<PAGE>
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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 1-13098
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CASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0433811
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
700 STATE STREET, RACINE, WI 53404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 636-6011
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value $0.01 per share: 74,532,441 shares outstanding as of
June 30, 1997.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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................................................ 12
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
</TABLE>
- --------
*No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
1
<PAGE>
PART I
FINANCIAL INFORMATION
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1997, AND DECEMBER 31, 1996
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED CASE INDUSTRIAL CASE CREDIT
---------------------- ---------------------- ---------------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
ASSETS 1997 1996 1997 1996 1997 1996
------ -------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents........... $ 177 $ 116 $ 85 $ 99 $ 92 $ 17
Accounts and notes
receivable:
Trade.................. 1,906 1,674 1,411 1,302 495 372
Affiliates............. -- -- -- 3 9 13
Other.................. 47 25 47 25 -- --
Inventories............ 1,194 988 1,194 988 -- --
Deferred income taxes.. 179 188 160 171 19 17
Prepayments and other.. 43 62 43 62 -- --
------- ------- ------- ------- ------ ------
Total current assets. 3,546 3,053 2,940 2,650 615 419
------- ------- ------- ------- ------ ------
Long-Term Receivables... 1,361 1,361 187 309 1,158 1,036
Other Assets:
Investments in joint
ventures.............. 68 63 68 63 -- --
Investment in Case
Credit................ -- -- 296 240 -- --
Goodwill and
intangibles........... 294 306 294 306 -- --
Other.................. 326 269 187 185 155 100
------- ------- ------- ------- ------ ------
Total other assets... 688 638 845 794 155 100
------- ------- ------- ------- ------ ------
Property, Plant and
Equipment, at cost..... 2,015 2,075 2,011 2,072 4 3
Accumulated
depreciation.......... (1,065) (1,068) (1,064) (1,067) (1) (1)
------- ------- ------- ------- ------ ------
Net property, plant and
equipment.............. 950 1,007 947 1,005 3 2
------- ------- ------- ------- ------ ------
Total ............... $ 6,545 $ 6,059 $ 4,919 $ 4,758 $1,931 $1,557
======= ======= ======= ======= ====== ======
LIABILITIES AND EQUITY
----------------------
Current Liabilities:
Current maturities of
long-term debt........ $ 8 $ 9 $ 8 $ 9 $ -- $ --
Short-term debt........ 1,413 1,002 249 173 1,164 829
Accounts payable....... 582 578 578 564 13 30
Restructuring
liability............. 118 176 118 176 -- --
Other accrued
liabilities........... 780 778 739 735 41 43
------- ------- ------- ------- ------ ------
Total current
liabilities......... 2,901 2,543 1,692 1,657 1,218 902
------- ------- ------- ------- ------ ------
Long-Term Debt.......... 1,108 1,119 693 704 415 415
Other Liabilities:
Pension benefits....... 115 128 115 128 -- --
Other postretirement
benefits.............. 127 115 127 115 -- --
Other postemployment
benefits.............. 40 40 40 40 -- --
Other.................. 99 132 99 132 -- --
------- ------- ------- ------- ------ ------
Total other
liabilities......... 381 415 381 415 -- --
------- ------- ------- ------- ------ ------
Commitments and
Contingencies (Note 8)
Minority Interest....... 3 1 1 1 2 --
Preferred Stock with
Mandatory Redemption
Provisions............. 77 77 77 77 -- --
Stockholders' Equity:
Common Stock, $0.01 par
value; authorized
200,000,000 shares,
issued, 74,632,031,
outstanding,
74,532,441, as of June
30, 1997.............. 1 1 1 1 -- --
Paid-in capital........ 1,275 1,238 1,275 1,238 219 199
Cumulative translation
adjustment............ (62) (14) (62) (14) (9) (6)
Unearned compensation
on restricted stock... (16) (9) (16) (9) -- --
Pension liability
adjustment............ (4) (4) (4) (4) -- --
Retained earnings...... 884 693 884 693 86 47
Treasury stock, 99,590
shares, at cost, as of
June 30, 1997......... (3) (1) (3) (1) -- --
------- ------- ------- ------- ------ ------
Total stockholders'
equity.............. 2,075 1,904 2,075 1,904 296 240
------- ------- ------- ------- ------ ------
Total................ $ 6,545 $ 6,059 $ 4,919 $ 4,758 $1,931 $1,557
======= ======= ======= ======= ====== ======
</TABLE>
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
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------------
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net sales....................................... $1,547 $1,398 $2,723 $2,503
Interest income and other....................... 54 68 110 134
------ ------ ------ ------
1,601 1,466 2,833 2,637
Costs and Expenses:
Cost of goods sold.............................. 1,153 1,052 2,063 1,896
Selling, general and administrative............. 143 140 277 259
Research, development and engineering .......... 46 46 92 91
Interest expense ............................... 40 38 79 78
Other, net ..................................... 17 12 25 16
------ ------ ------ ------
Income before taxes and extraordinary loss........ 202 178 297 297
Income tax provision ............................. 64 68 95 112
------ ------ ------ ------
138 110 202 185
Equity in income--Case Credit..................... -- -- -- --
------ ------ ------ ------
Income before extraordinary loss.................. 138 110 202 185
Extraordinary loss................................ -- -- -- (22)
------ ------ ------ ------
Net income........................................ $ 138 $ 110 $ 202 $ 163
====== ====== ====== ======
Preferred stock dividends ........................ 1 1 3 3
------ ------ ------ ------
Net income to common ............................. $ 137 $ 109 $ 199 $ 160
====== ====== ====== ======
Per share data:
Primary earnings per share of common stock ..... $ 1.82 $ 1.47 $ 2.65 $ 2.17
====== ====== ====== ======
Fully diluted earnings per share of common
stock.......................................... $ 1.74 $ 1.42 $ 2.56 $ 2.11
====== ====== ====== ======
</TABLE>
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
<PAGE>
<TABLE>
<CAPTION>
CASE INDUSTRIAL CASE CREDIT
--------------------------------------- ---------------------------------------
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
----------------- ------------------- ------------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
------ ------ ------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$1,547 $1,398 $2,723 $2,503 $ -- $ -- $ -- $ --
8 17 18 33 60 59 126 125
------ ------ ------ ------ ---- ---- ----- -----
1,555 1,415 2,741 2,536 60 59 126 125
1,153 1,052 2,063 1,896 -- -- -- --
151 142 296 270 7 5 15 12
46 46 92 91 -- -- -- --
17 25 35 48 22 14 44 31
11 7 15 11 6 5 10 5
------ ------ ------ ------ ---- ---- ----- -----
177 143 240 220 25 35 57 77
56 52 77 80 8 16 18 32
------ ------ ------ ------ ---- ---- ----- -----
121 91 163 140 17 19 39 45
17 19 39 45 -- -- -- --
------ ------ ------ ------ ---- ---- ----- -----
138 110 202 185 17 19 39 45
-- -- -- (22) -- -- -- --
------ ------ ------ ------ ---- ---- ----- -----
$ 138 $ 110 $ 202 $ 163 $ 17 $ 19 $ 39 $ 45
====== ====== ====== ====== ==== ==== ===== =====
</TABLE>
4
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
CASE
CONSOLIDATED INDUSTRIAL CASE CREDIT
-------------- ------------ ------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
-------------- ------------ ------------
1997 1996 1997 1996 1997 1996
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income......................... $ 202 $ 163 $ 202 $ 163 $ 39 $ 45
Adjustments to reconcile net income
to net cash provided (used) by
operating activities--
Depreciation and amortization...... 80 70 70 63 10 7
Deferred income tax expense
(benefit)......................... 9 (5) 11 (5) (2) --
(Gain) loss on disposal of fixed
assets............................ (1) 3 (1) 3 -- --
Extraordinary loss, after tax...... -- 22 -- 22 -- --
Cash paid for restructuring........ (55) (32) (55) (32) -- --
Undistributed (earnings) loss of
unconsolidated subsidiaries....... (16) (3) (52) (30) -- --
Changes in components of working
capital--
Increase in receivables.......... (326) (368) (194) (236) (125) (129)
Increase in inventories.......... (251) (139) (251) (139) -- --
(Increase) decrease in
prepayments and other current
assets.......................... 17 (4) 17 (6) -- 2
Increase (decrease) in payables.. 41 85 51 82 (18) --
Increase (decrease) in accrued
liabilities..................... 22 15 24 10 (2) 5
(Increase) decrease in long-term
receivables....................... (16) 111 117 136 (133) (23)
Increase (decrease) in other
liabilities....................... (4) 11 (4) 11 -- --
Other, net......................... 7 (12) 7 (10) 3 (2)
------ ----- ----- ----- ----- -----
Net cash provided (used) by
operating activities.......... (291) (83) (58) 32 (228) (95)
------ ----- ----- ----- ----- -----
Investing activities:
Proceeds from sale of businesses
and assets........................ 9 7 9 7 -- --
Expenditures for property, plant
and equipment..................... (36) (56) (35) (54) (1) (2)
Expenditures for equipment on
operating leases.................. (51) (31) -- -- (51) (31)
Acquisitions and investments....... (8) (71) (8) (71) -- --
------ ----- ----- ----- ----- -----
Net cash provided (used) by
investing activities.......... (86) (151) (34) (118) (52) (33)
------ ----- ----- ----- ----- -----
Financing activities:
Proceeds from issuance of long-
term debt......................... -- 500 -- 300 -- 200
Payment of long-term debt.......... -- (356) -- (356) -- --
Net increase (decrease) in short-
term debt and revolving credit
facilities ....................... 430 25 90 77 335 (52)
Capital contribution............... -- -- (20) -- 20 --
Proceeds from issuance of common
stock............................. 22 39 22 39 -- --
Dividends paid (common and
preferred)........................ (10) (10) (10) (10) -- (20)
Other, net......................... (2) -- (2) -- -- --
------ ----- ----- ----- ----- -----
Net cash provided (used) by
financing activities.......... 440 198 80 50 355 128
------ ----- ----- ----- ----- -----
Effect of foreign exchange rate
changes on cash and cash
equivalents........................ (2) -- (2) -- -- --
------ ----- ----- ----- ----- -----
Increase (decrease) in cash and cash
equivalents........................ $ 61 $ (36) $ (14) $ (36) $ 75 $ --
Cash and cash equivalents, beginning
of period.......................... 116 132 99 117 17 15
------ ----- ----- ----- ----- -----
Cash and cash equivalents, end of
period............................. $ 177 $ 96 $ 85 $ 81 $ 92 $ 15
====== ===== ===== ===== ===== =====
Cash paid during the period for
interest........................... $ 78 $ 77 $ 35 $ 52 $ 43 $ 25
====== ===== ===== ===== ===== =====
Cash paid during the period for
taxes.............................. $ 95 $ 91 $ 76 $ 55 $ 19 $ 36
====== ===== ===== ===== ===== =====
</TABLE>
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
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE PENSION
COMMON PAID-IN TRANSLATION UNEARNED LIABILITY RETAINED TREASURY
STOCK CAPITAL ADJUSTMENT COMPENSATION ADJUSTMENT EARNINGS STOCK TOTAL
------ ------- ----------- ------------ ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995................... $ 1 $1,154 $(21) $(10) $(2) $399 $(1) $1,520
Net income............. -- -- -- -- -- 316 -- 316
Dividends declared..... -- -- -- -- -- (22) -- (22)
Translation adjustment. -- -- 7 -- -- -- -- 7
Capital contributions
on stock issuance..... -- 84 -- -- -- -- -- 84
Recognition of
compensation on
restricted stock...... -- -- -- 4 -- -- 4
Issuance of restricted
stock................. -- -- -- (3) -- -- -- (3)
Pension liability
adjustment............ -- -- -- -- (2) (2)
--- ------ ---- ---- --- ---- --- ------
BALANCE, DECEMBER 31,
1996................... 1 1,238 (14) (9) (4) 693 (1) 1,904
Net income............. -- -- -- -- -- 202 -- 202
Dividends declared..... -- -- -- -- -- (11) -- (11)
Translation adjustment. -- -- (48) -- -- -- -- (48)
Capital contributions
on stock issuance..... -- 26 -- -- -- -- -- 26
Recognition of
compensation on
restricted stock...... -- -- -- 4 -- -- -- 4
Issuance of restricted
stock................. -- 11 -- (11) -- -- -- --
Acquisition of treasury
stock................. -- -- -- -- -- -- (2) (2)
--- ------ ---- ---- --- ---- --- ------
BALANCE, JUNE 30, 1997.. $ 1 $1,275 $(62) $(16) $(4) $884 $(3) $2,075
=== ====== ==== ==== === ==== === ======
</TABLE>
The accompanying notes to financial statements are an integral part of
these Statements of Changes in Stockholders' Equity.
6
<PAGE>
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 the
consolidation of Case's 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, 1997, 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 1997 presentation.
(2) EXTRAORDINARY LOSS
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.
As a result of the repurchase, the Company recorded an extraordinary charge of
$22 million after tax in the first quarter of 1996.
(3) INVENTORIES
Inventories are stated at the lower of cost or market, generally using the
first-in, first-out (FIFO) method. Inventory cost includes material, labor and
overhead.
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Raw materials....................................... $ 210 $175
Work-in-process..................................... 124 147
Finished goods...................................... 860 666
------ ----
Total inventories............................... $1,194 $988
====== ====
</TABLE>
(4) ASSET-BACKED SECURITIZATIONS
In the six month period ended June 30, 1997, limited-purpose business trusts
organized by Case Credit sold $822 million of asset-backed securities to
outside investors, of which $180 million was issued pursuant to a private
Canadian placement. The proceeds from the sale of retail notes were used to
repay outstanding debt and to finance additional receivables. In the six month
period ended June 30, 1996, limited-purpose business trusts organized by Case
Credit issued and sold $771 million of asset-backed securities to outside
investors.
7
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INCOME TAXES
On a consolidated basis, the Company's effective income tax rate for the
first six months of 1997 of 32% was lower than the U.S. statutory tax rate of
35% primarily due to recognition of tax benefits associated with the Company's
foreign sales corporation, research and development tax credits and a
reduction in the tax valuation reserve in certain foreign jurisdictions,
partially offset by state income taxes and foreign income taxed at different
rates. In the first half of 1996, the effective tax rate of 38% was higher
than the U.S. statutory tax rate primarily due to state income taxes and
foreign income taxed at different rates, partially offset by a reduction in
the tax valuation reserve in certain foreign jurisdictions.
(6) FINANCIAL INSTRUMENTS
Derivatives
The Company uses derivative financial instruments to manage its interest
rate and foreign currency exposures. Case 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
or exchange 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.
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.
Foreign Exchange Contracts
Case enters into foreign exchange forward contracts and swaps to hedge
certain purchase and sale commitments and loans made to foreign subsidiaries
denominated in foreign currencies. Some of these transactions involve two
foreign currencies depending on the local exchange exposures of foreign
subsidiaries. The terms of these contracts is generally one year or less. The
purpose of the Company's foreign currency hedging activities is to protect the
Company from the risk that the eventual cash flows resulting from loan
repayments and inventory purchases will be adversely affected by changes in
exchange rates.
The recognition of gains and losses on contracts entered into to hedge
intercompany debt are deferred and included in net income as an adjustment to
"Interest income and other" on the date the forward contract matures. The
recognition of gains or losses on contracts entered into to hedge purchase and
sale commitments are included in net income as an adjustment to "Cost of goods
sold" as foreign exchange rates change. Gains and losses resulting from the
termination of foreign exchange contracts prior to maturity are also included
in net income.
Case had foreign exchange contracts with a notional value of $237 million at
June 30, 1997. Case had foreign exchange contracts with a notional value of
$652 million at December 31, 1996.
Interest Rate Swaps
Case 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
8
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 6.68% and 5.40%, respectively. The weighted-average pay and
receive rates for the swaps outstanding at December 31, 1996, were 6.80% and
5.00%, 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 an adjustment to "Interest income and other" 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) ACQUISITIONS
During the second quarter of 1997, the Company announced an agreement to
acquire Gem Sprayers Limited ("Gem"), a U.K.-based manufacturer of self-
propelled and trailed/mounted sprayers for agricultural applications. Gem,
with 1996 revenues of approximately $12 million, is the leading supplier of
sprayers in the U.K. In the first quarter of 1997, the Company acquired bor-
mor Inc., a North American-based manufacturer of directional drilling
equipment, with 1996 revenues of approximately $9 million. Also during the
first quarter, the Company acquired the assets of Agri-Logic, a leading
developer of software for agricultural applications.
(8) COMMITMENTS AND CONTINGENCIES
Environmental
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
9
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 the waste sites and their ability
to pay and data concerning the waste sites released by the U.S. Environmental
Protection Agency or other organizations. These liabilities are included in
the accompanying Balance Sheets at their undiscounted amounts. Recoveries are
evaluated separately from the liability and, if appropriate, are recorded
separately from the associated liability in the accompanying Balance Sheets.
Case has received and from time to time receives inquiries and/or notices of
potential liability at 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 liability
Product 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.
Other
Case is the subject of various other legal claims arising from its
operations, including product warranty, dealer disputes, workmen's
compensation and employment matters. Management is of the opinion that the
resolution of these claims, individually and in the aggregate, will not have a
material adverse effect on Case's financial position or results of operations.
(9) EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- ------------
1997 1996 1997 1996
------ ------ ----- ------
<S> <C> <C> <C> <C>
Earnings per average share of Common Stock (shares
in millions):
Primary
Net earnings after preferred stock dividends and
before extraordinary loss....................... $ 1.82 $ 1.47 $2.65 $ 2.47
Extraordinary loss............................... -- -- -- (0.30)
------ ------ ----- ------
Net earnings per share of common stock........... $ 1.82 $ 1.47 $2.65 $ 2.17
====== ====== ===== ======
Average common and common equivalent shares
outstanding..................................... 75 74 75 74
Fully Diluted
Net earnings before extraordinary loss........... $ 1.74 $ 1.42 $2.56 $ 2.40
Extraordinary loss............................... -- -- -- (0.29)
------ ------ ----- ------
Net earnings per share of common stock........... $ 1.74 $ 1.42 $2.56 $ 2.11
====== ====== ===== ======
Average common and common equivalent shares
outstanding..................................... 79 77 79 77
</TABLE>
10
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Case
will adopt SFAS No. 128 effective for the year ending December 31, 1997. The
pro forma impact of adopting SFAS No. 128 for the three and six months ended
June 30, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- -----------
1997 1996 1997 1996
------ ------ ----- -----
<S> <C> <C> <C> <C>
Earnings per average share of Common Stock (shares
in millions):
Basic
Net earnings after preferred stock dividends and
before extraordinary loss........................ $ 1.86 $ 1.51 $2.70 $2.53
Extraordinary loss................................ -- -- -- (.30)
------ ------ ----- -----
Net earnings per share of common stock............ $ 1.86 $ 1.51 $2.70 $2.23
====== ====== ===== =====
Average common shares outstanding................. 74 72 74 72
Diluted
Net earnings before extraordinary loss............ $ 1.75 $ 1.42 $2.57 $2.40
Extraordinary loss................................ -- -- -- (.29)
------ ------ ----- -----
Net earnings per share of common stock............ $ 1.75 $ 1.42 $2.57 $2.11
====== ====== ===== =====
Adjusted average common shares outstanding........ 79 77 79 77
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
Second Quarter 1997 vs. Second Quarter 1996
EARNINGS
The Company recorded net income of $138 million in the second quarter of
1997 up 25% or $28 million from $110 million in the same period of 1996.
Primary earnings per share for the second quarter rose 24% to $1.82 versus
$1.47 in the comparable quarter of 1996. The increase in primary earnings per
share reflects the year-over-year increase in net income, partially offset by
an increase in the number of common shares outstanding.
The Company's industrial operations recorded income, before equity income of
Case Credit, of $121 million in the second quarter of 1997 versus $91 million
in the comparable quarter of 1996, an increase of 33% year-over-year. On a
pretax basis, the Company's industrial operations recorded earnings of $177
million in comparison to $143 million in 1996, a $34 million or 24% increase
over the same quarter in 1996. The industrial effective income tax rate
decreased from 36% in the second quarter of 1996 to 32% in the second quarter
of 1997 primarily due to tax benefits associated with the Company's foreign
sales corporation, research and development tax credits, and reductions in the
tax valuation reserves in certain foreign jurisdictions, partially offset by
state income taxes and foreign income taxed at different rates.
Case's operating earnings for the second quarter of 1997 were $211 million
versus $187 million for the same period in 1996. 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. The 13% year-over-year increase in operating earnings is
attributable to pricing gains and higher volumes, along with contributions
from acquisitions and restructuring-related savings, partially offset by
inflationary costs increases.
A reconciliation of the Company's industrial net income to operating
earnings is as follows (in millions):
<TABLE>
<CAPTION>
CASE INDUSTRIAL
THREE MONTHS ENDED
JUNE 30,
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Income before extraordinary loss...................... $138 $110
Income tax provision.................................. 56 52
Interest expense...................................... 17 25
--------- ---------
Operating earnings................................ $211 $187
========= =========
</TABLE>
REVENUES
On a consolidated basis, worldwide revenues increased $135 million or 9% in
the second quarter of 1997 to $1,601 million. Net sales of equipment and parts
increased $149 million or 11% to $1,547 million. The increase in net sales
consists primarily of a 12% volume increase and a 2% pricing increase,
partially offset by a 2% deterioration as a result of foreign currency and a
1% decrease resulting from retail store divestitures. The year-over-year
volume increase reflects net sales increases in each of Case's four geographic
regions, including incremental sales from the Company's 1996 acquisitions and
additional year-over-year second quarter sales to the former Soviet Union. Net
sales in the Company's emerging markets increased 22% for the second quarter
of 1997 as compared to the prior year, with increases in the Latin American
and Asia Pacific regions of 44% and 11%, respectively. Net sales in the second
quarter of 1997 also increased in Europe and North America, with year-over-
year increases of 18% and 5%, respectively. Worldwide, second quarter net
sales of agricultural equipment increased 17% over the comparable period in
1996, while second quarter sales of construction equipment increased 5% over
the same period in 1996.
12
<PAGE>
Worldwide net sales of agricultural equipment increased 17% in the second
quarter of 1997 as compared to the same period in 1996. The increase in sales
of agricultural equipment in North America was led by strong increases in
sales of MAGNUM(TM) (120-plus horsepower) tractors and 40-plus horsepower
tractors, partially offset by lower sales of combines. Sales of agricultural
equipment in Europe reflect increases in sales of 40-plus horsepower and
MAGNUM(TM) tractors, including the impact of the August 1996 Steyr
acquisition, as well as increased sales of implements, partially offset by
lower sales of combines. In the Company's Asia Pacific and Latin American
regions, the increase in agricultural sales resulted from strong sales of
MAGNUM(TM) tractors, combines and cotton pickers, along with incremental sales
of sugar cane harvesters as a result of the June 1996 acquisition of Austoft.
Worldwide net sales of construction equipment increased 5% in the second
quarter of 1997 as compared to the second quarter of 1996. The increase in net
sales of construction equipment in Europe primarily reflects increased sales
of loader/backhoes, wheel loaders and skid steers as a result of the October
1996 acquisition of Fermec. In Europe, the market continues to benefit from a
high level of housing construction in the United Kingdom, however the European
construction equipment market, in general, continues to experience significant
weakness, particularly in France and Germany. In the Company's Asia Pacific
and Latin American regions, sales of construction equipment increased
significantly due to increases in sales of loader/backhoes, wheel loaders,
skid steers and excavators, primarily reflecting improvements in the Brazilian
and Mexican economies as compared to 1996. In North America, second quarter
sales of construction equipment were impacted by lower sales of
loader/backhoes, skid steers and trenchers as compared to the second quarter
of 1996, partially offset by increased sales of excavators.
COSTS AND EXPENSES
Cost of goods sold for the industrial operations increased $101 million to
$1,153 million in the second quarter of 1997 as compared to the same period in
1996. Cost of goods sold as a percentage of net sales decreased to 74.5% in
the second quarter of 1997 from 75.3% in the second quarter of 1996. The year-
over-year improvement in cost of goods sold as a percentage of net sales
primarily reflects pricing actions and changes in product mix, including
increased sales of higher margin products in the second quarter of 1997, as
well as the continued success of the Company's cost reduction initiatives.
These improvements were partially offset by inflationary cost increases, the
impact of foreign currency and higher new product launch costs.
Selling, general and administrative expenses for the industrial operations
increased by $9 million in the second quarter of 1997 to $151 million as
compared to the same period in 1996. The increase is primarily due to
incremental selling, general and administrative costs for the acquisitions of
Steyr and Fermec in the third and fourth quarters of 1996, respectively, as
well as new product launch costs, including marketing, sales support and
product introduction expenses, partially offset by lower retail selling
expenses as a result of restructuring-related sales of company-owned retail
stores and exchange. As a percentage of net sales, selling general and
administrative expenses decreased to 9.8% in the second quarter of 1997 as
compared to 10.2% in the second quarter of 1996.
Research, development and engineering expenses were $46 million in both the
second quarter of 1997 and 1996, primarily reflecting expenditures for new
product development.
Interest expense for Case's industrial operations was $17 million for the
second quarter of 1997, $8 million lower than the same period of 1996. The
decrease in interest expense was due to lower average debt levels during the
second quarter of 1997 as compared to the second quarter of 1996, and also
reflects the impact of strategic refinancing actions taken in the third
quarter of 1996.
CREDIT OPERATIONS
Net income for the second quarter of 1997 was $17 million as compared to $19
million for the second quarter of 1996. The $2 million decrease in year-over-
year net income is primarily due to 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.
13
<PAGE>
Case Credit reported total revenues of $60 million for the second quarter of
1997 as compared to revenues of $59 million for the second quarter of 1996.
Finance income earned on retail notes and leases increased $5 million in the
second quarter of 1997 as compared to the same period in 1996, primarily due
to increased levels of on-balance-sheet receivables. In addition, year-over-
year second quarter revenues from rental equipment increased $5 million and
revenues from operating leases also increased $5 million, both reflecting the
growth in Case Credit's rental equipment and operating lease portfolios. These
revenue increases were offset by decreases in net gains on retail notes sold,
as well as lower securitization and servicing fee income.
Interest expense for the second quarter of 1997 was $22 million as compared
to $14 million for the second quarter of 1996. The $8 million increase in
interest expense primarily relates to higher average debt levels during the
second quarter of 1997 as compared to the second quarter of 1996, primarily
due to the growth in Case Credit's on-balance-sheet receivables and increased
equipment on operating leases.
Operating expenses increased $3 million to a total of $13 million in the
second quarter of 1997 as compared to the second quarter of 1996, primarily
due to additional depreciation expense for equipment on operating leases as a
result of Case Credit's larger operating lease portfolio.
As of June 30, 1997, Case Credit's serviced portfolio of receivables
increased 20% over the same time last year to a record $4.8 billion. Gross
receivables acquired in the second quarter of 1997 increased $887 million or
27% to $1.5 billion versus the same period in 1996. During the second quarter
of 1997, Case Credit sold $320 million of U.S. and Canadian retail notes to
limited-purpose business trusts organized by Case Credit in connection with
asset-backed securitization transactions, as compared to $285 million in the
second quarter of 1996.
Six Months Ended 1997 vs. Six Months Ended 1996
EARNINGS
The Company recorded net income of $202 million for the first six months of
1997, up $39 million or 24% as compared to the comparable period of 1996.
Primary earnings per share for the first six months of 1997 was $2.65 per
share compared to $2.17 per share for the first six months of 1996. The
increase in primary earnings per share reflects the year-over-year increase in
net income, partially offset by an increase in the number of common shares
outstanding.
The Company recorded income before extraordinary loss of $202 million in the
first six months of 1997 as compared to $185 million in the first six months
of 1996. 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 in the first quarter of 1996 of $22 million, after tax.
Earnings per share before extraordinary loss for the first six months of 1997
was $2.65 per share compared to $2.47 per share in the first six months of
1996.
The Company's industrial operations recorded income, before equity income of
Case Credit, of $163 million in the first six months of 1997 versus $140
million in the comparable period of 1996, an increase of $23 million or 16%
year-over-year. On a pretax basis, the Company's industrial earnings increased
$20 million to $240 million in the first six months of 1997 as compared to the
prior year. The industrial effective income tax rate decreased from 36% in the
first half of 1996 to 32% in the first half of 1997 primarily due to
recognition of tax benefits associated with the Company's foreign sales
corporation, research and development tax credits and reductions in the tax
valuation reserves in certain foreign jurisdictions, partially offset by state
income taxes and foreign income taxed at different rates.
Operating earnings for the first six months of 1997 were $314 million versus
$313 million for the comparable period in 1996. 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 operating earnings for the first six months of 1997
reflects the impact of higher price realization, exchange and restructuring-
related savings, offset by inflationary cost increases and higher selling,
general and administrative expenses including new product launch costs and
product introduction expenses, as well as incremental selling, general and
administrative expenses for the Company's 1996 acquisitions.
14
<PAGE>
A reconciliation of the Company's industrial net income to operating
earnings is as follows (in millions):
<TABLE>
<CAPTION>
CASE INDUSTRIAL
SIX MONTHS
ENDED
JUNE 30,
----------------
1997 1996
------- -------
<S> <C> <C>
Income before extraordinary loss....................... $ 202 $ 185
Income tax provision................................... 77 80
Interest expense....................................... 35 48
------- -------
Operating earnings................................... $ 314 $ 313
======= =======
</TABLE>
REVENUES
On a consolidated basis, worldwide revenues increased $196 million or 7% in
the first half of 1997 to $2,833 million. Net sales of equipment and parts
increased $220 million or 9% to $2,723 million. The increase in net sales
consists primarily of a 11% volume increase and a 2% pricing increase,
partially offset by a 2% deterioration resulting from the impact of foreign
exchange and a 2% decrease due to retail store divestitures. The year-over-
year volume increase reflects net sales increases in each of Case's four
geographic regions, including incremental sales from the Company's 1996
acquisitions. Net sales in the Company's emerging markets increased 31% in the
first half of 1997 as compared to the same period in 1996, with increases in
the Latin American and Asia Pacific regions of 51% and 21%, respectively. Net
sales for the first six months of 1997 also increased in Europe and North
America, with year-over-year increases of 12% and 4%, respectively. Worldwide
net sales of agricultural equipment increased 14% over the first half of 1996,
while worldwide sales of construction equipment increased 3% over the same
period in 1996.
Worldwide net sales of agricultural equipment increased 14% in the first six
months of 1997 as compared to the same period in 1996. The increase in sales
of agricultural equipment in North America was driven by strong increases in
sales of MAGNUM(TM) (120-plus horsepower) tractors and 40-plus horsepower
tractors, as well as increased sales of combines and implements. Sales of
agricultural equipment in Europe reflect increases in all tractor categories,
including the impact of the August 1996 Steyr acquisition, as well as
increased sales of implements. In the Company's Latin American region, the
increase in agricultural sales resulted from strong increases in sales of
MAGNUM(TM) tractors, combines and cotton pickers, along with incremental sales
of sugar cane harvesters as a result of the June 1996 acquisition of Austoft.
Sales of agricultural equipment in the Asia Pacific region reflect increases
in sales of 40-plus horsepower tractors, four-wheel drive tractors, combines,
cotton pickers and sugar-cane harvesters.
Worldwide net sales of construction equipment increased 3% in the first half
of 1997 versus the first half of 1996. The increase in net sales of
construction equipment in Europe primarily reflects increased sales of
loader/backhoes and skid steers as a result of the October 1996 acquisition of
Fermec. In Europe, the market continues to benefit from a high level of
housing construction in the United Kingdom, however the European construction
equipment market, in general, continues to experience significant weakness,
particularly in France and Germany. In the Company's Latin American region,
sales of construction equipment increased in virtually all product lines. In
North America, sales of construction equipment in the first six months of 1997
were impacted by lower sales of skid steers and trenchers, partially offset by
increased sales of excavators. In the Company's Asia Pacific region, sales of
construction equipment were impacted by lower sales of loader/backhoes, wheel
loaders and trenchers, partially offset by increased sales of skid steers,
excavators and crawlers.
COSTS AND EXPENSES
Cost of goods sold for the industrial operations increased $167 million to
$2,063 million in the first six months of 1997 as compared to the same period
in 1996, primarily due to increased sales volumes, including
15
<PAGE>
the impact of the Company's 1996 acquisitions. Cost of goods sold as a
percentage of net sales was 75.8% in the first six months of 1997 versus 75.7%
for the comparable period of 1996. This increase as a percentage of net sales
primarily reflects the impact of lower anticipated gross margins resulting
from acquisition related sales, changes in geographic and product line sales
mix, higher product launch costs, as well as the impact of the sale of
company-owned retail stores, partially offset by pricing actions and cost
improvement initiatives from restructuring and other cost reduction
initiatives.
Selling, general and administrative expenses for the industrial operations
increased $26 million to $296 million for the first six months of 1997 as
compared to $270 million in the comparable period of 1996. The increase is
primarily due to incremental selling, general and administrative expenses from
the Company's 1996 acquisitions, higher new product launch costs and increased
selling expenses related to low-rate and other sales financing programs. Case
Industrial makes payment to Case Credit in an amount equal to the difference
between the rate actually paid by retail customers and the rate charged by
Case Credit. These payments are included in selling, general and
administrative expenses of Case Industrial and are eliminated to arrive at
consolidated selling, general and administrative expenses. These year-over-
year increases in selling, general and administrative expenses were partially
offset by the impact of foreign currency, lower retail selling expenses as a
result of restructuring-related sales of company-owned retail stores and other
cost reduction initiatives. As a percentage of net sales, selling general and
administrative expenses increased slightly to 10.9% in the first six months of
1997 as compared to 10.8% in the first six months of 1996.
Research, development and engineering expenses increased to $92 million in
the first six months of 1997 as compared to $91 million in the same period in
1996, primarily reflecting expenditures for new product development.
Interest expense for Case's industrial operations was $35 million for the
first six months of 1997, $13 million lower than the same period of 1996. The
decrease in interest expense reflects lower average debt levels during the
first six months of 1997 as compared to the same period of 1996, as well as
reduced funding costs as a result of the January 1996 repurchase of the
Company's 10 1/2% Senior Subordinated Notes and the impact of strategic
refinancing actions taken in the third quarter of 1996.
The consolidated effective income tax rate for the first half of 1997 was
32% as compared to 38% in the first six months of 1996. The 1997 effective
income tax rate was lower than the U.S. statutory rate of 35% primarily due to
recognition of tax benefits associated with the Company's foreign sales
corporation, research and development tax credits and reductions in the tax
valuation reserves in certain foreign jurisdictions, partially offset by state
income taxes and foreign income taxed at different rates. In the first half of
1996, the effective tax rate of 38% was slightly higher than the U.S.
statutory tax rate primarily due to state income taxes and foreign income
taxed at different rates, partially offset by reductions in the tax valuation
reserves in certain foreign jurisdictions.
RESTRUCTURING PROGRAM
During the second quarter of 1997, the Company closed its Neuss, Germany,
manufacturing facility, the single largest step in the Company's long-term
restructuring program. The Company transferred production of its MX series
tractor from Neuss to other existing Case manufacturing facilities in Racine,
Wisconsin, and Doncaster, England. During the second quarter of 1997, Case
also closed its Doncaster, England, foundry and sold a parts depot located in
Batley, England. In addition, the Company continued its divestiture of
company-owned retail stores, selling four stores in the first half of 1997.
CREDIT OPERATIONS
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
16
<PAGE>
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.
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 $10 million
in the first six months of 1997 as compared to 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.
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 for 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.
During the first six months of 1997, Case Credit's serviced portfolio
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.
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 $291 million in the first six months
of 1997. Cash used by the industrial operations was $58 million in the first
half of 1997 versus cash provided of $32 million in the first half of 1996.
Cash used by Case Credit was $228 million for the first six months of 1997 as
compared to $95 million in the same period of 1996. The net cash used from
operating activities during the first half of 1997 primarily reflects
increased inventories and retail receivables, offset by net income and
depreciation and amortization. Inventories have increased since December 31,
1996, primarily reflecting the impact of the Company's 1996 acquisitions, as
well as higher inventory levels for impending third quarter shipments to the
former Soviet Union. The increase in retail receivables reflects Case Credit's
retention of a larger percentage of receivables as opposed to selling those
receivables under asset-backed securitization transactions. In addition, the
Company also expended $55 million in the first half of 1997 for restructuring-
related activities, including initial closure costs for the Neuss, Germany,
facility. Cash used by operating activities was $83 million in the first six
months of 1996, primarily due to increased acquisitions of retail receivables
and leases and increased inventories.
Cash used by investing activities was $86 million in the first six months of
1997. During the first half of 1997, the Company expended $36 million for
property, plant and equipment in comparison to $56 million in the first half
of 1996. Cash used by Case Credit was $52 million versus $33 million for the
comparable period of 1996, largely reflecting increased year-over-year
expenditures for equipment on operating leases due to the growth in Case
Credit's operating lease portfolio. Also during the first six months of 1997,
the Company
17
<PAGE>
completed two strategic acquisitions resulting in approximately $8 million of
investment. In the first quarter of 1997, the Company acquired bor-mor, Inc., a
North American-based manufacturer of directional drilling equipment, with
annual sales of approximately $9 million. Also during the first quarter, the
Company acquired the assets of Agri-Logic, a leading developer of software for
agricultural applications. During the second quarter of 1997, the Company
announced an agreement to acquire Gem Sprayers Limited ("Gem") a U.K.-based
manufacturer of self-propelled and trailed/mounted sprayers for agricultural
applications. Gem, with 1996 revenues of approximately $12 million, is the
leading supplier of sprayers in the U.K. The Company completed the acquisition
of Gem on July 17, 1997.
Net cash provided by financing activities was $440 million in the first half
of 1997 primarily due to increases under the Company's short-term debt and
revolving credit facilities to fund Case Credit's growing portfolio of
receivables. Also in the first quarter of 1997, Case Industrial provided $20
million of additional capitalization for Case Credit.
The Company received proceeds from the issuance of long-term debt of $500
million during the first six months of 1996. In January 1996, the Company
issued $300 million aggregate principal amount of its 7 1/4% unsecured and
unsubordinated notes due 2016. In February 1996, 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 December 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 in the first quarter of 1996.
Total debt at June 30, 1997, was $2,529 million, $1,579 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 54.0% at June 30,
1997, and the Company's industrial debt to capitalization ratio was 30.6%. The
consolidated and industrial ratios at December 31, 1996 were 51.8% and 30.9%,
respectively.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
The Company has various sources of future liquidity including asset-backed
securitization markets, public debt offerings and other available lines of
credit. 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. In
addition, the Company has a $400 million private, revolving wholesale (dealer)
receivable asset-backed securitization facility that can be utilized to
periodically sell wholesale (dealer) receivables to third party investors.
On May 14, 1997, the Company's Board of Directors authorized the purchase
from time to time of up to four million shares of the Company's Common Stock.
The purchase of Case Common Stock under this program is at the Company's
discretion, subject to prevailing financial and market conditions.
OUTLOOK
Strong economic fundamentals are expected to continue to drive growth in
Case's markets during 1997.
Strong demand for agricultural commodities continues around the world, driven
by population growth and improving diets within developing nations. While grain
stock levels remain relatively low, supply conditions are improving due to
favorable harvests to date in 1997. Commodity prices have weakened from
historic highs in 1996 driven by ongoing expectations of continued strong
harvests that, together with other factors, are expected
18
<PAGE>
to contribute to price fluctuation in the future. However, the fundamental
outlook for the agricultural sector remains strong.
In Case's construction equipment market, conditions vary by both country and
economic conditions. In North America, demand remains solid as a result of
sustained, strong housing starts. In Europe, the market continues to benefit
from a high level of housing construction in the U.K., which is being offset
by ongoing weakness in the construction sectors in France and Germany. In the
Asia Pacific region, the expected recovery of the Australian housing market is
showing further promise, but has yet to be fully realized. In Latin America,
economic conditions in Brazil and Mexico have improved and retail sales of
construction equipment are expected to be strong year-over-year.
The information included in the "Outlook" section represents forward-looking
statements and involves risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking statements. The
Company's outlook is predominantly based on its interpretation of what it
considers key economic assumptions. Crop production and commodity prices are
strongly affected by weather and can fluctuate significantly. Housing starts
and other construction activity are sensitive to interest rates and government
spending. Some of the other significant factors for the Company include
general economic conditions, the cyclical nature of its business, foreign
currency movements, the Company's access to credit, political uncertainty and
civil unrest in various areas of the world, pricing, product initiatives and
other actions taken by competitors, disruptions in production capacity, excess
inventory levels, the effect of changes in laws and regulations (including
government subsidies and international trade regulations), changes in
environmental laws and employee relations. Further information concerning
factors that could significantly impact expected results is included in the
following sections of the Company's Form 10-K Annual Report for 1996, as filed
with the Securities and Exchange Commission: Business--Employees, Business--
Environmental Matters, Business--Significant International Operations,
Business--Seasonality and Production Schedules, Business--Competition, Legal
Proceedings, and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
19
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of legal proceedings to which the Company is party, see
footnote 8 to the Case financial statements included in 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 14, 1997.
At the meeting, stockholders voted upon (i) the election of a Board of
Directors to serve until the 1998 Annual Meeting of Stockholders and until
their successors are elected and have qualified, and (ii) the appointment of
Arthur Andersen LLP as independent public accountants for the year 1997.
Proxies for the meeting were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934. There were 64,861,429 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:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHELD
------- ---------- --------------
<S> <C> <C>
Pei-yuan Chia................................... 64,723,943 137,486
Jeffery T. Grade................................ 64,724,991 136,438
Thomas R. Hodgson............................... 64,729,035 132,394
Katherine M. Hudson............................. 64,722,191 139,238
Dana G. Mead.................................... 59,760,524 5,100,905
Gerald Rosenfeld................................ 64,260,820 600,609
Jean-Pierre Rosso............................... 64,727,356 134,073
Theodore R. Tetzlaff............................ 64,075,708 785,721
Thomas N. Urban................................. 64,728,161 133,268
</TABLE>
The appointment of Arthur Andersen LLP as independent public accountants was
approved by the following vote:
<TABLE>
<CAPTION>
VOTES
VOTES FOR AGAINST ABSTENTIONS
--------- ------- -----------
<S> <C> <C>
64,702,522 47,561 111,346
</TABLE>
There were no broker non-votes on either 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.
In a Current Report filed on Form 8-K dated May 14, 1997, the Company
reported the issuance of a press release disclosing that the Board of
Directors of Case Corporation authorized the purchase from time to time of up
to four million shares of the Company's Common Stock.
20
<PAGE>
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 14, 1997
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ----------
<C> <S> <C>
4 The Company hereby agrees to furnish to the Securities
and Exchange Commission, upon its request, the
instruments with respect to its guaranty of certain
indebtedness issued by its subsidiaries, which
indebtedness does not exceed 10% of the Company's total
consolidated assets.
11 Computation of Earnings Per Share of Common Stock.
12 Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends.
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 11
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
COMPUTATIONS FOR STATEMENTS
OF INCOME
Primary earnings per
share of common stock
(average shares
outstanding):
Income before
extraordinary loss.... $ 138 $ 110 $ 202 $ 185
Extraordinary loss..... -- -- -- (22)
----------- ----------- ----------- -----------
Net income............. 138 110 202 163
Preferred stock
dividends............. (1) (1) (3) (3)
----------- ----------- ----------- -----------
Net income to common... $ 137 $ 109 $ 199 $ 160
=========== =========== =========== ===========
Average shares of
common stock
outstanding........... 73,748,383 72,002,505 73,615,068 71,650,424
Incremental common
shares applicable to
restricted common
stock based on the
common stock daily
average market price
during the period..... 243,089 196,026 221,258 184,969
Incremental common
shares applicable to
common stock options
based on the common
stock daily average
market price during
the period............ 1,420,481 1,771,917 1,394,395 1,779,076
----------- ----------- ----------- -----------
Average common stock,
as adjusted........... 75,411,953 73,970,448 75,230,721 73,614,469
=========== =========== =========== ===========
Earnings per share of
common stock (including
common stock
equivalents):
Net income after
preferred stock
dividends and before
extraordinary loss.... $ 1.82 $ 1.47 $ 2.65 $ 2.47
Extraordinary loss..... -- -- -- (0.30)
----------- ----------- ----------- -----------
Net earnings per share
of common stock....... $ 1.82 $ 1.47 $ 2.65 $ 2.17
=========== =========== =========== ===========
Fully diluted earnings
per share of common
stock:
Average shares of
common stock
outstanding........... 73,748,383 72,002,505 73,615,068 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................ 260,465 205,028 245,568 204,602
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..... 1,611,137 1,771,866 1,631,815 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 3,488,711 3,488,711
----------- ----------- ----------- -----------
Average common shares
assuming full
dilution.............. 79,108,696 77,468,110 78,981,162 77,122,737
=========== =========== =========== ===========
Fully diluted earnings
per average share of
common stock, assuming
conversion of all
applicable securities:
Net income before
extraordinary loss.... $ 1.74 $ 1.42 $ 2.56 $ 2.40
Extraordinary loss..... -- -- -- (0.29)
----------- ----------- ----------- -----------
Net earnings per share
of common stock....... $ 1.74 $ 1.42 $ 2.56 $ 2.11
=========== =========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 12
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
------------
1997 1996
----- -----
<S> <C> <C>
Net Income....................................................... $ 202 $ 163
Add:
Interest....................................................... 79 78
Amortization of capitalized debt expense ...................... 1 3
Portion of rentals representative of interest factor .......... 5 7
Income tax expense and other taxes on income .................. 95 112
Fixed charges of unconsolidated subsidiaries .................. 1 2
Extraordinary loss............................................. -- 22
----- -----
Earnings as defined ......................................... $ 383 $ 387
===== =====
Interest......................................................... $ 79 $ 78
Amortization of capitalized debt expense ........................ 1 3
Portion of rentals representative of interest factor ............ 5 7
Fixed charges of unconsolidated subsidiaries .................... 1 2
----- -----
Fixed charges as defined .................................... $ 86 $ 90
===== =====
Preferred Dividends:
Amount declared ............................................... $ 3 $ 3
Gross-up to pre-tax based on effective rates of 32% and 38%,
respectively.................................................. $ 4 $ 5
Ratio of earnings to fixed charges and preferred dividends ...... 4.26x 4.07x
===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Company's Form 10Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 177
<SECURITIES> 0
<RECEIVABLES> 1,953
<ALLOWANCES> 0
<INVENTORY> 1,194
<CURRENT-ASSETS> 3,546
<PP&E> 2,015
<DEPRECIATION> 1,065
<TOTAL-ASSETS> 6,545
<CURRENT-LIABILITIES> 2,901
<BONDS> 1,108
77
0
<COMMON> 1
<OTHER-SE> 2,074
<TOTAL-LIABILITY-AND-EQUITY> 6,545
<SALES> 2,723
<TOTAL-REVENUES> 2,833
<CGS> 2,063
<TOTAL-COSTS> 2,432
<OTHER-EXPENSES> 25
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 297
<INCOME-TAX> 95
<INCOME-CONTINUING> 202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 2.56
</TABLE>
