<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13098
CASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0433811
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
53404
700 STATE STREET, RACINE, WISCONSIN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 636-6011
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- ---------------------
<S> <C>
Common Stock, par value $0.01 per share..... New York, Chicago and Paris, France
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE
TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES
OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF
FILING.
<TABLE>
<CAPTION>
CLASS OF VOTING STOCK AND
NUMBER OF SHARES MARKET VALUE HELD
HELD BY NON-AFFILIATES AT BY NON-
FEBRUARY 27, 1998 AFFILIATES(2)
------------------------- -----------------
<S> <C>
Common Stock, 73,991,358 shares(1)........................ $4,814,062,730
</TABLE>
- --------
(1) Does not include 164,918 shares held by Case executive officers and
directors; however, this determination does not constitute an admission of
affiliate status for any of these stockholders.
(2) Based upon the closing sale price on the Composite Tape for the Common
Stock on February 27, 1998.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. Common Stock, par
value $0.01 per share, 74,156,276 shares outstanding as of February 27, 1998.
DOCUMENT INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
-------- -----------------------
<S> <C>
Case Corporation's Definitive Proxy Statement for the
Annual Meeting of Stockholders to be Held May 13,
1998................................................ Part III
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I
ITEM 1. BUSINESS..................................................... 3
ITEM 2. PROPERTIES................................................... 13
ITEM 3. LEGAL PROCEEDINGS............................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 13
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT......................... 14
PART II
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
ITEM 5. STOCKHOLDER MATTERS.......................................... 15
ITEM 6. SELECTED FINANCIAL DATA...................................... 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS................................................... 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 35
Index to Financial Statements of Case Corporation and
Consolidated Subsidiaries.................................... 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL
DISCLOSURE................................................... 68
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 68
ITEM 11. EXECUTIVE COMPENSATION....................................... 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
ITEM 12. MANAGEMENT................................................... 68
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 68
PART IV
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
ITEM 14. 8-K.......................................................... 68
Financial Statements Included in Item 8...................... 68
Index to Financial Statements and Schedule Included in Item
14........................................................... 68
Schedules Omitted as Not Required or Inapplicable............ 68
Exhibits..................................................... 70
Reports on Form 8-K.......................................... 70
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
Case Corporation, a Delaware corporation (the "Company"), is a leading
worldwide designer, manufacturer, marketer and distributor of farm equipment
and light- to medium-sized construction equipment. The Company's market
position is particularly significant in several product categories including
loader/backhoes, skid steer loaders, large, high-horsepower farm tractors and
self-propelled combines. As used herein, "Case" refers to the Company and its
consolidated subsidiaries.
Case also manufactures and distributes replacement parts for various models
of its farm and construction equipment, many of which are proprietary, to
support products it has sold. Case distributes these parts to dealers and
distributors through a network of parts depots throughout the world.
To facilitate the sale of its products, Case offers wholesale financing to
its dealers and various types of retail financing to qualified end-users in
the United States, Canada, Europe and Australia. Wholesale financing consists
primarily of floorplan financing and allows dealers to maintain a
representative inventory of products. Retail financing consists of the
financing of retail installment sales contracts, leases and other similar
products for the benefit of end-use customers in conjunction with the purchase
of new and used equipment from Case and other dealers. Case's retail financing
alternatives are intended to be competitive with financing available from
third parties.
In 1997, Case's sales of farm and construction equipment represented 79% of
total revenues, while sales of replacement parts represented 17% and financing
operations accounted for 4% of total revenues. In 1997, Case's sales of farm
equipment represented 63% of revenues from equipment sales, and sales of
construction equipment represented 37% of revenues from equipment sales. For
information concerning the revenues, operating results and assets attributable
to each of the geographic areas in which Case operates, see Note 18 to the
Financial Statements of Case Corporation and Consolidated Subsidiaries (the
"Case Financial Statements") included in Item 8 hereof.
Case products are distributed through an extensive network of independent
dealers and distributors in more than 150 countries worldwide.
ACQUISITION OF BUSINESSES
The Company completed six strategic business acquisitions in 1997. In the
first quarter, the Company acquired bor-mor Inc. ("bor-mor"), a North American
manufacturer of directional drills for the underground cable and utility
installation market. Bor-mor complements the Company's existing trencher
business and adds "trenchless" technology, giving Case dealers a complete
systems solution for underground construction. Also in the first quarter, the
Company acquired select assets of Agri-Logic Inc., a leading developer of
software for agricultural applications. This acquisition added greater
software development capability and will aid in the application of the
Company's Advanced Farming Systems ("AFS") in tractors and combines. In the
third quarter of 1997, the Company acquired Gem Sprayers Limited ("Gem"), the
leading agricultural sprayer company in the United Kingdom. As a key component
of site-specific farming, sprayers are playing an increasingly important role
in crop production. The Company is leveraging Gem's line of self-propelled and
trailed/mounted sprayers through its global distribution network. In the
fourth quarter of 1997, the Company acquired the outstanding shares of
Fortschritt Erntemaschinen GmbH ("Fortschritt"). Case also acquired select
assets of Karl Mengele & Sohne, Maschinenfabriken GmbH ("Mengele") and MDW
Mahdrescherwerke GmbH ("MDW"), including intellectual property, and production
and distribution rights related to self-propelled forage harvesters and
combines. The Fortschritt, Mengele and MDW acquisitions provide Case with a
broad range of conventional and rotary combines in Europe and significantly
expand the Company's line of harvesting equipment for that region.
3
<PAGE>
FARM EQUIPMENT
Case manufactures and distributes a broad line of farm machinery and
implements, including two-wheel and four-wheel drive tractors ranging in size
from 40 to 425 horsepower, combines, cotton pickers, hay and forage equipment,
planting and seeding equipment, soil preparation and cultivation implements,
sugar cane harvesters and material handling equipment. In 1997, the Company
introduced 17 new agricultural products.
Case's tractor line covers a broad range of requirements to serve widely
varying needs of customers in the global farming industry. Large tractors,
such as the Case MAGNUM(TM) two-wheel drive and STEIGER(R) four-wheel drive
tractors are primarily sold to large, high-volume agricultural producers. In
1997, Case introduced a new line of small and medium-sized tractors, including
the MX series MAXXUM(R) and "C/CX" series of two-wheel drive tractors. These
tractors are sold worldwide across a broader range of applications. Case Steyr
Landmaschinentechnik AG produces tractors in Austria and markets these
products primarily in Europe. Case also distributes tractors manufactured by
Carraro S.p.A. to meet specialized European market requirements. In 1996, the
Company launched a new line of MAGNUM(TM) two-wheel drive tractors and the new
Quadtrac,(TM) four-wheel drive tracked tractor.
Harvesting equipment includes combines, cotton pickers and sugar cane
harvesters. AXIAL-FLOW(R) combines are used in a broad variety of grain
harvesting applications. In 1997, the Company launched its new 2300 series of
combines, as well as its new 2555 COTTON-EXPRESS(R) cotton picker. COTTON-
EXPRESS(R) cotton pickers are sold to customers who require highly productive,
multi-row cotton harvesting equipment. Through the 1996 acquisition of Austoft
Holdings Limited ("Austoft"), Case manufactures sugar cane harvesting
equipment in Australia and Brazil and markets these products worldwide. In
1996, the Company acquired exclusive development, manufacturing and marketing
rights to a new combine-attachment design for "ultra-narrow" row farming that
has the potential to substantially increase farmer productivity.
Case's "Ag Systems" comprises all of the agricultural equipment and
attachments that allow farmers to assemble complete systems of products for
their unique applications. Through Case's 1997 acquisition of Gem, the Company
now manufactures self-propelled and trailed/mounted sprayers that incorporate
the industry's most advanced features, including an innovative chemical
delivery system. Sprayers are playing an increasingly important role in crop
production, and are a key component of site-specific farming. Also in 1997,
Case's "Ag Systems" launched several new products including large square
balers, disk harrows and windrowers that are engineered to increase yield and
productivity. EARLY-RISER(R) planter equipment, CONCORD(R) air seeding
equipment, and a broad line of tillage and cultivation implements are sold for
a variety of row-crop and small grain farming requirements. Hay and Forage
Industries, a joint venture with AGCO Corporation ("AGCO"), manufactures a
broad range of products used primarily in livestock production. Case also
distributes some "Ag Systems" products manufactured by other companies for
specific needs in various regions of the world. In 1997, Case launched an
expansion of its AFS line of hardware and software, including new AFS software
programs for yield mapping, crop modeling and crop scouting.
Farm equipment net sales for the year ended December 31, 1997, included the
following components: tractors 59%, combines 27%, implements 7%, hay and
forage 3%, cotton pickers 2% and sugar cane harvesters 2%.
CONSTRUCTION EQUIPMENT
Case manufactures and distributes a broad line of construction machinery
that primarily serves the light- to medium-sized equipment market. Product
lines include loader/backhoes, crawler and wheel excavators, wheel loaders,
crawler dozers, skid steer loaders, trenchers and rough terrain forklifts.
Loader/backhoes are used across a large number of construction industry
segments because of their multi-function versatility and the capability of
adding various attachments. Case manufactures a variety of loader/backhoe
models based on a single global product structure to serve specific regional
markets. The 1996
4
<PAGE>
acquisition of Fermec Holdings Limited ("Fermec") added a four-wheel steer
version, a segment of growing importance in Europe, to Case's product
offering. Loader/backhoes are manufactured in North America, Europe, China and
Brazil for sale to customers worldwide.
Case sells a number of excavator models in different regions of the world.
In North America, Case distributes several excavator models manufactured by
Sumitomo Construction Machinery Co., Ltd. ("Sumitomo"). In January 1998, Case
and Sumitomo announced their intent to form a global alliance to market and
manufacture hydraulic crawler excavators, building upon an existing North
American supply agreement. In Europe, Case manufactures and sells a broad
range of crawler and wheeled excavators. This product line includes both
standard and specially-configured models. Through the acquisition of Fermec,
Case also manufactures mini-excavators in Europe under license from Kobelco
Construction Machinery.
Case offers a variety of other construction equipment products worldwide.
Wheel loaders are used in a wide variety of applications and are sold in
various configurations to meet the unique needs of construction, industrial,
utility and government customers. In Europe, Case distributes additional
smaller wheel loaders manufactured by Venieri S.p.A. Case's crawler dozer line
is used primarily in grading applications, with the majority of units sold in
North America. Case skid steer loaders are sold into a continuously growing
range of worldwide applications, and in 1997, the Company introduced its new
XT line of skid steers. Trenchers are used primarily for utility applications
for installation of pipe and cable and are sold equipped with a variety of
tools including cable plows, backhoes and rock saws. Case's acquisition of
bor-mor expanded Case's product offering in the cable and underground utility
installation market. Case also manufactures and sells rough terrain forklifts,
primarily in North America. In January 1998, Case and Ingersoll-Rand Company
("Ingersoll-Rand") announced a supply agreement under which Ingersoll-Rand
will supply three models of telescopic handlers for sale as Case-branded
equipment through Case dealers in North America. Telescopic handlers are used
for material handling applications in building construction and are among the
most frequently rented pieces of construction equipment in the United States.
Construction equipment net sales for the year ended December 31, 1997,
included the following components: loader/backhoes 48%, excavators 16%, skid
steer loaders 13%, wheel loaders 12%, crawler dozers 5%, trenchers 2% and
other 4%.
REPLACEMENT PARTS
The replacement parts and associated service business is a major source of
revenue and profitability for both Case and its dealers. It is also a
significant factor in overall customer satisfaction and a strong contributor
to the equipment purchase decision.
Case manufactures and distributes replacement parts for various models of
its farm and construction equipment, many of which are proprietary, to support
products it has sold over the past years. Since many of the products Case
sells have economically productive lives of 15 to 25 years when properly
maintained, each unit retailed produces a long-term revenue stream for both
Case and its dealers. Sales of replacement parts have historically been less
cyclical, and typically generate higher margins, than sales of new equipment.
Case distributes these parts to dealers and distributors through a network
of parts depots and various vendor "ship direct" programs throughout the
world. As of December 31, 1997, Case operated and maintained ten parts depots,
and utilized the services of five other depots worldwide. Of these 15 parts
depots, seven are located in the United States, two in Canada, four in Europe,
one in Australia and one in Brazil. These parts depots provide Case's
customers with immediate access to substantially all of the parts required to
support Case's equipment models.
In 1997, Case closed and sold its Batley, United Kingdom, parts depot and
consolidated its activities with the Company's existing parts depot at
LePlessis-Belleville, France.
5
<PAGE>
RETAIL CREDIT OPERATIONS
Case Credit Corporation is a wholly owned finance subsidiary of Case. Case
Credit Corporation, its wholly owned operating subsidiaries, Case Credit Ltd.
(Canada) and Case Credit Australia Pty Ltd, and Case Credit Corporation's
joint ventures, Case Credit Europe S.A.S. and UzCaseagroleasing (collectively
"the Credit Companies" or "Case Credit"), provide and administer financing for
the retail purchase or lease of new and used Case agricultural and
construction equipment and other new and used agricultural and construction
equipment. Case Credit offers various types of retail financing to end-use
customers to facilitate the sale or lease of Case products in the United
States, Canada, Australia, Europe and Uzbekistan. The Credit Companies
business principally involves purchasing retail installment sales contracts
from Case dealers. In addition, Case Credit facilitates and finances the sale
of insurance products to retail customers, provides financing for Case dealers
and Case rental equipment yards, and provides other retail financing programs
in North America. In 1997, Case Credit, through an agreement established with
Cummins Engine Company, Inc. ("Cummins"), began to offer financing to
qualified North American retail purchasers, dealers and manufacturers of
industrial equipment powered by Cummins engines. Case Credit also provides
financing options to dealers for a variety of purposes including working
capital, real estate acquisitions, construction and remodeling, business
acquisitions, dealer systems, and service and maintenance equipment. The
Company's dealers assign and sell retail contracts to the Credit Companies on
a daily basis. Credit criteria are set by the management of the Credit
Companies.
Retail sales and financing outside of North America, Europe and Australia
are affected by a variety of customs and regulations. The primary function of
credit operations in those markets is to coordinate sales-finance packages
with third parties. These sales packages are diverse and are dependent upon
the customer, product, country and government and are generally funded without
recourse to Case. In Europe, Case Credit established a joint venture with UFB
LOCABAIL SA, a subsidiary of Compagnie Bancaire, to provide financing for
Case's European dealers and retail customers. The formation of this new
venture, Case Credit Europe S.A.S. during the third quarter of 1997,
established the first pan-European finance organization to serve both the
agricultural and construction equipment markets in the region. Through
UzCaseagroleasing, a joint venture with The Association of Banks of
Uzbekistan, Case Credit provides financing for the retail acquisition of new
and used Case agricultural equipment in Uzbekistan. In Europe and Brazil,
retail financing is also offered through third-party banking arrangements,
with the banks having ultimate responsibility for underwriting and
administration. In the rest of the world, Case conducts limited retail
financing activities.
Case Credit finances retail sales of equipment under installment sales
contracts with terms generally from two to six years. Case's guidelines for
minimum down payments, which vary with the types of equipment and repayment
provisions, are generally not less than 20% for new farm equipment and 25% for
new construction equipment and 25% and 30%, respectively, for used farm and
construction equipment. Finance charges are sometimes waived for specified
periods or reduced on certain products sold in connection with sales
promotions. Installment sales contracts for financing the retail sales of
equipment (other than parts which are purchased on a revolving account basis)
typically provide for retention of a first priority perfected security
interest in the equipment financed.
The Credit Companies obtain funding for their operations primarily from the
issuance of commercial paper, bank revolving credit facilities, medium-term
notes and public debt, the issuance of securities in asset-backed
securitization ("ABS") transactions, earnings retained in the business, and
advances and equity capital from Case.
Asset-Backed Securitization Program
Limited-purpose business trusts organized by Case Credit issue asset-backed
notes and certificates in both public and private transactions. These asset-
backed securities are secured by retail installment sales contracts generated
by Case from the sale of farm and construction equipment to retail customers,
which are sold by the Credit Companies to the trusts.
6
<PAGE>
In 1996 and 1997, the following offerings of asset-backed securities were
completed (in millions):
<TABLE>
<CAPTION>
U.S. CANADIAN
DOLLAR DOLLAR
OFFERING DATE AMOUNT AMOUNT
------------- ------ --------
<S> <C> <C>
February 1996............................................. $625 --
April 1996................................................ -- $199
September 1996............................................ $875 --
February 1997............................................. -- $250
March 1997................................................ $639 --
September 1997............................................ $853 $ 32
November 1997............................................. -- $150
</TABLE>
In February 1998, limited-purpose business trusts organized by Case Credit
issued $614 million of asset-backed securities to outside investors, of which
$300 million was prefunded and will be sold to the trusts as receivables are
generated. The proceeds from this securitization will be used to repay
outstanding debt and to fund Case Credit's growing portfolio of receivables.
Case Credit anticipates that, depending upon continued market interest and
other economic factors, it will continue to securitize a percentage of its
retail receivables in both the U.S. and Canadian markets. Case Credit
continues to implement its asset-management strategy of retaining a larger
percentage of assets on balance sheet as opposed to selling those assets
through ABS transactions. Long term, this asset management strategy, which was
introduced early in 1997, will generate a more stable earnings performance for
Case Credit.
WHOLESALE FINANCING
Case provides wholesale financing to dealers in the United States, Canada,
Europe and Australia for extended periods to enable dealers to carry
representative inventories of equipment. Down payments are not required and
interest is not charged for a part of the period for which the inventories are
financed. Case strives to obtain a first priority perfected security interest
in dealers' inventories obtained from or financed by Case, and periodic
physical checks are made of those inventories. Terms to dealers require full
payment when the equipment that secures the indebtedness is sold to retail
customers. Variable market rates of interest are charged on balances
outstanding after certain interest-free periods, which currently vary from
three to nine months, depending upon the type of equipment. Financing is also
provided to dealers on used equipment accepted in trade, on repossessed
equipment and on approved equipment from other manufacturers, and Case strives
to obtain a security interest in such equipment.
In June 1995, the Company consummated a transaction whereby it sold (with
limited recourse), on a revolving basis, a fractional undivided interest in
certain of its wholesale receivables pursuant to a private ABS facility. Under
this facility, the maximum amount of proceeds that may be accessed at any one
time is $400 million and is subject to change based on the level of eligible
wholesale receivables. The facility, which was renewed in June 1996, consists
of a five-year committed, $300 million, non-renewable facility and a 364-day,
$100 million facility, which is renewable annually at the sole discretion of
the purchasers. At December 31, 1996 and 1997, the undivided interest of the
purchasers under the facility represented $521 million of wholesale
receivables.
Case's wholesale finance policies in Europe are similar to those adopted in
North America, although in Europe, interest-free floorplanning periods are
generally of shorter duration. The primary function of the credit operations
in non-European international markets is to facilitate the sale of Case
products by coordinating sales finance packages with third parties. These
sales packages are diverse and are dependent upon the customer, product,
country and government involved and are typically funded without recourse to
Case. In some instances, Case arranges wholesale financing through local
banks. In other instances, Case assists dealers in establishing wholesale
financing arrangements directly with local lenders.
7
<PAGE>
MANUFACTURING
Case manufactures equipment and components in ten facilities located in
North America and twelve facilities located in Brazil, France, Germany,
Austria, Australia and the United Kingdom. Similar manufacturing techniques
are employed in the production of components for both farm and construction
equipment, resulting in certain economies and efficiencies. In addition to
these facilities, Case also has, through its various joint ventures,
manufacturing facilities located in Rocky Mount, North Carolina; Hesston,
Kansas; Liuzhou, China; Tashkent, Uzbekistan; and Piracicaba, Brazil.
The Company has a 50% interest in a joint venture with Cummins that
manufactures a line of diesel engines at a facility in Rocky Mount, North
Carolina. The joint venture, Consolidated Diesel Company ("CDC"), provides
Case with a source of technically advanced, low cost, efficient and reliable
diesel engines that have been incorporated into many of Case's product lines.
Case also has a 50% interest in Hay and Forage Industries, a joint venture
with AGCO that manufactures hay and forage equipment at a plant in Hesston,
Kansas. Each of the co-venturers markets and sells the equipment manufactured
by the joint venture under the "Case IH" and "AGCO/Hesston" brand names,
respectively, through their respective distribution systems. In addition, Case
also owns a 70% interest in a joint venture in Liuzhou, China, for the
assembly and distribution of loader/backhoes. Case's partner in this joint
venture, Guangxi Liugong Machinery Co., Ltd., is a leading wheel loader
manufacturer in China. Case also owns a majority interest in a joint venture
in Tashkent, Uzbekistan, that produces two-row cotton pickers for sale in
Uzbekistan and surrounding countries. Through the acquisition of Austoft, Case
acquired a 50% interest in Brastoft, a joint venture in Piracicaba, Brazil,
that markets and sells sugar cane harvesters primarily in the Latin American
region.
In addition to the equipment manufactured by Case and its joint ventures,
Case purchases both agricultural and construction equipment from other
sources. Case purchases excavators and parts from Sumitomo pursuant to a
multi-year contract entered into in 1992. These excavators are sold under the
"Case" name in North America and enable Case's dealers to offer a full line of
light- to medium-sized construction equipment. In January 1998, Case and
Sumitomo announced their intent to form a global alliance to market and
manufacture hydraulic crawler excavators.
SUPPLIERS
During 1997, Case purchased approximately $2.7 billion of material from
outside suppliers, including approximately $2.2 billion in material used to
produce products and $520 million in after-market parts and components
support. Forty suppliers in the aggregate accounted for approximately 30% of
Case's 1997 annual purchase volume measured in dollars.
Over the years, Case has reduced the number of its suppliers from
approximately 7,000 in 1989 to approximately 3,100 at the end of 1997,
including the impact of incremental suppliers as a result of the Company's
acquisition activities in 1996 and 1997. The Company believes that the
reduction in the number of suppliers has resulted in more cost effective
arrangements, reduced investment requirements, provided greater access to
technology developments and resulted in lower per-unit costs. As a result,
however, Case's dependence on its remaining suppliers has increased, although
in most instances, the products purchased from Case's suppliers are available
from other sources.
DISTRIBUTION AND SALES
Case sells and distributes its products, including parts, through an
extensive network of independent dealers and distributors in more than 150
countries worldwide. Dealers typically sell either farm equipment or
construction equipment, although some dealers sell both types of equipment.
In most established markets, the distribution of Case products is
accomplished through the dealer network. In other parts of the world, Case
products are sold initially to distributors and then to dealers (or initially
to dealers and then to sub-dealers), leveraging distributor expertise and
minimizing Case's marketing costs. Distributors generally have responsibility
for the marketing of goods in very large geographic regions, including entire
countries.
8
<PAGE>
Dealer terminations, voluntary and involuntary, have historically averaged
between 6% and 7% annually, worldwide. In North America, Case is contractually
obligated to repurchase new equipment, new parts, business signs and manuals
from terminated dealers. The repurchase price for new equipment is the net
price paid by the dealer or the current net price offered to dealers,
whichever is lower, plus freight previously incurred by the dealer. New parts
are repurchased at the current dealer net price less 15% for restocking and
handling. Outside of North America, repurchase obligations and practices vary
by region.
In addition to the contractual repurchase obligation, various states and
countries have agricultural and construction equipment dealership laws which
require Case to repurchase new equipment and new parts at statutory amounts.
In many areas, the statutory repurchase amount for new equipment is at net
cost, and for parts the price varies from 85% to 100% of the current dealer
net price with a 5% credit if the dealer packs the parts. The dealer may elect
either the contractual repurchase provision or the statutory repurchase
provision. Case repurchases new equipment and new parts whether the
termination is voluntary or involuntary. The dealer and Case generally
negotiate an agreed-upon purchase price for used equipment financed by Case,
but if Case and the dealer cannot agree, a sale is typically held and the
proceeds are applied against any debt owed by the dealer to Case.
RESEARCH, DEVELOPMENT AND ENGINEERING
Case's research, development and engineering personnel design, engineer,
manufacture and test new products, components and systems. Case incurred $196
million, $193 million and $156 million of research, development and
engineering costs in the years ended December 31, 1997, 1996 and 1995,
respectively. Case also benefits from the research, development and
engineering expenditures of its joint ventures, CDC and Hay and Forage
Industries, which are not included in Case's research, development and
engineering expenditure figures, and from the continuing engineering efforts
of its suppliers.
PATENTS AND TRADEMARKS
Case owns and licenses the rights under a number of domestic and foreign
patents and trademarks relating to its products and businesses. Case
manufactures and distributes equipment primarily under the names "Case," "Case
IH," "Steyr," "Austoft," "Concord," "bor-mor," "Fermec" and "Case Poclain."
While the Company considers the patents and trademarks, including the Case and
IH tradenames, important in the operation of its business, the Company does
not believe that its business is dependent on any single patent or group of
patents.
EMPLOYEES
At February 28, 1998, Case had approximately 18,300 employees compared to
17,500 employees at February 28, 1997. The year-over-year increase in
headcount primarily resulted from the Company's acquisitions in 1997.
Most of Case's worldwide production and maintenance employees are
represented by unions. Case's current 38-month collective bargaining agreement
with the United Automobile, Aerospace and Agricultural Implement Workers of
America (the "UAW"), which represents approximately 3,300 of Case's hourly
production and maintenance employees in North America, expires on March 29,
1998. Prior to the date of filing this Form 10-K, the Company and the UAW had
begun formal contract negotiations. Union contracts covering Case's employees
in France and the United Kingdom expire annually and are renegotiated each
year. In April 1997, a two-year contract for the United Steel Workers of
America ("USWA") at the Hamilton, Ontario, plant was renegotiated. There can
be no assurance that future contracts with the UAW, USWA or any of Case's
other union contracts will be renegotiated upon terms acceptable to Case. In
addition, Case's employees in Europe are protected by various worker co-
determination and similar laws that afford employees, through local and
central works councils, certain rights of consultation with respect to matters
involving the business and operations of their employers, including the
downsizing or closure of facilities and the termination of employment. Over
the years, the Company has experienced various work slow-downs, stoppages and
other labor disruptions. During 1995, 1996 and 1997, no significant labor
disruptions occurred.
9
<PAGE>
ENVIRONMENTAL MATTERS
Case's operations are subject to environmental regulation by Federal, state
and local authorities in the United States and regulatory authorities with
jurisdiction over its foreign operations. Case is a voluntary participant in
several government sponsored initiatives at the state and Federal levels that
benefit the environment. Case has also instituted a Pollution Prevention
Program to reduce industrial waste, air emissions and water usage by
incorporating adjustments in business activity, recycling efforts and hazard
assessments of raw materials. Case has a program designed to implement
environmental management practices and compliance, to promote continuing
environmental improvements and to identify and evaluate environmental risks at
manufacturing and other facilities worldwide.
Case will incur capital expenditures in connection with matters relating to
environmental control and will also be required to spend additional amounts in
connection with ongoing compliance with current and future laws and
regulations. In particular, the Clean Air Act Amendments of 1990 will affect
directly the operations of all of Case's manufacturing facilities in the
United States. The manufacturing processes that will be affected include
painting, coating and foundry operations. Although capital expenditures for
environmental control equipment and compliance costs in future years will
depend on legislative, regulatory and technological developments that cannot
accurately be predicted at this time, Case anticipates that these costs are
likely to increase as environmental requirements become more stringent. Case
made capital expenditures applicable to environmental matters aggregating
approximately $4 million in 1997. Capital expenditures applicable to
environmental matters for 1998 and 1999 are estimated by the Company to
approximate $10 million per year. The preceding sentence is a forward-looking
statement, and the actual costs could differ materially from those currently
anticipated by the Company based on the factors discussed in this paragraph.
Pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), and other Federal and state laws that impose similar
liabilities, Case has received inquiries for information or notices of its
potential liability regarding 35 sites to which Case allegedly sent hazardous
substances for disposal ("Waste Sites"). Case has never owned or operated any
of the Waste Sites. Thirteen of the Waste Sites are on the National Priority
List promulgated pursuant to CERCLA. At 31 of the Waste Sites, the monetary
amount or extent of Case's liability has been resolved, Case has not been
named as a potentially responsible party ("PRP"), or Case's liability is
likely de minimis in comparison with other PRPs. Because estimates of
remediation costs are subject to revision as more information becomes
available about the extent and cost of remediation and because settlement
agreements can be reopened under certain circumstances, Case's potential
liability for remediation costs associated with the 35 Waste Sites could
change. Moreover, because liability under CERCLA and similar laws can be joint
and several, Case could be required to pay amounts in excess of its pro rata
share of remediation costs. However, when appropriate, Case's understanding of
the financial strength of other PRPs has been considered in the determination
of Case's potential liability. The Company believes that the costs associated
with the Waste Sites will not have a material adverse effect on the Company's
financial position or results of operations. The preceding sentence is a
forward-looking statement, and the actual costs could differ materially from
the costs currently anticipated by the Company based on the factors discussed
in this paragraph.
The Company has conducted environmental investigatory or remedial activities
at certain properties that are currently or were formerly owned and/or
operated or which are being decommissioned. The Company believes that the
outcome of these activities will not have a material adverse effect on the
Company's financial position or results of operations. The preceding sentence
is a forward-looking statement, and the actual costs could differ materially
from those costs currently anticipated due to the nature of the historical
disposal and release activities typical of manufacturing and related
operations that have occurred in the United States and other countries, and as
a result of U.S. and foreign laws which now and in the future may impose
liability for previously lawful disposal and release activities. As it has
done in the past, the Company intends to fund its costs of environmental
compliance from operating cash flows. Also see Note 15 to the Case Financial
Statements included in Item 8 hereof.
10
<PAGE>
SIGNIFICANT INTERNATIONAL OPERATIONS
In addition to Case's U.S. manufacturing plants, Case operates manufacturing
plants in Europe, Australia, China, Brazil, Canada and Uzbekistan. Case
derived approximately 57% of its sales in 1997 from the sale of its products
in countries outside the United States. International operations are generally
subject to various risks that are not present in domestic operations. Various
foreign jurisdictions have laws limiting the right and ability of foreign
subsidiaries to pay dividends and remit earnings to affiliated companies
unless specified conditions precedent are met. In addition, sales in foreign
jurisdictions are typically made in local currencies and transactions with
foreign affiliates are customarily accounted for in the local currency of the
selling company. To the extent Case does not take steps to mitigate the effect
of changes in the relative value of the U.S. dollar and foreign currencies,
Case's results of operations and financial condition (which are reported in
U.S. dollars) could be adversely affected by negative changes in these
relative values. Also see Note 11 to the Case Financial Statements included in
Item 8 hereof, and Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SEASONALITY AND PRODUCTION SCHEDULES
The seasonality of farm equipment retail sales is directly affected by the
timing of major crop activities: tilling, planting and harvesting. The timing
of these activities is impacted by crop production and climate conditions. The
fourth quarter is generally the strongest demand period for retail farm
equipment sales, normally representing approximately 35% of sales by Case's
North American dealers. The weakest retail demand for Case farm equipment in
North America historically occurs in the third quarter, accounting for
approximately 15% to 20% of sales by Case's North American dealers.
Seasonal demand fluctuations for construction equipment are less significant
than those for farm equipment. Nevertheless, in North America, housing
construction slows down, especially in the Midwest and on the East Coast,
beginning in November and continuing through the first quarter. North American
retail demand for Case's construction equipment is strongest in the second and
fourth quarters, which combined represent approximately 55% to 60% of sales by
Case's North American dealers. European demand patterns are similar to those
in North America.
Sales to independent dealers closely correspond with Case's production
levels, which are based upon its estimates of the demand for its products,
taking into account the timing of dealer shipments (which are in advance of
retail demand), dealer inventory levels, the need to shut down production to
enable manufacturing facilities to be prepared for the manufacture of new or
different models and the efficient use of manpower and facilities. The
production levels are adjusted to reflect changes in estimated demand, dealer
inventory levels, labor disruptions and other matters not within Case's
control. In 1996, the Company established a multi-year supply chain management
initiative that has a long-term objective of matching production levels with
retail demand. In 1997, Case produced approximately at retail demand, despite
incremental production for new product introductions, increased sales to Latin
America and increased demand for acquisition-related products. The Company
will continue to produce at or near retail demand in the future. The goal of
the Company's supply chain management initiative is to reduce Case's working
capital requirements.
COMPETITION
The farm equipment industry is highly competitive, particularly in North
America and Europe. Case competes with several large national and
international full-line suppliers, as well as numerous short-line and
specialty manufacturers with differing manufacturing and marketing methods.
Case's principal competitors in the farm equipment business include Deere &
Company ("Deere & Co."), New Holland N.V. and AGCO.
The Company believes several key factors influence a buyer's choice of
equipment. These factors include the strength and quality of a company's
dealers, the quality and pricing of products, brand loyalty, product
availability, financing terms, parts and warranty programs, resale value,
customer service and satisfaction, timely
11
<PAGE>
delivery and technological innovation. The Company continually seeks to
improve in each of these areas but focuses primarily on providing high-quality
and high-value products and supporting those products through its dealer
network and parts distribution system.
The construction equipment industry has a broad spectrum of competitors that
specialize in various product lines. The competitors are globally dispersed.
Principal competitors for Case in North America are Caterpillar Inc.
("Caterpillar"), Deere & Co. and Ingersoll-Rand. Outside North America, the
Company's competitors include J.C. Bamford NV, Caterpillar and others, such as
Komatsu Ltd., AB Volvo, Hyundai Corporation, Samsung Corporation, Daewoo
Corporation and Hitachi, Ltd., depending on the particular markets.
Caterpillar is a major supplier of large construction machines, with emphasis
on heavy earthmoving, mining and materials handling equipment. Competing
product lines from Caterpillar include small crawlers, loader/backhoes, wheel
loaders and excavators. Deere & Co. is a smaller supplier of construction
equipment and competes with Case in the same product families as Caterpillar.
Ingersoll-Rand produces a line of skid steer loaders that competes with Case's
products and, in January 1998, Case and Ingersoll-Rand announced a supply
agreement under which Ingersoll-Rand will supply three models of telescopic
handlers for sale as Case-branded equipment through Case dealers in North
America.
The principal factors affecting competition are market share objectives,
profit objectives, exchange rate fluctuations, financial strength of supplier
or retailer, technology and quality advantages, unique product or service
advantages and product support and distribution strength.
SERVICE AND WARRANTY
Case products are warranted to the end-user to ensure end-user confidence in
design, workmanship and material quality. Warranty lengths vary depending on
competitive standards established within individual markets. In general,
warranties tend to be for one to two years, with some at six months, and cover
all parts and labor for non-maintenance repairs and wear items, provided the
repair was not necessitated by operator abuse, improper use or negligence.
Warranty work must be performed by authorized independent Case distributors,
dealers and company-owned retail stores. Warranty on some products is limited
by hours of use. Purchased warranty is available on most products. Dealers
submit claims for warranty reimbursement to Case and are credited for the cost
of repairs so long as the repairs meet Case's prescribed standards. Warranty
expense is accrued at the time of sale. Purchased warranty is accrued and
amortized over the life of the warranty contract.
Service support outside of the warranty period is provided by Case
distributors and dealers. Retail outlet service personnel are trained in one
of several Case training facilities around the world or on location at the
dealership by Case service engineers or service training specialists.
REORGANIZATION
The Company was incorporated on April 22, 1994, as a wholly owned subsidiary
of Tenneco Inc. ("Tenneco") for the purpose of acquiring Tenneco's farm and
construction equipment business (the "Case Business"). In June 1994, pursuant
to a Reorganization Agreement (the "Reorganization Agreement"), between the
Company, Tenneco and Tenneco Equipment Corporation, the Company and its
subsidiaries acquired the business and assets of the farm and construction
equipment business (other than approximately $1.1 billion of U.S. retail
receivables) of Tenneco and its subsidiaries.
12
<PAGE>
ITEM 2. PROPERTIES.
The principal properties of Case as of February 28, 1998, were as follows:
<TABLE>
<CAPTION>
DESCRIPTION OF
LOCATION PROPERTY
-------- ---------------------
<S> <C>
Burlington, Iowa................................... Manufacturing
East Moline, Illinois.............................. Manufacturing
Hamilton, Ontario, Canada.......................... Manufacturing
Burr Ridge, Illinois............................... Technology Center
Racine, Wisconsin.................................. Manufacturing
Racine, Wisconsin.................................. Manufacturing/Foundry
Wichita, Kansas.................................... Manufacturing
Hugo, Minnesota.................................... Manufacturing
Fargo, North Dakota................................ Manufacturing
Fargo, North Dakota................................ Manufacturing
Valley City, North Dakota.......................... Manufacturing
St. Valentin, Austria.............................. Manufacturing
Crepy, France...................................... Manufacturing
Croix, France...................................... Manufacturing
St. Dizier, France................................. Manufacturing
Tracy, France...................................... Manufacturing
Neustadt, Germany.................................. Manufacturing
Carr Hill, United Kingdom.......................... Manufacturing
Doncaster, United Kingdom.......................... Manufacturing
Lincoln, United Kingdom............................ Manufacturing
Manchester, United Kingdom......................... Manufacturing
Queensland, Australia.............................. Manufacturing
Sorocaba, Brazil................................... Manufacturing
</TABLE>
The corporate headquarters for the Company are located in Racine, Wisconsin.
In addition, Case also has, through its various joint ventures, manufacturing
facilities located in Rocky Mount, North Carolina; Hesston, Kansas; Liuzhou,
China; Tashkent, Uzbekistan; and Piracicaba, Brazil. For additional
information on Case's joint ventures, see Item 1, "Manufacturing."
Several of the Company's facilities are leased through operating lease
agreements. For information on operating leases, see Note 15 to the Case
Financial Statements included in Item 8 hereof. Case also owns other
facilities that are currently idle and available for sale.
The Company considers each of its facilities currently in use to be in good
operating condition and adequate for its present use. Management believes that
it has sufficient capacity to meet its current market demand. The Company is
considering making incremental investments at select facilities and other
sites to increase capacity to meet continued demand for certain agricultural
equipment products.
ITEM 3. LEGAL PROCEEDINGS.
For information pertaining to legal proceedings, see Note 15 to the Case
Financial Statements included in Item 8 hereof, which is incorporated by
reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year ended December 31, 1997.
13
<PAGE>
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages as of February 28, 1998,
and their present positions with the Company are set forth in the table below:
<TABLE>
<CAPTION>
AGE AT
FEBRUARY 28,
NAME 1998 OFFICE
---- ------------ ------
<S> <C> <C>
Jean-Pierre Rosso....... 57 Chairman, Chief Executive Officer and Director
Steven G. Lamb.......... 41 President and Chief Operating Officer
Theodore R. French...... 43 President, Financial Services, and Chief Financial Officer
Richard M. Christman.... 47 Senior Vice President
Richard S. Brennan...... 59 General Counsel and Secretary
</TABLE>
As used in this Item 4.1, the "Company" or "Case" refers to Case Corporation
and its consolidated subsidiaries and to Tenneco Equipment Corporation, the
predecessor of Case Corporation.
Mr. Rosso has served as Chairman and Chief Executive Officer of Case since
October 1997. Prior thereto, he served as its Chairman, President and Chief
Executive Officer since March 1996, and as its President and Chief Executive
Officer from April 1994, when he joined the Corporation. Prior to April 1994,
Mr. Rosso was President of the Home and Building Control business of Honeywell
Inc., a producer of advanced technology products, since 1992 and served as
President of that company's European operations from 1987 through 1991. Mr.
Rosso is also a director of ADC Telecommunications, Inc., Crown Cork & Seal
Company, Inc. and Inland Steel Industries, Inc. and its subsidiaries, Inland
Steel Company and Ryerson Tull, Inc. Mr. Rosso became a Director of Case on
April 22, 1994.
Mr. Lamb has served as President of Case since October 1997 and as its Chief
Operating Officer since March 1995. Prior to serving as President, he served
as Executive Vice President since April 1993. As Chief Operating Officer, Mr.
Lamb is responsible for worldwide industrial operations. He previously
directed the Company's business activities in Europe, Africa and the Middle
East. Prior to joining Case, he served as Executive Assistant to the President
and Chief Operating Officer of Tenneco. Previously, Mr. Lamb was with
International Paper Company from 1988 to 1992, where he served in several key
management and operational positions.
Mr. French has served as President, Financial Services of Case since October
1997 and as its Chief Financial Officer since January 1992. Prior to serving
as President, Financial Services, he served as Senior Vice President since
January 1992 and as Treasurer from January 1992 until August 1994. Mr. French
also has operating responsibility for the Case finance subsidiaries and has
served as Chairman of the Board of Case Credit Corporation since January 1996.
He joined Case in 1989 as Vice President, Corporate Planning and Development.
Prior to joining Case, Mr. French spent 12 years with Rockwell International.
From 1987 to 1989, he was Director of Business Development for Rockwell
International's Automotive Operations.
Mr. Christman has served as a Senior Vice President of Case since July 1986.
He leads Global Business Development and focuses on establishment of new
strategic alliances with the implementation of growth strategies. Mr.
Christman joined Case in 1975 and has held various sales and marketing
positions. Beginning in 1986, Mr. Christman served for three years as Senior
Vice President, Europe Sales and Marketing, and returned to Racine in 1989 as
Senior Vice President, Parts Division.
Mr. Brennan was appointed General Counsel and Secretary of the Company in
February 1995. He has been a partner in the law firm of Mayer, Brown & Platt
since returning to that firm in 1991, and was the General Counsel of
Continental Bank Corporation from 1982 through August 1994.
Each of the executive officers described in this Item 4.1 was elected by the
Board of Directors at its May 1997 meeting to hold office until the first
meeting of the Board of Directors following the 1998 annual meeting of
stockholders, and until his respective successor is duly elected and
qualified, unless any such executive officer is earlier removed or replaced by
the Board of Directors.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The outstanding shares of common stock, par value $0.01 per share, of the
Company (the "Common Stock") are listed on the New York Stock Exchange, which
is the principal market for the common stock, under the symbol "CSE." The
Company's Common Stock is also listed on the Chicago Stock Exchange and the
Paris, France, Stock Exchange.
The following table sets forth the high and low sale prices of common stock
during the periods indicated on the New York Stock Exchange Composite
Transactions Tape and dividends declared per share of common stock during such
periods:
<TABLE>
<CAPTION>
SALE PRICES
-------------
DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
1997
1st quarter..................................... $59.25 $48.38 $0.05
2nd quarter..................................... 69.50 50.25 0.05
3rd quarter..................................... 71.50 61.00 0.05
4th quarter..................................... 72.94 57.25 0.05
1996
1st quarter..................................... $56.25 $40.00 $0.05
2nd quarter..................................... 55.00 45.13 0.05
3rd quarter..................................... 50.00 41.75 0.05
4th quarter..................................... 56.50 45.38 0.05
</TABLE>
The number of holders of Case Common Stock of record as of February 27,
1998, was 4,911.
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. As of
December 31, 1997, the Company has repurchased approximately 1.5 million
shares of its common stock at a cost of approximately $94 million under this
program.
The declaration and payment of dividends to holders of each class of capital
stock of the Company will be at the discretion of the Board of Directors of
the Company and will depend upon many factors, including the Company's
competitive position, financial condition, earnings and capital requirements.
Accordingly, there is no requirement or assurance that dividends will be
declared or paid.
No dividends (other than dividends paid in stock ranking junior to the
Company's Preferred Stock, or rights or warrants to purchase such junior
stock) may be paid on the common stock unless all unpaid dividends payable on
the Company's Series A Cumulative Convertible Preferred Stock and its
Cumulative Convertible Second Preferred Stock have been declared and paid, or
set apart for payment, in full.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial data as of and for each of the
five years ended December 31, 1997, has been derived from the audited
consolidated and combined financial statements of the Company and the Case
Business. For all periods subsequent to June 24, 1994, the financial data
reflects the consolidated results of Case Corporation. For all prior periods,
the financial data reflects the combined results of the Case Business. This
information should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Case Financial Statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................. $5,796 $5,176 $4,937 $4,262 $3,748
Interest income and other.............. 228 233 168 143 255
Cost of goods sold..................... (4,447) (3,953) (3,779) (3,260) (3,106)
Selling, general and administrative
expenses.............................. (570) (544) (553) (576) (526)
Research, development and engineering
expenses.............................. (196) (193) (156) (127) (95)
Interest expense....................... (170) (160) (174) (160) (232)
Other, net............................. (47) (25) (16) (24) 1
------ ------ ------ ------ ------
Income before taxes and cumulative
effect of changes
in accounting principles and
extraordinary items................... 594 534 427 258 45
Income tax provision................... 191 185 81 93 6
------ ------ ------ ------ ------
Income before cumulative effect of
changes in accounting
principles and extraordinary items.... 403 349 346 165 39
Cumulative effect of changes in
accounting principles (1)............. -- -- (9) (29) --
Extraordinary items (2)................ -- (33) -- (5) --
------ ------ ------ ------ ------
Net income............................. $ 403 $ 316 $ 337 $ 131 $ 39
====== ====== ====== ====== ======
Basic earnings per share after
preferred stock dividends
and before cumulative effect of
changes in accounting
principles and extraordinary items.... $ 5.36 $ 4.73 $ 4.80 N.A. N.A.
Pro forma basic earnings per share
after preferred
stock dividends and before cumulative
effect of
changes in accounting principles and
extraordinary items................... N.A. N.A. N.A. $ 2.31 N.A.
Diluted earnings per share before
cumulative effect of
changes in accounting principles and
extraordinary items................... $ 5.11 $ 4.49 $ 4.60 N.A. N.A.
Pro forma diluted earnings per share
before cumulative effect of changes in
accounting principles and
extraordinary items................... N.A. N.A. N.A. $2.24 N.A.
Cash dividends declared per common
share................................. $ 0.20 $ 0.20 $ 0.20 $ 0.10 N.A.
BALANCE SHEET DATA: (AT THE END OF
YEAR):
Working capital........................ $ 730 $ 510 $ 386 $ 717 $ 631
Total assets........................... 6,981 6,059 5,469 5,052 6,223
Long-term debt......................... 1,404 1,119 889 1,443 1,547
Other long-term obligations and
redeemable preferred stock............ 508 492 594 603 693
Equity................................. 2,197 1,904 1,520 1,181 1,730
Ratio of earnings to fixed charges and
preferred stock
dividends............................. 3.94x 3.73x 3.03x 2.38x 1.18x
</TABLE>
- --------
(1) Effective January 1, 1995, Case adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" for its non-U.S. plans, which resulted in a
charge of $9 million on a pre-tax and after-tax basis to reflect the
cumulative effect of the
16
<PAGE>
accounting change. Effective January 1, 1994, Case adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which resulted in a
charge of $29 million after tax to reflect the cumulative effect of the
accounting change. See Note 14 to the Case Financial Statements included in
Item 8 hereof and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) In 1996, the Company sold $300 million aggregate principal amount of its
7.25% unsecured and unsubordinated notes due 2016 pursuant to a shelf
registration statement filed with the Securities and Exchange Commission.
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 10.5%
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. Also during 1996, the Company established new credit
facilities consisting of $3.4 billion in lines of credit and liquidity
facilities. As a result of establishing the new credit facilities, the
Company recorded an $11 million extraordinary, after-tax charge for the
write-off of unamortized bank fees related to the original bank agreements
established at the time of the Company's initial public offering in June
1994. In 1994, the Company prepaid approximately $519 million of high
interest-bearing debt. The Company recorded an extraordinary loss of $5
million after tax for the redemption premium resulting from this
transaction.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SUMMARY OF SALES
Case Corporation ("Case" or the "Company") is a leading worldwide designer,
manufacturer, marketer and distributor of farm equipment and light- to medium-
sized construction equipment. Case Credit Corporation ("Case Credit"), the
wholly owned retail financing subsidiary of Case, provides and administers
financing to facilitate the sale or lease of new and used Case agricultural
and construction equipment and other products to end-use customers.
Case's sales are derived from the manufacture and distribution of a full
line of farm equipment, light- to medium-sized construction equipment and
replacement parts. In recent years Case's sales were derived from the
following sources:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Farm equipment................................... 52% 52% 49%
Construction equipment........................... 30 30 32
Replacement parts................................ 18 18 19
------ ------ ------
Total sales.................................. 100% 100% 100%
====== ====== ======
</TABLE>
Sales are affected by worldwide agricultural production and demand, housing
starts and other construction levels, commodity prices, government subsidies,
weather, interest and exchange rates, industry capacity and equipment levels.
In addition to sales of equipment and parts, revenues include income from the
financing of such sales.
1997 Compared to 1996
Earnings
The Company recorded net income of $403 million in 1997 as compared to net
income, before extraordinary items, of $349 million in 1996. Diluted earnings
per share, before extraordinary items, was $5.11 per share in 1997 as compared
to $4.49 per share in 1996. The 14% increase in diluted earnings per share
resulted from higher income levels, reflecting strong worldwide demand for the
Company's products, as well as the impact of the Company's cost-reduction
initiatives, partially offset by an increase in the number of average common
shares outstanding. Basic earnings per share, before extraordinary items and
after preferred stock dividends, was $5.36 in 1997 versus $4.73 in 1996.
17
<PAGE>
In January 1996, the Company repurchased for cash all of its 10.5% Senior
Subordinated Notes. As a result of the repurchase, the Company recorded a $22
million extraordinary, after-tax charge in the first quarter of 1996. In
August 1996, the Company established new credit facilities consisting of $3.4
billion in lines of credit and liquidity facilities. As a result of
establishing the new credit facilities, the Company recorded an $11 million
extraordinary, after-tax charge for the write-off of unamortized bank fees
related to the original bank agreements established at the time of the
Company's initial public offering in June 1994.
The Company's industrial operations ("Case Industrial") manufacture, market
and distribute a full line of farm equipment and light- to medium-sized
construction equipment on a worldwide basis. Case Industrial recorded income,
before equity income of Case Credit, of $321 million in 1997 versus $261
million in 1996, an increase of $60 million or 23% year-over-year. On a pretax
basis, Case Industrial's 1997 earnings increased 18% over the prior year to
$472 million. Case Credit recorded income of $82 million in 1997, down $6
million as compared to income, before extraordinary items, of $88 million in
1996.
Case's operating earnings for 1997 were $627 million versus $579 million in
1996, an increase of $48 million or 8%. Case defines operating earnings as
industrial earnings before interest, taxes, changes in accounting principles
and extraordinary items, including the income of Case Credit on an equity
basis. Case's year-over-year operating earnings improvement primarily reflects
increased sales volumes, along with incremental sales from acquisitions, as
well as improved pricing and greater contributions from restructuring-related
actions. These improvements were partially offset by inflationary cost
increases and incremental costs related to new product launches.
A reconciliation of the Company's industrial income to operating earnings is
as follows (in millions):
<TABLE>
<CAPTION>
CASE INDUSTRIAL
YEARS ENDED
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Income before extraordinary items....................... $ 403 $ 349
Income tax provision.................................... 151 140
Interest expense........................................ 73 90
------- -------
Operating earnings.................................. $ 627 $ 579
======= =======
</TABLE>
Revenues
On a consolidated basis, worldwide revenues increased $615 million in 1997
to a record $6,024 million. Net sales of equipment and parts increased 12% to
$5,796 million. The improvement in net sales is attributable to a 15% volume
increase, including 7% as a result of acquisitions, and a 2% improvement in
price realization. This was partially offset by a 3% deterioration resulting
from the impact of foreign exchange and a 2% decrease due to retail store
divestitures. Strong worldwide demand for the Company's agricultural and
construction equipment products contributed to the year-over-year sales
increase. Net sales in 1997 increased 69% in Latin America, 12% in Europe, 9%
in North America and 7% in Asia Pacific from 1996 levels. Worldwide net sales
of agricultural equipment increased 14%, while construction equipment net
sales increased 13%. Sales of replacement parts increased 6% in 1997 to $1,013
million, as compared to $959 million in 1996.
Acquisitions and Investments
The Company's industrial operations completed six strategic business
acquisitions in 1997. During the first quarter, the Company acquired bor-mor
Inc. ("bor-mor"), a North American manufacturer of directional drilling
equipment for the underground cable and utility installation market, with 1996
revenues of approximately $9 million. Also during the first quarter, the
Company acquired select assets of Agri-Logic Inc., a leading developer of
software for agricultural applications. In the third quarter of 1997, the
Company acquired 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 United Kingdom.
18
<PAGE>
In the fourth quarter of 1997, the Company acquired the outstanding shares
of Fortschritt Erntemaschinen GmbH ("Fortschritt"). Based in Neustadt,
Germany, Fortschritt manufactures hay and forage equipment, including self-
propelled forage harvesters, large square balers and windrowers. Case also
acquired select assets of two other German companies, including intellectual
property, and production and distribution rights related to self-propelled
forage harvesters and combines. The combined sales of the Fortschritt and
other products acquired in the fourth quarter were approximately $110 million
in 1996. These acquisitions provide Case with a broad range of conventional
and rotary combines in Europe and significantly expand the Company's line of
harvesting equipment for that region.
During the third quarter of 1997, Case Credit and UFB LOCABAIL SA, a
subsidiary of Compagnie Bancaire, announced a joint venture to provide
financing for Case's European dealers and retail customers. This new venture,
Case Credit Europe S.A.S., is the first pan-European finance organization to
serve both the agricultural and construction equipment markets. Also during
the third quarter, Case Credit, through an agreement established with Cummins
Engine Co. Inc. ("Cummins"), established Cummins-Case Credit Financial
Services, which offers financing to qualified North American retail
purchasers, dealers and manufacturers of industrial equipment powered by
Cummins engines.
These acquisitions and investments, as well as the 1996 acquisitions of
Concord, Inc. ("Concord"), Austoft Holdings Limited ("Austoft"), Steyr
Landmaschinentechnik AG ("Steyr") and Fermec Holdings Limited ("Fermec"), are
integral to the Company's long-term growth strategy of increasing both
revenues and profitability. The Company reported combined net sales of
approximately $586 million and $190 million in 1997 and 1996, respectively, as
a result of its acquisition activities.
Net Sales
Worldwide net sales of agricultural equipment increased 14% in 1997 as
compared to 1996 levels, including the full-year impact of the Concord,
Austoft, Steyr and Fermec acquisitions. The increase in agricultural equipment
sales in North America reflects both the success of the new MX series
MAXXUM(TM) (mid-horsepower) tractors launched earlier this year, as well as
strong increases in sales of MAGNUM(TM) (120-plus horsepower) tractors,
combines and implements. The increase in sales of agricultural equipment in
Europe reflects a significant increase in sales of combines and high-
horsepower tractors, including higher year-over-year sales to the former
Soviet Union, as well as increased sales of cotton pickers and implements. The
1996 acquisition of Steyr, driven by the combined strength of the Case-Steyr
tractor line, greatly contributed to the increase in sales of tractors in all
horsepower categories in Europe. The increase in sales of agricultural
equipment in the Company's Asia Pacific region reflects strong customer demand
for the new MX series tractors, as well as increased sales of four-wheel drive
tractors, cotton pickers and sugar cane harvesters. In the Company's Latin
America region, sales of agricultural equipment nearly doubled, reflecting
strong increases in sales of MAGNUM(TM) tractors, combines, cotton pickers,
sugar cane harvesters and implements. In Brazil, Case began assembling several
lines of agricultural equipment during the second half of 1997, as the Company
continues to build its market share in this region. Excluding the impact of
the Company's 1997 acquisitions, worldwide net sales of agricultural equipment
increased 13% in 1997 as compared to the prior year. The December 1997
acquisitions of Fortschritt and select assets of two other German companies,
did not impact 1997 revenues.
Worldwide net sales of construction equipment increased 13% in 1997 as
compared to 1996 levels, including the full-year impact of the Company's 1996
acquisition of Fermec. In North America, net sales of construction equipment
increased in virtually all product lines, driven by significant increases in
sales of loader/backhoes, wheel loaders, crawlers, excavators and skid steers.
In Europe, the increase in net sales of construction equipment primarily
reflects increased sales of loader/backhoes and skid steers as a result of the
Fermec acquisition, as well as increased sales of wheel loaders. The increase
in sales of construction equipment in the Company's Asia Pacific region
reflects strong increases in sales of loader/backhoes, skid steers and
excavators, despite weakening economic conditions in the region. In the
Company's Latin America region, the increase in net sales of construction
equipment reflects significant increases in virtually all product lines. The
Company's 1997 acquisitions did not have a material impact on net sales of
construction equipment in 1997 as compared to the prior year.
19
<PAGE>
In 1996, the Company established a multi-year supply chain management
initiative that has a long-term objective of matching production levels with
retail demand. In 1997, Case produced approximately at retail demand, despite
incremental production for new product introductions, increased sales to Latin
America and increased demand for acquisition-related products. The Company
will continue to produce at or near retail demand in the future. The goal of
the Company's supply chain management initiative is to reduce Case's working
capital requirements.
Costs and Expenses
Cost of goods sold for the industrial operations increased $494 million to
$4,447 million in 1997 as compared to 1996, primarily due to the year-over-
year volume increase. Cost of goods sold as a percentage of net sales
increased slightly to 76.7% in 1997 from 76.4% in 1996. This increase in cost
of goods sold as a percentage of net sales primarily reflects changes in
product and geographic sales mix, including the impact of acquisitions, as
well as higher new product launch costs and retail store divestitures,
partially offset by pricing actions and restructuring and other cost reduction
initiatives.
Selling, general and administrative expenses for the industrial operations
increased $30 million in 1997 to $619 million. As a percentage of net sales,
selling, general and administrative expenses improved to 10.7% in 1997 from
11.4% in 1996. This year-over-year decrease as a percentage of net sales
reflects the impact of the Company's ongoing cost reduction initiatives,
including lower retail selling expenses as a result of restructuring-related
sales of company-owned retail stores, and the impact of foreign exchange.
These decreases were offset by incremental selling, general and administrative
expenses from acquisitions and higher new product launch costs.
Research, development and engineering expenses increased to $196 million in
1997, primarily in support of new product development. New product
introductions continue to be a key component of Case's growth strategy. The
Company successfully launched 24 new agricultural and construction equipment
products in 1997.
Consolidated interest expense was $170 million in 1997 as compared to $160
million in 1996. The year-over-year increase in consolidated interest expense
resulted from higher average debt levels for Case Credit, primarily due to the
growth in Case Credit's on-balance-sheet receivables and increased equipment
on operating leases. Interest expense for Case's industrial company was $73
million in 1997 versus $90 million in 1996, primarily due to lower average
debt levels in 1997.
The consolidated income tax provision for 1997 was $191 million as compared
to $185 million in 1996. The Company's effective income tax rate of 32% for
1997 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. The Company's 1996
effective tax rate of 35% was equal to the U.S. statutory tax rate. The
Company's 1996 effective tax rate was impacted by a reduction in tax valuation
reserves, the recognition of research and development tax credits, and tax
savings related to the Company's foreign sales corporation, offset by state
income taxes, foreign losses with no tax benefit, and foreign income taxed at
different rates.
Credit Operations
Case Credit recorded net income of $82 million in 1997, as compared to net
income, before extraordinary items, of $88 million in 1996. The $6 million
decrease in year-over-year income is primarily due to increased interest
expense, reduced margins on the sale of retail notes under asset-backed
securitizations, lower securitization and servicing fee income, as well as
increased depreciation of equipment on operating leases, largely offset by
higher earnings as a result of increased levels of on-balance-sheet
receivables. In the third quarter of 1996, Case Credit incurred a $3 million
extraordinary, after-tax charge to write-off unamortized bank fees in
conjunction with the refinancing of the Company's credit facilities. Case
Credit recorded net income of $85 million in 1996.
20
<PAGE>
Case Credit reported total revenues of $272 million for 1997, an increase of
$28 million or 11% over the $244 million of revenues reported for 1996.
Finance income earned on retail notes and finance leases increased to $103
million in 1997 as compared to $64 million for the same period in 1996,
primarily due to increased levels of on-balance-sheet receivables. Operating
lease revenues increased $17 million to $33 million for 1997, reflecting the
growth in Case Credit's operating lease portfolio. These revenue increases
were partially offset by decreases in net gains on retail notes sold, as well
as lower securitization and servicing fee income. Case Credit continues to
implement its asset-management strategy of retaining a larger percentage of
assets on balance sheet, as opposed to selling those assets through asset-
backed securitizations. Long term, the Company believes this strategy will
generate a more stable earnings performance for Case Credit. In the short
term, however, earnings growth may be constrained as Case Credit continues to
grow its on-balance-sheet portfolio.
Operating expenses for Case Credit increased $13 million to a total of $52
million in 1997 as compared to 1996. This increase primarily resulted from a
$12 million increase in depreciation expense for equipment on operating leases
relating to Case Credit's larger operating lease portfolio.
Case Credit's interest expense for 1997 was $98 million, up $26 million from
the $72 million reported in 1996. The increased interest expense resulted from
higher average debt levels during 1997, primarily due to the growth in Case
Credit's on-balance-sheet receivables and increased equipment on operating
leases.
As of December 31, 1997, Case Credit's serviced portfolio increased 21% over
the same time last year to a record $5.2 billion. Gross receivables acquired
in 1997 increased 29% for a total of $3.4 billion versus the same period in
1996. Case Credit retained approximately $570 million of additional retail
notes and finance leases as compared to December 31, 1996, consistent with the
Company's asset-management strategy announced in early 1997. Case Credit's
portfolio losses were $8 million in 1997 as compared to $3 million in 1996,
resulting in a loss-to-liquidation ratio of 0.34% in 1997 and 0.15% in 1996.
The growth in Case Credit's serviced portfolio reflects the strong demand
for both new and used equipment, as well as the increased marketing and growth
initiatives of Case Credit. In early 1997, Case Credit broadened its product
line with the introduction of a commercial loan program in North America. Case
Credit expanded its geographic reach in 1997 through the establishment of a
joint venture in Europe, Case Credit Europe S.A.S., that provides financing
for Case's European dealers and retail customers. Also in 1997, Case Credit
and Cummins entered into an agreement under which Case Credit will offer
financing to qualified North American retail purchasers, dealers and
manufacturers of industrial equipment powered by Cummins engines.
Case Credit sold $1.8 billion and $1.6 billion of retail notes in 1997 and
1996, respectively, to limited-purpose business trusts organized by Case in
the United States and Canada. These trusts were formed for the purpose of
purchasing receivables from Case Credit and the receivables were used as
collateral for the issuance of asset-backed securities to outside investors.
The proceeds from the sale of the retail notes were used to repay indebtedness
and to finance additional receivables.
1996 Compared to 1995
Earnings
The Company recorded income, before cumulative effect of changes in
accounting principles and extraordinary items, of $349 million in 1996
compared to $346 million in 1995. Diluted earnings per share, before
cumulative effect of changes in accounting principles and extraordinary items,
was $4.49 per share in 1996 as compared to $4.60 per share in 1995, reflecting
an increase in the average common shares outstanding from 75.2 million shares
in 1995 to 77.5 million shares in 1996.
Net income in 1996 was $316 million, with diluted earnings per share of
$4.07, versus net income and diluted earnings per share of $337 million and
$4.48, respectively, in 1995. In 1996 the Company incurred an extraordinary
loss of $33 million, after tax. In January 1996, the Company repurchased for
cash all of its 10.5% Senior Subordinated Notes. As a result of the
repurchase, Case recorded an extraordinary loss of $22 million,
21
<PAGE>
after tax. In August 1996, the Company established new credit facilities
consisting of $3.4 billion in lines of credit and liquidity facilities. As a
result of establishing the new credit facilities, the Company recorded an $11
million extraordinary, after-tax charge for the write-off of unamortized bank
fees related to the original bank agreements established at the time of the
Company's initial public offering in June 1994. Effective January 1, 1995,
Case adopted Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," for
its non-U.S. plans. The cumulative effect of adopting this standard was to
decrease net income by $9 million, after tax.
The Company's industrial operations recorded income, before cumulative
effect of changes in accounting principles, extraordinary items and equity
income of Case Credit, of $261 million in 1996, a $9 million earnings
improvement from $252 million in 1995. Case Credit recorded income, before
extraordinary items, of $88 million in 1996, $6 million less than the $94
million reported in 1995.
Case's operating earnings for 1996 were $579 million versus $509 million in
1995, an increase of 14%. Case defines operating earnings as industrial
earnings before interest, taxes, changes in accounting principles and
extraordinary items, including the income of Case Credit on an equity basis.
Case's operating earnings for the year were up $94 million or 19%, excluding a
$24 million pre-tax gain on the sale of the Viscosity Oil business in 1995.
Case's earnings improvement was primarily the result of improved pricing and
internal cost reductions resulting from restructuring-related actions. These
improvements were partially offset by the effects of inflation and higher
research and development spending.
A reconciliation of the Company's industrial income to operating earnings is
as follows (in millions):
<TABLE>
<CAPTION>
CASE INDUSTRIAL
YEARS ENDED
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Income before cumulative effect of changes in accounting
principles and extraordinary items..................... $ 349 $ 346
Income tax provision.................................... 140 28
Interest expense........................................ 90 135
------- -------
Operating earnings.................................. $ 579 $ 509
======= =======
</TABLE>
Revenues
On a consolidated basis, worldwide revenues increased $304 million in 1996
to $5,409 million. Net sales of equipment and parts increased 5% to $5,176
million. The improvement in net sales is attributable to a 5% volume increase,
primarily due to the Company's acquisition activity in 1996, and a 3%
improvement in price realization partially offset by a 2% decrease due to
retail store divestitures and a 1% deterioration resulting from the impact of
foreign exchange. Excluding the impact of acquisitions in 1996, year-over-year
net sales increased slightly. Strong retail demand for agricultural and
construction equipment in both the Asia Pacific and Latin American regions
contributed to the overall sales increase. Net sales in 1996 increased 62% in
the Company's emerging markets and 3% in Europe, while decreasing 3% in North
America from 1995 levels. Worldwide net sales of agricultural equipment
increased 11%, while construction equipment net sales decreased 5%. Sales of
replacement parts increased 5% in 1996 to $959 million, as compared to $911
million in 1995.
Acquisitions
The Company completed four strategic business acquisitions in 1996. In
January 1996, the Company acquired Concord, a manufacturer of air drills based
in Fargo, North Dakota. In the second quarter of 1996, the Company's
Australian subsidiary completed the purchase of all of the outstanding shares
of Austoft, the world's largest manufacturer of sugar cane harvesting
equipment. Austoft is based in Bundaberg, Australia. In August 1996, the
Company acquired 75% of Steyr, an Austrian tractor manufacturer whose tractors
are recognized for their superior performance in mountainous regions. In
October 1996, Case acquired Fermec, a construction
22
<PAGE>
equipment manufacturer based in Manchester, United Kingdom. Fermec's products
include loader/backhoes, mini-excavators, skid steer loaders and industrial
tractors. The acquisition of these businesses is part of the Company's long-
term goal to increase profitability. The Company reported combined net sales
of approximately $190 million in 1996 as a result of these acquisitions.
Net Sales
Worldwide net sales of agricultural equipment increased 11% in 1996 as
compared to 1995 levels. The increase in sales of agricultural equipment in
Europe was driven by significant increases in sales of combines, four-wheel
drive tractors and MAGNUM(TM) tractors (120-plus horsepower). In Case's other
international markets, the increase in agricultural equipment sales resulted
from significant increases in sales of MAGNUM(TM) and four-wheel drive
tractors, combines, sugar cane harvesters and cotton pickers. Sales in the
Asia Pacific region were particularly strong due to improved crop prices and
favorable weather conditions. In North America, the Company's progress in
implementing its supply chain management initiative has enabled Case to lower
production relative to retail demand as compared to 1995 levels, resulting in
lower wholesale (dealer) sales. As a result, Case reported lower net sales of
agricultural equipment in 1996 than would have been reported had production
levels relative to retail demand remained constant with 1995 levels. In the
near term, Case's supply chain management initiative will continue to impact
the Company's North American operating results. Excluding the impact of
acquisitions, worldwide net sales of agricultural equipment increased 7% in
1996 as compared to the prior year.
Worldwide net sales of construction equipment decreased 5% in 1996 as
compared to 1995 levels. In Europe, the decrease in construction equipment
sales reflects the continued weakness of the European construction equipment
market, particularly in France and Germany. In North America, construction
equipment sales were impacted by the Company's supply chain management
initiative, which enabled Case to lower production relative to retail demand
as compared to 1995 levels. As a result, Case reported lower net sales of
construction equipment in 1996 than would have been reported had production
levels relative to retail demand remained constant with 1995 levels. In the
near term, Case's supply chain management initiative will continue to impact
the Company's North American operating results. In Case's other international
markets, sales of construction equipment increased due to increases in sales
of loader/backhoes, crawlers and trenchers in the Asia Pacific and Latin
American regions, along with improvements in the Brazilian economy as compared
to 1995. Excluding the impact of acquisitions, worldwide net sales of
construction equipment decreased 7% in 1996 as compared to the prior year.
Costs and Expenses
Cost of goods sold for the industrial operations increased $174 million to
$3,953 million in 1996 as compared to 1995. The increase in cost of goods sold
is primarily due to higher sales volume. Gross margin increased slightly in
1996 reflecting volume-related production efficiencies, improved price
realization and benefits from cost-reduction initiatives, partially offset by
lower margins resulting from changes in product and geographic sales mix and
acquisition-related sales.
Selling, general and administrative expenses for the industrial operations
decreased $50 million in 1996 to $589 million. As a percentage of net sales,
selling, general and administrative expenses improved to 11.4% in 1996 from
12.9% in 1995. This decrease reflects lower retail selling expenses as a
result of restructuring-related sales of company-owned retail stores,
partially offset by the addition of selling, general and administrative
expenses for Concord, Austoft, Steyr and Fermec. In addition, selling expenses
related to the low-rate and other sales financing programs have also decreased
in 1996 as compared to 1995. 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.
Research, development and engineering expenses increased 24% to $193 million
in 1996, primarily in support of new product development. These increased
expenditures, including the introduction of more than 20 new agricultural
products, completed the largest product launch in the Company's history.
23
<PAGE>
Interest expense for Case's industrial company was $90 million in 1996
versus $135 million in 1995. The decrease in interest expense related
primarily to lower average debt levels in 1996, and to strategic refinancing
actions taken during the year.
The consolidated income tax provision for 1996 was $185 million compared to
$81 million for 1995. The Company's 1996 effective tax rate of 35% was equal
to the U.S. statutory tax rate. The Company's effective tax rate was impacted
by a reduction in tax valuation reserves, the recognition of research and
development tax credits, and tax savings related to the Company's foreign
sales corporation, offset by state income taxes, foreign losses with no tax
benefit, and foreign income taxed at different rates. In 1995, the Company's
effective tax rate of 19% was significantly lower than the U.S. statutory tax
rate primarily due to a reduction in the tax valuation reserve in 1995 that
resulted from income generated in certain tax jurisdictions.
Credit Operations
Case Credit recorded net income for 1996 of $85 million as compared to $94
million for 1995. The $9 million decrease is primarily due to increased
interest expense as a result of maintaining higher average debt levels
necessary to fund the growth in both the finance lease and operating lease
equipment programs. In addition, Case Credit's 1996 net income was lower as a
result of lower interest rate margins on the sale of retail notes under asset-
backed securitization ("ABS") transactions. Net income also included a $3
million extraordinary, after-tax charge to write-off unamortized bank fees in
conjunction with the refinancing of the Company's credit facilities in the
third quarter of 1996.
Case Credit reported total revenues of $244 million for 1996, a 12% increase
over the $217 million of revenues reported for 1995. Finance income earned on
retail notes and finance leases increased to $64 million in 1996 as compared
to $31 million for the same period in 1995 due to higher average receivable
levels, including a growing finance lease portfolio. The increase was also a
result of Case Credit originating a greater percentage of full-rate contracts,
which decreased the interest income from Case. Lease income increased $12
million to a total of $16 million for 1996, reflecting the growth in Case
Credit's equipment leasing program. Net gain on the sale of retail notes in
ABS transactions decreased as a result of lower interest rate margins.
Operating expenses for Case Credit increased $11 million to a total of $39
million in 1996 as compared to 1995. This increase primarily resulted from a
$7 million increase in depreciation expense for equipment on operating leases,
as well as an increase in administrative and operating expenses.
Case Credit's interest expense for 1996 was $72 million, up $30 million from
the $42 million reported in 1995. The increased interest expense resulted from
higher average debt levels during 1996 due to the timing of ABS transactions,
growth in the retail note and finance lease portfolio, and increased equipment
on operating leases.
As of December 31, 1996, Case Credit's serviced portfolio of receivables
increased 14% over the same time last year to a record $4.3 billion. Gross
receivables acquired in 1996 increased 11% for a total of $2.6 billion versus
the same period in 1995. The growth in acquisitions reflects the strong demand
for both new and used equipment, as well as the increased marketing efforts of
Case Credit. Portfolio losses were $3 million in both 1996 and 1995, resulting
in a loss-to-liquidation ratio of 0.15% in 1996 and 0.21% in 1995. Case Credit
sold $1.6 billion and $1.5 billion of retail notes in ABS transactions during
1996 and 1995, respectively. At December 31, 1996, Case Credit retained
approximately $400 million of additional retail notes and finance leases as
compared to December 31, 1995.
CASE RESTRUCTURING PROGRAMS
In response to depressed market conditions during the early 1990's, Case
embarked on two restructuring programs. The first program, initiated in 1991,
resulted in a pre-tax charge of $461 million ($404 million after tax). This
program has been completed and the intended benefits have been achieved.
24
<PAGE>
While the measures taken by Case under the 1991 restructuring program
resulted in substantial cost reductions, the worldwide farm and construction
equipment market continued to deteriorate during 1992. At that time, the
Company determined that major structural and strategic changes were necessary
in order to rationalize certain component production operations to reduce the
fixed cost portion of the manufacturing process; reduce excess capacity;
focus, discontinue or replace unprofitable and noncompetitive product lines;
and restructure and refocus product and component parts distribution to
strengthen Case's competitive position in the global marketplace.
Consequently, on March 21, 1993, a comprehensive restructuring program (the
"1992 Restructuring Program") was adopted and resulted in a pre-tax
restructuring charge of $920 million ($843 million after tax), which was
reflected in Case's 1992 results. The $920 million pre-tax charge was recorded
as a $340 million reduction of net property, plant and equipment, a $55
million reduction of inventory, a $63 million reduction of intangibles and
other accounts and a $462 million reserve for the future cost of implementing
the various restructuring actions. Upon adoption of the 1992 Restructuring
Program, the Company believed that the successful completion of the 1992
Restructuring Program would enhance its pre-tax income and pre-tax operating
cash flow through cost reductions by year-end 1997 by approximately $200
million annually over 1992 levels. The 1992 Restructuring Program has been
substantially completed and the intended benefits have been achieved.
An analysis of the 1992 Restructuring Program is summarized in the table
below (in millions):
1992 RESTRUCTURING PROGRAM
<TABLE>
<CAPTION>
ACTIVITY 1993 THRU 1995 1996 ACTIVITY
-------------------------------- --------------------------------
BALANCE AT CHANGES BALANCE AT CHANGES BALANCE AT
DECEMBER 31, RESERVES IN DECEMBER 31, RESERVES IN DECEMBER 31,
1992 UTILIZED* ESTIMATES 1995 UTILIZED* ESTIMATES 1996
------------ --------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
payments............... $250 $ (56) $ 10 $204 $ (50) $(6) $148
Pension and OPRB costs.. 56 (36) 15 35 (6) (21) 8
Lease termination
payments............... 10 1 (1) 10 (4) 3 9
Writedown of assets:
Property, plant and
equipment............ 340 (156) (47) 137 (115) 2 24
Provision for
environmental
liabilities......... 25 -- 2 27 (2) -- 25
Other assets.......... 63 (70) 7 -- -- -- --
Writedown of
inventories............ 55 (23) (15) 17 (4) (4) 9
Costs related to
closing/selling/
downsizing existing
facilities............. 60 (22) (8) 30 (16) 18 32
Other costs............. 61 (26) 1 36 (10) 8 34
---- ----- ---- ---- ----- --- ----
Total restructuring
charge................. $920 $(388) $(36) $496 $(207) $-- $289
==== ===== ==== ==== ===== === ====
</TABLE>
- --------
*Includes currency translation
25
<PAGE>
<TABLE>
<CAPTION>
1997 ACTIVITY
---------------------------------------------
BALANCE AT CHANGES BALANCE AT
DECEMBER 31, RESERVES IN DECEMBER 31,
1996 UTILIZED* ESTIMATES 1997 TOTAL COSTS
------------ --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Employee termination
payments............... $148 $(120) $15 $43 $269
Pension and OPRB costs.. 8 (7) (1) -- 49
Lease termination
payments............... 9 (2) (7) -- 5
Writedown of assets:
Property, plant and
equipment............ 24 (28) 4 -- 299
Provision for
environmental
liabilities.......... 25 (21) (4) -- 23
Other assets.......... -- -- -- -- 70
Writedown of
inventories............ 9 (7) (2) -- 34
Costs related to
closing/selling/
downsizing existing
facilities........... 32 (14) (6) 12 64
Other costs............. 34 (31) 1 4 71
---- ----- --- --- ----
Total restructuring
charge................. $289 $(230) $-- $59 $884
==== ===== === === ====
</TABLE>
- --------
*Includes currency translation
The employee termination payments represent the severance payments to reduce
personnel by approximately 7,200. This reduction is the result of closing
and/or downsizing 11 manufacturing facilities, the consolidation of six parts
distribution locations, the privatization of company-owned retail stores in
North America, Europe and Australia, and a reduction in related support
functions. The employee termination payments also include minor amounts for
other costs such as outplacement services and other benefits and certain
contractual obligations under labor agreements. Estimates have been revised in
each year to reflect changes in social, political, legal and economic
conditions where employment reductions will occur. In 1997, headcount and cost
estimates have been updated to reflect recent negotiations with affected
parties. The reserve balance of $43 million at December 31, 1997, is primarily
for remaining European staff reductions.
The pension and other postretirement benefit ("OPRB") costs represent
curtailments as required by SFAS No. 88 and SFAS No. 106 resulting from the
termination of employees referred to above. The subsequent revisions to the
original estimate reflect changes in the estimated level of benefits as well
as changes in the number of employee terminations anticipated by the Company.
For information on the Company's pension and postretirement benefits, see Note
13 and Note 14 to the Case Financial Statements included in Item 8 hereof.
Lease termination payments represent costs associated with the early
termination of existing lease commitments for an abandoned European
administrative facility and certain company-owned retail stores scheduled to
be closed. The changes in estimates resulted from changes in market conditions
where leases were terminated.
The writedown of assets represents estimated losses on property, plant and
equipment to be incurred upon the sale or abandonment of closed/downsized
production facilities. The changes in estimates resulted primarily from
updated valuations of properties and equipment to be sold or abandoned as well
as from property and equipment actually sold. During 1996 and 1997, the
Company allocated the reserve to the specific assets. This is shown as a
utilization of the reserve in the accompanying table.
Environmental costs have been accrued with respect to plants and other
facilities where remediation and decommissioning costs will be required if
such facilities cease operations. Upon the closing of these facilities, as
contemplated by the 1992 Restructuring Program, potential remedial,
decommissioning and environmental costs associated with the eventual sale of
the facility and/or property have been recorded based on current knowledge and
regulations. For information on the Company's environmental reserves, see Item
1, "Environmental," and Note 15 to the Case Financial Statements included in
Item 8 hereof.
26
<PAGE>
Other assets include the writedown to net realizable value of intangibles,
goodwill and other miscellaneous items. Such writedowns were directly
associated with the restructuring decision and primarily involved intangibles
and goodwill in France and Germany.
The writedown of inventories represents the writedown to net realizable
value of inventory, materials and parts at those facilities that will be
closed or for those products that have been discontinued.
The costs related to closing/selling/downsizing existing facilities include
the estimated costs to close and/or downsize 11 plant locations and six parts
distribution locations. The changes in the reserve resulted from revised
estimates of the costs of various actions still to be implemented. At December
31, 1997, the remaining reserve balance of $12 million is primarily for the
completion of the closure/sale of the Neuss, Germany, facility and other
facilities.
Other costs include amounts for incremental legal costs required to support
the restructuring projects, personnel transfer costs incurred as a direct
result of closing and/or downsizing operations and other implementation costs.
Other costs also include certain incentives and dealer discounts to close out
discontinued product lines. At December 31, 1997, the remaining reserve
balance of $4 million is primarily for the completion of the Neuss
restructuring actions.
The following restructuring actions occurred in 1997:
. The Company ceased production and has substantially completed the closure
of its Neuss, Germany, manufacturing facility, transferring production of
its MX series tractor from Neuss to other existing Case manufacturing
facilities in Racine, Wisconsin, and Doncaster, United Kingdom. In 1994,
Case closed the Neuss foundry operations and, in 1996, the Company
announced its intent to cease engine and component production and close
the tractor manufacturing facility. The closure of the Neuss facility is
the single largest step in the Company's long-term restructuring program.
As of December 31, 1996, Case had employed approximately 1,000 people at
the Neuss facilities.
. Case closed and sold its Batley, United Kingdom, parts depot, and
consolidated its operations into its LePlessis-Belleville, France, parts
depot.
. Case closed its foundry operations at its Doncaster, United Kingdom,
facility. In 1996, the Company began to outsource the production of
components that were manufactured at this facility. In 1994, an agreement
was reached with the trade union for the eventual termination of
approximately 900 employees at the Doncaster facility.
. The sale of company-owned retail stores has progressed steadily. At
December 31, 1997, Case had 17 remaining company-owned retail stores, as
compared to 247 at December 31, 1990.
As of December 31, 1997, the 1992 Restructuring Program has been
substantially completed and the intended benefits, as originally contemplated
under this program, have been achieved. The Company believes that the
remaining reserve balance of $59 million at December 31, 1997, is adequate to
carry out all remaining activities as outlined under the 1992 Restructuring
Program.
LIQUIDITY AND CAPITAL RESOURCES
The discussion of liquidity and capital resources focuses on the balance
sheets and statements of cash flows. The Company's 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.
1997 Compared to 1996
In 1997, cash used by operating activities was $221 million. Cash provided
by the industrial operations was $292 million, versus $464 million in 1996.
The year-over-year decrease in cash provided from the industrial operations
primarily resulted from increased levels of wholesale receivables and
inventories, reflecting higher
27
<PAGE>
actual and projected sales volumes, and incremental receivables and inventory
levels from acquisitions. Net cash used by operating activities in 1997 was
also impacted by higher year-over-year expenditures for restructuring
activities, including expenditures related to the closure of the Neuss,
Germany, plant, the single largest step in the Company's long-term
restructuring plan. These uses of cash were partially offset by increased
levels of net income, depreciation and amortization, accounts payable and
accrued liabilities. Cash used by Case Credit was $513 million in 1997 as
compared to $221 million in 1996. The net cash used by Case Credit operating
activities in 1997 was primarily due to increased levels of retail
receivables, reflecting Case Credit's asset-management strategy of retaining a
larger percentage of receivables on balance sheet as opposed to selling those
receivables through ABS transactions.
Cash used by investing activities was $286 million in 1997 versus $353
million in 1996. Proceeds from the sale of businesses and assets were $58
million and $27 million in 1997 and 1996, respectively. Case invested $192
million and $162 million in property, plant and equipment during 1997 and
1996, respectively. Cash used by Case Credit included $100 million for the
purchase of equipment on operating leases, as compared to $71 million in 1996,
reflecting the year-over-year growth in Case Credit's operating lease
portfolio.
During 1997, the Company's industrial operations expended $36 million to
acquire the businesses of bor-mor, Gem and Fortschritt, as well as to acquire
select assets of Agri-Logic Inc. and select assets of two German companies.
Case also assumed additional debt and other liabilities of approximately $20
million in conjunction with these acquisitions. During 1996, Case's industrial
operations invested $147 million of cash and an additional $27 million in non-
cash consideration to acquire the businesses of Concord, Austoft, Steyr and
Fermec. Case also assumed additional debt and other liabilities of
approximately $244 million in conjunction with its 1996 acquisitions.
During the third quarter of 1997, Case Credit expended $16 million to
establish a joint venture with UFB LOCABAIL SA, a subsidiary of Compagnie
Bancaire, to provide financing for Case's European dealers and retail
customers. The formation of this new venture, Case Credit Europe S.A.S.,
establishes the first pan-European finance organization to serve both the
agricultural and construction equipment markets in that region.
In October 1997, Case Credit issued $150 million aggregate principal amount
of its 6.75% unsecured and unsubordinated notes due 2007, pursuant to a shelf
registration statement filed with the Securities and Exchange Commission in
September 1997. The net proceeds from the offering were used to repay
indebtedness and finance Case Credit's growing portfolio of receivables.
The Company received proceeds from the issuance of long-term debt of $500
million during the first quarter of 1996. In January 1996, the Company issued
$300 million aggregate principal amount of its 7.25% unsecured and
unsubordinated notes due 2016. In February 1996, Case Credit issued $200
million aggregate principal amount of its 6.125% unsecured and unsubordinated
notes due 2003. The net proceeds from the Case Credit offering were used to
finance Case Credit's growing portfolio of receivables and for other corporate
purposes, including the repayment of indebtedness. Amounts outstanding under
short-term debt and revolving credit facilities increased $524 million in
1997, primarily in support of Case Credit's growing portfolio of receivables.
During 1996, Case repaid $647 million of long-term debt. Of this $647
million, approximately $324 million related to the repayment in full of the
$1.0 billion term loan established at the time of the Company's initial public
offering in June 1994. 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 10.5% Senior Subordinated Notes and to pay accrued
interest thereon.
During 1997, the Company received proceeds of $84 million from the issuance
of its common stock in conjunction with various employee benefit plans and the
exercise of stock options, as compared to $45 million in 1996. In 1996, the
Company also received approximately $30 million in proceeds from the issuance
of 566,100 shares of its common stock in conjunction with an over-allotment
option exercised by the underwriters of a 15.2 million share offering of Case
shares held by Tenneco Inc. ("Tenneco") in the first quarter of 1996. The
equity offering fully divested Tenneco of its holdings in Case. During the
first quarter of 1996, the Company issued 125,812 shares of its common stock
in conjunction with the acquisition of Concord.
28
<PAGE>
During the second quarter of 1997, the Company initiated a stock repurchase
program to acquire up to four million shares of the Company's Common Stock. As
of December 31, 1997, the Company has repurchased approximately 1.5 million
shares of its common stock at a cost of approximately $94 million under this
program. Purchases of common stock under this program are at the Company's
discretion, subject to prevailing financial and market conditions.
Total debt at December 31, 1997, was $2,738 million, $1,882 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 54.6% at December
31, 1997, and the Company's industrial debt to capitalization ratio was 27.3%.
The consolidated and industrial ratios at December 31, 1996, were 51.8% and
30.9%, respectively.
1996 Compared to 1995
In August 1996, the Company established new credit facilities consisting of
$3.4 billion in lines of credit and liquidity facilities. Of the $3.4 billion
total, $2.3 billion of the credit facilities benefit Case Credit and its
Canadian subsidiary, and include a five-year, $1.2 billion revolving credit
facility. The remaining $1.1 billion of credit facilities are used to support
the Company's industrial operations. These facilities replace borrowing
agreements originally established at the time of the Company's initial public
offering. The new agreements were negotiated at more favorable terms and
rates. In June 1996, the Company renewed its $400 million private, revolving
wholesale (dealer) receivable ABS facility. This facility, which is utilized
to periodically sell wholesale receivables to third-party investors, is
comprised of a five-year committed, $300 million non-renewable facility and a
364-day, $100 million facility that is renewable annually at the sole
discretion of the purchasers. In November 1996, Case Credit established a $1.2
billion commercial paper program. Under the terms of the program, the
principal amount of the commercial paper outstanding, combined with the amount
outstanding under Case Credit's five-year, $1.2 billion revolving credit
facility, cannot exceed a total of $1.2 billion.
Cash provided by operating activities was $203 million in 1996. Cash
provided by the industrial operations was $464 million, versus $752 million in
1995. Cash used by Case Credit was $221 million in 1996 as compared to $441
million in 1995. The net cash generated from operating activities in 1996 was
primarily due to operating income partially offset by cash used to support
increases in retail receivables and cash used for restructuring activities.
The net increase in receivables is largely due to Case Credit's retention of a
larger percentage of receivables as opposed to selling those receivables under
ABS transactions. In 1995, cash provided by industrial operating activities of
$752 million included the impact of the sale of $400 million of wholesale
receivables to a private, revolving ABS facility.
Case invested $162 million and $115 million in property, plant and
equipment, during 1996 and 1995, respectively. Proceeds from the sale of
businesses and assets were $27 million and $70 million in 1996 and 1995,
respectively. Of the $70 million in proceeds received in 1995, $34 million
related to the cash proceeds received from the sale of the Viscosity Oil
business. During 1996, Case invested $147 million of cash and an additional
$27 million in non-cash consideration to acquire the businesses of Concord,
Austoft, Steyr and Fermec. Case also assumed additional debt and other
liabilities of approximately $244 million in conjunction with these
acquisitions. Cash used by Case Credit included $71 million for the purchase
of equipment on operating leases, as compared to $36 million in 1995,
reflecting the year-over-year growth in Case Credit's operating lease
portfolio.
The Company issued 566,100 shares of its common stock in conjunction with an
over-allotment option exercised by the underwriters of a 15.2 million share
offering of Case shares held by Tenneco in the first quarter of 1996. The
Company received approximately $30 million in proceeds from the exercise of
the over-allotment option, which was offered at $53.75 per share. The equity
offering fully divested Tenneco of its holdings in Case. During the first
quarter of 1996, the Company also issued 125,812 shares of its common stock in
conjunction with the acquisition of Concord. In 1996, the Company received $45
million of proceeds from the issuance of common stock in conjunction with
various employee benefit plans and the exercise of stock options.
29
<PAGE>
The Company received proceeds from the issuance of long-term debt of $500
million during the first quarter of 1996. In January, the Company issued $300
million aggregate principal amount of its 7.25% unsecured and unsubordinated
notes due 2016. In February, Case Credit issued $200 million aggregate
principal amount of its 6.125% unsecured and unsubordinated notes due 2003
pursuant to a $300 million shelf registration statement filed with the
Securities and Exchange Commission in 1995. The net proceeds from the Case
Credit offering were used to repay indebtedness and finance Case Credit's
growing portfolio of receivables.
During 1996, Case repaid $647 million of long-term debt. Of this $647
million, approximately $324 million related to the repayment in full of the
$1.0 billion term loan established at the time of the Company's initial public
offering. 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
10.5% Senior Subordinated Notes and to pay accrued interest thereon. Amounts
outstanding under short-term debt and revolving credit facilities increased
$225 million during 1996. The $225 million net increase in short-term debt and
revolving credit facilities was used, in part, to support the increase in
retail receivables.
Total debt at December 31, 1996, was $2,130 million, $1,244 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 51.8% at December
31, 1996, and the Company's industrial debt to capitalization ratio was 30.9%.
The consolidated and industrial ratios at December 31, 1995, were 54.9% and
39.3%, respectively.
Future Liquidity and Capital Resources
The following credit facilities were available to the Company as of December
31, 1997:
(i) a five-year, $1.1 billion revolving credit facility for Case's
industrial operations that expires in August 2001, with $1.1 billion
available at December 31, 1997;
(ii) a five-year, A$150 million revolving credit facility and a A$20
million revolving credit facility for Case Corporation Pty Ltd (Australia)
that expire in August 2002 and December 2002, respectively, with a combined
availability of A$29 million at December 31, 1997;
(iii) a five-year, $400 million private, revolving wholesale (dealer)
receivable ABS facility for Case's industrial operations that expires in
June 2001. The facility, which was fully utilized at December 31, 1997, is
comprised of a five-year committed, $300 million non-renewable facility and
a 364-day, $100 million facility that is renewable annually at the sole
discretion of the purchasers;
(iv) a five-year, $1.2 billion revolving credit facility for Case Credit
that expires in August 2001, with $256 million available at December 31,
1997. In November 1996, Case Credit established a $1.2 billion commercial
paper program. Under the terms of the program, the principal amount of the
commercial paper outstanding, combined with the amounts outstanding under
the $1.2 billion revolving credit facility, cannot exceed a total of $1.2
billion;
(v) a three-year, $750 million U.S. asset-backed commercial paper
liquidity facility for Case Credit that expires in August 1999, with $715
million available at December 31, 1997;
(vi) a five-year, C$500 million revolving credit facility for Case Credit
Ltd. (Canada) that expires in August 2001, with C$72 million available at
December 31, 1997. During the first quarter of 1997, Case Credit Ltd.
established a C$500 million commercial paper program. Under the terms of
the program, the principal amount of the commercial paper outstanding,
combined with the amounts outstanding under the C$500 million revolving
credit facility, cannot exceed a total of C$500 million; and
(vii) a A$400 million revolving credit facility for Case Credit Australia
Pty Ltd, comprised of a five-year, A$300 million revolving credit facility
that expires in October 2002, and a 364-day, A$100 million revolving credit
facility, with a combined availability of A$202 million at December 31,
1997. In October
30
<PAGE>
1997, Case Credit Australia Pty Ltd established a A$400 million commercial
paper program. Under the terms of the program, the principal amount of
commercial paper outstanding, combined with the amounts outstanding under
the revolving credit facility, cannot exceed a total of A$400 million.
In conjunction with a support agreement for Case Credit, the Company has
agreed to maintain its ownership in, and provide financial backing for, Case
Credit.
In addition to the above availability, the Company has other sources of
future liquidity including the asset-backed securities markets in the United
States and Canada, public debt offerings, and other local lines of credit not
mentioned above. Case Credit also has a $550 million medium-term note program
that was established in the United States pursuant to a shelf registration
statement filed with the Securities and Exchange Commission in September 1997,
and Case Credit Australia Pty Ltd has a A$600 million medium-term note program
that was established in October 1997. At December 31, 1997, no amounts were
outstanding under the medium-term note programs.
Case estimates that for 1998, capital expenditures and other investments
amounting to $49 million in the aggregate will be required to complete
projects authorized as of December 31, 1997, for which substantial commitments
by the Company have been made. In addition, the Company announced that it
plans to invest approximately $100 million over the next three years to expand
its presence in the Latin American agricultural equipment market, including
the construction of an agricultural equipment manufacturing facility in
Brazil. These commitments are expected to be funded with cash flows from
operations and additional borrowings under the Company's existing credit
facilities.
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. As of
December 31, 1997, the Company has repurchased approximately 1.5 million
shares of its common stock under this program.
In July 1996, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board 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. During 1997, the Company
performed a thorough analysis of the impact of modifying computer software
that is not yet year 2000 compliant. The Company believes, based upon its
review, 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 effect on Case's financial position, cash flows or results of
operations. The Company has also undertaken a program to ensure that its
suppliers are addressing year 2000 issues and, subject to the Company's
ongoing review of suppliers' year 2000 compliance, is not aware at this time
of any such issues that would have a material adverse effect on Case's
financial position, cash flows or results of operations. As a result, 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. The preceding three sentences are forward-looking statements and
the actual costs could differ materially from the costs currently anticipated
by the Company.
Outlook
Case continues to benefit from strong worldwide markets for its agricultural
and construction equipment and financial services businesses. While economic
conditions are favorable in most of Case's major markets, recent changes in
certain regions of the world have increased the risk of lower product demand.
Grain stock levels around the world remained at the low range of normal
levels as continued strong demand for agricultural commodities kept pace with
good harvests. This demand for farm products is expected to be sustained by
continued population growth and improving diets within developing nations,
although near term, the export market could be impacted by economic
conditions. In North America, the 1997 harvest was
31
<PAGE>
exceptionally strong in beans and corn, and commodity prices have remained
solid. As a result, net farm income remained at high levels. The outlook in
Europe is also favorable, except in the United Kingdom, where currency rates
resulted in lower farm subsidy payments. In the Asia Pacific region, the 1997-
1998 growing season could be affected by uncertain weather conditions. And, in
Latin America, planting is expected to be at historically strong levels, which
should fuel continued growth in the agricultural equipment business there,
particularly in the higher horsepower categories.
In Case's construction equipment market, the outlook varies by both country
and economic conditions. In North America, housing starts continued at strong
levels through the end of 1997, sustained by favorable interest rates. In
Europe, the construction equipment markets in France and Germany remain
competitive as the economies have yet to fully recover. And, in the United
Kingdom, the housing market continued strong through year-end, although the
rate of growth is expected to slow somewhat. In the Asia Pacific region, the
Australian housing market showed further signs of recovery, and the direct
impact to Case of economic conditions in southeast Asia to date, remains
minimal. In Latin America, the markets in Mexico continue to be strong and, in
Brazil, higher interest rates could impact the market in 1998, but
construction activity remained solid through the end of 1997.
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 and capital market 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 this Form 10-K: 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.
Seasonality and Production Schedules
The seasonality of farm equipment retail sales is directly affected by the
timing of major crop activities: tilling, planting and harvesting. The timing
of these activities is impacted by crop production and climate conditions. The
fourth quarter is generally the strongest demand period for retail farm
equipment sales, normally representing approximately 35% of sales by Case's
North American dealers. The weakest retail demand for Case farm equipment in
North America typically occurs in the first quarter, accounting for
approximately 15% to 20% of sales by Case's North American dealers.
Seasonal demand fluctuations for construction equipment are less significant
than those for farm equipment. Nevertheless, in North America, housing
construction slows down, especially in the Midwest and on the East Coast,
beginning in November and continuing through the first quarter. North American
retail demand for Case's construction equipment is strongest in the second and
fourth quarters, which combined represent approximately 55% to 60% of sales by
Case's North American dealers. European demand patterns are similar to those
in the United States.
Sales to independent dealers closely correspond with Case's production
levels, which are based upon its estimates of the demand for its products,
taking into account the timing of dealer shipments (which are in advance of
retail demand), dealer inventory levels, the need to shut down production to
enable manufacturing facilities to be prepared for the manufacture of new or
different models and the efficient use of manpower and facilities. The
production levels are adjusted to reflect changes in estimated demand, dealer
inventory levels, labor disruptions and other matters not within Case's
control.
32
<PAGE>
Inflation
Inflation impacts the Company's business in both the costs of production and
the demand for its products.
A significant portion of the cost of Case machinery is comprised of material
costs. Therefore, material price inflation could result in increased
manufacturing costs through supplier price increases to Case. Case's ability
to recover increased supplier costs would be dependent, in part, on its
competitors' responses to these economic conditions. Manufacturing cost
increases in excess of increased pricing in the market could have an adverse
effect on Case.
Increases in inflation tend to cause higher interest rates. The demand for
farm and, to a greater extent, construction equipment, is negatively impacted
by high interest rates. As interest rates on farm debt escalate, farmers tend
to delay equipment purchases. Case's construction equipment business is
heavily tied to the housing construction sector, and in the face of rising
mortgage rates, potential homeowners tend to delay purchases. Increases in the
level of worldwide inflation could have a negative effect on the level of
demand for farm and construction equipment.
Environmental Matters
The Company's operations are subject to stringent environmental regulation
by governmental authorities. Although the Company has a program designed to
implement environmental management practices and compliance and has reserved
for environmental liabilities, it is possible that developments, such as
increasingly strict environmental laws, regulations and enforcement policies
or claims for damages to property, employees, other persons and the
environment resulting from the Company's operations, could result in future
costs and liabilities that may exceed the range currently anticipated by the
Company. As it has done in the past, the Company intends to fund its cost of
environmental compliance from operating cash flows. Also see Note 15 to the
Case Financial Statements included in Item 8 hereof.
Foreign Currency Risk Management
The Company has significant international manufacturing operations. In most
instances, Case's products and components are only produced at a single
manufacturing facility. As a result, significant volumes of finished goods and
components are exported to other countries for sale into those markets. In
addition, the Company buys finished products from Germany, Italy and Japan for
sale through its distribution network. For goods purchased from other Case
affiliates, the Company denominates the transaction in the functional currency
of the producing operation. Large volume purchase agreements for products
purchased from third parties normally contain currency risk sharing clauses
that limit the amount of exposure from currency fluctuations.
The Company has adopted the following guidelines to manage its foreign
exchange exposures:
(i) increase the predictability of costs associated with goods whose
purchase price is not denominated in the functional currency of the buyer;
(ii) minimize the cost of hedging through use of naturally offsetting
positions; and
(iii) where possible, sell product in the functional currency of the
producing operation.
The Company's identifiable foreign exchange exposures result primarily from
the anticipated purchase of equipment and components from Case affiliates and
third-party suppliers along with the repayment of intercompany loans to
foreign subsidiaries denominated in foreign currencies. The Company identifies
naturally occurring offsetting positions and then purchases hedging
instruments to protect anticipated exposures. For further information
regarding Case's foreign currency risk management, see Note 11 to the Case
Financial Statements included in Item 8 hereof.
33
<PAGE>
In 1997, the Securities and Exchange Commission broadened its disclosure
requirements relative to derivatives and other financial instruments.
Derivative financial instruments are used by the Company to manage its foreign
currency and interest rate exposures. Case does not hold or issue financial
instruments for trading purposes.
Foreign Currency
The following foreign currency exchange contracts were held by the Company
to hedge certain currency exposures. All contracts mature in 1998. The
notional amounts and fair values at December 31, 1997, are as follows (U.S.
dollars, in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------
NOTIONAL AVERAGE FAIR VALUE
AMOUNT CONTRACT RATE* GAINS/(LOSSES)
-------- -------------- --------------
<S> <C> <C> <C>
FOREIGN CURRENCY
FORWARD EXCHANGE CONTRACTS:
Austrian Shilling................ $ 15 12.35 $--
Australian Dollar................ 111 0.70 7
Belgian Franc.................... 10 36.29 --
Canadian Dollar.................. 106 1.41 2
German Mark...................... 87 1.75 2
Danish Krone..................... 4 6.74 --
Spanish Peseta................... 20 148.00 --
French Franc..................... 151 5.88 (1)
British Pound Sterling........... 170 1.65 (1)
Italian Lira..................... 26 1,727.21 --
Japanese Yen..................... 36 124.74 (2)
---- ---
$736 $ 7
==== ===
PURCHASED CURRENCY OPTIONS:
Australian Dollar................ $ 43 0.70 $ 3
==== ===
SOLD CURRENCY OPTIONS:
Australian Dollar................ $ 45 0.72 $--
==== ===
</TABLE>
- --------
* per U.S. dollar
Interest Rates
The Company has implemented an interest rate risk management program with
respect to a portion of the credit facilities, which carry a floating rate of
interest. The program is within guidelines of the policies approved by the
Board of Directors to limit exposure to rising interest rates. The exact
nature, timing and size of the program is based upon the amount of debt in
Case Industrial and the Credit Companies. For further information regarding
Case's interest rate risk management, see Note 11 to the Case Financial
Statements included in Item 8 hereof.
At December 31, 1997, the Company performed a sensitivity analysis for the
Company's derivatives and other financial instruments that have interest rate
risk. The Company calculated the pretax earnings effect on its interest
sensitive instruments, including accounts and notes receivable and fixed-rate,
long-term debt obligations. Based on this sensitivity analysis, the Company
has determined that an increase of 10% in the Company's weighted-average
interest rates at December 31, 1997, would have no material impact on the
consolidated financial position, results of operations or cash flows of the
Company.
34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS OF CASE CORPORATION
AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent public accountants.................................. 36
Statements of income for each of the three years in the period ended
December 31, 1997........................................................ 37
Balance sheets as of December 31, 1997 and 1996........................... 38
Statements of cash flows for each of the three years in the period ended
December 31, 1997........................................................ 39
Statements of changes in stockholders' equity for each of the three years
in the period ended
December 31, 1997........................................................ 40
Notes to financial statements............................................. 41
</TABLE>
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Case Corporation:
We have audited the accompanying consolidated balance sheets of Case
Corporation (a Delaware Corporation) and subsidiaries as of December 31, 1997
and 1996, and the related statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 1997. These financial statements and the supplemental financial statements
and supplemental schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements, the supplemental financial statements and supplemental
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Case Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, effective January 1,
1995, the Company changed its method of accounting for postretirement benefits
other than pensions for its non-U.S. plans.
Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The supplemental financial
statements of Case Industrial and Case Credit are presented for purposes of
additional analysis and are not a required part of the consolidated financial
statements. This information has been subjected to the auditing procedures
applied in our audits of the consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole. Also, the supplemental
schedule listed in the index to Item 14 is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. The supplemental schedule has been subjected to
the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 20, 1998
36
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CONSOLIDATED CASE INDUSTRIAL CASE CREDIT
--------------------- --------------------- ---------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Net sales.............. $5,796 $5,176 $4,937 $5,796 $5,176 $4,937 $-- $-- $--
Interest income and
other................. 228 233 168 35 63 67 272 244 217
------ ------ ------ ------ ------ ------ --- --- ---
6,024 5,409 5,105 5,831 5,239 5,004 272 244 217
COSTS AND EXPENSES:
Cost of goods sold..... 4,447 3,953 3,779 4,447 3,953 3,779 -- -- --
Selling, general and
administrative........ 570 544 553 619 589 639 29 27 27
Research, development
and engineering....... 196 193 156 196 193 156 -- -- --
Interest expense....... 170 160 174 73 90 135 98 72 42
Other, net............. 47 25 16 24 13 15 23 12 1
------ ------ ------ ------ ------ ------ --- --- ---
5,430 4,875 4,678 5,359 4,838 4,724 150 111 70
Income before taxes and
cumulative effect of
changes in accounting
principles and
extraordinary items.... 594 534 427 472 401 280 122 133 147
Income tax provision.... 191 185 81 151 140 28 40 45 53
------ ------ ------ ------ ------ ------ --- --- ---
403 349 346 321 261 252 82 88 94
Equity in income--Case
Credit................. -- -- -- 82 88 94 -- -- --
------ ------ ------ ------ ------ ------ --- --- ---
Income before cumulative
effect of changes in
accounting principles
and extraordinary
items.................. 403 349 346 403 349 346 82 88 94
Cumulative effect of
changes in accounting
principles............. -- -- (9) -- -- (9) -- -- --
Extraordinary items..... -- (33) -- -- (33) -- -- (3) --
------ ------ ------ ------ ------ ------ --- --- ---
Net income............. $ 403 $ 316 $ 337 $ 403 $ 316 $ 337 $82 $85 $94
====== ====== ====== ====== ====== ====== === === ===
Preferred stock
dividends.............. 7 7 7
------ ------ ------
Net income to common... $ 396 $ 309 $ 330
====== ====== ======
PER SHARE DATA:
Basic earnings per
share, after preferred
stock
dividends and before
cumulative effect of
changes
in accounting
principles and
extraordinary items.... $ 5.36 $ 4.73 $ 4.80
====== ====== ======
Basic earnings per
share.................. $ 5.36 $ 4.27 $ 4.67
====== ====== ======
Diluted earnings per
share, before
cumulative effect
of changes in
accounting principles
and extraordinary
items.................. $ 5.11 $ 4.49 $ 4.60
====== ====== ======
Diluted earnings per
share.................. $ 5.11 $ 4.07 $ 4.48
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Income.
Reference is made to Note 2 for definitions of "Case Industrial" and "Case
Credit."
37
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CASE
CONSOLIDATED INDUSTRIAL CASE CREDIT
-------------- -------------- --------------
ASSETS 1997 1996 1997 1996 1997 1996
------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..... $ 252 $ 116 $ 185 $ 99 $ 67 $ 17
Accounts and notes
receivable................... 2,053 1,699 1,459 1,330 705 385
Inventories................... 1,064 988 1,064 988 -- --
Deferred income taxes......... 191 188 175 171 16 17
Prepayments and other......... 40 62 40 62 -- --
------ ------ ------ ------ ------ ------
TOTAL CURRENT ASSETS........ 3,600 3,053 2,923 2,650 788 419
------ ------ ------ ------ ------ ------
Long-Term Receivables.......... 1,605 1,361 252 309 1,340 1,036
OTHER ASSETS:
Investments in joint
ventures..................... 82 63 66 63 16 --
Investment in Case Credit..... -- -- 357 240 -- --
Goodwill and intangibles...... 319 306 319 306 -- --
Other......................... 376 269 173 185 215 100
------ ------ ------ ------ ------ ------
TOTAL OTHER ASSETS.......... 777 638 915 794 231 100
------ ------ ------ ------ ------ ------
Property, Plant and Equipment,
at cost....................... 1,987 2,075 1,983 2,072 4 3
Accumulated depreciation....... (988) (1,068) (987) (1,067) (1) (1)
------ ------ ------ ------ ------ ------
NET PROPERTY, PLANT AND
EQUIPMENT.................. 999 1,007 996 1,005 3 2
------ ------ ------ ------ ------ ------
TOTAL....................... $6,981 $6,059 $5,086 $4,758 $2,362 $1,557
====== ====== ====== ====== ====== ======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-
term debt.................... $ 8 $ 9 $ 8 $ 9 $ -- $ --
Short-term debt............... 1,326 1,002 179 173 1,147 829
Accounts payable.............. 708 578 753 564 27 30
Restructuring liability....... 59 176 59 176 -- --
Other accrued liabilities..... 769 778 740 735 67 43
------ ------ ------ ------ ------ ------
TOTAL CURRENT LIABILITIES... 2,870 2,543 1,739 1,657 1,241 902
------ ------ ------ ------ ------ ------
Long-Term Debt................. 1,404 1,119 669 704 735 415
OTHER LIABILITIES:
Pension benefits.............. 109 128 109 128 -- --
Other postretirement
benefits..................... 137 115 137 115 -- --
Other postemployment
benefits..................... 38 40 38 40 -- --
Other......................... 147 132 120 132 27 --
------ ------ ------ ------ ------ ------
TOTAL OTHER LIABILITIES..... 431 415 404 415 27 --
------ ------ ------ ------ ------ ------
Commitments and Contingencies
(Note 15 )
Minority Interest.............. 2 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
75,985,876 shares in 1997
and 73,738,641 shares in
1996......................... 1 1 1 1 -- --
Paid-in capital............... 1,334 1,238 1,334 1,238 244 199
Cumulative translation
adjustment................... (94) (14) (94) (14) (16) (6)
Unearned compensation on
restricted stock............. (14) (9) (14) (9) -- --
Pension liability adjustment.. (8) (4) (8) (4) -- --
Retained earnings............. 1,074 693 1,074 693 129 47
Treasury stock, 1,593,979
shares in 1997 and 30,841
shares in 1996, at cost...... (96) (1) (96) (1) -- --
------ ------ ------ ------ ------ ------
TOTAL STOCKHOLDERS' EQUITY.. 2,197 1,904 2,197 1,904 357 240
------ ------ ------ ------ ------ ------
TOTAL....................... $6,981 $6,059 $5,086 $4,758 $2,362 $1,557
====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Balance Sheets.
Reference is made to Note 2 for definitions of "Case Industrial" and "Case
Credit."
38
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED CASE INDUSTRIAL CASE CREDIT
------------------- ------------------- -------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............ $ 403 $ 316 $ 337 $ 403 $ 316 $ 337 $ 82 $ 85 $ 94
Adjustments to
reconcile net income
to net cash provided
(used) by operating
activities:
Depreciation and
amortization......... 157 138 133 133 126 130 24 12 3
Deferred income tax
expense (benefit).... 7 16 (106) (11) 15 (97) 18 1 (9)
(Gain) loss on
disposal of fixed
assets............... -- 5 (25) -- 5 (25) -- -- --
Extraordinary items,
after tax............ -- 33 -- -- 33 -- -- 3 --
Cumulative effect of
changes in accounting
principles........... -- -- 9 -- -- 9 -- -- --
Cash paid for
restructuring........ (141) (73) (46) (141) (73) (46) -- -- --
Undistributed
(earnings) loss of
unconsolidated
subsidiaries......... (4) 7 -- (86) (40) (1) -- -- --
Changes in components
of working capital:
(Increase) decrease
in receivables...... (479) (162) (56) (236) 86 85 (337) (248) (156)
(Increase) decrease
in inventories...... (146) 10 (20) (146) 10 (20) -- -- --
(Increase) decrease
in prepayments and
other current
assets.............. 21 -- (12) 21 (2) (10) -- 2 (2)
Increase (decrease)
in payables......... 188 (30) 46 246 (45) 62 36 15 (1)
Increase (decrease)
in accrued
liabilities......... 30 (53) 32 44 (59) 28 (14) 6 4
(Increase) decrease in
long-term
receivables.......... (343) (71) (124) 38 89 245 (383) (158) (367)
Increase (decrease) in
other liabilities.... 48 55 22 48 55 22 -- -- --
Other, net............ 38 12 28 (21) (52) 33 61 61 (7)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET CASH PROVIDED
(USED) BY OPERATING
ACTIVITIES......... (221) 203 218 292 464 752 (513) (221) (441)
INVESTING ACTIVITIES:
Proceeds from sale of
businesses and
assets............... 58 27 70 58 27 70 -- -- --
Expenditures for
property, plant and
equipment............ (192) (162) (115) (191) (160) (115) (1) (2) --
Expenditures for
equipment on
operating leases..... (100) (71) (36) -- -- -- (100) (71) (36)
Acquisitions and
investments.......... (52) (147) -- (36) (147) -- (16) -- --
Other, net............ -- -- 13 -- -- 13 -- -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
NET CASH PROVIDED
(USED) BY INVESTING
ACTIVITIES......... (286) (353) (68) (169) (280) (32) (117) (73) (36)
FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt.... 150 500 296 -- 300 296 150 200 --
Payment of long-term
debt................. (3) (647) (681) (3) (647) (681) -- -- --
Net increase
(decrease) in short-
term debt and
revolving credit
facilities........... 524 225 326 37 89 (250) 487 136 576
Capital contributions. -- -- -- (45) -- (5) 45 -- 5
Proceeds from issuance
of common stock...... 84 75 -- 84 75 -- -- -- --
Repurchases of common
stock................ (94) -- -- (94) -- -- -- -- --
Dividends paid (common
and preferred)....... (21) (21) (21) (21) (21) (21) -- (40) (93)
Other, net............ 10 2 (7) 10 2 (7) -- -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
NET CASH PROVIDED
(USED) BY FINANCING
ACTIVITIES......... 650 134 (87) (32) (202) (668) 682 296 488
Effect of foreign
exchange rate changes
on cash and cash
equivalents........... (7) -- 1 (5) -- 1 (2) -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS........... 136 (16) 64 86 (18) 53 50 2 11
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR............... 116 132 68 99 117 64 17 15 4
----- ----- ----- ----- ----- ----- ----- ----- -----
CASH AND CASH
EQUIVALENTS, END OF
YEAR.................. $ 252 $ 116 $ 132 $ 185 $ 99 $ 117 $ 67 $ 17 $ 15
===== ===== ===== ===== ===== ===== ===== ===== =====
CASH PAID DURING THE
YEAR FOR INTEREST..... $ 174 $ 169 $ 153 $ 73 $ 98 $ 115 $ 101 $ 71 $ 40
===== ===== ===== ===== ===== ===== ===== ===== =====
CASH PAID DURING THE
YEAR FOR TAXES........ $ 166 $ 160 $ 181 $ 122 $ 113 $ 125 $ 44 $ 47 $ 56
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Cash Flows.
Reference is made to Note 2 for definitions of "Case Industrial" and "Case
Credit."
39
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
PAID- CUMULATIVE PENSION
COMMON 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,
1994................... $ 1 $1,128 $(22) $ (7) $(2) $ 83 $-- $1,181
Net income............. -- -- -- -- -- 337 -- 337
Dividends declared..... -- -- -- -- -- (21) -- (21)
Translation adjustment. -- -- 1 -- -- -- -- 1
Capital contributions
on stock issuance..... -- 20 -- -- -- -- -- 20
Recognition of
compensation on
restricted stock...... -- -- -- 3 -- -- -- 3
Issuance of restricted
stock................. -- 6 -- (6) -- -- -- --
Acquisition of treasury
stock................. -- -- -- -- -- -- (1) (1)
--- ------ ---- ---- --- ------ ---- ------
BALANCE, DECEMBER 31,
1995................... 1 1,154 (21) (10) (2) 399 (1) 1,520
Net income............. -- -- -- -- -- 316 -- 316
Dividends declared..... -- -- -- -- -- (22) -- (22)
Translation adjustment. -- -- 7 -- -- -- -- 7
Capital contributions
on stock issuance..... -- 81 -- -- -- -- -- 81
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............. -- -- -- -- -- 403 -- 403
Dividends declared..... -- -- -- -- -- (22) -- (22)
Translation adjustment. -- -- (80) -- -- -- -- (80)
Capital contributions
on stock issuance..... -- 84 -- -- -- -- -- 84
Recognition of
compensation on
restricted stock...... -- -- -- 6 -- -- -- 6
Issuance of restricted
stock, net of
forfeitures........... -- 12 -- (11) -- -- (1) --
Pension liability
adjustment............ -- -- -- -- (4) -- -- (4)
Acquisition of treasury
stock................. -- -- -- -- -- (94) (94)
--- ------ ---- ---- --- ------ ---- ------
BALANCE, DECEMBER 31,
1997................... $ 1 $1,334 $(94) $(14) $(8) $1,074 $(96) $2,197
=== ====== ==== ==== === ====== ==== ======
</TABLE>
The accompanying notes to financial statements are an integral part of
these Statements of Changes in Stockholders' Equity.
40
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS
Case Corporation ("Case" or the "Company") engages in two types of
operations. The industrial operations manufacture and distribute a full line
of farm equipment and light- to medium-sized construction equipment on a
worldwide basis. Its products are sold through independent dealers and
company-owned retail stores. The credit operations provide and administer
financing for sales to retail customers in the United States, Canada,
Australia, Europe and Uzbekistan.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The accompanying financial statements reflect the consolidated results of
Case Corporation 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 have been
included using the equity method of accounting whereby the net income and net
assets of these companies are reflected, respectively, in the income statement
caption, "Equity in income--Case Credit," and in the balance sheet caption,
"Investment in Case Credit."
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.
Certain reclassifications have been made to conform prior years' financial
statements to the 1997 presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Foreign Currency Translation
The assets and liabilities of foreign affiliates are translated into U.S.
dollars using year-end exchange rates. Revenues and expenses are translated at
average rates during the year. Adjustments resulting from this translation,
except for Brazil, a foreign affiliate operating in a highly inflationary
economy, are deferred and reflected as a separate component of Stockholders'
Equity.
Through 1997, the Company reported its Brazilian operations as highly
inflationary, and adjustments resulting from the translation of Brazil's
financial statements have been reflected in the accompanying Statements of
Income. As a result of changes in Brazil's three-year inflation index, the
Company will cease applying highly inflationary accounting for its Brazilian
operations effective January 1, 1998.
41
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Sales to independent dealers are recorded at the time of shipment to those
dealers. Sales through company-owned retail stores are recorded at the time of
sale to retail customers. Case grants certain sales incentives to stimulate
sales of Case products to retail customers. The expense for such incentive
programs is recorded at the time of sale to the dealer. At December 31, 1997
and 1996, Case had accrued $177 million and $165 million, respectively, for
these incentive programs and such amounts are included in "Other accrued
liabilities" in the accompanying Balance Sheets.
Case Credit records earned finance charges (interest income) on retail
receivables and finance leases using the effective interest method.
Under terms of most dealer agreements, wholesale notes receivable are
generally interest free for periods ranging from three to nine months, after
which interest is based on market rates.
Modification Programs and Warranty Costs
The costs of major programs to modify products in the customer's possession
are accrued when these costs can be identified and quantified. Normal warranty
costs are recorded at the time of sale. Reserves for modification programs and
warranty costs were $90 million and $117 million at December 31, 1997 and
1996, respectively, and are included in "Other accrued liabilities" in the
accompanying Balance Sheets.
Advertising
The Company expenses advertising costs as incurred. Advertising expense
totaled $42 million, $37 million and $35 million for the years ended December
31, 1997, 1996 and 1995, respectively.
Accounting Pronouncements
Effective January 1, 1996, Case adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Adoption of this standard
did not have a material impact on the Company's financial position or results
of operations.
Effective December 31, 1996, Case adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which established financial accounting and
reporting standards for stock-based employee compensation. The statement
allows for companies to continue to apply the accounting treatment under the
provisions of Accounting Principles Board Opinion 25. The Company has chosen
to adopt the disclosure requirement of SFAS No. 123 and, as a result, the
adoption of this statement has had no effect on the Company's financial
position or results of operations. See Note 9, "Stockholders' Equity and
Preferred Stock with Mandatory Redemption Provisions," for further
information.
Effective January 1, 1997, Case adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." The adoption of this statement did not have a material effect on
the Company's financial position or results of operations.
Effective December 31, 1997, Case adopted SFAS No. 128, "Earnings per
Share." SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"), and replaces primary and fully
diluted EPS with basic and diluted EPS. The Company has restated all
previously reported per share amounts to conform to the new presentation.
Case will adopt SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
effective January 1, 1998. The adoption of these statements will have no
effect on the Company's financial position or results of operations.
42
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Changes in Accounting Principles
Effective January 1, 1995, Case adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," for its non-U.S. plans. This
statement requires employers to accrue the estimated costs of retiree benefits
other than pensions (primarily health care benefits and life insurance) during
the employee's active service period. Case had previously expensed the cost of
these benefits under non-U.S. plans as medical and insurance claims were paid.
The impact of adopting this standard for non-U.S. plans was reported as a
cumulative catch-up adjustment of $9 million on a pre-tax and after-tax basis
during the first quarter of 1995. See Note 14, "Postretirement Benefits," for
further information regarding this change.
Cash and Cash Equivalents
Cash equivalents are comprised of all highly liquid investments with an
original maturity of three months or less.
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>
DECEMBER 31,
--------------
1997 1996
------- ------
<S> <C> <C>
Raw materials............................................... $ 207 $ 175
Work-in-process............................................. 135 147
Finished goods.............................................. 722 666
------- -----
Total inventories....................................... $ 1,064 $ 988
======= =====
</TABLE>
Goodwill and Intangibles
Goodwill is being amortized on a straight-line basis over 15 to 40 years.
Case continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of goodwill may warrant revision
or that the remaining balance of goodwill may not be recoverable. When factors
indicate that goodwill should be evaluated for possible impairment, Case uses
an estimate of the undiscounted cash flows over the remaining life of the
goodwill in measuring whether the goodwill is recoverable.
At December 31, 1997 and 1996, goodwill totaled $353 million and $313
million, respectively, while accumulated amortization of goodwill was $96
million and $62 million, at those respective dates. Amortization expense
totaled $14 million, $9 million and $5 million for the years ended December
31, 1997, 1996 and 1995, respectively.
Intangibles consist primarily of acquired dealer network, trademarks,
product drawings and patents, and are being amortized on a straight-line basis
over 3 to 17 years. At December 31, 1997 and 1996, intangibles totaled $227
million and $209 million, respectively, while accumulated amortization of
intangibles was $165 million and $154 million, at those respective dates.
Amortization expense totaled $12 million, $13 million and $12 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
Derivatives
In 1997, the Securities and Exchange Commission broadened its disclosure
requirements relative to derivatives and other financial instruments.
Derivative financial instruments are used by the Company to manage
43
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
its foreign currency and interest rate exposures. Case does not hold or issue
financial instruments for trading purposes. Depending on the item being
hedged, gains and losses on foreign currency hedging instruments are either
recognized in the results of operations as they accrue or are deferred until
the hedged transaction occurs. Amounts to be received or paid under interest
rate swap contracts are recognized as interest income or expense in the
periods in which they accrue.
Reference is made to Note 11, "Financial Instruments," for further
information regarding the Company's use of derivative financial instruments.
Extraordinary Items
In the first quarter of 1996, the Company sold $300 million aggregate
principal amount of its 7.25% 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 10.5% 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 third quarter of 1996, the Company established new credit facilities
consisting of $3.4 billion in lines of credit and liquidity facilities. As a
result of establishing these credit facilities, the Company recorded an $11
million extraordinary, after-tax charge for the write-off of unamortized bank
fees related to the original bank agreements established at the time of the
Company's initial public offering in June 1994.
NOTE 3: ACQUISITION OF BUSINESSES AND INVESTMENTS
The Company completed six strategic business acquisitions in 1997. On
January 13, 1997, the Company acquired bor-mor Inc., a North American
manufacturer of directional drills for the underground cable and utility
installation market. On January 24, 1997, the Company acquired select assets
of Agri-Logic Inc., a leading developer of software for agricultural
applications. On July 17, 1997, the Company acquired Gem Sprayers Limited, the
leading agricultural sprayer company in the United Kingdom. On December 8,
1997, the Company acquired the outstanding shares of Fortschritt
Erntemaschinen GmbH ("Fortschritt"). During the fourth quarter, the Company
also acquired select assets of Karl Mengele & Sohne, Maschinenfabriken GmbH
("Mengele") and MDW Mahdrescherwerke GmbH ("MDW"), including intellectual
property, and production and distribution rights related to self-propelled
forage harvesters and combines. The Fortschritt, Mengele and MDW acquisitions
provide Case with a broad range of conventional and rotary combines in Europe
and significantly expand the Company's line of harvesting equipment for that
region.
The aggregate purchase price for these businesses included approximately $36
million in cash, as well as the assumption of additional debt and other
liabilities of approximately $20 million. These acquisitions were accounted
for as purchases and, accordingly, the accompanying consolidated financial
statements include the results of operations of these businesses as of their
respective acquisition dates. In total, the purchase price plus the
liabilities assumed exceeded the fair value of the tangible and intangible
assets purchased by approximately $9 million, on a preliminary basis. The
goodwill associated with these acquisitions is being amortized on a straight-
line basis over 15 to 20 years.
During the third quarter of 1997, Case Credit invested $16 million in a
joint venture with UFB LOCABAIL SA, a subsidiary of Compagnie Bancaire, to
provide financing for Case's European dealers and retail customers. The
formation of this new venture, Case Credit Europe S.A.S., establishes the
first pan-European finance organization to serve both the agricultural and
construction equipment markets in that region.
44
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The impact of these acquisitions and investments on the Company's results of
operations for the year ended December 31, 1997, as compared to the prior
year, is not material.
The Company completed four strategic business acquisitions in 1996. On
January 12, 1996, the Company acquired Concord, Inc., a manufacturer of air
drills based in Fargo, North Dakota. On June 3, 1996, the Company's Australian
subsidiary, Case Corporation Pty Ltd, completed the purchase of all of the
outstanding shares of Austoft Holdings Limited, a manufacturer of sugar cane
harvesting equipment. On August 30, 1996, the Company acquired 75% of the
common shares of Steyr Landmaschinentechnik AG, an Austrian tractor
manufacturer based in St. Valentin, Austria. On October 4, 1996, the Company
acquired Fermec Holdings Limited, a construction equipment manufacturer based
in Manchester, United Kingdom.
The aggregate purchase price for these businesses included approximately
$169 million in cash and notes payable and 125,812 shares of the Company's
Common Stock. Case also assumed additional debt and other liabilities of
approximately $244 million in conjunction with these acquisitions. These
acquisitions were accounted for as purchases and, accordingly, the
accompanying consolidated financial statements include the results of
operations of these businesses as of their respective acquisition dates. In
total, the purchase price plus the liabilities assumed exceeded the fair value
of the tangible and intangible assets purchased by approximately $154 million.
The goodwill associated with these acquisitions is being amortized on a
straight-line basis over 15 to 20 years.
The impact of these acquisitions on the Company's results of operations for
the year ended December 31, 1996, as compared to the prior year, is not
material.
NOTE 4: REORGANIZATION AND PUBLIC OFFERING
The Company was incorporated on April 22, 1994, as a wholly owned subsidiary
of Tenneco Inc. ("Tenneco") for the purpose of acquiring Tenneco's farm and
construction equipment business (the "Case Business"). In June 1994, pursuant
to a Reorganization Agreement (the "Reorganization Agreement") between the
Company, Tenneco and Tenneco Equipment Corporation, the Company and its
subsidiaries acquired the business and assets of the farm and construction
equipment business (other than approximately $1.1 billion of U.S. retail
receivables) of Tenneco and its subsidiaries (the "Reorganization").
NOTE 5: RESTRUCTURING COSTS
In response to depressed market conditions during the early 1990's, Case
embarked on two restructuring programs. The first program, initiated in 1991,
resulted in a pre-tax charge of $461 million ($404 million after tax). This
program has been completed and the intended benefits have been achieved.
While the measures taken by Case under the 1991 restructuring program
resulted in substantial cost reductions, the worldwide farm and construction
equipment market continued to deteriorate during 1992. At that time, the
Company determined that major structural and strategic changes were necessary
in order to rationalize certain component production operations to reduce the
fixed cost portion of the manufacturing process; reduce excess capacity;
focus, discontinue or replace unprofitable and noncompetitive product lines;
and restructure and refocus product and component parts distribution to
strengthen Case's competitive position in the global marketplace.
Consequently, on March 21, 1993, a comprehensive restructuring program (the
"1992 Restructuring Program") was adopted and resulted in a pre-tax
restructuring charge of $920 million ($843 million after tax), which was
reflected in Case's 1992 results. The $920 million pre-tax charge was recorded
as a $340 million reduction of net property, plant and equipment, a $55
million reduction of inventory, a $63 million reduction of intangibles and
other accounts and a $462 million reserve for the future cost of implementing
the various restructuring actions. As of December 31, 1997, the 1992
Restructuring Program has been substantially completed and the intended
benefits have been achieved. The Company believes that the reserve balance of
$59 million at December 31, 1997, is adequate to carry out all remaining
activities as outlined under the 1992 Restructuring Program.
45
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
An analysis of the 1992 Restructuring Program is summarized in the table
below (in millions):
<TABLE>
<CAPTION>
ACTIVITY
1993 THRU 1995 1996 ACTIVITY
------------------- -------------------
BALANCE AT CHANGES BALANCE AT CHANGES BALANCE AT
DECEMBER 31, RESERVES IN DECEMBER 31, RESERVES IN DECEMBER 31,
1992 UTILIZED* ESTIMATES 1995 UTILIZED* ESTIMATES 1996
------------ --------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
payments............... $250 $ (56) $ 10 $204 $ (50) $(6) $148
Pension and OPRB costs.. 56 (36) 15 35 (6) (21) 8
Lease termination
payments............... 10 1 (1) 10 (4) 3 9
Writedown of assets:
Property, plant and
equipment............. 340 (156) (47) 137 (115) 2 24
Provision for
environmental
liabilities........... 25 -- 2 27 (2) -- 25
Other assets........... 63 (70) 7 -- -- -- --
Writedown of
inventories............ 55 (23) (15) 17 (4) (4) 9
Costs related to
closing/selling/
downsizing existing
facilities............. 60 (22) (8) 30 (16) 18 32
Other costs............. 61 (26) 1 36 (10) 8 34
---- ----- ---- ---- ----- --- ----
Total restructuring
charge................. $920 $(388) $(36) $496 $(207) $-- $289
==== ===== ==== ==== ===== === ====
<CAPTION>
1997 ACTIVITY
-------------------
BALANCE AT CHANGES BALANCE AT
DECEMBER 31, RESERVES IN DECEMBER 31, TOTAL
1996 UTILIZED* ESTIMATES 1997 COSTS
------------ --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
payments............... $148 $(120) $ 15 $ 43 $ 269
Pension and OPRB costs.. 8 (7) (1) -- 49
Lease termination
payments............... 9 (2) (7) -- 5
Writedown of assets:
Property, plant and
equipment............. 24 (28) 4 -- 299
Provision for
environmental
liabilities........... 25 (21) (4) -- 23
Other assets........... -- -- -- -- 70
Writedown of
inventories............ 9 (7) (2) -- 34
Costs related to
closing/selling/
downsizing existing
facilities............. 32 (14) (6) 12 64
Other costs............. 34 (31) 1 4 71
---- ----- ---- ---- -----
Total restructuring
charge................. $289 $(230) $ -- $ 59 $ 884
==== ===== ==== ==== =====
</TABLE>
- --------
*Includes currency translation
46
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment, is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ -------
<S> <C> <C>
Land and improvements.................................... $ 44 $ 50
Buildings and improvements............................... 454 486
Machinery and equipment.................................. 1,308 1,395
Construction in progress................................. 181 144
------ -------
1,987 2,075
Accumulated depreciation................................. (988) (1,068)
------ -------
Net property, plant and equipment.................... $ 999 $ 1,007
====== =======
</TABLE>
Depreciation of Case properties and equipment is provided on a straight-line
basis over their estimated useful lives. Useful lives range from 10 to 50
years for buildings and improvements and from 3 to 16 years for machinery and
equipment. Depreciation expense totaled $129 million, $112 million and $111
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Expenditures for maintenance and repairs are charged to expense as incurred.
NOTE 7: SHORT-TERM DEBT
The Company has various lines of credit and liquidity facilities that
include borrowings under both committed credit facilities and uncommitted
lines of credit and similar arrangements.
Case Industrial's credit facilities consists of a five-year, $1.1 billion
revolving credit facility that was established in August 1996; and the
Company's Australian subsidiary, Case Corporation Pty Ltd, has a five-year,
A$150 million revolving credit facility and a five-year, A$20 million
revolving credit facility that expire in August 2002 and December 2002,
respectively.
Case Credit established the following credit facilities in August 1996: (i)
a five-year, $1.2 billion revolving credit facility; (ii) a three-year, $750
million U.S. asset-backed commercial paper liquidity facility; and (iii) a
five-year, C$500 million revolving credit facility. In October 1997, Case
Credit's Australian subsidiary, Case Credit Australia Pty Ltd, established a
A$400 million revolving credit facility comprised of a five-year, A$300
million revolving credit facility and a 364-day, A$100 million revolving
credit facility. Case Credit also has commercial paper programs of $1.2
billion, C$500 million and A$400 million. Under the terms of these programs,
the principal amount of the commercial paper outstanding, combined with the
amounts outstanding under the applicable revolving credit facility mentioned
above, cannot exceed the total amount available under the revolving credit
facility.
The Company has other lines of credit available for working capital
expenditures and other general purposes, including lines of credit for its
various foreign operations. In addition, Case Credit has a $550 million
medium-term note program that was established in the United States pursuant to
a shelf registration statement filed with the Securities and Exchange
Commission in September 1997, and Case Credit Australia Pty Ltd has a A$600
million medium-term note program that was established in October 1997.
47
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of short-term debt is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ ------
<S> <C> <C>
Case Industrial
Credit agreements*....................................... $ 179 $ 173
------ ------
Case Credit
Credit agreements*....................................... $ -- $ 438
Commercial paper......................................... 1,112 299
Commercial paper liquidity facility...................... 35 92
------ ------
Total short-term debt--Case Credit..................... $1,147 $ 829
------ ------
Total short-term debt.................................. $1,326 $1,002
====== ======
</TABLE>
- --------
* The credit agreements for both Case Industrial and Case Credit include
borrowings under both committed credit facilities and uncommitted lines of
credit and similar arrangements.
The weighted-average interest rates on consolidated short-term debt at
December 31, 1997 and 1996, were 6.0% and 5.5%, respectively. At December 31,
1997, the unused portion of the combined committed credit facilities and the
Case Credit commercial paper programs was $1,612 million, and the unused
portion of the asset-backed commercial paper liquidity facility was $715
million. At December 31, 1996, the unused portion of the combined committed
credit facilities and the Case Credit commercial paper program was $2,037
million, and the unused portion of the asset-backed commercial paper liquidity
facility was $658 million.
At the option of the Company, borrowings under the revolving credit
facilities bear interest at: (i) prime rate; (ii) LIBOR, plus an applicable
margin; or (iii) banker's bills of acceptance rates, plus an applicable
margin. Borrowings may be obtained in U.S. dollars and certain other foreign
currencies. Case Credit's revolving credit facilities (other than the
commercial paper liquidity facility) contain restrictive covenants that
require that Case Credit maintain certain financial conditions, including a
maximum ratio of debt to net worth and a minimum fixed-charge coverage ratio.
Pursuant to a support agreement, Case Corporation has agreed to maintain its
ownership in, and provide financial backing for, Case Credit. Case
Industrial's revolving credit facility contains restrictive covenants that
require that Case Industrial maintain certain financial conditions, including
a maximum debt to capitalization ratio and a minimum net worth. The revolving
credit facilities (other than the commercial paper liquidity facility) also
impose certain restrictions on certain indebtedness, liens on Company assets
and ownership of certain subsidiaries. At December 31, 1997, the Company was
in compliance with all debt covenants.
Due to the availability of financing under the Company's credit facilities,
the Company has classified $125 million, $65 million and $70 million of
borrowings under the commercial paper facilities of Case Credit Corporation,
Case Credit Australia Pty Ltd, and Case Credit Ltd. (Canada), respectively, as
long term. In addition, the Company has also classified $125 million and $55
million of borrowings under the revolving credit facilities of Case Credit
Corporation and Case Corporation Pty Ltd (Australia), respectively, as long
term.
The credit facilities generally provide for facility fees on the total
commitment, whether used or unused, and also provide for annual agency fees to
the administrative agents for the facilities.
48
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: LONG-TERM DEBT
A summary of long-term debt is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Case Industrial
Case Corporation
Notes, payable in 2005, interest rate of 7.25%............... $ 298 $ 298
Notes, payable in 2016, interest rate of 7.25%............... 300 300
Case France S.A.
Notes, payable on various dates through 2000, interest rate
of 4.5%..................................................... 15 24
Case Corporation Pty Ltd (Australia)
Long-term portion of borrowings under revolving credit
facilities, average interest rate of 5.1% and 6.0%.......... 55 67
Other debt..................................................... 9 24
------ ------
677 713
Less--current maturities....................................... (8) (9)
------ ------
Total long-term debt--Case Industrial...................... $ 669 $ 704
------ ------
Case Credit
Case Credit Corporation
Notes, payable in 2003, interest rate of 6.125%.............. $ 200 $ 200
Notes, payable in 2007, interest rate of 6.75%............... 150 --
Long-term portion of borrowings under commercial paper
facilities, average interest rate of 6.4%................... 125 --
Long-term portion of borrowings under revolving credit
facilities, average interest rate of 6.1%................... -- 100
Long-term portion of borrowings under uncommitted revolving
credit facilities, average interest rate of 6.9%............ 125 --
Case Credit Australia Pty Ltd
Long-term portion of borrowings under revolving credit
facilities, average interest rate of 6.3%................... -- 79
Long-term portion of borrowings under commercial paper
facilities, average interest rate of 5.1%................... 65 --
Case Credit Ltd. (Canada)
Long-term portion of borrowings under revolving credit
facilities, average interest rate of 6.2%................... -- 36
Long-term portion of borrowings under commercial paper
facilities, average interest rate of 4.3%................... 70
------ ------
Total long-term debt--Case Credit.......................... $ 735 $ 415
------ ------
Total long-term debt....................................... $1,404 $1,119
====== ======
</TABLE>
On September 17, 1997, Case Credit filed a shelf registration statement with
the Securities and Exchange Commission for the issuance of up to $700 million
of unsecured and unsubordinated debt securities. During the fourth quarter,
Case Credit sold $150 million aggregate principal amount of its 6.75% notes
due 2007 and established a $550 million medium-term note program pursuant to
this registration statement. Case Credit commenced to offer securities under
the medium-term note program in January 1998.
49
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of the minimum annual repayments of long-term debt as of December
31, 1997, is as follows (in millions):
<TABLE>
<S> <C>
1999.............................. $ 8
2000.............................. 5
2001.............................. 197
2002.............................. 55
2003 and thereafter............... 1,139
------
Total......................... $1,404
======
</TABLE>
NOTE 9: STOCKHOLDERS' EQUITY AND PREFERRED STOCK WITH MANDATORY REDEMPTION
PROVISIONS
As of December 31, 1997, Case has 210 million shares of authorized capital
stock itemized by class and series as follows:
(i) 200 million shares of Common Stock, par value $0.01 per share, with
approximately 76 million shares issued and approximately 74.4 million
shares outstanding;
(ii) 10 million shares of Preferred Stock, par value $0.01 per share,
divided into the following series:
(a) 5 million shares of Series A Cumulative Convertible Preferred
Stock, par value $0.01 per share, with 1.5 million shares issued and
outstanding; and
(b) 5 million shares of Cumulative Convertible Second Preferred
Stock, par value $0.01 per share, with 40,000 shares issued and 37,500
shares outstanding.
Holders of the Series A Cumulative Convertible Preferred Stock are entitled
to receive cumulative cash dividends equal to $4.50 per annum, payable
quarterly, and are entitled to receive $50 per share in the event of a
liquidation, dissolution, or winding up of the Company. The holders have the
right to convert each share of the Series A Cumulative Convertible Preferred
Stock into 2.2686 shares of Case's Common Stock (subject to adjustment as set
forth in the Certificate of Designation for such series of stock). The Series
A Cumulative Convertible Preferred Stock shall be redeemed by Case no later
than June 30, 2002, and Case may call the outstanding shares at any time on or
after July 1, 1999, at a premium. Holders of the Series A Cumulative
Convertible Preferred Stock are not entitled to vote except as set forth in
the Certificate of Designation for such series of stock or as required by law.
Holders of the Cumulative Convertible Second Preferred Stock are entitled to
receive cumulative cash dividends equal to $4.25 per annum, payable quarterly,
and are entitled to receive $50 per share in the event of a liquidation,
dissolution, or winding up of the Company. The holders have the right to
convert each share of the Cumulative Convertible Second Preferred Stock into
2.2883 shares of Case's Common Stock (subject to adjustment as set forth in
the Certificate of Designation for such series of stock). The Cumulative
Convertible Second Preferred Stock shall be redeemed by Case no later than
June 30, 2007, and Case may call the outstanding shares at any time following
July 1, 2000, at a premium. Holders of the Cumulative Convertible Second
Preferred Stock are not entitled to vote except as set forth in the
Certificate of Designation for such series of stock or as required by law.
50
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of preferred stock with mandatory redemption provisions is as
follows: (in millions):
<TABLE>
<CAPTION>
SERIES A CUMULATIVE
CUMULATIVE CONVERTIBLE
CONVERTIBLE SECOND
PREFERRED PREFERRED
STOCK STOCK TOTAL
----------- ----------- -----
<S> <C> <C> <C>
Issuance of Series A Cumulative Convertible
Preferred Stock, June 1994................ $75 $-- $75
Issuance of Cumulative Convertible Second
Preferred Stock, June 1994................ -- 2 2
--- --- ---
Balance, December 31, 1997 and 1996........ $75 $ 2 $77
=== === ===
</TABLE>
Stock Repurchase Program
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. As of
December 31, 1997, the Company has repurchased approximately 1.5 million
shares of its common stock at a cost of approximately $94 million under this
program.
Employee Stock Purchase Plan
Case's Employee Stock Purchase Plan was initiated on February 1, 1995. The
plan allows for certain North American and Australian / New Zealand employees
to purchase Case's Common Stock at a price per share equal to 85% of the lower
of (i) the fair market value of the Company's Common Stock as of the first
business day of the plan year, or (ii) the fair market value on the last
business day of the calendar quarter. Case has reserved 1.4 million shares of
common stock for issuance under this plan. For the years ended December 31,
1997, 1996 and 1995, the Company issued 247,018 shares, 229,192 shares and
297,183 shares, respectively, at weighted-average fair market values of
$45.21, $45.56 and $22.19, respectively.
Case Equity Incentive Plan
The Case Equity Incentive Plan provides for grants of various types of
awards to employees of the Company and its subsidiaries. There are 9.5 million
shares of common stock and 40,000 shares of Cumulative Convertible Second
Preferred Stock reserved for issuance under this plan (subject to certain
adjustments) that are available for grant by 2003. In general, no award may
vest in less than six months from the award date.
Stock options awarded under this plan were granted at the average market
price on the date of the award and become exercisable between two and seven
years from the award date. All options awarded in 1995, 1996 and 1997 expire
ten years after issuance.
Effective December 31, 1996, the Company adopted the disclosure requirements
of SFAS No. 123, "Accounting for Stock-Based Compensation." For disclosure
purposes only, the Black-Scholes pricing model was used to calculate the "fair
value" of stock options and Company Common Stock purchased through Case's
Employee Stock Purchase Plan. Based on this model, the weighted-average fair
values of stock options awarded during 1997, 1996 and 1995 were $22.71, $19.27
and $10.11 per option, respectively, and the weighted-average fair values of
Case Common Stock purchased through the Company's Employee Stock Purchase Plan
during 1997, 1996 and 1995 were $10.85, $11.61 and $5.73 per share,
respectively.
51
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net income and earnings per share, and the assumptions used
therein, assuming the fair value of accounting for stock-based compensation as
prescribed under SFAS No. 123, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net income to common (millions)
As reported........................................ $ 396 $ 309 $ 330
Pro forma.......................................... 387 303 327
Net income to common assuming dilution (millions)
As reported........................................ $ 403 $ 316 $ 337
Pro forma.......................................... 394 310 334
Basic earnings per share
As reported........................................ $5.36 $4.27 $4.67
Pro forma.......................................... 5.23 4.19 4.64
Diluted earnings per share
As reported........................................ $5.11 $4.07 $4.48
Pro forma.......................................... 4.99 3.99 4.44
Assumptions* under Black Scholes
Risk-free interest rate............................ 5.7% 6.7% 6.7%
Dividend yield..................................... 0.36% 0.41% 0.64%
Stock price volatility............................. 30.0% 35.0% 35.0%
Option life (years)................................ 5.7 4.6 5.2
</TABLE>
- --------
*Weighted-average
The pro forma compensation expense included in net income and earnings per
share above may not be representative of future years as only stock options
issued after January 1, 1995, have been included in accordance with the
disclosure provisions of SFAS No. 123.
During the last three fiscal years, changes in shares subject to issuance
under stock options were as follows:
STOCK OPTIONS WITH EXERCISE PRICE LESS THAN $30:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997
------------------- -------------------- --------------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE* SHARES PRICE* SHARES PRICE*
--------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 4,904,100 $19.36 5,089,328 $19.92 3,705,059 $20.05
Granted............... 1,156,000 22.32 -- -- -- --
Exercised............. (78,266) 21.60 (1,092,226) 19.66 (1,404,975) 19.67
Forfeited............. (892,506) 19.82 (292,043) 19.25 (109,782) 19.90
--------- ---------- ----------
Outstanding at end of
year................... 5,089,328 $19.92 3,705,059 $20.05 2,190,302 $20.30
========= ========== ==========
Exercisable at end of
year................... 305,042 $21.06 900,127 $19.98 1,971,312 $19.76
========= ========== ==========
</TABLE>
- --------
*Weighted-average
52
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
STOCK OPTIONS WITH EXERCISE PRICE GREATER THAN OR EQUAL TO $30:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997
---------------- ----------------- -------------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE* SHARES PRICE* SHARES PRICE*
------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- -- 670,417 $41.15 929,108 $43.75
Granted............... 670,417 $41.15 274,603 50.05 1,138,052 59.21
Exercised............. -- -- (6,845) 42.88 (47,879) 42.88
Forfeited............. -- -- (9,067) 42.89 (22,662) 47.41
------- ------- ---------
Outstanding at end of
year................... 670,417 $41.15 929,108 $43.75 1,996,619 $52.54
======= ======= =========
Exercisable at end of
year................... -- -- 162,782 $42.88 322,685 $44.38
======= ======= =========
</TABLE>
- --------
* Weighted-average
Exercise prices for options outstanding as of December 31, 1997, ranged from
$19.125 to $67.69. The weighted-average remaining contractual life of those
options is approximately eight years.
Under the Case Equity Incentive Plan, shares may also be granted as
restricted stock. The Company establishes the period of restriction for each
award and holds the stock during the restriction period, which ranges from six
months to four years. For the years ended December 31, 1997, 1996 and 1995,
restricted shares of 256,399 shares, 53,200 shares and 196,779 shares,
respectively, were awarded at no cost to employees, at weighted-average fair
market values of $56.85, $52.95 and $42.37, respectively. At December 31,
1997, restricted common stock outstanding totaled 403,553 shares.
Under the Case Equity Incentive Plan, awards may also be granted as stock
equivalent units that vest upon the achievement of specific performance
measures ("performance share units"). At December 31, 1997, 385,000
performance share units were outstanding. These units vest upon attainment of
specified increases in the market price of the Company's Common Stock, plus
dividends, expressed in the form of a compound annual growth rate, as compared
to its closing price as of the day preceding the date of grant. Except as
described below, no performance share units can vest until May 2000, after
which the performance share units may vest on a quarterly basis until May
2004. An employee becomes fully vested in all performance share units upon
death, retirement at age 65 or older, or total disability, if such event
occurs at least six months after the grant date. Under certain circumstances,
an employee may vest in the performance share units upon a change in control
of the Company. Upon vesting, the performance share units are converted into
an equal number of shares of Company Common Stock. All unvested performance
share units shall be forfeited in May 2004.
Stockholder Rights Plan
On December 8, 1995, the Board of Directors adopted a Stockholder Rights
Plan which is designed to strengthen its ability to act for common
stockholders in the event of an unsolicited bid to acquire control of the
Company. To implement this plan, the Board of Directors declared a dividend
payable on December 29, 1995, of one preferred share purchase right on each
outstanding share of the Company's Common Stock. The rights will cause
substantial dilution to a person or entity attempting to acquire the Company
without conditioning the offer on the rights being redeemed or a substantial
number of rights being acquired.
Each outstanding share of common stock is entitled to one right under the
plan. Each right, when exercisable, entitles the holder to purchase one one-
thousandth of a share of Series A Junior Participating Preferred Stock, $.01
par value, for $170, subject to adjustment. If a person or entity becomes a
15% owner of
53
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the Company's Common Stock, each holder of a right (other than the 15% owner)
would be entitled to receive for the exercise price, subject to adjustment, in
lieu of the Series A Junior Participating Preferred Stock, common stock having
a value equal to two times the exercise price of the right. If, at any time
after a person or entity has acquired 15% or more of the Company's Common
Stock, the Company is acquired in a merger or other business combination, or
50% or more of the Company's assets or earning power are sold, proper
provision will be made so that each holder of a right would be entitled to
receive, at the then current exercise price of the right, common stock of the
acquiring company having a value equal to two times the exercise price of the
right. The rights, which are not entitled to vote, expire on December 29,
2005. They may be redeemed by the Company at a price of $.01 per right at any
time until a person or entity becomes a 15% owner of the Company's Common
Stock. The Company has reserved 100,000 shares of Series A Junior
Participating Preferred Stock for issuance in the event of exercise of the
rights.
NOTE 10: ACCOUNTS AND NOTES RECEIVABLE
A summary of receivables is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Wholesale notes and accounts............................ $ 1,558 $ 1,330
Retail notes and finance leases......................... 1,971 1,635
Other................................................... 354 302
------- -------
Gross receivables................................... 3,883 3,267
------- -------
Less--Total unearned finance charges.................... (162) (137)
Less--Allowance for doubtful accounts................... (63) (70)
Less--Current portion................................... (2,053) (1,699)
------- -------
Total long-term receivables, net.................... $ 1,605 $ 1,361
======= =======
</TABLE>
In accordance with the standard terms of the wholesale receivable
agreements, repayment is required when wholesale equipment is sold.
Classification of wholesale receivables for financial statement presentation
is based on interest-bearing dates. The terms of retail notes and finance
leases generally range from two to six years. Interest rates on retail notes
and finance leases vary depending on prevailing market interest rates and
certain incentive programs offered by the Company.
At December 31, 1997 and 1996, the Company had $56 million and $115 million,
respectively, of retail notes that secure the asset-backed commercial paper
liquidity facility.
Maturities of receivables as of December 31, 1997, are estimated as follows
(in millions):
<TABLE>
<S> <C>
1999.............................. $ 773
2000.............................. 314
2001.............................. 225
2002.............................. 206
2003 and thereafter............... 157
------
1,675
Less--Unearned finance charges.... (70)
------
Total long-term receivables,
net.......................... $1,605
======
</TABLE>
54
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Wholesale and retail notes receivable have significant concentrations of
credit risk in the farm and construction business sectors. Case typically
retains, as collateral, a security interest in the equipment associated with
wholesale and retail notes receivable.
Wholesale Receivables Securitizations
In June 1995, the Company consummated a transaction whereby it sold (with
limited recourse), on a revolving basis, a fractional undivided interest in
certain of its wholesale receivables pursuant to a privately structured
facility. The counterparties to this facility are two special purpose entities
administered by a major financial institution. Under this facility, the
maximum amount of proceeds that may be accessed at any one time is $400
million and is subject to change based on the level of eligible wholesale
receivables. The facility, which was renewed in June 1996, consists of a five-
year committed, $300 million non-renewable facility and a 364-day, $100
million facility, which is renewable annually at the sole discretion of the
purchasers. At December 31, 1996 and 1997, the undivided interest of the
purchasers under the facility represented $521 million of wholesale
receivables. The excess of $521 million over the $400 million of proceeds
received from the transaction represents overcollateralization included in the
transaction to cover yield to the purchasers and certain other costs
aggregating $10 million, with the remainder available to cover losses on
receivables. The Company has reserved for expected losses as part of the
allowance for doubtful accounts. The Company also maintains a security
interest in the equipment financed by wholesale receivables such that in the
event of non-performance by the dealer, Case can repossess the related
equipment to minimize losses.
Under this program, Case records a loss each time receivables are sold to
the counterparties to the facility. This loss, which reflects the difference
between the current and future value of the receivables sold along with
related transaction expenses, is computed at the then prevailing market rates
as stated in the sale agreement. During 1997, 1996 and 1995, Case incurred
charges of $25 million, $28 million and $27 million, respectively, relating to
such sales of receivables. These charges are included in "Other, net" in the
accompanying Statements of Income. The proceeds from the initial sale of the
wholesale receivables were used by the Company to repay a portion of its five-
year, $1.0 billion bank term loan facility by $300 million and its revolving
bank credit facility by $100 million.
Retail Receivables Securitizations
Case Credit sold $1.8 billion and $1.6 billion of retail notes (net of
unearned finance charges) in 1997 and 1996, respectively, to limited-purpose
business trusts ("Trusts") in the United States and Canada. The Trusts were
formed for the purpose of purchasing Case receivables and the receivables were
used as collateral for the issuance of asset-backed securities (asset-backed
securitizations) to outside investors. The proceeds received from the sales of
notes were reduced by $55 million and $73 million in 1997 and 1996,
respectively, pursuant to certain recourse provisions in the sale agreements.
These reductions in proceeds are held in escrow by the Trusts to provide
security in the event of uncollectible notes and are released to Case when the
notes are collected. Amounts held in escrow by the Trusts are recorded in
"Accounts and notes receivable" on the accompanying Balance Sheets. Case has
established reserves for the estimated losses on amounts held in escrow. As
these Trusts are controlled by third parties and meet minimum equity
capitalization standards, they are not included in the financial statements of
the Company.
Case Credit's portfolio of managed receivables, including receivables owned
and receivables serviced for others, has grown from $4.3 billion at December
31, 1996, to $5.2 billion at December 31, 1997. Case's serviced portfolio at
December 31, 1997, included $4.6 billion of retail notes (net of unearned
financed charges), of which $2.7 billion (net of unearned finance charges)
were owned by Trusts in the United States and Canada. Case Credit is subject
to recourse with respect to receivables serviced for the Trusts up to $154
million and $171 million as
55
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of December 31, 1997 and 1996, respectively. The Company has reserved for
expected losses as part of the allowance for doubtful accounts. A security
interest in the equipment financed by the retail notes is maintained such that
in the event of non-performance, the related equipment can be repossessed to
minimize losses.
NOTE 11: FINANCIAL INSTRUMENTS
Fair Market Value of Financial Instruments
The estimated fair market values of financial instruments that do not
approximate the carrying values in the financial statements are as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Accounts and notes receivable............ $3,658 $3,655 $3,060 $3,087
Long-term debt (including current
maturities)............................. 1,412 1,434 1,128 1,117
</TABLE>
The fair value of accounts and notes receivable was based on discounting the
estimated future payments at prevailing market rates. The fair value of the
interest only strip component of Case's accounts and notes receivable was
based on loss, prepayment and interest rate assumptions approximating those
currently experienced by the Company. The fair value of fixed-rate, long-term
debt was based on the market value of debt with similar maturities and
interest rates; the carrying amount of floating-rate, long-term debt was
assumed to approximate its fair value. The fair values and carrying values of
the Company's foreign exchange forward contracts, currency options, interest
rate swaps and treasury rate locks were not material.
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 hedging contracts to hedge certain
purchase commitments and loans made to foreign subsidiaries denominated in
foreign currencies. The term 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.
56
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
At December 31, 1997, Case had foreign exchange forward contracts with a
notional value of $736 million, purchased currency options with a notional
value of $43 million, and sold currency options with a notional value of $45
million. Case had foreign exchange forward 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 interest rate increases on floating-rate
debt in a rising interest rate environment. Under these agreements, the
Company contracts with a counterparty to exchange the difference between a
fixed rate and a floating rate applied to the notional amount of the swap.
Swap contracts are principally between one and four years in duration. The
differential to be paid or received on interest rate swap agreements is
accrued as interest rates change and is recognized in net income as an
adjustment to interest expense.
Gains and losses resulting from terminated interest rate swap agreements are
deferred and recognized in net income over the shorter term of the remaining
contractual life of the swap agreement or the remaining term of the debt
underlying the swap agreement. If swap agreements are terminated due to the
underlying debt being extinguished, any resulting gain or loss is recognized
in net income as an adjustment to interest expense at the time of the
termination.
The weighted-average pay and receive rates for the swaps outstanding at
December 31, 1997, were 6.17% and 4.87%, 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 December 31, 1997, Case Credit had a back-to-back cap at a rate of 7.00%,
at a notional amount of approximately $61 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.
57
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Treasury Rate Locks
A Treasury rate lock is a commitment to either purchase or sell the
designated financial instrument at a future date (the determination date) for
a specified price (the reference yield). The purpose of this instrument is to
protect fixed-rate debt from fluctuations in the yield of the Treasury Note
that forms the basis of pricing the debt. As of December 31, 1997, Case Credit
had entered into Treasury rate locks with a notional value of $150 million
based on two- and three-year Treasury Notes at a weighted-average yield of
5.75%. Case Credit did not have any Treasury rate locks outstanding at
December 31, 1996.
Guarantees
At December 31, 1997, Case had guaranteed payment and performance of
approximately $16 million primarily related to performance bonds and letters
of credit.
NOTE 12: INCOME TAXES
The sources of income before taxes and cumulative effect of changes in
accounting principles and extraordinary items were as follows (in millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. sources.............................................. $471 $389 $254
Foreign sources........................................... 123 145 173
---- ---- ----
Income before taxes and cumulative effect of changes in
accounting principles and extraordinary items............ $594 $534 $427
==== ==== ====
</TABLE>
The provision for income taxes consisted of the following (in millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Current:
United States........................................ $136 $124 $ 123
Foreign.............................................. 25 29 44
State................................................ 23 16 20
---- ---- -----
Total current...................................... 184 169 187
---- ---- -----
Deferred:
United States........................................ 5 27 (94)
Foreign.............................................. 3 (15) 1
State................................................ (1) 4 (13)
---- ---- -----
Total deferred..................................... 7 16 (106)
---- ---- -----
Total tax provision................................ $191 $185 $ 81
==== ==== =====
</TABLE>
58
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Following is a reconciliation of income taxes computed at the U.S. Federal
income tax rate to the tax provision reflected in the accompanying Statements
of Income (in millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Tax provision at U.S. Federal income tax rate.......... $208 $187 $ 149
Foreign losses with no tax benefit..................... 4 10 25
Reduction in valuation allowance....................... (24) (49) (126)
State taxes net of Federal benefit..................... 15 15 2
Foreign income taxed at different rates................ 3 6 20
Other.................................................. (15) 16 11
---- ---- -----
Total tax provision................................ $191 $185 $ 81
==== ==== =====
</TABLE>
During 1997, 1996 and 1995, the Company generated income in certain
jurisdictions that supported reductions in the valuation reserve.
The components of the net deferred tax asset are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER
31,
------------
1997 1996
----- -----
<S> <C> <C>
Deferred tax assets:
Net income tax operating loss carryforwards............... $ 377 $ 380
Restructuring costs....................................... 20 73
Postretirement and postemployment benefits................ 70 58
Sales returns and allowance reserves...................... 78 62
Warranty reserve.......................................... 30 41
Other..................................................... 218 183
Valuation reserve......................................... (409) (429)
----- -----
Total deferred tax assets............................... $ 384 $ 368
===== =====
Deferred tax liabilities:
Fixed assets--basis difference/depreciation............... $ 119 $ 109
Pension costs............................................. 25 22
Purchase discounts........................................ 27 27
Other..................................................... 45 39
----- -----
Total deferred tax liabilities.......................... $ 216 $ 197
----- -----
Net deferred tax asset.................................. $ 168 $ 171
===== =====
</TABLE>
The valuation allowance for deferred tax assets decreased $20 million from
December 31, 1996, to December 31, 1997. In 1997, the Company generated income
in certain tax jurisdictions that supported a decrease in the valuation
allowance of $24 million. This reduction was offset by an increase in the
valuation allowance of $4 million for certain foreign losses for which
management believes it is not more likely than not that such benefits will be
realized.
59
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The classification of the net deferred tax asset is as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER
31,
----------
1997 1996
---- ----
<S> <C> <C>
Current deferred tax asset.................................... $191 $188
Long-term deferred tax asset.................................. 24 27
Current deferred tax liability................................ (10) (11)
Long-term deferred tax liability.............................. (37) (33)
---- ----
Net deferred tax asset.................................... $168 $171
==== ====
</TABLE>
The tax benefits of significant foreign net tax operating loss carryforwards
as of December 31, 1997, are as follows (in millions):
<TABLE>
<S> <C>
Case France S.A.:
Expires 1998 through 1999.......................................... $ 6
Indefinite carryforward............................................ 164
----
170
Case United Kingdom Limited:
Indefinite carryforward............................................ 130
Case Spain S.A.:
Expires 1998 through 2002.......................................... 27
Case Brasil & CIA (Brazil):
Indefinite carryforward............................................ 20
Other................................................................ 30
----
Total tax benefits of net tax operating loss carryforwards....... $377
====
</TABLE>
Case has recorded deferred tax assets in tax jurisdictions where the Company
has been profitable as management believes it is more likely than not that
such assets will be realizable. The Company continues to have valuation
reserves in certain tax jurisdictions where net operating losses exist
(particularly in the United Kingdom, France, Spain and Brazil). Realization of
these deferred tax assets is dependent on generating future income; however,
with the exception of France, none of these entities have displayed a
consistent earnings trend. The amount of the deferred tax assets considered
realizable could increase in the near term if future estimates of income are
experienced.
In 1996, the Company reversed a portion of its valuation reserve recorded
for France as past and projected earnings, at that time, warranted such a
reversal. However, based upon uncertainties in the European agricultural and
construction equipment markets, the Company did not reverse additional France
valuation reserves in 1997.
NOTE 13: EMPLOYEE BENEFIT PLANS
Defined Benefit Plans
Case has various defined benefit plans that cover substantially all of its
U.S. union and foreign employees. In connection with the Reorganization,
Tenneco retained the accumulated pension benefit obligation and assets
relating to all existing U.S. employees, deferred, vested, terminated
employees and retirees as of June 23, 1994. Benefits are based on years of
service and, for most salaried employees, on final average compensation.
Case's funding policies are to contribute to the plans amounts necessary to
satisfy the funding requirements as prescribed by the laws and regulations of
each country. Plan assets consist principally of listed equity and fixed
income securities.
60
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the remaining plans, reconciled with amounts recognized
in the accompanying Balance Sheets are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996 1997 1996
----- ----- ----- -----
PLANS IN PLANS IN
WHICH WHICH
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS
------------ ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation at
measurement date, September 30:
Vested benefit obligation........................ $ 362 $ 334 $ 128 $ 139
Non-vested benefit obligation.................... -- -- 24 15
----- ----- ----- -----
Accumulated benefit obligation..................... 362 334 152 154
Additional amounts related to projected salary
increases......................................... 13 10 5 13
----- ----- ----- -----
Projected benefit obligation....................... 375 344 157 167
Plan assets at fair value at measurement date...... 477 456 40 21
----- ----- ----- -----
Plan assets in excess of (less than) total
projected benefit obligation at measurement date.. 102 112 (117) (146)
Contributions after measurement date but before
reporting date.................................. -- -- 4 3
Unrecognized prior service cost.................. 25 32 11 13
Unrecognized net (gain) loss resulting from plan
experience and changes in actuarial assumptions. (12) (21) 3 6
Remaining unrecognized net obligation (asset) at
initial application............................. (4) (5) 1 1
Additional minimum liability..................... -- -- (20) (16)
----- ----- ----- -----
Total prepaid (accrued) pension cost........... $ 111 $ 118 $(118) $(139)
===== ===== ===== =====
</TABLE>
Net pension cost consists of the following components (in millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the year.................. $ 15 $ 15 $ 13
Interest cost on projected benefit obligation................. 38 37 33
Expected return on plan assets:
Actual return............................................... (60) (65) (43)
Deferral of gain............................................ 19 28 11
Net amortization of unrecognized amounts...................... 6 11 13
---- ---- ----
Total net pension cost.................................... $ 18 $ 26 $ 27
==== ==== ====
</TABLE>
The following assumptions were utilized in determining the funded status of
the plans:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- -------------- --------------
U.S. FOREIGN U.S. FOREIGN U.S. FOREIGN
PLANS PLANS PLANS PLANS PLANS PLANS
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average discount rates...... 7.25% 7.30% 7.75% 8.10% 7.75% 8.30%
Rate of increase in future
compensation........................ N.A. 5.10% N.A. 5.70% N.A. 5.60%
Weighted-average, long-term rates of
return on plan assets............... 9.00% 8.70% 9.00% 9.40% 9.00% 9.70%
</TABLE>
61
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Defined Contribution Plans
Case has various defined contribution plans that cover certain U.S. and
foreign employees. At the time of the Reorganization, the Company adopted a
money purchase pension plan and a profit sharing plan pursuant to the Internal
Revenue Code for its U.S. salaried employees. Annually, the Company
contributes to the money purchase pension plan an amount equal to 4% of each
participant's eligible compensation, which amounted to $7 million in 1997 and
1996, and $6 million in 1995. Effective December 31, 1996, the Company merged
the money purchase pension plan into the profit sharing plan. The Company
intends to continue the 4% contribution previously made under the money
purchase pension plan as a profit sharing contribution under the profit
sharing plan. Under the profit sharing plan, certain salaried participants may
make pre-tax contributions of up to 8% of base compensation. The Company will
match 100% of a participant's contribution. This matching contribution may be
made in Case Common Stock, and the Company has reserved 4.7 million shares of
common stock for this purpose. During 1997, 1996 and 1995, the Company
contributed $12 million, $11 million and $10 million, respectively, of Case
Common Stock to the profit sharing plan. Subject to the Company's operating
results, the Company may make additional contributions to the profit sharing
plan.
NOTE 14: POSTRETIREMENT BENEFITS
Case has postretirement health and life insurance plans that cover
substantially all of its U.S. and Canadian employees. For U.S. salaried
employees, the plans cover employees retiring from Case on or after attaining
age 55 who have had at least 10 years of service with Case after attaining age
45. Canadian salaried employees with seven or more years of consecutive
service are covered under the plans upon retirement. For U.S. and Canadian
hourly employees, the plans generally cover employees who retire pursuant to
their respective hourly plans. These benefits may be subject to deductibles,
copayment provisions and other limitations, and Case has reserved the right to
change these benefits, subject to the provisions of any collective bargaining
agreement.
Effective January 1, 1995, for its foreign operations, Case adopted SFAS No.
106, "'Employers' Accounting for Postretirement Benefits Other Than Pensions,"
which requires employers to account for the cost of these postretirement
benefits on the accrual basis rather than on the "pay-as-you-go" basis, which
was Case's previous practice. Case elected to recognize this change in
accounting principle on the cumulative catch-up basis. The effect on 1995
income of immediately recognizing the transaction obligation was $9 million on
a pre-tax and after-tax basis.
Pursuant to the Reorganization Agreement, Tenneco retained the accumulated
postretirement health and life insurance benefit obligations relating to all
U.S. employees who retired on or before July 1, 1994, and their dependents.
The net periodic postretirement benefit cost included the following
components (in millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year................ $ 6 $ 6 $ 4
Interest cost on accumulated postretirement benefit obligation.. 15 11 7
Amortization of other unrecognized amounts...................... 4 1 (1)
--- --- ---
Net periodic postretirement benefit cost........................ $25 $18 $10
=== === ===
</TABLE>
62
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As a result of the plans being unfunded, the liability of the plans was as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER
31,
------------
1997 1996
----- -----
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation at measurement date, September 30:
Retirees....................................................... $ 52 $ 29
Fully eligible active plan participants........................ 55 50
Other active plan participants................................. 131 113
----- -----
Total accumulated postretirement benefit obligation.......... 238 192
Plan assets at fair value at measurement date.................... -- --
----- -----
Accumulated postretirement benefit obligation in excess of plan
assets at measurement date...................................... (238) (192)
Unrecognized reduction of prior service obligations resulting
from plan amendments............................................ (2) (3)
Unrecognized net loss resulting from plan experience and changes
in actuarial assumptions........................................ 103 80
----- -----
Total accrued postretirement benefit cost.................... $(137) $(115)
===== =====
</TABLE>
The weighted-average assumed health care cost trend rate used in determining
the 1997 and 1996 accumulated postretirement benefit obligation covering U.S.
employees was 6.0% for both years, declining to 5.5% in 1998 and remaining at
that level thereafter. The weighted-average assumed health care cost trend
rate used in determining the 1997 and 1996 accumulated postretirement benefit
obligation related to the Canadian employees was 12.0% for both years,
declining to 7.0% in 2002 and remaining at that level thereafter.
Increasing the assumed health care cost trend by one percentage point in
each year would increase the total accumulated postretirement benefit
obligation as of September 30, 1997 and 1996, by approximately $43 million and
$35 million, respectively, and would increase the aggregate of the service
cost and interest cost components of the net postretirement benefit cost by
approximately $5 million in 1997 and $4 million in 1996 and 1995.
The discount rate (which is based on long-term market rates) used in
determining the 1997 and 1996 accumulated postretirement benefit obligation
covering the U.S. employees was 7.25% and 7.75%, respectively. The discount
rate used in determining the 1997 and 1996 accumulated postretirement benefit
obligation related to the Canadian employees was 8.0% and 8.5%, respectively.
NOTE 15: COMMITMENTS AND CONTINGENCIES
Environmental
Case has received and from time to time receives inquiries and/or notices of
potential liability at multiple sites ("Waste 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.
Expenditures for ongoing compliance with environmental regulations that relate
to current operations are expensed or capitalized as appropriate. Expenditures
that relate to an existing condition caused by past operations and which do
not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments indicate that remedial
efforts are probable and the costs can be reasonably estimated. Estimates of
the liability are based upon currently available facts, existing technology
and presently enacted laws and regulations. All available evidence is
considered, including prior experience in remediation of contaminated sites,
other parties' share of liability at 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.
63
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
Based upon information currently available, management estimates potential
environmental remediation, decommissioning, restoration, monitoring and other
closure costs associated with current or formerly owned or operated facilities
to be in the range of $17 million to $34 million, including Case's estimated
share at the Waste Sites. As of December 31, 1997, environmental reserves of
approximately $28 million had been established to address these specific
estimated potential liabilities. After considering these reserves, management
is of the opinion that the outcome of these matters 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.
Commitments
Minimum rental commitments at December 31, 1997, under non-cancelable
operating leases with lease terms in excess of one year are as follows (in
millions):
<TABLE>
<S> <C>
1998................................................................. $11
1999................................................................. 7
2000................................................................. 5
2001................................................................. 3
2002................................................................. 3
2003 and thereafter.................................................. 14
---
Total minimum rental commitments................................. $43
===
</TABLE>
Commitments under capital leases are not significant to the financial
statements. Total rental expense for all operating leases was $37 million, $36
million and $35 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
In connection with a supply agreement with Consolidated Diesel Company, a
joint venture that is 50% owned by Case, the Company is required to purchase
engine products in amounts to provide for the recovery of specified fixed and
variable costs of the joint venture. Under this agreement, Case purchased
engine products totaling $208 million, $154 million and $138 million in 1997,
1996 and 1995, respectively, with future minimum purchases (representing only
fixed costs) of $11 million in 1998, $12 million in 1999, $12 million in 2000,
$11 million in 2001, $11 million in 2002, and $63 million in the aggregate, in
subsequent years.
64
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16: EARNINGS PER SHARE
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations for income from continuing operations
(in millions, except per share data):
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
31,
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
BASIC
Income before cumulative effect of changes in accounting
principles and
extraordinary items.................................... $ 403 $ 349 $ 346
Less: Preferred stock dividends......................... (7) (7) (7)
----- ----- -----
Income after preferred stock dividends and before
cumulative effect of changes
in accounting principles and extraordinary items....... $ 396 $ 342 $ 339
===== ===== =====
Weighted-average shares outstanding..................... 73.9 72.2 70.6
===== ===== =====
Basic earnings per share after preferred stock dividends
and before cumulative effect of changes in accounting
principles and extraordinary items..................... $5.36 $4.73 $4.80
===== ===== =====
DILUTED
Income before cumulative effect of changes in accounting
principles and extraordinary items..................... $ 403 $ 349 $ 346
===== ===== =====
Weighted-average shares outstanding--Basic.............. 73.9 72.2 70.6
Effect of Dilutive Securities:
Convertible preferred stock........................... 3.5 3.5 3.5
Stock options......................................... 1.3 1.6 1.0
Restricted stock...................................... 0.2 0.2 0.1
----- ----- -----
Weighted-average shares outstanding--Diluted............ 78.9 77.5 75.2
===== ===== =====
Diluted earnings per share before cumulative effect of
changes in accounting principles and extraordinary
items.................................................. $5.11 $4.49 $4.60
===== ===== =====
</TABLE>
65
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
1997
Revenues..................................... $1,232 $1,601 $1,444 $1,747
Gross profit*................................ 220 348 256 329
Income before extraordinary items............ 64 138 78 123
Net income................................... 64 138 78 123
Basic earnings per share after preferred
stock dividends and before extraordinary
items....................................... $ 0.85 $ 1.86 $ 1.03 $ 1.64
Basic earnings per share..................... 0.85 1.86 1.03 1.64
Diluted earnings per share before
extraordinary items......................... 0.82 1.75 0.98 1.56
Diluted earnings per share................... 0.82 1.75 0.98 1.56
1996
Revenues..................................... $1,171 $1,466 $1,199 $1,573
Gross profit*................................ 216 300 220 294
Income before extraordinary items............ 75 110 62 102
Net income................................... 53 110 51 102
Basic earnings per share after preferred
stock dividends and before extraordinary
items....................................... $ 1.03 $ 1.51 $ 0.83 $ 1.36
Basic earnings per share..................... 0.73 1.51 0.68 1.36
Diluted earnings per share before
extraordinary items......................... 0.98 1.42 0.80 1.29
Diluted earnings per share................... 0.69 1.42 0.66 1.29
</TABLE>
- --------
* Gross profit is defined as net sales less cost of goods sold and research,
development and engineering expenses.
NOTE 18: GEOGRAPHICAL AREA INFORMATION
Case is engaged in the sale of products for export from the United States.
Such sales are reflected in the table below (in millions):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1997 1996 1995
------ ---- ----
<S> <C> <C> <C>
Canada................................................... $ 412 $336 $258
European Community....................................... 222 193 154
Other Foreign............................................ 571 378 203
------ ---- ----
Total export sales................................... $1,205 $907 $615
====== ==== ====
</TABLE>
66
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
The following highlights Case's operations by geographic area (in millions):
<TABLE>
<CAPTION>
RECLASSES
UNITED EUROPE OTHER AND
STATES CANADA COMMUNITY FOREIGN ELIMINATIONS TOTAL
------ ------ --------- ------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997, and
for the year then ended:
Net sales:
External................. $3,159 $464 $1,634 $539 $ -- $5,796
Intergeographical
area(s)................. 812 118 207 16 (1,153) --
------ ---- ------ ---- ------- ------
Total net sales........ 3,971 582 1,841 555 (1,153) 5,796
Interest income and other.. 196 28 4 23 (23) 228
------ ---- ------ ---- ------- ------
Total revenues......... $4,167 $610 $1,845 $578 $(1,176) $6,024
====== ==== ====== ==== ======= ======
Income before taxes and
cumulative effect of
changes in accounting
principles and
extraordinary items....... $ 547 $ 18 $ 57 $ 48 $ (76) $ 594
====== ==== ====== ==== ======= ======
Identifiable assets........ $5,572 $742 $1,516 $648 $(1,579) $6,899
Investment in joint
ventures.................. 78 -- -- 4 -- 82
------ ---- ------ ---- ------- ------
Total assets........... $5,650 $742 $1,516 $652 $(1,579) $6,981
====== ==== ====== ==== ======= ======
At December 31, 1996, and
for the year then ended:
Net sales:
External................. $2,767 $442 $1,551 $416 $ -- $5,176
Intergeographical
area(s)................. 656 106 238 4 (1,004) --
------ ---- ------ ---- ------- ------
Total net sales........ 3,423 548 1,789 420 (1,004) 5,176
Interest income and other.. 194 33 4 17 (15) 233
------ ---- ------ ---- ------- ------
Total revenues......... $3,617 $581 $1,793 $437 $(1,019) $5,409
====== ==== ====== ==== ======= ======
Income before taxes and
cumulative effect of
changes in accounting
principles and
extraordinary items....... $ 518 $ 52 $ 71 $ 23 $ (130) $ 534
====== ==== ====== ==== ======= ======
Identifiable assets........ $4,560 $679 $1,510 $525 $(1,278) $5,996
Investment in joint
ventures.................. 59 -- 1 3 -- 63
------ ---- ------ ---- ------- ------
Total assets........... $4,619 $679 $1,511 $528 $(1,278) $6,059
====== ==== ====== ==== ======= ======
At December 31, 1995, and
for the year then ended:
Net sales:
External................. $2,809 $390 $1,484 $254 $ -- $4,937
Intergeographical
area(s)................. 459 67 272 -- (798) --
------ ---- ------ ---- ------- ------
Total net sales........ 3,268 457 1,756 254 (798) 4,937
Interest income and other.. 142 18 6 13 (11) 168
------ ---- ------ ---- ------- ------
Total revenues......... $3,410 $475 $1,762 $267 $ (809) $5,105
====== ==== ====== ==== ======= ======
Income before taxes and
cumulative effect of
changes in accounting
principles and
extraordinary items....... $ 377 $ 69 $ 84 $ 20 $ (123) $ 427
====== ==== ====== ==== ======= ======
Identifiable assets........ $4,213 $552 $1,127 $327 $ (815) $5,404
Investment in joint
ventures.................. 65 -- -- -- -- 65
------ ---- ------ ---- ------- ------
Total assets............... $4,278 $552 $1,127 $327 $ (815) $5,469
====== ==== ====== ==== ======= ======
</TABLE>
67
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10, "Directors and Executive Officers of the Registrant," Item 11,
"Executive Compensation," Item 12, "Security Ownership of Certain Beneficial
Owners and Management," and Item 13, "Certain Relationships and Related
Transactions," have been omitted from this report inasmuch as the Company will
file with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the end of the fiscal year covered by this report a
definitive Proxy Statement for the Annual Meeting of Stockholders of the
Company to be held on May 13, 1998, at which meeting the stockholders will
vote upon the election of directors. The information under the captions
"Election of Directors," "Stock Ownership," "Executive Officer Compensation"
(other than the subsection titled "Compensation Committee Report on Executive
Officer Compensation"), and "Certain Relationships and Transactions" in such
definitive Proxy Statement are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Case Corporation and Consolidated
Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary
Data."
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE INCLUDED IN ITEM 14
Schedule of the Company and Consolidated Subsidiaries--
<TABLE>
<C> <S> <C>
Schedule II --Valuation and qualifying accounts--three years ended PAGE
----
December 31, 1997.......................................
</TABLE>
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
<TABLE>
<S> <C>
Schedule I --Condensed financial information of registrant
Schedule III --Real estate and accumulated depreciation
Schedule IV --Mortgage loans on real estate
Schedule V --Supplemental Information Concerning Property
--Casualty Insurance Operations
</TABLE>
68
<PAGE>
SCHEDULE II
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------
BALANCE CHARGED
AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
----------- --------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable:
Year ended December 31, 1997. $(70) $(1) $-- $ 8(a) $(63)
==== === === === ====
Year ended December 31, 1996. $(67) $(3) $-- $--(b) $(70)
==== === === === ====
Year ended December 31, 1995. $(73) $-- $-- $6 (c) $(67)
==== === === === ====
</TABLE>
- --------
(a) Reflects $5 million for write-offs and $3 million for the impact of
exchange rate changes.
(b) Reflects a $3 million reversal of reserves (as such reserves were deemed
to be no longer required), offset by the impact of exchange rate changes
of $(1) million and a $(2) million increase resulting from the acquisition
of businesses.
(c) Deductions reflect a $5 million reversal of reserves (as such reserves
were deemed to be no longer required), write-offs, net of recoveries of $4
million, the impact of exchange rate changes of $(2) million and other
items of $(1) million.
69
<PAGE>
EXHIBITS
A list of the exhibits included as part of this Form 10-K is set forth in the
Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.
REPORTS ON FORM 8-K
Case Corporation did not file any Current Reports on Form 8-K during its
fiscal quarter ended December 31, 1997.
70
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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/ Jean-Pierre Rosso
By___________________________________
Chairman and Chief Executive
Officer
Date: March 13, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ Jean-Pierre Rosso
-------------------------------------------
Jean-Pierre Rosso Chairman and Chief Executive
Officer
(Principal Executive Officer
and Director)
/s/ Theodore R. French
-------------------------------------------
Theodore R. French President, Financial Services,
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Pei-yuan Chia
-------------------------------------------
Pei-yuan Chia Director
/s/ Jeffery T. Grade
-------------------------------------------
Jeffery T. Grade Director
/s/ Thomas R. Hodgson
-------------------------------------------
Thomas R. Hodgson Director
/s/ Katherine M. Hudson
-------------------------------------------
Katherine M. Hudson Director
/s/ Gerald Rosenfeld
-------------------------------------------
Gerald Rosenfeld Director
/s/ Theodore R. Tetzlaff
-------------------------------------------
Theodore R. Tetzlaff Director
/s/ Thomas N. Urban
-------------------------------------------
Thomas N. Urban Director
</TABLE>
Date: March 13, 1998
71
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
------- ----------------------- ------------
<C> <S> <C>
2 --Reorganization Agreement dated as of June 23, 1994,
among Case Equipment Corporation, Case Corporation
and Tenneco Inc. (Filed as Exhibit 2 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, and incorporated herein
by reference).
3(a)(1) --Certificate of Incorporation of Case Equipment
Corporation (Filed as Exhibit (3)(a)(1) to
Amendment No. 4 to the Company's Registration
Statement No. 33-78148 and incorporated herein by
reference).
3(a)(2) --Certificate of Designation, Preferences and Rights
of Series A Cumulative Convertible Preferred Stock
(Filed as Exhibit (3)(a)(2) to the Company's
Registration Statement No. 33-78148 and incorporated
herein by reference).
3(a)(3) --Certificate of Designation, Preferences and Rights
of Cumulative Convertible Second Preferred Stock
(Filed as Exhibit (3)(a)(3) to the Company's
Registration Statement No. 33-78148 and incorporated
herein by reference).
3(a)(4) --Certificate of Amendment of Certificate of
Incorporation of Case Equipment Corporation (Filed
as Exhibit (3)(a)(4) to the Company's Registration
Statement No. 33-82158 and incorporated herein by
reference).
3(a)(5) --Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock
(Filed as Exhibit 1 to the Company's Current Report
on Form 8-K dated December 12, 1995, and
incorporated herein by reference).
3(b) --By-Laws of Case Equipment Corporation, as amended
and restated on October 2, 1996 (Filed as Exhibit
(3)(b) to the Company's Annual Report for the year
ended December 31, 1996, and incorporated herein by
reference).
4(a) --Form of Certificate of Cumulative Convertible
Second Preferred Stock (Filed as Exhibit 4(c) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, as amended on Form 10-
K/A dated April 6, 1995, and incorporated herein by
reference).
4(b) --Indenture, dated as of July 31, 1995, between Case
Corporation and The Bank of New York (Filed as
Exhibit 4(c) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, and
incorporated herein by reference).
4(c) --Resolutions of the Board of Directors of Case
Corporation authorizing the public offering of debt
securities of the Company in an aggregate principal
amount of up to $600,000,000 (Filed as Exhibit 4(d)
to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, and incorporated
herein by reference).
4(d) --Actions of the Authorized Officers of Case
Corporation authorizing the issuance of $300,000,000
aggregate principal amount of 7 1/4% Notes due
August 1, 2005 (Filed as Exhibit 4(e) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, and incorporated herein
by reference).
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
------- ----------------------- ------------
<C> <S> <C>
4(e) --Officer's Certificate and Company Order of Case
Corporation executed in conjunction with the
issuance of $300,000,000 aggregate principal amount
of 7 1/4% Notes due August 1, 2005 (Filed as
Exhibit 4(f) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, and
incorporated herein by reference).
4(f) --Form of 7 1/4% Note due August 1, 2005 (Filed as
Exhibit 4(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, and
incorporated herein by reference).
4(g) --Actions of the Authorized Officers of Case
Corporation authorizing the issuance of $300,000,000
aggregate principal amount of 7 1/4% Notes due 2016
(Filed as Exhibit 4(d) to the Company's Current
Report on Form 8-K dated January 16, 1996, and
incorporated herein by reference).
4(h) --Officer's Certificate and Company Order of Case
Corporation executed in con- junction with the
issuance of $300,000,000 aggregate principal amount
of 7 1/4% Notes due 2016 (Filed as Exhibit 4(e) to
the Company's Current Report on Form 8-K dated
January 16, 1996, and incorporated herein by
reference).
4(i) --Form of 7 1/4% Note due 2016. (Filed as Exhibit
4(b) to the Company's Current Report on Form 8-K
dated January 16, 1996, and incorporated herein by
reference.
4(j) --The Company hereby agrees to furnish to the
Securities and Exchange Commission, upon its
request, the instruments with respect to certain
indebtedness issued by its subsidiaries, which
indebtedness does not exceed 10% of the Company's
total consolidated assets.
10(a)(1) --Revolving Credit and Guarantee Agreement dated as
of August 23, 1996, among Case Corporation, Case
Canada Corporation/Corporation Case Canada, certain
Foreign Subsidiary Borrowers from time to time
parties thereto, the Lenders parties thereto, the
Co-Agents and Lead Managers named therein, The Chase
Manhattan Bank, as General Administrative Agent, and
The Bank of Nova Scotia, as Canadian Administrative
Agent (Filed as Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, and incorporated herein by
reference).
10(a)(2) --First Amendment, dated as of November 22, 1996, to
the Revolving Credit and Guarantee Agreement dated
as of August 23, 1996, among Case Corporation, Case
Canada Corporation/Corporation Case Canada, certain
Foreign Subsidiary Borrowers from time to time
parties thereto, the Lenders parties thereto, the
Co-Agents and Lead Managers named therein, The Chase
Manhattan Bank, as General Administrative Agent, and
The Bank of Nova Scotia, as Canadian Administrative
Agent (Filed as Exhibit 10(a)(2) to the Company's
Annual Report for the year ended December 31, 1996
and incorporated herein by reference).
10(a)(3) --Second Amendment, dated as of August 25, 1997, to
the Revolving Credit and Guarantee Agreement, dated
as of August 23, 1996, among Case Corporation, Case
Canada Corporation/Corporation Case Canada, certain
foreign Subsidiaries from time to time parties
thereto, the Lenders parties thereto, the Co-Agents
Lead Managers named therein, The Chase Manhattan
Bank, as Administrative Agent, and The Bank of Nova
Scotia, as Canadian Administrative Agent (Filed as
Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
------- ----------------------- ------------
<C> <S> <C>
10(b)(1) --Revolving Credit and Guarantee Agreement, dated as
of August 23, 1996, among Case Credit Corporation,
and certain foreign Subsidiaries from time to time
parties thereto, the Lenders parties thereto, the
Co-Agents and Lead Managers named therein, and The
Chase Manhattan Bank, as Administrative Agent
(Filed as Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1996, and incorporated herein by reference.)
10(b)(2) --First Amendment, dated as of November 21, 1996, to
the Revolving Credit and Guarantee Agreement dated
as of August 23, 1996, among Case Credit
Corporation, certain Foreign Subsidiary Borrowers
from time to time parties thereto, the Lenders
parties thereto, the Co-Agents and Lead Managers
named therein, and The Chase Manhattan Bank, as
Administrative Agent (Filed as Exhibit 10(b)(2) to
the Company's Annual Report for the year ended
December 31, 1996, and incorporated herein by
reference).
10(b)(3) --Second Amendment, dated as of August 25, 1997, to
the Revolving Credit and Guarantee Agreement, dated
as of August 23, 1996, among Case Credit
Corporation, certain foreign Subsidiaries from time
to time parties thereto, the Lenders parties
thereto, the Co-Agents and Lead Managers named
therein, and The Chase Manhattan Bank, as
Administrative Agent (Filed as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
10(c)(1) --Revolving Credit Agreement dated as of August 23,
1996, among Case Credit Ltd., the Lenders parties
thereto, Canadian Imperial Bank of Commerce, as Co-
Agent, and The Bank of Nova Scotia, as
Administrative Agent (Filed as Exhibit 10(c) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated
herein by reference).
10(c)(2) --First Amendment, dated as of November 21, 1996, to
the Revolving Credit Agreement dated as of August
23, 1996, among Case Credit Ltd., the Lenders
parties thereto, the Canadian Imperial Bank of
Commerce, as Co-Agent, and The Bank of Nova Scotia,
as Administrative Agent (Filed as Exhibit 10(c)(2)
to the Company's Annual Report for the year ended
December 31, 1996, and incorporated herein by
reference).
10(c)(3) --Second Amendment, dated as of August 25, 1997, to
the Revolving Credit and Guarantee Agreement, dated
as of August 23, 1996, among Case Credit Ltd., the
Lenders parties thereto, Canadian Imperial Bank of
Commerce, as Co-Agent and The Bank of Nova Scotia,
as Administrative Agent (Filed as Exhibit 10(c) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
10(d)(1) --Deed of Guarantee and Negative Pledge, dated
October 17, 1997, executed by Case Credit
Corporation pursuant to which Case Credit
Corporation guarantees certain indebtedness of Case
Credit Australia Pty Limited (Filed as Exhibit
10(d) to the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1997).
10(d)(2) --Bill Facility Agreement, dated October 17, 1997,
between Case Credit Australia Pty Limited, the
lenders parties thereto, and National Australia
Bank Limited, as Agent (Filed as Exhibit 10(e) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
------- ----------------------- ------------
<C> <S> <C>
10(d)(3) --Deed Poll, dated October 17, 1997, executed by
Case Credit Australia Pty Limited, pursuant to
which Case Credit Australia Pty Limited may from
time to time issue medium term notes (Filed as
Exhibit 10 (f) to the Company's Quarterly Report on
Form 10-Q for the quarter ended on September 30,
1997).
10(e)(1) --Liquidity Agreement dated as of June 23, 1994,
among Case Equipment Loan Trust 1994-B, the Lenders
named therein, the Co-Agents named therein, and
Chemical Bank, as U.S. Administrative Agent (Filed
as Exhibit 10(a)(3) to Registration Statement No.
33-78148 and incorporated herein by reference).
10(e)(2) --Second Agreement and Consent, dated as of August
28, 1996, among Case Equipment Loan Trust 1994-B,
the Lenders parties thereto, the Co-Agents named
therein and The Chase Manhattan Bank, as
Administrative Agent, to the Liquidity Agreement,
dated as of June 23, 1994, as previously amended,
among Case Equipment Loan Trust 1994-B, the Lenders
parties thereto, and The Chase Manhattan Bank, as
Administrative Agent (Filed as Exhibit 10(d) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated
herein by reference).
10(f) --Rights Agreement between Case Corporation and
First Chicago Trust Company of New York, dated as
of December 8, 1995 (Filed as Exhibit 1 to the
Company's Form 8-A filed December 18, 1995, and
incorporated herein by reference).
*10(g)(1) --Agreement dated March 20, 1997, between Jean-
Pierre Rosso and Case Corporation (Filed as
Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, and
incorporated herein by reference).
*10(g)(2) --Restructuring Retention Agreement dated June 7,
1993, between Case Corporation and Steven G. Lamb
(Filed as Exhibit 10(c)(1) to the Company's
Registration Statement No. 33-78148 and
incorporated herein by reference).
*10(g)(3) --Restructuring Retention Agreement dated June 2,
1993, between Case Corporation and Richard M.
Christman (Filed as Exhibit 10(c)(2) to the
Company's Registration Statement No. 33-78148 and
incorporated herein by reference).
*10(g)(4) --Restructuring Retention Agreement dated June 1,
1993, between Case Corporation and Theodore R.
French (Filed as Exhibit 10(c)(3) to the Company's
Registration Statement No. 33-78148 and
incorporated herein by reference).
*10(g)(5) --Agreement dated February 3, 1995, between Case
Corporation and Richard S. Brennan. (Filed as
Exhibit 10(h)(5) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.)
*10(g)(6) --Agreement Regarding Change in Control, dated April
8, 1996, between Jean-Pierre Rosso and Case
Corporation (Filed as Exhibit 10(b)(1) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated
herein by reference).
*10(g)(7) --Agreement Regarding Change in Control, dated April
18, 1996, between Theodore R. French and Case
Corporation (Filed as Exhibit 10(b)(1) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated
herein by reference).
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
------- ----------------------- ------------
<C> <S> <C>
*10(g)(8) --Agreement Regarding Change in Control, dated April
8, 1996, between Steven G. Lamb and Case
Corporation (Filed as Exhibit 10(b)(3) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated
herein by reference).
*10(h) --Case Corporation Equity Incentive Plan (Filed as
Exhibit 10(i) to the Company's Annual Report for
the year ended December 31, 1996, and incorporated
herein by reference).
*10(i) --Case Corporation Deferred Compensation Plan.
(Filed as Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995, and incorporated herein by reference.)
10(j) --Employee Benefits and Compensation Allocation
Agreement dated as of June 23, 1994, among Case
Equipment Corporation, Case Corporation and Tenneco
Inc. (Filed as Exhibit 10(f) to the Company's
Registration Statement No. 33-82158 and
incorporated herein by reference).
10(k) --Tax Sharing Agreement dated as of June 23, 1994,
between Case Equipment Corporation and Tenneco Inc.
(Filed as Exhibit 10(g) to the Company's
Registration Statement No. 33-82158 and
incorporated herein by reference).
10(l) --Receivables Servicing Agreement dated as of June
23, 1994, between Case Credit Corporation and
Tenneco Credit Corporation (Filed as Exhibit 10(h)
to the Company's Registration Statement No. 33-
82158 and incorporated herein by reference).
**10(m)(1) --Restated Sponsors Agreement between Case
Corporation and Cummins Engine Company, Inc., dated
December 7, 1990, together with the Restated
Partnership Agreement between Case Engine Holding
Company, Inc. and Cummins Engine Holding Company,
Inc., dated December 7, 1990 (Filed as Exhibit
10(f) to Amendment No. 3 to the Company's
Registration Statement No. 33-78148 and
incorporated herein by reference).
**10(m)(2) --Agreement, dated as of September 29, 1995, among
Cummins Engine Company, Inc., Case Corporation,
Cummins Engine Holding Company, Inc. and Case CDC
Holdings, Inc. (Filed as Exhibit 10(d) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and incorporated
herein by reference).
**10(n) --Amended and Restated Contract Manufacturing
Agreement dated as of March 7, 1995, among Case
Corporation, Link-Belt Construction Equipment
Corporation and Sumitomo (S.H.I.) Construction
Machinery Co., Ltd. (Filed as Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994, as amended on Form 10-K/A
dated April 6, 1995, and incorporated herein by
reference).
10(o) --Sponsors' Agreement dated as of October 21, 1987,
by and between Hesston Corporation and J.I. Case
Company (now Case Corporation), together with the
General Partnership Agreement dated as of October
21, 1987 by and between Hesston Ventures
Corporation and Case Ventures Corporation (Filed
as Exhibit 10(g) to Amendment No. 3 to the
Company's Registration Statement No 33-78148 and
incorporated herein by reference).
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
------- ----------------------- ------------
<C> <S> <C>
11 --Computation of Earnings Per Share of Common Stock.
12 --Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends.
21 --Subsidiaries of Case Corporation.
23 --The consent of Arthur Andersen LLP, Independent
Public Accountants for Case Corporation (Milwaukee,
Wisconsin).
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
** Confidential information contained in this agreement has been omitted from
this filing and has been filed separately with the Securities and Exchange
Commission.
77
<PAGE>
EXHIBIT 11
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
COMPUTATIONS FOR STATEMENTS OF INCOME
Basic earnings per share:
Income before cumulative effect of changes in
accounting principles and extraordinary items....... $ 403 $ 349 $ 346
Cumulative effect of changes in accounting
principles.......................................... -- -- (9)
Extraordinary items.................................. -- (33) --
----- ------ ------
Net income........................................... 403 316 337
Preferred stock dividends............................ 7 7 7
----- ------ ------
Net income to common................................. $ 396 $ 309 $ 330
===== ====== ======
Average shares of common stock outstanding........... 73.9 72.2 70.6
----- ------ ------
Basic earnings per share:
Net income after preferred stock dividends and
before cumulative effect of changes in accounting
principles and extraordinary items................ $5.36 $ 4.73 $ 4.80
Cumulative effect of changes in accounting
principles........................................ -- -- (0.13)
Extraordinary items................................ -- (0.46) --
----- ------ ------
Basic earnings per share........................... $5.36 $ 4.27 $ 4.67
===== ====== ======
Diluted earnings per share:
Average shares of common stock outstanding........... 73.9 72.2 70.6
----- ------ ------
Incremental common shares applicable to restricted
common stock based on the average market price
during the period................................... 0.2 0.2 0.1
----- ------ ------
Incremental common shares applicable to common stock
options based on the average market price during the
period.............................................. 1.3 1.6 1.0
----- ------ ------
Average common shares issuable assuming conversion of
the Series A Cumulative Convertible Preferred Stock
and the Cumulative Convertible Second Preferred
Stock............................................... 3.5 3.5 3.5
----- ------ ------
Average common shares assuming full dilution......... 78.9 77.5 75.2
----- ------ ------
Diluted earnings per share, assuming conversion of
all applicable securities:
Net income before cumulative effect of changes in
accounting principles and extraordinary items..... $5.11 $ 4.49 $4 .60
Cumulative effect of changes in accounting
principles........................................ -- -- (0.12)
Extraordinary items................................ -- (0.42) --
----- ------ ------
Diluted earnings per share......................... $5.11 $ 4.07 $ 4.48
===== ====== ======
</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>
YEARS ENDED
DECEMBER 31,
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income................................................... $403 $316 $337
Add:
Interest................................................... 170 160 174
Amortization of capitalized debt expense................... 1 4 6
Portion of rentals representative of interest factor....... 12 12 12
Income tax expense and other taxes on income............... 191 185 81
Fixed charges of unconsolidated subsidiaries............... 3 3 2
Extraordinary items (net of taxes)......................... -- 33 --
Cumulative effect of change in accounting principles (net
of taxes)................................................. -- -- 9
---- ---- ----
Earnings as defined...................................... $780 $713 $621
==== ==== ====
Interest..................................................... $170 $160 $174
Interest capitalized......................................... 2 1 2
Amortization of capitalized debt expense..................... 1 4 6
Portion of rentals representative of interest factor......... 12 12 12
Fixed charges of unconsolidated subsidiaries................. 3 3 2
---- ---- ----
Fixed charges as defined................................. $188 $180 $196
==== ==== ====
Preferred dividends:
Amount declared............................................ $ 7 $ 7 $ 7
Gross-up to pre-tax based on 32%, 35% and 19% effective
rates, respectively....................................... $ 10 $ 11 $ 9
Ratio of earnings to fixed charges and preferred dividends... 3.94x 3.73x 3.03x
==== ==== ====
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1997
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ---------------- ---------------
<S> <C> <C>
A. M. Exports Limited United Kingdom None
*Amity Technology L.L.C. Minnesota None
Austoft Holdings Limited Australia None
Austoft Inc. Florida None
Austoft Industries Limited Australia None
Brahma Steyr Tractors Limited India None
Brascor Corretora de Seguros, Brazil None
Participacoes e Servicos S.A.
Brastoft Maquinas E Systemas Brazil None
Agro-Industriais S.A.
C.W., Inc. North Dakota None
Case (Barbados) FSC, Ltd. Barbados None
Case Belgium N.V. Belgium None
Case Beteiligungsverwaltung GmbH Austria None
Case Bodenverdichtungsgerate Germany None
Verwaltungs GmbH
Case bor-mor Holdings, Inc. Minnesota None
Case Brasil & Cia Brazil None
Case Brazil Holdings, Inc. Delaware None
Case Canada Corporation Ontario Case Canada,
Case Power &
Equipment
Case Canada Equipment Corporation Delaware None
</TABLE>
1
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1997
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ---------------- ---------------
<S> <C> <C>
Case Canada Investments, Ltd. Alberta None
Case Canada Receivables, Inc. Alberta None
Case CDC Holdings, Inc. Delaware None
Case Corporation Pty. Ltd. Australia None
Case Credit Australia Investments Australia None
Pty. Ltd.
Case Credit Australia Pty., Ltd. Australia None
Case Credit Corporation Delaware None
Case Credit Europe S.A.S. France (50% ownership) None
Case Credit Global Investments Ltd. Bermuda None
Case Credit Holdings Limited Delaware None
Case Credit Insurance Agency Inc. Delaware None
Case Credit Limited United Kingdom None
Case Credit Ltd. Alberta None
Case Credit Wholesale Pty. Limited Australia None
Case Credits Limited United Kingdom None
Case Currency Management, Inc. Delaware None
Case Equipment Baumaschinen GmbH Germany None
Case Equipment Holdings Limited Delaware None
Case Equipment International Delaware None
Corporation
Case Equipment International Delaware None
Marketing, Inc.
Case Europe S.A.R.L. France None
</TABLE>
2
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1997
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ---------------- ---------------
<S> <C> <C>
Case France S.A. France None
Case Germany GmbH Germany None
Case India Limited Delaware None
Case International Marketing, Inc. Delaware None
Case Irrigation Company Delaware None
Case Italy SpA Italy None
Case Leasing Asset Securitization Inc. Delaware None
Case Licensing/Lending Company Delaware None
Case Melbourne Pty. Ltd. Australia None
Case Mexico, S.A. Mexico None
Case Poclain GmbH & Co. KG. German General None
Partnership
Case Receivables II Inc. Delaware None
Case Receivables, Inc. Delaware None
Case Spain S.A. Spain None
Case Sprayers Limited United Kingdom None
Case Steyr Landmaschinentechnik AG Austria None
Case United Kingdom Limited United Kingdom None
Case Wholesale Receivables, Inc. Delaware None
Case-Poclain Limited United Kingdom None
Concord, Inc. North Dakota None
Consolidated Diesel Company North Carolina General None
Partnership
</TABLE>
3
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1997
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
Consolidated Diesel of North North Carolina None
Carolina, Inc.
Consolidated Diesel, Inc. Delaware None
David Brown Tractors (Belfast) Ltd. United Kingdom None
David Brown Tractors (Ireland) Ltd. Ireland None
David Brown Tractors (Retail) Ltd. United Kingdom None
David Brown Tractors Limited United Kingdom None
Farm One AgServices, Inc. Delaware None
Fermec Baumaschinen GmbH Germany None
Fermec Holdings Limited United Kingdom None
Fermec International Limited United Kingdom None
Fermec Manufacturing Limited United Kingdom None
Fermec North America Limited United Kingdom None
Fermec S.A. France None
Fermec Trustee Limited United Kingdom None
Fortschritt Erntemaschinen GmbH Germany None
Grand Detour Plow Company Wisconsin None
Hay & Forage Industries Kansas General None
Partnership
HFI Holdings, Inc. Delaware None
Highlyn Pty. Ltd. Australia None
International Harvester Company Delaware None
</TABLE>
4
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1997
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
International Harvester Co.
of Belgium N.V. Belgium None
International Harvester Co. of
Great Britain Limited United Kingdom None
J. I. Case A/S Denmark None
J. I. Case Argentina, S.A. Argentina None
J. I. Case Company Limited United Kingdom None
J. I. Case Germany Holdings, Inc. Delaware None
J. I. Case International, S.A. Venezuela None
J. I. Case Leasing Corporation Wisconsin None
J. I. Case Property Company Delaware None
J. I. Case Threshing Machine Company Wisconsin None
Jaxborough Pty. Ltd. Australia None
Kase, S.A. De C.V. Mexico None
Kestrin Pty. Ltd. Australia None
Lake Hull Pty. Ltd. Australia None
Liuzhou Case Liugong Construction
Equipment Company Limited China None
Masstock (Zambia) Limited Zambia None
Megavolt L.P. Delaware Limited None
Partnership
Poclain do Brasil S.A. Brazil None
Poclain GmbH Germany None
</TABLE>
5
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1997
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
Poclain Limited United Kingdom None
Poclain Services North America Inc. Delaware None
PPM do Brasil Ltda. Brazil None
Pryor Foundry, Inc. Oklahoma None
Receivables Credit Corporation Alberta None
Receivables Credit II Corporation Alberta None
Receivables Credit III Corporation Alberta None
Servicios Case Mexicana, S.A. de C.V. Mexico None
Steiger Credit Canada Ltd. Saskatchewan None
Steiger Credit Company North Dakota None
Steiger International, Ltd. Guam None
Steyr Traktoren Handels GmbH Germany None
Tractorwork, Limited United Kingdom None
Ukrainian Agricultural Development Co. Delaware None
Universaltrac Geteiligungs GmbH Germany None
UzCaseagroleasing Uzbekistan None
UzCaseMash Uzbekistan None
Versatile Credit Pty. Ltd. Australia None
Versatile Farm Equipment Pty. Ltd. Australia None
</TABLE>
- ----------------------------------
* Indicates less than 10% equity ownership interest.
6
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-82158, 33-80775, 333-04995, 33-93298, 33-
99128, 33-83862 and 333-35815.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS INFORMATION CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 252
<SECURITIES> 0
<RECEIVABLES> 2,053
<ALLOWANCES> 0
<INVENTORY> 1,064
<CURRENT-ASSETS> 3,600
<PP&E> 1,987
<DEPRECIATION> 988
<TOTAL-ASSETS> 6,981
<CURRENT-LIABILITIES> 2,870
<BONDS> 1,404
77
0
<COMMON> 1
<OTHER-SE> 2,196
<TOTAL-LIABILITY-AND-EQUITY> 6,981
<SALES> 5,796
<TOTAL-REVENUES> 6,024
<CGS> 4,447
<TOTAL-COSTS> 5,213
<OTHER-EXPENSES> 47
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 594
<INCOME-TAX> 191
<INCOME-CONTINUING> 403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> 5.36
<EPS-DILUTED> 5.11
</TABLE>
