allow the Company to
generate substantial cash flow in the second half of 1996. Retail unit sales
of agricultural and construction equipment in North America improved
significantly over the first six months of 1995.
In Europe, net sales of agricultural equipment in the first six months of
1996 increased 5% while net sales of construction equipment decreased 19%, as
compared to the same period in 1995. Sales of both agricultural and
construction equipment were negatively impacted by the year-over-year change
in exchange rates. The overall net increase in agricultural equipment sales
was driven by 120-plus horsepower tractors and combines. The decrease in
construction equipment sales also reflects the continued weakness of the
European construction equipment market, particularly in France and Germany.
In Case's other international markets, sales of agricultural equipment in
the first six months of 1996 more than doubled, and sales of construction
equipment increased significantly as compared to the first six months 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 improved crop prices and favorable weather
conditions. The increase in construction equipment sales was primarily due to
increases in loader/backhoe sales in the Asia Pacific region, along with
improvements in the Brazilian economy from the severe weakness in the second
half of 1995. The Company experienced increases in retail unit sales in most
product lines during the first six months of 1996.
16
COSTS AND EXPENSES
Cost of goods sold for the industrial operations decreased $22 million to
$1,896 million in the first six months of 1996 as compared to the same period
in 1995. Cost of goods sold as a percentage of net sales decreased to 75.7% in
the first six months of 1996 from 76.2% in the first six months of 1995. This
decrease reflects pricing actions and cost improvement initiatives, partially
offset by inflationary cost increases and the impact of the sale of company-
owned retail stores.
Selling, general and administrative expenses for the industrial operations
decreased $51 million in the first six months of 1996 to $270 million. As a
percentage of net sales, selling, general and administrative expenses
decreased to 10.8% in the first six months of 1996 as compared to 12.7% in the
first six months of 1995. This decrease reflects lower retail selling expenses
as a result of restructuring-related sales of company-owned retail stores and
decreased 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 25% to $91 million
in the first six months of 1996 as compared to the same period in 1995. The
increased expenditures primarily related to new product development.
Interest expense for Case's industrial operations was $48 million for the
first six months of 1996, $24 million lower than the same period of 1995. The
decreased interest expense was due to lower debt levels during the first six
months of 1996 as compared to the first six months of 1995, and to strategic
refinancing actions.
The consolidated income tax provision for the first six months of 1996 was
38% as compared to 20% in the first six months of 1995. The 1996 effective
income tax rate was slightly higher than the U.S. statutory rate of 35%
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 second quarter of 1996, restructuring-related actions included
the divestiture of 15 company-owned retail stores, for a total of 28
divestitures in the first half of 1996. The Vierzon, France, manufacturing
facility was closed during the first six months of 1996 and loader/backhoe
production was transferred to the Crepy, France, facility. Regional North
American depots are supplying 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 $45 million in the first six months of
1996, versus $45 million in the first six months of 1995. Revenues were $125
million in the first six months of 1996 and $110 million in the first six
months of 1995. Case Credit earned higher finance income on retail notes and
leases during the first six months of 1996 as compared to the first six months
of 1995, offset by lower payments from Case Industrial for low rate financing
programs.
Interest expense for the first six months of 1996 was $31 million versus $19
million in the first six months of 1995. This increase is primarily due to
higher overall debt levels to support the increase in Case Credit's portfolio
of receivables.
Case Credit's serviced portfolio increased 18% to $4 billion. New equipment
acquisitions in the first six months of 1996 were up 14% versus the comparable
period last year. Portfolio losses for the total serviced
17
portfolio were $1.4 million versus $1.3 million during the first six months of
1995. This represents a loss to liquidation ratio of 0.15% in the first six
months of 1996 versus 0.17% in the first six months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The discussion of liquidity and capital resources focuses on the 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 $114 million in the first six months
of 1996. Cash provided by the industrial operations was $32 million, versus
$115 million for the same period in 1995. The cash generated in both 1996 and
1995 resulted from operating income, and increases in payables and accrued
liabilities, partially offset by increases in inventory and wholesale
receivables. In addition, the first six months of 1995 included the impact of
the sale of $400 million of wholesale receivables to a revolving asset-backed
securitization facility. Cash used by Case Credit was $126 million in the
first six months of 1996, versus $33 million for the first six months of 1995.
In both periods cash was used to increase acquisitions of retail receivables
and leases.
During the first six months of 1996, the Company completed two strategic
acquisitions resulting in $71 million of investment including $15 million of
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 the second quarter, the
Company's Australian subsidiary completed the acquisition of Austoft Holdings
Limited ("Austoft") of Australia, the world's largest manufacturer of sugar
cane harvesting equipment. Austoft had sales of approximately $74 million for
the fiscal year ended June 30, 1996.
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 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, which were offered
at $53.75 per share. The equity offering fully divested Tenneco of its
holdings in Case. In addition, common stock was issued in conjunction with
various employee benefit plans and the exercise of stock options.
The Company received proceeds from the issuance of long-term debt of $500
million during the first six months 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 $356 million of long-term debt during the first six
months 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 June 30, 1996, was $2,217 million, $1,063 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 55.2% at June 30,
1996, and the Company's industrial debt to capitalization ratio was 39.1%. The
consolidated and industrial ratios at December 31, 1995 were 54.9% and 39.3%,
respectively.
18
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.
In the first six months of 1996, the Company reached an agreement to acquire
75% of Steyr Landmaschinentechnik GmbH ("Steyr"), an Austrian tractor
manufacturer. Steyr is based in St. Valentin, Austria, and had revenues of
approximately $176 million in 1995. It is anticipated that this acquisition
will be completed in the third quarter.
OUTLOOK
Strong fundamentals are expected to continue to drive growth in Case's
markets during 1996.
Low carryover stocks of grains, smaller than expected harvests and poor
planting conditions in some parts of the world, together with continued growth
in food demand, have fueled the rise in agricultural commodity prices to
record levels. This is expected to keep demand for agricultural equipment
strong for the foreseeable future in virtually all parts of the world.
The North American market for light-to-medium construction equipment is
expected to be stable to improving, due to a sustained housing market. In
addition, growth in other secondary markets, such as waste management and
materials handling, is adding to demand for Case products. In Europe, the
Company believes the construction market could continue to experience
significant weakness, particularly in France and Germany, if lower interest
rates do not generate economic growth. In Case's other markets outside of
western Europe and North America, the Company expects generally favorable
conditions.
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.
19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of legal proceedings to which the Company is party, see
footnote 7 of this Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 15, 1996.
At the meeting, stockholders voted upon (i) the election of a Board of
Directors to serve until the 1997 Annual Meeting of Stockholders and until
their successors are elected and have qualified, (ii) three benefit plans and
(iii) the appointment of Arthur Andersen LLP as independent public accountants
for the year 1996. Proxies for the meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934. There were 60,639,804
shares of common stock present at the meeting in person or by proxy, each such
share being entitled to one vote on each matter being voted upon.
There was no solicitation in opposition to management's nominees for
director as listed in the proxy statement for the meeting and all such
nominees were elected by the following vote:
VOTES
NOMINEE VOTES FOR WITHHELD
------- ---------- ----------
Mark Andrews....................................... 49,727,712 10,912,092
Jeffery T. Grade................................... 49,935,673 10,704,131
Katherine M. Hudson................................ 49,926,942 10,712,862
Dana G. Mead....................................... 49,711,749 10,928,055
Gerald Rosenfeld................................... 49,761,133 10,878,671
Jean-Pierre Rosso.................................. 49,765,692 10,874,112
Theodore R. Tetzlaff............................... 49,741,966 10,897,838
Thomas N. Urban.................................... 49,938,855 10,700,949
The three benefit plans were each approved by the following vote:
VOTES
PLAN VOTES FOR AGAINST ABSTENTIONS
---- ---------- ---------- -----------
Equity Incentive Plan.................. 44,501,571 16,033,395 104,838
Employee Stock Purchase Plan........... 59,975,489 580,852 83,463
Outside Directors' Equity Compensation
Plan.................................. 50,941,713 9,567,792 130,299
The appointment of Arthur Andersen LLP as independent public accountants was
approved by the following vote:
VOTES FOR VOTES
--------- AGAINST ABSTENTIONS
------- -----------
60,534,779 45,847 59,178
There were no broker non-votes on any of the aforementioned matters at the
meeting.
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.
The Company did not file any Current Reports on Form 8-K during the second
quarter ended June 30, 1996.
20
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
/s/ Theodore R. French
By___________________________________
Theodore R. French
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and authorized signatory
for Case Corporation)
Date: August 9, 1996
21
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ----------
4(a) 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.
4(b) Third Amendment, dated as of May 17, 1996, to the Second
Amended and Restated Revolving Credit and Term Loan
Agreement dated as of September 15, 1995, among Case
Corporation, Case Canada Corporation Corporation Case
Canada, the lenders parties thereto, the Co-Agents named
therein, Royal Bank of Canada, as Canadian Administrative
Agent, and Chemical Bank, as U.S. Administrative Agent.
10(a) Case Equipment Corporation Equity Incentive Plan (as
amended and restated on March 15, 1996), as approved by
stockholders on May 15, 1996.
10(b) Case Corporation Outside Directors' Equity Incentive Plan
(as amended and restated effective January 1, 1996), as
approved by stockholders on May 15, 1996.
11 Computation of Earnings Per Share of Common Stock. 23
12 Computation of Ratio of Earnings to Fixed Charges and 24
Preferred Dividends.
27 Financial Data Schedule
22
EXHIBIT 11
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(IN MILLIONS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1996
------------ ----------
Computations for Statements of Income
Primary earnings per share of common stock (average
shares outstanding):
Income before cumulative effect of changes in
accounting principles and extraordinary loss..... $ 110 $ 185
Extraordinary loss................................ -- (22)
---------- ----------
Net income........................................ 110 163
Preferred stock dividends......................... 1 3
---------- ----------
Net income to common.............................. $ 109 $ 160
========== ==========
Average shares of common stock outstanding........ 72,002,505 71,650,424
Incremental common shares applicable to restricted
common stock based on the common stock daily
average market price during the period........... 196,026 184,969
Incremental common shares applicable to common
stock options based on the common stock daily
average market price during the period........... 1,771,917 1,779,076
---------- ----------
Average common stock, as adjusted................. 73,970,448 73,614,469
========== ==========
Earnings per share of common stock (including
common stock equivalents):
Net income after preferred stock dividends and
before cumulative effect of changes in
accounting principles and extraordinary loss... $ 1.47 $ 2.47
Extraordinary loss................................ -- (0.30)
---------- ----------
Net earnings per share of common stock............ $ 1.47 $ 2.17
========== ==========
Fully diluted earnings per share of common stock:
Average shares of common stock outstanding........ 72,002,505 71,650,424
Incremental common shares applicable to restricted
common stock based on the more dilutive of the
common stock ending or daily average market price
during the period................................ 205,028 204,602
Incremental common shares applicable to common
stock options based on the more dilutive of the
common stock ending or average market price
during the period................................ 1,771,866 1,779,000
Average common shares issuable assuming conversion
of the Series A Cumulative Convertible Preferred
Stock and the Cumulative Convertible Second
Preferred Stock.................................. 3,488,711 3,488,711
---------- ----------
Average common shares assuming full dilution...... 77,468,110 77,122,737
========== ==========
Fully diluted earnings per average share of common
stock, assuming conversion of all applicable
securities:
Net income before extraordinary loss............ $ 1.42 $ 2.40
Extraordinary loss.............................. -- (0.29)
---------- ----------
Net earnings per share of common stock.......... $ 1.42 $ 2.11
========== ==========
23
EXHIBIT 12
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
(DOLLARS IN MILLIONS)
(UNAUDITED)
SIX MONTHS
ENDED
JUNE 30, 1996
-------------
Net Income........................................................ $ 163
Add:
Interest expense................................................ 78
Amortization of capitalized debt expense........................ 3
Portion of rentals representative of interest factor............ 7
Income tax expense and other taxes on income.................... 112
Fixed charges of unconsolidated subsidiaries.................... 2
Extraordinary loss.............................................. 22
-----
Earnings as defined........................................... $ 387
=====
Interest expense.................................................. $ 78
Amortization of capitalized debt expense.......................... 3
Portion of rentals representative of interest factor.............. 7
Fixed charges of unconsolidated subsidiaries...................... 2
-----
Fixed charges as defined...................................... $ 90
=====
Preferred Dividends:
Amount declared................................................. $ 3
Gross-up to pre-tax based on 38% effective rate................. $ 5
Ratio of earnings to fixed charges and preferred dividends........ 4.07x
=====
24