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UNITED STATES
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 JUNE 30, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-80775-01
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CASE CREDIT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0394710
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
233 LAKE AVE., RACINE, WI 53403
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (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 $5.00 per share: 200 shares outstanding as of June
30, 1997.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A)
AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED BY GENERAL INSTRUCTION H OF FORM 10-Q.
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TABLE OF CONTENTS
PAGE
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Part I--Financial Information
Case Credit Corporation and Subsidiaries
Balance Sheets......................................................... 2
Statements of Income................................................... 3
Statements of Cash Flows............................................... 4
Statements of Changes in Shareholder's Equity.......................... 5
Notes to Financial Statements.......................................... 6
Management's Analysis of Results of Operations......................... 8
Part II--Other Information
Item 1. Legal Proceedings................................................ *
Item 2. Changes in Securities............................................ *
Item 3. Defaults Upon Senior Securities.................................. *
Item 4. Submission of Matters to a Vote of Security Holders.............. *
Item 5. Other Information................................................ *
Item 6. Exhibits and Reports on Form 8-K................................. 8
* No response to this item is included herein for the reason that it is
inapplicable, is not required pursuant to General Instruction H of Form 10-Q,
or the answer to such item is negative.
1
PART I--FINANCIAL INFORMATION
CASE CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997, AND DECEMBER 31, 1996
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
------ -------- ------------
Cash and cash equivalents................................ $ 92 $ 17
Retail notes and finance leases.......................... 1,405 1,163
Due from Trusts.......................................... 278 275
------ ------
Total receivables.................................... 1,683 1,438
Allowance for credit losses.............................. (30) (30)
------ ------
Total receivables--net............................... 1,653 1,408
Affiliated receivables................................... 9 13
Equipment on operating leases, net....................... 140 97
Other assets............................................. 34 20
Property and equipment, at cost.......................... 4 3
Accumulated depreciation................................. (1) (1)
------ ------
Net property and equipment........................... 3 2
------ ------
Total................................................ $1,931 $1,557
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Short-term debt.......................................... $1,164 $ 829
Accounts payable and other accrued liabilities........... 36 54
Deposits withheld from dealers........................... 18 19
Long-term debt........................................... 415 415
------ ------
Total liabilities.................................... 1,633 1,317
Minority interest........................................ 2 --
Shareholder's equity:
Common stock, $5 par value, 200 shares authorized,
issued and outstanding................................ -- --
Paid-in capital........................................ 219 199
Cumulative translation adjustment...................... (9) (6)
Retained earnings...................................... 86 47
------ ------
Total shareholder's equity........................... 296 240
------ ------
Total................................................ $1,931 $1,557
====== ======
The accompanying notes to financial statements are an integral part of these
Balance Sheets.
2
CASE CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- ------------
1997 1996 1997 1996
------ ------ ----- -----
Revenues:
Finance income earned on retail notes and finance
leases........................................... $ 19 $ 14 $ 36 $ 26
Interest income from Case Corporation............. 4 4 10 9
Net gain on retail notes sold..................... 13 16 33 45
Securitization and servicing fee income........... 11 22 22 38
Rental income..................................... 5 -- 10 --
Lease income on operating leases.................. 8 3 14 6
Other income...................................... -- -- 1 1
------ ------ ----- -----
Total revenues................................ 60 59 126 125
Expenses:
Interest expense:
On obligations to others........................ 22 13 43 30
On payables to affiliates....................... -- 1 1 1
------ ------ ----- -----
Total interest expense........................ 22 14 44 31
Operating expenses:
Fees charged by Case Corporation.................. 5 5 10 10
Administrative and operating expenses............. 3 1 5 4
Provision (credit) for credit losses.............. -- -- -- (1)
Depreciation of equipment on operating leases..... 5 2 9 3
Other, net........................................ -- 2 1 1
------ ------ ----- -----
Total operating expenses...................... 13 10 25 17
------ ------ ----- -----
Total expenses................................ 35 24 69 48
------ ------ ----- -----
Income before taxes................................. 25 35 57 77
Income tax provision................................ 8 16 18 32
------ ------ ----- -----
Net income.......................................... $ 17 $ 19 $ 39 $ 45
====== ====== ===== =====
The accompanying notes to financial statements are an integral part of these
Statements of Income.
3
CASE CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(IN MILLIONS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE
30,
--------------
1997 1996
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Operating activities:
Net income................................................... $ 39 $ 45
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 10 7
Deferred income tax benefit................................ (2) --
Net gain on retail notes sold.............................. (33) (45)
Changes in components of working capital:
(Increase) decrease in other assets...................... (14) 2
(Decrease) increase in accounts payables and other
accrued liabilities..................................... (20) 5
------- -----
Net cash provided (used) by operating activities....... (20) 14
------- -----
Investing activities:
Cost of receivables acquired................................. (1,238) (962)
Collections of receivables................................... 241 117
Proceeds from sales of receivables........................... 789 736
Expenditures for property and equipment...................... (1) (2)
Expenditures for equipment on operating leases............... (51) (31)
------- -----
Net cash provided (used) by investing activities....... (260) (142)
------- -----
Financing activities:
Proceeds from issuance of long-term debt.......... .......... -- 200
Increase (decrease) in revolving credit facilities........... 335 (52)
Dividends paid............................................... -- (20)
Capital contributions from Case Corporation.................. 20 --
------- -----
Net cash provided (used) by financing activities....... 355 128
------- -----
Increase in cash and cash equivalents.......................... 75 --
Cash and cash equivalents, beginning of period................. 17 15
------- -----
Cash and cash equivalents, end of period....................... $ 92 $ 15
======= =====
Cash paid during the period for interest....................... $ 43 $ 25
======= =====
Cash paid during the period for taxes.......................... $ 19 $ 36
======= =====
The accompanying notes to financial statements are an integral part of these
Statements of Cash Flows.
4
CASE CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(IN MILLIONS)
(UNAUDITED)
CUMULATIVE
COMMON PAID IN TRANSLATION RETAINED
STOCK CAPITAL ADJUSTMENT EARNINGS TOTAL
------ ------- ----------- -------- -----
Balance, December 31, 1995........... $-- $199 $ (8) $ 2 $193
Net income......................... -- -- -- 85 85
Dividends declared................. -- -- -- (40) (40)
Translation adjustment............. -- -- 2 -- 2
---- ---- ----- ---- ----
Balance, December 31, 1996........... -- 199 (6) 47 240
Net income......................... -- -- -- 39 39
Capital contribution from Case
Corporation....................... -- 20 -- -- 20
Translation adjustment............. -- -- (3) -- (3)
---- ---- ----- ---- ----
Balance, June 30, 1997............... $-- $219 $ (9) $ 86 $296
==== ==== ===== ==== ====
The accompanying notes to financial statements are an integral part of these
Statements of Changes in Shareholder's Equity.
5
CASE CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1)--BASIS OF PRESENTATION
The accompanying financial statements reflect the consolidated results of
Case Credit Corporation and its subsidiaries ("Case Credit" or the "Company").
All significant intercompany transactions have been eliminated in
consolidation.
In the opinion of management, the accompanying unaudited financial
statements of Case Credit contain all adjustments which are of a normal
recurring nature necessary to present fairly the financial position as of June
30, 1997, and the results of operations, changes in shareholder's 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 1997 presentation.
(2)--ASSET-BACKED SECURITIZATIONS
In the first six months of 1997, Case Credit issued $830 million of asset-
backed securities through limited-purpose business trusts organized by Case
Credit, of which $180 million was issued pursuant to a private Canadian
placement. As of June 30, 1997, Case Credit has sold $822 million of U.S. and
Canadian retail notes to the trusts in connection with these issuances. The
proceeds from the sale of the retail notes were used to repay outstanding debt
and to finance additional receivables. In the first six months of 1996,
limited-purpose business trusts organized by Case Credit issued and sold $771
million of asset-backed securities to outside investors, of which $146 million
was issued pursuant to a private Canadian placement.
(3)--SHORT-TERM DEBT AND LINES OF CREDIT
During the first quarter of 1997, Case Credit Ltd. (Canada), a wholly owned
subsidiary of Case Credit, established a C$500 million commercial paper
facility. Under the terms of the program, the principal amount of the
commercial paper outstanding, combined with the amounts outstanding on the
C$500 million revolving credit facility, cannot exceed a total of C$500
million. Case Credit has approximately C$317 million of commercial paper
outstanding under this facility as of June 30, 1997.
(4)--INCOME TAXES
On a consolidated basis, the Company's 1997 year-to-date effective tax rate
of 32% was lower than the U.S. statutory rate of 35% primarily due to
reductions in the tax valuation reserves in certain foreign jurisdictions
offset by state income taxes and foreign income taxed at different rates. The
Company's 1996 year-to-date effective tax rate of 42% was higher than the U.S.
statutory rate primarily due to state income taxes and foreign income taxed at
different rates, offset by reductions in the tax valuation reserves in certain
foreign jurisdictions.
(5)--FINANCIAL INSTRUMENTS
Derivatives
The Company uses derivative financial instruments to manage its interest
rate exposures. Case Credit does not hold or issue financial instruments for
trading purposes. The notional amounts of these contracts do not represent
amounts exchanged by the parties and, thus, are not a measure of the Company's
risk. The net amounts exchanged are calculated on the basis of the notional
amounts and other terms of the contracts, such as interest rates, and only
represent a small portion of the notional amounts. The credit and market risk
under these agreements is minimized through diversification among
counterparties with high credit ratings.
6
CASE CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
Depending on the item being hedged, gains and losses on derivative financial
instruments are either recognized in the results of operations as they accrue
or are deferred until the hedged transaction occurs. Derivatives used as
hedges are effective at reducing the risk associated with the exposure being
hedged and are designated as a hedge at the inception of the derivative
contract. Accordingly, changes in the market value of the derivative are
highly correlated with changes in the market value of the underlying hedged
item at the inception of the hedge and over the life of the hedge contract.
Interest Rate Swaps
Case Credit enters into interest rate swaps to stabilize funding costs by
minimizing the effect of potential increases in floating-rate debt in a rising
interest rate environment. Under these agreements, the Company contracts with
a counterparty to exchange the difference between a fixed rate and a floating
rate applied to the notional amount of the swap. Swap contracts are
principally between one and four years in duration. The differential to be
paid or received on interest rate swap agreements is accrued as interest rates
change and is recognized in net income as an adjustment to interest expense.
Gains and losses resulting from terminated interest rate swap agreements are
deferred and recognized in net income over the shorter term of the remaining
contractual life of the swap agreement or the remaining term of the debt
underlying the swap agreement. If swap agreements are terminated due to the
underlying debt being extinguished, any resulting gain or loss is recognized
in net income as an adjustment to interest expense at the time of the
termination.
The weighted-average pay and receive rates for the swaps outstanding at June
30, 1997, were 6.32% and 5.40%, respectively. The weighted-average pay and
receive rates for the swaps outstanding at December 31, 1996, were 6.22% and
4.49%, respectively.
Back-to-Back Interest Rate Caps
The asset-backed commercial paper liquidity facility (the "Liquidity
Facility") requires a subsidiary of Case Credit to have interest rate cap
agreements in place. Due to the relatively high expense of obtaining such an
instrument, Case Credit sells an identical cap, concurrent with the cap
purchase, to the same counterparty. This effectively minimizes the overall
expense to Case Credit, meets the requirements of the Liquidity Facility and
eliminates any risk of financial loss on the purchased cap. The defined term
of the cap is approximately 48 months.
Premiums paid for interest rate cap agreements purchased and sold are
included in "Other Assets" and "Other Liabilities," respectively, in the
accompanying Balance Sheets, and are amortized to interest expense over the
terms of the agreements. Amounts receivable or payable under cap agreements
are recognized in net income as adjustments to interest expense over the term
of the related debt. If interest rate cap agreements are terminated due to the
underlying debt being extinguished, any resulting gain or loss is recognized
in net income as a component of "Net gain on retail notes sold" at the time of
the termination.
At June 30, 1997, Case Credit had a back-to-back cap at a rate of 7.00%, at
a notional amount of approximately $37 million. At December 31, 1996, Case
Credit had a back-to-back cap at a rate of 7.00%, at a notional amount of
approximately $98 million.
7
CASE CREDIT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
Six Months Ended June 30, 1997, vs. Six Months Ended June 30, 1996
NET INCOME
Net income for the first six months of 1997 was $39 million as compared to
$45 million for the first six months of 1996. The $6 million decrease in year-
over-year net income primarily reflects lower net financing margins in a
rising interest rate environment and reduced income from asset-backed
securitizations. These decreases were partially offset by higher earnings as a
result of increased levels of on-balance-sheet receivables.
REVENUES
Case Credit reported total revenues of $126 million for the first six months
of 1997 as compared to revenues of $125 million for the first six months of
1996. Finance income earned on retail notes and leases increased to $36
million in the first six months of 1997 as compared to $26 million for the
same period in 1996, primarily due to increased levels of on-balance-sheet
receivables. In addition, operating lease and rental equipment income
increased $8 million and $10 million, respectively, in the first six months of
1997, reflecting the growth in Case Credit's operating lease and rental
equipment portfolios. These revenue increases were offset by decreases in net
gains on retail notes sold due to lower interest rate margins, as well as
lower securitization and servicing fee income.
EXPENSES
Interest expense for the first six months of 1997 was $44 million, up $13
million from the $31 million reported in the first six months of 1996. The
increase in interest expense resulted from higher average debt levels during
the first six months of 1997 as compared to the first six months of 1996,
primarily due to the growth in Case Credit's on-balance-sheet receivables and
increased equipment on operating leases.
Operating expenses increased $8 million to a total of $25 million in the
first six months of 1997 as compared to the first six months of 1996. This
increase primarily resulted from $6 million of additional depreciation expense
for equipment on operating leases relating to Case Credit's larger operating
lease portfolio.
SERVICED PORTFOLIO
During the first six months of 1997, Case Credit's serviced portfolio of
receivables increased 20% over the comparable period last year to a record
$4.8 billion. Gross receivables acquired in the first six months of 1997 were
$1.5 billion, an increase of 29% versus the same period in 1996. During the
first six months of 1997, limited-purpose business trusts organized by Case
Credit issued $830 million of asset-backed securities to outside investors, of
which $180 million was issued pursuant to a private Canadian placement. Case
Credit sold $822 million of U.S. and Canadian retail notes to the trusts in
connection with these issuances. In the first six months of 1996, Case Credit
issued and sold $771 million of asset-backed securities to outside investors.
OTHER MATTERS
During the first six months of 1997, Case Credit received $20 million of
additional capitalization from Case Corporation.
PART II--OTHER INFORMATION
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.
Case Credit Corporation did not file any current reports on Form 8-K during
the quarter ended June 30, 1997.
8
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CASE CREDIT CORPORATION
/s/ Robert A. Wegner
By __________________________________
Robert A. Wegner
Vice President and
Chief Financial Officer
(Principal Financial Officer and
Authorized Signatory for Case
Credit
Corporation)
Date: August 14, 1997
9
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBERS
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12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
10