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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 September 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
COMMISSION FILE NUMBER 33-80775-01
CASE CREDIT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OF INCORPORATION)
76-0394710
(I.R.S. EMPLOYER IDENTIFICATION NO.)
233 LAKE AVE., RACINE, WI 53403
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (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 $5.00 per share: 200 shares outstanding as of
September 30, 1998.
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
----
Part I-Financial Information
Case Credit Corporation and Subsidiaries
Statements of Income................................................... 3
Balance Sheets......................................................... 4
Statements of Cash Flows............................................... 5
Statements of Changes in Stockholder's Equity.......................... 6
Notes to Financial Statements.......................................... 7
Management's Analysis of Results of Operations......................... 10
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................................. 12
- --------
* 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.
2
PART I
FINANCIAL INFORMATION
CASE CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- -------------
1998 1997 1998 1997
------- ------ ------ ------
Revenues:
Finance income earned on retail notes and
finance leases................................. $ 36 $ 29 $ 98 $ 75
Interest income from Case Corporation........... 7 6 17 16
Net gain on retail notes sold................... 26 19 59 52
Securitization and servicing fee income......... 12 10 34 32
Lease income on operating leases................ 20 9 46 23
Other income.................................... 7 2 10 3
------- ------ ------ ------
Total revenues................................ 108 75 264 201
Expenses:
Interest expense................................ 43 28 103 72
Operating expenses:
Fees charged by Case Corporation................ 6 4 18 14
Administrative and operating expenses........... 4 3 12 8
Provision for credit losses..................... 2 -- 3 --
Depreciation of equipment on operating leases... 12 6 28 15
Other........................................... 2 -- 4 1
------- ------ ------ ------
Total operating expenses...................... 26 13 65 38
------- ------ ------ ------
Total expenses................................ 69 41 168 110
------- ------ ------ ------
Income before taxes............................... 39 34 96 91
Income tax provision.............................. 14 11 34 29
------- ------ ------ ------
Net income.................................... $ 25 $ 23 $ 62 $ 62
======= ====== ====== ======
The accompanying notes to financial statements are an integral part of these
Statements of Income.
3
CASE CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998, AND DECEMBER 31, 1997
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------ ------------- ------------
Cash and cash equivalents........................... $ 23 $ 67
Retail notes and finance leases..................... 2,133 1,733
Due from Trusts..................................... 300 267
------ ------
Total receivables............................... 2,433 2,000
Allowance for credit losses......................... (22) (22)
------ ------
Total receivables--net.......................... 2,411 1,978
Affiliated receivables.............................. -- 67
Equipment on operating leases, at cost.............. 474 209
Accumulated depreciation............................ (52) (30)
------ ------
Net equipment on operating leases............... 422 179
Property and equipment, at cost..................... 4 4
Accumulated depreciation............................ (2) (1)
------ ------
Net property and equipment...................... 2 3
Other assets........................................ 176 68
------ ------
Total........................................... $3,034 $2,362
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Short-term debt..................................... $1,195 $1,147
Accounts payable and other accrued liabilities...... 58 64
Affiliated payables................................. -- 39
Deposits withheld from dealers...................... 17 18
Long-term debt...................................... 1,351 735
------ ------
Total liabilities............................... 2,621 2,003
------ ------
Minority Interest................................... 2 2
Stockholder's equity:
Common Stock, $5 par value, 200 shares authorized,
issued and outstanding........................... -- --
Paid-in capital................................... 244 244
Cumulative translation adjustment................. (24) (16)
Retained earnings................................. 191 129
------ ------
Total stockholder's equity...................... 411 357
------ ------
Total........................................... $3,034 $2,362
====== ======
The accompanying notes to financial statements are an integral part of these
Balance Sheets.
4
CASE CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN MILLIONS)
(UNAUDITED)
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------
1998 1997
------ ------
Operating activities:
Net income................................................... $ 62 $ 62
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization.............................. 29 16
Deferred income tax expense................................ -- (2)
Net gain on retail notes sold.............................. (59) (52)
Changes in components of working capital:
(Increase) decrease in other assets...................... (108) (31)
Increase (decrease) in accounts payables and other
accrued liabilities..................................... (47) (13)
Other, net............................................... (18) (9)
------ ------
Net cash provided (used) by operating activities....... (141) (29)
------ ------
Investing activities:
Cost of receivables acquired................................. (2,290) (1,918)
Collections of receivables................................... 648 432
Proceeds from sales of receivables........................... 1,335 1,235
Investments in joint ventures................................ -- (16)
Purchase of equipment on operating leases.................... (273) (68)
Expenditures for property and equipment...................... -- (1)
------ ------
Net cash provided (used) by investing activities....... (580) (336)
------ ------
Financing activities:
Proceeds from issuance of long-term debt..................... 629 --
Net increase (decrease) in short-term debt and revolving
credit facilities........................................... 48 373
Capital contributions from Case Corporation.................. -- 20
------ ------
Net cash provided (used) by financing activities....... 677 393
------ ------
Increase (decrease) in cash and cash equivalents............... (44) 28
Cash and cash equivalents, beginning of period................. 67 17
------ ------
Cash and cash equivalents, end of period....................... $ 23 $ 45
====== ======
Cash paid during the period for interest....................... $ 89 $ 78
====== ======
Cash paid during the period for taxes.......................... $ 28 $ 31
====== ======
The accompanying notes to financial statements are an integral part of these
Statements of Cash Flows.
5
CASE CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN MILLIONS)
(UNAUDITED)
CUMULATIVE
COMMON PAID-IN TRANSLATION RETAINED
STOCK CAPITAL ADJUSTMENT EARNINGS TOTAL
------ ------- ----------- -------- -----
Balance, December 31, 1996........... $-- $199 $ (6) $ 47 $240
Net income......................... -- -- -- 82 82
Translation adjustment............. -- -- (10) -- (10)
Capital contributions from Case.... -- 45 -- -- 45
---- ---- ---- ---- ----
Balance, December 31, 1997........... -- 244 (16) 129 357
Net income......................... -- -- -- 62 62
Translation adjustment............. -- -- (8) -- (8)
---- ---- ---- ---- ----
Balance, September 30, 1998.......... $-- $244 $(24) $191 $411
==== ==== ==== ==== ====
The accompanying notes to financial statements are an integral part of these
Statements of Changes in Stockholder's Equity.
6
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
September 30, 1998, and the results of operations, changes in shareholder's
equity and cash flows for the periods indicated. It is suggested that these
interim financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1997 Annual Report
on Form 10-K for the year ended December 31, 1997. Interim financial results
are not necessarily indicative of operating results for an entire year.
(2)--ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement establishes standards for the reporting and display of comprehensive
income and its components. Components of comprehensive income include net
income and all other non-owner changes in equity. SFAS No. 130 requires that
an enterprise classify items of other comprehensive income by their nature in
a financial statement for the period in which they are recognized. For interim
reporting, the Company has chosen to disclose comprehensive income in the
Notes to Financial Statements. See Note 6, "Comprehensive Income."
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement must be adopted no later than January 1,
2000, although earlier application is permitted. The Company is currently
evaluating the impact of adopting SFAS No. 133.
Effective January 1, 1998, the Company adopted Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." The Company's accounting for costs of computer software
developed or obtained for internal use is consistent with the guidelines
established in the SOP and, as a result, the adoption of this statement had no
effect on the Company's financial position or results of operations.
The Company will adopt SOP No. 98-5, "Reporting on the Costs of Start-Up
Activities," effective January 1, 1999. Adoption of this statement will have
no material effect on the Company's financial position or results of
operations.
(3)--ASSET-BACKED SECURITIZATIONS
During the first nine months of 1998, limited-purpose business trusts
organized by Case Credit issued $1,379 million of asset-backed securities to
outside investors. As of September 30, 1998, Case Credit has sold $1,403
million of U.S. and Canadian retail notes to the trusts in connection with
these issuances. During the first nine months of 1997, limited-purpose
business trusts organized by Case Credit issued $1,706 million of asset-backed
securities to outside investors. As of September 30, 1997, Case Credit had
sold $1,301 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.
7
CASE CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4)--LONG-TERM DEBT
During the second quarter of 1998, Case Credit increased its $550 million
debt security program to $1 billion pursuant to a shelf registration statement
filed with the Securities and Exchange Commission in May 1998. During the
first nine months of 1998, Case Credit issued $629 million of its medium-term
notes in the United States, with maturities of two to three years and interest
rates ranging from 5.8% to 6.0%, pursuant to this registration statement. The
net proceeds from the offerings will be used to fund Case Credit's growth
initiatives and for other corporate purposes, including repayment of short-
term indebtedness.
(5)--INCOME TAXES
On a consolidated basis, the Company's 1998 year-to-date effective tax rate
of 35% was equal to the U.S. statutory rate. The Company's September 1997
year-to-date effective tax rate of 32% was lower than the U.S. statutory rate
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.
(6)--COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The components of comprehensive income for the three
and nine months ended September 30, 1998 and 1997, are as follows (in
millions):
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1998 1997 1998 1997
------ ------ ------ ------
Net income............................ $ 25 $ 23 $ 62 $ 62
Translation adjustment, net of taxes.. (5) (1) (8) (4)
------ ------ ------ ------
Comprehensive income.................. $ 20 $ 22 $ 54 $ 58
====== ====== ====== ======
(7)--OTHER MATTERS
During the second quarter of 1998, Case Corporation announced the creation
of Case Capital Corporation, a broad-based financing company for the global
marketplace. Case Capital Corporation will include separate businesses that
offer loans and leases for construction, agriculture and other industries,
commercial lending within equipment industries, multiple lines of insurance
products and private label credit cards.
(8)--SUBSEQUENT EVENTS
In the fourth quarter, Case Credit issued $159 million of floating and fixed
rate medium-term notes pursuant to its $1 billion shelf registration statement
filed with the Securities and Exchange Commission in May 1998. These notes
have maturities that range between eighteen to twenty-four months and bear
interest based on three month LIBOR for the floating rate notes, and 6.24% for
the fixed rate notes. Also pursuant to the $1 billion shelf registration
statement, Case Credit issued $100 million principal amount of 6.125% notes
due October 15, 2001, and $100 million principal amount of floating rate notes
due January 21, 2000, with an initial rate of 5.91%.The net proceeds from
these issuances will be used to fund Case Credit's growth initiatives and for
other corporate purposes, including the repayment of short-term indebtedness.
During the fourth quarter of 1998, Case Credit's Canadian subsidiary, Case
Credit Ltd, established a C$750 million medium-term note program pursuant to a
short form prospectus and prospectus supplement filed with the Canadian
Securities Administrators. As of the date of this filing, Case Credit has not
issued any medium-term notes under this program.
8
CASE CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During the fourth quarter, a limited-purpose business trust organized by
Case Credit priced $628.9 million of asset-backed securities for issuance to
outside investors. In connection with these issuances, Case Credit will sell
$448.6 million of retail notes to the trust in November 1998. An additional
$201.4 million of retail notes will be sold to the trust as receivables are
generated. The net proceeds from the sale of the retail notes will be used to
repay short-term indebtedness and to finance additional receivables.
9
CASE CREDIT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 vs. Nine Months Ended September 30, 1997
NET INCOME
Net income for the first nine months of 1998 of $62 million was consistent
with the comparable period of 1997. Net income for 1998 reflects higher
earnings as a result of increased levels of on-balance-sheet receivables,
including higher lease income from operating leases and higher realized gains
from the sale of retail notes under asset-backed securitizations. These
amounts were offset by increased interest expense as a result of higher
average on-book receivables, as well as increased depreciation of equipment on
operating leases.
REVENUES
Case Credit reported total revenues of $264 million for the first nine
months of 1998 as compared to $201 million for the first nine months of 1997.
Finance income earned on retail notes and finance leases increased to $98
million in the first nine months of 1998 as compared to $75 million for the
same period in 1997, primarily due to increased levels of on-balance-sheet
receivables. In addition, operating lease income increased $23 million to a
total of $46 million for the first nine months of 1998, reflecting the growth
in Case Credit's operating lease portfolio.
EXPENSES
Interest expense for the first nine months of 1998 was $103 million, up $31
million from the $72 million reported in the first nine months of 1997. The
increase in interest expense resulted from higher average debt levels during
the first nine months of 1998 as compared to the prior year period, primarily
due to the growth in Case Credit's on-balance-sheet receivables and increased
equipment on operating leases.
Operating expenses increased $27 million to a total of $65 million in the
first nine months of 1998 as compared to the first nine months of 1997. This
increase primarily resulted from higher year-over-year depreciation expense
relating to Case Credit's larger operating lease portfolio, as well as higher
operating expenses in support of Case Credit's growth initiatives.
SERVICED PORTFOLIO
During the first nine months of 1998, Case Credit's serviced portfolio of
receivables increased 30% over the same time last year to a record $6.4
billion. Growth in the first nine months of 1998 resulted from Case Credit's
focus on new markets and new products, including retail financing through Case
Credit's European joint venture, Case Credit Europe S.A.S. Gross receivables
originated in the first nine months of 1998 increased 41% for a total of $3.2
billion versus the same period in 1997. During the first nine months of 1998,
limited-purpose business trusts organized by Case Credit issued $1,379 million
of asset-backed securities to outside investors. Case Credit has sold $1,403
million of U.S. and Canadian retail notes to the trusts in connection with
these issuances. During the first nine months of 1997, limited-purpose
business trusts organized by Case Credit issued $1,706 million of asset-backed
securities to outside investors. Case Credit had sold $1,301 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.
YEAR 2000
As used in this "Year 2000" disclosure, "the Company" or "Case" refers to
Case Corporation and its consolidated subsidiaries, including Case Credit
Corporation and its subsidiaries ("Case Credit"). In addition, all references
to "Case Industrial" reflect the consolidation of all majority owned
subsidiaries, excluding Case Credit.
10
In July 1996, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") issued EITF 96-14, "Accounting for the
Costs Associated with Modifying Computer Software for the Year 2000," which
requires that costs associated with modifying computer software for the Year
2000 be expensed as incurred. Through Case's ongoing process of evaluating and
performing systems and software upgrades and enhancements, the Company has
been actively addressing Year 2000 issues since 1995.
Case Corporation understands that it is important to our customers and
stakeholders that Case's products, services and internal systems are not
adversely affected by the Year 2000. Case has implemented procedures that it
deems necessary to safeguard the Company from computer-related issues
associated with adverse effects as a result of improperly recognizing the
millennial date change. These procedures include inventorying/assessing,
planning, constructing/testing, and implementing/certifying, where necessary,
critical internal-use systems. The Company believes, based upon its review and
efforts to date, that future external and internal costs to be incurred for
the modification of internal-use software to address Year 2000 issues will not
have a material adverse effect on Case's financial position, cash flows or
results of operations. The Company believes, based upon its review and efforts
to date, that external and internal remediation costs to be incurred for the
modification of internal-use software to address Year 2000 issues will, in the
aggregate, approximate $40 million to $50 million through the end of 1999. As
Case Industrial and Case Credit share certain technology resources and
internal-use systems, all such remediation costs will be borne by Case
Industrial. Through September 30, 1998, Case Industrial has incurred
approximately $19 million of the estimated external and internal remediation
costs to address Year 2000 issues.
Case has also undertaken a program to alert its suppliers and dealers of
Year 2000 issues. Based on its contacts with suppliers and dealers, the
Company believes that its most important suppliers will be Year 2000 compliant
by December 31, 1998. Case will continue to work with its remaining suppliers
and its dealers throughout 1999 to secure Year 2000 compliance by December 31,
1999. As a result, and subject to the Company's ongoing compliance efforts,
the costs and uncertainties relating to timely resolution of Year 2000 issues
applicable to the Company's business and operations are not reasonably
expected by the Company to have a material adverse effect on Case's financial
position, cash flows or results of operations.
Based upon Case's review and efforts to date, the Company currently
anticipates completion of critical Year 2000 compliance issues by mid-1999.
The Company plans to continue integration testing throughout the balance of
1999. In the event Case's Year 2000 compliance efforts, as well as the efforts
of the Company's suppliers and dealers, individually and in the aggregate, are
not successful, it could have a material adverse effect on the Company's
financial position, cash flows and results of operations. As a result, the
Company is in the process of developing Year 2000 contingency plans that will
be designed to mitigate the impact on the Company in the event that its Year
2000 compliance efforts are not successful. The targeted completion date for
the Company's contingency planning is mid-1999.
The information included in this "Year 2000" section represents forward-
looking statements and involves risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements.
INTEREST RATE RISK MANAGEMENT
The Company uses derivative financial instruments to manage its interest
rate exposures. Case Credit does not hold or issue financial instruments for
trading purposes. For information regarding Case Credit's interest rate risk
management, reference is made to Item 7 and Note 7 to the Case Credit
Financial Statements in the Company's 1997 Annual Report on Form 10-K. There
has been no material change in the Company's market risk exposures that affect
the quantitative and qualitative disclosures as presented as of December 31,
1997.
11
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 September 30, 1998.
12
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: November 12, 1998
13
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBERS
------- ---------------------- ----------
4(a) 6 1/8% Note due October 15, 2001, of Case Credit
Corporation issued pursuant to the Indenture, dated as
of October 1, 1997, between Case Credit Corporation
and The Bank of New York.
4(b) Floating Rate Note due January 21, 2000, of Case Credit
Corporation issued pursuant to the Indenture, dated as
of October 1, 1997, between Case Credit Corporation
and The Bank of New York.
4(c) Actions of Authorized Officers of Case Credit
Corporation authorizing the issuance of $100,000,000
aggregate principal amount of 6 1/8% Notes due October
15, 2001, and $100,000,000 aggregate principal amount
of Floating Rate Notes due January 21, 2000.
4(d) Officers' Certificate and Company Order of Case Credit
Corporation for the issuance of $100,000,000 aggregate
principal amount of 6 1/8% Notes due October 15, 2001,
and $100,000,000 aggregate principal amount of
Floating Rate Notes due January 21, 2000.
10 Calculation Agency Agreement, dated as of October 27,
1998, between Case Credit Corporation and The Bank of
New York.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
14